1. BROADBAND COMMUNITIES ECONOMIC DEVELOPMENT SUMMIT 2014 SEPTEMBER 16, 2014 Sean Stokes (sstokes@baller.com) Casey Lide (casey@baller.com) The Baller Herbst Law Group, PC Washington, DC (202) 833-5300 www.baller.com KEY LEGAL AND REGULATORY ISSUES AFFECTING COMMUNITY BROADBAND PROJECTS

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

3. Overview Focus today: Legal and regulatory issues affecting service providers, as such: I.Community Broadband II.Federal Universal Service Program III.Poles & Infrastructure IV.Access to Programming V.E-Rate VI.CAF/RUS: Rural Broadband Experiments

4. I.Community Broadband: State Barriers To Public Entry Nixon v. Missouri Municipal League (2004): “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” Telecom Act § 253(a)“No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” Telecom Act § 253(a) “any entity” in § 253(a) not clear enough to preempt state barriers with regard to political subdivisions, but“any entity” in § 253(a) not clear enough to preempt state barriers with regard to political subdivisions, but Not a ruling on the merits of public entryNot a ruling on the merits of public entry Municipalities have “respectable position”Municipalities have “respectable position” FCC “minced no words” in “denouncing” MO lawFCC “minced no words” in “denouncing” MO law Does not apply to private entities, including coopsDoes not apply to private entities, including coops

5. Barriers To Public Entry State “barriers” today (not necessarily “prohibitions”): AL, AR, CA, CO, FL, LA, MI, MN, MO, NC, NE, NV, PA, SC, TN, TX, UT, VA, WA, WI Broad based public-private sector support has helped recast the debate away from public v privateBroad based public-private sector support has helped recast the debate away from public v private From 2005-2010 most efforts at barriers defeated, 2011-2013 laws in NC and SC but defeated in GAFrom 2005-2010 most efforts at barriers defeated, 2011-2013 laws in NC and SC but defeated in GA 2014 new efforts KS, IN, UT, but pro bill in TN2014 new efforts KS, IN, UT, but pro bill in TN

6. SECTION 706 -- PETITIONS 706(b) requires the FCC to determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If not the FCC “shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.” Verizon Corp. v. Federal Communications Commission, 740 F.3d 623 (D.C. Cir. 2014) – Dissenting Judge raises possibility of Section 706 removing barriers to municipal broadband FCC Chairman Wheeler makes speech stating that he will use Section 706 to remove barriers to municipal broadband Chattanooga, TN and Wilson, NC have filed 706 petitions to preempt state barriers.

7. Community Broadband: Authority Issues Barriers v. Authority Federal law encourages, but does not authorizeFederal law encourages, but does not authorize National Broadband Plan – encourages community broadbandNational Broadband Plan – encourages community broadband Public entities must have state/local authorityPublic entities must have state/local authority State laws, interpretations, procedures differ widelyState laws, interpretations, procedures differ widely Dillion’s Rule v. Home RuleDillion’s Rule v. Home Rule Service-by-service (cuts both ways)Service-by-service (cuts both ways) Charters, ordinances, finance laws and instruments, pole agreements, franchises, contracts, tax issues, etc.Charters, ordinances, finance laws and instruments, pole agreements, franchises, contracts, tax issues, etc.

8. Service Specific Regulations Communications Act and State counterpartsCommunications Act and State counterparts Separate “silos” for telecom, cable, wireless, and “enhanced” or “information services”Separate “silos” for telecom, cable, wireless, and “enhanced” or “information services” Each has its own history, policies, definitions, benefits, burdens, FCC rulings, court decisions, constituenciesEach has its own history, policies, definitions, benefits, burdens, FCC rulings, court decisions, constituencies Convergence: Technological + Corporate + MarketConvergence: Technological + Corporate + Market For authority and compliance, it’s critical to know how an activity is classified for regulatory purposes. For authority and compliance, it’s critical to know how an activity is classified for regulatory purposes.

