Wireline Competition Bureau

1. Wireline Competition Bureau April 2019

2. Overview • Intro to wireline providers and customers • Trends in wireline telecommunications • What the FCC’s Wireline Competition Bureau does • Universal Service Fund basics • Primer on the USF programs: Connect America Fund; Lifeline; E-rate; and Rural Health Care

3. Wireline Customers • Residential consumers purchase: • Voice service (traditional phone service or voice over Internet Protocol) • Video • Broadband Internet access • Triple-play services (Verizon FiOS, AT&T’s U-verse, Comcast Xfinity) • Business or “enterprise” customers (including small and large businesses, government institutions, schools & libraries) purchase: • Voice service • Data services (including Internet access) Mobile providers purchase: • Circuits to connect cell towers to each other and to the rest of the network (“backhaul”) Other wireline carriers purchase: • Pipes to carry aggregated traffic from place to place • Circuits to connect their networks to office buildings and other locations

4. The Relationship Between Wireline and Wireless • A symbiotic relationship exists between wireline and wireless • Wireless providers rely upon wireline circuits to connect cell towers to their networks. • Ability to offload data to fiber networks frees up spectrum for reuse. • Wireline networks provide transport between cell sites and the network. • Without wireline backhaul wireless networks would quickly become congested. • Wireless providers are major consumers of wireline services. • This is especially true in rural areas where there otherwise may not be sufficient demand. • Wireless providers require high speed buildouts that can benefit consumers. • 5G will require heavy investments in wireline fiber deployment. Many of the massive capacity gains promised in 5G require small cell deployment. Those small cells will need high speed backhaul to achieve promised speed and latency potential.

5. Wireline Service Changes • Once considered a natural monopoly, the wireline communications industry is currently a site of dynamic competition. With the convergence of voice and data services over broadband Internet, traditional voice telephony has become just another Internet application, and telephone companies face competition not only from their cable counterparts in providing triple-play bundled service, but also from satellite and wireless providers, both fixed and mobile.

6. Trends in Horizontal & Vertical Integration • Telecom companies have sought to remain competitive by focusing on their affiliated wireless operations; deploying next-generation fiber networks; and pursuing acquisitions to diversify revenue. Likewise, as viewers cut their cable cords, trade cable TV for Netflix, and increasingly consume media on mobile devices, cable companies have struggled as standalone entities and have pursued horizontal and vertical integration.

7. Wireline Competition Bureau

8. Telecommunications Access Policy Division Universal Service Fund

9. Universal Service Fund (USF) “Universal service” – the availability of affordable, reliable telecommunications service throughout the nation – is a fundamental goal of federal telecom law. Pursuant to Section 254 of the Telecommunications Act of 1996, the FCC established the Universal Service Fund in 1997 to subsidize telecom services for low-income consumers, rural health care providers, schools and libraries, and consumers in high-cost areas. • Contributions flow from telecom providers via an • assessment on their interstate end-user revenues Wireless telco Wireline telco Cable . . . Into the four Universal Service Fund programs, administered by the Universal Service Administrative Co. (USAC) under FCC direction . . . High-Cost E-Rate Rural Health Care Lifeline . . . Which distributes funds to eligible entities to reduce the costs of service Reduces costs for rural telcos Reduces costs for low- income consumers Reduces costs for schools and libraries Reduces costs for rural health care providers

10. 2017 2018 Authorized USF Support

11. USF Reform Objectives • Reorienting USF away from supporting telephone service and toward supporting modern broadband communications • Promoting efficiency, accountability, and fiscal responsibility • Eliminating waste, fraud, and abuse • Closing the digital divide between urban and rural America • “At every stop, what will be front and center of my mind is the FCC’s central mission under my chairmanship— closing the divide, and extending digital opportunity to every American.” – Chairman AjitPai

12. Connect America Fund The High-Cost Programs

13. Connect America Fund (CAF) Connect America Fund Fixed Services Mobile Services Legacy Competitive ETCs Rate-of-Return Areas Price Cap Area Mobility Fund Phase I CAF - ACAM CAF Phase I Alaska Plan (Mobile) Frozen High Cost Support CAF Phase II CAF-BLS (ICLS) Mobility Fund Phase II HCLS (SNA, SVS) CAF ICC (PC) Rural Broadband Experiments Alaska Plan (RoR) CAF Phase II (Auction) Key CAF ICC (RoR) CAF Programs Remote Areas Fund (Auction) Future Programs Legacy Programs

14. CAF Principles • Universal service:Deliver, expand, and maintain voiceand broadband service in high-cost areas that is reasonably comparable to urban areas • Fiscal responsibility:Eliminate inefficiency and control costs to manage ratepayers’ burdens Regulatory Goals • No subsidy for areas served by unsubsidized competitor • Dedicated support for highest cost areas • Competitive bidding (reverse auctions) • Explicit, accountable public interest obligations, including mandatory build-out obligations for all carriers with below average deployment • Budget for CAF support

