New Rules and Regulations on DAC ... Again

Posted: 12/2003

New Rules and Regulations on DAC … Again




By Tara Seals

The latest chapter in the ongoing story
of dialaround compensation (DAC) unfolded Sept. 30, when the FCC handed down new
rules concerning the compensation of payphone service providers (PSPs) for
coinless calls. This time the order targets switch-based resellers, whose ranks
include most prepaid calling card providers.

Every time a payphone call is completed, the Telecom Act
[of 1996] requires the payphone service provider must be compensated,
explains FCC spokesman Michael Balmoris. When the prepaid calling card
provider operates its own switch and becomes a switch-based reseller, as defined
in the Tollgate Order, it is directly responsible for compensating the PSP for
every payphone call completed from that switch.

In other words, liability for DAC payments has been shifted
away from underlying carriers to the switch-based resellers, including those
using a service bureau, that now must compensate PSPs directly for any
payphone-originated calls that are completed on their owned or leased platforms.

More significantly, the order also stipulates a slew of
requirements surrounding the new policy. For one, switch-based resellers must establish a tracking
system for these coinless calls, so they can pay payphone providers directly for
every one that is completed.

Before, they were simply reimbursing the underlying
carriers for compensation, whereas now they need to pay it directly to the PSPs
on a quarterly basis, explains Thomas Crowe, president of the Law Offices of Thomas
K. Crowe PC. At a minimum this will be a change in their practices … many
of the smaller [switch-based resellers] are going to be quite burdened by
directly having to bear these requirements themselves.

Prepaid providers also must submit a sworn statement, signed
by their CFOs, to payphone providers attesting to the accuracy of quarterly
payments they make. So now the CFO of the company is going to be on the line,
which is probably going to impact how they approach the payment requirements,
explains Crowe.

The FCCs order also implements a new reporting process.
Crowe says switch-based resellers are required to give PSPs a quarterly report
that includes: a list of the toll-free and access numbers dialed from that PSPs
payphones and the ANI for each payphone; the volume of calls for each access
number; the name, address and phone number of the person(s)
responsible for handling payphone compensation; and the carrier identification code (CIC) of all
facilities-based, longdistance carriers that routed calls listed in the report.

The new reporting requirements mean switch-based resellers
have to provide call detail records to payphone providers, and whats
interesting about this is the FCC rule is not clear as to the confidentiality of
those records, and many phone card issuers are concerned thats proprietary
information, explains Howard Segermark, executive director of the
International Prepaid Communications Association (IPCA). Very few would
object to proving their completed call levels and thus their liability, but
there are still many that dont want their competition knowing that
information.

Finally, any carrier or switchbased reseller completing a call
must file an audit report, conducted by an independent third-party CPA, about
the tracking process for coinless calls, to make sure its working and
accurate. And there are fairly detailed rules in the commissions ruling as to
how the audit needs to be done and what it must consist of, says Crowe.

Switch-based resellers are then required to file the audit
report with the FCC, as well as supply it to each PSP and each facilities-based
carrier.

The FCC says it adopted these rules to ensure that PSPs are
fairly compensated for all switchbased reseller completed calls made from
their payphones under section 276 of the Communications Act of 1934, as amended
by the Telecommunications Act of 1996. The rules satisfy section 276, says the
FCC, by identifying the party liable for compensation and establishing a
mechanism to pay PSPs.

The payphone people were very clear in their comments to
the FCC that they thought they were being underpaid under the previous rule, says Segermark. And the FCC holds that this new rule will
alleviate those problems if thats the case, then were talking about
additional payments of a lot of money, but on the other hand, if in fact all
phone card issuers are under the similarly enforced rules, then there will be a
more level playing field. Those companies that pay their dial-around
compensation will have less unfair competition from those companies that do not.

The order is the result of a January 2003 court remand of the
Second Order of Reconsideration, an earlier attempt by the FCC to remedy
problems in the payphone compensation rules.

In its first payphone compensation order, released in 1996,
the FCC made the underlying intermediate interexchange carrier responsible for
payphone compensation, according to a legal alert from Crowe. In its 2002 Second
Order, the FCC amended the rules, making the first facilities-based
long-distance carrier to which a LEC routes the call responsible.

At press time, the new rules making the switch-based reseller
or carrier that completes the call liable were scheduled to take effect April 1.
The delayed implementation date gives carriers and switch-based resellers time
to satisfy the new requirements.

This is the third time that a federal court has overturned
the FCCs payphone compensation rules, and its one of many orders dating
back years where the FCC has once again modified the regulation, says Crowe.
So the ruling in effect continues the turmoil that has impacted carriers of
all types when it comes to the subject of payphone compensation. It certainly is
going to create implementation burdens for switch-based resellers, including
prepaid calling card providers and other resellers that use switches to complete
calls, and its going to have a proportionately greater impact on the smaller
switch-based resellers, because they are going to be in the least likely
position to be able to effectively and efficiently carry out these new
requirements that the commission is imposing directly upon them.