TelePacific Requests Review of USAC Audit Decision Reclassifying its Internet Access Service


On January 8, 2010, U.S. TelePacific Corp. (TelePacific) filed a request with the Federal Communications Commission (FCC) for review and reversal of a December 2009 Universal Service Administrative Company (USAC) decision reclassifying its Internet Access service as a Universal Service Fund (USF)-assessable interstate telecommunications service.  TelePacific challenged USACs decision as contrary to the FCCs rules and its 2005 Wireline Broadband Order which identified functionally integrated wireline broadband Internet Access services as information services, beyond the FCCs jurisdiction.

TelePacific argued that USAC incorrectly focused on the T-1 facilities the company used to provide its Internet Access service.  According to the Request, because TelePacific failed to offer T-1 transmission on a stand-alone basis, its service qualified as a functionally integrated wireline broadband Internet Access service.   Further, TelePacific disputed USACs ignorance of the specifics of its service offerings.  It charged USAC with ignoring the features of its service and instead basing its decision on the traditional functionality of T-1s.

Additionally, because USACs decision substantively affects providers contribution obligations, TelePacific contended that USAC exceeded its authority in making the determination.  Finally, TelePacific challenged USACs decision as contrary to the requirement that the USF be administered in a competitively neutral way.  It reasoned that the decision would competitively harm providers offering broadband Internet Access through T-1s which would be required to remit substantial USF fees as against providers offering Internet Access through non-USF-assessable services such as cable, DSL and fiber-based technologies.

Client Advisory

TelePacifics request follows a recent petition submitted by Grande Communications Networks, LLC in which the company disputed USACs attempted reclassification of its DSL-based Internet Access service from an information service to a telecommunications service.  This request makes clear that confusion as to the types of Internet Access services subject to USF fees remains widespread.  It further underscores the need for FCC clarification of its 2005 Wireline Broadband Order.

A decision on the questions presented by the TelePacific and Grande Petitions may have a material impact on how providers report revenue from a variety of services and/or facilities used to access the Internet.  Important to note is that an FCC decision will also impact providers of Voice over IP telephone services, included IP-PBX and hosted VoIP, to the extent a customer accesses the VoIP service through a facility deemed either an information or telecommunications service.  For these reasons, clients are urged to closely monitor the TelePacific and related proceedings.  Clients with questions about this Advisory should contact Jonathan Marashlian at or 703-714-1313.

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