At the FCC Open Meeting on June 17, 2021, the FCC took its most visible step yet toward Acting Chairwoman Rosenworcel’s vision. The Commission adopted a Notice of Proposed Rulemaking (“NPRM”) and Notice of Inquiry (“NOI”) to further address national security threats to communications networks and the supply chain. The NPRM and NOI sets its sights on the Commission’s rules relating to equipment authorization and competitive bidding. The Commission’s proposals have seeds of a much broader focus on Internet of Things (“IoT”) devices, cybersecurity and RF fingerprinting, to name a few. All participants in the telecommunications ecosystem should take notice.
The NPRM and NOI initiates an inquiry into many proposals to tighten the focus on network security in FCC procedures. Most notably, the Commission opened inquiry into the following areas:
Equipment Authorization Rules and Procedures – The NPRM seeks comment on a proposal to prohibit all future authorizations of equipment on the Covered List under the Secure and Trusted Communications Networks Act of 2019, including equipment subject to the FCC’s certification and Supplier’s Declaration of Conformity processes associated with equipment authorization. This proposal goes beyond the current rules, which prohibit recipients of Universal Service Program funding to use that funding to purchase, lease or maintain equipment on the Covered List.
Under current rules, despite the USF program prohibition, equipment on the Covered List can still obtain equipment authorization (and has already obtained authorization). The NPRM considers whether to revise the rules to ensure that any “covered” equipment cannot qualify for authorization. It also seeks comment on whether to revoke authorizations that were previously granted for equipment on the Covered List. If approved, the FCC seeks to determine which authorizations should be revoked and through what procedures.
Competitive Bidding Certification – The NPRM also seeks comment on a proposal to require applicants who wish to participate in FCC auctions to certify that their bids do not and will not rely on financial support from any entity that the FCC has designated under Section 54.9 of the FCC’s rules as a national security threat to the integrity of communications networks or the communications supply chain. The certification would require applicants to attest that no equipment (including component part) is comprised of any “covered” equipment, as identified on the current published list of “covered” equipment and would cross-reference section 1.50002 of the FCC’s rules that include the Covered List.
Manufacturing Encouragement Efforts – The NOI portion of the FCC document seeks comment on how the FCC can leverage its equipment authorization program to encourage manufacturers who are building devices that will connect to U.S. networks to consider cybersecurity standards and guidelines. The FCC inquires further about how to address security risks associated with IoT devices. Importantly, as we theorized a while back, the FCC notes the work that the National Institute of Standards and Technology (“NIST”) has done on cybersecurity and, in particular, cybersecurity for IoT devices, and asks whether the FCC’s equipment authorization rules should require manufacturers to certify in equipment authorization applications that they have considered this guidance in the design and manufacturing of their devices. The NOI also includes questions regarding the use of “RF fingerprinting” to help identify and isolate insecure devices.
Commissioner Statements
As expected, the NPRM and NOI received unanimous support from the Commissioners. Acting Chairwoman Rosenworcel cited to the rash of ransomware attacks and emphasized the need for broader cybersecurity considerations of IoT. “We need to acknowledge that the equipment that connects to our networks is just as consequential for our national security as the equipment that goes into our networks,” she said. Commissioner Carr discussed the possibility of Chinese interference with missile defense systems in North Dakota and referred to this proceeding as “closing a loophole” in FCC rules. Commissioner Starks, a former staff member in the Enforcement Bureau, emphasized changes intended to make enforcement against foreign actors easier to implement, citing examples from the past decade involving illegal jamming equipment manufactured overseas. Commissioner Simington took credit for adding “RF fingerprinting” to the NOI, stating that the technology “can play a central role in interdiction and enforcement of hacking and cyber-crime.”
With this proposal’s broad support at the Commission, equipment manufacturers (including IoT device manufacturers should pay close attention to the FCC’s actions. Comments will be received over the summer and the Commission could address its rules by year-end. Affected manufacturers may wish to comment in the proceeding.
]]>If you have any urgent questions, please contact your usual Kelley Drye attorney or any member of the Communications Practice Group. For more information on other aspects of the federal and state response to the COVID-19 pandemic, as well as labor and employment and other issues, please visit Kelley Drye’s COVID-19 Response Resource Center.
