FCC USF Enforcement The FCC recently issued Orders of Forfeiture against InPhonic, Inc. (“InPhonic”) and Global Teldata II, LLC (“Global Teldata”), two telecommunications providers which failed to remit Universal Service Fund (“USF”) contributions, file FCC Form 499-A registrations, file FCC Forms 499-A and 499-Q reporting worksheets, and make monthly USF contributions.  The FCC’s May 3, 2007 Orders of Forfeiture demonstrate the costly penalties against telecommunications providers which fail to file mandatory USF reports and remit mandatory contributions. Recent FCC Orders of Forfeiture The Forfeiture Orders signal the FCC’s increased enforcement resolve with respect to unpaid USF contributions.  The providers each exhibited a history of failing to make contributions, a fact relied upon in setting the ultimate forfeiture amounts. Failure to Register and Provide Revenue Information: Perhaps the most egregious violations, as determined by the FCC, are failure to register with the FCC and failure to provide revenue information to the Universal Service Administrative Company (“USAC”) (by filing FCC Forms 499-A and 499-Q), which both include separate forfeitures, but also can increase forfeitures for failure to pay USF contributions.  Failure to register and failure to provide revenue information is so egregious because it makes implementation of several FCC programs, including USF, TRS, and NANPA, more difficult or impossible and hampers efficient FCC enforcement of its Rules.  As an example, Global Teldata was assessed a forfeiture of $100,000 for failure to register with the FCC, $50,000 for failure to file the FCC Form 499-Q for November 1, 2004, and $86,774 for failure to make USF contributions for three of the previous twelve months.  In deciding to assess a fine of $20,000 per month of non payment with an upward adjustment of one half the total unpaid USF contributions, the FCC noted that the company failed to perform its affirmative duties.  Companies electing not to file because they are de minimis should ensure that they qualify for the exemption.  Global Teldata requested that FCC reduce the above fine arguing more latitude should be given to a company that just lost its de minimis status.  However, the FCC stressed the importance of filing the first FCC Form 499-Q because that filing puts USAC on notice that the company will become a USF contributor.  Furthermore, each company has an affirmative duty to calculate whether it qualifies for the de minimis exemption. Lump Sum Late Payments: Simply paying off outstanding contributions in response to an FCC letter of inquiry ("LOI") will not release a provider from liability for penalties based on failure to make USF payments, including the upward adjustment.  As an example, the Order issued against InPhonic, Inc. (a provider of mobile virtual network operator service, wireless information services, and activation and data services) assessed a forfeiture of $598,626 for failure to make USF contributions for seven out of the previous twelve months (recall that the FCC can only impose forfeitures for the year preceding the notice of apparent liability (“NAL”)).  This penalty was issued even though InPhonic made a payment of over $800,000 for USF contributions it owed from 2002 to 2004 in response to an FCC LOI.  InPhonic was still subject to an upward adjustment penalty of one-half of the amount it paid for outstanding contributions, even though it had remitted a lump sum late payment.  The penalties were imposed despite such late payment because InPhonic had failed to make USF contributions to USAC for a period of over two years after the company began offering interstate service (recall that the FCC can consider conduct prior to the previous year for purposes of determining the appropriate total forfeiture amount).  Penalties for Failure to Make USF Contributions While there is no base forfeiture established in the FCC’s Rules for failure to make USF contributions, the FCC has developed a formula that it now uses consistently to assess these penalties.  If the FCC initiates enforcement proceedings against a provider, it can only impose penalties for violations that occurred within one year of the NAL.  However, the agency can consider conduct prior to that time for purposes of assessing the total forfeiture amount, including the upward adjustment in the base forfeiture.  The FCC will impose a base forfeiture of $20,000 for each month in which the provider has failed to make the required contribution.  The base forfeiture is then subject to an upward adjustment of one-half of the provider’s unpaid contributions.  In addition to imposing fines on companies for failure to contribute, the FCC imposed a $100,000 fine on each company for failure to file a FCC Form 499-A registration and a $50,000 fine for each Telecommunications Reporting Worksheet (FCC Forms 499-A and 499-Q) not filed. In addition to monetary forfeitures, providers failing to make USF contributions can be subject to more serious enforcement actions.  Continuing violations can result in higher monetary forfeitures (as authorized by the Communications Act of 1934), holds on or dismissal of pending applications before the FCC, or possible revocation of operating authority. Telecommunications providers of all types should closely examine their USF and federal regulatory fee compliance status in light of the FCC’s increasing determination to impose heavy fines and penalties against non-compliant companies.   Please feel free to contact us if you have any questions or if we can be of assistance.  May 2007 Back