Form 499 Changes in the Works, Apparently

Does the FCC really care about your input on a mandatory online filing requirement for the Forms 499? We’re not entirely sure.

The Office of Management and Budget advises that “[e]liminating . . . unjustified reporting and paperwork burdens” is a “high priority” of the current Administration. Perhaps, but OMB also reports that, in 2011 Americans spent an estimated 9.14 billion hours filling out Federal government forms.

According to a recent notice published in the Federal Register pursuant to the hilariously named Paperwork Reduction Act (PRA), the FCC is looking to streamline the reporting burdens of Forms 499-A and 499-Q by eliminating one filing requirement (“the third-party disclosure requirement” – whatever that means… more on this below) and ditching paper filing in favor of mandatory online electronic filing for Forms 499-A and 499-Q. So, thankfully, the FCC may be embracing the Administration’s supposed priority.

Or maybe the FCC just got tired of trying to squeeze new boxes and lines onto the paper forms whenever requirements change.

In any case, other than the extremely vague PRA notice, we know nothing about the proposed changes because the FCC hasn’t released any other information about them. So filers have no way of knowing how the new requirements may be implemented or whether the changes will actually reduce reporting burdens.

Regular readers will recall that, in late 2012, the FCC asked for comment (for the first time ever) on possible revisions to the Form 499-A and its corresponding instructions; it did so again in late 2013. The Commission supposedly intended to “promote clarity, transparency and predictability.” (You can read more about that here, here, and here.) No similar solicitation has occurred this time around (other than the detail-less PRA notice) – so, apparently, the promotion of clarity, transparency and predictability does not extend to whatever changes the FCC has in mind now.

As noted, only two changes are being contemplated: the elimination of “the third-party disclosure requirement” and the elimination of paper-filing of Forms 499-A and 499-Q.

Precisely what the “third-party disclosure” requirement is is not clear since the Commission has declined to tell us. We assume that it’s related to the check-box on line 605 of the Form 499-A and line 121 of the Form 499-Q. Filers check these boxes to request confidential treatment of the revenue data being submitted. Perhaps the FCC is eliminating these check-boxes and just granting confidential treatment as a matter of course. If so, great – one less box to check!

The second change – elimination of paper-filings in favor of an all-online-filing approach – seems self-explanatory and, for the most part, a welcome (and environmentally friendly) change. Currently, Forms 499-A and 499-Q can be filed either online or the old-fashioned way, on paper (assuming you are skilled in writing legibly within tiny lines and boxes).

However, as things now stand, there are still certain situations in which paper filings are required. For example, under the current system, only the company officer who signed the previous paper filing is permitted to certify the company’s Form 499 filings online. If a company wants a different officer to certify the filing, it must first submit a paper filing with the new officer’s physical signature.

Generally speaking, the current Form 499 process, a mix of paper and electronic filings, can be a pain. So a change to a mandatory all-online-filing format should be appreciated by most.

Still, current Form 499 filers would likely be able to provide useful feedback if there were more details to provide feedback on. For the time being, with only the limited solicitation of comment through an obscure PRA notice, it doesn’t seem the FCC is really looking for much input, useful or otherwise.

But whether or not the FCC is indeed looking for any, the PRA notice does provide some opportunity for input. If you have comments, you may file them in response to the PRA notice by August 29, 2014. They can be submitted via email to PRA@fcc.gov.

FCC Form 499-A: Updated and Ready to File by April 1

The newly revised FCC Form 499-A and its accompanying instructions are now available, but some expected revisions on wholesaler-reseller USF exemption guidance are conspicuously absent.

It’s March! Spring is right around the corner, the excitement of college hoops is in the air, and you only have a few weeks left to come up with a clever April Fools’ Day prank to play on your coworkers. (If you’re short on novel – and safe – ideas, here’s a classic.) As if that’s not enough excitement, telecommunications providers get to experience the fun of preparing the annual FCC Form 499-A filing due by April 1. 

The FCC has released its annual update of the Form 499-A, including changes to the Form’s accompanying instructions. All joking aside, there really are some interesting aspects to this year’s new 499-A – including some anticipated “guidance” that is conspicuously absent. We’ll discuss that more after we cover some of the 499-A basics.

When to file? 499-A filings are due by April 1. If you’ve filed the 499-A before, you know it’s a process that has undoubtedly contributed to the madness in March. It’s as fun as filing your taxes but with virtually no possibility of getting a deadline extension. So don’t be a fool, and don’t miss the April 1 due date – the potential penalties are no joking matter.

