The FCC plans to prohibit the use of Universal Service Fund (“USF”) support to purchase equipment or services from foreign entities that it determines pose national security risks at its next meeting scheduled for November 19, 2019. As we previously reported, the ban may severely impact participants in all federal USF programs and involve a costly “rip and replace” process to remove foreign-made equipment from domestic telecommunications networks. The FCC also expects to move forward on its heavily-anticipated E911 vertical accuracy (i.e., z-axis) proceeding and adopt new requirements for wireless carriers to better identify caller locations in multi-story buildings. Rounding out the major actions, the FCC anticipates proposing new rules for suspending and debarring entities from participating in USF and other funding programs; removing longstanding unbundling and resale requirements for certain telecommunications services; and widening the contribution base for the Internet Protocol Captioned Telephone Service (“IP CTS”) to include intrastate revenues.

The draft items cover the gamut of telecommunications issues, affecting everything from the construction of next-generation 5G networks to legacy intercarrier competition rules, and should be closely watched. You will find more details on the most significant November FCC meeting items after the break:


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             Local resellers of AT&T ILEC services have sued AT&T over the treatment of promotions offered by AT&T ILECs to new retail customers. Budget Prepay v. AT&T, Inc., Civ. Action No. 3:09CV1494-P (U.S.N.D. Texas – Dallas). The resellers contend that AT&T must give its wholesale customers, like them, the full value of any promotions that AT&T provides to new AT&T retail customers. For example, if Southwestern Bell offers new retail customers a $100 credit to sign up for new local telephone service in Texas, the resellers argue that Southwestern Bell is required to give wholesale customers the same $100 promotion for each new local customer they put on AT&T’s network. AT&T rejects this claim and contends that it may give its wholesale customers a lesser promotional amount than its retail customers. This argument has festered for over two years and now has escalated into millions of dollars in dispute. Recently, it has bubbled over into federal district court lawsuits in Texas and North Carolina.  CGM, Inc. v. BellSouth, Civ. Action No. 3:09-CV-377 (W.D.N.C) (Full disclosure, the author is counsel to the reseller in the North Carolina case.)

        Wholesale prices for local resellers are set by the State public utility commissions following FCC guidelines. The approach mandated by law is a “costs avoided” analysis that starts with the retail price and then applies discounts for wholesale customers based on costs that the ILEC avoids in serving wholesale customers rather than retail customers. This reduction in price is expressed as a percentage discount from the retail price, and in most states falls in a 15-20 percent range. Thus, in a typical state, if the monthly cost of local telephone service from BellSouth is $40, the wholesale discount might be 20 percent, resulting in a wholesale price of $32. For the past two years, AT&T has taken the position that any promotions given to resellers should first be discounted by an amount equal to the percentage discount applicable to wholesale pricing in general. For example, in a state with a 20 percent wholesale discount, a retail promotion of $50 would result in a discounted promotional payment to resellers of only $40. It is this $10 difference that is in dispute in most cases.

            The disputes have been pending for more than two years, but were recently given impetus by a new AT&T policy. In Accessible Letters published in July and August, AT&T announced a new formula for calculating the promotional amounts to be paid to resellers starting September 1. (“Accessible Letters” are public announcements by which AT&T states new policies it intends to apply to wholesale arrangements.) The new formula itself is extremely complex, but the bottom line is that the typical wholesale promotional amount will stop being approximately 80 percent of the retail amount – and instead drop to about 15 percent.  


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