This Week in Telecom – Weeks Ending 2.25.18 and 3.4.18

Below is a smattering of telecommunications stories from the past two weeks.  Some are trendy, some are interesting, and some are just weird.  This is by no means an exhaustive account of the past two weeks in telecommunications.  It is simply what I personally found interesting from the wide array of telecommunications news.

Disclaimer – The views expressed in this summary are my own and not necessarily those of Bradley Berkland Hagen & Herbst, LLC.

I.     Universal Service 

Federal Communications Commission (“FCC”) Wireline Competition Bureau (“WCB”) Announces Funding Year 2018 E-Rate Cap – On February 20, 2018, the FCC WCB released a Public Notice regarding the E-Rate funding cap for Funding Year 2018. According to the Public Notice, the funding cap is set at $4,062,030,726 and represents a 1.8% inflation-adjusted increase from the Funding Year 2017 cap. The FCC’s Public Notice can be accessed at Public Notice (DA 18-163).  

II.    Open Internet/Net Neutrality 

Chairman Pai Responds to Congressional Request to Delay Vote on Restoring Internet Freedom Order – On February 8 and 9, 2018, respectively, Chairman Pai sent response letters to Representative Colleen Hanabusa (D-Hawaii) and Senator Richard Blumenthal (D-Conn.), et al., explaining the reasons he did not delay the December 14, 2017 vote on the Restoring Internet Freedom Order (“Order”). Despite claims that the proceeding was marred by fraudulent comments, Chairman Pai maintained that the Order amply addressed the rulemaking record, and the draft Order was released over three weeks prior to the vote, allowing the public ample opportunity to review and submit feedback. The letter to Representative Hanabusa can be accessed at Hanabusa Letter and the letter to Senator Blumenthal, et al., can be accessed at Blumenthal Letter. 

Restoring Internet Freedom Order Published in Federal Register – On February 22, 2018, the FCC published in the Federal Register the Restoring Internet Freedom Declaratory Ruling, Report and Order, and Order (“Order”). The Order is effective April 23, 2018, with the exception of amendatory instructions 2,3,5,6, and 8. The delayed items will become effective only after the FCC publishes a subsequent Federal Register announcement providing their applicable effective date(s). The FCC said in the February 22, 2018 Federal Register announcement that the Order “will also be effective upon the date announced in that same document.” The Federal Register announcement can be accessed at Federal Register Announcement. 

Commissioners Clyburn and Rosenworcel Release Statements on Publication of Net Neutrality Repeal Order – On February 22, 2018, Commissioners Clyburn and Rosenworcel issued statements on the publication of what they called the “Net Neutrality Repeal Order.” Commissioner Clyburn decried the repeal of net neutrality stating “[t]oday it is official: the FCC majority has taken the next step in handing the keys to the internet over to billion-dollar broadband providers by publishing the Destroying Internet Freedom Order in the Federal Register.” However, Commissioner Clyburn also expressed optimism that, ultimately, “robust net neutrality protections will prevail with the American public!” Commissioner Rosenworcel described the repeal of net neutrality as “a study in just what’s wrong with Washington.” Commissioner Rosenworcel asserted that in repealing net neutrality, the FCC “turned a blind eye to all kinds of corruption in our public record—from Russian intervention to fake comments to stolen identities in our files” and stated that “[a]s a result of the mess the agency created, broadband providers will now have the power to block websites, throttle services, and censor online content.” Commissioner Clyburn’s statement can be accessed at Clyburn Statement and Commissioner Rosenworcel’s statement can be accessed at Rosenworcel Statement. 

Petitions for Review of Restoring Internet Freedom Order Filed Shortly After Order’s Publication in the Federal Register – At least three entities recently filed petitions for review of the Restoring Internet Freedom Order (“Order”). The National Hispanic Media Coalition, NTCH, Inc., and the Benton Foundation filed their petitions in the D.C. Circuit on February 23, 26, and 27, 2018, respectively. The petitions seek review on the basis that the Order is arbitrary and capricious, an abuse of discretion, not supported by substantial evidence, and otherwise contrary to law. The petitions ask the Court to hold unlawful, vacate, enjoin, and set aside those portions of the Order reclassifying broadband Internet access service as an information service not subject to the protections of Title II of the Communications Act. The applicable Case Nos. are: (1) National Hispanic Media Coalition – Case No. 18-1056; (2) NTCH, Inc. – Case No. 18-1061; and (3) the Benton Foundation – Case No. 18-1062.

