Congressional Universal Service Fund (USF) Working Group

Comments of The Small Company Coalition

Congressional USF Working Group,

We at the Small Company Coalition (SCC) would like to begin by commending the Congressional USF Working Group (the “Working Group”) on recognizing the importance of working toward a long-term solution for the Universal Service Fund (USF) and the communications services it supports. As an organization comprised of small, rural, and Tribal telecommunications companies, the SCC has long sought to bring forth ideas and assist the Federal Communications Commission (FCC) in the effort to improve the efficiency and effectiveness of the regulatory process, including ideas about how to broaden the USF contribution base so that all users of the broadband network pay their fair share for such usage. Additionally, since its formation in 2012, the SCC has offered to assist the FCC in its effort to eliminate unnecessary, outdated, and burdensome regulations. As indicated in the SCC’s comments[1] filed in connection with the FCC’s “Delete, Delete, Delete” Public Notice in April of this year, to the extent practical, in addition to improving the effectiveness of the regulatory process, small rural broadband providers should be unshackled so they can focus their limited resources on fulfilling the mandate of providing high-speed Internet services to the unserved/underserved residents living in the rural parts of the country.

We appreciate this opportunity to respond to the Working Group’s request for comments, and while our primary focus will pertain to the High-Cost aspect of the USF program, as deemed appropriate, we will respond to each of the questions raised by the Working Group, as follows:

Effectiveness of Programs

How should Congress evaluate the effectiveness of each USF program in achieving their respective missions to uphold universal service?

With respect to the High-Cost program, its effectiveness should be evaluated based on the number of folks that are currently unserved/underserved, or in other words, still on the wrong side of the digital divide. Given the perceived need for the Broadband Equity, Access, and Deployment (BEAD) funding nearly 30 years after the Communications Act of 1996 (the “1996 Act”) became law, one could draw the conclusion that the program hasn’t been as effective as it could be. However, on the other hand, given the progress made since the old dial-up Internet days back in the 1990s, the program has been effective.  Simply stated, generally due to the very high cost of providing service, there is no business case for building broadband facilities in low-density, rural areas, and it has only been made feasible through the USF program.

With respect to the BEAD program, given the fact that nearly four years after the legislation was enacted, none of the unserved/underserved folks have gained access to high-speed Internet service, it is an indictment of the ineffectiveness of the program. On the other hand, the program has been a windfall for consulting and engineering firms that have been collectively paid millions of dollars assisting broadband providers in the preparation of the BEAD applications. Additionally, the program has also created numerous governmental jobs via the formation of 56 Broadband Offices throughout the U.S. and its territories.[2]

With respect to the Lifeline program, questions should be raised on whether the program is cost-beneficial, such as:

• If the program were to be eliminated, how much of a hardship would that create for those participating in the program?

• Is the program really worth the $943 million[3] in annual funding, particularly in light of the cost to administer the program?

• Does the program pass the “affordability” test required by the 1996 Act?

The record is clear that on Tribal lands, the Lifeline program provides a meaningful benefit.[4] It is also clear that affordability of telecommunications services on Tribal lands is a real impediment and that customers on Tribal lands are least able to afford broadband service given the high levels of Lifeline customers partaking in the program.[5] On the other hand, if the cost to administer the program exceeds the benefit, it can’t be affordable.

With respect to the two remaining USF programs, the Schools and Libraries (i.e., E-Rate) and the Rural Health Care programs, care should be taken to ensure that providers and recipients of the funding are not incentivized to overbuild existing facilities. If there are multiple providers in a particular area, it’s likely there will be overbuilding situations.  The emphasis should be placed on efficiency.

How well has each USF program fulfilled Section 254 of the Communications Act of 1996? 

Overall, given the progress made since the 1996 Act was implemented, one could conclude that each of the USF programs have been very successful to varying degrees.  However, each of the programs should be reevaluated periodically to determine how they might be made more efficient.  Along these same lines, technology continues to change, and it is imperative that the administration of each of the USF programs, along with the related regulatory requirements, be examined periodically to ensure they remain relevant. One way, for example, to test the effectiveness of Section 254 is to compare affordability metrics against national averages and national benchmarks. This could be reviewed in the context of comparing Form 481 from all filers to the FCC’s national broadband benchmarks study as it relates to end-to-end retail broadband pricing to see if carriers are meeting the national standard for equivalence.

Has the FCC adequately assessed each USF program against consistent metrics for performance and advancement of universal service?

