International Section 214 License; 214 Applications; FCC License
Sometimes taken for granted by telecommunications providers, Section 214 licenses or authorizations issued by the Federal Communications Commission (“FCC") are anything but simple. One reason is that today they are harder to obtain. In recent years, the Executive Branch has more closely scrutinized selected applications involving foreign ownership, requiring significant additional information from these companies and delaying what otherwise would be a quick entry process. Another reason that they should not be underestimated is that they entail important, ongoing federal regulatory requirements.
All telecommunications providers (including facilities-based carriers, resellers, prepaid calling card providers, many wireless service providers and, now, Interconnected VoIP providers) offering calling between the U.S. and foreign points (and vice versa) must obtain a certificate of authority under Section 214 of the Communications Act of 1934 (“Act"). In short, a 214 authorization is a license to offer international telecommunications services.
It is unlawful to offer or advertise services allowing international calling without a 214 license. The FCC is authorized to fine providers which operate without a required 214 license up to $130,000 for each day of a continuing violation, subject to an aggregate cap of $1,325,000 (although typically penalties are much lower).
The 214 license is one of the core regulatory hurdles a new provider must overcome before entering the telecommunications marketplace. It is therefore important that providers which seek this authority fully understand the application process and the regulatory burdens it will impose upon their business.
The Application Process
New FCC rules will soon require that all 214 applications be filed electronically. The current filing fee for Section 214 applications is $1,015.
When filed electronically, the application should appear on Public Notice as accepted for streamlined processing by the FCC’s International Bureau within 5 business days of receipt of payment. Once accepted for streamlined processing, the application is generally granted automatically the day after a 14 day waiting period (i.e., 15 days later). Many applications qualify for streamlined processing.
Some applications, however, do not qualify for streamlined processing which means that additional time beyond the 14 day processing cycle is required to assess these applications, if they will be granted at all. Generally speaking, there are four circumstances which can arise where the FCC will not process a 214 application under streamlined processing.
- The first occurs where the applicant is affiliated with a foreign carrier in the destination market it seeks to serve, unless the applicant can make a special showing.
- The second circumstance occurs where the applicant has an affiliation with a dominant U.S. carrier whose international switched or private line services the applicant seeks authority to resell.
- The third circumstance that can arise disqualifying an application from streamlined processing is when the applicant seeks authority to provide switched basic services over private lines to a country for which the FCC has not previously authorized the provision of switched services over private lines.
- Finally, and the most frequently used, a “catch all" category exists where at any time during the fourteen day period, the FCC can inform the applicant that its application is no longer eligible for streamlined processing. Since the events of 9/11, the FCC has used this “catch all" category to remove a significant number of 214 applications from streamlined processing at the request of the Executive Branch (i.e., the Federal Bureau of Investigation, the Department of Justice, and/or the Department of Homeland Security), which has identified such applications for closer scrutiny.
While FCC regulations allow foreign-owned companies to apply for and hold FCC 214 licenses, applications from these companies are far more likely to be pulled for closer scrutiny by the Executive Branch. Executive Branch inquiries typically request additional information (sometimes significant additional information) about the applicant, its ownership, where its business records will be located, and the specific types of telecommunications services it plans to provide. These investigations can delay final action on an application for weeks or possibly even months, and should be approached carefully.
Once application processing is complete and the FCC is prepared to grant an application, it issues a second Public Notice which lists approved applications. This second Public Notice serves as the official certificate for the applicant that it is authorized under Section 214 of the Act to provide international service between the U.S. and foreign points.
Common misconceptions surround Section 214 licenses. For example, despite the belief of some, prepaid calling card providers, prepaid wireless providers and certain Voice over Internet Protocol service providers are required to hold 214 authorizations if their service allows calls to be placed between the U.S. and foreign points. Another “misconception" is that providers can “ride on" the 214 license of another carrier or their underlying provider. This is not true, and providers that resell the international services of other 214-authorized carriers are required to have their own 214 authorization.
Ongoing Federal Compliance
Operating as a Section 214 licensee entails a range of ongoing federal compliance obligations. One requirement is to keep the FCC updated as to any substantial changes in ownership, transfers of control, or other changes in the regulatory status of the license. Any such changes need to be promptly reported to the FCC. In addition, a 214 licensee must disclose its rates, terms and conditions to the public (usually via a Price List posted on its website); pay certain regulatory fees and surcharges (including possibly the Universal Service Fund (“USF") assessment); as well as even comply with rules for when it discontinues service or ceases operations. Thus, Section 214 licensing is anything but a one-step, one-time obligation.
One point warranting special consideration is the USF assessment. New telecommunications providers need to carefully consider how their businesses will be impacted by the USF. Providers offering interstate service are required to obtain separate authorization to provide such service by submitting selected portions of an FCC Form 499A. Once this information is submitted, the provider is “registered" and thus authorized to offer interstate services. Doing this, however, also effectively registers the company with the USF program under which most providers are assessed for USF contribution that averages near 10% of their gross interstate and international revenues. USF contributions are calculated based on quarterly submissions of FCC Form 499Q and annual submissions of FCC Form 499A (due each April). Carriers are invoiced by the Universal Service Administrative Company and payment is required on a monthly basis. Providers are allowed to pass along these assessments to their customers.
Providers offering international-only services or offering only a small percentage of interstate services (i.e., less than 12% of combined international/interstate) can be exempt under the FCC’s rules from paying USF on their international service revenues. Even if a provider does not offer interstate services, however, it still will need to submit an FCC Form 499A each April 1. The reason for this is that other regulatory fees are assessed by means of this form which international-only providers must pay. These assessments cover the following programs: the North American Numbering Plan (NANP) assessment, Local Number Portability (LNP) assessments, and Telecommunications Relay Services (TRS) fees.
The USF assessment is a substantial regulatory surcharge which clearly will impact a provider’s price structure. When applying for Section 214 authorization, a provider should be mindful of the USF assessment and take it into account as part of its overall regulatory compliance plan.