Senate Bill Would Require FCC Vetting Process in Awarding High-Cost Broadband Subsidies

On February, Sen. Shelley Moore Capito announced the reintroduction of the Rural Broadband Act. The bill is co-sponsored by Sen. Amy Klobuchar. The bill is intended to provide for an FCC vetting process for applicants seeking universal service dollars to deploy broadband, in order to ensure that the subsidy awards are given to entities that are capable of fulfilling their obligations. 

If passed by Congress, the Rural Broadband Act would require the FCC to conduct a rulemaking that would establish a vetting process for future applicants future high-cost universal program funding for deployment and supporting broadband Internet access services. Under the bill, the Commission would adopt rules requiring those applicants of "new covered funding awards" to include, in their initial applications, a proposal containing sufficient detail and documentation for the Commission to ascertain that the applicant possesses the technical capability, and has a reasonable plan, to deploy the proposed network and deliver services with the relevant characteristics defined by the Commission and as pledged by the applicant. The initial proposal must also include detail sufficient for the Commission to determine whether the applicant's technology would have the ability to perform as required. And the bill directs the Commission to evaluate the proposal using "well-established technical standards." 

The Rural Broadband Act was introduced in the last Congress but did not receive a committee hearing. On its face, the bill appears sensible. The 118th Congress ought to take up the Rural Broadband Act and seriously consider its merits. 

Of course, this legislation exists amidst the larger backdrop of questions surrounding the future of universal service, and whether or the extent to which Universal Service Fund programs should continue as they are presently constituted or be overhauled. Here are a handful of publications by Free State Foundation scholars on point:

• Andrew Long, "A True Assessment of the USF's Future Relevance Demands a Full Accounting of Broadband Subsidies," FSF Blog (August 30, 2022). 
• Randolph J. May, "The FCC's USF Report: Unprecedented Broadband Funding Requires Fundamental Universal Services Reforms," Perspectives from FSF Scholars, Vol. 17, No. 42 (August 26, 2022). 
• Seth L. Cooper, "Congress Should Consider Expanding Universal Service Contributions: FCC Poses a Potential Answer to USF's Financial Problems," Perspectives from FSF Scholars, Vol. 17, No. 41 (August 23, 2022). 
• Seth L. Cooper, "Congress Should Require Major Web Platforms to Support Universal Service," Perspectives from FSF Scholars, Vol. 17, No. 31 (June 14, 2022). 
• Justin (Gus) Hurwitz, "Congress May Invest Billions in Broadband: It Should Reform the Universal Service Fund Too," Perspectives from FSF Scholars, Vol. 16, No. 34 (July 9, 2021). 

A True Assessment of the USF's Future Relevance Demands a Full Accounting of Broadband Subsidies

In a Perspectives from FSF Scholars published last Friday, Free State Foundation President Randolph May expressed his disappointment that the FCC's Report on the Future of the Universal Service Fund (Report) did not "go further than it did … in articulating a likely 'end state' for the USF's High Cost Fund."

As the Report does acknowledge, Congress has earmarked "billions" for broadband, an "unprecedented amount." However, it does not follow that money to its logical and inevitable conclusion: a near-term reality in which every location in America has access to a broadband connection – and in which the High Cost Fund therefore is no longer needed. And it exacerbates that lapse by failing to acknowledge nearly $9 billion in Department of Treasury subsidy grants publicized prior to the Report's adoption. The Report's failure to account for all of the known sources of federal funds necessarily casts doubt on its conclusions as to the future relevance and need for the agency's existing universal service programs, especially the High Cost Fund.

Over the last several years, Congress has passed multiple pieces of legislation allocating to multiple federal agencies historic amounts of government subsidies for the construction of high-speed Internet networks. Some of those appropriations provide specific dollar amounts. The most obvious example of this is the Infrastructure Investment and Jobs Act (IIJA), which included $65 billion, $46.45 billion of which targets broadband infrastructure construction via NTIA's Broadband Equity, Access, and Deployment (BEAD) Program and Enabling Middle Mile Broadband Infrastructure Program.

As I noted in a March 2022 Perspectives, however, the American Rescue Plan Act (ARPA) created two separate grant programs administered by the Department of Treasury, the State and Local Fiscal Recovery Funds (SLFRF) and the Coronavirus Capital Projects Fund (CPF), that combined make available a whopping $360 billion – some of which will be used for broadband. That uncertainty demands real-time accounting and close interagency coordination, a point that Mr. May and I emphasized in comments recently submitted to the FCC.

