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.

FCC Query: How Much Free Internet Does it Take to Get Consumers Hooked?

The Universal Service Fund (USF) – it’s not just for telephone service anymore.

For more than a decade, the Universal Service Fund (USF) has subsidized (1) telephone lines in places where there isn’t enough of a business case for phone companies to build and operate them, and (2) monthly telephone service for people who couldn’t afford it. 

That’s not good enough anymore, according to the FCC. 

As the Commission sees it, high-speed Internet – broadband – is a necessity, not a luxury. Accordingly, the FCC is looking to re-direct some USF funds to support broadband. Most likely, this will take the form of a monthly discount on broadband for low-income households.

In moving broadband way up on the list of life’s essentials, the Commission may be getting ahead of many consumers. Affordability is undoubtedly one factor in broadband adoption, but there may also be a number of people who just don’t think it’s that important, or not worth the hassle, or too much of a privacy risk, or any number of other concerns. To change their minds, the FCC has decided to use a ploy familiar to the criminal element: it’s going to test how much free or discounted Internet Joe Consumer needs to get hooked on broadband.  As with any pusher, the FCC’s apparent hope is that eventually the consumer will become addicted and willing to cough up the full price.

Accordingly, in February, the Commission announced (in its overhaul of the USF Lifeline program) that it would be setting up a Pilot Program “to test how the Lifeline program could be structured to promote the adoption and retention of broadband services by low-income households”. And now, with a public notice released April 30, 2012, the Wireline Competition Bureau has followed up on that plan. The Bureau is making $25 million available to eligible telecommunications carriers (ETCs) to carry out “field experiments” on customers.

The experiments will test various factors in encouraging broadband adoption: primarily what discount dollar amount would be most effective, whether it should be a single discount or monthly (and if monthly, how long it should last), and how speed, usage limits, and consumer outreach might affect adoption.

Applications to participate in the Pilot Program are due on or before July 2, 2012. Would-be participants who are not already ETCs must be designated before the application deadline. Participants will likely be selected during the third quarter of 2012. The Pilot Program is anticipated to last about 18 months: three months of provider back office implementation, 12 months of subsidized service, and three months of finalizing and reporting data. For more information, there is a Pilot Program webinar available on the FCC’s website.

Here’s how the program is supposed to work:

Experiment design.  Did you enjoy participating in your high school science fair? Then this program will be right up your alley. ETCs seeking to participate in the Pilot Program must design and submit a project along the lines of a scientific field experiment, including a detailed description of the experimental design and the variables to be tested. As mentioned above, the focus is on learning which discount plans are most effective in promoting broadband adoption and retention, but speeds, usage limits, and the effect of consumer outreach are also of interest. The experimental design should randomize variations on broadband service offerings (e.g., geographic randomization).

Individual applicants are not required to incorporate an extensive number of potential variations of broadband service into their projects; rather, the FCC will create a “portfolio” of projects by selecting multiple projects to test a range of variations in diverse geographic areas (e.g. rural, urban, Tribal). The Bureau encourages ETCs to partner with field experiment experts and third-party organizations working to increase broadband adoption, such as academic researchers, social research organizations, contract-research firms, or non-profit organizations. ETCs are also encouraged to work collaboratively with each other, sharing administrative costs where possible.

Preference. Preference will be given to:

  • Projects that include partnerships with non-ETCs that already have existing adoption programs in place to provide digital literacy (such projects may also include a control group that does not receive digital literacy training).
  • ŸProjects that also test, with appropriate control groups, whether access to equipment can influence adoption.
  • ŸProjects that indicate that their proposed projects promote entrepreneurship and small business, including those businesses that may be socially and economically disadvantaged.
  • ŸProjects that demonstrate ability to execute the proposal (in terms of funding and expert and third-party qualifications).
  • ŸProjects that demonstrate the value of the data to be collected in credibly addressing questions of interest.

