This Memorandum supplements the Firm‘s September 8, 2009, Memorandum which provided updates on the pending IDT and Global Crossing Petitions for Review of USAC Decisions, which address various concerns regarding the “Carrier‘s Carrier Rule” (“CCR”).  The September Memo updated and evaluated the potential implications of FCC action on these pending Petitions. [A copy of the September Memorandum is included in this distribution for ease of reference].

This Memorandum goes further and addresses other matters related to the CCR which were either recently implemented or remain pending at the Commission.  This Memorandum evaluates these matters and explains how, in their totality, the recent slew of FCC issues – either decided or pending — may ultimately impact all companies currently engaged in the prepaid telecommunications services marketplace, including wholesalers, underlying carriers, platform providers, resellers, distributors and sales agents.  In particular, this Memorandum explores:

1) recent revisions to the Universal Service Administrative Company‘s (“USAC”) instructions to the FCC‘s Telecommunications Revenue Reporting Worksheet Form 499-A (“Instructions”),

2) an on-going FCC Enforcement Bureau investigation into prepaid card services, and

3) additional challenges to USAC‘s interpretation of the CCR.

Importantly, as we look at the FCC‘s recent decisions and pending matters, and when we evaluate other indicia, we are beginning to see signs that the FCC may be undertaking a deliberate and coordinated effort to squeeze the unique “prepaid telecommunications business & distribution model” into the existing universe of regulations that was erected to govern “presubscribed and other traditional telecommunications business & distribution models.”  What we are finding is that the FCC is implementing this effort primarily through its enforcement of the Carrier‘s Carrier Rule and other Universal Service Fund (“USF”) regulations.  As we describe in this Memorandum, we believe that the FCC –via the actions described below and in our earlier memos–is signaling a significant policy shift which could have significant ramifications for the prepaid services industry.  And depending on where your company falls within the current prepaid services delivery and distribution business model, this shift in policy could force material changes to your regulatory compliance practices, and result in further increased costs.

If you have any further questions or concerns about the information contained in the attached Advisory, please contact Jonathan Marashlian at: jsm@commlawgroup.com or 703-714-1313.