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Jul 14, 2006

Major Points of FCC Order & New Rules On Prepaid Calling Cards

Edward A. Maldonado, Esq.

Menu-Driven Prepaid Calling Cards.• FCC now recognizes and treats Menu-Driven Prepaid Calling Cards as telecommunication services and their providers as telecommunications carriers subject to regulation.• FCC recognized distinctions made by the U.S. Supreme Court in its Brand X decision in that the key question in classifying an offering with both telecommunications services and information services is whether the telecommunication service is “sufficiently integrated” with the information services component to “make it reasonable to describe the two as a single, integrated offering.” • The FCC ruled that there is no functional integration between the information service features and the use of the telephone calling capacity with the menu-driven prepaid calling cards offered by AT&T under Calling Card Order and NPRM, 20 FCC Rcd. 4830 and the services are therefore telecommunication services subject to regulation and USF contributions. • FCC ruled that the mere addition of an option to access other types of information does not convert the telecommunications service offered by the prepaid calling cards into an information service for regulatory purposes.• The FCC holds that even if standing alone the information processing capability needs to meet the statutory definition of an information service.Prepaid Calling Cards Utilizing IP Technology.• The FCC reasoned that other than the use of 8YY dialing instead of 1+ dialing, prepaid calling cards that use IP transport appear to be identical to the services addressed by the Commission in the IP-in-the-Middle Order and that no information service is rendered. • The FCC found no rational reason why the use of a different dialing pattern to make calls, without more, should result in a different regulatory classification other than as telecommunication services - such cards are used to originate calls on the circuit-switched network using standard customer premises equipment, factors that the Commission previously has used to distinguish telecommunications services from information services. • The Commission found that the use of IP transport in the provision of a prepaid calling card service does not alone convert that service from a telecommunications service to an information service.• Prepaid calling cards that utilize IP Technology are telecommunication services for regulatory purposes, including USF, and their providers are telecommunication carriers for regulatory purposes.All Prepaid Calling Cards in Regard to USF and Access Compliance. Additional requirements that will apply, at least on an interim basis, to all prepaid calling card providers.• All prepaid calling card providers must contribute to the federal USF based on interstate and international telecommunications revenues.• The Commission has established two safe harbors for use by carriers that offer retail packages that bundle interstate telecommunications services with other services.. A prepaid calling card carrier may elect to treat all bundled revenues as telecommunications revenues; or . A prepaid calling card carrier may report revenues from the bundled offering based on the unbundled service offering prices, with no discount allocated to the telecommunications service.• Prepaid calling card providers may avail themselves of these safe harbors; should they choose to forego these safe harbors, they risk the possibility of an audit or enforcement action.• Prepaid calling cards sold to Dept of Defense (DoD), or a DoD entity, are USF Exempt. The FCC ruled that carriers are exempt from the USF contribution requirement if calling cards sold by, to, or pursuant to contract with DoD, or a DoD entity, such as services that currently serve the public interest.• USF Contributions – Access Charges. The FCC recognized that the use of IP technology can complicate the assessment of interstate and intrastate access charges on prepaid calling cards based on the methodology of reconciling location of the called and calling parties because the caller initially dials the 8YY number associated with the calling card platform, and only later, dials the number of the final called party.• Access Charges. The FCC recognized originating carriers often are unable to determine the appropriate jurisdiction (for access charge purposes) of these calls and cannot reconcile these based on a method of comparison of the calling and called numbers because it only will know the 8YY number associated with the platform, not the final telephone number of the called party. • Access Charges. The FCC determined that unless the calling party number (CPN) is passed, the terminating carrier shall face a similar problem in assessing access charges and call tracking.• FCC ruled that certain certification and reporting requirements are necessary to ensure compliance with existing access charge rules to promote transparency between prepaid providers and other carriers. These requirements include:- Reporting based CPN and PIU factors that should be used for reporting calling card traffic from this point forward.. CPN: In a standard inter-exchange call, the CPN is passed as part of the SS7 signaling message, and the carriers involved in the call are able to determine the jurisdiction of the call based on a comparison of the calling and called party telephone numbers.. IU: In situations when traffic is exchanged with missing or inaccurate CPN information, carriers can rely on the use of percentage of interstate usage (PIU) factors to determine the percentage of interstate versus intrastate minutes coming from prepaid providers.. Prepaid calling card providers are subject to the Commission’s rules on the passing of CPN wherein carriers that use SS7 are required to transmit the CPN associated with an interstate call to interconnecting carriers.- FCC now prohibits carriers that serve prepaid calling card providers from passing the telephone number associated with the platform in the charge number (CN) parameter of the SS7 stream.- The FCC prohibits carriers that serve prepaid calling card providers to pass information regarding the calling card platform in the CN parameters in the SS7 stream.Prepaid calling card providers are required to report PIU factors to those carriers from which they purchase transport services. - The Prepaid calling card provider must report the prepaid calling card PIU factors, and the call volumes on which these factors were calculated, based on not less than a one-day representative sample, and computed separately for originating and terminating traffic on a state-specific basis.- CPN and PIU reporting information must be provided to the transport provider no later than the 45th day of each calendar quarter.- If the prepaid calling card provider fails to provide the appropriate PIU information to the transport provider in a timely manner, the transport provider may treat the prepaid calling card provider’s traffic as subject to a 50 percent default PIU.- On a quarterly basis, every prepaid calling card provider must submit a certification, signed by an officer of the company under penalty of perjury, stating that it is in compliance with the reporting requirements described above.- Each prepaid calling card provider also must certify the percentages of total prepaid calling card service revenues (excluding revenue that is exempt under the military exemption adopted above) that are interstate and international and therefore subject to federal universal service assessments for the reporting period.- Certifications will be due on a quarterly basis and may be filed in this docket (WC Docket No. 05-68) using the Commission’s Electronic Comment Filing System.- To give prepaid calling card providers sufficient time to implement this new regulatory regime, this Order will take effect 90 days after it is published in the Federal Register.

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