The Broadband Economy – $42 Billion Infusion and a Newly-Minted Biden FCC: What lies ahead?

Event Video

Registration is now CLOSED.

Join us on Tuesday, June 11th at 4:00 PM ET for a special panel discussion & reception sponsored by our Telecommunications & Electronic Media Practice Group.

The panel discussion will begin promptly at 4:00 PM followed by a reception with light food and drinks at 5:00 PM.

The cost is $20.00 for members and $25.00 for guests.

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Since finally establishing a new Democrat majority at the FCC in the Fall of 2023, the Commission has advanced a regulatory agenda that touches everything companies do from marketing to prices, build out to network management. This shift has sparked concerns regarding the preservation of internet freedom and the broader impact of regulatory expansion on the U.S. economy.

Meanwhile, at the Commerce Department, the Administration's NTIA has adopted extensive requirements in their new $42 Billion BEAD broadband program that some say amounts to rate-regulation of the internet. Partnering with the states, how effective will this program be at delivering high speed Internet access to every American?

We invite you to join this critical discussion featuring leaders from the FCC and Capitol Hill. Our panel will delve into the consequences of the Biden Administration's latest initiatives, including rulemakings on Digital Discrimination, Net Neutrality, the BEAD program, and their implications for the digital landscape and beyond.

Featuring:

  • Erin Boone, Chief of Staff and Wireless Advisor, FCC Commissioner Nathan Simington
  • Paul Gallant, Managing Director, Washington Research Group - Technology, Media & Telecom, TD Cowen
  • John Lin, Serior Counsel, U.S. House of Representatives Committee on Energy and Commerce
  • Arielle Roth, Policy Director, Telecommunications, U.S. Senate Committee on Commerce, Science, & Transportation
  • Greg Watson, Chief of Staff, FCC Commissioner Brendan Carr
  • Moderator: Patricia J. Paoletta, Partner, Harris, Wiltshire & Grannis LLP

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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Event Transcript

Bryan N. Tramont: All right. Good afternoon everybody. I'm Bryan Tramont. I'm the chair of the Federalist Society Telecommunications and Media Practice Group, and it's my honor to welcome everyone here today for our tremendous panel. I'm going to introduce Tricia Paoletta, who is leading our charge and is a partner at HWG. Our panel today is going to discuss - oh, and here comes Ariel. Perfect. Come on in. As if on cue - The broadband economy, 42 billion dollar infusion and a newly minted Biden FCC - newly but late minted - with lots of activity. And I'm going to turn it over to Tricia to introduce our panelists and take it over from here. So I do urge everyone, if you're not already a member of the practice group to sign up now, that is available out front. This is one of our many great programs that we do at the Practice Group and we look forward to having you join us. So with that, I'll turn it over to Tricia.

 

Patricia J. Paoletta: Okay, thank you. Alright. And I am also a member of Brian's practice group, the Telecom and Electronic Media Practice Group of the Federalist Society, some of the other panelists are as well. I'll leave you guessing as to whom. But anyway, it's a great group of folks and I'll echo Brian's call to join up. So the focus of this panel is what has the FCC been up to? And of course other branches of our government, now that the Democrats have a majority, which happened late last year and they lost no time - the Democrat majority - introducing and passing a whole lot of new decisions affecting broadband. And there are some older decisions too on Universal Service and the American Connect program on funding that have had some developments over the last couple months. So it's an exciting time. There's a lot going on in telecom and we're going to have this august panel break it down for us.

 

You guys are all very fortunate because we've got a mixture of folks here. We got folks from the FCC, folks from the Senate and the House, and we've got somebody who can give us the view from the street, from the investor community. So I'm very excited. And the other big development in telecom in our world is of course NTIA. And they were given under the Infrastructure and Investment Jobs Act,about 42 billion dollars in broadband development funds to dole out to the states. So the Hill folks are also going to tell us how oversight of that big program is working.

So their full bios are on the website - Federalist Society's website for this event - so I'll just kind of tell you who they are. Erin Boone is Chief of Staff to FCC Commissioner Nathan Simington. She's been at the FCC in a number of different roles so she's got a great depth perspective on what the FCC is up to. Paul Gallant. He also had some public policy experience way back in his youth. It was so long ago, I can't even remember what you were doing, Paul, but now he's been advising Wall Street and the investment community for such a long time. He's really grown apart from us, (laughs) but now he's got a little more clear eye than some of the policy dialogues and kind of how this impacts investment. We have John Lin, who's a Counsel over at House Energy and Commerce. He too has some breadth of experience having been at Senate Commerce at an earlier point in his career. And we have Arielle Roth who was fresh off the Senate Commerce Trail immediately, right? She's rolling in hot from a meeting, thank you.

 

And of course she had some FCC experience as well. So yeah, everybody's got a multitude of roles behind them to inform their view, but none maybe as much as Greg Watson at the very end. He's now Chief of Staff to FCC Commissioner Carr, but had himself been on House Energy and Commerce in an earlier stage in his career, both at the committee level as well as working for a personal office, but - happened to be the chairman of the committee so kind of an august personal office to start in - but also did a tour at the White House. So again, a lot of different roles to give them, I think more perspective on all that is unrolling now. So I will kick off our discussion.

You've all probably heard about net neutrality and we're going to dive into that a little bit. But one of the newer discussions, at least in terms of Washington and broadband, was the digital discrimination proceeding.