Arguably the best way to define the "end state" for the High Cost Fund, which subsidizes the construction and maintenance of broadband infrastructure in rural areas, is in terms of dollars. That is, the actual amount of money needed to extend broadband infrastructure to every location in the U.S. currently unserved. Generally speaking, the moment when federal subsidies reach that specific financial target is the moment when the goal of the High Cost Fund has been achieved.

Regrettably, the Report does not include such a number. However, the Biden White House, after first asking for $100 billion, in May 2021 did concede that with $65 billion – that is, the very amount that Congress included in the IIJA – "we can still achieve universal access to affordable high-speed internet."

Whatever that total – and, given inflation, it is conceivable that the final price tag may be higher than $65 billion – the other side of the equation is the cumulative amount of federal money allocated. Given the fact that Treasury has at its disposal far more ARPA money than required to supplement NTIA's BEAD and middle-mile coffers (to say nothing of the countless other federal broadband subsidy programs), it is essential that the FCC coordinate with Treasury, in addition to NTIA and the Department of Agriculture, on a running tally.

To its credit, the Report does reference some non-IIJA sources of federal broadband subsidies. Two examples: the ReConnect Program administered by the Department of Agriculture's Rural Utilities Service ($4.8 billion to date) and NTIA's Broadband Infrastructure Program ($288 million).

However, it effectively ignores ARPA's $360 billion – concluding that "we agree with the majority of commenters who caution that the Infrastructure Act will not achieve all of the universal service goals for broadband, and as such, the Commission should not abandon its universal service programs" (emphasis added).

Keep in mind, the relevant statutory language in the IIJA directs the Commission to "submit to Congress a report on the options of the Commission for improving its effectiveness in achieving the universal service goals for broadband in light of this Act and the amendments made by this Act, and other legislation that addresses those goals" (emphasis added). As such, the Report's narrow focus on the IIJA not only paints an incomplete picture of progress, it also runs afoul of congressional intent.

To be sure, the Report does point out that "there are billions of dollars more that are available for broadband programs now being implemented by … the Department of Treasury" and that "other recent legislation delivered unprecedented broadband funding to … Treasury." The Commission also commits, appropriately, to "extensive" and "continued close coordination with other agencies" and highlights the interagency agreement among the Commission, USDA, NTIA, and Treasury announced on May 12, 2022.

But prior to the Report's release, the White House and Department of Treasury publicized nearly $9 billion in disbursements from the $350 billion SLFRF Program and the $10 billion CPF – money that the FCC does not even mention in its report. Moreover, that number certainly will increase over time: As Treasury noted in a July 14, 2022, Press Release:

A key priority of the [CPF] is to make funding available for reliable, affordable broadband infrastructure and other digital connectivity technology projects. In addition to the $10 billion provided by the CPF, many governments are using a portion of their State and Local Fiscal Recovery Funds (SLFRF) toward meeting the Biden-Harris Administration's goal of connecting every American household to affordable, reliable high-speed internet.

A June 2022 Fact Sheet released by the White House proclaims that "[t]he American Rescue Plan has already spent or committed more than $25 billion to invest in affordable high-speed internet and connectivity" – a statement that assumes 100 percent of the CPF's $10 billion will be used for broadband.

Limiting the discussion to those grants in fact made prior to the Report's adoption, however, results in the following list of Administration announcements:

• Per the White House Fact Sheet referenced above, "[e]ven without full reporting in, state and local governments have committed more than $8 billion in investments [from the SLFRF] toward expanding affordable digital connectivity, through construction of affordable and high-speed broadband infrastructure and providing assistance to households for Internet access and digital literacy."
• In a June 2022 Press Release, Treasury announced grants from the CPF to four states to the tune of $582.8 million: Louisiana ($176.7 million), New Hampshire ($50 million), Virginia ($219.8 million), and West Virginia ($136.3 million).
• In addition, that Press Release revealed that, as of July 21, 2022, Treasury had made 72 separate grants from the CPF to 76 different Tribal governments, with each receiving $167,504, for a total of over $12.73 million.
• In a July 14, 2022, Press Release, Treasury announced an additional $356.9 million in awards from the CPF to four states: Kansas ($83.5 million), Maine ($110 million), Maryland ($95 million), and Minnesota ($68.4 million).

All told, Treasury announced $952.43 million in grants from the CPF prior to the Report's adoption. Combining that amount with the "more than $8 billion in investments" out of the SLFRF heralded by the White House results in nearly $9 billion, a substantial step toward the High Cost Fund's "end state" not even mentioned in the Report.

In sum, the Report's failure to account for these receipts inevitably casts doubt on its conclusions as to the future relevance of the USF, especially the High Cost Fund.

