Wireline Competition Bureau Rules That Purchasers of Telecommunications Assets Cannot Contractually Avoid USF Obligations


On April 27, 2010, the Wireline Competition Bureau (“WCB”) denied a request by Alliance Group Services, Inc. (“Alliance”) for review of a prior Universal Service Administrative Company (“USAC”) decision.  Specifically, Alliance sought review of USAC‘s attempt to recover Universal Service Fund (“USF”) contributions based on revenues generated by US Republic, whose customer base Alliance purchased immediately prior to the applicable reporting period.  In questioning USAC‘s actions, Alliance relied on its purchase agreement with US Republic, which provided that US Republic would remain liable for payment of certain regulatory fees subsequent to the transaction.  In its request to the WCB, Alliance asserted that a purchaser cannot be held liable for regulatory fees that the seller contractually agreed to assume — in this case US Republic‘s USF obligations.

The WCB disagreed, stating the regulatory duties “cannot be ‘contracted away.‘”  In other words, the WCB rejected a purchaser‘s ability to shift, by contract, USF payment obligations to the seller.  While the seller remains free to pay USAC in accordance with the parties‘ private agreement, the ultimate responsibility for rendering such payments remains on the purchaser of the assets in the event the seller fails to do so.  The WCB indicated that finding otherwise would require it to “adjudicate claims arising out of private agreements” and directed Alliance to pursue a claim against US Republic in court if it believed US Republic did not fulfill its contractual obligations.

Client Advisory

Entities involved in or seeking to initiate asset purchase agreements with other telecommunications carriers are impacted by this decision.  Unless appealed by Alliance, the WCB‘s decision will stand as precedent for the notion that all buyers of telecommunications assets can and will be held responsible for any unpaid USF obligations incurred by the sellers, despite contractual terms to the contrary.  Notably, the WCB‘s decision tacitly provides USAC‘s instructions addressing this issue with the legal weight of an FCC rule or regulation without undertaking any of the procedural safeguards required prior to implementing administrative regulations.

Clients should monitor this docket and are advised to review the WCB Order (available here).  Clients with questions about the Order or this Advisory should contact Jonathan S. Marashlian at jsm@commlawgroup.comor (703) 714-1313.

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