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Insight... Who Pays For It?

by Robert Bell Executive Director World Teleport Association

If you live in the USA, you probably know about the surcharges that appear on your personal or business phone bill for the Universal Service Fund. This fund subsidizes phone services in rural and other locations where it is difficult to offer a profitable service at an affordable price. But did you know that your company should be reporting to the FCC about compliance, and may be obligated to collect fees and pay them to the Fund?

When Congress passed the Communications Act of 1934, the premise was to provide access to efficient, affordable communications services for all U.S. citizens. Funding for said “universal service” was originally offered through an inter­nal cross-subsidy imbedded in AT&T’s rela­tive pricing structure for local and long distance services. Higher long distance charges basi­cally subsidized lower local telephone rates in­cluding service to low-income households and high-cost areas. The breakup of the Bell System in the early 1980s, however, meant this approach was no longer sustainable.

Plan B Funding
An alternative funding arrangement was initially accomplished through an access charge by which long distance carriers would compensate local exchange carriers for interconnection with their networks. With the passage of the Telecommunications Act of 1996, the scope of the universal service commitment was significantly expanded. Service providers were now required to provide support services for rural health care providers as well as eligible schools and libraries, and low-income households and high-cost areas. The range of companies falling within the scope of these mandates now included all telecommunications’ carriers and providers of telecommunications’ services.

This expanded legislative mandate ultimately gave way to the Universal Service Fund (USF). Today’s USF took shape in 1999 after the FCC consolidated responsibility for overseeing the various universal service support mechanisms. Under the USF guidelines, all telecommunications companies that provide service between states must pay a percentage – currently set at over 10 percent – of their interstate end-user revenues to the USF. Companies providing a mix of domestic and international services must also contribute.

The USF, however, is not the only universal service mandate in town. The Telecommunications Relay Services Fund (TRS Fund), the Local Number Portability Administration (LNPA), and the administration of the North American Numbering Plan (NANP) are also part of the mix.

The TRS Fund, which actually predates the USF, is an outgrowth of the “Americans With Disabilities Act of 1990”, which directed the FCC to ensure that telecommunications relay services are available to hearing-impaired and speech-impaired individuals throughout the U.S. The other two entities trace their origins to the Telecommunications Act of 1996 and were established to ensure the impartial administration of telecommunications numbering.

Where The Satellite Industry Fits In
It may come as a surprise to learn that satellite communications is one of the services with obligations to the USF and TRS. But determining the extent to which satellite service providers are required to contribute is not easy. Part of the problem lies in the definition of “satellite service provider” as it applies to the funding mandates.

In 1997, the FCC made it clear that the satellite industry had a clear obligation to contribute, stating: “satellite providers that provide interstate telecommunications’ services or interstate telecommunications to others, for a fee, must contribute to universal service.”

PanAmSat was one of several organizations that challenged the broad statement. The FCC allowed that leasing of bare transponder capacity to others did not constitute the provision of telecommunications’ services because it did not involve the transmission of information. In other words, entities that simply engage in the leasing of transponder capacity (i.e., satellite operators) are not subject to the USF contribution rules while those companies that are involved in the transmission of signals to satellites (i.e., ground segment operators engaged in uplinking activities) are, indeed, obligated to contribute.

It is simple in principle, but the complexity of today’s satellite services industry makes it complex in practice. Satellite carriers now operate ground segment, and provide end-to-end services in addition to leasing bandwidth. Integration companies are also carrying voice minutes and Internet links via satellite.

It takes a green eyeshade to work out which revenues are subject to the obligations and which are exempt.

Compliance Is The Name Of The Game
It also takes paperwork. The satellite industry has a lot of experience with regulatory compliance, and it will come as no surprise that the funding mandates involve the filing of various reports with the FCC disclosing specified financial information.

The good news is that in 1999, the FCC substantially simplified the filing process weaving all four funding mandates into a single form known as the Telecommunications Reporting Worksheet, FCC Form 499. There are two versions of this form though: one which gets filed annually on April 1, and the other which gets filed on a quarterly basis.

With very few exceptions, the obligation to file Form 499 applies to any company that is an intrastate, interstate or international provider of telecommunications in the United States. Exceptions include governments, broadcasters, schools and libraries, system integrators that derive less than five percent of their system integration revenues from resale of telecommunications, and entities that provide services only to themselves. Everyone else must file both the yearly and quarterly reports.

There are, however, two additional exemptions to note: if the amount of the company’s annual contribution to the USF would be less than $10,000; and if the company does not provide any domestic U.S. services. Such companies would still file the annual form but would be exempt from filing quarterly forms, and contributing to the USF.

The vast reach of the funding mandates affects a significant number of the U.S. satellite services providers, and, particularly teleport operators. The obligation to contribute should be taken seriously.

More details on the Universal Service Fund can be found in the WTA-published White Paper “Universal Service: Satellite Service Companies and the FCC”, written by Maury J. Mechanick, Counsel, White & Case LLP for the World Teleport Association. The White Paper is available on the web site at the WTA’s website or by contacting WTA at wta@worldteleport.org.

About the author
Robert Bell is the Executive Director of the World Teleport Association. Robert has authored articles in numerous industry publications and has appeared in segments of ABC World News and The Discovery Channel. He is a frequent speaker and moderator at industry conferences including SATELLITE, NAB and SATCON. He is also the author of WTA’s Teleport Benchmarks and Sizing the Teleport Market research studies; and of B2B Without the BS, a guide to sales and marketing in the business-to-business sector available from Amazon.com.

2008 Teleport Awards For Excellence
Since 1995, WTA has presented annual awards to companies and individuals who have dramatically demonstrated excellence in the field of teleport operations, development and technology. The recipients of the 2008 Teleport Awards are...
Independent Teleport Operator of the Year
CapRock Communications (United States). An impressive record of sustained growth, expansion into new geographic markets and introduction of new services secured the win for CapRock.

Corporate Teleport Operator of the Year
Entertainment Sports Programming Network (ESPN) Broadcast Center (United States). The company’s Bristol teleport covers the equivalent of about eight American football fields containing over 30 antennas and moved over 50,000 feeds for use by the network.

Teleport Executive of the Year
Kenneth Miller, President and Chief Operating Officer, Globecomm Systems (United States). Mr. Miller was recognized for leading his company to record profitability and working with his management team to transform Globecomm into a provider of complex network solutions for a range of vertical markets.

Teleport Technology of the Year
Group QoS and Global NMS from iDirect Technologies (United States). The combined capabilities of Group QoS and Global NMS allow teleport operators, enterprise customers and the military to achieve an unprecedented balance of flexibility and control in satellite-based communications worldwide.

Nova Award
SES AMERICOM (United States). The newly created award was given to SES AMERICOM for the development and successful rollout of its IP-PRIME service.