The Commission expands the base of USF contributions by extending universal service contribution obligations to providers of interconnected voice over Internet Protocol, or VoIP, service. For interconnected VoIP providers [connected to the public telephone network - see the VoIP 911 proceeding which used the same concept], the Commission establishes a safe harbor percentage of interstate revenue at 64.9 percent of total VoIP service revenue. Interconnected VoIP providers also may calculate their interstate revenues based on their actual revenues or by using traffic studies. - FCC Updates Approach For Assessing Contributions To The Federal Universal Service Fund, FCC Press Release June 21, 2006
Text of Order:
34. We require providers of “interconnected VoIP services,” as defined by the Commission, [47 C.F.R. § 9.3. See VoIP 911 Order, 20 FCC Rcd at 10257-58, para. 24; see also CALEA First Report and
Order, 20 FCC Rcd at 15008, para. 39] to
contribute to the federal USF under the existing contribution methodology on an interim basis. As
described above, the number of VoIP subscribers in the United States has grown significantly in recent
years, and we expect that trend to continue. At the same time, the USF contribution base has been
shrinking, and the contribution factor has risen considerably as a result. We therefore find that
extending USF contribution obligations to providers of interconnected VoIP services is necessary at this
time in order to respond to these growing pressures on the stability and sustainability of the Fund.
35. The Commission has not yet classified interconnected VoIP services as “telecommunications
services” or “information services” under the definitions of the Act. [See IP-Enabled Services Notice, 19 FCC Rcd at 4893-94, paras. 43-44.] Again here, we do not classify
these services. To the extent interconnected VoIP services are telecommunications services, they are of
course subject to the mandatory contribution requirement of section 254(d). Absent our final decision
classifying interconnected VoIP services, we analyze the issues addressed in this Order under our
permissive authority pursuant to section 254(d) and our Title I ancillary jurisdiction. Specifically, we find
that interconnected VoIP providers are “providers of interstate telecommunications” under section 254(d),
and we assert the Commission’s permissive authority to require interconnected VoIP providers “to
contribute to the preservation and advancement of universal service” because “the public interest so
requires.” We also exercise our ancillary jurisdiction to extend contribution obligations to
interconnected VoIP providers. We note that both Vonage and the VON Coalition have stated on the
record in this proceeding their belief that interconnected VoIP providers should be required to contribute
to the Fund, apparently conceding that the Commission has the authority to impose such a requirement.
Finally, we address implementation issues related to our requirement that interconnected VoIP providers
contribute to the USF.
36. We extend universal service obligations to providers of interconnected VoIP services, as
previously defined by the Commission. The Commission has defined “interconnected VoIP services” as
those VoIP services that: (1) enable real-time, two-way voice communications; (2) require a broadband
connection from the user’s location; (3) require IP-compatible customer premises equipment; and (4)
permit users to receive calls from and terminate calls to the PSTN. [VoIP 911 Order, 20 FCC Rcd at 10257-58, para. 24.] We emphasize that interconnected
VoIP service offers the capability for users to receive calls from and terminate calls to the PSTN; the
obligations we establish apply to all VoIP communications made using an interconnected VoIP service,
even those that do not involve the PSTN. Furthermore, these obligations apply regardless of how the
interconnected VoIP provider facilitates access to and from the PSTN, whether directly or by making
arrangements with a third party. Finally, we recognize that the definition of interconnected VoIP services
may need to expand as new VoIP services increasingly substitute for traditional phone service. [VoIP 911 Order, 20 FCC Rcd 10245, 10277, para. 58.]
3. Implementation
50. In this section, we address implementation issues related to our requirement that
interconnected VoIP providers contribute to the USF. Because we are expanding the base of contributors,
certain entities that in the past have not been required to report interstate and international revenues will
now be required to do so. For that reason, we provide a brief overview of our reporting requirements.
This Order does not fully explain all of the Commission’s requirements. Interconnected VoIP providers
that are new to the USF procedures should familiarize themselves with the Commission’s USF rules and
with FCC Forms 499-A and 499-Q Telecommunications Reporting Worksheets and the accompanying
instructions.172
51. Identifying Revenues for Reporting Purposes. Most interconnected VoIP providers offer
packages of services to consumers for a single price that include telecommunications, as discussed
above,173 along with CPE and/or features that may be information services. To the extent that an
interconnected VoIP provider has chosen to structure its offerings in this manner, it may use the safe
harbors established in the CPE Bundling Order to determine the appropriate amount of
telecommunications revenues to be reported (as distinguished from revenue derived from ontelecommunications).174 Interconnected VoIP service providers are not obligated to use either of the safe
harbors in the CPE Bundling Order, but we emphasize that other allocation methods may not be
considered reasonable and will be evaluated on a case-by-case basis in an audit context.175
52. Interconnected VoIP providers must report and contribute to the USF on all their interstate
and international end-user telecommunications revenues. To fulfill this obligation, interconnected VoIP
providers have three options: (1) they may use the interim safe harbor established in this Order; (2) they
may report based on their actual interstate telecommunications revenues; or (3) they may rely on traffic
studies, subject to the conditions described below.
