FCC DAC Enforcement Action   In a ruling released on December 27, 2006, the Federal Communications Commission (“FCC”) assessed a $466,000 penalty against Compass, Inc., d/b/a Compass Global, Inc. (“Compass Global”), a long distance reseller, for violations of the FCC’s payphone (or dial around) compensation rules.  The decision represents the agency’s first enforcement action for non-compliance with the payphone compensation rules.    The FCC stated that it intends for the ruling “to serve as an example of the Commission’s resolve to fully enforce compliance with its payphone compensation rules.”  Providers which own or lease switching equipment to complete calls are potentially impacted by the decision, including resellers and facilities-based carriers as well as prepaid providers.    Background   The FCC’s revised payphone compensation rules, adopted in 2003 and effective on July 1, 2004, address how completing carriers – including long distance carriers, switch-based long distance resellers and local exchange carriers – compensate payphone service providers (“PSPs”) for completed coinless access code or subscriber toll-free payphone calls.  They are based on the notion that since prepaid providers and other carriers and resellers are the “primary economic beneficiaries” of payphone calls, they should have the primary responsibility for payphone compensation.  Requirements include establishing a system for accurately tracking payphone calls and regularly auditing the system; submitting quarterly reports on call activity to PSPs; compensating PSPs on a quarterly basis for completed calls; and providing a sworn statement from the chief financial officer (“CFO”) attesting to the accuracy and completeness of each quarterly payment.  As the FCC noted in the Compass Global ruling, the compensation scheme that the payphone rules establish “is an interdependent one that relies on the cooperation of Completing and Intermediate Carriers with PSPs to ensure” that the aims of the rules are fulfilled.   On March 6, 2006, the FCC’s Enforcement Bureau sent a Letter of Inquiry (“LOI”) to Compass Global, a switch-based reseller, seeking information on its compliance with the payphone compensation rules.  Compass Global did not respond within 30 days, as the LOI directed, and it did not fully respond until May 6, 2006.  Upon review of that response, the FCC determined that Compass Global had committed five substantive violations of the payphone compensation rules.    Violations and Penalties   First, as required by the rules, Compass Global failed to establish by July 1, 2004 a system to accurately track coinless access code and subscriber toll free payphone calls to completion.  The FCC noted that the company’s “conduct falls far short of the Commission’s requirement,” adding that “it is still not clear that Compass Global has fulfilled its obligation” to accurately track calls.  The payphone compensation rules provide for a base penalty of $3,000 per penalty, but permit “substantially higher” assessments – up to $1.2 million – for “egregious misconduct,” “substantial harm,” “substantial economic gain” or “repeated or continuous violation.”  Noting that failure to establish an accurate call-tracking system is “a serious dereliction of a Completing Carrier’s responsibilities because it prevents the carrier from fulfilling any of the other payphone requirements,” the FCC imposed a $50,000 penalty on Compass Global for this violation.    Compass Global’s second violation of the payphone compensation rules was its failure to audit its call-tracking system in accordance with the specific requirements of the payphone compensation rules, for which the FCC imposed an additional $50,000 penalty.  In addition, the FCC found that the company “willfully and repeatedly” failed to compensate PSPs for the toll-free calls it completed.  The agency could not determine precisely how many calls went uncompensated, but it set a total forfeiture of $200,000, based on a $50,000 penalty for every quarter in the last year during which it failed to compensate PSPs for each call that it completed.   The final two substantive violations of the payphone compensation rules that the FCC determined Compass Global had committed were its failures to provide PSPs with quarterly call data reports and a sworn statement from its CFO certifying that its payments were accurate and complete.  It explained that these violations are similar to, though not as serious in nature as, failure to file accurate and complete Universal Service Fund worksheets, which carries a $50,000 penalty.  The FCC therefore assessed a total penalty of $160,000 for these two violations, or $20,000 for each quarter in the past year during which it failed to meet the data report and sworn statement requirements.   Finally, the FCC imposed a $6,000 penalty for Compass Global’s failure to respond in a timely fashion to the March 6, 2006 LOI.  The base forfeiture amount for such failures is $4,000, and the agency noted that in the past it has assessed a $20,000 penalty for failure to respond at all and an $8,000 penalty for an untimely response.  Since Compass Global ultimately provided a full response to the LOI, the FCC said a smaller upward adjustment was appropriate.    The FCC concluded by noting that additional violations could subject Compass Global to further enforcement action, including revocation of its operating authority.  In addition, it ordered the company to correct its violations of the payphone compensation rules and to submit within 30 days a report describing its plan for compliance with the rules that the agency determined it had violated.   Future Enforcement Action   The FCC’s decision sends a strong signal that future violations of the payphone compensation rules will result in further enforcement actions and harsh penalties.  This puts any communications provider that utilizes its own or leased switching equipment and offers access to its services through 1-800 numbers and access codes that may be used at payphones directly in the line of fire.  The decision serves as a reminder that providers must ensure that they are in full compliance with the payphone compensation rules.    Please feel free to contact us if you have any questions or we can be of any assistance to you.   January 2007   Back