FCC Imposes Universal Service Funding Obligations on Interconnected VoIP Service Providers

On Wednesday, June 21, 2006, the FCC voted to require interconnected VoIP service providers to contribute to the Universal Service Fund (“USF”). The FCC has not released the Order. However, the agency’s news release, along with published reports, provides the broad outline of the plan.

According to those sources, the FCC’s new rules will require interconnected VoIP providers to contribute to the USF approximately 10 percent of their total interstate revenues derived from VoIP services. However, because it may be problematic to actually determine what portion of revenue is derived from interstate, as opposed to intrastate, traffic the FCC will establish a “safe harbor” presumption that 64.9 percent of their revenue from VoIP service is “interstate” and therefore subject to USF contributions.

In addition, the FCC raised the existing wireless “safe harbor” percentage used to estimate interstate revenue from 28.5 percent to 37.1 percent of total end-user telecommunications revenue. This is intended to reflect the growing demand for wireless services. Similar to the options available to wireless providers, interconnected VoIP providers may choose instead to contribute based on their actual interstate revenues, or use a traffic study as proxy for these revenues.

The FCC has described its decision as an “interim step” to more comprehensive reform of the USF contribution system. Many observers believe this step was taken to replace at least a portion of the approximately $350 million to $500 million in annual contributions that, as of August of this year, will no longer be assessed upon DSL Internet access services that are offered as noncommon carrier information services.

Davis Wright Tremaine counsels wireless and VoIP service providers on USF and other issues. If you would like additional information please contact us.