The Bureau will also take into account the aggregate funding amount requested for each pilot project. In addition, it will select at least one pilot project directed at providing support on Tribal lands.

Costs and obligations. Participants in the Pilot Program will have the following minimum obligations during the program period (in addition to conducting the project):

  • ŸParticipants must use the funds they receive from USAC to subsidize the discounted services they provide to low-income consumers under the Pilot Program. In other words, if a carrier knocks $10 off a customer’s phone bill, it will be reimbursed $10. Other project-related expenses, however, such as the costs of developing the project design, will not be reimbursed.
  • ŸWhat program would be complete without reporting? In this case, participants must submit two types of forms. First, they must submit monthly reimbursement forms to USAC (similar to Lifeline reimbursement) for (1) any monthly discount of broadband service, (2) any applicable discount amount for voice telephony service if the broadband subscriber is also getting Lifeline support, and (3) any non-recurring fees for broadband provided to subscribers under the pilot project.  Second, participants must submit subscriber data on a “Low Income Broadband Pilot Program Reporting Form” to be collected directly by the ETC and submitted to USAC. Alternatively, at the participant’s request on its application, USAC will solicit this information directly from subscribers using an online survey. In either case, ETCs must obtain consent from their subscribers to provide this information before enrolling them in the program. This information will be collected at least twice: once when the subscriber first initiates service and again near the end of the project. The “anonymized” form will call for disclosure of income, age, ethnicity, family size, and details regarding subscriber usage.
  • ŸSubscribers should all be enrolled within nine months of the start of the trial period, unless applicants make an upfront case as to why their project should have different timelines.
  • ŸParticipants are “strongly encouraged” to file a final report sharing additional information with the Commission about lessons learned from the project, including cost on a per-subscriber basis of converting consumers to broadband. A representative may be asked to present such information at a Commission event.

 The Public Notice lists a number of specific items of information that must be submitted with each application that are not itemized here. Feel free to contact us with any questions.

Some, Maybe All, Remaining Effective Dates in Lifeline Reform Set

Last month we reported that effective dates for some, but not all, of the rules revised as part of the Commission’s reform of its Lifeline program had been set. It looks like the effective dates of the rest have now also been set, although the Commission’s own Federal Register notices concerning those dates leave at least some room for doubt.

The Lifeline reforms were adopted back in February. In a Federal Register notice published in March, the Commission announced that Sections 54.411, 54.412, 54.413 and 54.414 were to take effect April 1, 2012 and Section 54.409 will take effect June 1. No problem there. But it then said that Sections 54.202(a), 54.401(c), 54.403, 54.407, 54.410, 54.416, 54.417, 54.420 and 54.222 wouldn’t kick in until after the Office of Management and Budget (OMB) had given them the Paperwork Reduction Act once-over.

According to the latest Federal Register notice, OMB has completed its review and given its thumbs up. So the FCC has announced that Sections 54.202(a), 54.401(d), 54.403, 54.405(c), 54.407, 54.416, 54.417, 54.420(b), and 54.422 have become effective as of May 1, 2012, while Section 54.410(a)-(f) will take effect June 1, 2012.

Careful readers will note a couple of minor discrepancies between the March notice and the most recent. Where the March notice referred to Section 54.401(c), the April notice refers to Section 54.401(d). Also, the April notice indicates that Section 405(c) is among the sections taking effect on May 1. But that particular section wasn’t among those listed in the March notice. And, in the most recent notice, the Commission mentions, pretty much in passing and without explanation, that it has also removed certain provisions (in particular, the temporary address confirmation and recertification requirements set forth in Section 54.410(g), the chunk of Section 54.405(e)(4) relating to temporary address de-enrollment, and the biennial audit requirements of Section 54.420(a)).  It's not clear what that means. The rules have, after all, been formally adopted by the Commission and are therefore technically in the books, but if OMB hasn't signed off on them (which appears to be the case), they can't become effective.  So they'll presumably just be dead wood in the rule book, at least for the time being.   

