Joint Board Chair O'Rielly Draws Line in Sand Against Broadband-Based USF Contributions

FCC Commissioner Mike O'Rielly said USF contributions won't target broadband while he's chairman of a federal-state joint board that advises the agency. Although open to other approaches to shoring up the eroding USF industry contribution base, O'Rielly said he's focused on bringing fiscal discipline to USF programs. The FCC "should set a topline budget and then ensure that spending increases are paired with offsets elsewhere," he said at a Hudson Institute event Tuesday. He also explained his libertarian-tinged conservativism, backed serious cost-benefit analysis in the new Office of Economics and Analytics, and voiced optimism Congress will remove a legal hurdle to new spectrum auctions.

O'Rielly made his case against assessing broadband for USF contribution purposes, which he said was "at the heart of a proposal" of state joint board members (see 1711130035). "Even if the commission could do this, and I am not granting that point, it is equally important to ask whether it should do this," he said in a speech that closely tracked prepared remarks. Noting industry providers generally pass USF costs along to their subscribers in fees, he said, "taxing broadband deters its adoption and use," something he said Congress had made clear it opposes through the Permanent Internet Tax Freedom Act. Broadband-based USF contributions would make it harder for "low-income, working-class Americans" to afford high-speed internet access, he said.

Arguments that assessing broadband would lower the contribution factor are "disingenuous at best," O'Rielly said. If USF spending is held constant, he said, new fees would be applied to more parts of consumer bills: "it would just spread the pain in the hopes that people will not notice or care." But many advocates seek to broaden the revenue base as a "back-door means" to hiking USF spending, he said. Annual authorized spending in the four USF programs grew from over $4 billion in 2000 to about $11 billion today, he said. Some could be tempted to "rejigger the base" to obscure even greater total funding, he said, citing inflationary increases built into some programs and proposals for new increases.

"Instead of broadening the base, I want to get overall spending under control, O'Rielly said: "I would start by making a real effort to find efficiencies and savings within and across all USF programs" to provide relief to "over-taxed and fee-extracted Americans." He suggested capping the budget would force "hard choices" about the different USF programs in a broad context: "During prior reform efforts, budget increases were considered in a vacuum. That was intentional. It can be hard to argue against funding for schools" while the total cost to ratepayers is ignored.

O'Rielly said "states have no authority" to assess broadband for their own USF programs, citing 2015 FCC pre-emption of such assessments. By declaring broadband an "interstate information service" in its recent net neutrality repeal order, the FCC left "no severable intrastate component for states to assess," he said. "Any state that proceeds down that path is acting in a manner that is inconsistent with our rules and is subject to a possible pre-emption order or other challenges."

Broadband USF assessments aren't going to happen "on my watch," said O'Rielly, responding to questions. He recognized the current USF contribution base tapping long-distance phone revenue is shrinking, and expressed interest in basing assessments on phone numbers, while expressing openness to a system based on "connections," a "hybrid," or some other method. He suggested state regulators must recognize broadband assessments are a non-starter for there to be a "functioning joint board." Without that, he said the USF contribution base could keep eroding for a while. He believes FCC Chairman Ajit Pai shares his broadband view. Pai spokespersons didn't comment.

State members "unanimously concur" with O'Rielly that USF "ought to be constrained by a firm budget for each of the four programs," emailed State Joint Board Chair Chris Nelson of South Dakota. State proposals are not intended "to raise more revenue for the federal fund but rather are revenue neutral as needed to fund a firm budget," he said. State members hadn't discussed O'Rielly's push for efficiencies, Nelson said, but he "personally" supports "any efforts to ensure" USF dollars are used responsibly. State members believe the current contribution methodology -- "which places a fee solely on voice communications but is now spent primarily for broadband" -- "is not sustainable nor equitable," he said. "The methodology must change to serve the needs of today’s push for universal access to broadband services throughout this country."