TMI_Logo.pngI blogged a little poem in early December about the telecom industry’s anxious anticipation of an FCC order adopting new 2014 Federal USF exemption certificate language. (See ‘Twas Weeks Before New Year’s, posted December 6, 2013.) Well, the FCC staff apparently did not stay up late to craft new language before the New Year. As we continue to wait for an FCC order approving the 2014 499A instructions with new exemption certificate language, many carriers have decided that they cannot continue to delay and are sending out 2014 certificates in advance of a final order. Not surprising, considering the implications for carrier billing and compliance.


As carriers work to prepare their 2014 exemption certificates under the new “service-specific” requirements adopted for 2014, and as resellers receive the new certificates and contemplate how to complete them, I thought it would be helpful to answer some FAQs about the new requirements and issues that some of our clients have encountered.



Q.   What change is required in 2014 exemption certificates and why?

A.    Ok, no ever really asks why, but I am going to tell you anyway. In a November 2012 Order, the FCC clarified various aspects of wholesale carriers’ FUSF obligations in response to several previous petitions and clarification requests. One of the most significant of its “clarifications” was that a reseller should not be defined so broadly as to allow a carrier to claim reseller status for all of its wholesale purchases from other carriers if it only contributed to the FUSF on some of its retail offerings. This broad interpretation of a reseller had been accepted in the past and was implicit in the pre-2014 exemption certificate language, which allowed resellers to claim exemptions on all wholesale purchases as long as the reseller, as a whole, was a direct FUSF contributor. The exemption certification language that has been proposed for 2014 requires resellers to affirm that they or another downstream reseller contributes to FUSF on at least part of the revenues generated from services that incorporate the purchased wholesale service. This new “service-specific” exemption language is a significant departure from past practice for many carriers.


Q.      What new language should be used in 2014 exemption certificates?  

A.    Since the FCC has not issued a final order, we don’t know the precise sample exemption certificate language they will include in the 2014  499A instructions. The FCC’s Wireline Competition Bureau’s October 2013 Public Notice proposed sample language incorporating the FCC’s service-specific interpretation. An Industry Group filed comments in November that offered some additional changes to the WCB’s proposed language, but we don’t know whether the FCC will accept those changes. We have seen some carriers issue 2014 certificates using the WCB’s proposed language, which seems safe, since the FCC will likely approve substantially the same language.


Q.      Do wholesale carriers need to use the new exemption certificate language to support the 2013 revenues reported on their Form 499A filings due April 1, 2014?

A.    No. The new language should be used to support the treatment of revenues generated in 2014 and reported on the April 1, 2015 499A. The old exemption certificate language can still be used to support classification of 2013 revenue reported on the 2014 499A.


Q.    Can a carrier be exempt from USF on purchases of wholesale telecommunications services when it does not qualify as a “reseller” (i.e., direct or indirect FUSF contributor via downstream resellers) for those purchases?

A.    Yes, there are other wholesale telecommunications purchases that are exempt from federal USF, and these are often identified on carrier exemption certificates. For example, sales of wholesale services to a carrier that is a non-U.S. company that does not originate traffic in the U.S. would be reported as non-regulated revenues by the wholesale provider and would therefore be exempt from FUSF and other regulatory fees. Sales of wholesale traffic that originate and terminate outside the U.S. but transit the U.S. would also be FUSF exempt, but are subject to federal TRS (relay) and other fees. In this case, the wholesale provider reports the sales as end user revenues. If the retail provider is a 499 filer, it will also report the revenues and pay the appropriate TRS and other regulatory fees directly and should receive an exemption from any pass through of the fees by the wholesale provider.


Q.      Is there a “standard” exemption certificate form that carriers should use?

A.    No, and frankly, this creates considerable confusion. As consultants to many wholesale and retail telecom and VoIP service providers, TMI sees all manner of exemption certificates. Even before the 2014 change, exemption certificate language varied considerably from carrier to carrier and the new 2014 certificates seem to have even more variability as carriers attempt to interpret and implement the FCC’s new requirements. Some of the certificates that I have reviewed do not correctly interpret the requirements and wholesale carriers often impose more stringent burdens on resellers than is necessary to meet the FCC “safe harbor” standard for demonstrating that revenues are properly reported as wholesale (“carrier’s carrier”) on the 499.



Q.    What is required to satisfy the “safe harbor” standard?

A.   The safe harbor standard that has been applied since 2013 requires the wholesale provider to have documented procedures to ensure that it reports as “carrier’s carrier” revenues only revenues from entities that meet the definition of a reseller. These procedures must include the following information from each reseller: (1) Filer ID, legal name and address, and name and phone number of contact person; and (2) the signed annual exemption certification by the reseller. Beginning in 2014, depending on the specific procedures used by the wholesale provider to determine the FUSF exemption status of a reseller on a service-specific basis, exemption certificates or updates to them may be required more than once a year.


Q.      Does a wholesale provider need to verify the FUSF contributor status of a reseller who signs an exemption certificate?

A.    No. Prior to 2013, the safe harbor standard included in the 499 instructions did require wholesale providers to verify a reseller’s FUSF contributor status by maintaining in their files a print-out of the reseller’s 499 status from the FCC website. That requirement was actually inconsistent with the exemption requirement, since a reseller could be a non-contributor, but still qualify for the FUSF exemption if it in turn sold the purchased services to other downstream resellers who it reasonably believed were direct FUSF contributors. The FCC eliminated that verification requirement as part of the safe harbor standard in the 2013 499 instructions. However, some wholesale providers continue to apply the requirement and as a result may deny legitimate exemption requests by intermediate resellers.


Q.      What recourse does a reseller have if a wholesale carrier imposes overly restrictive requirements for obtaining a FUSF exemption?

A.      Unfortunately, other than contacting the wholesale provider to plead their case as to why they satisfy the exemption requirements or—if that fails—finding another wholesale provider, resellers have little recourse. The FCC does not mandate the specific procedures that wholesale providers must use – they have simply established the minimum requirements that satisfy the safe harbor standard. Wholesale carriers are within their rights to require more from their resellers. In some instances, the wholesale provider may not fully understand the rules or may have crafted a poorly worded exemption certificate. I would certainly encourage resellers to contact the wholesaler if they believe they qualify for a FUSF exemption on some or all of their services, but the form does not allow them to request it.


Anyone who has additional questions or who has encountered any unusual exemption certificates this year is invited to post them in this blog. We would love to hear from you and will remove references to any specific carrier names.




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