GAO found continuing "weaknesses" in Lifeline USF program management despite FCC and Universal Service Administrative Co. efforts to improve controls over finances and enrollment by low-income consumers. There are also broader problems in USF contribution system oversight and the commission's use of a private bank account rather than the Treasury Department to store $9 billion in USF net assets, said a May 30 GAO report released Thursday. Policymakers and others disagreed on the extent to which the previous FCC's actions already were addressing some of the issues, but Chairman Ajit Pai made it clear he plans to do more.
Federal Universal Service Fund
The FCC's Universal Service Fund (USF) was created by the Telecommunications Act of 1996 to fund programs designed to provide universal telecommunications access to all U.S. citizens. All telecommunications providers are required to contribute a percentage of their end-user revenues to the Fund, which the FCC allocates for four core programs: 1. Connect America Fund, which subsidizes telecom providers for the increased costs of offering services to customers in rural and remote areas 2. Lifeline, which directly subsidizes low-income households to help pay for the cost of phone and internet service 3. Rural Health Care, which subsidizes health care providers to offer broadband telehealth services that can connect rural patients and providers with specialists located farther away 4. E-Rate, which subsidizes rural and low-income schools and libraries for internet and telecommunications costs The Universal Service Administrative Company (USAC) administers the USF on behalf of the FCC, but requires Congressional approval for its actions. Many states also operate their own universal service funds, which operate independently from the federal program.
The Senate Commerce Committee unanimously advanced legislation reauthorizing the FAA through 2021, adopting 56 amendments en bloc without discussion, including several on drones and one requiring that passengers be barred from talking on their cellphones during flights. “Our committee has acted to continue advancing unmanned aircraft systems and other aviation innovations while offering airline passengers new protections,” said a statement from Chairman John Thune, R-S.D., whose substitute amendment was approved during the Thursday markup.
The Senate Commerce Committee plans a Thursday markup of the Federal Aviation Administration Reauthorization Act (S-1405), which includes drone regulatory language. Committee Chairman John Thune, R-S.D., ranking member Bill Nelson, D-Fla., and other filed the bill last week (see 1706220057). The markup will begin at 9 a.m. in 106 Dirksen. The committee also plans to mark up S-875, which would require GAO “to conduct a study and submit a report on filing requirements under the Universal Service Fund programs." The bill, filed in April, would require the GAO report to “analyze the financial impact of those filing requirements and provide any recommendations on how to consolidate redundant filing requirements” (see 1705110060).
The FCC should be in no rush to push through changes to the separations regime for price-cap carriers, NTCA replied in docket 80-286. The FCC recently extended a freeze on jurisdictional separations rules for 18 months while a federal-state joint board attempts to develop new proposals (see 1705150064). The record doesn't "support comprehensive separations reform” now, NTCA said. “Current separations rules may ultimately need modification, if not complete overhaul, to reflect the evolution of the communications marketplace towards IP-enabled services that are interstate in nature. However, existing separations rules should be retained while reforms to Universal Service Fund and intercarrier compensation mechanisms that specifically sit atop the existing rules still take root.” The Moss Adams accounting and consulting firm agreed. In initial comments, associations representing carriers “each indicate in their own ways that now is not the time for the FCC to undertake significant reform of the Part 36 jurisdictional separations rules,” the firm said. “For the most part, Moss Adams concurs.” Moss Adams replied that NTCA is right, the FCC should allow USF and intercarrier compensation measures to play out for a while first, even if change ultimately is desirable. The two filed the only replies by our deadline Friday.
FCC Commissioners Michael O'Rielly and Mignon Clyburn backed means-testing USF support for broadband/telecom service in high-cost areas. It's "time to fix a fundamental structural defect" in the program, which is the subsidization of communications access for people "who don't need or deserve governmental assistance," they said in a rare joint blog post Wednesday. They sought comment on various questions and hope to bring the issue before the commission "in the very near future." O'Rielly recently said he and Clyburn were working on a draft item (see 1705180061). Representatives of Chairman Ajit Pai, USTelecom and NTCA declined comment.
State regulators welcomed news the USF contribution factor may not change in Q3, but some voiced continued concern about the long-term trend toward rising assessments on telecom carriers. "Fortunately, the USF assessment factor won't be increasing this quarter due to lower than anticipated demand on the E-rate program," emailed South Dakota Public Utilities Commissioner Chris Nelson Friday.
