FCC’s Wireline Competition Bureau Issues Order Exempting Internet Access Service from USF Fees at Retail Level

WASHINGTON, DC (April 30, 2010) The Federal Communications Commission’s (“FCC” or “Commission”) Wireline Competition Bureau (“WCB”) recently issued an Order granting TelePacific Corporation’s, d/b/a TelePacific Communications, (“TelePacific”) Request for Review of a December 2009 Universal Service Administrative Company (“USAC”) decision reclassifying its Internet access service as a Universal Service Fund (“USF”)-assessable interstate telecommunications service.

TelePacific challenged USAC’s decision as contrary to the FCC’s rules and its 2005 Wireline Broadband Order, which identified functionally integrated wireline broadband Internet access services as information services, beyond the FCC’s jurisdiction. TelePacific argued that USAC incorrectly focused on the T-1 facilities the company used to provide its Internet access service, arguing that it provided a functionally integrated Internet access service exempt from USF obligations under the Order.

The WCB concluded that the 2005 Order exempts from USF liability revenues derived by entities purchasing or leasing transmission from telecommunications carriers to provide wireline broadband Internet access services. Therefore, the WCB agreed that TelePacific’s Internet access service escapes the FCC’s USF contribution requirements. The WCB instructed USAC to accept TelePacific’s revised 2008 Form 499-A classifying its Internet access service revenues as information services, exempt from USF contribution obligations.

However, the WCB also concluded that it had insufficient information to determine whether USF contributions must be assessed on revenues derived from the sale of T-1 lines to TelePacific. To resolve this issue, the WCB ordered TelePacific to provide it with a detailed explanation of its method of apportionment and reporting of revenues derived from the sale of voice telephony services, and Internet access and other services over T-1 lines within 60 days. The WCB further directed TelePacific to provide USAC with a list of its wholesale suppliers of transmission services.



AT&T and Verizon Cease Face Value Reporting for Prepaid Calling Cards

WASHINGTON, DC (April 30, 2010) Verizon recently filed an ex parte letter with the FCC discussing Verizon’s universal service contribution obligations related to its prepaid calling card (“PPCC”) revenues. Through this ex parte letter, Verizon announced that, going forward, it “will report in its assessable base of universal service revenues only those revenues that Verizon actually receives from selling prepaid calling cards — not the ultimate retail price of those cards when they are resold.” In other words, but for limited circumstances where the company sells directly to the public, Verizon will cease reporting prepaid calling card revenue at face value. Verizon’s shift in policy comes on the heels of AT&T’s December 2009 announcement that it would cease contributing on the basis of its non-contributing resellers’ revenues for PPCC revenue.



USAC Determines “All IP” Conferencing Service is Telecommunications Subject to Universal Service Fund Contributions

WASHINGTON, DC (May 3, 2010) On May 3, 2010, MeetingOne.com Corp. (“MeetingOne”) filed a petition with the FCC requesting a review of a March 3, 2010 decision issued by USAC. This decision stemmed from an October 5, 2009 request by MeetingOne for a determination from USAC regarding the nature of its services. In response, USAC concluded that MeetingOne has been providing telecommunications and is required to contribute to the USF based on such revenue. USAC reasoned that MeetingOne’s services are similar to Interconnected VoIP and audio-bridging services that the FCC previously determined to be subject to USF contribution obligations.

In its petition for a review of USAC’s decision, MeetingOne makes three main arguments attacking USAC’s conclusions. First, MeetingOne asserts that its service should be classified as a non-USF-assessable information service, because, unlike traditional telecommunications, it processes and reconfigures IP packets rather than merely transmitting data from one point to another. Second, MeetingOne argues that, unlike the audio-bridging services cited by USAC, its services do not directly touch the public switched telephone network (“PSTN”). According to MeetingOne, it provides IP audio conferencing services to its customers solely and exclusively through the use of IP data packets. Finally, MeetingOne maintains that, even if the Commission deems its services to be telecommunications, the uncertainty surrounding the nature of its services mitigates in favor of excusing MeetingOne for any past non-compliance with its regulatory obligations.



