Summary of Comments Filed in FCC Proceeding Considering Extension of USF Fees to One-Way VoIP Services

On June 11, 2020, the FCC requested comments on whether providers of “one-way” Voice over Internet Protocol (“One-Way VOIP”) services should be assessed for contribution to the federal Universal Service Fund (USF). Businesses and industry groups submitted their responses beginning July 13. Not unexpectedly, industry commenters generally fell into three camps – for, against and other. In addition to opposing or supporting the expansion of USF assessments to cover One-Way VOIP services, several commenters urged the FCC to pursue systemic overhauls of the current contribution model before adding more revenue to the contribution base in an ad hoc, piecemeal fashion and the need for narrow tailoring any extension of USF to One-Way VOIP to avoid unintended adverse consequences for the businesses offering “integrated” information services (e.g., Zoom).

Summarized below are the positions carved out by the commenters:

Opposed to Extending USF to One-Way VOIP

The Voice on the Net Coalition (VON), Internet and Connective Networks Association (INCOMPAS), and Ad Hoc Telecom Users Committee (Ad Hoc), all asserted that the USF program is currently in an unsustainable position and all opposed expanding USF to One-Way VOIP services on similar grounds:

  • The USF funding model is “a clearly broken system” due to the decline of traditional telecommunications revenue and requires a comprehensive overhaul by the FCC and Congress.
  • Any assessment of one-way revenue “would not make an appreciable difference” in sustaining the needs of the USF. In 2018 alone, one-way revenues amounted to $809 million, a number dwarfed by the $51 billion in USF-assessed revenues during the same period.
  • USF assessments already hinder business development and consume business resources, and including one-way revenue would only exacerbate the market-distorting effects.
  • VON notes that, in the event the FCC proceeds with the planned expansion, it should allow 24 months for impacted industry members to come into compliance (to permit time for the adjustment of billing systems, existing contracts, and the like).

Magicjack VocalTec, Ltd. (MagicJack), which recently settled with the FCC over its failure to pay USF assessments on its two-way VOIP revenue, opposed the expansion on the basis of administrative law, perhaps with an eye to future litigation if the proposed expansion occurs:

  • The FCC has exceeded the limits of Section 254(d) of the Telecommunications Act of 1996 in contemplating the expansion of USF assessments to one-way revenues because these services are not legally telecommunications.
  • In addition, any definition of telecommunications which did include one-way services would be unreasonably broad and subject to legal challenge.

MagicJack also echoed the above comments in calling for a complete overhaul or replacement of the existing USF system.

In Favor of Extending USF to One-Way VOIP

Two trade groups, the Rural Broadband Association (NTCA) and Broadband Association (USTelecom), went on the record supporting assessment of One-Way VOIP on the basis that:

  • One-way VOIP services compete directly with other communications services, including two-way VOIP, which contribute to USF, and leaving them exempt “unfairly penalizes traditional voice providers” and other assessed businesses.
  • As “the heart of telecommunications is transmission”, one-way VOIP services are telecommunications as defined by Section 254(d) and therefore within the FCC’s permissive authority.

Notably, much of the existing USF revenue goes to supporting rural communications service providers and traditional voice providers most impacted by the assessment disparity. And, as would be expected, the Broadband Association (USTelecom) remained mum regarding the giant elephant in the room – the continued absence of broadband Internet Access service (BIAS) revenue in the USF contribution base.

Threading the Needle

Stepping lightly, RingCentral, Inc. (RingCentral) and Zoom Video Communications, Inc. (Zoom) avoided overtly taking a stance for or against expanding USF. Instead, their comments suggested:

  • The FCC should prioritize avoiding “regulatory uncertainty” which would harm communications business development, and implement policies narrowly tailored to the objectives of universal service.
  • Public policy considerations support leaving information services unregulated, and the Commission has accepted this reasoning since 2006.
  • If expansion does proceed, the FCC should use its 2009 expansion of the Telephone Relay Service fund (TRS) to Non-Interconnected VOIP revenue as a model for the application of USF assessments to One-Way VoIP (thus creating bright line distinctions between the non-assessability of revenue derived by providers exclusively offering “sufficiently integrated information services” from providers selling One-Way VoIP as a stand-alone service.

It remains to be seen which group of arguments the Commission will find most persuasive as it decides whether and, if so, how to extend USF contributions to One-Way VOIP services.  If you were unable to file Comments, but would still like to let the FCC know your position vis-à-vis the planned expansion of the USF contribution base to One-Way VoIP services, there is still time to file Reply Comments, which are due July 27, 2020.

If you have questions about how the imposition of USF fees on One-Way VOIP services will affect your business or wish to file Reply Comments, please contact Jonathan Marashlian at jsm@commlawgroup.com or 703-714-1313.

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