On December 28, 2009, Grande Communications Networks, LLC ("Grande") filed with the Federal Communications Commission ("FCC") a request for review of a Universal Service Administrative Company ("USAC") audit.  Grande sought review of the following USAC decisions: (1) classification of its per-line "customer access charge"; (2) treatment of its DSL-based Internet access revenues prior to August 13, 2006 and (3) classification of its resale revenues. 

First, Grande challenged USAC's reclassification of its "customer line charge" ("CLC") as an interstate Subscriber Line Charge ("SLC").  Grande argued that, because its CLC applies to the provisioning of basic local service, the company properly reported such revenues in Form 499s as intrastate.  Grande explained that the FCC's rules only require Local Exchange Carriers ("LECs") with federally-tariffed SLCs to collect and report such interstate revenues.  Grande, however, did not impose a federally-tariffed SLC.  Thus, it concluded that its charge was a component of its local service fee.  Grande therefore argues it correctly reported CLC revenues as intrastate and exempt from federal USF contributions.

Second, Grande disputed USAC's attempted reclassification of its DSL-based Internet access service from an "information service" to a "telecommunications service."  USAC demanded that Grande amend its classification of its DSL service to report a "transmission component" for services provided prior to August 13, 2006, the cut-off date for continued reporting of the transmission component of wireline broadband Internet access services for Universal Service Fund ("USF") purposes under the FCC's 2005 Wireline Broadband Order. Grande retorted that the Order merely required carriers already reporting a transmission component to continue to do so.  Because Grande's service was always integrated, it had no separate transmission service revenues to report.  Grande concluded that even if it should have reported certain of its DSL service revenues as telecommunications, USAC "grossly overstated" the amount owed because it reclassified all of Grande's DSL-based revenues as "telecommunications" as opposed to the transmission component only.

Finally, Grande disagreed with USAC's reclassification of its resale revenues based upon Grande's alleged failure to demonstrate that its resellers would be "reasonably expected" to contribute directly to the USF.  Grande noted that the FCC has clarified that USAC's instructions to FCC Form 499-A, designed to implement the carrier's carrier rule, constitute mere guidelines.  In order to satisfy the rule, a wholesale carrier may meet one of the enumerated procedures in the instructions or submit "other reliable proof."  USAC rejected Grande's "other reliable proof," including reports from USAC's quarterly list of 499-Q filers, finding that it failed to meet the "reasonable expectation" standard.  USAC reclassified the revenue as end-user revenue. 

Client Advisory

Grande's request raises several important issues. First, it describes a legal path for CLEC clients to possibly qualify certain customer charges, SLCs, as intrastate revenues exempt from federal USF contribution obligations.  Second, the petition outlines difficulties in isolating the transmission component of Internet access services and associated revenue reporting complications.  Finally, it provides support for the ongoing effort to reform the USF and clarify wholesale providers' burdens in guaranteeing customer compliance with the carrier's carrier rule.  Many of Grande's concerns regarding the Carrier's Carrier Rule echo those voiced by the Ad Hoc Coalition of International Telecommunications Companies and a variety of other industry petitioners.

Because the FCC's decisions upon these various issues could have a significant impact on all telecommunications services provider clients, clients are urged to review the request, available in WC Docket No. 06-122, and to monitor the proceeding as it develops.  Clients with questions about this Advisory should contact Jonathan Marashlian at jsm@commlawgroup.com or 703-714-1313.