USF Contribution Reform

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Updated May 2, 2018

Trends in wireline and mobile services strongly suggest a refresh to the FCC Forms 499-A/Q is warranted.  A shift to fewer revenue buckets (reporting categories and lines) consistent with the major services currently being offered to customers could reduce the time for services providers to prepare Forms 499-A, assist USAC staff

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers. This is the second of two entries on enterprise customers and the FCC.

IP Transition. Responding to persistent calls from AT&T, Verizon and CenturyLink, the FCC is in the midst of setting the ground rules for telecom carriers to migrate from copper networks and TDM services to fiber networks and all-IP services, consistent with Section 214 of the Act which requires the FCC to balance carriers’ and end-users’ (residential, SMB and enterprise) interests as carriers seek to discontinue existing services and facilities.
Continue Reading Enterprise Customers and the FCC–Part 2

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As the Federal Government shutdown concludes and Congress takes the necessary steps to avoid a default on the Federal Government’s debts, the Senate is expected to confirm Thomas Wheeler as FCC Chairman and Michael O’Rielly as the Republican replacing former Commissioner Robert McDowell.

With substantial experience in Washington policy and legislative circles, it is anticipated

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Introduction.   In a recent entry, we noted that the FCC had released a Further Notice of Proposed Rulemaking (“Further Notice”), requesting comment on proposals to revise the manner in which it assesses telecommunications carriers (Wireline and Wireless) for Universal Service Fund (“USF”) contributions.  This entry provides a more in-depth look at these proposals; principally, how, if adopted, the proposals could impact enterprise customers.

The FCC has outlined extensive changes to the current, “end-user revenue” approach for determining USF contribution obligations, focusing on currently excluded services and revenue streams.  The Further Notice also proposes two alternative approaches as potential replacements.

What’s at Stake.  The annual revenue requirement for the FCC’s Universal Service Program lies between $8 Billion to $9 Billion.  During the first six months of 2012, the USF contribution factor exceeded 17% of Wireline carriers’ end-user revenues on carriers’ interexchange (interstate and international) services.  For the 3rd quarter, the contribution factor is just below 16%.  USF assessable revenues of Wireless carriers range between 20% to 37.1% of total services charges, excluding texting and data charges.  Reportedly, most Wireless carriers rely on traffic studies to establish what percentage of their traffic is jurisdictionally interstate, rather than rely on 37.1% “safe harbor” set by the FCC.

Carriers recover their USF contributions through surcharges added to customers’ monthly bills.  Depending on the proposals ultimately adopted, business customers could find themselves paying substantially more in USF surcharges.

Why Reform the USF Contribution Rules?  The base of USF assessable revenues is dwindling largely due to the migration to high speed Internet access services (Wireline and Wireless) and IP-based services such as MPLS.  These services are either information services or  do not fall clearly within the statutory definitions of “telecommunications services” or “telecommunications.”  Exclusions and exemptions apply to other revenue streams and/or services.  In addition, the FCC appears to be looking to resolve multiple issues raised in long pending appeals of Universal Service Administrative Company (“USAC”) contribution decisions.

Possible Modifications to the End-User Revenue Approach.  The most significant proposal is to classify the revenues on high speed dedicated Internet access services (residential and business; Wireless and Wireline) and text messaging as USF-assessable; either in their entirety or assessing a set percentage of these revenues.  The FCC also appears intent on clarifying whether MPLS offerings should be subject to USF assessments.Continue Reading A Closer Look at the FCC’s USF Contribution Reform Proposals