Parties Challenge FCC’s Carrier’s Carrier Clarification Order
Global Crossing Bandwidth, Inc. (Global Crossing), XO Communications Services, LLC (XO), and TelePacific Communications (TelePacific) have each raised challenges to the FCC’s 2012 Wholesaler-Reseller Clarification Order (FCC 12-134), an order that affects the decisions and practices of all companies either purchasing and consuming or purchasing and reselling telecommunications services. Each challenge raises seemingly simple issues, but if successful could disrupt the FCC’s and USAC’s past enforcement of the carrier’s carrier rule as embodied in the 499 Instructions. The common theme among each petition is that the FCC has been making what amounts to significant substantive rule changes for years without proper notice and an opportunity for affected parties to participate and comment.
Global Crossing, a wholesale telecommunications provider, filed a petition for review in the DC Circuit, arguing that the FCC unlawfully “affirmed” a definition of reseller that developed over time through changes to the Form 499 instructions without notice or the opportunity for affected parties to comment. In the Order, the FCC stated that the definition of “reseller” has been established since 1997 as an entity that “not only (1) incorporates purchased telecommunications into its own service offerings; but also (2) contributes to the [Universal Service] Fund based on revenues from those offerings.”
XO and TelePacific each filed petitions for partial reconsideration with the FCC. XO is seeking clarification or reconsideration of the evidentiary standards set forth in the Order. Specifically, XO challenged the FCC’s directions to USAC for reviewing whether XO had a reasonable expectation that customers would contribute directly to the Fund. XO had relied on confirmatory certificates obtained for the relevant time period but after contributions were made. These certificates contained the sample language from the Form 499 Instructions. The FCC placed the burden on XO to demonstrate by “clear and convincing” evidence that certain customers contributed directly to the Fund. In its petition, XO argued that this heightened evidentiary standard is unprecedented, arbitrary and capricious, and that the FCC has promulgated what is tantamount to a “legislative rule” without the notice and opportunity for comment required by the Administrative Procedure Act.
TelePacific has sought reconsideration concerning the assessment of revenues of broadband Internet service providers. In its petition, TelePacific stated that the FCC has adopted a new requirement that reseller certification would be required on a “service-by-service” basis, not an “entity-by-entity” basis. The effect of this change, the company argued, is to impose indirect contribution obligations on upstream providers such as TelePacific on the cost of broadband transmission service they lease from an ILEC to provide retail broadband Internet service, whereas the ILEC/owner of the transmission facilities does not bear this obligation when providing nearly identical retail services. This inequity, TelePacific argues, violates the principles of competitive neutrality imbedded in Section 254.
The Wireline Competition Bureau sought comment on both petitions. Comments on the TelePacific petition were due January 9, 2013, and comments on the XO petition were due January 10.
In addition, although the FCC styled its 2012 Wholesaler-Reseller Clarification Order as a “clarification” of existing rules, the FCC nonetheless sought comments on proposed modifications to its Form 499 related to the Order, such as deleting the instruction advising wholesale carriers to rely upon the FCC’s online database to determine a reseller customer’s Universal Service Fund contribution status. Comments were due January 11, 2013.
FCC Revamps its Part 5 Experimental Radio Service Rules
Recently, the Federal Communications Commission (FCC) adopted major revisions to its rules governing the Experimental Radio Service, which are contained in Part 5 of the Commission’s rules. The changes, designed to spur technological advancement and widespread deployment of broadband connections: 1) add three new types of experimental licenses and 2) “revise and streamline existing rules and procedures for experimenting, testing, and marketing radio frequency (RF) devices, while protecting incumbent licensees from interference.”
The rule revisions move the Experimental Licensing system from one that requires an individual license for each separate experiment to one that will enable multiple experiments to be conducted under a single radio license. This greatly simplifies the application process and reduces costs for conducting RF experiments.
According to the FCC’s news release, the three new license types are:
• Program experimental license: This license will allow colleges, research laboratories, health care institutions, and manufacturers that have demonstrated experience in RF technology to conduct ongoing series of research experiments and tests.
• Medical testing license: This license will be available to health care facilities with RF expertise to assess newly developed RF based medical devices for patient compatibility, electromagnetic compatibility and to conduct clinical trials at patients’ homes or in other geographic areas that are not within the health care licensee’s control.
• Compliance testing license: This license will provide Commission-recognized laboratories the flexibility to undertake RF product compliance testing under the Commission’s equipment authorization procedures.
Experimental license-holders will be required to notify other license-holders using the same spectrum about the planned experimental uses of the affected frequencies and to develop a “specific plan to avoid harmful interference to those [other] operations.” Experimental licensees must continue to use their spectrum in a manner that does not interfere with regular licensed services. As part of this effort, the FCC will launch a web-based system “to track and manage individual experiments for program and medical testing licenses.” Other changes in the FCC’s rules affecting experimental licenses were made as well, including provisions that would allow a “greater number of RF devices to enter the U.S. for testing and evaluation purposes.”
Significant Fraud Uncovered in Lifeline Program
Last year, the Federal Communications Commission revised rules impacting the provision of wireless phones through the Lifeline Program, the program that subsidizes the provision of telecommunications services to indigent Americans. The Universal Service Administrative Company (USAC) administers the Lifeline program. USAC pays carriers $9.25 a customer per month to cover the cost of free or discounted wireless service.
Pursuant to the FCC’s revised requirements, carriers now must verify the eligibility of existing Lifeline subscribers, with the intent to cull existing subscribers to the program that are not actually indigent and therefore ineligible. In addition, the FCC required carriers to report the number of existing subscribers that were dropped from the program as a result of the stricter verification process.
Based on the reports submitted by the top five companies receiving Lifeline funds, it became apparent that the Lifeline program that distributed wireless phones was rife with fraud. Specifically, the Wall Street Journal conducted a review of the records of the top-five providers and found that 41 percent of their Lifeline subscribers either could not prove their eligibility or simply did not respond to requests from providers to verify their status.
The FCC stated that its stricter requirements resulted in almost $214 million in savings in 2012. It further estimated that over the next three years, the savings resulting from the stricter procedures could be as much as $2 billion.
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Allison D. Rule is a senior associate 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.
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.