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FCC Tells AT&T to Pay Fees on Prepaid Cards

By Jonathan Krim
Washington Post Staff Writer
Thursday, February 24, 2005; Page E05

AT&T Corp. illegally avoided as much as $500 million in government and other fees on prepaid long-distance phone cards that the company sells, the Federal Communications Commission ruled yesterday.

The decision is a blow to struggling AT&T, and potentially to other firms that market the calling cards with bulk amounts of minutes to servicemen and women, senior citizens, low-income families and others who rely on them for long-distance calling.

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The FCC ordered AT&T, and any other company that operates its card service in the same way, to recalculate and pay what it owes to the government's universal service fund, which is used to help subsidize small phone companies for providing telephone service in sparsely populated areas.

The fees, which also help connect schools and libraries to the Internet, are tiny charges collected for every local, long-distance and wireless call.

AT&T had claimed that because card users had to listen to advertisements before their calls were completed, such calls were no longer a regulated telecommunications service subject to the fees.

In recent financial filings, AT&T said that it had averted $160 million in universal service fees since 1999. The company also saved $340 million in charges payable to local phone companies for completing AT&T calling-card calls within states, by first routing them out of state and then back in. Calls from out of state have lower access charges.

Those firms can now seek to collect from AT&T.

The company, which has agreed to be bought by SBC Communications Inc., said it would appeal. In a written statement, AT&T called the decision "unfair, legally flawed, and harmful" to consumers. In the past it has said it might have to raise the price of the cards by as much as 20 percent to cover the fees.

The company contends that other calling-card providers are evading the fees.

Some of those firms have added other features to their advertisements, such as giving users the ability to immediately connect to the advertiser.

Those services are not covered by yesterday's ruling. Instead, the FCC opened a new rulemaking inquiry to determine which calling-card services should be exempt from fees, if any.

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