The 5th Circuit Court Decision—What It Means for Broadband in Rural America, With Leif Oveson

Episode Description

Leif Oveson, vice president of government affairs at NTCA, discusses the 5th Circuit Court’s decision in regards to the constitutionality to of the Universal Service Fund and what the legal process is going forward. He also discusses the BEAD program and some of the hurdles smaller broadband providers are facing in pursuing those grant and loan dollars.

Transcript

Transcripts have been lightly edited for clarity and readability.

Intro: The following program is brought to you by the Tennessee Broadband Association. Lead Tennessee Radio, conversations with the leaders moving our state forward. We look at the issues shaping Tennessee’s future: rural development, public policy, broadband, healthcare, and other topics impacting our communities.

Trevor Bonnstetter: Hi, I’m Trevor Bonnstetter, government affairs director for Tennessee Broadband Association. My guest for this episode of Lead Tennessee Radio is Leif Oveson, vice president of legislative affairs for NTCA. Thank you very much for joining us here today.

Leif Oveson: Happy to be here. Thanks for the invitation.

Trevor Bonnstetter: Leif, why don’t you tell us a little bit about yourself, and what you do on behalf of NTCA?

Leif Oveson: Sure. So I got my start. I’m originally from South Dakota, born and raised. Went to college there. Worked for a member of the US Senate, a senator from South Dakota. That’s how I got my start in Washington, D.C. I moved there to work for the senator. I worked in the Senate for three years, then moved over to the House of Representatives, worked for a House member from South Dakota for four years. So I was there for about seven, and on my time on Capitol Hill, I got to know South Dakota’s NTCA members really well. Most of the state of South Dakota is served by NTCA members. It’s about as rural as you get. I really enjoyed working with them. I enjoyed what they were doing. I enjoyed their mission. And they had an opening at NTCA. And so I moved over there about 15 years ago. I was a director of government affairs, and I think it was 4 or 5 years ago, I became the vice president of government affairs. So in my current job, along with my government affairs colleagues and some of the rest of our members of our policy team, our job is to represent our members on on Capitol Hill. Just about every company, every industry has lobbyists who go to Capitol Hill to talk to members of Congress and their staff and make sure that any laws, rules, regulations that may impact their industry, we have a voice for them. And so we do that on their own sometimes and often inviting our members to come to Capitol Hill with us to tell their stories. So that is our main focus. A lot of that bleeds over to what’s happening at the agencies. Oftentimes, we have to have members of Congress write to the FCC or USDA. We have members come testify. We testify. I talked about Shirley testifying in a few weeks in front of the House Energy and Commerce Committee. And even though this issue that we talk about, USF is pending before the Supreme Court, there’s going to be a huge role for members of Congress to play there. So we’re working it from from all sides and staying very busy. The pandemic was certainly a busy time when members of Congress are trying to get everyone connected. I thought maybe things would slow down after we passed these deployment bills, and they became law. But I think if anything, we’re busier now than we ever have been before, which is both fun and challenging. And then on top of that, I get to travel around the country and give these sorts of updates. For better or worse, I don’t know if people are always happy after I talk, after I talk about the challenges on Capitol Hill and at the agencies. But it’s fun to come and talk to folks like you and give these updates.

Trevor Bonnstetter: Well thank you, Leif. Well, let’s go ahead and get started and talk about a few of the issues that you’ve talked with the Tennessee Broadband Association here at the meeting here today. USF and the Fifth Circuit decision is high on the radar for all telecom companies across the nation and how it’s going to impact their operations and the future operations. Tell us a little bit where we’re at today with that decision. And where do you see this going down the road?

Leif Oveson: Yeah. Thank you for the question. This is certainly the issue that is top of mind for NTCA and our members. And just to back up a little bit and make sure that the listeners know what we’re talking about. But the Fifth Circuit Court, which is based in New Orleans, ruled that the Universal Service Fund, which every single NTCA member is dependent on and ensures that rural communities have reasonably affordable, comparable service to urban areas is unconstitutional. And what they decided was that the FCC or Congress, I’m sorry, Congress had given too much authority to the FCC without proper guidance. And in addition to that, the FCC had granted too much power to a private entity, which we all know is USAC, to administer the Universal Service Fund. And therefore, the combination of those two issues, they deemed was unconstitutional. And we believe that’s very unfortunate and misguided. Several other circuit courts had found that the Universal Service Fund is constitutional. This is a program that has been in operation for about about 30 years. And so what was decided is that the program would stay as is as long as the FCC asked the Supreme Court to take up this issue, to petition the Supreme Court.

