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Key Legal and Regulatory Issues Affecting Community Broadband Projects Broadband Communities Economic Development Conference Key Legal and Regulatory Issues Affecting Community Broadband Projects Broadband Communities Economic Development Conference September 15, 2015 Lexington, KY Sean Stokes Casey Lide Baller Herbst Stokes & Lide, P. C. www. baller. com Washington, DC

DISCLAIMER This presentation does not constitute legal advice and should not be interpreted as DISCLAIMER This presentation does not constitute legal advice and should not be interpreted as such. For advice on federal, state or local law, please consult qualified legal counsel.

OVERVIEW Our focus today: Legal and regulatory issues affecting service providers, as such. I. OVERVIEW Our focus today: Legal and regulatory issues affecting service providers, as such. I. COMMUNITY BROADBAND LOCAL CHOICE: a. FCC Preemption Proceeding, etc. b. Overview of Authority Issues c. What’s New II. FCC OPEN INTERNET ORDER: a. Open Internet Rules b. Title II Reclassification III. POLES AND INFRASTRUCTURE: a. Section 224 b. Leveraging Power Utility Assets c. Wireless Facilities: DAS, Small Cell, Wi-Fi IV. FEDERAL UNIVERSAL SERVICE PROGRAM V. OTHER ISSUES

I. Community Broadband: State Barriers Ancient Recent History – Nixon Case Nixon v. Missouri I. Community Broadband: State Barriers Ancient Recent History – Nixon Case Nixon v. Missouri Municipal League, 541 U. S. 125 (2004): • Municipal utilities in Missouri sought FCC preemption of State law prohibiting municipal provision of telecommunications services • “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. ” Telecom Act § 253(a) (47 U. S. C. § 253(a)) • Nixon held that “any entity” language in § 253(a) not clear enough to meet Ashcroft “plain statement” standard (Gregory v. Ashcroft , 501 U. S. 542 (1991)) to preempt state laws involving “traditional” or “fundamental” state functions.

In the Wake of Nixon Barriers To Public Entry State “barriers” today (not necessarily In the Wake of Nixon Barriers To Public Entry State “barriers” today (not necessarily “prohibitions”): AL, AR, CA, CO, FL, LA, MI, MN, MO, NC, NE, NV, PA, SC, TN, TX, UT, VA, WI (http: //goo. gl/8 qgex 7) • Broad based public-private sector support has helped recast the debate away from public v private • From 2005 -2010 most efforts at barriers defeated, 2011 -2014 laws in NC and SC enacted but defeated in GA, IN, KS, MO and UT

Public/Private Support • Missouri Anti-Muni Broadband Bills - SB 266/HB 437 • Bills would Public/Private Support • Missouri Anti-Muni Broadband Bills - SB 266/HB 437 • Bills would have impaired the ability of cities to develop/use community networks to compete with private sector • The following entities urged MO Senators to oppose bill:

Section 706 Challenge to Barriers Section 706, 47 U. S. C. § 1302 Advanced Section 706 Challenge to Barriers Section 706, 47 U. S. C. § 1302 Advanced telecommunications • (a) In general. The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans … by utilizing … other regulating methods that remove barriers to infrastructure investment. • (b) Inquiry. The Commission shall … annually … initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans. … In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission’s determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.

Run up to Section 706 Petitions • In 1999 the FCC issued its first Run up to Section 706 Petitions • In 1999 the FCC issued its first 706 report using a broadband standard of 200 Kbps and found that it was being met • In the intervening years broadband has become an essential platform for nearly every facet of the information economy • In 2009 as part of the ARRA Congress allocated $7. 2 billion to broadband infrastructure and mandated the development of a national broadband plan • In 2010 FCC revised definition of broadband to 4 Mbps/1 Mbps, and found for the first time that not all Americans were getting broadband • Google Fiber Community program attracts thousands of cities • January 2014 – Verizon Corp. v. Federal Communications Commission, 740 F. 3 d 623 (D. C. Cir. 2014) -- Judge Silberman -removal of barriers to municipal broadband is paradigmatic example of FCC authority under Section 706 • February – July 2014 -- FCC Chm. Wheeler supports preemption