 

 It arose out of - not that lengthy, a provision actually in the Infrastructure and Jobs Act - which where basically Congress directed the FCC to ensure there wasn't discrimination in the deployment of broadband based on identity. Basically ethnicity, race, religious orientation, you name it, identity. Once the FCC got its majority chairwoman Rosenworcel, they quickly rolled this order out. And I actually, I had to quote this, it was so colorful, Commissioner Simington warned when it came out in November that what industry would be facing is a "permanent inquisition with industry living in a climate of fear due to the FCC rule that any action is prohibited unless a disparate impact is avoidable due to technical or economic infeasibility." And that is quite a standard. And we're here with the folks, probably most of you are lawyers. So can you kind of give us a little more background and what were his concerns with the actual FCC rules?

 

Erin Boone: Yeah, so I mean haven't heard a whole lot from industry on this, and I think that sort of is diagnostic of the problem with the decision. And the commissioner believes that basically out of fear of running afoul of the rules that companies will certainly avoid otherwise planned investments. And I mean I certainly honestly agree with that and I think that the industry is struggling with how to navigate the rules and so they're not even sure which questions to ask us. And I think that one of the other things that Commissioner Simington said in his statement was that the disparate impact standards, specifically the technical or economic and feasibility language is impossible to comply with and like any business, ISPs and their partners have to decide how to invest the limited funds that they have, but the rule doesn't really provide any guidance or any other type of safe harbor so the industry knows how it can continue to pursue the ultimate goal. So in a competitive environment for investment dollars, this rule can't do anything but chill investment. And what's worse is that there's really no amount of diligence that a company can do to make sure that they're complying with it, and there's no amount of - there's nothing that can really prevent the FCC from saying or reasonably arguing that a company violated the rule. So I think his ultimate concern is that basically no business decision can be known to be defensible or safe to make.

 

Patricia J. Paoletta: Yeah, no, and I'm not a Supreme Court litigator. It's been a long time since I was in law school, but I mean disparate impact I thought was somewhat disfavored over the years in terms of discrimination, Susan, yet we're seeing it brought back here in a very difficult context to prove or disprove a negative or disproving a negative. Greg, your commissioner was also pretty concerned about the digital discrimination decision saying it went far beyond the FCC'S traditional mandate of regulating telecom carriers under Title II and other provisions of the act and sweeping into people who are part of the broader ecosystem like marketers or landlords or construction companies, anybody kind of touching remotely, indirectly, or the third degree the broadband development. So could you elaborate on some of his concerns?

 

Greg Watson: Yeah, and thanks. I just want to start by saying thanks to you Tricia, FedSoc, and Tramont for the opportunity to join everyone here on this panel. I'm not a lawyer myself, so I always get nervous and feel like I've got imposter syndrome whenever I'm at a table like this. But this is great. I think we've all been friends and have worked together - minus John Lin, we were expecting Kay, but we got John Lin instead. But this is great. It's wonderful to have opportunities like this to come forward and represent each of our respective bosses on these really important topics, so just want to start with the thanks. Yeah, I think that's exactly right. I agree with what Erin has just laid out and I think when you take a step back and look at what the FCC did and its digital equity order last November, really what it was about is handing effectively the administrative state the decision to veto any decision by an ISP over how internet service is provisioned in this country.

 

But it is not just limited - to your point, Tricia - to just ISPs or entities that are in the communications sector themselves. Really for the first time in the FCC's 90 year history, we're now looking at entities like landlords, property owners, construction crews, these are folks that Congress has not authorized the FCC to bring under its regulatory and enforcement purview. I think we've seen at least one association representing housing and landlord groups that has - it is participating in the appeal of the FCC's decision. One of the concerns that they've raised is whether or not they as the property owner or as the landlord, will be subject to potential penalties or liabilities as an entity that may not even be providing the internet service within their own building. So I think that level and of concern about how the scope of the rules are applied is sort of a reasonable interpretation based on that.

 

Patricia J. Paoletta: Thank you. And with such a sweeping stretch, Paul, to you, what was the investor community's response to the digital discrimination? Was there concern, was there any discernible pullback on investment or particular sub-sectors of the broader communications market?

 

Paul Gallant: Yeah, there was almost no reaction on Wall Street. I wrote about this a couple of times and basically there was no feedback. I think partly because I think this is a longer term issue, especially now that we're in the shadow of the election, I think it really only matters if President Biden is reelected. If he's not reelected, I think a different administration is going to take a more relaxed approach toward these rules. So between the fact that this may not matter basically in six months, I think is part of the reason that Wall Street hasn't really paid attention. If President Biden is reelected, I'm kind of on the fence about whether I should be saying companies should really be worried about this. I mean, if you look closely enough, as the FCC, you can probably always find a problem. You can always find something disparate right between this place and that place between urban and rural, these wireless speeds or whatever.

 

So if you look hard, the question is what's the makeup of the FCC? Do they really want to find a problem? I suspect a Biden FCC is going to be more forward-leaning that way. But even then, I think despite the fact that the commission didn't really limit itself in terms of its ability to find problems, my guess would be in practice it's going to need to be a pretty meaningful material problem for the FCC to label one of its regulated companies as basically a redlining company. I think that that's kind of a mark that no company wants to wear. And I think the FCC understands that, and I don't, as unsettled as the order is, I think they'll be careful about how they apply it,

 

Patricia J. Paoletta: A little mutual deterrence on each side. And of course that also gives the FCC kind of more regulatory capture power over the regulated entities. So that's problematic and brings a range of issues. John, any reaction from your folks up on the House and from Leader Rogers?

