On February 24, 2010 the Federal Communications Commission ("FCC") released an updated FCC Form 499-A and instructions.  The form and instructions, which were released in anticipation of the upcoming April 1, 2010 filing deadline, memorialize several recent Universal Service Fund ("USF") rule changes and other updates which ensure consistency with the current USF contribution methodology.  The most notable changes are: (1) an increase to the de minimis threshold calculation factor in the de minimis worksheet to account for the recent material increases in the quarterly USF contribution factor, (2) the addition of a new category for "audio-bridging providers," and (3) reminders to interconnected voice over internet protocol ("VoIP") and wireless service providers to submit traffic studies along with their Form 499 submissions.  Each of these important changes is discussed below.

Updated de minimis threshold factor.  The most significant change to the Form 499-A instructions was the increase in the estimated contribution factor on the de minimis worksheet.  The FCC increased the estimated contribution factor to 12.3% (0.123) in order to account for the increase in quarterly USF contribution factors throughout the previous year; the current quarterly contribution factor is 14.1%, and is clearly expected to remain at these high levels given the upward adjustment to the de minimis threshold factor.   

The increase to the estimated contribution factor can be found in the FCC de minimis worksheet, which is contained at Figure 1 in the Form 499-A instructions.  Under the FCC's rules, all registered telecommunications service providers must execute this worksheet to determine if they meet the FCC's de minimis threshold.  And, the Form 499-A instructions explicitly state that all carriers with a 499 Filer Id must retain a completed copy of this worksheet in their records for five (5) years in the event of an audit.  The Universal Service Administrative Company ("USAC") will also use the new estimated contribution factor to determine if a registered telecommunications service provider must contribute directly to the USF. Hence it is crucial that all potential contributors account for this increase.

Despite this increase, the FCC declined to raise the Limited International Revenue Exemption ("LIRE").  As a result, international telecommunications service providers who qualify for the LIRE and are de minimis are still unfairly penalized under the FCC's rules, as they may be required to pay additional USF on non-interstate traffic.  The result is that some carriers may contribute more than their total interstate revenue, which is arguably unlawful in light of the U.S. Court of Appeals for the Fifth Circuit's ruling in Texas Office of Public Utility Counsel, et. al. v. FCC.  The FCC has yet to resolve this disputed issue.  We therefore urge clients affected by this conflict to seek counsel to fully understand their rights and duties.

Audio-bridging providers.  The FCC made several revisions to the FCC Form 499-A and instructions concerning audio-bridging providers.  First, the FCC added a category for "Audio Bridging (teleconferencing) Provider" on line 105 of the Form 499-A.  Previously, audio bridging providers were instructed to check "Other Toll" andenter "TSP" in the explanation field.  The instructions to the Form 499-A were also updated with an additional description of what constitutes an audio-bridging provider, consistent with the FCC's 2008 Intercall Order (classifying audio-bridging services as contribution eligible).

Reminder to file traffic studies.  The FCC added detailed language clarifying that all interconnected VoIP providers and commercial mobile radio service ("CMRS") providers relying on traffic studies must file these traffic studies when submitting FCC Form 499-Q and A to the FCC.  This new language does not alter or diminish the existing duty to file traffic studies. 

A copy of the new instructions, with the new FCC Form 499-A at the end, can be found here: http://www.fcc.gov/Forms/Form499-A/499a-2010.pdf   

CLIENT ADVISORY

All clients should review this information to ensure that their USF reporting practices consider the updates to the Form 499s and their respective instructions.  De minimis filers, especially those who qualify for the LIRE, should make note of the new increased estimated contribution factor, as this will likely impact  amounts reported on all upcoming FCC Form 499-Qs (the increased estimated contribution factor will not, however, affect amounts reported on the upcoming FCC Form 499-A since these are based on actual revenue).  Providers of audio-bridging services should also review the updated instructions to ensure accurate reporting and contribution.

Interconnected VoIP and wireless service providers who rely on traffic studies are also reminded to ensure that traffic studies are filed with USAC and the FCC when both FCC Form 499-Qs and 499-As are submitted.  The FCC's updates suggest that the agency will be more aggressive in its enforcement of this filing obligation.

Finally, all clients are advised to review the FCC Form 499 generally in preparation for the upcoming filing, due April 1, 2010.  Almost all registered Interstate Telecommunications Service Providers ("ITSPs"), i.e. those providers with a FCC 499 Filer ID, must file 499-A with the FCC, regardless of de minimis status.

To assist clients with this upcoming Form 499-A filing obligation, the firm's Commpliance Division will be contacting clients next week to begin gathering data in preparation for the filing.  In the meantime, clients are encouraged to review the updated FCC 499-A and instructions to ensure that they understand their annual reporting obligations.

Clients who have questions about the material outlined in this Advisory, or have legal questions about filing FCC Form 499-A should contact Chris Canter at: cac@commlawgroup.com or 703-714-1308.