III.  Emerging Communications Technologies 

FCC Issues Notice of Public Rulemaking on Emerging Communications Technologies – On February 22, 2018, the FCC approved a Notice of Public Rulemaking (NPRM) that seeks to flesh out the FCC’s authority under Section 7 of the Communications Act (“Act”) to assess emerging communications technologies. Section 7 of the Act was passed by Congress in 1983 and requires timely action by the FCC to encourage the provision of new technologies and services to the public. Specifically, Section 7 of the Act requires the FCC to respond within one year to applications proposing new technologies or services. “The NPRM proposes rules for Commission evaluation of petitions or applications proposing new technologies and service. In addition, the NPRM seeks comment on how the Commission can comply with the statutory requirements of [S]ection 7 of the Act for Commission-initiated proceedings for new technologies or services.” The Press Release regarding the NPRM can be accessed at Emerging Communications Technologies Press Release and the full text of the NPRM can be accessed at Emerging Communications Technologies NPRM. 

IV.   In the Press 

Law360 – Law360 published an article on February 20, 2018 discussing the DOJ’s vehement arguments against AT&T’s request for evidence of Donald Trump’s rants against CNN in the DOJ’s lawsuit opposing AT&T’s proposed purchase of CNN parent, Time Warner.

On February 23, 2018, Law360 published an article describing how FCC Chairman Pai was awarded a “token firearm” by the National Rifle Association (“NRA”) for alleged threats and insults made against him because of the recent net neutrality deregulation. According to the article, other recipients of the “courage under fire” award include Mike Pence, Rush Limbaugh, and former Milwaukee sheriff David Clarke.

You must have a subscription to Law360 to view and read these articles.  Subscription information can be found at Law360 Telecom Website.

REMINDER – Annual CPNI Certifications Due to Federal Communications Commission (“FCC”) by March 1, 2018

REMINDER – Telecommunications carriers and interconnected Voice over Internet Protocol (“VoIP”) providers must file an annual Customer Proprietary Network Information (“CPNI”) certification with the FCC no later than March 1, 2018.  Examples of telecommunications carriers include, but are not limited to, local exchange carriers (“LECs”) (including incumbent LECs, rural LECs, and competitive LECs), interexchange carriers, commercial mobile radio services (“CMRS”) providers, resellers, prepaid telecommunications providers, and calling card providers.  There is no filing exemption for small companies.

The 2018 annual CPNI certification attests to calendar year 2017 CPNI compliance.  Certifications should be electronically filed using the FCC’s Electronic Comment Filing System (“ECFS”).  Filers must reference EB Docket No. 06-36 in the “proceeding” field when filing.  Separate certifications must be filed for each affiliate in possession of a unique FCC Form 499 Filer ID.  Failure to timely file the 2018 CPNI certification may result in an FCC enforcement action, including fines of up to $196,387 for each violation or each day of a continuing violation, up to a maximum of $1,963,870.

Because past certifications have contained informational deficiencies, the FCC has released a CPNI Certification Template.  The CPNI Public Notice, which includes the CPNI Certification Template, can be accessed at CPNI Public Notice.

This Week in Telecom – Week Ending 2.18.18

In honor of Leslie Herbst-Saporito[1] 

Below is a smattering of telecommunications stories from this past week.  Some are trendy, some are interesting, and some are just weird.  This is by no means an exhaustive account of the past week in telecommunications.  It is simply what I personally found interesting from the wide array of telecommunications news.

Disclaimer – The views expressed in this summary are my own and not necessarily those of Bradley, Berkland, Hagen & Herbst, LLC.

I.  Universal Service 

Federal Communications Commission (“FCC”) Wireline Competition Bureau (“WCB”) Releases FCC Forms 499 and Accompanying Instructions – The FCC WCB has released the FCC Forms 499-A, FCC Forms 499-Q, and accompanying instructions.  The FCC Form 499-A and accompanying instructions are to be used in April 2018 to report calendar year 2017 revenues.  The FCC Forms 499-Q and accompanying instructions are to be used in calendar year 2018 to report quarterly projected and collected revenues.  According to the Public Notice, the revisions to the FCC Forms 499 are limited to date changes, a circularity factor update, and other non-substantive form revisions.  The Public Notice can be accessed at FCC Form 499 Public Notice and the official revised FCC Forms 499 and accompanying instructions will be made available shortly on the Universal Service Administrative Company’s (“USAC”) website at USAC Forms – Contributors.

Commissioner Clyburn Talks Federal Universal Service Fund (“USF” or “Fund”) Contributions – In her February 14, 2018, comments at the Winter Summit, Commissioner Clyburn expressed concerns about the sustainability of the federal USF absent changes to the method of assessing contributions.  Acknowledging that contribution reform “has languished for far too long,” Commissioner Clyburn advocated for the following contributions assessment system: “the infrastructure that is supported by the Fund, should be the infrastructure that is assessed by the Fund.”  Responding to objections that broadband connections should not be included in the USF contributions assessment methodology, Commissioner Clyburn asserted that the Internet Tax Freedom Act does not bar assessing contributions on broadband and a hybrid connections/revenue approach would not only significantly reduce consumers’ per-connection fees, it would also significantly reduce the contribution factor.  Should contribution reform by the Joint Board fail, Commissioner Clyburn advocated for a pitch competition that would invite new, outside experts to consider and present their ideas for contributions reform.  The only caveat, according to Commissioner Clyburn, is that the “pitches must be ideas[] that have not been hashed, rehashed, or rehashed again in the contributions docket.”  Commissioner Clyburn’s comments also addressed the High Cost and Lifeline programs.  A full transcript of Commissioner Clyburn’s remarks can be accessed at Clyburn Remarks. 

