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Experts Urge FCC Unilaterally Broaden Revenue Base of Universal Service Fund

Consultants say the Federal Communications Commission has the authority to do so.

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Carol Mattey and Greg Guice at INCOMPAS event on October 25.

WASHINGTON, November 3, 2021 – Telecommunications experts are recommending that the Federal Communications Commission unilaterally expand the revenue base of the Universal Service Fund to include broadband revenues, rather than waiting on Congress to do so.

Advocates such as Public Knowledge Director of Government Affairs Greg Guice cite congressional infighting over the bipartisan infrastructure bill as an example of inefficiency in the legislature that would stall the passage of urgent reform for the USF, a fund that helps deliver basic telecommunications services to low-income Americans and those in remote regions.

Telecommunications policy experts said at the INCOMPAS Show in Las Vegas October 25, on which Guice was a panelist, that it is essential that the USF force broadband revenues into the pool of funds, as the fund’s overreliance on voice revenues – even as those revenues decline – is putting a strain on the programs.

Guice and Carol Mattey, principal of Mattey Consulting LLC and former deputy chief of the FCC, told Broadband Breakfast Tuesday that the agency has the jurisdiction to broaden the base of the contribution to the USF under the Telecommunications Act of 1996 if it is in the public interest.

“My view is the FCC has the statutory authority to assess broadband internet access service,” said Mattey in an email. “Under existing law — specifically, section 254(d) of the Telecommunications Act of 1996 —  the FCC has the statutory authority to require any ‘providers of interstate telecommunications’ to contribute to the universal service fund if the public interest warrants.

“The FCC has classified broadband internet access service as an information service,” she added. “Under the ’96 Act, the definition of an information service is a service that offers the capability to generate, acquire, store, transform, etc. etc. information ‘via telecommunications.’”

Recommendations for reform

Mattey published a report in September that laid out the case for the fund to be expanded to incorporate a broadband range of money sources, including broadband.

And there has been no shortage of recommendations to help the fund prosper. Earlier this year, a panel of experts debated the merits of having Congress wholly assume contributions to the fund from general tax dollars, while others suggested that recommendation would destabilize the fund because it would swing with the political winds. Those people, instead, focused on simply broadening the base to include other sources, including broadband.

More recently, FCC Commissioner Brendan Carr penned an op-ed in Newsweek recommending the fund include contributions from Big Tech because that industry benefits from broadband. It was a suggestion that FCC Chairwoman Jessica Rosenworcel called “intriguing.”

But while Guice and Mattey argue for the FCC to step in and make changes unilaterally, in a one-on-one interview with the Internet Innovation Alliance in September, FCC Commissioner Nathan Simington – in pontificating about Carr’s recommendation for Big Tech contributions – said he didn’t want to get ahead of Congress on the matter, suggesting a wait and see approach.

USF in need of change

Over the last two decades, the USF has seen the revenues subject to its assessment decline by 63%. This money goes to support four main programs: high cost support for rural areas, Lifeline for low income areas, the E-rate program for schools and libraries as well as a rural healthcare support program.

This year, the contribution percentage relative to revenues hit an all time high.

The panel at the INCOMPAS show pinpointed the major factor behind declining USF revenues as decreases in mobile service revenues due to providers setting lower mobile rates. These decreases come despite continual increases in communications revenues overall.

Reporter T.J. York received his degree in political science from the University of Southern California. He has experience working for elected officials and in campaign research. He is interested in the effects of politics in the tech sector.

Expert Opinion

Angie Kronenberg: The FCC Must Act Now to Save the USF

While the USF remains vital in an ever-increasing connected world, it is in serious jeopardy of surviving.

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The author of this Expert Opinion is INCOMPAS President Angie Kronenberg.

Last week, the Senate Subcommittee on Communications, Media and Broadband held a hearing titled “The State of Universal Service.” The Universal Service Fund is our nation’s critical connectivity program that helps ensure that voice and broadband services are available and affordable throughout the country.

Since its creation by Congress in the 1996 Telecom Act, the USF has become a program that millions of families, community anchor institutions and small businesses rely on to get connected. It has been especially valuable for families and businesses that rely on it for work, school and telehealth at home.

The USF spends about $8.5 billion annually to help fund affordable connectivity in rural areas, low-income households, schools, libraries and rural hospitals. Today, the Federal Communications Commission is working to make high-speed broadband as ubiquitous as telephone service, and broadband is the essential communications technology the USF now supports.