One legislative goal Senate Commerce Committee Chairman John Thune, R-S.D., wants to address before the August recess is Federal Aviation Administration reauthorization, he said in an interview Thursday. “It’ll get into the drone stuff,” he said. “There are some areas where you’ll have some telecommunications issues that intersect with that agenda, too.” Those topics have spurred interest from other lawmakers, with Sen. Ed Markey, D-Mass., taking a stab at drone privacy legislation earlier this year (see 1703200029). The horizon for the Senate, full with debates over healthcare overhaul and the firing of FBI Director James Comey, doesn't appear loaded with telecom legislative action, at least immediately.
The USF contribution factor could spike in Q3 from 17.4 percent to 19.6 percent or more of carriers' U.S. interstate and international (long-distance) telecom end-user revenue, said industry consultant Billy Jack Gregg in his quarterly email update. He cited Universal Service Administrative Co. projections of increased USF demand, particularly for E-rate school and library discounts, as the driver, and said the contribution (or assessment) factor could go even higher if projected industry revenue declines, as it has been trending. A 19.6 percent factor would be "the highest assessment factor ever." The previous high was 18.2 percent in Q1 of 2016, he said Wednesday. Some reacted to us with concern.
Telecom companies urged convening of state USF contribution revamp workshops in Nebraska, even if they delay the Public Service Commission's proposed adoption of a connections-based mechanism (see 1703280032). CenturyLink, Cox Communications and Level 3 sought workshops, in reply comments dated April 21 and posted Wednesday at the PSC (NUSF-100). “It is abundantly clear that more information must be presented before a connections-based mechanism can be safely implemented,” and it’s OK if that causes the PSC to miss a self-imposed Jan. 1 deadline for action, Cox said. "Stabilization of the fund can be achieved in 2018 under the current methodology while a thoughtful, reasonable connections-based methodology is created.” In another reply, CTIA said the PSC shouldn’t adopt USF changes now but instead should urge the Federal-State Joint Board on Universal Service to craft a plan for all states. "Nebraska is not unique in seeing declining revenues for its universal service program,” CTIA said. “Other states are seeing similar trends,” but the Nebraska PSC is alone in proposing "a novel contribution mechanism,” it said. However, a rural independent company -- Great Plains Communications -- replied that the PSC should reject calls for delay. “Any such delay should not occur since the Commission has already amply demonstrated that NUSF contribution reform is an urgent matter due to the continued erosion of the NUSF remittances generated by the current NUSF contribution mechanism.”
Telecom providers criticized a Nebraska proposal to change the state USF contribution formula from one based on revenue to a connections-based mechanism using phone numbers. In February, the Public Service Commission proposed a $1.29 surcharge for mobile voice, $1.24 for residential fixed voice and a five-tiered scheme for assessing charges to business lines. The current revenue-based contribution factor is 6.95 percent. But in testimony Friday released this week in docket NUSF-100, business line providers including Cox, Frontier and Windstream said the scheme for business lines isn't clear and may be tough to manage. For business lines, it’s not clear what revenue is to be considered in determining the surcharge -- only the business tariff rate or also extended-area-service fees and long-distance charges, Windstream said. Long-distance charges can fluctuate widely month to month, and business bundles could further complicate assessment, it said. Frontier said its billing system can't segregate or sort business customers into the five proposed tiers. Level 3 said assessing based on the number of phone numbers could hurt enterprise and government customers that have many phone numbers. CenturyLink said the business tiers are hazy and distinguishing between mobile and fixed lines for USF fees isn't equitable. CTIA said assessing different fees to mobile and fixed lines is “unreasonably discriminatory.” In other testimony, Communications Director Cullen Robbins proposed three alternative plans for contribution fees: (1) set mobile and residential voice surcharges equal at $1.29 and use two categories for businesses, single-line and multiline; (2) charge mobile and fixed the same fee and have one charge for business lines; and (3) use two categories for business -- single line and multitiered -- and treat residential fixed voice as a single-line business. "Continued declines in Nebraska Universal Service Fund (NUSF) remittances as a result of the erosion of the assessable base has led to a need to revise the contribution mechanism for the NUSF," Robbins said. A connections-based system is "more stable and predictable than the current mechanism,” he said. Some wireline companies supported the principle of assessing USF fees by connection as bringing more stability to USF. "A connection-based mechanism should be less volatile than a revenue-based mechanism, and … it should be less vulnerable to erosion of the contribution base," Windstream said. But Charter said it would be better to keep the status quo. "Moving away from this system will be complex, costly, confusing, and will likely need to be duplicated if the FCC ultimately changes the federal system,” it said. "Continuing with a revenue-based system is the most efficient, the most trusted, the most enforced and most enforceable, system yet devised. As [Winston] Churchill said: 'Democracy is the worst form of government, except for all the others.' The same can be said for revenue-based contribution systems -- at least at this time.”