USF Exemption Certificates Recent FCC Decisions Underscore the Growing Importance of FUSF Exemption Certificates In an industry-wide trend, major underlying telecommunications providers are tightening up their exemption certificates used to determine their reseller’s federal universal service fund (“FUSF”) contribution status.  If a reseller does not certify that it directly contributes to FUSF programs, the wholesale provider will likely assess pass-through FUSF charges (or face financial or regulatory liabilities).  Among other potential problems, an FUSF exemption certificate completed incorrectly could cause a reseller to contribute to FUSF twice; first, by direct contributions made to the Universal Service Administrative Company (“USAC”), and second, by pass-through FUSF charges assessed by its wholesale provider.  In such situations, resellers may find it impossible to recover double-collected charges and will likely have to resort to private litigation under unfavorable terms.   Recovery Attempts from USAC   A series of FCC rulings have clarified the FUSF exemption certificate process.  It has been long standing FCC policy that any telecommunications provider not exempt (e.g., a de minimis provider) is required to directly contribute to FUSF, including resellers.  Under these decisions, USAC reporting and contribution requirements apply regardless of whether resellers have been billed FUSF charges by their underlying provider.  Notwithstanding FCC regulations, many wholesale providers and resellers have contractual provisions regarding the duty to contribute.  In a recent order denying several companies’ request for USAC refunds or credits (“FUSF Refund Order”), the FCC made clear that this obligation “cannot be contracted away” to the wholesale provider.  In this proceeding, resellers sought to recover FUSF contributions paid to USAC because they were also assessed FUSF pass-through charges by their underlying provider.   In upholding USAC’s determination, the FUSF Refund Order declared that regulatory obligations would not be superseded by private contractual terms requiring the resellers to file the FCC Forms 499 and directly contribute.  Thus, resellers were not relieved of their obligation to file or make FUSF contributions, even if their contract terms provided otherwise.  In the FUSF Refund Order, several companies did not make full payments to USAC because they were being assessed FUSF pass-through charges.  However, since it is solely their obligation to make contributions directly, they were in violation of FCC regulations and assessed back-payments (including late fees and penalties) into the fund.  These companies could not use their indirect contributions as a shield to relieve them of this liability.   Similarly, the double-billed resellers’ requests for refunds or credits for contributions already made to USAC were also denied.  Because it is the reseller’s primary responsibility to make direct contributions (assuming no FUSF exemption applies), the problem was not created by USAC’s FUSF assessment and billing procedures, but by the wholesale provider’s assessment of FUSF pass-through charges.  To this extent, the FUSF Refund Order establishes an FCC policy that any reseller seeking credits or refunds for double-billed FUSF charges should attempt recovery from the wholesale provider, not USAC.   Recovery from the Underlying Provider   There is no clear FCC precedent governing the content, time for acceptance, or other details of exemption certificates.  The FCC generally takes a “hands off” approach in disputes over FUSF assessments between carriers.  In the FUSF Refund Order, FCC underscored this approach and expressly stated that it will stay out of what it considers private contractual disputes.  Since the exemption for FUSF pass-through charges assessed by wholesale providers to resellers is governed by private contract, the FCC takes the position that such disputes are more appropriately settled in the courts through private litigation.   In practice, this has proven problematic.  Resellers disputing pass-through charges are forced into expensive litigation.  Furthermore, there are often contractual terms, arbitration clauses, and other limitations on disputing service charges, including FUSF pass-though assessments.  Due to the FCC’s approach of letting the industry decide how to apportion FUSF pass-through exemptions, resellers cannot depend on regulatory proceedings to ensure proper treatment.  As more and more resellers are petitioning for regulatory action, the FCC may eventually be forced to create clearer guidelines for the certification process.  However, neither the FCC nor USAC has provided any indication that it will do this in the near future.   Tightening of FUSF Exemption Certificates   Although the FCC Form 499-A instructions includes proposed certification language for wholesale providers to integrate into their exemption certificates (which, in some cases may be inadequate), many providers have used different language.  In cases occurring with greater frequency, such exemption certificates limit the options available to resellers.  Since the content of exemption certificates is not governed by FCC regulations, wholesale providers are providing fewer options on their FUSF exemption certificates and are more likely to require a clear statement that a reseller contributes directly in order to avoid FUSF pass-though charges.   As wholesale providers tighten the options available to resellers, FUSF exemption certificates merit more attention.  Resellers, whether they provide retail level service or wholesale service, should carefully consider the options available on the certificate before submitting it to their wholesale provider.    August 2007 Back