FCC Approves Tenth Set of COVID-19 Telehealth Applications, Surpassing $100 Million in Funding Out of the $200 Million Allocated
On June 10, the Wireline Competition Bureau (“WCB”) approved 67 additional funding applications for the COVID-19 Telehealth Program. Under the latest funding round, $20.18 million will go to health care providers across 27 states and Washington, D.C. With this latest set of approvals, the FCC’s COVID-19 Telehealth Program has funded 305 health care providers in 42 states, plus D.C., for a total of $104.98 million in funding awarded so far. Congress appropriated $200 million for the Program and the FCC continues to evaluate applications and distribute funding on a rolling basis.
In the most recent episode of Kelley Drye’s Full Spectrum podcast, Special Counsel Denise Smith discussed the COVID-19 Telehealth Program, including healthcare provider eligibility criteria, funding coverage, and key application considerations.
WCB, OMD Defer Form 470 Changes
On June 8, the WCB and the Office of the Managing Director (“OMD”) issued a Public Notice (DA 20-598) notifying E-Rate program participants that the FCC Form 470 will remain unchanged for funding year 2021. Form 470 is the form that E-Rate program applicants use to solicit bids from service providers for eligible services. This is the latest FCC action aimed at allowing schools and libraries to continue to focus their time and resources on responding to the pandemic.
WCB Waives Filing Requirement for RoR ETCs
On June 8, the WCB released an Order (DA 20-641) granting a temporary waiver of the requirement for privately held rate-of-return (“RoR”) eligible telecommunications carriers (“ETCs”) that receive loans from the Rural Utilities Service (“RUS”) to file electronic copies of their annual RUS Operating Report for Telecommunications Borrowers filings by July 1. The RUS is a unit within the United States Department of Agriculture (“USDA”). In the USF/ICC Transformation Order, the FCC required all privately held rate-of-return ETCs to provide a full and complete annual report on their financial condition and operations. The Order notes that it is “not in the public interest to require these carriers to submit a copy of a report that has not yet been required by or reported to the USDA.” These carriers must submit a copy of this report to USAC at the time it is due to USDA. The FCC still requires all ETCs, including those who are RUS loan recipients, to complete the remainder of their Form 481 filing and submit it to USAC by the July 1 deadline.
Commissioner Starks Announces Digital Opportunity Equity Recognition Program
On June 8, FCC Commissioner Geoffrey Starks announced the Digital Opportunity Equity Recognition (“DOER”) Program to commend organizations, institutions, companies and individuals who, through their actions and responses to the COVID-19 crisis, have helped to make quality affordable broadband service available to unserved or underserved communities. Nominations for the first round of recognitions are due to [email protected] by July 8.
]]>The most controversial aspects of the order are its interpretation of Section 230 of the Communications Decency Act ("CDA")—the statutory provision that shields online service providers from liability for user-generated content and the decisions they make about how to moderate that content—and its attempt to prompt the Federal Communications Commission ("FCC") to adopt regulations further interpreting the law. Reform of Section 230 has been under consideration in Congress for years, with Republicans and Democrats both offering different—and mostly contrary—critiques about how online platforms have failed to act in accordance with the statute while also benefitting from the liability protections.
Other directives in the EO attempt to elicit other parts of the federal government to discipline online platforms for their content moderation practices. Absent Congressional action, the EO’s directives appear to stand on shaky legal ground and are likely to have limited legal impact. However, the issuance of the EO alone may be unlawful, at least according to a complaint challenging the constitutionality of the EO filed with the U.S. District Court in D.C. by the Center for Democracy & Technology ("CDT"). According to the complaint, the EO violates the First Amendment, which strictly limits the government’s ability to abridge speech, by retaliating against Twitter for exercising its right to comment on the President’s statements and because it “seeks to curtail and chill the constitutionally protected speech of all online platforms and individuals” by demonstrating the government’s willingness to retaliate against those who criticize the government.
Seeks to “Clarify” the Scope of Section 230 Immunity Through FCC Regulations
Section 230 gives online service providers immunity from liability in two ways. First, Section 230(c)(1) says that online services are not the “publisher or speaker” of the user content they host. Publishers and speakers can be held liable for language that is, for example, libelous or defamatory. This clause prevents online services from being subject to lawsuits making such claims, while preserving the ability to bring direct suits against the users who actually generate the content. Second, Section 230(c)(2) says that online service providers cannot be held liable for “any action voluntarily taken in good faith to restrict access to or availability of material that [it] considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.” This clause is designed to prevent online services from being deemed publishers when they make decisions about what user-generated content to remove. Its intent originally was to remove disincentives for online service providers to employ blocking and filtering technologies to protect children from online pornography.
