Universal Service Supply Chain Item Circulated for April 17 FCC Meeting
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Monday, March 26, 2018

Universal Service Supply Chain Item Circulated for April 17 FCC Meeting

FCC Chairman Ajit Pai plans to ask his fellow Commissioners to vote at their April 17 meeting on a proposal to prohibit telecom service providers that receive FCC universal service support from purchasing telecom equipment or services from companies that are deemed to pose a national security threat to U.S. communications networks or supply chains.

Also circulated today for the meeting is a draft public notice seeking comment on procedures for two upcoming auctions of millimeter-wave spectrum; a draft proposal to streamline the agency’s process for authorizing small commercial satellite operations; a draft item aimed at improving rural call completion; a draft notice of proposed rulemaking (NPRM) to enable rate-of-return (RoR) carriers that receive model-based high-cost support to transition their business data services (BDS) from RoR to incentive regulation; and two items on the Chairman’s ongoing effort to modernize the agency’s media regulations.

The FCC today released a blog posting by Mr. Pai that summarized the planned items for the April 17 meeting, as well a statement by the Chairman on the draft supply chain NPRM. But the actual text of the draft items will be publicly released tomorrow, along with the tentative agenda.

The draft NPRM on the supply chain for purchases made using universal service funds seeks input on three possible ways of identifying what companies pose a national security threat, according to a senior FCC official who briefed reporters on the proposal this morning:relying on prior identifications of such companies by Congress in the National Defense Authorization Act or elsewhere; relying on prior identifications of such companies by other federal agencies; or relying on another federal agency with national security expertise to maintain a list for the FCC.

The draft NPRM does not express a preference or presumption as to which method should be used, the official said.

China-based Huawei Technologies Co. Ltd., and ZTE Corp. have been among foreign companies that provide equipment or services in the telecom space that Congress has directed or advised federal agencies and contractors not to do business with. Similarly, the Department of Homeland Security has directed all civilian federal agencies to purge their systems of computer security software provided by Russia-based Kaspersky Labs, a ruling the company is currently challenging before the U.S. District Court for the District of Columbia (TR Daily, Sept. 13, 2017).

Just last week, Chairman Pai told members of Congress in a letter that he would “take proactive steps to help ensure the integrity of the communications supply chain in the United States in the near future” (TR Daily, March 23). He was responding to a letter from 18 lawmakers in December that expressed concern that a major U.S. telecom provider planned to begin selling consumer products of Huawei. They did not mention the company by name, but it presumably was AT&T, Inc., which decided not to offer Huawei handsets.

The draft NPRM intended for an April 17 vote will also ask how the FCC should enforce the proposed prohibition and how the agency should treat funds that are used in violation of the prohibition. It would seek comment on the possibility of debarring violators from future participation in the universal service mechanisms.

Under the draft NPRM, the prohibition would apply prospectively to funds disbursed after the rule is adopted. It does not contemplate asking universal service support recipients to remove equipment previously obtained from sources prohibited under the proposed rule, according to the official. However, it would seek input on how to treat the use of funding to upgrade previously installed equipment from prohibited suppliers.

The proposed prohibition would apply to all four universal service support mechanisms: high-cost, low-income, E-rate, and telemedicine. A second senior FCC official said that the prohibition applies to entities that receive the funding, not to end-users who benefit from the support, so that it would not impose a restriction on handsets used by Lifeline beneficiaries, for example.

The draft NPRM would suggest relying for legal authority for any actions taken primarily on the universal service provisions in section 254 of the 1996 Telecommunications Act.

In his blog post today, Chairman Pai said, “The changing communications landscape has not only elevated the importance of network security, but also created new challenges. One such challenge is the integrity of the supply chain — that is, the process by which products and services are manufactured, distributed, sold, and ultimately integrated into networks. Over the past decade, the Executive Branch and Congress have repeatedly stressed the importance of identifying and eliminating vulnerabilities in communications networks and their supply chains. Of particular concern are the national security threats that certain communications equipment providers pose.”

He added, “The FCC does not have the authority or capacity to solve this problem alone. But we do have a role to play in addressing these concerns. For example, we have a responsibility to make sure that the money from our Universal Service Fund (USF) programs is not used in a way that undermines our national security. That’s why the Commission will be voting in April on a targeted proposal to prohibit the use of USF dollars to purchase equipment or services from any company that poses a national security threat to the integrity of U.S. communications networks or the communications supply chain.”

In a statement, U.S. Telecom Association President and Chief Executive Officer Jonathan Spalter said, “USTelecom members have long considered network integrity a top priority and have worked closely with government partners to improve the security of communications networks. We will continue working with the FCC and other agencies to address supply chain vulnerability issues. Consumers and businesses alike correctly expect their information is secure when travelling across networks, and USTelecom will continue participating in government- and industry-wide efforts to construct responsible, reasonable and effective solutions. We look forward to reviewing the Notice of Proposed Rulemaking (NPRM) and understanding the implications for our industry, our nation, and, most importantly, American families and communities.”

Cinnamon Rogers, senior vice president–government affairs at the Telecommunications Industry Association, said, “The Telecommunications Industry Association takes supply chain security very seriously and appreciates efforts by the U.S. government to improve the security of the network. TIA and our member companies in the information and communications technology (ICT) industry have been working in partnership with agencies across the federal government to improve cybersecurity. We strongly support efforts by the government to address concerns regarding certain communications equipment providers deemed to pose a heightened security risk.”

