As a consequence of The CommLaw Group and The Commpliance Group’s collective experiences interfacing with the Universal Service Administrative Company (“USAC”), it has recently come to our attention that USAC implemented a new jurisdictional allocation policy/procedure that may increase the administrative burden on contributors relying on the “Actual Revenue” jurisdictional allocation approach (as opposed to the “Safe Harbor” or “Traffic Study” options). 

Also known as the “Books and Records” approach, the Actual Revenue methodology allows contributors to report revenue to USAC based on the actual revenue, as recorded in their books and records, from Interstate and International telecommunications and Interconnected VoIP services.  Under USAC’s clarified policy, Contributors relying on the Actual Revenue approach must base their allocations on current data (current books and records) and may not rely on stale books and records.  At a minimum, based on recent “red flag” notifications from USAC, contributors cannot rely on prior ANNUAL period books and records allocations to jurisdictionalize revenue for a future ANNUAL period.  It is also possible USAC may extend its red flag reviews to quarterly reporting, as well (though, at this time, this has not been confirmed).  The change in policy & practice at USAC will now require Contributors to be more diligent and timely in their review and analysis of their books and records to ensure that the percentage of interstate vs. intrastate revenue allocations are updated more frequently, minimally on an annual basis.  Contributors that fail to ensure that the percentage allocation is based on current revenue may be subject to increased USAC scrutiny due to the E-File Systems’s built-in filters that identify potential “red flags” for staff follow-up.   And any increase in “red flags” can likewise increase the odds of a more extensive USAC audit.

While the Actual Revenue allocation approach has typically yielded the lowest percentage of revenue exposed to USF and other Federal regulatory fees and for the lowest cost (when compared to other options), USAC’s clarified policy may now place a more significant administrative burden on Contributors while also increasing risks — particularly when viewed in contrast to the “Traffic Study” approach to revenue allocations. 

The following chart summarizes some of the benefits and drawbacks of each of the three revenue allocation methodologies available to Contributors:  The I-VoIP and Wireless Safe Harbors; Traffic Studies, and the Actual Revenue approach.  We recommend that all Contributors using the Actual Revenue approach review the chart below, and consider the risks associated with continuing to use this methodology going forward. 

Clients with questions on this Advisory should contact Jonathan Marashlian at (703) 714-1313 or jsm@commlawgroup.com, or the attorney assigned to their account.