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Regulatory Rundown: 214s, PUC and New Telecom Legislation

Edition: August 15, 2007 Edition
Edward A. Maldonado
1. FCC Revises 214 Rules
2. Telecom State Regulation - Massachusetts PUC overhauled.
3. Summer 2007 Legislative Update on Prepaid Calling Cards
4. Summer State Legislative Update - VoIP & E-911


1. FCC Revises 214 Rules

This past June 2007, the FCC ordered a series of anticipated rule changes that follow-up recommendations made in the 2002 Biennial Review and Notice of Proposed Rulemaking issued in 2004. All Section 214 Common Carriers are well advised to keep these in mind.

Streamlined International Discontinuance. Carriers must now provide 30 days advance notice of international discontinuance of service to the FCC, rather than the 60 days formerly required. This notice must be filed along with the notice to affected customers, directly to the FCC. International discontinuances will not appear on public notice and will require specific prior approval from the FCC.

Cable Landing by Carriers. Cable landing license applicants must now comply with the Coastal Zone Management Act of 1972. Currently there is no state-level review of cable landing applicants and the Coastal Zone Management Act of 1972, but new FCC rules do not rule out some level of review in the future, or that they will require a certification of compliance as a part of the application. To this end, the FCC will not streamline or act on a cable landing license application until it is notified that required state approvals have been received, or may be presumed.

Commercial Mobile Radio Service ("CMRS"). No separate roaming authority is required by CMRS prior to entering roaming agreements with foreign carriers. Current requirements and rules under general Section 214 resale authorization are sufficient to cover the CMRS carrier to resell inbound U.S. services of foreign carriers, under roaming or other arrangement with a foreign carrier, and enables the carrier to provide subscribers abroad the ability to call back to the U.S.

Section 214 Ownership Reduction and Transfer of Control. When ownership in a carrier decreases to less than 50%, it must be reported to the FCC. Prior rules required that an increase in ownership from less than 50% to greater than 50% be reported to the FCC, but not decreases in ownership. Even with the new reporting standard, the diminution of ownership still may qualify as a pro forma transfer of control, subject to after-the-fact notification.

Sale of Assets Does Not Equal Discontinuance. Asset purchases that do not result in a loss of service for customers must be treated as an assignment, and not a discontinuance of service, which requires FCC approval. Although the actual Section 214 authority of the selling carrier may not be assigned as a part of the purchase, the sale of a customer base (in whole or in part) by a common carrier requires prior Section 214 approval. CMRS carriers are not exempt from this rule but do not need to file in the case of spectrum swaps that do not affect customers.


2. Telecom State Regulation - Massachusetts PUC overhauled.

In April 2007, the State of Massachusetts approved plans to reorganize the Department of Telecommunications and Energy ("DTE"), the state regulatory agency with oversight over telecommunications and energy utilities, into two new and distinct executive agencies. The newly created Department of Telecommunications and Cable (or "DTC") will be a part of the Office of Consumer Affairs and Business Regulation. It's mandated duty will be to regulate the telecommunications and cable industries within Massachusetts. Energy regulation will now be under the newly created Commonwealth Utility Commission - a commission operated under the auspices of the Executive Office of Environmental Affairs. The overhaul is a major restructure reducing the total number of commissioners from five, under the old DTE, to one commissioner for the DTC and three commissioners for the Commonwealth Utility Commission. Massachusetts is now the only state with a single-commissioner telecommunications regulatory agency.


3. Summer 2007 Legislative Update on Prepaid Calling Cards

Should Prepaid Calling Cards Foot the Bill for E-911?

What do Prepaid Calling Cards and E-911 have in common? Should pending New Hampshire Bill HB528-FN pass this year, prepaid calling cards sold in that state could end up footing a portion of the costs of E-911 through a new surcharge to consumers. House Bill 528-FN proposes that: "Enhanced 911 systems shall be funded through a surcharge to be levied upon each residence and business telephone exchange line, including PBX trunks and Centrex lines, each individual commercial mobile radio service number, 'each device or service capable of providing access to 911', and each semi-public and public coin and public access line." The Bill also requires that: "Providers of prepaid telephone calling cards shall deduct the monthly surcharge from the customer's account and forward the surcharge to the state treasurer." Unclear in the plain language of HB 528-FN is what the connection is between prepaid calling cards and funding E-911 for wireless and interconnected VoIP providers. Also unclear is how a prepaid calling card is a device or service capable of providing access to 911 in the state of New Hampshire.

A similar, but more logical Bill was seen this past April in the state of Georgia in the form of House Bill 394, which provided for a 911 surcharge on prepaid wireless service subscriptions. Those with prepaid calling cards in New Hampshire should keep an eye on this Bill for the rest of the year.

The [State] Taxman Cometh and Cometh
In 2007, the states have been legislating on the topic of state sales taxes on the retail sales of both prepaid calling services and Internet sales. Traditionally, state sales tax only applied to prepaid calling cards sold within a particular state's borders with the point of sale retailer remitting any applicable tax. Sales of both prepaid calling cards and PINs through online websites and e-distributors have often blurred how this is accounted and when such taxes are applicable. Taking the topic head-on, the State of Mississippi introduced House Bill 1382 in this session to set some parameters for those doing prepaid business with Mississippi consumers.

Bill 1382 seeks to amend Section 27-65-19 of the Mississippi Code by extending the definitions of contributors who must pay the 7% sales tax on all intrastate, interstate and international telecommunications services. It establishes a series of defaults to determine tax nexus where cards are not sold through retailers. Under Mississippi's current sales tax regimen, state tax credits are given for all intrastate, interstate and international telecommunications services taxes paid in other states, subject to the contributor having proof of payment. Bill 1382 would impose Mississippi Sales Tax on prepaid wireless calling service and prepaid calling service for sales that occur within the state. Should the customer not actually purchase the service at the "vendor's place of business", then a series of default presumptions apply to the sale to determine implication of Mississippi sales tax. These presumptions clearly implicate e-commerce sales and the shipment and billing of prepaid cards and PINs. They are: (1) the customer's shipping address when the sale involves shipping; (2) the customer's billing address when billed; (3) the actual address of the customer known by the vendor; (4) or else the address of the vendor, or in the cases of wireless services, the location associated with the mobile number.

Prepaid Telephony Actions by States
Another trend in the 2007 state legislative sessions has been the need to distinguish prepaid calling cards from other prepaid telephony services, such as wireless and VoIP. This growing move by legislators may well enable future sales tax regimes over the various forms of telephone service sectors. For example, Indiana Senate Bill 502-1 seeks to distinguish the three by adding Section 22.4 for "Prepaid Wireless Calling Service" and further clarification under Section 29 as to the Prepaid Calling Card definition. Another Bill in Idaho seeks to impose E-911 fees by isolating Prepaid VoIP from Calling Card services. Idaho House Bill No. 123 provides that prepaid wireline, wireless and VoIP phones should not be considered prepaid calling cards for regulatory and tax purposes. Idaho Bill 123 also requires interconnected VoIP providers offering residential services with E-911 to charge an access fee of $1.00 on each interconnected VoIP line to cover the State of Idaho's portion of E-911 costs.


Wireless: California Senate Votes Down Consumer Protection Legislation

It was a near miss for wireless providers in California this past session. California SB-831 would have required that wireless carriers provide a 30-day trial period during which customers could cancel contracts without penalty. It would have also required proration of early termination charges after the trial period, according to the time remaining on the contract. Another provision of SB-831 would have required wireless contracts to be limited to 2 years and customers' liability for unauthorized use of a lost or stolen phone capped at $50. In a 20-17 vote, the California State Senate killed the Bill and raised the ire of many consumer advocates. SB-831 is the latest in a series of efforts of consumer advocates to impose consumer protection requirements on wireless carriers in California.


4. Summer State Legislative Update - VoIP & E-911

Arkansas - The Arkansas Governor signed SB-236 into law on March 29, 2007. The new law increases the monthly E-911 surcharge from $0.40 to $0.50 and makes the surcharge applicable to all consumers of prepaid cellular services, VoIP, and other "nontraditional phone services" interconnected with the public switched network.

Maryland - Maryland General Assembly SB-864 was passed this past April 2007 and has been sent to the Governor to be signed. This bill prohibits the Maryland Public Service Commission ("PSC") from taking jurisdiction over rates, terms and conditions, and customer complaints of VoIP services. However, the prohibition is not all encompassing and the Maryland PSC will retain jurisdiction to assess E-911 and TRS fees. The Bill further requires that should a telecommunications company move a customer from a Maryland PSC tariffed service to a VoIP-type service, the company must notify the customer that the Maryland PSC does not have jurisdiction over the VoIP service and that any customer complaints must be filed with the Maryland Attorney General's office.

New Jersey - Two identical Bills, New Jersey Senate Bill 2777 and Assembly Bill 4339, seek to prohibit the regulation of rates, terms, and conditions of VoIP and other IP-enabled services. Both bills are now awaiting signature by the Governor. Neither bill precludes enforcement of consumer protection laws or any other requirements imposed by federal law, including 911 Fees, Universal Service Contributions or other FCC imposed charges. The Bills expressly require the state to adhere to obligations under Sections 251 and 252 of the Communications Act. Assembly Bill 4339 is anticipated to be the actual Bill signed into law.

New York - The New York Senate passed SB-4611, a bill that requires VoIP providers to expressly disclose to their customers any limits on basic or E-911 service. If made law, E-911 disclosure would be required on all advertisements, marketing & promotional materials, contracts, and installation instructions. Customers would furthermore have to sign and certify that they are aware of the 911 limitations related to that particular service. Those VoIP Providers unable to provide E-911 access would have to disclose that at the time of sale and in all advertising and would have to provide their customers with "No 911" stickers for their telephones.

While a positive, and possibly popular move toward consumer awareness of E-911 limitations in New York, SB-4611 does not relieve Interconnected VoIP providers from federal requirements under the FCC E-911 Order. The E-911 Order requires that all residential and business services that replace traditional phone lines carry E-911 services without exception. SB-4611 next passes to the New York House for debate and review.

Attorney Edward A. Maldonado is President of the Regnum Group, Inc. and the
Maldonado Group. He can be reached at eam@maldonado-group.com.

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