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FCC: Cable VoIP to Pay USF Fees

Cable operators that provide voice-over-Internet-protocol phone service will be required to pay into the federal program that helps to maintain affordable phone service in rural America, also called the universal service fund, the Federal Communications Commission ruled Wednesday.

Many cable companies with VoIP service have been voluntarily paying into the $6.5 billion USF. But as a result of the commission’s ruling, cable-company contributions will be mandatory and the amount owed will likely be higher than current levels.

The FCC ruled that cable VoIP providers are to assume that 64.9% of their revenue is subject to USF assessment, which is based on interstate phone revenue. The amount owed to the USF is to equal 10.5% of eligible interstate revenue.

Generally, cable VoIP providers, such as Time Warner Cable, contribute to the USF the same way as wireless-phone carriers by assuming that interstate revenue is 28.5% of total VoIP revenue.

Under the FCC’s ruling, cable operators will end up paying about 6.8% of all VoIP revenue into the USF, according to Jessica Zufolo, an analyst with Medley Global Advisors. Cable-modem revenue is exempt from the USF.

Cable operators may pay less than 6.8% if calculations of their actual interstate revenue or traffic studies yield lower results than reliance on the agency’s percentage proxies.

“We appreciate the flexibility the [FCC] has provided for companies to conduct traffic studies to determine the amount of their revenues subject to USF assessment,” said Dan Brenner, senior vice president of law and regulatory policy at the National Cable & Telecommunications Association, in a prepared statement.

The FCC opted to extend USF mandates to interconnected VoIP providers and to raise wireless-carrier contribution levels to shore up funding for the program. In August, digital-subscriber-line providers no longer need to make USF payments, costing the USF an estimated $500 million in 2007 alone, Zufolo said.

FCC chairman Kevin Martin called the commission’s latest USF moves an interim step. He supports moving from a revenue-based model to one in which money is collected based on working telephone numbers -- a controversial proposal with low-volume phone customers.

“I think numbers is one that I’ve advocated publicly for quite some time as being one that I think would be a more stable means of collecting universal service and would be one that would be technology-neutral,” Martin told reporters after the vote at FCC headquarters.

FCC member Robert McDowell joined the agency June 1, giving Martin a 3-2 GOP majority for the first since taking command in March 2005. Martin would not predict when he would implement the numbers-based USF plan.

“I don’t know the exact time frame for it. But I think what we did today was an important interim step to continue to stabilize the fund and give us an opportunity to continue to debate until there is a majority ready to move forward,” he added.