These discrepancies, though, may be relatively minor, particularly given the enormity of the changes the Commission is making to the overall Lifeline program. Look for the Commission to tie up any loose ends eventually.

One final observation.  While the standard OMB approval extends for three years, this OMB approval is for a paltry six months.  That means the FCC will be back knocking on OMB's door before you know it.  Interestingly, the FCC asked OMB to act on this particular request on an emergency basis.  What was the emergency?  According to the FCC:  “The Commission has set a budget target to eliminate $200 million in waste in 2012, which is dependent on certain rules going into effect as soon as possible.” Ah, a self-created emergency. We can't wait to see what they come up with in six months.

Lifeline Reform Update: FCC Invites Comments on Recons

Got something more to say about the FCC’s Lifeline reform? You’re in luck, because at least one more chance to share your thoughts with the Commission is here – as long as those thoughts have something to do with any of the petitions for reconsideration filed with respect to the Lifeline reform order released back in February.

According to a notice in the Federal Register, a total of eight reconsideration petitions were filed. The publication of that Register notice sets the deadlines for oppositions and replies to the petitions. If you want to oppose any of the petitions, you’ve got until May 7, 2012. Replies are now due by May 15.

In the underlying order, the Commission adopted various reforms to reduce Lifeline fraud, waste and abuse, and otherwise overhaul the Lifeline program. Read the full order here – or if you’re not up for 231 pages of fine print bureaucratese, followed by another 100+ pages of appendices – you can read more about it in our post from last month.

If you would prefer to read only the petitions for reconsideration, you can find them at the links below:

USTelecom

TracFone Wireless

T-Mobile USA, Inc.

Sprint Nextel

General Communication, Inc.

Nexus Communications, Inc.

American Public Communications Council, Inc.

District of Columbia Public Service Commission

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.

Update: Comment Deadlines, Some Effective Dates in Lifeline Rulemaking Set

The Commission’s magnum opus setting out new rules for the Lifeline program – and proposing more new rules for that program – has been published in the Federal Register. (Click here for the portion containing the proposed rules; click here for the portion containing the new rules that have already been adopted.)

This publication establishes the deadlines for comments and reply comments relative to the proposed rules. If you would like to submit comments, you have until April 2, 2012; reply comments are due by May 1.

The Federal Register publication also establishes the effective dates of some (but not all) of the adopted rules. Get a pencil and paper out – you may need to take notes. Sections 54.411, 54.412, 54.413 and 54.414 will take effect April 1, 2012. Section 54.409 will take effect June 1, 2012. What about Sections 54.202(a), 54.401(c), 54.403, 54.407, 54.410, 54.416, 54.417 54.420 and 54.222? They all involve “information collections” and thus must first be blessed by the Office of Management and Budget thanks to our old friend, the Paperwork Reduction Act before they can take effect.

FCC Tightens up Lifeline Program

Looking to rein in fraud, waste, and abuse in the federal Lifeline program, the FCC has pulled out almost every bureaucratic tool in the box.

As we all know, the federal Lifeline program, overseen by the FCC, provides subsidized phone service to low-income households. In 2010, the Government Accountability Office released a report revealing a significant lack of direction and control within the Lifeline program. In response, the FCC has now adopted comprehensive measures to combat fraud, waste, and abuse in the program. By doing so, it hopes to trim “up to” $200 million from the Lifeline program this year and $2 billion over the next three years.

The FCC’s Report and Order and Further Notice of Proposed Rulemaking (R&O/FNPRM) spans 231 pages (and another 100 pages or so of appendices). Eligible telecommunications carriers (ETCs) will want to familiarize themselves with the many specific requirements detailed in the R&O/FNPRM in order to assure compliance. The following provides an introductory overview of the highlights of the FCC’s action. (Important note: this post does not address (a) Lifeline issues specific to Tribal lands or (b) state-conducted eligibility review.)