Who has to file? With very few exceptions, telecommunications providers of all kinds must file the 499-A. This includes, for example, providers of wireless and wireline telephony, interconnected and non-interconnected VoIP service, audio bridging service, prepaid calling cards, and satellite services. A common misconception is that the 499-A and other FCC requirements don’t apply to non-voice/data services or to companies that simply buy and resell the services of other carriers. Don’t be fooled (there’s that word again): the definition of telecommunications is quite broad (basically, any transmission of information could fit) and the 499-A’s applicability is vast.

(REMINDER: The FCC’s new accessibility-related recordkeeping certification is also due by April 1. If you’re required to file the FCC Form 499-A, you’ll most likely need to also file this new certification. Sorry, not joking here, either.)

Where and how to file? You can still file the 499-A the old-fashioned way, on paper. Filings are submitted to the Universal Service Administrative Company (USAC), not directly to the FCC. If you’re a veteran filer (i.e., you’ve filed a Form 499 by paper before), you can even submit the 499-A online via the USAC website. To file online, you’ll need a computer and a company officer with an email address.

What to file? Filers must report revenue from the prior calendar year (the upcoming filing will report 2012 revenue). Of course, revenue must be reported on the 499-A in a very special – and by “special” we mean “complex” – way. You can’t just copy and paste from your tax returns or financial statements. Revenue has to be reported by categories of service and sources of revenue (i.e., whether it’s derived from end-users or other providers, such as resellers). Revenue must also be allocated on the 499-A to intrastate, interstate and international jurisdiction. There are rules for how to do all this, some of which are described in the instructions which accompany the Form 499-A. Other nuances of completing the 499-A may necessitate consulting the FCC’s regulations or the numerous orders on federal Universal Service Fund (USF) reporting and contribution compliance.

Why file? It’s all about the money! The FCC wants to know how much money is generated from telecommunications. More significantly, the 499-A is used to calculate contributions owed by telecommunications providers to various federal programs. These programs include the USF, Telecommunications Relay Services (TRS) Fund, North American Numbering Plan (NANP) Fund, Local number Portability (LNP) Fund, and the FCC’s Interstate Telecommunications Service Provider (ITSP) Regulatory Fees. Since money is involved, it’s important to report and allocate revenue properly on the 499-A. If you report revenue incorrectly, it could lead to over-contributions or under-contributions to the various federal programs. Under-contributing sounds great (right?), except it could also lead to those pesky penalties we mentioned earlier. If you’re required to file but don’t (even if you claim you didn’t know about the requirement), you will also be subject to – guess what – potential penalties.

What’s so interesting about the 499-A this year?

For starters, this year marks the first time that the FCC has released an updated Form 499-A after letting the public have an opportunity to provide feedback on proposed revisions to the Form and its instructions. If you’ve ever tried to complete the Form 499-A, or any form for that matter (just ask some Canadian Senators), this makes great sense (unlike many of the forms/instructions themselves). What better way to make a form better than to solicit input from those who will be completing it?

According to the Wireline Competition Bureau (WCB) last year, getting public feedback on the proposed revisions would serve “to promote clarity, transparency and predictability.” Again, that makes great sense! So why, then, is this the first time the WCB has sought public comment on proposed revisions to the 499-A form/instructions?

Um, because the Commission told it to, in the so-called Wholesaler-Reseller Clarification Order (we’ll just call it the Clarification Order for short). Basically, nobody had told the WCB it had to seek feedback on revisions to prior 499-A forms and instructions, so previously it hadn’t bothered to. But “to promote clarity, transparency and predictability” sounds better than “we’re doing this now because we were told we had to.”

As its nickname suggests, the Clarification Order focuses mainly on revenue reporting issues – questions dealing with services provided by wholesalers (a/k/a underlying carriers or carrier’s carriers) to reseller carriers. The 499-A’s instructions supposedly contain “guidance” on the parameters and processes wholesalers should utilize to determine whether revenue should be reported as exempt from or subject to USF contributions. But those instructions have historically left filers (and USAC – the entity responsible for administering the USF program) unclear on how to make the determination in a manner which would satisfy the FCC. (Properly determining revenue reporting for USF purposes is pretty important, especially since the rate at which USF contributions are calculated has been as high as 17.9% in the past year!)

Accordingly, the Clarification Order attempted to clarify the process. Among the particulars up for clarification: the “reseller certifications” (a/k/a USF exemption certificates, verifications of USF contributor status, among other things) used by the telecommunications industry to help determine ultimate responsibility for USF contributions and how to report revenue on the Forms 499. The Clarification Order expressly instructed the WCB to propose and seek public comment on revisions to wholesaler-reseller guidance contained in the 499-A instructions including, specifically, new sample language for use on reseller certifications. (The new sample certification language is of particular importance because the FCC considers it part of the “safe harbor” procedures for obtaining valid reseller certifications.) Since the WCB had to obtain feedback on these revisions anyway, it opened the floor to comments on all of the proposed changes.

