BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On October 29, 2009, the department published MAR Notice No. 42-2-817 regarding the proposed adoption and amendment of the above-stated rules at page 1999 of the 2009 Montana Administrative Register, issue no. 20.
2. A public hearing was held on November 23, 2009, to consider the proposed adoption and amendment. Oral and written comments were received at and subsequent to the hearing and are summarized as follows along with the response of the department:
COMMENT NO. 1: Geoff Feiss, General Manager of Montana Telecommunications Association (MTA) testified at the hearing in support of the proposed rules and presented a letter that had been sent to Director Dan Bucks on September 14, 2009. Mr. Feiss' letter addresses his participation in the negotiated rulemaking process for these rules whereby he was representing the member-owned telephone cooperatives and shareholder-owned commercial telecom companies serving rural Montana consumers.
He stated that MTA members have invested hundreds of millions of dollars in Montana's telecommunications infrastructure and continue to invest tens of millions each year in new facilities and advanced services including broadband Internet service to over three-quarters, and often nearly 100% of their customers.
Among the services Montana's rural telecom providers are particularly proud to offer is a statewide, state-of-the-art 9-1-1 service platform serving 37 of Montana's PSAPs. Montana's 9-1-1 network provides vital emergency services to people living, working, and visiting in Montana. To help fund this critical network infrastructure, MTA members assess a $1.00 monthly fee on all their subscribers, and remit these 9-1-1 fee revenues to the department, pursuant to Title 10, chapter 4 of the Montana Code Annotated. Prepaid wireless telecommunications providers, however, have not been collecting and remitting these 9-1-1 fees.
MTA encourages the department to establish rules by which prepaid wireless providers will collect and remit 9-1-1 fees for the support of Montana's 9-1-1 network and, most importantly, its consumers.
Consumers are increasingly subscribing to prepaid wireless services. The current economic recession has accelerated the rate at which consumers have dropped existing wireless (and wireline) service plans and subscribed to prepaid plans. Anecdotal evidence indicates that between ten and as much as 20 percent of all wireless subscribers currently subscribe to prepaid plans. Moreover, prepaid wireless providers aggressively are promoting service to consumers utilizing federal low income universal service support, further accelerating the rate at which prepaid wireless plans are being adopted. As more consumers migrate to prepaid plans, more money that would have been collected by carriers complying with existing law and should be collected for the support of Montana's 9-1-1 network and its consumers is not collected. It's important to note that the users of prepaid services have access to and frequently use the existing 9-1-1 network despite the fact that their service provider does not provide any support of the underlying network. Obviously, these calls result in cost to Montana's 9-1-1 network. One must ask if it is fair to ask Montanans who are assessed the lawful rate to foot the bill for prepaid customers simply because it's inconvenient for the prepaid carrier to assess the fee.
Mr. Feiss also presented three charts showing low income support mechanisms. The first one represents TracFone disbursements by state and month from September 2008 through September 2009; the second one represents a percentage of total disbursements made by TracFone; and the third one represents distribution of low income disbursements between TracFone and other ETCs from September 2008 through September 2009.
RESPONSE NO. 1: The department appreciates the comments and assistance that Mr. Feiss and the Montana Telecommunication Association have provided throughout this process. The department is responsible for administering the 9-1-1 fee in a fair and equitable manner. The implementation of these rules is consistent with that responsibility.
COMMENT NO. 2: Ms. Bonnie Lorang, General Manager of the Montana Independent Telecommunication Systems (MITS), stated that she represents telephone companies stretching literally from border to border in the state, both wire line companies and some with affiliated wireless providers. She stated that MITS supports the rules as written. She further stated that MITS participated in the prepaid wireless negotiated rulemaking process and would like to go on the record supporting the testimony of Geoff Feiss.
