WASHINGTON, Friday October 28, 2011. The Federal Communication Commission unanimously voted to overhaul its outdated the Universal Service Fund and reform its intercarrier compensation fund at yesterday morning’s Open Commission Meeting.
The FCC predicts that an effort to expand high speed internet to rural America over the next six years, will increase economic growth by $50 billion. The Commission introduced the Connect America Fund. The CAF replaces the high-cost fund by shifting the focus of the fund to support broadband capable networks, setting performance goals and a capping the fund at $4.5 billion.
The goals stated in the FCC executive summary include: (1) preserve and advance universal availability of voice service; (2) ensure universal availability of modern networks capable of providing voice and broadband service to homes, businesses, and community anchor institutions; (3) ensure universal availability of modern networks capable of providing advanced mobile voice and broadband service; (4) ensure that rates for broadband services and rates for voice services are reasonably comparable in all regions of the nation; and (5) minimize the universal service contribution burden on consumers and businesses.
Chairman Julius Genachowski remarked, “We are taking a system designed for the Alexander Graham Bell era of rotary telephones and modernizing it for the era of Steve Jobs and the Internet future he imagined.”
Below are a number of quotes from the Commissioners that best highlight the major accomplishments of the proposal.
The Chairman directed his initial comments to praising the accomplishments made in the creation of the Mobility Fund. “Today, we make mobility an independent universal service objective for the first time, providing dedicated support through the world’s first Mobility Fund. Over the next three years, we will provide almost $1 billion in funding per year for universal mobility.”
Genachowski also stressed his approval of the proposal’s consumer protection measures and competitive bidding provisions.
“By constraining the growth of existing programs, today’s reforms will also minimize the burden those programs place on all consumers, keeping hundreds of millions of dollars in consumers’ pockets over the next several years. Our overhaul of the intercarrier compensation system will gradually eliminate the billions of dollars in hidden subsidies currently paid by consumers across the country through their wireless and long distance phone bills. Our staff estimates that the consumer benefits of ICC reform will be more than $2 billion annually. Consumers will get more value for their money and less waste.”
“Also a first, today’s Order brings market-based competitive bidding into universal service support. In a series of ways, including auctions, we have structured distribution of public funds to ensure real efficiency and accountability in the Connect America Fund.”
As noted by many stakeholders throughout the day, the Commissions plan did not adopt wholesale the telecom industry’s America’s Broadband Connectivity Plan, better known as the ABC plan. Genachowski addressed the various stakeholder proposals by saying, “We did not rubber stamp or adopt wholesale the proposals of any stakeholder or group of stakeholders. Instead, we made our decisions on what’s right for the American people and our economy based on facts and data gathered in one of the most extensive records in FCC history, including hearings and workshops across the country, and more than 2,700 substantive comments totaling tens of thousands of pages.”
Commissioner Copps focused his statements on the details of the Mobility Fund, the benefits the plan brings to Tribal communities, ICC reforms and the role of states.
With respect to the reverse auctions, Copps stated, “While we have considerable experience with spectrum auctions, this is in many ways a new species of auction and we will need to be very careful in how we approach and evaluate it. I hope… it will truly become an efficient way to expend our limited USF dollars to reach unserved areas.” He added, “Let me also say how much I appreciate the item’s prohibition on nation-wide package bidding in the Mobility Fund. I believe this is an important safeguard against gamesmanship and even further consolidation in the industry.”
“I am also encouraged that we launch a Tribal Mobility Fund specifically to target support for mobile service in Tribal areas…Again, getting this right will take more money than is being proposed in today’s proceedings, but it also hinges on more than money alone. It hinges also on the Commission taking prompt action on other proceedings and spectrum issues pending before us.” Copps said noting the specific efforts to address the unserved tribal areas.
Copps was very clear in expressing why the ICC reform was beneficial for consumers.
“This item puts the brakes on the arbitrage and gamesmanship that have plagued ICC for years and that have diverted private capital away from real investment in real networks. By some estimates, access stimulation costs nearly half a billion dollars a year, and phantom traffic affects nearly one fifth of the traffic on carriers’ networks. Today, we say “no more.” We adopt rules to address these arbitrage schemes head on. And, very importantly, we chart a course toward a bill-and-keep methodology that will ultimately rid the system of these perverse incentives entirely.”
