FCC Chairman Pai circulated a draft Notice of Proposed Rulemaking (“NPRM”) scheduled for adoption at the FCC’s next open meeting on April 17th. The NPRM seeks comments on rules to restrict Universal Service Fund (“USF”) payments to any equipment and/or service providers deemed to be posing a national security risk to U.S. communications networks or supply chains.
The FCC’s action is in response to ongoing and growing Executive Branch and Congressional concerns over the purchase and use of telecommunications equipment from certain foreign entities. Most recently, Congress passed the National Defense Authorization Act for Fiscal year 2018 (“NDAA”) which includes prohibitions on the use of equipment or services provided by Huawei Technologies Company and ZTE Corporation, two Chinese manufacturers, or by Kaspersky Lab, a company with alleged ties to the Russian government. Presumably both direct and indirect USF payments to these companies would be barred under new FCC rules. Far less certain is how the new rules might affect U.S. companies with products manufactured in China.
Although the primary goal of the NPRM is to prevent unauthorized foreign access into our national telecom networks, most directly impacting carriers receiving payments from the High Cost fund, the proposed rules would affect all USF programs. As shown below, referenced by NPRM paragraph numbers, comments will be sought on the following E-rate issues:
- “Are there special considerations for schools, libraries, and rural health care facilities, which may not be as well-positioned as a carrier receiving USF support to know whether the services and/or equipment they purchase with USF support are being provided by an entity that pose a supply chain integrity risk?”
- “…we seek comment on how to ensure that USF recipients (especially smaller USF recipients, including schools, libraries, and rural health care facilities) can learn which companies fall within the scope of our proposed rule.”
- “We seek comment on which party, in the E-Rate context, is in the best position to anticipate and prevent violations of our proposed rule, and thus, which party should be held liable for the recovery of disbursed funds should such a violation occur. Should providers be held liable for the recovery of disbursed funds in all instances when a violation of our proposed rule has occurred? How can non-provider recipients of USF support, such as school districts or libraries, determine whether their service provider has purchased prohibited services or equipment?”
- “In instances where an applicant for USF support is not a service provider — such as when eligible schools and libraries receive discounts under the E-Rate program... — should the certification be made by the service provider that has knowledge of and control over its network? Does it matter whether the applicant is seeking to purchase and install equipment itself or whether it is purchasing services from another?”
At this stage in the NPRM process, no specific E-rate rules have been proposed. Indeed, as the FCC begins formulating national security rules, a second-round NPRM may be utilized. New rules, if only new E-rate form certifications, are not expected until late in 2018 at the earliest. In anticipation of such changes, however, applicants beginning their procurement cycles later this summer or fall may wish to include appropriate service provider certification requirements in their FY 2019 RFP documents.