The Situation in California

Posted: 07/1998

The Situation in California

By Jennifer Knapp

Within the last 12 months, the California State Assembly has been busy making decisions
about how telecommunications providers offering prepaid phone card services in the state
of California need to conduct business. Difficulties with companies offering telecard
services in the state have arisen directly in minority groups hit by offers for low
per-minute international calls that may not fully disclose surcharges that drive up these
advertised low prices. Concerns over consumer protection has driven government officials
to implement regulations to stop companies from misguiding phone card users.

In February 1997, Assemblywoman Diane Martinez introduced an act to add Section 729.6
to the Public Utilities Code that relates to telecommunications. As introduced, the code
would require that "every corporation that produces a card that may be used for
telephone calls shall put the following information on the card: the incremental charges
for the telephone calls, in minutes or seconds, as applicable; the rate per minute or
second, as applicable; and the process for redeeming any time left on the card subsequent
to the making of the telephone call."

The original version, however, was never passed, says Mark Keene, consumer affairs
director for the International Telecard Association (ITA).

"The version that actually passed through the house has none of the requirements
that [Martinez] initially pushed forward," Keene says.

The ITA, whose functions include promoting the use of telecards through education and
representing the telecard industry before governmental agencies, legislatures,
quasi-judicial bodies and non-governmental regulatory entities, took great steps to ensure
that the Martinez Bill, AB 1424, would not be approved as introduced.

"When the act first came out, there were a number of things they were going to
require that would have been extremely burdensome to the industry," Keene says. For
instance, the amendments were going to require that all prepaid phone cards sold in
California be printed with eight-point font. The current average font, says Keene, is
between five points and nine points.

Also included in the amendments was a strict refund policy for all providers, no matter
how small the reimbursement.

As amended and passed through the House, however, AB 1424 requires "every entity
offering the services of telephone prepaid debit cards to the public [in California]
shall, commencing Jan. 1, 1999, register with the [Public Utilities] Commission (PUC).
Entities subject to this requirement include one or more of the following: an entity that
is an interexchange carrier and offers and administers the services of telephone prepaid
debit cards; an entity that purchases bulk time from an underlying interexchange carrier
and thereby repackages and resells the time as prepaid debit cards; and an entity that
specifies the initial volume of usage in the telephone prepaid card account, expressed in
terms of minutes or units of time."

Phone cards that are offered as promotions are not subject to this registration
process, unless the cards are issued in conjunction with the sale of goods or services.

In addition to registering with the PUC, companies also must provide "proof of
financial viability," which will help the commission choose to accept or deny the
company’s registration. The ITA views the final amendments to AB 1424 as a victory for
industry members, as it shifts a large portion of the legislative decision-making
processes into the hands of the state PUC, where the association feels it should be, Keene
says.

Now, almost one year after the proposal of the Martinez Bill, the ITA faces a new
threat in California. The threat goes by the name of the Bowen Bill, AB 1994. As
introduced by Assemblywoman Debra Bowen in February, Section 17538.9 would be added to the
Business and Professional Code to read, "No person shall offer the sale of a
telephone debit card by means of advertisement, unless all of the following information is
disclosed in both the advertisement and directly on the telephone card: the incremental
charges in minutes or seconds; the rate of charges per minute or second; and a customer
service number that can be used to identify and redeem any value remaining on the card
after its use."

While these possible requirements are positive steps toward consumer awareness, Andrew
Isar, president of Washington-based Harbor Consulting Group Inc. and a representative for
the Telecommunications Resellers Association (TRA), points out the TRA is "gravely
concerned with statutory provisions that would impose significant burdensome language in
state-specific requirements, particularly for small prepaid calling card providers."

Supporting the same viewpoint, ITA’s executive director, Howard Segermark, has put
forth recommendations concerning the wording of AB 1994 to the California State Assembly.
At dispute are rate disclosure rules that would, potentially, require the printing of what
the ITA counts as 152 known California county and state taxes on the print advertising for
any prepaid phone card sold in California.

It is glitches such as this one that the ITA is fighting to avoid. "We want the
bill to do what it is intended to do; that is, to provide the consumer with enough
information to make an informed buying decision," Keene says. "But by providing
them with an overkill of information, it actually confuses issues rather than making it
easier."

While waiting for AB 1994 to pass through the Appropriations Committee, the ITA is
gearing up to lobby against it on the House floor, and if it passes there, Keene says the
ITA will lobby it "vigorously and vehemently in the Senate."

Information regarding these and other government actions in the state of California
can be found on the California Public Utilities Commission’s website at: www.cpuc.ca.gov, and the California State Assembly
website at: www.assembly.ca.gov.