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DC01/WITHD/232623.1 1 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service ) ) 1998 Biennial Regulatory Review - ) CC Docket No. 98-171 Streamlined Contributor Reporting ) Telecommunications Relay Service, North ) American Numbering Plan, Local Number ) Portability, and Universal Service Support ) Mechanisms ) ) Changes to the Board of Directors of the ) CC Docket No. 97-21 National Exchange Carrier Associations, Inc. ) __________________________________________) COMMENTS OF ALLIANCE GROUP SERVICES, INC. IN SUPPORT OF RECONSIDERATION OR REVIEW Alliance Group Services, Inc. (hereinafter, ?Alliance?), through its undersigned counsel, and pursuant to the Federal Communications Commission?s (?Commission?) Public Notice of March 16, 20051 hereby submits Comments in support of three Applications for Review of the Bureau?s Form 499-A Order, 2 filed by Business Discount Plan, Inc. (?BDP?), Qwest Communications International (?Qwest?), and SBC Communications (?SBC?),. These 1 Parties are Invited to Comment on Applications for Review and Petition for Reconsideration of Order Revising Instructions for Form 499-A, Public Notice, DA 05-691, released March 16, 2005. 2 Federal-State Joint Board on Universal Service; 1998 Biennial Regulatory Review ? Streaamlined Contributor Reporting Requirements Associated with Administration of Telecommunications Relay Service, North American Numbering Plan, Local Number Portability, and Universal Service Support Mechanisms; Changes to the Board of Directors of the National Exchange Carrier Associations, Inc., Order, CC Docket Nos. 96-45, 98-171, 97-21, DA 04-3669 (rel.. Dec. 9, 2004) (?Form 499-A Order?). DC01/WITHD/232623.1 2 comments are also submitted in support, in the alternative, of Sprint Corporation?s (?Sprint?) Petition for Reconsideration of the Form 499-A Order (collectively, ?Petitioners?). I. BACKGROUND: ALLIANCE?S ATTEMPT TO FILE CORRECTED FORM 499-As FOR 2000 AND 2001 By way of background, on October 30, 2001, Alliance submitted to the Commission and USAC an Appeal of USAC?s decision rejecting a 499 submitted by Alliance for the reporting year 2000 (for revenues generated in 1999).3 Many of the issues raised by the Petitioners are similarly addressed in Alliance?s January 10, 2005 Request for Further Review and Submission of Supplemental Information.4 By these instant comments, Alliance reiterates and incorporates by reference the critical points of information contained in the Company?s initial Appeal, its Request for Review, and appends a copy of each to this submission as Attachment A and Attachment B, respectively. By way of background, Alliance and another company, US Republic, a subsidiary of VarTec Telecom Holding Company ("VarTec"), entered into an Asset Purchase Agreement (?Agreement?) on December 23, 1999 (?Transfer Date?). Central to this purchase were the terms of the Agreement which limited the sale to US Republic?s customer list and did not include actual stock, facilities, or equipment. Nevertheless, USAC billed Alliance for USF obligations, beginning on September 22, 2000, based upon the 2000 Form 499A revenues reported by VarTec on behalf of its 3 Appeal of Decision of the Universal Service Administrative Company Concerning Alliance Revision to Form 499-A, filed October 30, 2001 (?Appeal?). Alliance filed its 2000 Form 499-A in April of 2001. 4 See January 10, 2005 Request for Further Review and Submission of Supplemental Information, from Brad E. Mutschelknaus and Darius B. Withers, Counsel to Alliance Group Services, Inc. to Jeffrey A. Mitchell, Associate General Counsel, Universal Service Administrative Company (?Request for Review?). DC01/WITHD/232623.1 3 subsidiary, U.S. Republic. Thereafter, on October 22, November 22 and December 22, 2000, USAC billed Alliance for the remainder of what would have been US Republic?s USF obligation based on that company?s 1999 revenues (as reported in the April 2000 499A), a total of approximately $763,717.56. Most important, however, is the basis by which USAC made this change in its invoicing to Alliance. As determined in subsequent communications with USAC, USAC adheres to a theory that Alliance, as the purchaser of US Republic?s revenues in 1999, bears the responsibility for information and revenues reported on the earlier filed 499A. According to USAC, Alliance may not, therefore, submit a revised 499A form beyond the one-year revision deadline. Alliance disagrees strongly with USAC?s interpretation of its legal and regulatory authority for the reasons outlined in its Appeal, its Request for Review, and in the Petitioners? Applications for Review and Request for Reconsideration. II. PETITIONERS CORRECTLY IDENTIFY THAT THE STANDARDS FOR REVIEW OF AN AMENDED FORM 499-As AS ADOPTED IN THE FORM 499-A ORDER ARE PROCEDURALLY AND SUBSTANTIVELY DEFICIENT The Applications filed by SBC, Qwest and BDP, and the Sprint Petition, challenge several conclusions contained in Form 499-A Order: (1) the one-year statute of limitations that the Order imposes prospectively on Form 499-A revisions that reduce a carrier?s USF payment obligation; (2) the ?one-way ratchet? policy that limits a carrier?s ability to amend its filings to achieve reductions in its USF obligation, but that provide no limits on upward revisions to that obligation; and (3) the imposition of a ?good cause? test for acceptance of revised Form 499-As for years preceding 2005. DC01/WITHD/232623.1 4 The applicants are correct in