BEFORE THE CORPORATION COMMISSION OF OKLAHOMA COMMENTS OF TRACFONE WIRELESS, INC.

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1 AUG 25 ZU1k ' BEFORE THE CORPORATION COMMISSION OF OKLAHOMA COURT CLERK'S OFFICE - OKC PPRATON COMMISSION S OF OKLAHOMA IN THE MATTER OF A PERMANENT RULEMAKING OF THE OKLAHOMA CAUSE NO. CORPORATION COMMISSION AMENDING OCA 165:55, TELECOMMUNICATIONS SERVICES IN THE MATTER OF A PERMANENT RULEMAKING OF THE OKLAHOMA CORPORATION COMMISSION AMENDING OAC 165:59, OKLAHOMA UNIVERSAL SERVICE CAUSE NO. COMMENTS OF TRACFONE WIRELESS, INC. TracFone Wireless, Inc. ("TracFone" hereby comments in the above-captioned Commission proceedings. In RM No , the Commission has proposed changes to its rules governing Universal Service programs, specifically, the Lifeline program. Introduction In RM No , the Commission has proposed changes to its rules governing contributions to the Oklahoma Universal Service Fund and the Oklahoma Lifeline Fund. TracFone is a provider of wireless telecommunications service in Oklahoma. Its services are offered on a prepaid basis only. Consumers purchase TracFone handsets and quantities of prepaid wireless airtime. Most purchases are made at retail vendor locations such as Wal-Mart or convenience stores. However, some purchases are made directly from TracFone via its website. As a provider of intrastate telecommunications service, TracFone is affected by rules governing contributions to the state funds. TracFone also is the nation's leading provider of Lifeline service supported by the federal Universal Service Fund. TracFone has been designated as an eligible telecommunications carrier ("ETC" and provides its SafeLink Wireless Lifeline service to more than 4.2 million qualified {S270253;}

2 low-income households in about 40 states. Oklahoma is not yet among the states where TracFone provides Lifeline service as an ETC. However, TracFone may seek ETC designation from the Commission in the future for the purpose of offering Lifeline service in Oklahoma. Accordingly, it would be impacted by the Commission's rules governing Lifeline. R1VI Issues The Commission proposes to amend OAC 165: (a to subject revenues derived from prepaid wireless service to OK USF assessment. Specifically, the Commission proposes to insert the following sentence into that rule: "Revenues for prepaid wireless service shall be considered retail-billed Oklahoma intrastate telecommunications revenues." TracFone respectfully urges the Commission not to amend OAC 165: (a to encompass prepaid wireless revenues within the ambit of those revenues subject to OK USF assessment. To attempt to do so would prejudge the outcome of a pending Commission proceeding where issues regarding the interpretation of a statute remain before the Commission. Cause No. PUD is a pending proceeding.' In that proceeding, commenced at the behest of the Commission's Public Utility Division, the Commission has inquired whether under Oklahoma law prepaid wireless revenues may be subject to OK USF assessments. Numerous parties, including TracFone, submitted comments in that proceeding. The applicability yel non of the OK USF contribution to prepaid wireless revenues is governed by O.S Subsection A states as follows: Application of Brandy L. Wreath Director of the Public Utility Division for a Determination Regarding Revenues Generated From Prepaid Wireless Telecommunications Services and Their Assessment for Payment Into the Oklahoma Universal Service Fund. (S270253; 2

3 The Oklahoma Lifeline Fund and the Oklahoma Universal Service Fund shall be funded in a competitively neutral manner by all telecommunications carriers. The funding from each carrier shall be based on the total retail-billed Oklahoma intrastate telecommunications revenues. (emphasis added O.S (A is clear and explicit: only revenues derived from the provision of Oklahoma intrastate telecommunications service which are "retail-billed Oklahoma intrastate telecommunications revenues" may be subject to OK USF assessment. On June 13, 2014, TracFone submitted its responsive brief and statement of position in that proceeding which explained in detail why revenues derived from prepaid wireless service are not "retail-billed" revenues within the meaning of that statutory term. TracFone invites the Commission to review that brief and take official notice of that factual and legal assertions contained therein. Whether prepaid wireless service revenues are retail-billed revenues is a question of statutory construction that has been fully briefed and is awaiting decision by the Commission. Ultimately that determination will have to be made by the appellate courts of the state. Unless it is determined that as a matter of law prepaid wireless service revenues (which are neither retail revenues nor are they billed revenues are "retail-billed" revenues within the scope of O.S (A, the Commission has no authority to contravene the statute by promulgating a rule which declares prepaid wireless revenues to be "retail-billed" revenues. Accordingly, no action should be taken on that proposed modification to OAC 165: (a until the requisite statutory determination has been made and affirmed. Also, the Commission proposes to amend OAC 165: in a manner which would subject revenues derived from the federal Universal Service Fund to OK USF contributions. The Commission proposes to add the following language to that rule: ( ; 3