The EO purports to clarify the scope of the immunity available under Section 230. Specifically, the EO says that online providers are not acting in “good faith” when they claim to be forums for free and open speech but instead engage in “deceptive or pretextual actions (often contrary to their stated terms of service) to stifle viewpoints with which they disagree.” According to the EO, under these circumstances, the online services are editorializing and therefore acting as publishers, in which case, the EO says the online services should lose their immunity under Section 230(c)(2). This interpretation, which is largely contrary to more than two decades of court precedents, would effectively mean that online services could be held liable for all the content their users post if it is determined their content moderation practices are biased.
To effectuate this interpretation, the EO sets out two directives. First, it directs “all executive departments and agencies [to] ensure that their application of section 230(c) properly reflects the narrow purpose of the section.” This directive is unlikely to carry any weight as Section 230 is not applied by federal agencies, but by courts, which are not subject to presidential directives. Second, the EO directs the National Telecommunications Information Association ("NTIA") to, within 60 days, file a petition for rulemaking asking the FCC to propose regulations to further clarify the circumstances under which an online service can lose its liability protection when it “restricts access to content” in a manner not specifically protected by subparagraph (c)(2)(A),” and the conditions under which such restrictions are not made in “good faith.”
Absent additional authority delegated by Congress, the FCC is unlikely to actually implement such regulations. The Commission has been reluctant to extend regulation to edge providers, such as online platforms, and its legal authority to do so has been debated. While the CDA technically added Section 230 into the Communications Act—the FCC’s regulatory sandbox—the Communications Act does not have any legal hooks that allow the agency to regulate online platforms and Section 230 itself does not provide the agency with any such independent authority. Tellingly, the FCC did not implement Section 230 in 1996 when the provision was added to the Act and does not have any rules on its books that interpret Section 230. Even if the FCC does have such authority, current leadership has already made clear, in the Restoring Internet Freedom order, that it does not want the agency to be the arbiter of neutrality for Internet service providers, which it ostensibly has the authority to do, let alone the arbiter of neutrality by online platforms, over which it has no explicit authority. While all five Commissioners released statements after the EO, three Commissioners expressed opposition or strong skepticism of the “good faith” concept. Thus, even if NTIA were to file a petition for rulemaking, new rules appear unlikely.
Other Directives in the Executive Order
While the directives above have received the most attention, the EO includes four other directives designed to penalize online platforms that engage in alleged viewpoint discrimination.
The order has garnered substantial criticism from online industry advocates and civil liberties groups alike. Among the online platforms, Twitter seemed undeterred by the EO, calling it a “reactionary and politicized approach” and promptly labeling another Trump tweet for glorifying violence in violation of its terms and conditions. Meanwhile, Facebook CEO Mark Zuckerberg, while critical of the EO, also critiqued Twitter’s actions, saying that social media companies should not be the arbiters of truth.
Initial reactions from the FCC Commissioners have been mixed. Republican Commissioner Carr was most supportive of the move, saying he welcomed the EO and its call for guidance on the “good faith” limitation in Section 230. Democratic Commissioner Rosenworcel had a contrary take, saying the EO would turn the FCC into the “speech police.” Both Commissioner Starks (a Democrat) and Commissioner O’Rielly (a Republican) avoided any direct criticism of the EO but affirmed the First Amendment’s important role in the issue. Chairman Pai largely stayed out of the fray, saying that the agency would “carefully review any petition for rulemaking” filed by NTIA. NTIA has not commented on the Executive Order.
The FTC commissioners have been silent on the EO, but the agency’s spokesperson, Peter Kaplan, said that “[t]he FTC is committed to robust enforcement of consumer protection and competition laws, including with respect to social media platforms, and consistent with our jurisdictional authority and constitutional limitations.”
Any substantive action at the FCC is likely months away, at best. NTIA has until July 27, 2020, to file its petition with the FCC, on which the FCC has no obligation to act. If the agency does respond, it may seek comment on whether to initiate a rulemaking first, before initiating a Notice of Proposed Rulemaking. Given the constitutional implications, the FTC may also hesitate to act in accordance with the EO. Regardless, we don’t expect any substantive action in 2020, if at all, particularly in light of the pending legal challenge by CDT. In the meantime, the impact of the EO will largely be political, not legal, while the purpose, meaning and fate of Section 230 is almost certain to be debated in Congress for years to come.
]]>If you have any urgent questions, please contact your usual Kelley Drye attorney or any member of the Communications Practice Group. For more information on other aspects of the federal and state response to the COVID-19 pandemic, as well as labor and employment and other issues, please visit Kelley Drye’s COVID-19 Response Resource Center.
