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Exhibitor Focus

May 19, 2014

Ad Hoc Coalition Wants Amnesty

Asks FCC to Incentivize USF Compliance

Jonathan Marashlian

On April 1, 2014, the Ad Hoc Coalition of International Telecommunications Companies (Ad Hoc Coalition) filed a petition for rulemaking with the Federal Communications Commission (FCC or the Commission) seeking to open a rulemaking proceeding to adopt new rules related to the Universal Service Administrative Company’s (USAC) management of the Universal Fund (USF). The Coalition requests that the Commission direct USAC to: (1) allow telecommunications carriers to request guidance from USAC on an anonymous and hypothetical basis; (2) establish a five-year “look-back” period for all USAC audits and contribution obligations; and (3) create amnesty and voluntary disclosure agreement programs for well-intentioned telecommunications and interconnected VoIP service providers who may not be in compliance with the Commission’s USF regulations.

In their petition, the Ad Hoc Coalition states that many carriers have avoided seeking guidance from USAC regarding USF contribution guidance due to fear that USAC will instruct them to make revisions to contribution filings. Such revisions, according to the Coalition, are extremely burdensome for many carriers, and could force many to refrain from doing business in the United States or go out of business altogether. Furthermore, these well-intentioned carriers find it incredibly challenging to keep up with the changing regulatory landscape due to technological changes, and rapid evolution of legal precedent governing USF-assessable services. Thus, the Ad Hoc Coalition believes that many carriers are not fully aware of their USF obligations.

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Background

According to the Ad Hoc Coalition, the current USAC policy of refusing to allow carriers to request either hypothetical or anonymous guidance regarding USF contribution obligations violates the predictability directive of Section 254 of the Telecommunications Act of 1996. The Coalition states that a carrier’s inability to clarify the FCC Form 499 Instructions with USAC creates uncertainty regarding its USF reporting obligations, and prevents it from accurately assessing their USF contribution exposure. As evidence, the Coalition cites several examples where USAC not only disagreed with a carrier’s interpretation of the Form 499 Instructions, USAC subjected the carrier to a retroactive reassessment of its USF contribution obligations – sometimes as far back as 1998. Such reassessments exceed the FCC’s established document retention period of five years.

In addition, the Ad Hoc Coalition stated in their filing that USAC’s policy of requesting Form 499s filed more than five years before the date of the audit violates Section 47.706(e) of the Commission’s rules. That provision requires carriers to maintain USF contribution documentation for “at least five years from the date of contribution.” The Coalition states that when USAC requires carriers to submit documentation as far back as ten years before an audit, they are in direct violation of Section 47.706(e). Furthermore, the Coalition states that USAC is not permitted to interpret the Commission’s rules absent explicit guidance from the agency, which has not occurred here. Thus, USAC’s requests for Form 499 documentation dated more than five years ago conflicts with Section 47.706(e), and violates the predictability directive of Section 254.



The Ad Hoc Coalition’s Proposals

To remedy the lack of transparency regarding carriers’ USF contributions, the Ad Hoc Coalition recommends that the FCC/ USAC: (1) implement a private letter ruling mechanism similar to that employed by the Internal Revenue Commission (IRS); (2) limit the scope of USAC audits to a five-year “look back” period; and (3) adopt USF contribution amnesty and voluntary disclosure agreement programs similar to those used by state tax authorities.



USF Private Letter Ruling Mechanism

The Ad Hoc Coalition believes the IRS private letter ruling mechanism serves as a model for USAC to follow in establishing a program allowing carriers to seek anonymous hypothetical guidance from USAC regarding their USF contributions. Private letter rulings, initially adopted by the IRS in the 1930’s, allow taxpayers to seek clarification from the IRS regarding their individualized, prospective tax liabilities without the threat of an audit or other unduly punitive measures. The Coalition states that these rulings, although lacking precedential effect for third parties (only the requesting taxpayer), are largely reliable indicators of the IRS’s stance on complex tax issues. Furthermore, the Coalition points out that such rulings can be issued by the IRS in only two situations: (1) if the tax code and relevant regulations provide a clear answer to the taxpayer’s request; and (2) if the answer is reasonably certain, not entirely clear, and the request cannot be reasonably answered by pending regulation.

The Coalition believes that the Commission’s adoption of the IRS’s private letter ruling mechanism from USAC would: (1) lead to more accurate USF contributions; (2) provide carriers with more predictability vis-à-vis USF contributions; and (3) encourage carriers to approach USAC voluntarily to resolve their outstanding USF obligations. In addition, the Coalition believes that the overall success of the program hinges upon the ability of carriers to request guidance from USAC on an anonymous and hypothetical basis. Without such provision, many well-intentioned carriers would be hesitant in requesting guidance from USAC – given the administrator’s track record. Finally, the Coalition asserts that the program would be meaningless unless USAC was required to respond to the carrier’s request within 90 days. Otherwise, carriers would lack any predictability assured them by Section 254.