9. Business Models Range of business models extends from infrastructure provider to retail service provider, each with escalating costs/ rewards and regulatory compliance obligations Pure infrastructure -- Poles, street lights, towers and dark fiberPure infrastructure -- Poles, street lights, towers and dark fiber Governmental entitiesGovernmental entities Private carriagePrivate carriage BroadbandBroadband Wholesale carriage (private or common carrier)Wholesale carriage (private or common carrier) Video ServicesVideo Services Telecommunications ServicesTelecommunications Services Public/Private ventures both insolate and create more challengesPublic/Private ventures both insolate and create more challenges

10. Incumbent Challenges Whatever services/model is chosen, anticipate a challengeWhatever services/model is chosen, anticipate a challenge CasesCases Bristol, VA (telecom) -- Victory Bristol, VA (cable) -- Loss (but then corrective state law) Lafayette, LA – Victory Portland, OR -- Victory North Kansas City, MO -- Victory Truckee-Donner PUD, CA – Victory Chattanooga, TN -- Victory UTOPIA, UT – Settled Anticipate anticompetitive practices Anticipate anticompetitive practices

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

12. USP: The Basics Providers of “interstate” and “international” “telecommunications,” “telecommunications service,” or “interconnected VoIP” may need to file reports and pay a universal service “contribution” based on % of assessable gross revenues from the provision of such services to “end users.”Providers of “interstate” and “international” “telecommunications,” “telecommunications service,” or “interconnected VoIP” may need to file reports and pay a universal service “contribution” based on % of assessable gross revenues from the provision of such services to “end users.” Contribution factor announced each quarter, ranging from 12% - 17%.Contribution factor announced each quarter, ranging from 12% - 17%.

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

14. “Telecommunications” & “Telecommunications Service” “ The term “telecommunications” means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.” “The term “telecommunications service” means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.” 47 C.F.R. 54.5

15. “Telecommunications” & “Telecommunications Service” (continued) Dark fiber, by definition, does not include the transmission of information, which is an essential part of the definition of “telecommunications”Dark fiber, by definition, does not include the transmission of information, which is an essential part of the definition of “telecommunications” Key implications for providers of “telecommunications service”:Key implications for providers of “telecommunications service”: Must file 499-A when begin service, even if de minimis revenues, so potential retroactive penalties, etc.Must file 499-A when begin service, even if de minimis revenues, so potential retroactive penalties, etc. Telecommunications Service providers not eligible for some important exemptionsTelecommunications Service providers not eligible for some important exemptions

16. Internet Access and “Information Services” “Information services” are exempt from USP“Information services” are exempt from USP Internet access service = “telecommunications” + “information service”Internet access service = “telecommunications” + “information service” Therefore, Internet access service = exempt from USPTherefore, Internet access service = exempt from USP Internet transport may not be exempt…Internet transport may not be exempt…

17. Internet Access vs. Internet Transport Internet transport = “telecommunications”Internet transport = “telecommunications” Providing only “telecommunications” or also “information service” along with it?Providing only “telecommunications” or also “information service” along with it? DNS lookup? Managing IP addresses?DNS lookup? Managing IP addresses? Who is the “ISP,” from the customer’s perspective?Who is the “ISP,” from the customer’s perspective?

18. Internet Transport Internet transport = “telecommunications,” BUT:Internet transport = “telecommunications,” BUT: Assessable under USP only if offered on a “common carrier” basis. Internet transport provided on a private carriage basis is not subject to assessment.Assessable under USP only if offered on a “common carrier” basis. Internet transport provided on a private carriage basis is not subject to assessment. An illogical relic.An illogical relic.

