By the time this article is published it is expected the Federal Communications Commission (“FCC”) will have voted at its April 27th Open Meeting to release a Further Notice of Proposed Rulemaking (“Rulemaking”) to kick off the long-overdue process of reforming and modernizing its rules for assessing and recovering Universal Service Fund (“USF”) contributions.  The recently announced USF contribution reform rulemaking is vitally important to the future of the international and prepaid communications services industries.  How the FCC decides to fund Universal Service will more than likely have an impact on every single business that touches a communications network, whether public or private, narrowband or broadband, switched or non-switched.  The importance of this USF reform proceeding cannot be overstated.

Nearly six years have passed since the FCC’s last serious attempt at reforming the USF contribution mechanism through Docket 06-122.  Despite countless filings and pleas, the FCC has neglected to take any meaningful steps to tackle what has become the single most confounding and costly aspect of modern day communications regulation.  This Rulemaking however, is expected to be different. 

Over the past six years the issues facing the FCC have shifted.  In the rapidly evolving universe of communications and Internet technology and politics, fears about potential political blowback associated with any broadening of the USF contribution base to include a wider base of VoIP, Broadband and other enhanced communications services once precluded the FCC from adopting meaningful reform.  However, these fears have apparently waned as the USF contribution factor marches towards 20%, and VoIP and other Internet-based communications continue to take market share from traditional telephony services.  Now that the FCC’s rules will shift USF support payments from traditional landline telephone services to broadband services through the Connect America Fund over the next several years, the FCC has little choice but to transform the USF contribution system to match reforms already enacted on the USF disbursement side. 



What it Means to the Industry

Universal Service is, without question, the single most important issue impacting the regulation of the communications services industry.  The current “revenue-based” contribution system is plagued with problems, not the least of which is a USF Contribution Factor on course towards 20% and higher, if action is not taken soon. 

Next to the exorbitant contribution factor, perhaps the second most frustrating aspect of the current revenue-based system has been USAC’s interpretation and enforcement of the so-called Carrier’s Carrier Rule (“CCR”).  USAC’s enforcement of the CCR has been nothing short of an unmitigated disaster due to its injection of uncertainty, confusion and fear into the private commercial dealings of carriers. 

On top of the issues plaguing the industry as a whole, Prepaid Calling Card providers (“PPCC”) have been saddled with unique burdens and inequalities caused by the Government’s ignorance about the practical business realities of the PPCC industry (and the PPCC industry’s abject failure to educate the Government).   



Telecom Lobbies Push for Reform

In what looks to be more than mere coincidence, US Telecom, the highly influential trade association of the former RBOCs, filed a direct and sharply-worded ex parte letter with the FCC just weeks before the FCC announced the impending Rulemaking.  In its letter, US Telecom lambasted the current revenue-based methodology as outdated, inefficient and wasteful.

Parroting the pleas of the Ad Hoc Coalition of International Telecommunications Companies (“Coalition”), US Telecom also highlighted the burdens and inequities caused by the CCR.  US Telecom criticized the FCC for allowing USAC to turn wholesalers into enforcement agents through its rigid and unyielding application of the CCR, as detailed in Form 499 Instructions.  Notably, US Telecom advocated for interim reforms that borrowed from the Coalition’s call to discard the existing CCR framework, which requires wholesalers to manually verify their customer’s status through carrier-to-carrier USF exemption forms, and replace it with a superior, technology-oriented approach centered on a real-time database and online verification system that provides wholesalers with detailed information that goes beyond the basic “yes” or “no” indicator of a contributor’s status. 

In an effort to capitalize on the building momentum, the Coalition recently filed an ex parte letter urging the FCC to address several of US Telecom’s proposed interim reforms by issuing rulings on the Coalition’s pending petitions for declaratory rulings. 