Ms. Lorang stated that they are open to proposals of other alternatives, but from MITS perspective providers of telecommunication services, regardless of the technology used, should be contributing to the 9-1-1 program and the 9-1-1 fund. Public safety is important for every single Montana consumer regardless of whether they are dialing for services using a prepaid wireless, a landline, or a traditional wireless. In terms of the prepaid wireless it has been the experience of those in the industry, including MITS members that provide wireless telecommunication services, that it really is not a type of a service that is in its infancy. It is a rapidly growing part of the wireless communications industry. Not only industry, monthly periodicals such as Consumer Reports recently have had articles that indicate the extreme rapid growth and accelerated growth of the prepaid industry. It seems fair and equitable that a rule be designed to ensure that all those utilizing telecommunications services contribute to the fund.
RESPONSE NO. 2: The department appreciates the comments and assistance that Ms. Lorang and the Montana Independent Telecommunication Systems have provided throughout this process.
COMMENT NO. 3: Ms. Becky Berger, Program Manager for the Department of Administration's 9-1-1 Program stated she continues to support the rules as proposed. She stated that the 9-1-1 dispatch centers across the state struggle to even provide the basic 9-1-1 systems and will continue that struggle as the state moves forward to meet the needs of the public. She presented a chart showing the projected revenues that were not received from a particular service provider when they were not remitting but had started withholding the revenue in 2004. From these projections, the 9-1-1 program was able to calculate what should have been received during the period of 2004-2009. This figure is just short of $700,000. That was revenue that should have been going to the local systems for 9-1-1 service.
Ms. Berger stated for these reasons she supports the rules as drafted and looks for passage of these rules soon.
RESPONSE NO. 3: The department appreciates the comments and assistance that Ms. Berger and the Department of Administration have provided throughout this process.
COMMENT NO. 4: Stacey Sprinkle, Vice President for State Tax Policy, Verizon Wireless (Verizon), presented a letter that had been sent to the department during the negotiated rulemaking process dated December 23, 2008, as written comments regarding these rules.
Ms. Sprinkle's letter questioned whether there is sufficient authority for the department to initiate the proposed rulemaking. She stated that the current statute imposing the monthly E-9-1-1 fee on wireless telephone service subscribers has not been amended to specifically include prepaid wireless service subscribers in the E-9-1-1 base. Given the nature of the way prepaid wireless services are sold and provided, and the statute's clear direction that the fee is meant to be collected directly from the end consumer, one would question the applicability of 10-4-201, MCA to prepaid wireless subscribers. In fact, during the 2007 legislative session HB 33 was advanced seeking to address this very issue by clearly including prepaid wireless customers in the E-9-1-1 base. However, HB 33 failed to pass. If the statute does not apply, then Verizon questions under what authority the department is lawfully engaging in the proposed rulemaking.
Ms. Sprinkle further stated that none of the options outlined in the rule adequately provide a mechanism for prepaid wireless providers to collect the E-9-1-1 fee directly from all prepaid wireless subscribers in accordance with the statute. Section 10-4-201, MCA, makes it clear that the subscriber of wireless services is the one liable for payment of the E-9-1-1 fee.
Unlike the traditional wireless customers who are billed for their service on a monthly basis, most prepaid wireless services are sold "over-the-counter" by third-party retailers such as Wal-Mart, Target, Radio Shack, and other large and small retailers. These retailers are not "wireless providers" and have no ongoing billing relationship with the wireless customer. Since wireless prepaid customers have no bills, no regular interval for paying for service, and no relationship with the retailer from whom they purchased their service, the traditional method of billing the fee on a monthly basis does not work.
Proposed New Rule III identifies two methods a carrier can elect to "collect" and remit the fee from prepaid wireless subscribers. The first method identified is what is commonly referred to as the decrement or "sufficient positive balance" method. While this method may appear to be a simple approach on the surface, significant public policy and compliance problems result from the use of this method so much so that it is clearly not the right answer to collection E-9-1-1 fees equitably from all prepaid wireless users.
The decrement method does not resolve the policy concerns of developing a method that will ensure equitable funding of 9-1-1 systems from all prepaid wireless consumers since it is only imposed upon those customers that have a sufficient balance in their account at the end of the month. As knowledge of this process spreads it provides prepaid customers with an attractive means to avoid imposition of the fee altogether by simply timing the use of their services so that the account is depleted at the end of each month. The decrement process by its nature provides prepaid customers with an easy way to avoid application of the fee.
Section 10-4-201, MCA requires the fee to be collected from the subscriber. Since prepaid services can be sold anywhere, disclosing the state specific fee that will be collected at the end of each month cannot be done when the service is sold. Since no additional billing or communication takes place with the prepaid subscriber allowing the provider the opportunity to clearly disclose to the subscriber the "collection" of the fee and for what governmental program it is funding has been raised as a concern with some state Attorney General's offices across the country regarding violating fair trade practices.
Because of these deficiencies, this is not a method supported by the wireless industry as an equitable solution to collecting E-9-1-1 fees from all prepaid wireless subscribers.
The second method provided for in the proposed rule is what is commonly known as the "ARPU" (average revenue per user) method. This method is a calculation method and provides no solution to how a provider is supposed to collect the fee from the subscriber as required in 10-4-201, MCA. The method is used to calculate an estimate of the number of prepaid wireless subscribers and then requires the carrier to pay the fee directly, violating the clear intent of the statute. While one might question why a carrier cannot just embed the fee in the cost of its service, again since these services are sold on a national basis, carriers cannot build an estimate cost for each state's and or local jurisdiction's 9-1-1 fee into its service pricing without risking exposure to class action lawsuits for charging customers a fee for a jurisdiction within which they do not reside. Again, this method does not provide an equitable solution to "collection" of E-9-1-1 fees from all prepaid wireless subscribers.
The long term solution to collecting E-9-1-1 fees on prepaid wireless consumers is to collect the fee directly from the customer when the service is sold and the fee can be clearly communicated to the consumer. The wireless industry has been working nationally with the general retail community, as well as public safety, to devise a retail point-of-sale (POS) solution that will work for all parties involved and ensure equitable contributions for E-9-1-1 funding are made by all prepaid wireless consumers. The industry is currently working on draft legislation to implement the retail POS solution in Montana and will forward the bill draft to the department as soon as it has been finalized within the next few weeks. Implementing any solution other than the retail POS solution would put the state at risk for being in violation of the statutory provisions set forth in 10-4-201, MCA.
She stated in the December 23, 2008 letter, that it is Verizon's hope that the department will work with the industry to pursue the POS solution during the 2009 legislative session.
In a separate document Ms. Sprinkle reiterated the statements contained in the December 23, 2008, letter and further stated that it is not Verizon's position that prepaid wireless consumers should be excluded from E-9-1-1 fees. She stated that they are a significant provider of postpaid wireless services as well and collect and remit the E-9-1-1 fees on behalf of those customers as required by statute. When there is a specific fee imposed upon communications users to fund E-9-1-1, to be equitable, we believe that prepaid wireless consumers should bear their fair share to support the emergency communications system in the state just like any other user of communication services. However, there are many complexities surrounding how prepaid services are provided and sold that warrant additional consideration in this arena, specifically in defining a method that will provide for the collection of the E-9-1-1 fee directly from the prepaid customer.
She further stated that contrary to what others have asserted, Verizon's opposition to the proposed rules has not been "simply because it's inconvenient for the prepaid carrier to assess the fee," it has been due to the fact that no workable method has been put forth to assess/collect the fee directly from the prepaid customer. That is why the wireless industry has been working very hard over the last several years to develop a long-term solution that will allow E-9-1-1 fees to be collected directly from the prepaid wireless consumers. Those efforts have led to the development of the retail POS method that would collect the fee from the customer when the financial transaction takes place which is when the customer purchases the service. This solution would involve collection of these fees by prepaid wireless carriers as well as by general retailers who sell 80% of this product. Model legislation implementing the retail POS solution has been endorsed by the National Conference of State Legislatures at its annual meeting in July and was supported by the National Emergency Number Association in the three states where this proposed solution was enacted in 2009. This solution has also been supported by Wal-Mart, one of the largest general retailers selling prepaid wireless services.
Verizon recommends that the rulemaking process be deferred and instead ask the stakeholders to continue to work together to develop the legislative changes necessary to include prepaid wireless customers in the E-9-1-1 base with the retail POS method clearly identified as the method to collect these fees from prepaid wireless customers. She stated that they believe that instituting the statutory changes needed to accomplish both of these goals will yield the most effective, uniform, and equitable method to imposing E-9-1-1 fees on prepaid wireless customers and will provide the much needed certainty in the revenues that will be received from this segment of communications users to support E-9-1-1 services in Montana.
RESPONSE NO. 4: The department appreciates the assistance that Ms. Sprinkle and Verizon Wireless provided in this rule hearing process. The department offers the following responses to Ms. Sprinkle's comments:
The department's authority to adopt rules is found in 10-4-203, MCA, which states,
"Every provider responsible for the collection of the fee imposed by 10-4-201, MCA shall keep record, render statements, make returns, and comply with the rules adopted by the Department of Revenue with respect to the fee."
Section 10-4-201, MCA clearly states the provider shall collect the fees. All wireless providers fall within the definition of a provider as stated in 10-4-101, MCA. Therefore, all wireless providers are required to collect and remit the E-9-1-1 fees. Any other interpretation would create an unfair competitive advantage to prepaid providers. A service provider's billing relationship with its subscribers does not change the requirement that a service provider must collect and remit the E-9-1-1 fees to the department.
The department will not speculate on the passage or nonpassage of HB 33 from the 2007 legislative session as an affirmation or denial of applying the E-9-1-1 fees on prepaid providers. The department's responsibility at this point is to administer the law as written.
The department recognizes the need to provide a mechanism for prepaid providers to collect and remit the E-9-1-1 fees in a manner that is consistent with the statutory purpose for the equitable application of the E-9-1-1 fee on all providers. The two methods being proposed to calculate and collect E-9-1-1 fees, conforms to methods adopted by 24 other states. The department has repeatedly stated that it is willing to review any other options of calculating and collecting the E-9-1-1 fees, so long as the collection methods are within the authority of the current law.
The department is willing to review any point-of-sale legislation that may be proposed by Verizon. However, any future legislation does not provide a solution for the existing statutory requirement that all providers are required to collect the E-9-1-1 fee.
COMMENT NO. 5: Ms. Mona Jamison, Attorney representing OnStar testified at the hearing and Mr. Thomas Jeffers, Vice President for Public Policy for OnStar presented written comments stating that OnStar is the world's leading provider of telematics services, as a good corporate citizen OnStar is very supportive of 9-1-1 service providers, and has been collecting and remitting 9-1-1 fees in Montana since 2002. The problem is that OnStar cannot comply with the proposed New Rule III, pertaining to collection and determination of fees for prepaid subscribers. The first reason they cannot comply is that OnStar, a nonfacilities based reseller of prepaid wireless communication services, does not know how many active hands-free calling (HFC) customers they have at the end of each month, or the number of minutes remaining per customer because the minutes reside within the vehicle. This is a significant concern. Second, when a customer calls to order the HFC minutes, OnStar then has an opportunity, at the point of sale, to collect all the taxes, fees, and surcharges associated with that transaction. OnStar does not bill on a monthly basis. All transactions must reasonably occur at the point of sale. Third, since OnStar is a reseller of minutes rather than the provider of cell services, they cannot differentiate between intra versus interstate revenue in order to use the formula in proposed New Rule III(2)(a)(ii), unless OnStar can use the FCC safe harbor percentage for each HFC transaction. Fourth, normally when a subscriber purchases HFC minutes from OnStar, they are good for one year. OnStar has no control over how or when a subscriber will deplete their supply. The subscriber could use all the minutes that they have purchased in the same day, the same week, the same month, or over a year. Therefore, OnStar currently charges HFC subscribers 9-1-1 fees, which they do support, on each retail transaction at the point of sale.
