******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect or Word to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, DC 20554 In the Matter of MCI Telecommunications Corporation, Complainant, v. U S WEST Communications, Inc., Ameritech Operating Companies, Pacific Bell Telephone Company and Nevada Bell Telephone Company, Bell Atlantic Telephone Companies, Southwestern Bell Telephone Company, and New York Telephone Company and New England Telephone Company, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) File No. E-97-08 File No. E-97-20 File No. E-97-21 File No. E-97-22 File No. E-97-23 File No. E-97-24 MEMORANDUM OPINION AND ORDER Adopted: May 16, 2000 Released: May 18, 2000 By the Commission: I. INTRODUCTION 1. In this Memorandum Opinion and Order ("Order"), we deny the complaints filed by MCI Telecommunications Corporation ("MCI") against the above-captioned local exchange carriers ("LECs"). MCI alleges that the defendants' tariffed charges assessed on end-user customers for changing their primary interexchange carriers ("PICs") exceed the defendants' reasonable costs for making PIC changes, in violation of section 201(b) of the Communications Act of 1934, as amended (the "Act"). 1. The crux of MCI's complaints is that even though the LECs have reduced their costs for implementing the PIC change, the LECs have not made reductions in the $5 fee charged to their customers over the past 15 years. While we find that MCI has offered persuasive evidence that the costs to LECs have dropped significantly due to the automation of the PIC- change process, we conclude that MCI has failed to demonstrate the $5 fee contradicts the Commission's existing orders relating to the implementation and reasonableness of the fee. Accordingly, we deny the complaints. We emphasize that, although we find the $5 charge to be consistent with existing Commission orders, nothing in this order should be construed as discouraging any party from initiating or participating in rulemaking proceedings to reevaluate the Commission's policy regarding PIC-change charges in light of the marked changes in long distance competition and local phone service over the past fifteen years. II. DISCUSSION 1. Since the mid-1980s, when the Commission first allowed consumers to select a presubscribed long distance carrier other than AT&T, most local phone companies have been charging their customers a fee when these customers decide to change their preferred long distance carrier. When customers change their preferred long distance carrier, the local phone carrier must make the switch on behalf of the customer after obtaining proper permission. As discussed below, the Commission determined in a series of orders that LECs could charge their customers no more than $5 for each PIC change, unless the LEC submitted detailed cost justification to the Commission. Accordingly, in tariffs filed with the Commission in the mid- 1980s, most LECs implemented a $5 customer fee for processing each PIC change request. MCI complains that the defendant LECs have failed to reduce this customer fee despite realizing substantial cost savings when the LECs automated the PIC change process. A. Standing and Statute of Limitations 1. Before addressing the substantive legal arguments presented by MCI, we first refute the defendants' threshold procedural arguments. First, defendants assert that MCI lacks standing to file a complaint because the PIC-change fees have been assessed on the end-users, not the long distance carriers. While this fact may be relevant to MCI's ability to recover damages, it does not bar MCI from pursuing these complaints. Section 208 of the Act authorizes "any person" to file a complaint with the Commission alleging that a common carrier has violated provisions of the Act and specifies that complaints cannot be dismissed because of the absence of direct damage to the complainant. MCI is a "person" as that term is defined in the Act and, therefore, has standing to file the instant complaints. 2. Second, the defendants argue that MCI's claims are barred by the Act's relevant statute of limitations provisions. Under section 415(b) of the Act, complaints against carriers for the recovery of damages not based on "overcharges" must be filed with the Commission within two years from the time the cause of action accrues. Ameritech argues that because the $5 PIC- change charge was established by Ameritech in tariff filings from 1984 and 1985, MCI was required under section 415(b) to file a damages complaint not later than two years after the charge was introduced in Ameritech's tariff. We disagree. The Commission has long held that for purposes of section 415(b), a cause of action accrues at the time the carrier does the unlawful act or fails to do what the law requires. In cases involving allegations that a carrier has failed to charge a just and reasonable rate, such as this case, the general rule is that the two-year limitations period begins to run when the customer receives a bill from the carrier assessing the disputed rate. At the time these complaints were filed, defendants continued to assess the $5 PIC-change fee on their customers. Under section 415(b), a complaint regarding the $5 fee can be filed up to two years from the date of the charge in dispute. Each time the defendants assess the $5 fee, the clock on the statute of limitations starts for each charge. Thus, while section 