Copps then raised the issue that has been a major concern for many in the public interest community.
“My enthusiasm here is tempered by the fact that end-user charges (under the label of “Access Recovery Charges”) are allowed to increase, albeit incrementally, for residential consumers. My first preference was to prevent any increase. Alternatively, we could require individual carriers to demonstrate their need for additional revenues before imposing the ARC. Perhaps some of the largest and most profitable companies should not be able to charge the ARC. However, the Commission does adopt some important measures to protect consumers even as it allows additional charges. In particular, consumers already paying local phone rates of $30 or more cannot be charged the ARC. The use of this ceiling recognizes that some early adopter states have already tackled intrastate access rates, and their citizens may already be footing a reasonable part of the bill. In the end, I am grateful that, at the very least, additional charges to end-users are not as great as they might have been, are spread over a longer period of time, and should be offset (and hopefully more than matched) by savings and efficiencies realized because of the more rational programs we begin to put in place.”
The role of states in the proposed plan has been brought up many times in the months leading up to this proposal. Copps was very clear about the role of states moving forward.
“Building critical infrastructure—and broadband is our most critical infrastructure challenge right now—has to be a partnership. The states are important and essential partners as we design and implement new USF and ICC programs.” He continued, “More even than my personal preference, which is deeply-held, this is the mandate of the law. Section 254 of the Act is clear—the states have a critical role in the preservation and advancement of Universal Service. While I understand the need for predictability in an ICC regime, I am pleased that my colleagues have retained a key role for states, including arbitrating interconnection agreements; monitoring intrastate access tariffs during the transition to bill-and-keep; and helping to implement our Universal Service Fund as well as, in many cases, their own state universal service funds. State regulators are by definition closer to the needs of their consumers than federal regulators ever can be, and they retain their role as the likely first venue for consumer complaints.”
Copps ended his statements by noting that while the proposal deal with distribution of funds, reforming contribution to the fund will be another difficult task.
“I would have preferred to see such an item in front of us today. There is inherent inequity in a system that funds the deployment of broadband off of assessments on interstate telephony. Once we ensure that double, triple and quadruple play services that benefit from Universal Service bear their fair share; we will not be subject to the unnecessary financial constraints that our current approach imposes. We also need spectrum management decisions that avoid putting still more spectrum in too few hands.”
Commissioner McDowell, not surprisingly, used the podium to address the importance of fiscal responsibility and how it was expressed in the proposal. “In the spirit of being fiscally responsible, however, we are mandating that the high cost program of the Universal Service Fund live under a definitive budget for the first time in history. Functionally, the budget serves as an annual cap through 2017. Until then, the Fund may not rise higher than $4.5 billion per year, on average after true-ups, without Commission approval.”
Following the comments of Commissioner Copps McDowell also addressed the need for contribution reform,
“The contribution factor, a type of tax paid by consumers, has risen each year from approximately 5.5 percent in 1998 to an estimated 15.3 percent in the fourth quarter of this year. This trend is unacceptable. We must abate this automatic tax increase without further delay. Accordingly, I strongly urge that we work together to complete a proceeding to reform the contribution methodology in the first half of the year.”
McDowell also applauded the proposal’s focus on competitive bidding including reverse auctions, the elimination of the inefficient identical support rule, the benefit consumers will receive from transparency by the phasing out of hidden subsidies, the waiver process for carriers experiencing hardship, and the proposed means testing in the Further Notice that will identify the qualified recipients in remote areas.
As a champion of consumers and a former state utilities commissioner, Commissioner Clyburn had a lot to say about ICC reform and the role of States in USF reform.
“I carefully considered how much those consumers are being asked to shoulder, when it comes to the costs of Intercarrier Compensation reform, as well as the impact on those consumers who already have service.” She continued, “It also shouldn’t surprise anyone that it was similarly important to me, that we give service providers and their investors time to adjust to our proposed reforms, because from day one, I made a firm commitment to no flash cuts. A reasonable transition period will help ensure that providers can navigate these reforms successfully. But for those providers who require additional time to adjust, we have in place a waiver process that is firm, predictable, yet fair. Another benefit of this waiver process is that it provides this Commission with a safety net—so that we can adjust support as needed, in order to avoid inadvertently harming the success we have already achieved through our legacy system.”
