The next deadline for filing FCC Form 499-Q with the Universal Service Administrative Company (“USAC”) is November 1st. Since the upcoming FCC Form 499-Q requires service providers to project revenue into the First Quarter of the upcoming year, it is critical that all service providers – including currently de minimis service providers – evaluate their reporting obligations for the upcoming year to determine if direct contribution to the Federal Universal Service Fund (“FUSF” or the “Fund”) is necessary.
Due to the critical nature of the upcoming FCC Form 499-Q, The Commpliance Group encourages all contributors to review current telecommunications services revenue, and consider the company’s contribution status for the upcoming year. Failure to properly assess contribution status now can result in double-remittance of FUSF contribution at the conclusion of the filing year, or have adverse consequences on pass-through paid to underlying carriers.
Calculating Your FUSF Contribution Status
A service provider is de minimis – and exempted from filing the Form 499-Q – if its annualized FUSF contribution obligation is less than $10,000. Service providers with an annualized FUSF contribution obligation above this threshold can expect to contribute directly to the FUSF.
FUSF contribution is calculated by dividing annual interstate and international service-related revenue (i.e., FUSF contribution-eligible revenue) by the quarterly FUSF factor, which typically varies between 13 and 18 percent.
- For example, if the FUSF factor for a given quarter is 15 percent, a service provider is de minimis if its annual contribution-eligible revenue falls below $66,666 ($66,666 \15% = $10,000).
Based on this example, if a service provider expects to receive greater than $66,666 in FUSF contribution-eligible revenue in the upcoming year, the service provider should consider direct contribution to the FUSF. Conversely, if a service provider expects to receive less than $66,666 in FUSF contribution-eligible revenue, the company may consider itself a FUSF de minimis contributor.
International Service Providers (“LIRE Exemption”)
Under Federal Communications Commission (“FCC”) rules, providers of predominantly international services may receive an exemption from contribution on the international portion of their telecommunications services revenue. This exemption, known as the Limited International Revenue Exemption (“LIRE”), permits service providers with interstate revenue of less than 12 percent of combined interstate and international revenue to exempt all the international revenue from its FUSF contribution base.
- For example, if a service provider has $200,000 international revenue and $10,000 interstate revenue, the LIRE percentage of the interstate revenue is 5 percent. Under the LIRE, the service provider may pay FUSF contributions only on the $10,000 interstate revenue.
Note: Carrier’s with predominant international revenue should evaluate the effectiveness of the LIRE in reducing FUSF contribution holistically, as many providers can fall within the “LIRE trap.” This means that a LIRE-eligible service provider is required to remit significant FUSF to underlying service providers on revenue otherwise exempt from direct contribution.
De Minimis Worksheet Requirement
De minimis carriers are not required to remit Form 499-Q, but must nevertheless complete and retain a “Quarterly De Minimis Worksheet” in their files. The document retention period for records related to the FUSF is five years.
FUSF Exemption Certificates & the “Carrier’s Carrier” Rule
FCC rules permit wholesale carriers who provide telecommunications services to other carriers (“Carrier’s Carriers”) to exempt revenue received from services providers that are FUSF direct contributors from FUSF pass-through charges.
Under the FCC’s Carrier’s Carrier Rule, an underlying service provider must receive a signed exemption certificate stating that their customer is either contributing directly to the FUSF, or that the customer’s customers are contributing to the FUSF. Carrier’s that fail to verify customer contribution will be responsible for direct contribution to the FUSF.
- Retail service providers expecting to contribute directly to the FUSF should ensure that they complete a valid FUSF exemption certificate with all underlying carriers. Failure to complete an exemption certificate may result in double-contribution on FUSF contribution eligible revenue.
- Wholesale service providers should ensure that valid exemption certificates are obtained from all customers before January 1st. Again, failure to verify contributor status of underlying customers may result in direct contribution obligations to the Fund.
Note: Beginning in 2014, FUSF exemption certificates must be completed on a “service-specific” basis. Specifically, a wholesale carrier must determine that its customer contributes to the Fund on revenues derived from the specifically-purchased wholesale services, not just on its contribution-eligible revenue overall.
Form 499 Late Filing Policy
Form 499s received after the due date will be subject to a late filing fee. USAC and the FCC strictly enforce applicable filing deadlines, and rarely make exceptions for late-filed Forms. The failure to timely file and accurately report revenue in a Form 499 is a violation of FCC rules, which may result in a USAC audit, FCC investigation, or both. Examples of FCC enforcement actions are available on the FCC’s website: https://www.fcc.gov/eb/usfc/.
USAC sends monthly invoices to non-de minimis service providers. The FUSF contribution amounts for which USAC bills service providers is based on a service provider’s projected revenues for a given quarter. It is extremely important that service providers timely pay these invoiced fees, as USAC will impose substantial late fees and other sanctions for service providers that do not pay on time.
As a courtesy to clients, the firm has assembled the following documentation to assist clients with FUSF contribution. These resources provide additional details on common issues faced by contributors.
- Federal Universal Service Fund Contribution at a Glance
- Federal Regulatory Fee Overview
- Reporting Carrier’s Carrier Revenue on FCC Form 499s
- Federal Universal Service Fund Revenue Allocation
- FCC/ USAC Debt Collection & Timeline