Section 706 Petitions • July 2014 Chattanooga, TN and Wilson, NC file petitions under Section 706 Petitions • July 2014 Chattanooga, TN and Wilson, NC file petitions under Section 706 for FCC to preempt state law restrictions on their ability to expand broadband beyond there current footprint • Both Chattanooga and Wilson provide gigabit fiber-tothe-home broadband service • Both cities maintain that they are surrounded by a digital desert and are ready, willing and able to expand broadband • Petitions generate strong record on community broadband • • Broad public sector/private sector support Framed as a local choice issue President Obama endorses Opposition from incumbent telephone and cable providers, conservative groups, states’ rights advocates

FCC Adopts Order Preempting TN and NC • February 26, 2015 – FCC adopts FCC Adopts Order Preempting TN and NC • February 26, 2015 – FCC adopts Memorandum Opinion and Order granting the EPB and Wilson petitions (WC Dockets No. 14 -115 and 14 -116) (http: //goo. gl/uae. EAp) • Finds that the TN and NC laws are acting as barriers to broadband infrastructure development • Rationale: Not deciding whether complete bans would be unlawful. Where state has authorized municipality to provide broadband services, it can’t attach conditions contrary to federal policies. • Significant federal presence regulating Internet • Commercial barriers not subject to Nixon v. Missouri Municipal League “clear statement” standard. • Authority under Section 706 ”clear. ”

FCC 706 Preemption Order • Wilson and EPB may expand their services to neighboring FCC 706 Preemption Order • Wilson and EPB may expand their services to neighboring areas • In TN decision removes territorial restriction on broadband -Tenn. Code Ann. § 7 -52 -601 • In NC strikes down multiple provisions contained within HB 129 that in concert act to create barriers, raise economic costs, and impose delay • Decision applies to other similarly-situated entities in NC and TN • FCC invites petitions from other states • TN Attorney General has appealed in 6 th Cir. • NC appeal in 4 th Cir. Case has been consolidated with TN appeal in 6 th Cir. • No petitions for Stay filed – so FCC decision is current law

Congressional Response • Community Broadband Act of 2015 • Introduced by Senators Booker (D-NJ), Congressional Response • Community Broadband Act of 2015 • Introduced by Senators Booker (D-NJ), King (I-ME), Markey (D-MA), and Mc. Caskill (D-MO), and Wyden (DOR). • Would remove state restrictions on municipal broadband networks • Bills to Strip the FCC of Authority • In August, House of Representatives passed measure proposed by Rep. Marsha Blackburn (R-TN) to prohibit FCC from using taxpayer funds to preempt state laws governing municipal broadband. No action in Senate. • On Feb. 26, Sen. Thom Tillis (R-NC) and Rep. Blackburn introduced bills declaring that the FCC does not have authority to preempt State law under Section 706.

Administration • President Obama’s support for community broadband in State of the Union • Administration • President Obama’s support for community broadband in State of the Union • Department of Commerce launching "Broadband. USA, " to promote broadband deployment and adoption.

Community Broadband: Authority Issues Barriers v. Authority • Federal law encourages, but does not Community Broadband: Authority Issues Barriers v. Authority • Federal law encourages, but does not authorize • Public entities must have state/local authority • State laws, interpretations, procedures differ widely • Dillion’s Rule v. Home Rule • Service-by-service (cuts both ways) • For example, in City of Bristol, VA v. Earley, 145 F. Supp. 2 d 741, 745 (W. D. Va. 2001), the court held that the City has authority to provide telecommunications services, and in Marcus Cable Associates, L. L. C. v. City of Bristol, 237 F. Supp. 2 d 675, 678 -79 (W. D. VA 2002), the same court held that the City does not have authority to provide cable television service. According to the court, the critical difference was that Virginia’s statute authorizing localities to establish “public utilities” applied to telecommunications services but not to cable television.