“We owe a debt of gratitude to our State Members. They have been a significant resource for this Commission in our reform process…We are requiring USF recipients to meet interim broadband build out milestones, to annually report on their build out and service requirements, and to file those reports jointly at the FCC and the state utility Commissions. We also are implementing a cap on total per-line support, and other fiscally responsible measures, to eliminate waste and inefficiency in the system.”
Clyburn made a point of also focusing on IP interconnection issues,
“Not only did we hear from the states about how important it is to ensure that IP interconnection occurs, we also received significant comment from competitive voice providers that the lack of IP interconnection is impeding the development of IP networks, including VoIP services. As such, the Order confirms that the duty to negotiate in good faith, does not depend upon the network technology underlying the interconnection, whether it is TDM, IP, or otherwise, and that we expect good faith negotiations to result in interconnection arrangements between IP networks for the purpose of exchanging voice traffic. “
“However, I think it is only appropriate that our actions today carefully preserve and recognize the reforms that some states already have undertaken. Most importantly, we have provided for replacement funding as intrastate access rates decline as a result of our reform which relieves the financial burden that would have been on states in their own attempts at reform. To that end, we also have carefully balanced ICC revenue replacement for providers, with the important goal of not burdening consumers with significant increases in their bills or overburdening the USF which is ultimately paid for by consumers. As indicated by our staff’s analysis, we believe that the overall benefits that will flow to consumers as a result of this reform will far outweigh the minimal price increases they will experience on their phone bills due to ICC reform.”
“I also want to be quite clear that states will continue to have an important role with respect to the arbitration of interconnection agreements and in the operation of USF. With respect to USF, states will continue to designate Eligible Telecommunications Carriers for USF purposes and will continue to protect consumers through their carrier of last resort regulations. As technology evolves, so too must the role of the regulators.”
Clyburn ended her comments by stating how important the states were in cost saving because of their ability to help target the fund to areas that are most underserved.
“One constant that I have seen, however, is that consumers expect that their state regulators will serve and protect them. Moreover, those of us at the FCC need the states’ expertise and knowledge on the ground, to properly execute and operate our new universal service funding mechanisms. For instance, we need the state’s assistance in identifying those areas that currently are unserved by broadband. We want to target our limited resources to those consumers who do not have any broadband provider offering them service. Likewise, we will need the states’ help assessing that those providers who receive funding meet their public interest obligations to build and serve.”
Steve Lacoff: A New Standard for the ‘Cloudification’ of Communications Services
The cloudification of communications services makes it easy to include voice, data, SMS, and video within any existing service.
The line of demarcation between what has traditionally been considered a telecommunications service was once very clear. It was tangible – there were wires, end points, towers, switches, facilities. Essentially, there was infrastructure required to relay voice or data from point A to point B.
Today that line is fuzzy, if not invisible. The legacy infrastructure remains, but an industry of cloud-based services that don’t require the physical connections has exploded. Voice, data, SMS, and video conferencing can now be conveniently delivered OTT. Enabled by simple API integrations, businesses can embed just one of these services or a complete communications platform-as-a-service (CPaaS) into an app, service, or product.
Cloudification is a game changer
This “cloudification” of communications services makes it easy to include voice, data, SMS, and video within any existing application, product, or service. These are essential components for many business models.
Consider these services we have come to rely on in our daily lives: food or grocery delivery, ride services, and business and personal communications. These require multiple methods of communication with shoppers, drivers, co-workers, watch party groups, and external business partners.
The exciting news is there is no end in sight. Use cases will continue to evolve and growth will continue to skyrocket. The scale cloud delivery accommodates is massive. These untethered, easy to embed communications services are a critical differentiator for both business-to-business and business-to-consumer buyers, and the lifeblood of the businesses providing both the end user subscriptions and the APIs.
In fact, one industry juggernaut saw H1 YoY video application service demand grow nearly 600% in 2020.
Not surprisingly, as business demand for these services increases smaller CPaaS players continue to enter the market to quickly snag market share. According to a recent IDC study, “the global market revenue for CPaaS reached $5.9bn in 2020, up from $4.26bn in 2019, and is expected to reach $17.71bn by 2024.”
