Runaway FCC Regulations: Abating the Ban on Agents

By Technology Channel Sales Professionals

History has countless examples of boom or bust as result of a regulatory change. It was the latter, rumbling down upon a largely unaware segment in our industry, that freight-trained many of us on July 1, 2020. On that day, multiple cable and telco providers ceased paying agents earned commissions for health care customers, and they did so to remain in compliance with new federal regulations.

Our federal government isn’t exactly known for moving like a speeding train, so how did regulatory change roll up on us so quickly? And more importantly, what’s next? Will future restrictions in some other business segments put you on the railroad tracks? If you have a pulse, work in the United States, and are involved in the agent industry, then you work under the auspices of the Federal Communications Commission (FCC). Read on.

How Regulatory Change Works

Most federal policy changes follow a process prescribed by the Administrative Procedures Act (APA), which includes requirements for federal agencies to publish draft new rules, seek public input on such rules, as well as taking such public comments into consideration before issuing an order adopting the final rules. Before the rules become effective, a federal agency has to also undertake a regulatory flexibility analysis on whether the proposed new rules would unduly burden small entities by imposing a significant economic impact. Finally, for the rules to become effective, they must be published in the Federal Register to ensure sufficient notice has been given to the public.

For the rules that led to a cessation of payment on July 1, 2020, the FCC observed all the steps required by the APA, including clear language describing the FCC’s perception that agents were harbingers of bad influence and danger to a fair and open competitive bidding process. Several telcos and their trade association filed comments requesting the language banning agents be removed. However, an unpersuaded FCC marched forward in adopting the rules, without the benefit of fully considering the significant economic impact the prohibition would have on a substantial number of small businesses that make up the community of technology channel sales professionals. These things all happened over the course of several years. But where was our voice? Where was agent nation?

The majority of us are direct sellers. Whether technical, pre-sales, post-sale, account executives, or administrators, we work directly with our customers. We are independent small businesses, and we enjoy getting out on the road to our customers. The majority of us worked in the industry for years at a cable or telco before moving into the independent agent realm. We relish an unfettered capacity to provide the best solutions, irrespective of a single brand’s product limitations. We provide best-in-class solutions and take pride in supporting our customers. Our expertise, our labor and access to multiple competitors provides a unique benefit to our customers.

Back in 2017, all of us were hard at work across the country when this story began. The FCC published a notice requesting comments on third-party consultants working with health care providers who participate in the Rural Health Care Program (“RHC Program” as overseen by the commission). The concern was based upon a single instance of a third-party consultant managing a request for proposal (RFP) for a health care customer and then taking a sales commission from the telco provider to whom it awarded the bid. If you’re shaking your head after reading this and mumbling that this kind of consulting is not what you do, you would not be alone. Unfortunately, opinions and rules were formed based on an overly broad definition of consultant and an uninformed sense of what our agent industry does. The consequence was sweeping.

What came next didn’t consider the …

… many hundreds of small- and medium-sized businesses scattered around the U.S. that utilize the sales commission model as the primary mechanism for generating revenue. It also didn’t take into account the tens of thousands of businesses that benefit from the force-add, zero-cost labor our industry provides to IT departments across the country. The federal regulators weren’t aware of the hundreds of thousands of orders our industry places each year to make moves, adds, changes and disconnects on behalf of our customers outside of the RHC Program parameters. The FCC commissioners didn’t know of us, save what they inaccurately associated to all of us from a single example of duplicitous behavior. While not all of us have deep penetration into the health care vertical, what else could a misinformed impression of our industry by a key federal regulatory agency do to other areas of our industry in the future? Back to the question of standing on railroad tracks.

In the case of health care, a Report and Order was adopted in August 2019 that bans all third-party consultants with a sales commission arrangement from working with health care participants of the RHC Program. New requirements on both health care provider and participating cable/telco provider to certify to that effect were added to the RHC Program fund request and reimbursement forms. When the restriction on agents became effective on July 1, 2020, the majority of agents were unaware they would lose some segments of the health care book of business until well into the second quarter of the same year.

