FSF Submits Reply Comments in the FCC's Digital Discrimination Proceeding

The Free State Foundation submitted reply comments today in the FCC’s important Digital Discrimination proceeding. The complete reply comments, with all footnotes, is available at FSF's website:

These reply comments are submitted in response to the Commission's proposed rulemaking to address digital discrimination of access to broadband Internet access service. In these reply comments, we again urge the Commission to adopt an intent-based definition of digital discrimination because it is consistent with the text of Section 60506 of the Infrastructure Investment and Jobs Act. These reply comments emphasize that the record in this proceeding does not support the claims made in some comments that there is systemic digital discrimination in America. Also, in the context of responding to other parties, these reply comments identify requirements that should be satisfied before the Commission can impose liability on broadband Internet service providers (ISPs), as well as identifying limits on the scope of the Commission's rules and their enforcement.

 

Claims made in certain comments that there is clear evidence of pervasive digital discrimination rely on largely the same handful of studies that have significant limitations and defects, including reliance on outdated deployment data and a myopic focus on a particular ISP's footprint within a geographic area while ignoring that residents in the footprint are served by a competing provider offering comparable service. Moreover, purported low adoption rates do not constitute evidence of digital discrimination as consumers have many reasons for not adopting broadband – such as concerns about privacy, security, lack of a PC, and other personal considerations – that are outside the control of ISPs.

 

Instead of relying on faulty and outdated studies claimed to prove that digital discrimination of access is pervasive, current data based on accurate maps should be required for the Commission's adjudication of any digital discrimination complaint. And no finding of liability should be made absent the availability of accurate current data regarding existing broadband deployments.

 

Additionally, it would be wrong to find an ISP liable for digital discrimination of access if residents of the area already have access to one or more other broadband providers offering comparable services, and the Commission's rules should not recognize liability in such circumstances. The underlying purpose of Section 60506 is to ensure equal access, not to try to find back door traps to mandate fiber overbuilds. New entrants into the broadband market face financial risks in going head-to-head with incumbents. Rules that ignore the presence of already available services and high adoption rates would unreasonably expand the basis for liability and make entry even more financially risky for providers seeking to expand into new geographic areas. This would have the perverse effect of curtailing deployment.

 

The Commission should recognize that an available service is comparable whenever it can reliably support online edge services and applications that have relatively wide use among consumers. The rules should embody the principle of technological neutrality. So long as alternative platforms can meet speed and latency benchmarks, they should be deemed to be comparable services.

 

Importantly, there is research evidence that the presence of a local government-owned broadband network deters network investment and deployment by private market providers, and there should be a "safe harbor" from liability when an ISP's non-deployment decision is based on a refusal to overbuild and compete against a government-owned network.

 

Notably, there are a variety of instances in which laws and regulations control the deployment decisions of ISPs. Aside from any direct strings attached to the expenditure of federal and state subsidies which have the effect of dictating deployment decisions beyond ISPs' control, state and localities will continue to exercise authority to approve, limit, or prohibit the construction of new facilities and upgrades to existing ones. Accordingly, ISPs should enjoy a "safe harbor" from any liability when their deployments are made pursuant to federal or state subsidy awards. And ISPs should receive safe harbor when actions by federal, state, or local governments regarding permit or other approval processes have prohibited, limited, or delayed infrastructure construction and upgrades.

 

Similarly, ISPs should receive safe harbor from liability when they can show they were denied access to utility poles or that pole owners delayed approval of attachments or pole upgrades necessary for new attachments. And ISPs should be permitted to proffer evidence showing the technological and/or economical infeasibility of deploying to a given area due to the high cost of attachments, particularly where attachments would be needed for high numbers of poles.

 

The Commission's authority under Section 60506 almost certainly will be limited by the major questions doctrine. As explained in West Virginia v. EPA (2023), the major questions doctrine holds that there are certain "extraordinary cases" involving decisions of such "political and economic significance" that a "clear congressional authorization" by Congress is required in order for the agency to exercise the powers that it claims. The broader the extent to which the Commission's rules seek to impose liability on ISPs and the more onerous the restrictions and obligations they impose – particularly if the agency adopts a disparate impact definition and imposes pervasive restrictions and obligations on ISPs' deployment practices that effectively constitute unfunded buildout mandates and price controls – the more likely it is that such rules would be deemed unlawful under the major questions doctrine.

