A pending Federal Communications Commission (FCC) Notice of Proposed Rule Making (NPRM) raises new national security concerns about the equipment and services used by Universal Service Fund (USF) beneficiaries. Specifically, the NPRM would seek comment on whether and how the FCC should prohibit USF funds from being used to purchase equipment or services provided by a company deemed to pose a national security threat to communications networks or the communications supply chain.

If approved, the NPRM will:

• Propose and seek comment on a rule prohibiting the use of universal service support to purchase equipment or services from any company posing a national security threat; and
• Seek comment on implementation – including, but not limited to:
  • Guidance on the types of equipment and services that should be covered;
  • How to provide guidance to USF recipients; and
  • Cost benefit analysis on the impact of the rule.

How to Determine a “National Security Risk”

The NPRM would seek guidance on how to determine what type of company may be a national security threat. The question of determining what companies pose a national security threat is fraught. It raises both economic and diplomatic concerns, and crafting a coherent and consistent policy could be a challenge. Nonetheless, the NPRM would suggest three approaches to this dilemma:

1. Criteria designated by the FCC to include:
   1. (1) any company that has been prohibited from bidding on a contract or otherwise participating in Federal Government practices for reasons of national security; or
   2. (2) any company the Federal Government has prohibited from procuring or obtaining equipment or services;
2. Reliance on existing statutes, such as the National Defense Authorization Act; or
3. Delegating the task of maintaining a list of possible threats to another agency.

How will this be Implemented and Enforced? 

The new rule would not apply retroactively to equipment already in use and would only require that any upgrades made or new equipment purchased comply with the new rules. Enforcement may include input from USAC and periodic auditing. The FCC will also consider penalties for USF users who inappropriately use funds under the rules, including potentially suspending such users from USF support.

The draft NPRM also would ask if the Commission should phase in the proposed rules gradually. Specifically, the NPRM would seek guidance on whether special considerations should be given to entities less capable of implementation – such as schools, rural health care facilities, or small businesses. It would seek comment on the proposed rules’ impact on multi-year contracts as well.

How to Prepare

If implemented, this rule could significantly impact USF beneficiaries. Attorneys at The CommLaw Group are well versed on these complexities and are experienced in dealing with auditors and helping clients comply with new FCC regulations. If you have any questions about the draft NPRM, please contact the attorney assigned to your account, or contact Jonathan S. Marashlian, jsm@commlawgroup.com, or Seth L. Williams, slw@commlawgroup.com.