It’s Complicated

As information about the agent ban trickled out through a few agent programs, the situation was further complicated by a lack of shared understanding amongst cable and telco providers regarding the scope and impact of the new rules. Adding to the challenge, the extent of the restriction and base loss also varied as a result of an eligibility expansion and the way in which health care providers are instructed to apply for the federal subsidy.

It’s important to note that the FCC recently began allowing urban hospitals to receive subsidies through the Rural Health Care Program. When filed through a consortium, slightly less than half of an application can be comprised of urban locations. The problem is that consortium filings typically use a naming convention that does not match the customer-of-record billing name for the cable or telco account. At this point in time, the Universal Service Administrative Company (USAC) hasn’t made available a search tool that could identify the billing telephone number or billing account number for a service on an application. What that means is that any location, urban or rural, could be tied into a consortium filing name that doesn’t match the location’s billing account name.

Cable and telco providers receive notification of a location’s participation in the RHC program at the end of the application process. That means a cable or telco provider could have paid an agent commission for the prior year without knowledge of the service’s inclusion into an RHC program filing. In that case, the cable or telco would need to claw back a year’s worth of earned commissions from the agent or refuse to release (reject) the RHC Program subsidy. Further, a billing account number representing a hundred locations could have a single location filing for RHC program funds, and the entire account would be banned from agents. What’s worse, because of differences between the billing account name (where the subsidy is applied) and consortium name (where the funds are sourced), many cable and telco providers have unknowingly continued to pay agent commissions in violation.

We also have examples of service providers that still believe in …

… using the historical definition of rural as the guiding factor on releasing agent commissions. At least one other provider is actively soliciting agents to bring RHC Program customers to them and their agent program, apparently in ignorance of the consultant ban. These inconsistencies in RHC Program compliance directly impact agents. Imagine what would happen if you threw a large rock into a koi pond —  that visual is akin to what would happen in our industry if a single service provider was fined millions of dollars by the FCC’s Enforcement Bureau.

Couldn’t an Agent Simply Ask Its Customer if a Location Was Participating in the RHC Program?

On the surface, this seems reasonable. However, the complexity of the consortium filing makes this challenging. More than 85% of the RHC Program applications are filed by one of two industry consultants with a business focus centered around filing applications for USAC programs. The CEOs of both organizations stated that nearly all filings are now done under consortiums as opposed to a single entity to maximize the subsidy. Much like individuals trust a CPA to make the right combination of deductions on a tax return, the consultants who file applications for the RHC program are mixing and matching locations on a consortium filing to secure the best financial award for their customer. That means neither the health care customer participating in the RHC program nor the selected vendor will likely know which services and locations are included in a consortium filing.

What Can Be Done?

The best solution is education and raising awareness. A lack of data and familiarity were significant causal factors in forming the FCC’s poor impression of our value in the industry. The commission failed to fully understand and adequately consider the different categories of “consultants” or “agents” that work with the health care participants of the RHC Program. Agents in our industry do not work in the same capacity as consultants who administer RFPs or file USAC applications on behalf of health care or E-Rate customers (libraries and schools that receive assistance connecting to information and resources through the internet). Rules applied universally and irrespective of the differentiation will most certainly carry over into other regulatory areas.

This is a larger problem that impacts all agents nationally. In the aftershock of the health care restrictions, several industry veterans came together and formed our first trade association. The Technology Channel Sales Professionals (TCSP) was formed as a nonprofit. Fueled with funds from its founding members, it went to Washington. The TCSP has filed a petition with the FCC and is lobbying the commission to grant an exclusion or waiver on the current restriction for its members. The work done has thus far created an improved understanding of what TCSP agents do vs. various other types of consultants. There have been some recent breakthroughs and confidence is high that more narrow language will once again allow us to work with health care customers.

While our focus right now is primarily on a particular FCC program, we see the need for an industry trade group that represents the interests of direct sellers in Washington, D.C. We also see the value of a sentinel which can provide warning for all areas of our industry and avoid anyone else getting freight-trained in the future. We believe there is value in creating a collective voice for those that make their living as independent agents. If you feel the same way, please stay tuned, and visit us at TCSP.org.

Technology Channel Sales Professionals (TCSP) is an association formed in late 2020 as a regulatory watchdog to fight the FCC regulation banning sales agents from being compensated for their work helping health care customers and their connectivity needs. The association has a LinkedIn group.