Concerns Mount Over Transparency, Thrust of Draft FCC USF NPRM

Like advocates for USF, two state commissioners on the Federal-State Joint Board on Universal Service want the FCC to also tackle contributions to the fund. The draft doesn't do that, agency officials said. Mike O'Rielly continues to be the lead FCC member on the item, agency officials said. He has gotten some criticism in that role. Tuesday, he took to the FCC blog Tuesday to defend the NPRM.

Outsiders' concerns may be reflected in voting by Commissioners Jessica Rosenworcel and Geoffrey Starks, we're told. They may decide to vote against the NPRM or at least otherwise register their concerns when it's issued, said agency and industry officials. The item has yes votes from Chairman Ajit Pai and Commissioner Mike O'Rielly, said agency officials.

"While we don’t have full information, since there hasn’t been transparency around this NPRM, what we’ve heard I think has been alarming," said CEO Keith Krueger of the Consortium for School Networking, or CoSN. "Discussion of a sort of uber cap we think misses the mark," he said of the rulemaking looking at a total limit. "That you would put all of these different programs under a single arbitrary cap, it's sort of like creating one de facto program, and that’s not how Congress intended for USF to operate," said lawyer Reg Leichty, who represents the CoSN group of school district technology personnel. Schools use E-rate for broadband connections, and that's one of four USF programs that also include Lifeline and high-cost telecom subsidies.

O'Rielly slammed critics of the draft Tuesday. He wants "an upper limit" to what consumers pay "to support these subsidies." He opposes "attempts to subject Internet access to USF contributions." He said "discriminatory taxes affect consumption, and levying a tax on the Internet would make it harder for lower-income households to be able to afford the cost of getting connected."

The commissioner noted the budgetary cap in the draft, $11.42 billion, is above current USF disbursements, "leaving almost a $2 billion cushion for potential future spending. More importantly, what critics fail to consider is that it is untrammeled USF spending that ultimately impedes digital access, not a cap on the fund." The USF contribution factor has continually risen to about 20 percent, O'Rielly blogged. "Against the backdrop of special interest groups and uninformed detractors reflexively opposed to any restraint on the agency’s redistributive subsidies, I am proud to lead this effort to inject more fiscal responsibility into the USF."

Transparency

Some at the agency also would have liked the draft NPRM to be made public.

Stakeholders said a private draft makes it hard to lobby the agency, because there's no document to base their stance on. Lack of a docket number for this particular rulemaking means stakeholders can't see if others have recently paid such visits to the commission. The most detailed information on the draft had come from O'Rielly's tweets, noted New America Open Technology Institute Policy Analyst Amir Nasr. Public Knowledge Senior Policy Counsel Phillip Berenbroick noted "it’s hard to effectively lobby when you can’t see something."

Commission leadership and O'Rielly "have long touted their bona fides on being the most transparent FCC," said Berenbroick. "This item is controversial; it impacts potentially everyone" in high-cost areas, those using school and library broadband, and the poor, he said. The FCC is "doing it under the cover of night," he said. "It seems like they are trying to hide it."

None of the four regular commissioners nor the agency commented to us Tuesday.

Budgeting

Setting a budget should be done in conjunction with evaluating contributions to the fund, said state officials and USF advocates.

Some worry the contribution base isn't wide enough to sufficiently fund USF programs. Others worry that the commission asking about program budgets and caps could be a continuation of the administration's perceived hostility toward Lifeline, in that it could curtail future expansion of such government-subsidized telecom services.

"Everything else we do in life has a budget to it and I don’t think this fund should be different," said South Dakota Public Utilities Commission Vice Chairman Chris Nelson, a member of the joint USF board. "We just need to make sure that those are fully funded," he said of some high-cost subsidies. "Establishing a new contribution methodology should also be done at the same time as putting a budget together." Nelson also said the draft should be released before adoption.

Nelson doesn't think O'Rielly "has a lot of interest" in creating a "sustainable mechanism" for funding via this document. Stakeholders noted that revising what telecom services contribute to the fund would be a big undertaking, and likely controversial. But they said it's needed because contributions from only phone service customers may not sustain the fund. "We need the FCC and Congress to work together to identify a new revenue model that is more consistent with the way the communications system has evolved" since the 1996 Telecom Act, said Leichty.

Michigan Public Service Commission Chairman Sally Talberg backs "comprehensive USF reform, which could include the FCC setting program budgets," she emailed. "We also need a new USF contribution methodology to ensure stable and equitable funding of programs to advance broadband and support low-income customers." Other state commissioners and staff on the FCC/USF joint board didn't comment.

USF proponents worry that capping the fund overall could mean programs have to fight for money with each other if their caps are reached, and that without contribution revisions, such a scenario is more likely. There's a plain old telephone service mentality to what products have a USF surcharge on customer bills, said PK's Berenbroick. "We’re funding broadband, but we haven't actually decided to update the contribution methodology" to reflect that, he said. "Everybody wants to avoid it because nobody wants to be accused of taxing broadband, so that conversation doesn’t even really get past go."