their conclusions that the Form 499-A Order is flawed, both as a procedural matter and on substantive grounds. Furthermore, as is proposed by the Petitioners, these deficiencies require its rescission and withdrawal. Specifically, all parties correctly conclude that the Form 499-A Order is not merely a procedural order, but effects substantive rule changes, which violates the Administrative Procedure Act, and exceeds the Wireline Competition Bureau?s range of authority. (BDP at 12-21; Qwest at 3-7; SBC at 7-10). The parties also properly assert that the substantive rule changes are inconsistent with Sections 254 and other provisions of the Communications Act and prior Commission orders. (Qwest at 8- 9; BDP at 5) All parties note that the disparate treatment of amended filings that reduce vs. increase USF payments is arbitrary and capricious and constitutes bad policy. (SBC at 11-12; Qwest at 9-10; BDP at 20-21; Sprint at 1-4) SBC correctly notes that the ?good cause? test adopted in the Order for retroactive amendments prior to 2005 is beyond the scope of the Wireline Competition Bureau?s authority and inconsistent with Commission orders and the existing Form 499-A instructions. (SBC at 12 n. 36) For all the foregoing reasons, rescission and withdrawal of the Form 499-A Order is mandated by law and policy. These arguments reflect Alliance?s arguments that USAC?s refusal to accept Alliance?s revised filings for 2000 and 2001, using standards codified subsequently in the Form 499-A Order, lead to a gross overstatement of Alliance?s USF obligation and constitute double recovery of USF payments. Alliance agrees with SBC, Qwest, BDP and Sprint that the procedural and substantive deficiencies of the Form 499-A Order ? and in USAC?s refusal to accept Alliance?s revised Form 499-As for 2000 and 2001 ? compel the rescission and withdrawal of the Order, and the acceptance of the revised forms submitted by Alliance and the other parties. DC01/WITHD/232623.1 5 III. SUMMARY AND CONCLUSION For the reasons described herein, Alliance respectfully requests that the Commission rescind the Form 499-A Order and subsequently instruct USAC to accept and process revised Form 499-As, pursuant to the existing Form instructions, beyond a one-year limitation period. Respectfully submitted, By: /s/ Darius B. Withers /s/ Brad E. Mutschelknaus Darius B. Withers KELLEY DRYE & WARREN, LLP 1200 19th Street, N.W., Suite 500 Washington, D.C. 20036-2423 202/ 955-9600 (voice) 202/ 955-9792 (facsimile) dwithers@kelleydrye.com Dated: March 30, 2005 CC Docket Nos.: 96-45 98-171 97-121 ATTACHMENTS TO: Alliance Group Services, Inc.'s Comments in Support ofReconsideration or Review of The FCC's Form 499-A Order Attachment A: Alliance Appeal ofUSAC Decision, 10/30/2001 (wlo confidential andproprietary materials) Attachment B: Alliance Request for Review and Submission ofSupplemental Information, 1/10/2005 ATTACHMENT A EARLY, LENNON, CROCKER & BARTOSIEWICZ, P.L.C. ATTORNEYS AT LAW JOSEPH J. BURGlE nI28-1"2. ~FILE COPy R ":'r"~~'!-Do~ tc...\-,,-~j t:. VINCENT T. EARLY THOMPSON BENNETT JOHN T. PETERS. JR. OCT 3 12001 FCC MAIL RUOM 900 COMERlcA BUILDING KALAMAZOO. MICHIGAN 49007-4752 TELEPHONE (616) 381-8844 FAX (616) 349-8525 ROBERT M. TAYLOR RON W. KIMBREL PATRICK D. CROCKER ANDREW J. VORBRICH TYREN R. CUDNEY WIUIAM B. JOHNSON STEVEN M. BROWN KRISTEN L. GETTING GEORGE H. LENNON DAVID G. CROCKER MICHAEL D. O'CONNOR HAROLD E. FISCHER. JR. LAWRENCE M. BRENTON GORDON C. MILLER GARY P. BARTOSIEWICZ BLAKE O. CROCKER October 29,2001 Via Federal Express Federal Communications Commission 9300 East Hampton Drive Capitol Heights, MD 20743 Dear SirlMadam: Enclosed for filing is our original Petition for Review filed on behalf ofAlliance Group Services, Inc. I have enclosed an additional four copies ofthe Petition, together with Exhibits and a Certificate ofService. Please contact the undersigned with any questions. Yours truly, EARLY, LENNON, CROCKER & BARTOS!E..WICZ, P.L.C. -':? .. - . . :.--/-'.~_.. .fj<,-I".?~ ,,:::',. / Lawrence M. Brenton tjr Enclosures h:..l. of C;)pies roc'd O+Jf '~}CDE -------_..- ..--_...- Request for Review by Alliance Group Services, Inc., ofDecision ofUniversal Service Administrator ) ) ) Docket Nos. 96-45 and 97-21 ) ) ) Before the f:/~C.r::1 FEDERAL COMMUNICATIONS COMMISSION lb' -. '.I/~D Washington, D.C. 20554 Pee J 1<oa MAIL b " tiOO MIn the Matter of To: The Commission PETITION FOR REVIEW ALLIANCE GROUP SERVICES, INC. David G. Crocker Lawrence M. Brenton EARLY, LENNON, CROCKER & BARTOSIEWICZ, P.L.C. 900 Cornerica Building Kalamazoo, MI 49007 (616) 381-8844 Its Counsel October 29, 2001 - ..__ . -- - ------_.. - .._----- -------- TABLE OF CONTENTS SUMMARY i I. INTRODUCTION 1 II. SUMMARY OF FACTS AND ARGUMENT 2 III. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 _..._--_ ..-.. -._.