Petitions for Review of USAC Audits Highlight Industry’s Hobson’s Choice


Two recent Petitions for Review of USAC contributor audit findings further illuminate the critical importance of revenue allocation practices, policies and documentation thereof when it comes to FCC Form 499 revenue reporting.  The Petitions also reinforce the widely-held perception that USAC is myopically and, at times, unjustifiably focused on reaching conclusions that result in upward adjustments to contribution obligations, almost to the point of being a pre-ordained outcome.  This is the same perception that is almost universally associated with all auditors, whether from the IRS or state taxing authorities, so it should not be surprising that USAC auditors tend to fall into the same camp.  What is troubling for the industry, however, is the undeniable fact that USAC auditors are enforcing unclear rules as if the rules are well-known, easily understood and simple to administer.  When in reality, the rules have neglected to maintain pace with technological developments and the service delivery options spawned by the competitive marketplace.

The Petitions also highlight several trends associated with USAC decision-making.  First, USAC will strictly adhere to the Form 499 Instructions when doing so suits its objectives.  Second, in the audit setting, USAC will broadly interpret FCC rules and precedent when doing so suits its objectives, even though USAC’s charter does not permit USAC to “interpret” rules.  And third, USAC is unafraid to render adverse audit findings based on tenuous interpretations because it can toss the difficult decisions to the FCC simply by putting the aggrieved contributor in the position of having to decide whether to “pay up” or spend money, time and effort pursuing an appeal before the FCC.

In short, the message being expressed in the recent Petitions (and the slew of audit appeals over the past several years) is that extreme conservatism in the interpretation and application of 499 Instructions, FCC rules and precedent is necessary to mitigate risk associated with a USAC audit.  The alternative to extreme conservatism is adherence to the underlying FCC rules, regulations, precedents and policies, but with the constant knowledge that vindication of your position may have to await a full and fair review by the FCC on appeal; all while having to stave off enforcement of USAC’s “Pay and Dispute” policy.

On June 25, 2012, the Puerto Rico Telephone Company (“PRTC”) filed a Request for Review of a USAC audit finding which reclassified the jurisdiction of PRTC’s private line service revenues from intrastate to interstate, thus exposing PRTC to $7 million in additional Universal Service Fund (“USF”) contributions.  PRTC also asks the FCC to instruct USAC to suspend its illegal “pay and dispute policy” against PRTC. PRTC said USAC demands PRTC file a revised Form 499-A, and pay $7 million while it disputes USAC’s audit.  PRTC claims the FCC never adopted the “pay and dispute” policy, or codified it as a rule.  As such, PRTC argues the policy is unlawful and cannot be enforced against PRTC.

A copy of PRTC’s Petition is available here:

Two days after PRTC’s filing, on June 27, 2012, another provider filed a Request for Review of a USAC audit finding.   Wireless dispatch services provider, Critical Alert Systems, assignee of and successor-in-interest to NEP, asked the FCC to review a USAC audit finding which rejected the allocation of NEP’s telecommunications revenues to the interstate jurisdiction during calendar year 2009.  Instead of relying upon the data provided by NEP, USAC concluded that a contribution should have been made to the USF during 2009 on the basis of the 12% “safe harbor” applicable to “paging” services, thereby resulting in a reclassification and increased USF contributions.

A copy of Critical Alert Systems’ Petition is available here:

Please contact the attorney assigned to your account with any questions about these Petitions or compliance matters, in general.

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