Enforcement Bureau throws the (phone) book at convenience store

On January 14, just beating the expiration of the statute of limitations to punish offenders, the FCC’s Enforcement Bureau issued a spate of fines and citations against companies which had failed to file Hearing Aid Compatibility (HAC) Reports.   While the Bureau’s actions to some extent targeted the usual suspects (equipment vendors and carriers), they also, perhaps unwittingly, threatened a vast new class of businesses with regulation and enforcement actions. And by doing that, the Bureau also may have started a domino effect likely to lead to the elimination of the near-ubiquitous availability of prepaid phones and phone cards.

Despite the dire (and probably unforeseen, at least by the Bureau) consequences of its action, this whole affair started from good intentions. The Commission is rightly sensitive to the needs of the hearing-impaired. Because of that, the FCC’s rules contemplate that telephone equipment manufacturers will produce, and telecommunications service providers will make available to the public, a significant stock of cellphone handsets that are compatible with hearing aid devices. No problem there. And to keep everybody honest (in a “trust but verify” mode), the Commission requires all phone manufacturers and service providers to submit HAC reports on January 15 of each year, detailing their compliance with the handset stocking rules. Since these rules came into effect a few years ago, the FCC has taken an extremely harsh and unforgiving attitude toward carriers who fail in the slightest measure to meet the requirements of the rules.  

That harsh approach was evident in the fact that, among the Bureau’s targets was Firefly Mobile Communications. Firefly is a conventional telecommunications service provider, to be sure, but it was actually exempt from complying with the substantive handset stocking rules because it sold so few of them. Even so, Firefly was not exempt from the requirement to file an HAC report, so the Bureau slapped it with a citation and threatened to impose a fine if it fails to file the report again. (A “citation” is the FCC equivalent of a cop issuing you a warning rather than a speeding ticket; for some categories of offenders, the FCC is required to first issue such a warning before it can impose an actual fine.)

Firefly probably should have known that it was subject to the HAC reporting rules, even if it didn’t have anything much to report. The same can’t be said of 7-Eleven. 7-Eleven, along with thousands of other convenience stores, drug stores, and department stores, sells prepaid phone cards and cellphones with prepaid minutes, right there next to the revolving hotdogs. When 7-Eleven didn’t file an HAC report last year, the FCC investigated.   7-Eleven claimed that it’s not a telecommunications service provider at all – rather, it just sells phones (that it gets directly from various manufacturers) and prepaid wireless cards and services (that it gets from a mobile phone company). While 7-Eleven does offer “private label”-branded phones and cards, 7-Eleven urged – not unreasonably – that it should not be deemed a “telecommunications service provider” subject to the HAC reporting requirement.   

The Enforcement folks disagreed.   The Bureau concluded that 7-Eleven is a “reseller” and that, as a result, it is also a “service provider” subject to the handset reporting and stocking requirements.  

Although the company got only a warning, the implications of the citation are far-reaching. 

Sure, you could argue that, because a newsstand or convenience store sells prepaid cards, it could in some sense be dubbed a “reseller” of telecommunications services – and therefore a “telecommunications service provider” for purposes of the Communications Act. But let’s think about that for a minute. The relationship of the convenience store to the customer has always been tenuous and fleeting, at best – certainly not consistent with the traditional model of a carrier-customer relationship. Typically the convenience store does not even know who its customer is, much less exercise any control whatsoever over the telecom service the customer gets. Is it really accurate to lump such vendors in with “real” telecom providers?

The Bureau evidently thinks so. It concluded that, because 7-Eleven resells prepaid cards and phones to customers, 7-Eleven is a telecom reseller.   The Bureau did note that 7-Eleven sells the cards and phones under its own “SPEAK OUT” brand name, but it is unclear whether that practice distinguishes 7-Eleven from the CVS drug store that resells prepaid cards of other carriers under the carriers’ respective brand names.   Conceptually, there should be no difference between reselling cards and phones under one’s own brand name or reselling them under the name of the underlying carrier – it is apparently the resale itself that categorizes you as a “service provider”.

But let’s assume that the Bureau is correct in its conclusion. So what? Here’s what. As a result of the Bureau’s decision, not only 7-Eleven, but CVS, Safeway, Macy’s, and the cigar store down the street could now all be deemed “telecommunications service providers”. And as such, they would need not only to file the annual HAC report (if they sell handsets), but also to contribute to the Universal Service Fund, file quarterly 499Q’s, and comply with all other regulations applicable under Title II of the Act to service providers – just like AT&T and Verizon. And given the choice of either (a) undertaking all those regulatory chores (as well as the potential penalties for non-compliance), or (b) not selling phones or prepaid cards, such vendors could be expected to dump their phone/card business pronto. In that way this one Bureau action could go a long way toward effectively killing off the prepaid card/ prepaid phone business which has flourished up to this point.

The situation calls out for immediate full Commission review and possibly FCC forbearance from regulation of small vendors who were never intended to be subjected to the full panoply of common carrier regulation.