--_.. _._-----_._--- SUMMARY Alliance Group Services, Inc. ("Alliance Group") seeks review ofa DecisionoftheUniversal Service Administrator issued October 1,2001. The Administrator has taken the following actions to which Alliance Group objects and petitions for review: A. Refused to accept Alliance Group's year 2000 FCC fonn 499-A, thereby refusing to assess universal support mechanism charges to Alliance Group based on Alliance Group's actual 1999 end user revenues as required by law; B. Accepted for filing U. S. Republic Communications, Inc.'s year2000 FCC fonn 499 filings, whether filed timely or not, reporting U. S. Republic's 1999 end user revenue and, at U.S. Republic's request; C. TransferredandreallocatedtoAlliance Groupall universal supportmechanism charges arising from U.S. Republic's 1999 end user revenues. Alliance Group maintains that the above actions were mistaken, unlawful, arbitrary, unreasonable, done in violation ofAlliance Group's rights to due process and were entirely outside the authority delegated to the Administrator's staffor Board. Through oversight, Alliance Group did not file its own year 2000 FCC fonn 499-A, reporting its 1999 end user revenues by April 1, 2000. It attempted to make such a filing in April 2001. This filing was rejected bythe Administratorfor the statedreasonthatithadbeen submitted morethanone year after the date ofthe original filing. As there had not been an original filing, Alliance Group submitted a Letter ofAppeal and a 499-A fonn identified as an original filing. This 499-A has now been rejected on the basis that the Administrator can refuse to accept a revised filing more than one year after the original filing Q! more than one year after the date when the original filing was due. The Administrator does not have the authority to choose to reject an original 499-A filing. It can cause an audit or investigate the filing ifit does not believe or agree withthe numbers reported but it does not have the unbridled authority to reject filings as it has done in this case, to choose to accept a 499-Afiling submitted by a different carrier, and decideto allocate all the resulting universal service support mechanism charges to Alliance Group. The Administrator assessed charges based onits interpretationofthe terms ofan asset purchase agreement between U. S. Republic and Alliance Group. The Administratordoes nothavethe authorityto interpretand construe purchaseagreements, without factual investigation, at the stafflevel, in secrecy, and without notice or an opportunity to be heard. The rejected 499-A filing by Alliance Group reported Alliance Group's revenues for 1999 in the amount of$427,463.00. The resulting universal service support mechanismcharges are owed in any case. However, the Administrator prefers to accept the 499-A form filed by U. S. Republic disclosing U. S. Republic's 1999 revenues ofmore than $13,000,000.00 which, taken together with the Administrator'sconstructionofthecontractbetweenthe parties, resultsincharges 0[$763,717.56 to Alliance Group. The reallocation ofcharges from U. S. Republic to Alliance Group occurred in secrecy, sometime in June or July ofthe year 2000, through means unknown to Alliance Group. After some type of communication with sources other than Alliance Group and review of the purchase agreement, the Administrator issued a series ofnew and confusing charges and credits to Alliance Group which initially, in September of 2000, made it appear that Alliance Group owed virtuallynothing. Throughadditional accelerated charges overthe lastthree monthsofthe year2000 and laterrevocationofcredits, the amount chargedto Alliance Group overthelastfour monthsofthe year 2000 became $763,717.56. Alliance Groupprotests these actions, asks thatits year 2000 499-A be accepted for filing and that the charges wrongly allocated to it by the Administrator and related late charges be reversed. ii Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Request for Review by Alliance Group Services, Inc., ofDecision ofUniversal Service Administrator To: The Commission ) ) ) ) ) ) Docket Nos. 96-45 and 97-21 PETITION FOR REVIEW Alliance Group Services, Inc. ("Alliance Group"), by its counsel, hereby requests that the Commission review de novo the attached Decision (Exhibit D) of the Universal Service Administrative Company ("USAC") pursuant to 47 C.F.R. § 54.719 and 47 C.F.R. §S4.723. I. INTRODUCTION Alliance Group seeks review ofthe Decision ofthe Administrator, USAC, which a) rejects and refuses to accept for filing Alliance Group's year 2000 FCC Form 499-A; b) adopts, by means of construction and interpretation ofa Purchase and Sale Agreement U. S. Republic's ex-parte request or instruction to charge all universal service support mechanism charges based on U. S. Republic's 1999 revenues to Alliance Group; and c) imposes a completely unexplained and erroneous series of universal service support mechanism charges upon Alliance Group by means oflate, confusing and conflicting invoices, temporary credits and other as yet unaccounted for and unexplainable adjustments and account transactions. 1 D. SUMMARY OF FACfS AND ARGUMENT Alliance Group Services, Inc. ("Alliance Group") is a telecommunications carrier providing interexchange services in numerous states. Because it conducted operations in 1999 generating interstate end user telecommunications revenues, it should have filed a year 2000 FCC Form 499-A in April of2000. Due to clerical error, Alliance Group filed its first 499 Form (FCC Form 499-S) in September of2000. It attempted to file its 2000 FCC Form 499-A on April 13, 2001. This Form was identified at line 609 as a "Revised filing". A copy ofthis Form 499-A is attached as ExhibitA. By letter dated June 7, 2001, the Universal Service Administrative Company (the "Administrator") rejected the Form 499-A, stating in relevant part that "We are unable to accept the revision because it was not filed within one yearofthe original submission". The June 7, 2001 letter from the Administrator is attached as Exhibit B. On July 2,2001, Alliance Group submitted its Letter ofAppeal to the Administrator. A copy of the letterofappeal with attachments is attached as Exhibit