On October 3, 2003, the Federal Communications Commission (“FCC”) released a Report and Order (“Order”) in CC Dkt. No. 96-128 which substantially modifies existing payphone compensation rules to 1) transfer compensation responsibility to switch-based resellers (“SBRs”) and 2) expand compensation and call completion tracking requirements.  The new rules, expected to take effect on April 1, 2004, place direct responsibility for compensating payphone service providers (“PSPs”) and tracking compensable calls upon long distance providers that own or lease a switch (including prepaid calling card providers) and use that switch to complete calls. In its first payphone compensation order, released in 1996, the FCC determined that “the primary economic beneficiary of payphone calls should compensate the PSPs.”  The FCC at the time determined that the primary economic beneficiary was the underlying intermediate interexchange carrier (hence, it should be responsible for payphone compensation).  In its Second Order on Reconsideration (“Second Order”), the FCC extended the rules to require the first facilities-based long distance carrier to which a local exchange carrier (“LEC”) routes a compensable coinless payphone call to: (1) compensate the PSP for completed calls at a mutually agreeable rate; (2) track or arrange for tracking of the call to determine whether it is completed and therefore compensable; and (3) provide to the PSP a statement of the number of coinless calls it receives from each of that PSP’s payphones.  The FCC’s new October 3, 2003 Order, however, recasts much of this regulatory scheme, finding that it does not accurately and efficiently achieve its goals of 1) identifying the party responsible for compensation; and 2) ensuring that PSPs are paid based on accurate data for every completed call.      The new Order finds that the primary economic beneficiary of a dial-around call is the SBR, or the carrier that completes the dial-around call, and, thus, when a dial-around call is completed on an SBR’s platform, it is now responsible for payphone compensation.  For example, in the case of most prepaid providers, when a consumer uses one of its prepaid cards at a payphone, the provider of the prepaid calling card service is now going to be responsible for compensating the PSP.  Previously, the FCC had required the prepaid provider to report the data on completed calls to the intermediate IXC which was then required to compensate the PSP.  Based upon data collected from the comment and reply cycle of the Second Order, the FCC also concluded that only SBRs have the ability to accurately track payphone calls completed on their platforms because only SBRs possess all of the relevant call completion data.  The FCC found that, under the current rules, SBRs lack incentive to accurately report call completion data to the intermediate IXC and thus, PSPs are not being accurately compensated for all completed calls. Based upon the above analysis, the FCC has modified its rules with this Order, creating new requirements for both SBRs and underlying carriers in order to achieve its second goal of ensuring that all PSPs are paid based on accurate data for every completed call.  SBRs, or whichever carrier completes the dial-around calls, will be responsible for the following when the new rules take effect:  Establishing a tracking system to accurately track coinless access code or subscriber toll-free payphone calls to completion. Paying compensation to PSPs on a quarterly basis for every completed call. Submitting a sworn statement signed by its chief financial officer to PSPs attesting to the accuracy and completeness of payment for that particular quarter. Submitting at the conclusion of each quarter to PSPs a report including: (a) a list of the toll-free and access numbers dialed from that PSP’s payphones and the ANI for each payphone; (b) the volume of calls for each toll-free/access number; (c) the name, address, and phone number of the person(s) responsible for handling payphone compensation; and (d) the carrier identification code (“CIC”) of all facilities-based long distance carriers that routed calls listed in the report. Finally, and perhaps the most significant addition, the FCC’s Order adopts a requirement of tracking system audits.  All carriers completing calls will be required to file an audit report conducted by an independent third party auditor to determine whether the established call tracking systems accurately track payphone calls to completion.  All completing carriers will have to comply with the call tracking requirements detailed in the Order and, by the effective date of the new rules, file an audit report with the FCC Secretary under Dkt. 96-128 and with each PSP and facilities-based long distance carrier from which it receives payphone calls verifying the effectiveness of the system.     Intermediate facilities-based long distance carriers that switch payphone calls to SBRs will be responsible for submitting detailed quarterly reports to the PSPs when the new rules take effect with the following information: §         A list of all the facilities-based long distance carriers to which it switched toll-free and access code calls. §         For each identified facilities-based carrier, a list of toll-free and access code numbers that all LECs delivered to it and that it switched to the SBRs. §         The volume of calls for each toll-free/access code listed that it received from the PSPs payphones and switched to each SBR. §         The name, address and phone number and other identifying information of the person(s) who serves as its contact at each identified SBR. Both SBRs and facilities-based long distance carriers will be responsible for maintaining verification data to support their quarterly reports for 18 months after the conclusion of the quarter.  Pursuant to FCC rules, the data must include date and time information for each call and the information must be available to the PSP upon request. According to the Order, the new rules will take effect on the first day of the first full quarter following Office of Management and Budget (“OMB”) approval.  Assuming a typical OMB approval cycle of 120-150 days, this is likely to be April 1, 2004.  The delayed implementation date is intended to allow carriers and SBRs time to implement the new requirements.  During the interim period, the rules contained in the  Second Order on Reconsideration will apply. The FCC’s Order is the result of a federal court decision in January 2003 which vacated (or overturned) the FCC’s previous payphone compensation regulations on grounds that parties were not afforded proper notice and opportunity for comment.  A copy of the FCC’s Report and Order detailing the new rules for payphone compensation is available at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-235A1.pdf. October 2003 Back