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Year of the DAC
By Jonathan Marashlian |
On the Chinese calendar, 2006 is the Year of the DOG.
The FCC’s Enforcement Bureau’s 2006 calendar is shaping up to be the Year of the DAC!
In an article published in The Prepaid Press this past May, this author asked the question, “FCC Universal Service Fund (USF) Enforcement: Is the sleeping lion about to wake?” Several months, hundreds of investigations, nearly a dozen Notices of Apparent Liability (NALs), and over $5 million in proposed forfeitures later, the answer to my question appears to be a resounding “Yes!”
Today, on the precipice of 2006, the Year of the Dog, there appears to be a new regulatory issue garnering considerable attention from the FCC’s Enforcement Bureau – Dial-Around Compensation or “DAC,” as it is commonly called in the industry. Thus, if this prognosticator of bad news is correct again and 2005 was the Enforcement Bureau’s Year of the USF, signs point to 2006 being the Year of the DAC.
As most readers are aware, DAC is the acronym describing the fee paid by long distance carriers (including prepaid calling providers) to payphone service providers (PSPs) as compensation for coinless calls placed from payphone facilities and completed by the carrier. DAC came into being through the Telecommunications Act of 1996 (Act) where, in Section 276, Congress opened the incumbent LEC dominated public payphone market to competition and directed the FCC to promulgate rules designed to ensure all PSPs are “fairly compensated” for each and every completed intrastate and interstate call originating from their payphones. In the ensuing years, the FCC repeatedly tried, yet failed, to devise enforceable regulations to implement Congress’ objective.
Then, on October 3, 2003, the FCC released its Report and Order in Docket No. 96-128, commonly known as the “Tollgate” Order. The Tollgate Order is the result of a January 2003 D.C. Circuit Court remand of the Second Order of Reconsideration, an earlier attempt by the FCC to remedy problems in the payphone compensation rules. The Tollgate Order substantially modified existing payphone compensation rules by placing compensation responsibility squarely on the shoulders of switch-based resellers (“SBRs”). But the real teeth in the new regulations came in the form of stringent compensation and call completion tracking requirements which are more readily enforceable through a combination of certification and independent audit rules, discussed in greater detail below. Lastly, the Order sets penalties for non-compliance that are up to $120,000 for a single late payment and up to $1.2 million for continued violations.
Under the Tollgate regime, the SBR or whichever carrier completes the coinless or dial-around call must:
• Establish a tracking system to accurately track coinless access code or subscriber toll-free payphone calls to completion.
• Pay compensation to PSPs on a quarterly basis for each and every completed call.
• Submit a sworn statement, signed by its Chief Financial Officer, to PSPs attesting to the accuracy and completeness of payment for each quarter.
• Submit a report at the conclusion of each quarter to PSPs which includes: (a) a list of the toll-free and access numbers dialed from that PSP’s payphones and the ANI for each payphone; (b) the volume of calls for each toll-free/access number; (c) the name, address, and phone number of the person(s) responsible for handling payphone compensation; and (d) the carrier identification code of all facilities-based long distance carriers that routed calls listed in the report.
• Finally, the Tollgate Order requires an independent third party audit of the SBR’s coinless call tracking system to determine whether the carrier’s call tracking system accurately tracks payphone calls to completion. All carriers completing calls are required to file an audit report with the FCC.
It is fair to say that the stringent Tollgate regulations resulted, in large part, from the persistent and forceful efforts of one PSP aggregator in particular, the American Public Communications Council, Inc. (“APCC Services”). For nearly a decade, APCC Services has been on the forefront of the payphone compensation issue; lobbying the FCC for enforceable rules, litigating non-compliant carriers in federal & state courts and before the FCC, and generally promoting the interests of its constituent PSPs. Today, over two years since the effective date of the Tollgate rules and six months shy of the third annual DAC audit deadline, APCC Services remains the driving force behind enforcement of the regulations, both in terms of pursuing commercial resolutions directly with carriers and litigating before the FCC. See The Prepaid Press, “Radiant APCC Battle Starts” (Nov. 2005). Despite its efforts, even APCC Services concedes it cannot single-handedly ensure universal enforcement of the Tollgate rules, which is why the aggregator turned up the pressure on the FCC Enforcement Bureau this past year. APCC Services’ hinted at its Bureau level lobbying efforts in last month’s issue of The Prepaid Press, wherein Willard R. Nichols, APCC Services’ President, stated:
“APCC Services has identified several hundred carriers, in fact, about 80% of all the carriers who have payment obligations that are not making payments or complying with the FCC’s audit and data submission requirements… With this sort of massive failure in compliance, it is incumbent on the FCC to begin quickly its own review and investigation of the carriers’ lack of performance. And the agency should make clear, immediately, that it meant what it said in adopting the new tollgate rules – abuse of its payphone compensation rules will not be tolerated. Significant forfeitures, payment orders with punitive damages, and removal of Section 214 operating authority, all should be carefully considered and imposed by the agency for those carriers who continue to try and ‘hide in the weeds.’”
Readers of the tea leaves, such as I, have reason to conclude that the “list” of several hundred carriers identified by APCC Services as being delinquent in their regulatory obligations and “hiding in the weeds” has indeed been provided to the FCC’s Enforcement Bureau. Even more concerning are signs that the FCC is already taking action in response and has started to walk down the road map for enforcement laid out by APCC Services’ President. That’s correct, investigations have been initiated.
The FCC, which not long ago was one of the least feared regulatory agencies due to its long history of slack enforcement, quickly shed its timid image under the tutelage of former Chairman Powell. The Bureau awakened in 2005 with a vengeance and it does not appear to be retreating with Chairman Martin in charge. The Bureau staffed up during the past few years and, unlike in the past, alleged violations of the Communications Act and FCC Regulations are not being shuffled under the rug due to internal resource limitations.
Today’s new paradigm in which regulations are not only promulgated, but actually enforced by the FCC, should be a concern to anyone currently involved in or contemplating entry into the prepaid telecommunications industry; an industry segment which until recently was widely considered off the regulatory radar screen. But, if the trend, which started in 2005 with stepped up USF enforcement, continues and DAC is added to the menu of regulatory requirements for which the FCC wants to see improved compliance (something this author believes has already occurred), then the stage is set for 2006 to be a challenging year for prepaid providers.
Beware; the “Year of the DAC” is upon us.
Disclaimer: None of the information contained in this article should be construed as legal advice. If you need legal advice regarding any of the matters addressed in the article, please seek the assistance of legal counsel.
Jonathan S. Marashlian is partner at The Helein Law Group, a Washington, D.C.-area law firm specializing in federal and state telecommunications and technology matters.
He can be reached at jsm@thlglaw.com.
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