C. Inits LetterofAppeal, Alliance Group submitted that its 2000 Form 499-A report should be accepted for filing notwithstanding the fact that it was late filed. As Alliance Group had not initially filed a 2000 Form 499-A, the Letter ofAppeal also included an additional, original 2000 Form 499-A identified "Originalfiling" and containingthe same information as the previously rejected filing. The Letter of Appeal also spoke to the fact that the Administrator was, evidently, using its arbitrary rejection of Alliance Group's 2000 Form 499-A as the pretext for mistakenly and unjustifiably invoicing Alliance Group for grossly overstated universal service support mechanism charges. As discussed below, these charges were calculated and reallocated to Alliance Group by a process never explained by the Administrator. They obviously derive from reported 1999 revenues 2 associated with u. S. Republic Communications, Inc. ("U. S. Republic"), a Texas Corporation wholly owned by Vartec Telecom Holding Company, a Delaware Corporation. In response to the Letter of Appeal, the Administrator on October 1, 2001 issued its "Administrator's Decision on Contributor Appeal", attached as Exhibit D. On the question ofits willingness to accept for filing any Alliance Group 2000 FCC Form 499-A, the Administrator now invoked the apparently unwritten rule that a filing will not be accepted ifsubmitted more than one year after the date ofthe initial filing m: the date when the initial filing was due. This decision, apparently unsupported by any authority beyond the Administrator's own arbitrary preferences, would forever preclude Alliance Group or other contributors from filing a 499-A report of 1999 interstate end user telecommunications revenues after April 1, 2000, whether an initial filing was made or not. (Such a rule, if it existed, would prevent a contributor from ever filing a revision reporting increased 1999end user revenues ornewly reporting revenues. Itseemsextremelydoubtful that the Administrator would, in fact, be compelled by rule to refuse to accept any such late filing. Ifthere were in fact such a rule, no contributor would even be able to supplement its previous filing with increased numbers and pay the resulting additional contributions). The Administratorhas exceeded its authority by arbitrarily rejecting Alliance Group's year 2000 499-A, by electing to adopt U. S. Republic's 2000 499-A and by adopting or applying unadopted rules to interpret and construe a purchase and sale Agreement between private parties. The Administrator is not authorized to engage in rule making or interpretation ofthe type done here. 47 C.F.R §54.702(C). In the Decision (Exhibit D), the Administrator states that, in fact, Universal Service Support Mechanism charges to Alliance Group inyear 2000 were "based onU. S. Republic's FCC Form499 A submitted in September 2000". The Administrator has declined to provide Alliance Group with 3 a copy ofU. S. Republic's September 2000 Form 499-A or other information. Obviously iffiled in September of20oo, the 499 reportthe Administrator chose to accept wasfiled well past the due date. Nevertheless, the Administrator has mistakenly chosen to adopt U. S. Republic's report and transfer all resulting charges to Alliance Group. Alliance Group acquired some but not all assets ofU. S. Republic under a Purchase and Sale Agreement dated December 23, 1999 (Exhibit E). As Alliance Group pointed out in its Letter of Appeal dated July 2, 2001, U. S. Republic continued in existence until at least March 22,2001. (Exhibit F). On information and belief, U. S. Republic continued inoperation after completion ofits transaction with Alliance Group at least throughout calendar year 2000 and continued to serve a portion of the customer base that had generated 1999 revenues. The Administrator billed U. S. Republic on a monthly basis for Universal Service Support Mechanism charges until June of2000 and was paid in whole or in part. (Exhibit H). As shown bythe June invoiceto U. S. Republic, these charges from the Administrator were paid by U. S. Republic until June. The Administrator has declined to furnish any ofthis information to Alliance Group, taking the position that all the account information ofU. S. Republic is confidential. In August of 2000, U. S. Republic sent Alliance Group invoices and a demand that it be reimbursed for some payment. (Exhibit G). Through means unknown to Alliance Group, U. S. Republic apparently also persuaded staff at the Administrator to issue credits for all year 2000 invoices to the U. S. Republic account and to charge Alliance Group, over the last four months of calendar year 2000, over $763,717.56 in universal service support mechanism charges, late charges and other charges. (Exhibit H). This reallocation ofcharges from U. S. Republic to Alliance Group occurredvirtually withoutthe participation ofAlliance Group and, it appears, by means ofex-parte communications by U. S. 4 Republic to the Administrator. Lori Terraciano of USAC has stated to counsel for the Alliance Group that she reviewed the Purchase and Sale Agreement ofDecember 23, 1999, that it was her interpretation ofthe Purchase and Sale Agreement that invoices issued in calendar year 2000 were to be paid by Alliance Group and that ifthe terms ofthe Purchase and Sale Agreement had been drafted differently, she might have reached the opposite conclusion. (Exhibit 1). When asked by whatauthority staffwasreviewingthe Purchaseand Sale Agreementandmaking suchdeterminations