II.  Open Internet/Net Neutrality 

House Democrats Send Letter to Federal Communications Commission (“Commission”) Chairman, Ajit Pai Asking for Information About How the Commission Analyzed Public Comments Filed In the Restoring Internet Freedom Proceeding – In a February 13, 2018 letter, twenty-four (24) Democratic members of the House Energy and Commerce Committee asked Chairman Ajit Pai to answer a series of questions about how the Commission analyzed public comments in the Restoring Internet Freedom Proceeding.  The inquiries primarily seek information regarding any guidelines and/or internal legal analyses provided to staff working on the proceeding, the treatment of consumer comments filed in the proceeding, data to support the Chairman’s statement that comments filed from Russian email addresses were in favor of net neutrality, reasons for the FCC’s refusal to cooperate with New York Attorney General Eric Schneiderman’s criminal investigation, any verification or procedural devices used to confirm the identities of persons who allegedly filed comments in the proceeding, how the Commission decided which arguments filed by members of Congress should be considered in the proceeding, what analysis the Commission used to determine that consumer complaints about net neutrality violations were not relevant to the Commission’s net neutrality decision, why the Commission did not remove fraudulent comments from the public website, the scope of comment review and resources devoted to that review, and whether any training sessions were held for staff tasked with record review.  The letter asks Chairman Pai to respond to these questions no later than March 6, 2018.  The full contents of the letter can be viewed at Letter to Pai Concerning Net Neutrality Comments. 

Multiple Entities File Motions Seeking to Intervene in Restoring Internet Freedom Appeal – On February 14, 2018, AT&T, the American Cable Association (“ACA”), the Internet & Television Association (“NCTA”), USTelecom, and CTIA (collectively “Entities”) filed motions with the D.C. Circuit, First Circuit, and Ninth Circuit Courts to intervene in the Restoring Internet Freedom Appeal.  According to the Entities, they filed the motions to intervene to preserve their right to participate in judicial review, if the Federal Communications Commission’s motions to dismiss petitions seeking review of the Restoring Internet Freedom Order are not granted.  The Case Nos. for each Circuit are as follows: (1) D.C. Circuit – Case No. 18-1011; (2) First Circuit – Case No. 18-1053; and (3) Ninth Circuit – Case No. 18-70133.

Federal Communications Commission (“Commission”) Files Motions to Dismiss Petitions for Review of Restoring Internet Freedom Order – On February 9, 2018, the Commission filed motions with the D.C. Circuit, First Circuit, and Ninth Circuit to dismiss Petitions for Review (“Petitions”) filed by New America Foundation’s Open Technology Institute.  The Commission argued that the Petitions are premature because neither a summary of the Restoring Internet Freedom Order, nor the text of the amended rules have yet been published in the Federal Register.  The Case Nos. for each Circuit are as follows: (1) D.C. Circuit – Case No. 18-1011; (2) First Circuit – Case No. 18-1053; and (3) Ninth Circuit – Case No. 18-70133. 

III.  Telephone Consumer Protection Act (TCPA) 

A Pattern of Egregious Behavior and Procedural Defects Undercut Petition to Reconsider $1.84 Million Fine – On February 15, 2018, the Federal Communications Commission (“Commission”) rejected a Petition to Reconsider (“Petition”) filed by Scott Malcom and his companies DSM Supply, LLC and Somaticare, LLC (collectively “Companies”).  The Companies sought reconsideration of a $1.84 million fine issued by the Commission in February 2016 for the illegal transmission of unsolicited facsimile advertisements (“junk faxes”).  Rejecting the Petition on procedural grounds, the Commission noted that: (1) the Petition relied on facts and arguments previously raised by the Companies and rejected by the Commission; and (2) with respect to the Companies’ argument that the fine violated the Excessive Fines Clause of the Eighth Amendment, the time to raise that argument was in 2014, in response to the Commission-issued Notice of Apparent Liability (“NAL”).  Specifically, regarding the Companies’ actual ability to pay, the Commission found that the Companies’ Petition relied on financial information that could have been presented in response to the NAL and the Companies had not disputed their ability to pay when responding to the NAL.  The Commission further found that the public interest did not justify a reconsideration of the fine because, the Companies’ “TCPA violations were numerous, egregious, and occurred after [the Companies were] issued a citation advising [them] that [they] were violating the law.”  Although the Commission dismissed the Companies’ Petition on procedural grounds, it also rejected the Companies’ Eighth Amendment argument on the merits. Specifically, the Commission found that the Companies did not meet their burden to show that the forfeiture imposed was unconstitutionally excessive given the maximum statutory forfeiture amounts and the gravity of the Companies’ underlying offenses.  Note that, according to the Order on Reconsideration, the Companies filed their response to the NAL nearly seven (7) months after the filing deadline, engaged in rude and dismissive behavior when responding to complaining consumers, and the Commission received over 350 consumer complaints after the Companies received their first warning that their conduct was in violation of the law.  Click on the following links to view the Press Release and the Order On Reconsideration.

