FCC Ready to Mandate VoIP Customers Pay into USF Fund

The item responds to the FCC’s Aug. deadline for DSL providers to stop paying into the USF. Dropping DSL revenue from the contributions pool will result in an estimated $350 million shortfall, according to an industry representative. VoIP and wireless officials are expected to be active over the next 2 weeks at the FCC lobbying on the USF proposal.

The order as circulated would establish a 64.9% safe harbor for VoIP operators -- which means the FCC would assume that 64.9% of VoIP calls are interstate in nature and subject to USF charges. For the average customer with a $25 monthly bill, the net monthly hit would be an extra $1.75 charge to pay for the USF program.

The item also raises the wireless safe harbor from 28.5% to 37.1%. The FCC last adjusted the safe harbor to that number from 15% in Dec. 2002.

A VoIP industry source said “the devil is in the details,” but operators would likely oppose a safe harbor that assumes VoIP calls are much more likely to be long distance than wireless calls are. Verizon last week proposed adopting the current wireless safe harbor for VoIP “on an interim basis as a proxy to determine the percentage of retail VoIP revenues that would be assessed is equitable and nondiscriminatory by definition.”

“That seems really high,” a VoIP industry source said of the 64.9% safe harbor: “It seems to me that the recommendation Verizon put forward to keep parity between wireless and VoIP makes sense. I'm not sure there’s much in the record for a safe harbor other than what Verizon suggested.”

VoIP operators will be especially concerned that they have the option of basing USF payments instead on a study that shows how callers really use their service -- an option that has historically been available to wireless carriers. “It’s a little bit bizarre,” the source added: “The E-911 order was premised on the fact that people were using VoIP as a replacement for their local phone service.”

The VoIP industry is willing to be added to the contribution base, but the timing of the FCC proposal could be a problem, said an industry official. It would be hard to adjust to the interim revenue-based plan under discussion now, and then a few months later move to a different methodology once the FCC completes contributions reform, he said. Martin has made clear he prefers basing the final plan on numbers or connections rather than revenues. It can take months for telecom companies’ back office systems to be changed to handle new contribution plans, the official said. Making 2 changes in such quick succession could “delay services that can drive broadband deployment,” he said.

Another in the VoIP industry questioned the “discriminatory” safe harbor level set for VoIP. “We don’t mind paying into USF but when it’s double the wireless amount we're troubled,” he said. It’s an “interesting notion” that VoIP is thought to have a higher percent of long distance traffic than wireless carriers, he said: “I'm not sure what that’s based on. A lot of people use wireless for long distance.”

Wireless carrier officials said they were still examining their options but may not oppose the higher safe harbor, provided they still have the option to base payments on traffic studies. “If the FCC has a rational reason for increasing that number they're entitled to that,” said one wireless industry source: “The important thing is a carrier should retain the ability to do revenue studies.” The source also said wireless carriers will be looking for assurances that the order is an interim fix on the way to a numbers- based USF.

“VoIP guys are in a box,” said one regulatory attorney: “If they argue for a lower percentage they start to weaken their arguments that everything should be settled at the federal level instead of the state.” The attorney said the order will likely contain “lots and lots of language about how this will be a temporary fix.”

The FCC last year reduced DSL regulation by reclassifying it as an information service, but said providers must continue making USF contributions until Aug. The agency was expected to either have new USF contributions rules in place by then or at least take action to “stabilize” the fund to offset the loss of contributions based on DSL revenue.

The FCC also has the option of extending the deadline for DSL providers to stop making contributions into the fund, though that “would give cable, which does not pay USF on broadband revenue, a continuing cost advantage,” Stanford Washington Research Group said in a report issued Mon. The report looked at a variety of issues at the FCC on which McDowell could make an impact once sworn in as the 3rd Republican commissioner.