Leif Oveson: And they did so on September 30th. And NTCA has also petitioned the FCC to consider this case. We did so along with some of our industry allies. And so currently, we are waiting for the Supreme Court to decide whether or not they are going to take up the case. And we think that that decision is likely to come in the next several weeks. And so, everyone is preparing on both sides for the Supreme Court to act. And, we’ll have to work with our allies on Capitol Hill to make sure that if the court takes it up, that they hear from them, that they are the lawmakers who created the Universal Service Fund. And we will be working with our members to contact members of Congress to put together what is called an amicus brief, from Congress to the Supreme Court, explaining that that, yes, indeed, the fund is operating as they intended it. It is constitutional and that the Supreme Court should hopefully rule in favor of the fund and therefore the FCC.

Trevor Bonnstetter: Yeah. So let’s talk a little bit about that, how the fund works today. So the issue at hand really is not dealing with the issue of the growth of the fund. It’s not dealing with rate payers on phone services, actually helping broadband services, which has been an issue that has been in the view of all in telecommunications for many years. It’s really dealing with the issue of the mechanics of who’s authorized to collect and who is not authorized to collect, and that’s where the court case is staying today. Correct?

Leif Oveson: That is correct. It’s very D.C., in the weeds. But to try to summarize what is happening here, you’re right. Those are not the what the challenges are about. What those who have taken up the case and are challenging the constitutionality of Universal Service Fund, were saying is that it’s unconstitutional. And the court ruled at least, the Fifth Circuit Court, ruled in their favor, mainly along the lines of it’s called the nondelegation doctrine. And that actually is a constitutional principle that says that there are certain legislative powers that Congress cannot hand over to an agency. One of those is the ability to tax and raise revenue. And what the Fifth Circuit Court has ruled has happened in the case here. And then on top of that, they’re saying that they’ve gone one step further. And the combination of these two issues is actually what where the problem lies is that not only did Congress violate the nondelegation doctrine by giving these revenue raising powers to the FCC, but then the FCC violated, which is called a private nondelegation doctrine by then giving additional powers and administrative authority over to USAC to administer the fund. And it’s the combination of those two decisions that the Fifth Circuit has ruled is the violation of the Constitution, not either one of them on their own, but when you combine the two of them, that makes it non-constitutional.

Trevor Bonnstetter: Yeah. So where we stand today is there’s two courts that actually ruled in favor that it was constitutional. The Fifth Circuit on a, was it 9 to 7 vote, came in and ruled that it was not constitutional. Unconstitutional, thank you. And with that being the case is now we have the FCC at the Supreme Court trying to understand if it is constitutional or not, and talk a little bit about the paths that take place past that. After the Supreme Court hears this, if it goes pro or con, what will take place?

Leif Oveson: Yeah, it’s kind of a, there’s a standard operating procedure how the Supreme Court, you know, works and several dominoes have to fall, and they have to fall in a certain order. And so the first was that the Fifth Circuit said that there would be a stay and in a sense, no real change to the program as long as the FCC petitioned the Supreme Court to take this case up. And as long as they do so by September 30th, I think it actually was actually on September 30th that the FCC has done that. And then others, including NTCA and some of our allies have also written to the Supreme Court asking them to take this up. So that was step one. The next step that we are all waiting on.

Trevor Bonnstetter: Yeah. So just sorry to interrupt you there. Just real quick, on the stay. Both parties agreed to the stay was an important element in regards to stability within the telecommunications industry for rural America. Because without the stay, having a ruling that says it’s unconstitutional. And if both parties didn’t take that and the opposing party if they were to take the position of “I have a legal court that’s saying it’s unconstitutional,” could slowly hit dominoes that could have a very negative effect over rural America. So that was a big, big decision when both parties went and asked for the stay. Correct?

Leif Oveson: That is. I’m glad you stopped me there. It’s an important reminder. There are a variety of ways the court could have ruled, and the fact that they issued a stay, and they remanded this back to the FCC to act is actually really important in the sense that while this is all very alarming and we are taking this very seriously, and we’re going to do everything we can to make sure that the Supreme Court does find this constitutional, members of Congress are involved. The fact that things stay as is is extremely important, so that has given us some time to take a look at the situation and does not mean that any business or process is majorly disrupted at this current moment. So, yes, that was important. And now it is at the Supreme Court, and we expect in the coming weeks for them to decide whether or not they are going to take this up. And the lawyers that we have heard from have indicated that they do expect this to be taken up, in part because this is a matter with major ramifications throughout our country, not just throughout rural America, but throughout the entire country. It could be very disruptive. We think the Supreme Court will take that into consideration as reason to make a determination. And then also the fact that there have been several circuit courts who have ruled in different ways. A couple in favor and then one against. And I should actually point out that the circuit court that ruled against it in that nine seven decision earlier had had three judges in that same circuit court say that it was constitutional. So, they decided to review that in block, which means they all the members of that circuit court would take this up. And then that is the first time where we have seen any group of judges decide that this is not constitutional. And even that was, you know, a 9-7. So even one judge splitting it the other way would have made the decision, so very narrow.

