“White Label” interconnected VoIP partner programs (what I call “VoIP-In-A-Box”) are growing in popularity. As advertised, they offer a relatively easy, low-cost way for companies to profit from the growing market for VoIP services. Companies with an IP business customer base are enticed to grow their business by adding hosted PBX or other interconnected VoIP products to their existing product mix. The wholesale providers can make it sound so easy. They may say they will provide their White Label partners with “all of the tools and support” needed to enhance their earnings with VoIP phone service offerings.
But remember the adage: “If it seems too good to be true, it probably is!” What is usually missing from the White Label promotional material is an explanation of (let alone support for) all of the regulatory obligations imposed on providers of “cloud-based” phone service, hosted PBX, or any other flavor of interconnected VoIP service. The wholesale partner has no obligation to explain these requirements to its retail VoIP partners – and they typically don’t. This may be in part because the marketing folks who sell these programs often have no clue about the regulatory requirements. They may tell the retail partner: “Don’t worry – we pay all the taxes and fees to the government agencies, so you don’t have to.” Unfortunately, that’s not the way it works. And ignorance is not bliss – or an excuse – when it comes to the FCC or state regulators.
The FCC requires all providers of telecommunications in the United States, including providers of interconnected VoIP services, with very limited exceptions, to register and annually file a Form 499A. Based on the revenues reported on that form, they may have to contribute directly to the federal universal service (FUSF) fund and will have to contribute to other federal funds (the telecommunications relay service fund, local number portability fund, etc.) and pay an annual regulatory assessment to the FCC. It doesn’t matter that a company is “just a reseller” or that the underlying wholesale provider is paying taxes and fees on its behalf. Although the definition of “reseller” is not precise, if the reseller’s name is on the customer bills, if it provides customer service support, and if it records revenues from the VoIP services on its books – in other words, if it “looks like a duck and acts like a duck” – the reseller is the service provider and is obligated to register with the FCC and contribute to federal funds.
But there’s more! Interconnected VoIP providers are subject to other federal and state regulatory requirements. For instance, at the federal level, they must comply with the Communications Assistance to Law Enforcement Act (CALEA), Customer Proprietary Network Information (CPNI) rules, the 21st Century Video and Communications Accessibility Act (CVAA), the FCC Form 477 semi-annual reporting requirement, and other FCC rules that most White Label VoIP retail partners have probably never heard of. Again, ignorance is not an excuse! Failure to comply could subject the provider to huge sanctions. The FCC can impose fines of up to $160,000 per day, up to $1,575,000, for each violation of its rules. Even if a company avoids these potentially catastrophic penalties, it will still incur an unavoidable cost in the form of late filing penalties for failing to file the FCC Form 499.
The FCC (through its universal service fund administrator, USAC) imposes a minimum late filing penalty of $100 for each month that a Form 499 filing is late. The penalty applies to each late filing. As an example, a company that began providing interconnected VoIP service in 2010 but failed to file the required Form 499As due April 1, 2011 through 2016 (five missed/late filings) until May 2016 would incur late filing penalties of more than $25,000. This is true even if their USF-assessable revenues in each of those years was below the FCC’s de minimis threshold. The penalties would be even higher if their revenues exceeded the de minimis threshold making them a direct FUSF contributor. To compound the pain, if the retail partner had been paying FUSF indirectly via its underlying wholesale partner throughout this period, they would not escape having to make direct FUSF contributions on these past sales – in effect double paying FUSF. A refund of the pass-through FUSF fees from the wholesale partner would be unlikely and neither USAC nor the FCC would offer the retailer relief from this double payment of FUSF contributions.
Faced with the reality of the FCC rules and associated filing requirements (either because they read this blog or – worse – received a letter from USAC), a White Label retail partner might think that they can simply register with the FCC as if they had just initiated operations and comply going forward, thereby avoiding the late filing penalties. This is illegal and very dangerous! Line 228 of Form 499A requires a carrier to indicate the month and year it first provided telecommunications (including interconnected VoIP) in the U.S. The bottom of every page of the 499A states “PERSONS MAKING WILLFUL FALSE STATEMENTS IN THE WORKSHEET CAN BE PUNISHED BY FINE OR IMPRISONMENT UNDER TITLE 18 OF THE UNITED STATES CODE, 18 U.S.C. §1001. (And, to make sure that point is clear, they use all caps!) An officer of the company is required to certify that the information included in the form is true and to swear “under penalty of perjury” that the requested registration information is accurate. In other words, unless an officer is willing to commit perjury, there is no getting around the obligation to “come clean” as to when the company began providing service by submitting the 499A registration. Based on that date, USAC will identify all of the past due 499 filings that must be submitted, and, once those are filed, will automatically assess the applicable late filing penalties. Despite the best sob story imaginable, USAC will not waive those penalties. If you ask, they will tell you that that you can file a petition with the FCC requesting a waiver. Trust me – the FCC is very unlikely to waive them either.
And those are just the federal requirements.
….to be continued.