 

John Lin: Yeah, so obviously first off, thank you to the Federalist Society for hosting us and Tricia for doing a great job moderating, I mean this digital discrimination rulemaking directive in the IIJA was, as you mentioned, half a page not very long, and it was obviously a priority of one party not the other to get it in there. And the unfortunate part is the FCC has completely eviscerated congressional intent there. As Greg mentioned, they're now regulating industries far outside the FCC's jurisdiction as Leader Rogers said, and micromanaging decisions of ISPs, second guessing them - that's not the FCC's job - and so obviously we are very concerned about it and our members, Mr. Carter from Georgia as well as Mr. Clyde, have introduced a Congressional Review Act resolution to disapprove of these rules. Unfortunately, politics has gotten in the way there. When you have a one seat majority, it's a little hard to move some of those items, but we have done it through our oversight efforts.

 

We have made known in letters, we have made known that this is not what we wanted. Disparate impact was not what Congress wanted. We obviously want to get - if there is a company, or an ISP that is intentionally discriminating based on a protected class, yes that's a problem. But when you have a disparate impact standard where discrimination is in the eye of the beholder, that is so vague and not what Congress wants the FCC to be getting involved in. So we're hoping that if we can work out some of the politics in the CRA that's something that can happen there. Obviously we'll have to work with our colleagues in the Senate. But beyond that, we're thankful that lawyers who are smarter than us are challenging this in court and hopefully that'll be helpful in getting this rule struck down.

 

Patricia J. Paoletta: Well, I'm going to turn to you in a moment Arielle, but here's why I am an impostor. The CRA is - when does it kick in? It's 60 days, something, something, but when should we all all be, what clock should be watching in terms of the election?

 

John Lin: It's 60 days after the rule has been published in the Federal Register and then it can be called up at any time after that. And the Senate has more procedures on this one. So I'm going to defer to the expert there. The Senate has more procedures

 

Arielle Roth: I think the time period has lapsed already.

 

John Lin: Yeah, I think for the Senate it has.

 

Patricia J. Paoletta: Okay, well that's a good - but other reactions from Senator Cruz or the other Republicans on Senate Commerce?

 

Arielle Roth: Yeah, no thanks Tricia. Yeah, I just want to say thank you to the Federalist Society also for scheduling this great event. I'm so excited to be here. I was a Federalist Society intern many moons ago, and that was the summer when I first started dating my husband so FedSoc holds a very special place in my heart. So yeah, just wanted to make that clear at the outset. Yeah. Back to digital discrimination. I mean, I guess I don't want to sound like an echo chamber here. I agree with my colleagues on the vast uncertain impact of this crippling order. I think for Ranking Member Cruz, oversight efforts in the Senate have really been focused on how the FCC's order was not authorized by the statute. The Supreme Court has held that in civil rights precedent that to find disparate impact, there needs to be effects-based language, and that just wasn't in the law in the IIJA. It referred to discrimination based on certain enumerated characteristics, and that just hasn't been enough based on Supreme Court precedent to find disparate impact liability to be authorized by the statute. And so it's unclear in terms of - back to the Senate - it's unclear what more Congressional activity we're going to have.

 

 Ranking member Cruz led a letter making some of these statutory arguments signed by 26 other Republicans. There's obviously been a challenge to the order consolidated in the Eighth Circuit, and I think that some of those arguments are being relied upon. But I think one area where it's possible that I could see digital discrimination coming up is in efforts to restart the affordable connectivity program. There's been a lot of talk in Congress about the lapse of the ACP subsidy program, and I think it just seems completely backwards to be on one hand, subsidizing the price of broadband and then on the other hand, taking actions that significantly increase the cost of providing broadband, undermine competition, and ultimately increase prices for consumers. So to the extent that there are future efforts to restart the ACP, and to be frank, I'm not sure how wise that would be given that the program had a failed record in connecting unserved Americans and was vastly oversubscribed, but if it does come up, I could see efforts to reign in the FCC's digital discrimination overreach.

 

Patricia J. Paoletta: Yeah, that's an interesting connection between those two programs which I hadn't thought about. And for those of you who don't live and breathe telecom law, the ACP as Arielle mentioned, well, it's a newer program, it's a direct subsidy to broadband consumers. I think $30 was the target, but this was layered on top and because of COVID, right, COVID happened all of a sudden we're all consigned to our homes, people are using broadband connections at home if they have 'em. The thought was "Quick, we gotta get this rushed out the door and directly subsidize consumers so they can continue." Well, school - obviously education for their kids was probably a primary one, but telehealth and all that. But that's on top of a longstanding tradition since the 1996 act, Universal Service Fund, which when I was a staffer, a young staffer up there, we had the then-chairman of the FCC, Bill Kennard, come in and tell us it would never be more than 1 billion dollars. He swore it would never get beyond that because we were concerned about giving the FCC the authority to increase the contribution factor. You know, "contribution factor, it's very Kafkaesque and now it's more than 10 billion a year. Yeah, just a little bit higher, a thousand percent higher.

But the ACP was absolutely critical on top of this program that's been going on for more than a quarter-century, which has now gone into hundreds of billions of dollars. And what recently happened at the FCC and the FCC puts out the notice - gives the industry a little notice - for the contribution factor every quarter. So it slides up and down - well, mostly up - based on need, but the revenue for that Universal Service Fund is taken from the percentage of revenue from interstate or international carriers. And again, chairman Kennard back in the nineties told us it would never really be much more than 10%. That was the max. And the actual regulations at the FCC internally tried to cap it at 12%. And now the FCC, no, it wasn't your fault or your fault, (laughs) the FCC announced a 36% contribution factor on interstate and international revenues for telecom carriers.

