A PCI Service Provider is a “Business entity that is not a payment brand, directly involved in the processing, storage, or transmission of cardholder data on behalf of another entity. This also includes companies that provide services that control or could impact the security of cardholder data. Examples include managed service providers that provide managed firewalls, IDS and other services as well as hosting providers and other entities.” 
When working with the Payment Card Industry Data Security Standard (PCI-DSS) it is important to understand this definition to make sure your compliance program is properly focused. A company may be both a service provider, a merchant, as well as simply a cardholder. Each of these roles has different compliance implications. When a company issues corporate credit cards to its staff, the company is in the same role as the individual employees–cardholder. Cardholders are defined as “Non-consumer or consumer customer to whom a payment card is issued to or any individual authorized to use the payment card .” Cardholders are not subject to the PCI-DSS, only merchants, service providers, acquiring banks, and issuing banks. Also note that the payment brands (MasterCard, Visa, American Express, JCB, and Discover) themselves are not required to be PCI compliant, even though they comprise the PCI Security Standards Council.
The PCI Council defines a Merchant as any entity that accepts payment cards bearing the logos of any of the five members of PCI SSC (American Express, Discover, JCB, MasterCard or Visa) as payment for goods and/or services. Note that a merchant that accepts payment cards as payment for goods and/or services can also be a service provider, if the services sold result in storing, processing, or transmitting cardholder data on behalf of other merchants or service providers. For example, an ISP is a merchant that accepts payment cards for monthly billing, but also is a service provider if it hosts merchants as customers”  .
For Service providers, there is the “telecommunications exception” which states, “If an entity provides a service that involves only the provision of public network access—such as a telecommunications company providing just the communication link—the entity would not be considered a service provider for that service (although they may be considered a service provider for other services)” .
What does all this mean?
If you are a Merchant who uses vendors, you should have a clear understanding of which of your vendors are PCI Service Providers (as defined above). PCI Service Providers may also have sub-contractors that are considered PCI Service Providers. Furthermore, there should be a contractual requirement to have the vendor provide their Report of Compliance (RoC) or at a minimum, an Attestation of Compliance (AoC) on an annual basis.
There are 12 Requirements of PCI and each of these requirements have sub-requirements. Not all of the requirements have to be met by a PCI Service Provider but the customer of the service provider should agree on exactly which ones the Service Provider shall meet. It is also in the Service provider’s best interest to clarify this with their customers so that there is not any misplaced trust. One of the best ways to facilitate this discussion is to create a “Controls Responsibility Matrix” that lists each of the requirement and sub-requirements in a table with an indication of who is responsible to meet each specific security control. Although this can be a tedious process, it positions the vendor to best meet the needs of their customer.