As Questions Loom, FCC Presses On With Universal Service
Law360, Washington (October 27, 2016, 3:36 PM EDT) — The Federal Communications Commission is pushing ahead with implementing reforms for programs designed to expand telecom access to all Americans despite remaining questions of whether a political path will open to improving how the agency collects revenue for its universal service fund.
The agency is moving forward with changes to its Lifeline subsidy program for low-income consumers that include adding broadband and a verifying system meant to cut down on complaints of duplications and other abuse.
The FCC also continues to work on carrying out the overhaul of the portion of the universal service fund meant to connect rural America, even as reforms for contributions to maintain funding remain stagnant.
“They’ve taken regulatory steps and now the focus seems to be on executing,” said Brita D. Strandberg of Harris Wiltshire & Grannis LLP. “I feel like that’s sort of their mission for the moment and that’s a big mission.”
Strandberg says staff will likely press on with already-approved changes to programs even after a potential shift in FCC leadership after the election, barring new commission action countering reforms.
In March, the FCC’s majority agreed to a plan to update Lifeline — which provides discounts on phone service to certain low-income consumers — by voting at a heated meeting to allow consumers to also use their subsidy for broadband plans.
The addition of broadband goes into effect Dec. 2, and companies have been submitting applications at the FCC to be designated as providers that can participate.
Experts say the agency appears to be mostly on track to issue approvals and allow new providers to offer the broadband services rather than only companies with existing eligibility designations.
“They’re moving forward and unless and until something like that happens, they’re just going to keep going,” said Danielle Frappier of Davis Wright Tremaine LLP.
The order also created an independent national verifier to determine consumer eligibility rather than leaving the responsibility with telecom providers.
Implementing that will be a “big lift” for the commission, according to Steven Augustino, a partner at Kelley Drye & Warren LLP.
“That’s going to take a number of years,” Frappier said, “but I think that they’re working on it.”
While no court order has yet interrupted the FCC’s plans, states and others are challenging the commission’s creation of a federal process to designate eligibility that they say preempts the states.
And the FCC’s broader battle with the states over the issue of federal preemption saw it losing in the Sixth Circuit earlier this year when it tried to intervene in state laws restricting municipal broadband expansion.
In this case, the battle is with state commissions, says Wiley Rein LLP’s Bennett Ross.
“The state issue has implications in other areas, so the ability of the FCC to preempt the states will be an important issue in other contexts,” he said.
Beyond Lifeline, the FCC is also working to continue carrying out reforms to a program designed to deploy telecommunications access in rural America after voting on an overhaul in 2011 that focused funds on broadband deployment.
The FCC created the Connect America Fund under the reforms for the larger carriers to expand broadband access, setting phases to its roll-out.
The second phase of the fund is ongoing, with the FCC first offering cash that carriers could choose to accept or reject by a deadline last year on a state-by-state basis for deploying broadband in hard-to-reach areas. Remaining subsidies, including those declined by Verizon, will be distributed in a competitive bidding process that the FCC is working to arrange.
The FCC is “nowhere close” to getting the details worked out on implementation of the bidding process and distribution, Ross says.
More imminent is an FCC determination of how it will distribute support through a fund designed to promote mobile broadband services. The Mobility Fund, which came with the 2011 reforms, is also in its second phase of roll-out and the FCC has been working to ensure that it has the right data to proceed so that support won’t overlap in areas with an existing unsubsidized carrier.
FCC Chairman Tom Wheeler has committed to move forward with rules by the end of the year, though Ross is skeptical, saying the chairman’s agenda is full.
“There’s only so much time in the end of the year to get all these things done,” he said. “My bet is something will fall by the wayside.”
Still, Ross says he expects the mobility fund issue to be a bit simpler than the second phase of the Connect America Fund and move forward more quickly.
Despite its continued progress to reform programs and modernize them by adding broadband service, experts say the FCC is also grappling with how to deal with problems in a contribution system that is politically difficult to adjust.
Funds to promote universal service come from assessments on certain revenue of telecommunications providers, with the percentage paid, or contribution factor, set by the FCC. Broadband service revenue historically hasn’t been targeted and that hasn’t changed despite the reclassification of the service under the FCC’s 2015 Open Internet Order and the fund’s move to support greater broadband access.
The contribution factor — which telecom providers pass on to consumers — has continued to jump up as reforms floated several years ago to determine how contributions should be assessed, how to improve management of the system and other issues continue to await action.
The issue is the “elephant in the room,” Augustino says.
The FCC asked the Federal-State Joint Board on Universal Service for recommendations in 2014 but has not received them and the deadline was extended in the 2015 Open Internet Order, according to an FCC spokesman. Wheeler said after the FCC’s meeting Thursday that the issue rests for now with the board until it makes a recommendation.
“It’s a sticky mess is what it is, and there’s no easy way out without some kind of political pressure to fix it,” Augustino said, even as the contribution factor goes up. “It could continue like this … I haven’t seen any significant change in the outrage factor.”
A Hillary Clinton administration might have a 50-50 chance of accomplishing major reform to the contribution system, says Jonathan S. Marashlian of Marashlian & Donahue PLLC, to capture new revenue or at least “level the playing field.”
The FCC has to “figure something out” if it wants to avoid cuts to programs, he says. The system is too complicated but nobody wants to take on the “third rail of FCC politics” in considering applying assessments to broadband service revenue, which would be seen as a new tax on the internet.
In the meantime, the company that administers the fund, the Universal Service Administrative Co., has attempted to be aggressive in finding new revenue as it audits companies over contributions while the FCC continues to withhold action and doesn’t clarify its rules, he says.
Ross says adding broadband revenues to the contribution base is likely an inevitability but the issue may wait until the case challenging the FCC’s net neutrality decision that reclassified broadband internet access service winds its way through the appeals process. Other issues in need of reform could be addressed by expanding the base of contributions, he added.
“Once you throw broadband into the mix a lot of those issues, I think, fall by the wayside,” he said.