Universal Service Fund

The Universal Service Administrative Company, the nonprofit organization responsible for administering the E-rate program and other federal universal-service funds, announced August 8 that it would transfer more than $9 billion it oversees out of the private banking market and into the US Treasury.

Moving the funds into the Treasury was one of the recommendations in a report on problems with the Lifeline program recently issued by the Government Accountability Office. Among the reasons GAO cited for recommending such a move: lower fees, better management practices and regulatory safeguards, and the opportunity for the federal government to use the funds as an offset for its debts. The Aug 8 announcement prompted some concerns in a K-12 sector already jittery about the direction of the FCC—and especially its plans for the E-rate—under President Donald Trump and the chairman he appointed, Ajit Pai.

"While there might be some efficiencies associated with switching the E-rate program to a Treasury-managed account, we have concerns that program beneficiaries would lose the benefit of the significant interest that universal-service funds accrue in the private market," said Reg Leichty, a lawyer and lobbyist for the Consortium for School Networking, a professional association representing school technology officers. Leichty also expressed concern that the transfer of funds into the Treasury could be a step towards Congress assuming responsibility for universal-service funds, including an annual determination of how much should be allocated for initiatives such as the E-rate. "We would not want this successful program to be subject to the whims of the annual appropriations process, which has not functioned well for a significant period of time," he said.

The Lifeline Connects Coalition met with Federal Communications Commission Wireline Competition Bureau staff on August 10, 2017 to discuss the Lifeline National Eligibility Verifier. The Coalition discussed improvements to the timing of subscriber proof of eligibility for migration to the National Verifier, the recent decision not to provide a service provider application programming interface to the National Verifier, and the proper interpretation of the June 29, 2017 Public Notice regarding service provider liabilities under the National Verifier. The Coalition also discussed its Petition seeking reconsideration of minimum service standards and the GAO Lifeline Report.

A bipartisan quartet of Senators want the Government Accountability Office to fork over some details about the waste, fraud and abuse it identified in the Federal Communications Commission-administered Lifeline low-income broadband subsidy program. Sens Tom Carper (D-DE), Claire McCaskill (D-MO), Ron Johnson (R-WI) and Rob Portman (R-OH) sent the letter to the GAO asking it to send to the FCC and the FCC inspector general (currently David Hunt) details on the specific instances it identified in a report on Lifeline released by McCaskill in June.

They want the FCC IG to be able to identify and pursue the culprits if warranted. The senators also added a plug for the GAO report's recommendations on how the FCC can improve oversight of the program, something new chairman Ajit Pai has long called for. They also want GAO to turn over the results of its undercover testing of the Lifeline program to the committee.

On June 14, 2017, NTCA – The Rural Broadband Association (NTCA) and the United States Telecom Association (USTelecom) filed a joint petition pursuant to Section 10 of the Communications Act of 1934, as amended, requesting that the Commission temporarily forbear from application of universal service fund (USF) contribution requirements with respect to broadband Internet access transmission services provided by RLECs, whether tariffed or offered on a de-tariffed basis. The petition asks that the Commission forbear “until such a time as the Commission reaches a decision on whether any and all broadband services...should be required to contribute to support of federal USF programs or completes some other form of contributions reform.” Interested parties may file comments or oppositions to the NTCA and USTelecom Petition on or before September 13, 2017 and reply comments on or before September 28, 2017.

The Federal Communications Commission took the next step toward launching an auction that will provide nearly $2 billion over ten years to expand high-speed Internet access to consumers and businesses in rural areas that are currently unserved by fixed broadband. This proceeding represents the first use of an auction by the FCC to allocate ongoing Connect America Fund support for fixed broadband and voice services in rural areas.

Use of this market-based “reverse auction” mechanism will enable the FCC to expand and support high-quality rural fixed broadband and voice services at a lower cost and to maximize the value of its investment. The auction will commence in 2018. The Public Notice seeks comment on the proposed application and bidding procedures for the auction, including how interested parties can qualify to participate in the auction, how bidders will submit their bids, and how the FCC will process bids to determine the winners and support amounts. This first-of-its-kind auction of support for fixed broadband and voice service is expected to attract parties that have never participated in an FCC auction. Recognizing that, the FCC’s Rural Broadband Auctions Task Force, along with the Wireline Competition Bureau and Wireless Telecommunications Bureau, plan to provide detailed educational materials and hands-on practice opportunities in advance of the auction.

The Federal Communications Commission established the procedures for a robust challenge process to ensure that the FCC targets Mobility Fund Phase II (MF-II) support to primarily rural areas that lack unsubsidized 4G LTE service. Establishing the challenge process will enable the FCC to resolve eligible area disputes quickly and expeditiously.

