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.