Legal Alerts and Articles
FCC USF Order Denies Review of USAC Findings
In an Order released on August 17, 2009, the FCC's Wireline Competition Bureau ("Bureau") denied requests filed by Global Crossing Bandwidth, Inc. a) seeking review of the Universal Service Administrative Company's ("USAC's") February 15, 2007 audit of that company's 2005 FCC Form 499-A and b) appealing USAC invoices submitted to Global Crossing based on the audit report. USAC's audit found that Global Crossing incorrectly recorded revenues from reseller customers that did not contribute to the Universal Service Fund ("USF") in 2004 as carrier's carrier revenue (i.e., Block 3 revenue), as opposed to end user revenue (i.e., Block 4 retail revenue) on which Global Crossing's USF contribution assessments are based. The ruling appears to represent an effort by the FCC to bolster the verification obligations it places on wholesale carriers with respect to their reseller customers.
USAC's Internal Audit Division audited Global Crossing's 2005 FCC Form 499-A, reporting calendar year 2004 revenues. In the audit report, USAC found, in part, that Global Crossing reported as reseller revenue certain revenues from customers that did not in fact contribute to the USF in 2004. Global Crossing failed to heed USAC's recommendation that it report as end user revenue the revenue from those customers that did not contribute to USF and failed to refile its 2005 FCC Form 499-A. Consequently, USAC calculated Global Crossing's outstanding obligations, treating as end user revenue all revenue from Global Crossing's customers that did not directly contribute to USF, and invoiced Global Crossing in October and November 2007 for the additional USF contributions owed. In defending USAC's actions, the Bureau's Order rejects the arguments, discussed below, raised by Global Crossing.
First, Global Crossing challenges USAC's assessment of USF contributions to Global Crossing and argues that those contributions should be recovered directly from Global Crossing's reseller customers. According to the Bureau's Order, "[a]lthough resellers have an obligation to contribute based on revenue received from their end user customers, the underlying carrier has an independent obligation to accurately report the revenue received from its customers [footnote omitted]." If an underlying carrier does not directly provide evidence to demonstrate its "reasonable belief that its customers were resellers that would directly contribute to the universal service fund", then the FCC will consider the revenue from those customers to be end user revenue and will look to the underlying carrier for the USF contribution.
According to the Order, the FCC has provided guidance on how a carrier may meet the reasonable expectation standard in its FCC Form 499-A instructions. Wholesale carriers can satisfy the reasonable expectation standard by maintaining certain minimum information on each reseller (i.e., Filer 499 ID, legal name, address, name of a contact person, and phone number of a contact person); and by verifying by the use of a certification that each reseller will: 1) resell the filer's services in the form of telecommunications; and 2) contribute directly to the federal USF support mechanisms; or by retaining a printout from the Commission's website at http://gullfoss2.fcc.gov/cgb/form499/499a.cfm indicating that the reseller is a current contributor to the Fund. A current reseller certification permits a wholesale carrier to demonstrate that its customer is in fact a reseller. According to the Order, "a wholesale carrier can substantiate its reasonable expectation regarding the status of a customer by retaining a current and properly executed reseller certification." For more information on reseller certifications, see http://www.tkcrowe.com/annual-usf-exemption-certificates/.
In a clarifying footnote, the Bureau points out that the issue in this case is not whether resellers have an obligation to contribute directly to the USF, but whether Global Crossing has an independent obligation to perform its own due diligence in establishing a reasonable expectation that its customers are resellers that will contribute on their own behalf.
The Order reasons that if a carrier fails to demonstrate that it either has affirmative knowledge that its customer is contributing to USF as a reseller, or has a reasonable expectation that its customer is contributing as a reseller based on guidance provided in the FCC Form 499-A instructions, or other reliable proof, USAC may reclassify that carrier's reported reseller revenue as end user revenue. That is precisely what occurred in this case. USAC's determination was based upon findings that Global Crossing's evidence consisted of "outdated certifications, contract provisions, company website information and product description", all of which did not support a finding that Global Crossing had a reasonable expectation that its customers would contribute directly to USF as resellers.
Second, Global Crossing argues that USAC misapplied the 2005 FCC Form 499-A instructions to the facts of this case, since those instructions permit it to rely on evidence other than a valid reseller certificate or Filer ID and website confirmation in establishing its expectation. While recognizing that Global Crossing was correct that a wholesale carrier may establish its reasonable expectation in ways other than those listed in the FCC Form 499-A instructions, the Bureau upholds USAC's finding that Global Crossing did not demonstrate in this particular case that it had such a reasonable expectation. Global Crossing also argues that USAC's assessment of contributions on revenue reported as reseller revenue by Global Crossing violates the Administrative Procedures Act, because USAC is exceeding its authority by creating a new rule and doing so without public notice and comment. The Bureau upholds USAC's determination that this argument is unfounded, citing several Commission orders supportive of this general principle.
Finally, the Bureau upholds USAC's rejection of Global Crossing's appeal of its October and November 2007 billing statements. For all the reasons set forth above, the Order upholds the USAC invoices which included additional USF contribution adjustments based on the audit finding that end user revenue for which Global Crossing's customers had not directly contributed should be included.
Significantly, the Bureau's Order notes that Global Crossing was required to pay the disputed invoices under the "pay and dispute" policy while its appeal was pending. Under the "pay and dispute" policy, contributors are required to pay disputed invoices without setoff or adjustment.
A copy of the Bureau's Order can be accessed at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-09-1821A1.pdf. Should you have any questions regarding the Order, please do not hesitate to contact us.
August 2009