On January 29, 2010, the Wireline Competition Bureau of the FCC ("Bureau") issued an Order denying Level 3 Communications, LLC and several other providers' (collectively "Level 3") joint request for review of a Universal Service Administrative Company decision.  Level 3 sought reversal of USAC's computation of its USF liability based upon erroneous calculations in its 2008 Form 499-A and waiver of interest and penalties applied due to the company's failure to pay invoices based upon inaccurately reported revenues.

 In April of 2008, Level 3 timely submitted its 2008 Form 499-A.  Thereafter, Level 3 discovered errors in its original submission and filed a revised 2008 Form 499-A that significantly reduced its Universal Service Fund ("USF") contribution liability.  USAC issued invoices to Level 3 in 2008 which reflected USF fees calculated according to its original 2008 Form 499-A.  Level 3 engaged in "self help" to avoid paying the full amount of the invoiced USAC charges and remitted reduced USF payments based upon its revised calculations. 

Although USAC ultimately issued credits based upon its annual true-up of Level 3's revenues, it nonetheless assessed interest and penalties for the company's failure to pay the full amount originally invoiced.  USAC relied upon its "pay and dispute" policy, which requires USF contributors to timely remit all invoiced USF fees before seeking recovery for any disputed amount.  Because Level 3 failed to submit full payments, USAC assessed interest fees and penalties.  The Bureau denied Level 3's request for review of USAC's decision to issue invoices based upon its original 2008 Form 499-A and USAC's refusal to consider the company's revisions on an expedited basis.  The Bureau further refused Level 3's request for waiver of interest and penalties finding a lack of good cause to issue such a waiver especially in light of the company's four-month delay in submitting revised figures.

Client Advisory

The Level 3 Order demonstrates the Bureau's is sanctioning USAC's strict, unyielding interpretation and enforcement of a "pay and then dispute" policy.  Such an inflexible requirement could deprive companies of large sums of money for up to two quarters or possibly even an entire year, while the true-up processes run their course.  The FCC made clear that any company using self-help measures to resolve a reporting error by submitting reduced USF fees will pay a substantial price.  That is, the FCC will not issue refunds for interest and penalties accrued and assessed by USAC even if USAC ultimately accepts revised revenue calculations.  The Bureau level decision could be appealed to the full Commission.  Therefore, this matter warrants close attention and monitoring.