FCC Expands Contribution Base of TRS Fund to Include Intrastate Revenue; Evaluate Your Carrier’s Regulatory Cost Recovery Fee Practices to Avoid Shortfalls or Gross Over-Collection

On November 29, 2019, the FCC released a Report and Order, requiring telecommunications and VoIP providers to contribute  on the basis of intrastate revenues to the federal Telecommunications Relay Services (“TRS”) Fund for the support of Internet Protocol Captioned Telephone Service (“IP CTS”).  Currently, telecommunications and VoIP service providers (both interconnected and non-interconnected) contribute to the TRS Fund exclusively on interstate and international end-user revenues.  The Report and Order concludes a 2018 Further Notice of Proposed Rulemaking addressing various IP CTS issues, including a 2015 IDT Petition for Rulemaking asking the Commission to revise its rules to include intrastate revenue within the TRS Fund contribution base.

As explained below, the expanded revenue base will apply to the already closed 2019 revenue year, meaning certain service providers could encounter a material difference between the amount owed to the TRS Fund and the revenue they collected via pass-through surcharges, e.g., “Cost Recovery Fees.”  Indeed, providers of intrastate only services (which until now had no reason to include TRS expenses in their Cost Recovery Fee surcharges) will likely experience out-of-pocket expenses that cannot be recouped through retroactive end user pass-throughs; other service provider types, such as Interconnected VoIP providers with significant intrastate allocation of bundled VoIP revenue, may also run into out-of-pocket exposure when TRS Fund invoices are generated in June of this year. 

Starting with TRS Fund Year 2020-2021 (July 1, 2020 – June 30, 2021), telecommunications and VoIP service providers will be required to contribute toward IP CTS costs on intrastate end-user revenues.  Because providers will only be required to contribute on intrastate revenues toward IP CTS, the FCC directed the TRS Fund Administrator, Rolka Loube, to establish two separate TRS Fund contribution factors.  One factor will be applied to interstate and international end-user telecom/VoIP revenues only, supporting TRS programs other than IP CTS.  The other factor will apply to interstate, international and intrastate end-user telecom/VoIP revenues, and will exclusively support IP CTS.

Providers of intrastate only services must now contribute to the TRS Fund.  The FCC noted that the new requirements impose no new registration or reporting burdens as providers offering only intrastate voice services must already register with the FCC and report annually via Form 499-A for purposes of North American Numbering Plan Administration (“NANP”) and Local Number Portability (“LNP”) support.  The Commission directed the Universal Service Administrative Company (“USAC”), the Federal Universal Service Fund (“FUSF”) Administrator and Rolka Loube to take steps to ensure that all affected providers are able to register and remit applicable TRS Fees, and ordered its Wireline Competition Bureau to update the Form 499-A instructions accordingly.

The Order and amended rules, codified in 47 C.F.R. § 64.604, become effective on February 5, 2020.  However, because the new dual TRS contribution scheme will not apply until the 2020-2021 TRS Fund year, providers will not see the effects of the Order until July 2020. The FCC releases annual orders adopting the TRS Fund factor, typically in June (following Rolka Loube’s report with the proposed factor), for the following fund year.  We expect Rolka Loube to issue its report in the coming months, followed by the FCC’s adoption of the dual contribution factors in late June 2020.  The new factors will apply to all TRS invoices issued from July 2020 through June 2021, based upon revenues reported on the 2020 Form 499-A (calendar year 2019 revenues). 

The FCC predicts that the total contributions needed for TRS support will not change, but the percentage of interstate end-user revenues supporting the Fund will decline by approximately 59%.  Combined, the two TRS contribution factors should, in theory, be less than the current contribution factor, which applies exclusively to interstate and international end-user revenues. Therefore, carriers primarily offering interstate and international services may see a decrease in their TRS contribution obligations.  On the other hand, carriers with significant intrastate revenues (and intrastate revenue that was previously untouched by the TRS fee factor) will see an increase in their TRS liability.  For example, providers of Interconnected VoIP services that allocate revenue using the Safe Harbor, a traffic study or books & records to allocate interstate revenue from bundled services will likely be subject to higher TRS contributions under the new system.  Ultimately, the impact on any provider will depend both upon the proportion of its revenue that is interstate/international vs. intrastate and the dual contribution factors (which will not be announced until after the 2021 FCC Form 499-A filing deadline of April 1, 2021). All providers, those with significant intrastate revenues in particular, should take measures to ensure that their cost recovery practices are aligned with the new rules in order to avoid shortfalls (or gross over-collections). 

Clients with questions about this advisory or the impact of the new TRS Fund contribution rules on their businesses should contact Jackie Neff at jrn@commlawgroup.com or (703) 714-1314.

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