Court Partly Vacates FCC Order Applying USF to VoIP Providers
A federal court Fri. vacated part of an FCC order under which VoIP providers must contribute to the Universal Service Fund (USF). A 3-judge panel of the U.S. Appeals Court, D.C., said it found “the Commission’s explanation wanting as to the pre-approval of traffic studies and the suspension of the carrier’s carrier rule.” Judges Harry Edwards, David Tatel and Merrick Garland heard the case brought by Vonage and CCIA (CD Feb 12 p1), with Tatel writing the opinion.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
The court upheld the main thrust of the order, saying the FCC is authorized to require VoIP providers to pay into the USF and to apply wireline rules to VoIP providers in setting the percentage of revenue they must pay. Tatel said CCIA “points to no authority supporting its argument that a provider of ‘information services’ cannot also be a ‘provider of telecommunications,’ for the purposes of section 254(d)” of the Telecom Act, which outlines USF contribution obligations.
It also upheld the FCC on how the agency set the 64.9% “safe harbor” percentage of VoIP revenue subject to USF contributions. A percentage is needed because USF contributions are levied only on long distance traffic and it’s difficult to separate VoIP long distance traffic from local calling. Vonage challenged an FCC decision to choose wireline toll service rather than wireless service as the pattern for VoIP traffic. The FCC picked wireline because VoIP providers often sell their service as a substitute for wireline long distance service, Tatel wrote. The “analogy” isn’t perfect but “perfection… is not what the law requires” and the FCC acted “reasonably” in setting the percentage, the court said.
But the court agreed with Vonage that the FCC didn’t adequately justify its handling of traffic studies, an alternative to the safe harbor for determining the percentage on which USF contributions are levied. The court vacated that part of the order because it questioned why the FCC required preapproval of VoIP providers’ traffic studies when wireless carriers don’t face that requirement.
The carrier’s carrier issue, which also was vacated, involves a situation in which VoIP carriers can find themselves paying twice to the USF, not only directly into the fund but paying USF fees charged by wholesale carriers. The FCC had suspended for 2 quarters the so-called carrier’s carrier rule which is used to prevent such duplication. The FCC had said allowing the rule for VoIP providers could create a temporary net drop in the fund, said the court. “This explanation suffers from a fundamental flaw,” Edwards wrote: “The Commission never explained how there could be a net decrease in fund revenues… Indeed, increasing USF revenues was the very reason the Commission gave for requiring interconnected VoIP providers to contribute to the fund.”
Vonage had brought the part of the case dealing with the safe harbor, traffic studies and carrier’s carrier rule, while CCIA challenged the basic issue of whether VoIP should be required to contribute.
FCC Chmn. Martin said he’s pleased the court basically upheld the order -- maintaining the requirement that VoIP providers must pay into the USF. The ruling “ensures that USF contribution obligations are administered in a competitively and technologically neutral manner on all phone providers,” including interconnected VoIP, he said. “While the court had questions with some of the minor mechanical parts of the order, this ruling reaffirms that VoIP providers must continue to contribute to universal service,” said USTelecom Pres. Walter McCormick.