Over the dissent of Commissioner Mignon L. Clyburn and the partial dissent of Commissioner Jessica Rosenworcel, the FCC today authorized up to $36.5 million in additional Alternative Connect America Cost Model (A-CAM) support for rate-of-return (RoR) carriers to deliver broadband to additional locations; “explicitly” prohibited the use of high-cost support for purposes other than providing, maintaining, and upgrading the designated facilities and services; and specifically excluded certain expenses from recovery in interstate high-cost support for rate-of-return carriers.
The Commission also addressed some pending petitions for reconsideration of its 2016 RoR reform order (TR Daily, March 30, 2016) and sought input on possible further reforms of RoR high-cost support, such as allowing legacy providers another opportunity to elect model-based support and increasing the monthly cap on per-location support to $200.
In a report and order, third order on reconsideration, and notice of proposed rulemaking in WC dockets 10-90, 14-58, and 07-135 and CC docket 01-92 adopted March 14 and released today, the FCC said, “Though we have made progress for rural Americans living in areas served by our nation’s largest telecommunications companies, the rules governing smaller, community-based providers — rate-of-return carriers — appear to make it more difficult for these providers to serve rural America. As a result, approximately 11 percent of the housing units in areas served by rate-of-return carriers lack access to 10 [megabits per second] downstream/1 Mbps upstream (10/1 Mbps) terrestrial fixed broadband service while 34 percent lack access to 25 Mbps downstream/3 Mbps upstream (25/3 Mbps).”
Comments on the NPRM will be due 30 days after publication of the item in the “Federal Register.” Replies will be due 30 days after initial comments.
In the report and order, the FCC said that “to maximize available funding for broadband networks, we codify existing rules that protect the high-cost universal service support program from waste, fraud, and abuse by explicitly prohibiting the use of federal high-cost support for expenses that are not used for the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended.” The prohibitions cover three categories: personal expenses, such as personal travel, personal vehicles, housing, childcare, employee gifts and entertainment-related expenses; expenses unrelated to operations, such as “political contributions, charitable donations, scholarships, membership fees and dues in clubs and organizations, sponsorships of conferences and community events, and penalties or fines for statutory or regulatory violations, penalties or fees for late payments on debt, loans, or other payments”; and corporate luxury goods, such as “artwork and other objects which possess aesthetic value, and corporate aircraft, watercraft, and other vehicles, with limited exception” for such craft used for provision, maintenance, and upgrading of supported services and facilities.
The FCC also adopted “additional compliance obligations that will assist us in determining whether high-cost recipients comply with the requirement to spend high-cost funds only on eligible expenses.” It added, “Specifically, we require rate-of-return ETCs [eligible telecommunications carriers] to identify on their annual FCC Form 481 (Carrier Annual Reporting Data Collection Form) their cost consultants and cost consulting firm, or other third party, if any, used to prepare cost studies, or other calculations used to calculate high-cost support for their submission.”
“ Additionally, for rate-of-return carriers, we adopt a presumption against recovery through interstate rates for specific types of expenses not used and useful in the ordinary course and identify other expenses that we presume are not used and useful unless customary for similarly situated companies,” it said.
“Second, in exchange for increased broadband deployment obligations, we offer additional high-cost support to those rate-of-return carriers that previously accepted model-based support,” the FCC said.
“We direct the Bureau to offer additional support up to $146.10 per-location to all carriers that accepted the revised offers of model-based support. Under the revised offer, all locations with costs above $52.50 per location will be funded up to a per-location funding cap of $146.10, and the Bureau should adjust deployment obligations accordingly. If all eligible carriers accept this offer, we anticipate that it would result in approximately $36.5 million more support per year for the 10-year ACAM term. Increasing support immediately will result in additional broadband deployment, while balancing budgetary constraints pending the outcome of this proceeding. This increase in support does not impact legacy support,” it explained.
It added, “There is ample support in the record from carriers and state government officials, as well as from members of Congress, for increasing the budget for A-CAM. With additional funding, these parties have made clear the economic, educational, and healthcare benefits that will directly follow. Our action today addresses these requests by extending a revised offer at $146.10, the same maximum per-location support amount as we offered to price cap carriers for the Phase II offer of model-based support and as the Commission has proposed for the maximum reserve price in the Phase II auction. By raising the per-location cap to a uniform $146.10 for all current A-CAM recipients, we could increase by more than 17,700 the number of locations that will receive 25/3 Mbps over the course of the support term, with another 14,000 locations receiving 10/1 Mbps. Although we decline to extend the per-location funding cap to $200 at this time, we seek comment on doing so in the attached Notice, along with potential increases to the overall budget.”
The FCC also said that “to ensure stability in the contribution factor pending ongoing implementation of various high-cost reforms, we direct the Universal Service Administrative Company (USAC) to continue forecasting a uniform quarterly amount of high-cost demand pending further Commission action.” That is, if demand drops below one-quarter of the expected annual amount during a given quarter, the USAC would still maintain a contribution factor that would raise one-quarter of the expected annual demand.