While the USF remains vital in an ever-increasing connected world, it is in serious jeopardy of surviving. To fund the programs, telecom providers are required to pay a certain percentage of their interstate and international telecom revenues, known as the “contribution factor.” Typically, telecom providers collect these USF fees from their customers on their monthly bills.

However, the telecom revenues that fund the USF have declined over 60 percent in the last two decades. As a result, the contribution factor has skyrocketed from about 7 percent in 2001 to a historic high of about 30 percent today, as a higher portion of telecom revenues is needed to sustain the fund. That means certain consumers and businesses are now paying an additional 30 percent on top of their phone bills in order to fund the USF.

Telecom revenues continue to decline so rapidly because customers today rely more on broadband services and less on landline and mobile phone services, but broadband revenues do not pay into the USF. While the FCC has modernized each USF program to help support broadband service, it has not modernized its funding mechanism to require broadband services to pay into the Fund even though historically the agency has required supported services to be included in the contribution system.

Without intervention, the contribution factor is predicted to rise to 40 percent by 2025. This is unsustainable and puts the stability of the entire USF at risk. In fact, the contribution factor has become so high that it has led some groups to challenge the USF in federal court as unconstitutional, which also threatens the sustainability of the USF.

Reforming the USF funding mechanism is urgently needed and long overdue

Over 340 diverse stakeholders have come together as the USForward Coalition calling on the FCC to move forward with USF reform by expanding the contribution base to include broadband revenues. This solution is based on the recommendation in the USForward Report (that INCOMPAS helped commission), which was written by USF expert and former FCC official Carol Mattey.

The USForward Report explains that the most logical way to reform the contribution system and sustain the USF is to include broadband revenues in its funding assessment. Under this approach, the contribution factor is estimated to fall to less than 4 percent. It also means that the services that get USF support are paying into it, rather than solely relying on telecom customers, including those that have not made the switch to broadband, such as older Americans.

In fact, some members of Congress understand the urgency of reform and also want the FCC to act. The Reforming Broadband Connectivity Act, for example, is a bipartisan, bicameral bill that would require the FCC to reform the contribution system within one year.

Some question whether large tech companies should be assessed to contribute to the USF, and the short answer is “No.” Tech companies invest $120 billion each year in global internet infrastructure, and unlike broadband providers, these companies do not request or receive USF funding for these investments.

The FCC also lacks the authority to regulate tech companies and doing so would require Congress to act. This would further delay reform and expand the FCC’s regulatory authority over all online content and services — an overreach that many question as too broad since nearly every business today has an online presence and uses the internet to conduct business. Moreover, proposals to target certain tech companies risk skewing the online marketplace and competitive markets.

Some also question whether we still need the USF at all, and the short answer is “Yes.” While Congress allocated tens of billions for broadband, most of this investment is targeted for deployment, yet a significant portion of the USF programs focus on affordability. We not only have to make sure we build out our broadband networks, but also that communities can then afford to subscribe to these services.

The FCC should not wait to reform the USF. The USForward Report sets out a real plan that the FCC can and should implement. Congress should encourage the FCC to act now and save the nation’s critical connectivity program.

Angie Kronenberg is the president of INCOMPAS, where she manages the policy team and its work before federal, state and local governments, as well as leading the association’s efforts on membership and business development. This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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Universal Service

Should Big Tech or Broadband Be Tapped for USF Contributions?

Including all broadband internet revenue will alter the internet in uncertain ways, claims expert.

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Photo of Angie Kronenberg of INCOMPAS

WASHINGTON, May 11, 2023 – Senate witnesses disagreed on whether all broadband internet revenue should be taxed as part of the Universal Service Fund contribution factor. 

“Historically, the USF has always been paid for based upon the services that is supports,” said Angie Kronenberg, president of trade association for competitive networks, INCOMPAS, urging lawmakers to include all broadband internet revenue in the contribution base for the USF.

Kronenberg was testifying in a Senate Subcommittee on Communications, Media and Broadband hearing Thursday.

The USF is a nearly $10 billion fund that relies on dwindling voice service revenues to fund several programs that support low-income broadband access in the United States.  

Adding broadband companies to the contribution base will build the fund to a more sustainable level and can be done without any change to the Federal Communication Commission’s statues, said Kronenberg. 

Professor at Boston College Law School Daniel Lyons disagreed, saying that adding broadband companies will not solve the structural problems with the USF.

“Whether you are talking about adding broadband providers or adding edge providers, once you start taxing those services, you create structural incentives that rearrange the way the internet works in ways that we can’t predict in advance,” he said. 

