With the start of a new year upon us, it’s worth giving some thought to what needs to be accomplished in the coming year. Each month, we write about upcoming deadlines for broadcasters and telecommunications providers regulated by the Federal Communications Commission (FCC), but in addition to the fixed regulatory filing deadlines discussed in these posts, telecommunications providers have other routine compliance obligations for which there are no fixed deadlines. Missing these deadlines can prove just as costly, or in some cases more costly, than missing fixed regulatory filing deadlines.
USF Exemption Certificates – Annually
One of the most important compliance tasks for many telecommunications providers each year is obtaining a Universal Service Fund (USF) Exemption Certificate. This requirement applies to any telecommunications carriers or interconnected Voice over Internet Protocol (VoIP) providers that report long distance (LD) wholesale or Carrier’s Carrier revenue on Form 499. This LD wholesale revenue is not subject to USF contributions (which were nearly 25 percent in Q3 2019) from the wholesale provider; however, to avoid having LD wholesale revenue reclassified as end-user revenue subject to USF contributions, a LD wholesale provider must get an exemption certificate from each of its LD reseller customers each year.
The USF Exemption Certificate is not filed with the FCC; rather the wholesale provider keeps the certificate as part of its records, which can be used during any future audit or investigation by the Universal Service Administrative Company (USAC) of the FCC. To avoid paying USF surcharges on the wholesale telecommunications inputs, an LD reseller must sign a certification that it has incorporated the purchased wholesale services into its own service offerings and expects to be a direct USF contributor based on those offerings. The exemption is service-specific, so an LD reseller may need to identify which of its resold services it expects to be a direct contributor to the USF. Otherwise, if the LD reseller will contribute directly to the USF across all of its services, it can indicate that it will only resell services for which it is a direct contributor to the USF.
For the wholesale provider, maintaining compliant exemption certificates is imperative because any revenue reclassified during a subsequent audit or investigation may be subject to penalties or late fees, interest, and may not be able to be collected as a pass through from the provider’s customer. Given these potential risks for wholesale providers, providers often treat incomplete exemption certificates as not valid. A wholesale provider would then treat revenue derived from any customer with an invalid exemption certificate as end-user revenue, which may be subject to USF and other regulatory fee pass through charges.
For an LD reseller, completing a USF Exemption Certificate does not eliminate the burden of contributing to the USF. Instead, the certificate indicates that the LD reseller will be a direct contributor to the USF by registering with USAC, submitting quarterly and annual Forms 499, and paying any USAC invoices based on the 499 filings. The benefit of completing an exemption certificate for an LD reseller is to avoid double-paying USF contributions. As noted above – absent an exemption certificate – an LD reseller’s wholesale provider will likely pass through USF surcharges to the LD reseller. While an LD reseller could push back on the pass through charges, doing so may disrupt the reseller’s wholesale supply or prompt costly litigation. In addition, if the LD reseller’s services are subject to direct USF contribution obligations, which they must be for the LD reseller to complete an exemption certificate, the LD reseller will also have an obligation to register with USAC and pay any required USF contribution owed by the LD reseller. The exemption certificate eliminates the indirect contribution paid through the wholesale provider.
FCC Regulatory Fees – Annually
The FCC recovers the costs of its operations through an annual regulatory fee. Telecommunications providers and other FCC licensees, including broadcasters and a variety of wireless license holders, are subject to the fee. There is no fixed date by which the fee must be paid. Instead, the FCC sets a deadline for payment each year, typically sometime near the end of September. Failure to file the required forms with payment of the fee will result in an automatic 25% late filing penalty. Many telecommunications providers’ fees are based on the amount of interstate and international revenue reported on a provider’s Form 499-A. However, Commercial Mobile Radio Service (CMRS) providers pay fees based on the number of subscribers they have. Your company should check with its communications counsel each year to calculate its regulatory fee and make sure it files the required forms and payment by the deadline.
E911 Location Accuracy Live Call Data Reports – Quarterly (for Nationwide Providers)
CMRS providers are required to file periodic E911 location accuracy reports. The reports aggregate live 911 call location data for each location technology used within four geographic morphologies within six representative “test cities.” Nationwide providers must file these reports on a quarterly basis. Non-nationwide providers must file these reports every 6 months to cover the areas served by the provider. The Commission recently amended its rules to collect information for “z-axis” or vertical location technologies in addition to the horizontal (x- and y-axis) location technologies previously used for live 911 calls. At this time, the vertical location live call data reported by CMRS providers will be used by the FCC for informational purposes, not compliance purposes.
Other “As Needed” Filings
Finally, telecommunications providers are subject to a wide variety of “as needed” filings that have neither a fixed reporting date nor a fixed reporting period. This post won’t attempt to identify every possible as needed filing. However, providers should be aware of CALEA SSI Plan requirements and make sure to file revisions to any plan filed with the FCC as information in the plan changes. Providers may also be subject to discontinuance of service requirements, at both the FCC and state level, if they stop offering service. Certain outages and data breaches also require providers to notify the FCC (in addition to taking other steps) when an outage or data breach occurs.
Telecommunications remains a highly regulated industry. Even as the FCC and state regulators have abandoned price and market entry regulations, telecommunications providers remain subject to a wide variety of regulatory fees, regulatory data collection, and national security/law enforcement filings. To ensure your business remains in compliance with these rules, it is important to both monitor developments in the FCC’s rules and to consult experienced communications counsel when you have questions.
For updates on these regulatory filing requirements and their deadlines, keep an eye on CommLawBlog.