USF on MPLS: Protecting against both future and retroactive applicability

The issue of universal service surcharges on MPLS services seems to be in a holding mode. The major carriers don't appear to have made the decision to generally pass along to customers the current 12.3% contribution factor (for the fourth quarter of 2009) on their interstate MPLS revenues.

That's despite a somewhat more explicit signal from the Federal Communications Commission earlier this year on the USF's applicability to MPLS as a basic telecommunications service, in the form of an instruction that added MPLS as an example of a reportable service on a key form submitted by the carriers to the FCC.

But that doesn't mean that you shouldn't be taking any action about it. For starters, remember the basic contracting principle that if you want to control your destiny on an unsettled issue, you have to address it explicitly in your contract.

That's because interstate telecommunications, while not tariffed, is still under a "Service Guide" regime under which carriers post language about all kinds of issues on their websites. As a result, if you say nothing in your contract about something that becomes relevant halfway through your term, the carriers have the right to default to their Service Guide language and apply it directly to you.

So seeking an explicit waiver of USF passthroughs on the specific MPLS service you buy (such as AT&T's AVPN or Verizon's Private IP) for the period of your contract is the only way to make sure you won't be slapped with the surcharge either now or sometime during your term. And now, as it happens, a recent move by Sprint has upped the ante on this issue.

Along with the other carriers, Sprint does not yet appear to be passing along the USF contribution factor generally to its MPLS customers. But, in Sprint's standard contract form, they've slipped in a key statement discovered by LB3's regulatory attorneys. The statement reads as follows (with emphasis in italics added):

"If the Federal Communications Commission requires Sprint to contribute to the Universal Service Fund based on interstate revenues derived from services that Sprint in good faith has treated as exempt, including but not limited to, information services, Sprint will invoice Customer the CUSC for such Services beginning on the date established by the FCC as the date such Services became subject to USF contributions."

The service in question here -- the one that Sprint "in good faith" treated as exempt from USF consideration -- is clearly MPLS. And this statement apparently allows Sprint not only to start charging USF on MPLS when it determines it can get away with it competitively, but to back-charge customers based on when it considers the FCC to have (basically) mandated it. Clearly that could be the period of time when the FCC began noting MPLS as an example of a basic telecommunications service, and thus could include all of this year.

So even if you can't get a contractual promise never to charge USF on MPLS in the future, it looks like it's important to get agreement that the carrier will not apply it retroactively. The issue is not going to remain in this holding mode forever. It's an item that should remain near the top of your list for discussion.