15. CAF Phase II • Model Support Offer: offered modeled-based support to price cap carriers • 10 carriers accepted $9 billion over 6 years to deploy at least 10/1 Mbps broadband to over 3.6 million locations by end of 2020 • 40% interim deployment milestone by end of 2017 • 20% deployment increase each following year • Auction: support for areas where carriers declined model support and other areas was auctioned in July-August 2018 • 103 bidders won $1.49 billion in support over 10 years to provide fixed broadband and voice services to over 700,000 locations in 45 states • 53% of locations will get download speeds of at least 100 Mbps • 99% of locations will get download speeds of at least 25 Mbps • Winning bidders included wireless Internet service providers, satellite, electric cooperatives, and price cap and rate-of-return carriers • Bids were weighted so that slower speed, higher latency services received less support • 40% of locations must be served within 3 years, 100% within 6 years

16. CAF: Rate-of-Return (RoR) Carriers • March 2016 Reform: • Model-based support (A-CAM) or remain on legacy mechanisms (legacy carriers) • Defined deployment obligations except for legacy carriers that have already deployed to census blocks containing 80% of the housing units in their study area • Annually report geolocation deployment information • March 2018 Order and NPRM: • Provided over $500 million in additional funding for existing A-CAM carriers • Stronger rules to prevent abuse of the high-cost program • Sought comment regarding budget for rate-of-return budget, additional model-based support offers, and minimum amount of support for legacy carriers • Tribal Operating Costs Relief: • Additional support for operating expenses for companies serving primarily Tribal lands • December 2018 Order and FNPRM: • Authorized additional support for existing A-CAM carriers and a new A-CAM offer for legacy carriers with minimum speed increase to 25/3 Mbps • Increased budget for legacy carriers with annual inflation adjustment, an additional increase, and guaranteed minimum amount of support • Defined deployment obligations for all legacy carriers at 25/3 Mbps • Sought comment: 100 percent overlap, Tribal Broadband Factor for legacy carriers, and impact of broadband only lines

17. Lifeline Affordable Communication Services For Low-Income Consumers

18. Lifeline Principles • Affordable Service:Congress mandated, in section 254(b) of Telecommunications of 1996 Act, that every American have access to “quality services at just, reasonable, and affordable rates” • Fiscal responsibility:Eliminate waste, fraud, and abuse through reasonable control mechanisms Regulatory Goals • Subsidize service: provide $9.25 per month to eligible household and up to $34.25 for eligible household on Tribal lands • Support for broadband: ensure affordability of mobile and fixed broadband • Minimum service standards: protect comparability in service through mandatory minimum standards. • Bridge digital divide: promote offerings with Wi-Fi and hotspot functionality • Verified eligibility: independent, third-party National Verifier to handle eligibility verification and certification • Transparency: Makes more program data publicly available

19. Lifeline National Eligibility Verifier • Modern Database Verification:Unified interface to independently process eligibility verification and recertification of Lifeline subscribers • Improving Program Integrity:Interconnected verification with other agency and state eligibility databases to improve program controls Launch Progress • Sixteen states have fully launched (NV use is mandatory) • Another eleven states have “soft launched” (NV is working but optional) • Remaining states and territories to be added by the end of 2019 • Automated Eligibility Checks • Whenever possible, NV uses connections to federal and state databases to streamline the eligibility check • All applicants are checked against the Federal Public Housing Assistance database • 93% of subscribers in current NV states can be checked against a state SNAP and/or Medicaid database

20. Lifeline Reforms • 2017 Lifeline NPRM:Fresh look at the Lifeline program to focus on areas where Lifeline support is most needed and to incentivize investment in networks that enable 21st Century connectivity for all Americans • Seeking comment on setting a self-enforcing budget cap on the program • Seeking comment on proposed improvements to eligibility verification process • Seeking comment on improving provider incentives to offer high quality services by establishing a maximum discount level for Lifeline-supported services • Seeking comment on efficiently targeting funds to areas most in need of help in obtaining digital opportunity. These areas would include rural and Tribal areas, as well as low-income urban areas that are likely to be underserved by providers.

21. E-Rate Funding Telecommunications For Schools and Libraries

22. E-Rate Principles • Access for Schools and Libraries:Congress mandated, in 1996 Telecommunications Act, that the FCC enhance access to broadband and telecom services in elementary and secondary schools and libraries Regulatory Overview • Eligible schools and libraries (as well as consortia of eligible schools and libraries) may apply for USF discounts on the following services: • Category One: Services that support connectivity to schools and libraries (including special construction) • Category Two: Services that support connectivity within schools and libraries (aka internal connections) • Annual Funding Cap: $4.16 billion, adjusted annually for inflation • Timeline: Commitments are made by funding year, which runs from July 1 through the following June 30

23. E-Rate Discounts Range: 20 percent to 90 percent of the costs of eligible services Levels: Dependent on poverty level, the urban/rural status of the school district, and on the category of service requested Voice Phasedown: As of FY2019, voice services are no longer eligible for E-Rate funding.

