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Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
STARPOWER COMMUNICATIONS, LLC, )
v. ) File No. EB-00-MD-19
VERIZON SOUTH INC., )
MEMORANDUM OPINION AND ORDER
Adopted: November 5, 2003 Released: November 7,
By the Commission:
1. In this Order, we grant a supplemental complaint for
damages filed by Starpower Communications, LLC (``Starpower'')
against Verizon South Inc. (``Verizon South'') 1 pursuant to
section 252(e)(5) of the Communications Act of 1934, as amended
(``Act'') and section 1.722 of the Commission's rules.2 In the
liability phase of this proceeding, the Commission found that the
parties' interconnection agreement requires Verizon South to pay
reciprocal compensation for Starpower's delivery of traffic
originated by Verizon South's customers and bound for Starpower's
Internet service provider (``ISP'') customers.3 Consistent with
that finding, we award damages to Starpower for reciprocal
compensation that Verizon South owes for Starpower's delivery of
traffic to all of Starpower's ISP customers, including such
customers served by Starpower through ``virtual NXX''
arrangements.4 As explained below, because Verizon South
stipulated that it rates and bills these ISP-bound calls as local
traffic under its applicable state tariff, and because the
interconnection agreement requires Verizon South to pay
reciprocal compensation for the termination of local traffic as
defined in that tariff, we conclude that Starpower is entitled to
the damages it seeks.
II.A. The Parties and Their Interconnection Agreement
2. Starpower is a competitive local exchange carrier
(``CLEC'') licensed to provide local exchange services in
Virginia.5 Verizon South is an incumbent local exchange carrier
also licensed to provide local exchange services in Virginia.6
3. Pursuant to a written agreement (``Agreement''),
Starpower and Verizon South interconnected their networks to
enable end users subscribing to Starpower's local exchange
service to place calls to and receive calls from end users
subscribing to Verizon South's local exchange service.7 The
Agreement provides that the parties ``shall reciprocally
terminate POTS calls originating on each others' networks.''8
``POTS'' stands for ``Plain Old Telephone Service'' traffic,
which ``includes local traffic (including EAS) as defined in
[Verizon South's] tariff.''9 Verizon South's General Customer
Services Tariff (``Tariff''), in turn, defines Local Service as
``[t]elephone service furnished between customer's stations [sic]
located within the same exchange area.''10 The Agreement
obligates the parties to pay reciprocal compensation ``[f]or the
termination of local traffic.''11 No other provisions of the
Agreement govern compensation for the delivery of local
traffic.12 The Agreement currently is in effect and will remain
in effect until it is superceded by a new agreement.13
II.B. The Liability Order
4. Since April 1999, Verizon South has delivered to
Starpower, at the point of interconnection between their
respective networks, ISP-bound calls originated by Verizon
South's customers.14 Starpower, in turn, delivered these calls
to its ISP customers and billed Verizon South for reciprocal
compensation for each call.15 Pursuant to the Agreement,
Starpower based the reciprocal compensation charges on its
records of total minutes of usage for traffic sent by Verizon
South to Starpower over trunk groups provided by Starpower.16
Verizon South disputed and refused to pay Starpower's reciprocal
compensation charges for delivering the ISP-bound traffic,17
claiming that such traffic is not subject to reciprocal
compensation under the Agreement because such traffic is
jurisdictionally interstate, not local.18 Hence, Starpower
initiated legal processes to recover reciprocal compensation
payments from Verizon South, which ultimately resulted in the
Commission's Liability Order.19
5. The Liability Order found that the Agreement obligates
Verizon South to pay reciprocal compensation to Starpower for
whatever calls Verizon South bills to its own customers as local
calls under the Tariff, regardless of whether a call is
jurisdictionally interstate.20 The Liability Order so held
because the Agreement expressly links compensability for
reciprocal compensation purposes to Verizon South's own customer
billing determinations.21 Because it was undisputed that Verizon
South bills ISP-bound traffic as local calls under its Tariff,
the Commission concluded that such calls are compensable under
the Agreement, and that Verizon South therefore must pay
reciprocal compensation to Starpower for the delivery of such
calls.22 In reaching this conclusion, the Commission relied on
the parties' stipulation that ``when a Verizon South customer
places a call to an ISP, or to the Internet through an ISP, using
a telephone number associated with the caller's local calling
area, Verizon South rates and bills such customer, if at all, for
a local call pursuant to the terms of [the Tariff].''23
6. Pursuant to Commission rules,24 Starpower then filed
its Supplemental Complaint seeking an order requiring Verizon
South to pay all past due reciprocal compensation, including
interest, and all future reciprocal compensation as it accrues,
for delivering traffic identified as local traffic under the
terms of the Agreement, including ISP-bound traffic.25 Verizon
South challenges Starpower's entitlement to such damages, arguing
for the first time, inter alia, that the calls at issue
constitute virtual NXX traffic, which allegedly is not
compensable under the Liability Order's interpretation of the
II.C. Virtual NXX Traffic
7. Telephone numbers consist of ten digits in the form NPA-
NXX-XXXX. The first three digits, or the ``NPA,'' refer to the
area code. The second three digits, or the ``NXX,'' refer to the
central office code.27 Pursuant to standard industry practice,
an NXX code generally corresponds to a particular geographic area
-- or ``rate center'' -- served by a local exchange carrier
(``LEC'').28 By contrast, ``virtual NXX'' codes are central
office codes that correspond to a particular rate center but are
assigned to a customer located in a different rate center.29 For
example, if a customer physically located in a rate center in Key
West, Florida, received a telephone number containing an NXX code
associated with a rate center in Miami, Florida, that customer
would have a virtual NXX code.