in virtual secrecy, stafffurnished Alliance Group's counsel with a copy ofa staffproposal which it represented had been circulated and approved at a meeting of the Board of Directors of the Administrator in January 2000. A copy ofthis staffpaper and the minutes ofthe relevant Board meeting are attached as Exhibit I. Whether the staffproposal was, in fact, identical to one circulated at the Administrator's Board meeting is doubtful and whether the Board has the authority to adopt suchgeneral rules isextremely doubtful. As described inthe DeclarationofAllianceGroup'scounsel filed herewith (Exhibit 1), the actual minutes ofthe Board meeting do not specifically incorporate staff's recommended guidelines. This decision was implemented by the Administrator issuing an extremely confusing series of credits and charges starting inJuly of2oo0. Itappeared from the combination ofcredits and charges in September that Alliance Group's liability was virtually zero but by loading in accelerated charges over the last four months of the year 2000 and by taking away credits, the net result was the imposition of$763,717.56 in charges to Alliance Group, together withy substantial late payment penalties. The Board does not have authority to adopt such rules and policies. Itdoes not appear that the Board itselfactually participated in any part ofthis process and instead, staffhas undertaken to take all ofthe described actions. Certainly, staffdoes not have authority to secretly construe agreements 5 and adjust accounts. Ifeither staffor the Board had authority to take these actions, neither would be entitled to do so in secrecy. The Purchase and Sale Agreement ofDecember 23, 1999 in fact does not provide that invoices during calendar year 2000 based on U. S. Republic's 1999 revenues were to be paid by Alliance Group. (In its letter, Exhibit G, U. S. Republic's parent asserted to Alliance Group that the December 1999 invoice and all subsequent invoices which it had been receiving for a nwnber ofmonths were payable by Alliance Group). In fact, the December, 1999 invoice to U. S. Republic was based on U. S. Republic's year 1999 499-A filed the previous April. USAC invoices during the first half of calendar year 2000 were based on U. S. Republic's 499-S presumably filed in September of1999 and reporting U. S. Republic revenues for the first six months of1999. USAC invoices to U. S. Republic for all ofcalendar year 2000 would have been based on U. S. Republic's year 2000 499-A, reporting revenues for calendar year 1999. Alliance Group did not, in fact, generate or receive any interstate or international end user telecommunications revenues in respect ofany part ofthe U. S. Republic customer base in 1999. U. S. Republic should have (and probably did) file its 499-A in April of2000, completing its report of its end user revenues in 1999, which then generated USAC invoice billings during calendar year 2000 to U. S. Republic. If, as claimed by U. S. Republic inExhibit 0,Alliance Group was to pay USAC invoices received by U. S. Republic in December 1999 and thereafter, the Purchase and Sale Agreement could have plainly said so. Had Alliance Group generated end user revenues in 1999 in respect ofU. S. Republic customers, which it did not, Alliance Group might have been obligated to pay a fraction ofU. S. Republic's USAC invoices in calendar year 2000. Alliance Group did not generate any end user revenues from the former U. S. Republic customer base until calendar year 2000 which it duly 6 reported on its 499-S in September of2000 and which, under the practice at that time, resulted in USAC invoices in the first halfofcalendar year 2001. (The procedure has now changed so that the September 2000 499-S resulted inUSAC invoices during the first quarter of2001. The 2001 499-A resulted in invoices during the second quarter of2001 and subsequent quarterly 499 reports result in monthly USAC invoices for quarterly periods). 01. CONCLUSION On de novo review, Petitioner requests that the Commission direct the Administrator to accept Alliance Group's year 2000 499-A for filing. Petitioner requests that the Administrator be directed to reverse and credit the charges including late charges and penalties assessed againstAlliance Group based on U. S. Republic's 2000 499-A filing or other filings and the Administrator's interpretation ofthe purchase and sale agreement between U. S. Republic and Alliance Group. Respectfully submitted, ALLIANCE GROUP SERVICES, INC. 2? -/.-7/'/ ___ /--2;-'~ BY:.--:::~:::"-'-'--""":~::;;;;,;,,...·,,;::,,,~:-~''~~~/~_:=...(..~L..:...'"'-.;....:=::.-__ David G. Crocker Lawrence M. Brenton EARLY, LENNON, CROCKER& BARTOSIEWICZ, P.L.C. 900 Comerica Building Kalamazoo, Michigan 49007 (616) 381-8844 Its Counsel October 29,2001 7 .cERTIFICATE OF SEB.YICE I, Teresa 1. Rayman, hereby certify that the foregoing "Petition for Review" was served this2~ day ofOctober. 