Ms. Rogers added, “The FCC has a key role to play in these efforts, and we appreciate Chairman Pai’s recognition that addressing security concerns requires work across the federal government in partnership with the ICT industry. We look forward to reviewing the proposal and working with the Commission on these important issues in the months ahead.”

Also at its April 17 meeting, the FCC tentatively plans to consider a public notice to seek comment on procedures the agency should use for 28 gigahertz and 24 GHz band auctions.

Mr. Pai announced last month that he wants the FCC to hold the auction of 28 GHz band spectrum in November, “followed immediately thereafter by” a 24 GHz band auction (TR Daily, Feb. 26).

“To meet that timeline, we need to move quickly,” Mr. Pai said in his blog post today. “And because [omnibus appropriations] legislation signed last Friday by the President [TR Daily, March 23] has fixed a technical problem involving upfront payments by auction bidders for spectrum, we are now able to do just that.

“At our April meeting, the Commission will vote on a public notice seeking input on auction procedures for the 28 GHz and 24 GHz bands. And under the draft that I have presented my colleagues, the 28 GHz auction would commence on November 14,” the Chairman added. “By kicking off the pre-auction processes, we take another important step to promote American innovation in 5G wireless services, the Internet of Things, and other advanced spectrum-based services at previously underused high-band frequencies.”

Another item the FCC is tentatively scheduled to consider involves facilitating the deployment of small satellites.

“Smaller, less expensive satellites with short-duration missions — often known as ‘small satellites’ — are being developed and launched into space in increasing numbers. More satellites mean more regulatory reviews. Hence the problem: our current regulations weren’t designed with these smaller satellites in mind,” Mr. Pai said in his blog posting. “That’s why I’m proposing to streamline the process for authorizing commercial small satellite operations. Under this proposal, if satellites or systems have certain characteristics, such as short orbital lifetimes, they could choose to file under a new, alternative small-satellite process.This process would be less burdensome in some respects, while still addressing important issues such as using spectrum efficiently and limiting orbital debris ... ”

Regarding rural call completion, Chairman Pai said he would seek a vote on “new rules to improve the monitoring by long-distance carriers of ‘intermediate providers’ to which calls are handed off. The goal is to ensure that carriers that are handed a call — those who take the baton, so to speak — don’t drop it, but instead take care to ensure it gets to its destination. At the same time, my proposal would free carriers from burdensome FCC reporting requirements because those rules haven’t produced reports that are useful to the agency. In addition, Congress recently enacted the Improving Rural Call Quality and Reliability Act of 2017.We’ll work diligently to implement this new law, including by seeking public input on certain aspects of rural call completion, and continue to take other measures ‘to ensure the integrity of voice communications and to prevent unjust or unreasonable discrimination among areas of the United States in the delivery of such communications’ (as the new law instructs).”

The proposed action follows a second further notice of proposed rulemaking in Wireline Competition docket 13-39 adopted last July, in which the FCC proposed ways to address problems with failed long distance calls to rural areas, in particular by holding long distance providers accountable for the performance of intermediate carriers to which they hand off traffic. The rulemaking notice was the latest step aimed at stemming rural call completion problems that have diminished since a 2013 order on the issue but that remain a significant issue.

In addition to holding long distance providers accountable for intermediate providers, the item sought comment on whether to modify or eliminate data recording retention and reporting rules. The notice also sought comment on whether to proceed with its existing “safe harbor” rule for covered providers and on any additional measures the Commission should take to address rural call completion problems.

President Trump signed the Rural Call Quality and Reliability Act referenced by Chairman Pai in February (TR Daily, Feb. 27). It directs the FCC to adopt quality standards to ensure the delivery and completion of voice calls as well as rules requiring intermediate providers that transmit voice calls to register with the agency.

The draft NPRM on RoR carriers’ BDS services would, Chairman Pai said, “provide a path for rate-of-return carriers that receive high-cost universal service support under the Alternative Connect America Cost Model [ACAM] to voluntarily elect to migrate their business data services offerings to incentive regulation.”

He added that the NPRM “recognizes the fact that incentive regulation — that is, rules that set broad goals and reward a company for being productive and efficient in meeting those goals, as opposed to rules (like rate-of-return rules) that simply tell a company what its allowable costs and return on investment will be — promotes better investment decisions and consumer welfare. Incentive regulation also minimizes the administrative burdens of regulation for everyone; companies don’t have to spend a lot of hours and money on expensive cost studies, and the FCC doesn’t have to spend a lot of hours and money verifying those studies.The bottom line is that incentive regulation will allow carriers to spend scarce resources on things that more directly benefit consumers — say, investing in better, stronger networks — instead of paperwork to satisfy archaic rules.”

Finally, the two items from the Chairman’s media regulation modernization initiative are a draft NPRM “that proposes to eliminate the requirement that cable operators maintain at their local offices a current listing of the cable television channels that each cable system delivers to its subscribers” and a draft order that would “relax a requirement that TV stations must report annually to the FCC about the revenues they receive from ancillary and supplemental services,” the Chairman said. “Astute observers will note that we teed up this proposal a few months ago. If adopted, broadcasters without any such revenues would no longer need to file a report with the Commission. Taking this step would eliminate unnecessary paperwork and is simple common sense; that might explain why the record reveals no opposition at all to this proposal,” he added.- Lynn Stanton, lynn.stanton@wolterskluwer.com; Paul Kirby, paul.kirby@wolterskluwer.com

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