PROCEED WITH CAUTION: Universal Service Fund Revenue Reporting - Pitfalls and Potential Traps Lurking for VoIP Providers

By TechZone360 Special Guest
Jonathan S. Marashlian & Allison D. Rule
February 18, 2015

With the April 1, 2015 deadline for filing FCC Form 499-A with USAC, the Universal Service Fund (“USF”) Administrator, it’s time for Interconnected VoIP (“I-VoIP”) providers to start anticipating and planning for a variety of revenue reporting issues unique to enterprise and other advanced communications services.  

When it comes to reporting revenue from advanced communications services, the Form 499-A Instructions and the FCC’s limited guidance have created a quagmire of uncertainty.  In particular, we are seeing increased confusion and inconsistency with regard to the reporting of certain services that are frequently provided in conjunction with core I-VoIP offerings.  Typical “ancillary” services include the provision of direct inward dialing (“DIDs”) numbers, call center features (e.g., IVR, auto attendant, call center software), conference bridging, 800 services, SIP trunking, MPLS, and enhanced call features.  As explained below, even if such services may not fit within the FCC’s definition of I-VoIP services when viewed in isolation, if these services are “associated with” an I-VoIP service, USAC may treat revenue from these “ancillary” services as USF-assessable.

As a result, I-VoIP service providers that have been allocating revenue from “ancillary” services as non-assessable “information services” could confront a USAC reclassification of said revenue as USF-assessable in an audit. The ultimate consequence could be exposure to retroactive liability for underpaid USF contributions.

Whether or not USAC’s position is sustainable upon FCC or judicial review remains to be seen, for as of now their position is untested on appeal. In the meantime, all providers of I-VoIP services are advised to evaluate this issue and how it may impact upcoming Form 499-A revenue reporting with the assistance and support of qualified telecommunications counsel.   

FCC Rules Regarding Treatment of Services Ancillary to I-VoIP

For traditional telecommunications service providers, treatment of ancillary services is less complex due to the FCC’s application of the “adjunct-to-basic” concept, which is embodied in decades of FCC and judicial precedent. Under this line of precedent, the FCC essentially determined that certain services (including caller ID, call tracing, call waiting, call forwarding, and speed dialing, among others) that satisfy the definition of “information services” are nevertheless included within the term “telecommunications services.” As such, revenue from such “adjunct-to-basic” services should be treated as assessable telecommunications revenue for federal USF reporting and contribution assessment purposes.

The FCC has not formally extended its “adjunct-to-basic” precedent to I-VoIP; neither has any court.  Presumably, therefore, ancillary services that individually qualify as “information services,” but which are sold in conjunction with I-VoIP services should be exempt from USF.  However, this is not necessarily the case – at least not according to USAC, which is extending the “adjunct-to-basic” construct to I-VoIP services through a corollary concept called “associated with I-VoIP.”

VoIP service providers unaware of USAC’s “associated with I-VoIP” policy may find themselves underreporting USF-assessable revenue.  Providers that are aware run the risk of reporting too much revenue and paying too much in USF contributions should the FCC or an appellate court deem USAC’s “associated with” concept unlawful.

Form 499-A Reporting:  Time to Take a Closer Look

Complex and uncertain issues, like the one described in this article, are not unusual when it comes to Form 499-A revenue reporting.  Given the complexity and the consequences at stake, now is a good time for providers to examine their past USF collection and reporting practices and determine the approach they wish to take going forward in light of the current regulatory uncertainty.  While uncertainty can pose risks, it also presents opportunities for providers to craft more advantageous USF collection and reporting practices that take into account each provider’s risk tolerance, as well as potential options for competitively pricing and marketing their services.

About the Authors: Jonathan Marashlian is the Managing Partner of Marashlian & Donahue, LLC, The CommLaw Group. Mr. Marashlian is the winner of multiple Lexology / International Law Office (“ILO”) Client Choice Awards, named overall winner in the Telecom Law-U.S. category. The CommLaw Group has been honored as the Leading Customer Service Law Firm of the Year and Best Communications Law Firm in the U.S. by ACQ Global Awards for three consecutive years. Allison D. Rule, co-chair of The CommLaw Group’s Communications Taxes & Fees and USAC Audits practice groups, co-authored this article.  Mr. Marashlian may be reached at (703) 714-1313 or jsm@CommLawGroup.com


Disclaimer: This article is intended for informational purposes only and is not for the purpose of providing legal advice. You should not act upon the information in this article without seeking professional counsel.



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