In February, the FCC established the framework for the MF-II, $4.53 billion of funding over ten years, and sought comment on the process under which interested parties could challenge the eligibility of areas for MF-II support. This action establishes a challenge process that will be administratively efficient and fiscally responsible. This item adopts parameters for a one-time collection of 4G LTE coverage data tailored to MF-II. The FCC will use this coverage data, in conjunction with subsidy data, to establish the map of presumptively eligible areas. Interested parties will have a window after the release of this map to file challenges to areas deemed presumptively ineligible, and providers will have an opportunity to respond to those challenges. This item also includes an Order on Reconsideration, which resolves certain issues raised in petitions for reconsideration of the Mobility Fund II Report and Order adopted in February.

The Universal Service Administrative Company (USAC) filed an updated version of the Lifeline National Verifier Plan, which was created in response to the Lifeline Modernization Order on January 19, 2017. USAC said the plan contains a section detailing each of ten key components, as well as an introduction and a glossary of key terms. It also contains a section responding to public comments received on its draft plan, and has been approved by the Federal Communications Commission’s Wireline Competition Bureau and the Office of the Managing Director. This updated version reflects progress of the system build and its related processes.

Rep Austin Scott (R-GA) brought back his End Taxpayer Funded Cell Phones Act before House lawmakers left town. That’s the legislation that GOP leadership fast-tracked straight to floor consideration immediately after its introduction in 2016. (They tried to advance it under suspension of the rules, and it went down 207-143.) It now has 18 GOP backers, triple what it had before. “My bill will reform the Lifeline Program and restore it to its original purpose of providing landline services and prohibit Universal Service support for mobile services,” Rep Scott said. A GOP leadership aide said there’s no talk on when and if the measure may be brought to the floor this time around.

On June 22, 2017, Sens Jerry Moran (R-KS) and Joe Manchin (D-WV) wrote to Federal Communications Commission Chairman Ajit Pai, urging him to, "move forward with the Remote Areas Fund (RAF) to appropriately target Universal Service Fund support towards the most difficult to serve areas in our states that remain unserved."

On July 18, Chairman Pai responded by saying, " I was pleased to move forward with the bipartisan CAF Phase II Auctions Order earlier this year, which the Commission has now targeted to include extremely high-cost areas as well as the high-cost areas that were always part of the Connect America Fund. And that's why I was pleased that the Commission agreed to commence the Remote Areas Fund, which like the CAF Phase l1 Auction will employ technology-neutral rules, no later than one year after the commencement of the CAF Phase li auction."

On July 19, 2017, the Senate Commerce Committee held a hearing to examine the nominations of Ajit Pai, Jessica Rosenworcel, and Brendan Carr for seats on the Federal Communications Commission.

On March 7, President Donald Trump nominated Pai, the FCC’s current chairman, for a second five-year term ending June 30, 2021. Rosenworcel is nominated for a term that would end June 30, 2020. Carr, the current general counsel at the FCC, has actually been nominated for two terms, one expiring June 30, 2018 and the second ending June 30, 2023. Carr served as legal adviser to then-FCC Commissioner Pai for three years before Pai was named chairman and appointed Carr as general counsel.

Committee Chairman John Thune (R-SD) characterized the hearing as both an examination of the nominees and a FCC oversight hearing, “fulfilling a commitment I’ve made to hold regular, biannual oversight hearings of the Commission.” His opinions of the nominees: “In my view, the FCC will be in very good hands when all three of these nominees are confirmed.” He noted Chairman Pai’s efforts around transparency and FCC processes, network neutrality, and robocall prevention.

Sen Bill Nelson (D-FL), the committee’s ranking member, raised issues around all three nominations. Concerning Rosenworcel, he noted that she should not have been forced to step down from the FCC at the end of 2016 when the Senate failed to reconfirm her.

Sen. Nelson identified two concerns about Brendon Carr: 1) “two consecutive terms to which the Senate is being asked to confirm you would provide you with the longest single, initial period of service of any nominee to the FCC” and 2) “it is hard to recall a similar situation where someone was nominated to serve at the commission alongside, rather than to follow, their current boss.” He stressed that it is important to have commissioners who have independent voices and “ones who will fight for consumers and the public interest.” He later asked Carr to cite an issue that he and Chairman Pai disagree on – Carr failed to answer on more than one occasion. “Going forward, I’ll make my own decisions; I’ll call it the way I see it,” Carr said. “I think my record shows that I’m not a shrinking violet.” Sen. Nelson called that response “not confidence-building.”

