October 29, 2019

Commentary

For this month, we want to spotlight the significant new oversight tasks assigned to USAC by the FCC.  True, there is plenty under the ordinary administrative function of reviewing and approving applications under the various programs which generates scrutiny, as evidenced by the Form 470 drop-down menu clarification order discussed in the E-Rate section below.  But the FCC’s recent orders have tasked USAC with a number of new tasks that go beyond “ordinary administration” functions.  USAC has been asked to handle several new major oversight functions that potentially tax the organization’s expertise, experiences and resources.  First among them is the creation and operation of the National Verifier (now referred to as NV for short).  The NV serves as a portal for all Lifeline applications, much in the same way the EPC handles E-Rate applications, and is mandatory in 38 states as of this month.  But the NV must integrate with federal and state eligibility databases, a task that’s proven challenging at times.  Moreover, USAC is now trying to stand up APIs to enable Lifeline providers to connect on a systems basis.  In other funds, USAC will soon be required to collect and manage broadband deployment data under the Digital Opportunity Data Collection (DODC) program.  This will encompass collection of information from fixed broadband providers using a new “polygon-mapping” approach that has yet to be tested.  In the Rural Health Care program, USAC will soon maintain and update a database of urban and rural rates for administering the Telecom program.
 
We’ve often commented that USAC has the very significant duty to administer a fund that rivals the size of Major League Baseball.  USAC is much more than just a paper pusher for program forms.  With these new tasks, USAC’s administrative responsibilities are expanding into new areas of oversight and getting ever-more complex. 


Recent News

  • On October 28, FCC Chairman Pai announced that he circulated to the other commissioners a two-part proposal to be voted on at the November 19 Open Meeting that addresses national security threats to communications networks.  The first part of the proposal is a draft Report and Order that would prohibit communications companies from using USF support to purchase equipment or services from companies deemed to be a national security threat (e.g., Huawei Technologies Co. and ZTE Corp.).  The proposal will also include a draft Further Notice of Proposed Rulemaking that would explore a “rip and replace” program to remove existing equipment and services through USF financial support.    

Contributions
  • State Members of the Federal-State Joint Board on Universal Service filed a Recommended Decision (Decision) with the FCC that urged the agency to expand the universal service contribution base to include a broader class of services including broadband internet access service.  The Decision recommends that the FCC use a “connections-based assessment on residential services and an expanded revenues-based assessment on business services.”
 

Lifeline

  • On October 1, the D.C. Circuit issued a decision in Mozilla v. FCC, which involved a challenge to the FCC order repealing the reclassification of broadband as a telecommunications service (i.e., the “net neutrality” or “restoring internet freedom” proceeding).  In that decision, the court determined that the FCC had not sufficiently explained how reclassifying broadband as an information service would affect its authority to provide Lifeline subsidies for stand-alone broadband service.  The court remanded this aspect of the decision for further consideration by the FCC.
  • On October 23, the Wireline Competition Bureau (WCB) issued an Order denying petitions from five states (NY, VT, GA, CT and NE) that were seeking a delay of the scheduled full launch of the National Verifier in their states.  The petitioners sought a delay until the National Verifier had established an automated connection with their state eligibility database.  WCB ruled the delay was unwarranted because the states had been on notice since the FCC adopted the 2016 Lifeline Order of the expectation that the National Verifier would be ready to launch in all states and territories by the end of 2019.
  • On October 23, USAC announced that Phase II of the National Verifier Carrier APIs is available for testing in the staging (pre-production) environment.  USAC is implementing two APIs, known as the “Eligibility Check API” and the “Status Check API,” which, it states, will allow service providers to initiate and complete an application for all consumers, including those required to upload documents directly with USAC to resolve application errors.  USAC held a webinar regarding the APIs on October 17, which is available on its website.
 

