Section 254(d) of the Act requires providers of “telecommunications services” to contribute to the federal Universal Service Fund (USF), which is used to subsidize telephone and broadband service in high-cost areas, for low-income Americans, and for schools, libraries, and certain health care facilities. Although the FCC’s decision to reclassify broadband Internet Access Service (BIAS) as a telecommunications service would normally result in these services being assessed USF fees, the Order forbears “for now” from applying the portion of Section 254 of the Act that requires telecommunications service providers to contribute to the federal USF. This is significant because the USF contribution “factor,” or percentage is currently 16.8%. (The factor is adjusted quarterly.) 

In the Order, the Commission forbears from the first sentence of Section 254(d) and associated rules, so that BIAS is not immediately subject to contribution obligations. The Commission announced its decision to forbear, however, only after listing multiple reasons why forbearance may be a temporary reprieve. The Order notes that the Commission’s historical use of USF funds to support broadband deployment “persuades us to give much less weight to arguments that we should proceed incrementally in this context.” As noted above, USF funds support broadband deployment to high cost areas that are underserved/unserved, to schools and libraries and to rural healthcare facilities. More recently, the FCC has also established a goal of expanding support for broadband to the low income population under the Lifeline program.

In its forbearance analysis, the Order states that “at this time” it is not necessary to impose USF fees on broadband services in order to ensure just and reasonable rates, or to protect consumers. As a result, it found that forbearance is in the public interest—but seemingly only “while the Commission completes its pending rulemaking regarding contributions reform.” The referenced rulemaking proceeding was opened in 2012 to consider proposals to overhaul the USF contribution system, including a proposal to impose USF fees on broadband services. Later, in 2014, the FCC issued an order requesting that the Federal State Joint Board on Universal Service make recommendations regarding the proposed changes by April 7, 2015. (The Joint Board consists of state regulators and FCC Commissioners, acting “jointly” to make recommendations to the Commission.) The current Order states that a “short extension” of this deadline may be in order, but did not give a specific timeline.

In these circumstances, while BIAS providers are free from any new obligation to collect and remit USF charges with respect to BIAS revenues, it does appear that the Commission is signaling that it will very seriously consider imposing a contribution obligation on BIAS revenues. (Note that many rural telephone companies have long offered BIAS as a tariffed telecommunications service—an option the Commission provided when it classified telephone-company-delivered BIAS as an information service in 2005. These entities already make USF contributions with respect to their BIAS revenues and will continue to do so under the Order.) The next step in the process will be the Joint Board recommendation noted above. In the normal course, that recommendation will be placed on public notice to solicit comments regarding whether the Commission should adopt it, reject it, or modify it—a process that would typically take at least six months. We will provide an advisory on the Joint Board’s recommendation—which will provide some insights into how the FCC itself may be leaning—as soon as it is issued.