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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.

Broadband Breakfast is a decade-old news organization based in Washington that is building a community of interest around broadband policy and internet technology, with a particular focus on better broadband infrastructure, the politics of privacy and the regulation of social media. Learn more about Broadband Breakfast.

Expert Opinion

Johnny Kampis: Broadband Industry Hopeful to Get Waivers from Biden Administration Protectionist Policies

The Buy America mandate could seriously hamper the Broadband Equity, Access and Deployment program.

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The author of this Expert Opinion is Johnny Kampis, director of telecom policy for the Taxpayers Protection Alliance.

In a presidential administration rife with protectionist policies, the broadband internet industry is optimistic it will receive waivers from the Buy America” mandate that threatens to derail plans to close the digital divide.

The National Telecommunications and Information Administration is likely to announce state funding allocations for the $42.5 billion Broadband Equity, Access and Deployment program by the end of June. That is the biggest piece of the taxpayer-funded pie allocated by Congress to extend broadband infrastructure across the U.S. over the next several years.

But, as the Taxpayers Protection Alliance has reported, broadband industry leaders say the Buy America mandate could seriously hamper the effort. As part of the mandate, the Biden administration has said that at least 55 percent of the component parts of a product used in federal construction projects must be sourced domestically. That rule applies to any infrastructure project, but broadband has taken center stage recently with the BEAD funding imminent.

Because fiber-optic cables primarily used in broadband infrastructure projects include materials such as aluminum, copper, glass, plastic and steel that are primarily manufactured in other countries, under the current rules they would be forbidden. And many other important cogs in the broadband machine, such as routers and switches, are mostly made overseas. Even the left-leaning Brookings Institution noted the policy could put broadband deployments as risk.”

Fortunately, the Biden administration is softening on its Buy America policies — at least in the broadband industry. NTIA chose earlier this month to exempt several categories of equipment such as broadband routing equipment, transceivers and antennas from the domestic manufacturing requirements in the Enabling Middle Mile Infrastructure Program. The agency said that although there are public and private efforts underway to increase manufacturing capacity… industry will not be able to address shortages of the manufactured products and construction materials required for middle mile network deployment within the timeframes required.”

Broadband Breakfast pointed out in a recent article that it will take several years to ramp up production of semiconductors in the U.S. and the BEAD program has set a five-year timeline for project completion.

The estimates are that it would take at least, at a minimum, three to five years to bring a semiconductor chip plant to the U.S.,” said Pam Arluk, vice president of NCTA – The Internet & Television Association. And even though the BEAD program is going to be over several years, thats still just not enough time.”

The inherent difficulties in meeting the Buy America mandate, and the precedent now set with the middle mile program, provide optimism that waivers will likely be offered with BEAD. But that is just one of many infrastructure programs now being funded by taxpayers through federal recovery programs.

As President Joe Biden said in his State of the Union Address in February, American-made lumber, glass, drywall, fiber optic cables…on my watch, American roads, American bridges, and American highways will be made with American products.”

Washington Post columnist Fareed Zakaria pointed out that what he calls the Biden Doctrine” violates the spirit of the World Trade Organization and its framework of open trade. And another Post columnist, former Clinton administration Treasury Secretary Lawrence Summers, noted that protectionist policies tend to hurt more people than they help — giving as an example steel tariffs that aided 60,000 steel workers, but threatened the jobs of 6 million other workers in industries paying inflated prices for steel.

Strides in broadband waivers are a good sign, but the Biden administration must do more to curtail its protectionist policies as industries use economic recovery funds to build infrastructure in the coming years.

Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance. 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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Expert Opinion

Craig Settles: And a Little Child Shall Lead Them — Digitally

How many communities are leveraging their teen populations in the pursuit of broadband and digital equity?

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The author of this Expert Opinion is Craig Settles, who leads telehealth-broadband integration initiatives.