II. FCC Open Internet Order 2010 Open Internet Rules Section 706 Verizon v. FCC II. FCC Open Internet Order 2010 Open Internet Rules Section 706 Verizon v. FCC Upheld FCC’s authority under Section 706 but “[g]iven the Commission’s still-binding decision to classify broadband providers. . . As providers of ‘information services, ’ open Internet protections that regulated broadband providers as common carriers would violate the Act. ” FCC Order on Remand, March 12, 2015

Open Internet Rules Key “Open Internet” Rules: § § No Blocking (subj. to “reasonable Open Internet Rules Key “Open Internet” Rules: § § No Blocking (subj. to “reasonable network management”) No Throttling (subj. to “reasonable network management”) No Paid Prioritization Transparency (Enhanced) § Fewer than 100 k subscriber = temp. exemption from enhancements; must still comply with 2010 rules § 2010 rules: publicly disclose network mgt. practices, performance and commercial terms § Enhanced: promo rates, data caps, packet loss § Equal application to fixed and mobile § Interconnection issues on a case-by-case basis

Title II Reclassification Why: § Jurisdiction for implementation of Open Internet rules (along with Title II Reclassification Why: § Jurisdiction for implementation of Open Internet rules (along with Section 706) § Desire for regulatory symmetry, simplicity What: § Radical change in regulatory treatment of “broadband Internet access service” (BIAS) § BIAS = “telecommunications service” (“telecommunications, ” offered on a common carrier basis) “Light touch Title II regime” applies

Title II Reclassification The Communications Act of 1934, as amended, consists of seven major Title II Reclassification The Communications Act of 1934, as amended, consists of seven major sections or “titles”: Title I – General Provisions Title II – Common Carriers Title III – Provisions related to radio Title IV – Procedural and administrative provisions Title V – Penal provisions, forfeitures Title VI – Cable communications (added by CCPA of 1984) Title VII – Miscellaneous provisions

Title II Reclassification “Telecommunications service” = common carrier = Title II Previously: § BIAS Title II Reclassification “Telecommunications service” = common carrier = Title II Previously: § BIAS as an “information service” integrating “telecommunications” and “information service” components § Basically unregulated. Not subject to Title II Open Internet Order: § BIAS is a “telecommunications service” subject to regulation under Title II. Other “information services, such as email and online storage, ” may be offered alongside, but the core service – high speed access to the Internet – is “telecommunications. ” § Bundling of DNS no longer converts the BIAS into an integrated information service. It’s “telecommunications system management. ”

Title II Reclassification “Broadband Internet Access Service”: “a mass-market retail service by wire or Title II Reclassification “Broadband Internet Access Service”: “a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints” “Mass market”: § “[S]ervices marketed and sold on a standardized basis to residential customers, small businesses and other end-user customers such as schools and libraries. ” § Specifically includes BIAS purchased via E-Rate/RHP, or using network supported by CAF. Does not include “enterprise service offerings or special access services, which are typically offered to larger organizations through customized or individually negotiated arrangements. ”

Title II Reclassification: Application and Forbearance Some aspects of Title II apply to BIAS, Title II Reclassification: Application and Forbearance Some aspects of Title II apply to BIAS, some don’t. FCC forbears from 27 provisions of Title II of the Communications Act, and over 700 Commission rules and regulations Open Internet Order states the following “core requirements” do apply: § § § Open Internet rules Infrastructure Access Rights and Obligations (Section 224) “Core Title II Obligations” Customer Privacy (Section 222) Access for Persons With Disabilities Universal service (Section 254) – Applies, but forbearance from contribution requirements, for now

Title II Reclassification: Application Infrastructure Access Rights (Section 224): § Telecommunications carriers (including BIAS) Title II Reclassification: Application Infrastructure Access Rights (Section 224): § Telecommunications carriers (including BIAS) have right of access “to the poles of local exchange carriers and other utilities at just, reasonable, and nondiscriminatory rates. . . ” § “Title II also offers other benefits at the state level, including access to public rights of way, which some broadband providers reportedly utilize to deploy networks” § Small cable operators concerned about pole owners trying to impose increased telecommunications attachment rate. FCC says doing so “unacceptable as a policy matter, ” and cautions utilities against trying it.

