Regulation of Prepaid Calling Card Services, 43667-43673 [E6-12327]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 71, Number 148 (Wednesday, August 2, 2006)]
[Rules and Regulations]
[Pages 43667-43673]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-12327]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 64

[WC Docket No. 05-68; FCC 06-79]


Regulation of Prepaid Calling Card Services

AGENCY: Federal Communications Commission.

ACTION: Interim rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes steps necessary to protect the federal universal 
service program and promote stability in the market for prepaid calling 
cards. In particular, the Commission will treat certain prepaid calling 
card service providers as telecommunications service providers. As 
such, these providers must pay intrastate access charges for 
interexchange calls that originate and terminate in the same state and 
interstate access charges on interexchange calls that originate and 
terminate in different states. They also must contribute to the federal 
Universal Service Fund (USF) based on their interstate revenues, 
subject to the limitations set forth below. The Commission also 
addresses a petition for interim relief filed by AT&T and adopts 
interim rules to facilitate compliance with the universal service and 
access charge rules. Specifically, on an interim and prospective basis, 
the Commission requires all prepaid calling card providers to comply 
with certain reporting and certification requirements.

DATES: Effective October 31, 2006 except for Sec. Sec.  64.5001(a), 
(b), and (c) which contain information collection requirements that 
have not yet been approved by the Office of Management and Budget. The 
Federal Communications Commission will publish a document in the 
Federal Register announcing the effective date for those sections.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554. In addition to filing comments with the Office of 
the Secretary, a copy of any comments on the Paperwork Reduction Act 
information collection requirements contained herein should be 
submitted to Judith Boley Herman, Federal Communications Commission, 
Room 1-C804, 445 12th Street, SW., Washington, DC 20554, or via the 
Internet to Judith-B.Herman@fcc.gov.

FOR FURTHER INFORMATION CONTACT: Lynne Hewitt Engledow, Wireline 
Competition Bureau, Pricing Policy Division, (202) 418-1520.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Declaratory Ruling and Report and Order in WC Docket No. 05-68, adopted 
on June 1, 2006, and released on June 30, 2006. The complete text of 
this Declaratory Ruling and Report and Order is available 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. in the Commission's Consumer and Governmental 
Affairs Bureau, Reference Information Center, Room CY-A257, 445 12th 
Street, SW., Washington, DC 20554. The complete text is available also 
on the Commission's Internet site at https://www.fcc.gov. Alternative 
formats are available to persons with disabilities by contacting the 
Consumer and Governmental Affairs Bureau, at (202) 418-0531, TTY (202) 
418-7365, or at fcc504@fcc.gov. The complete text of the decision may 
be purchased from the Commission's duplicating contractor, Best Copying 
and Printing, Inc., Room CY-B402, 445 12th Street, SW., Washington, DC 
20554, telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 
488-5562, or e-mail at fcc@bcpiweb.com.

Synopsis of Declaratory Ruling and Report and Order

    1. On May 15, 2003, AT&T filed a petition for declaratory ruling 
that intrastate access charges did not apply to calls made using its 
``enhanced'' prepaid calling cards when the calling card platform is 
located outside the state in which either the calling or the called 
party is located. On November 22, 2004, AT&T submitted an ex parte 
letter requesting a declaratory ruling on two additional types of 
``enhanced'' prepaid calling card offerings: one card that offers the 
caller a menu of options to access non-call-related information, and a 
second card that utilizes Internet Protocol (IP) technology, accessed 
by 8YY dialing, to transport a portion of the calling card call.
    2. On February 16, 2005, the Commission denied AT&T's May 2003 
Petition. See AT&T Corp. Petition for Declaratory Ruling Regarding 
Enhanced Prepaid Calling Card Services; Regulation of Prepaid Calling 
Card Services, Order and Notice of Proposed Rulemaking, 70 FR 12828, 
March 16, 2005 (Calling Card Order & NPRM). The Commission found that 
the service described in the original petition was a jurisdictionally-
mixed telecommunications service and that intrastate access charges 
apply when a call originates and terminates in the same state. The 
Commission initiated a Notice of Proposed Rulemaking (NPRM) to address 
additional types of ``enhanced'' prepaid calling cards, including those 
described in AT&T's November 2004 letter. On May 3, 2005, AT&T filed a 
petition seeking the adoption of interim rules pending a final decision 
by the Commission in this docket. AT&T's Emergency Petition seeks 
interim rules imposing federal universal service funding obligations on 
all prepaid calling card services regardless of whether the Commission 
ultimately decides they are telecommunications services or information 
services.

