The Prepaid Press - October 15, 2008 - (Page 14)

CALLING CARDS October 15 · 2008 - 14 THE Jonathan S. Marashlian LEGAL LINE by Dear Legal Line Readers: On May 9, 2003, I fielded my first Legal Line question from a then modest, but growing, base of devoted readers of The Prepaid Press who were worried about the law, the industry and where to get information to start finding solutions. I must admit that your questions have challenged me as an attorney in the industry. And, as those questions challenged me, this monthly legal column has found its way into citation in both business plans and legal academic works alike. At The Prepaid Press Expo in Las Vegas recently, it was an honor to meet my readers in the legal regulatory conference sessions and on the Expo floor. While there, I recognized that changes in prepaid are pushing developments in legal and regulatory aspects of not only traditional prepaid telecom services, but also in the ever expanding fields of stored value, alternative payments, mobile payments and innovations in telecom itself. In my role as Legal and Regulatory Editor of The Prepaid Press, I realize that legal coverage needs to be expanded to meet these changes. To faciliate this, I am handing the reigns of the Legal Line column to a good friend and fine attorney, Jonathan Marashlian, Esq. He is astute as to the legal and business issues of the industry, so I know I leave you in good hands. I ask that all Legal Line questions be directed to him from this point forward. As for me, I will continue to pen the monthly Regulatory Rundown to inform you of the important regulatory events of the prepaid industry, and also plan to write more in-depth feature articles going forward. I thank you for these past five years. It has been a pleasure to write Legal Line, and I remain always, Very truly yours, Edward A. Maldonado, Esq. Chairman Martin’s number-based approach and launched the current campaign for USF reform. The FCC answered the calls for change by recently inviting comments from the public to address the ongoing problems with the current USF contribution methodology. Several proponents of the numbers-based system formed the “USF by the Numbers Coalition” to support it adoption (the “Numbers Coalition”). The Numbers Coalition echoes the sentiments of AT&T and Verizon and agrees that a revenue-based system is no longer sustainable in today’s marketplace. Specifically, the Numbers Coalition argues that the hybrid nature of bundled services, comprising both telecommunications and information services, makes it increasingly difficult for carriers to allocate revenue between the two service types. They also highlight the arbitrariness of today’s scheme where charges are imposed on interstate consumers while intrastate and information services customers avoid any charge. Like AT&T and Verizon, the Numbers Coalition focuses on the ease of administration afforded by a numbersbased system, as well as the benefits to consumers, such as predictability and stability. However, as with just about everything that happens in Washington, D.C. these days, the numbers-based system faces fierce opposition from another group, the Keep Universal Service Fair Coalition (“Fair USF Coalition”). This group contends the numbers-based approach would harm consumers, specifically no or low-volume long-distance customers, and would place a disproportionate burden on the elderly and low-income consumers, particularly minority, rural and elderly customers. As an alternative reform measure, the Fair USF Coalition suggests expanding the USF contribution base by requiring VoIP providers to contribute and increasing the overall contribution factor. Public and private universities also argue that a numbersbased method would cause them an undue and disproportionate burden by raising their USF contribution base by over 1,000 times the current levels. This would necessitate drastic costcutting measures that, in turn, could result in reductions in Internet and phone access for students, or higher tuition costs. FCC would greatly benefit the prepaid industry because paying a $1.00 per month surcharge on a toll-free number that is printed on the back of one thousand, $5.00 face value calling cards is much better than paying 11% on the $5,000 face value of those same cards. That’s the difference between a $12 annual USF contribution under such a numbers-based approach and $550 under the current revenue-based regime – a difference the FCC is unlikely to ignore, especially if there are no restrictions on the total number of cards on which a single toll-free number is printed. You’ll see the absurdity of the wishful idea when you consider the potential savings of a prepaid provider printing a batch of 20,000, $10.00 cards with one local or toll-free access number printed on the back. The USF contribution remains $12 under a strict numbers-based system, but mushrooms to $22,000 under the current system (20,000 x $10 x 0.11 = $22,000)! I wouldn’t hold my breath and bite my tongue hoping the FCC doesn’t catch on to that one! Indeed, there remains a third USF contribution reform proposal that has been tossed about at the FCC. Some might call it a “compromise”, something we haven’t seen much of coming out of Washington, D.C. This would be the hybrid contribution model, whereby the FCC would apply the numbers-based approach to certain types of telecommunications services and the revenue-based approach would be applied to any service not qualifying for the numbersbased assessment. This compromise hybrid model was recently advocated in an ex parte filing by Qwest. Although Qwest – being more concerned with the exemption of special access services from the AT&T/Verizon proposal – did not address whether prepaid calling card services should be subject to either the numbers or revenue-based approach, the mere fact that a revenue-based system remains squarely before the FCC for its consideration should be an alarming call to action for the prepaid calling card industry. For over a decade, the prepaid calling card industry has suffered under the current revenuebased system, which as pointed out by IDT, has been exacerbated by the discriminatory application of USF fees to the cards’ “Face Value.” Even more so, the industry has suffered from the fact that the Telecommunications Relay Services (“TRS”) Fund and Annual FCC Regulatory Fees are also calculated under such a revenue-based approach. As a legal practitioner, I can attest to the struggles many prepaid calling card clients have encountered over the years. And while the industry has never been short on complaints about the current contribution system, if more in the industry don’t come forward and present the FCC with specific, alternative proposals to the hybrid approach, there may be another ten years of complaining ahead of us. The industry truly has two options at this critical juncture in the FCC’s consideration of USF contribution reform proposals: Either sit silent and idle, hoping against hope that the FCC blindly adopts the strict numbers-based approach advocated by IDT, or step forward, speak up, and present the FCC with a fair and easily administered alternative. The alternative to wishful thinking is most likely to be only a slightly altered version of the same revenuebased system that’s caused a million headaches over the years. More than ever before, the FCC seems to be open to “change” and appears poised to enact comprehensive USF reform. Hopefully, this reform will address the inequities faced by prepaid providers today. Until the FCC does act and adopt meaningful changes to the contribution methodology, the current revenue-based system remains in place and you must continue to comply with the existing rules and reporting requirements. Good Luck and Success in the Industry. Jonathan S. Marashlian is a partner at Helein & Marashlian, LLC, The CommLaw Group, a Washington, D.C.-area law firm specializing in federal and state telecommunications and technology matters. He can be reached at jsm@commlawgroup.com. Dear Jonathan: I am a prepaid calling card provider and have been filing Form 499s for the past several years. Each year the instructions and the Form itself seem to become more and more complicated and burdensome to comply with. I’ve been hearing for years that the FCC was considering changing the way carriers make contributions to the Universal Service Fund – something simpler and easier to comply with, a so-called “numbers-based” system. Where do things stand on the numbers-based proposal? And how would prepaid calling card providers be affected if the FCC were to adopt such a system? Frustrated and Wanting Change Dear Frustrated and Wanting Change: “Change.” We have all been hearing a lot of talk about “change” this election year. As it turns out, cries for change are reverberating in the halls of the FCC too. In fact, providers of all types and sizes are fighting for change in the current Universal Service Fund’s (USF) contribution methodology. The FCC finally shows signs of responding to the cries for change, which may be an indication that the time for serious reform to the USF system is near. As you know, the current system is revenuebased, imposing a contribution cost on telecommunications companies based on a predetermined percentage of their retail revenue (and, in certain circumstances, on wholesale revenue depending on a company’s compliance with the “Carrier’s Carrier Rule” (Please see my article in last month’s issue, “USAC’s ‘Carrier’s Carrier Rule Under Attack, p.18). This percentage, the contribution factor, varies quarterly according to USAC fund projections. For years, providers have opposed the complex, confusing and frequently unfair revenue-based scheme. Several years ago, FCC Chairman Martin proposed a numbers-based approach to determining USF contributions. While the reform measure gained early support among dominant carriers, it was also met with fierce opposition, particularly by groups representing low in