2001, by depositing a true copy thereofwith the United States Postal Service, first class postage prepaid,addressed to: D. Scott Barash, Esq. Vice President & General Counsel Universal Service Administrative Company Suite 600 2120 L Street. NW Washington, D.C. 20037 ~~ Teresa J. Rayman ---------- ------------------- Exhibit A Exhibit B Exhibit C ExhibitD ExhibitE ExhibitF Exhibit G ExhibitH Exhibit I Exhibit J Exhibit K LIST or EXHIBITS - Alliance Group's 2000 FCC Form 499-A - Administrator's Letter - June 7, 2001 - Alliance Group's Letter ofAppeal - July 2, 2001 - Administrator's Decision on Contributor Appeal - October 1,2001 - Purchase and Sale Agreement - December 23, 1999 - U. S. Republic Corporate Records - VarTec Letter ofAugust 28,2001 with enclosures - USAC Invoices - USAC staffrecommendations/Board action - January 25, 2000 - Declaration ofLawrence M. Brenton - Declaration ofMichael W. Mallon -----._-_._----_. ATTACHMENT B KELLEY DRYE & WARREN LLP A LIMITED LIABILITY PARTNERSHIP NEW YORK, NY TYSONS CORNER, VA CHICAGO, IL STAMFORD, CT PARSIPPANY, NJ BRUSSELS, BELGIUM AFFILIATE OFFiCES JAKARTA, INDONESIA MUMBAI, INDIA VIA HAND DELIVERY 1200 19TH STREET, N.W. SUITE 500 WASHINGTON, D.C. 20036 (202) 955-9600 January 10,2005 FACSIMILE (202) 955-9792 www.kelleydrye.com DIRECT LINE: (202) 955·9774 EMAIL: dwithers@kelleydrye.com ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. Associate General Counsel Universal Service Administrative Company 2000 L Street, N.W., Suite 200 Washington D.C. 20036 Re: Form 499-A Revision Order; In the Matter ofa Request for Review By Alliance Group Services ofA Decision of the Universal Service Administrator; CC Docket No. 96-45, CC Docket No. 97-21 Request for Further Review, and Submission ofSupplemental Information Dear Mr. Mitchell: On behalfofAlliance Group Services, Inc. ("Alliance" or "the Company") , we hereby submit supplemental information to the Universal Service Administrative Company ("USAC") pursuant to an Order ofthe Federal Communications Commission ("FCC" or "Commission") released on December 9, 2004 (the "499 Revision Order").! This submission is made in further support ofAlliance's Appeal ofthe decision of USAC regarding a revised 499-A filing ("Appeal"). As is summarized herein, Alliance believes that the central issue in its Appeal is not simply whether good cause exists for USAC to accept its In the Matter ofFederal-State Joint Board on Universal Service, 1998 Biennial Regulatory Review, Changes to the Board ofDirectors ofthe National Exchange Carrier Associations, Inc., CC Docket Nos. 96-45,98-171,97-21, DA 04-3669 (reI. December 9,2004) ("499 Revision Order"). DCO IIWITHD/230468.\ KELLEY DRYE & WARREN LLP ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10, 2005 Page Two revised filing beyond the one-year revision deadline, although the facts in the Company's pending Appeal illustrate the necessary good cause. Rather, the central issue ofAlliance's Appeal is whether as the purchaser ofassets ofanother carrier, Alliance should be held liable for the universal service obligations ofa seller company, when the seller continues to operate and the asset purchase agreement between the companies does not provide for the assumption ofsuch liabilities. Alliance disagrees strenuously with USAC's interpretation that Alliance is liable for the revenue obligations ofUS Republic Communications, Inc. ("US Republic"). At bottom, Alliance believes that the nature ofits Appeal is best resolved by addressing this issue squarely, whether before USAC or the FCC. I. THE 499 REVISIONORDER REQUIRES USAC TO REVIEW REQUESTS TO ACCEPT AMENDED FORM 499-As The Commission released its Order concerning a modification in the deadline for filing revisions to the Telecommunications Worksheet ("Form 499-A") on December 9,2004 and it becomes effective on January 11, 2005. The Order expressly considered the USAC practice ofrejecting Form 499-As not submitted within one year ofthe due date ofthe original filing, ifthe revision would decrease regulatory fees or contributions to the Universal Service Fund ("USF"). The Commission decided to uphold the general USAC practice by adopting the one-year filing deadline on a prospective basis, applying a strict filing requirement to all 499 filings made after the effective date ofthe Order. The Commission, nevertheless, acknowledged numerous pending petitions for review ofUSAC's policy which were filed before the issuance of the 499-A Revision Order. With regard to the pending requests, the Order instructs USAC to review these pending petitions, and to consider any new information filed up through the effective date ofthe Order. Specifically, the Order announces that the Commission will "remand these requests to USAC and direct USAC to revise universal service contribution obligations as appropriate provided that (1) the Petitioner has demonstrated good cause for submitting the revision beyond the one-year revision window; and (2) the Petitioner has provided an explanation ofthe cause for the change along with complete documentation showing how the revised figures derive from corporate financial records." Finally, the Order requires USAC to give consideration to the pending petitions in strict compliance with the limited remand described by the Commission. The Order notes that to the extent a petition raises issues other than the acceptance ofthe revision ofa 499-A, the Commission retains these issues for disposition at another time by the Wireline Competition DCOIIWITHD/230468.1 KELLEY DRYE & WARREN LLP ATTN: Fonn 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10,2005 Page Three Bureau or the Commission. In this case, one such is the issue ofwhether Alliance must contribute certain funds to the USF ifanother carrier collected and subsequently remitted those same funds to the USF. In the 499 Revision Order, the Commission "grant[ed] the pending requests for review" and directed USAC "to consider ifthere was good cause to allow revisions" of Alliance's 499 fonns beyond the one-year deadline? In so stating, the Commission directed USAC to consider fully