FCC Fines Prepaid-Phone-Card Companies $30 Million

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By Lydia Beyoud

Oct. 21 — The Federal Communications Commission handed a combined $30 million fine to six prepaid-calling-card companies for false advertising that typically targeted immigrant communities, the agency announced Oct. 21.

Locus Telecommunications Inc., Lyca Tel LLC, NobelTel LLC, Simple Network Inc., STi Telecom Inc. and Touch-Tel USA LLC each were fined $5 million for deceptively marketing prepaid calling cards as providing more calling time than actually was sold, the FCC said.

The fine is the FCC's final step in investigating the companies, the agency said in a news release. The FCC Enforcement Bureau first issued notices of apparent liability to the companies in 2011 and 2012.

Prepaid calling cards are typically marketed to immigrant communities for calling international numbers. The FCC found that the companies didn't disclose the actual charges that would be incurred for a call and that those charges were subject to change by the companies, often without notice to consumers.

Unless consumers used all of a card's hundreds or thousands of minutes on a single call, they could make calls for only a small fraction of the advertised time, the FCC said in the Touch-Tel forfeiture order.

“Although the Company included lengthy ‘disclosures' in fine print, the terms were misleading, confusing, and inadequate; indeed, the Company’s descriptions of its multiple fees and surcharges were so unclear that it would be impossible to calculate the cost of almost any call,” the FCC said in the order.

“Consumers should not have to comb through small print and contradictory disclosures to learn that the bold promises made in advertisements are false and misleading,” Enforcement Bureau Chief Travis LeBlanc said in the news release. “Companies that use deceptive tactics to betray consumer trust should expect to face stiff penalties.”

Section 201 Authority 

The agency's decision to levy the fines falls under its interpretation of Section 201(b) of the Communications Act of 1934 that advertising associated with a telecommunications service must provide clear and conspicuous disclosure on how to calculate the total cost of a call, and that a carrier's marketing materials would be deemed misleading if they lack a clear and conspicuous disclosure of the nature and components of its rate structure.

Republican FCC Commissioner Michael O'Rielly criticized the agency's use of Section 201(b) to support the fines. The calling-card cases were being used to further extend Section 201(b) to other services, he said in a statement.

“While prepaid calling card providers are the focus of today's actions, broadband providers, and even edge providers, should be extremely concerned about how these decisions will ultimately impact their own advertisements, including disclosures about their rates, terms, and conditions,” O'Rielly said.

Fellow Republican Commissioner Ajit Pai criticized the Enforcement Bureau's $5 million fines as having been “plucked out of thin air rather than determined through the use of a rational methodology,” according to a statement.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Keith Perine in Washington at kperine@bna.com

Text of the FCC news release is at: http://src.bna.com/Gg.

Text of O'Rielly's statement is at: http://src.bna.com/Gy.

Text of Pai's statement is at http://src.bna.com/GI.

Text of the Touch-Tel USA forfeiture order is at: http://src.bna.com/Gi.

Text of the STi Telecom forfeiture order is at: http://src.bna.com/Gm.

Text of the Simple Network forfeiture order is at: http://src.bna.com/Gl.

Text of the NobelTel forfeiture order is at: http://src.bna.com/Gk.

Text of the Lyca Tel forfeiture order is at: http://src.bna.com/Gj.

Text of the Locus Telecommunications forfeiture order is at http://src.bna.com/Gn.