Legal Alerts and Articles
FCC Overturns USAC Determination
In an Order released on April 30, 2010, the Federal Communications Commission’s (FCC’s) Wireline Competition Bureau struck down a determination of the Universal Service Administrative Company (USAC) which would have required a 499 filer to contribute to the Universal Service Fund (USF) based on revenues from its provision of internet access service.
The 499 filer in this case was U.S. TelePacific Corp. (TelePacific), which provides services in California and Nevada. TelePacific leases T1 lines from incumbent Local Exchange Carriers and uses them to sell a bundle of services, including internet access services, email services, and other features to small business customers. TelePacific also offers its customers voice telephony services, often bundled with its internet access service, over the same facilities. TelePacific’s voice telephony services are not at issue here, as the company contributes to the USF with respect to such services.
In its 2008 FCC Form 499-A (reporting revenues for 2007), TelePacific reported revenue from its internet access service as an information service not subject to Universal Service assessments. On December 10, 2009, USAC rejected TelePacific’s filing, concluding that its services provided over T1 lines were basic transmission services classified as a telecommunications service, and thus subject to USF reporting and contribution obligations. Accordingly, USAC ordered TelePacific to revise its 2008 FCC Form 499-A and any other past FCC Forms 499-A in which TelePacific reported its internet access service revenues as exempt from contributions, and to refile those forms. TelePacific then formally requested that the FCC review USAC’s decision. In its Order, the FCC’s Wireline Competition Bureau agrees with TelePacific that its internet access service is not currently subject to USF contribution requirements, and that USAC’s findings were in error. The FCC found that USAC’s reasoning was flawed, since it based its finding that TelePacific’s internet service was subject to USF solely on the fact that the facilities (T1 lines) used to provide the service are typically used for basic transmission service. The FCC bases its decision on its 2005 Wireline Broadband Internet Access Services Order, which concluded that wireline broadband internet access services are not subject to Universal Service contributions. (On the other hand, wireline broadband services that are provided as basic transmission services are subject to USF contributions.) The FCC’s determination specifically clarifies that the internet access service portion of TelePacific’s services is not subject to USF under existing Commission precedent.
Since TelePacific offers both internet access service and voice telephony service, the FCC’s Wireline Competition Bureau concludes that it does not have sufficient information in the record to determine the specific USF assessment which should be levied on the revenues derived from the sale of T1 lines to TelePacific. As a result, TelePacific was ordered to provide to the Wireline Competition Bureau a detailed explanation of the methodology by which it apportions revenues derived from its sales to end users of voice telephony and other services utilizing leased T1 lines and how it reports such revenues on FCC Forms 499-A.
The Wireline Competition Bureau’s ruling is significant for three reasons. First, it demonstrates that the FCC is not reluctant to overturn USAC in instances where it believes that USAC has improperly applied USF assessment obligations to services which should not be subject to USF. Second, it reaffirms that broadband internet access service is not subject to USF contributions, regardless of the type of wireline facility over which the service is provided. And third, it clarifies that in instances where providers offer both telephony and other services such as internet access services over leased T1 lines, only those specific services subject to USF assessments should be reported for USF purposes on an FCC Form 499. If you have any questions regarding this FCC ruling, please do not hesitate to contact us.
May 2010