19. Interconnected VoIP Not regulated under Title II, but treated much like “telecommunications service.”Not regulated under Title II, but treated much like “telecommunications service.” Providers must file Form 499-A, even if would otherwise be exempt (de minimis, etc.)Providers must file Form 499-A, even if would otherwise be exempt (de minimis, etc.) 64.9% “interstate” (or traffic study)64.9% “interstate” (or traffic study)

20. “End User” USP contributions assessed on revenues from “end users”USP contributions assessed on revenues from “end users” “End user” is not necessarily the last purchaser in a chain of distribution.“End user” is not necessarily the last purchaser in a chain of distribution. “End user” includes purchasers of covered service (i.e., telecom, telecom service, VoIP) that does not itself make USP contribution, because it is exempt or has failed to comply.“End user” includes purchasers of covered service (i.e., telecom, telecom service, VoIP) that does not itself make USP contribution, because it is exempt or has failed to comply. A contributing reseller is not an “end user” (more later)A contributing reseller is not an “end user” (more later)

21. “End User” (cont.) Examples: “Telecommunications” sold to a de minimis provider that is exempt from USP because it owes less than $10,000 contributions. Seller must treat de minimis provider as an “end user” and count sales in USP contribution base.“Telecommunications” sold to a de minimis provider that is exempt from USP because it owes less than $10,000 contributions. Seller must treat de minimis provider as an “end user” and count sales in USP contribution base. “Telecommunications” sold to telephone company to provide telephone service: telco is not “end user,” as telco must pay into USP. Special conditions discussed later.“Telecommunications” sold to telephone company to provide telephone service: telco is not “end user,” as telco must pay into USP. Special conditions discussed later. “Telecommunications” sold to ISP that uses them to provide exempt “information service.” ISP is an “end user,” but sales may be exempt on other grounds (more later)“Telecommunications” sold to ISP that uses them to provide exempt “information service.” ISP is an “end user,” but sales may be exempt on other grounds (more later)

22. “Interstate” vs. “Intrastate” Nature of the traffic, not just the location of the lineNature of the traffic, not just the location of the line “End to end” principle“End to end” principle Internet, cable traffic inherently “interstate”Internet, cable traffic inherently “interstate” Interconnected VoIP: 64.9%Interconnected VoIP: 64.9% “10 Percent Rule”: “If over 10 percent of the traffic over a … line is interstate, then the revenues and costs generated by the entire line are classified as “interstate.”“10 Percent Rule”: “If over 10 percent of the traffic over a … line is interstate, then the revenues and costs generated by the entire line are classified as “interstate.” USAC’s presumption (currently on appeal) = traffic is interstate in absence of certifications or traffic studiesUSAC’s presumption (currently on appeal) = traffic is interstate in absence of certifications or traffic studies

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

24. Private Carriage vs. Common Carriage Relevant Factors: “Manner in which the provider holds itself out to the public” (advertising?)“Manner in which the provider holds itself out to the public” (advertising?) Does not need to be the public at large to qualify as a common carrier. See State of Iowa v. FCC; Virgin Islands Tel. Corp.Does not need to be the public at large to qualify as a common carrier. See State of Iowa v. FCC; Virgin Islands Tel. Corp. Services offered indiscriminately on same terms and conditions (like a tariff), or individually negotiated?Services offered indiscriminately on same terms and conditions (like a tariff), or individually negotiated? Small set of customers, with little/no turnover?Small set of customers, with little/no turnover?

25. Private Carriage vs. Common Carriage Remember, private carriers that provide “telecommunications” or interconnected VoIP are still subject to USP.Remember, private carriers that provide “telecommunications” or interconnected VoIP are still subject to USP. Common carrier / private carrier inquiry is relevant for Internet transport revenues.Common carrier / private carrier inquiry is relevant for Internet transport revenues.

26. Exemptions De minimis exemption:De minimis exemption: If projected contribution to the USP from end-user revenues for the coming year < $10,000 (~$65,000 gross revenue), a provider of “telecommunications” is exempt from USP reporting and contribution requirements.If projected contribution to the USP from end-user revenues for the coming year < $10,000 (~$65,000 gross revenue), a provider of “telecommunications” is exempt from USP reporting and contribution requirements. A de minimis provider of “telecommunications service” and VoIP must still file Form 499-A to comply with TRS/NANPA/LNP obligations.A de minimis provider of “telecommunications service” and VoIP must still file Form 499-A to comply with TRS/NANPA/LNP obligations.