Declaratory Ruling

    3. In this Order, the Commission addresses the two prepaid calling 
card variants described in the NPRM portion of the Calling Card Order 
and NPRM: (1) Menu-driven prepaid calling cards; and (2) prepaid 
calling cards that utilize IP transport to deliver all or a portion of

[[Page 43668]]

the call. As the Commission explains, it finds that both types of 
prepaid calling cards are telecommunications services and that their 
providers are subject to regulation as telecommunications carriers. In 
conjunction with the Commission's prior rulings regarding basic prepaid 
calling cards and prepaid cards with advertising, all prepaid calling 
card providers will now be treated as telecommunications service 
providers. In the future, if prepaid calling card providers introduce 
new and different card types that they believe should be classified as 
information services, they may seek a declaratory ruling, a waiver, or 
other relief from the requirements that the Commission adopts in 
thisOrder.

Menu-Driven Prepaid Calling Cards

    4. In its comments AT&T described its ``newly augmented'' prepaid 
calling card service accessed via toll-free, 8YY, dialing. Upon dialing 
the 8YY number, the cardholder is presented with the option to make a 
telephone call or to access several types of information, such as 
additional information about the card distributor, sports, weather, or 
restaurant or entertainment information. Other entities offer similar 
services to consumers.
    5. ``Telecommunications'' is defined as the ``transmission between 
or among points specified by the user, of information of the user's 
choosing, without change in the form or content of the information as 
sent and received.'' 47 U.S.C. 153(43). Building on the definition of 
``telecommunications,'' the Communications Act defines 
``telecommunications service'' as ``the offering of telecommunications 
for a fee directly to the public, or to such classes of users as to be 
effectively available directly to the public regardless of the 
facilities used.'' 47 U.S.C. 153(46). Thus, a ``telecommunications 
service'' involves more than the mere transmission of information; it 
requires the ``offering'' of pure transmission capability ``for a fee 
directly to the public.''
    6. Although it may be difficult at times to determine whether a 
service bundle is ``sufficiently integrated'' to merit treatment as a 
single service, that is not the case here. There simply is no 
functional integration between the information service features and the 
use of the telephone calling capability with menu-driven prepaid 
calling cards. The menu is a mechanism by which the customer can access 
the separate capabilities that are packaged together in a single 
prepaid calling card. The customer may use only one capability at a 
time and the use of the telecommunications transmission capability is 
completely independent of the various other capabilities that the card 
makes available. But even if those additional capabilities are 
classified as an information service, the packaging of these multiple 
services does not by itself transform the telecommunications component 
of these cards into an information service.
    7. The Commission's finding here is consistent with the 
Commission's conclusions in the Calling Card Order and NPRM. Just as 
the Commission found in that order that the addition of an advertising 
message does not convert a telecommunications service into an 
information service, the Commission now finds that the addition of an 
option to access other types of information does not convert the 
telecommunications service offered by these prepaid calling cards into 
an information service for regulatory purposes, even if standing alone 
the information processing capability would meet the statutory 
definition of an information service. In short, these menu-driven 
calling cards offer customers a telecommunications service that enables 
them to make telephone calls, and the ability to obtain sports scores, 
stock quotes, and other information through the same card does not 
alter that conclusion.

