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AT&T Corp.’s request to waive unpaid fees accrued through prepaid calling-card services has been denied by the Federal Communications Commission, a decision that could cost the company millions of dollars and trigger more litigation in the telecommunications industry. At the crux of the ruling is the FCC’s ongoing struggle to form a distinction between “information services” and “telecommunication services”-definitions that have been blurred by emerging Internet technologies. The FCC order set a clear standard, ruling that “enhanced” telephone calling cards are no different than regular calling cards. When customers use AT&T’s “enhanced” calling cards, they must listen to a prerecorded advertisement before placing a phone call. The company’s 2003 petition argued that this card provided an “information service,” which is exempt from Universal Service Fund (USF) charges. The FCC recently rejected two proposals within a petition that AT&T filed in May 2003, according to Mark Wigfield, a spokesman for the FCC Wireline Competition Bureau. The FCC order, WC Docket nos. 03-133 and 05-68, which was released on Feb. 23, holds the company accountable for $340 million in unpaid bills owed to local telephone carriers that transferred calls for AT&T’s calling card. The order also charges AT&T $160 million for unpaid contributions to the Universal Service Fund, a federal program that collects mandatory contributions from companies providing “telecommunications services.” “We think we are right on the law, and we plan to appeal the order,” said Claudia Jones, an AT&T spokeswoman. The company’s general counsel, James W. Cicconi , won’t comment until the FCC completes a pending ruling about other types of AT&T calling cards. When it filed the 2003 petition, AT&T had hoped to avoid paying charges on calls placed and received within the same state, the intrastate fees levied by local carriers. Jones asserted that the company’s original petition was an attempt to demystify telecommunications regulations. “We were the ones that went out and asked for clarification,” she said. AT&T’s cards route calls through a national operator outside the caller’s state, a transfer the company hoped would evade $340 million in intrastate charges within the original state, even though the call began and ended on the local carrier’s switchboard. “As long as AT&T does the wise thing and pays the fines, there shouldn’t be too much litigation over these access fees,” said James Ramsey, general counsel of the National Association of Regulatory Utility Commissioners, a nonprofit organization made up of state regulators of energy, telecommunications and water. “But if there is a dispute, then individual state commissions will have to take enforcement actions.” Since many calling-card companies operate on a similar system, unpaid access fees could haunt the entire industry for years. “The FCC can’t recover that money for the local carriers, they will be responsible for their own filings,” the FCC’s Wigfield said. The FCC order also delivered a more pressing problem for AT&T. The company now has less than 30 days to reassess $160 million worth of USF contributions owed by the company for calling-card transactions. In 1996, Congress decided that all telecommunications companies with interstate or international service must pay a fraction of their earnings into the USF. The FCC calculates each company’s contribution based on expected quarterly billing revenues. The service fund is a federal program designed to bring telephone service into remote areas and help low-income families pay their phone bills. The February FCC order declared that calling-card companies are not exempt from these fees, and that the companies must file new assessments with the USF’s administrator, the Universal Service Administration Co. While the FCC expects all calling-card companies with similar arrangements to pay USF back dues, enforcement will prove difficult. “These smaller companies need to look at their consciences and contracts,” said Frederick Joyce, a partner in Venable’s Washington office and chairman of the firm’s communications group.

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