27. Exemptions Service to only government entities or public safety organizations:Service to only government entities or public safety organizations: Entirely exempt from contribution and reporting obligations.Entirely exempt from contribution and reporting obligations. Exemption unavailable if serve even a single non- governmental entity (including private non-profits)Exemption unavailable if serve even a single non- governmental entity (including private non-profits) Creation of separate entities to handle exempt and non- exempt sales may be an option.Creation of separate entities to handle exempt and non- exempt sales may be an option.

28. Exemptions (continued) Service by non-profit schools, libraries, health care providers and broadcastersService by non-profit schools, libraries, health care providers and broadcasters All are exempt from USP reporting and contribution obligations. Not available to outside providers that serve such entities.All are exempt from USP reporting and contribution obligations. Not available to outside providers that serve such entities.

29. Exemptions (continued) Self-service, system integratorsSelf-service, system integrators A provider whose only customer is itself is exemptA provider whose only customer is itself is exempt This includes buying cooperatives for schools, libraries, etc.This includes buying cooperatives for schools, libraries, etc. System integrators who receive no more than 5 percent of revenue from resale of telecommunications are exempt.System integrators who receive no more than 5 percent of revenue from resale of telecommunications are exempt.

30. Enforcement FCC’s enforcement authorityFCC’s enforcement authority Principal and interestPrincipal and interest Fines and forfeituresFines and forfeitures RetroactivityRetroactivity Asymmetric periods of limitationAsymmetric periods of limitation Appeals before FCCAppeals before FCC Options for addressing past liabilitiesOptions for addressing past liabilities Recent developmentsRecent developments USP “Strike Force”USP “Strike Force”

32. III. Pole Attachments: Federal Pole Attachment Regulations -- 47 U.S.C. § 224 Regulate rates, terms and conditions of access for wired and wireless attachments to utility poles by telecommunications carriers and cable operatorsRegulate rates, terms and conditions of access for wired and wireless attachments to utility poles by telecommunications carriers and cable operators Rules apply to poles, ducts, conduits and ROW owned by investor-owned (private) utilitiesRules apply to poles, ducts, conduits and ROW owned by investor-owned (private) utilities Rates – Two formulas: Cable only (not really); and Telecom. In 2011 the FCC revised Telecom formula to yield essentially same rate as Cable formulaRates – Two formulas: Cable only (not really); and Telecom. In 2011 the FCC revised Telecom formula to yield essentially same rate as Cable formula Access – Prescribed timelines for access to polesAccess – Prescribed timelines for access to poles Cost causer paysCost causer pays

33. YupYupNope

34. What the Federal Attachment Rules Don’t Do Federal rules don’t apply in 21 states that have “reverse” preempted the FCC and regulate at the state level.Federal rules don’t apply in 21 states that have “reverse” preempted the FCC and regulate at the state level. Federal rules don’t apply to municipal or cooperatively owned utilities -- 47 U.S.C. § 224(a)(1)Federal rules don’t apply to municipal or cooperatively owned utilities -- 47 U.S.C. § 224(a)(1) Federal rules don’t provide attachment rights to stand- alone broadband or dark fiber servicesFederal rules don’t provide attachment rights to stand- alone broadband or dark fiber services Federal rules don’t apply to utility fiberFederal rules don’t apply to utility fiber

35. If they want broadband so bad why don’t the municipals just get out of the way and let us build?

36. …OH

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

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

39. IV. Access to Programming The BasicsThe Basics Retransmission ConsentRetransmission Consent The Future: New Modes, New Models, and What Is an “MVPD” Anyway?The Future: New Modes, New Models, and What Is an “MVPD” Anyway?

40. The Basics “Cable service”: “Cable service”: “[T]he term “cable service” means—(A) the one- way transmission to subscribers of (i) video programming, or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service”

41. The Basics “Cable System”:“Cable System”: “[T]he term “cable system” means a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include (A) a facility that serves only to retransmit the television signals of 1 or more television broadcast stations; (B) a facility that serves subscribers without using any public right-of-way …”

42. The Basics “Cable operator”:“Cable operator”: “[T]he term “cable operator” means any person or group of persons(A) who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest in such cable system, or (B) who otherwise controls or is responsible for, through any arrangement, the management and operation of such a cable system”

43. The Basics “Cable operator” must register with FCC“Cable operator” must register with FCC Obtain “community unit ID” (cuid), corresponding to headendObtain “community unit ID” (cuid), corresponding to headend Designation triggers most program access rights and obligations under federal law.Designation triggers most program access rights and obligations under federal law.