The R&O/FNPRM focuses on two main problem areas: (1) support for more than one person per household; and (2) support for ineligible consumers.

One per household.  The R&O/FNPRM codifies the policy that each household gets support for only one phone line, mobile or fixed. (The agency already clarified, back in June 2010, that an individual gets only one Lifeline-supported service.) A “household” is assumed to consist of everyone who lives as a single address (not a P.O. Box), unless the residents self-certify that they are financially independent from each other (for example, unrelated adult roommates). Commenters (including Commissioner Clyburn) have pointed out that this is increasingly out of sync with the way modern families use phones, but the Commission has rejected the extra cost of providing phones to multiple individuals within a single household. For customers who want to show that they are financially independent of their housemates, the FCC has directed the fund administrator, the Universal Service Administrative Company (USAC), to come up with a certification form within 30 days of the publication of the new rules in the Federal Register.

National eligibility standardsRight now, eligibility for Lifeline varies by state, although the FCC has developed certain “federal default” criteria applicable to the handful of states that have not claimed jurisdiction over Lifeline eligibility.  Based on those federal default criteria, the R&O/FNPRM establishes as uniform national eligibility criteria: (1) household income at or below 135 percent of the Federal Poverty Guidelines; or (2) participation in one of a number of federal assistance programs, such as Medicaid or Food Stamps. The idea is to give uniform opportunities to low income consumers nationwide, make compliance easier for carriers, and make auditing easier for USAC. States must recognize consumer eligibility under the federal rules, but can add other qualifying criteria, such as participation in a state program. 

Clear marketing.  When advertising Lifeline services, ETCs (carriers) must explain in clear, easily-understood language: that the offering is a Lifeline-supported service; that only eligible consumers can enroll; what documentation is necessary; and that the program is limited to one benefit (either wireline or wireless) per household. ETCs must also explain that Lifeline is a government benefit program, and false statements to obtain it may be punishable by fine, imprisonment, or being barred from the program.

Consumer certificationWhen enrolling a new Lifeline customer, carriers must obtain a signed (including electronically or by interactive voice response) certification form from the customer. The required certifications include, but are not limited to, confirmation that the customer: understands how the Lifeline program works; is the only person in their household getting service; is eligible for Lifeline; and will let their carrier know if anything changes (within 30 days). Other distinct certifications not itemized here must be included on this form, so carriers should review the requirements carefully.

Annual recertification.  In addition to the initial certification, carriers must recertify the continued eligibility of all of its customers by contacting them for confirmation. This is to be done by checking with an eligibility database, when available. If no such database is available (or if the database does not confirm eligibility), the carrier must contact the customer – in person, in writing, by phone, by text message, by email, or otherwise through the Internet – to confirm his/her continued eligibility. Previously, sampling could be used for this reconfirmation; that is no longer the case. No documentation is required at recertification. Again, there are a number of specific requirements regarding recertification in the order that carriers should review carefully (no, texting “BTW R U still eligible for Lifeline?” is not enough).

Duplicates database.  The R&O/FNPRM establishes a new, nationwide duplicates database that carriers must query before signing up a new Lifeline customer. If that query indicates that the prospective customer is already getting support, the carrier can’t enroll the customer until the customer de-enrolls from the other service. The database will facilitate the transfer of Lifeline benefits from one ETC to another and will keep track of when a query was made and what information was submitted in the query. It will also verify the subscriber’s identification (without which the ETC will not receive reimbursement).

Two sidenotes on the duplicates database: (1) States can opt out of the national duplicates database if they can show that they have established their own state duplicates process at least as robust as the national; and (2) USAC will conduct a “scrubbing” of duplicates once the database has been populated. USAC will notify subscribers if they are receiving duplicate support and help them select a single provider.

