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VoIP providers face headaches galore

Lawyers Frederick M. Joyce and Christine McLaughlin say VoIP service providers have very little time to get up to speed with new FCC regulations.

Providers of voice over Internet Protocol services face yet another regulatory issue. The Federal Communications Commission recently expanded the federal Universal Service Fund (USF) reporting and contribution obligations to cover "interconnected VoIP" providers. Affected VoIP carriers must submit the next quarterly report for USF contributors, due on Aug. 1, and they must file certain information to register with the FCC before then.

The USF is a complex program by which telecommunications carriers, and other parties offering telecommunications services, contribute a percentage of their telecommunications revenue to subsidize certain services. These include basic phone service in rural or other high-cost geographic areas and Internet access in schools and libraries.

Unfortunately, VoIP service providers have very little time to get up to speed with the new regulations. There are a variety of issues that VoIPs will need to address in short order to comply with the FCC's recent decision:

• Service providers will need to determine whether their service is what the FCC calls an "interconnected VoIP" that will be subject to USF payment obligations. The FCC interprets the concept of "interconnected VoIP" broadly, to include any VoIP service offering that is capable of making or receiving two-way calls over the public telephone network, whether the customer actually does so or not. Desktop software companies and other Internet service providers may need to carefully consider whether their products are covered under the FCC's definition; in some cases, they might be better off disabling any VoIP capabilities.

There are a variety of issues that VoIPs will need to address in short order to comply with the FCC's recent decision.

• VoIP providers will need to identify interstate revenue for USF reporting purposes. But the FCC's new order raises several problems, including the need to identify whether traffic is interstate, intrastate or international.

The FCC adopted a so-called safe harbor of 64.9 percent for VoIP providers. What this means is that the FCC will not investigate the provider's assumption if it reports that 64.9 percent of its revenue is interstate. The FCC will also allow a VoIP provider to determine its interstate revenue through the use of a traffic study. But since the particular study to be used will need to be preapproved by the FCC, as a practical matter this option will not be available for the Aug. 1 filing.

• Another problem related to revenue reporting involves segregating "phone" revenue from other VoIP services revenue, when all services are typically marketed as a bundled package. Most VoIP services include a number of features that would normally be excluded from the USF contribution base, such as voice mail and certain calling features. The USF rules do have safe harbors for separating "telecommunications" revenue from "information service" and equipment revenue derived from the same bundled service offering. But they are not helpful to companies that have probably never priced each service or product in the "bundle" separately.

• Unless a VoIP provider can verify that its telecommunications revenue is 100 percent interstate or international, it might have to face the sort of state public utility commission regulation that the FCC recently preempted in Minnesota and New York. Although not regulated as telecom carriers, VoIP providers may be forced to contribute to state USF funds under the FCC's order.

Because of the many filing obligations required by the FCC's order, VoIP service providers need to get busy. Contributors to the federal USF are required to make five filings each year. In addition to an annual filing, all USF contributors must file once each quarter, reporting the gross amounts billed in the previous quarter and projections of the revenue they expect to bill, as well as the revenue they expect to collect, in the next calendar quarter. And because VoIP providers filing for the first time will need to register to receive a "filer ID" in advance of the quarterly filing, they are actually facing their first deadline before the Aug. 1 report is due.

The clock is ticking.