Understanding the Federal USF Surcharge

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When shopping for networks, when you compare costs to what you are paying today, look and see if your bill displays a line item for the Federal USF, the Universal Service Fund.  The surcharge changes quarterly and as of this writing, is 17.4%.  Click here to see this quarter’s FCC USF Surcharge Rate.  If  you are not paying it now, the carrier has the right to back bill you for this surcharge.  So you need to be aware when you compare costs, that your real cost will be higher than you think.

The Federal USF Surcharge should be applied to everything:

  • Sale, lease, installation and servicing of equipment.
  • Local loops
  • Network backbone

This is not a tax.  The carrier passes through their charge to you as a surcharge.

Prior to 2008, MPLS networks were not subject to the USF.  But that has changed.  And some companies that have networks contracted before 2009, may never have seen this charge on their bill…though they are liable should they be back charged by the carrier.

Despite the millions, or tens of millions, of dollars that your enterprise may have paid out in USF surcharges over the years, the surcharge has never been federally mandated on you, as a business user. The government doesn’t make you liable for AT&T or Verizon’s quarterly USF expense, no matter how much the carriers leads you to think that’s the case.  But unless your contract specifically excludes your payment of this surcharge, you are obligated to pay it, even if years have passed without seeing it on your bill.

But does it really have to be that way? Here’s where things get a little interesting. Before the FCC’s latest move, carriers had been taking different approaches to including some form of USF charge on their MPLS invoices. Those carriers that had already imposed a USF pass-through for MPLS had not necessarily applied it to all of their MPLS services. For example, some imposed it on access charges but not port charges.  But all that has changed as of 2012 and the rules are exceedingly clear.

And the truth is, there have sometimes been “seams” into which customers have been able to place themselves in order to pay less in USF charges on data services. Right before MPLS became popular, many of the nation’s big companies were buying not pure frame relay, but a service called FRASI — Frame to ATM Service Interworking. AT&T in particular tended not to charge a USF pass-through on FRASI customers, more or less officially reasoning that since one end of each connection was ATM — which, unlike frame relay, was never ruled a “basic service” — it would not impose the charge. But the larger reason was that AT&T wanted to win big frame/ATM deals vs. rivals by charging less money, and that was a good thing.  But now AT&T must access the USF, because the rules are finally clear.

So surcharges can ultimately be part of your question. If you’re not in the process of doing a deal, and you are an MPLS customer, the (harsh) reality is that your costs are probably higher than you expected, because your carrier will be paying more and will want to get it back from you. The USF surcharge itself is also going up to 17.4% of applicable revenues on April 1 and the number changes every quarter.  As of Jan 2012, there is no escaping the USF Surcharge.  Do you want to learn more, visit this web site for all the details.

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