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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It’s once again full speed ahead on spectrum and 5G deployment at the FCC, as the agency plans to take action at its next open meeting scheduled for April 12, 2019 on a slew of measures aimed at making additional millimeter wave (“mmW”) frequencies available to support 5G wireless technologies, the Internet of Things, and other advanced services. Topping the agenda, the agency expects to propose procedures for the simultaneous auction of spectrum for commercial wireless services in three mmW bands encompassing 3400 megahertz. As we previously reported, the proposal would clear the way for the FCC’s second-ever incentive auction (the first being the March 2017 broadcast spectrum incentive auction) designed to clear out incumbent licensees by offering payments in exchange for relinquishing current spectrum holdings. The agency also anticipates reforming access to mmW bands to facilitate the auction and extending long-standing protections for over-the-air reception devices (“OTARD”) to hub and relay antennas essential to 5G network deployment. Rounding out the major actions on the April agenda, the FCC plans to forbear from certain legacy long-distance regulations in the face of increased competition and eliminate the controversial rural “rate floor” for high cost universal service support.

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


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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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In a move certain to inflame the ongoing trade dispute between the United States and China, Justice Department officials announced criminal charges against Chinese telecommunications equipment manufacturer Huawei, several of its affiliates, and its chief financial officer for alleged theft of trade secrets from U.S. telecommunications providers, bank fraud, obstruction of justice, and other violations. The two indictments issued on January 28, 2019, represent just the latest pushback against foreign telecommunications interests by U.S. officials, citing national security concerns and unfair trade practice claims. The FCC already proposed rule changes last year that would prohibit the use of Universal Service Fund support to purchase equipment or services from foreign companies deemed national security threats, primarily targeting companies from China and Russia. Congress also recently passed legislation prohibiting federal agencies and those working with them from using components provided by Huawei and other Chinese manufacturers. With the Trump Administration reportedly poised to issue an executive order effectively barring American companies from using Chinese-origin equipment in critical telecommunications networks, domestic service providers should keep a close eye on their supply chain security and potential liability when working with foreign entities. A criminal conviction on these charges could lead to broader restrictions on trade in U.S. export-controlled products with the company. Given the presence of encryption in telecom equipment, export controls on such products are relatively widespread
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We attended the Audit Committee meeting at USAC’s quarterly business meeting this morning.  While much of the discussion concerned internal controls USAC has in place to oversee its functions, the business update portion of the meeting gave us a snapshot into contributor and beneficiary audit activity at USAC.  The presentation gave us some insight into a likely increased amount of activity over the next few months.

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As summer begins to wind down, the FCC will begin considering whether to revise or eliminate decade-old regulations, including certain rules related to the Universal Service Fund (“USF”), equipment authorization procedures, and disabilities access. The FCC kicked off its review with a Public Notice under the Regulatory Flexibility Act, which requires federal agencies to reexamine regulations within 10 years of their adoption to assess the continued need for the rules, the rules’ complexity, and whether the rules overlap or conflict with other federal regulations. The purpose of the review is to ensure that older, unnecessary rules do not remain on the books, lowering the compliance burden for smaller businesses. Although the FCC rarely eliminates a rule outright as part of this review, the comments received can help the agency identify improvements for future rulemakings or flag potential compliance issues.

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Echoing concerns raised by other parts of the federal government over the past several years, the FCC, at its open meeting on April 17, 2018, adopted a Notice of Proposed Rulemaking (“NPRM”) to consider a rule which would prohibit Universal Service Fund (“USF”) support from being used “to purchase or obtain any equipment or services produced or provided by a company posing a national security threat to the integrity of communications networks or the communications supply chain.”  The NPRM seeks comment on issues such as how such a rule can be implemented and enforced, what types of equipment and services should be covered, and how manufacturers covered by the rule are to be identified and made known to USF recipients.  Although this is only the start of the proceeding, the FCC’s action could have a broad-reaching impact for some communications equipment manufacturers and create potential liabilities for entities participating in any of the federal USF programs.  All companies purchasing equipment from certain countries – principally China and Russia – may be affected, even if they don’t receive federal USF money.

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Nearly a year after it ordered sweeping deregulation of the business data services (“BDS”) market, the Federal Communications Commission (“FCC”) proposed new rules that would allow certain small rural carriers to move from longstanding rate-of-return regulation to price cap regulation for their BDS offerings.  The transition would reduce the regulatory obligations of such carriers, including the need to prepare and file complex cost studies, which the FCC stated would allow carriers to rededicate resources to building and maintaining networks in underserved areas.  The FCC also proposed removing pricing restrictions on lower-speed BDS offerings in areas with sufficient competition and sought input on whether pricing restrictions for higher-speed DBS offerings also should be eliminated.

Unlike prior BDS actions, where the issue was hotly contested for years and deregulation passed on a party-line vote, the proposed rulemaking was supported by all five Commissioners, at least for purposes of gathering a record. It’s not clear if this unanimity will hold throughout the proceeding, but the FCC may be on the verge of turning a page in its focus on these services, which are a bedrock for both retail offerings and for competitive carriers extending their networks.


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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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On September 12, 2017, the Federal Communications Commission’s (Commission) Office of the Managing Director (OMD) released a Public Notice proposing a universal service fund (USF) contribution factor of 18.8% for fourth quarter 2017.  This proposed contribution factor would be the highest rate since the USF program’s inception and likely reflects the impact of the declining USF contribution base.
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