High Cost/Connect America Fund (CAF)

  • At the October Open Meeting, the FCC approved an Order on Reconsideration that modifies the speed and latency testing procedures used to assess whether carriers are deploying networks that perform at the required levels.  The Order delays the start of testing for many CAF recipients to better align with network deployment deadlines. The Order also creates a “pre-testing” period to allow CAF support recipients time to assess how their networks and testing equipment perform without penalty before official testing begins.  In addition, the FCC would provide more flexibility for certain testing procedures to reduce the burden on smaller service providers.
  • WCB, with the Rural Broadband Auctions Task Force and the Office of Economics and Analytics, authorized $61,825,182.50 in CAF Phase II (Auction 903) support for 387 winning bids. 

Schools and Libraries (E-Rate)
  • On September 30, the Universal Service Administrative Company (USAC) released its mandated Semi-Annual Audit Recovery Report (Report) that summarizes the status of any outstanding audit findings.  In the Report, USAC listed the following four categories of recovery efforts that have been pending for more than six months after audit findings were issued.
    1. Notification letters had not been issued for certain beneficiary audits because USAC was working with the FCC to develop a recovery process based on the recovery timeframe guidance in the Schools and Libraries Fifth Report and Order.  The Order clarified that the five-year recovery timeframe was simply a policy preference and was not an absolute bar to recovery.
    2. For some audit recoveries, the applicant and/or service provider had appealed the auditor’s findings to USAC or the FCC, or sought waiver from the FCC.  Twenty-two beneficiary audit recoveries had been held in abeyance due to an appeal to USAC while sixty-nine others had been on hold due to FCC appeals.  The appeals for these audit findings are now resolved and USAC has resumed the process to recover funds. 
    3. USAC transferred thirty-nine audits, totaling $10,255,450, to the Department of Treasury for collections because the applicant and/or service provider was not making any payments on amounts owed.
    4. The USAC Board of Directors approved an audit, performed in accordance with the FCC’s Puerto Rico Department of Education Order, and now FCC Staff is reviewing to determine any appropriate recovery actions. 
 
  • On October 21, USAC reminded E-Rate program participants with approved FCC Forms 498 that an entry is required in the new “Business Type” field.  Providers are required to update the form by October 31. 
  • The FCC’s Wireline Competition Bureau (WCB) and Office of Managing Director (OMD) issued a Public Notice seeking comment on the drop-down menu options for the FCC Form 470.  E-Rate program applicants use the Form 470 to solicit bids from service providers for E-Rate eligible services.  Some parties have expressed concern that the current dropdown menu is confusing and could serve as a barrier to applicants who accidentally chose the wrong service.  Comments are due by October 31, 2019 and reply comments by November 15, 2019.
  • On October 1, the WCB and OMD sent a letter to USAC advising it on proper application of the E-Rate competitive bidding rules. The letter focused on how USAC should treat applications that do not properly reflect the services on which the applicant intends to bid due to an error in the drop-down menu option chosen on their FCC Form 470.  This letter was released simultaneously with the Form 470 Public Notice.
  • The FCC has circulated amongst the Commissioners a draft report and order that would address proposals from a July 2019 notice of proposed rulemaking (NPRM) to make the E-Rate category two budget approach permanent and adopt other budget modifications.  The category two approach involves five-year budgets for schools and libraries that provide a set amount of funding to support internal connections.


Rural Health Care

  • At the Schools, Health, & Libraries Broadband Coalition conference, Commissioner Carr highlighted the proposed Connected Care pilot program and encouraged more healthcare providers to file comments in the docket.  Some conference participants expressed concern about the lack of broadband infrastructure in areas that could benefit from access to the program.  Carr conceded that there did not seem to be much support for using pilot program funds to build infrastructure and so the agency would likely partner with healthcare providers that already had access to better connections.
  • On November 7, USAC will be hosting a Funding Year 2020 Kick-off Webinar for the Rural Health Care program.  The webinar will discuss changes in the program and best practices in preparation for the FY 2020 filing window.  Registration is available on USAC’s website, under the Rural Health Care tab.


USF Appeals Tracker

Kelley Drye’s Communications group prepares a comprehensive summary of pending appeals and guidance requests before the FCC relating to USF contributions issues.  Due to the number of appeals and the FCC’s routine disposition of them, appeals relating to the imposition of late filing fees and petitions seeking waivers of the quarterly Form 499 revision deadlines are not included in this summary.

