Highlights of Changes to 2014 FCC Forms 499-A and 499-Q:

    • New certification rules for resellers
    • Safe harbor exemption made explicit
    • Clarifications for common areas of confusion

    On January 31, 2014, the Federal Communications Commission ("FCC” or “Commission”) released the 2014 FCC Forms 499-A and 499-Q and accompanying instructions. The new forms and instructions impose important new limits and requirements on many filers. The forms will be used to bill telecommunications providers more than $7 billion in federal universal service funds in 2014. Failure to truthfully and accurately report revenue on the forms can lead to USAC or FCC inquiries, audits, enforcement actions, and civil false claims actions. This is a relatively early release of the forms and instructions, giving telecommunications providers extra time to learn the changes prior to filing their 2014 FCC Forms 499-A.

    New Certification Rules for Resellers
    The 2014 FCC Forms 499 contain a number of changes from last year's Instructions. The most notable is the reseller certification language contained on page 24 of the FCC Form 499-A, which was revised in response to the Commission’s clarification directives in the 2012 Wholesaler-Reseller Clarification Order.1 Whereas the instructions for prior year FCC Forms 499-A permitted telecommunications providers to use entity-level (e.g., ABC Corp) language to certify that a customer was a reseller,2 beginning January 1, 2014, a telecommunications provider may use entity-level certification language only if all of the services purchased by the customer will be purchased for resale.3 If not, the telecommunications provider must use account-level (e.g., billing account 1234) or service-specific (e.g., interconnected VoIP) reseller language, or may state that all services except for those specified in the certification will be purchased for resale pursuant to the certificate.4 If a reseller sells an underlying service to another reseller (i.e., it acts like an underlying carrier to an intermediate reseller), the reseller acting as an underlying carrier may report the revenue it receives from the intermediate reseller as carrier’s carrier, as long as the intermediate reseller meets the FCC reseller definition provided in the 2014 FCC Form 499-A Instructions.5 Note that reseller certifications are to be signed each calendar year by an underlying carrier’s reseller customers.6 In addition, customers must meet both prongs of the FCC’s reseller definition for a telecommunications provider to classify the customer’s revenues as reseller.7

    Regarding services purchased after the date of an annual certification, the FCC clarified that a telecommunications provider may demonstrate that its customer is a reseller for the subsequent services if, prior to the filing of the applicable FCC Form 499-A, it: (1) provides a verifiable notification from the customer that the customer is purchasing the service for resale consistent with a valid, previously signed annual certificate; or (2) has the customer execute a subsequent certificate covering the purchased service.8

    Other reseller-based changes to the FCC Form 499-A Instructions include: (1) clarification that foreign and non-telecommunications revenues are treated as end-user revenues;9 (2) removal of the “when provided to end users” language from the second prong of the reseller definition;10 and (3) clarification that a customer is a reseller if incorporates a purchased wholesale service into an offering that is, at least in part, assessable telecommunications and can be reasonably expected to contribute to the federal universal service fund (“USF”) for that portion of the offering.11

    Safe Harbor Exemption Made Explicit
    In conjunction with the revised reseller language, the FCC added and clarified language regarding the reseller reasonable expectation standard and safe harbor presumption. To demonstrate that it has a reasonable expectation that its customer is a reseller, a telecommunications provider may either follow the safe harbor set out in the 2014 FCC Form 499-A Instructions or submit “other reliable proof.”12 To qualify for the safe harbor, a telecommunications provider must obtain and maintain all of the documentation set forth on pages 23-24 of the 2014 FCC Form 499-A Instructions, including a valid reseller certification.13 If the telecommunications provider deviates from the requirements in the instructions in any way, it must demonstrate that it had a reasonable expectation that its customer was a reseller using “other reliable proof.”14 Telecommunications providers would be wise to follow the FCC safe harbor requirements, because proving a reasonable expectation using “other reliable proof” requires an analysis by the Universal Service Administrative Company (“USAC”) on a case-by-case basis.15 Telecommunications providers that do not demonstrate a reasonable expectation to USAC’s satisfaction could find themselves mired in a USAC/FCC appeal process and will be responsible (at least during the pendency of any appeal) for any additional universal service amounts assessed if the provider’s revenues must be reclassified as end user revenues.16 Note that, consistent with USAC past practices and procedures, if USAC is able to determine that a telecommunications provider’s customer actually contributed to the federal USF, USAC will not seek to reclassify the customer’s revenues from reseller to end user, even if the telecommunications provider cannot demonstrate that it had a reasonable expectation that its customer would contribute to the federal USF when it filed its FCC Form 499-A for the relevant calendar year.17

    Clarifications for Common Areas of Confusion
    Other changes to the 2014 FCC Forms 499 include language:

    • Notifying filers that the documentation they must provide when they cease providing telecommunications can be found on the USAC website;18
    • Instructing filers that do not have Internal Revenue Service employer identification numbers not to use their individual social security numbers, but to contact USAC for an alternate identification number;19
    • Emphasizing that all “affiliated filers” should enter a common identifier;20
    • Adding contact information for inquiries regarding the instructions for the Interstate Telecommunications Service Providers (“ITSP”) regulatory fee bills,21 deleting contact information for the Wireline Competition Bureau and Industry Analysis and Technology Division and directing filers with questions about the FCC Forms 499 solely to USAC;22
    • Correcting the phone Number for the North American Numbering Plan Administration (“NANPA”);23
    • Clarifying that that by “carrier,” the FCC meant common carriers must designate a D.C. agent for service (note however, that interconnected VoIP providers and non-interconnected VoIP providers also must designate a D.C. agent for service);24
    • Moving the “Note on International Services” to make clear that it applies to all international revenues;25
    • Deleting the following sentence regarding Lifeline – “Line 308 should include as revenues Lifeline Assistance reimbursement for the waived portion of subscriber line or presubscribed interexchange carrier charges from the Low Income or High Cost universal service support mechanism[s];”
    • Clarifying that total revenues reported in column (a) of the FCC Forms 499 include intrastate revenues even though intrastate revenues are not reported separately on the FCC Forms 499;26 and
    • Clarifying that providers of non-interconnected VoIP service are required to contribute to the Telecommunications Relay Service fund.27

    Who Must File
    Sections 54.706, 54.711 and 54.713 of the Commission’s rules require all telecommunications carriers providing interstate telecommunications services, interconnected VoIP providers that provider interstate telecommunications, providers of interstate telecommunications that offer interstate telecommunications for a fee on a non-common carrier basis, and payphone providers that are aggregators to contribute to the federal USF and file the FCC Forms 499.28 The FCC Form 499-A is due on April 1 each year and the FCC Forms 499-Q are due on February 1, May 1, August 1, and November 1 each year.

    Use Caution When Filing
    Prior to filing a 2014 FCC Form 499, particularly the 2014 FCC Form 499-A, telecommunications providers should conduct a detailed and thorough review of the revised forms and their instructions. In addition, telecommunications providers with reseller customers should carefully review the 2012 Wholesaler-Reseller Clarification Order. Dorsey & Whitney will conduct a detailed review of the instructions to the 2014 FCC Forms 499 to identify all of the pertinent changes that will impact filers and is prepared to discuss any questions you may have before filing the FCC Form 499-A on April 1.

    The FCC's Public Notice announcing the revised FCC Forms 499 and their accompanying instructions, and highlighting some of the revisions can be found here.

    The revised FCC Form 499-A and instructions can be found here.

    The revised FCC Form 499-Q and instructions can be found here.

    1See generally In the Matter of Universal Service Contribution Methodology Application for Review of Decision of the Wireline Competition Bureau filed by Global Crossing Bandwidth, Inc. et al., WC Docket No. 06-122, Order, FCC 12-134, 27 FCC Rcd 13780 (2012) (2012 Wholesaler-Reseller Clarification Order).
    2See, e.g., Instructions to the Telecommunications Reporting Worksheet, FCC Form 499-A, at 24 (2014) (providing prior entity-level sample reseller certification language) (2014 FCC Form 499-A Instructions).
    3Id. at 24 & n.62.
    5Id. at 24 n.63.
    6Id. at 24.
    7See 2012 Wholesaler-Reseller Clarification Order, 27 FCC Rcd at 13795-96, ¶¶ 34, 37.
    82014 FCC Form 499-A Instructions at 25.
    9Id. at 22.
    10Id. at 22-23.
    11Id. at 23.
    13Id. at 23-24.
    14Id. at 23.
    17Id. at 23 & n.60.
    18Id. at 6.
    19Id. at 10. Instructions to the Telecommunications Reporting Worksheet, FCC Form 499-Q, at 10 (2014) (2014 FCC Form 499-Q Instructions).
    202014 FCC Form 499-A Instructions at 10; 2014 FCC Form 499-Q Instructions at 10-11
    212014 FCC Form 499-A Instructions at 11
    222014 FCC Form 499-A Instructions at 36; 2014 FCC Form 499-Q Instructions at 21.

    232014 FCC Form 499-A Instructions at 36.
    242014 FCC Form 499-A Instructions at 11.
    25Id. at 14.
    262014 FCC Form 499-A Instructions at 26; 2014 FCC Form 499-Q Instructions at 14.
    272014 FCC Form 499-A Instructions at 37.
    2847 C.F.R. §§ 54.706, 54.711, 54.713.