IV.  Broadband 

Trump Releases American Infrastructure Initiative and Fiscal Year 2019 Budget – According to Trump’s American Infrastructure Plan released on February 12, 2018, “$50 billion of the $200 billion in direct Federal funding will be devoted to a new Rural Infrastructure Program to rebuild and modernize infrastructure in rural America.”  The plan will also allocate $20 billion to expanding infrastructure financing programs, including rural utility lending.  Additional details on Trump’s rural infrastructure goals can be found in the Trump American Infrastructure Initiative and the Trump Fiscal Year 2019 Budget 

Trump Discusses Rural Broadband at Infrastructure Proposal Meeting – The White House released remarks made by Trump on February 14, 2018 about Rural Broadband Infrastructure during a meeting of bipartisan members of Congress.  The remarks contain the following information regarding rural broadband infrastructure:

  1. Trump has laid out principles for an infrastructure initiative;
  2. The infrastructure initiative seeks to implement a faster permitting process of two years, as opposed to ten years, with a goal of one year, if possible;
  3. $50 billion will be spent on rural infrastructure and Internet access.

A transcript of the remarks can be accessed at Trump Infrastructure Remarks. 

V.  In the Press 

Law360 – Law360 published two articles this week discussing the involvement of Federal Communications Commission (“FCC”) and Department of Justice (“DOJ”) officials in ongoing investigations or trials.  In one article, Law360 states that the FCC Office of Inspector General is investigating Chairman Ajit Pai over allegations that he improperly pushed for rule changes relaxing media ownership rules for the benefit of Sinclair Broadcasting Group.  In the second article, Law360 states that AT&T Inc. is seeking to have Makan Delrahim, head of the U.S. Department of Justice’s Antitrust Division, testify in the case challenging AT&T’s planned purchase of Time Warner Inc.  According to Law360, there has long been speculation about what motivated the DOJ’s November decision to sue over the $85.4 billion mega-merger, with some attributing the action to undue influence by Trump.  You must have a subscription to Law360 to view and read these articles.  Subscription information can be found at Law360 Telecom Website.

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[1] I recently lost my dear friend and work colleague, Leslie Herbst-Saporito.  Leslie always wanted us to do a weekly telecom write-up.  Sadly, we did not accomplish that goal prior to her passing.  Leslie would have supported the idea of generating this summary.  Leslie, you are with me every day in this practice.  I will miss you always.

First Quarter 2018 Proposed Federal Universal Service Contribution Factor of 19.5% Announced by FCC OMD

On December 14, 2017, the Federal Communications Commission (“FCC”) Office of Managing Director (“OMD”) released Public Notice DA 17-1203 announcing that the proposed federal Universal Service contribution factor for the first quarter (January – March) of 2018 will be 19.5%.  

If the Commission takes no action in the 14-day period following the release of the Public Notice, the proposed contribution factor will be deemed approved.

Net Neutrality Rollback? Restoring Internet Freedom Order Approved in December 14, 2017 FCC Open Meeting

As anticipated, the Federal Communications Commission voted earlier today to overturn the 2015 Protecting and Promoting the Open Internet Order adopted under former FCC Chairman Wheeler.  The Commissioners voted along party lines, with Chairman Pai, and Commissioners Carr and O’Rielly approving Chairman Pai’s Restoring Internet Freedom Order and Commissioners Clyburn and Rosenworcel dissenting.

Among other things, the adoption of the Restoring Internet Freedom Order will:

  • return the classification of BIAS to that of an information service;
  • reinstate the private mobile service classification of mobile BIAS;
  • adopt transparency requirements that ISPs disclose information about their practices to consumers, entrepreneurs, and the Commission;
  • turn over broadband consumer protection authority to the FTC;
  • and eliminate the Internet Conduct Standard.

Note that the Restoring Internet Freedom Order is not yet in effect and has not yet been released.  Rather, the Restoring Internet Freedom Order will take effect upon approval by the Office of Management and Budget of the new transparency rule that requires the collection of additional information from the industry.

A thoughtful analysis of the impact of today’s events to follow.

A Help and A Hinderance. New FCC Order Creates Benefits and Obligations for Providers of Intrastate Mixed-Use Special Access/Private Lines.

