On January 31, 2014, the Federal Communications Commission (“FCC”) released a Public Notice announcing the release of the 2014 FCC Forms 499-A/-Q and accompanying instructions. Telecommunications carriers use Forms 499-A/Q to report revenue associated Universal Service Fund (“USF”) and other support mechanism contribution obligations.
Although the Public Notice announces numerous revisions to the FCC Forms 499-A/-Q and accompanying instructions, three major modifications will significantly impact telecommunications carriers: (1) the new “safe harbor”/ “reasonable expectation” standards for resellers; (2) the new de minimis exemption language; and (3) the revised Affiliate Disclosure Rule. This Advisory discusses these modifications and how they will impact the USF reporting obligations for carriers affected by these changes.
“Safe Harbor”/ “Reasonable Expectation” Standards for Resellers
The FCC updated this year’s Form 499-A/Q Instructions to incorporate the clarifications provided by the 2012 Wholesaler-Reseller Clarification Order. These changes include new definitions of “reseller,” and the “reasonable expectation” standard for filers that report revenues from reseller customers.
“Reseller” is now defined as a telecommunications carrier or provider that: “(1) incorporates purchased telecommunications into its own offerings, and (2) can reasonably be expected to contribute to federal universal service support mechanisms based on those offerings.”
The “safe harbor” or “reasonable expectation” standard was adopted in the 2014 Form 499 pursuant to the 2012 Wholesaler-Reseller Clarification Order. The Instructions state that a wholesale service provider “may demonstrate that it has a ‘reasonable expectation’ that a customer contributes to federal universal service support mechanisms based on revenues from the customer’s offerings by following the guidance in these instructions or by submitting other reliable proof.” Carriers should read closely the revised sample language concerning exemption certificates and procedures in order to take advantage of the “safe harbor” described in the 2012 Order. If carriers adopt the safe harbor language and procedures they will be deemed to have met the reasonable expectation standard. Otherwise they must provide “other reliable proof.”
Universal Service Exemption for de minimis Providers
The new instructions adopt the provisions of Section 54.708 of the Commission’s rules, which state that telecommunications carriers and providers with an annual contribution level of less than $10,000 are not required to contribute to the Fund. This means that de minimis providers who provide services on a non-common carrier basis are not required to file Forms 499-A/Q. However, the Form 499-A Instructions state that carriers providing services on a common carriage basis that also meet the de minimis standard must file the Form 499-A because they must contribute to other support mechanisms (e.g., TRS, NANPA, or LNPA). I-VoIP providers are also required to file a Form 499-A, but not a Form 499-Q.
The new instructions provide a formula for carriers to determine whether or not they meet the de minimis standard. Providers meeting this standard are strongly urged to retain documentation that they meet this standard for a period of up to five years after each worksheet is due. Such providers may be required to provide evidence that they meet the de minimis standard to the FCC, the FCC’s Data Collection Agent, or the Universal Service Administrative Company.
Affiliate Disclosure Rule
The FCC adopted the Common Identifier Requirement for “affiliated” filers in order to include affiliated companies with a ten percent or greater common or shared ownership within the definition. This definitional clarification will potentially cause affiliated filers to lose Limited International Revenue Exemption (“LIRE”) eligibility.
The FCC’s emphasis on clarifying the Common Identifier disclosure requirements over the past two years carries significant implications for “LIRE Eligible” companies that are “commonly identified” with another telecommunications provider that is not eligible for the LIRE. The affiliation of a LIRE Eligible provider with another telecommunications provider that is not eligible could result in the loss of LIRE for the affiliate group. The financial consequence of losing LIRE eligibility is a 10-fold increase in federal USF contributions, as all international revenue becomes subject to the 15%+ USF contribution factor, whereas LIRE-eligible providers are exempt from paying USF contributions on international revenue that exceeds interstate revenue by an 88:12 ratio.
If your organization believes it may be impacted by the common identifier disclosure requirements and faces potential loss of LIRE eligibility once revenue is pooled across an affiliate group, we urge you to seek competent counsel.
To assist clients with their efforts to comply with the clarified USF exemption requirements, our firm has formed the USF Exemption Task Force – an internal task force that will provide the following services:
• Design, develop and assist with the implementation of USF Exemption Policies and Procedures that are appropriate for your unique business;
• Review USF exemption forms and certifications provided by your suppliers and provide guidance and advice on the appropriate manner to complete such exemption forms;
• Analyze and advise on the practical economic consequences of your responses to wholesale supplier USF exemption forms and evaluate options to address the same.
If you require assistance from our firm’s USF Exemption Task Force, please contact Jonathan S. Marashlian at email@example.com or by phone at 703-714-1313.
Please contact the attorney responsible for your account with any questions regarding this Advisory, or contact Jonathan S. Marashlian at firstname.lastname@example.org.