In the third order on reconsideration, the FCC granted in part a petition by NTCA by eliminating “the effect of the budget control mechanism for the period current budget year (from June 2017 to July 2018)” to address concerns that the mechanism could “endanger legacy carriers’ ability to offer service at reasonably comparable rates, and could result in rural consumers paying ‘tens of dollars (or even hundreds of dollars) more per month than urban consumers for standalone broadband.’ That claim has been borne out in fact: Based on FCC Form 481, data, 27 eligible telecommunications carriers could not certify to meeting the broadband reasonable comparability benchmark,” the FCC said.
The change will alleviate a reduction of about $180 million caused by the application of the budget control mechanism.
It also granted an NTCA request to include an inflation adjustment in the opex limitation calculation.
It granted NTCA’s request “to include CBOLs [consumer broadband-only loops] in the calculation of each carrier’s corporate operations expense limitation. The rule operates by creating a limit on total corporate operations expenses based on the number of lines, and then apportioning those costs among common line and other cost categories.” Under the rule as adopted in the 2016 order, “[i]n an extreme case, a carrier with customers that exclusively have chosen to subscribe through broadband-only lines would not be eligible to recover any of its corporate operations expenses,” the FCC noted.
At the request of WTA, the FCC clarified the treatment of transferred exchanges, and it responded to requests from NTCA and WTA to clarify the waiver process.
“Finally, in the Notice of Proposed Rulemaking (Notice), we consider further reforms to establish a budget that will allow for robust broadband deployment in rate-of-return areas while minimizing the burden that contributions to the Universal Service Fund (the Fund) place on ratepayers and to bring greater certainty and stability to rate-of-return high-cost funding, both in the near term and in the future. We also seek comment on additional reforms to increase broadband deployment, while promoting the efficient use of limited resources. For example, we seek comment on whether to fully fund existing A-CAM support recipients, afford a new opportunity for legacy providers to elect model-based support, and establish a minimum threshold of support for legacy providers that would not be subject to a budget cap. Lastly, we seek comment on other reforms, including, for example, exploring the need for caps on capital and operating expenses, using an auction process to address substantial competitive overlaps, and other options for simplifying the legacy rate-of-return mechanism,” the FCC said.
In her dissenting statement, Commissioner Clyburn said, “It is common in a Notice of Proposed Rulemaking, to include a wide variety of questions aimed at creating the most robust record possible. Consistent with prior practice, I offered a number of suggestions for consideration in this item, unfortunately each and every one of those requests was denied. Specifically, I asked that we include questions which were intended to further spur broadband deployment on Tribal lands: Requests denied.
“Then, I submitted that since we are spending more money on our high-cost fund, why not include language which makes it clear that we would not raid the budgets of other programs in order to pay for these reforms? Requests denied.
“I even suggested that we ask about efficient distribution of high-cost funding, including questions on when it was appropriate to auction or remove support for overlapping areas, and running robust challenge processes. Suggestion denied,” Commissioner Clyburn continued.
“I also sought feedback on whether it was appropriate to condition funding on a commitment to uphold net neutrality protections, particularly in areas where there is no competition. The Chairman’s office response: No can do.
“I sought edits that would have allowed us to have more tools in the toolkit to combat bad actors by removing them from the rate pool. A kit to combat bad actors: Not granted.
“So finally, I sought feedback on whether consumers in the high-cost program should have a higher data limit than 170 GB per month? Why not even include a question in the item about this? We will never know: Request denied,” she said.
“I am puzzled. Does the majority want to close the digital divide? Does the majority want to distribute our limited funds efficiently? Does the majority want to stamp out waste, fraud and abuse in all Universal Service programs (or just one)?
“We had an incredible opportunity to not only ‘walk the walk, but talk the talk.’ Unfortunately, this item stumbles on many levels.
“And to suggest that my requests were last-minute, as the Chairman does in his statement, disingenuously characterizes the fact that I had communicated my requests to his office weeks before the voting deadline. Rather than exercise his power to extend the voting deadline, he made it clear that he simply did not want to deal, and for that I am disappointed,” Commissioner Clyburn said.
Commissioner Rosenworcel said, “I dissent in part on the rulemaking associated with this effort. It fails to ask any questions about how to protect rural consumers who lack other service options if they find they are on the losing end of discriminatory network practices in the wake of the FCC’s net neutrality repeal. This is wrong. It deserves discussion and our failure to do so is an unfortunate abdication of our most basic consumer protection duties.”
Commissioner Mike O’Rielly said, “Through this item, the Commission seeks to refine the reforms adopted in the 2016 Rate-of-Return Reform Order. For the past several years, I have worked intensively and collaboratively with rate-of-return providers and their associations to understand and address the unique challenges of serving rural America in order to bring greater broadband access to consumers. While I committed to promptly address any legitimate issues that arose after the order was released – and this item closes out all remaining ‘punch list’ tasks — I have wanted to be cautious about upending the stability provided by the prior order, which was and continues to be broadly supported by the affected industry associations. My primary concern is ensuring that providers are able to remain focused on building out broadband to connect the unserved Americans in their communities.”