This list covers appeals filed on or after January 1, 2016.  Pending appeals filed before January 2016 are not included.
 
Number of Appeals Pending New Appeals Filed Contribution Questions Pending
 13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            XO Communications. XO requests a review of a USAC remand decision concerning the jurisdictional classification of its 2007 private line revenues. (filed Oct. 16, 2019).

BA Telecom. BA requests a review of USAC's determination that BA is no longer eligible for LIRE based on revenues of a filer-affiliate.
  • Private line services (10%) rule
  • Systems integrator exemption
  • Use of safe harbors/traffic studies
  • Jurisdiction (international calls)
  • Wholesale/resale classification
  • Private carriage
  • LIRE exemption


1.  XO Communication Services, LLC. Primary Issues: Jurisdictional classifications (private line)
 
  • Request for a Review of Decision of the Universal Service Administrator (filed October 16, 2019).
  • XO Communication Services (XOCS) requests that the Federal Communications Commission reverse the August 15, 2019 decision of the Universal Service Administrative Company (USAC) finding that both XOCS' 2008 Form 499-A and its subsequent documentation are insufficient in proving that the subject private lines did not carry more than 10 percent interstate traffic and are thus subject to interstate revenue classification. XOCS disputes USAC's interpretation of the Wireline Competition Bureau's 2017 Private Line Order and reaffirms its opposition to the Bureau's order itself. In particular, XOCS contests USAC's "negative inference" that a supposed lack of evidence proving XOCS' private lines did not serve more than 10 percent interstate traffic is proof that "all of the subject revenue was interstate in nature." Additionally, XOCS requests that, where USAC's findings are in line with the Ten Percent Rule, the Commission grant XOCS a waiver "because of the widespread confusion regarding the private line rule that preceded the [Wireline Competition] Bureau's order."
  • XOCS' May 1, 2017 application for review that challenges the Wireline Competition Bureau's 2017 Private Line Order, which is covered below, remains pending. The USAC inquiry had proceeded despite the application for review.

2.  BA Telecom, LLC. Primary issues: Limited International Revenue Exemption
 
  • Request for Review of a Decision of the Universal Service Administrator (filed September 27, 2019).
  • BA Telecom, LLC (BA) requests that the Wireline Competition Bureau (Bureau) review USAC's denial of their invoice appeal. BA disputes USAC's finding that, because the company's revised 2017 and 2018 Form 499-A reports identify the same holding company as UVNV, Inc., a wireless reseller, the two companies’ interstate and international end-user telecommunications revenues must be combined, resulting in BA losing its LIRE qualification. BA argues that USAC's decision is at odds with the FCC's intent in Section 54.706(c), the Fifth Circuit Court of Appeals 1999 ruling in Texas Office of Public Utility Counsel v. FCC, the "basic principles of statutory construction,", and BA's due process rights.

3.  Tata Communications, Inc. Primary issues: Limited International Revenue Exemption
 
  • Petition for Waiver (filed March 29, 2019).
  • In its petition, Tata asks to continue contributing to USF solely on the basis of its interstate end-user telecom revenues, thereby excluding international revenues from assessment. Tata’s contributions are already based on interstate revenues alone, pursuant to the Limited Interstate Revenue Exemption (LIRE), but it seeks to extend this exemption through a waiver of Commission rules. Tata believes that recent changes to its jurisdictional mix will change in a way that would preclude Tata from the LIRE. Under the LIRE rules, if less than 12% of a carrier’s combined interstate and international revenues is derived from interstate traffic, that carrier is exempt from contributing based on international revenues.
  • If the company were forced to contribute on the basis of all revenues, claims Tata, it would amount to a “draconian penalty” that exceeds Tata’s total interstate telecom revenues. According to Tata, the FCC should waive the rules and extend its exemption because such a dramatic increase in contributions would violate Section 254(d) of the Communications Act and have deleterious effects on the public interest, including undermining competition in the interstate telecommunications marketplace. The Commission has previously encouraged carriers faced with this massive contribution spike to file petitions for waiver—Tata is now taking the Commission up on its offer.