It is difficult to determine whether the FCC has adequately assessed each of the USF programs. However, with respect to the High-Cost program, certain requirements such as the Performance Measure Model (PMM) testing is very inefficient since it is simply designed to provide proof that customers are getting the Internet speed they are paying for, and in the case of a fiber-to-the premises (FTTP) system, it really serves no useful purpose.

Additionally, the FCC’s mapping system must be improved, as indicated by the following feedback received from a small broadband provider who is serving a very rural area in the mid-west via an FTTP network:

A huge problem we are dealing with is the FCC Fabric.

We have technically not had to match our Fabric to our system because we are still a Legacy company; but we are going through it now in fear the funding reform will use it.

When the HUBB started, we did the same.  We went through all our mapping and addresses.  We worked and cleaned up our addresses to correlate our billing, postal, county, and E911.  The time and money put into all this is crazy.  Now we are comparing our addresses to the Fabric and had to have our engineering firm overlay our mapping system again. I have no idea where the Fabric addresses come from, as many are off in matching ours.

Our engineering firm says it is a nightmare to get a challenge corrected in the Fabric.  Companies previously tried, and they get approximately 30-50% correction completed.  I am also told the Fabric will change from version to version.  Each version released needs to be checked…who came up with this?  Who is allowing changes that were confirmed by the companies? 

Also, why are not all service locations in the Fabric?  I don’t care if there is a building or not.  We build plant out, and believe it ought to be counted.  I know they remove cellular towers (we have service to them) and they don’t count locations that do not have a livable building…guess what, in our rural, rural, real rural area, customers have service wherever they need it.  For example, a service station in our town has Internet access—no building.

Performance testing needs to go away completely, especially for companies that have fiber.  Complete waste of money and time.  Think about this: we test the same count as a very large company…we are the very smallest.  Makes no sense.

Consideration of Reforms

What reforms within the four existing USF programs would most improve their:-Transparency;-Accountability;-Cost-effectiveness;-Administration; and- Role supporting universal service?

As discussed in further detail below, there has been a lack of transparency and accountability with respect to the FCC, and even more so regarding its oversight of the Universal Service Administration Company (USAC).    Regarding the FCC, it has a long history of addressing petitions and rendering decisions on its own timetable. However, we are encouraged by the recent developments under FCC Chairman Brendan Carr’s leadership to improve the regulatory process and implement commonsense policies and procedures as demonstrated by the FCC’s “Delete, Delete, Delete” initiative. 

What reforms would ensure that the USF contribution factor is sufficient to preserve universal service?

This topic lies at the core of the SCC members’ concerns. We understand that in order to serve our communities with high-speed broadband—and thus to provide them with equal access to educational, economic, and telemedicinal opportunities as our urban counterparts—the USF support mechanisms must be “sufficient and predictable.” Implicit in this “sufficient and predictable” clause is the notion that such support should be sustainable.

Unfortunately, the current method of assessing the USF contribution factor—which is currently at 36% and is projected to reach a record level of 39.3% in the fourth quarter of 2025—from a dwindling telephony interstate and international retail revenues-based approach to support burgeoning data/broadband usage is destined to fail.

The SCC has built an extensive record in advocating for USF contribution reform, specifically calling for the FCC to require all users of the telecommunications and broadband network to pay for said usage. Specifically, the SCC has drawn attention to the need for Big Tech companies that have been receiving a free pass to utilize these networks that are built from telephony-based pools, thus driving network traffic (including costly transport, middle mile, and high-capacity broadband usage) to all-time highs while leaving end-users to foot the ever-increasing bill. For example, refer to our responses to items 6 and 8 in the document found in the white paper referenced below.[6] Additionally, regarding our more recent efforts to bring light to this crucial issue, refer to Part 3 of the four-part video series designed to educate customers, legislators, and regulators on the USF and the currently broken contributions model which undergirds it, found at this link: https://www.youtube.com/watch?v=-maw0QfhM2M.

What reforms would reduce waste, fraud, and abuse in each of the four USF programs?

As discussed in more detail in response to the Working Group’s final question later in these comments, it is the SCC’s belief that significant efficiencies and savings could be realized by streamlining USAC’s operations. Along these same lines, we believe that tightening up the effectiveness of USAC’s audit process would not only yield savings, but it would also enable small rural broadband providers to focus more of their limited resources in doing what they do best, which is reaching the unserved/underserved folks living in rural areas with high-speed Internet service.  