Prepaid Calling Cards That Utilize IP Technology

    8. In the IP-in-the-Middle Order, the Commission addressed AT&T's 
use of IP technology to transport interexchange telephone calls dialed 
on a 1+ basis. See In the Matter of Petition for Declaratory Ruling 
that AT&T's Phone-to-Phone IP Telephony Services are Exempt from Access 
Charges, Order, 19 FCC Rcd 7457 (2004) (IP-in-the-Middle Order). The 
Commission found that ``an interexchange service that: (1) Uses 
ordinary customer premises equipment (CPE) with no enhanced 
functionality; (2) originates and terminates on the public switched 
telephone network (PSTN); and (3) undergoes no net protocol conversion 
and provides no enhanced functionality to end users due to the 
provider's use of IP technology'' is a telecommunications service. The 
Commission limited its ruling in the IP-in-the-Middle Order to calls 
that meet all of the above criteria and are placed using 1+ dialing.
    9. Other than the use of 8YY dialing instead of 1+ dialing, prepaid 
calling cards that use IP transport appear to be identical to the 
services addressed by the Commission in the IP-in-the-Middle Order. The 
Commission sees no reason why the use of a different dialing pattern to 
make calls, without more, should result in a different regulatory 
classification. These cards are used to originate calls on the circuit-
switched network using standard customer premises equipment, factors 
that the Commission previously has used to distinguish 
telecommunications services from information services. Consequently, 
the Commission finds that the use of IP transport in the provision of a 
prepaid calling card service does not alone convert that service from a 
telecommunications service to an information service.

Report and Order

    10. As a result of the Commission's finding that providers of the 
two types of prepaid calling cards described in the previous section 
offer telecommunications services, these providers are now subject to 
all of the applicable requirements of the Communications Act and the 
Commission's rules, including requirements to contribute to the federal 
USF and to pay access charges. In this section, the Commission sets 
forth some additional requirements that will apply, at least on an 
interim basis, to all prepaid calling card providers.

USF Contributions

    11. As noted above, all prepaid calling card providers must 
contribute to the Federal USF based on interstate and international 
telecommunications revenues. 47 U.S.C. 254 and 47 CFR 54.706. The 
Commission has established two safe harbors for use by carriers that 
offer retail packages that bundle interstate telecommunications 
services with other services (e.g., basic phone service and voicemail). 
A carrier may elect to treat all bundled revenues as telecommunications 
revenues or it may report revenues from the bundled offering based on 
the unbundled service offering prices, with no discount allocated to 
the telecommunications service. Prepaid calling card providers may 
avail themselves of these safe harbors; should they choose to forego 
these safe harbors, they must be prepared to defend the allocation 
method they use in an audit or enforcement context.
    12. Based on the record in this proceeding, the Commission finds 
that an exemption from the contribution requirement for calling cards 
sold by, to, or pursuant to contract with DoD or a DoD entity will 
serve the public interest. Accordingly, the Commission forbears from 
applying section 254(d) to the extent necessary to implement the 
exemption from USF contribution

[[Page 43669]]

obligations for prepaid calling cards sold by, to, or pursuant to 
contract with DoD or a DoD entity, on an interim basis while the 
Commission decides other USF contribution issues in its Contribution 
Methodology proceeding. The Commission finds that this exemption easily 
meets the three-pronged forbearance standard contained in section 
10(a). 47 U.S.C. 160(a).

Access Charges

    13. As a result of this Order, providers of prepaid calling cards 
that are menu-driven or use IP transport to offer telecommunications 
services are obligated to pay interstate or intrastate access charges 
based on the location of the called and calling parties. 47 CFR 69.1 et 
seq. As noted above, the Commission previously has found that these 
same access charge obligations apply to basic prepaid calling cards and 
prepaid calling cards with unsolicited advertising. As with other 
services that require the caller to dial an access number, the 
assessment of interstate and intrastate access charges based on the 
location of the called and calling parties can be complicated with 
respect to prepaid calling card traffic because the caller initially 
dials the 8YY number associated with the calling card platform and only 
later dials the number of the called party.
    14. The Commission believes that these complications can be 
addressed through certification and reporting requirements that compel 
the prepaid calling card provider to share the necessary information 
with the carriers that it uses to transport traffic to and from the 
platform. The Commission agrees with AT&T that such requirements will 
promote transparency in the prepaid calling card market and that, 
absent such requirements, calling card providers and their underlying 
carriers would have the incentive and the ability to avoid intrastate 
access charges. As with any other service subject to the Commission's 
rules, if prepaid calling card providers do not comply with these rules 
they will be subject to the Commission's enforcement authority, 
including complaints and forfeitures. 47 U.S.C. 208, 501.

