14.1 Percent USF Contribution Factor Announced for First Quarter of 2010

On Dec. 11, 2009, the Federal Communications Commission (FCC) announced a proposed contribution factor of 14.1 percent for contributions to the federal Universal Service Fund (USF). The factor is applied to the interstate and international revenues of U.S. telecommunications providers and interconnected voice over Internet protocol (VoIP) providers.

The contribution factor is reviewed quarterly and adjusted to meet projected funding needs for the four programs currently supported by USF: high cost, low income, schools and libraries, and rural health care. The rate has steadily increased over the past several years, and this latest adjustment was significant, adding nearly two full percentage points from the 12.3 percent factor for the fourth quarter of 2009.

If, as expected, no further action is taken, the new rate will go into effect on Jan. 1, 2010. Entities required to contribute to the USF should make any necessary adjustments to their billing and accounting systems as soon as possible to take the new factor into account in time for the start of the new quarter.

FCC considering USF reform

It is our understanding that the contribution factor is expected to remain high this year and that this increase is not the result of a one-time surge that is expected to recede. The FCC is seriously considering USF reform as part of its national broadband plan and is taking comments through Jan. 7, 2010, on the cable industry’s proposal to eliminate high-cost funding in areas that are served by an unsubsidized competitor. We would be happy to discuss any positions you may want to take or how the proposed changes could affect you.

Customer inquiries and "de minimis" verification

Because of the size of the increase, you may want to consider preparing your customer service teams to be able to respond to customer questions about the increase. Moreover, companies that previously have been exempt from making USF contributions should also verify that they continue to qualify for the “de minimis” exemption under this higher contribution factor. (Such verification is officially required each quarter, but is especially important at the beginning of a calendar year or after a significant increase).

Take care in recovering fees

Contributors who recover their USF contributions from end users must ensure that they do not recover more than the applicable contribution rate multiplied by the interstate/international portion of the end-user bill. In other words, USF line items on end-user bills may not be “marked up” to collect any administrative costs associated with recovering the USF fees from end users.

Please contact one of the attorneys listed above for assistance implementing the new contribution factor, verifying de minimis status, filing your 499 reports or addressing general universal service matters.