With all the recent hoopla surrounding broadband Internet privacy regulation and the potential rollback of the Net Neutrality Order, contributors may have overlooked new mixed-use special access/private line benefits and obligations created for them by the FCC.

Confirming the Old

On March 30, 2017, the Federal Communications Commission’s (“FCC” or “Commission”) Wireline Competition Bureau (“WCB”) released an order, the Intrastate Request for Review Order (“Order”),[1] denying several pending requests for review contesting Universal Service Administrative Company (“USAC”) audit findings related to intrastate mixed-use special access/private lines and the “ten percent rule.”[2]

Generally speaking, the Order was unremarkable, confirming that USAC appropriately relied on the ten percent rule to determine the jurisdictional nature of mixed-use special access/private line revenues[3] and affirming the FCC’s past decisions that it is the nature of the traffic carried on a private line that determines whether the line should be classified as intrastate or interstate.[4]

Creating the New

The Order did diverge from historical FCC precedent, however, in two particular ways:

  1. Most importantly, the Order created an affirmative obligation for telecommunications providers, requiring them to “provide basic guidance to their customers [who provide intrastate certifications or statements] regarding what constitutes intrastate or interstate traffic.”[5] Specifically, the Order held that “[c]arriers should specifically make customers aware that it is the nature of the traffic over the private line that determines it jurisdictional assignment, not merely the physical endpoints of the facility over which service is delivered.”[6]

How this will play out in an audit context, and whether telecommunications providers can truly be required by the FCC to take on an affirmative obligation to educate their customers on federal Universal Service intrastate mixed-use special access/private line revenue requirements, remains to be seen.  Given that USAC does not have the authority to make policy, interpret unclear provisions of the statute or rules, or interpret the intent of Congress,[7] however, it tends to read the FCC’s orders very literally.  Therefore, at a minimum, the safest course of action for telecommunications providers at this time is to add the language from the Order to their customer intrastate certifications and/or statements and ensure that a good faith effort to understand the jurisdictional nature of the traffic over their customers’ mixed-use special access/private lines is undertaken. 

  1. The Order held that whether a certification has been completed is irrelevant if a telecommunications provider can prove that the traffic carried on the private line is less than ten percent interstate.[8] Pursuant to the Order, acceptable forms of proof of intrastate jurisdiction that telecommunications providers can obtain include:
  • A tariff demonstrating that the revenues associated with the service purchased pursuant to that tariff are properly assigned to the jurisdiction in which the tariff was published.[9]
  • Customer statements or acknowledgements regarding the jurisdictional nature of a customer’s traffic. Per the Order, “[t]hese statements need only indicate whether, to the customer’s understanding, more than ten percent of the traffic on its private line is interstate or, alternatively, ten percent or less of the traffic is interstate.[10] 
  • In those instances where a private line is technically unsuitable for interstate use, a sworn declaration from a corporate officer.[11] The FCC WCB states that such a declaration should be “based on the carrier’s precise knowledge of the network design and the customer’s stated or planned usage of the network” and would be “supported with engineering reports or other documents regarding the technical specifications for the service.”[12]  Acknowledging that it may be difficult to meet this standard, the Order concludes that “it may be easier for the carrier to collect a certification or equivalent statement from the customer regarding the nature of the traffic.”[13] 
  • Any other documentation or evidence of the jurisdictional nature of a private line that USAC finds reasonable in its role and judgment as an auditor.[14]

Note that the Order does not shift the burden of proof to USAC with respect to determining the jurisdictional nature of a mixed-use special access/private line.  Telecommunications providers and their customers must make a good faith effort to assign a mixed-use special access/private lines to their appropriate interstate or intrastate jurisdiction.[15] 

Timing

Given that the FCC views the Order as affirmative in nature, telecommunications providers should immediately account for the benefits and obligations created by the Order, if they have not already done so.  Any information and/or documentation obtained from a customer to demonstrate the nature of traffic on a mixed-use special access/private line should be retained for a minimum of five years from the date of the applicable contribution.[16]  So should any information/documentation created to educate a customer regarding the jurisdictional assignment of traffic over the mixed-use special access/private line.[17]

Complying with the FCC’s federal Universal Service intrastate mixed-use special access/private line requirements can be challenging and lack of proper information/documentation is a common finding in USAC federal Universal Service audits.  If you have questions regarding the FCC’s rules surrounding the treatment of mixed-use special access/private lines, we encourage you to reach out to Kristin Berkland, of Bradley Berkland Hagen & Herbst, LLC for more information.  Kristin can be reached at kristin@bradleylawmn.com or (651) 379-0900 ext. 106.

Disclaimer

This blog post is a publication of Bradley Berkland Hagen & Herbst, LLC.  The purpose of this blog post is to inform our clients, colleagues, and friends of recent federal universal service legal developments.  This blog post is not intended to be, nor should it be used as, a substitute for specific legal advice as Bradley Berkland Hagen & Herbst, LLC only provides legal counsel to its clients, and only in response to specific factual inquiries regarding situations.