Reporting to Other Carriers

    15. Prepaid calling card providers are subject to the Commission's 
rules on the passing of CPN. 47 CFR 64.1601. Under these rules, 
carriers that use SS7 are required to transmit the CPN associated with 
an interstate call to interconnecting carriers. In the context of 
prepaid calling card calls, the Commission interprets this to mean that 
carriers must 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.
    16. For similar reasons, the Commission prohibits carriers that 
serve prepaid calling card providers from passing the telephone number 
associated with the platform in the charge number (CN) parameter of the 
SS7 stream. The Commission concludes that carriers that serve prepaid 
calling card providers may not pass information regarding the calling 
card platform in the CN parameters in the SS7 stream. This approach 
properly balances the need for accurate intercarrier billing records 
with the need of some carriers to use CN for their own retail billing 
purposes.
    17. The Commission also requires prepaid calling card providers to 
report percentage of interstate use (PIU) factors to those carriers 
from which they purchase transport services. Specifically, a prepaid 
calling card provider must report prepaid calling card PIU factors, and 
call volumes on which these factors were calculated, based on not less 
than a one-day representative sample. These factors must be computed 
separately for originating and terminating traffic on a state-specific 
basis. This information must be provided to the transport provider no 
later than the 45th day of each calendar quarter. The transport 
provider may use the reported PIU in calculating any PIU factors it 
reports to LECs, and it may disclose the reported PIU upon request of 
such LECs.
    18. If the prepaid calling card provider fails to provide the 
appropriate PIU information to the transport provider in a timely 
manner, the transport provider may treat the prepaid calling card 
provider's traffic as subject to a 50 percent default PIU. The 
transport provider may notify any originating or terminating LEC that 
it has applied the default PIU to the prepaid calling card provider's 
traffic for that reporting period. A transport provider also may audit 
the PIU reports it receives from a calling card provider if it has a 
reasonable basis to believe that such reports contain inaccurate or 
misleading data. The Commission finds that the use of a default PIU and 
the ability to audit are reasonable means by which to protect 
underlying transport providers (who themselves may be subject to 
comparable requirements under LEC access tariffs) and encourage the 
timely submission of accurate information by prepaid calling card 
providers. The platform number should be considered the called party 
number if the caller does not attempt to make a call to a third party.

Certification to the Commission

    19. The Commission believes that the exchange of information among 
carriers, as described above, should be sufficient to resolve most 
issues related to the assessment of access charges with respect to 
prepaid calling card traffic. To reduce further the incentive for 
carriers to report false or misleading information, however, the 
Commission also requires prepaid calling card providers to file 
certifications with the Commission. On a quarterly basis, every prepaid 
calling card provider must submit a certification, signed by an officer 
of the company under penalty of perjury, stating that it is in 
compliance with the reporting requirements described above. The 
certification also should include the percentage of interstate, 
intrastate, and international calling card minutes for that reporting 
period.
    20. Each prepaid calling card provider also must certify the 
percentages of total prepaid calling card service revenues (excluding 
revenue that is exempt under the military exemption adopted above) that 
are interstate and international and therefore subject to federal 
universal service assessments for the reporting period. The 
certification the Commission requires in this Order is not a 
replacement for the Form 499--Telecommunications Reporting Worksheet. 
As such, prepaid calling card providers are responsible for filing both 
the certification required in this Order and a Form 499. Finally, the 
certification must include a statement that the company is making the 
required contribution based on the reported information.
    21. Certifications will be due on a quarterly basis and may be 
filed in WC Docket No. 05-68 using the Commission's Electronic Comment 
Filing System. The first provider certifications are due the last day 
of the first full calendar quarter after OMB approval of this 
requirement.

Effect of This Order

    22. In contrast to the new reporting and certification rules the 
Commission adopts in this Order, which it will apply to all prepaid 
calling card providers on a prospective basis, the Commission's 
decision to classify prepaid calling cards that use IP transport and 
menu-driven prepaid calling cards as telecommunications services is a 
declaratory ruling, which is a form of adjudication. 47 CFR 1.2.
    23. Adjudicatory decisions typically apply on a retroactive basis, 
and the

[[Page 43670]]

Commission finds that such retroactivity is appropriate for cards that 
use IP transport. The Commission reaches a different conclusion, 
however, with respect to menu-driven prepaid calling card services. 
Given the lack of clarity in the law on this issue, both before and as 
a result of the NPRM, the Commission is concerned that retroactive 
application of this Order to menu-driven prepaid calling cards would be 
so unfair to providers of such cards as to work a ``manifest 
injustice.'' For example, the Commission recognizes that retroactive 
application of its decision would be burdensome for menu-driven prepaid 
calling card providers, in that the decision subjects them to access 
charges, Universal Service Fund contribution obligations, and the full 
panoply of Title II obligations. The Commission also recognizes that, 
given the state of the law at the time, parties may have relied on the 
assumption that they would not be subject to these burdens. For these 
reasons, the Commission concludes that its decision that menu-driven 
calling cards offer telecommunications services and that their 
providers are subject to regulation as telecommunications carriers 
shall have prospective effect only.
    24. To give prepaid calling card providers sufficient time to 
implement this new regulatory regime, this Order will take effect on 
October 31, 2006. The certification requirements set forth above are 
effective according to the timeframe outlined above.

Certification Filing Procedures

    25. Pursuant to Sec.  64.5001 of the Commission's rules, all 
prepaid calling card providers shall file the quarterly reports 
described above in WC Docket No. 05-68. The first certification reports 
are due the last day of the first full calendar quarter after the 
effective date of this item and OMB approval of this requirement. 
Certification reports may be filed using the Commission's Electronic 
Comment Filing System (ECFS) or by filing paper copies. Certification 
reports filed through the ECFS can be sent as an electronic file via 
the Internet to https://www.fcc.gov/cgb/ecfs/. Only one copy of an 
electronic submission must be filed in a single docket. On completing 
each transmittal screen, commenters should include their full name, 
U.S. Postal Service mailing address, and the applicable docket or 
rulemaking number, in this case, WC Docket No. 05-68. Parties may also 
submit an electronic report by Internet e-mail. To get filing 
instructions for e-mail reports, reporters should send an e-mail to 
ecfs@fcc.gov, and should include the following words in the body of the 
message, ``get form.'' A sample form and instructions will be sent in 
reply. Parties are strongly encouraged to file their certification 
reports electronically using the Commission's ECFS.
    26. Parties who choose to file by paper must file an original and 
four copies of each filing. Paper 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). 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, and 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 mail, Express Mail, and Priority Mail should be 
addressed to 445 12th Street, SW., Washington, DC 20554.
    27. All filings must be addressed to the Commission's Secretary, 
Marlene H. Dortch, Office of the Secretary, Federal Communications 
Commission, 445 12th Street, SW., Washington, DC 20554. Parties should 
also send one copy of their filings to the Chief, Pricing Policy 
Division, Wireline Competition Bureau, Federal Communications 
Commission, 445 12th Street, SW., Washington, DC 20554. In addition, 
parties should send one copy to the Commission's copy contractor, Best 
Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554 (202) 488-5300, or via e-mail to 
fcc@bcpiweb.com.
    28. Documents in WC Docket No. 05-68 are available for public 
inspection and copying during business hours at the FCC Reference 
Information Center, Portals II, 445 12th Street, SW., Room CY-A257, 
Washington, DC 20554. The documents may also be purchased from BCPI, 
telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-5562, 
e-mail fcc@bcpiweb.com. Accessible formats (computer diskettes, large 
print, audio 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 fcc504@fcc.gov.

Final Regulatory Flexibility Analysis

    29. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), 5 U.S.C. 603, an Initial Regulatory Flexibility Analysis 
(IRFA) was incorporated in the Order and Notice of Proposed Rulemaking, 
70 FR 12828, March 16, 2005. The Commission sought written public 
comment on the proposals in the Order and Notice of Proposed 
Rulemaking, including comment on the IRFA. We received no comments 
specifically directed to the IRFA. This Final Regulatory Flexibility 
Analysis (FRFA) conforms to the RFA.