Getting the Lifeline Program on “Trac”: TracFone’s Request for Lifeline Program Reforms

On January 22, TracFone filed a petition for waiver of Lifeline program rules that it claims inhibit the Federal Communications Commission’s ability to ensure that carriers conduct thorough, accountable, and transparent eligibility determinations. And on January 31, the agency issued a notice soliciting comments on TracFone's petition.

Reforms that help ensure Lifeline subsidies are distributed only to eligible applicants, based on a proper application review process, will help achieve the commendable goals of the program. Unlike those parts of the USF program that distribute subsidies in a more indiscriminate fashion, like the high-cost fund, Lifeline provides targeted subsidies to those in need who meet income eligibility requirements. The Lifeline program is worthwhile, but it can only be sustained if it is administered efficiently and with minimal levels of fraud and abuse. That's why reforms like those proposed by TracFone are necessary to improve the Lifeline program and to maintain public confidence that Lifeline funds are not being wasted.

TracFone’s petition discusses several Lifeline program rules that should be reformed in order to increase transparency and efficiency in the eligibility review process. Specifically, TracFone asks the Commission to allow Eligible Telecommunications Carriers (“ETC”) to retain income-based and program-based eligibility documentation. The current rules require ETCs to conduct a review of subscriber eligibility, but the rules do not require proof that the review actually occurred, or of what evidence the review was based upon. In fact, the rules prohibit ETCs from retaining documentation used to determine a subscriber’s eligibility. As such, TracFone seems to have a point when it claims the rules provide no means by which the Commission or USAC can verify that ETCs have actually conducted a review, or that the review was based on the proper documentation to determine Lifeline eligibility.

By now, the Commission should be aware of its problematic rules which erect unnecessary barriers to efficient subscriber eligibility determinations. TracFone filed an Emergency Petition on May 30, 2012 asking the Commission to amend its rules to allow ETCs to retain program-based eligibility documentation. The Commission sought comment on TracFone’s petition, and all but one commenter supported the proposed amendment. The Commission has not acted on TracFone’s petition seeking to end the existing inconsistencies between the rules regarding review requirements and document retention, but it should. Doing so would further promote accountability and transparency in the Lifeline program eligibility determination process.

The Commission commendably has taken some positive steps toward decreasing fraud and abuse of the Lifeline program under the Lifeline Reform Order. The Commission developed the National Lifeline Accountability Database (“NLAD”), which will be available for ETCs to verify applicants’ Lifeline eligibility for Maryland on February 13, 2014 and for additional states on a rolling basis. This database will help identify duplicate claims for Lifeline service. But if the database fails to identify such instances, ETCs may have to initiate a redundant inquiry concerning an applicant’s eligibility, because the current rules prohibit ETCs from retaining eligibility documentation from the original application review process. As such, while the NLAD should constitute an improvement for the Lifeline program, the Commission needs to do more.

At the end of 2013, the FCC’s Office of the Managing Director announced that the universal service contribution factor for the first quarter of 2014 is 16.4%. This is even higher than the 15.6% contribution factor for the fourth quarter of 2013. In contrast, at the end of 2000, the contribution factor was not even 6%. In effect, the 16.4% fee constitutes a tax paid by every consumer of interstate and international telecommunications services, including the low-income persons the Lifeline program is designed to benefit. The dramatic increase in the size of the USF fund since 2000 – and the concomitant increase in the size of the USF fee – largely has been driven by the increase in the size of the high cost fund. As FSF’s Randolph May and Seth Cooper stated in their comments filed in August 2011 and June 2013, “the end game for the Commission's comprehensive USF reforms should be the eventual elimination, say, in ten years, of all high-cost fund subsidies." Then, the Commission should aim to limit USF support to targeted and explicit subsidy programs, such as Lifeline.

From its inception in 1985, the Lifeline program has provided much-needed resources for low-income persons. The program has helped narrow the connectivity gap between low-income and non-low income households. As Chairwoman Clyburn stated in her address to the New America Foundation on September 12, 2013, 80 percent of low-income households had telephone service in 1984, compared with 95 percent of non-low-income households. That 15 percent gap shrunk to approximately 4 percent in 2012. A well-run Lifeline program can meet its intended purpose of giving access to low-income consumers. This would mitigate the need for broader, more indiscriminate subsidies, such as the high-cost fund subsidies. However, positive aspects of the program, like many programs that provide government subsidies, can easily be overshadowed if the programs turn out to be riddled with waste, fraud, and abuse. The Lifeline program will suffer loss of public support unless the Commission continues to reform it.

While the Commission has taken positive steps to reduce abuse, there is still much work to be done to ensure that the Lifeline program is run efficiently and effectively if it is to fulfill its mission to give low-income Americans access to the vital communications tools of the digital age. That's why the proposals contained TracFone's latest petition, and similar ones, should be given prompt consideration by the Commission.