FCC Warns ETCs Not To Use Universal Service Funds for Unintended Purposes

Yesterday, the FCC’s Wireline Competition Bureau (“Bureau”) issued a Notice to Exempt Telecommunications Carriers (“ETCs”) to only use universal service High-Cost and Connect America funds for “for its intended purposes of maintaining and extending communications service to rural, high-cost areas” and that misuse of the funds for unintended purposes could lead to “recovery of funding, suspension of funding, enforcement action … and/or prosecution under the False Claims Act.” Commissioners Clyburn and O’Rielly issued a Joint Statement on the Notice, while Commissioner Pai issued a separate Statement.

High-cost support from both funds is intended to allow ETCs to recover some of their costs of providing telecommunications and broadband services, over wireline and wireless technologies, in rural high-cost areas from the federal Universal Service Fund, so that their rates will be “reasonably comparable” to those in urban areas. High-cost support can only be used “for the provision, maintenance, and upgrading of facilities and services for which the support is intended.”

The Bureau expressed concern that ETCs may be using high-cost support to recover an unreasonable share or the wrong type of corporate operations expenses in violation of FCC rules. Also, the FCC indicated that rate-of-return carriers may be using high-cost support for recovery of expenses included in their revenue requirement that are not necessary for the provision of interstate telecommunications services. The Bureau stated that the FCC “continues to look at methods of limiting expenses to reasonable levels, with a primary focus on corporate operations expenses that are excessive. We intend to take further action to ensure that high-cost funding is used for its intended purposes, and that ratepayers of rate-of-return carriers are not made to subsidize excessive expenditures.”