*Pages 1--8 from Microsoft Word - 11256.doc* Federal Communications Commission FCC 01- 243 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. 20554 In the Matter of ) ) AT& T Corporation, ) ) Complainant, ) ) v. ) File No. E- 97- 07 ) Jefferson Telephone Company, ) ) Defendant. ) MEMORANDUM OPINION AND ORDER Adopted: August 24, 2001 Released: August 31, 2001 By the Commission: I. INTRODUCTION 1. In this Memorandum Opinion and Order (“ Order”), we deny a formal complaint filed by AT& T Corporation (“ AT& T”) against Jefferson Telephone Company (“ Jefferson”) pursuant to section 208 of the Communications Act of 1934, as amended (“ Act” or “Communications Act”). 1 AT& T challenges the lawfulness of an access revenue- sharing arrangement that Jefferson entered into with an information provider to which Jefferson terminated traffic. On the basis of the facts and arguments presented in this record, we conclude that AT& T has failed to meet its burden of demonstrating that Jefferson (i) engaged in discrimination prohibited by section 202( a) of the Act, 2 or (ii) violated section 201( b) of the Act 3 by breaching its duty as a common carrier to serve, in AT& T’s words, as an “objective conduit” of communications services. Accordingly, we deny AT& T’s complaint. 4 1 47 U. S. C. § 208. 2 47 U. S. C. § 202( a). 3 47 U. S. C. § 201( b). 4 See generally Hi- Tech Furnace Systems, Inc. v. FCC, 224 F. 3d 781, 787 (D. C. Cir. 2000) (affirming that the burden of proof is on the complainant in a proceeding conducted under 47 U. S. C. § 208). 1 Federal Communications Commission FCC 01- 243 2 II. BACKGROUND 2. At all relevant times, Jefferson was an incumbent local exchange carrier (“ LEC”) located in Jefferson, Iowa that served approximately 3,400 access lines. 5 Jefferson provided local exchange service to end user customers, and originating and terminating exchange access services to AT& T and other interexchange carriers (“ IXCs”). 6 During 1994 and 1995, Jefferson charged IXCs access rates specified by the National Exchange Carrier Association (“ NECA”) pursuant to a tariff filed at the Commission. 7 3. During the period at issue in this dispute, one of Jefferson’s end- user customers was an information provider called International Audiotext Network (“ IAN”). 8 IAN provided its customers a kind of multiple voice bridging service commonly known as “chat- line” service. This service connects incoming calls so that two or more callers can talk with each other simultaneously. 9 This differs from traditional conference call service in that callers to the chat line are randomly paired with other callers. In addition, unlike many chat- line operators, IAN did not impose any charges on callers. Instead, IAN obtained all of its revenues from Jefferson, as 5 AT& T Corp. v. Jefferson Telephone Company, Complaint, File No. E- 97- 07 (filed Dec. 23, 1996) at 2, ¶ 4 (“ Complaint”); AT& T Corp. v. Jefferson Telephone Company, Answer of Jefferson Telephone Company, File No. E- 97- 07 (filed Feb. 18, 1997) at 1, ¶ 4 (“ Answer”); AT& T Corp. v. Jefferson Telephone Company, Initial Brief of AT& T Corp., File No. E- 97- 07 (filed Oct. 31, 1997) at 1 (“ AT& T Brief”). Jefferson claims that it was a connecting carrier within the meaning of section 2( b)( 2) of the Act. Jefferson Brief at 3- 4, citing 47 U. S. C. § 152( b)( 2). Section 2( b)( 2) of the Act provides, in pertinent part: “[ N] othing in the Act shall be construed to apply or to give the Commission jurisdiction with respect to . . . any carrier engaged in interstate or foreign communication solely through physical connection with the facilities of another carrier . . . , except that sections 201 through 205 of this Act, both inclusive, shall . . . apply to [such] carriers . . . .” 