Eligibility database.  Lifeline consumers will no longer be able to simply self-certify their eligibility. Instead, the FCC will establish an eligibility database. The database will confirm – at least initially – enrollment in the three most common programs through which consumers qualify for Lifeline (i.e., Medicaid, food stamps, and SSI). Until the database is established (ideally by the end of 2013), ETCs will be required to review documentation from the consumer to verify eligibility. The Commission is still seeking comment on the eligibility database at a fairly high level, including:

  • How to encourage state eligibility databases to provide state-specific eligibility data, including potentially conditioning receipt of federal Lifeline funds on the implementation of a state eligibility database;
  • Whether to help pay for state eligibility databases;
  • What privacy issues are implicated;
  • Whether to implement a national eligibility database instead of or in addition to state databases; and
  • Whether the eligibility database should be integrated with the duplicates database.

Reporting subscriber data.  Carriers must populate the duplicates database by obtaining and reporting the following information about customers:

  • name;
  • address;
  • phone number;
  • date of birth;
  • last four digits of the social security number;
  • initial and de-enrollment dates;
  • the means through which the subscriber qualified for support (e.g., Medicare, income); and
  • the amount of Lifeline support received per month for each subscriber.

ETCs will have to provide an initial data dump of subscriber information within 60 days of notice that the database is capable of accepting data. Because many carriers may not be currently collecting all the information required by the database, they must collect such information from both new and existing subscribers (which can be done as part of the annual re-certification described below).

The carrier that gets customer data into the database first is entitled to reimbursement for that customer, regardless of which ETC the consumer signed up with first.

Disenrollment.  If a customer fails to respond to the annual recertification request, or if a carrier otherwise discovers duplicative support or lack of eligibility, the carrier must, after sending notification of impending service termination, disenroll the customer from Lifeline service. Likewise, prepaid ETCs cannot receive Lifeline support for customers who do not activate their service, or who do not use their phones for a consecutive 60-day period.

Carrier certificationCarriers must certify, annually, that they are in compliance with the Commission’s Lifeline rules when submitting FCC Forms 497 to USAC for reimbursement. As part of this certification, an officer must certify that the carrier has procedures in place to review consumers’ documentation of income- and program-based eligibility and that it has obtained valid certifications forms from each consumer.

AuditsNew Lifeline carriers will be audited within their first year of providing service. Carriers receiving more than $5 million in annual support will be audited biennially.

EnforcementViolators of the rules will be notified of the failure to comply and given 30 days to come into compliance. Penalties for violations include: suspension of payments; monetary forfeitures (up to $150,000 per violation or per day of a continuing violation); revocation of authorization to operate as a carrier; and/or revocation of ETC designation.  Also, funds obtained in violation of the rules are subject to recapture by the government.

The measures described above are addressed to fraud, waste and abuse. Beyond those, the Commission took measures to update and simplify the Lifeline system:

ReimbursementThe R&O/FNPRM replaces the tiered reimbursement system, which was based on incumbent subscriber line charges, with an interim flat rate of $9.25 (except on Tribal lands). Comment is sought on what would be an appropriate permanent flat rate. Reimbursement will also be based on actual subscriber counts, rather than projected subscriber counts. Starting July 1, 2012, to be paid by the end of the month, carriers will have to submit Form 497 by the eighth day of that month. Carriers may also file on a quarterly basis, with a single quarterly payment (rather than separate monthly payments).  Any new or revised Form 497s that may be necessary to reconcile records may be filed within a year of the original due date of the Form 497. 

Phasing out toll limitation support.  Back in the day, a frequent cause of phone service termination was customers’ inability to pay their long distance phone bills. To prevent this, the Commission required ETCs to provide a service that would automatically limit, or block, the amount of long distance charges a customer could receive in one month. Carriers were permitted to claim reimbursement from the FCC for the “incremental costs” of providing the blocking service. Nowadays, however, many service plans don’t distinguish between local and long distance calls, instead charging a set monthly fee for a certain number of minutes. This effectively creates a “toll limitation” service. And the recovery of “incremental costs” has apparently been subject to creative interpretation: carriers were claiming reimbursement for anywhere between $0 and $36 per Lifeline subscriber per month, and were not required to substantiate their claims. So, the R&O/FNPRM requires toll limitation in the future only for old-fashioned service plans that charge separately for long distance calls – capping reimbursement for “incremental costs” at $3/month in 2012, $2/month in 2013, and no reimbursement at all starting in 2014.

