Updated 499-A Form and Instructions Signal Start of 2018 USF Season

Last week, the FCC released its form and instructions for the 2018 499-A, due April 1st. The 499-A form is filed by almost all intrastate, interstate and international providers of telecommunications in the U.S. and reports historic annual revenue. Notably, the FCC’s Wireline Competition Bureau did not solicit comments on the form and instructions this year, but that may be due to the lack of substantive changes from the 2017 versions.  In previous years, and most recently in 2015, the Bureau sought comment on proposed revisions to the 499-A documents.

Filers, please remember to review your records carefully before filing.  Now is the time to make sure that reseller certifications are in order and to update traffic studies and jurisdictional estimates.  The form should also be reviewed against the prior year’s form for consistency.  Significant changes, such as large increases or decreases in revenue, on a particular line or the absence of revenue reporting on a line where revenue was reported the prior year, are red flags that almost always generate additional USAC scrutiny.

Finally, remember that downward revisions to the 2017 Form must be filed by March 31st.

To learn more about the form, audits and investigations and developments affecting the USF, register for our 9th Annual webinar.

USF Update: Where Are We Now?

In 2017, the Government Accountability Office (GAO) released a report focusing on the Lifeline program. Tucked away in that report was a significant discussion of Universal Service Fund (USF) contributor audits that has received little attention. In a recent episode of Kelley Drye’s Full Spectrum podcast, Partner Steve Augustino and Special Counsel Denise Smith discussed four trends in USF contributor audits that they expect to result from the GAO report.

Kelley Drye’s Communications group continues to monitor this and other USF issues. Join us on March 8th for our 9th Annual USF Update webinar as the group discusses audits, enforcement actions and more.

Beyond the Latest Frontier: Licensed, Unlicensed, and Experimental Operations above 95 GHz

Fulfilling a promise made by Chairman Pai in the fall that the Federal Communications Commission would give a close look to opening up licensed operations in the bands above 95 GHz, the FCC announced tentatively on February 1 that it will consider commencing a rulemaking to do just that at its next Open Meeting on February 22.  The Commission released a draft Notice of Proposed Rulemaking (“Draft NPRM”) with the announcement that details how the Commission may go about fostering investment and innovation in the 95-275 GHz range and beyond.  If approved, the so-called Spectrum Horizons NPRM would seek comment on potential rules for fixed point-to-point use of tens of gigahertz of new spectrum, more than 15.2 gigahertz of unlicensed spectrum, and more flexible experimental licenses in the 95-3000 GHz range. Continue Reading

Ready, Set, Bid: FCC Announces July Start Date for Auction to Provide Support for Voice and Fixed Broadband in Unserved High-Cost Areas

At the January Open Meeting, the Federal Communications Commission (“FCC”) adopted a Public Notice (“PN”) that sets July 24, 2018 as the start of the Connect America Fund Phase II auction (“Phase II Auction”) in which service providers can compete for up to $1.98 billion annually in financial support over 10 years.  This will be the first time a reverse, multi-round auction is used to provide support for high-cost rural areas. The FCC also adopted an Order on Reconsideration (“Recon Order”) that resolves outstanding reconsideration petitions related to the Phase II Auction.

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Does the Rural Healthcare Program Need a Check-Up? Program Under Microscope Following $18.7 Million Proposed Fine for Fraud

The Rural Health Care Program (“RHCP”) is sure to face increased scrutiny in the wake of a $18.7 million proposed fine issued by the Federal Communications Commission (“FCC”) at its January meeting against a telecommunications reseller for allegedly defrauding the program.  The FCC claims that DataConnex, one of the top five recipients of RHCP funding, violated the program’s competitive bidding rules and submitted falsified documents to increase the support it received.  The FCC recently ramped up enforcement involving the RHCP and proposed significant reforms last month aimed at improving oversight and deterring fraud.  The FCC’s actions potentially foreshadow additional restrictions on the use of RHCP consultants and the amount of available funding.