the substantive arguments and evidence submitted by carriers petitioning for acceptance oftheir revised fonns. Thus, pursuant to the 499-A Revision Order, we submit this further request for review by USAC and ifnecessary, by the Commission at some later date. As is discussed in detail in the following section, on October 30,2001, Alliance submitted to the Commission and USAC, a request for review ofUSAC's decision rejecting a 499 submitted by Alliance for the reporting year 2000 (for revenues generated in 1999).3 By this supplemental submission, Alliance reiterates and incorporates by reference the critical points ofinfonnation contained in the Company's initial Appeal, and appends a copy ofthe Appeal to this filing as AttachmentA. The infonnation in the initial petition, standing alone, provides justification for USAC to accept Alliance's revised 499-A. Nonetheless, as the Commission offered in the 499-A Revision Order, Alliance also submits a new point ofinfonnation for consideration ofits request to accept the revised 499s-As. Taken together, these submissions present a compelling case for granting Alliance's request to accept the revised filings. II. THE PROCEDURAL ISSUE IN DISPUTE: WHETHER USAC SHOULD ACCEPT ALLIANCE'S REVISED 499-A FOR 2000 The specific circumstances ofAlliance's corporate history, and its prior communications with USAC are outlined in the pending Appeal. Nevertheless, it is important to consider the chronology ofevents regarding Alliance's purchase ofassets from US Republic and the history ofits filing efforts before USAC. 2 3 See 499 Revision Order at~13. Appeal ofDecision ofthe Universal Service Administrative Company Concerning Alliance Revision to Form 499-A, filed October 30, 2001 ("Alliance Appeal" or "Appeal "). Alliance filed its 2000 Form 499-A in April of2001. DCO IfWITHD/230468.1 KELLEY DRYE & WARREN LLP ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10, 2005 Page Four Background and Acquisition History ofAlliance Alliance and US Republic, a subsidiary ofVarTec Telecom Holding Company ("VarTec"), entered into an Asset Purchase Agreement ("Agreement") on December 23, 1999 ("Transfer Date"). Among other things, the Agreement provided that the sale ofassets occurred on December 23, 1999. As described in the Agreement, the assets at issue consisted ofthe long distance customer base ofUS Republic, as well as associated vendor agreements and trade names. As is further described in the Appeal, the Agreement involved solely the sale ofUS Republic's customer list and did not include actual stock, facilities, or equipment. Ofparticular importance are the terms ofthe Agreement with regard to regulatory fees. With respect to USF charges, the Agreement specifies only that Alliance is to reimburse US Republic for USF fees and charges relating to the December 1999 billing cycle. The Agreement states further that US Republic has complied with FCC laws and will remain responsible for any acts, actions or violations ofsuch laws involving the long distance customer assets that arose prior to the transfer date. The Agreement assumes that US Republic will continue to exist, as it obligates both US Republic and VarTec not to knowingly solicit, or "winback" those customers identified in the customer list sold to Alliance for a three (3) year period following the closing ofthe sale. 4 Alliance's "Revised" Filing Efforts On March 31,2000, VarTec filed a 2000 Form 499A on behalfofUS Republic, its subsidiary and selling party to the Asset Purchase Agreement. The 2000 Form 499A for US Republic reported US Republic's 1999 USF contribution base (e.g. interstate and international end user) revenues as $ 13,597,124.00 for 1999. USAC considers this filing to serve as the "original" filing attributable to Alliance's revenue base. Subsequently, Alliance filed a 2000 Form 499A (for its 1999 revenues) in April 2001, which USAC rejected for being submitted more than one year after the due date ofthe "original" Form. This filing included Alliance's end user revenues in 1999 and did not include any revenues associated with the acquisition ofUS Republic's long distance customer base. USAC considers this April 2001 filing to be a "revised" filing for Alliance's revenues. This filing reports Alliance 1999 USF contribution base revenues as $ 427,463.00. Thus, the 4 As explained in Alliance's Appeal to the Commission, US Republic continued to operate through and, based on available records, perhaps into 2001. As submitted in the Appeal, evidence from the Texas Secretary ofState illustrates that US Republic did not dissolve itselfin Texas until March 22, 200 I; see Exhibit E to Appeal. DCO IIWITHD/230468.1 KELLEY DRYE & WARREN LLP ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10, 2005 Page Five difference between US Republic's 1999 reported revenues ($13,597,124.00) and Alliance's 1999 reported revenues ($427,463.00) is $13,169,661.00. USAC billed Alliance for USF obligations, beginning on September 22, 2000, based upon the 2000 Form 499A revenues reported by VarTec on behalfofits subsidiary, U.S. Republic. Thereafter, on October 22, November 22 and December 22, 2000, USAC billed Alliance for the remainder ofwhat would have been US Republic's USF obligation based on that company's 1999 revenues (as reported in the April 2000 499A), a total ofapproximately $763,717.56. Most important, however, is the basis by which USAC made this change in its invoicing to Alliance. As determined in subsequent communications with USAC staff, USAC