Title II Reclassification: Application Basic Rules; Consumer Protection; Enforcement & Redress § § § Title II Reclassification: Application Basic Rules; Consumer Protection; Enforcement & Redress § § § Section 201 – common carriage obligations, “just and reasonable” charges and practices § Except for ratemaking regulations adopted thereunder Section 202 – no “unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service…” Section 208 (broad right to complain of violations by common carriers); Sections 206, 207, 209 (adjunct to 208, relating to enforcement and redress)

Title II Reclassification: Application Customer Privacy – Section 222 § Privacy rules apply, but Title II Reclassification: Application Customer Privacy – Section 222 § Privacy rules apply, but forbearance from application of CPNI rules to BIAS until details are addressed in separate rulemaking § Duty to take reasonable precautions to protect confidentiality of customers’ proprietary information § Rulemaking forthcoming. “[W]e are not persuaded that the Commission’s current rules implementing section 222 necessarily would be well suited to broadband Internet access service. ”

Title II Reclassification: Application Provisions for Persons With Disabilities § Sections 225, 255 and Title II Reclassification: Application Provisions for Persons With Disabilities § Sections 225, 255 and 251(a)(2) and implementing regulations apply, which collectively advance access for persons with disabilities” § Forbearance from requirement that BIAS providers contribute to TRS fund “at this time”.

Title II Reclassification: Forbearance FCC Forbearance: § § Universal Service payment obligations (for now) Title II Reclassification: Forbearance FCC Forbearance: § § Universal Service payment obligations (for now) Rate regulation, tariff filing obligations, cost accounting rules Many information collection and reporting provisions “Interconnection and Market-Opening Provisions” (last-mile unbundling, resale obligations, etc)

Title II Reclassification: Forbearance Universal Service Program (Section 254, 214(e)) § Section 254 does Title II Reclassification: Forbearance Universal Service Program (Section 254, 214(e)) § Section 254 does apply, but FCC forbears from sections implementing contribution requirements … for now § Might ultimately apply, after further proceedings. May be a long process. § If so, would presumably be a much lower percentage assessment than currently applies to providers of ”telecommunications” § 499 -A filing obligation might occur sooner

Title II Reclassification: Forbearance Rate regulation, tariffs, cost accounting rules § § § Section Title II Reclassification: Forbearance Rate regulation, tariffs, cost accounting rules § § § Section 202 re: rate regulation Section 203, 204 (tariffs) Section 205 (rate practices)

Title II Reclassification: Forbearance Many Information Collection and Reporting Obligations § Sections 211, 213, Title II Reclassification: Forbearance Many Information Collection and Reporting Obligations § Sections 211, 213, 215, 218 -220: forborne § Obligation to file contracts (211); valuation of property (213); FCC authority to examine certain transactions (215); FCC authority to inquire into the management of the carrier’s business (218); authority to require annual financial and other reports (219); prescription of forms of accounts to be kept by carriers, depreciation prescription provisions (220).

