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

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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If you were planning to disregard a Form 499-A instruction, would you report yourself to the FCC?  That is exactly what AT&T and Verizon have now done with regard to their reporting of prepaid card revenues.  Both AT&T and Verizon have told the FCC that retroactive to January 1, 2010, they will report the revenues actually received from selling prepaid cards to distributors or other carriers, rather than the face value of the cards.  Since prepaid cards often are sold into the distribution chain at a 30-40% discount off the face value, this move will significantly reduce AT&T and Verizon's USF obligations from the sale of prepaid calling cards.

Click the link for more background on the change.

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Late last week, the FCC sent inquiry letters to a number of prepaid calling card providers concerning their marketing practices.  This action represents the first significant entry by the FCC into prepaid calling card marketing practices.  Prior to this action, prepaid card enforcement activities have been conducted in private litigation brought by a large prepaid carrier, before a handful of state attorneys general and, in the case of non-carrier distributors, before the Federal Trade Commission.  However, the FTC is barred from taking action against common carriers.  The FCC's action suggests that the Commission is attempting to close the gap in compliance within the prepaid industry by acting directly against carriers that offer prepaid cards.

Details about the FCC requests are available after the jump.

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A few months ago, AT&T sued IDT Corp. for failing to pay access charges allegedly due on local-dialed prepaid calling cards.  As we expected, IDT has moved the court to stay, or in the alternative, dismiss, AT&T's action.  IDT contends that the FCC, not the court, should decide whether access charges apply to this type of call.  In a strategic move, IDT seeks a stay of the case, rather than referral of AT&T's complaint to the FCC for resolution. 

The case bears watching because AT&T appears to be using the IDT litigation as a test case before proceeding with actions it has threatened against other providers.  If IDT is successful, AT&T likely will have to present its case directly to the FCC, perhaps by filing a petition for declaratory ruling, or maybe by bringing a formal complaint before the Enforcement Bureau.    Alternatively, AT&T may switch approaches and seek to recover access charges from the CLECs to whom it hands off the calls.

In the meantime, AT&T has continued to send monthly demands to prepaid card providers, allegedly calculating the amount of access charges due from the carrier.  We are not aware of any other cases AT&T has filed against prepaid card providers.   Yet.

Follow the jump for a discussion of the pleadings on IDT's motion.

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The House Energy and Commerce Committee, Subcommittee on Commerce, Trade and Consumer Protection, will hold a hearing today on the "Calling Card Consumer Protection Act of 2009" (HR 3993).  The bill would require prepaid calling card providers and their distributors to disclose all applicable rates and other terms and conditions to consumers.  The FTC would be empowered to enforce the requirements, including against common carrier prepaid card providers.

Rep. Engel (D-NY) introduced the bill on November 3, 2009.  This is the first hearing on the bill.

Scheduled witnesses today will be:

• Lois Greisman, Director, Division of Marketing Practices, Federal Trade Commission
• Sally Greenberg, Executive Director, National Consumers League
• Patricia Acampora, Commissioner, New York State Public Service Commission, National Association of Regulatory Utility Commissioners
• Alie Kabba, Executive Director, United African Organization
• Scott Ramminger, President, American Wholesale Marketers Association

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