8. The disputed traffic in this proceeding consists
exclusively of calls from Verizon South's customers in Virginia
that Starpower delivered to its ISP customers' modem banks that
are physically located at Starpower's switch in Lanham,
Maryland.30 Although Lanham, Maryland is outside the local
calling area of substantially all of Verizon South's customers
located in Virginia, Starpower assigned its ISP customers in
Lanham, Maryland NPA-NXX telephone numbers that correspond with
Verizon South's local calling areas in Northern Virginia - i.e.,
Starpower utilized virtual NXX codes.31 Consequently, when a
Verizon South customer physically located in Northern Virginia
calls a Starpower ISP customer whose modem is physically located
in Lanham, Maryland, the Verizon South customer dials a number
that ordinarily would correspond with a caller physically located
in Northern Virginia.
9. For purposes of billing its own customers, Verizon
South rates calls to Starpower's customers as either ``local'' or
``toll'' based on the NPA-NXX code assigned to the Starpower
customer, not based on the physical location of the Starpower
customer.32 In other words, for each call, Verizon South
compares the NPA-NXX of the calling party's telephone number with
the NPA-NXX of the called party's number, and if the NPA-NXXs
correspond to the same local calling area, Verizon South rates
and bills the call as a local call under its Tariff, regardless
of whether the two parties actually are physically located in the
same local calling area. Consequently, when billing its own
customers, Verizon South rated as local all calls placed by its
customers in Northern Virginia and delivered by Starpower to ISP
modem banks in Lanham, Maryland, because the NPA-NXXs for both
the calling and called parties corresponded to Verizon South's
Northern Virginia local calling areas.33 In the absence of this
virtual NXX arrangement that Starpower used, Verizon South's
Northern Virginia customers would have incurred toll charges for
calls placed to Starpower's Lanham, Maryland ISP customers.34
10. Verizon South provides a service to its own
customers that is similar to the virtual NXX service Starpower
provides to its ISP customers. Specifically, Verizon South's
Foreign Exchange service permits a customer to obtain a telephone
number associated with a local exchange area in which that
customer has no physical presence.35 Verizon South rates calls
to and from its Foreign Exchange customers as local or toll based
upon the telephone number assigned to the customer (not the
physical location of the customer),36 and it bills and collects
reciprocal compensation for calls that it rates as local.37
III.A. The Agreement Obligates Verizon South to Pay
Starpower Reciprocal Compensation for Delivering
Virtual NXX Calls that Verizon South Bills to Its Own
Customers as Local Calls.
11. The Agreement obligates the parties to pay
reciprocal compensation for the termination of ``local traffic .
. . as defined in [Verizon South's] tariff.'' 38 Thus, as
discussed above, the Liability Order determined that whatever
traffic Verizon South rated and billed its own customers as local
under the Tariff is compensable traffic under the Agreement.
Accordingly, based on Verizon South's conduct in rating and
billing calls to ISPs, the Liability Order held that Verizon
South owed reciprocal compensation for Starpower's delivery of
ISP-bound calls.39 Central to this finding was Verizon South's
stipulation that when one of its customers places a call to an
ISP, using a telephone number associated with the caller's local
calling area, Verizon South rates and bills the customer for a
local call pursuant to the terms of the Tariff.40 Although
Verizon South argued during the liability phase that it would be
unfair for the Commission to rely on Verizon South's manner of
billing ISP calls to determine what traffic is local under the
Tariff,41 the Commission soundly rejected the argument because,
in the Agreement, Verizon South voluntarily linked the
compensability of traffic to Verizon South's own classification
of traffic in the Tariff.42
12. Despite these findings, Verizon South argues that
the Liability Order only held that, under the Agreement, the
Tariff's definition of ``local service'' is controlling, and made
no conclusion that ISP-bound traffic is compensable local
traffic.43 Verizon South further argues that the Tariff's
definition of ``local service'' hinges on the physical location
of the calling and called parties, and not on the parties'
respective telephone numbers.44 To support this argument,
Verizon South observes that the Tariff defines local service as
``telephone service furnished between customer's stations located
within the same exchange area.''45 Thus, in Verizon South's
view, ``local service'' under the Tariff consists solely of calls
between customer stations physically located in the same calling
area.46 Consequently, Verizon South asserts that, because
virtual NXX traffic does not travel between customer stations
physically located within the same local exchange areas, it is
not compensable ``local service'' as defined in the Tariff.47
Therefore, according to Verizon South, it owes no reciprocal
compensation for Starpower's delivery of virtual NXX traffic from
Verizon South's customers in Northern Virginia to Starpower's ISP
customers in Lanham, Maryland.