53. As we recognized in the Vonage Order, it is difficult for some interconnected VoIP providers
to separate their traffic on a jurisdictional basis.176 Indeed, many of these VoIP providers have advocated
to us in other proceedings that their services are “inherently interstate.”177 Consistent with this advocacy and based on the conclusions in the Vonage Order,178 we find that it would be reasonable for us to treat
the interconnected VoIP traffic as 100% interstate for USF purposes. Indeed, in another context where
providers were unable to separate their interstate telecommunications revenues from other revenues, the
Commission found a safe harbor of 100 percent to be reasonable.179 Nevertheless, we establish a safe
harbor that is lower than 100 percent as a convenient alternative for interconnected VoIP providers. Our
safe harbor is necessarily the product of line drawing.180 In adopting a safe harbor we consider what
would be an appropriate analogue. One industry report has estimated that 83.8 percent of VoIP traffic in
2004 was either long distance or international and only 16.2 percent was local.181 Thus, it appears that
VoIP traffic is predominantly long distance or international. As such, it is much like wireline toll service
which similarly offers interstate, intrastate toll, and international services. In fact, as stated in paragraph
55 below, VoIP services are often marketed as a substitute for wireline toll service.182 The percentage of
interstate revenues reported to the Commission by wireline toll providers is 64.9 percent. We therefore
find that establishing a safe harbor of 64.9 percent is reasonable for purposes of this interim action.183
54. Moreover, we believe that setting the safe harbor at 64.9 percent is reasonable pending the
completion of the attached NPRM where we seek comment on whether to change or eliminate all of the
safe harbors.184 To set the safe harbor lower would permit providers that actually provide more interstate
service to escape universal service contribution obligations for some of their interstate traffic, thus
undermining our actions to preserve and advance the goals of universal service. Furthermore, to the
extent the safe harbor percentage is higher than some providers’ actual interstate use, providers may
instead contribute to the fund based on actual revenue allocations or by conducting a traffic study, as
described below. We encourage interconnected VoIP providers to explore these more precise avenues for
determining the jurisdictional nature of their revenues.185
55. We do not believe that the percentage used as the wireless safe harbor would serve as a
reasonable safe harbor for interconnected VoIP.186 Indeed, the record reflects that interconnected VoIP
service is often marketed as an economical way to make interstate and international calls, as a lower-cost
substitute for wireline toll service.187 For purposes of a safe harbor, it is reasonable to account for the
many customers who purchase these services to place a high volume of interstate and international calls,
and benefit from the pricing plans the providers offer for such services. We believe that these
characteristics differentiate it from wireless service. Accordingly, we find that the interconnected VoIP
safe harbor should be substantially higher than the wireless safe harbor in order to properly capture
interstate revenues.
56. While, as stated above, interconnected VoIP providers may report their actual interstate
telecommunications revenues, we recognize that some interconnected VoIP providers do not currently
have the ability to identify whether customer calls are interstate and therefore subject to the section 254(d)
contribution requirement. Indeed, a fundamental premise of our decision to preempt Minnesota’s
regulations in the Vonage Order was that it was impossible to determine whether calls by Vonage’s
customers stay within or cross state boundaries.188 Therefore, an interconnected VoIP provider may rely
on traffic studies or the safe harbor described above in calculating its federal universal service
contributions. Alternatively, to the extent that an interconnected VoIP provider develops the capability to
track the jurisdictional confines of customer calls, it may calculate its universal service contributions
based on its actual percentage of interstate calls.189 Under this alternative, however, we note that an
interconnected VoIP provider with the capability to track the jurisdictional confines of customer calls
would no longer qualify for the preemptive effects of our Vonage Order and would be subject to state
regulation. This is because the central rationale justifying preemption set forth in the Vonage Order
would no longer be applicable to such an interconnected VoIP provider.
57. In lieu of using the interim safe harbor or reporting actual interstate telecommunications
revenues, interconnected VoIP providers may rely on traffic studies, as noted above, and as CMRS
carriers may do.190 The record indicates that traffic studies are a feasible option for providers of
interconnected VoIP.191 However, before it can begin to base its USF contributions on a traffic study, an
interconnected VoIP provider must submit its proposed traffic study to the Commission for approval.
