Tag Archives: Univeral Service Fund

New Laws Moving Through Congress

The U.S. Senate Commerce, Science, and Transportation Committee recently approved 17 bipartisan bills, and a few of them impact the broadband industry. Since these have bipartisan support, it seems like they will have a decent chance of becoming law.

The first is S.98 – Rural Broadband Protection Act, sponsored by Senator Shelley Moore of West Virginia. This law requires the FCC to vet candidates before awarding any funding that comes from the Universal Service Fund, and that is the result of an application made to the FCC for funding.

The new law requires that the FCC to pre-qualify grant applicants to provide proof that they possess “the technical, financial, and operational capabilities, and has a reasonable business plan, to deploy the proposed network and deliver services with the relevant performance characteristics and requirements defined by the Commission and as pledged by the applicant.” Applicants also need to demonstrate that they have complied with the requirements for previous grant awards.

It’s an interesting law that is five years too late because this is what was needed before RDOF was awarded in 2020. That grant program ended up with some large winners who would not have made it through a pre-qualification process. The timing of this is interesting because I’ve heard no rumors of the FCC getting ready to find broadband infrastructure. There is still a decent chance that the FCC will pursue the 5G for Rural America fund this year, but that funding will go entirely to established cellular companies that will easily meet all of the needed requirements. The requirement that applicants must have complied with previous awards means that anybody that defaulted on RDOF or other grants need not bother applying for new federal funding.

This law is particularly interesting since the future of Universal Service Fund is under question and is in the hands of the Supreme Court. It seems odd to be tightening the rules for USF when the entire program might have to be revamped soon.

The second law that’s interesting is S.278 – Kids Off Social Media Act sponsored by Senator Brian Schatz of Hawaii. This law would prohibit social media platforms from allowing access to any kids under thirteen years old. The law also prohibits the use of personalized recommendation systems for kids. The interesting aspect of the law is that schools have to limit access to social media when using school computers.

A huge number of school systems provide laptops or tablets for students, and they will face a challenge in somehow making sure that kids don’t use those devices to reach social media. I’ve talked to some schools who already deal with this issue by limiting devices to only being able to connect to a school server and nowhere else. However, even those schools have a problem since their school servers let students research topics on the web to do homework. I don’t want to be insulting to school IT folks, but I suspect that the twelve-year-olds in any school system are collectively far more creative and smarter than whoever tries to limit them from finding a backdoor to reach the Internet. I hope this requirement doesn’t result in schools deciding to not issue computers.

Funding the USF Broadband Programs

A number of telecom advocacy groups came together recently to ask the FCC to increase the budget for the high-cost portion of the Universal Service Fund to at least $2.4 billion for the next fiscal year just begun on October 1. The joint filing was by ITTA – The Voice of America’s Broadband Providers, USTelecom – The Broadband Association, NTCA – The Rural Broadband Association and WTA – Advocates for Rural Broadband.

Small telcos are specifically asking that the FCC fully fund the commitments made to them in 2016 for the A-CAM program. This is the fund that is providing money to rural telcos to upgrade their networks to at last 25/3 Mbps – although it seems like most companies are using the money to upgrade to fiber. That program is bringing a permanent broadband solution to numerous rural communities.

The A-CAM and other high-cost support programs are not currently fully funded. This is due to several factors. First, more small telcos accepted A-CAM funding than the FCC anticipated, creating a bigger financial commitment than was expected. But more importantly, the FCC has been tapping the Universal Service Fund for other broadband commitments such as the CAF II program that gave billions to the large telcos to upgrade to only 10 Mbps. This same fund is also used to provide e-rate funding for schools to get affordable broadband, to support libraries, to support rural healthcare and to provide the lifeline program to make telephone and broadband more affordable for low-income households.

It would be a challenge for the FCC to meet the request and I’m not sure there is an easy way for them to do so. The Universal Service Fund is funded by fees assessed against landline telephone service, cellphone service and against broadband connections that are deemed to be interstate in nature – these are generally broadband connections sold by regulated telcos using the soon-to-be-obsolete TDM technology.

This fee is an additive to these services and the rate being charged has climbed over the years as the number of both landline telephones and special access transport circuits has dropped. In the last quarter the assessment topped 20% for the first time and has climbed over the years. I can recall when the assessment was under 5%.

This all creates a dilemma for the FCC. The revenues against which USF can be assessed are shrinking. Landline use continues to plummet; cellphone prices are trending downward and special access is being displaced by other kinds of transport. As much as the FCC might want to fully fund rural broadband, it has numerous other obligations to meet from the same pile of money like the e-rate program and rural healthcare broadband.

There has been talk for years of expanding the USF base. If the USF fee was assessed against home and business broadband the overall percentage would plummet from today’s 20% rate. However, Congress nixed the idea of assessing USF against broadband by sticking to the philosophy that we should not tax the Internet. This was a concept that was introduced when broadband was a fledgling industry, which somehow became a mantra that is outdated. Broadband revenues dwarf the fees for products like landline telephone service.

The FCC’s hands are tied from assessing USF against broadband by Congress. But even if Congress changed their mind, the FCC has now given up regulation of broadband and they might not have the authority to assess a fee on a product they declare they don’t regulate.

It’s to everybody’s benefit that the FCC finds a way to fund commitments they made for rural broadband just a few years ago. The FCC has some latitude and they could probably apply all fund shortfalls against another program like CAF II – but with the lobbying power of the big telcos that’s unlikely.

The FCC also has another huge source of revenue they could tap. The agency has been collecting gigantic fees for the auction of spectrum in recent years and there is no reason that all or part of this money couldn’t be diverted to rural broadband. However, this also would require action by Congress, which directly diverted auction fees to the US treasury earlier this year when they enacted the Ray Baum bill.

The funding shortfalls are mostly the result of the FCC committing more funds than are available in the fund. Since the USF is funded by fees on services, the fund can’t have cost overruns and spend more money than it has – unlike many other government programs. Every time I hear the FCC announce a new initiative out of the Universal Service Fund I always wonder which other parts of the fund will be raided. I think we now know that it’s funding for rural broadband.