Photo of C. Douglas Jarrett

With Universal Service Fund outlays approximating $9.0 Billion annually, a contribution factor well above 15% and a declining revenue base, the FCC’s Further Notice of Proposed Rulemaking (“Further Notice”) on USF contribution reform elicited unusually candid responses from services providers and other parties in Comments filed in early July.


Wireless and Wireline carriers expressed concerns with the Universal Service Administrative Company (“USAC”), principally for making unilateral (i) changes to the revenue reporting forms—FCC Forms 499-A and 499-Q without opportunity for public comment, and (ii) service/revenue classification decisions at odds with underlying FCC policies.  This frustration extended to the FCC’s Wireline Competition Bureau for declining to provide guidance, formal or otherwise, on service/revenue classification questions and allowing appeals of USAC contribution decisions to languish for years.  The carriers proposed reforms to address these concerns. The FCC proposal that the contribution factor be adjusted annually was well-received.

As noted by Sprint, the proceeding presents two basic questions (1) how to expand the base of assessable revenues, and (2) how should the current end-user revenue approach be reformed, strongly advocating transitioning to a different approach, preferably connections.  The complexity and challenges of end-user revenues were discussed at length by several parties, including AT&T.

Points of Interest for Enterprise Customers

Revenues-Based Approach Reforms—Proposals to Expand the Base.   The questions of whether and, if so, how to assess high speed Internet access service elicited more comments than any other issue. Almost all parties opposed assessing revenues attributed to the entire cost of this information service, but the proposal to assess the “telecommunications component” of high speed Internet access service and other information services was widely supported by, among others, AT&T, Sprint and rural Wireline carrier associations.  Verizon and the National Cable Television Association were notable dissenters.  Most parties opposed assessing texting revenues.

Consistent with a proposal filed in March of this year, the major Wireline carriers supported the proposal to assess MPLS revenues based on revenue proxies for MPLS access transmission components.  MPLS providers would (1) identify the speed of each access transmission component of their “ MPLS-enabled services” on a customer-by-customer basis; (2) utilize the appropriate MPLS Assessable Revenues Component  (“MARC”)  proxy based on the speed of each access transmission component to determine their USF contribution base; and (3) apply the current USF factor to this contribution base.

IBM filed in support of retaining the so-called systems integrator exemption, noting that it contributes to USF (indirectly) when it purchases telecommunications services that it bundles with its data processing and support services. Among others, BT Americas called upon the FCC to discontinue this exemption.

The proposal to assess USF on all aspects of services bundles comprised of telecommunications services, information services, related offerings, such as data center/collocation and managed services, and CPE elicited largely negative responses.

Transition from End User Revenues Strongly Supported. The larger Wireline and Wireless carriers supported moving to either numbers or connections.  Among others, Comcast supported this transition. The Ad Hoc Telecommunications Users Committee offered the most extensive support for a numbers-based approach, noting that a monthly charge of $1.00 per number would be sufficient to fund USF at current levels for the foreseeable future.  On the other hand, prepaid wireless providers and users of Wireless service for telematics/M2M applications did not share the enthusiasm for change in general or to transitioning to numbers generally.

Moving  Forward. The threshold consideration is the FCC’s timeline for developing a decision on these complex issues.  Interestingly, the FCC denied a request to extend the deadline for filing Reply Comments, suggesting that the FCC staff wants to move the proceeding along.