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Policy Groups Want Bigger Contribution Base to Shore Up the Future of the Universal Service Fund

Expanding the number of internet providers eligible to contribute to the fund may decrease costs for telecommunications providers and consumers.

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Photo of Universal Service Administrative Company Chair Joe Gillan

WASHINGTON, February 8, 2022 – In submissions to the Federal Communications Commission, large industry groups have proposed adding broadband internet service revenues to the Universal Service Fund, which provides basic telecommunications services to rural and low-income Americans.

The FCC delayed its comment window on its proceeding for the Future of the Universal Service Fund until February 17, with a reply to comments period until March 17, 2022.

The proposal to add broadband revenues to the fund, which relies on telecom companies’ dwindling voice service revenues, has gained industry support.

Trade association industry groups such as INCOMPAS, NTCA – the Rural Broadband Association, and the Schools, Health & Libraries Broadband Coalition joined the chorus of calls to explore options for USF reform, including adding broadband revenues.

“All four programs in the USF promote universal broadband. The revenues from broadband internet access services that are increasingly used by Americans today should contribute to the USF programs that support the expansion of such services to all,” INCOMPAS argued. “This will better reflect the value of broadband internet access service in today’s marketplace for both consumers and businesses.”

If the FCC were to expand the contribution base to include revenues from broadband internet access service, which has increasing support from a variety of members of the telecommunications industry, the contribution rate for telecommunications providers would remain under four percent, some groups argue. This could increase the pool of taxable revenue while lowering consumers’ phone bills.

The NCTA echoed this proposal during meetings with the FCC Commissioner’s staff, signaling an interest in urging the Commission to “broaden the base of contributors as widely as possible to capture all of those that make use of or otherwise benefit from the widespread availability and affordability of broadband.”

The Universal Service Fund may be on shaky ground

Industry stakeholders have argued that the USF’s financing method faces challenges. Lincoln Policy Group reported that the FCC is “running out of money to keep the USF program afloat because telecommunication companies’ revenues are steadily declining,” that will result in “a smaller pool of money to tax.”

USF taxes have increased from 6.8 percent to 33.4 percent of voice revenues from 2002 to 2021. During that time, telecommunications service providers’ revenue has declined from $80 billion in 2002 to $40 billion in 2021.

“Despite these falling revenues, the FCC still authorized $8.3 billion in disbursements through the USF in 2020 and 2021,” the policy group said.

Groups following USF’s financing method say there is a growing consensus that the current methodology for assessing the fee is unsustainable. Internet trade association INCOMPAS said, “all of the USF programs that are critical to the availability of broadband across the U.S.” are at risk of failing if the funding mechanism is not stabilized.

The Universal Service Administrative Company, a non-profit agency, is responsible for administering the USF.

Reporter Justin Perkins is graduate of Howard University School of Law, with a focus on telecommunications and technology. He has in-house experience at the Federal Communications Commission, Comcast and NBC. He brings curiosity and insight to broadband news.

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FCC

Chairman Pallone Says Service Providers May Be Abusing ACP

‘These reports detail problems customers have faced,” wrote Energy and Commerce Committee Chairman Frank Pallone

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Photo of Rep. Frank Pallone, Jr., D-NJ, obtained from Flickr.

WASHINGTON, October 26, 2022 – Rep. Frank Pallone, Jr., D-N.J., sent letters to thirteen leading internet service providers requesting information on potential “abusive, misleading, fraudulent, or otherwise predatory behaviors” engaged in through the Emergency Broadband Benefit Program and the Affordable Connectivity Program.

Pallone, chairman of the House Energy and Commerce Committee, expressed concern over allegations that providers are conducting business in violation of the programs’ requirements. Pallone cites as evidence several stories, including pieces from The Los Angeles Times and The Washington Post.

“These reports detail problems customers have faced, including either having their benefits initiated, transferred to a new provider, or changed to a different plan without their knowledge or consent,” Pallone wrote.