FCC Approves Fifth Set of COVID-19 Telehealth Program Applications, Moves to Portal-Only Applications
On May 6, 2020, the FCC’s Wireline Competition Bureau (“WCB”) approved an additional 26 applications for the COVID-19 Telehealth Program. Under the latest funding round (which is the largest so far), $11.19 million in funding will go to health care providers in California, Texas, Massachusetts, and several other hard-hit areas. To date, the Program has funded 56 health care providers in 23 states for a total of $24.9 million. On May 1, 2020, the WCB announced via Public Notice that it will no longer accept PDF form applications by email for the Program. Instead, all applications for the Program must be submitted through the FCC’s online application portal available at https://www.fcc.gov/covid-19-telehealthprogram. The WCB stated that accepting applications only through the portal will enable it to expedite Program funding decisions.
Congress appropriated $200 million for the Program and the FCC continues to evaluate applications and distribute funding on a rolling basis. While money remains available, the size and pace of disbursements under the Program continues to increase and providers should take action now to assess their interest and ability to participate in the Program.
FCC Highlights Consumer Broadband Service Through Temporary 5.9 GHz Band Access Grants
On May 4, 2020, the FCC announced that its decision to grant wireless Internet service providers (“WISPs”) temporary access to 5.9 GHz spectrum is helping boost consumer internet access during the pandemic. To date, the FCC has granted Special Temporary Authority (“STA”) to more than 100 WISPs to access otherwise fallow spectrum in the 5.9 GHz band and other bands. Many providers in rural and suburban communities have reported how the spectrum is helping to address the increased demand for broadband as consumers adjust to stay-at-home orders and social distancing measures. It is likely that the FCC will continue to approve STAs to improve consumer broadband service during the pandemic.
FCC Hosts HBCU Presidents' Roundtable on Connectivity during Pandemic
On May 4, 2020, FCC Commissioner Geoffrey Starks virtually hosted a roundtable to discuss the connectivity needs at Historically Black Colleges and Universities (“HBCUs”) during the COVID-19 pandemic. This event featured remarks from U.S. Representatives Alma Adams (D-NC) and G.K. Butterfield (D-NC), and brought together leadership from HBCUs across the country. HBCU requests included laptops and residential broadband for students and employees, and funding for HBCUs in the next COVID-19 stimulus bill. Rep. Adams suggested that future COVID-19 legislation should include $10 million for a technology infrastructure fund for HBCUs to continue their transition to online learning.
]]>If you have any urgent questions, please contact your usual Kelley Drye attorney or any member of the Communications Practice Group. For more information on other aspects of the federal and state response to the COVID-19 pandemic, as well as labor and employment and other issues, please visit Kelley Drye’s COVID-19 Response Resource Center.
FCC Provides Invoicing Guidance for COVID-19 Telehealth Program Fund Recipients, Begins Approving Funding Requests
On April 17, 2020, the FCC’s Wireline Competition Bureau (“WCB”) and Office of Managing Director provided guidance (DA 20-425) for funding recipients on how to invoice the FCC for COVID-19 Telehealth Program-funded services and/or connected devices. Under the COVID-19 Telehealth Program, disbursements are issued directly to the participating health care providers, rather than to the service providers or vendors that have provided the eligible services and/or connected devices to participating health care providers. Participating health care providers therefore need to invoice the FCC to be reimbursed for the eligible services/connected devices they purchased under the program. Participating health care providers will need to submit a COVID-19 Telehealth Program Request for Reimbursement Form (found here) to the U.S. Department of the Treasury’s Bureau of the Fiscal Service Invoice Processing Platform (“IPP”) (located here). The guidance provides important details on how to fill out a reimbursement request as well as how to register and use the IPP.
On April 16, 2020, the WCB approved six funding applications for the COVID-19 Telehealth Program. The applications generally focused on diagnosis and preventing the spread of COVID-19 among vulnerable populations, such as low-income or elderly persons. Congress appropriated $200 million for the FCC to support health care providers’ use of telehealth services as part of the recently-enacted CARES Act. The FCC began accepting applications on Monday, April 13. It is continuing to evaluate applications and will distribute additional funding on a rolling basis. The FCC will disburse funding until the program’s funds have been expended or the COVID-19 pandemic has ended. Demand for COVID-19 Telehealth Program funding is expected to be high and stakeholders should take action now to prepare and submit funding applications.
