On October 19, 2010, the Wireline Competition Bureau of the Federal Communications Commission (“Bureau”) released an order granting in part Network Enhanced Telecom, LLP‘s (“Network IP”) request for review of a 2008 Universal Service Administrative Company (“USAC”) audit classifying its revenues as USF-assessable prepaid calling card revenues, and requiring Network IP to reclassify certain wholesale revenues as end-user revenues because its customers failed to provide adequate resale certifications.

Network IP argued that its platform offering neither incorporates traditional prepaid calling card service features nor functions as a finished retail product.  Instead, Network IP sells a web-based software program to prepaid calling card providers that enables them to provision an integrated prepaid calling card service.  Network IP also challenged USAC‘s rejection of resale certificates on the basis that they lacked 499 Filer IDs and were over one year old.  Network IP argued that the Commission has never codified requirements for verifying reseller status, and as such, the conditions outlined in USAC‘s Form 499-A instructions should be interpreted as permissive rather than mandatory.

The Bureau found that Network IP offered two distinct services — a software platform service and wholesale telecommunications (to the limited extent Network IP resold telecommunications to its software platform customers).  Taken as a whole, however, the Bureau concluded that Network IP‘s finished service did not qualify as a “prepaid calling card service” under FCC rules (as USAC had concluded in its audit) because Network IP neither creates nor sells prepaid calling cards to end-users.

The Bureau, however, rejected Network IP‘s argument that the Form 499-A instructions create permissive steps for verifying reseller status, presumably as it pertains to Network IP‘s “Carrier‘s Carrier Rule” obligations associated with its sale of wholesale telecommunications services to certain software platform customers.  And, the Bureau found that Network IP did not meet the reasonable expectation standard because it failed to provide certain reseller customers‘ 499 Filer IDs, and sanctioned USAC‘s classification of revenues from such customers as end-user revenues.  But, the Bureau agreed with Network IP that USAC‘s failure to accept its resale certificates because they were over one year old was erroneous.

The Bureau remanded the decision to USAC, instructing it to determine whether Network IP incorrectly classified revenues as carrier‘s carrier revenues.  Further, the Bureau directed USAC to reevaluate Network IP‘s contribution liability, and issue new invoices reflecting revised calculations.

Network IP‘s Request for Review is available here: Network IP Request for Review

The Bureau’s Order can be found here:  Network IP Order

Clients with questions about this Advisory should contact the attorney assigned to their accounts.