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Rural Providers Concerned as FCC Contemplates USF Budget Caps

Randy Sukow / Jun 4, 2019

The FCC late last week proposed to place a budget cap on universal service fund (USF) support. By a 3-2 party line vote, it adopted a Notice of Proposed Rulemaking to implement a cap on the expenditures in entire program in order to better manage the approximately $12 billion annual fund. The proposal immediately drew criticism from rural broadband providers.

“Placing an overall cap on the universal service fund … poses serious risk of creating future divides among the various universal service programs and should therefore be rejected,” said Shirley Bloomfield, CEO of NTCA – The Rural Broadband Association in a statement yesterday. “Instead, we simply believe the FCC should take the steps necessary to evaluate and establish specific, sufficient, and predictable budgets for each program individually as the law contemplates.”

Universal Service includes four separate funds:

  • The High-Cost Fund, which in recent years has mainly consisted of the Connect America Fund (CAF) to promote rural broadband service, has been capped at $4.5 billion per year for several years, but has not been indexed for inflation. The Commission dispersed $4.692 billion in 2017 with additional funding over the cap coming through CAF reserves from unspent funds in past years.
  • The Lifeline Fund covers basic phone/internet service and communications devices for low-income households. It had a $2.25 billion cap in 2016 and 2017, which increased to $2.279 billion in 2018. The fund dispersed $1.263 billion in 2017.
  • The Schools and Libraries Fund, better known as the “E-Rate,” supports wiring educational centers, especially in rural areas, for broadband. Its budget cap in 2018 was $4.06 billion, but actual support was $2.77 billion.
  • The Rural Health Care Fund supports telecommunications and broadband needs for healthcare facilities. Its current cap is $581 million. However, the latest disbursement figure available is for 2016, which was approximately $408 million at a time when the cap was $400 million a year.

“While each of the constituent USF programs are capped or operating under a targeted budget, the Commission has not examined the programs holistically to determine the most efficient and responsible use of these federal funds,” the Commission said in the NPRM.  “A cap could promote meaningful consideration of spending decisions by the Commission, limit the contribution burden borne by ratepayers, provide regulatory and financial certainty, and promote efficiency, fairness, accountability, and sustainability of the USF programs.”

Telecommunications companies provide funding for the USF programs through fees assessed on interstate and international services. Payments the FCC has required have risen dramatically over several years. The cost of the increases come directly out of consumers’ monthly bills.

“I have advocated on behalf of ratepayers to address a perennial problem of public choice: while there’s never any shortage of special interest groups seeking additional spending, those who actually foot the bill are much less likely to spend time and resources to defend their own interests,” said Commissioner Michael O’Rielly in his statement. “Quite reasonably and appropriately, they’re focused instead on their everyday, busy lives.”

O’Rielly, who is the primary advocate for the proposals, noted that the NPRM does not call for cutting budgets in any of the four funds, but seeks a way to disburse funds more efficiently. The proposal would not prevent the FCC from increasing fund budgets in the future using normal procedures if it foresees the need to do so, he said.

Commissioner Jessica Rosenworcel dissented from the NPRM. “It is fundamentally inconsistent with this agency’s high-minded rhetoric about closing the digital divide.  It is also at odds with our most basic statutory duty to promote and advance universal service,” she said.

Update, June 12: A week after the FCC proposed the USF cap, a group of 64 interest groups released a statement opposing the idea. The group includes rural communications associations, such as NTCA-The Rural Broadband Association, the Rural Wireless Association and WTA-Advocates for Rural Broadband, along with well-known national advocates, such as the ACLU, NAACP and Consumer Federation of America. “The parties listed below believe that placing an overall cap on the USF puts at risk the comprehensive mission of universal service as Congress intended and articulated it. An overall USF cap, even if sized to meet current overall demand or the sum of authorized levels plus inflation, could still end up pitting these essential programs against each other in the future and undermine efforts to solve the ‘digital divide,’” the groups said.

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