13. Verizon South misapprehends the Liability Order,
which expressly found that Verizon South's conduct in rating and
billing ISP-bound traffic determines whether traffic is local
under the Tariff.48 Regardless of Verizon South's present
construction of its Tariff,49 Verizon South previously stipulated
that, for rating and billing purposes, it considers the traffic
at issue to be local under the Tariff.50 In other words, Verizon
South stipulated that, in determining whether traffic is local
under the Tariff, it looks to the respective telephone numbers of
the call's parties, not the parties' physical location. Verizon
South cannot now distance itself from this stipulation by arguing
that local traffic, in fact, is something different from what it
plainly considered local traffic to be when rating and billing
calls under the Tariff.51 Thus, Verizon South's acknowledged
treatment of virtual NXX calls as local under the Tariff
establishes its contractual obligation to pay reciprocal
compensation for Starpower's delivery of such calls under the
14. We also find relevant Verizon South's concession that
it engaged in the very same conduct that it now alleges is
unlawful when done by Starpower. Specifically, Verizon South
billed and collected reciprocal compensation for calls placed by
a CLEC customer to a Verizon South Foreign Exchange customer with
a ``local'' NXX, even when those calls were between parties
physically located in different local calling areas.53 Verizon
South has failed to demonstrate why its contractual obligation to
Starpower should be different from its own practice.
15. Even if we focus exclusively on the language of
the Tariff, as Verizon South urges us to do,54 Verizon South's
argument that virtual NXX traffic is not compensable under the
Agreement still fails. First and foremost, the Tariff does not
expressly address whether the ``location'' of a customer station
turns on physical presence or number assignment, so Verizon
South's course of performance in implementing the Tariff - which
relied exclusively on the latter - is compelling.55 Moreover,
other provisions of the Tariff suggest that a customer's physical
location is not determinative in defining local traffic. The
Tariff's definition of ``local calling area,'' for example,
refers to ``a geographical area in which a customer has access
for placing and receiving local calls at a fixed monthly rate or
at a lower basic monthly rate plus usage charge for each local
call completed.''56 The definition does not refer to a
geographical area in which a customer is physically located.57
Similarly, the Tariff defines ``exchange service'' in terms of
the manner in which calls are billed, rather than the physical
location of the customer: ``Exchange service is a general term
describing as a whole the facilities provided for local
intercommunication, together with the right to originate and
receive a specified or an unlimited number of local messages at
charges in accordance with the provisions of this tariff.''58
This comports with the Tariff's specification that customers
subscribing to Verizon South's Foreign Exchange service pay the
same local service rate to call the ``foreign'' exchange in which
they are not physically located as customers who are physically
located within the same local exchange area.59 In short, the
Tariff's conception of local traffic includes all traffic for
which a customer is billed at a local rate, regardless of the
customer's physical location.60
16. Moreover, Verizon South offers no persuasive
evidence that, at the time the parties entered into the
Agreement, they intended that a customer's physical location
rather than number assignment would dictate compensation
obligations under the Agreement. In fact, the record shows just
17. First, as stated repeatedly above, for purposes of
billing its own customers, Verizon South always has rated calls
to Starpower telephone numbers as either local or toll based on
the NPA-NXX code assigned to the Starpower customer.61 And at
all relevant times, industry practice among local exchange
carriers similarly appears to have been that calls are designated
as either local or toll by comparing the NPA-NXX codes of the
calling and called parties.62 Indeed, Verizon South apparently
lacks the technical capability to identify virtual NXX calls as
non-local based on the physical end points of the call.63
Furthermore, Verizon South presents no evidence in this record
that the parties proposed or discussed alternatives to the
industry-wide system of rating calls by NPA-NXX.64 Finally, at
the time the parties entered into the Agreement, no court or
state commission (including Virginia's) or Commission decision
had declared virtual NXX arrangements to be unlawful or held that
virtual NXX traffic was not subject to reciprocal
compensation;65and state commissions that since have addressed
the issue have split on whether virtual NXX calls should be
treated as local traffic subject to reciprocal compensation.66
In sum, neither the legal context in which the parties entered
the Agreement, nor any other evidence in this record, 67 provides
any basis to conclude that the parties intended to link
reciprocal compensation obligations to the physical location of
the parties' customers.68
III.B. We Award Interest to Starpower in Accordance with
18. The parties agree that if Starpower prevails, it should
receive prejudgment interest on any damages awarded.69 They
disagree, however, on the rate of interest that we should apply.
