Universal Service Fund

In a strongly worded Report and Order, Further Notice of Proposed Rulemaking, and Order (the “Order”) released on November 26, 2019, the FCC adopted several measures to protect U.S. communications networks from potential national security threats. Likely coming as no surprise to anyone following the proceeding or current news, the FCC identified Huawei Technologies Company (“Huawei”) and ZTE Corporation (“ZTE”), both Chinese telecommunications equipment manufacturers, as national security threats based, in large part, on the companies’ close ties to the Chinese government. Adding to numerous recent federal actions addressing national security concerns, the Order takes three significant steps, within the context of the universal service fund (“USF”) program, to try to mitigate national security threats to the nation’s communications networks.

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The FCC proposed sweeping reforms to its process for suspending and debarring entities from participating in its largest funding programs, including the four Universal Service Fund (“USF”) programs, at its meeting on November 22, 2019. If adopted, the proposed rules would mark a sea change in FCC enforcement, allowing the FCC to cut off funding more quickly and for a wider range of alleged misconduct. The FCC also would expand the scope of these rules to cover its Telecommunications Relay Service (“TRS”) program and National Deaf-Blind Equipment Distribution Program (“NDBEP”), in addition to the High-Cost, Lifeline, E-Rate, and Rural Health Care USF programs.

The proposed rules also would impose new disclosure obligations on support recipients and require them to verify that they do not work with suspended/debarred entities. In addition, the proposed rules would create a federal reciprocity system, in which entities suspended/debarred from participating in funding programs administered by other agencies similarly would be prevented from participating in the FCC’s programs (and vice versa). The proposed rules would impact nearly every USF participant and warrant close attention. The FCC has not announced comment deadlines on its proposals, but they will likely occur in early 2020. While the FCC’s proposals are just the first step towards actual rule changes, the agency has shown every indication that it will continue moving full speed ahead on USF reform in the coming year.


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The FCC plans to prohibit the use of Universal Service Fund (“USF”) support to purchase equipment or services from foreign entities that it determines pose national security risks at its next meeting scheduled for November 19, 2019. As we previously reported, the ban may severely impact participants in all federal USF programs and involve a costly “rip and replace” process to remove foreign-made equipment from domestic telecommunications networks. The FCC also expects to move forward on its heavily-anticipated E911 vertical accuracy (i.e., z-axis) proceeding and adopt new requirements for wireless carriers to better identify caller locations in multi-story buildings. Rounding out the major actions, the FCC anticipates proposing new rules for suspending and debarring entities from participating in USF and other funding programs; removing longstanding unbundling and resale requirements for certain telecommunications services; and widening the contribution base for the Internet Protocol Captioned Telephone Service (“IP CTS”) to include intrastate revenues.

The draft items cover the gamut of telecommunications issues, affecting everything from the construction of next-generation 5G networks to legacy intercarrier competition rules, and should be closely watched. You will find more details on the most significant November FCC meeting items after the break:


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Featuring keynote remarks from FCC Commissioner Michael O’Rielly

Date/Time: Wednesday, October 2, 3:00 – 5:30 PM
Location: Kelley Drye & Warren LLP, 3050 K Street NW

This seminar will feature background presentations on the Universal Service Fund (“USF”) programs, remarks from FCC Commissioner Michael O’Rielly and a conversation with experts on the future of the USF programs. Attendees are encouraged to ask questions and participate in the discussion as we take a deeper dive into the issues.


