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Thursday, June 29, 2006

FCC Releases Universal Service Reform Order and Notice

On Tuesday, June 27, the Federal Communications Commission ("FCC" or "Commission") released an Order and a Notice of Proposed Rulemaking related to Universal Service Fund ("USF") contribution mechanisms. The Commission styled its Order as "interim," noting that it expects to take further action on its USF contribution methodology, pursuant to the Notice or otherwise.

With regard to wireless providers, the FCC increased the interstate "safe harbor" percentage from 28.5% to 37.1%. Accordingly, wireless providers electing to utilize the safe harbor going forward will need to base their USF contributions on the assumption that 37.1% of their traffic is interstate, and thus subject to USF contribution. Alternatively, wireless providers may remit payment based on actual interstate usage or on a traffic study estimating interstate usage. Providers electing to utilize actual a traffic study, however, must submit the study to the Commission and to the Universal Service Administration Corporation for review. The Commission expressed concern that carriers may be under-reporting interstate calling in traffic studies, and stated that requiring providers to submit traffic studies for review would minimize any such under-reporting.

Interconnected VoIP providers - which essentially includes any voice application over a broadband connection that allows for calling to the traditional phone network - must contribute to USF under the existing revenue-based methodology used for landline voice services. The FCC established a 64.9% safe harbor for interconnected VoIP providers. The Commission also concluded that interconnected VoIP providers may utilize traffic studies to estimate actual interstate usage, however, any such traffic studies must be approved by the Commission before implementation.

Interconnected VoIP providers will need to register with the Commission using FCC Form 499-A to obtain an FCC Registration Number and file an FCC Form 499-Q beginning on August 1, 2006. Finally, interconnected VoIP providers are required to begin filing FCC Form 400-A on April 1, 2007.

In the Notice, the Commission requests comment on a number of items related to the safe harbors established, as well as on the appropriate means of establishing the jurisdiction of calls for traffic study purposes. For example, some parties utilize the originating and terminating telephone numbers as a proxy for determining the jurisdiction of a call. Because of the "nomadic" nature of mobile wireless services and interconnected VoIP services, others have asserted that merely comparing originating and terminating telephone numbers is insufficient to establish the jurisdiction of a call. The Commission also seeks comment on whether and to what extent it can (and should) adopt a revised methodology for interconnected VoIP providers to contribute to USF. Comments are due 30 days after the Notice is published in the Federal Register, and reply comments are due 60 days after publication of the Notice.

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