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Regulatory Alert: FCC requires USF contributions from

VoIP and Wireless Carriers
By Matthew SchulmanOn June 21, 2006, the FCC expanded the base of USF contributions by extending universal service contribution obligations to providers of interconnected VoIP (Voice over Internet Protocol) services and increasing the contributions expected from Wireless Clients.

In the June 15, 2006 edition of The Prepaid Press, the Regulatory Rundown column reported that the FCC was seriously considering instituting several fundraising mechanisms to preserve the Universal Service Fund, which will have major shortfalls this year – estimated to be in excess of $350 million. The rumor that had been circulating was legitimized rather quickly, without much time for industry or legislative reaction.

VoIP carriers will be required to contribute to USF depending on their complete service offering. VoIP carriers are those companies that provide telephone service that originates using VoIP applications running on computers, specialized VoIP phones or VoIP gateways that are directly connected to the internet, usually with a broadband connection. “Interconnected VoIP Carriers” are those that provide connectivity for their clients BOTH to and from the PSTN. So, any VoIP carrier that provides US-based DID numbers to their clients AND the ability to make US domestic long distance calls is classified as an “Interconnected VoIP Carrier” and must report their VoIP revenues as telecommunications services on the 499A and 499Q forms.

If a VoIP carrier does NOT provided US-based DID numbers, thus not allowing incoming calls, they are NOT considered to be an “Interconnected VoIP Provider” and are NOT affected by this interim order.

For Interconnected VoIP Providers, the FCC established a safe harbor percentage of interstate revenue at 64.9 percent of total VoIP service revenue. To better reflect growing demand for wireless services, the FCC raised the existing wireless “safe harbor” percentage used to estimate interstate revenue from 28.5 percent to 37.1 percent of total end-user telecommunications revenue. “Interconnected VoIP Providers” and “Wireless Carriers” may calculate their interstate revenues based on their actual revenues or by using traffic studies.

These USF contributions are “interim” in nature, and were designed to “stabilize the contribution base for the Fund in the near-term and minimize the impact of any changes on consumers, Fund contributors, and Fund administration, while the Commission considers a more fundamental reform of the contribution methodology.”

The FCC confirmed the “Interim” status of this order by simultaneously adopting an NPRM (Notice of Proposed Rulemaking) seeking comment on these interim contribution obligations imposed in this Order.

The five FCC commissioners were unanimous in supporting the interim order, with Commissioner Copps expressing some skepticism whether or not the action would be sufficient, and whether or not it was the correct decision to exempt DSL providers from contributing to the support of universal service beginning in July 2006. Commissioner Copps also commented that DSL and cable broadband will be the backbone of our nation’s telecom system, but the USA does not have a good, definitive broadband strategy.

Commissioners' Statements:
Martin Statement: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266030A2.doc
Copps Statement: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266030A3.doc
Adelstein Statement: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266030A4.doc
Tate Statement: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266030A5.doc
McDowell Statement: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266030A6.doc

Several comments were made to emphasize the principle of competitive neutrality regarding telecommunications technologies. They want to ensure that the universal service rules do not unfairly favor nor disfavor one technology over another, or unfairly advantage or disadvantage one provider over another.

USF is based on the philosophy that every citizen has a right to communications services, which provide basic social and economic opportunities regardless of whether they live in low-income, rural, Native-American, or high cost areas.

The stage is set, and as this author has predicted for the past 2 years, as VoIP services become more mainstream, and traditional telecom revenues are diverted to this wonderful technology, fiscal and consumer pressures will cause VoIP to lose its “laissez faire” status and become more regulated and be required to contribute to federal, state and local government budgets.