Fitting a Square Peg into a Round Hole: The Prepaid Wireless Industry and E-911 Fees Presentation to Conference of Western Attorneys General 2011 Annual.

Fitting a Square Peg into a Round Hole: The Prepaid Wireless Industry and E-911 Fees

Presentation to

Conference of Western Attorneys General

2011 Annual MeetingKona, Hawaii

By

Richard Salzman – Executive Vice President & General Counsel

TracFone Wireless, Inc.July 11, 2011

Postpaid Wireless: The Traditional Model

Users pay for minutes after use.

Providers send customers monthly bills.

State Taxes, Fees And Postpaid Wireless States rely on monthly bills to collect

sales taxes and E-911 fees.

Benefits of this approach: Customer pays tax or fee. Transparency Avoids potential illegal tax.

A New Twist On Wireless: The Emergence Of The Prepaid Industry

Developed to serve the tens of millions of customers who had no credit or low credit and therefore could not qualify for a traditional wireless service contract.

Prepaid wireless is purchased on a “pay-as-you go” basis in retail stores (e.g., Wal-Mart, Target, Best Buy).

Service is purchased in advance and there are no required long-term service contracts and thus no monthly bills.

Who Provides Prepaid Wireless Service?

All major national carriers (AT&T Mobility, Verizon Wireless, T-Mobile and Sprint), among others, offer prepaid wireless service.

TracFone Wireless, Inc. is the largest prepaid provider with over 18 million prepaid customers.

There are now over 64 million prepaid wireless customers in the United States.

TracFone Handsets and Airtime Cards

Retail Prepaid Wireless Display

So, What Is The Issue?

States are trying to shoehorn prepaid wireless into tax and E-911 fee statutes that were established and intended for postpaid wireless.

Those schemes, however, do not work because prepaid carriers do not use monthly bills.

Even more recent statutes don’t always adequately address the prepaid business model.

What Are The Legal & Policy Issues With The Existing Schemes?

Burden of E-911 fee shifted to some but not all prepaid wireless providers.

Lack of transparency.

Potential for illegal sales tax on E-911 fee.

So, What Is The Solution?

The solution is to have the E911 fees “billed” or charged at the time of sale by any retailer selling the prepaid wireless service in the state.

After being recommended by the National Conference of State Legislatures in 2009, this “Point-of-Sale” solution is now the law in 20 states:

Colorado, District of Columbia, Georgia, Illinois (awaiting governor’s signature), Indiana, Kansas, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia and Wisconsin.