How Regulatory Uncertainty Could Be Costing You Money

How Regulatory Uncertainty Could Be Costing You Money

By Special Guest
Jonathan S. Marashlian and Alex I. Schneider, Marashlian & Donahue PLLC, The CommLaw Group
  |  December 15, 2017

The Trump administration has made a stark promise to cut regulations that it says restrict growth and suppress business investment. At the Federal Communications Commission, the agenda is no different, with Chairman Ajit Pai famously vowing to “fire up the weed-whacker” to eliminate outdated regulations. The agency’s net neutrality rules look likely to be first on the chopping block.

But VoIP providers and private carriers of telecommunications should not be cheering just yet. The FCC (News - Alert) has not proposed ways to deregulate VoIP or private carriers, instead continuing to follow practices that foster regulatory uncertainty for these industries.

And that uncertainty could be impacting your bottom line.

Take, for example, systems integrators, businesses that package together component subsystems, ensure these subsystems function well together, and sell the entire package as a bundled solution, usually to enterprise customers.

Current FCC rules say that if a systems integrator bundles a traditional telecommunications service (think copper wire) with other non-telecom offerings, the entire bundle can be treated as a deregulated private carriage service (provided certain revenue thresholds aren’t exceeded). But if the same systems integrator bundles a newer technology solution with a VoIP component, the bundle is not eligible for deregulated status and the systems integrator could be on the hook for regulatory fees that would otherwise be waived.

This puzzling discrepancy all comes back to the FCC’s private carrier classification. Private carriers negotiate tailored contracts for providing business-to-business services, and are subject to limited regulatory oversight. In contrast, common carriers are companies that offer their services to all customers in the marketplace indifferently.

To make matters more confusing, VoIP does not qualify for either common or private carriage status, instead falling somewhere in the middle. Interconnected VoIP services receive relaxed regulatory treatment as compared with common carriers, but are unable to enjoy the benefits of deregulated private carriage status, even when the facts might otherwise support private carrier classification.

The result of this dynamic is perverse: Systems integrators are incentivized to shun VoIP technologies to avoid heavy regulatory burdens. Clarity (News - Alert) on this regulatory issue would give the industry an incentive to upgrade to VoIP technologies, inevitably driving growth. 

Even companies that provide classic business-to-business services face regulatory uncertainty because the FCC might not agree that they qualify for private carrier status. A company that erroneously describes itself as a private carrier can face the threat of tough FCC enforcement and hefty legal fines, but there is no clear rubric, test, safe harbor, or other metric to help companies confirm private carrier status.  Instead, the FCC determines such status on a case-by-case basis. The agency itself actually benefits from this confusing approach because skittish companies might resort to common carrier status out of caution, contributing to funding mechanisms that preserve the solvency of the FCC’s universal service programs.

Companies that attain the coveted private carrier status could still face regulatory obstacles. According to a recent petition to the FCC, the Universal Service Administrative Company, the entity responsible for calculating, assessing, and collecting certain regulatory fees on behalf of the FCC, has been requiring private carriers to pay into Title II funds reserved only for common carrier contributions.

The problem stems from confusion surrounding how telecommunications revenues are reported to the USAC. The USAC has not offered providers of both common and private carriage services a method to separately report revenues. As a result, companies with both common and private carriage revenues have no way to avoid either over-paying or under-paying Title II fees.

In other words, even companies that meticulously study and implement FCC precedent to take advantage of the deregulatory benefits of private carriage cannot escape regulatory uncertainty.

In all of its forms, regulatory uncertainty perpetuated by the FCC and the USAC is costing you money. Whether you are a private carrier unexpectedly forced to pay an additional chunk of your revenue to the USAC, or a VoIP carrier that loses a systems integrator contract, or even a potential market entrant fearing the costs of industry regulation, the economics of uncertainty are not on your side.

If the FCC wants to earn its pro-business, anti-regulation chops, it should start by pursuing an agenda that emphasizes clarity.

Jonathan Marashlian is the managing partner and Alexander Schneider is an associate attorney of Marashlian & Donahue PLLC, The CommLaw Group (www.commlawgroup.com).




Edited by Erik Linask
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