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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

July 2014: 

Telecommunications: 

FCC Should Improve the Accountability and Transparency of High-Cost 
Program Funding: 

GAO-14-587: 

GAO Highlights: 

Highlights of GAO-14-587, a report to congressional requesters. 

Why GAO Did This Study: 

The USF high-cost program targets financial support to rural areas 
where the cost to provide telecommunications service can be more than 
three-times greater than the cost in urban areas. High-cost program 
support offsets telecommunications carriers’ costs and allows them to 
charge rural customers lower rates. In 2011, FCC issued the USF 
Transformation Order, whereby it adopted funding reforms so that the 
program could support both telephone and broadband service, and capped 
the program at $4.5 billion annually. 

GAO was asked to provide information on FCC’s reform efforts for the 
high-cost program. This report examines (1) the extent to which FCC 
implemented the funding reforms adopted in the USF Transformation 
Order and stakeholders’ views on FCC’s efforts, (2) the extent to 
which FCC is collecting data to determine the effectiveness of these 
reforms, and (3) what changes, if any, states have made to their 
universal service funds since FCC adopted the reforms. GAO reviewed 
FCC orders, data collection forms, and other relevant documents; 
interviewed FCC officials and representatives of nine stakeholder 
associations; and surveyed utility commissions in all 50 states and 
the District of Columbia. 

What GAO Found: 

The Federal Communications Commission (FCC) has implemented four 
industry-wide reforms and the initial phases of two carrier-specific 
reforms for the Universal Service Fund’s (USF) high-cost program. 
However, FCC has encountered delays implementing the subsequent phases 
and more complex carrier-specific funding reforms that require 
extensive cost modeling and stakeholder input. For example, although 
FCC planned to fully implement the reform specific to large carriers 
by January 2013, FCC officials said it will not be implemented until 
the end of 2014. FCC officials cited their efforts to gather 
stakeholder input as the primary cause of delays. Some stakeholders 
told GAO that the delays did not affect them while small, rural 
carriers said the resulting uncertainty had decreased their 
investment. Overall, the stakeholder groups GAO contacted generally 
supported FCC’s reform efforts, but had concerns with aspects of the 
different reforms. For example, representatives of small, rural 
carriers stated that uncertainty about implementation of the reform 
affecting them has resulted in their decreased investment in broadband 
infrastructure. 

While FCC collects and reports a range of data and information on high-
cost program funding, GAO identified gaps in FCC’s data analysis and 
reporting that limit FCC’s ability to evaluate the program, 
demonstrate its effectiveness, and help ensure that the data collected 
will inform current and future reforms. These gaps include (1) a lack 
of transparency and accountability of high-cost spending and (2) poor 
accessibility and usability of data and information. Specifically, FCC 
has not traditionally demonstrated how high-cost funds were spent and 
the results of that funding because FCC had not collected data to do 
so. Representatives of competitive carriers and consumers told us FCC 
should increase all carriers’ accountability for their use of high-
cost funds by providing information on the results of the funding. 
Furthermore, FCC has not traditionally presented the high-cost program 
data and information it has collected in a manner that is easy and 
accessible for interested parties to use. Although FCC made 
improvements to its data collection and presentation that could help 
it address some of these gaps, FCC has not indicated what information 
it will make publicly available on a regular basis in the future. As a 
result, it is difficult for interested parties to use the information 
in meaningful ways, such as by making connections between the 
different sources of data, drawing conclusions about the program, and 
using the data to inform policy decision making. By improving the 
transparency and accountability of USF’s high-cost spending, FCC and 
interested parties could better understand the effects of the reforms; 
determine those most successful in efficiently enhancing broadband 
availability, service quality, and capacity; and identify areas for 
improvement. 

GAO’s survey of state utility commissions in all 50 states and the 
District of Columbia showed that as of February 2014, few states 
reported making changes to their states’ high-cost service programs 
because of FCC’s 2011 reforms. Of the 24 states that reported having a 
state program, only 4 reported making changes to that program either 
wholly or in part because of FCC’s reforms. Seven states reported that 
they were considering making changes as a result of the reforms; these 
changes ranged from reconsidering the amount of funds that their state 
program should provide to carriers to transitioning to a fund that 
supports advanced services, like broadband. 

What GAO Recommends: 

FCC should demonstrate how high-cost funds were used to improve 
broadband availability, service quality, and capacity, such as by 
conducting analyses of carrier data and reporting the information in 
an accessible manner. In response, FCC concurred with GAO’s 
recommendation and intends to take action to address it. 

View [hyperlink, http://www.gao.gov/products/GAO-14-587]. For more 
information, contact Mark Goldstein, (202) 512-2834, 
goldsteinm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Although FCC Has Not Implemented All Funding Reforms Adopted in the 
USF Transformation Order, Stakeholders Generally Supported FCC's 
Reform Efforts: 

FCC's Ability to Ensure Current and Future USF Reforms Are Informed by 
Data Is Limited: 

Few States Reported Making Changes to Their State High-Cost Service 
Programs Thus Far as a Result of FCC's 2011 USF Reforms: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Copy of Survey to State Utility Commissions: 

Appendix III: Additional Information on USF and the High-Cost Program: 

Appendix IV: Comments from the Federal Communications Commission: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Industry Stakeholders Contacted: 

Table 2: USF Programs: 

Table 3: FCC's High-Cost Program Performance Goals and Measures: 

Figures: 

Figure 1: States with High-Cost Service Programs, as of February 2014: 

Figure 2: Connect America Fund Support Mechanisms: 

Figure 3: Connect America Fund Phase I Disbursements for Rounds 1 and 
2 and Promised Deployment: 

Figure 4: States That Changed Their High-Cost Service Programs Wholly 
or in Part Because of FCC's Universal Service Fund's Transformation 
Order Reforms, as of February 2014: 

Abbreviations: 

CAF: Connect America Fund: 

CCA: Competitive Carriers Association: 

Comptel: Competitive Communications Association: 

ETC: eligible telecommunications carrier: 

FCC: Federal Communications Commission: 

GB: gigabyte: 

Gbps: 1 billion bits per second: 

kbps: 1,000 bits per second: 

Mbps: 1 million bits per second: 

NARUC: National Association of Regulatory Utility Commissioners: 

NASUCA: National Association of State Utility Consumer Advocates: 

NCTA: National Cable and Telecommunications Association: 

NECA: National Exchange Carrier Association: 

OMB: Office of Management and Budget: 

USAC: Universal Service Administrative Company: 

USDA: U.S. Department of Agriculture: 

USF: Universal Service Fund: 

USTelecom: United States Telecom Association: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548:  

July 22, 2014: 

Congressional Requesters: 

For many decades, federal policy has called for making affordable 
residential telephone service available to the greatest possible 
number of Americans, a policy known as "universal service." At the 
federal level, the Federal Communications Commission (FCC) manages the 
collection and disbursement of funds to support universal service 
through its Universal Service Fund (USF), which includes programs 
designed to ensure access to affordable communications for schools, 
libraries, health care providers, and rural, high-cost, and low-income 
consumers. The USF programs are funded through mandatory payments from 
companies providing telecommunications services, and companies usually 
make these payments by passing the costs onto consumers as a line item 
fee on their telephone bill. Since 1998, USF has distributed about $90 
billion to telecommunications carriers in all 50 states, the District 
of Columbia, and all U.S. territories. Some states also collect funds 
from consumers for state universal service programs to further support 
carriers and universal service in their state. The USF high-cost 
program, which is the focus of this report, has traditionally targeted 
financial support to rural areas where, according to data from FCC, 
the cost to provide service can be more than three-times greater than 
the cost to provide service in urban areas. The support provided by 
the high-cost program has allowed carriers to charge rural customers 
lower rates than would otherwise be available to them. Since 2001, the 
high-cost program has grown substantially, increasing the annual 
amount of money collected from consumers and disbursed to carriers by 
73 percent, from $2.6 billion in 2001 to $4.5 billion in 2013. Because 
of its substantial growth, there have been long-standing concerns 
about what the program is accomplishing and the cost burden it imposes 
on consumers.

Recognizing that broadband service is a critical component of the 
nation's infrastructure and a key driver of economic growth, the 
National Broadband Plan provided a road map for FCC to reform the high-
cost program to ensure that all Americans have access to broadband-
capable networks.[Footnote 1] In response to recommendations in the 
National Broadband Plan, FCC issued the USF Transformation Order in 
November 2011, which fundamentally reformed the high-cost program so 
that it could support both telephone and broadband service. [Footnote 
2] Specifically, the USF Transformation Order reforms require carriers 
that receive high-cost support to offer broadband services in their 
supported service areas, meet certain broadband performance 
requirements, and report regularly on associated broadband performance 
measures. FCC also adopted new rules to be used to determine the 
amount of subsidy any carrier would receive and, for the first time, 
capped the fund at $4.5 billion and set limits on the amount of funds 
available to carriers. In April 2014, FCC adopted rules that proposed 
targeted adjustments to the USF Transformation Order.[Footnote 3]

We were asked to provide information on FCC's USF Transformation Order 
reform efforts and on the effects to state universal service funds. 
This report examines (1) the extent to which FCC implemented the 
funding reforms adopted in the USF Transformation Order, and 
stakeholders' views on FCC's efforts, (2) the extent to which FCC is 
collecting data to determine the effectiveness of these reforms and 
how FCC intends to ensure that the data collected will inform current 
and future reforms, and (3) what changes, if any, states have made to 
their state universal service funds since FCC adopted the reforms in 
2011.

In this report, we focused on the high-cost program funding reforms in 
the USF Transformation Order. Although FCC also made changes to 
intercarrier compensation in the USF Transformation Order, we did not 
review FCC's reform efforts related to intercarrier compensation 
because it is governed by a different system of federal and state 
rules than those governing universal service.[Footnote 4] 
Specifically, we focused on four industry-wide reforms and four 
carrier-specific reforms, discussed later in this report. We selected 
these reforms because they were the ones we identified and reported on 
in our 2012 review of the high-cost program.[Footnote 5] To determine 
the extent to which FCC has implemented the reforms, we reviewed the 
USF Transformation Order, other relevant orders, further notices of 
proposed rulemakings, and public notices that FCC issued after 
releasing the USF Transformation Order, and interviewed FCC officials. 
To gather industry stakeholder views on FCC's efforts, we interviewed 
nine associations that represent different types of telecommunications 
carriers, cable providers, state utility commissions, and consumers. 
We identified these associations based on our prior reports as well as 
filings with FCC regarding the USF Transformation Order. To evaluate 
FCC's data collection, analysis, reporting and presentation, and 
efforts to measure program effectiveness, we interviewed FCC officials 
and reviewed FCC documentation and online materials, such as key forms 
FCC uses to collect data from carriers, FCC's broadband and USF 
reports, FCC's performance goals and measures for the high-cost 
program, and FCC's online maps. We compared FCC's efforts with reports 
and guidance we published[Footnote 6] related to program transparency 
and accountability and public data presentation--in particular, our 
findings related to federal data transparency lessons learned and the 
implementation of electronic government provisions--as well as 
relevant material from the Office of Management and Budget (OMB), such 
as its 2012 digital government strategy.[Footnote 7] To understand the 
roles of the Universal Service Administrative Company (USAC) and the 
National Exchange Carrier Association (NECA) with respect to FCC's 
efforts, we reviewed material and interviewed officials from those 
entities.[Footnote 8] To determine what changes states have made, we 
surveyed the state utility commissions of all 50 states and the 
District of Columbia and analyzed the responses. The survey included 
questions about changes states made to their state high-cost programs 
wholly or in part because of FCC's 2011 reforms and how FCC's reforms 
have affected states, among other things. To ensure that our survey 
questions and skip pattern were clear and logical and that states 
could answer the questions without undue burden, we pretested our 
survey with five states: Arkansas, Maine, Maryland, Tennessee, and 
Texas. We selected the pretest states to provide for variation in 
program characteristics and geographic location. We administered the 
survey from January through February 2014 and received a 100 percent 
response rate. Further details on our scope and methodology are 
provided in appendix I and a copy of our survey is provided in 
appendix II.

