FCC Draft Item Could Reignite USF Contribution Reform Issue

There continues to be consensus that some updates are needed to change how and who pays into a fund that supports such key programs as E-rate and Lifeline, officials said. But they said that, as in 2012 when the issue was raised during rulemaking, there’s little agreement on such divisive questions as expanding the contribution pool to include broadband providers, and it’s unclear whether comprehensive contribution changes will ultimately come from the referral.

Some industry officials said Chairman Tom Wheeler has not highlighted contribution reform as one of his top priorities. They saw the referral as a gesture to let the state members of the joint board work on an issue that has been important to them. The referral could also be a “sign that the Wheeler FCC is on track to issue an order before the end of the Obama administration,” said former FCC Commissioner Robert McDowell, who had pushed for contribution changes while he was on the commission. He is now a visiting fellow at the Hudson Institute.

If the agency is to move ahead with a contributions overhaul, working with the joint board is a necessary first step, said McDowell and former FCC Chairman Reed Hundt. Not to do so “would only infuriate state regulators and their congressional allies, who traditionally have been an important partner in all USF reform matters,” McDowell said. But he doubts the commission would take up contribution changes until after the 2016 election “because it could be politically radioactive,” he said. The issue raises the “explosive” question of whether new types of entities would be required to pay into the fund for the first time, McDowell said. The issue “has been swept under the rug time and again,” he said.

"Contributions reform has been pending at the FCC for more than a decade, and the FCC is interested in getting the views of the joint board on how to move forward with this issue,” said the FCC spokesman Wednesday.

The issue has been on the FCC’s to-do list for years, said Jonathan Banks, USTelecom senior vice president-law and policy. Driving calls for reform are industry changes that have shrunk the USF contributions base, which is derived largely from telecom revenue, said the 2012 Further NPRM (http://bit.ly/1lwNTDf). It said as customers migrate to services like broadband that don’t pay into the fund, USF’s revenue base declined from about $74.9 billion in 2008 to $67 billion in 2011, while the demand for USF has risen from $4.5 billion in 2000 to $8.1 billion in 2011. Having left the contribution side unaddressed when the FCC took up USF distribution changes in 2011 and Lifeline changes the following year, the NPRM sought comment on a number of options. Since then, the contribution base has continued to decline from $66.1 billion in 2012 to a projected $64.3 billion this year, an FCC spokesman said.

Possibly bringing up the issue now, McDowell said, is the separate question of increasing E-rate funding posed in a Further NPRM (CD July 17 p5) approved as part of an E-rate modernization order this year. “If the FCC is going to increase spending on programs such as E-rate, a fundamental question to answer is ‘how will more spending be funded?'” McDowell said. E-rate funding and how to apportion paying for the growth in Lifeline spending are likely why the contribution issue is being brought up, Banks said.

The joint board, made up of three FCC commissioners, four officials of state regulatory bodies and one consumer advocate (http://bit.ly/1AUMG2c), under the draft would be asked to make recommendations within six months, said agency and industry officials. State members, who are a majority on the joint board, said they haven’t seen the draft and declined to comment. The state members of the board urged a contributions overhaul two years ago. Two of the four members on the Joint Board at that time, Pennsylvania Public Utility Commissioner James Cawley and Nebraska Public Service Commissioner Anne Boyle, remain on the board.

No Consensus

Taking up contribution reform is “long overdue,” said NARUC General Counsel Brad Ramsay. A NARUC resolution (http://bit.ly/1hTQPNr) in February urged such an overhaul. But Banks, who questions whether broadband providers that benefit from rural connections supported by USF should pay into the fund, said the situation hasn’t changed much from two years ago, when about the only consensus in comments was that there was no consensus (CD Aug 8/12 p1).

Some groups that had opposed including collections from broadband providers continue to be wary. “There’s nothing wrong with the FCC studying the issue,” said Free Press Research Director Derek Turner. “Any price increases in an already uncompetitive market will disproportionately impact marginal consumers such as seniors and low-income households, potentially lowering broadband adoption in the very populations that the USF seeks to assist generally.”

Noting the House’s passage last month of an Internet access sales tax ban, Turner said, “if the FCC were to adopt its own Internet access tax, it would appear to be in direct contradiction to the bipartisan feeling in Congress that these additional fees are not in the public interest.” Despite agency efforts to stem FCC fraud, “the USF still has plenty of room for improved efficiency,” he said.

Expanding the contribution base to take in broadband would mean less adoption, NCTA said in 2012 comments (http://xrl.us/bnjq8z). A spokesman said its position remains the same.