Regulation Briefs, July-August 2006

A practicing law office provides key updates on telecommunications regulation across the U.S.

by Kristopher Twomey of The Law Office of Kristopher E. Twomey, P.C. [September 8, 2006]

We reprint a portion of the LoKT newsletter providing updates on key legal issues. The Law Office of Kristopher E. Twomey, P.C. serves ISP, CLEC, corporate, long distance carrier, and other clients.

FCC Requires VoIP Providers to Pay into USF

The FCC issued a Report and Order during the last week of June in which it required interconnected VoIP providers to begin contributing to the Universal Service Fund beginning in October. The commission describes its order as an interim measure intended to shore up the diminishing revenue pool derived from traditional sources such as wire-line providers. Legislators have made several proposals for eliminating the current contribution system altogether in favor of a more modernized approach. Until changes to the USF can be agreed upon, the Commission intends that the current system remain in place and viable. Therefore, the FCC has turned to the emerging VoIP industry to help fill USF's funding gap.

Dating back to 1983, the FCC has overseen a number of "Universal Service" programs designed to subsidize and ensure the affordable availability of phone services throughout the country. The current program, known as the Universal Service Fund (USF), not only addresses affordable phone service but also finances an aggressive initiative to provide broadband to the nation's schools and libraries. The USF is supported via contributions from telecommunications providers who are required to pay a percentage of their interstate end-user revenues into the Fund. Unfortunately, demands for program funding are ever increasing. To meet the program's budget, telecommunications providers have been asked to triple the rate of their annual contributions over the past decade.

Recognizing that the wire-line telecommunication business is losing customers to both wireless and VoIP providers, the June Order takes measures to shift a portion of the burden from the diminishing wire-line business to these new growth industries. First, the FCC raised the safe-harbor provision (the default percentage of revenues subject to contribution to the USF) for wireless providers from 28.5 percent to 37.1 percent and set the safe-harbor for VoIP providers at 64.9 percent. The FCC justified these percentages by indicating that a growing portion of cellular phone calls are interstate in nature and noting that VoIP is marketed specifically as a long distance telephone service replacement. Providers do not, however, need to accept the safe-harbor. In some cases it may be worth taking the time and effort to compute contributions based on actual measured interstate traffic or on the results of an approved traffic study.

Regardless of the method of computation, VoIP providers are now subject to USF contribution and those companies are required to begin filing quarterly revenue reports starting August 1st, 2006 and collecting USF on October bills. VoIP providers are permitted to pass along the cost of their USF obligations to their client's by instituting USF recovery fees on their customer's bills. The money should be set aside until next year. On April 1 of every year, providers will need to file a 499-A form with the FCC detailing the previous year's revenues. From that, the FCC will determine the total amount due and send an invoice.

Changes in Store for the e-Rate Program

Seeking to clarify the types of products and services covered within the agency's "E-Rate" program, the FCC opened a pleading cycle on July 21st. The "E-Rate" program broadly provides funding to cover the costs of telecommunications and Internet access for public school students, library patrons, and school and library employees.

The program is funded from the FCC's Universal Service Fund. Since its inception, there have been claims of abusive spending and misappropriation of program funding. As a result, the commission is under pressure to reign in program spending and refine the rules regarding program expenditures.

The recent order invites public comment as to which services should remain on the "eligible services list". It is likely that traditional transmission services such as T-1s and T-3s will remain unchanged.

Less certain is the extent to which non-traditional or related services such as Voice over IP, Internet content, or network support will qualify. Likewise, related hardware and software expenditures may be reviewed.

To what extent should the E-Rate program purchase computer memory, computer peripherals, Internet related software or ancillary computer equipment?

Copyright 2006 The Law Office of Kristopher E. Twomey, P.C.
An excerpt from the LOKT Newsletter is reprinted with permission.

To download the LOKT newsletter in .pdf format and to peruse back issues, visit the publications section of the LOKT website. The LOKT newsletter is available to LOKT clients and friends before the excerpt is published on the ISP-Planet website.

Related articles:
	[Jan. 3, 2006]	E-Rate Pays
	[July 23, 2004]	End E-Rate Now
	[Jan. 5, 2004]	DSL Prime Editorial: Billions at Stake

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