Trevor Bonnstetter: Thank you. Thank you. I think that leads us a little bit to contribution reform. Where’s the status of that as of late? I know that this issue that we’re discussing with being at the Supreme Court on USF, but in the background is contribution reform. And how does that impact with what’s going on?

Leif Oveson: Yeah. So I think it at times contribution reform is often being forgotten. And that does make sense given the fact that this court case is happening, and it’s getting a lot of attention. But for a number of years and practically my entire time in this industry, and even when I worked on Capitol Hill myself, there has been a need for for contribution reform. So this is the matter of how is the Universal Service Fund funded. The dollar is going into the program, not to the distribution side of reform going out the door. And there’s a lot of listeners probably are aware of, the Universal Service Fund is funded by all of us paying into it on our voice bills. That is our interstate and international portions of our phone bills which are assessed. It is not assessed on our broadband bills. But because now the fund is mainly being used to support broadband networks and because the voice funded system is very unstable and is prone to you could say some abuse of how it’s being paid into, how those assessments are being made, it has created a lot of uncertainty, instability and also just growth in the contribution percent, which is actually I believe north of 30% now. So there’s widespread agreement amongst members of Congress, many in the industry and not everyone, of course, that it is finally time to reform the contribution system at NTCA.

Leif Oveson: Our policy position is that that absolutely does need to happen. And we are in favor of both assessing edge providers, many of those who are cost contributors to building rural networks, but are not helping in any way support the network and also assessing broadband providers. There are some who have made the decision to support one or other of those ways of going about contribution reform, or we have supported both bills, legislation to do to either of those. And so, those proposals have been floating around for quite some time. But earlier this year, the Senate and a few House members created a Universal Service Fund working group to actually tackle that. It’s now a bipartisan, bicameral working group. They have been getting together for the last several months. They’ve actually drafted a proposal. There are still some issues that they are trying to work out amongst themselves before they get that finalized. We are still rather optimistic that they’ll work their way through that. And then as they’re doing this contribution reform effort, we also are hopeful that they’ll be able to tackle what we really are discussing when it comes to the matter in front of the courts and possibly even take a look at funding ACP. So they have a lot on their plate as part of that working group, or the big part of that is contribution reform.

Trevor Bonnstetter: Yeah. So, as you talk about that working group and their holding back from actually addressing that issue, I guess a question I have for somebody that is from Kentucky and Tennessee is when does lame duck become election duck? The process and the procedures of getting things done in Washington. Where is that break? Is it when you’re 12 months out from the election, things start to get, the breaks start to hit, both parties are positioning for their home election or the presidential election. So when do we move from lame duck to election duck? And I don’t know if that’s a good term. Maybe there’s a correct term for it.

Leif Oveson: It’s getting earlier and earlier. So a Congress is of course referring to the House and Senate, but a Congress is referring to the two year period between elections. And that’s, you have January of one year, and then you have until December 31st, two years later to pass bills. That’s a Congress. It’s a two year cycle. And so it used to be that as you got really close to election weeks and maybe a few months out, Congress would kind of stop legislating and doing a lot of the work that we all expect them to and really kind of turn their their attention to the election and be kind of unwilling to pass bills for a variety of reasons, too close to election. And that seems to be drawing back further and further towards those congresses is where it almost seems now, like almost a year out there in an election cycle, which is unfortunate because just in our industry, some of these issues we’re talking about are things that we really need them to grapple with. But it is what it is, and we are where we are. And we’re just a couple weeks away from the election. So and Congress has has left town, and they are in their states and districts in full campaign mode. Those who are up for reelection, and so the lame duck will start when they come back a few days after the election. And that’s where we are semi-optimistic that some of these issues will be addressed, because at that point in time, they will know who is and isn’t coming back. They can hopefully set politics aside. They’ll know they have two years until the next election. And so at that point in mid-November to the end of December, we’re hoping that they will be able to address some of these issues that that we’re talking about and kind of put some of their political differences and concerns about getting reelection aside and get down to business of passing some of these bills that are just so critical to our industry to to get passed.