“Other customers have reported a delay in the application of the benefit or a requirement to opt-in to future full-price service, which has resulted in surprise bills that have been sent to collection agencies.”

“There have also been reports of aggressive upselling of more expensive offerings, requirements that customers accept slower speed service tiers, and other harmful and predatory practices,” he added.

Pallone asked the providers for several categories of records, including each company’s number of benefit recipients, complaint-resolution protocols, degree of knowledge of incorrect customer bills, protections against upselling, and more. Letter recipients include AT&T, Comcast, T-Mobile, and Verizon.

The ACP, established by the Infrastructure Investment and Jobs Act of 2021 and overseen by the Federal Communications Commission, subsidizes monthly internet bills and device purchases for low-income applicants. Non-tribal enrollees qualify for discounts of up to $30 per month, and qualifying enrollees on tribal lands for discounts of up to $75 per month. Enrollees also qualify for one-time discounts of $100 on qualifying device purchases.

The EBB program was the predecessor to the ACP.

The ACP, a favorite of many politicians and federal entities, including the White House, is no stranger to controversy. In September, the FCC Office of Inspector General issued a report that found the ACP doled out over $1 million in “improper payments” to service providers due to “fraudulent enrollment practice[s].”

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Universal Service

Lines Are Sharpening Over Who Drives the Future of Universal Service: Congress or Broadband Providers?

Big communications companies want Congress to tax telecom, while many others want higher fees on broadband service.

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Photo of panel moderator Julie Veach, Alex Minard, Greg Guice, and Angie Kronenberg at AnchorNets 2022.

CRYSTAL CITY, Va., October 14, 2022 – Should contributions to the Universal Service Fund originate from Congress or from fees paid by communications companies to an agency responsible to the Federal Communications Commission? A panel of experts speaking Friday at AnchorNets 2022 debated this issue.

The Universal Service Fund, created in 1997 to improve telecommunications connectivity nationwide, is funded primarily by voice-based services. In recent years, voice-based subscriptions have substantially dropped, creating a revenue crisis and leaving remaining voice-based customers to foot a climbing per-person USF bill.

To rectify this imbalance, industry players have proposed a variety of new funding sources. The two core options are direct taxation by Congress, or by broadening the base of the USF.

The latter option would require broadband providers to contribute to levies collected by the Universal Service Administrative Company, a non-profit entity accountable to the FCC.

Urging Need for FCC Action on Universal Service Fund, Expert Says Congress Too Slow

Speaking at the Friday conference of the Schools, Health and Library Broadband Coalition, Greg Guice, director of government affairs at Public Knowledge, argued that the FCC has the legal authority to require broadband service providers to contribute to the USF.

“The language of the statute says every carrier shall contribute and any other provider of telecommunications that the Commission decides may contribute to Universal Service,” he said.

Angie Kronenberg, chief advocate and general counsel at industry trade group INCOMPAS, said Congress shouldn’t be relied upon for intervention: “It is very helpful when Congress recognizes that there is a problem and is willing to appropriate, but that is not a sustainable, predictable model.”

Petition Challenges Constitutionality of Roles FCC, USAC Play in Universal Service Fund

The USF has of late made substantial investments in broadband projects, and many industry experts say broadband services should be required to contribute thereto. In August, however, the FCC declined to unilaterally reform the fund’s contribution system and asked Congress to review the matter.

“On review, there is significant ambiguity in the record regarding the scope of the Commission’s existing authority to broaden the base of contributors,” the Commission’s report stated.

Alex Minard, vice president and state legislative counsel at NCTA – The Internet and Television Association, suggested Congress should be the driver of USF reform.

Policy Groups Want Bigger Contribution Base to Shore Up the Future of the Universal Service Fund

“Maybe the FCC does have the legal authority – maybe – to include broadband revenues,” said Minard. “If we’re going to…newly tax such a significant part of the economy, maybe it’s Congress that should be making this decision, and not an independent federal regulatory agency.”