Eliminating Link UpAnother payout historically subject to abuse is the Link Up program, which reimburses carriers for half of their “customary charge” of initiating service, up to $30. (It does not cover the cost of providing a mobile handset). Over time, many carriers’ “customary” service initiation charge migrated to $60, the number that would maximize the Link Up payout. In addition, many carriers were not charging the remaining $30 to their customers. Also, some carriers imposed the initiation charge only on Lifeline customers and not on “regular” customers.  In essence, carriers were simply collecting $30 each time they signed up a Lifeline customer. In response, the Commission is eliminating Link Up altogether, except for Tribal areas. Although the offending practices have been largely associated with wireless competitive carriers, the Link Up phase-out applies to wireline carriers as well.

Support for VoIP.  The R&O/FNPRM incorporates the Connect America Fund order’s “voice telephony” definition of supported service into the Lifeline rules, making IP-enabled VoIP an expressly supported service. Of course, VoIP is increasingly the norm as carriers move from circuit-switched to IP networks.

Support for bundled service plans.  The R&O/FNPRM provides support for voice telephony service even if it’s bundled with broadband, contains optional calling features, or is part of a family shared calling plan. Historically, the FCC’s rules have been silent on this issue, and not all states permit reimbursement for such bundled plans. The new rules do not require carriers to apply Lifeline to any bundled service, although the Commission seeks comment on such a requirement.

The R&O/FNPRM also establishes a Broadband Adoption Pilot Program to assess how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. The Wireline Competition Bureau will solicit applications from ETCs to participate in the Pilot Program. The Bureau will then test various amounts and durations of subsidies, geographic areas, and types of networks/technologies through a number of diverse projects. Carriers who are interested in participating but are not yet designated as ETCs should get their ETC designation applications in ASAP.

The R&O/FNPRM also cleans up some aspects of the ETC designation process for Lifeline-only carriers by:

  • formalizing the Commission’s practice of forbearing, for Lifeline-only wireless resellers, from requiring that an ETC have its own facilities. (That practice dates back to the 2005 TracFone order.) This forbearance is subject to certain conditions. The Commission did not address the status of Lifeline-only facilities-based carriers, who may need forbearance from the requirement that their service area completely overlap rural phone company service areas. (Wireless services are generally authorized by county boundaries, while rural phone company service areas are drawn by blindfolded three-year-olds, so they hardly ever match up).
  • confirming that carriers can’t get around the TracFone conditions by providing a component service – such as operator, directory, or toll limitation service – over their own switch and then claiming to be “facilities-based.” This is because the new definition of “supported service” is “voice telephony service” as a whole – not its individual components.
  • eliminating the requirement that Lifeline-only applicants submit a five-year network improvement plan.
  • adding a requirement that Lifeline-only ETCs demonstrate technical and financial capacity to provide the supported service, among other showings.

Lastly, the NPRM portion of the R&O/FNPRM seeks comment on additional issues, including:

  • whether universal service support should be used for digital literacy training;
  • whether Lifeline support should be limited to ETCs that provide Lifeline service directly to subscribers (rather than wholesale), precluding the flow-through of Lifeline support to resellers;
  • whether the Women, Infants, and Children (WIC) program and homeless veterans should be added to the Lifeline eligibility criteria;
  • whether the record-keeping requirement for consumer eligibility should be extended to ten years to cover litigation under the False Claims Act.

Comments in response to the NPRM will be due 30 days after publication in the Federal Register; reply comments within 60 days. Check back here for updates.

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.

