The Post-Election Future of the Universal Service Fund

Under Commissioner Brendan Carr’s leadership, the Federal Communications Commission (FCC) will likely focus on expediting the review and approval process for applications to launch new satellites.

The U.S. Court of Appeals for the 6th Circuit heard oral arguments on a challenge to the Federal Communications Commission’s (FCC) net neutrality rules, which reclassified broadband Internet access services under Title II of the Communications Act, on October 31. The court has already issued a stay of the rules’ effectiveness pending its decision on the merits, citing the “major question” doctrine. The rules, originally adopted under Obama-era FCC Chairman Tom Wheeler, later repealed by Trump-appointed FCC Chairman Ajit Pai, and readopted under current FCC Chairwoman Jessica Rosenworcel, if upheld by the court or remanded to the agency for further action, will almost certainly be repealed under Commissioner Brendan Carr.

The new Trump administration will likely take a deregulatory approach to artificial intelligence (AI). President-elect Donald Trump has pledged to repeal President Joe Biden’s AI executive order, which imposed new reporting requirements on developers of advanced AI models and laid the groundwork for future rules. Scaled-back regulation could be paired with slashed research funding for AI.

Expect to see new entities added to the Federal Communications Commission’s (FCC) “Covered List” of communications equipment and services deemed to pose an unacceptable risk to the national security of the United States (U.S.) under a Republican-led FCC. Commissioner Brendan Carr has been particularly vocal on this issue, urging that the FCC “must do a better job of ensuring that its Covered List stays up to date and accounts for changes in corporate names and forms,” and suggesting that the new administration “should create a more regular and timely process for reviewing entities with ties to the Chinese Communist Party’s surveillance state.” Expect FCC staff to take a more proactive role in investigating companies for ties to prohibited entities, and working with other agencies focused on national security to add them to the Covered List. While the FCC has so far only banned Covered List companies from obtaining FCC authorizations, Commissioner Carr has proposed revoking the existing authorizations of Covered List companies. Additionally, Commissioner Carr could be expected to prohibit U.S. providers from interconnecting with Covered List companies, in order to prevent those companies from continuing to offer service on a private, unregulated basis.

Under Republican administrations, the Federal Communications Commission (FCC) has historically taken a more permissive approach to approving mergers and acquisitions (M&A) transactions involving companies that hold FCC licenses and other authorizations. This pattern will likely continue under the new Trump administration, with quicker approvals for transactions and fewer conditions imposed by the FCC. This may be tempered by the new Team Telecom paradigm that recently took effect, however, which could lengthen the approval process for applications involving reportable foreign ownership. Under the new Team Telecom framework, applications that involve International Section 214 authority to provide international telecommunications service or submarine landing licenses are now referred to the Committee for the Assessment of Foreign Participation in the United States (CFIUS) Telecommunications Services Sector if an applicant has 10% or greater direct or indirect foreign investment. Applications to exceed the FCC’s statutory foreign ownership benchmarks, which are codified at Section 310 of the Communications Act, are also referred to the CFIUS. Applicants must complete a standardized set of questions when filing an application, and a 120-day review period commences once CFIUS determines that the applicant’s responses are complete, during which time FCC action is deferred. This timeline may be extended by an additional 90 days at the CFIUS’s discretion. In one recent example, the Department of Justice (DOJ) requested that the FCC defer action on T-Mobile’s proposal to acquire parts of US Cellular until CFIUS can complete a review of the proposed transaction, citing potential national security and law enforcement concerns related to T-Mobile’s significant foreign ownership. This DOJ request is generally at odds with how the FCC has treated T-Mobile’s 100% foreign ownership in the past.

Under Commissioner Brendan Carr, expect to see a renewed focus on streamlining the rules for fiber and other wired infrastructure deployment. Commissioner Carr has pointed out that between 2016 and 2019, the Federal Communications Commission (FCC) was able to accelerate infrastructure builds for new wireless cell sites—the building blocks for 5G—by reforming permitting rules, putting in place guardrails to address outlier fees and delays imposed at the state and local levels on small-cell projects and making other updates to modernize the permitting process. Commissioner Carr has proposed that the FCC now “explore similar action for the deployment of other wired infrastructure,” which we read as pertaining to fiber-optic cable, such as by imposing limits on the fees that local and state governments can charge for reviewing those wireline applications, and time restrictions on the government’s decision-making process.

The constitutionality of the Universal Service Fund (USF) funding mechanism is currently being litigated, and its future has long been the subject of debate in Congress. The U.S. Court of Appeals for the 5th Circuit found the funding mechanism unconstitutional, a holding that is in conflict with decisions from the U.S. Courts of Appeals for the 6th and 11th Circuits upholding the constitutionality of the program. The Supreme Court has accepted the case and will hear arguments in the coming months. Should the Supreme Court find the funding mechanism unconstitutional, Congress will need to step in to keep the program funded. Former Federal Communications Commission (FCC) Chairman Ajit Pai supports Congress appropriating the dollars to fund USF in order to escape the current situation in which the USF obtains “more and more money from a declining base of contributors.” There has been a bipartisan working group in Congress focused on reforming the program, but those efforts have yet to produce legislation. The most straightforward fix may be for Congress to move the funding to the regular appropriations process and fund it annually. However, defenders of the current program have argued that this will create uncertainty and make it difficult for carriers who depend on the funding to operate. Republicans have advocated for reforming the program and giving Congress more oversight, which would come with direct funding.

Targeting Overbuilds and Improving Coordination Among Agencies. Under Commissioner Brendan Carr, expect to see a new approach to broadband funding that is focused on encouraging coordination of broadband funds among agencies and eliminating the government-funded overbuilding of existing networks. Commissioner Carr has noted that although hundreds of billions of infrastructure dollars have been appropriated by Congress and budgeted by agencies in recent years, federal broadband efforts are “fragmented and overlapping, with more than 100 programs administered by 15 agencies,” which he says risks “overbuilding as well as wasteful duplication.” To combat this, Commissioner Carr has voiced support for the adoption of a new strategy designed to facilitate coordination between the various agencies responsible for awarding broadband funds.