Title II Reclassification: Forbearance “Interconnection and Market-Opening Provisions” § Sections 251, 252, 256 § Title II Reclassification: Forbearance “Interconnection and Market-Opening Provisions” § Sections 251, 252, 256 § (Except for 251(a)(2), for purpose of Open Internet Rules) § Forbearance from § duty to interconnect § unbundling § duty to afford access to the poles, ducts, conduits, and rights -of-way § resale obligations

Title II Reclassification: Other Issues States: § BIAS is “interstate” in nature § Internet Title II Reclassification: Other Issues States: § BIAS is “interstate” in nature § Internet Tax Freedom Act prohibits states and localities from imposing “taxes on Internet access, ” notwithstanding regulatory classification. (Watch City of Eugene v. Comcast, Ore. Sup. Court, re: ITFA and right of way fee issues) § FCC will exercise preemption; states can’t act contrary to overall “regulatory scheme” set forth in the Order, including forborne provisions § No restriction of entry to market through certification requirements; no rate regulation through tariffs or otherwise § Leaves room for regulation of ROW rights, etc.

Title II Reclassification: Other Issues “We note also that we do not believe that Title II Reclassification: Other Issues “We note also that we do not believe that the classification decision made herein would serve as justification for a state or local franchising authority to require a party with a franchise to operate a “cable system” (as defined in Section 602 of the Act) to obtain an additional or modified franchise in connection with the provision of broadband Internet access service, or to pay any new franchising fees in connection with the provision of such services. ” (fn 1285, paragraph 433)

Title II Reclassification: Other Issues Wireless (“Mobile”): § BIAS offered on fixed or mobile Title II Reclassification: Other Issues Wireless (“Mobile”): § BIAS offered on fixed or mobile basis = “telecommunications service” § BIAS “includes services provided over any technology platform, including but not limited to wire, terrestrial wireless (including fixed and mobile wireless services using licensed or unlicensed spectrum), and satellite. ” § Nomenclature shift: from “wired” and “wireless” to “fixed” and “mobile” § Mobile BIAS is also CMRS, interconnected with “public switched network. ” § “Public switched network” redefined to include “North American Numbering Plan, or public IP addresses. ”

Title II Reclassification: Other Issues Vo. IP: § Vo. IP is a “non-BIAS data Title II Reclassification: Other Issues Vo. IP: § Vo. IP is a “non-BIAS data service. ” Not a “telecommunications service” under Title II. § Still subject to a variety of Title II-like obligations, imposed specifically on interconnected Vo. IP without categorizing it as “telecommunications service. ” § Using a (Vo. IP) phone is not “telecommunications. ” Using the Internet is. § Classification remains surprisingly unclear.

Title II Reclassification: Other Issues Common carriage / private carriage analysis § Order does Title II Reclassification: Other Issues Common carriage / private carriage analysis § Order does not compel offering on common carriage basis. § Some indication of a narrowing of “private carriage”: “Some individualization in pricing or terms is not a barrier to finding that a service is a telecommunications service. . That the individualized terms may be negotiated does not change the underlying fact that a broadband provider holds the service out directly to the public. ” (para. 363) Standalone Internet Transport § Is “telecommunications. ” No direct change. § Not necessarily “telecommunications service”. . .

Title II Reclassification: Prognosis: § In effect now. § Legal challenge by USTelecom, NCTA, Title II Reclassification: Prognosis: § In effect now. § Legal challenge by USTelecom, NCTA, ACA, AT&T, Century. Link, WISPA. Petition for stay rejected by D. C. Circuit; case on expedited docket § Congress? § A settled implementation of principles set forth in the Order – or something else – will take years.

Title II Reclassification: Now What? § Watch for D. C. Circuit ruling. Remember that Title II Reclassification: Now What? § Watch for D. C. Circuit ruling. Remember that a legal decision concerning the Order may not affect everything in the Order § Pay attention to Universal Service Program developments. § Watch for FCC announcements § Follow developments in your state § Updates in BHSL annual Federal Compliance Memo