24. E-Rate Applications • Competitive Bidding: • An eligible school or library identifies the services it needs and submits a request for competitive bids to USAC. USAC notifies providers of the bidding opportunity by posting the request on its website. • Application for Funding: • After reviewing bids, and selecting the most cost-effective offering, the school or library may submit a funding request to USAC during the applicable funding year’s filing window. USAC issues a funding commitment pursuant to its review of the request.

25. Rural Health Care Funding Telecommunications AND BROADBAND SERVICEs and facilities For Rural Health Care Providers

26. Rural Health Care Principles • Access for Rural Health Care Providers: In the 1996 Telecommunications Act, Congress mandated that the FCC enhance access to broadband and telecommunications services for eligible public or nonprofit health care providers (HCPs). Regulatory Overview • The Rural Health Care (RHC) Program is made up of two subprograms: the Telecommunications Program and the Healthcare Connect Fund (HCF) Program. • Telecommunications: Subsidizes the difference between the urban and rural rate for telecommunications services purchased by eligible HCPs. • HCF: Provides a flat 65% discount for the cost of broadband services and facilities. Eligible non-rural HCPs can participate in a consortium and receive support if the majority of members in the consortium are eligible rural HCPs. • Eligibility: (1) Post-secondary educational institutions offering healthcare instruction, teaching hospitals and medical schools; (2) community health centers or migrant health centers; (3) local health departments or agencies; (4) community mental health centers; (5) not-for-profit hospitals; (6) rural health clinics; (7) skilled nursing facilities; (8) consortium of HCPs consisting of one or more entities falling into the first seven categories. • Timeline: Commitments are made by funding year, which runs from July 1 through the following June 30.

27. Rural Health Care Developments • December 2017 Order: In anticipation of demand exceeding the annual $400 million cap in FY2017, the FCC waived the cap on a one-time basis for FY2017 to allow any unused funds from prior years to be carried forward to reduce the proration for individual HCPs in both the Telecommunications and HCF Programs. • December 2017 NPRM: The FCC sought comment on the appropriate level for the RHC Program funding cap. The FCC also explored ways to more efficiently distribute RHC Program funds and combat waste, fraud, and abuse. • January 2018 RHC Program Funding Order: The FCC adopted rules to increase the funding cap to $571 million and to apply it to FY2017; annually adjust the cap for inflation beginning with FY2018; and establish a process to carry forward unused funds from past funding years for use in future funding years. The Program was able to fund all eligible requests in FY2017. • Funding Commitments for FY2018: The cap for FY2018 is $581 million. The Program is on track to fully fund all eligible amounts for single-year funding requests with no upfront costs. • FY2019 Funding Cap: The cap for FY2019 is $593.78 million, adjusted for inflation.

28. Other TAPD Priorities

29. Connected Care Pilot Program • Delivery of Advanced Telehealth Services to Low-Income Americans: The FCC is exploring the creation of an experimental Connected Care Pilot Program to support the delivery of advanced telehealth services to low-income Americans. 2018 Notice of Inquiry • The Commission’s 2018 Notice of Inquiry sought comment on the goals, legal authority, application process, support structure, eligible beneficiaries, supported services, budget, duration, and evaluation of the pilot program. • The Commission sought comment on a $100 million pilot program, divided across approximately 20 service providers • The Commission is reviewing the feedback submitted in the record and determining next steps.

30. RAY BAUM’S ACT of 2018 Tribal Unserved Areas Report and Rulemaking – The FCC is required, pursuant to RAY BAUM’S ACT of 2018 (aka – Consolidated Appropriations Act of 2018) to evaluate broadband coverage in Indian country and on land held by a Native Corporation pursuant to the Alaska Native Claims Settlement Act. A Report, providing an analysis of broadband deployment on Tribal lands and efforts to address unserved areas on Tribal lands, will be submitted to the House Committee on Energy and Commerce. Veteran’s Broadband Report – Pursuant to the Act, the FCC must submit to Congress a Report on promoting broadband internet access service for veterans, in particular low-income veterans and veterans residing in rural areas. The Report will examine those issues and “provide findings and recommendations to Congress with respect to such access and how to promote such access.”

31. Contributions Funding the USF

32. Contributions • Pursuant to Section 254(d) of the Telecommunications Act of 1996, all telecommunications service providers must contribute to the Universal Service Fund based on a percentage of their interstate and international end-user telecommunications revenues. • Under current rules, voice service (whether offered by wireline or wireless carrier) and interconnected VoIP offered by any entity is subject to the contributions requirement, and retail broadband Internet access is not. The contribution factor is announced on a quarterly basis and contributions are assessed monthly on providers. Contributors generally elect to recover their contributions payments through their end users’ monthly bills. • The Commission has sought recommendations from the Federal-State Joint Board on Universal Service on contributions methodology reform. The Joint Board’s recommendation remains pending.

33. Questions?