415(b) limits the period of time during which MCI may be entitled to damages, it does not extinguish MCI's right to file a complaint. We note that, consistent with section 415(b), MCI seeks damages based on its reimbursement of PIC-change charges to Ameritech's local exchange subscribers during a period beginning two years immediately preceding the filing of its complaint up to the present. B. Reasonableness of the Defendants' PIC-Change Tariffs 3. MCI's complaints focus on the allegation that the $5 PIC-change charge, which defendants have been assessing since 1984 and 1985, so exceeds the defendants' costs that the charge should be declared unjust and unreasonable under section 201(b) of the Act. While we find that MCI has demonstrated the alleged cost savings to the LECs, we conclude that it has failed to demonstrate that the $5 PIC-change charge is unreasonable in light of existing Commission orders. 4. MCI's Cost Evidence. MCI argues that since 1984, LECs have improved and automated their procedures for switching their customers' long distance carriers. MCI claims that the increased efficiencies and substantial cost reductions should have been passed on to end-users in the form of a reduced PIC-change charge. MCI relies in large part on reductions in the PIC- change charges implemented by local carriers that are not parties to this case. MCI has produced evidence indicating that in 1990, the BellSouth Corporation ("BellSouth") reduced its PIC-change charge from $5.00 to $1.49 as a result of automated PIC-change procedures. Similarly, MCI has produced evidence indicating that the Southern New England Telephone Company ("SNET") reduced its PIC-change charge in 1995 from $6.38 to $2.30 based on more efficient procedures. MCI alleges that since at least 1995, the defendants' PIC-change systems and procedures have been as efficient as those used by BellSouth and SNET and argues that the defendants should have revised their PIC-change rates to levels comparable to those of BellSouth and SNET. 5. We have given substantial weight to the declarations of three MCI employees familiar with the PIC-change systems and procedures used by the defendants and other LECs. These witnesses reviewed data obtained from the defendants regarding their PIC-change systems and procedures and compared and contrasted the defendants' procedures to those used by BellSouth and SNET when they lowered their respective PIC-change charges in tariff filings with the Commission. This uncontroverted evidence establishes that 1) the manual procedures used by the defendants for processing PIC changes in 1985 were extremely labor intensive and time consuming and 2) the defendants have since automated procedures for the majority of their PIC changes. At the time the Commission approved the $5 PIC-change rate in 1984, most PIC- change requests initiated by IXCs were required to be either faxed or mailed to the defendants and were processed on an individual request basis, typically requiring up to two weeks to complete. MCI's witnesses persuasively demonstrate that the defendants now deploy automated systems permitting them to process PIC changes virtually instantaneously with on-line requests from the IXCs that require little or no manual labor from the LECs. In fact, with respect to one of the defendants, Bell Atlantic, MCI produced direct evidence indicating that Bell Atlantic's actual PIC-change costs are significantly less than $5. 6. Despite the defendants' assertions to the contrary, MCI's evidence clearly indicates that the costs of processing automated PIC-changes are less than the costs of manual PIC-changes. The defendants fault MCI for relying on cost data and other information pertaining to the PIC-change processes used by BellSouth and SNET. Defendants do not, however, describe specific disparities between their PIC-change systems and those of BellSouth and SNET that would call into question the relevance of MCI's comparisons. Instead, the defendants concede that they have substantially automated their PIC-change processes since 1984, but assert that the automation has not resulted in "cheaper" service because of increases in labor costs and other expenses required for installing, maintaining, and operating the necessary computer systems. We find defendants' assertions in this regard to be unsupported in the record. Based on the record before us, we are satisfied that the defendant LECs have, in fact, realized substantial cost savings from the automation of their PIC-change processes over the past fifteen years. 7. The Reasonableness of the PIC-Change Charge. We next address whether the LECs acted in an unjust and unreasonable manner by not lowering their PIC-change fees to reflect their cost savings. The PIC-change charge evolved as part of the regulatory scheme introduced by the Commission in 1983 to open the interstate telephone market to competition. Under this access charge plan, the Commission required all LECs to file access tariffs to replace existing mechanisms for recovering their costs of providing the access services needed to complete interstate and foreign telecommunications. The tariffs filed by carriers to implement that plan revised the rates and terms for nearly every interstate telecommunications service. Although the plan established an overall rate structure for LECs and a methodology for allocating costs within that structure, it did not determine the carriers' costs or the forecasts on which their proposed rates were based. 