USF Reform is Popular, But Bipartisan Support Is Lacking on Details

CHARLESTON, S.C. -- Federal lawmakers from both parties back reforming the Universal Service Fund (USF), but whether that happens likely will depend on the November elections, speakers said Monday at NATOA’s annual local government conference. Localities will increasingly face broadband-only providers wanting right of way (ROW) access, and those cable competitors raise questions of whether they too should pay franchise fees, said localities lawyer Brian Grogan of Moss & Barnett.

“Don’t panic yet” about the 5th U.S. Circuit court of Appeals’ decision against USF's contribution methodology (see 2407240043), said localities lawyer Cheryl Leanza of Best Best. It seems likely the Supreme Court will consider the circuit court split over the issue, she said. Moreover, the 5th Circuit’s decision is problematic, as the nine judges who found against the USF didn’t agree on why it’s unconstitutional, Leanza added. The decision also contains a number of factual errors, such as how the contribution rate is assessed, she said.

The November elections will likely result in a Congress with close margins, Leanza said. While there are partisan disagreements over reforming USF, there also is bipartisan support that the Affordable Connectivity Fund should be part of USF as a means for sustainable funding, she said. However, there hasn't been enough consensus on the details for doing so. Leanza said renewing ACP’s funding isn’t likely before the election, but the lame-duck period immediately afterward could be a different story.

The American Broadband Deployment Act (HR-3557) will come back next year, and whether that's concerning will depend on the fall elections, said Best Best localities lawyer Gerry Lederer. Champions of the bill, which NATOA had opposed (see 2311060069), fortunately made it partisan, making it difficult for the measure to progress beyond House Commerce approval, he said. Congress isn't likely to consider reforming the cable LFA rules regime as a solitary issue, but LFAs might find more success trying to tie such reform to larger, more popular issues like USF reform.

Grogan questioned whether broadband-only providers should be allowed ROW access without compensation to the locality. Such providers are increasingly competing with cable operators, he said. Cable subscriber declines might level off at some point, Grogan said. But even as cable TV subscribers decline, cable operators often still see value in obtaining and maintaining a cable franchise as that franchise provides certitude that their facilities can be in the ROW, he said. That also can serve as a transferable asset of value if ownership changes hands, he said.

An increasing number of states are exempting streaming services from paying franchise fees (see 2305190048). Cities and counties seeking franchise fees on streamers via litigation often fail because courts find that streaming services lack control over the physical method of delivery, Grogan said. Some major cable operators now take the position that they are over-the-top operators, and are no longer paying fees, he added. States and localities should audit their fees to ensure providers haven't unilaterally opted out of paying franchise fees this way.

Multiple cities and states are trying other routes to obtain fees from streamers, such as Chicago’s amusement tax, Florida’s communications service tax and Pennsylvania’s sales tax and use tax, Grogan said. States are considering this approach, he said, because cities and counties are feeling the budgetary pain of declining cable franchise fees, he.

Pointing to policy discussions at the Democratic National Convention about cutting permitting red tape as a way of increasing housing supply, Angelina Panettieri, National League of Cities legislative director-technology and communications, said housing and zoning rule preemption also could impact broadband and ROW management. Localities must make sure policymakers are aware of why ROW and franchise policies exist, she said. Broadband and housing interests are looking at preemption as a priority “and we have to push back on that."

Localities must "think outside the box to protect revenue," especially as their general funds and public, educational and government (PEG) channels face revenue hits from declining franchise fees, said Jay Runte, Eugene, Oregon, broadband and telecommunications manager. While it would require state legislative changes, he said local governments could try to require a utility license for ROW access. Runte said localities also should lobby for repeal of the FCC's mixed-use rule.

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It's unclear how much importance a Kamala Harris White House will put on communications policy issues, said Best Best's Leanza. A second Donald Trump administration would likely put a premium on it, however. As evidence, Leanza noted how quickly Ajit Pai was selected as FCC chairman and the long runway for him to pursue an agenda. On the other hand, Leanza said, the Joe Biden administration was less interested in telecommunications issues. It moved relatively slowly to form a functional FCC with a permanent chair and full panel of commissioners, she said. Leanza predicted a substantial cable franchising reform isn't likely under either a Trump or Harris White House.

A change in presidential administration could prompt states to amend their broadband equity, access and deployment (BEAD) plans in ways that may impact issues like fiber preference and low-income offerings, said Ceilidh Gao, Communications Workers of America senior research associate.

Broadband access is not a one-dimensional issue -- affordability and digital skills are central to ensuring equitable access, said former FCC acting Chairwoman Mignon Clyburn. Now a consultant, Clyburn questioned whether internet service providers would prioritize some online traffic if they prevail in challenging the FCC’s current net neutrality rules. While ISPs haven’t done so in the past, she said, that is not necessarily a guarantee they won’t in the future in the name of profit maximization. Without universal access to affordable broadband, any focus on other issues such as USF reform and digital discrimination enforcement would have debatable consequences, she said. The criticism of ACP that many benefit recipients had broadband subscriptions before the program ignores how many times those recipients went through a cycle of disconnections and reconnections because of broadband's cost, Clyburn added.

Daniel Lightfoot, senior intergovernmental relations representative, League of Minnesota Cities, said a coming legislative priority is lobbying the coming session of Congress on the FCC’s 2019 cable local franchise order (see 1908010011). Lightfoot -- and other speakers Monday -- said the order's mixed-use rule needs repeal.

Tom Robinson, CEO of local government consultancy CBG Communications, said 10 years is the most-common renewal term for local franchise authorities. Verizon is an outlier seeking five-year terms. He said some cable systems have overbuilt smaller operators, creating competitive franchises. For LFAs, that creates an opportunity to obtain enhanced public benefits, or expansion of a cable system to cover areas the incumbent does not currently serve, he said.