Federal Universal Service Fund (FUSF / USF) contributions are always the center of the target

When it comes to government oversight, they follow the money. Beginning in 1996, the FCC requires telecommunications service providers and VoIP providers to contribute a percentage of the amount billed to end-user customers to the USF.

It’s critical that providers accurately determine their contribution amount, track customer billing through to USF contributions, and build a defensible justification for the collection process. 

The FCC created the USF so telecommunications service providers that serve rural areas could offer services that are comparable to those in urban areas. The fund also provides money to support rural consumers and public services such as health care and education. 

Administered by the Universal Service Administration Company (USAC), the USF is funded based on the quarterly and annual fillings of the FCC's Form 499A (annual) and FCC Form 499Q (quarterly). 

Each quarter, USAC proposes a contribution factor based on the USF needs and revenue projections based on prior 499 revenue reporting.

Driving the cost of USF compliance to zero

Service providers are permitted to pass on the cost of their USF contribution to end-user customers in the form of a direct surcharge / cost-recovery surcharge. 

Allocation methodology roundup for the Universal Service Fund?

Telecom service providers must have an understanding of how to set USF collection rates. From a strategic perspective, it's also important to manage risk tolerance, build a system for accurate record keeping, and ensuring cross-jurisdiction revenue allocation is documented and defensible.

Because of the high contribution factor and complex nature of the industry, having an experienced telecom lawyer to help determine your rate based on optimizing your product catalog is crucial. 

Many services have straightforward mapping to the Form 499, whereas other services, such as private-line, VoIP, and bundled services will have multiple allocation factors to consider.  

Private Line Services (Point-to-Point) and the 10% Rule

The FCC and USAC follow the "10% Rule." For a private line point-to-point service that has 10% or more interstate or international traffic, then 100% of the revenue associated with the private line is considered "interstate." The responsibility to verify jurisdiction via documentation and self-certification falls on the telecom service provider. However, the service provider isn’t responsible for monitoring the jurisdiction of traffic on the circuit. The traffic is reported by the customer via a self-certification.

VoIP revenue allocation presents unique challenges

Determining VoIP revenue jurisdictions can be difficult. The FCC provides multiple options to service providers, and a telecom attorney can help you determine the best strategic choice for your VoIP products and services based on your compliance risk tolerance. Options for revenue allocation strategies acceptable to the FCC include: 

Following the FCC’s 64.9% Interstate Safe Harbor Allocation

• Benefits: Requires no supporting documentation of the traffic’s jurisdiction 
• Drawbacks: 64.9% of the VoIP revenue is categorized as interstate revenue, which can harm competitive rate setting and drive customers to competitors

Allocate Revenue Based on Actual Call-Detail Records

• Benefits: Accuracy. By using actual call records and traffic data, a VoIP provider can determine its allocation revenue rate accurately.
• Drawbacks: Expensive and robust. Vast amounts of data management and the time spent collecting isn't cheap to set up. Additionally, the "actual" data may prove to increase the collection factor in some instances.

Conduct a Traffic Study

• Benefits: Conducting a traffic study is to analyze VoIP calling jurisdiction over a representative time period to determine the proportion of interstate and international voice calling minutes can help set a competitive rate.
• Drawbacks: The traffic study sample must be statistically significant, the FCC requiring a 95% level of confidence, and justifying the sample with documentation, explanation of sampling procedures, and results methodology must withstand annual USAC review and scrutiny.

We are here to help map your product and service catalog to the Form 499, determining the appropriate and strategic USF allocations, and putting in place a defensible cost recovery fee.