Minard also argued the need for USF reform is less urgent than some believe. “It has been in crisis for 20 years,” he said. “What’s a little bit longer?”

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FCC

Library and Education Technology Groups Pan FCC Proposal for New E-Rate Procurement

Responders fear that updating the E-Rate process will increase complexity for applicants.

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Photo of John Windhausen of Schools, Health & Libraries Broadband Coalition

WASHINGTON, August 26, 2022 – Responders to the Federal Communications Commission’s proposed rulemaking to force internet service providers to bid for school and library services through a new portal expressed concern that the proposal would needlessly complicate the process.

The FCC’s E-Rate program supplements schools and libraries securing affordable telecommunications and broadband services through the Universal Service Fund. Earlier this year, the FCC released a proposal that would “streamline program requirements for applicants and service providers, strengthen program integrity… and decrease the risk of fraud, waste, and abuse.”

The proposal suggests implementing a central document repository, called a bidding portal, through which internet service providers would submit bids to the program administrator, the Universal Service Administrative Company, instead of directly to applicants at a state and local level. Currently, libraries and schools announce they are seeking services and service providers apply directly to those institutions.

With the adoption of this proposal, applicants would be required to submit competitive bidding documentation that would enable applicants to compare competing bids and the USAC would establish timeframes on when applicants are able to review the bids that providers submit.

The proposal is in response to a September 2020 report by the Government Accountability Office which addressed what the GAO considers the E-Rate program’s key fraud risks. It reported that E-Rate participants could easily misrepresent self-certification statements by violating competitive-bidding rules or processes. These violations could occur without the Commission’s or USAC’s knowledge because they do not have direct access to the bidding information.

The GAO suggested that allowing the USAC direct access to obtain and monitor bidding information would improve security and strengthen program controls.

Proposal widely panned by CoSN and educational technology directors

However, response to the proposal was widely negative, with commenters raising concern that changing the process would needlessly complicate a system that, according to Verizon, is already promoting fair and open bidding on E-Rate contracts.

The Consortium for School Networking, the State Educational Technology Directors Association, and the National School Boards Association claimed that the Commission’s past reliance on state and local procurement requirements has been a success and has not led to an undue amount of fraud and abuse, negating the need to update the process.

Creating a national bidding portal could also interfere with existing state and local bidding requirements and unduly complicate the bidding process, hindering E-Rate participation, said the National Association of Telecommunications Officers and Advisors in its comment to the FCC.

“A bidding portal would interfere with existing state and local bidding and procurement processes, which would likely cause significant issues for applicants and may cause some to have to drop out of the E-Rate program,” read NATOA’s report.

The establishment of a national E-rate bidding portal would be “unnecessary, burdensome and will increase the complexity of, rather than simplify the E-rate program,” agreed South Dakota’s Department of Education in its statement.

National level or local level changes

Since the FCC’s announcement in December, the proposed changes have been subject to much debate. John Harrington, CEO of Funds for Learning, wrote in April that the E-Rate changes would be detrimental, claiming that procurement decisions are best made at the local level, rather than a “one-size-fits-all system.”

Furthermore, John Windhausen, executive director of the Schools, Health & Libraries Broadband Coalition, said in December that the proposal will burden applicants, despite the potential benefits of eliminating at least some forms of fraud. Windhausen claimed that there is not enough evidence to show that a new portal is needed.

However, the proposal has not been universally dismissed. In a comment filed last week, the United States Department of Justice, Antitrust Division, which is responsible for enforcing antitrust laws, expressed support for the proposal saying that it would “enhance the ability of the FCC’s Office of Inspector General to detect and deter fraud in the E-Rate program.”

The DOJ added that the update would allow for more robust enforcement of laws, including investigation and prosecution of antitrust and related crimes that occur during E-Rate procurements. “All responsive service providers and applicants are in a position to complete the additional step,” said the DOJ in response to critics citing undue burden.

The proposal remains in consideration at the FCC.

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