Expert Negotiators of World-Class Telecom Contracts

Can You Afford Another Telecom Tax Increase?

A year and a half has passed since the FCC mandated that carriers must pay Universal Service Fund (“USF”) charges for MPLS services.

The USF is managed by the USAC (Universal Service Administrative Company) and supports programs for rural health care providers, low-income consumers, schools, libraries and high cost companies serving rural areas. The contribution factor changes quarterly and is adjusted depending on the needs of the various Universal Service programs.

To understand the impact, the federal USF contribution factor for the third quarter of 2010 was 13.6 percent.

The carriers have all reacted to this surcharge in various ways. Most have challenged the FCC and/or delayed the USF filing in order to impose these taxes on their customers before they start paying it directly. In any case,if your MPLS costs have not gone up, they soon will. Whether applied retroactively or going forward, the implementation of the surcharge depends on the carrier and the contract terms of individual customer agreements. In any future contract revisions these taxes can and should be appropriately identified and may be favorably negotiated to lessen their impact.

The FCC regulations do not mandate that carriers must pass through USF surcharge to their customers. Rules simply state that the carrier must report MPLS revenue and contribute to the USF accordingly. It is simple to understand why the carriers are motivated to impose these charges onto their customers, either in whole or in part. However, these pass-through charges are discretionary. Concessions can be made and in the very best contracts, there are opportunities to decrease or totally avoid these new taxes altogether.

Reference links:

  1. USF Contribution Factor and Quarterly Filings
  2. Universal Service Administrative Company
  3. Telecommunications Reporting Worksheet, FFC Form 499-A (2009)
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