Thoughtware

Article 10/25/2018

Effects of Budget Control Mechanism Relief on Telecommunications Carriers

Presenters/Authors
Topics
Telecommunications

On March 23, 2018, the Federal Communications Commission (FCC) issued Order FCC 18-29, which addressed several concerns with the Rate-of-Return Reform Order. Specifically, FCC 18-29 provides a one-time return of amounts withheld from legacy companies between July 2017 and June 2018 due to a funding shortfall caused by implementing the budget control mechanism (BCM). But the Order’s reasoning for this is important as well.

The FCC largely agreed with National Telecommunications Cooperative Association’s (NTCA) concerns on whether the Universal Service Fund (USF) budget affects carriers’ ability to sufficiently provide broadband services at reasonably comparable rates. In addition, the FCC recognized that the 2017–2018 USF funding year impact—an approximately 13 percent reduction in support to legacy companies—was greater than initially predicted. Finally, the FCC recognized that different states, and even different companies within the same states, could have drastically different percentage reductions, making USF support “not sufficiently predictable.” In the Order the FCC directed Universal Service Administrative Company (USAC) to calculate the amounts withheld in the 2017–2018 USF funding year and make distributions to fully fund legacy companies in the fourth quarter of 2018. NTCA also argued for the FCC to immediately review the overall size of USF funding, but the FCC put this issue out for further comments.

Initially, due to the complicated cycle for Connect America Fund-Broadband Loop Support (CAF-BLS) payments, there was concern that payments of withheld BCM funding related to CAF-BLS funding wouldn’t come until 2019 or 2020. However, USAC has devised a methodology to pay refunds and then true-up those refunds in 2019 and 2020. Therefore, it’s important to note that companies could have significant repayments in 2019 or 2020 should their initial CAF-BLS forecasts be materially different than their final true-up amounts.

USAC has advised the National Exchange Carrier Association (NECA) that it anticipates making the lump-sum refund of the 2017–2018 BCM funding withheld, with October support paid at the end of November 2018. If you’re a NECA pool participant, NECA has already provided you with the lump-sum refund amount. If you aren’t a NECA pool participant there’s a way to accurately estimate the amount of the lump-sum payment your company will receive so you can plan for this additional cash flow.

The additional cash flow is a welcome sight for all, but carriers should reach out to their financial advisors to make sure they’re considering that additional revenue when looking at tax estimate payments and year-end estimated tax liabilities. Carriers also will want to make sure they properly account for the additional revenue in accordance with 47 CFR Part 32, Uniform System of Accounts for Telecommunications Companies, rules.

To find out your company’s 2017–2018 BCM refund amount, contact Jamie or your trusted BKD advisor or use USAC’s detailed payment data tool. For more information on how the 2017–2018 BCM refund will affect your company’s income statement, TIER ratios or income tax situation, contact Jessica or your trusted BKD advisor.