Now we turn back to the changes on this year’s Form 499-A and accompanying instructions.  Guess what’s missing? That’s right, the sample reseller certification language which formed the bulk of the WCB’s proposed revisions to the wholesaler-reseller guidance portion of the 499-A instructions somehow didn’t make the cut. Instead, the new instructions essentially say that wholesalers/resellers can rely upon suggested reseller certification language contained in last year’s 499-A instructions, at least until the end of 2013. What should filers do after the end of this year? No word. Why did the guidance get cut? No word. 

So much for clarity, transparency and predictability.

We have a couple theories.

First, it’s possible the WCB simply ran out of time to evaluate all the thoughtful feedback provided by the public. After all, considering this was the first time public feedback had to be incorporated into the revision process, the WCB was on a fairly tight schedule. The comment deadline was January 11, providing the WCB a little over a month-and-a-half to consider the feedback and incorporate it (or at least any worthy elements of it) into the final revised 499-A and instructions by early March. (Of course, this still means that filers are left with less than a month to digest the final changes, implement modifications to reporting methodology, and prepare the 499-A to be filed by April 1 to avoid – say it with us – potential penalties.) The time constraints would’ve been even greater if certain revisions necessitated Office of Management and Budget approval pursuant to the Paperwork Reduction Act.

Another theory is that the WCB did not include the proposed revisions because soon the guidance provided in the Clarification Order may not be any good. In addition to the feedback in response to the 499-A revisions, a couple of parties of have also filed petitions for reconsideration (see here, and here) of the Clarification Order. It’s possible these petitions could result in further modifications to wholesaler-reseller USF obligations, prompting the WCB to wait. 

Then there’s also the idea, perhaps a little far-fetched, that the proposed revisions would be completely irrelevant because the FCC will soon reform the entire USF contribution program as a result of a proceeding (re)initiated last year.

Whatever the actual reason may be, you’ll have to wait a little longer before getting absolute (is that possible?) clarity, transparency and predictability on the wholesaler-reseller USF issues in question.

In the meantime, take a look at the WCB’s Public Notice summarizing the final changes to this year’s 499-A and instructions. There are no April Fools’ jokes in the Public Notice, but there are some other changes that should be reviewed by those who need to file the Form 499-A by April 1.

Telecom Companies Take Note: Your Form 499-A Deadline Is Less than a Month Away

It’s that time of year again – all telecoms and VoIP providers must file their annual Form 499-A by April 2.

That “other” April deadline is right around the corner: all telecommunications carriers are required to file FCC Form 499-A by April 2, 2012. If you’re an intrastate, interstate or international provider of telecommunications in the U.S., this probably means YOU (but check below for the short list of exemptions).

 Form 499-A is used to true up the carrier’s Universal Service Fund contributions reported during the previous year. The revenues reported on the form will also be used to calculate upcoming 2012 contributions to the Telecommunications Relay Service, the North American Numbering Plan, and the Local Number Portability Fund.  (For 2012, the proposed “contribution factor” – i.e., percentage of revenues that must be paid – will be a whopping 17.9 percent, up from 15.3 percent in the last quarter of 2011. Ultimately, these contributions come from consumers, who are assessed a surcharge as a percentage of their phone bill.)

The new 2012 form was released on March 5, giving carriers less than a month to get on file. It’s mostly the same as last year, except that now non-interconnecting VoIP providers must file to fulfill their new obligation to contribute to the Telecommunications Relay Service Fund. (That new obligation comes courtesy of the Twenty-First Century Communications and Video Accessibility Act of 2010.)

A reporting company’s initial 499-A filing must be paper and ink; after that, carriers can file online through USAC’s website.

Before starting to fill out the form, a reporting company will need to pull together some financial information – i.e.,billed revenues for 2011, broken down into various categories. There is a safe harbor percentage available for entities that have difficulty separating their telecommunications versus bundled non-telecoms revenues. There is also a safe harbor for cell and VoIP providers to use in breaking out their interstate versus intrastate revenues.

Additionally, carriers with a lot of international revenue should take note of the “limited interstate revenues exemption” (LIRE). That allows companies whose interstate revenues are 12% or less than their international revenues to exclude international revenues in their “contribution base” (the amount upon which their contribution is assessed). Don’t look for this exemption in the Form 499-A instructions; it’s buried in a worksheet in an appendix.

