News of the Week

USAC released Wave 29 for FY 2019 on Thursday, October 17th.  Funding totaled $34.1 million.  Cumulative commitments through October 17th are $1.87 billion. 

This quarter the USF contribution factor — the percentage of interstate revenue that telecom carriers are required to contribute to the Universal Service Fund (“USF”) — hit 25%, a disturbing all-time high.  As discussed in our newsletter of September 16th, the quarterly contribution percentage has ballooned over the past decade with the trend showing no signs of abating.

The following two graphs illustrate the nature and cause of the problem.  Figure 1 shows the relentless upward trend of the contribution factor.  E-rate veterans may remember when 10% was considered a politically dangerous level; we have obviously blown way past that level.

Figure 1

With at least one FCC Commissioner pushing for an overall USF cap, one might be tempted to believe that the increasing contribution factor was being driven by increased USF program expenditures.  Those costs have in fact increased over the past decade — albeit they have been relatively flat for the last few years — but they are only a secondary factor.  Figure 2 shows the real problem.  The contribution base — i.e., the total level of interstate telephone revenues against which contributions are assessed — has been steadily shrinking.  This is the result of (a) telephone competition lowering toll rates, (b) the growth of broadband services (including VoIP telephone services, and (c) the explosive use of text messaging.  Further, the increasing contribution factor, which is an additional interstate cost, continues to make traditional telephone service a less compelling option for consumers.

Figure 2

Regulators have long realized that this situation is becoming untenable.  The FCC’s response to date, most recently as of 2014, was to refer the matter to the Federal State Joint Board, an FCC advisory group that includes state public utility regulators, to study the problem.

Last week, the Federal State Joint Board — more precisely the “State Members” of the Board — released a comprehensive set of recommendations to the FCC to expand the base of USF contributors.  Most importantly, the report recommended that the contribution base be expanded to include a broader class of services that touch the public communications network including Broadband Internet Access Service (“BIAS”).   More detailed recommendations included:

• Internet contributions should be assessed using a “hybrid” model by which commercial users would contribute on a traditional revenue percentage basis, whereas residential users would contribute on a per connection basis.
• In addition to Internet services, the expanded base should also encompass the “enterprise” market including virtual private networks, video conferencing, web conferencing, unified communications, and business wireless broadband access services.
• The FCC should set a firm budget for each of the four USF programs (rather than a single cap on all programs).  Importantly: “The initial budgets for the rural health, and E-rate programs should be set at their current budget levels.”
• Whatever changes are made in the federal USF mechanism should be compatible with universal service programs maintained by some states.

How, when, and if the FCC responds to the “State Members” recommendations is uncertain.  The next logical step would be for the FCC to initiate a public rulemaking as to the soundness of the recommendations as well as to the FCC’s authority to impose USF charges on the broader array of services (an authority that the State Members believe the FCC possesses).  Despite these uncertainties, we commend the State Members for taking a much-needed initiative to recommend common sense solutions to a problem that needs to be solved to maintain the integrity of the Universal Service Fund — E-rate and all.

Upcoming E-Rate Dates:

USAC Form 498 Update Reminder:

USAC began sending emails to selected applicants last week reminding them that they had only “15 Days to Update FCC Form 498 with Business Type(s)” information, i.e., until October 31st.  Although we view October 31st as a “soft” deadline — there are no apparent consequences of not updating a Form 498 by this date — we nevertheless encourage applicants to comply quickly, if only to avoid being nagged repeatedly in the future.

As discussed in our newsletter of August 19th, the Form 498 update request derives from the Digital Accountability and Transparency Act of 2014 (“DATA Act”), requiring federal agencies to publish standardized spending data.  Note that updating a Form 498 within EPC is an action that can only be accomplished by the applicant — not a consultant — and, more specifically, that certifying the update can only be done by a School or Library Official.

One thing USAC will not do is provide any guidance as to what business type (or types) an applicant should enter in the new Form 498 business type field.  To venture forth where USAC fears — or is not allowed — to tread, we offer the following business type suggestions for E-rate applicants:

USAC’s Schools and Libraries News Brief of October 18, 2019 reminded applicants of the important invoice and Form 486 deadlines next week.  We have been including these deadlines in our E-Rate Updates and Reminders section of this newsletter, but for added emphasis, we are repeating the October 28-29 dates below.

USAC’s News Brief also references the need to complete the new field in the Form 498, preferably by October 31st, as discussed further above.