(P.S. FSF's initial comments to the FCC in its Digital Discrimination proceeding were filed on February 21, 2023, and they are available online.)

FSF Perspectives on How the FCC Should Define and Address Digital Discrimination

On December 22, the FCC released its notice of proposed rulemaking to combat digital discrimination. Free State Foundation President Randolph May and I offered our reaction to the Commission's notice in a December 21 press release. Additionally, our views regarding the proper interpretation of the statutory definition of "digital discrimination" and policy that will best help to close the digital divide and ensure equitable access to broadband Internet services are expressed our October 14 Perspectives from FSF Scholars, "The FCC Should Reject a Disparate Impact Standard: Targeted Subsidies Should Be Used to Address Deployment Gaps." As we wrote in the
introduction: 

To date, there is no evidence of intentional discrimination in broadband deployment on account of income, race, or ethnicity. Nonetheless, debate has arisen over whether the Commission's rules should go beyond preventing intentional discrimination to impose liability on broadband Internet service providers (ISPs) on the basis of disparate impact – that is, on the basis of practices that are acknowledged to be nondiscriminatory on their face, but which are claimed to result in adverse effects on legally protected groups. 

The Commission should follow Congress's instructions in the Infrastructure Investment and Jobs Act of 2021 by barring intentional discrimination. To the extent that there are, in fact, any areas disparately impacted by broadband deployments or practices, whether unintended or beyond ISPs' control, Congress and the Commission ought to subsidize, on a targeted basis, buildouts to ensure equal access and take other properly targeted remedial measures that will accelerate broadband deployment to all Americans.

President May and I also offered our views regarding the makeup of the Commission's forthcoming anti-discriminatory model policies and best practices for state and local governments in in our November 30 Perspectives from FSF Scholars, "FCC Should Rely on Pro-Deployment Actions to Avoid Digital Discrimination":

[T]he FCC should decline to include disparate impact liability in any model policies, best practices, or rules that it develops. Instead, the Commission should focus proactively on ways for state and local governments, ISPs, and local communities to identify unserved or underserved areas and help get them connected. And the Commission should recommend that states and local governments accelerate deployment, including by reducing permit approval time lags as well as by eliminating any other procedural impediments to constructing broadband infrastructure. 

Both Perspectives papers go into more detail regarding recommended next steps for the Commission. Expect FSF scholars to further address the Commission's proposed rules regarding digital discrimination in 2023.  

Broadband Subsidy Tax Companion Bill Introduced in the House

On Wednesday, a version of the Broadband Grant Tax Treatment Act (BGTTA), a Senate bill that would shield federal broadband infrastructure subsidies from taxation, was introduced in the House of Representatives.

As I described in a November 17, 2022, post to the FSF Blog, Senators Mark Warner (D-VA) and Shelly Moore Capito (R-WV) authored the BGTTA in response to the 2017 Tax Cuts and Jobs Act, which directs the Internal Revenue Service to treat federal grants as taxable income beginning in 2023.

The BGTTA would exempt from taxation federal broadband funding appropriated by the American Rescue Plan Act and the Infrastructure Investment and Jobs Act, including the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program.

The House version, which mirrors the Senate draft, is sponsored by Representatives Jimmy Panetta (D-CA) and Mike Kelly (R-PA) and cosponsored by Terri Sewell (D-AL) and Drew Ferguson (R-GA).

Responding to the news, USTelecom President Jonathan Spalter described the bill as "right on the money." And Kelly Cole, CTIA Senior Vice President, Government Affairs, stated that it "maximizes grants, which is vital in the deployment of broadband and closing the digital divide."

Draft Bill Would Treat Broadband Subsidies as Nontaxable

Yesterday Senator Angus King (I-ME) became the latest cosponsor of the Broadband Grant Tax Treatment Act (BGTTA), joining a bipartisan group that includes Tim Kaine (D-VA), Roger Wicker (R-MS), Rev. Raphael Warnock (D-GA), and Shelley Moore Capito (R-WV). Introduced by Senators Mark Warner (D-VA) and Jerry Moran (R-KS), the BGTTA would exempt certain federal broadband grants from taxation – and thereby maximize the utility of that funding.

