The Prepaid Press - April 15, 2008 - (Page 19)

CALLING CARDS April 15 · 2008 - 19 THE LEGAL LINE by Ed Maldonado Dear Ed: I have a comment for you more than a Legal Line question. I think a lot of hard card providers share my perspective. It seems to me that the assessment and collection of USF and other regulatory fees from prepaid card providers has taken an anti-competitive direction since the Telecommunications Act of 1996. I am a small card operation, so I have to look at my profits carefully. After what I pay to distributors (now 30%), to production costs, and overhead, most of my profit margin is nearly gone. From what remains, it’s mostly eaten up by the USF and the other fees and taxes I pay every quarter. This all is slowly bleeding me out of business. I am positive that small operations (like mine in Jersey) are dying out faster than the large providers, who are less impacted by USF because of their size and ability to charge USF to consumers without completely killing their distribution channel. So here’s my comment. I think the USF collection system was designed to squeeze-out smaller competitive companies in the “hard card” prepaid calling card market. It just took some time for it to take companies out. That happened when the economy took a nosedive. It’s not the same economic situation it was when the FCC ruled on USF collection for prepaid calling cards (2001, 2002, and 2005), so now everyone can see the effect better. It’s not going to help our consumers either. “Hard card” consumers are definitely going to have far less choices in the marketplace as far as the variety of prepaid providers who will be around. In the meantime, cards in the marketplace are not delivering full services because providers are desperately trying to keep some margin to stay economically afloat, and there are few alternatives outside of buying a prepaid cell to access long-distance services. It’s a perfect storm. I think the FCC knew what it was doing. Submit this to your Legal Line and see who agrees with me. I think I am more right than venting on this perspective. Thanks Ed. “One-Last-Yokel” Dear One-Last-Yokel (“OLY”): All venting aside, do you really believe that the FCC intentionally built into the methodology of USF assessment, 499 Instructions, and collection system of USF by USAC a specific plan to knock out small-sized prepaid calling card businesses? It seems to be a big stretch to me. However, your comment does raise the question of whether current FCC Rules regarding USF and prepaid are causing a domino effect that in the end destroys small businesses or “mom-&-pop” upstart companies. I personally have seen a high attrition rate among new small-sized entrants in prepaid services, who upon failure, don’t seem to be bothering with corporate bankruptcy, rushing to file personal bankruptcy instead. This is definitely going to knock out a generation of business entrepreneurs in prepaid. Now, is this a proximate result of USF collection? It would be pure speculation on my part to opine that is the cause. What I do see, when it comes to not only USF, but an array of rules promulgated by the FCC, is a complete failure of The Regulatory Flexibility Act, or “RFA”, (5 U.S.C. § 601 to 612) to have any substance in protecting the real interests of small businesses in the field of telecommunications. I know I have mentioned the RFA in the past in articles on FCC Orders in The Prepaid Press (DAC, USF, etc.), however I may not have explained the RFA well enough to understand it well, and why I think it has failed small telecommunication companies today. The Regulatory Flexibility Act was enacted in 1980 with the intent to ensure that all federal regulators take into account the rights of ordinary business people at the same time they carry out any policy goal dictated by statute or law. Specifically, the federal agencies must determine beforehand whether a rule will result in a “significant economic impact on a substantial [my emphasis] number of small entities.” (5 USC § 605(b); 603; & 604) If so, the agency is required to conduct its own regulatory flexibility analysis to accompany the proposed and final rules. Over the past twenty-seven years, the regulatory flexibility analysis has become a law that, in effect, constitutes “form” over “substance.” Most agencies, including the FCC, give cursory review and rubber stamp language to considerations of the RFA in final orders that require comments and rulemaking. It has become in many ways, simply boilerplate language is incorporated in proposed rules on its final way to Public Notice. Technically, Section 604 of the RFA requires only that the agency file an analysis that demonstrates that a “reasonable, good-faith effort” has been made to carry out the RFA mandates. What does this mean for the FCC? That is hard to say. The FCC has been known to completely ignore the inclusion of RFA analysis in its rulemaking processes. United States Telecom Association v. FCC, 400 F.3d 29 (DC Circuit 2005). Many agencies, including the FCC, have improved their online comment process as a means of making a “reasonable, good-faith effort” to collecting feedback from small telecommunications businesses that might be affected by a new rule. It is believed (by policymakers) that with easy online access to the comment process, all small telecommunication businesses will have the potential to object and file comment if they are adversely affected by the proposed rule. Although this appears reasonable on paper, the problem is that few, if any, owners of true small businesses or “mom-&-pop” upstarts have the available time to go online, search out the rules that affect them, and comment on them. Easy access does not equal substantive feedback and many small businesses may be effectively disenfranchised from the process. How does the FCC know how many small businesses that are licensed common carriers are out there, in order to determine a substantial threshold? Is a telecom’s business size something monitored or declared by mandate on any quarterly or annual report by the FCC? Good questions when it relates to “reasonable, good-faith efforts” and what actually is a “substantial” number of small telecom entities and the FCC’s compliance with RFA. The answer, to date, has largely been left to the U.S. Small Business Administration (SBA) to fill the gap. RFA defaults to the SBA to qualify small businesses, which currently means a business with less than 1500 employees. That number and criteria is not reflective of the size of actual small businesses or “mom-&-pop” upstarts who are telecommunication carriers or providers. The problem is, what other criteria exists with the FCC? Now there is a built-in review process under 5 U.S.C. § 610(b) which requires the agency to review the impact of its rules and regulations on small businesses. The intent of this section by Congress was to require federal agencies to periodically review existing rules and therein consider reducing those that have adversely burdened small businesses. The actual language of Section 610 is quite clear: “determine whether rules should be continued without change, or should be amended or rescinded consistent with the stated objectives of the applicable statute to minimize the economic impact of the rules on a substantial [my emphasis again] number of small entities.” However, the affirmative language of Section 610 is limited to final rules (as defined in 5 U.S.C. § 601) which does not include rules that have been further amended or have had recent interpretations. For the respective agency, amended rules and rule interpretations effectively re-start the time clock for application of Section 610. When you look at the progressive orders related to USF collection since the year 2000, you will get the idea that a Section 610 review is not likely in the future. Even if an impact review is conducted by the FCC, under RFA Section 610, the RFA does not require the FCC to give the public notice that such a review is underway, that one has been completed, or to publish the results of the Section 610 review and the criteria used by the FCC. Obtaining information of that nature would be the “stuff” of a Freedom of Information Act (FOIA) Request to the FCC directly. Taken together, this is why I believe that both the RFA and the FCC have failed to consider the needs of small businesses and “mom-&-pop” upstarts in the field of telecommunications when promulgating regulation. As for USF, I do have my frustrations with how the FCC handles the USF – as to both collections and usage. It is amazing how many suspensions and disbarments from the E-rate program, a USF funded program, are found on the FCC Enforcement Bureau’s website. While the FCC is definitely honing its infrastructure on how to collect USF, where your USF contribution as a telecommu- How does the FCC know how many small businesses that are licensed common carriers are out there, in order to determine a substantial threshold? nication carrier is going lacks a great deal. The problem is that unlike taxes under the Internal Revenue Code, you have no taxpayer rights to appeal when it comes to USF or other regulatory fees. As a telecommunications provider, you must contribute either directly to the FCC or indirectly, to a carrier who collects it and pays it from your transactional revenues. I really don’t have an answer for you, OLY. But I hope you understand the problem better. Good Luck and Success in the Industry. Attorney Edward A. Maldonado is the president of the Maldonado Group and the Regnum Group, and can be reached at eam@maldonado-group.com http://www.payzone.biz http://www.payzone.biz

