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. 

2. 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 [email protected] 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.

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 https://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.