The Federal Communications Commission has preliminarily voted to cap spending on the FCC's Universal Service programs, which deploy broadband to poor people and to rural and other underserved areas.

The party-line vote was criticized by the FCC's two Democrats, with Commissioner Jessica Rosenworcel saying the Republican plan "is fundamentally inconsistent with this agency's high-minded rhetoric about closing the digital divide" and "at odds with our most basic statutory duty to promote and advance universal service."

Last week's approval of a Notice of Proposed Rulemaking is a preliminary step—the FCC will take public comment on Chairman Ajit Pai's plan for three months before moving to a final vote. The FCC technically won't begin the public-comment period until after the NPRM is published in the Federal Register, but the FCC proceeding's docket is online at this page.

Pai's plan, as we previously reported, would set a combined cap of $11.4 billion on the four programs that make up the Universal Service Fund (USF).

Pai's proposal says that capping the fund at this level "will strike the appropriate balance between ensuring adequate funding for the Universal Service programs while minimizing the financial burden on ratepayers and providing predictability for program participants." All four Universal Service programs are paid for by Americans through fees on their phone bills.

Budget cap could prevent program growth

The proposed cap of $11.4 billion is the same as the sum of the four programs' budgets for 2018 and would be indexed to keep pace with inflation under Pai's proposal. The new cap wouldn't have an immediate impact on actual spending, because it's higher than current spending. The FCC projects that the USF's total disbursements will be $10.2 billion in 2019 and remain below $10.5 billion annually through 2023.

But the USF's Lifeline program is underutilized. It provided subsidies to 10.7 million (XML spreadsheet) low-income subscribers in 2017, even though 38.9 million American households met the program's low-income requirements. There's still room for Lifeline to grow, as actual spending was $1.14 billion in 2018 despite a budget of $2.28 billion. But the proposed budget cap could rule out expansions that either dramatically raise enrollment among low-income Americans or significantly raise the subsidies, which are typically just $9.25 per household per month.

The proposed cap could also put a tighter squeeze on the so-called high-cost program that pays ISPs to deploy broadband in rural areas via the FCC's Connect America Fund. The FCC says that high-cost disbursements were $4.685 billion in 2018, which is more than the budget of $4.5 billion.

Pai recently announced plans to spend $20.4 billion over 10 years on this program after one of the ongoing Connect America funding rounds expires. But that would account for less than half of the high-cost fund's annual budget, and it's clear from Pai's budget-cap proposal that he doesn't plan to raise spending much, if at all.

USF spending has decreased slightly under Pai's watch. It was $8.7 billion in 2016, during the Obama administration, rose to $8.9 billion in 2017 during Pai's first year, and dropped to $8.3 billion in 2018. Much of the spending was locked in via multi-year programs that began before Pai took over.

Democrats dissent

Besides the high-cost program for rural areas and Lifeline for low-income Americans, the USF includes the E-Rate broadband program for schools and libraries and a telecom access program for rural health care providers. Pai's plan says that "linking the expenditures in multiple USF programs through the overall cap" will "promote a robust debate on the relative effectiveness of the programs."

Democrats say this will pit the USF programs against each other. Rosenworcel's dissent from the vote said that Pai's plan "suggests a course that could cut off broadband in rural areas, limit high-speed Internet access in rural classrooms, shorten the reach of telehealth, and foreclose opportunity for those who need it most. Worse, it proposes unleashing a fight for support between connecting kids in schools and hooking up hospitals for telemedicine."

Similarly, Democratic Commissioner Geoffrey Starks said in his dissent that "The proposal would pit deserving beneficiaries—anchor institutions, students, patients, and Americans who lack broadband—against one another in a fight for Universal Service funds."

The FCC doesn't even have good data on broadband availability, making it hard to know exactly how much should be spent to spur deployment, Starks also said. "[T]he cap is arbitrary because it has no relation to the actual nature of the Internet inequality problem in this country. How can we cap the amount of money needed to support broadband when we don't even know the number and locations of the Americans that still need to be connected?" he said.

E-Rate

Starks also objected to Pai proposing to set one combined cap for the E-Rate and Rural Health Care programs. This would be in addition to the combined cap for the four Universal Service programs.

"That raises an alarm for me and would have the effect of immediately lowering one program's budget if the other is oversubscribed," Starks said. "I believe that kind of a budget cut runs counter to the FCC's statutory obligations."

Pai's proposal suggests a combined cap of $4.64 billion for the E-Rate and Rural Health Care programs. "[A]s long as total demand for both programs [does] not exceed the combined cap, all funding requests for both programs would be approved," the proposal said.

FCC Republican Commissioner Michael O'Rielly defended the combined cap for all Universal Service programs. He said that the absence of a cap is:

... not fair to the American consumers who ultimately pay for the USF through line items on their telephone bills. At the very least, they deserve much more stability in knowing the overall amount they'll be on the hook for every month. That's especially true given the regressive nature of USF fees and their disproportionate burden on lower- and middle-income Americans.

Pai and Republican Commissioner Brendan Carr did not issue statements on the proposal.

Schools and libraries ask FCC to reject cap

A group that represents schools, medical organizations, and libraries in telecom policy said the FCC shouldn't cap Universal Service funding.

"The FCC's proposal to adopt an overall cap on the USF is unfortunate, counter-productive, and contrary to congressional intent," the Schools, Health & Libraries Broadband (SHLB) Coalition said. "Congress directed the FCC to make 'sufficient' funding available to meet our nation's universal service goals, not to prohibit spending that is necessary to reach those goals."

The Benton Foundation, a telecom-policy research and advocacy group, also criticized Pai's proposal. The group said: