Telecom Law Monitor : Washington D.C. Telecom Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

Yesterday, the FCC launched a review of its data collection practices, which it termed its "Data Innovation Initiative."  Most relevant to the scope of this blog is the inventory of compliance obligations released by each FCC Bureau.  The FCC's notice highlights just how extensive the reporting obligations are for carriers and other regulated entities.

The Data Innovation Initiative public notice is available here.  As described by the FCC, the Initiative is designed "to modernize and streamline how [the Commission] collects, uses and disseminates data."  Accompanying the initiative are three public notices establishing comment periods concerning the data collection requirements adopted by each of the main three bureaus -- Wireline Competition, Wireless Telecommunications and Media.  Each bureau's public notice is accompanied by an "inventory" of data collection activities approved by the Office of Management and Budget ("OMB").  The inventories list the following number of data collection requirements:

Wireline Competition Bureau inventory:  104 data collection requirements

Wireless Telecommunications Bureau inventory:  96 data collection requirements

Media Bureau inventory:  140 data collection requirements

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Consumer privacy is a hot topic in many arenas.  At the FCC, consumer privacy is protected by the Commission's "customer proprietary network information" ("CPNI") rules.  Today, the FCC released another CPNI enforcement item, but surprisingly, it was the first enforcement item in 2010 not related to a carrier's filing of its annual CPNI certification statement.

Today's action is a consent decree with Verizon Communications, Inc's regulated telecommunications operating entities.  In the case, Verizon had self-reported a failure of its databases to track customers who had opted out of CPNI-based marketing.  Verizon reported that it discovered a discrepancy in the total number of customers in its opt-out database.  Verizon attributed the discrepancy to the absence of opt out records from seven weeks over a period of two years.  Verizon reported the problem to the FCC, which launched an inquiry into Verizon's procedures. 

Verizon does not admit or deny liability in the consent decree, but it agreed to pay $90,000 to resolve the case.  In addition, Verizon agreed to a compliance plan to ensure future compliance with the CPNI opt-out procedures.  The Compliance Plan obligates Verizon to:

• perform monthly validation tests,
• perform a weekly check for transaction errors,
• perform validation tests prior to implementing any material changes to its systems,
• enhance its employee training procedures, and
• add CPNI compliance to its compliance management processes.

The consent decree applies to all Verizon entities.  However, the consent decree exempts the Verizon entities to be sold to Frontier Communications Corporation.  In a footnote, the FCC explained that Frontier committed to implement the "best practices" employed by Frontier and the Verizon entities.  Relying on this commitment, the Bureau determined that it would exempt Frontier form the obligations "upon Frontier providing the Bureau with a copy of [its post-acquisition] practices and procedures." 

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The FCC today adopted and released its highly anticipated Notice of Inquiry (“NOI”) regarding the potential regulatory reclassification of facilities-based broadband Internet access services.  This proceeding will explore the "third way" toward regulation that Chairman Genachowski suggested in response to the recent decision issued by the U.S. Court of Appeals for the D.C. Circuit in the Comcast case.  In Comcast, the D.C. Circuit rejected the FCC's attempt to rely upon its "ancillary authority" to enjoin a cable operator from degrading its customers' lawful Internet services.  This sparked a concern that similar decisions could cause the Commission to lose regulatory authority over time in connection with most, if not all, Internet access services.  The heart of the problem is that the FCC made a series of decisions over the past decade that have classified wireline broadband Internet access services as "information services" that are exempt from Title II common carrier regulation, and this classification was upheld by the U.S. Supreme Court in its Brand X decision.   If the Commission cannot exert "ancillary authority" to regulate them, then the FCC could be left with virtually no control over services provided over a broadband platform. 

The NOI seeks comment in three areas.  First, the FCC seeks input on whether the current "information service" classification remains adequate for the Commission to perform its mission.  Second, it seeks comment on the legal and practical consequences of "reclassifying Internet services used to communicate with others that have Internet connections" as "telecommunications service" and then applying all of the regulatory requirements of Title II.   Finally, and most importantly, the Commission seeks comment on the "third way" position by which so-called "Internet connectivity service" that is offered as part of a wired broadband Internet service would be reclassified as a "telecommunications service", but that the Commission would forbear from applying all Title II regulatory authority over it except such as necessary to implement a set of discrete rules applicable to universal service, consumer protection, competition and small business opportunity. 

The Commission has fast-tracked the comment cycle in this case.  Comments will be due by July 15, with replies due August 12. 

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Following on the heels of AT&T and Verizon's announcements, prepaid card provider Allcom Telink Corporation informed the FCC that it, too, would no longer report for universal service purposes the face value of the prepaid cards that it sells.    In a June 11 letter to the FCC, Allcom stated that it "likewise intends to cease contributing on the basis of its non-contributing resellers' revenues (or our best estimate of those revenues) for this year and future years."  In other words, Allcom will only report the revenue that it receives when selling the cards for distribution, not their ultimate face value.  Given that prepaid cards often are sold to distributors at 35-40% below the face value, these actions could significantly reduce the amount of USF paid for prepaid calling card sales.

Allcom cited to the AT&T and Verizon letters and to USAC's August 2009 request for clarification from the FCC.  Allcom then explained:

It is Allcom's preference that the Commission issue an order or guidance resolving this matter.  Given the reality of the prepaid calling card market, however, Allcom now has little choice.  To avoid an untenable competitive disadvantage in 2010 and future years, absent intervening Commission action, like AT&T and Verizon, we also intend to contribute only on the prepaid calling card revenue Allcom actually receives, not the ultimate retail sale price of those prepaid calling cards that Allcom sells to non-contributing resellers.

For good measure, Allcom also expressed support of a numbers-based USF contribution methodology.

Undoubtedly, Allcom is not the only prepaid card provider that has followed AT&T and Verizon's lead in reporting prepaid card revenues.  We expect most other providers to report revenues in this way pending FCC action on the USAC request.

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Yesterday, I attended a bar association event featuring the FCC's Enforcement Bureau.  There were no newsworthy revelations made during the session, but the Bureau distributed an updated organizational chart and contact list.  I'm attaching the materials here and will be adding them to our resource links on the right hand column of the blog.

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Do you need another sign that the universal service fund needs reform?  Today, the FCC announced another significant change in the quarter USF contribution factor.  This time, the factor will decrease by nearly two percentage points, to 13.6% for the third quarter of 2010.  The last four contribution factors have been (in order):  12.3%, 14.1%, 15.3% and now 13.6%.  In other words, for three quarters in a row, the USF fund has seen a change of at least 1.2 percentage points up or down from the previous quarter's factor.  

This volatility results from the structure of the contribution mechanism itself.  At its core, the USF contribution factor is a simple calculation:  quarterly USF distributions divided by quarterly projected revenues.  The 3Q contribution factor declined primarily because projected revenues were nearly $1 billion higher than the 2Q projections.  With a larger denominator (and a numerator that was roughly the same), the contribution factor declined.  Of course, if 4Q projections decline, we could see the USF contribution factor reverse course again and rise once again.  Stay tuned and hold on for the ride.

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