 

The problem is the telecom carriers feeding into that, but it's subsidizing broadband and that pool is shrinking, right? Because all you young people here, you don't make a lot of phone calls. You're texting, you're on different social media apps. So the base is shrinking. All that to say on top of that USF fund, then we had the ACP and when those revenues, which were supposed to be temporarily elapsed May 31st, we were told the sky was going to fall and everything was going to be terrible. So, mostly to John and Arielle, with 36% now being the contribution factor for a dwindling base of older telecom carriers when is Congress going to get serious about reforming the Universal Service Fund and perhaps broadening the pool so we never have to perhaps have a direct subsidy like that, which is probably more distortive all said and done. But we'll start with you John, and then Arielle.

 

John Lin: Yeah, so this is a big issue for us and our subcommittee chairman, Bob Latta from Ohio is part of this bicameral bipartisan Universal Service Fund-working group that's trying to reform the USF to make it more sustainable to address a lot of the concerns you raised, Tricia, you mentioned ACP, but let's not forget, we had the US F, in addition to duplicative programs like BEAD, ACP, we had the COVID-19 telehealth program. We had the emergency connectivity program, which provided connections to schools and libraries, duplicative of the USF's E-Rate program. So from our members' perspective, we have all these programs that came amid the COVID pandemic - we have the USF -what's the world going to look like when all that money expires and what should the USF look like after that? How do we make this a program that's sustainable moving forward? Do we even need the program moving forward? Do you need all these four programs within the USF? So that was Mr. Latta's motivation for joining the working group to make it bicameral.

 

I think to the other point, 36% is not sustainable. We don't think that that's something that we can continue to have, especially with the revenue base continuing to diminish. We want to streamline the programs that are existing, especially in light of, like I said, the COVID programs. Primarily first we want to look at distribution reform. What can we do? Which of the existing USF programs need to continue? How should they look? How should they be structured? And then from there work to figure out what's the funding solution? Do we even need to look at other revenue streams to fund the USF? Are there other ways we can look at telecom revenues? Do we need to include broadband? Do we need to include edge providers? But first, let's right-size the USF in light of today's spending and tomorrow's needs so that we're not going to have a situation. It's incredible that the FCC once thought that this would be a 1 billion program at 10% contribution. We'd like to make sure we don't bust through those caps ever again.

 

Arielle Roth: Yeah, totally agree on John's point about taking into account the massive billions that have been spent on broadband over the last few years, 125 billion over the last four years, according to our calculations. Yeah, the USF needs reform. It's a regressive hidden tax on consumer's phone bills. The FCC has set its own budget, deciding how much to take from consumers every quarter to pay for these constantly expanding spending programs. And unfortunately, much of the conversation in Congress has been focused on, well, how do we get more money into - how do we expand the revenue space in order to reduce the contribution factor? And I think that ranking member Cruz's view is that's exactly the wrong way to look at it.

So right now, if anything, it's like the contribution factor and the unsustainable contribution factor acts as kind of like a de facto cap on the FCC spending. It wouldn't be feasible to inject a new massive billion dollar program into the USF. That's one of the reasons why it's difficult to put ACP into USF. So it's kind of functioned as a de facto cap on the FCC's spending. And despite that, the FCC still continues to expand USF programs under Chairwoman Rosenworcel, particularly in the E-Rate program, the chairwoman has taken actions to vastly expand the E-Rate program funding, wifi on school buses, wifi hotspots to students and library patrons outside their home, even though the statute explicitly limits the program to classrooms.

 

So we have all kinds of mission creep that's led us to this point of unsustainable spending. But the problem is that if you expand the base to include other companies, that's going to make the problem worse if you don't fix the underlying spending problems, you're just going to open the flood gates, give the FCC more money to play with, and you're going to end up in the same spot with another unsustainable contribution factor 10 years down the line, and you're just going to be increasing, creating more hidden taxes on consumers. So that's one of the reasons that Ranking Member Cruz put forth a plan to fix the USF structural programs and make it more accountable to Congress in his recent blueprint for USF reform. That includes a set of principles for reforming the USF and making it more accountable and injecting fixed fiscal responsibility into the USF. In the long run, that's the only way to fix the USF, not just pumping more money into it.

 

Patricia J. Paoletta: Thank you for that. Greg, we're going to put you on the hot seat for a little bit. So you were at the FCC when the Republicans were in the majority last administration. Why didn't you guys fix it then?

 

Greg Watson: I think it was at the White House then.

 

Patricia J. Paoletta: Well, okay, come on now. Why didn't Commissioner Carr fix it then?

 

Greg Watson: Yeah, it's a good question -

 

Patricia J. Paoletta: Come on Greg, you were there too.

 

Greg Watson: So I really appreciate the hard and good work that's going on on the Hill right now. On both sides of the dome you've got staffers who are really putting their heads together about, "Hey, how do we make this work?" I think it's been really awesome to see that type of collaboration, that type of work that's happening, because USF reform is not a sexy issue, which means it gets little attention -

 

Arielle Roth: Yeah it's not like net neutrality. (laughs)

 

Greg Watson: Right. It's whenever you've got really hardworking and smart staffers, whether it's the House , Senate, Republican or Democrat coming together to try to find a solution towards a problem, I think that's really good and appreciate the work that's going on there. I think - we've not been directly sort of involved with any of the working group level conversations, but I think to Arielle's point, I think ranking member Cruz has put out really strong ideas about how we address waste, fraud, and duplicative spending within the program. And then I think too, on the House side and where they are with Subcommittee Chair Latta and Leader Rogers obviously at the top of the committee, I think they're really serious about tackling this, and I think everyone can have a reasonable debate about "What does that look like and how do we fix it?" but it's unlikely that without Congress getting involved and really requiring the FCC to do something, it's difficult to see the FCC - at least under current leadership - to try to hone in on some of the problems that we've been talking about here.