Starpower argues that because Virginia law governs the parties'
obligations under the Agreement, Virginia law should supply the
appropriate interest rate.70 Starpower contends that section
6.1-330.54 of the Virginia Code provides an annual interest rate
of nine percent for both prejudgment and post-judgment interest
on contractual obligations, where no different rate is fixed by
the contract.71 In contrast, Verizon South argues that,
consistent with past precedent, we should award prejudgment
interest equal to the Internal Revenue Service Rate for
overpayments and underpayments (``IRS rate''), and that this rate
will ensure that Starpower receives proper compensation for the
time-value of money.72 Verizon South also contends that section
8.01-382 of the Virginia Code, a companion statute to section
6.1-330.54, renders the Virginia interest rate inapplicable,
because it provides that interest applies only to ``action[s] at
law or suit[s] in equity,'' not to Starpower's regulatory claim
regarding the interpretation and enforcement of an
interconnection agreement under the Act.73
19. We agree with Starpower. It is well established that
the award of prejudgment interest in complaint proceedings is a
matter left to our sound discretion, and is one in which we are
guided by considerations of fairness.74 In awarding prejudgment
interest in this proceeding, we look primarily to the
Commission's finding in the Liability Order that Virginia law
supplies the applicable rules of contract interpretation.75
Indeed, the parties agreed that the Agreement would be governed
and construed in accordance with Virginia law.76 Accordingly, we
conclude that it is appropriate and fair to award prejudgment
interest at the Virginia statutory interest rate applicable to
judgments enforcing contracts, namely, section 6.1-330.54 of the
20. We disagree with Verizon South that we are barred from
applying a Virginia interest rate in this case because this is
not an action at law or a suit in equity.77 Verizon South cites
no authority holding that section 6.1-330.54 is inapplicable to
an award on a contract entered by a regulatory agency in an
adjudicatory context. In fact, the only Virginia statute Verizon
South addresses is section 8.01-382. Although section 8.01-382
begins with the phrase ``[i]n any action at law or suit in
equity,'' section 6.1-330.54 does not, and instead applies
without qualification to ``an action arising from a contract.''
Starpower argues persuasively that section 8.01-382 is a
procedural statute that governs the manner of entering judgments
in court proceedings and does not specify an interest rate at
all.78 Indeed, section 8.01-382 looks to section 6.1-330.54 to
supply the statutory interest rate, which, in contract actions,
is nine percent.79 The only alternative Verizon South offers is
for us to apply the IRS rate,80 which we have done in other
proceedings. Although it would not be improper to apply the IRS
rate, we find the Virginia rate to be the better choice, given
the parties' and the Commission's conclusion that Virginia law
generally controls the parties' rights in this proceeding.
Accordingly, we award prejudgment interest at the rate specified
in section 6.1-330.54 of the Virginia Code.
21. For all the same reasons, we also conclude that it is
appropriate and fair to apply the nine percent rate contained in
section 6.1-330.54 to post-judgment interest due to Starpower.81
Starpower argues that the nine percent rate should apply until
the earlier of the date of payment by Verizon South or the entry
of a judicial judgment on Starpower's claim, because an order by
the Commission does not have the legal effect of a federal court
judgment.82 We need not reach the issue of when prejudgment
interest ends and post-judgment interest begins, because section
6.1-330.54 establishes a nine percent rate for both prejudgment
and post-judgment interest.
III.C. Damages Calculation
22. The parties have stipulated that, for traffic exchanged
through May 2003, the amount of reciprocal compensation that has
been invoiced and remains unpaid totals $12,059,149.83 The
parties further stipulate that any interest due to Starpower
should accrue beginning 30 days from the date of each invoice
that Starpower sent to Verizon South.84 Based on these
stipulations and our findings above, we award damages to
Starpower in the amount of $12,059,149, plus all reciprocal
compensation amounts due and owing between June 1, 2003 and the
date of this Order under the analysis set forth herein, plus
interest, as set forth below.
IV. ORDERING CLAUSES
23. Accordingly, IT IS ORDERED, pursuant to sections
1, 4(i), 4(j), and 252(e)(5) of the Communications Act of 1934,
as amended, 47 U.S.C. §§ 151, 154(i), 154(j), and 252(e)(5), that
the Supplemental Complaint filed by Starpower is hereby GRANTED.
24. IT IS FURTHER ORDERED, pursuant to sections 1,
4(i), 4(j), and 252(e)(5) of the Communications Act of 1934, as
amended, 47 U.S.C. §§ 151, 154(i), 154(j), and 252(e)(5), that
Verizon South shall pay Starpower, within 90 days of release of
this Order, damages in the amount of $12,059,149, plus all
reciprocal compensation amounts due and owing between June 1,
2003 and the date of this Order under the analysis set forth
herein, plus interest at an annual rate of nine percent, computed
beginning 30 days from the date of each invoice that Starpower
sent to Verizon South and continuing through the date of payment.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
1 Supplemental Complaint for Damages, File No. EB-00-MD-19 (filed
June 7, 2002) (``Supplemental Complaint''). On November 28,
2000, Starpower filed its initial complaint. See Complaint, File
No. EB-00-MD-19 (filed Nov. 28, 2000) (``Complaint''). In a
December 8, 2000 Supplemental Submission, Starpower requested
that, in addition to the relief sought in the Complaint, the
Commission enter an award of damages in a subsequent phase of the
proceeding. Supplemental Submission, File No. EB-00-MD-19 (filed
Dec. 8, 2000) (``Supplemental Submission'') at 2. The Commission
treated the Supplemental Submission as a motion to bifurcate the
issue of liability from the issue of damages, and, on January 16,
2001, granted the motion. Letter dated January 19, 2001 from
William H. Davenport, Special Counsel, Market Disputes Resolution
Division, Enforcement Bureau, to Russell M. Blau and Michael L.
