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News (Of Sorts) From the FCC

Submitted on October 18, 2019
Benton Institute for Broadband & Society

Friday, October 18, 2019

Weekly Digest

News (Of Sorts) From the FCC

 You’re reading the Benton Institute for Broadband & Society’s Weekly Digest, a recap of the biggest (or most overlooked) telecommunications stories of the week. The digest is delivered via e-mail each Friday.

Round-Up for the Week of October 14-18, 2019

Kevin Taglang
Taglang

Two stories from the Federal Communications Commission caught our eye this week. One gained lots of headlines. The second is a bit of inside baseball but could turn out to be big news down the line. Both impact the deployment of broadband and closing the digital divide. 

FCC (Sort Of) Approves T-Mobile+Sprint

On Wednesday, we learned that FCC commissioners had voted to approve T-Mobile's acquisition of Sprint. But the news did not come from any official release from the agency but from an op-ed from FCC Commissioner Jessica Rosenworcel published by The Atlantic. In the piece, Commissioner Rosenworcel announced that she had voted to block the transaction because "[s]hrinking the number of national providers from four to three will hurt consumers, harm competition, and eliminate thousands of jobs." Rosenworcel fears that the transaction will mark the end of "a golden age in wireless that helped bring to market lower prices and more innovative services" and result in a "cozy oligopoly dominated by just three carriers." 

Back in July, the Department of Justice and the Attorneys General for five states reached a settlement with T-Mobile and Sprint regarding their proposed merger. DOJ decided to allow the deal with the following conditions:

  1. T-Mobile and Sprint must divest Sprint’s prepaid business, including Boost Mobile, Virgin Mobile, and Sprint prepaid, to Dish Network Corp., a Colorado-based satellite television provider.
  2. T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations. 
  3. T-Mobile must also provide Dish with robust access to the T-Mobile network for a period of seven years while Dish builds out its own 5G network.

Commissioner Rosenworcel is leery that the conditions will result in a wireless marketplace that is as competitive as it is today because "T-Mobile has no real incentive to help a competitor and will have every reason to look for ways to get out of its promise to do so." In addition, seven years is a long time to wait for a viable, fourth competitor, "And if this jerry-rigged new competitor fails, consumers will be out of luck." Commissioner Rosenworcel also expressed doubt that the FCC will enforce the promises the New T-Mobile and Dish are making.

Hours after Rosenworcel's op-ed, we heard from fellow Commissioner Geoffrey Starks. In his statement, he pointed to "unprecedented procedural irregularities" in the T-Mobile/Sprint proceeding. He noted that the deal has changed significantly twice since first proposed and believes those changes necessitate additional public comment in order for the FCC to make an informed decision. He wrote:

This administration previously adhered to that practice, and our failure to do so here raises legal issues. Moreover, today’s approval comes despite our on-going investigation of Sprint for what appears to be the largest unlawful collection of universal service funds in FCC history. But instead of waiting until we have all the facts, we haphazardly push forward and hope for the best. The rush to judgment here is exemplified by the fact that it was only in response to questions from my office that the draft was amended at the last minute to explicitly preserve liability for these and any other potential violations.

Commissioner Starks also notes that the FCC's order in the matter "concludes that the transaction will likely harm competition and raise prices, but that the parties’ commitments to expand service and divest assets will mitigate these harms. But the analysis of how the benefits outweigh the harms is vague and unconvincing."

Like Rosenworcel, Starks voted to block the merger. And, like Rosenworcel, he warns, "I fear that we will one day look back at this decision and recognize it as a moment that forever changed the U.S. wireless industry, and not for the better."

Although now both the Department of Justice and the FCC have approved the T-Mobile/Sprint marriage, the transaction still has some court hurdles to clear. We'll keep you posted on further decisions. 

Is the FCC Stonewalling USF Reform?

We were intrigued by a letter and a filing by just the state members of the Federal-State Joint Board on Universal Service. By way of background, the Joint Board was created by Congress in the Telecommunications Act of 1996 to make recommendations on how to implement the provisions in the law aimed at ensuring quality telecommunications and information services are available everywhere in the U.S. "at just, reasonable, and affordable rates." The idea was to get state and federal regulators working together to reach a consensus before enacting reforms since telecommunications services are regulated at both levels. 