 

Patricia J. Paoletta: Okay. Well, and I'll drill down with the lawyer from the FCC on the panel. I mean, since the statute - yes, you could have Congress come in and change it completely, but since the statute started a quarter-century ago and was envisioned to be only a billion or less, why can't the FCC do more to fix it without Congress acting? Because we're not going to have Congress fix anything right this session, in the 118th, maybe in 2025 but -

 

John Lin: Well, I'm an eternal optimist.

 

Patricia J. Paoletta: Okay. All right. Well that'd be great. And that'd be breaking news right here, John Lin's going to reveal the bill.

 

Greg Watson: It's an eight part plan. (laughs)

 

Patricia J. Paoletta: An eight part plan, right. Yeah. No but Erin, why can't the FCC - on its own - fix this when it's so unsustainable?

 

Erin Boone: Well, I mean, I think it could. It would have to assess some other source of revenue or - this is something actually I've been working on for most of my career - most of it done from the outside though on, I don't know, four or five different working groups looking at what do we assess? Do we assess numbers? Do we assess revenues? And that used to be the biggest problem. Now we have this whole added problem of Title One versus Title Two. If you have Title Two, then you can make an argument that you might be able to go after some of the broadband services whether you want to or not. But I think I've seen sort of the train wreck coming for a really long time now because we've extended the money that can now support those programs. But we've put ourselves in a position of not being able to require them to pay into the program. So it's no surprise to me that it's gotten as bad as it has. And I think now you've gotten to the point where Congress has gotten so invested in it that we are almost in a position where I think Congress does have to do something because of the fact that there's so many conversations going on about whether to rein in big tech or not and that kind of thing.

 

Patricia J. Paoletta: Or do direct appropriations. That's been suggested as well.

 

Erin Boone: That as well.

 

Arielle Roth: That's in ranking Member Cruz's blueprint.

 

Patricia J. Paoletta: Very good. Alright.

 

Arielle Roth: At least for the social programs that were funded through COVID, we had examples like the Emergency Connectivity Fund, which is, as John said, like an analog to E-Rate. You had Covid telehealth, an analog to Rural Healthcare, and you had ACP, an analog to Lifeline. Congress is fully capable of funding USF like programs through congressional appropriations. And there's no reason why you couldn't move at least part of the USF into that model and subjecting USF to the Congressional budget and review process, which would make it just so much more accountable.

 

Patricia J. Paoletta: And before we move to the interesting connection I think that John made between BEAD and USF, again, Paul, the view from the street, what has been the investment community's reaction to perhaps the inability at this point for Congress to resolve USF, at least as of last session? What is the sense of this long, creeping and spreading octopus of a subsidy regime?

 

Paul Gallant: Unless something's going to change soon, there's no attention on Wall Street to it really, and having been through - you were asking before alluding to the fact I've worked at the commission before, so quick story to partly answer your question - I was working on the network unbundling decision at the FCC, which was part of the '96 Telecom Act, and I remember the team and I walked into the chairman's office and he's like, "This is really important. It's high profile. You guys think you're the most important team on implementing the '96 Act. You're not. It's the team that's implementing the USF stuff and USF reform." And I guess subsidy portability was the requirement under the 96 Act, and it was kind of a wake up call. And that was the kind of pressure that the chairman's office was getting was not network unbundling, which seemed exciting and novel and all that. The USF has real money and real bullets. And so I only say that as kind of context for the challenge that I think it's going to be for the folks on the Hill to kind of untangle this and put it back together in legislation. I think it's very possible. I just don't think it's going to happen soon.

 

Patricia J. Paoletta: And Paul made reference to a historical fact, yes, Universal Service actually predates - I mean the concept and the subsidy fund - predates the '96 Act. Randy's shaking his head, but the 96 Act included provisions on it to try to bring a little more structure to it. So this has been around for a long, long time, and yet now we're looking at 36% of operators revenue. I mean, that's just crazy to me. Alright, so John, you had mentioned that, well, gosh, now we have BEAD, so why do we have all these subsidies? And BEAD, again, was in the Infrastructure Investment and Jobs Act, 42 billion dollars for the NTIA commerce department to provide to the states through grant programs. So that's a whole lot of money, and that's obviously for the CapEx for actually building the infrastructure. But one would think, okay, if you have this infusion of money, which we've been told is a once in a lifetime, they're never going to want to come back and get more money. They're going to build this all out. Why would we need so much additional money coming in from Universal Service and ACP and all the other programs?

 

John Lin: That's a great question and that's something we're trying to get to the bottom of too. I mean, I think our members recognize that yes, you have the capital expenditures from BEAD, but there is still that ongoing operational maintenance expenses that once the networks are built, they're still going to need some support for it. So I think for our members, it's how do we design that in a way that's going to be sustainable? There are some arguments that ACP, that's where ACP fits in, a lot of people argue - and I'm not saying we endorse this view - but that you need an affordability program to make operating and maintaining networks cheaper. Okay, fine. That's an argument. There's also, again, like I said, without a sustainable base - because the point of BEAD is to go to the most unconnected and remote areas to get those last few unserved and underserved Americans connected. And we recognize that there just hasn't been a business case to build out there otherwise it would've happened already. So recognizing that - so I think that is why our members are open to the idea of doing something on operational maintenance and maintenance expenses moving forward. Again, how that looks, what's that design? That's something we're still negotiating now through the working group.