Schor, counsel for Starpower, and Lawrence W. Katz and Aaron M.
Panner, counsel for Verizon South, File No. EB-00-MD-19 (rel.
Jan. 19, 2001) at 1. See 47 C.F.R. § 1.722.
2 47 U.S.C. § 252(e)(5); 47 C.F.R. § 1.722.
3 Starpower Communications, LLC v. Verizon South Inc.,
Memorandum Opinion and Order, 17 FCC Rcd 6873 (2002) (``Liability
Order''), rev'd on other grounds sub nom. Starpower
Communications, LLC v. FCC, 334 F.3d 1150 (D.C. Cir. 2003)
(reversing portion of order ruling in Verizon Virginia Inc.'s
favor with respect to two different interconnection agreements
than those at issue here).
4 See ¶ 8, infra, for a description of virtual NXX arrangements.
5 Report and Revised Joint Statement, File No. EB-00-MD-19 (filed
Aug. 14, 2002) (``Damages Phase Joint Statement'') at 2, ¶ 1.
6 Damages Phase Joint Statement at 2, ¶ 1.
7 Joint Statement, File No. EB-00-MD-19 (filed Jan. 12, 2001)
(``Liability Phase Joint Statement'') at 2, ¶ 9. By letter dated
February 17, 1998, Starpower notified Verizon South that
Starpower had elected to obtain interconnection with Verizon
South by adopting, pursuant to section 252(i) of the Act (47
U.S.C. § 252(i)), the interconnection agreement that Verizon
South had entered into with MFS Intelenet of Virginia on
September 5, 1996 (``Verizon South-MFS Intelenet Agreement'').
The Virginia State Corporation Commission (``Virginia SCC'')
approved the Verizon South-MFS Intelenet Agreement on July 9,
1997. Joint Statement, File No. EB-00-MD-19 (filed Jan. 12,
2001) (``Liability Phase Joint Statement'') at 2, ¶ 5. The
Virginia SCC declined to take any action to approve Starpower's
adoption of the Verizon South-MFS Intelenet Agreement, because
the adopted agreement had not been negotiated or arbitrated. Id.
at 2, ¶ 8. Subsequently, by letter dated October 1, 1998,
Starpower and Verizon South ``agree[d] they will honor the
[section] 252(i) adoption by . . . Starpower of the rates terms
and conditions of the [Verizon South-MFS Intelenet Agreement] as
effective and binding upon . . . [Verizon South] and Starpower in
accordance with the 252(i) adoption letter executed by the
parties on . . . March 11, 1998. . . .'' Id. at 2, ¶ 9.
8 Liability Phase Joint Statement at 3, ¶ 10.
9 Liability Phase Joint Statement at 3, ¶ 11.
10 Liability Phase Joint Statement at 3, ¶ 12.
11 Liability Phase Joint Statement at 3, ¶ 13.
12 Liability Phase Joint Statement at 4, ¶ 18.
13 Supplemental Joint Statement, File No. EB-00-MD-19 (filed Oct.
26, 2001) (``Liability Phase Supplemental Joint Statement'') at
2; Damages Phase Joint Statement at 6, ¶ 23.
14 Damages Phase Joint Statement at 4, ¶¶ 9-10.
15 Damages Phase Joint Statement at 4, ¶¶ 10-11.
16 Supplemental Complaint at 6-7, ¶¶ 18-21; Damages Phase Joint
Statement at 4, ¶ 11.
17 Verizon South did not dispute any reciprocal compensation
charges billed by Starpower for non-ISP-bound traffic.
Supplemental Complaint at 7-8, ¶¶ 22-23.
18 Damages Phase Joint Statement at 4, ¶ 12.
19 In 1999, Starpower filed petitions with the Virginia SCC
seeking a declaration requiring Verizon South to pay reciprocal
compensation for Starpower's delivery of ISP-bound traffic under
the terms of the parties' Agreement. The Virginia SCC declined
jurisdiction. Starpower then filed a petition with this
Commission requesting that, pursuant to section 252(e)(5) of the
Act, 47 U.S.C. § 252(e)(5), the Commission preempt the
jurisdiction of the Virginia SCC over the reciprocal compensation
dispute. Liability Order, 17 FCC Rcd at 6880-81, ¶¶ 18-19. The
Commission granted the preemption petition, stating that it would
resolve the question of whether the Agreement requires Verizon
South to pay reciprocal compensation to Starpower for the
delivery of ISP-bound traffic. Id. at 6880-81, ¶¶ 18-20 (citing
Starpower Communications, LLC Petition for Preemption of
Jurisdiction of the Virginia State Corporation Commission
Pursuant to Section 252(e)(5) of the Telecommunications Act of
1996, Memorandum Opinion and Order, 15 FCC Rcd 11277, 11281, ¶ 9
(2000)). Starpower then filed its Complaint. See note 1, supra.