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[1] In the Matter of Federal-State Joint Board on Universal Service, Changes to the Board of Directors of the National Exchange Carrier Association, Inc., Universal Service Contribution Methodology, Request for Review by McLeodUSAC Telecommunications Services, Inc. et al., CC Docket Nos. 96-45 and 97-21, WC Docket No. 06-122, Order, DA 17-309 (2017) (“Intrastate Request for Review Order”).

[2] Id.

[3] Id. at paras. 3, 8-11 (“Mixed-use special access lines are assignable to the interstate jurisdiction if the interstate traffic constitutes more than ten percent of the total traffic and to the intrastate jurisdiction if it constitutes ten percent or less.”) (citing 47 C.F.R. § 36.154(a); and MTS and WATS Market Structure, Amendment of Part 36 of the Communications Rules and Establishment of a Joint Board, CC Docket Nos. 78-72 and 80-286, Decision and Order, 4 FCC Rcd 5660, 5660-61, para. 1 & Appendix (1989)).

[4] Intrastate Request for Review Order at paras. 2, 11.

[5] Id. at para. 25.

[6] Id.

[7] 47 C.F.R. § 54.702(c).

[8] Intrastate Request for Review Order at paras. 2, 23-27.

[9] Id. at para. 24.

[10] Id. at para. 25.

[11] Id. at para. 27.

[12] Id.

[13] Id.

[14] Id. at para. 26.

[15] Id. at paras. 11-17, 21.

[16] Id. at para. 29.

[17] Id.

How Much Is Too Much? Can a Ministerial Error Override the One-Year Downward Revision Deadline?

A well intentioned federal universal service contributor files a revised FCC Form 499-A just prior to, or on, the March 31st one-year revision deadline thinking that he/she will receive a downward adjustment of the form.  For some reason, the filer accidentally reports non-assessable revenue on an assessable line of the form.  Approximately four months later, the filer receives a true-up invoice from the Universal Service Administrative Company (“USAC”), but instead of finding a federal universal service fund credit on the invoice the filer finds a substantial additional federal universal service assessment.  The filer now may have good reason consider an FCC waiver request.  The FCC’s recently issued ATS Financial Hardship Order, available at https://prodnet.www.neca.org/publicationsdocs/wwpdf/da161089.pdf, specifies the circumstances under which such an error constitutes sufficient financial hardship such that the filer may seek a waiver of the one-year downward revision deadline.

With very limited exceptions, federal universal service contributors are required to file FCC Forms 499-A by April 1 of each year reporting their prior calendar year’s revenues.  A filer that discovers an error in the revenue reported on its FCC Form 499-A is required to correct that error by filing a revised form.  The FCC requires revisions that result in additional federal universal service contributions upon discovery of a revenue reporting error.  Ever since the Commission issued its One-Year Downward Revision Deadline Order, available at http://www.universalservice.org/_res/documents/about/pdf/fcc-orders/2004-fcc-orders/DA-04-3669.pdf, however, revisions that result in a reduction in federal universal service contributions must be filed by March 31 of the year after the original filing due date or the filer risks foregoing return of the amounts it overpaid to the federal universal service fund.

Such was the case for American Teleconferencing Services, Ltd. (“ATS”), a filer who determined upon receiving its true-up invoice from USAC, that it had inadvertently reported non-assessable foreign-to-foreign revenue on an assessable line of its revised 2012 FCC Form 499-A.  As a result, instead of receiving its anticipated refund, ATS was invoiced for additional federal universal service contributions.  Although ATS attempted to file a second revised 2012 FCC Form 499-A, USAC rejected the second revision as untimely because it was filed outside of the one-year downward revision deadline.  The FCC Wireline Competition Bureau sided with USAC, denying ATS’s waiver request of the one-year downward revision deadline.

Enter the ATS Financial Hardship Order.  Upon review, the full Commission overturned the FCC Wireline Competition’s Bureau’s decision, granted ATS’s waiver petition, and directed USAC to process ATS’s second revised 2012 FCC Form 499-A as if timely filed.  In so doing, the Commission enumerated a number of conditions that it found sufficiently compelling to demonstrate good cause for granting a waiver of the one-year downward revision deadline.  Specifically, the Commission noted that:

  1. ATS was able to demonstrate that it had to treat the additional federal universal service assessments as material and necessitating shareholder disclosure under SEC standards;
  2. ATS was able to provide information demonstrating the estimated per-share earnings impact of its error;
  3. ATS’s error involved non-assessable revenue that would not have resulted in any additional federal universal service contributions had ATS filed its second revised form correctly and, therefore, caused minimal harm to the federal universal service fund;
  4. ATS was not a filer that failed to submit its FCC Form 499-A at all, nor was it a filer that alleged it misunderstood the filing procedures, or was negligent in filing its FCC Form 499-A.  Rather, ATS timely submitted its initial 2012 FCC Form 499-A and first revision based on the best information available at the time;
  5. The time commitment involved with ATS developing the ability to more precisely identify its foreign-to-foreign revenues and improve its reporting practices resulted in ATS filing its first revised FCC Form 499-A only a few days before the FCC Form 499-A one-year downward revision deadline; and
  6. ATS’s inadvertent clerical mistake was made on a timely filed FCC Form 499-A revision and was the result of reporting otherwise non-assessable revenue on an assessable line of the form.

