Implementing InterCall: USF Implications for the Conference Call Industry

Implementing InterCall:

USF Implications for the

Conference Call Industry

July 15, 2008

Agenda

„ Overview of USF and the InterCall Decision „ USF-Related Implications of InterCall

„ Non-USF Implications of InterCall

Overview of USF

„ Federal Universal Service Fund (FUSF) „ Created in 1996

„ Explicit support for rural telephone service, service to low income customers and services to schools, libraries and healthcare providers

„ Approx. $7 billion annual contributions/disbursements

Overview of USF (cont’d)

„ Two Types of Contributors

„ Telecommunications Carriers (mandatory)

„ “Providers of Telecommunications” (by FCC order) „ Private carriers

„ Payphone providers

„ Interconnected VoIP providers „ Contribution Method

InterCall Order

„ InterCall appeal of USAC Administrator’s Decision requiring direct contributions

„ Prior to InterCall, industry treated audio bridging services as non-telecom services

„ No FCC precedent classifying audio bridging services as telecom for USF purposes

„ FCC acknowledged consistent understanding of the stand alone industry

Retroactivity

„ FCC reverses USAC decision requiring InterCall to file revenues for past periods. Only going-forward

contributions are required

„ Retroactive protection is extended to all stand alone audio bridging providers (fn. 27)

„ Does not address integrated providers who may have contributed differently

Refunds?

„ Many integrated providers (and a few stand alone providers) contributed to USF prior to this order

„ New FCC standard likely increases the amount owed to the FUSF – no refund possible

„ If the provider contributed more than the InterCall order would require, a refund theoretically is

possible

Contribution Obligation

„ FCC concludes that InterCall is a “provider of telecommunications” subject to USF obligations

„ Record does not permit the FCC to determine

whether InterCall is a private carrier or a common carrier.

„ Conclusion extends to all stand alone audio bridging providers:

“We therefore find that stand alone audio bridging

Contribution Obligation (cont’d)

„ InterCall must contribute to USF “based on their interstate and

international end user revenues derived from providing these services.” (¶ 9)

„ USAC is directed to implement this finding to all audio bridging

service providers (¶ 25)

„ “Uniform application” across stand alone and integrated

providers

„ _{But FCC does not decide non-USF issues}

„ _{Are bridging providers common carriers?}

„ _{Are bridging providers end users of telecom for other}

purposes?

Mechanics

„ All contributors file five revenue filings per year

„ Quarterly estimates (499-Q) on Feb. 1, May 1, Aug. 1 and Nov. 1

„ Annual Filing (499-A) on April 1

„ 499-A also used for registration purposes „ 499 revenue data used for related funds

„ Telecommunications Relay Service (TRS) „ NANP, LNP

New Classifications are Required

„ Five major issues

„ Which services are “telecommunications”

„ Separating telecommunications revenue from non-telecom revenue

„ Determining the jurisdiction of revenue „ Separating wholesale revenues

„ Tracking non-telecom revenues

Which Services are Telecommunications?

Separating Telecommunications Revenues

„ What are the “end user revenues derived from [audio bridging] services?”

„ “purpose and function” of the bridge is to “facilitate the routing of ordinary telephone calls”

„ Bridge results in “no more than the creation of the transmission channel chosen by the customers” „ Are all other features and functions non-telecom?

Determining jurisdiction

„ InterCall Order does not offer a method to determine jurisdiction

„ Order appears to find that the call both terminates at the bridge and that the bridge “facilitates routing” „ FCC generally uses an “end to end” test to determine

jurisdiction

„ Not clear whether or how to apply test in a multiple caller scenario

„ Farmers’ questioned “anomalous results” in multiple caller scenario presented on those facts

Wholesale Revenues

„ 499 Form requires separate reporting of revenues from wholesale sales and from end user sales

„ Only end user sales are subject to USF „ Wholesale customers must

„ Resell the service to end users AND

„ “Reasonably be expected” to contribute directly to USF

„ Contributors selling wholesale service must verify reseller’s status

Non-Telecom Revenues

„ Features or services that are not telecom are reported in a separate section, not subject to USF

„ FCC does not rule on the classification of features offered by InterCall (¶ 13)

„ “Bundled Services” safe harbors may be useful

„ Report undiscounted telecommunications, OR „ Report all revenues as telecom

USF Reporting Summary

„ Bottom Line: All aspects of reporting USF revenues will be subject to risk for the near future

„ New contributors should proceed carefully, or face the risk of retroactive adjustments in audits or enforcement actions

Billing and Collection Issues

„ Customer Contracts are key

„ Does the contract permit the provider to collect USF from end users?

„ FCC restrictions on USF recovery apply to all contributors

„ May not recover more than the contribution factor from a customer

„ “Administrative fees” may only be recovered by a separate line item

Other regulatory issues

„ Private carriage vs. common carriage

„ Key difference is in whether the provider makes individualized decisions whether to serve

customers

„ Unclear whether stand alone providers can operate as private carriers

„ Integrated providers likely will choose common carriage model

„ Unclear whether free conferencing providers „ “Provide” telecommunications, or

State regulation

„ Stand alone providers may be required to obtain state certification as a carrier

„ In which state(s)?

„ State USF funds may apply to services

„ State and local taxes may apply to services

„ Many state or local laws do not recognize private carrier distinction

„ States likely to use FCC finding of

“telecommunications” as support for applying state taxes

Impact on Vendor Contracts

„ Many stand alone providers obtain telecommunications service as end users

„ May need to renegotiate service contract or switch to a wholesale contract

„ Additional certifications likely to be required by vendors

Part 4 – Decision’s Application in Intercarrier

Compensation Context

„ “Nothing in this order is intended to address issues relating to access charge tariffs or other types of intercarrier compensation.” (fn. 49)

„ “[A] company may be classified as an end user due to its role in obtaining telecommunications services…[but that] does not, in turn, preclude the provider from also being a telecommunications provider in terms of its USF contribution obligations.” (¶ 22)

„ As a legal and policy matter and following Commission precedent, application of the “bridging as routing”

Free Conference Calling Litigation

„ Iowa Litigation and Primary Jurisdiction Referral

pending outcome of Qwest-Farmers Complaint at FCC

„ Status of Reconsideration of Qwest-Farmers Complaint „ Outcome limited to facts as presented?

„ FCC Rulemaking on Traffic Stimulation

Thank You

For Further Information Contact:

Steve Augustino 202-342-8612