FCC Tasks BDAC Working Group with Addressing COVID-19 Challenges
On April 16, 2020, Chairman Ajit Pai announced (DA 20-420) additional duties for the Disaster Response and Recovery Working Group of the Broadband Deployment Advisory Committee (“BDAC”). The BDAC makes recommendations to the FCC on how to accelerate the deployment of high-speed broadband access. The Working Group will assist the BDAC in documenting the strategies and solutions that stakeholders are developing and implementing in real time to address deployment-related challenges presented by COVID-19. It will also enable the BDAC to report on best practices and lessons learned from the response to COVID-19 to help with the ongoing response to the pandemic, and to assist stakeholders, including the FCC, in preparing for and responding to any comparable future crises. Nominations for new members of the Working Group should be submitted to the FCC no later than April 27, 2020.
FCC Grants Navajo Nation Request to Use Unassigned Spectrum
On April 17, 2020, the FCC’s Wireless Telecommunications Bureau (“WTB”) granted an emergency Special Temporary Authority (“STA”) request filed by the Navajo Nation to use unassigned spectrum in the 2.5 GHz band to provide wireless broadband service over its reservation as part of its emergency COVID-19 response. The Nation is located within parts of Arizona, New Mexico, and Utah. The STA is effective for 60 days. In addition to supporting emergency relief to meet increased broadband demands during the pandemic, the Commission continues to accept applications from eligible Tribal entities for licensed access to unassigned 2.5 GHz spectrum over their rural Tribal Lands in the Rural Tribal Priority Window, which closes August 3, 2020. The grant signals the FCC’s continued openness to STAs that allow service providers access to spectrum to improve communications and broadband service in rural and other hard-to-serve areas during the crisis.
FCC Extends Certain Wireless Construction Deadlines
On April 15, 2020, the WTB and Public Safety and Homeland Security Bureau released an Order (DA 20-414) granting all site-based and mobile-only wireless licensees with construction deadlines between March 15, 2020 and May 15, 2020 (“Licensees”) an additional 60 days to meet their existing deadlines. This Order addresses a March 27, 2020 Enterprise Wireless Alliance (“EWA”) petition for waiver of construction requirements for certain site-based and mobile-only wireless licenses in light of the disruptions caused by COVID-19. The FCC is continuing to monitor the situation and may consider further extensions. The action is just the latest example of the FCC waiving or postponing deadlines covering everything from network buildouts to comment submissions.
Senators Introduce Bill to Increase Seniors' Telehealth Access
On April 14, 2020, Senators Shelley Moore Capito (R-WV), Amy Klobuchar (D-MN), and Bob Casey (D-PA) introduced legislation to increase senior citizens’ access to telehealth during COVID-19. The Advancing Connectivity during the Coronavirus to Ensure Support for Seniors (“Access”) Act would authorize $50 million for the Department of Health and Human Services’ Telehealth Resource Center to assist nursing facilities receiving funding through Medicare or Medicaid in expanding their use of telehealth services.
Commissioners Call for Free ICS Calls, More Lifeline
On April 17, 2020, FCC Commissioners Jessica Rosenworcel and Geoffrey Starks said that the growing number of newly unemployed need access to broadband and voice services more than ever, during a MediaJustice online event. Commissioner Rosenworcel urged the FCC to bolster Lifeline benefits and enrollment, close the homework gap, and lower inmate calling service (“ICS”) rates, while Commissioner Starks backed the push to make ICS free for those in local and state jails and prisons, and not just federal facilities. On April 14, 2020, 27 Democratic Senators sent a letter to Congressional leadership calling on them to increase funding for Lifeline by at least $1 billion in any future coronavirus packages to increase reimbursement rates and the levels of service needed because “[s]ocial distancing, school closures, layoffs, and shelter-in-place rules have spurred a dramatic new reliance on telework, distance education, online employment, and telehealth.”
]]>First, the Order adopts rules prohibiting the use of USF support to purchase services and equipment from “Covered Companies” deemed to present national security threats and initially designates Huawei and ZTE as Covered Companies. Second, the Further Notice of Proposed Rulemaking (“FNPRM”) solicits comments on a proposal to require eligible telecommunications carriers (“ETCs”) – and possibly all communications providers – to remove and replace Huawei and ZTE services and equipment subject to the FCC establishing a reimbursement program providing financial assistance. Third, the Order establishes an information collection and requires ETCs to submit information regarding their use of Huawei and ZTE equipment and services as well as the costs associated with removing and replacing such services and equipment from communications networks.