20 Liability Order, 17 FCC Rcd at 6892-93, ¶¶ 44-46, 49.
21 Liability Order, 17 FCC Rcd at 6892-93, ¶¶ 44-46, 49.
22 Liability Order, 17 FCC Rcd at 6892-93, ¶¶ 44-46, 49.
23 Liability Phase Joint Statement at 7-8, ¶ 36. See Liability
Order, 17 FCC Rcd at 6892, ¶ 45.
24 47 C.F.R. §§ 1.721, 1.722.
25 Supplemental Complaint at 8-9. Verizon South filed a Petition
for Review of the Liability Order in the United States Court of
Appeals for the District of Columbia Circuit. The Court of
Appeals subsequently dismissed the Petition, holding that because
the Commission had not yet resolved Starpower's claim for damages
under the Agreement, the Liability Order is not a final agency
action subject to court review. Verizon South Inc. v. FCC, No.
02-1131, Order (D.C. Cir. Sept. 26, 2002).
26 Answer of Verizon South Inc. to Starpower's Supplemental
Complaint for Damages, File No. EB-00-MD-19 (filed June 27, 2002)
(``Supplemental Answer'') at 2-3, 4-6, 12-13, ¶¶ 4-9; Opening
Brief on the Merits of Verizon South Inc., File No. EB-00-MD-19
(filed Oct. 2, 2002) (``Verizon South Opening Brief'') at 2-8;
Response Brief on the Merits of Verizon South Inc., File No. EB-
00-MD-19 (filed Oct. 11, 2002) (``Verizon South Response Brief'')
at 3; Reply Brief on the Merits of Verizon South Inc., File No.
EB-00-MD-19 (filed Oct. 18, 2002) (``Verizon South Reply Brief'')
at 2-3. Because we address Verizon South's virtual NXX defense
on its merits, we do not address the question of whether
Starpower's complaint in the liability phase of this proceeding
provided sufficient notice to Verizon South of Starpower's intent
to collect compensation for virtual NXX calls that Verizon South
should have raised its virtual NXX defense in its answer in the
liability phase. See 47 C.F.R. §§ 1.720(a) (``[a]ll matters
concerning a . . . defense . . . should be pleaded fully and with
specificity''); 1.724(b) (the defendant's answer ``shall advise
the complainant and the Commission fully and completely of the
nature of any defense, and shall respond specifically to all
material allegations of the complaint''); Starpower's Reply to
Verizon South's Answer, File No. EB-00-MD-19 (filed July 2, 2002)
(``Starpower Reply'') at 4-9; Opening Brief of Starpower
Communications, LLC, File No. EB-00-MD-19 (filed Sept. 27, 2002)
(``Starpower Opening Brief'') at 5-22; Reply Brief of Starpower
Communications, LLC, File No. EB-00-MD-19 (filed Oct. 18, 2002)
(``Starpower Reply Brief'') at 6-11 (arguing that Verizon South's
defense should be barred as untimely). Contra Verizon South
Response Brief at 11-18 (arguing that Starpower did not make
clear in its original complaint that it was claiming compensation
for virtual NXX traffic).
27 See 47 C.F.R. §§ 52.7(a), (c)
28 See, e.g., In the Matter of Numbering Resource Optimization,
Second Report and Order, Order on Reconsideration in CC Docket
No. 96-98 and CC Docket No. 99-200, and Second Further Notice of
Proposed Rulemaking in CC Docket No. 99-200, 16 FCC Rcd 306, 384
n.11 (2000). Rate centers are telephone company-designated
geographic locations that are assigned vertical and horizontal
coordinates within an area code. Newton's Telecom Dictionary,
17th Edition, at 570. The local calling area for a LEC is based
on a defined list of rate centers. Calls placed from one rate
center to another rate center not on the local list for the
caller's rate center generally are considered toll calls. Id.;
Starpower Opening Brief, Attachment A (Declaration of Rahul
Dedhiya (``Dedhiya Declaration'')) at 4, ¶ 11; Verizon Opening
Brief, Attachment 1 (Declaration of William Munsell (``Munsell
Declaration'')) at 2, ¶ 5.
29 Developing a Unified Intercarrier Compensation Regime, Notice
of Proposed Rulemaking, 16 FCC Rcd 9610, 9652 n.188 (2001)
(``Intercarrier Compensation Proceeding''); Starpower Opening
Brief, Attachment A (Dedhiya Declaration) at 4-5, ¶¶ 11-12;
Verizon Opening Brief, Attachment 2 (Reply Declaration of William
Munsell (``Munsell Reply Declaration'')) at 2-3, ¶ 5 (stating
that a call may or may not be routed to the rate center
associated with the NPA-NXX of the called number).
