Dear Jonathan –

I operate a small prepaid calling card business which offers our customers the ability to place calls using both toll-free and local access telephone numbers.  Lately, I’ve been hearing rumors that a certain incumbent local exchange company wants to impose restrictions on a prepaid calling card provider’s ability to use local access numbers for call origination.  Without local access to our calling card platform, our customers would be forced to pay a lot more to make calls; so much so, I’m afraid our services would wind up being priced out of the market.  Should we be concerned that our company, our industry, and our customers will be shut out from obtaining low-cost local access service?

-- Concerned



Dear Concerned  –

I am well aware of the rumors you speak of, though the concerns you’ve expressed may be somewhat premature.  Allow me to explain.

In late 2008, several prepaid calling card providers began receiving cease and desist letters from AT&T Local Exchange Carriers (“AT&T”).  In the letters, AT&T demanded that the providers discontinue their use of direct inward dialing (“DID”) arrangements to secure local access numbers through which consumers could access a prepaid calling card platform.  AT&T also insisted that the providers begin to route and deliver their traffic over Feature Group trunks, which would generally result in the application of higher access charges.  In its letters, AT&T takes the position that the use of DIDs by prepaid calling card providers (“PPCCs”) constitutes an improper attempt to evade federal law and is contrary to the terms of AT&T’s access tariffs.  AT&T threatened to pursue legal remedies, including seeking injunctive and monetary relief, in the event that the prepaid providers disagree with AT&T’s position and fail to “comply with the requested actions.” 

In support for its position, AT&T relied heavily on the FCC’s Prepaid Calling Card Order, wherein the FCC stated that all PPCCs would be treated as telecommunications providers.  In the Matter of Regulation of Prepaid Calling Card Services, Declaratory Ruling and Report and Order, 21 FCC Rcd 7290, Rel. June 30, 2006 (the “PPCC Order”).  In particular, in the PPCC Order, the FCC stated its intention that all PPCCs pay the applicable interstate and intrastate access charges for prepaid calls.  Further, as noted by AT&T, the PPCC Order required that prepaid providers and their carriers “pass the CPN of the calling party (i.e., the number associated with the telephone used by the cardholder) and not replace that number with the number associated with the platform.” 

While AT&T insists that PPCCs cease the use of DIDs, the PPCC Order contains no prohibition on that practice.  Notably, the PPCC Order contains no mention of the use of local access numbers by providers of prepaid calling cards.  While the FCC erroneously assumed that that every prepaid calling card call will require the calling party to initiate such calls using an 8YY number, it is questionable whether the FCC’s misunderstanding can equate to a prohibition on the use of DIDs by prepaid providers. 

Similarly, AT&T’s reliance on its access tariffs may be misplaced to the extent that AT&T is seeking to dictate the conduct of parties with which it has no direct relationship.  Prior to the issuance of the PPCC Order, AT&T requested that the FCC grant it sweeping auditing rights and that the FCC impose broad reporting obligations on PPCCs with which AT&T had no direct relationship.  The FCC declined to grant AT&T such authority in the PPCC Order, which specifically states:

While AT&T’s proposal would require calling card providers to make certifications regarding the actions of other carriers, the requirements we adopt here require calling card providers to certify only to their own activities.

We also require prepaid calling card providers to report PIU factors to those carriers from which they purchase transport services.

AT&T is not the first carrier to express concern over the use of local DIDs by PPCCs.  Subsequent to the FCC’s release of the PPCC Order, Arizona Dialtone, a CLEC providing wireline service, filed a petition seeking reconsideration of the Order.  Arizona Dialtone’s petition is currently pending before the FCC.  In its petition, Arizona Dialtone requested that the FCC clarify which party is responsible for paying access charges when local access is used to place a prepaid calling card call and to impose additional reporting requirements for those carriers providing DIDs and for PPCCs using DIDs.  Notably, in its petition, Arizona Dialtone does not assert that the PPCC Order created such a prohibition, nor does Arizona Dialtone seek the imposition of such a restriction.  Rather than questioning whether the use of DIDs should be permissible, Arizona Dialtone’s petition focuses on how to regulate such use. 

It is unclear, at this time, how many prepaid providers received AT&T’s cease & desists or how many have agreed to migrate to Feature Group Access.  However, one prepaid provider, STI Prepaid, LLC (“STi”), brought AT&T’s actions to the attention of the FCC and requested that the Commission clarify that PPCCs are not required to pay access charges to third party local exchange carriers for calls placed to local DIDs. 

STi articulates three arguments in support of its request:  (1) it is receiving access to the PSTN by virtue of local service purchased from CLECs – a legal practice; (2) the PPCC Order did not address the exchange of locally-dialed prepaid card traffic and that “interstate or intrastate jurisdiction determined by end points of a communications is not relevant to determining whether traffic is subject to access charges”; and (3) “locally dialed calls originated by AT&T customers are subject to reciprocal compensation, not access charges.”  Finally, STi states that AT&T’s approach would result in piece-meal litigation and that the dispute is better resolved through an industry-wide decision. 

By virtue of Arizona Dialtone’s and STi’s pending requests before the FCC, it is likely that final resolution of the issues presented by AT&T’s cease & desist letters will require FCC intervention and action.  To the extent that the FCC has expressed concerns about avoidance of access fees on the part of PPCCs, AT&T’s arguments are not wholly without merit.  That being said, it is unclear the extent to which the FCC is willing to provide AT&T and other third-party local exchange carriers with the regulatory means to insinuate themselves into the private, lawfully executed contractual relationships between PPCCs and CLECs providing DIDs.

The issue warrants continued diligence and awareness on the part of the PPCC industry, for it does carry the potential for an unfortunate and costly result.  I would urge any PPCC that has, in fact, received a cease & desist letter from AT&T or that is generally concerned about this issue to seek advice from their legal counsel.  



Jonathan S. Marashlian is a partner at Helein & Marashlian, LLC, The CommLaw Group, a Washington, D.C.-area law firm specializing in federal and state telecommunications and technology matters. He can be reached at jsm@commlawgroup.com.  Allison D. Rule, a Senior Associate at The CommLaw Group, assisted with this article.