Resources
New State USF Programs Demand Resources and Attention
As service providers, including prepaid providers and MVNOs, struggle to remain in compliance with ever-changing federal Universal Service Fund ("USF") requirements, another less frequently discussed obligation is demanding resources and attention. State-level USF can now be found in some twenty-four (24) U.S. states and territories, with widely-varying regulations, assessment rates, and reporting schedules applicable to each. The following is a brief introduction into the basics of these diverse state USF programs. Providers not remitting state USF payments or filing required forms face multiplying penalties and liability.
Who Must File
Generally, telecommunications service providers, including prepaid providers and MVNOs, that are either offering intrastate service or operating within a state will be required to participate if the state has a USF program. However, specific cases vary. For example, in Wyoming, all providers must contribute, based on revenues from intrastate switched toll, cellular/PCS/mobile, paging, pay telephone, alternate access and directory, local private line, toll private line, and local exchange services. In Oregon, Commercial Radio Services (CMRS) providers are specifically exempted from contributing. In Wisconsin, CMRS providers were required to remit USF payments in the past, now they are not. A few states only require local exchange carriers and wireless providers to contribute.
In addition, certain states follow the federal USF program insofar as carriers can be exempt from remitting payment if they meet specific de minimis threshold requirements for a given reporting period, as determined by each state. In Missouri, carriers with annual net revenue below $24,000 are exempt. In Maine, if a company generates less than $12,500 annually in intrastate revenue, it is exempt, but still would be required to submit a quarterly report.
Additional exemptions can apply, but are not automatic. For instance, in Idaho, Message Telecommunications Service (MTS) and/or Wide Area Telecommunications Service (WATS) companies which are exclusively resellers of these services may be exempted from Idaho USF. However, resellers must be able to demonstrate, in writing, that the company providing service is already remitting the applicable surcharge in order to qualify for the exemption. This would include a letter to the PUC listing underlying carrier(s) and containing a certification that these companies carry all of the reseller's Idaho traffic. The reseller is obligated to notify the Commission whenever one of its underlying carriers changes or whenever its resale status changes.
Assessment Rates
State USF assessment rates vary from approximately 0.03033% to 6.95% of intrastate telecommunications revenues. Assessment rates are normally revised annually, biannually, or quarterly by the appropriate state USF administrator or PUC. On the low end of the spectrum, the assessment rate for Nevada USF is currently set at 0.0%, (meaning that no remittance contributions were necessary for the current period), though carriers must continue to file and report revenue to the USF administrator.
States permit carriers to pass along the applicable surcharge to end users, either in the form of a charge on top of the end user's total minutes or as a line-item on the end user's billing statement. States generally have specific requirements as to how the charge must read on an end user's billing statement, if applicable. In some instances, such as with the Oregon USF, telecommunications providers can assess an additional surcharge to end users on top of the contribution rate to recover the costs of participation in the fund. In this case, the contribution rate stands at 6.65%, but the eventual end user surcharge (which includes the mark-up) is currently 7.12%. If providers choose to collect payment from end users for state USF, they will often have to file concurring tariff sheets to that effect with the PUC.
Administration
Over half of the state-level USF programs in force are managed directly by PUCs. The majority of state PUC websites will have at least one page - if not several - dedicated to USF containing assessment rates, links to forms, reporting schedules, remittance information, and applicable rules and regulations. The remaining states are managed by one of a small number of neutral third-party administrators or consultants, the largest of which is Solix Inc. Among other things, these groups provide administrative outsourcing to state PUCs on a range of financial, regulatory, and customer service activities related to state-level programs such as USF. In recent months, third-party administrators such as Solix Inc. have been performing audits of telecommunications carriers to ensure compliance and proper remittance of contributions to the various state programs.
What is Covered
As with generally all aspects of state-level USF, programs supported by the fund vary. While a state USF program is typically initiated with objectives similar to the federal USF program (i.e., addressing telecommunication needs for low-income customers, high rate areas, public health agencies, customers with disabilities, medical clinics, and payphone accessibility), specific uses of carrier contributions depend on state-specific needs. Texas USF, for example, includes support to an assortment of public programs, including the Texas High Cost Universal Service Plan, Specialized Telecommunications Assistance Program, Lifeline Service, Telecommunications Relay Service, High Cost Universal Service Plan for Uncertificated Areas, Small and Rural Incumbent Local Exchange Carrier Universal Service Plan, Additional Financial Assistance, the Audio Newspaper Program, Reimbursement for Certain IntraLATA Services, and general administrative costs.
In California, there are six major telecommunications funds supporting public programs in the state, rather than a single fund to which service providers would contrubite. These include the Universal Lifeline Telephone Service Program, California Relay Service and Communications Device Fund, California High Cost Fund A, California High Cost Fund B, Advanced Services Fund, and California Teleconnect Fund. End-user surcharge rates for these funds will vary from program to program and are adjusted periodically based on the forecasted demand of the programs. New rules, USF-related programs, and corresponding assessment rates are constantly in flux. The California Advances Services Fund was authorized by the PUC on December 20, 2007, becoming the sixth PUC mandated end-user surcharge billed and collected by telecommunications service providers in the state.
Reporting and Remittance
States often require monthly reporting and remittances for USF. In many instances, telecommunications revenues will determine payment frequency. In Nebraska, companies that generate less than $20,000 per year in revenue may file quarterly; otherwise they must file on a monthly basis. In Nevada, carriers can chose to either file quarterly or annually. Kansas carriers with anticipated annual intrastate retail revenue below $50,000 must file an election with the Kansas USF administrator if they wish to report and pay on any basis other than monthly. Kansas carriers earning less than $50,000 are required to pay on a quarterly, semi-annual, or annual basis, depending on specific revenue calculations. In numerous states, a mandatory annual true-up (comparable to the federal program) is required for revenue generated in the previous year.
Enforcement
As with the federal USF program, states will not hesitate to penalize carriers for failure to file forms, submit forms on time, or pay remittances to the fund. Each state has its own procedures for enforcement. As noted above, some states have authorized third-party administrators to undertake audits of service providers. If a company is found in violation of state regulations, it stands to be fined by the state PUC. Particularly in states that are managed by third-party administrators such as Solix Inc., risks for non compliance are rising. Carriers that do not comply with state rules by filing reports and remitting payments according to the schedule established by the administrator will be identified and reported to the PUC for enforcement. As a result, there is no reason to suspect states to be any less aggressive than the FCC in penalizing carriers for similar offenses.
The Road Ahead
While nearly half of the states are currently undertaking USF programs, additional states are looking to get in the game. Indiana is a new player, implementing its state USF program in late 2007. Solix Inc. won the bid to serve as the third-party administrator for the Indiana USF program, and the first remittance was due in November 2007. Other states have commissioned studies and appointed task forces to examine the need for similar programs. In order to stay on top of new developments in state-level USF programs, prepaid service providers and MVNOs will need to make compliance a top priority.
February 2008