We conducted this performance audit from August 2013 to July 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

Background: 

Universal Service and the USF High-Cost Program: 

The 1996 Telecommunications Act specified that consumers in "rural, 
insular, and high-cost areas" should have access to telecommunication 
services and rates that are "reasonably comparable" to consumers in 
urban areas.[Footnote 9] USF provides financial support (i.e., 
subsidies) to carriers through four different programs, each targeting 
a particular group of telecommunications users. Appendix III contains 
a list of these programs. One of these programs--the high-cost 
program--provides subsidies to both wireline and wireless 
telecommunications carriers that provide telecommunications services--
including basic (i.e., landline) and wireless (i.e., mobile) service--
in rural, insular, and other remote areas where the costs of providing 
service is high.[Footnote 10] The subsidies are intended to offset the 
carriers' high costs, thereby allowing them to provide services and 
rates that are reasonably comparable to those that consumers in low-
cost--generally urban--areas receive. In 2012, support for the four 
programs totaled $8.7 billion, but the high-cost program accounted for 
almost 50 percent of USF support.

The support a carrier can receive depends on various factors, 
including its status as either the "incumbent" carrier in a given area 
or a competitor and the number of lines it claims in its service area. 
Incumbent carriers are telephone carriers that were in existence when 
Congress passed the 1996 Telecommunications Act and were members of 
NECA, and competitive carriers are carriers that compete with these 
incumbents. These incumbent carriers are further classified as either 
"rural"--generally small carriers serving primarily rural areas--or 
"nonrural"--generally large carriers serving both rural and urban 
areas. Most small rural carriers are subject to rate-of-return 
regulation and are thus referred to as rate-of-return carriers. 
[Footnote 11] These carriers serve 5 percent or less of U.S. 
households. Nonrural carriers are usually larger and subject to price-
cap regulation, and are thus referred to as price-cap carriers. 
[Footnote 12] The price-cap carriers provide service to approximately 
95 percent of households. A carrier's service area is usually the 
service territory where a carrier operates and provides services in 
one state. Service areas are often reported as "study areas" and are 
identified by a "study area code." 

State governments play a role in implementing the federal high-cost 
program, as do other entities. As shown in figure 1, there were 24 
states as of February 2014 that had established high-cost programs to 
further fund carriers and universal service in their states. States 
usually fund their programs through a fee or tax levied directly on 
consumers or, like the federal program, by requiring companies 
providing telecommunications services to make payments, costs that the 
companies are allowed to pass on to consumers.

Figure 1: States with High-Cost Service Programs, as of February 2014: 

[Refer to PDF for image: illustrated U.S. map] 

States with a high-cost service program: 
Alaska; 
Arizona; 
Arkansas; 
California; 
Colorado; 
Georgia; 
Idaho; 
Illinois; 
Indiana; 
Kansas; 
Louisiana; 
Maine; 
Nebraska; 
Nevada; 
New Mexico; 
New York; 
Oklahoma; 
Oregon; 
Pennsylvania; 
South Carolina; 
Texas; 
Utah; 
Washington; 
Wyoming. 

Sources: GAO survey results and Map Resources. GAO-14-587. 

[End of figure] 

While FCC has overall responsibility for the federal high-cost 
program--including making and interpreting policy, overseeing program 
operations, and ensuring compliance with its rules--it delegated 
responsibility for administering the day-to-day operations of the 
program to USAC. State regulatory commissions are primarily 
responsible for determining carriers' eligibility to participate in 
the program by certifying them as eligible telecommunications carriers 
(ETCs).

The USF Transformation Order and April 2014 Report and Order: 

FCC adopted the USF Transformation Order in November 2011 in response 
to recommendations made in the National Broadband Plan. The National 
Broadband Plan determined the minimum speed carriers needed to provide 
consumers in rural and high-cost areas to enable them to use critical 
broadband applications in a manner reasonably comparable to broadband 
subscribers in urban areas. The plan also concluded that millions of 
Americans did not have access to broadband infrastructure and 
recommended, among other things, creating a fund to address broadband 
availability gaps in unserved areas. Finally, the plan recommended 
creating a fund to provide support for deployment of wireless 
networks. Thus in the USF Transformation Order, FCC adopted new rules 
to fundamentally change the high-cost program by extending the program 
to support broadband-capable networks. FCC created the Connect America 
Fund (CAF) and, within CAF, a number of other support mechanisms to 
improve the level of wireline and wireless broadband service available 
in unserved areas. (See figure 2.) FCC set a budget of $4.5 billion 
annually for CAF until 2017, by taking a number of actions, including 
eliminating certain types of support, designing new ways to distribute 
CAF funds to carriers, and setting caps for rate-of-return carriers' 
capital and operating expenses.[Footnote 13] According to the USF 
Transformation Order, the estimates of the funding necessary for CAF 
components and legacy high-cost mechanisms represented FCC's 
predictive judgment as to how best to allocate limited resources at 
that time. In the USF Transformation Order, FCC also established five 
performance goals and three performance measures for the program. (See 
appendix III for a full list of these goals and measures.) 

Figure 2: Connect America Fund Support Mechanisms: 

[Refer to PDF for image: organizational chart] 

Connect America Fund (CAF) ($4.5 billion annual budget): 

CAF support phases[A]: 
* Phase I frozen support[B]; 
* Phase I incremental support ($438 million in one-time support): 
- Round 1; 
- Round 2; 
* Phase II ($1.8 billion)[C]. 

Support to rate-of-return carriers: ($2 billion)[C]. 

Mobility Fund: 
* Phase I ($300 million in one-time support); 
* Tribal Phase I ($50 million in one-time support); 
* Phase II ($500 million, $100 million of which exclusively for tribal 
areas). 

Remote Areas Fund (at least $100 million). 

Source: GAO presentation of FCC information. GAO-14-587. 

[A] CAF Phase I and CAF Phase II funds are for areas currently served 
by incumbents that are price-cap carriers.

[B] Price-cap carriers receive CAF Phase I frozen support until FCC 
implements CAF Phase II.

[C] This amount includes CAF support that carriers receive to replace 
intercarrier compensation. 

[End of figure] 

To assure broadband subscribers the minimum level of service 
recommended in the National Broadband Plan, FCC established public 
interest obligations for all broadband carriers eligible to receive 
high-cost funds. Prior to the implementation of the USF Transformation 
Order, carriers were not required to meet any specific broadband 
performance standards in exchange for receiving high-cost funds. In 
the USF Transformation Order, FCC requires carriers receiving funds to 
provide broadband service to customers at prices reasonably comparable 
to prices charged in urban areas and to meet certain requirements for 
broadband speed, latency, and capacity as described below: 

* Broadband speed is described in download and upload capabilities and 
is measured by the number of bits of data transferred per second and 
includes kilobits per second (1,000 bits per second--kbps), megabits 
per second (1 million bits per second--Mbps), and gigabits (1 billion 
bits per second--Gbps). Download speed refers to the rate at which 
data is transferred from the carrier to the consumer. Upload speed 
refers to the rate at which data is transferred from the consumer to 
the broadband carrier. In the USF Transformation Order, FCC required 
carriers to provide service at the speed of 4 Mbps download and 1 Mbps 
upload. In April 2014, FCC proposed to revise the broadband 
performance obligations to require minimum speeds of 10 Mbps download. 
[Footnote 14]

* Latency is a measure of the time it takes for a packet of data to 
travel from one point to another in the carrier's network and affects 
a consumer's ability to use real-time applications, including 
interactive voice or video communication.[Footnote 15] FCC requires 
carriers to provide service with sufficiently low latency to enable 
use of real-time applications.

* Capacity is the total volume of data sent and/or received by the end 
user over a period of time and is often measured in gigabytes (GB) per 
month.[Footnote 16] Some broadband service providers impose monthly 
data usage limits, restricting users to a pre-determined quantity of 
data, and these limits typically vary between wireline and wireless 
services. FCC requires carriers to offer service with capacity usage 
limits reasonably comparable to usage limit offerings in urban areas.

In April 2014, FCC adopted an order that made targeted adjustments to 
the USF Transformation Order; we refer to this order as the April 2014 
Report and Order. FCC explained the need for the order by noting that 
in the USF Transformation Order, FCC had sought comment on several 
issues related to the continuing implementation of the Connect America 
Fund. The April 2014 Report and Order adopted rules to address several 
of these issues, among other things, as explained below.

Although FCC Has Not Implemented All Funding Reforms Adopted in the 
USF Transformation Order, Stakeholders Generally Supported FCC's 
Reform Efforts: 

FCC Has Implemented Industry-Wide and Some Carrier-Specific Funding 
Reforms: 

FCC has implemented several of the funding reforms it adopted in the 
USF Transformation Order, and the various stakeholder groups we 
contacted were generally supportive of FCC's reform efforts. In 
particular, FCC implemented (1) industry-wide reforms (that is, the 
reforms applied to all carriers receiving high-cost support), (2) CAF 
Phase I, and (3) Mobility Fund Phase I. CAF Phase I and Mobility Fund 
Phase I are carrier-specific reforms that were designed to immediately 
disburse funding to those carriers and spur broadband deployment in 
rural areas.

Industry-Wide Reforms: 

* Eliminating identical support. High-cost support for carriers in 
areas already served by an incumbent, referred to as identical 
support, will be phased out over a 5-year period, ending in 2016. 
Representatives of large carriers told us they supported this reform.

* Eliminating 100 percent overlap. High-cost support for carriers in 
areas where an unsubsidized competitor offers voice and broadband 
service at speeds of at least 4 Mbps download and 1 Mbps upload will 
be phased out over 3 years. Representatives of cable providers told us 
this was one of the best reforms FCC made.

* Establishing a $250 monthly per-line support cap. High-cost support 
for carriers will be capped at $250 per line, per month; support over 
$250 per line per month will be phased out over 3 years for carriers 
above this cap.[Footnote 17] Representatives of consumers and large 
carriers told us they supported this reform.

* Establishing broadband public interest obligations. High-cost 
support will only be provided to carriers that meet FCC's requirements 
for broadband speed, latency, capacity, and price. Most stakeholder 
groups we contacted were supportive of FCC's adoption of public 
interest obligations for all carriers. Representatives of consumers 
supported the public interest obligations, stating that companies 
receiving public money should be providing quality service. 
Representatives of competitive carriers told us this reform was 
absolutely necessary and one of the best reforms FCC made. However, 
representatives of small, rural carriers told us it will be difficult 
for many carriers to achieve the 1 Mbps upload speed requirement 
without more funding to help deploy new infrastructure.

CAF Phase I: 

In CAF Phase I, FCC took two distinct actions: FCC froze the existing 
high-cost support amounts to price-cap carriers, which in 2012 was 
approximately $1.2 billion, and made up to $600 million available in 
additional funding to price-cap carriers to extend broadband-capable 
infrastructure; FCC refers to the additional funding as incremental 
support. Of the $600 million that FCC made available, approximately 
$438 million was disbursed to carriers in two rounds. In round one, 
funding was offered to carriers promising to deploy new infrastructure 
to areas lacking Internet access. Price-cap carriers accepting this 
support were to be paid $775 for each new home, office, or community 
anchor institution to which these carriers deployed 
infrastructure.[Footnote 18] In round two, funding was offered to 
price-cap carriers promising to deploy new infrastructure as well as 
upgrade existing infrastructure. As part of round two, FCC established 
a process whereby parties could challenge whether a location was 
already served by an existing provider and thus ineligible for 
support.[Footnote 19] FCC estimated that the funding under both rounds 
of CAF Phase I would result in the promised deployment of broadband-
capable infrastructure to a total of more than 1.66 million people, as 
shown in figure 3.

Figure 3: Connect America Fund Phase I Disbursements for Rounds 1 and 
2 and Promised Deployment: 

[Refer to PDF for image: illustrated table] 

Funding round: Round 1 (2012); 
Funds disbursed: $114 million; 
Persons served: 385,085; 
Locations served: 147,542; 
States served: 37. 