 

Patricia J. Paoletta: Okay. But I'm sorry, but as part of an overall Universal Service plan, not in addition to that.

 

John Lin: Yes, yes. As part of the high cost. I think the idea is that now that we've, if BEAD is - to your point - once in a lifetime we're going to connect everyone. We don't need to do the CapEx anymore. So what about that second half of the equation?

 

Patricia J. Paoletta: Right. And of course, BEAD, that's a whole lot of money. There's been a lot of congressional oversight. One of the areas of oversight was on rate regulation because Congress was clear in the statute that NTIA was not supposed to regulate rates as part of a condition to handing out money to the states. However, they've indirectly done this.

 

John Lin: And it's very clever how they've done it.

 

Patricia J. Paoletta: (Laughs) Yes, very clever. By requiring low cost plans as part of the state's overall plan. And between that and the ACP at 30 and even when ACP did - and because Congress withstood the pressure to throw another 6-7 billion dollars at it - the president put out a statement that he had worked with the operators and they've all committed to offering low cost plans. I mean, you have kind of a de facto rate regulation across those different platforms. But I'll turn to Arielle. What's been the focus of oversight by Congress on BEAD? At least by Senator Cruz and the other Republican members of Commerce?

 

Arielle Roth: Yeah, Ranking Member Cruz actually spoke about this a few weeks ago at a hearing on broadband affordability. Instead of prioritizing connecting all Americans who are currently unserved to broadband, the NTIA has just been preoccupied with attaching all kinds of extra legal requirements on BEAD, and to be honest, a woke social agenda loading up all kinds of burdens that deter participation in the program and drive up costs. Actually, Randy's here in the audience, there's an excellent article published by Free States' Andrew Long this week on this issue. Rate regulation in particular, requiring states to choose a statewide low cost, low income rate is just one of the ways that they've imposed extra legal requirements. There's also climate change regs, union mandates, wholesale access requirements - actually on the union labor requirement - you're also supposed to prioritize hiring justice-impacted individuals. All kinds of left wing priorities on the program that just divert resources away from the overall goal of closing broadband gaps. And yeah, no, this is going to make the program less cost-effective and it's going to undermine its goals. I also think it's ironic that you have NTIA imposing all of these - loading it up with all of these burdens - when at the same time they petition the FCC to exempt BEAD projects from the disparate impact rule, so when NTIA's own approach has been so heavy-handed.

 

Patricia J. Paoletta: I was unaware of that. That's interesting. Well, Paul, you've told us what the investment community doesn't care about. What about all this broadband economy are they keeping an eye on?

 

Paul Gallant: Well, I would say two things. One, it is hard to ignore 42 billion in Washington the last three or four years, and sort of in this community, the number 40 billion's thrown around a lot. But it is a colossal amount of money. It's a huge amount of money. So I think when Congress appropriated it, I think the market was pretty excited both for ISPs and also for the picks and shovels companies that make the equipment software for the networks. But then the stuff just took a really long time, and I think the market - investors, particularly in tower companies and fiber - started pulling back and going, "Okay, I can't really invest around this new tranche of money coming into the system because the government's taking so long to allocate it." And as people have pointed out, there's a ton of strings attached. And so it's taking a long time.

Number two, if President Trump is reelected, it's plausible to imagine that he will pause the program and get rid of some of this red tape, which directionally might long-term be good for the industry, but it's - a pause is a pause on top of a very long time to get this money out. So I think the last point is, I guess the way that I think telecom investors look at this is like they're glad it's out there. It creates a nice tone around some of these companies and their ability to maybe catch some of this money in the future, but they're not really banking on it because it's already taken multiple years to get within shouting distance of it.

 

Patricia J. Paoletta: John?

 

John Lin: Well, there are challenges. You have inflation, you have workforce shortages, you have supply chain shortages. I mean, we used to joke that 42 billion dollars with Biden inflation isn't what it was when Congress passed it, so we have all these challenges that make us wonder how successful BEAD's going to be and actually closing the digital divide. And on the rate regulation piece, it is very clever how NTIA is trying to get around the statutory prohibition and rate regulation. This has come up at both of our oversight hearings and with all due respect to the administrator who's a very nice guy, but he's very good at dodging our questions on this and telling us that NTIA is not rate regulating, it's the states that are doing it and we're approving their plans that rate regulate, but we're not doing it. Well in our view by putting your seal of approval on a plan that rate regulates, you are rate regulating, even if it's through a congressionally-mandated low income plan, you're telling them a rate that they have to charge and that is by definition rate regulation. And it is remarkable just how blatantly they're violating that provision.

 

Patricia J. Paoletta: Well, and back to our FCC folks, I mean back when net neutrality was first voted in back in the Biden, sorry, Obama-Biden Administration with Chairman Wheeler, the big fear was net neutrality or regulating internet access as a title to common carrier would result in rate regulation - would give 'em power to regulate. But the FCC then under Chairman Wheeler said, oh no, but we will forbear now in light of all this other development between BEAD and ACP and states as well. Some states have just said, y"yu have to have a low cost plan" like New York, we effectively have rate regulation. This new round of net neutrality has some other problems with it, a lot of other problems. But rate regulation, it seems a little bit quaint now 10 years later. But thoughts on the impact of this next round of net neutrality? And I guess I'll start with Greg and then turn to Erin.