8. In reviewing the LECs' initial tariff filings under the access charge plan, the Commission found that the carriers' representations about their costs and forecasts raised substantial concerns about the lawfulness of their rates. Accordingly, in 1984, the Commission initiated a comprehensive investigation of the tariffs "to resolve at least the major issues necessary to assure that generally reasonable, workable access tariffs" are adopted. During the course of the investigation, the Commission recognized the validity of the PIC-change charge but was concerned that excessive or unsupported charges for changing presubscribed IXCs could significantly hamper the ultimate goal of enhanced competition in the interexchange service market. The Commission's 1984 Access Charge Order stated: A presubscription charge that covers the unbundled costs of a subscription [PIC] change would be reasonable. Also, to the extent that a presubscription charge is intended to discourage excessive amounts of shifting back and forth between or among interexchange carriers, we do not believe a charge geared to this purpose would be unreasonable. Absent proper cost support for pre-subscription charges, we believe a charge of $5 per change (after one initial free preselection) would be reasonable. It would reflect some cost recovery and would not pose a barrier to competitive entry or exercise of customer choice. 9. Subsequently in 1985, the LECs filed revised annual interstate access tariffs as required under the Commission's access charge rules. These filings represented the first general updates of the initial access tariff filings. After reviewing the justifications proffered by the LECs for the proposed increases in their PIC-change charges, the Commission concluded that most of the LECs had failed to provide the detailed cost justification the Commission had contemplated in the 1984 Access Charge Order. As to those carriers that provided some supporting cost data, the Commission found the information inadequate to justify increases in PIC-change charges. The Commission stated: We are aware that the development of cost support data for a presubscription change charge presents a difficult challenge to the carriers. Notwithstanding this difficulty, we cannot accept unsupported revisions to these charges and will require all carriers, . . . to continue to apply a fixed rate of $5.00 per presubscription change. Of course, the carriers are permitted to submit proposed increases to their charges in future filings, but we expect these changes to be adequately justified. It appears from the record that the Commission has made no further statements regarding the reasonableness of PIC-change charges since the 1987 Access Tariff Order. 10. In light of the existing Commission rules, as reflected in the 1984 Access Charge Order and 1987 Access Tariff Order, we cannot find that defendants' continued assessment of a $5 PIC-change charge to be unreasonable. To the contrary, we find that the specific language in the prior Commission orders created, in effect, a $5 ceiling under which charges were deemed reasonable. In particular, the prior Commission orders make clear that the $5 charge was not, nor was it intended to be, purely cost-based. The 1987 Access Tariff Order rejected proposed charges in excess of $5 because the carriers had not provided adequate cost justification. Specifically recognizing that developing cost support data for the PIC-change charge "presents a difficult challenge to the carriers," the Commission chose to allow a charge of $5 in the absence of such cost-support. Equally important to our analysis, the prior Commission orders explicitly allowed the carriers to consider non-cost factors in establishing a reasonable PIC-change charge. Specifically, the 1984 Access Charge Order clearly states that "to the extent that a presubscription charge is intended to discourage excessive amounts of shifting back and forth between or among interexchange carriers, we do not believe a charge geared to this purpose would be unreasonable." The Commission then concluded that the $5 charge reasonably took into account this factor without posing "a barrier to competitive entry or exercise of customer choice." 11. In sum, we can not find that defendants were obligated to reduce their PIC-change charges below $5 to reflect the cost savings they realized from automating their PIC-change processes. It may well be that the policies reflected in the 1984 Access Charge Order and the 1987 Access Tariff Order are no longer appropriate in light of changes in the industry since that time. Nevertheless, MCI has not pointed to any order of the Commission modifying these policies and, accordingly, we conclude that defendants were entitled to rely on these orders in establishing their charges. Therefore, we find that MCI has failed to meet its burden of demonstrating that the charges were unreasonable, in violation of the Act. VII. CONCLUSION AND ORDERING CLAUSES 12. ACCORDINGLY, IT IS ORDERED, pursuant to Sections 4(i), 201(b), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 201(b), 208, that MCI's formal complaints against the above-captioned defendants ARE DENIED and that these proceedings ARE TERMINATED effective immediately upon the Release Date of this Order. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary