Thomas Crowe, Esq. and Cheng-yi Liu, Esq.
Given their experience with the industry, it is not unusual for wireless dealers and agents to consider transitioning to become an actual resale provider of wireless services or Mobile Virtual Network Operator (MVNO). Obviously, many factors go into such a business decision, but among these factors, federal and state telecommunications regulations and licensing requirements loom large.
Regulatory Classification
MVNOs and other wireless resellers generally fit the regulatory definition of Commercial Mobile Radio Service (CMRS) even if they do not own facilities and simply resell the services of facilities-based CMRS providers. Therefore, MVNOs will be regulated at the federal and state level substantially like CMRS providers. The following summarizes some of the regulatory obligations that MVNOs and other wireless resellers should consider prior to launching service.
Federal Requirements
FCC International Authorization (Section 214). An MVNO must obtain FCC International Section 214 authority if it plans to provide U.S.-international service. Unless the applicant is affiliated with a foreign entity or other unusual issues arise, the application is usually acted on by the Federal Communications Commission (FCC) in about a month (from date of electronic submission). For more information, see http://tkcrowe.com/renewed-focus/.
FCC Registration Form 499-A. MVNOs are also required to register with the FCC and the Universal Service Administrative Company (USAC) by filing a signed copy of certain pages of FCC Form 499-A with USAC. Among other things, the form requires a company to list an agent for service of process in the District of Columbia and calls for a listing of states where the company either provides or anticipates providing intrastate service in the future.
The FCC Form 499-A registration is particularly important. One reason is that it automatically ties a company into the FCC’s Universal Service Fund (USF) contribution system. Another reason is that 499-A registrants are added to the FCC’s online, searchable database of registered companies. Under the FCC’s rules, facilities-based carriers are only allowed to contract with MVNOs on the FCC registration list. Thus, failing to register will not only subject a company to potential FCC enforcement action, but could prevent it from being able to enter agreements with underlying providers.
Once registered, MVNOs generally must file the FCC Form 499-A annually and FCC Form 499-Q quarterly to report revenues which are used to calculate contributions to funds for USF, the North American Numbering Plan (NANP), Local Number Portability (LNP), Telecommunications Relay Service (TRS). For more information on the Form 499, see http://tkcrowe.com/fcc-forms-499/.
USF Contributions. The most significant FCC fee is for the federal USF, which is currently assessed at 12.9% of interstate (and in most cases, international) revenue. However, the calculation of USF contributions can be different for MVNOs than it is for traditional telecommunications providers. The FCC has instituted a “safe harbor” by which a wireless provider can opt to include only 37.1 percent of its revenues in its contribution base (based on the assumption that only 37.1 percent of wireless minutes are used for interstate calls). Since the contribution obligations are significant, MVNOs should develop a comprehensive USF strategy prior to starting service.
CALEA. MVNOs must comply with the Communications Assistance for Law Enforcement Act (CALEA). CALEA is intended to preserve the ability of law enforcement agencies to conduct electronic surveillance by imposing specific obligations on “telecommunications carriers” for assisting law enforcement, including delivering call interception and call identification functionality to the government with a minimum of interference to customer service and privacy. For more information, see http://tkcrowe.com/new-calea-order/.
CPNI. MVNOs must also comply with the FCC’s rules protecting Customer Proprietary Network Information (CPNI), which is the personally identifiable information derived from a customer’s relationship with a telecommunications provider, including call-identifying information and customer identity. Under the current CPNI rules, MVNOs must establish safeguards and procedures for the use of CPNI and implement a system under which the status of a customer’s CPNI approval can be clearly established prior to the use of the CPNI. In addition, MVNOs submit an annual certification of compliance which describes how the company is in compliance with CPNI rules. For more information, see http://tkcrowe.com/fcc-cpni-action/.
State Regulation
Registration. The Omnibus Budget Reconciliation Act of 1993 preempts states from regulating entry and rates charged by wireless services. However, it does not prohibit states from requiring that wireless providers and resellers (i.e., MVNOs) register with the state Public Utility Commission (PUC) before providing service. Currently, ten states require such registrations (and an eleventh requires registration for facilities-based wireless providers only). Generally, these state registrations are effective upon filing, although some can take up to one or two months to process.
For instance, California requires MVNOs to register with the state and provide limited corporate information. Other states also have registration requirements that require corporate contact information substantially similar to that required in California. However, each state is different and some state registrations are more complicated, requiring information such as service and facilities descriptions, geographic scope of service, rates and Eligible Telecommunications Carrier status. A few states may also require the filing of informational tariffs or copies of end-user service contracts that an MVNO intends to use with customers.
Other regulation. MVNOs will also generally be required to register as an out-of-state corporation with the Secretary of State in each state in which they plan to do business (i.e., provide service). On-going state regulatory obligations can include annual reports, PUC fees, state USF contributions, emergency 911 and E-911 surcharges, local taxes (on the state, county and municipal level), and other taxes and fees specifically targeting telecommunications services. The entities that enforce these fees, surcharges and taxes are likely to impose interest, penalties, and possibly even take actions to de-authorize companies from providing service in the state (in egregious cases) if the payments are not made. MVNOs should develop an effective long-term compliance strategy that includes periodic re-evaluation of on-going state regulatory obligations. For more information, see http://tkcrowe.com/state-fees-taxes/.
| This article was authored by the Law Offices of Thomas K. Crowe, P.C., a Washington D.C.-based specialty law firm serving the communications industry. Specialty services cover agreements with distributors and providers, FCC licenses, USF reporting and disputes, FCC Enforcement Bureau matters, CPNI, CALEA, state licensing, and more. Contact the firm by phone at 202-263-3640, by email at .(JavaScript must be enabled to view this email address), or via the firm’s website, www.tkcrowe.com. |