GSA, vendors near legal battle over universal service fees

The General Services Administration appears headed for a legal confrontation with AT&T and Sprint over $6.6 million that the companies have charged users of the FTS 2000 contract to fund the Clinton administration's universal service plan.

AT&T and Sprint have been charging agencies a 4.9 percent universal service charge since January— a move that has annoyed some users who did not expect the charges. The Telecommunications Reform Act of 1996 allows vendors to charge the fees to meet requirements to provide advanced networking services to schools, libraries and rural areas.

AT&T and Sprint are charging FTS 2000 users more than $2 million a month in universal service fees. AT&T, which handles most of the traffic on the network, has billed the government $6.1 million in universal service fees in the first three months of this year. Sprint has billed about $531,000.

GSA has collected the fees from agencies but has held the funds in escrow while it determines whether it is appropriate for agencies to pay the fees.

Dennis Fischer, commissioner of GSA's Federal Technology Service, said last week that the agency's lawyers do not believe the companies have a legal basis for charging universal service fees to agencies that use GSA's FTS 2000 long-distance network, which is provided by AT&T and Sprint under a firm fixed-price contract.

"Our counsel has advised us that our contracts are fixed-priced, and the only items that can be passed through the contracts are taxes," Fischer said. "Our view, which has been buttressed by the Federal Communications Commission, is that these are not taxes."

Ron Hack, director of systems and telecommunications management at the Commerce Department, said the universal service charges will not hit his operation particularly hard because Commerce is a relatively small department. But he said larger agencies, such as the Defense Department, will pay millions each year in universal service charges.

John Doherty, vice president for FTS 2000 and civilian markets at AT&T, said his company views the charges as taxes and therefore appropriate to add to FTS 2000 bills. Doherty said he met with

Fischer last week to discuss the issue.

Sprint officials said they also believe they should be allowed to charge FTS 2000 users universal service fees. A company spokesman said officials there sent a letter to GSA late last month giving the agency 45 days to decide whether it will pay the company. When that deadline is reached, the company will assume GSA is refusing to pay and may take the government to court or pursue some other legal action to recoup the money, the spokesman said.

Doherty said AT&T has not sent a similar letter because the government's position on the issue remained unclear. He said he hopes to resolve the issue without legal action.

Fischer gave no indication that he intends to voluntarily turn the money over to the vendors. "If our position prevails that these are not appropriate charges, we will refund the money we are holding to our [agency] customers," he said.