New State Laws Require Point-of-Sale 9-1-1 Fees
Wednesday, September 16, 2009 | Comments

By Michelle Zilis, Assistant/Web Editor


During the past legislative cycle, three states passed laws requiring mandatory point-of-sale collection for 9-1-1 surcharges and fees on prepaid wireless cell-phone users. Maine, Louisiana and Texas are not the only states that have passed laws for prepaid 9-1-1 fees, but they are the first to require collection at the point of purchase. And while the state laws have received harsh criticism from retailers, the trend is expected to expand during the 2010 legislative cycle.

Public-safety answering points (PSAPs) rely on money collected from 9-1-1 surcharges on phone services to help fund their day-to-day responsibilities and prepare for next-generation 9-1-1 (NG 9-1-1). Landline and wireless phones under contract collect 9-1-1 fees as part of a user’s monthly phone bill. But because prepaid wireless phones don’t have monthly bills, governments must create ways to collect the fees. There are an estimated 270 million U.S. wireless subscribers, about 20 percent of which are prepaid users, said Patrick Halley, government affairs director for the National Emergency Number Association (NENA). Prepaid users are also the fastest growing group of wireless users, according to Halley.

More than a dozen states have laws requiring prepaid 9-1-1 collection, and most offer a menu approach, where the state gives carriers options for collecting the fees. Most common options include a decrement model, in which the carrier converts a few minutes of airtime into a 9-1-1 fee from every customer with an active balance at the end of each month. The average revenue per user (ARPU) model roughly estimate how much money carriers should remit to the state. The formula includes how many minutes the carrier sold, the average number of minutes per user and the state’s 9-1-1 fee. A flat-rate per-user model requires a carrier to collect 75 cents per customer through whatever method the carrier selects.

While NENA offers models for the menu approach and supports the point-of-sales model, the association hasn’t officially endorsed only one model. “We support [states] moving ahead. Something needs to be done, and if that’s the model the legislatures have chosen, we support it,” Halley said.

The menu approach is criticized as too broad and unclear. The model is difficult to audit with different carriers collecting fees in different ways. Halley said he recognizes that the NENA menu approach may be flawed. “I think we were a little naive because I think the only way it would work is if it’s a mandatory fee on all sales,” he said. “Our model was well intended in creating a menu, but in reality, a single rule is needed.”

Carriers are unhappy with the menu approach because they are often forced to the charges users usually pay. The point-of-sale approach tries to eliminate this complaint by adding the fee to each purchase, forcing customers to pay the fees immediately. This model also ensures that the 9-1-1 fees occur on every transaction.

A previous Maine law called for the menu approach, with decrement, ARPU or retail sale methods, but as of Jan. 1, 2010, the point-of-sale method will become the uniformed collection process, said Maria Jacques, director of the Emergency Service Communications Bureau for the State of Maine 9-1-1 Emergency Office. The state modeled the new law on the statewide 9-1-1 surcharges already in effect that collect 30 cents per month per line or number. The prepaid wireless 9-1-1 surcharges will also collect 30 cents per retail transaction.

But retailers who disagree with the point-of-sale approach say that the current systems are working well. “9-1-1 systems are deriving real revenues month in and month out from decrement and ARPU methods,” said Christopher A. McLean, executive director of the Consumer Electronics Retailers Coalition (CERC). “We have also suggested several alternatives, such as removing the prepaid exemption for the Federal Mobile Sourcing Act, collections based on the number of active phones in an area code, and imbedding the fee into the price of the product.”

One objection to the point-of-sale model is that it is regressive, especially when it’s a flat rate. As a percentage or fixed fee, low-income consumers are required to pay a fee that might be higher than a flat monthly fee or a fee paid by customers who can afford to buy minutes that last several months, McLean said.

Mark Fetherolf, chief technical officer (CTO) of InterAct Public Safety Systems, said that if a flat fee of $1 is charged each time someone purchases minutes, then a person who can only add $5 at a time pays an extra dollar each time he adds minutes. If he adds $5 four times in one month, he end up paying $4 in taxes. “This is anywhere between 100 to 700 percent higher than the average fee charged on other devices,” he said.

Yet if someone can afford to buy $50 worth of minutes for the month she only has to pay $1 once. “The problem with that theory is that the flat-fee model ends up being upside down, with people of lower income levels supporting the usage of 9-1-1 for people of higher income levels,” Fetherolf said.

To avoid this, Fetherolf said some states are now making the fee a percentage of the sale amount. In Texas’ law, the fee is 2 percent of the cost of each prepaid wireless telecommunications service purchased, regardless of whether the service was purchased in person, on the phone or Internet. The money must be collected by the seller from the consumer and remitted to the state. All money collected from this fee must be used for 9-1-1 purposes. Similarly, Louisiana’s law will collect a 2 percent fee at the point of sale beginning in January 2010.

Louisiana’s law also includes a compensation for retailers. McLean said carriers are trying to pass the burden of millions of dollars in collection costs onto retailers. The Louisiana law allows retailers to keep all the surcharges collected during the first month and keep 4 percent of the surcharges collected each month after to offset the setup and management of collecting the fees. McLean said this allocation is not enough to cover the actual costs.

“Retailers say there is a cost to program the system. It’s a heavier cost upfront than down the line in later years,” Halley said. “Really, I think they think it’s a slippery slope. The wireless industry is heavily taxed, and I think the retail industry is afraid of allowing a precedent of collecting taxes.”

Many public-safety agencies, NENA and wireless carriers have voiced their support for the point-of-sales model. CTIA conducted an 18-month survey examining the collection processes and said the point-of-sale approach is the best model because it captures the consumer at the cash register, said Dane Snowden, CTIA vice president of external and state affairs. The organization supports both flat-rate and percentage collection processes.

Additionally, the National Conference of State Legislatures (NCSL) adopted a resolution to support the point-of-sale model and created model legislation. “We’re hoping with their bold step of support, many other states will take this sample bill and create their own,” Snowden said.

New York, Florida and Pennsylvania are all reported to be working on prepaid 9-1-1 bills, and Snowden believes we will see many more states adopting it over the course of the 2010 legislation. “Now that they have an example [of the bill] they can get involved, whereas before they were just waiting on the sidelines,” he said.

While Snowden believes the winner in all of this is the consumer, who benefits directly from 9-1-1, McLean said each state enacting its own type of point-of-sale law is, “the worst of all worlds.”

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