Need for, and Objectives of, the Report and Order

    30. On May 15, 2003, AT&T filed a petition for declaratory ruling 
that intrastate access charges did not apply to calls made using its 
``enhanced'' prepaid calling cards when the calling card platform is 
located outside the state in which either the calling or the called 
party is located. On November 22, 2004, AT&T submitted an ex parte 
letter requesting a declaratory ruling on two additional types of 
``enhanced'' prepaid calling card offerings: One card that offers the 
caller a menu of options to access non-call-related information, and a 
second card that utilizes Internet Protocol (IP) technology, accessed 
by 8YY dialing, to transport a portion of the calling card call.
    31. On February 16, 2005, the Commission released a Report and 
Order and Notice of Proposed Rulemaking denying AT&T's petition and 
requiring it to contribute to the Federal Universal Service Fund based 
on its interstate prepaid calling card revenue. The NPRM portion of 
that item sought comment on the appropriate regulatory treatment of 
AT&T's additional prepaid calling card types and any other current or 
planned prepaid calling card offerings. On May 3, 2005, AT&T filed an 
Emergency Petition for Interim Relief asking the Commission to impose 
Federal universal service funding obligations on all prepaid calling 
card providers regardless of whether the cards offer telecommunications 
or information services. AT&T's Emergency Petition also requested that 
the Commission issue interim rules subjecting all prepaid calling card 
providers to the same types of access charges.
    32. In this Order, we find that providers of the types of cards 
upon which the Commission sought comment in the NPRM offer 
telecommunications services. Consequently, providers of these types of 
prepaid calling cards will

[[Page 43671]]

be treated as telecommunications carriers and therefore must pay access 
charges, contribute to the Universal Service Fund, and comply with all 
the other applicable obligations under the Communications Act and the 
Commission's rules. Prepaid calling card providers that use SS7 must 
pass the CPN of the calling party (the cardholder), and the CN where 
appropriate, and not pass the telephone number associated with the 
calling card platform in the CPN or CN parameter of the SS7 stream.
    33. We also adopt interim rules requiring that prepaid calling card 
providers report prepaid calling card PIU factors, and call volumes 
from which these factors were calculated, based on not less than a one-
day representative sample, to those carriers from which they purchase 
transport services. We also require that prepaid calling card providers 
certify to the Commission that they are providing PIU and CPN 
information to other carriers as required above and that they report 
their total intrastate, interstate, and international calling card 
minutes and revenues.
    34. The requirements imposed on prepaid calling card providers in 
this Order are necessary to preserve and advance the Universal Service 
Fund, provide regulatory certainty and prevent ``gaming'' of the 
system. The Commission believes the public interest will best be served 
by eliminating any uncertainty and promoting stability in the prepaid 
calling card market through the adoption of this Order.
    35. In the Calling Card Order and NPRM, the Commission noted that 
military personnel rely heavily on prepaid calling cards and asked what 
steps, if any, it should take to ensure that such cards remain 
reasonably priced. In this Order we decide that the public interest 
will be served by exempting revenue from prepaid calling cards sold by, 
to, or pursuant to contract with DoD or a DoD entity from the above-
described universal service contribution obligations. As such, on an 
interim basis, prepaid calling card providers are not required to pay 
USF contributions on revenue generated from prepaid calling cards sold 
by, to, or pursuant to contract with DoD or a DoD entity.

Significant Issues Raised by Public Comments in Response to the IRFA

    36. No comments were received regarding the IRFA.

Description and Estimate of the Number of Small Entities to Which the 
Proposed Rules May Apply

    37. The RFA 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. 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, 5 U.S.C. 601(3). 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.
    38. 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.
    39. 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.
    40. 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 a total of 2,225 
firms in this category 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.
    41. 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, 1,303 carriers reported that they were 
incumbent local exchange service providers. In addition, according to 
Commission data, 769 companies reported that they were engaged in the 
provision of either competitive access provider services or competitive 
local exchange carrier services. Of these 769 companies, an estimated 
676 have 1,500 or fewer employees and 93 have more than 1,500 
employees. In addition, 39 carriers reported that they were ``Other 
Local Service Providers.'' Of the 39 ``Other Local Service Providers,'' 
an estimated 38 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 Service 
Providers'' are small entities that may be affected by the rules and 
policies proposed herein.
    42. 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, 89 
companies reported that they were engaged in the provision of prepaid 
calling cards. Of these 89 companies, an estimated 88 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 for Small Entities