The new rules will take effect immediately upon publication in the Federal Register rather than providing the standard thirty-day post-publication waiting period. Federal Register publication of the Order also initiates a thirty-day comment period regarding the initial designations of Huawei and ZTE. The Public Safety Homeland and Security Bureau will issue a “final designation” on Huawei and ZTE – we fully expect that Huawei and ZTE will be designated as Covered Companies – and set a compliance effective date. In light of the potentially short timeframe before the rules and compliance requirements take effect, USF support recipients should be sure to review the Order/FNPRM carefully and assess whether and how the rules will affect the recipient’s specific circumstances.
A Focus on China
Pulling no punches, the FCC made clear its concern about the potential for the Chinese government to engage in industrial and economic espionage and other malicious acts by exploiting Huawei’s and ZTE’s access to U.S. communications networks. Chairman Pai (here and here), Commissioner O’Rielly, and Commissioner Starks, among others, have spoken out regarding the need to protect U.S. communications networks from security threats. Prohibiting USF recipients from using USF support for Huawei and ZTE services and equipment was an easily foreseeable next step.
While the Order received unanimous support from the FCC, Commissioner O’Rielly expressed some reservation regarding the likely significant equipment replacement costs and advocated for a process to challenge future designations of Covered Companies should there be concern that a designation was mistaken. Interestingly, and suggesting the FCC anticipates that the Order will be appealed, the Order appears to methodically respond to Huawei arguments and provide further support for the FCC’s decision.
We highlight below a few of the key takeaways from the Order.
The Order – USF Support Usage Prohibitions
First, the USF support use prohibitions are broad. The new rules prohibit USF support recipients from using USF support to “purchase, obtain, maintain, improve, modify, or otherwise support any equipment or services [including software] provided or manufactured by a covered company.” The FCC defines a “Covered Company” as including not only the particular company at issue but also the company’s affiliates, subsidiaries, and parents. Consequently, USF support recipients will need to understand a Covered Company’s “family” of companies to avoid inadvertently violating the FCC’s rules.
The rules do not bar USF support recipients from using Covered Company services and equipment, although, in practice, the restrictions may have that effect. While the FCC appears to prefer that Covered Company services and equipment not be used at all, the rules are based on the FCC’s authority over the USF program and, therefore, the restrictions are limited to the use of USF support. USF support recipients are permitted to use Covered Company services and equipment but must self-fund purchases, including ongoing maintenance for existing services and equipment. USF support recipients will need to assess whether they are able to completely self-fund ongoing Covered Company equipment and service maintenance, upgrades, etc. or if they will need to replace the services and equipment.
Second, USF support recipients may find compliance with the new rules challenging. For example, the Order dismisses concerns about compliance difficulties where USF support recipients are unaware that their underlying providers are reselling, such as under “white labeling” arrangements, the services and equipment of Covered Companies. Parties to multiyear contracts for Covered Company services and equipment also could face difficulties because, although the rules apply prospectively only, such contracts are not exempted from the new rules, potentially exposing USF support recipients to early termination or other contract modification costs.
Third, USF support recipients will be required to certify compliance with the new rules once the Wireline Competition Bureau (“WCB”) and USAC develop the specific certifications and information collection revisions for the USF programs. USAC audits will be used to confirm compliance and, unless the WCB or USAC provide guidance on acceptable compliance support, USF support recipients will need to consider what records may best support compliance should they be audited. USAC will seek recovery from the entity that violated the rule, potentially including entities such as schools, healthcare providers, or consortiums, rather than a service provider.
The FNPRM – Potential Replacement and Reimbursement of Covered Company Equipment
The FNPRM seeks comment on a wide range of questions related to removing and replacing Covered Company services and equipment from U.S. telecommunications networks. While the initial draft of the FNPRM limited the removal and replacement proposals to ETCs, the final FNPRM takes a much broader approach. The FCC now questions whether the prohibition on the purchase, maintenance, improvement, etc. of Covered Company services and equipment, as well as the remove and replace requirement, should extend to all communications companies, not just those receiving USF support.
The FNPRM proposes conditioning future USF support on an ETC’s agreement not to use Covered Company services and equipment and requiring such services and equipment be removed and replaced, contingent on the FCC’s establishment of a reimbursement fund to aid ETCs with costs of complying with the changes. The FNPRM seeks comment on a variety of issues related to this proposal, including, but not limited to, the scope of the remove and replace requirement, what costs should be reimbursed, who should be eligible for reimbursement, and the timing of compliance with the proposal. Carriers should note that the FCC also seeks comment on whether Huawei and ZTE handsets should be prohibited even though not supported by the USF program.