 

Greg Watson: Yeah, I think from my perspective - so I worked on the Hill and the previous two iterations of the net neutrality wars from my perspective - well, I guess let me backup a second. So I sort of view - what's different here this time around versus the previous iteration? So starting with what I think of as more of the policy and sort of PR bucket there, this go around did feel like it was not as much of a zero-sum game. It didn't feel as fever pitched as what we have seen in previous iterations of this fight. And so I think I start with that because everyone can remembers the doomsday predictions that came out in 2017 about, "Hey, if we don't have net neutrality, your dog is going to die." Paraphrasing, of course, but everyone sort of recalls that. So that's sort of the policy PR bucket, which is like it didn't feel as much of a zero-sum game this go around.

 

But really the more fundamental difference this go around is what I think you were maybe alluding to, Tricia, is sort of the major questions doctrine and the way the courts are now going to have to view the FCC's decision as opposed to previously they would look through the lens of Chevron. They're now looking through major questions doctrine following West Virginia v. EPA. And I think Commissioner Carr's view is that the court will effectively look at this through two different prongs. One is the FCC's decision, which is of vast economic and political importance. We think the answer to that is definitely yes. And then the other prong that the court will likely look through is as to whether or not Congress has given the FCC a clear grant of authority to do what it ultimately did. And we think the answer is no. This is an area where Senator Cruz and Leader Rogers have sent us very helpful letters from Congress saying, "We are Congress, you don't have this authority." So that's always helpful and appreciated to have their backs on this.

 

Patricia J. Paoletta: And Erin, your boss is one of the few FCC commissioners who's actually had business experience - at least that's in the minority. And he had some statements on his concerns about the impact on actual business decisions. And of course we've heard a lot about network slicing in the news and a logical way for carriers to dedicate spectrum and network logic to support particular high capacity apps. And even that, I mean the FCC kind of split the baby on that, but even then it would not give, I think entrepreneurs a great sense of comfort that they can go out there and try to develop new business models to offer broadband services. But anyway, what was your boss's response to this latest decision and its particular impact on business innovation?

 

Erin Boone: Yeah, I mean I would say that the negative impact of what the commission did or just on the net neutrality decision on network slicing is sort of a showstopper in his mind. I think he fears that particularly the unchecked general conduct rule is going to be the death knell for many of the innovative market implementations of network slicing. It remains to be seen if that's the case, but the uncertainty of the general conduct standard imposes a chilled - it's going to chill investment out of the gate, even if the agency doesn't threaten to enforce the standard against a particular business case while the Title Two - the new order acknowledges that it could be found to be reasonable network management in certain instances, it doesn't really go far enough to sort of protect the innovative applications of network slicing. For example, the commissioner believes that the ability to create private networks for certain customers via slicing is sort of one of the game changing parts of network slicing in general, especially for maybe the industrial sector or the manufacturing sector.

 

That's something he's very interested in seeing - that part of the market for slicing develop and just in general for private networking. And I mean that doesn't even speak to the superior security of 5G networks vis-a-vis some of the wifi based networks that you see a lot of these manufacturing facilities operate over now. And he's worried that we'll see these Title Two rules squelch this nascent market before it ever really even gets off the ground, especially at the time when we need it most to sort of remain competitive with China, who's sort of rolling out these types of networks left and right.

 

Patricia J. Paoletta: Yeah, that's right. There's quite a bit of network slicing deployment in China and network slicing is a technical aspect developing into the standards - the industry standards for 5G.

 

Erin Boone: It's exclusive too, a standalone 5G network.

 

Patricia J. Paoletta: Right. So Paul, do you agree it will chill investment in particularly new applications of mobile broadband networks? Or does your community think that?

 

Paul Gallant: I don't think - I don't think It's likely that even a Democratic commission is ever going to tell an ISP - a wireless company - that they can't do network slicing once they're doing it. So my advice to the companies would be start doing it. I mean, once they start doing it and making money and it's not blatantly problematic in some political sort of politically appealing way that the commission can point to a company and say you're discriminating in a very measurable way that's -

 

Erin Boone: Ask for forgiveness, not permission. (laughs)

 

Paul Gallant: Right? Well, one, it is legal today. Exactly. And then just do it and dare the commission to stop them. I would put solid money that the commission will never shut down a network slicing program by a wireless company.

 

Patricia J. Paoletta:

Well, we're going to end on an upbeat note on that one, and I said I'd give time for audience questions. We've got some experts in the room. Yeah. Okay, sure.

 

First Questioner: Thanks. Hi, Tricia. Patrick Wilson with Media Tech. Good to see you guys. My question - we got around to a good discussion about ACP and where that's headed - but I'm going to ask a different question and maybe Greg, I'll start with you because your boss has been so focused on supply chain reliability, supply chain trust. The PRC government recently blocked certain semiconductor chips for use in government procurement, like devices like broadband and other devices that are purchased by the government in China. And here in the US we've not done anything like that. And certainly we're aware that in the ACP program, a lot of federal dollars are going to buy products that contain heavily subsidized chips and semiconductors from PRC makers, many of the very ones that everyone's concerned about. And I'm wondering if there is any interest or awareness of this issue about using federal grant dollars, whether - pick one of the four programs that have been mentioned here today - whether those programs are going to subsidize chips that are ultimately helping adversaries grow their market share and their capability?