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Crunching the Numbers: FCC to Create Office of Economics and Analysis

On January 30, 2018, by a 3-2 vote, the FCC voted to establish a new Office of Economics and Analysis (“OEA”).  This decision reflects the Chairman’s ideological emphasis on incorporating a greater degree of economic analysis into the agency decision-making process.  Proponents say OEA will bolster the analytical component of FCC rulemaking, but detractors warn that if the Order is not correctly implemented, it will be used selectively or amount to little more than “bureaucratic reshuffling.”  Continue Reading

E-Rate Fraud in Crosshairs Following Charter School Indictment

E-Rate fraud is back in the spotlight following the indictment of a Dallas charter school CEO and the owner of a contracting company for an alleged kickback scheme resulting in over $300,000 in illegal subsidies. Federal prosecutors stated that the pair violated the E-Rate program’s competitive bidding requirements and submitted fraudulent invoices to the Federal Communications Commission (“FCC”).  The indictment comes on the heels of major FCC settlements and enforcement actions against educational institutions and service providers for alleged E-Rate violations.  FCC Chairman Pai has repeatedly criticized the administration of the E-Rate program and the indictment may spur further calls for action to combat fraud in the program.

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New Podcast: Legislative Outlook for 2018

As the second session begins, the 115th Congress will pick up where it left off on some key telecommunications and technology issues. In this episode of Kelley Drye’s Full Spectrum podcast, Partner John Heitmann and Jennifer McCadney, Special Counsel in Kelley Drye’s Government Relations and Public Policy group, examine the current status of these issues and the implications for what is likely to occur in the coming months. The three categories of legislation they cover are (1) Mobile, 5G and Spectrum, (2) Rural Broadband Access, and (3) Internet, Privacy, Cybersecurity and Data Security. To listen to this episode, please click here.

The End of the Internet? What to Expect after the FCC’s 3-2 Vote to Restore Internet Freedom

On December 14, 2017, the FCC voted 3-2 to roll back the 2015 Open Internet Order, with all Republican commissioners voting in favor of the item and both Democratic commissioners strongly dissenting.  As we discussed in an earlier blog post in anticipation of the vote, the Restoring Internet Freedom Order (1) reclassifies broadband Internet access service (BIAS) as an information service (and mobile BIAS as a “private mobile service”), (2) vacates the bright-line rules in the 2015 Open Internet Order, as well as the “general conduct standard,” (3) retains, but refactors, the open Internet transparency rule, and (4) returns consumer protection authority over broadband to the Federal Trade Commission (FTC).

So what happens now? The FCC has not yet published the text of the Restoring Internet Freedom Order, but we don’t expect any significant changes between the draft item and the final item.  Once the item is released, the Office of Management and Budget (OMB) must review the item and publish it in the Federal Register, which will trigger implementation dates (60 days from publication, except for items requiring further OMB approval) and start the clock for parties to challenge the order through an appeal or petition for reconsideration.  Based on news reports and the trade press, we expect the following things to happen:

