The Federal Communications Commission (FCC) initiated its next step in reforming the Universal Service Fund (USF) on April 27, 2012, announcing the upcoming release of a Further Notice of Proposed Rulemaking (FNPRM) aimed at improving the USF contribution process. The FCC stated three major goals:

  1. To promote efficiency by reducing administrative and compliance costs for USF contributors;
  2. To promote fairness by ensuring that similar services have similar USF contribution obligations; and
  3. To promote sustainability of the USF, which has seen its contribution base decline in recent years.

Every company that files an FCC Form 499 to contribute to universal service is well aware of the imperfections that plague the existing system. The contribution rate skyrocketed in recent years to more than 17% of interstate telecommunications revenues. Even parties that have not historically sought USF reform should be on guard against new financial or administrative burdens. For example, the FCC may consider extending USF assessment to new services, such as broadband Internet access and non-interconnected VoIP services, for the first time.

The FCC has said that the FNPRM, the text of which has not yet been released, will include proposed rule changes in an effort to solicit concrete suggestions and comments from USF contributors. The proposed modernization of the USF contribution process will feature reforms grouped into four broad categories.

First, the FNPRM will ask, who should contribute to USF? That is, the FNPRM will explore what services and service providers should be required to contribute to the fund. The FCC has noted that, in doing so, it will consider two possible approaches: case-by-case analysis of individual services, or the adoption of general definitions that also clearly identify exemptions. It is expected that some parties will advocate “broadening the base” of services subject to USF contribution, such as applying USF to broadband Internet access and non-interconnected VoIP.

Second, the FNPRM will consider how compliance with USF contribution obligations might be simplified. The FCC will look closely at how bundled services are handled, as well as how revenues are allocated by jurisdiction. The reform process aims to simplify the manner in which wholesale and resale services are handled, and seeks comment on a possible value-added approach to contribution determinations. Further, the FNPRM will explore alternative means by which contributions might be assessed, such as by revenues, by number of connections, by phone numbers, or some hybrid methodology.

Third, the FCC seeks to promote administrative improvements to the USF contribution process. The FNPRM will consider ways in which compliance costs might be reduced and means by which clarity regarding the process might be boosted. One proposal that is expected to be advanced by the FNPRM is the introduction of annual public comment on the contribution form and its instructions.

Finally, the FCC will review the process by which USF contributors recover USF contributions from consumers. Although existing FCC rules already prohibit service providers from collecting USF contributions from their customers in excess of the contribution rate, in this proceeding the FCC will consider whether “consumers could benefit from increased transparency and limitations on how providers recover their USF costs,” and will seek comment on ways to promote clarity for end users.

Additional detail and the schedule for comments will be available after the text of the FNPRM is released by the FCC. The news release describing the item is available here.