III. Poles and Infrastructure • Regulate rates, terms and conditions of access for wired III. Poles and Infrastructure • Regulate rates, terms and conditions of access for wired and wireless attachments to utility poles by telecommunications carriers and cable operators • FCC’s reclassification of broadband to telecommunications service extends pole attachment rules to broadband • Rules apply to poles, ducts, conduits and ROW owned by investor-owned (private) utilities • Rates – Two formulas: Cable only (not really); and Telecom. In 2011 the FCC revised Telecom formula to yield essentially same rate as Cable formula • Access – Prescribed timelines for access to poles • Cost causer pays

Yup Nope Yup Nope

Poles and Infrastructure • Federal rules don’t apply in 21 states that have “reverse” Poles and Infrastructure • Federal rules don’t apply in 21 states that have “reverse” preempted the FCC and regulate at the state level. • Federal rules don’t apply to municipal or cooperatively owned utilities -- 47 U. S. C. § 224(a)(1) • Federal rules don’t provide attachment rights to dark fiber services or private carriage of telecommunications • Federal rules don’t apply to utility fiber

Why don’t the municipals just get out of the way? Why don’t the municipals just get out of the way?

Public Power Utilities • View safety, security and reliability of their electric system as Public Power Utilities • View safety, security and reliability of their electric system as top priority • View poles and conduit as a community asset • Want to encourage broadband deployment • Want (and have an obligation) on behalf of their consumer owners to obtain cost recovery • Provide access to all types of service providers – voice, video and data on similar terms and conditions

Leveraging Consumer Owned Utility Assets • Bring the utility in to the planning process Leveraging Consumer Owned Utility Assets • Bring the utility in to the planning process early • Don’t assume that utility and municipality have identical interests • Don’t confuse access to ROW with access to assets • Allow for in-kind consideration and where possible monetize the value of such services • Don’t get tripped up by non-discrimination or level playing field clauses

Wireless Facilities: DAS, Small Cell, Wi-Fi • “Distributed Antenna System, ” small cell, outdoor Wireless Facilities: DAS, Small Cell, Wi-Fi • “Distributed Antenna System, ” small cell, outdoor Wi-Fi (esp. from cable) • • Franchise/ ROW occupancy rights • • DAS: multiple nodes connected via fiber, attached to pole/light pole, often utilize neutral host model, typically licensed spectrum Small cell: single node, attached to pole/light pole, carrier centric model, typically licensed spectrum Wi. Fi: may be attached mid-span, typically unlicensed spectrum Section 253 (extended to broadband) • Police power authority to manage public ROW – does existing franchise authority address right to be in ROW Wireless siting/zoning regulations apply 47 U. S. C. 332(c)(7) and 6409(a) (47 U. S. C. 1445(a)) Fee? Attachment rights • • Section 224 (extended to broadband) Municipal exemption applies

IV. Federal Universal Service Program Why The Details REALLY Matter: ~17% (!) of gross IV. Federal Universal Service Program Why The Details REALLY Matter: ~17% (!) of gross revenues Private carriage vs. common carriage Exemptions may be available, some depend on what your customers are doing Counterintuitive and sometimes illogical FCC enforcement

USP: The Basics See BHSL Memorandum on the Federal Universal Service Program, available at USP: The Basics See BHSL Memorandum on the Federal Universal Service Program, available at http: //www. baller. com/library/ Providers of “interstate” and “international” “telecommunications, ” “telecommunications service, ” or “interconnected Vo. IP” must pay a universal service “contribution” based on % of assessable gross revenues from the provision of such services to “end users. ” Contribution factor announced each quarter, ranging from 12% - 17%.