Finally, Sen. Nelson congratulated Chairman Pai on some recent pro-consumer actions, but said, “[M]any view these most recent consumer protection actions as mere icing on what is otherwise an unpalatable cake. A cake constructed out of actions that eliminate competitive protections, that threaten dangerous industry consolidation, that make the Internet less free and less open, and that weaken critical consumer protections for those most vulnerable.”

Net Neutrality

Network neutrality and the FCC’s 2015 decision to classify broadband internet access service providers as telecommunications providers under Title II of the Communications Act were key issues for the hearing. In his opening remarks, Chairman Thune said,

“I am pleased that Chairman Pai has sought to hit the reset button on the 2015 Title II Order, because, as I have previously said, the FCC should do what is necessary to rebalance the agency’s regulatory posture under current law. I continue to believe, however, that the best way to provide long-term protections for the Internet is for Congress to pass bipartisan legislation. Two and a half years ago I put forward legislative principles and a draft bill to begin the conversation, and I stand ready and willing today to work toward finding a lasting legislative solution that will resolve the dispute over net neutrality once and for all.”

Two senators questioned the nominees about the impact of the Title II decision on broadband investment in the US. Sen. Mike Lee (R-UT) cited stats, offered by broadband providers, that investment has gone down. He took issue with a New York Times story that said investment had gone up since the 2015 order. He said that increase included foreign investment, some of which he said was spurred by the Title II disincentive to invest in the US, and that there was evidence that US infrastructure investment had declined precipitously.

On the other side was Sen. Ed Markey (D-MA) who said that almost half of the venture capital funds, or about $25 billion, invested since 2015 was in Internet-related businesses, with broadband providers investing $87 billion, the highest rate in a decade. Sen Markey said investment and job creation are high, so there is no problem that rolling back Title II or reviewing net neutrality rules would fix.

Both senators asked Chairman Pai for his take on their respective views, but the chairman's answer was cautious given that he has an open proceeding before him and comments on his proposal to roll back Title II and review the rules are still coming in. He said that evidence of decreased investment was one of his concerns, but that the FCC was testing that theory, as well as the opposite, as part of its due diligence.

E-Rate

While Rosenworcel, Carr and Chairman Pai all generally agreed on the importance of the FCC's E-rate program -- which makes broadband services more affordable for schools and libraries -- they initially refrained from an outright promise not to cut its funding. Sen. Ed Markey (D-Mass.) had to ask Rosenworcel a second time before she explicitly said she would not reduce the funding for E-rate. Neither Pai nor Carr would make that commitment.

Broadband Deployment

The three nominees were largely unanimous on measures to expedite rural broadband like “dig once” policies, which require installation of conduits for fiber-optic cable when preparing infrastructure such as roads. The policies aim to reduce cost and limit wait times for installing fiber in different municipalities.

“I think it would be helpful for ‘dig once’ policies and similar policies to be the law of the land,” Chairman Pai told Sen. Amy Klobuchar (D-MN).

“The agency, working with local jurisdictions, should try to come up with a model code — one that includes policies like ‘dig once,’” Rosenworcel said. She added that there should be incentives built in for local communities to adopt the model.

Senators also pressed the three on the need for accurate coverage maps so that subsidies issued to companies to build out their infrastructure are actually targeted to the right places.

“I would hope to get your commitment that the commission will work to ensure that mapping data used at the FCC accurately accounts for on-the-ground mobile coverage,” said Sen. Cory Gardner (R-CO). The nominees affirmed they are committed to working toward ensuring accurate data coverage moving forward.

First Amendment

Sen. Tom Udall (D-NM) pressed all of the nominees on their commitment to the First Amendment in light of the many statements President Trump has made disparaging outlets covering his Administration. Sen. Udall pointed to a story that the White House could use AT&T’s proposed acquisition of Time Warner as a way to punish CNN for its stories and suggested the Administration might want to reward Sinclair by approving Sinclair’s purchase of Tribune television stations. Each of the nominees pledged to speak out against violence or intimidation against journalists. Chairman Pai reiterated that the White House had not contacted him about retaliating against negative news stories and said he would not do so if asked. And he promised that the FCC would not be used to punish media companies or reward others and would be troubled by any attempt to pressure it to do so.

"I have not directly had any conversations with anyone in the administration with respect to media regulatory proceedings," Chairman Pai said. "To the best of my knowledge, no one on my staff or in the FCC has indirectly had any such conversations as well."

“I have consistently stated that I believe … that First Amendment freedoms, including the freedom of the press, are critical,” Pai added. “If I were ever asked by anyone in the administration to take retaliatory action, for instance, in a media regulatory proceeding, I would not do so.”

Conclusion

If all of the hearing’s nominees are confirmed by the full Senate, the FCC would have a 3-2 Republican majority. Senators on the committee have until July 21 to submit additional questions for the nominees who will be given time to reply in writing.