Merger and acquisition activity is aligned with this hockey stick growth forecast. Large telcos, SaaS providers, and even other CPaaS providers are all on the hunt. Whether they want to add additional features to punch up their products or eliminate the competition in a very tight, nuanced market, the end game is clear – as the market expands, the players will ultimately contract leaving only the most competitive offerings.
Don’t let communications tax take you by surprise
One of the least understood risks when adding cloud-based voice, data, SMS, or video conferencing to an existing product or service is new eligibility for and exposure to the complex world of communications taxation. Making mistakes can get costly very quickly.
Here are some of the key pitfalls to keep an eye on:
- Expanded nexus: Understanding communications tax nexus is different – and exceptionally more complicated – than sales tax. There are approximately 60,000 federal, state, local, and special taxing jurisdictions, each with uniquely complex rules that tend to change at their own pace. Rules are very different for each service.
- More complex calculations: The more communications services you provide via API, the more complicated communications taxes will be. Each feature can be taxed at different rates in each individual jurisdiction, or the whole bundle can be taxed at one rate. It’s critical to monitor monthly to avoid audit issues.
- Maintaining overall compliance: Just as tax rates and rules need to be maintained, so must tax and regulatory filing forms in each jurisdiction. Some of these are very long and require significant detail. They must be filed in a timely, accurate cadence to avoid additional audit risk.
Bottom line: Don’t assume, be prepared! As these communications services become more pervasive a larger swath of technology providers will find themselves liable for communications tax. The more your business falls behind, the more it can cost you.
It pays to be proactive and prepared. Tax and legal advisory experts can help determine your level of risk, and tax and compliance software providers can help you keep up with changing rules and regulations. Don’t underestimate the ongoing value of networking with peers who are either struggling to answer the same questions or have already overcome the hurdles you’re facing today.
Steve Lacoff is General Manager of Avalara for Communications. With a focus on data, VoIP, and video streaming, Steve has spent 15 years in various product and marketing leadership roles in communications and technology industries, including Disney’s streaming services and Comcast technology solutions. Steve now drives business strategy on today’s changing industry landscape and associated tax impacts. This piece is exclusive to Broadband Breakfast.
Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to firstname.lastname@example.org. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.
Digital Inclusion Week Highlights Focus on Broadband-Disconnected Urban Residents
Most Americans benefitting from federal spending on rural broadband are white non-Hispanic Americans, says NDIA.
WASHINGTON, October 8, 2021 – Experts on digital empowerment pressed the federal government to maintain a focus on broadband equity during a Wednesday event, hosted on Wednesday by the National Digital Inclusion Alliance as part of “National Digital Inclusion Week.”
Speaking about the broader agenda for NDIA, Angela Siefer, the non-profit group’s executive director, said that NDIA’s purpose was to provide “peer-to-peer learning. We get the conversation started. Everything we get is from boots on the ground.”
This theme of community-informed practice and knowledge sharing echoed throughout the presentation.
Siefer said that NDIA “learned that digital redlining is happening in Cleveland” from discoveries that came from having boots on the ground and from living there.
“Digital redlining” refers to discrimination by ISPs in deployment, maintenance, upgrade or delivery of services. Often, as was alleged in Cleveland, NDIA accused AT&T of avoiding making fiber upgrades to broadband infrastructure. The group has also published reports with the Communications Workers of America making similar charges.
These discoveries have built momentum for some, including New York Democratic Rep. Yvette Clark’s Anti-Digital Redlining Act, introduced in August. The bill attempts to ban systematic broadband underinvestment in low-income communities.
Panelists argued that federal government perpetuates digital divide
Underinvestment in historically excluded communities extends beyond large corporations’ – it includes the U.S. federal government’s broadband investment approach. Paolo Balboa, NDIA’s programs and data manager, said that federal government perpetuates racism within the digital divide.
Balboa discussed how federal broadband programs focus funds on expanding availability to residents in unserved and underserved rural areas, but ignore the many – often black and brown – urban Americans lacking high-speed internet access.
But NDIA’s research found that most Americans benefitting from federal spending on rural broadband are white non-Hispanic Americans. Americans who lack home broadband service for reasons besides local network availability are disproportionately of color, says NDIA.
