LEGAL GUIDE
Written by attorney Jonathan Soukias Marashlian

Compliance with Clarified FCC Rules Governing Wholesaler-Reseller Exemption from USF - Part 2

III. Wholesalers’ Treatment of Reseller Revenues

Third, the FCC provided guidance to USAC on how to treat a wholesaler’s revenues in certain circumstances. Specifically, where a wholesaler had a reasonable expectation that its reseller customer contributed directly to the Fund, but the reseller in fact did not contribute to the USF, the wholesaler is not responsible for any outstanding contribution obligations of the reseller. [15] Similarly, if the wholesaler did not have a reasonable expectation that its reseller was a direct contributor, but the reseller did in fact contribute, the wholesaler likewise is not liable for the reseller’s USF fees. [16] If, however, the wholesaler did not have a reasonable expectation that its reseller customer would contribute directly to the Fund and the reseller did not contribute directly to the Fund, the wholesaler is vicariously liable for outstanding contribution obligations of the reseller. [17]

IV. USAC and the Bureau’s Authority

The Commission ignored challenges to the Bureau’s authority to adopt changes to the Instructions that in effect operate as rules because they affect the substantive contribution obligations of filers. [18] The FCC simply referred to the Bureau’s delegated authority to “revise the Forms 499 and accompanying instructions," to “waive, reduce, or eliminate contributor reporting requirements that may prove unnecessary" or “to require any additional contributor reporting requirements necessary to the sound and efficient administration of the universal service programs." [19]

Notably, the Commission likewise adopted a definition for “reseller" without issuing a rulemaking, simply assuming the definition set by the Bureau in the Instructions. The Commission reasoned: “This definition has been consistently included in the reporting instructions since 1997." [20] The FCC is apparently excusing notice and comment because a carrier is not “bound" by the Instructions since the FCC offers carriers the opportunity to submit other reliable proof. [21] As discussed below, this distinction is a mere technicality, since although the Instructions are not “mandatory," and thus the Commission does not treat them as “rules," the only guaranteed means by which a wholesaler can avoid vicarious liability for the reclassified revenues of its reseller customers is to follow the Instructions.

The FCC also expressly authorized USAC to reclassify revenues, and sanctioned the Bureau’s authority to approve USAC’s reclassification, [22] concluding:

If a wholesale provider cannot demonstrate a reasonable expectation as discussed in this order, USAC may require the wholesale provider to restate the revenues … as “end user" revenues." [23]

In addition, although a wholesaler will not be held vicariously liable for reclassified USF fees on behalf of a customer that actually contributed to the USF even though wholesaler failed to show that it reasonably expected that the customer would contribute directly, the FCC notes that failing to comply with the “reasonable expectation" standard, violates the provider’s independent duty to conduct due diligence on its resellers. [24] And, USAC is not required to look beyond the records submitted by a wholesaler to confirm a reseller’s status. [25] Where USAC determines that a wholesaler failed to meet the reasonable expectation standard, the burden is on the wholesaler to demonstrate that the reseller customer did in fact contribute to avoid vicarious liability for the reseller’s outstanding USF fees. [26]

The Order essentially affirms USAC’s ultra vires actions in reclassifying revenues. Moreover, the Order vests USAC with broad authority to determine whether a wholesaler has met the reasonable expectation standard. While the Commission instructed USAC to consult with the FCC if USAC cannot determine if a wholesaler met the reasonable expectation standard, the Order vests USAC with the exclusive power to determine whether a carrier provided sufficient proof under the reasonable expectation standard, or whether FCC review is required. [27] Furthermore, notably absent from the Commission’s Order is any discussion on the limits of the Bureau’s (and USAC’s) authority to impose USF fees through the CCR on exempt entities over which the FCC lacks jurisdiction. [28]

V. Modifications to 2013 Form 499-A Instructions

The Commission instructed the Bureau to modify the 2013 Form 499-A Instructions consistent with its Order to “clearly reflect the longstanding requirement that in order to classify revenues as carrier’s carrier revenues, wholesalers must have a reasonable expectation that their customers are ‘resellers.’" [29] More importantly, the FCC directed the Bureau to subject the Instructions for the first time to public notice and comment before adoption. [30] The Commission confirmed that through December 31, 2013, reliance on the sample language in the 2012 Instructions will meet the reasonable expectation standard. [31]

[1] In the Matter of Universal Service Contribution Methodology, Application for Review of Decision of the Wireline Competition Bureau filed by Global Crossing Bandwidth, Inc., Request for Review of the Decision of the Universal Service Administrator and Emergency Petition for Stay by U.S. TelePacific Corp. d/b/a TelePacific Communications, XO Communications Services, Inc. Request for Review of Decision of the Universal Service Administrator, Universal Service Administrative Company Request for Guidance, WC Docket No. 06-122, Order, FCC 12-134 (rel. Nov. 5, 2012) (“Order") at ¶ 3.

