IDT Corporation, parent of prepaid calling card industry leader IDT Telecom (“IDT”), recently filed a Petition for Review with the Federal Communications Commission (“FCC”) asking the FCC to reverse certain USAC Universal Service Fund (“USF”) compliance audit conclusions pertaining IDT’s practice of reporting calling card revenue from Distributors as “wholesale” revenue in its Form 499s. In its Petition, filed on June 30, 2008, IDT objects to USAC’s decision to reclassify IDT’s “wholesale” calling card revenue, derived from Distributors, as retail or “End User” revenue. Under well-established FCC rules, retail, End User revenue is subject to USF and other FCC Program contributions and fees, whereas verified wholesale revenue is exempt. USAC’s audit determinations, if upheld by the FCC, would likely result in IDT being required to pay significant back “taxes.” Likewise, a favorable ruling for IDT would cause many other prepaid calling card providers to reevaluate how they report revenue derived from sales to Distributors, potentially leading to downward revisions and refunds.