47 U. S. C. § 152( b)( 2). Jefferson asserts that it is engaged in interstate communication solely through physical connection with other carriers, so section 2( b)( 2) immunizes it from complaints filed pursuant to section 208 of the Act; in Jefferson’s view, only sections 201 through 205 of the Act apply to it, and not section 208. Jefferson Brief at 3- 4, citing Comtronics, Inc. v. Puerto Rico Telephone Co., 553 F. 2d 701, 704- 07 (1 st Cir. 1977). The Commission has consistently rejected this interpretation of section 2( b)( 2) of the Act, and held that section 208 applies even to connecting carriers. See, e. g., Com Services, Inc. v. The Murraysville Telephone Co., Memorandum Opinion and Order, 100 FCC 2d 210, 217, ¶ 16 (1985); TPI Transmission Services, Inc. v. Puerto Rico Telephone Co., Memorandum Opinion and Order, 4 FCC Rcd 2246, 2248 n. 19 (Com. Car. Bur. 1989)( both declining to follow Comtronics, and relying on Ward v. Northern Ohio Telephone Co., 300 F. 2d 816, 819- 21 (6 th Cir. 1962), instead). Accordingly, even assuming, arguendo, that Jefferson was a “connecting carrier” under section 2( b)( 2) of the Act, we reject Jefferson’s assertion that it is immune from complaints filed pursuant to section 208. 6 Complaint at 2, ¶ 4; Answer at 1, ¶ 4. 7 Complaint at 2, ¶ 5; Answer at 1, ¶ 5; AT& T Brief at 1; AT& T Corp. v. Jefferson Telephone Company, Initial Brief of Jefferson Telephone Company, File No. E- 97- 07 (filed Oct. 31, 1997) at 2 (“ Jefferson Brief). The applicable NECA rate for terminating access service at that time was between $. 06 and $. 07 per minute. Complaint at 2, ¶ 5; Answer at 1, ¶ 5. 8 AT& T Brief at 2, Ex. 2; Jefferson Brief at 1- 2. 9 Complaint at 3, ¶ 6 n. 1; Answer at 1- 2. ¶ 6; AT& T Brief at 3; Jefferson Brief at 2. 2 Federal Communications Commission FCC 01- 243 3 described below. Thus, callers to IAN paid only their designated IXC for the calls, and paid only the IXC’s tariffed, long- distance toll charges. 10 4. During the time period at issue here, a long distance call by an AT& T subscriber to IAN was first routed to the subscriber’s local telephone company. Next, the call was routed to AT& T, which transported the call across AT& T’s long distance network. AT& T then handed the call to Jefferson (the “terminating access provider”). As the “terminating access provider,” Jefferson routed the call to its end- user customer, IAN. 11 Jefferson then billed AT& T for terminating access services at the tariffed rate. 12 5. Towards the end of 1992, Jefferson entered an agreement with IAN whereby Jefferson would make payments to IAN based on the amount of access revenues that Jefferson received for terminating calls to IAN. 13 In return, IAN would market and otherwise aid the chat-line operations. 14 As mentioned above, the payments that Jefferson paid to IAN based on terminating access revenues constituted IAN’s only source of revenue. 15 On July 31, 1995, the agreement between Jefferson and the chat line ended. 16 6. In December 1996, AT& T filed the instant complaint. 17 According to AT& T, 10 Complaint at 3, ¶ 6; Answer at 2, ¶ 6; Jefferson Brief at 2; AT& T Brief at 3. See Jefferson Brief at Exhibit 1, Declaration of James L. Daubendiek, at 2- 3, ¶ 6 (“ Daubendiek Declaration”) (stating that “[ t] he caller paid the tariffed long- distance rates assessed by whichever interexchange carrier the caller chose to use.”). 11 See generally Total Telecommunications Services, Inc., and Atlas Telephone Company, Inc. v. AT& T Corp., Memorandum Opinion and Order, FCC 01- 84, 16 FCC Rcd 5726, 5729, ¶ 6 (2001). 12 Complaint at 4, ¶ 8; AT& T Brief at 4; Jefferson Brief at 2; Daubendiek Declaration at 2- 3, ¶ 6. 13 Complaint at 2- 3, ¶ 6; Answer at 2, ¶ 6; AT& T Brief at 1- 2; Jefferson Brief at 2. See Daubendiek Declaration at 2, ¶ 5. 14 See AT& T Brief at Confidential Exhibit 4, paragraph 2, detailing the obligations of IAN pursuant to the agreement between Jefferson and IAN. In a letter dated June 11, 2001, Jefferson explicitly granted the Commission permission to discuss publicly this section of the agreement. See AT& T Corp. v. Jefferson Telephone Company, Letter from James U. Troup and James H. Lister, Counsel for Jefferson Telephone Co., to Warren Firschein, Attorney, Enforcement Bureau, FCC, File No. E- 97- 07 (dated June 11, 2001). 15 This arrangement stimulated traffic and boosted Jefferson’s terminating access revenues. While the arrangement was in place, Jefferson terminated as much as 2,000,000 minutes per month, whereas after the arrangement ended, Jefferson terminated about 130,000 minutes per month. Complaint at 3- 4, ¶ 7; Answer at 2, ¶ 7; AT& T Brief at 4; AT& T Brief at Ex. 9, AT& T Corp. v. Jefferson Telephone Company, Defendant’s Response to AT& T Corp. ’s First Set of Interrogatories, File No. E- 97- 07 (filed Apr. 21, 1997), Response to Interrogatory No. 4. 16 Jefferson Brief at 1; Daubendiek Declaration at 2, ¶ 4. 17 Jefferson argues that AT& T’s claims are time- barred because AT& T knew or should have known of Jefferson’s revenue- sharing arrangement with IAN more than two years prior to the filing of the complaint. AT& T Corp. v. Jefferson Telephone Company, Reply Brief of Jefferson Telephone Company, File No. E- 97- 07 (filed Nov. 7, 1997) at 3- 4 (“ Jefferson Reply”). See 47 U. S. C. § 415( a) (providing that an action to recover charges 3 Federal Communications Commission FCC 01- 243 4 Jefferson’s access revenue- sharing arrangement with IAN violated section 201( b) by contravening the “basic principle of common carriage” that a carrier may only serve as an objective conduit of communications service, “without influenc[ ing] or control[ ling] . . . the destination of a customer’s calls within its authorized service area.” 18 Such contravention occurred, in AT& T’s view, because Jefferson “acquired a direct interest in promoting the delivery of calls to specific telephone numbers for the provision of a specific communication.” 19 AT& T also contends that Jefferson’s access revenue- sharing arrangement with IAN discriminated against Jefferson’s other end user customers, in violation of section 202( a), because the arrangement “caused access revenues, which are intended to cover Jefferson’s legitimate costs of service and its ability to maintain high quality service in the areas in which it operates, to be directed elsewhere.” 20 AT& T requests an order (i) declaring that Jefferson’s access revenue- sharing arrangement with IAN was unlawful, and (ii) awarding damages in the amount of the access fees that AT& T paid for calls to IAN, with interest. 21 III. DISCUSSION A. AT& T Has Not Demonstrated that the Access Revenue- Sharing Arrangement Between Jefferson and IAN Violated Section 201( b) of the Act by Breaching Jefferson’s Duty as a Common Carrier. must be initiated within two years from the time the cause of action accrues). In support of its argument, Jefferson relies solely on the fact that AT& T appended to its Initial Brief a newspaper article from the San Diego Union-Tribune dated November 14, 1994 that describes the revenue- sharing arrangement. Jefferson Reply at 3. See AT& T Brief at Ex. 2. Thus, according to Jefferson, “the window of opportunity to file a complaint closed on November 14, 1996.” Jefferson Reply at 3. We disagree. Just because AT& T submitted the newspaper article in this record does not demonstrate that an AT& T representative read the article at the time it was published. Without more, it would be equally reasonable to conclude that AT& T first learned of the article in the course of prosecuting this case. Thus, the record does not support a conclusion that AT& T’s claims are time- barred. 18 Complaint at 4, ¶ 10. See id. at 4- 6, ¶¶ 11- 16. AT& T asserts this claim in two substantively identical causes of action (Counts One and Two), which we consider collectively. In its Initial Brief, AT& T cursorily maintains for the first time that the revenue- sharing arrangement between Jefferson and IAN also violated section 201( b) by “evading the requirements” of section 228 of the Act, 47 U. S. C. § 228, known as the Telephone Disclosure and Dispute Resolution Act (“ TDDRA”). AT& T Brief at 15- 17. AT& T failed to raise this issue in its Complaint, however. Therefore, the record provides an inadequate basis on which to assess the merits of this potentially challenging argument. See, e. g., Consumer. Net v. AT& T Corp., Order, 15 FCC Rcd 281, 300, ¶ 40 n. 93 (1999) (declining to consider an argument raised for the first time in the briefs); Building Owners and Managers Association International v. FCC, — F. 3d — , 2001 WL 754910, n. 14 (D. C. Cir. 2001) (declining to address an issue raised cursorily in the brief). Accordingly, we decline to address this issue, and restrict our discussion of section 201( b) to AT& T’s “common carriage” claim. 19 Complaint at 4, ¶ 11. See id. at 4- 6, ¶¶ 11- 16. 20 Complaint at 7, ¶ 20. See id. at 6- 7, ¶¶ 18- 21. 21 Complaint at 7- 8. 4 Federal Communications Commission FCC 01- 243 5 7. According to AT& T, there are “two essential prerequisites” for common carriage. 22 First, a common carrier must “hold[ ] itself out to serve indifferently with regard to the service in question.” 23 Second, a common carrier must “allow[ ] customers to transmit intelligence of their own design and choosing.” 24 AT& T maintains that Jefferson violated the first of these fundamental principles (and, thus, section 201( b)) when it entered into the revenue-sharing arrangement with IAN and acquired a direct economic interest in terminating traffic to IAN. 25 8. We agree with AT& T’s general description of the fundamentals of common carriage. 26 We disagree with AT& T, however, that Jefferson violated the first of those fundamentals when it entered the revenue- sharing agreement with IAN. 9. AT& T alleges that Jefferson violated the “indifference” requirement of common carriage, because the revenue- sharing arrangement with IAN “caused Jefferson to have a direct, and greater, economic interest in delivering calls to one set of destination telephone numbers in its service area than to other destination numbers.” 27 In AT& T’s view, “it became Jefferson’s prerogative, pursuant to the agreement, to transmit calls to IAN as opposed to transmitting calls to other destinations in its territory.” 28 10. AT& T mischaracterizes the “indifference” requirement as turning on a carrier’s motive for providing service to a particular customer. This requirement hinges not on such intent, but rather on the carrier’s conduct in actually serving customers. The critical inquiry is whether a carrier makes ad hoc determinations about the provision of service to particular customers. 29 22 AT& T Brief at 7- 15. See Complaint at 4- 5, ¶¶ 10- 12; AT& T Reply at 5- 8. 23 AT& T Brief at 7, relying on Southwestern Bell Telephone Co. v. FCC, 19 F. 3d 1475, 1479 (D. C. Cir. 1994); National Ass’n of Regulatory Utility Commissioners v. FCC, 533 F. 2d 601, 608- 09 (D. C. Cir. 1976); National Ass’n of Regulatory Utility Commissioners v. FCC, 525 F. 2d 630, 641- 42 (D. C. Cir. 1976). 24 AT& T Brief at 7- 8, relying on Southwestern Bell Telephone Co. v. FCC, 19 F. 3d at 1480; NARUC v. FCC, 525 F. 2d at 640- 42. 25 Complaint at 4- 5, ¶¶ 10- 13; AT& T Brief at 7- 15; AT& T Reply at 5- 9; AT& T Corp. v. Jefferson Telephone Company, Opposition to Motion to Dismiss, File No. E- 97- 07 (filed Mar. 5, 1997) at 3- 4 (“ Opposition to Motion to Dismiss”). 26 See Southwestern Bell v. FCC, 19 F. 3d at 1480- 81 (stating that, “[ i] f the carrier chooses its clients on an individualized basis and determines in each particular case ‘whether and on what terms to serve’ and there is no specific regulatory compulsion to serve all indifferently, the entry is a private carrier for that particular service.”). See also NARUC v. FCC, 525 F. 2d at 640- 42. 27 AT& T Brief at 5. See Complaint at 5, ¶ 12. 28 AT& T Brief at 9. See Complaint at 4- 5, ¶¶ 10- 13; AT& T Brief at 7- 15; AT& T Reply at 5- 9; Opposition to Motion to Dismiss at 3- 4. 29 See Southwestern Bell v. FCC, 19 F. 3d at 1480- 81; NARUC v. FCC, 533 F. 2d at 608- 09; 5 Federal Communications Commission FCC 01- 243 6 Stated another way, “a carrier will not be a common carrier where its practice is to make individualized decisions in particular cases whether and on what terms to serve.” 30 Thus, as Jefferson asserts, the crux of the ‘indifference’ inquiry is the manner in which service is offered to customers, not the carrier’s interest in increasing the traffic carried on its network. 31 As long as a carrier provides service indifferently and indiscriminately to all who request it, the first prong of the common carriage test is satisfied. 11. The record does not demonstrate that Jefferson failed to remain appropriately “indifferent” as a common carrier, notwithstanding its access revenue- sharing arrangement with IAN. In particular, the record contains no evidence that Jefferson ever made any individualized decisions in specific cases concerning whether and on what terms to provide interstate access services. Jefferson provided interstate access service at the same rate to all IXCs who ordered it pursuant to a tariff filed with the Commission. Moreover, Jefferson provided terminating interstate access service with respect to calls placed to all of the telephone numbers in Jefferson’s exchange, not just to those numbers assigned to IAN. Finally, the record contains no indication that Jefferson ever deliberately routed to IAN an interstate call intended for a different end user. 12. AT& T points to the fact that the agreement between Jefferson and IAN required IAN to engage in certain marketing practices, and required Jefferson to block certain local calls to IAN. 32 These circumstances fall far short of giving Jefferson an unlawful interest in IAN, given that, as stated above, Jefferson provided interstate access services indifferently and indiscriminately to all who requested them. 13. We note that AT& T relies for support on a 1996 Notice of Proposed Rulemaking and a 1995 advisory letter issued by the Chief of the former Enforcement Division of the Common Carrier Bureau. 33 In the 1996 NPRM, the Commission sought comment on whether the practice at issue at here “could be interpreted as not being just and reasonable under section 201( b).” 34 The Marlowe Letter opined that an international long distance carrier would violate section 201( b) if it were to share with an information provider the toll revenues collected on calls to the NARUC v. FCC, 525 F. 2d at 641. 30 NARUC v. FCC, 533 F. 2d at 608- 09. See NARUC v. FCC, 525 F. 2d at 641 (stating that “to be a common carrier one must hold oneself out indiscriminately to the clientele one is suited to serve . . . .”). 31 Jefferson Brief at 7. 32 See note 16, supra. 33 Policies and Rules Governing Interstate Pay- Per- Call and Other Information Services Pursuant to the Telecommunications Act of 1996, Order and Notice of Proposed Rule Making, 11 FCC Rcd 14738 (1996) (“ Pay- Per- Call NPRM”); Ronald J. Marlowe, 10 FCC Rcd 10945 (CCB- ED 1995), application for review pending (“ Marlowe Letter”). 34 Pay- Per- Call NPRM, 11 FCC Rcd at 14752, ¶ 41. See id. at 14755- 56, ¶¶ 47- 48. 6 Federal Communications Commission FCC 01- 243 7 information provider. 35 Neither item persuades us here. 36 For the reasons set forth above, based on the record in this case, in which AT& T argues that Jefferson’s access revenue- sharing arrangement with IAN violated section 201( b) solely because it allegedly breaches common carriage duties, we conclude that AT& T has not met its burden of demonstrating that Jefferson’s practice here is unjust and unreasonable. To the extent the former Enforcement Division’s advisory letter is inconsistent with our holding here, we overrule the Division’s letter. 14. For these reasons, we find that AT& T has not demonstrated that Jefferson violated its duty as a common carrier upon entering the revenue- sharing arrangement with IAN. Accordingly, we deny Counts One and Two of the Complaint. 37 B. AT& T Has Not Demonstrated that the Access Revenue- Sharing Arrangement Between Jefferson and IAN Violated Section 202( a) of the Act. 15. AT& T cursorily contends that Jefferson discriminated against its end users, in violation of section 202( a) of the Act, 38 by failing to use all of its access revenues to maintain its network. 39 AT& T’s contention fails to state a discrimination claim under section 202( a), because AT& T fails to allege that Jefferson treated one customer differently from another. 