[Federal Register Volume 70, Number 50 (Wednesday, March 16, 2005)]
[Proposed Rules]
[Pages 12828-12832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-5167]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[WC Docket No. 05-68; FCC 05-41]


Regulation of Prepaid Calling Card Services

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (Commission) commences a proceeding to 
consider comprehensively the appropriate classification of and its 
jurisdiction over prepaid calling card services that provide users with 
the ability to do more than merely place a phone call. The Commission 
also seeks comment on ways in which it can ensure that prepaid calling 
cards continue to be available at reasonable rates to soldiers and 
their families.

DATES: Comments are due on or before April 15, 2005 and reply comments 
are due on or before May 16, 2005.

ADDRESSES: You may submit comments, identified by WC Docket No. 05-68, 
by any of the following methods:
     Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-Mail: To get filing instructions, filers should send an 
e-mail to [email protected], and include the following words in the body of 
the message: ``get form.''
     U.S. Postal Service Mail: 445 12th Street, SW., 
Washington, DC 20554.
     Commercial Overnight Mail: 9300 East Hampton Drive, 
Capitol Heights, MD 20743.
     Hand-Delivery or Messenger-Delivery: 236 Massachusetts 
Avenue, NE., Suite 110, Washington, DC 20002.
    For detailed instructions for submitting comments, other filing 
methods, and additional information on the rulemaking process, see the 
``Comment Filing Procedures'' heading of the SUPPLEMENTARY INFORMATION 
section of this document.

FOR FURTHER INFORMATION CONTACT: Fred Campbell, Pricing Policy 
Division, Wireline Competition Bureau, via telephone: (202) 418-1553 or 
e-mail: [email protected].

SUPPLEMENTARY INFORMATION: The Commission released an Order and NPRM 
addressing prepaid calling card services on February 23, 2005. See AT&T 
Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid 
Calling Card Services; Regulation of Prepaid Calling Card Services, WC 
Docket Nos. 03-133 & 05-68, Order & Notice of Proposed Rulemaking, FCC 
05-41 (rel. Feb. 23, 2005) (Order & NPRM). This is a summary of the 
NPRM portion of the Order & NPRM. Copies of the Order & NPRM and any 
subsequently filed documents in this matter are or will be available on 
the Commission's Internet site at http://www.fcc.gov and for public 
inspection Monday through Thursday from 8 a.m. to 4:30 p.m. and Friday 
from 8 a.m. to 11:30 a.m. at the FCC Reference Information Center, 
Portals II, 445 12th St. SW., Room CY-A257, Washington, DC 20554. 
Copies of any such documents may also be purchased from the 
Commission's copy contractor, Best Copy and Printing, Inc. (BCPI), 
Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, 
telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-5562, 
e-mail [email protected]. Accessible formats (computer diskettes, large 
print, audio

[[Page 12829]]

recording and Braille) are available to persons with disabilities by 
contacting the Consumer & Governmental Affairs Bureau, at (202) 418-
0531, TTY (202) 418-7365, or at [email protected].

Background

    Prepaid calling cards provide consumers with the ability to place 
long-distance calls without presubscribing to an interexchange carrier 
(IXC) or using a credit card. A calling card customer typically dials a 
number to reach the service provider's centralized switching platform 
and the platform requests the unique personal identification number 
associated with the card for purposes of verification and billing. When 
prompted by the platform, the customer dials the destination number and 
the platform routes the call to the intended recipient.
    To date, calling card services have been regulated by the 
Commission as telecommunications services because they provide 
transmission of information, without a change in form or content, for a 
fee directly to the public. Consistent with this classification, the 
Commission requires carriers to report revenues from prepaid calling 
cards on the forms submitted to the Universal Service Administrative 
Company for purposes of universal service contributions.
    Calling cards have been considered ``jurisdictionally mixed'' 
telecommunications services because they enable the caller to make 
interstate and intrastate calls. For purposes of determining the 
jurisdiction of calling card calls, the Commission has applied an 
``end-to-end'' analysis, classifying long-distance calls as 
jurisdictionally interstate or intrastate based on the endpoints, not 
the actual path, of each complete communication. Under the Commission's 
end-to-end analysis, intrastate access charges apply when customers use 
prepaid calling cards to make interexchange calls that originate and 
terminate within the same State, even if the centralized switching 
platform is located in a different State.
    In the Order & NPRM, the Commission held that these same rules 
apply to AT&T's ``enhanced'' prepaid calling card service that 
transmits an advertisement to the customer during call setup. AT&T had 
requested that the Commission declare that its ``enhanced'' prepaid 
calling card service is an ``information service'' within the meaning 
of the Communications Act and the Commission's rules, and that calls 
between persons in the same State are jurisdictionally interstate so 
long as the prepaid calling card platform delivering the advertising 
message is in another State. The Commission denied AT&T's petition 
based on its finding that AT&T's ``enhanced'' calling card service is a 
telecommunications service and the location of the calling card 
platform used in that service is irrelevant to the jurisdictional 
analysis.
    On November 22, 2004, prior to adoption of the Order & NPRM, AT&T 
filed an ex parte letter amending its petition to request an additional 
ruling on two new variants of its ``enhanced'' prepaid calling card 
service. In the first variant, rather than immediately sending the 
advertising message, the platform provides the caller with a series of 
options other than making a call (e.g., ``press 1 to learn more about 
specials at ABC stores; press 2 to add minutes to your card''). AT&T 
recently added this type of capability to cards it offers through a 
partnership with Wal-Mart Stores, Inc., including an option for 
customers to donate minutes to troops serving overseas. When the chosen 
option is completed, or if no option is chosen, the caller is directed 
to dial the destination number and at that point the platform transmits 
the advertising message in the same manner as the original version of 
the service.
    In the second variant, the service provided to the customer may be 
the same as the service ruled upon in the Order & NPRM or the variant 
described above, but some of the transport is provided over AT&T's 
Internet backbone using Internet Protocol technology. AT&T states that 
these calls are not dialed on a 1+ basis and therefore are not covered 
by the Commission's prior determination that ``IP-in-the-middle'' calls 
are telecommunications services, and not information services. See 
Petition for Declaratory Ruling that AT&T's Phone-to-Phone IP Telephony 
Services are Exempt from Access Charges, WC Docket No. 02-361, Order, 
19 FCC Rcd 7457 (2004) (AT&T IP Telephony Order). According to AT&T, 
the AT&T IP Telephony Order is inapplicable because it was expressly 
limited to calls that utilize 1+ dialing.

Discussion

    In the Order & NPRM, the Commission found that AT&T's original, 
``enhanced'' prepaid calling card service does not meet the statutory 
definition of an information service because: (1) AT&T does not offer 
any capability to the customer with respect to the advertising message; 
and (2) the advertising message is incidental to the underlying 
telecommunications service. We seek comment on how to apply this 
analysis to the first variant on AT&T's ``enhanced'' calling card 
service described above. Does offering the caller a menu of options to 
access information satisfy the definition of an information service, or 
must the information made available be more integral to the underlying 
telecommunications service? How should we distinguish between 
incidental information and information that is essential to the 
service? Is there any evidence that any of these cards are being 
marketed as providing a service other than making telephone calls? Is 
there any evidence that customers purchase these cards for any reason 
other than making telephone calls? Is the customer's purpose in buying 
the card relevant to this inquiry? How relevant is the frequency with 
which customers use any such additional features? We seek comment on 
the manner in which these cards are marketed, the types of features 
they offer, and the frequency with which customers use those features.
    We also seek comment on the extent to which the use of IP 
technology to deliver calls placed using prepaid calling cards is a 
relevant factor in determining its classification under the Act. In the 
AT&T IP Telephony Order, we concluded that an AT&T voice service 
utilizing 1+ dialing from a regular telephone that is converted into IP 
format for transport over AT&T's network and converted back into analog 
format for delivery through local exchange carrier lines is a 
telecommunications service. We stated that this conclusion applies to 
all services that (1) use ordinary customer premises equipment with no 
enhanced functionality, (2) originate and terminate on the public 
switched telephone network, and (3) undergo no net protocol conversion 
and provide no enhanced functionality to end users due to the 
provider's use of IP technology. Are prepaid calling card services that 
use ``IP-in-the-middle'' and meet these same criteria also 
telecommunications services? Does it matter, as AT&T argues, whether 1+ 
dialing or 8YY dialing is used to originate the call? AT&T has asserted 
that other prepaid calling card providers are using IP to transport 
prepaid calling card services and are treating such calls as 
information services. If other providers are offering such services, 
are they treating them as information services? If so, how are those 
services similar or dissimilar to the ``IP-in-the-middle'' service we 
classified as a telecommunications service in the AT&T IP Telephony 
Order?
    In addition to services similar to the variants described above, we 
seek comment on how we might distinguish between telecommunications and

[[Page 12830]]

information services for other existing or potential prepaid calling 
card services that incorporate features not specifically addressed in 
this item. Are there other existing prepaid calling cards that offer 
capabilities in addition to the ability to place a phone call? What 
capabilities do these other cards offer, and how are they different 
from the prepaid calling cards offered or proposed by AT&T? In what 
other ways is IP technology being used to provide prepaid calling 
services? What other features are relevant to the classification of any 
existing or potential prepaid calling cards?
    To the extent the variant services described by AT&T or other 
existing or potential prepaid calling card services are classified as 
information services, they presumably would be subject solely to 
Federal jurisdiction. If any such services are classified as 
telecommunications services, we seek comment on the circumstances, if 
any, under which we should assert exclusive Federal jurisdiction, even 
if the calls originate and terminate in the same State. What factors 
would be relevant in deciding whether the Commission should assert 
exclusive jurisdiction? Does the Commission's recent Vonage Order have 
any relevance in this circumstance? See Vonage Holdings Corporation 
Petition for Declaratory Ruling Concerning an Order of the Minnesota 
Public Utilities Commission, WC Docket No. 03-211, Memorandum Opinion 
and Order, FCC 04-267 (rel. Nov. 12, 2004).
    The record developed in the Order & NPRM proceeding made clear that 
prepaid calling cards are a vital communications tool for members of 
the armed services and their families. We seek comment on whether there 
are steps this Commission can take to ensure that prepaid calling cards 
continue to be available to soldiers and their families at reasonable 
rates. Specifically, are there any circumstances in which soldiers and 
their families would be negatively impacted if prepaid calling cards 
were subject to universal service and access charges? If there would be 
any such negative impact, are there steps the Commission can take, 
consistent with the requirements of the Telecommunications Act of 1934, 
as amended, to ameliorate it? In this respect, would it be within our 
authority to exempt calling cards sold at military exchanges or other 
military retails outlets from universal service or access charges, or 
within our authority to forbear from applying such charges? Even if it 
is within our authority, is it technically feasible for vendors to 
differentiate such cards?

Comment Filing Procedures

    Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or before the dates indicated in the DATES section of this 
document. Comments may be filed using: (1) The Commission's Electronic 
Comment Filing System (ECFS), (2) the Federal Government's eRulemaking 
Portal, or (3) by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ 
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments.
     For ECFS filers, if multiple docket or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to [email protected], and include the following 
words in the body of the message: ``get form.'' A sample form and 
directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number. Filings can be sent by hand or messenger delivery, 
by commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). All filings must be addressed to 
the Commission's Secretary, Office of the Secretary, Federal 
Communications Commission.
     The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail must be sent to 445 12th Street, SW., Washington DC 20554.
    People with Disabilities may contact the FCC to request materials 
in accessible formats (braille, large print, electronic files, audio 
format, etc.) by e-mail at [email protected] or call the Consumer & 
Governmental Affairs Bureau at 202-418-0531 (voice), 202-418-7365 
(TTY).

Ex Parte Requirements

    This matter shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. See 47 
CFR 1.1200, 1.1206. Persons making oral ex parte presentations are 
reminded that memoranda summarizing the presentations must contain 
summaries of the substance of the presentations and not merely a 
listing of the subjects discussed. More than a one or two sentence 
description of the views and arguments presented generally is required. 
See 47 CFR 1.1206(b). Other rules pertaining to oral and written ex 
parte presentations in permit-but-disclose proceedings are set forth in 
section 1.1206(b) of the Commission's rules. 47 CFR 1.1206(b).

Initial Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act of 1980, as amended 
(RFA), 5 U.S.C. 603, the Commission has prepared this Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on a substantial number of small entities by the 
policies and rules proposed in the NPRM. Written public comments are 
requested on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines indicated in the DATES section 
of this document. The Commission will send a copy of the NPRM and IRFA 
to the Chief Counsel for Advocacy of the Small Business Administration 
(SBA).

Need for, and Objectives of, the NPRM

    In the past, the Commission has treated prepaid calling cards as 
jurisdictionally mixed telecommunications services subject to State and 
Federal regulation. As companies introduce ``enhanced'' prepaid calling 
cards, questions arise as

[[Page 12831]]

to whether these new services should be subject to the same regulatory 
treatment. In the NPRM, the Commission seeks comment on two types of 
``enhanced'' prepaid calling card services offered or planned by AT&T 
as well as other existing or potential prepaid calling card services 
incorporating features that are not currently addressed by our rules. 
Specifically, the Commission seeks comment on the classification of 
such services as telecommunications services or information services 
and whether, or under what circumstances, the Commission should 
exercise exclusive Federal jurisdiction over such services. The 
Commission also seeks comment on whether there are steps it can take to 
ensure that prepaid calling cards continue to be available to soldiers 
and their families at reasonable rates.

Legal Basis

    This rulemaking action is supported by sections 4(i), 4(j), 201, 
202, 203, and 254 of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), (j), 201, 202, 203, 254.

Description and Estimate of the Number of Small Entities to Which the 
Notice Will Apply

    The RFA, 5 U.S.C. 603, directs agencies to provide a description 
of, and, where feasible, an estimate of the number of small entities 
that may be affected by the proposed rules, if adopted. The RFA 
generally defines the term ``small entity'' as having the same meaning 
as the terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' In addition, the term ``small business'' 
has the same meaning as the term ``small business concern'' under the 
Small Business Act. A ``small business concern'' is one which: (1) Is 
independently owned and operated; (2) is not dominant in its field of 
operation; and (3) satisfies any additional criteria established by the 
SBA.
    The most reliable source of information regarding the total numbers 
of certain common carrier and related providers nationwide, as well as 
the number of commercial wireless entities, appears to be the data that 
the Commission publishes in its Trends in Telephone Service report. The 
SBA has developed small business size standards for wireline and 
wireless small businesses within the three commercial census categories 
of Wired Telecommunications Carriers, Paging, and Cellular and Other 
Wireless Telecommunications. Under these categories, a business is 
small if it has 1,500 or fewer employees. Below, using the above size 
standards and others, we discuss the total estimated numbers of small 
businesses that might be affected by our actions.
    We have included small incumbent LECs in this present RFA analysis. 
As noted above, a ``small business'' under the RFA is one that, inter 
alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent LECs are not 
dominant in their field of operation because any such dominance is not 
``national'' in scope. We have therefore included small incumbent LECs 
in this RFA analysis, although we emphasize that this RFA action has no 
effect on Commission analyses and determinations in other, non-RFA 
contexts.
    Wired Telecommunications Carriers: The SBA has developed a small 
business size standard for Wired Telecommunications Carriers, which 
consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 1997, there were 2,225 firms in 
this category, total, that operated for the entire year. Of this total, 
2,201 firms had employment of 999 or fewer employees, and an additional 
24 firms had employment of 1,000 employees or more. Thus, under this 
size standard, the majority of firms can be considered small.
    Local Exchange Carriers: Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to local exchange services. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,310 carriers reported that they were 
incumbent local exchange service providers. Of these 1,310 carriers, an 
estimated 1,025 have 1,500 or fewer employees and 285 have more than 
1,500 employees. In addition, according to Commission data, 563 
companies reported that they were engaged in the provision of either 
competitive access provider services or competitive local exchange 
carrier services. Of these 563 companies, an estimated 472 have 1,500 
or fewer employees and 91 have more than 1,500 employees. In addition, 
37 carriers reported that they were ``Other Local Exchange Carriers.'' 
Of the 37 ``Other Local Exchange Carriers,'' an estimated 36 have 1,500 
or fewer employees and one has more than 1,500 employees. Consequently, 
the Commission estimates that most providers of local exchange service, 
competitive local exchange service, competitive access providers, and 
``Other Local Exchange Carriers'' are small entities that may be 
affected by the rules and policies proposed herein.
    Telecommunications Resellers: The SBA has developed a size standard 
for a small business within the category of Telecommunications 
Resellers. Under that SBA size standard, such a business is small if it 
has 1,500 or fewer employees. According to Commission data, 32 
companies reported that they were engaged in the provision of prepaid 
calling cards. Of these 32 companies, an estimated 31 have 1,500 or 
fewer employees and one has more than 1,500 employees. Consequently, 
the Commission estimates that the great majority of prepaid calling 
card providers are small entities that may be affected by the rules and 
policies proposed herein.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    In the NPRM, we are seeking comment on, among other things, the 
appropriate classification of certain prepaid calling card services and 
the scope of Federal jurisdiction over such services. If we determine 
that particular prepaid calling card services are telecommunications 
services, providers of any such services that have not complied with 
applicable regulatory requirements in the past would be subject to 
additional reporting or recordkeeping burdens related to those 
requirements. If the Commission determines that it should exercise 
exclusive Federal jurisdiction over prepaid calling card services, any 
current reporting and recordkeeping burdens related to state regulation 
likely would be reduced.

Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered

    The RFA requires an agency to describe any significant alternatives 
that it has considered in reaching its proposed approach, which may 
include the following four alternatives (among others): (1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.

[[Page 12832]]

    In this NPRM, the Commission seeks comment on the classification of 
prepaid calling card services, the scope of Federal jurisdiction over 
such services, and whether the Commission should take steps to ensure 
that prepaid calling cards remain affordable to members of the military 
and their families. The Commission's resolution of these issues will 
affect not only small providers of prepaid cards, but also small LECs 
that exchange traffic with these providers and small IXCs that compete 
with these providers. Options that reduce burdens for one type of small 
entity may increase the burden on another type of small entity. We 
therefore seek comment on the types of burdens small entities could 
face if the Commission alters its treatment of prepaid calling card 
providers as proposed in the NPRM. Entities, especially small 
businesses, are encouraged to quantify, if possible, the costs and 
benefits of potential reporting, recordkeeping, and other compliance 
requirements. We will consider any proposals made to minimize 
significant economic impact on small entities.

Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    None.

Paperwork Reduction Act

    This document does not contain proposed information collection(s) 
subject to the Paperwork Reduction Act of 1995, Public Law 104-13. In 
addition, therefore, it does not contain any new or modified 
``information collection burden for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 05-5167 Filed 3-15-05; 8:45 am]
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