4 Revenues received for the provision of Lifeline service to customers in Oklahoma shall be considered billed Oklahoma intrastate telecommunications Revenues, regardless of the source of the Lifeline revenues (i.e., federal lifeline support received pursuant to 47 CFR Subpart E, the Oklahoma Lifeline Fund and from the end-user subscriber. TracFone asserts no position on that portion of the proposed rule which would treat as billed revenues amounts received from the Oklahoma Lifeline fund and from end-user subscribers. However, it strongly opposes the proposal to impose OK USF contribution obligations on amounts received by Lifeline providers from the federal Universal Service Fund. The impact of such an assessment would be to impose an impermissible state tax on a federal benefit. Pursuant to Section (a of the Federal Communications Commission's rules, Lifeline providers receive $9.25 in Lifeline support per month per enrolled Lifeline consumer. ETCs serving consumers residing on tribal lands (including much of the State of Oklahoma receive an additional $25.00 per month. Importantly, Section (a requires that ETCs pass through to their Lifeline consumers the entire amount of Lifeline support received (whether $9.25, or $34.25 in the case of ETCs serving consumers on tribal lands in Lifeline benefits. If ETCs were required to contribute to the OK USF based on Lifeline support revenues received from the federal USF, the effect would be to reduce the amount of the federal Lifeline benefit available to Oklahoma Lifeline customers. Such a reduction in federal Lifeline benefits to Oklahoma low-income households would be a de facto state tax on federal Lifeline benefits. States may not tax federal benefits. For example, the Supplemental Nutrition Assistance Program (f/k/a the Food Stamps program regulations prohibit such state taxation. Specifically, those regulations provide that a "State shall not participate in the Food Stamp Program if State or local sales taxes or other taxes or fees, including, but not limited to, excise taxes, are collected ( ; 4

5 within the State on purchases made with Food Stamp coupons." 2 Other federal benefit programs, including, e.g., Medicaid, Temporary Assistance for Needy Families, the National School Lunch Program, and the Low Income Household Energy Assistance Program similarly may not be subject to state-imposed taxes or fees. Indeed the United States Supreme Court has held that states may not tax "welfare benefits, food stamps or other government subsidies." United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975. The proposed modification to OAC 165: would result in the State of Oklahoma unlawfully taxing the federal Lifeline benefit. To avoid that unlawful result, the proposed modification should not be adopted. Issues Several of the Commission's proposed reforms to the Lifeline rules are meritorious and warrant serious consideration. For example, the Commission has proposed to modify OAC 165: to require ETCs to retain proof of Lifeline eligibility provided by applicants for enrollment. Mandatory retention by ETCs of Lifeline eligibility documentation would close a major loophole in the FCC's current Lifeline rules which do not require document retention. Under the current FCC rules, ETCs must only have "reviewed" eligibility documents shown to them by applicants. 3 There is no way under the current FCC rule to verify whether applicants for Lifeline service actually have produced documentation demonstrating their eligibility for Lifeline benefits. In May 2012, TracFone submitted a petition to the FCC proposing that ETCs be required to retain and make available for audit copies of eligibility documentation provided by consumers. Although there was no opposition to that proposal, it remains pending more than 2 C.F.R C.F.R (c(i(B. {S270253;} 5

6 Im two years after it had been filed. The Commission can take an important step to combat Lifeline fraud in Oklahoma and set an example for the FCC and for other states by requiring ETCs to retain documentation of Lifeline eligibility. There is one proposed Lifeline reform proposal which would not serve the public interest, would be unlawful, and should be rejected. The Commission has proposed to modify OAC 165: so as to require Lifeline providers to impose a charge of at least $3.00 on Lifelinesupported service. A minimum charge requirement like that proposed would prohibit ETCs from providing the entirety of their Lifeline benefit in the form of no charge service. TracFone, for example, provides its entire $9.25 benefit to Lifeline customers in the states where it offers Lifeline service in the form of 250 minutes of no charge wireless airtime per month. Other Lifeline providers offer similar no charge Lifeline services. These no charge Lifeline services have proven extremely popular with low-income consumers. For many such consumers, even a minimum monthly charge of a few dollars is sufficient to keep them off the public network. Moreover, imposition of mandatory minimum rates for Lifeline-supported service provided by wireless carriers is unlawful. Section 332(c(3(A of the Communications Act of 1934, as amended, 4 explicitly prohibits states from regulating market entry or rates charged by commercial mobile radio service ("CMRS" providers. That preemption of state regulation of CMRS rates is comprehensive. There is no Lifeline exception to that statutory prohibition. Recently, a United States District Court in Georgia preliminarily enjoined a minimum rate rule 47 U.S.C. 332(c(3(A. (S270253; 6

7 which had been promulgated by the Georgia Public Service Commission.' The court in that case concluded that Georgia's $5.00 minimum rate rule violated 47 U.S.C. 332(c(3(A, stating that "... the requirement to bill and collect a minimum service rate of $5.00 is clearly a rate regulation." 6 Oklahoma's proposed $3.00 minimum rate is no less a rate regulation than Georgia's disallowed and since repealed $5.00 minimum rate. The Georgia Commission promulgated its minimum rate rule as a device to prevent Lifeline fraud. While that may have been a valid intent, it did not legitimize a per se unlawful regulation governing CMRS rates. For the same reasons that the Georgia minimum rate regulation was found to be unlawful, so too would an Oklahoma regulation mandating certain Lifeline rates. Accordingly, the proposed modification of OAC 165: should not be adopted. Conclusion For the reasons set forth in these comments, TracFone Wireless, Inc. respectfully requests the Commission act in accordance with the views articulated herein. Respectfully submitted, TRACFONE WIRELESS, INC. Eric R. King (OBA #5029 GABLE GOT WALS One Leadership Square, 15th Floor 211 N. Robinson Oklahoma City, OK Telephone ( CTIA - The Wireless Association, et al v. Tim G. Echols, eta!, CA No. 1:13-CV-399-RWS, Order issued December 17, On August 5, 2014, the Georgia Public Service Commission unanimously voted to repeal its enjoined $5.00 minimum rate rule. {S270253;} 7

8 Of Counsel: Mitchell F. Brecher GREENBERG TRAURIG, LLP 2101 L Street, NW, Suite 1000 Washington, DC Telephone ( Its Attorneys August 25, 2014 Certificate of Service The undersigned certifies that on this 25 th day of August, 2014, a true and correct copy of the above and foregoing comments of TracFone Wireless, Inc. were sent via electronically to each party of record in these causes. Eric R. King {S270253;}