Five-Year Look Back Period

To mitigate the unduly burdensome effect of USAC audits, the Ad Hoc Coalition recommends that the FCC amend the language Sections 54.706(e) and 54.707 of the Commission’s rules. Specifically, the Coalition recommends amending Section 54.706(e) to limit retention of USF documentation to no more than five years. Doing so would be consistent with the predictability directive of Section 254, and the Commission’s consistent treatment of Section 54.706(e) as the upper limit on a carrier’s document retention obligations.

With regard to Section 54.707, which defines the scope of USAC’s authority, the Coalition advises the Commission to add language tying the section directly to Section 54.706(e). Thus, tying the two provisions directly together would create consistency between USAC and the FCC’s USF guidelines, and alleviate the many legal questions raised by USAC’s current auditing practices.



USF Amnesty/Voluntary Disclosure Agreement Program


The final recommendation made by Ad Hoc Coalition in their filing was the adoption by FCC/USAC of both amnesty and voluntary disclosure agreement (VDA) programs for USF contribution obligations. Basing their proposal upon the numerous tax amnesty and VDA programs adopted by state tax authorities, the Coalition believes that implementing a USF Amnesty/VDA program would bring many carriers, otherwise unaware of their specific contribution obligations, into USF compliance, and thus increase the overall stability of the Fund.

In their filing, the Coalition proposed parameters for a USF Amnesty Program. The Coalition believes that offering a temporary amnesty program would allow the FCC to assess the success of encouraging well-intentioned carriers to voluntarily enter into USF compliance through such a program before implementing a permanent mechanism in the form of a VDA program. In order to be successful, the Coalition believes that the amnesty program should be limited to: (1) a one-time duration of six months; (2) outstanding USF obligations undisclosed to the FCC or USAC; and (3) foreign international carriers who have limited exposure to American telecommunications regulations. Finally, the Coalition stated that carriers should be able to discuss their interest in the program anonymously, and that carriers should be free from any penalties or future discrimination by USAC in exchange for repayment of their outstanding USF obligations.

The Coalition also proposed guidelines for a permanent VDA program, to be adopted after the successful completion of the one-time amnesty program. Specifically, the Coalition proposed that: (1) carriers must be required to approach the FCC/ USAC in order to initiate involvement in the program; (2) eligibility be limited to carriers who were not involved in the USF Amnesty program, nor any previous VDA program; (3) program be limited to outstanding and undisclosed USF obligations; and (4) methods of repaying outstanding obligations are to be determined by negotiations between the carrier and the FCC/USAC. Finally, the Coalition believes that a USF VDA program would provide similar benefits for both carriers and the USF as the temporary USF Amnesty program.



Important Takeaways

The Ad Hoc Coalition’s proposed reforms, if implemented by the Commission, would provide greater clarity, predictability, and transparency to USAC’s administration of the USF. Such reforms are necessary due to the increasing tensions between carriers and FCC/ USAC due to the carriers’ frustration with USAC’s unduly burdensome treatment of USF contributions over the past decade.

In particular, we have observed that the FCC and USAC are generally hostile to the prepaid and international sectors of the telecommunications industry. Back in 2009, our firm established the Ad Hoc Coalition of International Telecommunications Companies (telecomcoalition.com) to raise awareness of the government’s hostility towards providers of international telecommunications services, including prepaid carriers; and to advocate for well-conceived, balanced, and fair regulatory treatment of these important industry sectors. Conditioned on its receipt of necessary industry support and backing, the Coalition is poised to begin the process of changing the “hearts and minds” of the FCC’s staff. More than anything, the Coalition must convince the FCC that it is necessary to accept a little bit of the “bad” with the whole lot of “good” that is provided to the American public by an industry essential to health and well-being of the American economy. The Coalition will be hard-pressed to convince the FCC to change their attitudes and beliefs based solely on platitudes and anecdotal evidence. Until the agency’s perception is changed, we can expect the policies and decisions emanating from the FCC to continue to remain harmful to competition.

What is needed to change the FCC’s perception is hard data demonstrating the immense value delivered by the prepaid international telecommunications industry to American consumers. The evidence needs to be based on sound, intellectually honest economic theory in order to convince an otherwise skeptical FCC successfully. Furthermore, this evidence must come from a respected, trustworthy, and independent source.

Without an independent and reputable economic analysis, the industry will be fighting an uphill battle to convince regulators throughout the country that, far from protecting consumers and enhancing competition, the current policies regarding the prepaid international telecommunications sector have been harmful to American consumers.

Until the negative perception of the industry is expunged, we caution all providers of prepaid communications services to be diligent and conservative in their approach to regulatory compliance. •



Jonathan S. Marashlian is the Managing Partner at Marashlian & Donahue, LLC, The CommLaw Group, a Washington, DC-area law firm specializing in federal and state telecom and technology matters. Marashlian is the winner of two 2013 and 2014 Lexology/International Law Office (ILO) Client Choice Awards, named overall winner in the Telecommunications Law-US category; his firm was named Leading Customer Service Law Firm of the Year and Best Communications Law Firm in the US by ACQ Awards. Marashlian was assisted by Keenan Adamchak, Law Clerk and a 2014 Juris Doctor candidate, currently attending the George Washington University Law School.



Disclaimer: This article is intended for informational purposes only and is not for the purpose of providing legal advice. You should not act upon the information in this article without seeking professional counsel.

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