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Continuing its push to free up spectrum to support next-generation 5G services, the FCC plans to move forward on auctions of both mid- and high-band spectrum for commercial mobile use at its next open meeting scheduled for July 10, 2019. First, the FCC would establish new licensing rules for the 2.496-2.690 GHz band (“2.5 GHz Band”) currently used for educational television services to facilitate the auction of the spectrum next year. The FCC contends that the 2.5 GHz Band, which represents the largest contiguous block of mid-band spectrum considered for auction to date, has largely gone unused and should be opened up for commercial use. Second, the FCC would adopt application and bidding procedures for the auction of spectrum at 37.6-38.6 GHz (“Upper 37 GHz Band”), 38.6 GHz-40.0 GHz (“39 GHz Band”), and 47.2-48.2 GHz (“47 GHz Band”). This auction would be the FCC’s third auction of high-band spectrum, following the recent auctions of 24 GHz band and 28 GHz band spectrum. As we previously noted, this auction is complicated by the presence of incumbent licensees in the 39 GHz Band, who would be offered incentive payments to accept modified licenses or leave the Band under the FCC’s plan. Rounding out the major July actions, the FCC expects to seek comment on establishing a three-year, $100 million universal service pilot program to support telehealth services as well as eliminate pricing regulation and other restrictions on certain legacy data transport services offered by price cap carriers.

You will find more details on the most significant July meeting items after the break:


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On Friday, May 31, 2019, the FCC released a much-anticipated notice of proposed rulemaking (“NPRM”) to consider the adoption of an overall budget cap on the Universal Service Fund (“USF”), separate from any individual budgets for each of the four USF programs. The NPRM is in response to years-long advocacy on the part of Commissioner O’Rielly to impose budgets on USF spending, and it comes over dissent of the two Democratic Commissioners. While Commissioner O’Rielly justified the proposal as responsible stewardship of public money and said it would not limit funding in the near future, Commissioners Rosenworcel and Starks criticized the proposal as undermining the goals of Universal Service and, at worst, creating a “universal service hunger games” among the support programs.

The release of the NPRM was our first look at the specifics of a proposal that broke a month ago. The NPRM does not propose a specific budget, primarily raises questions about how to proceed, and does not contain any proposed rules. Nevertheless, opponents of the proposal have been most vocal since word of the NPRM came out, and we expect those USF stakeholders to continue in opposition to the approach. Meanwhile, proposals to reform USF contributions remain stalled (and lacking any consensus), while the contribution factor hovers around 20% of assessable revenues.


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The FCC plans to adopt an order eliminating the controversial rural “rate floor” that restricts the amount of Universal Service Fund (“USF”) support received by some carriers to build and maintain networks in underserved areas at its next meeting scheduled for April 12, 2019. The rural rate floor, which requires carriers receiving Connect America Fund (“CAF”) support to charge a minimum monthly rate or risk losing subsidies, has been a longstanding target of criticism by Chairman Pai as well as consumer groups, Tribal authorities, and rural carriers. The proposed order follows a nearly two-year freeze in the rate floor implemented soon after Chairman Pai assumed leadership and would avoid an almost 50% increase in the rate floor scheduled to take effect in July 2019. Rate floor elimination would provide significant regulatory relief to rural carriers by increasing flexibility over service rates, while reducing associated reporting and customer notification requirements.

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Back for its 10th year, our most popular webinar offers an in-depth discussion on the federal Universal Service Fund for participants in USF programs and for contributors to the Fund. This webinar will address major developments in the four support funds and discuss the pressures on the USF contribution system in an era of 20% contribution rates. In addition, as usual, we will offer tips and insights into managing audits and investigations in these highly scrutinized programs.

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On February 4, 2019, the FCC announced a plan to create a new division housed in its Enforcement Bureau, dedicated to prosecuting fraud in the agency’s Universal Service Fund (“USF”) programs. Citing to recent USF-related proposed fines and voluntary settlements, the FCC asserted that the creation of a specialized Fraud Division was necessary to combat misuse of funds under the High Cost, E-Rate, Lifeline, and Rural Health Care programs that make up the USF. The FCC’s brief, two-page Order leaves many questions unanswered about the proposed Fraud Division’s ambit and the status of the “USF Strike Force” that preceded it. However, the Order signifies that the FCC plans to redouble its fraud enforcement efforts in 2019 following recent setbacks on the USF rulemaking front. As a result, eligible telecommunications carriers and other recipients of USF support should keep a close watch as the scope and function of the new Fraud Division starts to take shape.
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