Trevor Bonnstetter: Great, great. So we’ve talked about contribution reform. We’ve talked a little bit – what about the broadband grant tax exemption? Is it still in that kind of the same thing is what’s going on with contribution reform? Is it’s going to be kind of after the election when we’re going to see that. And how does that really impact the members of the Tennessee Broadband Association?

Leif Oveson: Yeah, really good question. So I think as anyone in the broadband space is aware, at least those who have received the grant are aware, if you receive a broadband deployment grant, whether that’s through the federal government, the state government, county or local, that’s actually considered part of your gross income, and therefore that’s taxed at 21% on the federal level. And then in many states taxed several more percent on the state level. And so what we were hearing from our members a number of years ago was that doesn’t make a lot of sense. It’s not allowing NTCA members, whether that’s here in Tennessee or the members in Kentucky or North Dakota or California or anywhere to fully leverage those dollars, having to pay 21% of their grant back to Treasury. And so we worked along with others in the industry to get bills introduced in the House and the Senate, bicameral bills that’s introduced by Democrats and Republicans to make broadband deployment grants exempt from that tax. We were hopeful that that bill would make it into a large tax reform bill that passed the House earlier this year.

Leif Oveson: Unfortunately, it did not. We had bonus depreciation extended as part of that bill, which is another priority for us. But that Broadband Grant Tax Treatment Act, as it’s known, did not make its way into the bill. And so we have another bite at the apple, if you will, when that bill hopefully comes over to the Senate. We were hoping that would be a number of months ago, soon after it passed the House. Unfortunately, I think largely again because of politics and not wanting to do anything before the election and give one party a talking point, we’re semi-optimistic. There’s just not a lot of time for it to happen, though, that when they come back in the coming weeks here before the end of the year, that the Senate will take that House bill up. And if they do, we’ll be pushing hard to get that Broadband Grant Tax Treatment Act bill included in the Senate. And then hopefully when the Senate and the House would conference, we could see that signed into law. But there are definitely some hurdles for us to get there. But we know it’s extremely important, and we’re pushing hard for it.

Trevor Bonnstetter: So summarizing that a little bit as the impact that’s taking place is that you guys are working hard on trying to get that. So a situation where if you get $100, $20, don’t go back to the government. So only 80% of the deployment goes out there for people within the state of Tennessee receiving broadband. So appreciate all the work you guys are doing on that on behalf of all the citizens in the state of Tennessee. In regards to BEAD, where do you see bead at right now? I mean, it’s kind of a political thing being thrown around of that they’ve had BEAD, they’ve had this big broadband initiative going on, and now it’s become a political, presidential political issue.

Leif Oveson: It absolutely has. And our CEO, Shirley Bloomfield, testified in front of the House Energy and Commerce Committee regarding this program just a few weeks ago. And we are well aware that it has become a political issue, unfortunately. But we’re trying to stay out of politics as much as possible and just make this program as effective as possible. So we were very optimistic when the bill came out of Congress, and the focus on BEAD towards building future proof networks, which which our members, NTCA members, are at the forefront of. Unfortunately, there was some language also included in there that that maybe made some sense to some members of Congress, but is creating some potential hurdles for our members wanting to participate in this program as it’s being implemented on the state level. And just to mention a few of what those are that we really think could unfortunately have have small providers turn away. And one of those is the geographic size of those BEAD grants. If it is decided in some states that the minimum geographic size that you would have to serve in order to even apply for a grant, let alone receive one, is too large in some states. We’ve seen it as large as largest county has to be at least as large as a county. That’s going to deter and just make it impossible for a lot of small providers to be able to participate who do not serve areas that large.

Leif Oveson: There are some other issues, such as matching it, where in some states we’ve seen some proposals that say that the larger amount of money that a provider puts forward beyond even the minimum amount required in law, the more likely you are to win an award. And unfortunately, while that may sound good up front and make sense if you don’t think more deeply about it, what that would actually mean is we believe that a lot of larger providers who may not necessarily have as good a track record as our members to committing and serving these areas with the type of networks that they deserve, give them more leverage to win over smaller providers. In the long run, we don’t think that would be good for the taxpayer or for these communities. And then also there are requirements in the program that require any recipient recipients to offer certain low cost plans to their subscribers. And that’s really difficult to implement in these really high cost, hard to serve areas, especially with the Affordable Connectivity Program now having run out of funding that that $30 discount, which maybe have enabled a lot of our members to meet that requirement, has suddenly now gone away. And so we’re going to need to see, I think, some increased flexibility amongst the states and NTIA and how our members and others can implement that requirement.