Additionally, the FCC’s ongoing effort to eliminate unnecessary, outdated, and burdensome regulations should be continued with a mindset that just because a particular regulation has applied in the past, it doesn’t necessarily mean that it applies today.  With this in mind, along with the other recommendations made in connection with the FCC’s “Delete, Delete, Delete” proceeding, the regulations pertaining to the PMM should be reduced or even eliminated altogether, especially for those providers who have deployed FTTP facilities. Furthermore, the FCC should work closely with the small rural broadband providers to improve its faulty mapping system.

With respect to the Lifeline program, as mentioned previously, the program should be reevaluated to determine whether the cost to administer the program is worth the benefit to the recipients. The exception, of course, is the effectiveness and true assistance of the enhanced Lifeline benefit on Tribal lands. In light of the higher levels of inflation in recent years, realistically speaking, the $9.25 received by the majority of Lifeline recipients is hardly enough to buy a meal at a fast-food restaurant let alone make a meaningful difference on a customer’s bill. On a related note, when the Affordable Connectivity Program (ACP) was in place several years ago, via its comments filed in connection with the FCC’s NPRM “In the Matter of Affordable Connectivity Program” [WC Docket No. 21-450] ,[7] the SCC made the following “Request for Clarification,” which, by the way, was never addressed by the FCC:

Although the matter is not directly addressed in the present NPRM, the SCC seeks clarification on ACP participant eligibility. Per the FCC’s website (https://www.fcc.gov/acp), “A household is eligible for the Affordable Connectivity Program if the household income is at or below 200% of the Federal Poverty Guidelines, or if a member of the household meets at least one of the criteria below [emphasis added]…” The list then includes participation in the National School Lunch Program (“NSLP”) as one of the criteria that would deem the household eligible to participate in the ACP program.

It is the SCC’s understanding that if a majority of households fall under the required income threshold, then the entire school district is eligible for participation in the NSLP. If this is the case, then it stands to reason that households which may not necessarily require economic assistance due to low household income can receive support through the ACP, as a sort of dragnet inclusion stemming from the National School Lunch Program. If our understanding is incorrect, we would greatly appreciate further clarification on the matter.

Finally, with respect to the Schools and Library and Rural Health Care programs, care must be taken to ensure that governmental funding is not used to overbuild existing fiber facilities.

What actions would improve coordination and efficiency among USF programs and other FCC programs, as well as broadband programs housed at other federal agencies?

Whenever practical, the FCC, NTIA, and other federal and state agencies should share information. Additionally, those same agencies should take the time to visit the small rural providers to gain a better understanding of the challenges of providing and maintaining broadband facilities in rural areas. To this point, the governmental agencies need to be reminded that their role is that of a public servant, and, accordingly, the agencies should seek to work together with each other as well as those they are charged with representing and regulating to best serve the public interest. One recommendation may be to hold semi-annual intergovernmental agency forums to allow these agencies to share ideas, best practices, and streamline ideas between each other to more efficiently oversee and/or [lightly] regulate the deployment of broadband services in rural areas. This symposium of sorts could also include public interaction and participation to further the goal of providing robust broadband and internet service using a lighter touch regulatory regime.

For any recommendations on reforms, does the Commission currently have the feasibility and authority to make such changes?

The FCC’s USF authority is governed by Section 254 of the Communications Act, as amended (47 U.S.C. §254), which was added by the 1996 Act.  Over the years, the FCC has used this authority to make sweeping reforms to the USF program, including creation of its own mechanisms. More specifically, under the authority of Section 254(d), the FCC requires all carriers of interstate and international end user revenues to contribute to the USF. However, in the past, it’s our understanding that the FCC has been reluctant to exercise its authority to require all users of the network to contribute to the USF program, and as a result, the contribution factor has been tied to the shrinking copper telephone network and associated revenues, which is why the factor has reached record levels. The SCC has long sought to bring awareness to the ill-calibrated practice of using telephony revenues to pay for broadband deployment, a practice aptly described by the FCC’s current Chairman, Brendon Carr, as “taxing horseshoes to pay for highways.[8]” Encouragingly, under the leadership of Chairman Carr, the FCC has recognized the need to reform the USF contribution base. However, according to a March 1, 2024, Congressional Research Service Report,[9] “…without congressional action to provide the FCC with the authority to assess edge providers, the FCC would need to determine that their services meet the statutory definition of ‘telecommunications’ and that the contributions would be in the public interest.” 

Is the USF administrator, the Universal Service Administrative Company (USAC), sufficiently accountable and transparent? Is USAC’s role in need of reform?