If you’re not sure whether you’re a telecommunications carrier or not, you probably are. The category of mandatory 499-A filers is broad, including resellers, non-common carriers and VoIP providers. However, there are limited exemptions for:

  • De minimis providers – whose contribution would be less than $10,000 (available only for exclusively non-common carriers);
  • Government and public safety entities, or carriers who provide services exclusively to the government;
  • Broadcasters;
  • Non-profit schools and libraries;
  • Non-profit health care providers; and
  • Systems integrators and self-providers whose telecoms revenues are less than five percent of the systems integration revenues.

If you have any doubts about whether you’re required to file, you’d best get them resolved sooner rather than later. Failure to file can be expensive. Last year, we reported that the FCC reminded one carrier of its obligations by doling out a $600,000 fine. While we haven’t yet seen any similar forfeitures this year, it’s not hard to run up a big tab quickly. Do the math: $50,000 for each “failure to file,” plus one and a half times the total unpaid amount, plus an extra $100,000 if you also failed to register as a contributor. And you still have to pay the amount in arrears.  For lateness that doesn’t extend long enough to trigger the FCC forfeiture process, USAC still assesses a $100 per month late fee plus 3.5% of the filer’s monthly obligations.

And just because you make the April 2 deadline, don’t think you can kick back and relax: the quarterly Form 499-Q deadline is May 1.

Caveat Carriers: Telecom Report Form 499-A Is Due April 1

FCC pillories telecom provider with $600K+ fine as the Form 499-A deadline draws near. Coincidence? We suspect not. 

With less-than-subtle timing, the FCC has fined ADMA Telecom, Inc., a Florida telecommunications company, more than HALF A MILLION DOLLARS for Universal Service Fund (USF)-related violations.  The message is clear: telecom companies that ignore the FCC’s paperwork requirements run the risk of hefty financial penalties. So get out your calculator, look through your books,  and get those 499-A’s on file by April 1, 2011.

As we all know, Congress has long required the FCC to establish and oversee a number of programs aimed at assuring the provision of telecommunication services to all Americans. Those programs are for the most part funded by consumers, through telecom providers. The FCC has developed an extensive set of reporting requirements so that it can keep track of all providers and determine how much each of them owes to the various programs. (Those programs include the USF, the Telecommunications Relay Service (TRS), and the North American Numbering Plan (NANP).)

The reporting requirements include an initial registration (to let the FCC know that the telecom provider has started providing telecom services) and then annual (and, in most cases, quarterly) worksheets – either Form 499-A or 499-Q – from which USF contributions are calculated. These filing chores apply to most telecommunications carriers, including resellers and interconnected VoIP providers.  Limited exceptions include government-only providers, broadcasters, certain non-profits, and systems integrators that derive less that 5% revenue from telecoms resale. Carriers owing less than $10,000 are considered de minimis and do not have to contribute, but still must file the form and pay any TRS and NANP contributions.

Since these programs involve billions of dollars, the Commission has an obvious incentive in riding close herd on the players, to make sure that everybody pays what they owe. And it has an equally obvious incentive to make examples of those who come up short. 

ADMA, for example.

Each USF-related violation carries its own forfeiture amount.  The Commission concluded that ADMA had failed to register itself for several years, had been late in filing its worksheets, and didn’t make its required USF/TRS/NANP contributions for significant periods.   Here’s the dollar breakdown of ADMA’s forfeiture:

  • Failure to register: $100,000
  • Late/Missing Form 499’s: $150,000 ($50,000 each)
  • Failure to contribute to USF: $211,835
  • Failure to contribute to TRS: $80,706
  • Failure to contribute to NANP: $20,000

The FCC also slapped on $100,000 for operating without an international section 214 authorization, bringing the grand total up to $662,541.

Notice that the fines for stiffing the USF and TRS look a bit strange – they’re not the nice round numbers you’d expect to see. That’s because for these types of fines, the FCC starts with a base figure (for example, $20,000 per month for no USF payment) and then adds half the total unpaid amount to the forfeiture.  Oh, and by the way, this does not decrease the amount due: the carrier still has to pay all the contributions in arrears.

As noted above, the deadline for the next Form 499-A is right around the corner – April 1, 2011. While the timing of the ADMA fine may just be coincidental, we suspect it wasn’t. What better way to encourage timely filing than to make an expensive example of an untimely filer on the eve of the deadline?

So don’t delay. Carriers who have already registered can submit the form online through the Universal Service Administrative Company (USAC)’s website.