The FCC recently issued an order (Order) that reinforced the obligation of resellers to make direct contributions to the Federal Universal Service Fund (FUSF). The Order also provides an avenue for those who have made indirect FUSF contributions through their underlying wholesale carriers to avoid double payments when they come into compliance with the FCC rules. (TMI Briefing Service subscribers see Briefing dated 1/18/16)

While the FCC Order is specific to the appeals of the five petitioning resellers, it reinforced and clarified some important aspects of the FCC’s FUSF contribution scheme:

First, the FCC reaffirmed that a reseller serving end users bears the primary obligation to contribution to the FUSF, unless it meets the de minimis exemption by owing an annual FUSF contribution of less than $10,000 or is providing FUSF-exempt services. In summarizing the FUSF contribution methodology, the FCC noted that “only carriers that provide service to end users customers are required to contribute,” and that its rules “require contribution only once along the distribution chain – when a contributor provides telecommunications to an ‘end user’.” Only when the retail carrier does not contribute directly to FUSF would the wholesale carrier be obligated to contribute directly by reporting the revenues generated from its resale carrier customers as end user revenues on its Form 499.  Otherwise, the reseller has the primary obligation to contribute, regardless of whether it has a contractual arrangement with the wholesaler to pay FUSF on its behalf.

The FCC emphasized the “resellers must exercise due diligence in meeting the requirements of the universal service contribution system…The Commission’s rules set forth the contribution obligations of both resellers and wholesale providers and do not permit the party with the primary USF contribution obligation to shift its contribution obligation to a third-party through private contractual arrangements. We affirm…that the contribution obligation of the resale (or wholesale) provider cannot be contracted away.”

Second, the FCC reiterated its admonition to USAC from the 2012 Wholesaler-Reseller Clarification Order (2012 Order) that USAC should not attempt to double recover FUSF assessments on the same revenue.  In the 2012 Order the FCC examined the double recovery issue from the wholesale carrier’s perspective, finding that even if a wholesale carrier failed to obtain the appropriate exemption certificates from its  resellers before it filed its Form 499 revenue data, if it can nevertheless demonstrate through a preponderance of evidence that its resale customers actually paid into the fund, USAC should not attempt to recover FUSF contributions from the wholesale provider on the same revenue. In that decision, the FCC made it clear that the burden was on the wholesale provider to demonstrate that its reseller customers had made FUSF contributions on the revenues at issue.

In the recent Order, the FCC approached the double recovery issue from the reseller’s perspective, finding that “USAC should not attempt to recover contributions from a resale provider to the extent that a preponderance of the evidence demonstrates that its wholesale provider contributed on the revenue from the telecommunications input at issue.”  It likewise concluded that resellers who are claiming double collections have the burden to demonstrate that their wholesale providers made contributions to FUSF on the revenues at issue.

Third, the FCC Order provided guidance to resellers as to the kind of evidence that might be sufficient to demonstrate that their underlying wholesale carrier contributed FUSF on at least part of the reseller’s revenue, so that the reseller can avoid double payments. The FCC made it clear that USAC is not required to conduct an independent investigation of the resale provider’s underlying carrier FUSF contributions. However, it must consider evidence produced by the reseller and its underlying provider that demonstrates the wholesale-retailer relationship, evidence of services billed by the wholesale carrier to the reseller, amounts paid by the reseller to the wholesaler, and amounts reported to and paid into the fund by the wholesale provider.

In its review of three of the reseller petitions for relief, the FCC found that the resellers had not provided sufficient evidence that the wholesale carriers had contributed FUSF on revenues generated from the reseller and/or the amount of such contributions. The FCC remanded those cases back to USAC to give the resellers an opportunity to satisfy their burden of proof.

The FCC found that one of the five petitioners did establish by a preponderance of evidence that its underlying carrier contributed to the FUSF on the relevant revenues, by:

(1) providing information directly from its wholesale provider that detailed the quarterly interstate wholesale revenue and FUSF surcharge billed by the provider to the reseller and reported to USAC and;

(2) submitting an affidavit from the reseller’s officer responsible for the company’s FUSF reporting and remitting activities that attested to the accuracy of the revenue data reported by the wholesale provider. 

The fifth reseller petitioner that was the subject of the Order submitted evidence from its underlying providers demonstrating the amount of FUSF fees billed to and collected from the reseller and demonstrating that the collected FUSF fees were remitted to USAC. However, that reseller failed to provide an affidavit attesting to the accuracy of the revenue data submitted by the underlying carrier, based on the reseller’s own books and records. The FCC found this to be a deficiency, stating: “We believe that such an attestation is important to corroborate the information submitted by the underlying carrier.”

To summarize, the FCC’s Order suggests that the following documentation would likely satisfy the “preponderance of evidence” test, where a reseller is attempting to demonstrate that double recovery would occur were it required to contribute directly to the FUSF based on revenues on which its underlying wholesale provider has already contributed:

• Information provided directly by the wholesale provider detailing the amount of quarterly interstate wholesale revenue and FUSF surcharges billed by the wholesale provider to the reseller and reported/remitted to USAC;
• An attestation by the reseller that the information provided by the wholesale carrier is consistent with the reseller’s own books and records;
• Information provided by the reseller detailing the amounts that it paid to the wholesale provider, including the amount of FUSF assessments.

Notably, the FCC did not impose any obligation on wholesale providers to assist their reseller customers in meeting their burden of proof to demonstrate double recovery. Resellers may often find it difficult to persuade their upstream carriers to provide the information that USAC will demand to meet that burden, particularly if they are large carriers with multiple reseller customers. Even if the wholesale carrier is willing to cooperate, unless the required evidence is captured contemporaneously, it may be difficult to obtain. For instance, three of the reseller petitions at issue in the FCC Order were filed in 2007 and likely reflected transactions in prior years. Given the five-year record retention policy for Form 499-related documentation, it is unlikely that a carrier would have retained documentation of specific reseller revenues and related USAC payments from more than 10 years ago.

If a reseller can meet its burden of proof, the FCC has instructed USAC to credit the reseller’s USAC bill to reflect the contribution already paid by its underling wholesale provider(s). This is a significant "win" for resellers. In the past, a reseller’s only recourse if it found itself in a double payment situation was to try to convince its underlying carrier to issue it a refund of the FUSF contributions that the wholesale provider had made on the reseller’s behalf. The wholesale carrier would then need to file a revised 499A to move the subject revenues from the “retail” to the “wholesale” category, and seek its own refund or credit from USAC for the prior “over” payments. However, the FCC’s rule limiting the time frame for 499 revisions that reduce previously reported FUSF assessable revenues to one year made this option unworkable in most cases. The FCC’s instructions to USAC in the current Order provide at least some hope to resellers who mistakenly believed that their underlying carriers could satisfy their FUSF payment obligation and are now facing double FUSF payments on the same revenues.