At its December 12, 2018, open meeting, the Federal Communications Commission expects to classify text messaging service as a Title I service under the Communications Act. Specifically, the FCC will declare “that two forms of wireless messaging, Short Message Service (SMS) and Multimedia Messaging Service (MMS), are information services, not telecommunications services under the Communications Act, and that they are not commercial mobile services, nor their functional equivalent.”[1] A copy of the Draft Declaratory Ruling was recently made publicly available.

The Commission’s primary reason for the move – more than 10 years after the regulatory classification question was formally raised – is to prevent spam. Yes, to prevent spam text messages. I get a ton of spam phone calls, but I rarely get spam text messages. Part of the reason for that is I don’t sign up for text alerts or do whatever it is that causes spam text. Everyone would agree that robocalls are a major problem, but I wonder how many would agree spam texts are a problem.

Regardless, this is the reason for the FCC making a move. The Declaratory Ruling will deny requests by “mass-texting companies” to declare text messaging service a Title II common carriage service. According to the FCC, placing text messages into the Title II service classification would “stop wireless providers from helping consumers by incorporating robotext-blocking, anti-spoofing measures, and other anti-spam features into their offerings.” There are good arguments on both sides of this issue, but this blog post won’t cover them. Instead, it will focus on the decision’s negative impact on universal service fund contributions – something the Declaratory Ruling really doesn’t mention.

The universal service fund is financed using revenue from telecommunications services. Today, some service providers that contribute to the USF do report text messaging revenue as USF-assessable telecommunications revenue. Just how many providers do this and how much are unclear. And it’s probably way less today on both counts in comparison to ten years ago. Also, to be clear, the providers that report text messaging revenue only report the portion that is attributable to the interstate jurisdiction.

The FCC’s classification decision will decrease total USF-assessable revenue, shrinking the contributions base, which will produce a corresponding increase in the USF contribution factor. Uh huh. That will happen. What will each be? I don’t know, but both probably won’t be huge.

According to wireless industry association CTIA, trillions of wireless text messages are sent each year in the United States. Text messaging services help wireless providers generate billions in annual revenue. The FCC reported wireless industry “text messaging revenues were approximately $11 billion in 2008 and $16 billion in 2009.”[2] That was ten years ago, so those numbers are higher today. But I wonder if and when text messaging revenue started to plateau. For what it’s worth, the FCC stopped including the text messaging revenue data point in its wireless competition reports after 2009 because wireless carriers stopped separating that component from overall mobile data service revenue. (I’m sure there is some data on current revenue filed in the record in this proceeding.)

Whatever the amount of USF-assessable revenue attributable to texting messaging today, it goes away with the FCC’s decision and shrinks the pot of USF-assessable revenue to an even smaller size.

If text messaging were a telecommunications service, revenue derived from those services would be automatically USF-assessable. Does this mean that a Title I classification permanently removes text messaging revenue from the contributions equation? I think so. Some will tell you it doesn’t.

Pursuant to Section 254(d) of the Communications Act and the FCC’s rules, every telecommunications carrier that provides an interstate telecommunications service must contribute to the USF based on a percentage of its end-user revenues derived from that service.[3] So revenue derived from telecommunications services is automatically USF-assessable. This is the mandatory provision.

Section 254(d) also grants the FCC permissive authority to require “[a]ny other provider of interstate telecommunications…to contribute to the preservation and advancement of universal service if the public interest so requires.” Using this permissive authority, the FCC, in 2006, issued an order requiring interconnected VoIP providers to contribute to the federal universal service fund.[4] What’s the scope of this permissive authority? Good question.

When the FCC forced interconnected VoIP providers to contribute to the USF based on end-user revenue derived from VoIP service, it declined to classify VoIP as a telecommunications service. Instead, it left VoIP in regulatory limbo where it is today. More specifically, VoIP is in limbo when it comes to FCC regulation because VoIP is neither a telecom service or an information service. The FCC has used a piece-meal approach to VoIP regulation. That being said, the FCC has deviated from that approach when it suits its needs. Just a few months ago, the FCC told the Eight Circuit VoIP is an information service.

But the point here is can the FCC make text messaging revenue USF-assessable after declaring text messaging service a telecommunications service? Probably not. Even if it could, the Pai FCC likely would not do that.

The FCC was able to add interconnected VoIP revenue to the contributions base because the service is not classified as an information service. Text messaging service is in that same regulatory limbo as VoIP, which is why some providers contribute to the USF based on text messaging service revenue. When the FCC classifies text messaging service as an information service, you better believe providers will stop adding text messaging service revenue to the USF contribution base.

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[1] Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, WT Docket No. 08-7, Declaratory Ruling, FCC-CIRC1812-04 (Nov. 21, 2018) (Draft Declaratory Ruling).

[2] Universal Service Contributions Methodology, WC Docket No. 06-122, A National Broadband Plan for our Future, GN Docket No. 09-51, Further Notice of Proposed Rulemaking, FCC 12-46, ¶ 54 (Apr. 30, 2012). The FCC estimated text messaging revenues “were approximately $17 to $19 billion in 2010 and 2011.” Id. See also Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions With Respect to Mobile Wireless, Including Commercial Mobile Services, WT Docket No. 10-133, Fifteenth Report, FCC 11-103 (2011) (Fifteenth Mobile Wireless Report).

[3] 47 U.S.C. § 254(d). Here’s some good data on USF contributors the FCC provided in 2012. About 2,900 telecommunications providers contribute to the USF. 3,100 providers that would otherwise be required to contribute qualify for the de minimis exemption, and nearly three-quarters of USF contributions come from the following five companies: AT&T Inc., CenturyLink, Inc., Sprint Nextel Corporation, T-Mobile USA, Inc., and Verizon Communications, Inc. Universal Service Contributions Methodology, WC Docket No. 06-122, A National Broadband Plan for our Future, GN Docket No. 09-51, Further Notice of Proposed Rulemaking, FCC 12-46, ¶ 9 (Apr. 30, 2012).

[4] In re Universal Service Contribution Methodology, WC Docket No. 06-122, 21 FCC Rcd 7518 (2006), aff'd in part, vacated in part sub nom., Vonage Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 2007).