Ms. Jamison and Mr. Jeffers offered an option that would allow for one-time collection of the 9-1-1 emergency telephone service fee at the point of sale, either as a flat fee per transaction or as a percentage of gross sales using the FCC safe harbor formula per transaction or as a percentage of gross sale using the ARPU methodology for each HFC transaction.
RESPONSE NO. 5: The department appreciates Ms. Jamison's and Mr. Jeffers' assistance in this rule hearing process. The department's proposed rules offer two methods that a prepaid provider may collect and remit the E-9-1-1 fee to the state. The two methods proposed for calculating the E-9-1-1 fee are already adopted and used in 24 other states. The OnStar representatives provide no information indicating that they were failing to comply with requirements in other states. To the contrary, they noted that they were complying with Montana's 9-1-1 fees. The FCC Safe Harbor rule is not applicable under the current fee structure when determining Montana state revenues. The department would review how the FCC Safe Harbor rule might be applied to calculating the E-9-1-1 fee if OnStar can provide additional information on how the FCC Safe Harbor rule could be currently applied to the E-9-1-1 fee.
COMMENT NO. 6: Ms. Margaret Morgan, representing Alltel Communications (Alltel), stated that Alltel currently pays the 9-1-1 fees on their prepaid services. She stated that they believe that the rules, as proposed, are actually more onerous than what they are currently doing. The most equitable way to collect 9-1-1 fees on prepaid service is through the point of sale. She stated that most states are moving towards that process, and if indeed we need legislation to do so, then they would help make that happen. Ms. Morgan stated that the rules, as written, create additional problems for Alltel even though they are currently paying 9-1-1 fees on prepaid. For those reasons Ms. Morgan stated Alltel was in opposition to the rules as proposed. She further stated that Alltel would be interested in working on legislation to provide for a more equitable way to collect the fees.
RESPONSE NO. 6: The department appreciates Ms. Morgan's time and assistance in this process.
The department disagrees with the statement that these new rules are actually more onerous than current practice. The proposed rule allows a provider to utilize the method prescribed by statute or one of the methods prescribed by the rules. These proposed rules are the same methods already adopted by 24 other states and are currently in use to determine the amount of TDD Telecommunication Service Fee that is remitted by Alltel to the department.
The department is willing to review any point-of-sale legislation that may be proposed. However, any future legislation does not provide a solution for the existing statutory requirement that all providers are required to collect the E-9-1-1 fee.
COMMENT NO. 7: Mr. Mike Green, Attorney, representing Tracfone presented testimony at the hearing stating that the proposed rules do not provide any mechanism for prepaid carriers to calculate the fee and pass it through to their customer. The rules are drafted to anticipate an end-of-the-month calculation based on interstate revenue and there is no way to pass that through to the customer based on the calculation methodology in these rules. He stated that Tracfone too, would prefer a point-of-sale methodology, and would also support the idea of bringing in the third party retailers who are involved in this process.
Mr. Leighton Lang, Senior Vice President and Assistant General Counsel for Tracfone stated that the current statute imposes three fees totaling $1.00 "a month" on "each service subscriber". The subscriber "is liable for the fees imposed by this section." The statute provides that the provider shall pay the fee based on the "net amount billed" for the service. In the case of a prepaid wireless reseller like TracFone, the customers do not purchase service on a monthly basis and there are no bills. Prepaid customers purchase wireless service on a "pay-as-you-go" basis, mainly from third party independent retailers. There is no opportunity for the prepaid wireless provider to collect a monthly fee from such customers. Clearly, the Legislature did not contemplate unbilled, pay-as-you-go prepaid services sold by independent retailers when the statute was enacted. The department itself has said that, even though the vast majority of prepaid wireless sales in Montana are made by independent retailers, these retailers have no obligation to collect 9-1-1 fees.
The department's proposed rule would establish different methods for computing and remitting fees that contradict and go beyond what the statute authorizes. The Legislature in 2007 considered legislation to extend the statute to cover prepaid subscribers and to adopt the remittance methods in the proposed rule, but this bill was not adopted.