4.  Gtek Computers and Wireless, LLC.  Primary issues:  Systems integrator exemption.
 
  • Request for Review and Contingent Request for Waiver (filed Sept. 16, 2016).
  • Renewed Request for Review and Contingent Request for Waiver (filed Feb. 22, 2019).
  • Gtek seeks to review USAC’s denial of its appeal to cancel the sanctions, interest, and penalties imposed for its failure to file a Form 499-A for 2010-2015. Gtek argues that the levying of sanctions was improper and erroneous because Gtek is a systems integrator that derives less than five percent of its revenue from the resale of telecommunications. Thus, Gtek asserts, it is qualified for the systems integrator exemption and is not required to file a Form 499-A.  Alternatively, Gtek requests a waiver in light of its reliance on the Form 499-A instructions, the FCC’s longstanding systems integrator exemption policy, and the fact that the sanctions would surpass the revenue Gtek derived from providing interconnected VoIP service.
  • In 2019, Gtek renewed its request for cancellation of sanctions. Gtek argues that it is a systems integrator that receives less than five percent of its revenue from reselling telecommunications, and is therefore exempt from filing Forms 499-A according to the form instructions. Gtek contends USAC is trying to limit the systems integrator exemption to a subclass that offers ‘legacy’-type telecommunications—a definition that Gtek contends is unsupported by any prior Commission statements or by the language in Form 499. Gtek thus asks the Commission to rule on its 2016 appeal, reverse the USAC denial, and cancel the sanctions.

5.  Sprint Spectrum, L.P. Primary issues:  Jurisdictional classifications (prepaid cards), use of safe harbors.
 
  • Request for Review of a Decision of the Universal Service Administrator (filed December 14, 2018).
  • In its request, Sprint asks that the Wireline Competition Bureau reverse USAC’s conclusion that Sprint’s reported allocations for bundles of telecom and non telecom services were unreasonable, and to reverse USAC’s decision to reject Sprint’s traffic studies.  In connection with its prepaid card services, Sprint reported USF revenues as a bundled offering, using an allocation method it considered reasonable.  USAC had begun an audit in September 2016 of Sprint’s 2016 Form 499-A filing.  In the audit, USAC concluded that Sprint did not adequately support its allocation method and instead applied the USF safe harbor of treating 100 percent of the bundled revenues as telecommunications.  Additionally, USAC rejected Sprint’s traffic studies to determine the jurisdiction of its prepaid services.  Sprint appealed. 
  • In the request for review, Sprint poses two questions: first, whether USAC erred when, in assessing the allocation of revenue for one prepaid bundled offering, it applied the 100 percent telecommunications safe harbor method due to an alleged failure to retain documentation of the allocation used; and second, whether USAC erred when it retroactively created and enforced new rules regarding the sufficiency of jurisdictional documentation, of which Sprint had no notice. Sprint contends that its allocation method was reasonable, that USAC did not have a valid basis to reject the method, and that USAC applied the safe harbor method allegedly as a penalty for the failure to retain documentation of the allocation.  Sprint further contends that USAC acted unlawfully in retroactively concluding that Sprint’s traffic studies (which were filed regularly) were insufficient to justify the carrier’s reported revenue.

6.  SLIC Network Solutions, Inc.  Primary issues: Form 499-A deadline
 
  • Request for Review and Consolidated Action (filed April 6, 2018).
  • SLIC requests that the FCC review and reverse the decision by USAC to reject SLIC’s Forms 499-A submitted for 2014, 2015, and 2016, and that the Commission vacate the requirement that any revised Form 499-A that would yield decreased contributions be submitted by March 31 of year after the original filing due date (i.e., the one-year downward revision deadline). As a result of an error, SLIC’s non-assessable revenues were incorrectly reported to USAC as assessable revenues for the years 2008 through 2016. When SLIC tried to submit revised Forms 499-A and recover its overpayments, USAC rejected the filings as untimely, citing the One-Year Deadline Order. Because that order is still subject to petition for reconsideration and applications for review, SLIC has submitted this request for review.