To be blunt, no,  USAC is neither sufficiently accountable nor transparent. The SCC has a long history of bringing its concerns regarding USAC to the attention of the FCC. For example, in the SCC’s October 26, 2018, letter[10] to former FCC Chairman Ajit Pai, among other matters, the SCC expressed its concerns involving USAC’s operations.  Furthermore, as pointed out in its comments filed in connection with the FCC’s “Delete, Delete, Delete” Public Notice in April of this year, the SCC has previously raised the issue of an apparent surplus in the USF, as identified in USAC’s annual reports. However, coincidental though it may have been, shortly after the SCC began raising questions about this surplus, USAC stopped including its basic financial statements (i.e., a Balance Sheet, Statement of Operations or Statement of Income, and a Statement of Cash Flows) in its annual reports.  Additionally, USAC has earned a reputation in the industry for conducting highly inefficient audits that can take as long as several years and even longer to complete from start to finish. For example, the SCC knows of a very small incumbent local exchange carrier that was subjected to a USAC audit, which entailed four CPAs traveling from the west coast and spending three days conducting the onsite fieldwork in Pennsylvania. It also entailed numerous data requests prior to and after the onsite visit. After dragging on for approximately one year, the audit was finally closed resulting in a net finding of $241. Additionally, the SCC is aware of a consulting firm that oversaw a year-long audit of one of its small local exchange carrier clients whereby the final determination of findings was an overpayment by USAC of fourteen cents ($.14). In addition to the time and effort spent by this small carrier during the course of the audit, the total fees paid to the consultants to compile all of the data, attend meetings, participate on calls, provide information, and conduct extensive research, was almost $150,000.

Furthermore, as noted in the SCC’s above-referenced comments, based on our review of its annual reports for the years 2021 through 2024, we recommended that the FCC should inquire as to why USAC’s total operating expenses have fluctuated so significantly in recent years, as demonstrated by the following table:

Year	Total  Operating Expense
2020	204,479,047
2021	251,566,761
2022	328,882,254
2023	368,039,270
2024	324,069,905

Additionally, questions were raised as to why USAC’s Professional Fees line item has increased so dramatically, as demonstrated via the table below:

Year	Professional     Fees Expense
2020	20,422,042
2021	40,535,785
2022	120,095,322
2023	133,170,561
2024	119,806,277

Also, for transparency purposes, USAC should be required to include the basic financial statements referred to above in its annual report.  Also, the specific fees paid to the various CPA firms that USAC has contracted with to conduct the audits of the universal service funding received by recipients should be disclosed, as opposed to its more recent practice of only including a range (i.e., $1-2M, $2-5M, and > $5M) of the total fees paid to the firms listed in its annual report,[11] along with the number of audits each firm has been engaged to conduct. Doing so would not only assist the industry and all stakeholders who receive USF subsidies with additional transparency, but it would also help bring to light any possible or perceived conflicts of interest for beneficiaries of the USF program while conducting those audits.

With respect to the USAC audits, the following excerpt has been taken from a 2017 white paper sponsored by the SCC and prepared by the Alexicon Telecommunications Consulting, Inc.:

Instead of continuing an obviously inefficient and cost-ineffective audit process, the SCC recommends the FCC heed its own advice and pay further attention to materiality concerns. In its recent Report and Order addressing the comprehensive review of the Part 32 Uniform System of Accounts, the FCC stated:

“We also agree with Alexicon that ‘it would be beneficial to NECA and its pool members if the Commission adopted a definition of materiality that provided guidance related to NECA’s review procedures.’ Indeed, more particular guidance may be especially important for carriers receiving legacy universal service support because federal support is tied to the reported cost of such carriers. We adopt the general materiality guidelines promulgated by the Auditing Standards Board.”^[12]

The SCC suggests a similar approach to ensuring the proper use of federal high-cost support funds. For example, the FCC could rely on independent auditors for testing compliance with certain USF rules and reporting results. Furthermore, the FCC should make more efforts to identify high-risk or known “bad actors” for audits and further review, instead of undergoing costly audits of the smallest companies with little or no chance for material recovery (due to the relatively small amount of support received, unless foul play is detected). To this end, the FCC and USAC must develop, via an orderly and public process, methods to identify the highest audit risks (in terms of likelihood of material repayment of funds) so that audit resources can be most efficiently expended.