  • Several parties will appeal the Order.  As has happened after each of the open Internet orders, we expect parties will file federal appeals, and we expect the cases will be consolidated in a single appeal in the U.S. Court of Appeals for the D.C. Circuit.  Several parties, including Public Knowledge, Free Press, Incompas, the National Hispanic Media Coalition, and New York Attorney General Eric Schneiderman on behalf of a multi-state lawsuit, are expected to file suit in the near term.  The deadline for appeal—for all practical purposes—is ten days after publication in the Federal Register.  As we discussed in our earlier blog post on this issue, appellate courts give substantial deference to agency decisions, so long as the ultimate decision addresses the relevant facts and arguments and the outcome is within the zone of reasonable interpretations of the statute.  It is possible, therefore, that the court of appeals will uphold the 2017 rollback of the Title II classification without finding that the 2015 ruling was unreasonable.
  • Democrats in Congress are working to nullify the Order.  Democrats in Congress have already begun the process of trying to nullify the Order through a Congressional Review Act (CRA) resolution.  While CRA resolutions are a powerful tool in the hands of the majority—as we saw with the rollback of the Broadband Privacy Order earlier this year—as the minority party, the Democrats are at a significant disadvantage.  We don’t expect the CRA resolution to pass, or for the President to sign it if it did.
  • Republicans in Congress will attempt to pass net neutrality legislation.  We expect Republicans and BIAS providers to push for a bill that enshrines the basic bright-line net neutrality protections (i.e., blocking and throttling) in law, formally classifies BIAS as an information service, and otherwise prohibits the FCC from expanding its net neutrality authority and preempts the states from passing their own net neutrality protections.  House Communications Subcommittee Chairman Marsha Blackburn of Tennessee introduced just such a bill on Wednesday (The Open Internet Preservation Act), raising significant concerns from Democrats and representatives of edge providers, such as the Internet Association, that the bill failed to address important protections, including a ban on paid prioritization.
  • States will attempt to introduce their own net neutrality protections.  In the wake of the Restoring Internet Freedom Order, several states announced initiatives to impose their own net neutrality protections on ISPs operating within their jurisdiction.  For example, legislators in Washington state and California have introduced bills to reinstate net neutrality protections, although federal law may preempt such laws.  Gov. Inslee of Washington State also suggested using the states’ power as a large purchaser of BIAS and telecommunications services to make net neutrality a condition of state contracting.
  • The Federal Trade Commission and Department of Justice will fill the enforcement gap using general consumer protection and antitrust laws.  As mentioned above, the Restoring Internet Freedom Order cedes most net neutrality enforcement authority to the FTC.  In response to last week’s vote, FTC Acting Chairman Maureen Ohlhausen stated that the agency looks forward to serving as “the cop on the broadband beat.”  However, as we’ve discussed in detail in earlier posts, the scope of the FTC’s jurisdiction is still undergoing review in the Ninth Circuit, where the entire court is reviewing (en banc) an earlier decision by the court that the “common carrier exemption” of Section 5 of the FTC Act exempts all activities of common carriers—e.g., telecommunications providers—from FTC jurisdiction (known as a “status-based exemption”).  If the Ninth Circuit upholds the earlier panel decision, it would leave many ISPs outside the jurisdictional reach of the FTC and FCC, and would create a “circuit split” between the Ninth Circuit and the Second Circuit (which interprets the common carrier exemption as limited to the common carrier activities of common carriers).  Then it would be up to the Supreme Court to resolve the split, unless Congress clarifies or eliminates the exemption.  Nevertheless, last week the FTC and FCC forged ahead with a Memorandum of Understanding to coordinate and cooperate on net neutrality enforcement activities and consumer education efforts.  Further, in the wake of the vote, the Antitrust Division of the Department of Justice noted that it “stands ready to vigilantly protect American consumers and free markets” from activities of ISPs that violate the antitrust laws.  The House Antitrust Subcommittee recently held a hearing to explore the role of antitrust law in protecting consumers from net neutrality harms, which we covered in a separate post.

Net neutrality remains a red hot issue in the public sphere, and we don’t expect it to die down soon, particularly as claims about fake comments and flawed process persist.  As we begin to enter the 2018 midterm elections, there is a possibility that net neutrality will continue to play a prominent role in public debates.  For that reason, while it’s unclear how this issue will shake out, it’s clear that we will have another active year in the net neutrality saga. We will follow up with a thorough analysis of the Order when it is released.

FCC Votes on Possible Changes to the Rural Health Care Program

At its last open meeting in 2017, the five FCC Commissioners unanimously voted to adopt a Notice of Proposed Rulemaking (NPRM) and Order regarding the Commission’s Rural Health Care (RHC) Program, a 20-year old initiative aimed at improving rural health care provider access to first telecommunications services and later an array of communications services, including Internet access, dark fiber, and business data services.  This item is part of FCC Chairman Ajit Pai’s overall initiative to close the “digital divide,” and proposes to increase the $400 million spending cap for the first time since 1997.  The NPRM also proposes to change how the FCC handles demand beyond the cap, from general proration to prioritization based on rurality or remoteness.  As such, all interested stakeholders should carefully monitor and consider participating in the rulemaking process.  Comments will be due 30 days after publication of the item in the Federal Register (which usually takes a few weeks) and reply comments will be due 60 days after publication.

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