The FNPRM also seeks comment on the scope, as well as the authority for, a possible expansion of the Covered Company services and equipment remove and replace requirement to all communications networks. The FNPRM also queries how the FCC should treat entities such as interconnected VoIP providers and facilities-based ISPs for purposes of the proposed service and equipment prohibitions.
ETC Information Collection
The final component of the Order requires an information collection to determine the scope of Huawei and ZTE services and equipment currently in use on ETC networks and the cost of removing and replacing the equipment. The information collection is mandatory for ETCs, including their affiliates and subsidiaries, and ETCs should be prepared for the information collection to proceed quickly as the FCC directed the WCB to request emergency collection approval from the Office of Management and Budget if necessary. While not required, USF recipients that are not ETCs voluntarily may participate in the information collection, particularly should they have pending ETC applications or intend to seek ETC designation in the future.
Kelley Drye will be following these rules and proceedings so check back for further updates.
]]>The release of the NPRM was our first look at the specifics of a proposal that broke a month ago. The NPRM does not propose a specific budget, primarily raises questions about how to proceed, and does not contain any proposed rules. Nevertheless, opponents of the proposal have been most vocal since word of the NPRM came out, and we expect those USF stakeholders to continue in opposition to the approach. Meanwhile, proposals to reform USF contributions remain stalled (and lacking any consensus), while the contribution factor hovers around 20% of assessable revenues.
Section 254 of the Communications Act requires the FCC to establish “sufficient and predictable” mechanisms to promote universal service goals. Funding must be explicit (ending the pre-1996 Act era of implicit USF subsidies) and funding must be available on an equitable and nondiscriminatory basis, among other things. Through the USF, financial support is provided to reimburse the cost of services under four separate programs—High-Cost (aka “the Connect America Fund”), the Low Income Program (aka “Lifeline”), Schools and Libraries (aka “E-rate”), and Rural Health Care—that implement the FCC’s mandate of ensuring all Americans have access to universal service. Presently, each program operates with some form of annual funding cap or estimated budget but the total amount differs based on the specific needs or demand.
With the NPRM, the FCC proposes for the first time to establish an overall cap on the Universal Service Fund. The NPRM states at the outset of the discussion that one of its goals is to promote a debate about the relative effectiveness of the USF programs—indicating that there may be some basis to the reservations USF stakeholders have expressed. The FCC seeks comment on whether the overall cap should be set at $11.42 billion—the total of the 2018 authorized budgets for the individual programs (and $3 billion above the actual expenditures of the programs).
The NPRM contains a number of questions about how a cap should operate, whether to index the cap to inflation, whether one-year projections or five-year projections should be used and what would happen if the budget cap is reached. In addition, in a surprise, the NPRM asks whether the budgets for the E-rate program and the Rural Health Care program should be combined in a single budget. Commissioner Starks called out this proposal as raising “an alarm for me” and even Commissioner O’Rielly pronounces himself “not sold” on the proposal. With respect to Lifeline, the NPRM does not propose any changes to the program. Commissioner O’Rielly claims the proceeding is not a “back door” cap on Lifeline – although he states he would be willing to establish such a cap directly.
Looking Ahead
This is setting up to be a particularly contentious debate. One side downplays the proposal as simply encouraging a “healthy debate” and not placing any immediate limits on expenditures, while the other side argues that the proposal would undermine universal service policies and eventually pit one program against another in competition for funds. Now that the details of the proposals are out, USF stakeholders are expected to weigh in. Already, many USF-focused organizations have expressed concern about the proposal, and the NPRM is not likely to allay any of those concerns.
Notably missing from the NPRM is a discussion of USF contributions. Although logically distinct from operation of the programs themselves, it is no secret that even the current size of the Fund places pressure on the current system of supporting USF through end user interstate and international telecommunications revenues. For half of 2018, the USF contribution factor exceeded 20%, and early demand projections for the Third Quarter of 2019 make a return to a 20% factor a distinct possibility. The FCC last seriously considered contributions reform in 2008, but proposals have stalled and the Federal-State Joint Board is deeply divided on how to proceed. Changes to the contribution system do not appear likely any time soon, regardless of what happens with this NPRM.