Funding round: Round 1 (2013-2014); 
Funds disbursed: $324 million; 
Persons served: 1,278,229; 
Locations served: 489,743; 
States served: 43 plus Puerto Rico. 

Funding round: Total; 
Funds disbursed: $438 million; 
Persons served: 1,663,314; 
Locations served: 637,285; 
States served: 45 plus Puerto Rico. 

Source: GAO presentation of FCC information. GAO-14-587. 

[End of figure] 

Stakeholder response to CAF Phase I was mixed. Representatives of 
price-cap carriers told us their members were reasonably satisfied 
with Phase I and viewed it as a sensible program that has worked well, 
while representatives of wireless carriers told us that the Phase I 
support should have been distributed through competitive bidding and 
been open to all eligible carriers, rather than made available only to 
incumbent price-cap carriers.

Mobility Fund Phase I: 

In Mobility Fund Phase I, FCC made $300 million available in one-time 
support to wireless carriers. These funds were made available to 
accelerate high-speed wireless network deployment in areas where 
service would not be deployed without federal support but which could 
be made profitable once the necessary infrastructure had been deployed 
or upgraded. Those wireless carriers wishing to receive Mobility Fund 
Phase I support were asked to indicate the amount of one-time support 
they would require to achieve the defined performance standards for a 
specified number of road miles, in a process FCC refers to as a 
"reverse auction."[Footnote 20] FCC held the reverse auction in 
September 2012 and received 795 winning bids to provide upgraded or 
new service to eligible census blocks containing approximately 84,000 
road miles in 31 states and 1 territory. Representatives of wireless 
carriers were pleased to receive funding for broadband deployment but 
told us that given the increased consumer demand for wireless service, 
they would have preferred to see a larger part of CAF dedicated to the 
Mobility Fund that is made available specifically for wireless carriers.

FCC's Implementation of the More Complex Carrier-Specific Funding 
Reforms Has Been Delayed, and Stakeholders' Views Reflect Varying 
Concerns: 

FCC has encountered delays in implementing the more complex carrier-
specific funding reforms adopted in the USF Transformation Order, and 
stakeholders have voiced concerns about the delays as well as various 
aspects of the reforms. FCC recognized that these carrier-specific 
funding reforms would require extensive cost modeling and input from 
stakeholders and could not be immediately implemented. These reforms 
were intended to establish methodologies to provide funds that would 
enable price-cap, wireless, and rate-of-return carriers to support 
both voice and broadband services. Specifically, the four reforms that 
have not yet been implemented are referred to as (1) CAF Phase II, (2) 
Mobility Fund Phase II, (3) limits on capital and operating expenses 
for rate-of-return carriers, and (4) Remote Areas Fund. As discussed 
below, the stakeholder groups we contacted had concerns with specific 
aspects of the different reforms, depending on a number of factors, 
including whether the stakeholders were incumbents or competitors and, 
if incumbents, whether the stakeholders are regulated as price-cap or 
rate-of-return carriers.

CAF Phase II: 

In designing a mechanism to distribute funds in price-cap territories, 
FCC determined that in CAF Phase II it would provide $1.8 billion 
annually in support to those areas through a combination of a new 
forward-looking cost model and a competitive-bidding process. 
Specifically, FCC planned to develop a model that could be used for 
each census block in high-cost areas to determine the amount of 
support required to extend and sustain a broadband-capable network. 
FCC would offer each price-cap carrier monthly model-based support for 
a period of 5 years in exchange for a state-level commitment to serve 
specified areas within the state that were not served by an 
unsubsidized competitor. If that offer were not accepted, FCC would 
determine support through a competitive-bidding process.

In the USF Transformation Order, FCC planned to have adopted the model 
and the competitive bidding process by the end of 2012 and to have 
begun implementing CAF Phase II by January 2013. However, the reform 
has not yet been implemented. FCC officials cited their efforts to 
gather stakeholder input as the primary factor affecting their ability 
to meet their original deadlines for implementing CAF Phase II. 
[Footnote 21] In particular, FCC held numerous workshops to solicit 
stakeholder input on the model, issued several public notices seeking 
additional comment, released 11 versions of the model, and adopted the 
Phase II cost model in April 2014.[Footnote 22] Following adoption of 
the model, FCC commenced the challenge process to determine the final 
list of census blocks eligible for model-based support.[Footnote 23] 
However, FCC officials told us that the challenge process will take at 
least 90 days; after which time, FCC will make offers to carriers that 
the carriers can either accept or decline. FCC officials do not expect 
carriers to receive Phase II model-based support until the end of 2014 
at the earliest. In addition to the delay described above, FCC has 
also not finalized the specific form of the competitive-bidding 
mechanism it will use if a price-cap carrier declines to accept model-
based support; during the time of our review, FCC officials did not 
provide a date by which they expected this to be complete. In the 
April 2014 Report and Order, FCC proposed to streamline the 
competitive-bidding process to allow non-traditional providers, such 
as cable and satellite providers, to become eligible for support.

Representatives of price-cap carriers noted that although FCC is 
behind on its timelines, the original timelines were quite ambitious 
given the complexity of the reforms being implemented, and noted that 
FCC's rulemaking process can draw out a proceeding. Representatives of 
rate-of-return carriers echoed this observation, noting that building 
cost models was a complex undertaking and could be a significant 
factor in explaining the delays. Wireless carriers and cable providers 
would like FCC to move more quickly to implement CAF Phase II so that 
they can have an opportunity to provide service and receive USF 
support. With regard to the implementation of CAF Phase II, 
representatives of price-cap carriers and consumer groups generally 
did not have concerns with CAF Phase II, while representatives of 
competitive carriers did. Representatives of price-cap carriers told 
us they have generally not been negatively affected by the process 
and, overall, view the reforms positively. Representatives of consumer 
groups told us they hope that changing the fund to support broadband 
will increase the demand for broadband and lead to lower rates, 
particularly in rural areas. However, representatives of competitive 
carriers--primarily cable and wireless providers--were critical of the 
process. While they supported the changes, they would like the process 
to have been more competitively neutral, giving them the opportunity 
to compete for access to CAF funds earlier in the process. The current 
methodology only allows competitors the opportunity to compete for 
funding after the incumbent price-cap carrier has refused to serve an 
area for the amount of support FCC offers. In the USF Transformation 
Order, FCC discussed the solicitation of comments on this issue but 
determined that given the decades-old system currently in place, the 
approach it adopted would best serve consumers in the affected areas.

Mobility Fund Phase II: 

FCC is establishing Mobility Fund Phase II to provide ongoing support 
for wireless services in areas that are not profitable to serve 
without federal support. FCC set the fund amount at $500 million 
annually, up to $100 million of which is to be designated for Tribal 
lands. To implement the reform, FCC is developing a funding 
distribution methodology and determining eligible geographic areas and 
providers. Although in the USF Transformation Order FCC expected to 
implement this reform between July and September 2013, using a reverse 
auction, and to begin disbursing funds in 2014, this reform has not 
yet been implemented. FCC officials stated that because there has been 
rapid private sector expansion of improved mobile broadband service 
since the USF Transformation Order was adopted in 2011, FCC is 
considering retargeting the Mobility Fund Phase II support. In the 
April 2014 Report and Order, FCC sought comment on whether to retarget 
the fund to provide support for a higher level of service.

In commenting on the delays in implementing this reform, in addition 
to FCC's lengthy rulemaking process, representatives of wireless 
carriers noted that implementation has been affected by the changes in 
FCC leadership that have occurred since the USF Transformation Order 
was adopted: these changes include the departure of one Chairman, the 
installation of an interim Chairman, and the replacement of the 
interim Chairman by a newly appointed one. These representatives also 
stated that carriers are reluctant to invest in additional deployment 
until the Mobility Fund Phase II funding mechanism is complete and 
they have a better understanding of the funding they will receive. 
According to these representatives, 39 percent of households now rely 
on wireless telephone service and wireless providers are paying 44 
percent of USF funds, therefore they believe more than $500 million in 
annual funds should have been made available for wireless carriers. 
However, representatives of consumer groups told us they are concerned 
about wireless service becoming a substitute for wireline, given the 
pricing structure for wireless broadband. They said wireless plans 
usually place limits on the amount of data a customer can download and 
when those limits are exceeded, the service can become quite expensive.

Limits on Capital and Operating Expenses for Rate-of-Return Carriers: 

In the USF Transformation Order, FCC adopted a rule to limit the 
reimbursable capital and operating expenses used to determine the 
level of high-cost support for rate-of-return carriers and to maintain 
total funding for rate-of-return carriers at approximately $2 billion 
per year;[Footnote 24] FCC has since reconsidered this reform. Under 
the previous universal service rules, FCC distributed high-cost funds 
to rate-of-return carriers based on their actual costs. Some carriers 
were reimbursed for up to 100 percent of their eligible expenditures, 
faced no FCC-imposed limits, and had no incentive to be more 
efficient. To carry out the new rule, FCC proposed using regression 
analyses to estimate the appropriate levels of capital and operating 
expenses for each rate-of-return study area and to limit expenses 
based on these estimates.

In April 2012, FCC adopted two regression models, one each for 
establishing the capital and operating expense limits of rate-of-
return carriers and put the model in effect in July 2012. Over an 18-
month period ending on December 31, 2013, 107 study areas received 
decreased funding and 769 study areas received increased funding due 
to these limits on capital and operating expenses.[Footnote 25] In 
response to petitions for reconsideration of these models, FCC 
continued to refine the models and, in an order released February 
2013, determined that it would be better to use a single regression 
model for both capital and operating expenses for a service area, 
rather than the two that were originally planned. However, by the end 
of 2013, FCC had not yet determined how to do so. In the April 2014 
Report and Order, FCC concluded that placing caps on the amount of 
support available to rate-of-return carriers had not encouraged new 
investment in broadband capable networks as intended, and FCC 
eliminated the rule. FCC stated in the order that it would continue to 
evaluate alternative ways to ensure that rate-of-return carriers have 
structural incentives to operate efficiently and sought comment on how 
to do so.[Footnote 26]

Representatives of rate-of-return carriers stated that for their 
members, the primary effect of the implementation delays has been the 
increased level of uncertainty and the resulting decreased level of 
investment in broadband infrastructure. They told us that uncertainty 
about future implementation of the caps on rate-of-return carriers' 
expenditures is the primary cause of decreased investment. In our 
prior work, we found that, according to stakeholders, uncertainty 
regarding future USF high-cost support has led some carriers to reduce 
or eliminate broadband infrastructure investment.[Footnote 27] In 
addition, the U.S. Department of Agriculture (USDA) reported in its 
fiscal year 2012 performance report that "the level of uncertainty 
caused by the new USF and intercarrier compensation revisions directly 
impacted the level of demand for the infrastructure loan 
program."[Footnote 28] Regarding the reform itself, representatives of 
rate-of-return carriers told us that their members were critical of 
the imposition of these limits. They said their members believed they 
were being asked to provide more services (i.e., both voice and 
broadband) with less support. While these representatives recognized 
that some changes were needed to increase the efficiency of the fund, 
they believe the methodology outlined in the USF Transformation Order 
is an overcorrection of the problem and have proposed an alternative 
methodology to FCC. On the other hand, representatives of competitive 
carriers supported the reform. FCC noted that in the USF 
Transformation Order, rate-of-return carriers currently receive about 
$2 billion in high-cost program support but serve less than 5 percent 
of the access lines in America; FCC also noted that the reforms for 
rate-of-return carriers are meant to increase incentives for these 
carriers to be efficient in their use of public resources. 
Representatives of three different associations representing 
competitive carriers told us that if the current caps on expenditures 
are not adopted, FCC must design some other mechanism for limiting the 
amount of USF funds going to rate-of-return carriers. Representatives 
of one competitor association told us they believe simply eliminating 
the reform that caps funds for these expenses would be harmful to 
competitors.

Remote Areas Fund: 

In the USF Transformation Order, FCC adopted a reform aimed at 
ensuring availability of affordable voice and broadband services to 
the most remote and hard-to-serve areas where FCC said the cost of 
deploying traditional terrestrial broadband networks is extremely 
high. Under this reform, FCC established an annual budget of at least 
$100 million to ensure that those Americans living in such areas, 
which FCC estimated as numbering less than 1 percent of American 
households, can obtain affordable broadband. In the USF Transformation 
Order, FCC sought comment on how best to implement the Remote Areas 
Fund, and expected to finalize the reform in 2012 with implementation 
in 2013. FCC's Wireline Competition Bureau released a public notice 
seeking further comment on issues related to the implementation of the 
Remote Areas Fund in January 2013.[Footnote 29] However, as of May 
2014, FCC had not yet implemented this reform and FCC officials told 
us this issue was still to be decided. Representatives of cable 
providers told us there is a need for FCC to address this issue and 
establish clear conditions under which these funds will be disbursed.

FCC's Ability to Ensure Current and Future USF Reforms Are Informed by 
Data Is Limited: 

FCC Has Gaps in Data Analysis and Reporting: 

While FCC collects and reports a range of data and information on high-
cost program funding, we have identified gaps in FCC's data analysis 
and reporting that limits its ability to evaluate the program, 
demonstrate its effectiveness, and ensure that the data collected will 
inform current and future reforms. Specifically, FCC is limited by (1) 
a lack of transparency and accountability of high-cost spending and 
(2) poor accessibility and usability of data and information.

Lack of Transparency and Accountability of High-Cost Spending: 

In our prior work, we have concluded that transparency of spending--
that is, reporting the amount spent, who receives the funds, what 
funds are spent on, and the results of that spending--is essential to 
improving accountability.[Footnote 30] Transparency allows policy 
decision makers and the public to access important information--
including information they could use to judge program effectiveness--
and provides opportunities for increased oversight. FCC also 
emphasized the importance of spending accountability in the USF 
Transformation Order. Specifically, the order stated that the billions 
of dollars that the high-cost program disburses each year come from 
American consumers and businesses and that funding recipients must be 
held accountable for how they spend that money.

FCC collects and reports a broad range of data from carriers, and FCC 
and USAC use this data to manage the high-cost program and, according 
to FCC, to ensure accountability; however, FCC has not traditionally 
demonstrated how funds were spent and the results of that funding. FCC 
collects information from carriers on broadband subscription, prices, 
services and speeds offered, unfulfilled requests for service, 
complaints received, and financial information, among other things, 
and requires carriers to certify their compliance with a variety of 
other program requirements.[Footnote 31] FCC reports some of this data 
and other data and information through a variety of mechanisms. For 
example, FCC provides information about Internet access in the United 
States in its Internet access service reports[Footnote 32] and on the 
status of broadband deployment in the United States in its broadband 
progress reports.[Footnote 33] Starting in September 2014, FCC plans 
to use some of the data it collects to populate the National Broadband 
Map.[Footnote 34] FCC also provides information specific to the high-
cost program. The USAC Disbursement Tool contains specific information 
on the amount of high-cost funds disbursed, which interested parties 
can search by year and month, company name, state, study area, or by 
the service provider's USAC identification number.[Footnote 35] FCC 
reports some of this information in its USF monitoring reports. Thus, 
interested parties can use the USAC Disbursement Tool to identify the 
amount of funds carriers received and which carriers received those 
funds. However, parties cannot use any of these reporting mechanisms 
to access information on how carriers used those funds or the results 
of the funding. Representatives of competitive carriers and consumers 
told us FCC should increase all carriers' accountability for their use 
of high-cost funds by providing this type of information.

FCC's current voice and broadband availability performance measures 
also do not demonstrate results of funding because they do not show 
how high-cost funds contributed to the outcomes that are being 
measured. For example, FCC states that it will measure its goal of 
ensuring universal broadband availability by collecting the number of 
new locations that gain access to broadband service. As a measure of 
the program's efficiency, the FCC will measure the change in the 
number of new locations per million of USF dollars spent. However, 
these measures count all locations that gain access through any means, 
not those that gained access specifically through the use of high-cost 
funds. Representatives of competitive carriers said that FCC's 
performance measures do not provide evidence that the high-cost 
program is in any way responsible for improving broadband availability 
and service quality. As a result of not demonstrating how funds were 
spent or what they accomplished, interested parties' ability to hold 
funding recipients accountable for their use of the public's money is 
limited, and it is difficult for consumers to see what they gained 
from the money they paid. Additionally, FCC may lack important 
information that could help it make future policy decisions and 
identify areas for improvement.

Poor Accessibility and Usability of Data and Information: 

OMB's 2012 digital government strategy stresses the importance of 
improving the quality, accessibility, and usability of government 
data.[Footnote 36] For example, the strategy calls for creating, 
managing, and presenting data in customer-centric and user-friendly 
ways. Additionally, we have previously reported on the use of 
government websites that consolidate information in one place, with 
the goal of increasing accountability.[Footnote 37] For example, the 
Federal Funding Accountability and Transparency Act of 2006 required 
OMB to establish a single, searchable website accessible to the public 
that would provide information on government spending.[Footnote 38] 
The website OMB created--usaspending.gov--provides trends over time, 
interactive graphics, and summaries, among other things. Although we 
found that data reliability on these websites could be improved, we 
noted the benefits they provide by making data available in a manner 
that is easy and accessible. Such benefits can help policy decision 
makers and the public use the information in meaningful ways.

FCC has not traditionally presented its broadband and high-cost 
program data and information in a manner that is easy and accessible 
for interested parties to use, or at a geographic level that would 
allow them to draw conclusions about areas subsidized by the program. 
Representatives of competitive carriers told us that it is difficult 
to make connections between the different sources of information and 
draw conclusions about the program's effects. For example, as 
described above, interested parties can find data--reported by census 
block or tract--on broadband access through the relevant reporting 
mechanisms, and data--reported by study area code--on high-cost fund 
disbursements in the USAC Disbursement Tool. However, there is no 
place where an interested party can go to easily see which study area 
codes correspond with which census blocks or tracts to draw 
conclusions about broadband service in areas that were subsidized by 
the high-cost program. Additionally, the USAC Disbursement Tool and 
the USF monitoring reports are comprised almost entirely of lists of 
data. Representatives of competitive carriers and small rural carriers 
said that, rather than presenting a "data dump," FCC should present 
information in a way that makes it easier to interpret. 
Representatives of competitive carriers suggested that FCC use an 
online dashboard format that identifies the carriers that received 
funds, the amount of funds received, what the funds were used for, and 
the results carriers achieved. These representatives noted that FCC 
could update this information regularly and plot it over time. As a 
result of not presenting data in an accessible manner, interested 
parties may find it difficult to use the information in meaningful 
ways, such as by using the information to better assess the program's 
performance, efficiency, and effects in specific areas. In April 2014, 
FCC officials said that FCC is committed to providing broadband and 
USF information in the most user-friendly format possible and that 
they plan to continue to add relevant information to their Connect 
America webpage.[Footnote 39] FCC also acknowledged that the USF 
monitoring reports need to be revamped and is considering ways to 
improve them, including by potentially moving information online.

FCC Has Improved Its Data Collection Efforts, but Has Not Indicated 
What Information Will Be Made Available on a Regular Basis: 

Recently, FCC has made a number of improvements to its data collection 
and presentation that could eventually help it address some of these 
gaps. Most notably, beginning September 2014, FCC plans to collect 
information on broadband deployment from all carriers and, beginning 
July 2014, require all carriers that receive high-cost funds to file 5-
year build-out plans and report progress on those plans in their 
annual reports to FCC and their respective state commissions.[Footnote 
40] In those progress reports, carriers must include: 

* maps detailing their progress towards meeting their planned targets;

* an explanation of how much universal service support they receive 
and how it was used to improve service quality, coverage, or capacity; 
and: 

* an explanation regarding any network improvement targets that have 
not been fulfilled in the prior calendar year.

In November 2012, FCC also began collecting study area boundary data 
from incumbent carriers and is in the process of reconciling overlaps 
and gaps in the submissions. Additionally, FCC presented data on CAF 
and Mobility Fund Phase I funds and potential locations where carriers 
will use those funds in interactive, online maps. FCC's map for the 
first round of CAF Phase I funding allows interested parties to see 
which states received funds, the total amount of funds received in 
that state, and the number of locations, counties, and census blocks 
receiving support.[Footnote 41] The Mobility Fund Phase I map[Footnote 
42] and the map for the second round of CAF Phase I[Footnote 43] 
present similar information. Consumer representatives told us that the 
interactive maps are helpful steps in the right direction and that FCC 
should present more information like this. FCC also presented CAF 
Phase I and other information in its March 2014 report on the impact 
of FCC's reforms on incumbent carriers.[Footnote 44] For example, the 
report provides estimates of the number of people that carriers will 
serve using CAF Phase I funds and compares other information by state 
and by the type of carrier (i.e., price-cap or rate-of-return).

While these are positive steps, FCC has not indicated what high-cost 
program information it will make available on a regular basis in the 
future. As of April 2014, FCC officials said FCC has not decided what 
information it will provide on the results of the funding for CAF 
Phase II, Mobility Fund Phase II, and funds provided to rate-of-return 
carriers, in part due to the fact that final rules regarding the 
reforms have not been finalized. Additionally, while FCC's maps 
presented information on the amount of funds received by state and the 
number of locations, counties, and census blocks receiving support, 
FCC has not decided at what geographic levels it will present 
information in the future. Finally, FCC officials stated that the 
March 2014 report was a one-time report and that as of April 2014, FCC 
did not have plans to produce similar reports in the future. However, 
FCC officials stated that FCC was considering incorporating elements 
of this report into the annual USF Monitoring Report but will likely 
not make decisions about what analysis it will conduct and how it will 
present that information until after September 2014; that is, after 
its first round of new data on broadband deployment and carrier 5-year 
build-out plans and progress reports are due.

Few States Reported Making Changes to Their State High-Cost Service 
Programs Thus Far as a Result of FCC's 2011 USF Reforms: 

Our survey of state utility commissions in all 50 states and the 
District of Columbia showed that few states reported making changes 
thus far to their state high-cost service programs as a result of the 
reforms FCC adopted in the USF Transformation Order.[Footnote 45] Of 
the 24 states that reported having a state high-cost service program, 
only 4 reported making changes to that program either wholly or in 
part because of FCC's reforms. Only one state that reported not having 
a state high-cost service program--Mississippi--said that it had 
pending legislation to create one either wholly or in part because of 
FCC's reforms. In April 2014, this legislation failed to pass and, as 
of May 2014, it is unclear if the legislation will be reintroduced. 
Seven states with a program reported that they are still considering 
making changes wholly or in part as a result of the reforms, and 2 
states that reported not having a program--Missouri and Vermont--
reported that they are studying the need for one. (See figure 4.) 

Figure 4: States That Changed Their High-Cost Service Programs Wholly 
or in Part Because of FCC's Universal Service Fund's Transformation 
Order Reforms, as of February 2014: 

Status of state high-cost service program: 

Legislation to create program pending, or studying need for program: 
Mississippi; 
Missouri; 
Vermont. 

Considering changes to program: 
California; 
Colorado; 
Idaho; 
Illinois; 
Indiana; 
New Mexico; 
Washington. 

Made changes to program: 
Georgia; 
Illinois; 
Washington. 

Sources: GAO survey results and Map Resources. GAO-14-587. 

Note: States and the District of Columbia submitted responses to our 
survey from January through February 2014, thus their responses to our 
survey reflect information up to that time. 

[End of figure] 

Specifically, four states made the following changes to their state 
programs either wholly or in part because of FCC's reforms: 

* Georgia reported that it made changes related to the intercarrier 
compensation portion of FCC's USF Transformation Order reforms. 
[Footnote 46]

* Illinois reported that it took expected changes to federal high-cost 
funding levels into account when setting the state's funding levels, 
among other things. This action was done carrier by carrier; thus, 
funds increased or decreased for each carrier based upon how much 
funding the carrier received from the federal high-cost program.

* Kansas passed legislation prohibiting rate-of-return carriers from 
using state funding to offset any loss in federal universal service 
funding. The legislation also sets a $30 million cap on the state's 
funding to these carriers and phases out competitive ETC support over 
4 years. This law became effective July 1, 2013.

* Washington reported that it is transitioning to a new fund that will 
increase support from about $1 million in 2012, up to $5 million per 
year for 2014 through 2018. Washington also reported that its new fund 
is intended to provide direct support to small incumbent carriers in 
the state to help them adjust to changes resulting from FCC's reforms.

The seven states considering making changes reported prospective 
changes ranging from reconsidering the amount of funds that their 
state's program should provide, to transitioning to a fund that 
supports advanced services. Examples include: 

* California reported that it initiated a rulemaking to consider a 
number of items related to the state's high-cost service program. As 
part of the rulemaking, California is reviewing (1) the amount of 
program funds it should provide in the future, (2) alternative program 
models to consider, and (3) opening the rate-of-return carriers' 
service territories to competition, among other things.

* In May 2014, Colorado passed legislation that creates a new fund to 
support broadband deployment in unserved areas, in addition to the 
state's current high-cost fund. The Colorado Public Utilities 
Commission will be reviewing its program rules to consider a number of 
items.

* Illinois is discussing with interested parties whether and how a 
long-term replacement to its current interim program should account 
for FCC's reforms.

* Indiana considered whether to change its state program shortly after 
FCC released the USF Transformation Order but decided that it needed a 
better understanding of the long-term effects of FCC's reforms on 
Indiana's rural carriers. Thus far, it has not eliminated the 
possibility of changing the program.

* New Mexico is considering a number of changes to its state program. 
As previously described, carriers often pay their contributions to the 
federal and state high-cost programs by charging their customers. 
Among other things, New Mexico is considering establishing a cap on 
the surcharge carriers can charge customers and establishing flexible 
broadband build-out awards that could include mobile broadband 
providers.

Although states cited a wide variety of effects the reforms have had 
on their states, the most frequent responses were that there have been 
no effects yet, that it is too early to tell, or that the implications 
are still unknown. Twenty-one states and the District of Columbia 
reported this response. For instance, Iowa reported that the 
implications of the reforms are still being unveiled as FCC continues 
implementing them, and Oregon reported that it is too early to 
ascertain actual effects, in part due to the legal challenges to FCC's 
reforms.[Footnote 47] The other most frequently reported effects were 
mixed, as follows: 

* Nine states said that the reforms have either reduced carrier 
support in their states or that carriers are concerned about possible 
support reductions.[Footnote 48] For instance, Mississippi reported 
that carriers that invested in facilities with the expectation that 
they would receive funding from the federal high-cost program are 
negatively affected by having that funding reduced.

* Seven states reported that carriers have increased or may increase 
the rates they charge customers for their service, with most of these 
states citing FCC's establishment of a local rate floor that carriers 
that are receiving high-cost support must meet.[Footnote 49] For 
instance, Arizona reported that six companies that received federal 
high-cost funds have increased their rates in each of the last 2 years 
to meet the local rate's floor.

* Six states expressed concern about the effects of the reforms on 
carriers' investment in their state, with another four expressing 
concern over the effects the reforms will have on carriers' ability to 
provide service to their customers. For instance, Montana reported 
that loss of federal high-cost funding has caused wireless carriers to 
stop their deployment of cellular service in remote areas of Montana, 
and Pennsylvania reported that it is concerned that loss of federal 
funding may undermine small carriers' ability to provide service.

* Six states said that the reforms will or could result in additional 
broadband deployment, with most of these citing CAF.

* Four states reported that the reforms could or already have 
increased the demand for funds from their state program. For instance, 
Nevada reported that FCC's reforms have increased the number of 
requests for funding from its state program, and Oklahoma reported 
that FCC's reforms have put more pressure on its state program because 
Oklahoma's statutes permit any reduction in federal high-cost funding 
to be replaced by Oklahoma's state program.

Conclusions: 

In 2011, FCC undertook the difficult task of reforming the high-cost 
program to support broadband service and has made progress 
implementing some of these reforms. As FCC continues to implement its 
reforms, it is important that it be able to empirically evaluate the 
high-cost program, demonstrate its effectiveness, and assess potential 
shortcomings, rather than, as we concluded in our 2012 report, assume 
that the program's subsidies going to carriers are positively 
affecting subscribership without collecting data to support that 
assumption. It is also important, as FCC stated in its USF 
Transformation Order, that funding recipients be held accountable for 
their use of billions of dollars of the public's money. However, FCC 
has a limited ability to evaluate the program, demonstrate its 
effectiveness, or hold funding recipients accountable. In particular, 
FCC does not demonstrate how carriers use the funds they receive or 
the results of that funding because FCC traditionally has not 
collected such data. FCC's current voice and broadband availability 
performance measures also do not demonstrate results because these 
measures do not link the outcomes that are being measured to the high-
cost program itself. Furthermore, FCC has not traditionally presented 
USF data and information in a manner that is easy and accessible for 
interested parties to use or at a geographic level that would allow 
them to draw conclusions about areas subsidized by the program. 
Although FCC officials said that FCC is committed to providing USF 
information in the most user-friendly format possible and is 
considering ways to improve reporting, it nevertheless remains 
difficult for interested parties to use the information in meaningful 
ways, such as by: 

* making connections between the different sources of data,

* drawing conclusions about the program,

* using the data and information to inform policy decision making, and: 

* determining what was gained from the money paid to USF.

By improving the transparency and accountability of USF high-cost 
spending, FCC could better understand the effects of the reforms, 
determine the reforms that were most successful in efficiently 
enhancing broadband availability, service quality, and capacity, 
identify areas for improvement, and ensure the data it collects will 
inform current and future reforms.

In July 2012, we recommended that FCC establish a specific data-
analysis plan for the carrier data the FCC planned to collect related 
to the high-cost program and make the information publicly 
available.[Footnote 50] FCC has not yet developed such a data-analysis 
plan; we continue to believe that this recommendation has merit and 
should be fully implemented to help FCC determine the overall 
effectiveness of the Connect America Fund, as well as improve the 
oversight and transparency of the high-cost program.

Recommendation for Executive Action: 

To improve accountability and transparency of the high-cost program, 
the Chairman of FCC should demonstrate how high-cost funds were used 
to improve broadband availability, service quality, and capacity at 
the smallest geographic area possible, such as by conducting analyses 
of carrier data and publicly reporting this information, at least 
annually, in a manner that is easy and accessible for interested 
parties to use.

Agency Comments: 

We provided a draft of this report to FCC for its review and comment. 
FCC provided written comments (reprinted in appendix IV) and technical 
comments, which we incorporated as appropriate. In its written 
comments, FCC stated that it agreed with our recommendation and noted 
that it will actively seek to improve the transparency and 
accessibility of the data it collects and explore mechanisms to 
present the data in user-friendly formats. For example, to address our 
recommendation, FCC intends to make key statistics available in an 
aggregated form for the general public and report additional data on 
FCC's website so that the information is more accessible. Further, FCC 
stated it intends to analyze, aggregate, and report carrier-submitted 
data on a granular level to permit FCC and the public to determine 
whether carriers are providing broadband in a manner that comports 
with CAF's goals and obligations.

We are sending copies of this report to the FCC Chairman and 
appropriate congressional committees. In addition, the report is 
available at no charge on our website at [hyperlink, 
http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix V. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 

List of Requesters: 

The Honorable Rob Bishop: 
House of Representatives: 

The Honorable Bruce Braley: 
House of Representatives: 

The Honorable Larry Bucshon: 
House of Representatives: 

The Honorable Bill Cassidy: 
House of Representatives: 

The Honorable Howard Coble: 
House of Representatives: 

The Honorable Mike Coffman: 
House of Representatives: 

The Honorable Tom Cole: 
House of Representatives: 

The Honorable K. Michael Conaway: 
House of Representatives: 

The Honorable Tom Cotton: 
House of Representatives: 

The Honorable Kevin Cramer: 
House of Representatives: 

The Honorable Rick Crawford: 
House of Representatives: 

The Honorable Peter DeFazio: 
House of Representatives: 

The Honorable Scott DesJarlais, M.D. 
House of Representatives: 

The Honorable Sean Duffy: 
House of Representatives: 

The Honorable Jeff Duncan: 
House of Representatives: 

The Honorable Blake Farenthold: 
House of Representatives: 

The Honorable John Fleming, M.D. 
House of Representatives: 

The Honorable Cory Gardner: 
House of Representatives: 

The Honorable Chris Gibson: 
House of Representatives: 

The Honorable Sam Graves: 
House of Representatives: 

The Honorable Tim Griffin: 
House of Representatives: 

The Honorable Morgan Griffith: 
House of Representatives: 

The Honorable Brett Guthrie: 
House of Representatives: 

The Honorable Vicky Hartzler: 
House of Representatives: 

The Honorable Richard Hanna: 
House of Representatives: 

The Honorable Doc Hastings: 
House of Representatives: 

The Honorable Jaime Herrera Beutler: 
House of Representatives: 

The Honorable Ron Kind: 
House of Representatives: 

The Honorable Steve King: 
House of Representatives: 

The Honorable Doug Lamborn: 
House of Representatives: 

The Honorable Dave Loebsack: 
House of Representatives: 

The Honorable Billy Long: 
House of Representatives: 

The Honorable Frank D. Lucas: 
House of Representatives: 

The Honorable Blaine Luetkemeyer: 
House of Representatives: 

The Honorable Cynthia Lummis: 
House of Representatives: 

The Honorable Luke Messer: 
House of Representatives: 

The Honorable Markwayne Mullin: 
House of Representatives: 

The Honorable Randy Neugebauer: 
House of Representatives: 

The Honorable Kristi Noem: 
House of Representatives: 

The Honorable Rick Nolan: 
House of Representatives: 

The Honorable Bill Owens: 
House of Representatives: 

The Honorable Steve Pearce: 
House of Representatives: 

The Honorable Ed Perlmutter: 
House of Representatives: 

The Honorable Collin C. Peterson: 
House of Representatives: 

The Honorable Tom Petri: 
House of Representatives: 

The Honorable Jared Polis: 
House of Representatives: 

The Honorable Reid Ribble: 
House of Representatives: 

The Honorable Tom Rice: 
House of Representatives: 

The Honorable Harold Rogers: 
House of Representatives: 

The Honorable Kurt Schrader: 
House of Representatives: 

The Honorable Adrian Smith: 
House of Representatives: 

The Honorable Lamar Smith: 
House of Representatives: 

The Honorable Steve Stockman: 
House of Representatives: 

The Honorable Lee Terry: 
House of Representatives: 

The Honorable Mac Thornberry: 
House of Representatives: 

The Honorable Scott Tipton: 
House of Representatives: 

The Honorable David G. Valadao: 
House of Representatives: 

The Honorable Tim Walberg: 
House of Representatives: 

The Honorable Tim Walz: 
House of Representatives: 

The Honorable Melvin L. Watt: 
House of Representatives: 

The Honorable Peter Welch: 
House of Representatives: 

The Honorable Ed Whitfield: 
House of Representatives: 

The Honorable Steve Womack: 
House of Representatives: 

The Honorable Don Young: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report examines (1) the extent to which FCC implemented the 
funding reforms adopted in the USF Transformation Order, and 
stakeholders' views on FCC's efforts, (2) the extent to which FCC is 
collecting data to determine the effectiveness of these reforms and 
how FCC intends to ensure that the data collected will inform current 
and future reforms, and (3) what changes, if any, states have made to 
their state universal service funds since FCC adopted the reforms in 
2011. In the USF Transformation Order, FCC focused on repurposing the 
USF high-cost program to support broadband; thus, we focused on the 
high-cost program funding reforms in the USF Transformation Order. 
Although FCC also made changes to intercarrier compensation in the USF 
Transformation Order, we did not review FCC's reform efforts related 
to intercarrier compensation. Intercarrier compensation refers to the 
charges that one carrier pays to another carrier to originate, 
transport, and/or terminate telecommunications traffic. The 
intercarrier compensation regimes are governed by a different system 
of federal and state rules than those of universal services; 
therefore, we decided not to review intercarrier compensation. 
Specifically, we focused on four industry-wide reforms and four 
carrier-specific reforms, which we selected because those were the 
funding reforms we identified and reported on during our prior review 
of the high-cost program in 2012.[Footnote 51]