30 Damages Phase Joint Statement at 5, ¶ 17.
31 Damages Phase Joint Statement at 5, ¶ 15.
32 Damages Phase Joint Statement at 5, ¶ 16.
33 Damages Phase Joint Statement at 5, ¶ 17.
34 Damages Phase Joint Statement at 5, ¶ 15.
35 Damages Phase Joint Statement at 6, ¶ 24. Verizon South
imposes a separate charge on its Foreign Exchange customers for
the ability to make and receive calls in a foreign exchange
without imposition of per-minute toll charges. Id. at 6, ¶ 25.
36 Damages Phase Joint Statement at 6, ¶ 25.
37 Damages Phase Joint Statement at 6, ¶ 26.
38 Liability Phase Joint Statement at 3, ¶¶ 11, 13; Liability
Order, 17 FCC Rcd at 6892, ¶ 42.
39 Liability Order, 17 FCC Rcd at 6892-93, ¶¶ 44-45, 49.
40 Liability Order, 17 FCC Rcd at 6892, ¶ 45 (citing Liability
Phase Joint Statement at 7-8, ¶ 36).
41 Liability Order, 17 FCC Rcd at 6893, ¶ 46.
42 Liability Order, 17 FCC Rcd at 6893, ¶ 46.
43 Supplemental Answer at 2-3, 4-6, 12-13, ¶¶ 4-9; Verizon South
Opening Brief at 2-8; Verizon South Response Brief at 3; Verizon
South Reply Brief at 2-3. We note that the Agreement requires
compensation for the termination of ``local traffic,'' as defined
in the Tariff, and does not refer to the term ``local service.''
44 Supplemental Answer at 2-3, 4-6, 12-13, ¶¶ 4-9; Verizon South
Opening Brief at 2-8; Verizon South Reply Brief at 2-3.
45 Verizon South Opening Brief at 3 (quoting Attachment 1-B
(Tariff), § 1 at 8 (``Local Service'')).
46 Supplemental Answer at 2-3, 4-6, 12-13, ¶¶ 4-9; Verizon South
Opening Brief at 2-8; Verizon South Reply Brief at 2-3.
47 Supplemental Answer at 2-3, 4-6, 12-13, ¶¶ 4-9; Verizon South
Opening Brief at 2-8; Verizon South Reply Brief at 2-3.
48 Liability Order, 17 FCC Rcd at 6892, ¶ 45.
49 As discussed in paragraph 15, infra, we find Verizon South's
interpretation of its Tariff to be unpersuasive.
50 Liability Order, 17 FCC Rcd at 6892-94, ¶¶ 45-46, 49.
51 See Starpower Opening Brief at 15-18 (arguing that under both
federal law and Virginia law, a stipulation is an admission that
cannot be set aside at the whim of the admitting party)
52 Liability Order, 17 FCC Rcd at 6894, ¶ 49 (``given the . . .
Agreement's reference to the Tariff, whatever calls Verizon South
bills to its customers as local calls under the Tariff must be
compensable local calls under the . . . Agreement'').
53 Damages Phase Joint Statement at 6, ¶ 26; Verizon Opening
Brief, Attachment 1 (Munsell Declaration) at 4-5, ¶ 10. See
Opposing Brief of Starpower Communications, LLC, File No. EB-00-
MD-19 (filed Oct. 11, 2002) (``Starpower Opposing Brief'') at 8;
Restatement (Second) of Contracts § 202(4) (2003) (``Restatement
of Contracts'') (states that, in circumstances similar to those
here, course of performance evidence is given ``great weight'').
54 Verizon South Opening Brief at 5-8.
55 See, e.g., Restatement of Contracts § 202(4).
56 August 2 Letter, Attachment (Tariff), § 1 at 8 (``Local
Calling Area'') (emphasis added).
57 Accordingly, Verizon South is incorrect when it asserts that,
in order to receive local calls under the Tariff, customers must
be physically located within the local calling area. Verizon
South Opening Brief at 6. As discussed above, the definition of
``local calling area'' does not impose such a requirement,
focusing instead on whether customers have ``access'' to local
calls at a local rate.
58 August 2 Letter, Attachment A (Tariff), § 1 at 5 (``Exchange
59 Starpower Opposing Brief at 5-6 & Attachment A (Tariff), §
9.1.3(d) (``Foreign Exchange Service'').
60 Verizon South argues that Foreign Exchange traffic is not
local traffic under the Tariff, because a customer purchases
Foreign Exchange service, and pays a separate charge, in order to
avoid toll charges that otherwise would apply to a call between
customer stations located in different exchange areas. Verizon
South Response Brief at 9-10; Verizon South Reply Brief at 3-4.