USP: The Basics Based on Forms 499 A and 499 Q, the Universal Service USP: The Basics Based on Forms 499 A and 499 Q, the Universal Service Administrative Company (USAC) then bills filers for the amounts they owe, including for LNP/NANPA/TRS if provider of “telecommunications service” or “interconnected Vo. IP” Providers that project contribution obligations exceeding de minimis levels for the year in question must file quarterly forms 499 -Q by February 1, May 1, August 1, and November 1 Providers can pass through all or a portion of their USP payments to customers (if contract permits)

USP: Key Concepts “Telecommunications” & “Telecommunications Service” “The term “telecommunications” means the transmission, between USP: Key Concepts “Telecommunications” & “Telecommunications Service” “The term “telecommunications” means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received. ” “The term “telecommunications service” means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used. ” 47 C. F. R. 54. 5

USP: Key Concepts “Telecommunications” & “Telecommunications Service”: § Dark fiber, by definition, does not USP: Key Concepts “Telecommunications” & “Telecommunications Service”: § Dark fiber, by definition, does not include the transmission of information, which is an essential part of the definition of “telecommunications” § Internet transport = “telecommunications” § But assessable only if offered on a “common carrier” basis. Internet transport provided on a private carriage basis is not subject to USP assessment. § Key implications for providers of “telecommunications service”: § Must file 499 -A when begin service, even if de minimis revenues. Potential retroactive penalties, etc. § Providers of “telecommunications service” not eligible for some important exemptions

USP: Key Concepts “Interconnected Vo. IP”: § Not regulated under Title II, but treated USP: Key Concepts “Interconnected Vo. IP”: § Not regulated under Title II, but treated much like “telecommunications service” § Providers must file Form 499 -A, even if would otherwise be exempt as de minimis, etc § 64. 9% “interstate” (or traffic study)

USP: Key Concepts “End User”: § USP contributions assessed on revenues from “end users” USP: Key Concepts “End User”: § USP contributions assessed on revenues from “end users” § For USP purposes, “end user” is not necessarily the last purchaser in a chain of distribution § “End user” includes purchasers of covered service (i. e. , telecom service, Vo. IP) that does not itself make a USP contribution, because they are exempt or have failed to comply. § A contributing reseller is not an “end user” (more later)

USP: Key Concepts “Interstate” vs. “Intrastate” § Nature of the traffic, not the location USP: Key Concepts “Interstate” vs. “Intrastate” § Nature of the traffic, not the location of the line § “End to end” principle § Internet traffic = “interstate” § Interconnected Vo. IP: 64. 9% “interstate” § “ 10 Percent Rule” § USAC’s “interstate” presumption: traffic is interstate in absence of certifications or traffic studies (on appeal)

USP: Key Concepts Revenue from Resellers § Wholesale providers’ revenue from services sold to USP: Key Concepts Revenue from Resellers § Wholesale providers’ revenue from services sold to resellers is exempt from USP, if wholesaler collects and maintains information (specified in FCC instructions) that support “affirmative knowledge” or “reasonable expectation” that the reseller or its customers make contributions to the USP. § Reseller revenue must still be reported on Form 499 -A (Block 3), if provider needs to file, but not used to calculate contribution.

USP: Key Concepts Private Carriage vs. Common Carriage: Relevant Factors: § “Manner in which USP: Key Concepts Private Carriage vs. Common Carriage: Relevant Factors: § “Manner in which the provider holds itself out to the public” § Any advertising? § Does not need to be the public at large to qualify as a common carrier. § Are services offered indiscriminately on same terms and conditions (like a tariff), or individually negotiated? § Small set of customers, with little/no turnover? Remember, private carriers that provide “telecommunications” or interconnected Vo. IP are still potentially subject to USP assessment. Common carrier / private carrier inquiry is especially relevant for Internet transport revenues.

USP: Exemptions De Minimis Exemption: § If projected contribution to the USP from end-user USP: Exemptions De Minimis Exemption: § If projected contribution to the USP from end-user revenues for the coming year < $10, 000 (~$60, 000 gross revenue), a provider of “telecommunications” is exempt from USP reporting and contribution requirements. § A de minimis provider of “telecommunications service” or Vo. IP must still file Form 499 -A to comply with TRS/NANPA/LNP program obligations.