H.R. 5828: USF Reform Proposed In House

Boucher bill boosts boatloads of big bucks for broadband build-out in boondocks

One more element has been added to the full-court governmental press aimed at extending broadband to as many people as possible: a bill recently introduced in the House would reform the 13-year-old, multi-billion dollar Universal Service Fund (USF). The proposal would (among other things) explicitly declare high-speed broadband to be a “universal service” and, therefore, eligible for subsidization from the USF – thus freeing up boatloads of big bucks for broadband build-out in the boondocks. Dubbed the “Universal Service Reform Act of 2010”, the bill is a bipartisan effort sponsored by Reps. Rick Boucher (D-VA) and Lee Terry (R-NE).

The USF was created by the 1996 Telecom Act, but its roots go deeper than that – back at least to 1934, when the FCC was born. The U.S. has sought to assure that every American has access to essential telecommunications services. Historically, such services have entailed mainly standard old telephone service. Putting the consumer’s money where the government’s mouth is, the 1996 Act provided for the establishment of a fund (the USF) to be used to subsidize the provision of affordable telecommunications services in certain circumstances. 

USF subsidies go to: (a) “high cost” areas, mainly rural and sparsely-populated in nature, where delivery of service could otherwise be prohibitively expensive; (b) low income consumers in need of basic local phone service; (c) rural health care providers for both telecom and Internet services; and (d) schools and libraries, to assure access to various telecommunications services. Subsidies for each of these groups are managed by separate divisions within the Universal Service Administrative Company, the non-profit corporation established to oversee the day-to-day operation of the USF. (The USF gets its funds from telecommunications providers, who in turn get the funds from their customers.)

The Boucher-Terry bill focuses primarily on the USF program for delivering telecom services to “high cost” areas.

The existing patchwork of USF “high cost” programs is in many ways irrational, overly complex, and inefficient. For example, eligibility for certain types of support is based on company size or regulatory classification rather than on the costs of serving the area. Furthermore, the USF now supports carriers generally on the basis of their actual costs of providing service, whether or not they or someone else could have done it for less. 

Although many aspects of USF are ripe for reform, its most egregious shortcoming, in the eyes of many, is clearly its failure keep up with technology – i.e., to fund broadband. (The current “high cost” program supports only voice service.) Significantly, in this post-Comcast regulatory environment, the Boucher-Terry bill would address that conundrum by giving the FCC express authority to direct USF funds to broadband services.

Would consumers have to pay more for the proposed changes? The bill mandates that any reforms will not “unreasonably” increase the contribution burden on consumers (i.e., the line item charge for USF that appears on your phone bill). To make this mandate mathematically possible, the bill would reduce support to certain carriers, expand the contribution base, and perform other feats of legislative legerdemain designed to balance the fund with the greatest of ease. Nonetheless, consumers may not feel entirely reassured by the guarantee that rate hikes will not be “unreasonable.”

The following is a recap of some of the bill’s key provisions.

Broadband service funding.  High-speed broadband service would be deemed a “supported service”. The catch here is that, in areas lacking high-speed broadband service, recipients of support from the “high cost” USF program would have tomake broadband service available within five years (either through their own facilities or through resale, including satellite resale). The bill would also allow the FCC to expand the universe of “supported services” down the line, so it won’t get stuck again as technology develops. 

Reduced funding for incumbent carriers in competitive areas. The FCC would be required to develop a mechanism for reducing support to incumbent local exchange carriers in areas where at least 75% of households are able to get voice and broadband service from an unsupported competitor.

Competitive bidding for mobile wireless carriers. In an area with three or more qualified mobile wireless carriers, the FCC would have to pick no more than two applicants, using a competitive bidding process similar to that for a government contract. Primary factors would be the amount of the bid and the proposed minimum broadband speeds, but the Commission could consider other things, like existing service area and proposed speed of build-out. Winning bidders would receive a flat-rate subsidy for up to 10 years. In areas with fewer than three mobile wireless carriers, support would continue at the per-line level in effect before enactment. Furthermore, overall high-cost support to mobile wireless providers would be capped at the pre-enactment level.