Leif Oveson: So there are definitely some challenges here. We’re hoping as many of our members can participate as possible. But without resolution to some of these, it is absolutely true that some of our members will probably have to walk away from it. We’re hoping as many as possible will be able to participate, and to the extent that this has become a political debate, is we do agree with those kind of, you know, saying, “Wow, this is taking a long time.” It is taking a long time. Part of that is just because unlike some other recent federal programs, there are certain requirements and steps that have to happen that weren’t in place for others, such as getting broadband deployment mapping done. So that has led to a bit of a delay. And so while frustrating, some of the delay is understandable, some of the red tape is maybe not. And we’re working our way through all that and just hoping that as many as our members as possible can participate, are willing to participate, because we think that’s really good for rural America. But we’re certainly not done advocating to try to cut down on some of this red tape, or at least as much of it as we can as possible.

Trevor Bonnstetter: Great, great. Well, I think we’ve talked about, a little bit about how broadband, how your work in Washington is enabling members of the Tennessee Broadband Association to deploy fiber and to enrich people’s lives, and how the actual mechanisms are set up to make sure that it’s affordable for them to have it. Leads me to the next thing that, probably as just a regular consumer in the state, ACP was enacted during the Covid and enabling homes to have connectivity. And this is probably one of the biggest things that we can talk about today is how that turning that off has impacted households across the state of Tennessee. Tell us a little bit where you think ACP, and maybe you can give a little bit of background of where you think ACP, how we got there and where we’re at today, and where we’re going to go a little bit in the future.

Leif Oveson: Yeah. So as you were saying, ACP is definitely a product of some of these Covid bills that passed when Congress was trying to do a couple things and trying to do a couple things really quickly. And they looked around and said, okay, there’s depending on, you know, whose numbers you look at and how you define broadband, upwards of, you know, 20 million Americans that aren’t connected. So let’s put together some broadband deployment grant and loan programs to try to get more people connected. But that’s not the only problem here. We have a number of households that, you know, “have access” to broadband, but still can’t afford it, even if they have a line running to their house. So they created the Affordable Connectivity Program, which is a $30 discount for most American households that qualify, and a higher discount for those that live on tribal lands. And they appropriated several billion dollars to fund that program. The problem is it was rather popular. We actually thought it would be a little more popular among some of our members customers than it was, but it was popular enough that it ran out of funding. It ran out of funding earlier this year, which, if I can just digress for a second, is a reminder of why we don’t want the Universal Service Fund appropriated.

Leif Oveson: And we’d like to continue with the current mechanism is because if Congress, in a sense, can’t get their act together to keep a program funded, then that funding goes away and the program goes away, and here we are with the ACP. So that’s kind of a canary in the coal mine of why having something appropriated is sometimes dangerous. But there was pretty widespread bipartisan support for the program. We saw senators and House members on the far left and the far right kind of rally behind it and saying it was doing a lot of good for their constituents, for their states and districts. There was also a lot of emphasis on the need that, okay, we put this together. Initially, it was kind of slapped together. It was done really quick. It’s done a lot of good. But now that it’s been implemented for a while, are there some ways that we can improve it? Some guardrails we could put on the program. For example, and I believe it’s the school lunch program that if you qualify for that, then your household qualifies for the ACP. But in some states, the entire state may qualify, every household in a certain county or state may qualify for some of those discount low income programs.

Leif Oveson: So maybe those aren’t always the best measuring sticks to, you know, to decide whether or not a house would qualify. So there’s some things that I think some members of Congress think are common sense reforms that need to happen if they’re going to continue to support funding for this program. So that’s one reason for the delay. Another is that it is being tied to the rip and replace program, which is a program that also has run out of funding that is used to remove certain banned Chinese telecom equipment. And there are some members of Congress who are saying, we’re not going to move one of these without the other. And once you have two programs tied together, you’re going to have your challengers, your champions and detractors of each of those. And suddenly now it becomes doubly hard to to get that passed. So because of the reforms that some want added to the program, and it’s now it’s connection kind of oddly to the rip and replace program, we have not seen Congress find ability to fund ACP yet, but there have been bipartisan bills to do so. And it’s another one of those, again, sounding like a broken record things that could possibly happen after the election when we kind of take the politics out of some of this.

Trevor Bonnstetter: Great. Well, thank you very much for taking the time to come visit with us today and tell us a little bit about what’s going on in Washington and all the work you guys are doing on behalf, so. Any parting words?

Leif Oveson: No, I just say the the election is going to be very interesting. And once we get that out of the way, hopefully, hopefully we can get get a couple of these things passed. On behalf of all of our members, I sure hope so. And thanks for the invitation to be here.