While the Commission limited its holding in the ATS Financial Hardship Order to ATS’s particular circumstances, a filer who finds itself in a similar predicament should consider filing a request for waiver with the FCC.  Moreover, even where a filer does not meet the circumstances set forth in the order, if it notices an error in its FCC Form 499-A reporting after the one-year downward revision deadline that would result in reduced contributions, a conversation with USAC and review of FCC precedent may be in order.  For filers who face a contribution obligation as a result of an FCC Form 499-A error that amounts to a significant portion of their annual revenue or multiple times their actual obligations, USAC, with the oversight of the FCC, has put in place an administrative procedure that may apply depending on the dollar amount of the additional federal universal service contributions at issue.  Moreover, precedent demonstrates that the FCC has granted waivers of the one-year downward revision deadline to at least some filers who have made ministerial or clerical errors that have resulted in a significant increase in federal universal service contributions.

Disclaimer

This blog post is a publication of Bradley Hagen & Gullikson, LLC.  The purpose of this blog post is to inform our clients, colleagues, and friends of recent federal universal service legal developments.  This blog post is not intended to be, nor should it be used as, a substitute for specific legal advice as Bradley Hagen & Gullikson, LLC only provides legal counsel to its clients, and only in response to specific factual inquiries regarding particular situations.

Too Little, Too Late? Lessons from the Momentum Telecom Inc. Admonishment Order

The Federal Communications Commission’s (“FCC”) cumbersome nature has been a bit of sore spot with telecommunications providers and their counsel.  Does an order issued by the FCC Enforcement Bureau (“EB” or “Bureau”) last week, however, demonstrate that the FCC’s cumbersome processes might occasionally work to the benefit of telecommunications providers?

On July 22, 2016, the FCC EB issued an admonishment order (“Order”) to Momentum Telecom, Inc. (“Momentum” or “Company”), chastising the Company for failing to timely and fully contribute to the federal Universal Service Fund (“USF”) for over twelve (12) months.  The Order expressed explicit concern with Momentum’s pattern of habitual late payment of its federal USF obligations.

Although Momentum exhibited behaviors commonly on the FCC EB’s “naughty” list, Momentum managed to escape an FCC forfeiture penalty altogether.  Specifically, even though Momentum had been delinquent in its federal USF contributions for nearly two years, the FCC EB determined that the one-year statute of limitations set forth in FCC Rule 1.80(c)(4) prevented the Bureau from pursuing a forfeiture penalty because the “appropriate notice” was not issued within one (1) year of the violation.

Of particular interest is the fact that the FCC EB seems to have pegged July 1, 2015 (the date on which Momentum had been delinquent in its federal USF contributions for nearly two years) as the applicable date for purposes of calculating the statute of limitations.  Although not discussed in any detail, presumably the “appropriate notice” in this case is the Order (adopted on July 21, 2016 and released on July 22, 2016).  So, it appears that the Momentum Order just barely squeaked in past the one-year deadline, saving Momentum a minimum forfeiture penalty of $322,665.75.

Make no mistake – the FCC EB’s Order did not exempt Momentum from making all of its delinquent federal USF contributions.  Nor did it create a statute of limitations for those contributions.  In fact, the FCC EB was adamant that Momentum should be “sanctioned” for its habitual late payment of its federal USF contributions and warned the Company that future violations could result in substantial monetary fines.

Nonetheless, the Momentum Order provides some valuable lessons regarding the statute of limitations for forfeiture penalties related to federal USF contributions.  First, make sure you know the start date the FCC EB is using for purposes of the statute of limitations.  Knowing this information, and being able to refute it, could come in handy in enforcement negotiations or an appeal.  Second, make sure you are clear about what the FCC considers “appropriate notice.”  As with the statute of limitations start date, this information could help potentially reduce or eliminate a penalty.  Finally, before you submit to a treble damage penalty calculation (as established in the FCC’s 2015 Forfeiture Policy Statement), do some quick math to determine whether you can avail yourself of the one-year forfeiture penalty deadline exemption.

Kristin Berkland Joins Bradley Hagen & Gullikson, LLC as Telecommunications Attorney

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Kristin Berkland

Kristin Berkland

Bradley Hagen & Gullikson, LLC, is pleased to announce that former Universal Service Administrative Company (USAC) Assistant General Counsel, Kristin Berkland, has joined the firm as a telecommunications partner.

