As USF Audits Mount, Providers Prepare

Financial, technological and regulatory shifts are putting more on the line than ever for the Universal Service Fund (USF). The subsidy's second-quarter 2010 contribution rate hit a new peak - 15.3 percent of end-user revenues, up from 14.1 percent in the first three months of the year. Plus, as more Americans dump their wireline connections, fewer people are shouldering the burden. On top of that, the FCC is proposing to reform the portion of the fund that supports expensive rural access; commissioners hope to expand the base to include broadband, subjecting more operators to reporting scrutiny. Those developments could make the USF administrator more keen than ever to make sure service providers aren't underpaying -- and that means more audits. The Universal Service Administrative Co., or USAC, conducts targeted and random investigations four times per year. In its annual report, USAC did not divulge the number of audits it conducted in 2009, and John Heitmann, a partner in Kelley Drye & Warren's telecom practice, said the amount remains unknown. But USAC audit activity is expected to heat up as record contribution rates and impending reform all put pressure on the more than $7 billion fund. Odds are that even some small CLECs will be asked to demonstrate that their USF numbers are credible. But there are ways to make the process easier.