The panelists argued that federal policies directed at closing the digital divide by spending primarily on rural infrastructure leaves out the digital inclusion programs urban and some rural inhabitants need.
In finding that fewer than 5 % of the bulk of American households without home broadband are rural, NDIA argues for a federal policy approach centering cost of access as the solution to connecting more families of color. The officials advocate a broader focus that includes the experiences of urban city and county residents for whom cost is the major barrier.
Munirih Jester, NDIA programs director said that NDIA keeps an active list of free and low-cost internet plan available for low-income households, and how they may access it to find affordable ISPs.
Amy Huffman, NDIA policy director, discussed the provision of COVID-19 response funding. She highlighted organization’s resources to raise awareness of the FCC’s Emergency Broadband Benefit, a program to help households afford Internet service during the pandemic.
This year, more than 100 events were registered as part of this week’s Digital Inclusion week, with many visible on the NDIA blog, said Yvette Scorse, NDIA Communications Director.
In a statement this Monday, the Commerce Department’s National Telecommunications Infrastructure Agency spotlighted the agency’s efforts on the topic, including its Tribal Broadband Connectivity Program which is making $980 million available to Native American communities.
As previously reported this August, NTIA recently launched Connecting Minority Communities Pilot Program making $268 million in grant funds available to HBCUs and other Minority-serving institutions.
Senate Subcommittee Hears Broadband Affordability, Regulatory Flex Key to Reducing Hospital Burdens
Health providers testified before a Senate subcommittee that Congress should be open to all forms of telehealth.
WASHINGTON, October 7, 2021 – A Senate subcommittee heard Thursday that affordability is the greatest barrier to broadband adoption and that lawmakers should exercise regulatory flexibility when it comes to the forms of telehealth to help reduce inessential hospital visits.
Covid-19 often brings about extreme shortness of breath, the severity of which is best assessed by a doctor, Deanna Larson, president of Avel eCARE, told the Senate Subcommittee on Communications, Media, and Broadband, which convened a hearing on the state of telehealth and removing barriers to access and improving patient outcomes.
Patients with affordable, high speed internet access can be monitored at home by doctors so that they don’t enter an emergency room or take up a hospital bed prematurely, she said.
Larson urged Congress to extend or make permanent their regulatory flexibility toward telehealth especially as it relates to being neutral on the kinds of telemedicine, such as phone-only care, asynchronous care, and remote patient monitoring. An economic benefit of which would be keeping medical commerce local, she said. Patients wouldn’t be required as often to move to a higher level of care out of town.
Physicians would have 24-hour access to the patient through video calls, monitoring patients in a way which significantly lightens the burdens of the healthcare system, added Larson. With telehealth, doctors can advise patients on exactly when and if they need to go to an emergency room.
Steps to improve telehealth
The committee also heard testimony from Sterling Ransone Jr., president of the American Academy of Family Physicians. Ransone, a strong proponent of telehealth, has found that the digital divide touches rural, tribal and urban communities alike and proposed a series of steps Congress could take to increase public health through broadband policy, including investing in universal affordable broadband service, digital literacy services, end-user devices, audio-only telehealth and data collection in the determinants and outcomes of telehealth as it relates to key factors such as race, gender, ethnicity and language.
Defining broadband as a social determinant of health, Ransone highlighted that affordability is possibly the greatest barrier to broadband adoption and that affordability and access disproportionately affect rural communities.
Sanjeev Arora, founder of Project ECHO and distinguished professor of medicine at the University of New Mexico, agreed: “expanding access to high-quality, high-speed broadband connectivity is critical. It’s a prerequisite for the success of any telehealth model in rural communities and urban underserved areas.”
Telehealth isn’t just vital and broadly popular, it is cost saving. Federal Communications Commissioner Brendan Carr, who also appeared before the subcommittee, shared an estimate that widespread telehealth availability could save the health care system $305 billion a year.
Carr, in an effort to reduce inessential hospital visits and decrease the risk of spreading Covid-19, endorsed the CONNECT for Health Act, the RUSH Act of 2021, the Telehealth Modernization Act, and the Protecting Rural Telehealth Access Act, which in combination would remove geographic restrictions to telehealth services, foster use of telehealth in skilled nursing facilities, grant the Secretary of Health and Human Services greater ability to reduce telehealth restrictions and more.
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