[2] Order at ¶ 2 (“By closing perceived loopholes in the current rules, our actions should assist in stabilizing the contributions system and promoting the sustainability of the Fund.").

[3] Order at ¶ 3.

[4] Order at ¶¶ 34-35.

[5] Order at ¶ 40, n. 111 (“Such a broad reading, in the extreme case, would allow a carrier to claim reseller status for all of its wholesale inputs even though it only contributed on a small fraction of its product offerings. For example, if a customer purchases a DS1 line and incorporates that service into an offering of broadband Internet access service, it is not a reseller for purposes of that line because it has no obligation to contribute on those broadband Internet access service revenues.").

[6] Order at ¶ 6 (citing Federal-State Joint Board on Universal Service; Request for Review of Decision of the Universal Service Administrator by Global Crossing Bandwidth, Inc., CC Docket No. 96-45, Order, 24 FCC Rcd. 10824, 10828-29, ¶ 14 (Wireline Comp. Bur. 2009) (Global Crossing Order)).

[7] Order at ¶ 6.

[8] Id.

[9] Order at ¶¶ 6 and 52.

[10] Order at ¶ 6 (emphasis added); See also id. at ¶¶ 46 and 52.

[11] Order at ¶¶ 6-7.

[12] Order at ¶ 48 (“[T]o the extent that a wholesale provider relies on the FCC Form 499-A instructions to satisfy the reasonable expectation standard…it must receive the relevant evidence before the filing deadline for the applicable annual Form 499-A.").

[13] Order at ¶ 6.

[14] Order at ¶ 3, n. 5.

[15] Order at ¶ 4.

[16] Order at ¶ 5.

[17] Order at ¶ 7.

[18] See Order at ¶ 18 (citing to Global Crossing’s challenge to “the validity of the FCC Form 499 filing instructions in general… that they were not adopted pursuant to the notice and comment requirements of the Administrative Procedures Act" but failing to address the argument in the Order).

[19] Order at ¶ 10, n. 21.

[20] Order at ¶ 34.

[21] See Order at ¶ 51, n. 125.

[22] See also Order at ¶¶ 50-51 (endorsing the Bureau’s approval of USAC’s reclassification if Global Crossing fails to meet the reasonable expectation standard).

[23] Order at ¶ 39.

[24] Order at ¶ 44.

[25] Order at ¶ 45 (“We clarify that USAC, beyond checking its own records, is not required to conduct additional independent investigations of the wholesale provider’s customers in making this determination; however, USAC should consider the evidence offered by the wholesale provider, including sworn reseller certificates (“confirmatory" certificates)").

[26] Id.

[27] Order at ¶ 52 (“USAC is not required to conduct any independent investigation, beyond checking its own records and considering the evidence from the provider, in making this determination. We direct USAC to refer matters directly to the Commission to the extent it cannot determine from the facts presented whether the provider has demonstrated a reasonable expectation either by relying on the guidance in the FCC Form 499-A or other reliable proof.").

[28] See, e.g., Petition of the Ad Hoc Coalition of International Telecommunications Companies for Declaratory Rulings that: (1) the Universal Service Administrative Company Lacks Authority to Indirectly Assess Universal Service Fund Fees on International Only Providers and (2) the FCC Lacks Jurisdiction Over Certain Non-U.S. International Providers, or, in the Alternative to Initiate a Rulemaking Proceeding to Examine These Issues, WC Docket No. 06-122, 11-12 (Sept. 4, 2009).

[29] Order at ¶ 41.

[30] Order at ¶ 6 (“[W]e direct the Bureau to issue a public notice within thirty days seeking comment on any revisions that should be made to the FCC Forms 499 and instructions for reporting 2012 revenues in 2013.").

[31] Order at ¶ 41.

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