Wider contribution base. Any provider that “offers a network connection to the public”, including Internet service providers, VoIP providers, and cable companies, would have to ante up. The FCC would be required to devise a new contribution calculation methodology, which could be based on (a) revenues, (b) telephone numbers and IP addresses, or (c) a combination of the two. To broaden the base even further, intrastate revenues (which are excluded under the current system) would be included in the contribution base, along with international and interstate revenues.

A new “high cost” model. The FCC would have to develop a new model for distributing “high cost” support that would factor in the costs of providing both voice and broadband service. The new model would determine these costs on a study area and wire center basis. Current rate-of-return carriers, however, would continue to receive rate-of-return support. 

Intercarrier compensation. Intercarrier compensation reform (ICC) would be left to the FCC, which would have a year to complete an initial proceeding. To facilitate the FCC’s chore, the bill would extend the Commission’s ICC authority to intrastate traffic. 

Miscellaneous. In addition to the foregoing high profile item, the bill would also: strengthen auditing; prohibit “phantom traffic” and traffic pumping; address rural health care support; and eliminate the “parent trap” affecting support after the sale of an exchange; carve out an exemption from the Anti-Deficiency Act; prohibit the FCC both from adopting a primary line restriction and from reducing high-cost support to tribal lands unless in the public interest. 

Note for carriers interested in Lifeline-only designation. With respect to the “Lifeline” USF program – which focuses on service to low-income consumers, not “high cost” areas – the bill would codify the Commission’s TracFone line of forbearance cases by formally exempting Lifeline-only carriers (i.e., resellers) from the “own facilities” requirement of 47 U.S.C. §214(e)(1)(A). Boucher has also indicated a willingness to include Lifeline funding for broadband, which already been proposed by at least one other Representative.

Possible additions to the bill. Of course, we are at the very beginning of the legislative process which can drag on for a while, with plenty of opportunity (and incentive) for amendments along the way. For example, Boucher is apparently willing to work with Rep. Ed Markey (D-MA) on including his E-Rate proposals, such as broadband vouchers for students and supported access for community colleges and head start programs.  More amendments can be expected.

Meanwhile, the FCC is also trying to overhaul the USF on its own. Chairman Genachowski has reiterated the Commission’s commitment to do so. In connection with the National Broadband Plan unveiled with considerable fanfare earlier this year, the FCC adopted a Notice of Inquiry and Notice of Proposed Rulemaking (NPRM) aimed at jumpstarting that overhaul process at the Commission level. While the FCC’s authority, under the current Communications Act, to achieve its ambitious goal is far from clear, the Commission has at least one important cheerleader on Capitol Hill. In a recent letter to Genachowski, Sen. Jay Rockefeller (D-WV) – who happens to be the Chairman of the Senate Committee on Commerce, Science and Transportation – has urged the FCC to focus more on unserved areas than on “the size and regulatory classification of the carrier.” Rockefeller’s letter was in response to a mining disaster in West Virginia and makes no mention of the Boucher-Terry bill (which would retain rate-of-return regulation for current RoR carriers).

Will the bill pass? Boucher and Terry have been working on enacting USF reform for many years, but Boucher is optimistic about this bill’s chances of passing, perhaps even this year. His optimism is based at least in part on the fact that a wide cross-section of the communications industry – including AT&T and Verizon, ISPs, cable, satellite, and rural telcos – has expressed support for the bill. Many mobile wireless providers, however, have stopped short of fully endorsing the bill because of concerns about its proposed bidding procedure

Still, many players share Commissioner McDowell’s overall assessment of the current regime as “antiquated, arcane, inefficient, and just downright broken” and agree that the bill is a desirable first step toward comprehensive change. It proposes some long-overdue changes and attempts to balance various carriers’ interests, but leaves many contentious details to the FCC. We’ll keep you posted as the USF reform saga continues.