On August 7, 2014, the FCC issued an order that referred the issue of “how the Commission should modify the universal service contribution methodology” to the Federal-State Joint Board on Universal Service (“Joint Board”).  The Joint Board is to consider the existing record in WC Docket No. 06-122 (Universal Service Contribution Methodology) and any other information provided by the public.  The Joint Board will then make recommendations as to how “any modifications to the contribution system would impact achievement of the statutory principle that there be state as well as federal mechanisms to preserve and advance universal service.”  Recommendations are due to the FCC no later than April 7, 2014.

Key to the Joint Board’s work is the determination as to whether and how universal service contributions should be changed from a percentage of gross revenues to some other format that, in light of changes in technology and markets, is more fair and transparent than today’s system.

Commissioner Michael O’Rielly’s separate statement raised concern about the growth in the fund and cautioned reform should not be used to increase the size of the fund or to impose fees on the Internet.

Traditionally, the Joint Board,[1] which consists of FCC and state PUC commissioners, assisted by FCC and PUC staff, develops proposals for reform; asks related questions; and seeks comments and reply comments on the same.  The FCC’s ex parte rules (Section §1.1200 and following) apply to the proceeding for contacts to both state and federal members and staff.  After a Joint Board’s recommendations are made, the FCC traditional seeks additional comments and reply comments as to whether it should accept, modify or reject the Joint Board’s recommendations.

A Joint Board referral presents affected companies and associations with a great opportunity to influence change so long as they actively participate in the process.  This is because there are additional opportunities for comment.  But this same factor also presents greater risk as policy opponents have the same additional opportunities for influencing the results.  And, while it is possible to persuade the FCC to modify a Joint Board recommendation, the best approach is to engage in advocacy that will persuade both PUC and FCC board members to adopt recommendations consistent with the Client’s views and then support such recommendations before the FCC.  Reliance on other parties, even when they seem to have similar interests, is not the best strategy.  Rather, the best advocacy to develop good, fact-supported arguments that are well-presented throughout the entire process.  Even small entities that adopt this strategy can successfully influence FCC policy.

INTERNATIONAL SERVICE PROVIDERS — BEWARE!  

As our firm has repeatedly advised, both in Client Advisories and various publications (Prepaid Press and pleadings filed through the Ad Hoc Coalition of International Telecommunications Companies), the FCC and USAC have targeted “international revenue” as a rich resource to stem losses in contribution-eligible revenue from traditional, domestic telecommunications services.  The FCC’s referral to the Federal-State Joint Board presents an opportunity for international service providers to push back.  At the same time, however, international carriers must be forewarned that the current make-up of the Joint Board does not do the international industry segment any favors.  The Board is comprised of representatives of state agencies and domestic providers.  There is a dearth of representation of the international industry segment.  This will make for an uphill fight, but a fight that should nevertheless be undertaken while the issues are before the Board and prior to the Board’s solidification and referral of recommendations to the FCC.  If the international industry expects to fair well in the “negotiations” of compromise solutions to the USF funding dilemma, the industry MUST participate and MUST make a strong case on its behalf.  Otherwise, we fully expect the Joint Board to continue down the path already marked out by the FCC, and that path will most certainly include the inclusion of MORE, not LESS international telecommunications revenue in the USF-contribution eligible revenue base.

If you have questions about USF contribution reform or participating in the Joint Board process, please contact either Jonathan Marashlian at jsm@commlawgroup.com – 703-714-1313 or Robert Jackson at rhj@commlawgroup.com – 703-714-1316.