In a recent USF appeal, the FCC agreed with a prepaid card "platform provider" that each of its customers, not the platform provider, is the "carrier" for Universal Service purposes. The FCC ruled, however, that the platform provider may owe USF on transport services it provided, unless it properly qualified the customers as resellers under the USF rules. The case, Network Enhanced Telecom LLP, is discussed after the jump.

Prepaid card providers should take note. This decision carries implications for all "carrier" responsibilities, including 214 authorizations, tariffing, CPNI obligations and responsibility for marketing claims, not just for USF contributions.

Wholesale carriers and resellers also should take note. This represents the first time since Global Crossing that the FCC has addressed the obligations of wholesale carriers to qualify their resellers -- a persistent point of contention in USF auditing and reporting.

In Network Enhanced Telecom LLC, the Wireline Competition Bureau considered an appeal of an audit of NetworkIP's USF reporting. In the audit, USAC determined that NetworkIP's platform service was a prepaid card service subject to universal service contribution assessment. USAC also rejected NetworkIP's claim that its customers were "resellers" and thus that NetworkIP could report the revenue as wholesale revenue, rather than end user revenue for USF purposes. USAC determined that NetworkIP had not followed the Form 499-A Instructions in qualifying its customers as resellers.

Prepaid Service. The Bureau described NetworkIP's service as a "web-based software solution that provides the switching and processing capability needed to manage and provision calling cards." However, the Bureau agreed with NetworkIP that NetworkIP "does not create or sell calling cards to end users, retailers or its carrier customers." Instead, it is NetworkIP's customers who perform the activities that constitute the provision of prepaid card service -- principally, establishing PINs and setting the price of cards, the number of minutes available, and the rate at which value is decremented from the card.

Reseller Revenue. In addition to its platform service, NetworkIP provides "ordinary long distance transport" for at least some of its customers. This unquestionably is telecommunications service, so the question becomes whether NetworkIP is providing wholesale or retail service to its customers. This implicates the vexing reseller question that underlies Global Crossing and so many other USF audits and appeals. In this instance, the Bureau remanded the issue to USAC for further analysis. Notably, however, it disagreed with NetworkIP on two of the three issues it raised regarding reseller qualifications.

First, the Bureau affirmed that NetworkIP was required to maintain evidence in addition to the reseller certification that demonstrates a "reasonable expectation" the reseller is contributing to the Fund. The Bureau emphasized that NetworkIP, as the wholesale carrier, has the burden to demonstrate a "reasonable expectation." Its failure to collect Filer IDs (as explicitly addressed in the Instructions) "undermines" NetworkIP's claim of a reasonable expectation. Further, training that NetworkIP conducts with its resellers on their compliance obligations has no bearing on the "reasonable expectation" standard, the Bureau held.

Second, the Bureau dismissed out of hand NetworkIP's claim that the instruction to maintain qualifying information on resellers is optional because the Instructions state that carriers "should" rather than "must" maintain this information. The Bureau again reaffirms that the Instructions are "guidance" (not rules) but asserts that compliance with the Instructions is relevant to determining whether the wholesale carrier met its burden to demonstrate a reasonable expectation.

Where the Bureau agreed with NetworkIP concerned the date of the reseller certifications. In a year when the Instructions did not yet direct carriers to obtain annual certifications, the Bureau agreed that USAC could not reject a certification merely because it was more than a year old. This holding, however, will have little impact on the current environment, since the Instructions now contain a direction to obtain the certification annually.

NetworkIP's case will now return to USAC to determine whether NetworkIP had a reasonable expectation in exempting its customers from USF.