On February 12, 2010, the Nebraska Supreme Court affirmed a district court decision rejecting Tracfone Wireless, Inc.'s ("Tracfone") proposed method of collection of state enhanced 911 ("E911") surcharges from its wireless customers.  The decision affirmed an order of the Nebraska Public Service Commission ("PSC") which directed Tracfone to use one of three preapproved methods of collection. 

In accordance with Nebraska law, the PSC set the following three preapproved E911 surcharge collection methods for prepaid providers, including Tracfone:

a) Divide the total earned pre­paid wireless service revenues within the monthly reporting period by fifty dollars and multiply the quotient by the surcharge amount;

b) Collect on a monthly basis the surcharge from each customer's active, prepaid account. A customer with two or more active, prepaid accounts shall be assessed a separate surcharge for each active, prepaid account; or

c) Remit the surcharge upon the activation of the active prepaid account and upon each replenishment of additional minutes purchased by the prepaid customer.

The PSC further allowed prepaid carriers to propose an alternative method.  On two separate occasions, Tracfone submitted alternative proposals to the PSC.  The PSC rejected both proposals.  The PSC failed to approve the first proposal because it proposed to collect a surcharge only from each customer to whom Tracfone directly sold service, which accounted for only 10-15% of Tracfone's total sales.  Tracfone's second proposal mirrored the first but also required retail outlets to which it sold services to collect surcharges and remit them to Tracfone.  The PSC rejected this proposal because it did not maintain jurisdiction over retail vendors that were not themselves telecommunications carriers.  Thereafter, the PSC ordered Tracfone to use one of the three preapproved methods of collection or to submit a revised proposal.  Tracfone challenged the PSC's order, but the district court affirmed the decision.

On appeal to the state Supreme Court, Tracfone argued that under the statute, if it could not collect a surcharge directly from customers, it was not required to remit the surcharge.  The court rejected the contention, finding that Tracfone improperly relied upon statutory language directed at post-paid services.  Tracfone next challenged the PSC's rejection of its proposals.  The court again sided with the PSC, first finding no limitation on Tracfone's responsibility to collect the surcharge only from direct customers, and second agreeing that the PSC has no authority over the retail industry to collect telecommunications surcharges.

The court also rejected Tracfone's assertion that the district court erred in its interpretation of the statute's legislative history. And, the court found no requirement for the PSC to await an acceptable alternative proposal from Tracfone before ordering it to select one of the three preapproved collection methods.  Finally, the court rejected Tracfone's claim that the PSC's order effectively prohibited its provisioning of telecommunications service thereby violating the Federal Communications Act which proscribes state regulations that prohibit the ability of any entity to provide telecommunications service.  It held that nothing prevented Tracfone from recouping the surcharge from its customers, and a customer's option to purchase from competitors did not qualify as a prohibition of Tracfone's ability to provide service.

Client Advisory

The Nebraska Supreme Court's ruling sanctions the PSC's strict application of its wireless surcharge rules to prepaid providers.  The decision reveals that while the PSC adopted a mechanism by which prepaid providers can propose alternative collection methods more suitable to prepaid service, the PSC will strictly interpret its rules, effectively foreclosing alternative collection methods. 

Therefore, prepaid providers must select from the PSC's three preapproved methods, regardless of whether implementation of these methods is particularly burdensome or incompatible with their business models.  Clients offering service in Nebraska, particularly prepaid providers, should carefully review the E911 surcharge rules, paying special attention to the PSC's preapproved methods of collection.

Clients with questions about this Advisory should contact Jonathan Marashlian at jsm@commlawgroup.com or 703-714-1313.