With the April 1^st deadline for Form 499-A reporting quickly approaching, it’s time for Interconnected VoIP (“I-VoIP”) providers to start anticipating and planning for a variety of reporting issues.  When it comes to reporting revenue from advanced communications services, the Form 499-A Instructions and the FCC’s limited guidance have created a quagmire of uncertainty.  In particular, we are seeing increased confusion and inconsistency with regard to the reporting of certain services that are frequently provided in conjunction with core I-VoIP offerings for federal Universal Service Fund (“USF”) purposes.  Common “ancillary” services include the provision of direct inward dialing (“DIDs”) numbers, call center features (e.g., IVR, auto attendant, call center software), conference bridging, 800 services, SIP trunking, MPLS, and hosted PBX solutions.  As explained below, these “ancillary” services may now be considered USF-assessable by USAC, the USF Administrator, if USAC concludes they are “Associated With” an I-VoIP service.  Wherefore, it is possible I-VoIP service providers that have been allocating revenue from “ancillary” services as “Information Service” / non-USF assessable revenue could confront a USAC re-allocation of said revenue as USF-assessable in the context of an audit, thus exposing the provider to retroactive liability.

This is evidence, once again, of USAC seeking to “move the goal posts” of what revenue is and is not subject to USF assessments.  Whether or not USAC’s position is sustainable upon FCC or judicial review is another question, one our Firm is prepared to help our clients evaluate and address through risk mitigation guidance.  After reviewing this Advisory, we urge all impacted clients to contact the attorney responsible for their account to seek advice and guidance regarding the matters detailed herein.   

FCC Rules Regarding Treatment of Services Ancillary to I-VoIP

For traditional telecommunications service providers, treatment of ancillary services is less complex due to the FCC’s application of the “adjunct-to-basic” concept.  Essentially, the FCC determined that certain services (including caller ID, call tracing, call waiting, call forwarding, and speed dialing) that meet the definition of “information services,” but “facilitate the completion of calls through utilization of basic telephone service facilities” are included within the term “telecommunications services” and should be treated as such for federal USF reporting purposes.

The FCC has not extended its “adjunct-to-basic” precedent to I-VoIP.  Presumably, therefore, ancillary services that individually qualify as “information services” should be exempt from USF.  Likewise revenues from features offered with a core I-VoIP service that qualify as telecommunications services would presumably be treated as USF-assessable telecommunications service revenues.  However, there is confusion and inconsistency in the industry over the appropriate means to report such revenues when derived from services offered with I-VoIP.

Varying Industry Practices for Reporting Services Ancillary to I-VoIP

A number of providers apply the adjunct-to-basic precedent to their I-VoIP offerings and report revenue derived from ancillary services as I-VoIP revenue.  Indeed, unofficially, we have seen indications that the USAC would accept this reporting methodology in the absence of official guidance from the FCC to the contrary, despite the fact that many ancillary services will not fit within the FCC’s definition of I-VoIP services, based on a theory that certain ancillary services are “associated with” the I-VoIP offering.

Other providers, however, rely on the strict definition of “I-VoIP” to justify taking a more aggressive approach and report ancillary service revenue as unregulated information services revenue in order to reduce their regulatory fee burdens.  Still other providers take arguably the most conservative approach and treat revenue from all services ancillary to I-VoIP as telecommunications service revenue.  

Complexities of Reporting Revenues from Services Ancillary to I-VoIP

1. Jurisdictionalization of Traffic

Unfortunately, the uncertainty does not end with the classification of revenue from services ancillary to I-VoIP.  I-VoIP providers that report revenue from ancillary services as USF assessable (i.e., either as I-VoIP or telecommunications services revenue) must also determine the appropriate methodology for jurisdictionalizing that revenue.  For example, if a provider reports its ancillary service revenue as telecommunications, should it allocate 100% of that revenue as interstate? Or, can the provider minimize its regulatory fee burden with supportable allocations between international, intrastate and interstate?  And, for providers reporting ancillary service revenue as I-VoIP revenue, should they utilize the same allocation revenue as they apply to their core I-VoIP offerings, or are other supportable methods available? 

2. Allocating Revenues from Bundled Services

In addition, many providers bundle their core I-VoIP offerings with both ancillary services and other information services for a single price.  Such providers may be able to reduce their USF contribution burdens by treating some of their bundled service revenue as information service revenue, exempt from USF contributions.  In some cases, a provider that can reasonably attribute revenue from a product to a mix of telecommunications and information services can allocate revenue from the product to its component telecommunications or information service parts. 

Form 499-A Reporting:  Time for Review

These are typical and representative of the questions and issues we address every year leading up to the April 1^st deadline for filing the Form 499-A.  This is a good time for providers to examine their past USF collection and reporting practices and determine the approach they wish to take going forward in light of the current regulatory uncertainty.  While uncertainty can pose risks, it also presents opportunities for providers to craft more advantageous USF collection and reporting practices that take into account each provider’s risk tolerance, as well as potential options for competitively pricing and marketing their services.

If you have questions regarding the appropriate treatment of I-VoIP and ancillary services for USF purposes or FCC regulatory compliance questions generally, please contact Allison Rule at adr@commlawgroup.com or Jonathan Marashlian at  jsm@commlawgroup.com.