Fast forward to 2014 when the FCC asked the Joint Board to take on a new task: reforming the contribution method that supports the Universal Service Fund (USF) which supports programs that subsidize networks in rural areas; makes broadband services more affordable for schools, libraries and rural healthcare facilities; and lowers phone and broadband bills for low-income consumers. Since implementation of the Telecommunications Act, the USF has relied on fees collected on (mainly) long-distance and international wireline and wireless telecommunications services. However, these revenues have been in decline in recent years, dropping from $72.27 billion in 2005 to $60.45 billion in 2015. So the percentage of end-user telecommunications service revenue that is contributed to the universal service fund has been increasing, while the corresponding USF support distributions are targeted on the deployment and the availability of broadband access networks and services.

Reforming USF contributions is a big, thorny issue with billions of dollars at stake. The general consensus is that policymakers need to broaden the base of contributing services to keep the fund sustainable. The Joint Board would seem the best place to work on finding a consensus solution. 

This week, the three members representing states on the Joint Board -- South Dakota Public Utilities Commissioner Chris Nelson, Michigan Public Service Commissioner Sally Talberg, and Oregon Public Utilities Commissioner Stephen Bloom -- offered some ideas on how to sure up the USF. "The State Members of the Joint Board find that the [FCC] has the authority, and that it is in the public interest, to expand the contribution base to include a broader class of services that touch the public communications network, including Broadband Internet Access Service (BIAS)." The recommendation is for a connections-based assessment on residential services and an expanded revenues-based assessment on business services. The state members also recommend that the FCC establish a firm budget for each of the four universal service fund programs with those budgets not growing any more than the Consumer Price Index for any given year. And, finally, they recommend the FCC take specific steps to assure the continued viability of state universal service mechanisms promoted by Congress in the Telecommunications Act.

What's glaringly odd, however, is that the recommendations are being made by just a subset of the Joint Board -- what about the federal members? In their letter, the state members explain that the Joint Board "worked diligently and collaboratively" on the 2014 referral through 2016, but that no progress has been made since 2017. [Obviously, 2017 is when FCC Chairman Ajit Pai, Commissioner and Joint Board Chair Michael O'Rielly, and FCC Commissioner and Joint Board Member Brendan Carr took the reins at the agency.] The state members submitted a proposed contribution methodology recommendation on January 30, 2018, but received no response from FCC commissioners until a February 2019 meeting with O'Rielly who made it clear that he would not consider the recommendation. The state members and O'Rielly agreed to meet again in July 2019 to evaluate other options. But the meeting never happened and there's been no communication from Commissioner O'Rielly.

Instead of working on contributions, Commissioner O'Rielly has been advocating for limiting USF spending since at least 2017. In a speech that September he said

Some have suggested that the Commission find more dollars by broadening the base of those who pay in to USF to include broadband users. Having worked for years on Internet tax freedom, now enshrined in the Permanent Internet Tax Freedom Act, that is something I cannot entertain absent Congressional direction. While I am willing to look at solutions that do not impose additional fees on broadband, this must be paired with a real effort to review and control USF spending.

The FCC eventually launched a proceeding proposing a budget for the USF in 2019 and Commissioner O'Rielly made his case for the proposal in a blog post. The question is: Why didn't O'Rielly, as chair of the Joint Board, work to find consensus on contribution reform as the 2014 FCC referral asked for? Does the ballooning contribution factor on long-distance services provide a lift instead for O'Rielly's proposal to cap USF spending? That appears to be a cynical game to play with the fund dedicated to closing the digital divide -- the FCC's top priority. 

Because of the unusual nature of this week's letter and recommendations, there's no telling how FCC Chairman Pai will receive the Joint Board's state members' work. If the FCC disregards the recommendations after a long period of ignoring efforts to collaborate, it seems the FCC majority would be circumventing Congressional intent.

Stay tuned for more.

Quick Bits

Weekend Reads (resist tl;dr)

ICYMI from Benton

Upcoming Events

Oct 21 -- Techlash: Is It Real and How to Respond (Technology Policy Institute)

Oct 25 -- October 2019 Open FCC Meeting (Federal Communications Commission)

Oct 28 -- Building A Thriving, Inclusive New Hampshire Economy (National Collaborative for Digital Equity)

The Benton Institute for Broadband & Society is a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, High-Performance Broadband regardless of where they live or who they are. We believe communication policy - rooted in the values of access, equity, and diversity - has the power to deliver new opportunities and strengthen communities

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Kevin Taglang

Kevin Taglang
Executive Editor, Communications-related Headlines
Benton Institute
for Broadband & Society
727 Chicago Avenue
Evanston, IL 60202
847-328-3049
headlines AT benton DOT org

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