Proposed Federal Legislation Targets Cash Card Laundering

WASHINGTON, D.C. (April 23, 2010) United States Representatives Brian Bilbray (R-Calif.) and Gabrielle Giffords (D-Ariz.) recently introduced a bill (H.R. 4966) into Congress that would attempt to slow the flow of drug money across the border by targeting “stored value devices.” Named the “Stored Value Device Registration and Reporting Act of 2010,” the bill would close a “loophole” that allows the value of stored value devices to go undeclared by individuals crossing the border. As an initial matter, the bill seeks to change the classification of stored value devices so that they would be treated the same as any other form of currency. The bill would then require any stored value device issued in excess of $10,000 in the United States to be registered with the Treasury Department. In addition, the bill would require the Secretary of the Treasury to conduct a study on the use of stored value devices and the extent to which they are involved in various illegal activities.

Perhaps most critically, the bill would introduce a number of new regulatory requirements for providers of stored value devices. For example, the bill would extend the existing federal regulations for financial institutions to providers of stored value devices. Providers would also be required to register with the Secretary of the Treasury. As part of this registration, providers would be required to disclose: (1) the name and location of their business; (2) the name and address of each person who owns or controls the business, is a director or officer of the business, or otherwise participates in the conduct of the affairs of the business; (3) the name and address of any depository institution at which the business maintains a transaction account; (4) an estimate of the volume of business in the coming year; and (5) any such other information that the Secretary of the Treasury may require. In addition to the information in this registration, providers of stored value devices would also be required to maintain a list containing the names and addresses of all persons authorized to act as agents on behalf of the provider. This list would have to be provided on request to any appropriate law enforcement agency.



Updates on Escheat Laws and Voluntary Disclosure Issues

WILMINGTON, DELAWARE (April 2010) Unbeknownst to many stored-value providers, under many states’ abandoned property law, the unused balances of stored-value items are considered abandoned property, which revert, or escheat, back to the ownership of the state. Originally, the goal of abandoned property law was to reunite lost or abandoned property with its rightful owner. However, more and more states are beginning to view the unused balances of stored-value items, such as gift cards and prepaid calling cards, as a potentially lucrative source of revenue. These states are beginning to aggressively target any providers of stored-value items whom they suspect may have accrued substantial unused balances that have not been reported to the state.

Fortunately for holders of unused balances who find themselves in such a situation, some states offer Voluntary Disclosure Agreements (“VDAs”) to promote compliance with their state unclaimed property law. A VDA allows holders of unused balances who may be out of compliance to come forward and report unclaimed property such as outstanding unused balances on stored-value devices. Under the laws of a number of states, the state will often release the holder of an unused balance from all claims, interest, and penalties related to property reported under the terms of the VDA.

However, entering into a VDA with a state is not without risk, and a holder of an unused balance or unclaimed property should not do so without the advice of experienced counsel. For example, several years ago, CA, Inc. tried to voluntarily report unclaimed property to the state of Delaware and wound up paying a great deal more for its unclaimed property liabilities than it originally intended. CA, Inc. made an initial VDA offer of $684,036 to the state of Delaware. However, Delaware summarily rejected this initial figure. After years of failed negotiations, Delaware and CA, Inc. went on to sue each other in the Delaware Chancery Court. The parties recently settled this litigation with CA, Inc. agreeing to pay Delaware $17,650,000 to satisfy its unclaimed property liabilities and associated penalties and interest. 



Allison D. Rule is a Senior Attorney at Helein & Marashlian, LLC, The CommLaw Group, a Washington, D.C.-area law firm specializing in federal and state telecom & technology matters, with a concentration in stored value/prepaid. Robert J. Gastner, an associate at the firm, assisted in the preparation of this article. Allison can be reached at adr@commlawgroup.com.