AT&T and Verizon Seek Clarification or Partial Reconsideration of Order Granting Request for Review of USAC Decision to TelePacific

WASHINGTON, D.C. (June 2010) AT&T, Verizon, CenturyLink, and SureWest (“Wholesale Providers”) filed a petition for clarification or partial reconsideration (“Petition”) of an order (“TelePacific Order”) issued by the Wireline Competition Bureau (“WCB”) of the Federal Communications Commission (“FCC” or “Commission”) granting TelePacific Corp. 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.

In the TelePacific Order, the WCB concluded that the FCC’s 2005 Wireline Broadband Order exempts from USF liability revenues derived by entities purchasing or leasing transmission from telecommunications carriers to provide wireline broadband Internet access services.  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 the issue, the WCB ordered TelePacific to provide the WCB with a detailed explanation of its reporting of revenues derived from the sale of services over T-1 lines and to provide USAC with the names and contact information of its wholesale providers of transmission services within 60 days.

In their Petition, the Wholesale Providers request that the WCB clarify or partially reconsider the TelePacific Order and confirm that, under the Commission’s existing orders and rules, TelePacific’s underlying wholesale carriers cannot be forced to restate prior year revenues and make additional contributions to the USF.  According to the Wholesale Providers, the TelePacific Order suggests that the WCB intends to require that TelePacific’s wholesale carriers reclassify as end-user revenues certain “carrier’s carrier” revenues reported as such based on TelePacific’s reseller certifications.  The Wholesale Providers argue that such an approach would violate the Commission’s orders and rules, which require USF contributions on end-user telecommunications revenues and not on revenues associated with wholesale purchases by resellers.



FTC Settles Suit Alleging Misrepresentation with Prepaid Calling Card Distributor, Diamond Phone Card

WASHINGTON, D.C. (May 2010) The Federal Trade Commission (“FTC”) recently reached a settlement with prepaid calling card distributor, Diamond Phone Card, Inc. (“Diamond”) and its principals, stemming from a 2009 complaint alleging that the company engaged in a practice of making false claims regarding the number of minutes delivered and failed to disclose maintenance and other fees.  Pursuant to the settlement, Diamond agreed to submit a voluntary payment of $500,000 and regular compliance reports.  Further, the agreement restrains Diamond from making material misrepresentations regarding its prepaid calling cards and requires that it clearly and prominently disclose all product limitations in its promotional materials, including for example, minutes available on each card and limitations on talk time.  The settlement was filed with the U.S. District Court for the Eastern District of New York.

This agreement represents the third enforcement action against prepaid calling card providers that has been resolved by settlement since 2009.  The settlement brings the total sum collected from prepaid calling card companies for alleged false advertising to $4 million.  In a statement accompanying the announcement of the agreement, Commissioners Ramirez and Brill encouraged Congress to act to eliminate barriers to the FTC’s enforcement authority, namely the rule exempting common carriers from the FTC Act.  Because of the statute’s restrictions, the FTC has focused its enforcement efforts on distributors rather than prepaid calling card carriers. The FTC seeks to expand its authority to assert jurisdiction over carriers, and through its federal-state joint task force, aggressively target carriers making misrepresentations to the public.



Senate Announces Bill Requiring Purchasers to Show ID Before Buying Prepaid Cell Phones

WASHINGTON, D.C. (May 2010) A bipartisan bill introduced in the Senate proposes to remove the cloak of anonymity from prepaid cell phone purchases.  The legislation requires prepaid phone purchasers to present identification at the point of sale before completing the purchase.  Currently, prepaid phone purchasers can generally buy phones without providing a name or address.  Sponsors Charles Schumer (D-NY) and John Cornyn (R-TX) argue that the bill will assist police in investigating “terrorists, drug lords and gang members.”

The bill aims to curb illegal uses of prepaid phones from plotting acts of terrorism to engaging in insider trading.  But, the bill will also negatively impact other anonymous, but legal activities.  For example, it would destroy privacy for abuse victims, whistleblowers and individuals seeking to escape telemarketing calls.  The bill follows the recent attempted bombing in Times Square which, according to authorities, was arranged anonymously through the use of prepaid phones.



AT&T Announces the End

of Unlimited Data Plans

NEW YORK, NY (June 2010) AT&T announced that new users will no longer be able to subscribe to its existing unlimited data plans for smart phones.  Instead, customers must select one of two data plans prescribing set limitations on data usage, with a per-gigabyte charge for extra capacity.  Existing customers, however, may retain their unlimited plans, even if they renew their contracts.  AT&T hopes that the new plans will help ease congestion on its network which has prompted complaints from users nationwide, particularly in major cities.  The decision follows the announcement of the release of the highly anticipated upgraded Apple iPhone. 

In taking this action, AT&T faces the risk of customer backlash related to the newly imposed limitations on usage.  For example, Time Warner Cable, Inc. abandoned trials of data caps last year in light of protests and threats of legislative action.  Other entities, however, already impose limitations on data usage.  Sprint Nextel Corp., for example, reserves the right to slow down or disconnect users hogging network capacity. 

The move represents a growing trend toward usage-based pricing for data services designed to curb network abuse and over-use.  It could also promote controversial network management practices, whereby providers discriminate between traffic, for example, based upon the price paid for access.  Such network management practices were the subject of a recent U.S. Court of Appeals for the District of Columbia decision ruling that the FCC has no authority to prohibit Internet access providers like Comcast from interfering with subscribers’ use of peer-to-peer programs.  The decision rekindled the ongoing debate regarding net neutrality, a principle encouraging treatment of all network transmission as equal.  Likewise, with the release of the Commission’s National Broadband Plan, which aims to increase broadband deployment nationwide, the issue of net neutrality will likely resurface. 



Court Grants Patent Claim Construction Favoring Card Activation Technologies

CHICAGO, ILLINOIS (June 2010) The United States District Court for the District of Delaware entered an order favorable to Card Activation Technologies, Inc. (“CAT”).  CAT owns patented point-of-sale technology that activates and processes debit, credit and prepaid card transactions.  The order was issued in a suit commenced by Stored Value Solutions, Inc. (“SVS”) seeking to declare CAT’s patent unlawful.  The order construed the claimed patent in a manner favorable to CAT.  For example, the court agreed with CAT’s proposed construction of the term “telecommunications means” as used to describe the functions of the patented process.  Similarly, the court sanctioned CAT’s proposed definitions of other terms describing the patent, such as “purchasing value of a card in response to card use.”  If no objections are filed, the action for declaratory judgment will move forward, with the court construing the terms as recommended in the order.



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.  Jacqueline R. Hankins, an associate at the firm, assisted in the preparation of this article.  Allison can be reached at adr@commlawgroup.com.