44. Retransmission Consent and Must-Carry Broadcast stations elect to be carried on local cable system(s) in one of two ways:Broadcast stations elect to be carried on local cable system(s) in one of two ways: “Must carry”: operator must carry, station receives no $“Must carry”: operator must carry, station receives no $ “Retransmission consent”: operator under no obligation to carry, but station demands $“Retransmission consent”: operator under no obligation to carry, but station demands $ Three year election cycle. Election must be uniform throughout broadcast DMA.Three year election cycle. Election must be uniform throughout broadcast DMA.

45. Retransmission Consent: $$$ 2006: $215 million 2012: $2.4 billion 2018: $6 billion. Source: SNL Kagan

46. Retransmission Consent “Good Faith Negotiation”“Good Faith Negotiation” The Plight of Small Operators:The Plight of Small Operators: Gouged for access to essential programmingGouged for access to essential programming Subject to aggressive “channel tying” demandsSubject to aggressive “channel tying” demands Less favorable terms than big MSOs, but no way to prove it due to aggressively enforced NDA termsLess favorable terms than big MSOs, but no way to prove it due to aggressively enforced NDA terms “Good faith negotiation” means little when parties have disparate bargaining power.“Good faith negotiation” means little when parties have disparate bargaining power.

47. Retransmission Consent No reasonable prognosis of meaningful FCC or Congressional action in the near term.No reasonable prognosis of meaningful FCC or Congressional action in the near term. Some cable operators adding “broadcast TV fee” to subscriber billsSome cable operators adding “broadcast TV fee” to subscriber bills

48. Sports L.A. Dodgers / TWC – SportsNet LAL.A. Dodgers / TWC – SportsNet LA $7B, 25 year deal$7B, 25 year deal Dodger games no longer on free broadcast channels.Dodger games no longer on free broadcast channels. TWC charging other operators $5+ per sub, operators aren’t buying.TWC charging other operators $5+ per sub, operators aren’t buying. ESPN: $5+ per subESPN: $5+ per sub Fox Sports 1, Sports 2Fox Sports 1, Sports 2... Cable rates have skyrocketed over the past 5 years.... Cable rates have skyrocketed over the past 5 years.

49. The Future (???) New modes of video delivery, new partnerships:New modes of video delivery, new partnerships: “Virtual MVPD/headend”, managed service“Virtual MVPD/headend”, managed service Many announcements / partnerships, little change so farMany announcements / partnerships, little change so far FCC proceeding on meaning of “MVPD,” “channel”FCC proceeding on meaning of “MVPD,” “channel” Not clear what a cable operator of the future will look like, nor whether it will be a “cable operator” as currently defined.Not clear what a cable operator of the future will look like, nor whether it will be a “cable operator” as currently defined.

50. Are Cable TV’s Days Numbered? OTT is great for nonlinear, nonscheduled programming (Netflix, etc.)OTT is great for nonlinear, nonscheduled programming (Netflix, etc.) OTT not so great for scheduled programs and events. (Internet was designed for peer-to-peer, not multicast)OTT not so great for scheduled programs and events. (Internet was designed for peer-to-peer, not multicast) Delivery of linear, high-demand video programming might be doable as a managed service, as part of a subscription involving the broadband provider.Delivery of linear, high-demand video programming might be doable as a managed service, as part of a subscription involving the broadband provider. The more things change….The more things change….

