Consumer Electronics Retailers Coalition

1. Consumer Electronics Retailers Coalition No Need to Shift E911 Fee Burdens to States and Retailers April 23, 2009

2. Where We Agree • 911 fees should be paid for pre-paid wireless. • Pre-paid wireless fits an important customer need. • Retailers want to be an outlet for pre-paid. • Carriers want retailers distribution power. • Pre-paid services are growing in popularity. • We support real simplification.

3. How It Works • When a pre-paid phone leaves the store, it does not operate, have a phone number or have the ability to make a call. • It needs to be activated by the carrier. • When a pre-paid card leaves store it does not provide service until associated with an existing phone or account. • Let’s look at the on-line activation process.

4. Optional Name & Home Phone Number

5. SIM Number & Zip Code

6. Add Minutes from a Card

7. Bonus Minutes for On Line Registration - Do bonus minutes count as a transaction?

8. Minutes are term based. When minutes expire the phone is deactivated.

9. Directly Add Minutes to your Phone Automatically

10. 911 Fees • It is a fee - not a tax because they are tied to a specific service performed by government. • Mobile phones are mobile. • Address of subscriber is used to determine federal, state and local fee and tax obligations for traditional telecommunications services. • Pre-paid and post-paid phones place the same burden on 911.

11. Obligation of the Carrier • 911 Fees - clear obligation of carrier. • “Primary responsibility” for collection and remittance of E911 fees. GAO Report: http://www.gao.gov/new.items/d06338.pdf • Responsible carriers are paying fees now. • Fees designed to pay for 911 service delivered to consumers. • Carriers currently pay into Universal Service Fund.

12. Good Carriers Are Collecting

13. Not Simplification • It is not simplification for States & local governments or 911. • Move from system that collects fees from a handful of carriers - to a system that attempts to collect fees from tens of thousands of retailers. • Opposite of State efforts to minimize the points of collection.

14. A Very Leaky System Sales beyond practical reach of state: • On-line sales • Over the phone sales • Direct to phone sales • Neighboring State sales • Free or promotional minutes • Gifts

15. Location of Sale • Location of the sale bears little relationship to where the phone is used and where burden on 911 exists. • Consumers shop across state borders.

16. Where Phone is Used • Where a phone is used is the most relevant factor for the burden on 911. • Fixed address for wireline service. • Subscriber address is acceptable proxy for wireless. • Many pre-paid users voluntarily give phone number/address. • Pre-paid zip code registration is equally suitable proxy.

17. Bad For Public Safety • Blanket of 911 protection always there. • Contract subscriber pays fee each and every month. Pre-paid proposals have one fee on transaction within jurisdiction of state. • Pre-paid proposals by-pass 911 and go straight to State Treasury. Great risk of diversion. • Amazing leakage for minute purchases.

18. Carriers Know Everything • User’s area code of use. • When a phone is used. • Where a phone is used. • How long a phone is used. • Phone number/Address for many pre-paid users. • E-mails for many pre-paid users. • User’s zip code of use (even when anonymous) • How many minutes remain in every account. • How long minutes are active in account.

19. Carriers Have • Sophisticated billing systems. • Primary responsibility for collection and remittance of E911 fees. • Secure systems to collect and remit fees for subscription and pre-paid users. • Relationships with all telco regulators and 911 authorities. • Auditors and accountants to track payments to federal, state, and local governments and inter-carrier organizations.

20. Retailers • Do not provide telecomm services. • Would need special separate, expensive systems for fees. • Would need additional accounting and auditing support. • Already have slim to non-existent margins. • Circuit City – 30,000 jobs lost. • See sales tax compensation slipping away. • Already paying 2% on credit card transactions.

21. States • Will lose funds for 911 with proposal. • Have limited resources to implement new collection, auditing and enforcement regime on retailers. • Have staffing shortages. • Are already sweeping 911 fees to close budget deficits. • Limiting spending out of 911 accounts.

22. Burden Shift • Proposal is an unprecedented burden shift from carriers with clear responsibility to unwilling retailers. • Proposal could open flood gates to host of telecommunications taxes and fees like USF. • Burden on States to manage tens of thousands of retail accounts rather than less than a handful of carrier accounts. • From rich to poor consumers.

23. What’s Next?

24. Sound, Simple Non-retail Alternatives Exist • Retailers have no objection to reasonable proposals that do not include mandatory POS retail collection, retention and remittance. • No objection to move from local to state-wide fee. • Alternatives exist: • mathematical formula based on pre-paid minutes used in a state; • Deduct minutes; • Build fees into cost of goods sold (wholesale model) • Fees paid per user per active account based on area code or zip code.

25. Let’s Work Together • This is a product we all support. • Let’s work together to find real simplification and equity for all phone users. • Let’s really support 911.

26. Thank You Christopher A. McLean Executive Director The Consumer Electronics Retailers Coalition 317 Massachusetts Avenue, NE Washington, DC 20002 202.292.4600 chris@cercteam.com