While with USAC, Ms. Berkland provided legal counsel to the USAC division responsible for billing, collecting, and disbursing over $7 billion in federal universal service revenues annually. Ms. Berkland also worked with the Federal Communications Commission (FCC) Wireline Competition and Enforcement Bureaus in the application of federal universal service reporting and contribution regulations and assisted with federal universal service E-Rate waste, fraud, and abuse matters. Ms. Berkland regularly participated in and provided legal oversight for USAC contributor and beneficiary audits, giving her a unique and unparalleled insight into the USAC audit process.

Prior to joining Bradley Hagen & Gullikson, LLC, Ms. Berkland worked for the law firm of Dorsey & Whitney, LLP where she helped telecommunications providers comprehend and comply with their federal universal service reporting and contribution requirements and counseled federal universal service beneficiaries and service providers regarding participation in the High Cost, E-Rate, and Lifeline programs. She has represented major school districts in federal E-Rate matters, including USAC E-Rate audits. Ms. Berkland has also handled complex Telephone Consumer Protection Act (TCPA) regulatory compliance matters and sheparded clients through the complex domestic and international Section 214 authorization process, including providing counsel regarding how to navigate the complicated “Team Telecom” review process. Ms. Berkland also has experience in energy regulatory, antitrust, and complex litigation matters. Ms. Berkland will continue to offer her unique blend of federal universal service and Section 214 licensing services at Bradley Hagen & Gullikson, LLC.

Ms. Berkland received her B.A. in International Studies, with honors, from the University of North Carolina at Chapel Hill and her J.D., magna cum laude, from the Catholic University of America, Columbus School of Law in Washington D.C.

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Visit Bradley Hagen & Gullikson’s website for more information.
Contact Kristin directly at kristin@bradleylawmn.com.

Adrian Herbst and Leslie Herbst-Saporito Join Bradley Law Firm

We are pleased to announce that Adrian Herbst and Leslie Herbst-Saporito have joined Bradley Hagen & Gullikson as partners. They will join Mike Bradley in his telecommunications practice at the firm. Both are coming from the well-respected municipal telecommunications law firm of Baller Herbst Stokes & Lide.

“I am so pleased to have Adrian and Leslie join our team,” said Mike Bradley. “No one in Minnesota has more municipal telecommunications legal experience than Adrian Herbst. It is a real honor to have him join us.” Adrian brings over 30 years of municipal telecommunications legal experience to the firm. He served as the City Attorney for the City of Bloomington for many years before going into private practice. He has been a leading attorney in municipal cable franchising, rights-of-way management, and municipal broadband planning. Indeed, Adrian negotiated many of the initial cable television franchises in the Twin Cities.

Adrian has also been a leader in many municipal organizations.  Adrian has served as President of the Minnesota Trial Lawyers Association and Vice President of the League of Minnesota Cities.  He is a charter member of the National Association of Telecommunications Officers and Advisors (NATOA), as well as various other legal organizations including the International Municipal Lawyers Association (IMLA), the Federal Communications Bar Association, and the Telecommunications Committee of the Minnesota State Bar Association. Adrian is a member of the State Bar of Minnesota.  Like Mike Bradley, Adrian holds the highest AV rating with Martindale‑Hubbell.

Leslie, Adrian’s daughter, is an emerging municipal telecommunications attorney in her own right. She has assisted local governments throughout the country on all aspects of cable service franchising and telecommunications rights-of-way management issues. She is experienced in drafting, negotiating and enforcing cable and telecommunications franchises and revising right-of-way ordinances.

“I feel very fortunate to have the opportunity to work with Leslie,” said Adrian Herbst proudly. “I have known and consulted with Mike for many years on municipal telecommunications issues. I’m excited about the synergies of our practices.”

Most recently Leslie has been working on competitive cable franchises for municipal clients in Minnesota.  “Our firm has been a leader in helping cities negotiate competitive cable franchises resulting in wire-line cable television competition for the first time ever in the Twin Cities,” said Bradley, “Leslie’s experience will build on that success.”

In the coming months and years, local governments will be challenged to ensure their residents have access to adequate broadband services. This issue particularly affects rural areas. Many cities are also facing a rise in cell tower applications as mobile phone companies look to increase their coverage and bandwidth for consumers. This increase in demand coupled with recent changes to the law require local governments to reassess its current approach to cell towers. According to Leslie, “it’s an exciting time to be representing local governments on telecommunications issues with recent developments, such as competition in cable, cell tower and broadband planning. I think the firm is in a great position to help local governments navigate successfully through these issues.”

Bradley Hagen & Gullikson is a Twin Cities based law firm located in Woodbury, Minnesota.

 

Attorney Leslie Saporito

Leslie Herbst-Saporito

Attorney Adrian Herbst

Adrian Herbst

Attorney Mike Bradley

Mike Bradley

 

 

 

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