To review the extent to which FCC implemented the funding reforms 
adopted in its USF Transformation Order, we reviewed FCC documentation 
and interviewed FCC officials. Specifically, we reviewed the USF 
Transformation Order to determine the implementation timelines and 
deadlines FCC established. To ascertain steps FCC has taken to 
implement the reforms, whether it clarified or modified its timelines, 
and factors affecting implementation, we reviewed relevant orders, 
further notices of proposed rulemakings, and public notices that FCC 
issued after releasing the USF Transformation Order. We also reviewed 
other FCC documents, such as presentations to stakeholders, press 
releases, statements from FCC Commissioners, and other related items 
provided by FCC officials and on FCC's website.[Footnote 52] We 
interviewed FCC officials from the Wireline Competition Bureau, 
Wireless Telecommunications Bureau, and Office of General Counsel to 
further understand and clarify FCC's actions and the factors affecting 
implementation. We compared FCC's actions to the timelines and 
deadlines it established. To obtain stakeholder views on FCC's 
efforts, we interviewed associations that represent different types of 
telecommunications carriers (such as large and small carriers, 
incumbent and competitive carriers, and wireless carriers), cable 
providers, state utility commissions, and consumers. We also reviewed 
documentation that these associations provided to us, such as comments 
they filed with FCC, studies and reports that they or others 
conducted, and presentations. We identified these associations based 
on our prior reports as well as filings with FCC regarding the USF 
Transformation Order. Table 1 contains a list of the industry 
stakeholders we contacted.

Table 1: Industry Stakeholders Contacted: 

Industry group name: Competitive Carriers Association (CCA); 
Representation: Represents competitive wireless carriers and 
stakeholders. 

Industry group name: Competitive Communications Association (Comptel); 
Representation: Represents competitive communications service 
providers and their supplier partners. 

Industry group name: CTIA - The Wireless Association; 
Representation: Represents wireless carriers and their suppliers, as 
well as providers and manufacturers of wireless data services and 
products. 

Industry group name: National Association of Regulatory Utility 
Commissioners (NARUC); 
Representation: Represents state public service commissions that 
regulate utility services. 

Industry group name: National Association of State Utility Consumer 
Advocates (NASUCA); 
Representation: Represents the interests of utility consumers. 

Industry group name: National Cable and Telecommunications Association 
(NCTA); 
Representation: Represents cable operators, including cable companies 
that provide broadband and digital telephone service.

Industry group name: New America Foundation; 
Representation: Represents the public interest on a variety of issues, 
including technology and communications networks. 

Industry group name: NTCA - The Rural Broadband Association; 
Representation: Represents independent, community-based 
telecommunications companies that serve rural areas and small towns. 

Industry group name: United States Telecom Association (USTelecom); 
Representation: Represents telecommunications service providers and 
suppliers, with members ranging from large publicly traded 
communications corporations to small companies and cooperatives. 

Source: GAO and industry information. GAO-14-587. 

[End of table] 

To evaluate the extent to which FCC is collecting data to determine 
the effectiveness of its high-cost program reforms and how FCC intends 
to ensure that the data collected will inform current and future 
reforms, we reviewed documentation and conducted interviews. 
Specifically, we reviewed FCC documentation and online materials to 
evaluate FCC's data collection, analysis, usage, reporting, and 
presentation, and to learn about changes to these elements. For 
example, we reviewed: 

* key forms that FCC uses to collect data from carriers, such as Form 
477 (Local Telephone Competition and Broadband Reporting), Form 481 
(Carrier Annual Reporting Data Collection Form), Form 499-A (Annual 
Telecommunications Reporting Worksheet), and Form 690 (Mobility Fund 
Phase I Annual Report);

* reports related to broadband and USF, such as the Internet access 
service reports,[Footnote 53] broadband progress reports,[Footnote 54] 
National Broadband Plan,[Footnote 55] FCC's March 2014 report on the 
impact of their reforms on incumbent carriers,[Footnote 56] and its 
USF monitoring reports;

* the USF Transformation Order--including the performance goals and 
measures FCC established for the high-cost program in this order--and 
other relevant orders, further notices of proposed rulemakings, and 
public notices that FCC issued after releasing the USF Transformation 
Order; and: 

* FCC's website overall, and specific material on FCC's website 
related to the reforms, such as the online maps displaying information 
on the first phases of the Connect America Fund and the Mobility Fund, 
and on FCC's efforts to collect data on carriers' service area 
boundaries.

We also interviewed FCC officials, as described above, to learn more 
about their efforts and reviewed other data they provided us during 
these interviews. We also reviewed material from the Universal Service 
Administrative Company (USAC), which is the non-profit corporation 
that administers FCC's USF programs, and interviewed USAC officials. 
For example, we reviewed sample audits of high-cost funding recipients 
and USAC's website, including its online high-cost funding 
Disbursement Tool. We also interviewed officials from the National 
Exchange Carrier Association--a non-profit association established by 
FCC to perform telephone industry tariff filings and revenue 
distributions--to learn about its role in FCC's efforts. We compared 
FCC's efforts with reports and guidance we published[Footnote 57] 
related to program transparency and accountability and public data 
presentation--in particular, our findings related to federal data 
transparency lessons learned and the implementation of electronic 
government provisions--as well as relevant material from the Office of 
Management and Budget (OMB), such as its 2005 assessment of the high-
cost program[Footnote 58] and 2012 digital government strategy. [Footnote 59] We also reviewed our prior reports related to the high-cost program[Footnote 60] and reports from the Congressional Research Service.[Footnote 61] To learn about their views on FCC's efforts, we interviewed the industry stakeholders identified in table 1 above.

To review what changes, if any, states have made to their state 
universal service funds since FCC adopted its high-cost program 
reforms in 2011, we surveyed all 50 states and the District of 
Columbia and analyzed the responses. The survey included questions 
about changes states made to their state high-cost programs wholly or 
in part because of FCC's reforms, changes states are considering 
making, and how FCC's reforms have affected states, among other 
things. See appendix II for a copy of the survey. To ensure that our 
survey questions and skip pattern were clear and logical, that states 
could answer the questions without undue burden, and to obtain 
suggestions, we pretested our survey with five states: Arkansas, 
Maine, Maryland, Tennessee, and Texas. We selected the pretest states 
to provide for variation in program characteristics and geographic 
location. We emailed our survey to staff at each of the state utility 
commissions. We identified contacts to email our survey to with the 
help of NARUC, which is the non-profit, national association that 
represents the state regulatory utility commissions, and took steps to 
verify the contacts NARUC provided. We reviewed the survey responses 
for completeness and, as necessary, sent follow-up emails and made 
follow-up telephone calls to clarify responses. We received responses 
from all 50 states and the District of Columbia, for a 100 percent 
response rate. We administered the survey from January through 
February 2014.

We conducted this performance audit from August 2013 to July 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Copy of Survey to State Utility Commissions: 

United States Government Accountability Office: 
Universal Service Fund's High-Cost Program: 

Introduction: 

The U.S. Government Accountability Office (GAO) is an agency that 
gathers and analyzes information for Congress. Over 60 members of 
Congress requested we explore issues related to the modernization of 
the Universal Service Fund's (USF) high-cost program. In October 2011, 
under the USF Transformation Order (FCC 11-161), the Federal 
Communications Commission (FCC) adopted new rules to fundamentally 
reform the high-cost program, requiring carriers to support networks 
capable of providing both broadband and voice service, and adopting 
new rules to be used to determine the amount of subsidy any carrier 
would receive, For the first time, FCC placed caps on the size of the 
fund and set limits on the amount of funds available for certain types 
of carrier expenses, among other things. These reforms resulted in 
some carriers receiving less finding than in previous years. 

In addition to the federal USF high-cost program, some states have 
also set up a program that targets carriers serving rural or high-cost 
areas in their states. In this survey, we refer to this as a "state 
high-cost service program," though states may have different names for 
their programs. 

As part of our review, we are collecting information from states. This 
survey is being distributed to all 50 state commissions and the 
District of Columbia. We plan to issue a report on this matter later 
this year. 

Completing and Returning the Questionnaire: 

Please complete this short survey within 2 weeks of receipt. We 
understand that there are great demands on your time. However, your 
participation in our study is essential for us to provide the 
requested information to Congress. We appreciate your time and effort 
in completing this survey. 

This questionnaire can be completed by filling it out onscreen using 
MS Word, and returned via e-mail to PadillaN@gao.gov and 
ZearfossN@gao.gov. 

Instructions for Completing the Questionnaire Onscreen: 

* Please use your mouse to navigate, clicking on the field or check 
box you wish to answer.

* To select a check box or a button, click on the center of the box.

* To change or deselect a check box response, click on the check box 
and the 'X' will disappear.

* To answer a question that asks you to write a comment, click on the 
answer box and begin typing. The box will expand as you type.

Start Here: 

1a. Does your stale have a slate high-cost service program that is 
independent or supplemental to the federal USF high-cost program?
Yes: 
No: Skip to Question 4a. 

1b, If yes. how much does your state high-cost service program collect 
annually? Please identify the period upon which the amount is based 
(e.g. January 2012-Decamber 2013. October 2012-September 2013, etc.). 
Please describe in the box below. 

1c. If yes, was your state's high-cost service program created. either 
wholly or in part. as a result of the USF reforms adopted in FCC 11-161?
Yes: 
No: 

2a. Did your state make changes to its high-cost service program 
either wholly or in part because of the USF reforms adopted in FCC 11-
161?
Yes: 
No: Skip to Question 3a. 

2b, If yes. please describe the changes and the reason for the changes 
in the box below. 

3a. Is your state considering making changes to its high-cost service 
program either wholly or in part because of the USF reforms adopted in 
FCC 11-161?
Yes: 
No: Skip to Question 5a. 

3b. If yes, please describe the changes your state is considering and 
the reasons for the changes in the box below. (After you answer, 
please skip to Question 5a) 

4a. If you answered "no" to question la. does your state have pending 
legislation to create a high-cost service program either wholly or in 
part as a result of the USF reforms adopted in FCC 11-161?
Yes: 
No: Skip to Question 5a. 

4b. If yes, in the box below, please explain the reason why your state 
is considering creating a high-cost service program, including why it 
is needed. 

5a. With regard to the federal USF high-cost program, carriers 
receiving money from the fund have to submit cost data to the FCC and 
certify that they have spent the money they received in the previous 
year in the prescribed manner. In the box below, please describe how 
your state commission currently verifies the data carriers provide to 
FCC. 

5b. Is your state planning to make any changes to the way in which it 
currently verifies the data carriers provide to FCC as a result of the 
USF reforms adopted in FCC 11-161?
Yes: 
No: Skip to Question 6. 

5c. If yes, please describe in the box below. 

6. Overall, how, if at all, have the USF reforms adopted in FCC 11-161 
affected your state (such as challenges, benefits, possible 
impacts/effects on carriers and/or consumers, etc.). Please describe 
in the box below. 

7. If you have additional comments on the LISF reforms adopted in FCC 
11-161, please provide them in the box below. These comments will not 
he reported by state but will be aggregated by expressed areas of 
concern. 

8. Please provide your name and contact information in the box below 
in case we have any follow-up questions.
Your Name: 
Title: 
Phone: 
Email: 

Thank You Very Much For Your Assistance!

[End of section] 

Appendix III: Additional Information on USF and the High-Cost Program: 

USF is comprised of four different programs designed to ensure access 
to affordable communications for schools, libraries, health care 
providers, and rural and low-income consumers. One of these programs--
the high-cost program, which is the focus of this report--provides 
subsidies to telecommunications carriers that provide 
telecommunications services in rural, insular, and other remote areas 
where the costs of providing service is high. Table 2 describes the 
four universal service programs and table 3 shows the performance 
goals and measures for the high-cost program in particular.