Additional Comments

As indicated in the introductory paragraph to these comments, from the time of its formation over 13 years ago, the SCC has offered to assist the FCC to improve the regulatory process all in an effort to help ensure that the unserved/underserved residents living in rural America gain access to affordable, high-speed Internet service in an efficient and effective manner. In order to take full advantage of the opportunities to close the digital divide, we encourage the FCC to work together with the small rural broadband providers as a partner as opposed to playing the role of a “cop.” The SCC continues to advocate for the FCC to identify triggers, outliers, and concentrate on foul play metrics to ensure the future of the USF is void of fraud, waste, and abuse. However, before this can happen, the FCC must understand that by far, the majority of small rural broadband providers are operating with the best interests of their customers in mind and with a keen awareness of what must be done to fulfill the mandate to build and maintain the facilities necessary to reach the unserved/underserved folks living in the territories they serve with high-speed Internet service at affordable rates.

On another note, as mentioned in the SCC’s comments in response to the FCC’s “Delete, Delete, Delete” proceeding, with respect to the Customer Network Propriety Information (CPNI), the FCC’s ability to assess potentially catastrophic fines (including monetary forfeitures of up to $251,322 for each violation for each day of a continuing violation, up to a maximum of $2,513,215)  for filing-related infractions should be significantly reduced and brought in line with other penalties that are more grounded in common sense. As a reference, violation of FCC Regulations—47 U.S.C. § 502, which also deals with privacy-related issues, incurs a maximum fine of $500 for each day on which a violation occurs. Additionally, consideration should be given to simplify the CPNI rules for small providers (i.e., those providers with fewer than 50,000 customers) given the fact that such providers have been careful to protect the confidentiality of their customers’ information and were not known for selling the information, which was the impetus behind the need for rules in the first place.

Finally, the SCC is taking this opportunity to raise awareness on the shrinking High-Cost Loop Support (HCLS) fund and its effect on recipients.  There are numerous problems with the HCLS fund stemming from the Rural Growth Factor and Budget Control Mechanism (BCM) that are creating uncertainty and dampening investments in the rural broadband network.  With this in mind, the following remarks were provided by an SCC member company addressing the negative financial impact of the shrinking HCLS and the BCM on small, rural providers where the additional funding could otherwise be used to build infrastructure and reach unserved/underserved customers: “How is it beneficial to the public cutting funding to the service provider when the cost of everything is going up?  We have to build, maintain, and improve service all the time. It is amazing to me, when a crisis hits (i.e., COVID), the small service providers kept the country going in rural America, yet we are the ones getting cut.” 

Rather than go into further detail in this document, the SCC would be more than willing to meet with the Working Group as well as the FCC to discuss our concerns with respect to these additional matters.

Conclusion:

We thank the Working Group for its proactive approach to addressing these important USF issues, and offer to assist the Working Group in its effort to improve the various USF programs and ultimately help fulfill the goal of providing affordable, high-speed Internet service throughout the country’s rural communities.  

Respectfully submitted,

James J. Kail

Executive Committee Member

Small Company Coalition

[1] A copy of the SCC’s comments can found at this link: https://www.smallcompanycoalition.com/_files/ugd/2df08a_7a413fe9255b48df87b07ede1c1d3d40.pdf

[2] See the complete list at this link: https://www.ncsl.org/technology-and-communication/state-broadband-task-forces-commissions-or-authorities

[3] See USAC’s 2024 Annual Report at this link: https://www.usac.org/wp-content/uploads/about/documents/annual-reports/2024/2024_USAC_Annual_Report.pdf

[4] https://www.neca.org/docs/default-source/wwpdf/public/9215ntta.pdf?sfvrsn=9052eebc_0

[5] Ibid

[6] www.smallcompanycoalition.comwp-content/iploads/2017/10/SCC-House_White_Paper_Comments_9-19-14.pdf.

[7] The SCC’s comments can be found at this link:  https://www.smallcompanycoalition.com/_files/ugd/2df08a_b8edc4033c22477fa6e58af5b3663c70.pdf

[8] This quote was taken from a May 2024 article published in Newsweek.

[9] See the full Report at this link: https://sgp.fas.org/crs/misc/R47621.pdf

[10] A copy of this letter can be found at this link: https://www.smallcompanycoalition.com/_files/ugd/2df08a_6d80ac0ea89f4f8599bf884702dd5dde.pdf

[11] For an example, see page 14 of USAC’s 2023 Annual Report found at this link:  https://www.usac.org/wp-content/uploads/about/documents/annual-reports/2023/2023_USAC_Annual_Report.pdf. As a note, this list was excluded from USAC’s 2024 Annual Report altogether.

[12] In the Matter of Comprehensive Review of the Part 32 Uniform System of Accounts, Report and Order (FCC 17-15), WC Docket No. 14-130 (rel. February 24, 2017) at 26.