Currently, the IRS can shield from taxation certain broadband subsidies, as it did in 2010. Beginning next year, however, the 2017 Tax Cuts and Jobs Act will require that the Internal Revenue Service (IRS) treat all federal grants as taxable income.

The BGTTA would exclude from the definition of "taxable income" broadband infrastructure funding derived from the Infrastructure Investment and Jobs Act (most notably, the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program) and the American Rescue Plan Act (in particular, the $350 billion State and Local Fiscal Recovery Funds Program and the $10 billion Coronavirus Capital Projects Fund).

In a letter dated November 2, 2022, to leadership of the Senate Finance Committee and the House Committee on Ways and Means, a group of trade associations (the Competitive Carriers Association, CTIA – The Wireless Association, NTCA – the Rural Broadband Association, TIA – The Telecommunications Industry Association, USTelecom – The Broadband Association, and WIA – Wireless Infrastructure Association) urged passage of the BGTTA.

Specifically, they wrote that "if Congress fails to act, grant recipients will be required to return as much as 21 percent of the broadband grants to the federal government in the form of taxes" and "it is … incumbent upon Congress to act to free the ARPA and IIJA broadband grants from taxation and ensure all of the broadband grants awarded will be used to reach Americans with connectivity needs."

Also on Wednesday, Senator Warner stated at the 2022 USTelecom Broadband Investment Forum that he is "engaged [in] real-time conversations with the finance committee and others to see if we could get this included (in) the end-of-the-year package."

At that same event, his fellow sponsor of the BGTTA Senator Moran reportedly "advocated robust congressional oversight," argued that "Congress should use its power of the purse to promote executive agency accountability," and "called for close coordination between the FCC, the National Telecommunications and Information Administration, and the [Department of Agriculture's] Rural Utilities Service."

In "Absent Oversight, the Broadband Funding Faucet Likely Will Overflow," a Perspectives from FSF Scholars published last week, I warned that, without improved interagency coordination, more federal dollars than are required to connect locations as yet unserved could be disbursed.

Whether taxed or not, the need to ensure the efficient and responsible allocation of broadband subsidies remains paramount.

FCC Inspector General Warns Against Fraud in Broadband Spending Program

On September 8, the FCC's Office of Inspector General issued an advisory regarding the presence of ongoing fraud and threats the integrity of the Affordable Connectivity Program (ACP). That $14.2 billion program was established Infrastructure Investment and Jobs Act of 2021, in order to help qualifying low-income households be able to afford broadband Internet connections. But the Inspector General has called attention to a deceptive tactic being used whereby "a number of providers and their agents have enrolled many households into the ACP based on the eligibility of a single BQP [Benefit Qualifying Person]. A single BQP cannot be used to qualify multiple households for ACP support simultaneously."  

The Inspector General's advisory offered some examples of fraudulent enrollment through multiple uses of the same BQP, including more than 1,000 Oklahoma households being enrolled based on the eligibility of a single BQP. Although it deemed improper payment amounts low relative to the overall program size, the Inspector General wrote that "the data show use of this flagrant technique is steady to increasing, particularly for certain providers." The Inspector General issued the advisory in order to put providers on notice regarding that fraudulent tactic.

Additionally, the Inspector General's advisory noted that "[f]raud, waste, and abuse remains a serious problem for Commission programs." Indeed, it is important that the Commission continue to ensure that program dollars are spent as intended and benefitting the proper recipients. (Commissioner Brendan Carr issued a September 9 statement responding to the Inspector General's advisory and again raising his concerns about the need to take action to avoid future misuse of FCC program dollars.) 

