Legal Alerts and Articles
Renewed Focus on FCC 214 Licensing
Obtaining start-up authority under Section 214 is one of the most important regulatory hurdles a new telecommunications provider must overcome before offering international service in the U.S. This fact was recently underscored by a Notice of Apparent Liability issued by the FCC’s Enforcement Bureau proposing to assess a $100,000 penalty or forfeiture against a prepaid calling card provider which had operated without such authorization. Obtaining Section 214 authority also potentially subjects a provider to a range of other federal compliance obligations.
All telecommunications providers (including facilities-based carriers, resellers, prepaid calling card providers and many wireless service providers) offering calling between the U.S. and foreign points must obtain a certificate of authority under Section 214 of the Communications Act of 1934 (“Act”). It is unlawful to offer or advertise services allowing international calling without first obtaining a Section 214 license. While the application is pending, a provider generally may not commence offering services. In short, a 214 authorization is a license to offer international telecommunications service. Because this requirement stems from Section 214 of the Act, it is generally referred to as a “214 license”, “214 authority”, “214 certificate”, “214 authorization”, or simply “214”.
Potential Penalties
On June 4, 2009, the FCC proposed to levy a fine or forefeiture in the amount of $100,000 against a prepaid calling card provider offering international services without Section 214 authority. The company originally applied for Section 214 authority on February 17, 2006, after having begun to offer service in May 2005. Its application was eventually granted on June 18, 2008, following referral of its application to the Executive Branch (i.e., the Federal Bureau of Investigation, the Department of Justice, and/or the Department of Homeland Security) for a protracted review of national security, law enforcement, foreign policy and trade concerns. During the course of the review, the company indicated that it had accumulated a customer base of at least 1,000 retail end users and had earned several million dollars in revenue from its prepaid calling card services in calendar year 2007 alone. Subsequent to the grant, the FCC’s Enforcement Bureau initiated an investigation into whether the company had violated FCC rules by operating without prerequisite Section 214 authority.
The FCC’s decision to levy the proposed forfeiture is based on several factors. First, the Commission found that the company operated unlawfully without Section 214 authority from May 2005 until June 18, 2008. Second, the FCC found that the company failed to obtain interim temporary authority (called a “special temporary authority”) while its application was pending. Third, the FCC found the violation to be “egregious” warranting a higher forfeiture amount since the company’s revenues during the period of unlawful operation were high. This decision will likely serve as the model for future Enforcement Bureau actions against providers operating without Section 214 authority.
The Application Process
FCC rules require that all 214 applications be filed electronically through the FCC’s website. “Paper applications” are not accepted. The current FCC filing fee for Section 214 applications is $1050. The application should appear on Public Notice as accepted for streamlined (or expedited) processing by the FCC’s International Bureau within 2 to 3 days of receipt of payment. Once accepted for streamlined processing, the application is generally granted automatically the day after a 14 day waiting period (i.e., 15 days later).
Some applications, however, do not qualify for streamlined processing which means that additional time beyond the 14 day processing cycle is required to assess these applications. Generally speaking, there are four circumstances which can arise where the FCC will not process a 214 application under streamlined processing. The first occurs where the applicant is affiliated with a foreign carrier in the destination market it seeks to serve, unless the applicant can make a special showing. The second circumstance occurs where the applicant has an affiliation with a dominant U.S. carrier whose international switched or private line services the applicant seeks authority to resell. The third circumstance that can arise disqualifying an application from streamlined processing is when the applicant seeks authority to provide switched basic services over private lines to a country for which the FCC has not previously authorized the provision of switched services over private lines. Finally, a “catch all” category exists where at any time during the fourteen day period, the FCC can inform the applicant that its application is no longer eligible for streamlined processing. Since the World Trade Center attacks of September 11, 2001, the FCC has used this “catch all” category to remove a significant number of 214 applications from streamlined processing at the request of the Executive Branch, which has identified such applications for closer scrutiny.
While FCC regulations allow foreign-owned companies to apply for and hold FCC 214 licenses, applications from these companies are far more likely to be pulled for closer scrutiny by the Executive Branch. Executive Branch inquiries typically request additional information (sometimes significant additional information) about the applicant, its ownership, where its business records will be located, and the specific types of telecommunications services it plans to provide. These investigations can delay final action on an application for weeks or possibly even months, and should be approached carefully.
Once application processing is complete and the FCC is prepared to grant an application, it issues a second Public Notice which lists approved applications. This second Public Notice serves as the official certificate for the applicant that it is authorized under Section 214 of the Act to provide international service between the U.S. and foreign points.
Common misconceptions surround Section 214 licenses. For example, despite the belief of some, prepaid calling card providers as well as prepaid wireless providers are required to hold 214 authorizations if their service allows calls to be placed between the U.S. and foreign points. Another “misconception” is that providers can “ride on” the 214 license of another carrier or their underlying provider. This is not true, and providers that resell the international services of other 214-authorized carriers are required to have their own 214 authorization.
Ongoing Federal Compliance
Operating as a Section 214 licensee entails a range of ongoing federal compliance obligations. One requirement is to keep the FCC updated as to any substantial changes in ownership, transfers of control, or other changes in the regulatory status of the license. Any such changes need to be promptly reported to the FCC. In addition, a 214 licensee must disclose its rates, terms and conditions to the public (usually via a Price List posted on its website); pay certain regulatory fees and surcharges (including possibly the Universal Service Fund (“USF”) assessment); as well as even comply with rules for when it discontinues service or ceases operations. Thus, Section 214 licensing is anything but a one-step, one-time obligation.
One point warranting special consideration is the USF assessment. New telecommunications providers need to carefully consider how their businesses will be impacted by the USF. Providers are required to obtain separate authorization to provide such service by submitting selected portions of an FCC Form 499A. This effectively registers the company with the USF program under which most providers are assessed for USF at 11.3% (presently) of their gross interstate and international revenues. USF contributions are calculated based on quarterly submissions of FCC Form 499Q and annual submissions of FCC Form 499A (due each April). Carriers are invoiced by the Universal Service Administrative Company and payment is required on a monthly basis. Providers are allowed to pass along these assessments to their customers.
Providers offering international-only services or offering only a small percentage of interstate services (i.e., less than 12% of combined international/interstate) can be exempt under the FCC’s rules from paying USF on their international service revenues. Even if a provider does not offer interstate services, however, it still will need to submit an FCC Form 499A each April 1. The reason for this is that other regulatory fees are assessed by means of this form which international-only providers must pay. These assessments cover the following programs: the North American Numbering Plan (NANP) assessment, Local Number Portability (LNP) assessments, and Telecommunications Relay Services (TRS) fees.
The USF assessment is a substantial regulatory surcharge which clearly will impact a provider’s price structure. When applying for Section 214 authorization, a provider should be mindful of the USF assessment and take it into account as part of its overall regulatory compliance plan.
Conclusion
The fact remains that obtaining authority under Section 214 is one of the most important regulatory hurdles a new telecommunications provider must overcome before offering service in the U.S. With growing scrutiny of Section 214 applications by the Executive Branch and important ongoing federal compliance obligations, Section 214 licensing should not be taken lightly.
June 2009
(Updated November 2011)