    43. In this Order, we hold that providers of the types of cards 
upon

[[Page 43672]]

which the Commission sought comment in the NPRM offer 
telecommunications services. As a result of this finding, these prepaid 
calling card providers are now treated as telecommunications carriers 
and therefore are subject to the Communications Act and the 
Commission's rules, including all applicable reporting and 
recordkeeping requirements. For example, they now must submit to USAC 
the reports required in connection with contributions to the Federal 
USF.
    44. In this Order, we also adopt new interim rules applicable to 
all prepaid calling card providers. Prepaid calling card providers must 
report prepaid calling card PIU factors, and call volumes on which 
these factors were calculated, based on not less than a one-day 
representative sample, to those carriers from whom they purchase 
transport services. They also must certify to the Commission that they 
are complying with this PIU reporting requirement. This certification 
also must include information on total intrastate, interstate, and 
international calling card minutes and revenue, and a statement that 
they are contributing to the Federal USF based on all interstate and 
international revenues, except for revenue from the sale of prepaid 
calling cards by, to, or pursuant to contract with DoD or a DoD entity.

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

    45. 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. 5 U.S.C. 603(c)(1) through (c)(4).
    46. In this Order, the Commission finds that certain types of 
prepaid calling card providers are telecommunications carriers and 
therefore subject to applicable requirements of the Communications Act 
and the Commission's rules, including the obligation to pay access 
charges and contribute to the Universal Service Fund. We apply these 
existing rules for the purpose of preserving and advancing universal 
service and providing regulatory certainty. A strong, well-funded USF 
is one of the Commission's regulatory mandates and is in the public 
interest. The clear application of regulations to the prepaid calling 
card industry also will promote regulatory certainty, foster innovation 
and competition, and avoid market disruption during the pendency of 
this and other rulemaking proceedings. We rejected AT&T's suggestion to 
address a more limited set of issues on the ground that such an 
approach would not provide the necessary certainty and stability. After 
reviewing the record, we conclude that the best way to meet our goals 
of preserving and advancing universal service and providing certainty 
to the prepaid calling card market is to subject all prepaid calling 
card providers to the same requirements.
    47. In this Order, we also adopt interim rules requiring all 
prepaid calling card providers to meet certain reporting requirements. 
Specifically, they must report prepaid calling card PIU factors, and 
call volumes from which these factors were calculated, based on not 
less than a one-day representative sample, to those carriers from which 
they purchase transport services. The interim rules also require that 
prepaid calling card providers make quarterly certifications to the 
Commission. Specifically, they must certify that they have complied 
with the reporting requirements discussed above. In addition, they must 
provide information on total intrastate, interstate, and international 
calling card minutes and revenues, and include a statement that they 
are contributing to the federal USF based on the reported information. 
AT&T proposed that prepaid calling card providers comply with a much 
more extensive set of reporting and certification requirements. We 
rejected these additional reporting and certification requirements 
because they would prove too burdensome to small prepaid calling card 
providers.
    48. As described above, the Commission has considered a variety of 
alternative approaches for regulating prepaid calling card providers. 
In weighing these alternatives we tried to balance our desire not to 
unduly burden small entities (small prepaid card providers, as well as 
small LECs and small IXCs) with our goals of ensuring regulatory 
certainty, preserving and advancing universal service, and avoiding 
market disruption during the pendency of other rulemakings. The Order 
we adopt achieves this balance by applying the same rules to all 
prepaid calling card providers, while at the same time rejecting 
proposals that would place excessive burdens on small companies.

Report to Congress

    49. The Commission will send a copy of the Order, including this 
FRFA, in a report to be sent to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, 5 
U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of 
the Order, including this FRFA, to the Chief Counsel for Advocacy of 
the SBA. A copy of the Order and FRFA (or summaries thereof) will also 
be published in the Federal Register, 5 U.S.C. 604(b).

Paperwork Reduction Act Analysis

    50. This document contains new information collection requirements 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. It will be submitted to the Office of Management and Budget (OMB) 
for review under section 3507(d) of the PRA. OMB, the general public, 
and other Federal agencies are invited to comment on the new or 
modified information collection requirements contained in this 
proceeding.