 

Moreover, in public comments filed in February 2022, Free State Foundation President Randolph May and Senior Fellow Andrew Long called attention to the need for the NTIA to curb fraud, waste, and abuse in another program that was established through the Infrastructure Act, known as the Broadband Equity, Access, and Deployment (BEAD) Program. The BEAD Program will disburse $42 billion to the states for distribution for broadband infrastructure construction grants, to connect primarily unserved locations. According to the comments filed by President May and Mr. Long: 

In this unprecedented expenditure of taxpayer funds, the exercise of great care and discipline is necessary to ensure that waste, fraud, and abuse are prevented, or at least minimized. NTIA has the affirmative responsibility and duty to ensure that its oversight in conjunction with the states' implementation, stays focused on geographic areas that truly and objectively are unserved.

It is to be hoped that the BEAD Program spending will be safeguarded by NTIA as well as participating states and that program implementation will not necessitate concerns such as those raised by the FCC's Inspector General's advisory about the ACP Program.

Senators Urge Fixes to NTIA's NOFO for Broadband Subsidies

On August 18, a letter signed by thirteen senators was sent to Secretary of Commerce Gina Raimondo, calling attention to aspects of the NTIA's Notice of Funding Opportunity ("NOFO") for the Broadband Equity, Access, and Deployment (BEAD) Program that are contrary to directives made by Congress in the Infrastructure Investment and Jobs Act. The letter is worthwhile reading and NTIA should take up the senators' recommendations and make changes to its NOFO in order to help ensure that the BEAD Program conforms to the Infrastructure Act. 

One of the problems with the NOFO has to do with its provisions that impose or at least encourage controls on broadband prices. According to the senators' August 18 letter to Secretary Raimondo: 

The law clearly states: "Nothing in this title may be construed to authorize the Assistant Secretary or the National Telecommunications and Information Administration to regulate the rates charged for broadband service." In your recent testimony before Congress on April 27, 2022, you recognized this express prohibition on rate regulation. You also noted that State plans to address affordability may not involve rate regulation. 

 

The NOFO, however, appears to open the door to rate regulation by imposing several requirements not included in the law. The NOFO even suggests a price point of $30 dollars for states to adopt for low-cost options. This appears to be an attempt to pressure Eligible Entities to set rates deemed appropriate by NTIA. Additionally, the NOFO prohibits all data usage-based pricing options, which many existing providers use in conjunction with different tiers of service. This requirement could discourage provider participation by conditioning grants on substantial changes to their current practices. Additionally, the NOFO states that, "each Eligible Entity must include in its Initial and Final Proposals a middle-class affordability plan to ensure that all consumers have access to affordable high-speed internet." A "middle-class affordability plan" is a new term that does not appear in the law. Asking States to pursue various strategies for achieving this new objective, including by requiring "providers receiving [BEAD] funds to offer low- cost, high-speed plans to all middle-class households using the BEAD-funded network," is another indirect form of rate regulation. Elsewhere, the NOFO requires States to review the affordability of a 1 Gbps symmetric service and 100/20 Mbps service as part of their prioritization for program scoring. That requirement is also not part of the law. 

 

Congress did not invite States to adopt rate regulations that the statute plainly prohibits, nor can NTIA go beyond the statutory affordability initiatives in the law. Unfortunately, the NOFO does not fully conform to this clear limitation and, if NTIA or States move in this direction, it could deter participation in the BEAD program. We therefore urge NTIA to rescind or correct these portions of the NOFO and make clear to States that rate regulation of broadband service is prohibited under this program. 

Indeed, NTIA ought to make the changes prescribed in the senators' letter and alleviate these reasonable concerns that the BEAD Program will result in federal price controls on broadband services. 

 

Additionally, the senators' letter calls out the NOFO's provisions that discard technological neutrality by favoring fiber technology. FSF Senior Fellow Andrew Long called attention to this problem with the NOFO and the need for NTIA to correct it in his May 24 Perspectives from FSF Scholars, "Future Guidance Can Fix NTIA's Flawed "Fiber-First" Approach." Also, the letter takes issue with the provisions in the NOFO that give preferences to government-owned broadband networks in the BEAD Program grant award process. Those concerning NOFO provisions were addressed in my May 26 Perspectives, "NTIA's Broadband Subsidies Must Respect State Law Limits on Government-Owned Networks."

 

The senators' letter rightly calls for changes to fix the NOFO's provisions favoring technological non-neutrality and government-owned networks and to bring the BEAD Program more in line with the Infrastructure Act.