40 Notably, AT& T fails to allege either that (i) Jefferson offered a better deal to IAN than to other similarly situated end- user customers, or (ii) Jefferson treated one IXC differently than others in its provision of interstate access services. AT& T simply argues that Jefferson’s network as a whole could have been better, had Jefferson not shared revenues with IAN. Whatever claim this odd argument may state, it is not one under section 202( a). Thus, we deny Count Three of AT& T’s 35 See Marlowe Letter, 10 FCC Rcd at 10945. 36 For example, the Marlowe Letter suggested that, “[ t] hrough payments to an information provider . . . , a carrier would abandon objectivity and acquire a direct interest in promoting the delivery of calls to a particular number for the provision of a particular communication.” Marlowe Letter, 10 FCC Rcd at 10945. As described above, we disagree. As long as a carrier does not make individualized decisions in specific cases concerning whether and on what terms to provide service, a carrier does not abandon the requisite “objectivity” by sharing revenues with an information provider. 37 We note that AT& T explicitly disavowed any claim that the terminating access rate charged by Jefferson was unjust and unreasonable under section 201( b). AT& T Brief at 12. We express no view on the reasonableness of Jefferson’s rates. 38 Section 202( a) of the Act makes it unlawful “for any common carrier to make any unjust or unreasonable discrimination in charges, practices, . . . facilities, or services . . . or to make or give any undue or unreasonable preference or advantage to any particular person.” 47 U. S. C. § 202( a). 39 Complaint at 6- 7, ¶¶ 17- 21; AT& T Brief at 17- 19. 40 See generally PanAmSat Corp. v. COMSAT Corp., Memorandum Opinion and Order, 12 FCC Rcd 6952, 6965, ¶ 34 (1997); American Message Centers v. FCC, 50 F. 3d 35, 40 (D. C. Cir. 1995); Competitive Telecommunications Association v. FCC, 998 F. 2d 1058, 1062 (D. C. Cir. 1993). 7 Federal Communications Commission FCC 01- 243 8 Complaint. 41 IV. CONCLUSION 16. Although we deny AT& T’s complaint, we emphasize the narrowness of our holding in this proceeding. We find simply that, based on the specific facts and arguments presented here, AT& T has failed to demonstrate that Jefferson violated its duty as a common carrier or section 202( a) by entering into an access revenue- sharing agreement with an end- user information provider. We express no view on whether a different record could have demonstrated that the revenue- sharing agreement at issue in this complaint (or other revenue-sharing agreements between LECs and end user customers) ran afoul of sections 201( b), 202( a), or other statutory or regulatory requirements. V. ORDERING CLAUSES 17. ACCORDINGLY, IT IS ORDERED, pursuant to sections 1, 4( i), 4( j), 201, 202, and 208 of the Communications Act of 1934, as amended, 47 U. S. C. §§ 151, 154( i), 154( j), 201, 202, and 208, that the above- captioned complaint filed by AT& T IS DENIED IN ITS ENTIRETY, and this proceeding is TERMINATED WITH PREJUDICE. 18. IT IS FURTHER ORDERED, pursuant to sections 1, 4( i), 4( j), 201, 202, and 208 of the Communications Act of 1934, as amended, 47 U. S. C. §§ 151, 154( i), 154( j), 201, 202, and 208, that Jefferson’s Motion to Dismiss (filed February 18, 1997), Jefferson’s Motion to Compel (filed May 6, 1997), and AT& T’s Motion to Compel (filed May 6, 1997) are DENIED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary 41 In light of all of the foregoing rulings, Jefferson’s Motion to Dismiss, Jefferson’s Motion to Compel, and AT& T’s Motion to Compel are denied as moot. AT& T Corp. v. Jefferson Telephone Company, Motion to Dismiss, File No. E- 97- 07 (filed Feb. 18, 1997) (“ Jefferson’s Motion to Dismiss”); AT& T Corp. v. Jefferson Telephone Company, Motion to Compel, File No. E- 97- 07 (filed May 6, 1997) (“ Jefferson’s Motion to Compel”); AT& T Corp. v. Jefferson Telephone Company, Motion to Compel, File No. E- 97- 07 (filed May 6, 1997) (“ AT& T’s Motion to Compel”). 8