Table 2: USF Programs: 

Program: High-cost; 
Description: Assists customers living in high-cost, rural, or insular 
areas through financial support to telephone carriers, thereby 
lowering rates for local and long-distance service. 

Program: Schools and libraries; (federal E-Rate program); 
Description: Assists eligible schools and libraries through discounted 
telecommunications and information services. Discounts available for 
local and long-distance telephone service, Internet access, and 
internal connection projects. 

Program: Low income; 
Description: Assists qualifying low-income customers through 
discounted installation and monthly telephone services and free toll 
limitation service. 

Program: Rural health care; 
Description: Assists health care providers located in rural areas 
through discounts for telecommunications and Internet access services. 
Discounts are provided to make rates for facilities in rural areas 
reasonably comparable to those in nearby urban areas. 

Source: GAO based on FCC information. GAO-14-587. 

[End of table] 

Table 3: FCC's High-Cost Program Performance Goals and Measure:

Goal: Preserve and advance universal availability of voice service; 
Measures: FCC will use the telephone penetration rate, which measures 
subscription to telephone service. 

Goal: Ensure universal availability of voice and broadband to homes, 
businesses, and community anchor institutions; 
Measures: FCC will collect the number of residential, business, and 
community anchor institution locations that newly gain access to 
broadband services. As an efficiency measure, FCC will use the change 
in the number of homes, businesses, and community anchor institutions 
passed or covered per million USF dollars spent. 

Goal: Minimize the universal service contribution burden on consumers 
and businesses; 
Measures: FCC will divide the amount of the total inflation-adjusted 
expenditures of the high-cost program and Connect America Fund each 
year by the number of American households and measure it as a monthly 
dollar figure. 

Goal: Ensure universal availability of mobile voice and broadband where 
Americans live, work, and travel; 
Measures: FCC has not yet developed measures for this goal. 

Goal: Ensure reasonably comparable rates for voice and broadband 
services in all regions of the nation; 
Measures: FCC has not yet developed measures for this goal. 

Source: GAO based on FCC information. GAO-14-587. 

[End of table] 

[End of section]

Appendix IV: Comments from the Federal Communications Commission: 

Federal Communications Commission: 
Washington, D.C. 20554: 

July 9, 2014: 

Mr. Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 
Government Accountability Office: 
441 G St, NW: 
Washington, DC 20548: 

Dear Mr. Goldstein: 

Thank you for the opportunity to review the draft Government 
Accountability Office (GAO) Report regarding the Commission's reform 
efforts for the federal universal service (USF) high-cost program. The 
high-cost program is designed to promote the goals of section 254 of 
the Communications Act of 1934, as amended (the Act), that consumers 
in rural and other high-cost areas of the country have access to 
services that are reasonably comparable to those in urban areas, at 
reasonably comparable rates.[Footnote 1] In the USFI/CC Transformation 
Order, the Commission comprehensively reformed and modernized the high-
cost program to ensure that infrastructure capable of delivering voice 
and broadband service, both fixed and mobile, is available to 
consumers throughout the nation.[Footnote 2] The Commission is 
dedicated to achieving the universal service goals of section 254 of 
the Act, and welcomes suggestions on making further improvements to 
the high-cost program. 

GAO's draft report provides an assessment of(1) the Commission's 
implementation of reforms adopted in the USFI/CC Transformation Order 
and stakeholders' views on the Commission's reform efforts; (2)
the Commission's data collection measures to determine the 
effectiveness of these reforms; and (3) the changes, if any, states 
have made to their universal service funds in response to the 
Commission's reforms.[Footnote 3] The draft report recommends that the 
Commission improve the accountability and transparency of high-cost 
funding in the wake of the USF/ICC Transformation Order by 
demonstrating how high-cost funds are being used to improve broadband 
availability, service quality, and capacity, such as by conducting 
analyses of carrier data and reporting the information annually in an 
accessible manner.[Footnote 4] We agree, and already are working on 
initiatives in this area as described below. 

The Commission is committed to improving the data we collect from 
eligible telecommunications carriers (ETCs) receiving high-cost 
support to ensure that this support is advancing our goal of 
preserving and extending service in high-cost areas, to better 
understand the effects of recent reforms, and to inform potential 
reforms in the future. As noted in the draft report,[Footnote 5] ETCs 
are required to file annual reports with the Universal Service 
Administrative Company (USAC).[Footnote 6] Such reports provide the 
Commission and states, U.S. Territories, and Tribal governments with a 
factual basis to determine whether high-cost recipients are using high-
cost support to deploy voice and broadband-capable networks. These 
annual reports were first filed in 2013. Additional information was 
reported for the fIrst time this year. For example, on July 1, 2014, 
rate-of-return carriers were required to me fIve-year plans that show 
how they plan to use the funding they receive to provide voice 
services and extend broadband service in their study areas,[Footnote 
7] and they will be required in future years to fIle progress reports 
for these plans. Initial disbursements of Mobility Fund Phase I 
support were paid during 2013, and in 2014, recipients of such support 
will me their fIrst annual reports providing coverage data to show how 
support was used.[Footnote 8] 

Under Commission direction, USAC has produced a preliminary data 
analysis plan, and we will be working to refIne that plan in the 
months ahead and analyze the data that has been submitted in the annual
reports. This is a core component of our ongoing efforts to hold ETCs 
accountable for their use of high-cost support. 

The Commission also is actively seeking ways to improve the 
transparency and accessibility of the data we collect. For example, we 
intend to make key statistics derived from information contained in the
annual reports available in an aggregated form for the general public. 
We are working to report more data on the Commission's website so that 
it is more accessible, and we will continue to develop maps that we
will post on the Commission's website that will visually demonstrate 
to the general public where high-cost support is targeted.[Footnote 9] 
Moreover, we are evaluating the content and form of our annual universal
service monitoring report, which historically has been the primary 
vehicle for providing universal service-related data to the 
public.[Footnote lO] For example, we intend to incorporate into the 
annual monitoring report some of the new tables that we developed for 
our March 2014 Universal Service Implementation Progress 
Report.[Footnote 11] Throughout this process, we are committed to 
exploring ways to present data in user-friendly ways, as GAO 
recommends. 

Our evaluation and modification of the universal service monitoring 
report will likely be a multi-year process, as we evaluate and 
incorporate the data we receive through the annual reports described 
above, receive user feedback on what information is useful, and begin 
to report on trends over multiple years. 

We also anticipate that other elements of the annual monitoring report 
will evolve and/or be augmented over time as Connect America 
implementation continues. For example, price cap carriers that have 
received Connect America Phase I funding have three years to build out 
broadband networks with this support; entities that receive Phase II 
support will have three years to build out to 85 percent of the 
required locations once they begin receiving support, and five years 
to complete deployments.[Footnote 12] Thus, it will be a number of 
years before Connect America recipients certify that they have met 
these deployment
milestones. Once they meet these milestones, we intend to analyze, 
aggregate, and report this data on a granular level to permit the 
Commission and the public to determine whether carriers are providing
broadband in a manner that comports with the goals and obligations of 
Connect America. 

Once again, we appreciate GAO's recommendations. We agree that the 
Commission should continue to examine and work to improve our 
reporting so that the public can easily monitor whether ETCs are using
high-cost support to accomplish the goals of Connect America. We look 
forward to working with you on this in the future. 

Sincerely, 

Signed by: 

Carol E. Mattey: 
Acting Chief, Wireline Competition Bureau: 
Federal Communications Commission: 

Comment letter footnotes: 

[1] 47 U.S.C. § 254.

[2] Connect America Fund et al., WC Docket No. 10-90 et aI., Report 
and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663 
(2011), aff'd sub nom. In re FCC 11-161, _F.3d _,2014 WL 2142106 (10th 
Cir. May 23,2014) (USF/ICC Transformation Order). 

[3] GAO Draft Report at 12-26. Our comments are limited to GAO's 
assessment of the Commission's implementation of high-cost reforms 
adopted in the USFIICC Transformation Order and the Commission's data 
collection measures to determine the effectiveness of these reforms.

[4] Id. at 27.

[5] Id. at 18.

[6] 47 C.F.R. § 54.313. USAC is the administrator of the federal 
universal service programs. 47 C.F.R. § 54.701. These reports are 
filed using FCC Form 481.

[7] 47 C.F.R. § 54.313(a)(I). Price cap carriers will be required to 
file these reports the July after they begin receiving Phase II 
Connect America model-determined support, which we anticipate will 
occur in 2015.

[8] 47 C.F.R. §54.1009. Although the rule requires Mobility Fund Phase 
I annual reports to be submitted by July 1, for this year the filing 
deadline was moved to July 31, 2014, to allow carriers additional time 
to prepare and submit their coverage data in the specified format. See 
Guidance on Annual Reports and Other Reporting Requirements for 
Recipients of Support Under Phase I of the Mobility Fund (Including 
Tribal Mobility Fund), WT Docket No. 10-208, Public Notice, DA 14-843 
(Wireless Tel. Bur. rel. June 19,2014).

[9] See Connect America Phase II-Initial Eligible Areas Map, 
[hyperlink, http://www.fcc.gov/maps/fcc-connect-america-fundphase-ii-
initial-eligible-areas-map] (last visited July 8, 2014) (identifying 
the areas that have been initially determined to be eligible for 
ongoing Phase II Connect America support). Once we finalize the areas 
that are eligible for ongoing Phase II support, we will release a map 
of those eligible areas.

[10] See Federal Communications Commission, Federal-State Joint Board 
Monitoring Reports, [hyperlink, 
http://www.fcc.gov/encyc1opedialfederal-state-joint-board-monitoring-
reports] (last visited July 2,2014).

[11] Wireline Competition Bureau, Universal Service Implementation 
Progress Report, WC Docket No. 10-90 (rel. Mar. 18, 2014), [hyperlink, 
http://www.fcc.gov/documentluniversal-service-implementation-progress-
report]. The Implementation Report was a one-time report that the 
Commission directed the Bureau to prepare; going forward, we expect to 
report on the progress of implementation through the annual monitoring 
report. 

[12] 47 C.F.R. §§ 54.313(b)(I)(ii), (e)(l). 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov: 

Staff Acknowledgments: 

In addition to the individuals named above, Sally Moino, Assistant 
Director; Pedro Almoguera; David Hooper; Josh Ormond; Nalylee Padilla; 
Amy Rosewarne; Kelly Rubin; and Nancy Zearfoss made key contributions 
to this report.

[End of section] 

Footnotes: 

[1] In 2009, Congress required FCC to develop a broadband plan to 
ensure that every American has access to broadband capability 
including a detailed plan for providing this service at affordable 
rates. American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-
5, § 6001(k)(1), 123 Stat. 115, 515 (2009). In 2010, an FCC task force 
issued the National Broadband Plan, which recommended reforming USF so 
it could support both telephone and broadband service. FCC, Connecting 
America: The National Broadband Plan (Washington, D.C.: Mar. 16, 2010).

[2] FCC, Connect America Fund et al., Report and Order and Further 
Notice of Proposed Rulemaking, 26 FCC Rcd 17663 (2011). There were 
several legal challenges to FCC's authority under the USF 
Transformation Order to use USF monies for deploying broadband-capable 
networks that were resolved in favor of FCC in a court decision by the 
10TH Circuit of the U.S. Court of Appeals. Direct Communs. Cedar 
Valley, LLC v. FCC (In re FCC 11-161), 2014 U.S. App. LEXIS 9637 (10th 
Cir., May 23, 2014).

[3] Connect America Fund et al., Report and Order, Declaratory Ruling, 
Order, Memorandum Opinion and Order, Seventh Order on Reconsideration, 
and Further Notice of Proposed Rulemaking, WC Docket No. 10-90 et al., 
FCC 14-54, 2014 FCC LEXIS 2060 (rel. June 10. 2014).

[4] Intercarrier compensation refers to the charges that one carrier 
pays to another carrier to originate, transport, and/or terminate 
telecommunications traffic.

