FCC Raises Concerns About National Security Threats to Communications Supply Chain Through FCC USF Programs

April 6th, 2018 by Cynthia B. Schultz

On March 27, 2018, the FCC published a draft Notice of Proposed Rulemaking (‘Proposal”), which would bar Universal Service Funding (“USF”) to be used in the purchase of equipment or services from companies posing a national security threat to America’s networks and communications supply chains. Specifically, the FCC is seeking comments (1) from the practices of other federal agencies that provide loans, grants, and other types of federal financial assistance supporting our nation’s communications network, (2) about the types of equipment and services that should be covered by such rules, and (3) the levels of restriction of the use of funds from the recipients of such funding and their contractors and subcontractors and their suppliers. The Commission’s draft Proposal raises very complex and critical issues for which there will likely be no simple set of rules or guidelines.

The draft Proposal seeks comments on such topics as identifying what companies pose such a threat, the effective date of such rules, and what happens when a multi-year contract is already in place. A key problem of note is that there is no proposed list, nor criteria to identify the company or supply chain provider that actually poses a threat or one federal agency that currently makes such determinations. This is where the lack of real intergovernmental communication and exchange of information becomes readily apparent.

However, even assuming that such a list of manufacturers, supply chain, and service providers could be identified, a myriad of other questions begin to arise, several of which are what agency would be responsible for keeping that list current; does a multi-agency federal task force establish the criteria; how will this affect the USF recipients such as schools, libraries, and rural healthcare facilities in building their networks or upgrading their network infrastructure; what type of certification and enforcement action would govern these recipients and service providers, and what will be the impact of federal preemption on existing contracts governed by state law?

In addition, the FCC does not govern the USF Programs in the same way as other federal agencies govern federal grants and loans. The questions that the FCC poses in its draft Proposal are more akin of federal financial assistance programs (grants and loans) that are strictly governed by Executive OMB circulars and federal agency policies and the Administrative Procedures Act. A critical differentiator here is that the FCC is an independent agency not governed by the Executive OMB circulars in the case of funding E-Rate, Rural Health Care, Lifeline, and High Cost Programs. The FCC appointed the Universal Service Administrative Company (“USAC”) to administer the USF Programs. As a result, USAC, a not-for-profit agency, incorporated in Delaware, does not administer the USF Programs like other federal technology grant and loans programs, such as those administered by National Telecommunications Information Administration of the Department of Commerce or Rural Utilities Service of the Department of Agriculture that already have stricter regulations and guidelines on such critical issues.

This topic is tentatively scheduled for consideration and discussion at the Commission’s April open meeting on April 17, 2018 to be held from 10:30am to 12:30pm EDT, which can also be viewed via live webcast.