Article by Thomas K. Crowe, Esq.1

In an initiative launched on April 30, 2012, the Federal Communications Commission ("FCC") is seeking comment on substantially reforming its Universal Service Fund ("USF") contribution methodology.  USF contributions are currently remitted by communications providers and currently are calculated based on revenue information provided by providers via quarterly submissions of FCC Form 499-Q and annual submissions of FCC Form 499-A. The FCC's action, which took the form of a Notice of Further Proposed Rulemaking ("Further Notice"), will likely result in major changes to the USF contribution factor, currently assessed at an alarming 17.4% of a provider's revenues. 

Under various FCC proposals, some providers that are currently exempt from USF contributions may be assessed USF for the first time, while other providers that currently contribute to USF may become exempted from USF contributions or have their assessed contributions lowered. Current exempt companies that may be required to contribute to the USF include:

  • Broadband Internet Access Service Providers.
  • Wholesale Providers.
  • International Only Providers.
  • Enterprise Communications Service Providers (dedicated IP, VPN, WAN).
  • Text Messaging Providers (including SMS and MMS).
  • One-Way VoIP Providers.
  • Machine-to-Machine Service Providers (offering smart meter, smart grid, remote health monitoring, and remote security, etc.).
  • Prepaid Calling Card Distributors and Retailers.
  • Free or Advertising-Supported Services
  • The companies (or services) that are currently assessed USF contributions, but could experience lower USF contributions (or possible exemption) include:
  • Resellers (non-facilities-based).
  • Prepaid Calling Card Providers.
  • Telematics providers, paging providers, wireless prepaid plans, and family wireless plans.

The methodology of how USF contributions are calculated may also change. Currently, a revenue-based system is utilized, but the FCC seeks comment on a number of possible changes to that system, including whether contributions should be made on all telecommunications revenues, instead of only on interstate and international revenues. Additionally, the FCC proposes to incorporate a value-added approach that would eliminate the wholesaler USF exemption and possibly extend USF requirements to prepaid calling card distributors and retailers.

As alternatives to the revenue-based system, the FCC proposes two other potential systems which could drastically affect the amount communications providers contribute to the USF. One proposed system would be based on the number of connections. Under a connections-based system, providers would be assessed based on the number of connections to a communications network provided to customers. Providers would contribute a set amount per connection, regardless of the revenues derived from that connection. Under various proposals, there would be one standard monthly assessment for certain kinds of connections, typically provided to individuals, and a higher standard monthly assessment for higher speed or capacity connections, typically provided to enterprise customers.

The other proposal is a numbers-based system. Under a numbers-based system, in its simplest form, providers would be assessed based on their count of North American Numbering Plan phone numbers. There would be a standard monthly assessment per phone number, such as one dollar per month, with potentially higher and lower tiers for certain categories of numbers based on how these numbers are assigned or used. The monthly assessment per number would be calculated by applying a formula based on the USF demand requirement and the relevant count of numbers, however that term is defined.

Significantly, the Further Notice proposes changes that could affect how companies pass through USF fees to their customers.  One proposed rule would require the customer's invoice to indicate how the USF line item on the customer's bill is calculated. If adopted, this rule could require the invoice to indicate what portion of the customer's bill is subject to the USF assessment.  Another proposal would require disclosure at point-of-sale of the amount of USF assessment that will be on the consumer's bill.  Lastly, the FCC seeks comment on a complete prohibition of recovering USF assessments from customers via a USF line item.

Public comment in the proceeding is due 30 days after publication of the Further Notice in the Federal Register, and replies are due 60 days after publication in the Federal Register. 

For a summary of the proposed rules changes, please see: http://bit.ly/J8eYP8.

Footnote

1. Thomas K. Crowe is a Washington, D.C.-based attorney specializing in communications legal/regulatory matters. He can be reached at (202) 263-3640, via e-mail at firm@tkcrowe.com or through the firm's website at www.tkcrowe.com

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