 

Greg Watson: Yeah, that's a good question. It's one that I don't think I've spent a ton of time thinking specifically about the impacts of are we taking programs like ACP or otherwise and using that to either subsidize or help fund the CCP's ultimately malign goals through their technology giants. I think it's a good point. Obviously we have programmatic things in place like you can't use ACP or ECF dollars to purchase equipment or devices that are on the covered list. But to your point, there's a lot of components, a lot of critical sort of pieces of technology within devices or networking equipment that potentially has a concerning tie-back to what is ultimately a foreign adversary and the CCP. So I guess to answer the question narrowly, that if there's ways to cut back and promote more trusted technologies with our programs, I think we're all ears on ways to do that for sure.

 

Patricia J. Paoletta: I think here's a question here with Randy.

 

Second Questioner: Thanks Tricia, and thanks all of you. That was a great discussion. So I want to ask a question about video maybe because I don't think that word came up - or television. So just to put a point on it quickly, there've been dramatic changes and they're ongoing in the video marketplace and we're still stuck with a lot of legacy regulations as all of you guys know up there. And the current FCC chairwoman, I think, is proposing to add on even more, for example, to cable companies. So my question will be - I could break it into subparts - but maybe you could just say from the Congressional point of view and at the FCC, is there anything, I mean I'm aware of the Penny Program, but is there any likelihood that there's going to be deregulation of the video marketplace that takes place commensurate with all of this competition that we're seeing develop in the marketplace?

 

Arielle Roth: Yeah, no, I would just say that I think at least we haven't seen FCC regs always keep up well with the current state of competition. I mean, we definitely see that in the broadcast space where you have legacy regs that only apply to broadcasters and don't apply to their big tech counterparts that they're competing against and that undermines their efforts to compete. I think that that's something that is certainly worth looking at. I think at the very least we should be doing no harm. And unfortunately, the chairwoman of the FCC has taken several actions over the past year that not only move us in the wrong direction in terms of deregulating entities that - deregulating entities like broadcasters - but actually subjecting them to more burdensome regulations like the recent, I know that Commissioner Carr has talked about this a lot, but the reinstatement of the equal employment opportunity - is that right?

 

Equal employment opportunity data collection and forcing broadcasters to reveal the racial and gender composition of their employees, but have it posted online so that they can be harassed by left-wing interest groups. And also recently the proposal that I think is still in circulation, hasn't been voted, to regulate AI and political ads require broadcasters to become the AI cops. This is just going to add so many more regulatory burdens and costs to these businesses. So I guess the first answer would at least be "Do no harm", but I certainly believe that it's important to look into modernizing these regs.

 

John Lin: It's funny, we used to have STELA every five years to force the Congress to look at the media industry and look at the laws governing it. We don't have that anymore thankfully. But we even since the last Stella and we had the Covid pandemic when everyone was streaming and watching things and we really saw the shift in viewership behavior. It's something we were hearing about this last fall, to look at the changing viewing habits for Americans. To Erin's point, "Do no harm" has always been our mantra and to deregulate to the extent we can. There's no push right now to - legislative push - to revisit how we regulate the video marketplace. But it's something, like I said, we are studying and looking into, something we don't want to do for sure is to quash the innovation that's happening by imposing a 1992 law on this innovative space like that the chair is doing.

 

Audience Member: The rule should be, don't regulate up to make things equal, regulate down.

 

John Lin: Regulate down. Yeah, absolutely. Absolutely. So obviously to do something like that would require a significant change in the industry that would take some time. And so I think that's something that, again, we had a great hearing out of it, we had a great discussion, and we're hoping to continue to build on that as this continues to evolve.

 

Patricia J. Paoletta: That's good. All right. That's going to be the last question over there and then we will wrap it up.

 

Third Questioner: Hey, so Elon's launched like 6,000 satellites from which he's offering service that in many cases exceeds the performance targets for USF and BEAD-funded service. There's no reason to think that he won't launch 6,000 or 10,000 more. So what's the point of spending billions of dollars to build out service to small villages when there's already perfectly good satellite-based service available there?

 

John Lin: Yeah, that's why we've always been tech neutral. Our position has been like we should be using all available technologies to close the digital divide, and satellite is an important one. To your point, Elon's launching a lot of good satellites and Amazon's developing Kuiper as well. It's going to do the same and add competition to that satellite connectivity space. So obviously, to your point, when it comes to the remote villages where it's going - it makes zero financial sense to build fiber out to the last village out there, satellite is a perfectly reasonable alternative, and we've been pushing NTIA and the FCC to allow that technology to be used as eligible for funding.

 

Arielle Roth: Yeah, I would just add that's precisely why Congress wrote the IAJ in our tech neutral manner. Any technology could be eligible for BEAD subsidies provided that they met the performance requirements in the statute. And instead, NTIA has gone in a totally different direction and imposed extreme tech bias in favor of fiber in the bead program, and that's just going to make the program more expensive. A one-size fits-all solution doesn't make sense, just like a one-size statewide rate doesn't make sense if states have different and diverse topographies, Texas certainly does, and we shouldn't be straying from the guiding principle of technology neutrality that's increased competition and choice and reduced prices for American consumers and made us all more prosperous.

 

Patricia J. Paoletta: Okay. Patrick, your question will have to be asked at the reception, which immediately follows and does it follow in this room? My FedSoc people. Okay it will be in the First Amendment lounge. And before I thank the panelists, does our chairman close this panel or am I empowered? Okay. Yeah, it's delegated authority. So please join me in thanking these wonderful panelists. (enthusiastic applause)