In 2011 at the MoBroadbandNow Summit in Missouri, I listened to the CIO of the City of Springfield explain why his city included teenagers in important broadband needs assessment and planning meetings. “In your home, who do you call when you’re trying to figure out how to use the VCR?”

His point? Springfield learned a valuable lesson: Teens push the edges of technology, and understand how to use technology better than many adults do. Therefore, it is imperative to include teenagers in the planning of what is and will be their main future technologies. The brain power and the creativity alone will lead to the success of tapping this demographic.

Fast forward to 2023. How many communities are leveraging their teen populations in the pursuit of broadband and digital equity? “Kids want to get a look into the future,” said Kevin Morris in a video. “That’s the thing that drives many of them in school.” Morris talks to many students as the director of college, careers and community services for the Duarte Unified School District.

What about their future in broadband, I wondered, when a friend talked to me about her efforts to recruit internship positions for the K12 Foothill Consortium? Many of the high school students in the Consortium are anxious to intern remotely or in-person near their homes in Southern California. It hit me — take the Springfield model of teen engagement to the rest of America!

Imagine the possibilities for local broadband or digital equity teams, local government and nonprofits if they can channel bright, tech-savvy, energetic, inquisitive teens on a mission to help bring the digital equity solutions to communities. Remote or in person interns can help with focus groups, town halls logistics, preparing and writing newsletters, usability testing and Affordable Connectivity Program enrollments.

The K12 Foothill Consortium is recruiting internship hosts for the June through August period and for at least 60 hours total. Those groups and organizations engaged with broadband and digital inclusion projects get the benefit of interns’ prior training in coding, health care, web design, engineering and other related disciplines. Since interns prefer paid internships, the Consortium also raises money for organizations that may be too cash-strapped to offer a stipend but can offer meaningful internships.

Photo of Career Technical Education students courtesy of the K12 Foothill Consortium

Internship hosts view the relationships as a win-win for everyone involved. Ivan Ayro, director of adult and career technical education at Charter Oak Unified School District, agrees. “Students are able to connect the educational experience they’re getting from Career Technical Education classes with real-life experience from workplace learning. Through the internships, many of our students are able to realize in high school if this is something that they want to do for the rest of their lives.”

A recent US News & World Report article states that, although internships are traditionally for college students, high school students increasingly are participating in them. Benjamin Caldarelli, co-founder of Princeton College Consulting, a New Jersey-based educational consulting company, said, “High school students want to work somewhere that interests them and potentially make what they feel is a more meaningful contribution. They see internships as an enrichment activity and opportunity to make an impact rather than simply trading time for a little money.”

More than 205,000 new jobs will need to be created to complete the Broadband Equity, Access and Deployment expansion plans, many of them skilled workers. “There is a lot of focus placed on building broadband networks, but we cannot build them without a proper workforce,” Fiber Broadband Association CEO Gary Bolton said in a press release. “Failure to ensure the availability of high-skilled labor will result in workforce bottlenecks, which will ultimately lead to higher costs and project delays.”

The National Telecommunications and Information Association is requiring every state to have a five-year workforce development strategy. FBA published a guidebook to help states develop that strategy. Broadband and digital inclusion teams need to pencil in “internships” as part of their plans.

High school broadband and digital inclusion interns may not be considered skilled workers, obviously, but the interns should be considered the beginning levels of workforce development campaigns in every community. Start people thinking about broadband and all things digital in high school and use internships to shape their college or post-high school plans. Don’t forget that Gen Z can be an important part of broadband discussions, even if they’re not interns.

Amy Foell, principal of Amy Foell Consulting LLC, heads the K12 Foothill Consortium for Azusa, Charter Oak, Duarte and Monrovia Unified School Districts’ CTE. Their mission is to educate and train students to provide a community-sourced talent pool to sustain a healthy, balanced, local economy. Foell also supports workforce development programs across the San Gabriel Valley, including Pasadena Unified School District.