USP: Exemptions Service to Only Government Entities or Public Safety Organizations: § Entirely exempt USP: Exemptions Service to Only Government Entities or Public Safety Organizations: § Entirely exempt from contribution and reporting obligations. § Exemption unavailable if serve even a single non-governmental entity (including private non-profits) § Creation of separate entities to handle exempt and non-exempt sales may be an option.

USP: Exemptions Service By Non-Profit Schools, Libraries, Health Care Providers and Broadcasters § All USP: Exemptions Service By Non-Profit Schools, Libraries, Health Care Providers and Broadcasters § All are exempt from USP reporting and contribution obligations. Not available to outside providers that serve such entities. Self-Service, System Integrators § Provider whose only customer is itself is exempt, including buying coops. for schools, libraries, etc. § System integrators who receive no more than 5% of revenue from resale

USP: Enforcement FCC’s Enforcement Authority § Principal and interest § Fines and forfeitures § USP: Enforcement FCC’s Enforcement Authority § Principal and interest § Fines and forfeitures § Treble damages (!) Retroactivity § Asymmetric periods of limitation § Appeals before FCC Options For Addressing Past Liabilities Recent Developments § Increased focus on enforcement § Much harsher penalties for non-compliance

Q&A Sean Stokes sstokes@baller. com Washington, DC Casey Lide casey@baller. com Washington, DC Q&A Sean Stokes [email protected] com Washington, DC Casey Lide [email protected] com Washington, DC

E-Rate The Basics: § One of four federal communications subsidy programs funded by USP, E-Rate The Basics: § One of four federal communications subsidy programs funded by USP, administered by Universal Service Administrative Company (USAC) § Federal subsidy for the provision of “eligible services” (telecom. , Internet access and other services) to school and libraries § Subsidy amount of 20% - 90%, depending on % of students eligible for National School Lunch Program

E-Rate Modernization Order New Opportunities: § Expanded Support for Wi-Fi § $1 Billion set E-Rate Modernization Order New Opportunities: § Expanded Support for Wi-Fi § $1 Billion set aside for Wi-Fi deployments in 2015 and 2016 § Self-Construction § Schools, libraries and consortia eligible for support for selfconstructed high-speed broadband networks where they demonstrate it is the most cost-effective option § Matching Funds § FCC will match State funds for special construction projects on a dollar-for-dollar basis up to 10% of total costs

E-Rate Modernization New Opportunities, cont. : More Flexible Treatment of Fiber Construction Costs: § E-Rate Modernization New Opportunities, cont. : More Flexible Treatment of Fiber Construction Costs: § Applicants may pay non-discounted portion of non-recurring construction costs over multiple years § Suspended USAC’s multi-year amortization policy for nonrecurring construction costs

E-Rate Modernization Order Dark Fiber § More equal treatment of dark and lit fiber. E-Rate Modernization Order Dark Fiber § More equal treatment of dark and lit fiber. § Leased dark fiber eligible for support, including modulating equipment if the applicant elects to light it § Special construction costs eligible, including connections from an applicant’s facilities to an off-premises fiber network. § Special construction may also include design and engineering costs, project management costs, digging trenches and laying fiber

E-Rate: Process The Process: § § § Obtain Service Provider ID (SPIN) via Form E-Rate: Process The Process: § § § Obtain Service Provider ID (SPIN) via Form 498 § Contract with applicant, applicant files Form 471 (March. April) § § Receive Funding Commitment Decision Letter from USAC Obtain Form 499 Filer ID (if don’t have one already) Respond to Form 470 Request for Services and/or RFP, if applicable Etc…

E-Rate: Fair and Open Competitive Bidding Process WARNING: Service providers and E-Rate school/library applicants E-Rate: Fair and Open Competitive Bidding Process WARNING: Service providers and E-Rate school/library applicants should be VERY careful about communicating prior to selection of service provider. ANY service provider involvement in applicant’s process concerning service requirements and provider selection is taken very seriously, may jeopardize funding, and may lead to serious penalties, including retroactive payment of support.