Table of Contents Feed for the Digital Edition of The Prepaid Press - April 15, 2008

The Prepaid Press - April 15, 2008 Motorola to Split Mobile Payments: The Saga Continues Contents The Retske Report: Election Year and Woody Hayes Regulatory Rundown: 2008 First Quarter Mobile Update 5 Minutes with Mark Herrington tppEXPO’08 Spotlight New Handsets Announced at CTIA Prepaid Wireless in Brief Prepaid Wireless Roundup Virgin Mobile Reports Earnings of 6 Cents Movida Files Chapter 11 LiveWire Mobile Acquires Groove Mobile Boost Selects Vesta for Transactions RadioShack to Offer Trumpet Mobile Service Virgin Offers New Pay as You Go Plans Book Review: Webster’s New World Telecom Dictionary Management Changes at IDT Spot Rates Calling Cards in Brief The State of Prepaid Technology: Productive Coexistence FTC Asks Court to Halt Prepaid Calling Card Scam Louisiana Community Mulls Tax on Prepaid Cards Pactolus Wins VON Magazine Award iBasis Lowers Pakistan Rate for Pingo The Legal Line Biometric Update: Keep Your Shirt On AccountNow Ends Upfront Fees Evolution Benefits Acquires SmartFlex Payments in Brief NetSpend to Offer Bill Payment and Top-up Union Bank Introduces Contactless Card Ingenico Announces Development Kit Prepaid 101: Stupid Card Tricks PLS Offering Walk-In Bill Payment Spend Gift Cards ASAP Credit Card Breach at Hannaford Bros. NACS Withdraws Opposition to Tobacco Bill Study Finds Gift Card Packaging Increases Sales NACS Names International VP Inflatable Display Provides Inexpensive Signage Retail Focus in Brief Our Advertisers Contact Us

The Prepaid Press - April 15, 2008

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