Commissioner O’Rielly added, “As the Commission begins to consider longer-term solutions, I will remain focused on maximizing broadband deployment in rural America while minimizing the burdens on hardworking Americans that pay extra fees on their phone bills to support the universal service fund. Moreover, I view high-cost as the foundational universal service program. Without the underlying network infrastructure, the other universal service discount programs will be less effective. That is why I have consistently urged the Commission to set a topline budget for the entire federal universal service fund as is done with the high-cost program (and reexamined in this item) and, if necessary, make some hard choices about the relative sizes of each of its programs.”
He said that he is “fairly skeptical of removing capital and operating expense limits. These limits, which act as minor guardrails, are not intended to recoup funding but rather are designed to prevent companies from egregiously exceeding industry norms. Moreover, these parameters, like the pre-existing $250 per-line per-month cap that also serves as a basic check on spending, have helped bring to light potentially problematic expenditures. Indeed, the Commission’s review of companies that sought a waiver of the $250 cap helped us formulate the list of impermissible expenses that the Commission adopts today.”
He said he is “gratified that the item now seeks comment on incorporating means-testing within the high-cost program, another idea that Commissioner Clyburn and I have advocated for some time.” Commissioner Brendan Carr said, “We rightly seek comment on what the minimum threshold support amount should be, and leave all options on the table when it comes to setting that amount. I also support the proposal to adjust the high-cost budget for inflation, which has not been done in the past and is a much-needed step to bring the high-cost program into parity with the other universal service programs. Finally, I am pleased that the Notice asks about opening up new model offers.”
FCC Chairman Ajit Pai said, “The Commission’s adoption of this Order and Notice is a big win for rural communities that want high-speed Internet and are served by rate-of-return carriers. It means that such carriers will have over $500 million more in funding to expand broadband deployment in rural America. And it tees up an examination of how to ensure that we provide sufficient and predictable support over the long term so that communities served by small carriers aren’t stuck on the wrong side of the digital divide.
“In the short term, we provide $180 million in one-time funding to mitigate the effect of the budget control mechanism for the current funding year adopted by the prior Commission. I’ve heard from numerous parties that the large cuts or uncertain funding levels resulting from that mechanism have made it very difficult for many carriers to make investment decisions and to keep operations running smoothly. I hope this infusion of funds will provide needed relief while we consider broader reforms to shore up the system,” he continued.
“In the longer term, we’re strengthening the Universal Service Fund and reinvesting in what works. The Alternative Connect America Cost Model (A-CAM), for example, is successfully helping carriers that opted into the model build out broadband networks in their service areas. Much of this success comes from having a fixed amount of support that allows them to plan efficiently and access capital markets. Recognizing the power of the A-CAM approach, we are also devoting over $360 million toward additional broadband deployment by carriers currently participating in A-CAM,” the Chairman said.
Chairman Pai added, “I’d like to thank Commissioner O’Rielly for engaging in good faith and working with me on edits to the eligible expenses section that improved the item. With respect to the views expressed by my dissenting colleagues, it’s important to note that they had 58 days to review the item but waited until after the close of business on the 57th day — the day before the ‘must vote’ deadline, which itself had already been extended — to propose substantive edits. That’s not a serious attempt to work towards consensus; rather, it smacks of a calculated delay tactic. But too many rural Americans have waited long enough for digital opportunity to countenance yet further delay. They expect action, and today, we’re taking it.”
In a statement, NTCA Chief Executive Officer Shirley Bloomfield said, “We are still reviewing the details of the order and related items released by the FCC today, but as a threshold matter, we welcome several aspects of today’s action.
“First, NTCA has actively engaged in the effort to secure greater, bright-line clarity in determining what is and is not recoverable through universal service. NTCA has seen this as important to promote effective and efficient use of limited resources for the benefit of both consumers and stakeholders in that system. While we’re still working through the specifics of the FCC’s revisions, we welcome generally efforts to provide clearer guidance on such issues going forward,” Ms. Bloomfield said.
“More importantly, however, today’s action by the FCC to address immediate USF budget crises represents a much-needed ‘shot in the arm’ for rural broadband and charts a course toward realizing the goal of promoting and sustaining effective broadband deployment in rural America. … As the decision today recognizes in providing additional resources, the current levels of high-cost USF support are not sufficient,” she continued.
“Finally, the notice included with today’s order also rightly recognizes that there is much more to do and to discuss to ensure that sufficient and effective universal service support will be available as required by law to achieve and sustain our nation’s connectivity goals,” she concluded.
U.S. Telecom Association President and Chief Executive Officer Jonathan Spalter said, “This is another significant and meaningful step toward closing the rural broadband gap and moving us farther down the road to ensuring consumers living in rural America have the high-speed broadband they need to fully participate in our digital economy. By increasing funding and putting in place tighter controls on expenditures, the Commission is reinforcing its number one priority — closing the digital divide.”—Lynn Stanton, [email protected]
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