51. V. E-Rate The Basics:The Basics: One of four federal communications subsidy programs funded by USP, administered by Universal Service Administrative Company (USAC)One of four federal communications subsidy programs funded by USP, administered by Universal Service Administrative Company (USAC) Federal subsidy (funded by USP) for the provision of “eligible services” (telecom, Internet access and other services) to schools and librariesFederal subsidy (funded by USP) for the provision of “eligible services” (telecom, Internet access and other services) to schools and libraries Subsidy of 20%-90%, based on % of students eligible for National School Lunch ProgramSubsidy of 20%-90%, based on % of students eligible for National School Lunch Program Now, available to virtually any provider (not just “telecommunications carriers”)Now, available to virtually any provider (not just “telecommunications carriers”)

52. E-Rate (continued) Eligible Services:Eligible Services: Connectivity to eligible locations (“Category One”):Connectivity to eligible locations (“Category One”): Connections to schools and libraries, including leased lit and dark fiberConnections to schools and libraries, including leased lit and dark fiber Internet access, regardless of technology.Internet access, regardless of technology. Maintenance eligibleMaintenance eligible Internal connections (“Category Two”)Internal connections (“Category Two”) Distribution of signal within schools, among campusDistribution of signal within schools, among campus LAN/WLAN components, etcLAN/WLAN components, etc Maintenance and managed services eligibleMaintenance and managed services eligible

53. E-Rate (continued) E-Rate Modernization Order (July 11, 2014):E-Rate Modernization Order (July 11, 2014): Expanded support for Wi-Fi within schoolsExpanded support for Wi-Fi within schools Bandwidth targets:Bandwidth targets: Schools:Schools: Short term: 100Mbps/1,000 usersShort term: 100Mbps/1,000 users Longer term: 1Gbps/1,000 usersLonger term: 1Gbps/1,000 users Libraries:Libraries: <50k users: 100Mbps<50k users: 100Mbps >50k users: 1Gbps>50k users: 1Gbps Reorganize ESL, phase out support for legacy services (i.e., voice)Reorganize ESL, phase out support for legacy services (i.e., voice)

54. E-Rate (continued) Leased lit fiber :Leased lit fiber : “[M]onthly charges, special construction and maintenance charges are eligible”“[M]onthly charges, special construction and maintenance charges are eligible” “When lit fiber is leased as a Category One service, the modulating electronics can be included as a part of that eligible service”“When lit fiber is leased as a Category One service, the modulating electronics can be included as a part of that eligible service” Leased dark fiber :Leased dark fiber : Within property line: maintenance and special construction costs are eligibleWithin property line: maintenance and special construction costs are eligible Beyond property line: special construction charges not eligible, maintenance eligibleBeyond property line: special construction charges not eligible, maintenance eligible Modulating electronics generally not eligibleModulating electronics generally not eligible IRU considered a lease of dark fiber. Upfront charges may need to be amortized.IRU considered a lease of dark fiber. Upfront charges may need to be amortized.

55. E-Rate (continued) The Process:The Process: Obtain Service Provider ID (SPIN) via Form 498Obtain Service Provider ID (SPIN) via Form 498 Obtain Form 499 Filer IDObtain Form 499 Filer ID Respond to Form 470 Request for Services and RFP, if applicable (window open November-December)Respond to Form 470 Request for Services and RFP, if applicable (window open November-December) Contract with recipient, file Form 471 (March-April)Contract with recipient, file Form 471 (March-April) Receive Funding Commitment Decision LetterReceive Funding Commitment Decision Letter

56. E-Rate (continued) WARNING: Service providers and recipients should be VERY careful about communicating prior to selection. ANY service provider involvement in school’s/library’s process concerning service requirements and provider selection is taken very seriously, will jeopardize funding, and may lead to serious penalties, including retroactive payment of support.