adheres to a theory that Alliance, as the purchaser ofUS Republic's revenues in 1999, bears the responsibility to report and to contribute to the USF based upon all revenues - its own and US Republic's - for 1999. Alliance disagrees strongly with USAC's interpretation ofits legal and regulatory obligations. III. THE TRUE UNDERLYING ISSUE FOR REVIEW: WHETHER ALLIANCE WILL BE HELD LIABLE FOR REGULATORY OBLIGATIONS OF AN UNAFFILIATED SELLER CARRIER As described in the pending Appeal, the content ofAlliance's prior submission provides USAC with adequate information to compel USAC to accept the late-filed 2000 499-A filing. Alliance hereby incorporates, by reference, its Appeal filing and includes it here as Attachment A. Ofmore critical importance, however, is the underlying legal issue described earlier: .Namely, whether USAC has the authority to hold liable the purchaser ofassets of another carrier, when the seller company continues to operate and the asset purchase agreement between the companies does not provide for the assumption ofthe regulatory obligations. Alliance believes this issue may be best addressed by the Commission rather than USAC. It is Alliance's position that any universal service assessments upon Alliance that are based upon services provided and billed by US Republic prior to the sale date, are in fact, pre-Transfer Date obligations for which Alliance is not liable under the terms ofthe Agreement and applicable law. Given USAC's rejection ofAlliance's Appeal, and the Commission's request for new, supplemental information, Alliance hereby requests that either USAC or the Commission: (l) acknowledge that a telecommunications provider's obligation to contribute to the USF arises DCO IIWITHD/230468. I KELLEY DRYE & WARREN LLP ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10, 200S Page Six at such time as it begins to provide interstate telecommunications services and bills for such services; and (2) determine that the USF assessments attributable to a purchaser of telecommunications assets are governed by the relevant asset purchase agreement, and not by USAC's desire to hold any carrier liable for another carrier's USF obligations. USAC has no statutory basis for its interpretation - in fact, it cites to no statute, Commission rule, policy or order in its denial ofAlliance's Appeal. Finding no legal authority supportive ofits position, USAC has chosen to create its own policy by concluding that obligations to contribute to the USF arise when USAC calculates the amount ofcontribution to be invoiced. However, USAC's enabling statutes do not permit it to make such policy formulations. USAC's role is strictly confined to program administration ofthe USF. The FCC and the Federal-State Joint Board retain full authority and control over the USF programs, and are the exclusive entities authorized to establish USF-related policy. Alliance notes that USAC's adoption ofthese polices and practices have never been subject to rulemaking and comment under the Administrative Procedure Act, nor is there basis for USAC's activities in law or policy. We also note that such action represents an unconstitutional taking under the Sth Amendment ofthe Constitution. At bottom, to uphold USAC's stated position is to render multiple private contractual agreements invalid and impose unreasonable regulatory obligations on all telecommunications companies. * v. CONCLUSION * * * In closing, Alliance has demonstrated good cause for its filing oflate-filed 499-A form for 2000. The Information provided in Alliance's earlier Appeal, and the supplemental information provided herein, show conclusively that failure to accept Alliance's revised filing for 2000 would lead to a gross overstatement ofAlliance's USF obligations. USAC's failure to accept Alliance's May 2004 filings would result in a considerable overpayment to the USF. We respectfully request that USAC consider all the information submitted by Alliance, including information submitted to it during Alliance's voluntary offering ofa payment plan proposal to USAC in the latter halfof2004; conclude that this information provides adequate grounds for revising the filing of2000; and accept the late-filed form that Alliance submitted for that reporting year. IfUSAC rejects Alliance's Appeal on these grounds, however, we request that USAC refer this matter to the Commission for consideration ofan issue ofgreater import. Namely, whether USAC's ad hoc policy to hold purchasers liable for the regulatory obligations DCOI/WITHD/230468.1 KELLEY DRYE & WARREN LLP ATTN: Form 499-A Revision Order Jeffrey A. Mitchell, Esq. January 10, 2005 Page Seven ofsellers, notwithstanding the terms ofan asset purchase agreement, is supported by applicable law. Ifnecessary, we look forward to addressing these issues fully before the Commission. Respectfully submitted, Brad E. Mutschelknaus Darius B. Withers Counsel to Alliance Broadband Corporation Attachments (as noted) cc: Jeffrey J. Carlisle, Chief, Wireline Competition Bureau, Federal Communications Commission Narda Jones, Esq., Chief, Telecommunications Access Policy Division Anita Cheng, Esq., Assistant Chief, Telecommunications Access Policy Division, Federal Communications Commission Paul K. Cascio, Esq., Assistant General Counsel, Office ofthe General Counsel, Federal Communications Commission Mr. Mark A. Carmichael, Vice-President, Finance, Universal Service Administrative Company Mr. Michael Lawrence, Universal Service Administrative Company DCOIIWITHD/230468.1