USAC EXPECTED TO AUDIT PREPAID CALLING CARD BUSINESS
The organization that administers the universal service program reportedly is planning an audit of the prepaid calling card business to see if providers are contributing enough to the universal service fund (USF). A spokesman for the Universal Service Administrative Co. (USAC) said he can’t comment on whether audits are being conducted, but sources close to the process said the board recently approved funding to conduct such an audit.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
An executive at AT&T, a potential target of the audit, said the company hasn’t been informed of any audit. However, AT&T Vp Joel Lubin, a member of the USAC board, was asked to recuse himself from a vote on possible audits at the April 19 USAC board meeting, it was learned. Verizon sent a letter to USAC a few months ago raising questions about the fact that reported revenue from the prepaid calling business appeared to be going down while the number of providers was growing, according to a knowledgeable source. Neither the company nor USAC would make the letter available. (USF contributions are based on interstate revenue.) Sprint made similar comments in a letter last year to USAC and the FCC.
In a recent 10-Q filing with the SEC, AT&T said it saved about $140 million in USF contributions (CD May 11 p6) since 1999 on its “enhanced” prepaid calling cards, which the company has been treating differently from regular prepaid calling cards. AT&T petitioned the FCC on May 15, 2003, to classify enhanced prepaid calling cards as “information” or “enhanced” services not subject to access charges. The cards are considered “enhanced” because they're sold to retail outlets which then brand them and add advertising messages -- a move AT&T viewed as changing the card’s nature from a telecom service to an information service not subject to access charges.
The AT&T petition, which still is pending at the FCC, deals only with access charges, but Sprint told the Commission and USAC last year the classification sought by AT&T also could affect universal service contributions. Sprint said in the June 2003 letter that it would seek a refund of all its USF contributions back to Jan. 1998 if the Commission granted AT&T’s petition. USAC “may wish” to study other prepaid calling card companies as well, Sprint said at the time, because a “startling drop” in reported revenue despite increases in the number of providers “suggests that AT&T may not be the only entity that is attempting to characterize prepaid card service as an ‘enhanced’ or ‘information’ service.”
Sprint followed up with an ex parte letter last week noting the universal service savings referenced in AT&T’s recent SEC filing. Sprint’s May 21 letter urged the agency to classify AT&T’s prepaid calling card service as a telecom service “subject both prospectively and retroactively to the same federal USF contributions applicable to all other… services.” Sprint said AT&T’s 10-Q indicated the company was able to offer low rates for its enhanced prepaid service because it hadn’t paid universal service or access charges. “AT&T should not be allowed to continue an approach to the regulatory process that lacks substantive support and results in an unfair and material competitive advantage,” Sprint said in the letter.
Asked whether AT&T makes universal service contributions on revenue from enhanced prepaid calling cards, an AT&T official said the company doesn’t want to elaborate on the 10-Q. However, he added: “Enhanced services are properly characterized as information service, and information service does not have a universal service obligation.”