57. VI. CAF/RUS: Rural Broadband Experiments National Broadband Plan recommended transitioning Universal Service Program from telecom to broadbandNational Broadband Plan recommended transitioning Universal Service Program from telecom to broadband The FCC created the Connect America Fund (CAF) to help make broadband available in high-cost areasThe FCC created the Connect America Fund (CAF) to help make broadband available in high-cost areas CAF Phase I (interim) and Phase II (cost model)CAF Phase I (interim) and Phase II (cost model) CAF to be incentive-based, market-driven, and may include competitive bidding to distribute unclaimed fundsCAF to be incentive-based, market-driven, and may include competitive bidding to distribute unclaimed funds In early 2014, the FCC announced rural broadband “experiments” to test interest in subsidized deployments of broadband at higher than the FCC’s minimum levelsIn early 2014, the FCC announced rural broadband “experiments” to test interest in subsidized deployments of broadband at higher than the FCC’s minimum levels Reached out to non-traditional entities, including municipalities and utilitiesReached out to non-traditional entities, including municipalities and utilities FCC received over 1,000 expressions of interestFCC received over 1,000 expressions of interest

58. CAF/RUS: Rural Broadband Experiments Rural Broadband Experiment Order adopted in July 2014. See http://www.fcc.gov/document/rural-broadband-experiments-orderRural Broadband Experiment Order adopted in July 2014. See http://www.fcc.gov/document/rural-broadband-experiments-order http://www.fcc.gov/document/rural-broadband-experiments-order $100 million budget for experiments in unserved census blocks in “price cap” ILEC markets$100 million budget for experiments in unserved census blocks in “price cap” ILEC markets Relatively modest, but lessons learned may be used for $ billions in subsequent roundsRelatively modest, but lessons learned may be used for $ billions in subsequent rounds Three categories of experiments, 2 in high-cost areas and 1 in extra high-cost areas (details next slide)Three categories of experiments, 2 in high-cost areas and 1 in extra high-cost areas (details next slide) FCC will provide support in equal monthly installments over 10 yearsFCC will provide support in equal monthly installments over 10 years Reverse auction – low bid winsReverse auction – low bid wins Auction closes October 14, 2014Auction closes October 14, 2014

59. CAF/RUS: Rural Broadband Experiments CAF/RUS: Rural Broadband Experiments $100 million is the total amount available to winning bidders over ten years The FCC will distribute each winning project’s share in 120 equal monthly installments Category 1 (Very High Performance): $75 million for projects proposing network capable of delivering 100/25 Mbps in eligible high- cost areas while offering at least one service plan that provides 25 Mbps/5 Mbps to all locations within the selected census blocks ($20M per-project cap)Category 1 (Very High Performance): $75 million for projects proposing network capable of delivering 100/25 Mbps in eligible high- cost areas while offering at least one service plan that provides 25 Mbps/5 Mbps to all locations within the selected census blocks ($20M per-project cap) Category 2 (Minimum Performance): $15 million for projects offering at least 10 Mbps/1 Mbps in high-cost areas ($7.5M per-project cap)Category 2 (Minimum Performance): $15 million for projects offering at least 10 Mbps/1 Mbps in high-cost areas ($7.5M per-project cap) Category 3: $10 million for projects offering at least 10 Mbps/1 Mbps in extremely high-cost areas ($5M per-project cap)Category 3: $10 million for projects offering at least 10 Mbps/1 Mbps in extremely high-cost areas ($5M per-project cap)

60. CAF/RUS: Rural Broadband Experiments Funding is available to a wide range of entities, including utilities, government entities, coops, non-profits, etc.Funding is available to a wide range of entities, including utilities, government entities, coops, non-profits, etc. FCC encourages partnershipsFCC encourages partnerships At least one member of a selected bidder must have or obtain Eligible Telecommunications Carrier (ETC) status from the relevant state or the FCC within 90 days of selectionAt least one member of a selected bidder must have or obtain Eligible Telecommunications Carrier (ETC) status from the relevant state or the FCC within 90 days of selection Entities must comply with all applicable federal, state, and local lawsEntities must comply with all applicable federal, state, and local laws What about potential applicants from states that have barriers to community broadband initiatives?What about potential applicants from states that have barriers to community broadband initiatives? Chattanooga/Wilson proceeding before the FCCChattanooga/Wilson proceeding before the FCC

61. T HE B ALLER H ERBST L AW G ROUP, P.C. 2014 P St NW Suite 200 Washington, D.C. 20036 www.baller.com sstokes@baller.com casey@baller.com