Instead, Lyons urged Congress to make the USF a program based on federal appropriations. Doing so would make the program subject to hard budget constraints and oversight from Congress, he said. 

Including Big Tech in the contribution base is a topic of much debate across the industry. The FCC has left it to Congress to institute legislative reforms that would allow it to make changes to the contribution base. 

The fund has been under scrutiny as the voice service revenues which is relies on are dwindling. The USF supports programs such as Lifeline, which supports affordable access to broadband internet for low-income households. 

Correction: A previous version of this story incorrectly stated that INCOMPAS President Angie Kronenberg urged that big tech companies be included in the USF contribution base. In fact, she said that broadband companies should be included in the contribution base. The story has been corrected. 

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Sixth Circuit Appeals Court Denies Petition Challenging FCC Jurisdiction on Universal Service Fund

Sixth Circuit adopted reasons from another appeal court.

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Photo of Potter Stewart U.S. Courthouse in Cincinnati, via Wikicommons

WASHINGTON, May 8, 2023 – The Sixth Circuit Court of Appeals ruled Thursday that the Federal Communications Commission was prescribed sufficient guidance by Congress to collect money from communications companies for the Universal Service Fund and is within its authority to subdelegate some of that authority to a private entity, citing similar reasons as the Fifth Circuit in March.

Non-profit research house Consumers’ Research and communications service provider Cause Based Commerce last year asked the U.S. Court of Appeals for the Fifth Circuit – and the Sixth and 11th circuits – to find that Congress under Section 254 of the Telecommunications Act of 1996 gave the FCC unfettered delegatory authority to raise revenues akin to taxation for the fund that provides basic telecommunications services and that the commission has illegally delegated that authority to a private entity known as the Universal Service Administration Company.

The Fifth Circuit denied the petition on the grounds that Congress gave sufficient guidance to the agency to determine what to do with the $9-billion fund, put in sufficient guardrails for its administration, and that the FCC has enough oversight over USAC to subordinate some authority to the private body.

In a decision on Thursday, the Sixth Circuit came to the same conclusion using much of the same reasons as the Fifth Circuit.

“So long as Congress ‘shall lay down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform, such legislative action is not a forbidden delegation of legislative power,” the Sixth Court said.

Those principles, as laid out in Section 254, include Congress’s explicit order to the FCC to ensure telecom services are of decent quality, reasonably priced, available equally in rural and urban areas, and funded in a nondiscriminatory manner.

“Together, these principles provide comprehensive and substantial guidance and limitations on how to implement Congress’s universal-service policy, and in turn, how the FCC funds the USF,” the Sixth Circuit said in its decision.

“Congress’s decision to grant an agency the ability to address new concerns while still constricting the agency’s discretion to do so within the statute’s purpose and principles does not turn a statute with an intelligible principle into an unconstitutional delegation,” the decision added.

The decision also noted that Congress limited the FCC’s authority by explicitly stating that federal funds should go to certain communications carriers and bound them to certain uses of the money. It also noted a “soft cap” in the language of the size and budget of the program.

The Sixth Circuit also agreed with the Fifth Circuit that there is no violation of the private-nondelegation doctrine by virtue of the fact that the FCC delegates the authority to USAC to set the amount to be collected from the communications companies for the fund because USAC is subordinated to the regulator.

“In its subordinate role, USAC provides the FCC with fact-gathering, ministerial, and administrative support,” the Sixth Circuit decision said. “It submits for approval to the FCC the underlying data and projections that the FCC then uses to calculate the contribution factor.”

“Critically, the FCC is not bound by USAC’s projections,” the decision added, noting the FCC may approve or deny the contribution recommended by USAC.

In a joint statement, trade groups Competitive Carriers Association, NTCA Rural Broadband Association, and USTelecom said, “Today’s decision is a win for the millions of rural and urban consumers as well as anchor institutions that rely on the services supported by the federal Universal Service Fund.

“As the court decision today confirms, Congress’ direction to the FCC—more than 25 years ago—to collect contributions in support of the universal service program is constitutional,” the statement added. “We believe that other courts considering similar challenges should come to the same conclusion.”

The USF is under financial pressure due to its reliance on voice service providers, a relic of its past. There is collective agreement that reform is needed, with recommendations for expanding the funding base including drawing on broadband service revenues, Big Tech contributions, and relying on general taxation.

In a report to Congress last year, the FCC said it would prefer to have congressional approval to expand the contribution base. As such, a bill introduced in both chambers in March would require the FCC to study and make rules on expanding the funding base.

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