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

The Prepaid Press - October 15, 2008 Oblio Wins Judgment Mobile Remittance Providers Look to Latin America Contents The Retske Report: The Game Changer Regulatory Rundown: New Rules and Requirements Likely for 2009 5 Minutes With Saul Bienenfeld, President of Pop2Call Prepaid Wireless Roundup MetroPCS Sues Virgin Mobile Wireless in Brief Leap’s Cricket Service Introduces Cricket PAYGo Virgin Mobile USA to Launch the Shuttle New Study Shows Mobile Phones Merging Roles TracFone Launches SafeLink Wireless in FL IVI and Titan Sign Agreement with YA Global Boost Mobile Launches New Phone The State of Prepaid Technology: Will the Coming Market Bring You Problems or Opportunities? Calling Cards in Brief The Legal Line Tata Awarded Cisco Powered Status IDT Fails to Meet NYSE Listing Standards BillSoft Offers New Taxation Service Dialogic to Acquire NMS Platforms Business STi Acquires Sprint’s Calling Card Business TelcoBridges Introduces ToolPack System Manager Hypercom Increases Multilane Team Mobile Banking: CGAP Spurs Market Prepaid Resources Introduces PORTABLES Bancorp and Obopay Introduce Payment Card Verities, Inc. Partners with BBB and i2c Inc. The Bancorp Bank Partners with LeagueSafe Donor Dialogue Partners with Springbok Services Mercator Offers New Merchant Report Travelex Launches Budget Calculator MPOWER Companies Join Clinton Global Initiative Payments in Brief Promotions Evolve into Must-Have Marketing Strategy for Prepaid Sector Access Launches Cash-Back Rewards VendTek Partners with United Bank Card Flash Foods, Tedeschi Partner with Pinnacle Prepaid 101: Basics of PINs Gasoline Cards to Benefit Armed Forces, Veterans i2c Inc. Signs Agreement with Diestel iPayStation Partners with Pronto Envios Sodexo Releases Prepaid Incentive Card Heartland Leverages VeriFone Managed Services Retail Focus in Brief Our Advertisers Contact Us

The Prepaid Press - October 15, 2008

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