7.  Altice USA, Inc.  Primary issues: Jurisdictional classifications (private line)
 
  • Request for Review of Decision of the Universal Service Administrator (filed February 2, 2018).
  • Altice seeks reversal of USAC’s reclassification of revenues from certain geographically intrastate private line services as interstate in an audit of Lightpath NJ, an Altice subsidiary. In the January 2017 audit, USAC interpreted the FCC’s “Ten Percent Rule” to establish that geographically intrastate private lines are presumptively interstate, and to require carriers and their customers to furnish evidence establishing the appropriate jurisdictional allocation for private line revenue. Altice contends that this application of the Rule was incorrect and violated the prohibition against USAC’s resolving ambiguities in the Commission’s rules. USAC denied Altice’s appeal of the audit, and, in doing so, retroactively relied on the Wireline Competition Bureau’s Private Line Order, which offered a substantively new interpretation of the Rule for determining the jurisdictional nature of revenues associated with private line service, and created new burdens of proof and evidentiary standards for carriers. Thus, Altice requests that the Commission direct USAC to 1) reverse its audit finding and 2) not retroactively apply the Private Line Order.

8.  XO Communications Services, LLC.  Primary issues: Jurisdictional classifications (private line)
 
  • Application for Review of Decision of the Wireline Competition Bureau (filed May 1, 2017).
  • XO Communications Services (XOCS) asks that the Commission review the Wireline Competition Bureau’s order denying several requests for review, including one by XOCS. In an audit, USAC rejected XOCS’s intrastate classification of physical intrastate circuits because XOCS could not produce evidence that the traffic was not interstate. USAC operated on the presumption that an intrastate circuit was nonetheless interstate unless XOCS could prove that the circuit’s traffic was no more than 10% interstate. In response, XOCS filed a request for review, which the Bureau denied in the 2017 Private Line Order.  XOCS seeks review of the Bureau’s decision because, XOCS argues, it is in conflict with case precedent and Commission policy.  XOCS contends that the Bureau misapplied the Commission decisions establishing the Ten Percent Rule and also that the Bureau, in effect, created new standards that could not be applied retroactively.  

9.  TDS Metrocom, LLC.  Primary issues: Jurisdictional classifications (private line)
 
  • Application for Review or Clarification, or in the Alternative, Request for Waiver (filed May 1, 2017).
  • TDS filed an application for review of the Wireline Competition Bureau’s 2017 Private Line Order regarding application of the Ten Percent Rule for allocating jurisdictionally mixed intrastate private lines.  In its application, TDS contests USAC audit findings related to the amount of interstate traffic carried by private lines. In 2012 USAC notified TDS of its intention to conduct an audit of the company’s Form 2011 Form 499-A filing. In response, TDS provided a list of private lines documenting the end points, showing that all but one had intrastate end points. TDS also furnished end user certifications collected during and after the audit period from certain 2010 private line customers. However, because TDS did not demonstrate that 10% or less of the traffic carried over its remaining end user private lines was interstate, USAC required TDS to make USF contributions on all remaining revenue reported in line 406 of Form 499-A. TDS filed a request for review of the audit report, requesting that the Commission reverse USAC’s finding, which the Wireline Competition Bureau denied four years later. The Bureau instead remanded the audit to USAC to consider additional documentation. TDS Metrocom thus filed an application for review of the Bureau’s order, arguing that it violates FCC precedent, is based on mistakes in fact, and violates the APA.