“I like to have an initial phone call and 15 to 20 Zoom sessions to ensure prospective internship sites understand the program,” said Foell. “Before we meet, it’s advisable to create a brief description of the internship project — be sure to share the organization’s purpose and mission. We’ll help hosts identify and interview candidates in May to early June, and students can start mid-June.”

Craig Settles conducts needs analyses, planning, and grant assessments with community stakeholders who want broadband networks and telehealth to improve economic development, healthcare, education and local government. 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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Expert Opinion

Scott Wallsten: A $10 Billion Broadband Black Hole?

We know little about how California and other states plan to distribute the money under the opaque arrangement.

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The author of this Expert Opinion is Scott Wallsten, president of the Technology Policy Institute.

The U.S. Treasury just gave California more than half a billion dollars to fund broadband buildout. This money may help reduce the digital divide. It also might not. There’s really no way to know because the only public information about the grant is a press release that more closely resembles a flyer than an explanation of how the government is spending 540 million taxpayer dollars.

The money comes from the Capital Projects Fund, which is $10 billion allocated by the 2021 American Rescue Plan Act. The Act directs the U.S. Treasury to distribute these funds to states, territories, and tribal governments to subsidize new broadband networks.

Congress probably should never have directed the Treasury to lead the program. It’s not a grant-making agency, and Secretary Janet Yellen has bigger things to worry about, like the looming debt ceiling and the global economy.

Still, the Treasury has to do what the law tells it to do, and should be expected to follow some basic rules of good governance.

The program appears to lack even the most basic transparency. Treasury’s website lists a press release similar to California’s for each state award, and those others also provide almost no additional information. They do list “key state contacts,” but it’s typically an entire state agency. That’s just a hair more helpful than telling people to “call Congress” to learn more about government spending.

At a bare minimum, the public should be able to see the plan each state submitted to the Treasury and the final plan the agency approved. That might make it possible for researchers and watchdogs like the Government Accountability Office to evaluate the program — not only to see how well it worked, but to inform other broadband grant programs. Unfortunately, these plans do not appear to be available to the public.

Taxpayers should know how the states intend to spend the money once they have it because there are many ways to distribute the funds to those who would build networks. A long history of broadband subsidies and economic research provide lessons on these practices. It is important to know whether states are heeding or ignoring those lessons.

The answers make a huge difference. Research on the $4.5 billion broadband subsidy program under the Obama administration found that the grant assignment program was little better than randomly selecting winners from the pool of applications, while a more coherent competitive bidding process like a reverse auction would have stretched the money much further.

The little information we have is not encouraging. The grants appear to be spending far more per location than necessary, meaning the money is building less broadband than it could.

For example, California is getting $540 million to serve an expected 127,000 locations, or about $4,250 per location. That’s about the same as what the FCC estimated as the maximum it was willing to pay per location in California in the Rural Development Opportunities Fund in 2020. And because that money was distributed in an auction, the actual subsidy for gigabit connections came in lower than expected, at about $2,000 per location on average.

California does not seem to be an outlier in the Treasury program. Iowa is getting $152.2 million to serve an estimated 18,972 locations, or $8,022 per location. In the FCC’s RDOF subsidy auction, the FCC’s average reserve price for locations in Iowa was about $7,200 per location, and the auction results yielded a lower cost similar to in California — about $2,000 per location.

With the current opaque arrangement, we may never know whether the infrastructure money was well spent because we know little about how the states plan to distribute the money and how their efforts will be evaluated. To its credit, Treasury requires regular reporting on certain metrics by grant recipients. But there is no mention of any plans to invite independent analysis of how the money is spent and its cost-effectiveness.

This kind of transparency is important for more than a nod towards good governance of the $10 billion Capital Projects Fund. Treasury will soon be joined by the Department of Commerce when it releases another $42.5 billion to the states for essentially the same purpose. We should not accept a precedent of keeping the public in the dark on these infrastructure projects.

Scott Wallsten is president of the Technology Policy Institute. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. 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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