On March 7, 2011, the FCC released a Public Notice seeking public comment on the Universal Service Administrative Company’s (“USAC”) formal request for guidance from the Wireline Competition Bureau regarding whether wholesale contributors may properly classify carrier’s carrier revenue as exempt from Universal Service assessments based on reseller certificates dated after the Form 499-A filing period.  The FCC has previously ruled that USAC may not reclassify carrier’s carrier revenue as end user revenue solely because a contributor relied on reseller certificates executed before an audit period.  USAC now seeks permission to reject post-dated certificates as inadequate to show that a wholesaler had a “reasonable expectation” that its reseller customers would contribute.  As a result, USAC would have the leeway to impose additional assessments on the wholesaler.  Furthermore, if a reseller is reclassified as an end user, the wholesaler will be responsible for additional universal service assessments pursuant to a “vicarious liability” provision now imbedded in the Form 499-A instructions.

The “reasonable expectation” burden of proof has been challenged in a number of appeals pending before the FCC.  The crux of the appeals is that the FCC has provided a number of ways that wholesalers could establish a reasonable expectation and has never established a hard-and fast rule that contributors must obtain a particular certificate from resellers in order to establish that revenue from resellers is exempt from USF assessments.

While the Form 499 instructions are not rules, challenging audit findings is a lengthy and difficult process. Even if a wholesale carrier has a long-standing relationship with a reseller customer, USAC would likely seek authority to reject a post-dated certification during an audit, ignoring any other facts about the wholesale carrier’s knowledge, and would likely impose USF liability on the wholesaler based on the date of receipt of the form.  Carriers must have adequate measures in place to establish a reasonable expectation that reseller customers will make contributions to the Fund.  Also note that the current form instructions expressly require new certifications every year.

Comments and Reply Comments on the USAC Request are due April 6, 2011, and April 21, 2011, respectively.

A copy of the FCC’s Public Notice can be found here.

A copy of USAC’s request for guidance can be found here.

Clients with comments or questions regarding this Advisory should contact the attorney responsible for their account.