Friday, February 19, 2010

Nebraska Supreme Court: State Can Assess 911 Fee on TracFone Wireless Services

On February 12th, the Nebraska Supreme Court issued an opinion which upheld the state's right to require TracFone to pay its 911 assessment on its wireless services.

Nebraska had created three preapproved methods to collect the surcharge:

a) The wireless carrier divides the total earned prepaid wireless telephone revenue received by the wireless carrier within the monthly reporting period by fifty dollars and multiply the result by the surcharge amount;

b) The wireless carrier collects on a monthly basis the surcharge from each customer's active, prepaid account. A customer with two or more active, prepaid accounts is assessed a separate surcharge for each active, prepaid account; or

c) A wireless carrier remits the surcharge upon the activation of the active prepaid account and upon each replenishment of additional minutes purchased by the prepaid customer.
The Nebraska Public Service Commission also provided an opportunity for prepaid wireless carriers to devise their own contribution methodology.

TracFone proposed to collect a surcharge from each customer to whom it directly sold prepaid wireless service, in an amount equal to one percent of the purchase price. TracFone estimated that the average wireless customer spends approximately $50 per month on wireless service and pays a 50 cent surcharge; therefore, a one percent surcharge on TracFone customers was, according to TracFone, comparable. TracFone explained that unlike other wireless service providers, TracFone could not deduct a surcharge directly from the customer's account balance, because the customer's prepaid account balance was stored in the customer's telephone, in the possession of the customer. TracFone also noted that it would be unable to collect a surcharge from customers who did not have a positive balance on the collection date, and that customers would be able to evade the surcharge by waiting until after the collection date to recharge their balances. The Nebraska Commission rejected TracFone's proposed alternative. The Commission noted that only 10 to 15 percent of TracFone's revenues are attributable to direct sales, with the remaining sales made by independent retail stores.

TracFone submitted a second proposal. This time, TracFone proposed to collect a one percent surcharge on every retail sale of TracFone service. TracFone would collect the surcharge on purchases made directly from it, and when service was purchased from an independent retail vendor, the vendor would collect the surcharge and give it to TracFone, which would in turn remit the surcharge for 911. The Commission rejected TracFone's second proposal, reasoning that it did not have jurisdiction over retail vendors who were not telecommunications carriers. TracFone was then ordered to use one of the three approved methods and challenged the ability of the Commission to require it to collect the 911 assessment.

TracFone argued that if a wireless carrier, such as TracFone, is unable to collect a surcharge directly from a customer, the Legislature intended for neither the carrier nor the customer to pay it. The Court found that this position is contrary to the stated intent of the 911 Act, and to a commonsense reading of the statutory language. The Court held that "TracFone's choice of business model does not give it license to throw up its hands and pay nothing. Instead, the surcharge should be collected from a wireless carrier's prepaid customers `whenever possible.' When that is not possible, a `comparable' surcharge will be assessed by the Commission, and the duty to remit that surcharge is the carrier's responsibility." Thus, TracFone could not avoid paying the 911 assessment.

Lou Manuta

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