Ordering Clauses

    51. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1, 2, 4(i), 201, 202 and 254 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 
201, 202, and 254, this Declaratory Ruling and Report and Order in WC 
Docket No. 05-68 is adopted, and that parts 54 and 64 of the 
Commission's rules, 47 CFR parts 54 and 64, are amended as set forth in 
the rule changes.
    52. It is further ordered that AT&T's Emergency Petition for 
Immediate Interim Relief is granted in part and denied in part as set 
forth herein.
    53. It is further ordered that the final rules and rule revisions 
adopted in this Declaratory Ruling and Report and Order shall become 
effective October 31, 2006.
    54. It is further ordered that all prepaid calling card providers 
shall file an initial certification as required herein no later than 
the last day of the first full calendar quarter after OMB approval of 
this requirement.
    55. It is further ordered that the Frontier Petition for 
Declaratory Ruling is granted as set forth herein and otherwise is 
denied.
    56. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Declaratory Ruling and Report and

[[Page 43673]]

Order, including the Final Regulatory Flexibility Analysis, to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Parts 54 and 64

    Communications common carriers, Reporting and recordkeeping 
requirements, Telecommunications, Telephone.

    Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Changes

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR parts 54 and 64 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otherwise noted.


0
2. Section 54.706 is amended by adding paragraph (a)(19) and revising 
paragraph (d) to read as follows:


Sec.  54.706  Contributions.

    (a) * * *
    (19) Prepaid calling card providers.
* * * * *
    (d) Entities providing open video systems (OVS), cable leased 
access, or direct broadcast satellite (DBS) services are not required 
to contribute on the basis of revenues derived from those services. The 
following entities will not be required to contribute to universal 
service: non-profit health care providers; broadcasters; systems 
integrators that derive less than five percent of their systems 
integration revenues from the resale of telecommunications. Prepaid 
calling card providers are not required to contribute on the basis of 
revenues derived from prepaid calling cards sold by, to, or pursuant to 
contract with the Department of Defense (DoD) or a DoD entity.

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
3. The authority citation for part 64 continues to read as follows:

    Authority: 47 U.S.C. 154, 254(k); secs. 403(b)(2)(B), (c), 
Public Law 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 
218, 222, 225, 226, 228, and 254(k) unless otherwise noted.

0
4. Amend part 64 by adding subpart DD to read as follows:

Subpart DD--Prepaid Calling Card Providers


Sec.  64.5000  Definitions.

    (a) Prepaid calling card. The term ``prepaid calling card'' means a 
card or similar device that allows users to pay in advance for a 
specified amount of calling, without regard to additional features, 
functions, or capabilities available in conjunction with the calling 
service.
    (b) Prepaid calling card provider. The term ``prepaid calling card 
provider'' means any entity that provides telecommunications service to 
consumers through the use of a prepaid calling card.


Sec.  64.5001  Reporting and certification requirements.

    (a) All prepaid calling card providers must report prepaid calling 
card percentage of interstate use (PIU) factors, and call volumes from 
which these factors were calculated, based on not less than a one-day 
representative sample, to those carriers from which they purchase 
transport services. Such reports must be provided no later than the 
45th day of each calendar quarter for the previous quarter.
    (b) If a prepaid calling card provider fails to provide the 
appropriate PIU information to a transport provider in the time 
allowed, the transport provider may apply a 50 percent default PIU 
factor to the prepaid calling card provider's traffic.
    (c) On a quarterly basis, every prepaid calling card provider must 
submit to the Commission a certification, signed by an officer of the 
company under penalty of perjury, providing the following information 
with respect to the prior quarter:
    (1) The percentage of intrastate, interstate, and international 
calling card minutes for that reporting period;
    (2) The percentage of total prepaid calling card service revenue 
(excluding revenue from prepaid calling cards sold by, to, or pursuant 
to contract with the Department of Defense (DoD) or a DoD entity) 
attributable to interstate and international calls for that reporting 
period;
    (3) A statement that it is making the required Universal Service 
Fund contribution based on the reported information; and
    (4) A statement that it has complied with the reporting 
requirements described in paragraph (a) of this section.

[FR Doc. E6-12327 Filed 8-1-06; 8:45 am]
BILLING CODE 6712-01-P