TracFone does not believe the department has the statutory authority to adopt and enforce the proposed rule as currently drafted.
Current law provides that the department (of administration) "may adopt rules to implement the provisions of this chapter), i.e., the chapter that governs administration and funding of the state emergency 9-1-1 system. The Department of Administration would be the appropriate agency to engage in rulemaking on 9-1-1 service fees, not the Department of Revenue.
The statute defines "wireless provider" to mean an entity that is "authorized by the federal communications commission to provide facilities-based commercial mobile radio service . . ." As a nonfacilities-based reseller, TracFone does not fall within this definition. The department does not have the statutory authority to expand this definition to encompass resellers.
New Rule III(1) provides that it is the subscriber who is subject to the fee, and this would be consistent with the statute. However, New Rule III(2)(ii) provides a method for computing the amount of 9-1-1 fees to be remitted, but provides no method to actually collect the fee from a prepaid subscriber on a monthly basis. Such a provision should not be adopted.
New Rule III(2)(a)(i) provides for collection from prepaid customers with an account balance "equal to or greater than the fees . . ." This provision has a troubled history in other states that have adopted it. It contemplates that prepaid usage, fully paid for by the customer, will be reduced or taken back from the customer's prepaid account. Few, if any, prepaid wireless providers in Montana, including TracFone, have the technical capability to track prepaid customer accounts and to take back minutes from the customer each month. This method has no statutory basis, is unfair to customers, and in any case fails to collect a fee from the substantial number of prepaid accounts that do not have a balance equal to or greater than the fee at the end of the month.
New Rule IV(2) provides for remittances of fees upon activation and replenishment of prepaid accounts. Since no sales transaction takes place at activation and replenishment, no feasible means exist to collect a monthly fee under such circumstances. There is no statutory authority for this provision.
The proposed rules provide no practicable methods for collecting monthly fees from prepaid customers who (1) do not make monthly purchases, (2) do not receive bills, and (3) purchase the prepaid service mainly from retailers within Montana. Furthermore, the methods offered are not consistent with the statute, which contemplates a monthly fee on customers who are billed by service providers.
Although the Legislature in 2007 rejected legislation to extend coverage to prepaid, partly because the collection methods proposed had proved impracticable and ineffective in other states, TracFone recommends that the department support legislation to collect 9-1-1 fees from prepaid wireless customers at the retail point of sale (POS). This method has been endorsed by CTIA, major wireless carriers (including TracFone), the National Council of State Legislatures, consumers groups, various public safety organizations and many others. POS has been successfully implemented in Wisconsin and West Virginia. POS goes into effect in Maine and Louisiana on January 1, 2010, and in Texas on June 1, 2010. Stakeholders are working to get POS passed in additional states in 2010. Montana should join in this effort.
RESPONSE NO. 7: The department is amending New Rule I to remove the word "wireless" from the definition of "Intrastate Monthly Revenues." Wireless provider is defined in 10-4-101, MCA, which utilizes the definition of wireless provider in determining wireless cost recovery in 10-4-115, MCA. Wireless provider is not utilized anywhere in 10-4-201, MCA et.seq.
With regard to the other issues raised by Mr. Green and Mr. Lang, these issues are addressed in Response No. 4.
3. As a result of the comments received the department amends New Rule I (42.31.406) with the following changes:
NEW RULE I (42.31.406) DEFINITIONS The following definitions apply to terms used in this subchapter:
(1) remains the same.
(2) "Intrastate monthly revenue" is defined as the prepaid service provider's revenue derived from services provided by a
wireless provider to subscribers with a Montana area code.
(3) through (5) remain the same.
AUTH: 10-4-203, 10-4-212, 15-1-201, MCA
IMP: 15-4-101, MCA
3. Therefore, the department adopts and amends New Rule I (42.31.406) with the amendments listed above, adopts New Rule II (42.31.407), III (42.31.408), and IV (42.31.409) and amends ARM 42.31.401 as proposed.
4. An electronic copy of this adoption notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes." The department strives to make the electronic copy of this adoption notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State March 15, 2010