Federal Universal Service Fund

The uncertain timing of a federal USF contribution overhaul stirred debate over whether states should proceed with changes to their own funds. In replies Friday at the Nebraska Public Service Commission, some telecom companies urged the PSC to wait to revamp its surcharge methodology until the FCC Federal State Joint Board on Universal Service and the FCC act on federal contribution reform. It’s unclear when the Joint Board will issue a recommendation; the FCC USF contribution reform proceeding has been open for more than a decade.

Revenue from contributions to state USFs has declined in multiple jurisdictions, we found last week from state USF financial documents and from interviewing state and industry officials. Those officials cited a variety of reasons for the falling revenue. Some cited outdated contribution methodology, while others said the drop is part of deliberate efforts to control the size of funds. Some states reported efforts to revamp USF contribution methodology, and one said its hands were tied by state legislation.

The House FY 2017 FCC funding bill retained its policy riders curbing the agency’s net neutrality order, mandating a pause to the set-top proceeding and mandating FCC process overhaul Thursday as it advanced to the floor. Appropriations Committee Republicans shot down Democrats' attempts to modify the Financial Services bill during the long full committee markup, approving the bill 30-17.

BOSTON -- The FCC was criticized by another group of stakeholders at INTX, as the show drew to a close Wednesday. All four state telecom regulator panelists heaped criticism on the FCC over a range of process and legal issues. Critiques involved moving Lifeline subsidies for the poor to broadband from voice in a way that allows the FCC to certify providers as eligible telecom carriers (ETC) instead of just states having that authority, and pre-empting anti-municipal broadband state law. Process concerns included that the federal commission takes too long to issue the text of orders, is too partisan, and commissioners don't cooperate. State commissioners of both parties said the FCC doesn't work closely with state telecom regulators and follow through by having such cooperation reflected in rules. Asked in Q&A whether the FCC had any bright spots, panelists praised it for moving USF to broadband.

A magistrate judge recommended against dismissing Charter’s challenge of a Minnesota Public Utilities Commission order asserting state authority over interconnected VoIP services. The report and recommendation (in Pacer) by U.S. Magistrate Judge Hildy Bowbeer isn't an order or judgment, and parties may object to the recommendation within 14 days. The U.S. District Court in Minnesota can issue an order 14 days after objections and responses are filed.

The federal USF had more than $8 billion in financial assets as of Dec. 31, said the 2015 annual report of Universal Service Administrative Co., which oversees the fund for the FCC. The USF, which had assets of $4.5 billion in 2006, paid out $8.4 billion in 2015 but collected more than that, further increasing its cash and other assets, said industry consultant Billy Jack Gregg in an email Wednesday summarizing findings from his analysis of the annual report (see 1603310052). A portion of the assets was used to offset USF funding commitments in 2015, such as model-based Connect America Fund Phase II support, Gregg said. "These assets also provide the reserve funds which the FCC will use to mitigate the $1.5 billion annual increase in the Schools and Libraries Fund, and to underwrite CAF Phase II competitive bidding support." The assets include $6.8 billion in investments, the report said.

The FCC revamped rate-of-return USF support mechanisms for the broadband era, in a 249-page order and Further NPRM released late Wednesday, with Commissioner Ajit Pai partially dissenting and partially concurring. The order gives rate-of-return telcos the option of receiving rural high-cost USF subsidies based on a broadband cost model over 10 years, which will be supplemented by $150 million in additional annual funding from existing USF reserves. For carriers not opting in to the model-based approach, the order updates a legacy mechanism -- renamed Connect America Fund Broadband Loop Support (CAF-BLS) -- to fund stand-alone broadband service to customers, which was a major driver of the reform effort. The changes include measures and incentives to spark greater broadband deployment, the order said.

The FCC circulated a draft order that would extend Lifeline USF support to broadband coverage and to streamline administration of the program that subsidizes low-income telecom service, as expected. The draft is expected to be considered at the agency's March 31 meeting, as Communications Daily first reported. The order would allow Lifeline support to be used for stand-alone broadband or bundled broadband/voice packages in addition to current voice service. The order would phase out the support for stand-alone mobile voice service and phase in broadband minimum standards over the next few years, said an FCC fact sheet.

A new draft FCC reauthorization bill from Senate Commerce Committee Chairman John Thune, R-S.D., no longer includes some process overhaul provisions that he floated last year. Thune announced last week that he wants to mark up the FCC Reauthorization Act in the coming weeks, and a new nine-page draft bill text is circulating. A Commerce Committee aide told us the bill could be marked up as soon as next week. The tentative markup date is March 16, a telecom industry lobbyist confirmed.

FCC Chairman Tom Wheeler faced many questions about his set-top box proposal during Wednesday's Senate Commerce Committee oversight hearing. Both committee leaders questioned the merits. But there was little rancor at the two-and-a-half-hour hearing, with much attention devoted to spectrum policy and relatively little to the agency’s net neutrality order.