[5] In our 2012 report, we examined the USF Transformation Order and 
FCC's plans for repurposing the high-cost program for broadband. GAO, 
Telecommunications: FCC Has Reformed the High-Cost Program, but 
Oversight and Management Could be Improved, [hyperlink, 
http://www.gao.gov/products/GAO-12-738] (Washington, D.C.: July 25, 
2012).

[6] For example, see GAO, Federal Data Transparency: Opportunities 
Remain to Incorporate Lessons Learned as Availability of Spending Data 
Increases, [hyperlink, http://www.gao.gov/products/GAO-13-758] 
(Washington, D.C.: Sept. 12, 2013); and GAO, Electronic Government 
Act: Agencies Have Implemented Most Provisions, but Key Areas of 
Attention Remain, [hyperlink, http://www.gao.gov/products/GAO-12-782] 
(Washington, D.C.: Sept. 12, 2012).

[7] OMB, Digital Government: Building a 21st Century Platform to 
Better Serve the American People (Washington, D.C.: May 23, 2012).

[8] USAC is the non-profit corporation that administers USF programs 
under FCC's direction. NECA is a non-profit association established by 
FCC to perform telephone industry tariff filings and revenue 
distributions.

[9] Pub. L. No. 104-104, § 101(a), 110 Stat. 71 (1996).

[10] Wireline carriers are providers of traditional landline 
telecommunications services involving connections to the public 
switched telephone network by wire (or fiber) local loops that 
terminate in fixed locations at customer premises, such as residences. 
Wireless carriers are providers of wireless telecommunications 
services, operating with electromagnetic waves, such as providing 
cellular telephone service.

[11] Rate-of-return regulation is a form of rate regulation wherein 
the carrier is allowed to recover its costs and earn a predetermined 
rate (or profit).

[12] Price-cap regulation is a form of rate regulation wherein the 
carrier may charge rates for regulated services up to an allowable 
cap, which is adjusted based on factors beyond the carrier's control, 
such as inflation.

[13] For more information on the USF Transformation Order, see 
[hyperlink, http://www.gao.gov/products/GAO-12-738].

[14] Connect America Fund et al., Report and Order, Declaratory 
Ruling, Order, Memorandum Opinion and Order, Seventh Order on 
Reconsideration, and Further Notice of Proposed Rulemaking, WC Docket 
No. 10-90 et al., FCC 14-54, 2014 FCC LEXIS 2060 (rel. June 10. 2014).

[15] Data traveling through a network are broken up into packets, each 
of which is independently routed through a network and reassembled at 
the final destination.

[16] A "byte" equals 8 bits.

[17] In the USF Transformation Order, FCC made provision for carriers 
to apply for a waiver if they believed they could not operate under 
these rules.

[18] FCC defines community anchor institutions as schools, libraries, 
medical and healthcare providers, public safety entities, community 
colleges and other organizations that provide support services to 
facilitate greater use of broadband service by vulnerable populations. 

[19] Over 80 interested parties participated in this challenge 
process, and on January 10, 2014, FCC issued an order adjudicating 
these challenges. See Connect America Fund, Order, 29 FCC Rcd 181 
(Wireline Comp. Bur. 2014) (Phase I Challenge Process Resolution Order).

[20] The carrier who submits the lowest bid will receive high-cost 
support to deploy the broadband-capable network in areas for which 
they bid. FCC sometimes refers to this competitive bidding process as 
a "reverse auction" since the lowest bid wins. 

[21] FCC develops regulations (or rules) through a process that is 
largely defined in the Administrative Procedure Act, 5 U.S.C. §553, 
which requires FCC to provide the public with notice of its proposed 
and final rules and offer the public an opportunity to comment as the 
rules are developed.

[22] Connect America Fund et al., WC Docket No. 10-90 et al., Report 
and Order, DA 14-534 (Wireline Comp. Bur. rel. Apr. 22, 2014).

[23] On May 16, 2013, FCC's Wireline Competition Bureau released the 
Phase II Challenge Process Order implementing FCC's requirement that 
CAF Phase II provide an opportunity for interested parties to 
challenge the determination of whether an area is served by an 
unsubsidized competitor, and thus ineligible for the offer of model-
based Phase II support. This order established a process for filing 
challenges and the format in which challenges must be made. See 
Connect America Fund et al., 28 FCC Rcd 7211, Report and Order, DA 13-
1113 (Wireline Comp. Bur. rel. May 16, 2013). On June 30, 2014, FCC 
commenced the Phase II challenge process. Wireline Competition Bureau 
Commences Connect America Phase II Challenge Process, WC Docket Nos. 
10-90, 14-93, Public Notice, DA 14-942 (Wireline Comp. Bur. rel. June 
30, 2014).

[24] Connect America Fund; High-Cost Universal Service Support, WC 
Docket Nos. 10-90, 05-337, Order, DA 12-646, 27 FCC Rcd 4235 (Wireline 
Comp. Bur. rel. Apr. 25, 2012). 

[25] FCC, Universal Service Implementation Progress Report, WC Docket 
No. 10-90, at figure 5 (Mar. 18, 2014).

[26] Connect America et al., WC Docket No. 10-90 et al., Report and 
Order et al., FCC 14-54, paras.127-36 (rel. June 10, 2014).

[27] GAO, Telecommunications: USDA Should Evaluate the Performance of 
the Rural Broadband Loan Program, [hyperlink, 
http://www.gao.gov/products/GAO-14-471] (Washington, D.C.: May 22, 
2014).

[28] USDA, USDA Fiscal Year 2012 Annual Performance Report 
(Washington, D.C.: 2012). USDA's Rural Utilities Service has three 
programs that provide loans for broadband infrastructure projects: the 
Rural Broadband Access Loan and Loan Guarantee program, the Broadband 
Initiatives Program, and the Telecommunications Infrastructure Loan 
Program. 

[29] Wireline Competition Bureau Seeks Further Comment on Issues 
Regarding the Design of the Remote Areas Fund, WC Docket No. 10-90, 
Public Notice, 28 FCC Rcd 265 (Wireline Comp. Bur. 2013).

[30] [hyperlink, http://www.gao.gov/products/GAO-13-758].

[31] FCC collects this information through FCC Form 477 (Local 
Telephone Competition and Broadband Reporting), Form 481 (Carrier 
Annual Reporting Data Collection), and Form 499-A (Annual 
Telecommunications Reporting Worksheet). Not all carriers must file 
all of these forms.

[32] For most recent report, see, FCC, Internet Access Services: 
Status as of December 31, 2012 (Washington, D.C.: December 2013).

[33] For most recent report, see, FCC, Eighth Broadband Progress 
Report, FCC 12-90 (Washington, D.C.: Aug. 21, 2012).

[34] Within the Department of Commerce, the National 
Telecommunications and Information Administration launched the 
National Broadband Map in 2011 in collaboration with FCC. The map 
measures broadband availability in the United States by speed and 
technology type. See broadbandmap.gov. In 2013, FCC assumed 
responsibility for maintaining and updating the map. 

[35] See [hyperlink, http://www.usac.org/hc/tools/disbursements/] 
(accessed Apr. 16, 2014).

[36] OMB, Digital Government: Building a 21st Century Platform to 
Better Serve the American People (Washington, D.C.: May 23, 2012).

[37] For example, see [hyperlink, 
http://www.gao.gov/products/GAO-12-782] and GAO, IT Dashboard: 
Agencies Are Managing Investment Risk, but Related Ratings Need to Be 
More Accurate and Available, [hyperlink, 
http://www.gao.gov/products/GAO-14-64] (Washington, D.C.: Dec. 12, 
2013).

[38] 31 U.S.C. § 6101 note.

[39] See [hyperlink, http://www.fcc.gov/encyclopedia/connecting-
america] (accessed Apr. 16, 2014). 

[40] FCC waived the requirement for 2014 for price-cap carriers to 
file 5-year plans, pending implementation of CAF Phase II. See Connect 
America Fund, WC Docket No. 10-90, DA 14-591 (Wireline Comp. Bur. rel. 
May 1, 2014). 

[41] See [hyperlink, http://www.fcc.gov/maps/connect-america-fund-caf-
phase-i] (accessed Apr. 16, 2014).

[42] See [hyperlink, 
http://apps.fcc.gov/auction901/map/auction_result_ext.html] (accessed 
Apr. 16, 2014).

[43] See [hyperlink, http://www.fcc.gov/maps/connect-america-fund-
phase-i-round-two] (accessed Apr. 16, 2014).

[44] FCC, Universal Service Implementation Progress Report WC Docket 
No. 10-90 (Washington, D.C.: Mar. 18, 2014).

[45] States and the District of Columbia submitted responses to our 
survey from January through February 2014, thus their responses to our 
survey reflect information up to that time unless otherwise specified.

[46] As previously noted, this report does not address FCC's reform 
efforts related to intercarrier compensation.

[47] As noted earlier, the legal challenges to FCC's authority under 
the USF Transformation Order were resolved in favor of FCC in a court 
decision by the 10THCircuit of the U.S. Court of Appeals in May 2014. 

[48] Reduced support as a result of the reforms could be due to a 
variety of reasons, including, as previously described, the 
elimination of identical support.

[49] FCC established local rate floors to ensure that universal 
service funding is not subsidizing artificially low local rates in 
rural areas.

[50] [hyperlink, http://www.gao.gov/products/GAO-12-738].

[51] [hyperlink, http://www.gao.gov/products/GAO-12-738]. As this 
report shows, the reforms we focused on were (1) eliminating identical 
support, (2) eliminating 100 percent overlap, (3) establishing a $250 
monthly per line support cap, (4) establishing public interest 
obligations, (5) Connect America Fund Phases I and II, (6) Mobility 
Fund Phases I and II, (7) limits on capital and operating expenses for 
rate-of-return carriers, and (8) the Remote Areas Fund.

[52] For example, see [hyperlink, 
http://www.fcc.gov/encyclopedia/price-cap-resources], [hyperlink, 
http://www.fcc.gov/encyclopedia/rate-return-resources], and 
[hyperlink, 
http://wireless.fcc.gov/auctions/default.htm?job=auction_summary&id=901]
 (accessed Apr. 16, 2014).

[53] For most recent report, see, FCC, Internet Access Services: 
Status as of December 31, 2012 (Washington, D.C.: December 2013).

[54] For most recent report, see, FCC, Eighth Broadband Progress 
Report, FCC 12-90 (Washington, D.C.: Aug. 21, 2012).

[55] FCC, Connecting America: The National Broadband Plan (Washington, 
D.C.: Mar. 16, 2010).

[56] FCC, Universal Service Implementation Progress Report WC Docket 
No. 10-90 (Washington, D.C.: Mar. 18, 2014).

[57] For example, see [hyperlink, 
http://www.gao.gov/products/GAO-13-758], [hyperlink, 
http://www.gao.gov/products/GAO-12-782], and [hyperlink, 
http://www.gao.gov/products/GAO-14-64].

[58] OMB, Program Assessment - Universal Service Fund High Cost 
[hyperlink, 
http://www.whitehouse.gov/sites/default/files/omb/assets/OMB/expectmore/
detail/10004451.2005.html] (accessed Apr. 16, 2014). 

[59] OMB, Digital Government: Building a 21st Century Platform to 
Better Serve the American People (Washington, D.C.: May 23, 2012).

[60] [hyperlink, http://www.gao.gov/products/GAO-12-738]; GAO, 
Telecommunications: FCC Needs to Improve Performance Management and 
Strengthen Oversight of the High-Cost Program, [hyperlink, 
http://www.gao.gov/products/GAO-08-633] (Washington, D.C.: June 13, 
2008); and GAO, Telecommunications: Federal and State Universal 
Service Programs and Challenges to Funding, [hyperlink, 
http://www.gao.gov/products/GAO-02-187] (Feb. 4, 2002).

[61] For example, see Congressional Research Service, Broadband 
Internet Access and the Digital Divide: Federal Assistance Programs, 
RL30719 (Washington, D.C.: July 17, 2013).

[End of section] 

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