The Coalition’s cries for reform of the irretrievably broken USF contribution system have been echoed from all corners of the communications world.  A handful of well-known communications technology providers led by Google, Vonage, Skype and Sprint recently met with the FCC to discuss their support for replacing the revenue-based system with a connections-based method. 

With support from such a diverse range of service providers, it would appear the prospects of replacing the troubled revenue-based system are good.   However, a few words of caution before the PPCC industry rejoices or lowers its guard.  First, although the industry as a whole appears aligned, the revenue-based system is popular with some powerful constituencies, including low-volume and high-connection users (both of which would pay more under a connections-based approach).  Second, the FCC has invested heavily in USAC and its infrastructure, making it more difficult to sacrifice.  Third, if the FCC does pursue a comprehensive overhaul and replaces the revenue-based system with an entirely new methodology, the changeover will not occur overnight.  The revenue-based system currently in place is likely to remain in place for the better part of the next two years, possibly longer.  In recognition of this likelihood, US Telecom urged the FCC to adopt interim reform measures to alleviate many of the burdens, inequalities, and uncertainties caused by USAC’s administration of the current system.  The Coalition, agreeing that the industry cannot sit idle until comprehensive reform is fully implemented, piled on top of US Telecom’s interim reforms with several recommendations of its own, primarily focused on international service providers.



Get Involved

Undoubtedly, this Rulemaking will be monumental. Prepaid industry members must unite and advocate for reforms to the USF contribution system that address the unique and complex attributes of the international and prepaid marketplace.  This is an historic opportunity for the industry to persuade the FCC that prepaid is one of the key ways universal service is actually provided to those in society who can least afford a connection to the network.

Do not allow this opportunity to pass by.  US Telecom and their fellow travelers will have their opportunity to procure temporary relief, but others who remain silent will miss their chance to fix a broken system -- both in the short term and for years to come.  You are strongly encouraged to take part in this proceeding before the FCC as other industry participants already have.  Powerful lobbies are watching and aware of the Coalition’s advocacy and work on various issues emanating from USAC’s administration of the USF program, and those lobbies have picked up on these issues and are now pushing hard for reforms.  But this industry needs to continue putting ideas out on the table.  Otherwise, the best ideas -- the ones that make the most sense for international and prepaid communications services -- will be lost.

Loyal readers of The Prepaid Press know that the author of this article has been singing the virtues of advocacy and participation in the FCC’s rulemaking processes for some time.  During this time, the author and a handful of Coalition members have put their money where their mouth is by conceiving, funding, and filing numerous petitions with the FCC, by engaging Commission staff in face-to-face meetings, and submitting comments and filing ex parte letters.  The Coalition’s efforts have offered not merely criticism of the revenue-based system and USAC’s mis-administration thereof, but solutions as well.  And although these efforts did not result in immediate reforms, the Coalition’s cumulative efforts have undeniably borne fruit.  The Coalition’s open and frank criticism of the current system opened the door to more powerful lobbies, such as US Telecom, to challenge the status quo and question the underlying legality of a multitude of USAC procedures and policies.  Our job is not done yet.  Do not count on US Telecom or any other industry representative to advocate on your behalf.  The international and prepaid services markets are unique -- they demand a voice that advocates for specific changes targeted at improving your lives, that open opportunities for you, and that defends your interests against those who would seek to benefit from your failure.

Working together is the only way the industry can effectively hold the Commission accountable for its promises to implement comprehensive and positive reform. •



For more information, please visit the Coalition’s website, www.telecomcoalition.com.

Jonathan S. Marashlian is the Managing Partner at Marashlian & Donahue, LLC, The CommLaw Group, a Washington, D.C.-area law firm specializing in federal and state telecom and technology matters, with a concentration in stored value/prepaid. The firm’s Law Clerk, Patrick O’Brien, assisted in the preparation of this article. Jonathan can be reached at jsm@commlawgroup.com.

Disclaimer: This article is intended for informational purposes only and is not for the purpose of providing legal advice. You should not act upon the information in this article without seeking professional counsel.