10.  Eureka Broadband Corporation. Primary issues: Reseller revenues
 
  • Application for Review (filed Feb. 10, 2017).
  • Eureka submits its application for review of the Commission’s decision to remand to USAC Eureka’s 2007 petition for reconsideration. In 2003, Eureka responded to a USAC investigation concerning missing contributions owed by Eureka, for which Eureka had been billed for USF contributions by its underlying carrier, MCI, and which MCI was supposed to remit to USAC. During its 2003 investigation, Eureka contends, USAC did not try to confirm if MCI had remitted these charges to the Fund. Instead, in 2004, USAC chose to assess upon Eureka those same charges. Thus, in 2007, Eureka filed a petition for review, which the Wireline Competition Bureau denied. Eureka shortly thereafter filed its petition for reconsideration.
  • In response, after nine years, the Bureau remanded the issue to USAC for further consideration. Therefore, in this application, Eureka contends that the Bureau violated the APA and the Commission’s Rules by refusing to promptly act on Eureka’s earlier petitions; rendering an arbitrary and capricious decision in conflict with the directive that USF contributions are due only once with respect to any revenue stream; announcing a drastic policy change in its memorandum opinion and order, and applying that policy retroactively against Eureka; and reaching an erroneous finding as to whether the Fund had already been fully compensated USF contributions on the revenue in question.

11.  Locus Telecommunications, LLC.  Primary issues: Private carrier revenues
 
  • Petition for Declaratory Rulings Relative to the Treatment of Private Carriage Revenues (filed Nov. 22, 2016).
  • Locus seeks declaratory rulings to clarify carriers’ rights relative to the treatment of private carriage revenues under federal law. Specifically, Locus requests rulings that revenues derived from private carriage offerings are exempted from non-USF Title II fees and North American Numbering Plan administration fees; that USAC’s policy of sharing Form 499-A revenue data with Title II Program administrators is unlawful; and that carriers must be afforded the opportunity for redress—both retroactively and prospectively—for these Title II fees calculated on private carriage revenues.

12.  Locus Telecommunications, LLC.  Primary issues: Private carrier revenues 
 
  • Request for Review of Decisions of the Title II Program Administrators (filed Nov. 2, 2016).
  • Locus seeks review of the decisions of Rolka Loube (TRS Fund Administrator) and Neustar (administrator of the LNP funding mechanism) for assessing revenues from both common carriage offerings and private carriage offerings. Locus argues that the Form 499-A is deficient for failing to provide carriers a means to segregate private carriage revenues from common carriage revenues. Locus therefore asks that the Commission instruct the Title II Program Administrators to recognize its private carrier status and to reissue invoices as requested; direct USAC to withhold private carriage revenues from data shared with the Program Administrators; order USAC to discontinue its policy of relying on the “primary” service identified in Line 805 of Form 499-A; and provide relief as appropriate.

13.  2009 USAC Guidance request.  Primary issues:  Prepaid calling cards, Frame relay/ATM, VPN and Dedicated IP services 
 
  • Letter from Richard A. Beldon, USAC, to Julie Veach, Wireline Competition Bureau, FCC, August 19, 2009 (received August 24, 2009). 
  • On August 19, 2009, USAC submitted a list of outstanding policy guidance requests which it had presented to the FCC. Of the 6 individual items on that list, 3 were requests for guidance on USF contribution matters. Specifically, these concerned reporting on prepaid card revenue; the classification of Asynchronous Transfer Mode (ATM) and Frame Relay revenue; and the classification of VPN and Dedicated Internet Protocol revenue.
  • USAC requests clarification regarding the revenues to be reported by prepaid calling card providers.  Prepaid cards present an issue for accurate assessment of revenue because they may be sold through a third-party distributor, sold without a face value, or sold at a discount. Further, the date on which a prepaid calling card is sold to the end-user may be ambiguous (because of sales through distributors or wholesalers), so it is unclear when a carrier should report the associated revenue. Because of the uncertainty surrounding these cards, USAC asked the FCC to identify the amount of revenue that should be reported and the date when such revenues should be counted.
  • USAC also seeks advice relating to revenue from Asynchronous Transfer Mode (ATM) and Frame Relay products. In its audits of Forms 499-A, USAC found several instances where this ATM revenue was classified as “non-telecommunications” because carriers considered it derived from an information service. USAC seeks greater clarity regaring the proper classification of ATM and Frame Relay revenue.
  • Finally, USAC seeks guidance on the revenue received from VPN and Dedicated Internet Protocol services. This revenue was related to data transport using IP, which, according to USAC, is similar to Private Line/Frame Relay. That revenue is supposed to be reported as telecommunications-derived, but carriers had classified IP revenues as “non-telecommunications.” USAC has requested guidance on this issue.