On May 24, 2017, the Federal Communications Commission’s (“FCC” or “Commission”) Wireline Competition Bureau (“WCB”) released an order denying Stratos Government Services, Inc.’s (“Stratos”) Petition for Clarification or a Declaratory Ruling to broaden the exemption from Universal Service Fund (“USF”) contribution obligations for carriers providing interstate telecommunications services exclusively to government or public safety entities to include subcontractors providing services exclusively to such entities on behalf of the principal provider.

In its petition, filed in 2009, Stratos argued that the language of this so-called “government-only” exemption is unclear, and that the policies behind the exemption support interpreting it to include subcontractors.  The WCB disagreed, finding that because the prime contractor providing service to the public safety or government entity has the contractual relationship with that entity, the prime contractor alone can rely upon the government-only exemption.  The WCB referenced the “preference for narrow exemptions to USF contribution obligations” and rejected Stratos’ argument that allowing subcontractors to claim the exemption would not have a negative impact on the USF.  The WCB further expressed concerns that adopting Stratos’ interpretation could encourage companies to implement corporate structures designed to avoid USF contributions.

Should you have any questions regarding this Advisory or wish to evaluate the impact of the WCB’s Order on your company, please contact Jonathan S. Marashlian at jsm@commlawgroup.com or (703) 714-1313.