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The FCC’s Further Notice of Proposed Rulemaking proposes significant, substantive reforms to the manner in which Universal Service Fund (“USF”) contributions are assessed.

The FNPRM undoubtedly will elicit a blizzard of comments and counterproposals as interested parties assess and respond to the proposed changes. At this juncture, several comments are warranted:

  1. The FCC deserves credit for addressing USF contribution reform. USF compliance has become progressively complex, posing a substantial challenge for new entrants and giving rise to a “mini-tax’ practice for telecom attorneys and accountants. Refreshingly, Commissioner McDowell expressed the widely-held view that the USF contribution base must be broadened and the current, exorbitant contribution factor of 17+% substantially reduced in order for USF to be sustainable.
  2. The FNPRM contemplates an expansion of the base of “assessable services,” such as capturing the “telecommunications” component of high speed Internet access services for business and residential customers and providing clarity for assessing MPLS services. In light of their explosive growth, Wireline and Wireless broadband Internet access services cannot reasonably be excluded from the pool of contributory services.
  3. In addition to proposals to reform the current end-user revenue model, the FNPRM seeks comment on alternative USF assessment mechanisms: one would be based on “connections” and the other, which several stakeholders have advocated in recent years, is a (telephone) “numbers-based” approach. A combination of the two is proposed, as well. The “connections” approach appears unduly complex.
  4. One proposal calls for service providers offering bundles of assessable and non-assessable services, equipment and network management services to contribute to USF based on the cost of the entire bundle or “allocate revenues associated with the bundle consistent with the price it charges for stand-alone offerings of equivalent services or products (with any discounts from bundling assumed to be discounts in non-assessable revenues).” While the FNPRM acknowledges the latter may be unenforceable and an administrative nightmare, the entire proposal is blind to the reality that the major carriers recover their USF contributions from their customers.

Practice Tip—Determine Your USF Burden Baseline.  From a cost management perspective, the FNPRM could shift, rearrange or increase aggregate USF obligations for many enterprise customers. We recommend enterprise customers determine how their carrier(s) currently recover USF surcharges on a service-by-service basis. This breakdown is not routinely provided by carriers and may be overlooked by consultants.