]]>The FCC imposed the rate floor in 2011 due to concerns that rural carriers could use USF support to offer rates below those found in urban areas for comparable services. The agency found such action would undermine its duty to support “reasonably comparable” services between rural and urban areas. The rate floor reduces the USF support for carriers whose basic voice rates (plus state-mandated fees) fall below a FCC-set floor based on charges for comparable service in urban areas. However, the rural rate floor continued to increase following its adoption, eventually surpassing the charges for service in some urban areas. In response, the FCC froze the rate floor in 2017 (at $18) while it considered reforms to the policy. In the absence of further action by the agency, the rate floor would jump to nearly $27 in July 2019, likely leading to concomitant price increases for rural customers.
In support of the rate floor elimination, the FCC plans to conclude that the policy created a perverse incentive for carriers to raise rural rates to avoid losing USF support. The agency also would find that this incentive particularly hurt older consumers and Tribal area residents by hampering access to affordable telecommunications services. The FCC anticipates finding that the rate floor places unnecessary regulatory burdens on rural carriers, who must seek authorization from state authorities and satisfy customer notification requirements for rate hikes. Finally, the agency would question prior claims that rural carriers used USF support to offer artificially low rates and note that CAF recipients must meet strict buildout obligations that prevent carriers from failing to put their subsidies to use.
The rural rate floor would be eliminated 30 days after publication of the proposed order in the Federal Register. All rural carriers subject to the rate floor, as well as consumer advocacy groups, should closely review the proposed order and work with counsel to assess its impact. It remains to be seen what level of support the proposed order receives at the meeting. Both Republican Commissioner O’Rielly and former Democratic Commissioner Clyburn strongly opposed eliminating the rural rate floor when the FCC froze it in 2017. At the time, the Commissioners argued that rural carriers should recoup some revenue from their subscribers first before relying on USF support and called for means-testing CAF support in lieu of eliminating the rate floor. While there is no indication that Commissioner O’Rielly has softened his views or whether current Democratic Commissioners Rosenworcel and Starks oppose the elimination of the rate floor, it is likely that the proposed order will draw at least some dissent. Such dissent may fuel calls for reconsideration or subsequent appeals of the rural rate floor elimination following the April meeting.
]]>Commissioner Starks most recently served as an Assistant Bureau Chief in the FCC’s Enforcement Bureau, where he primarily worked on competition and Universal Service Fund matters. He joined the Commission in 2015 from the Department of Justice, where he was Senior Counsel in the Office of the Deputy Attorney General. Prior to that, he was an associate attorney in private practice, a clerk for the U.S. Court of Appeals for the Eighth Circuit, a legislative staffer in the Illinois State Senate, and a financial analyst at Goldman Sachs. He earned a degree in social studies and graduated magna cum laude from Harvard College, and then graduated from Yale Law School.
Joining Commissioner Starks’ staff are three FCC veterans. Daudeline Meme will serve as Acting Chief of Staff and Acting Legal Advisor for wireless and international matters. She previously served as Deputy Chief in the FCC’s International Bureau, Legal Advisor to Commissioner Clyburn, Chief of Staff and Assistant Chief for spectrum issues in the Enforcement Bureau, and in the Office of former Chairman Tom Wheeler. Michael Scurato will be Acting Legal Advisor for media and consumer protection matters. He comes from the Enforcement Bureau, where he served as Special Counsel for the Bureau Chief. He previously served as Legal Advisor for Commissioner Clyburn and as Vice President of Policy at the National Hispanic Media Coalition. Commissioner Starks’ Acting Legal Advisor for wireline and public safety matters will be Randy Clarke, who most recently served as FCC counsel to the Senate Committee on Commerce, Science, and Transportation. Before that he was Acting Deputy Chief of the Wireline Competition Bureau, where he served in various roles since 2004.
Mr. Starks’ swearing in occurred just prior to his first Commission meeting on January 30—a truncated meeting containing no item votes due to the recently-concluded partial government shutdown. Commissioner Starks takes his seat after a long-delayed confirmation process. He was nominated by President Trump on June 4, 2018, and was slated for a quick confirmation alongside the reconfirmation of Republican Commissioner Brendan Carr. In September 2018, Republican Senator Dan Sullivan placed a hold on Commissioner Carr’s reconfirmation due to concerns over the FCC’s management of the Universal Service Fund Rural Health Care Program. Mr. Starks’ confirmation was delayed as a result, as the Senate intended to vote on the nominees as a package. The hold was lifted in late-December 2018 and Congress confirmed both Mr. Starks and Mr. Carr on January 2, 2019, the last full day of the 115th Congress. Mr. Starks’ swearing in was further delayed due to the government shutdown.
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