Budget legislation could impact FCC calling-card ruling

A stipulation in the omnibus budget bill could limit the scope of the FCC’s expected ruling regarding AT&T’s access-charge and universal-service obligations when customers use the carrier’s pre-paid calling cards.

Approved early Sunday morning, the $388 billion budget legislation included a conference-committee report that directed the FCC “not to take any action that would directly or indirectly have the effect of raising the rates charged to military personnel or their families for telephone calls placed using prepaid phone bills.”

The language is significant because the FCC soon was expected to reject a petition from AT&T in which the carrier said its calling-card calls should not be subject to access charges and universal-service fees, which allows it to offer the service at much cheaper rates than normal. The cards have become particularly popular with military personnel, and AT&T earlier this month donated $6 million worth of cards to the military.

In its petition, AT&T contends that its calling-card calls are interstate—and, therefore, not subject to sometimes-expensive intrastate access charges—because each customer call actually is two calls routed through an out-of-state switch.

More important, the carrier claims an advertisement played to calling-card users prior to making a call constitute an enhanced service, because it meet the FCC definition by allowing users to “retrieve information from a stored database.” Enhanced services are not subject to any access charges or universal-service fees.

Currently, the long-distance giant pays only interstate access charges and does not contribute to universal service on calling-card calls. The practice has let AT&T save $500 million during the last 18 months, much to the chagrin of ILECs that benefit financially from the fees.

FCC commissioners were expected to act on the petition in the summer, and a majority already had voted to reject AT&T request in the agency’s voting system. However, word of pending vote generated considerable consumer backlash—including more than 800,000 calls in opposition—and a Department of Defense letter to FCC Chairman Michael Powell. The item subsequently was removed from the FCC voting system, but most analysts believed it would be reconsidered after the November elections.

What action the FCC can take at this point is unclear, especially because the language does not designate what constitutes a military family or how such a rule could be implemented. And that was desired affect of the stipulation, according to Jessica Zufolo, telecom analyst at Medley Global Advisors.

“This language is directly related to a petition filed by AT&T seeking an exemption from having to pay inter and intra state access and USF contributions for pre-paid calling card services,” Zufolo wrote in a report. “This language was included mostly to create an obstacle for the FCC as it prepares to reject the AT&T petition before end of the year.”

Attaching a policy statement to FCC funding is not unusual—in fact, the omnibus bill prohibits the commission from considering changes to the universal-service program that would limit support to primary lines. However, while the primary-line stipulation was included in the text of the legislation, the calling-card language is part of a non-binding committee report.

For this reason, some carrier sources believe Powell will call for a vote to reject the AT&T petition—a position advocated by the United States Telecom Association.

"While this petition has been languishing at the Commission for a year and a half, AT&T has flagrantly exploited the law to benefit the company’s bottom line at consumer expense,” USTA CEO Walter McCormick said in a prepared statement. “AT&T’s refusal to pay the access charges and universal service contributions that it owes on calling card sales is unlawful and irresponsible and hurts rural America. This rogue behavior must be reversed quickly to avoid permanent disruption to the nation’s communications system. "

But other sources said the FCC options are very limited. Implementing a system that exempts calls from military personnel and their families may not be practical, and failing to adhere to a directive attached to the agency’s funding could create unwanted political ill will with Congress.

“Technically, [FCC commissioners] can ignore it, but they do so at their peril,” said one Beltway source who spoke on the condition of anonymity.