While prior Commission approval of traffic studies is not required for wireless carriers, we have
nonetheless identified concerns in the wireless context with the use of traffic studies as a replacement for
reporting actual revenues, and we now require wireless carriers to submit their traffic studies to the
Commission and to USAC.192 If we were to allow interconnected VoIP providers to rely on unapproved
traffic studies, we would risk extending the problems we have identified with the use of traffic studies by
wireless carriers to a new technology, and possibly creating unforeseen problems as well. For these
reasons, we find it appropriate to require prior Commission approval of any traffic study on which an
interconnected VoIP provider proposes to rely.193 Until the Commission has approved an interconnected
VoIP provider’s proposed traffic study, that provider may use the interim safe harbor. We may extend
this treatment to wireless traffic studies in the future, but we decline to do so today. While there would be
a benefit to parity of requirements between wireless and interconnected VoIP providers, a pre-approval
requirement for wireless traffic studies would be disruptive to wireless contributors who, unlike
interconnected VoIP providers, are already relying on the current regime.
58. We take one additional interim action here to ensure the health of the USF pending broader
reform. As we stated earlier, we have not yet classified interconnected VoIP as either a
telecommunications service or an information service. Because we have not yet made that classification,
some interconnected VoIP providers may hold themselves out as telecommunications carriers, but others
do not, considering themselves instead to be “end users.” Carriers that provide telecommunications
service inputs to the latter group of interconnected VoIP providers therefore have been reporting the
resulting revenues as end-user revenues and including them in their bases.194 Because we do not classify
interconnected VoIP today, nor do we attempt to quantify the magnitude of USF contributions from
carriers that supply wholesale inputs to interconnected VoIP providers, carriers supplying
telecommunications services to interconnected VoIP providers who are not themselves carriers should
continue to include the revenues derived therefrom in their own contribution bases for two full quarters after the effective date of this Order.195 Wholesale carriers may not exclude these revenues by invoking
the “carrier’s carrier” rule during this interim period.196 To the extent required, we waive here
Commission rule 54.706(b) for the duration of this requirement.197
59. We recognize that, by requiring on an interim basis that both the underlying carrier and the
interconnected VoIP provider contribute based (in part) on the revenues derived from providing the
underlying transmission, the Fund may receive contributions from telecommunications revenues
associated with the same facilities two times. We emphasize that this is a temporary measure, and we do
not take this step lightly. We are concerned, however, that if carriers are permitted to invoke the carrier’s
carrier rule immediately to exclude revenues from interconnected VoIP providers, the result could be a
net decrease in the Fund in the short term. Such a result would be inconsistent with our obligation to
ensure a sufficient and sustainable Fund and to preserve and advance universal service.198 By continuing
to require contributions from carriers supplying transmission facilities to interconnected VoIP providers
for an additional two quarters, we eliminate any risk of decreasing the Fund while we implement
contribution obligations for interconnected VoIP providers. Further, we find nothing in section 254 of the
1996 Act that prohibits this interim approach.
60. Reporting Requirements. Providers of interconnected VoIP services will follow the same
basic USF reporting procedures as other providers of interstate and international telecommunications,
using the same forms and filing instructions. Contributors to USF report historical gross-billed, projected
gross-billed, and projected collected end-user interstate and international revenues quarterly on FCC
Form 499-Q.199 Interconnected VoIP service providers will be required to file FCC Form 499-Q
beginning on August 1, 2006.200 Contributors report gross-billed and actual collected end-user interstate
and international revenues on FCC Form 499-A on April 1 of each year.201 Interconnected VoIP service
providers will be required to file a completed FCC Form 499-A beginning on April 1, 2007.
61. Under Commission rules, a provider of interstate and international telecommunications
whose annual universal service contribution is expected to be less than $10,000 is not required to
contribute to the USF, or to file a Telecommunications Reporting Worksheet unless it is required to
contribute to other support and cost recovery mechanisms.202 Interconnected VoIP providers that satisfy this de minimis exemption need not contribute to the Fund.203 We find, however, that it is appropriate to
require all providers of interconnected VoIP services – including those that satisfy the de minimis
exemption – to register with the Commission in order to facilitate our enforcement of the obligations the
Commission has imposed in this Order on providers of interconnected VoIP services.204 In order to fulfill
this reporting requirement, every interconnected VoIP provider that has not already registered with the
Commission (and designated an agent for service of process) must complete and file an FCC Form 499-A
with blocks 1, 2, and 6 completed.205 Providers should refer to the instructions on the revised FCC Form
499-A for additional details on how to complete this registration requirement. Interconnected VoIP
providers will receive an FCC Registration Number (FRN) when they register with the Commission.
Because providers must have an FRN in order to submit required USF filings, it is the responsibility of
the interconnected VoIP provider to register with the Commission and obtain an FRN prior to the
August 1, 2006 deadline for filing FCC Form 499-Q.
62. Finally, interconnected VoIP providers must comply with the Commission’s rules with
respect to recovering USF contributions from their customers. Contributors may choose to recover part or
all of their universal service contributions from their customers, but they are prohibited from marking up
universal service line-item amounts above the relevant contribution factor.206
