Legal Alerts and Articles
Annual USF Exemption Certificates
This is to remind wholesale telecommunications providers of their obligation to obtain on an annual basis an updated USF Exemption Certificate from their reseller customers.
In a Legal Alert earlier this year, we explained that providers of wholesale telecommunications to other carriers/resellers ("wholesale providers") of their obligations to 1) confirm that reseller customers have registered under the FCC's Universal Service ("USF") program, 2) verify the reseller's USF contribution status on the FCC's website, and 3) obtain a signed certification from the reseller regarding its USF exemption/contribution status ("USF Exemption Certificate"). Wholesale providers that do not fulfill these obligations may be liable for USF charges on services provided to their reseller customers. These obligations apply to both pure wholesale providers and mixed wholesale providers, or providers which offer both wholesale and retail services.
Wholesale providers are generally not liable for USF contributions on services provided to reseller customers, as long as the wholesale provider has verified (through the steps mentioned above) that the reseller customer is itself a contributor to the USF program. If a reseller is a contributor, then the wholesale provider can report revenue derived from that reseller on Block 3 of the FCC Form 499-A, and the wholesale provider will not be liable for USF contributions on that revenue ("wholesale revenue"). The key is to ensure that a reseller's USF contribution status is properly verified.
USF Exemption Certificates are the cornerstone of this verification process. However, wholesale providers should be aware that the obligation to obtain USF Exemption Certificates from reseller customers is ongoing. According to the FCC's Form 499-A Instructions, wholesale providers are required to obtain updated USF Exemption Certificates from resellers on at least an annual basis, or more frequently whenever a reseller's USF contribution status changes. Each year, wholesale providers should obtain updated USF Exemption Certificates to their reseller customers in order to satisfy this legal requirement. Not only does this step satisfy the rules, it also affords an opportunity to make other appropriate revisions to USF Exemption Certificates based upon changes in the wholesale provider's business developments.
If a wholesale provider does not have current USF Exemption Certificates on file for a particular reseller customer, the Universal Service Administrative Company ("USAC") could reclassify wholesale revenue derived from that customer as end-user revenue, thereby subjecting the wholesale provider to additional USF contributions.
In addition to ensuring that updated USF Exemption Certificates are obtained annually from resellers, wholesale providers should also take the opportunity to consult with counsel regarding any changes in regulations which could affect their USF exemption strategy. Changes in the regulatory environment (as well as in the wholesale provider's own business operations) could very well necessitate modifications to the form and/or content of the USF Exemption Certificates being used.
Please do not hesitate to contact us if you have questions about, or need assistance with, the FCC's USF Exemption Certificate requirements.
October 2008