As discussed in a recent firm advisory, in mid-August the Universal Service Administrative Company (“USAC”) filed two letters with the Federal Communications Commission (“FCC”) requesting guidance on, among other things, whether Asynchronous Transfer Mode (“ATM”)/Frame Relay (“FR”) services qualify as “information services.” USAC also requested that the FCC clarify whether revenues received from Virtual Private Network (“VPN”) and Dedicated Internet Protocol (“IP”) services are properly reported as “non-telecommunications revenue.”
On October 28th, several parties filed comments on these issues. Reply comments are due November 12th. A summary of the relevant comments follows.
(1) Comments of Verizon and Verizon Wireless, Inc. (“Verizon”)
Verizon suggested that because ATM/FR refers to a transmission service and VPN includes a variety of network solutions, the capabilities of the service offered to consumers through these technologies determines USF liability. A service offering basic transmission qualifies as telecommunications, whereas one with enhanced capabilities escapes USF obligations as an information service. According to Verizon, the FCC should not uniformly classify all ATM/FR and VPN services as either telecommunications or information services, but should instead analyze the specific capabilities made available to customers by a particular ATM/FR or VPN service.
(2) Comments of Qwest Communications International, Inc. (“Qwest”)
Qwest cited the inconsistent classification of ATM/FR, VPN and Dedicated IP services to demonstrate lack of clarity resulting from the FCC‘s piecemeal regulatory classification of services for USF purposes. Qwest likened this ambiguity to the confusion elicited by the revised 2009 Form 499-A Instructions to include Multi-Protocol Label Switching (“MPLS”) as a telecommunications service and the FCC‘s attempt to clarify the instructions, which only added to the confusion. Qwest notes the current revenues-based contribution methodology has created a patchwork of instruction clarifications and FCC decisions that create ambiguity and inconsistency rather than clarity. To alleviate these problems, Qwest asks the FCC to reform the entire USF contribution regime.
(3) Comments of the National Exchange Carrier Association, Inc. (“NECA”)
NECA argued that the FCC should classify all ATM/FR, VPN and Dedicated IP services as telecommunications services, subject to USF fees. NECA observed that its members have offered these services as basic telecommunications services under tariff for many years, and thus the services properly qualify as USF-eligible telecommunications services.
(4) Comments of Masergy Communications, Inc. (“Masergy”)
Masergy agreed that the FCC should clarify the classification of VPN and ATM/FR services and, citing the current confusion over treatment of MPLS, asked that the FCC clarify the status of MPLS at the same time. Masergy suggested that, at a minimum, MPLS port functions qualify as information services, and because these functions are inextricably intertwined with the service‘s enhanced capabilities, MPLS qualifies as an information service. Masergy requests that the same analysis be applied to VPN services.
(5) Comments of Level 3 Communications, LLC, PAETEC Communications, Inc. and US TelePacific Corp. (“CLEC Commenters”)
The CLEC Commenters argued that the classification of VPN and Dedicated IP services turns on the capabilities provided by these services rather than the names of the revenue accounts in which the services are reported to USAC. They condemned USAC‘s characterization of these services as telecommunications services in its request because the FCC has held that the basic underlying service, Internet access, qualifies as an information service. The CLEC Commenters point out that USAC inappropriately “derives” a local loop transmission service from wireline information services, but not from competing non-wireline information services. Accordingly, the CLEC Commenters ask the FCC to establish an expedited process to provide guidance to USAC and the industry via a rulemaking or declaratory ruling.
(6) Comments of AT&T, Inc. (“AT&T”)
AT&T stated that when customers use ATM/FR on a stand-alone basis to transmit data with no net protocol conversion, the service qualifies as telecommunications. AT&T argued that FCC precedent requires providers to look at individual connections within a customer‘s ATM/FR service, rather than looking at the service on an overall customer network basis, to determine whether net protocol conversion takes place. With regard to VPN, AT&T suggested that to the extent a provider includes a telecommunications service component as part of its VPN services, the revenues associated with that component should be subject to USF. AT&T noted, however, that VPN services are inherently information services and should be reported as such.
(7) Comments of the United States Telecom Association (“USTA”)
USTA found USAC‘s request for guidance too vague for parties to offer meaningful comments. For example, VPN generically describes a range of services that may or may not qualify as telecommunications services. Because of this variation, the FCC should not subject all VPN, ATM/FR and Dedicated IP services to USF rules.
(8) Comments of Sprint Nextel Corporation (“Sprint”)
Sprint agreed with other parties that the functionality offered to a consumer determines the classification of an ATM/FR or VPN service. Sprint asked the FCC to conduct a detailed analysis into this issue and publicize the results. Sprint argued that when the term “Dedicated IP” refers to the provision of a broadband Internet access service, it is an information service.
CLIENT ADVISORY
Clarification of the classification of ATM/FR and VPN revenue could potentially yield important consequences for CLECs and VoIP providers offering these services, particularly if the FCC decides to apply a classification retroactively. If the FCC conclusively classifies these services as information services, they escape USF contribution entirely. However, resellers of such services could nevertheless face indirect USF contributions in the form of pass-through charges by their underlying carriers. On the other hand, if the FCC classifies these services as telecommunications, it could expose some providers to increased USF liability. At a minimum, some level of certainty regarding the classification of ATM/FR and VPN services will eliminate the ability of providers to manipulate the price of their service based upon whether they treat the service as USF-assessable telecommunications or exempt information service.
Likewise, classification of Dedicated IP services as non-telecommunications could substantially decrease CLEC and VoIP providers‘ direct USF contribution liability.
Clients are advised to monitor this proceeding. Clients interested in filing Reply Comments or who have questions about this Advisory should contact Jonathan Marashlian at: jsm@commlawgroup.com or 703-714-1313.
