FCC Should Maintain Safeguards to Curtail Spending for Risky USF Experiments

Whenever the FCC proposes to spend Universal Service money, it is important to remember that the subsidies come out of consumers' pockets. In 2015 alone, USF spending totaled $8.35 billion dollars. The Commission has an obligation to consumers to ensure that USF money is spent wisely. Dollars collected from consumers should not be wasted or risked on untried bureaucratic pet projects.

FSF President Randolph May and I have previously raised concerns about the way the FCC's "rural broadband experiments" are run – including funding rural electric co-ops' and other entities' entry into the broadband business to the tune of $40 million dollars. It's not the FCC's job to artificially create and prop up new business competitors through subsidies. And capitalizing entities with no established operations or experience in the competitive broadband market risks wasting USF dollars collected from consumers.

At the very least, "Strong Safeguards of Scarce Funds Should Govern FCC Broadband Experiments." In a prior blog post, I urged the FCC to maintain its bank-issued letters of credit (LOC) requirements before distributing rural broadband experiment money. Requiring recipients to obtain LOCs from banks helps ensure that disbursed dollars will be returned if recipients fail to meet build-out and service obligations.

According to reports in Telecompetitor, some entities remain unable to obtain LOCs and therefore have not received rural broadband experiment money. This inability comes despite the fact that orders issued by the Commission this spring have loosened LOC requirements.

In other words, it looks like some proposed rural broadband experiments are delayed or won't happen because those would-be recipients of USF money still can't get banks to give them LOCs. But this shows the sensibility of requiring LOCs, not of relaxing the standards. If financial institutions in the business of lending money won't risk giving LOCs to entities participating in rural broadband experiments, why should we want money collected from consumers to be thrown at such risky ventures?

In and of themselves, these rural broadband experiments are problematic on FCC institutional and financial responsibility grounds. But the Commission may not be able to undo what's already been done.

Going forward, however, the Commission ought to retain its Letter of Credit protections. To loosen them further will risk dissipating funds collected from consumers to fund an already excessive USF tax.