This argument misses the point. Verizon South admits that it
rates calls to and from its Foreign Exchange customers as local
or toll based upon the telephone number assigned to the customer,
not the physical location of the customer. Damages Phase Joint
Statement at 6, ¶ 25. Therefore, calls placed between a Foreign
Exchange customer and another customer, both of whom have phone
numbers that correspond to the same local calling area, are
treated as local calls under the Tariff, regardless of the
61 Liability Phase Joint Statement at 5, ¶ 16.
62 Starpower Opposing Brief at 5-6, 17 (citing Attachment A
(Dedhiya Declaration) at 5, ¶ 14 (``At the time a call is
received at a local exchange switch, the only information
available to that switch to determine the treatment of the call
is the originating and terminating telephone numbers. To the
best of my knowledge, all local exchange carriers use the NPA-NXX
codes, and not the physical location of each customer, to
determine whether calls are local or toll for purposes of
routing, rating, and billing their end users''); Verizon Opening
Brief, Attachment 1-A (Engineering and Operations in the Bell
System 63 (2d ed. 1983)) (stating in reference to Foreign
Exchange service that ``calls to other customers in the distant
exchange are then treated as local calls instead of toll calls''
). Indeed, Verizon Virginia Inc. (``Verizon Virginia'')
acknowledged in the Commission's Virginia Arbitration Proceeding
that rating a call based on the NPA-NXX code assigned to the
customers is the established rating system used by all local
exchange carriers, including Verizon Virginia. Petition of
WorldCom, Inc. Pursuant to Section 252(e)(5) of the
Communications Act for Preemption of the Jurisdiction of the
Virginia State Corporation Commission Regarding Interconnection
Disputes with Verizon Virginia Inc., and for Expedited
Arbitration, Memorandum Opinion and Order, 17 FCC Rcd 27039,
27181, ¶ 300 (Wireline Comp. Bur. 2002) (``Virginia Arbitration
Proceeding''), apps. for review and recon. pending. Although
Verizon Virginia, formerly known as Bell Atlantic-Virginia, Inc.,
and Verizon South, formerly known as GTE South Incorporated
(``GTE South''), were separate companies at the time the parties
entered into the Agreement, nothing in the record suggests that
GTE South did not follow standard industry practice in rating
calls based on the NPA-NXX codes of the call's parties.
63 Virginia Arbitration Proceeding, 17 FCC Rcd at 27181, ¶ 300
(noting that virtual NXX traffic cannot be distinguished from
other local traffic at Verizon's end office switches, and parties
to an interconnection agreement would have to conduct a traffic
study or develop a factor to identify the percentage of virtual
NXX traffic for which Verizon would not pay reciprocal
compensation). In choosing between the parties' proposals in the
Virginia Arbitration Proceeding, the Wireline Competition Bureau
adopted contract language one consequence of which was to subject
virtual NXX calls to reciprocal compensation. The Wireline
Competition Bureau did not address the legal question of whether
incumbent local exchange carriers have an affirmative obligation
under the Act to provide reciprocal compensation for virtual NXX
traffic. Nevertheless, as the Commission has emphasized
previously, parties to an interconnection agreement have been and
remain free to negotiate compensation arrangements for virtual
NXX traffic pursuant to sections 251 and 252 of the Act.
Application by Verizon Maryland Inc., et al. to Provide In-
Region, InterLATA Services In Maryland, Washington, D.C., and
West Virginia, Memorandum Opinion and Order, 18 FCC Rcd 5212,
5314 n.603 (2003).
64 Verizon South argues that the parties' inability to accurately
identify virtual NXX traffic from other local traffic is
irrelevant, because Starpower has acknowledged that all of the
traffic at issue was virtual NXX traffic. Verizon South Opening
Brief at 10 n.5; Verizon South Reply Brief at 6. We find this
argument to be unpersuasive, given that the Agreement includes no
procedure for distinguishing between the two types of traffic,
which, again, indicates that the parties did not intend to
characterize traffic according to the physical location of
customers. In addition, Verizon South argues for the first time
in its Reply Brief that Starpower does not maintain that, on a
going-forward basis, it would be difficult to distinguish between
non-local traffic and local traffic based on whether virtual NXX
traffic was involved. Verizon South Reply Brief at 6. However,
if Verizon South currently possessed the technical capability to
distinguish traffic for reciprocal compensation purposes (and it
clearly did not in 2002, see note 63, supra), we believe Verizon
South would have brought this fact to our attention.
65 See Letter to Russell M. Blau and Michael L. Shor, Counsel for
Starpower, and Aaron M. Panner, Counsel for Verizon South, from
Lisa B. Griffin, Deputy Chief, Market Disputes Resolution
Division, FCC Enforcement Bureau, File No. EB-00-MD-19 (dated
Aug. 16, 2002) (directing the parties to file a joint addendum
containing ``all state commission decisions, including Virginia
and Maryland state decisions, relevant to Verizon South's
`virtual' NXX defense,'' and that ``the parties' briefs, in
discussing Verizon's `virtual' NXX defense, shall discuss all
Commission orders and proceedings relevant to the defense. . .
.''); Joint Addendum (and cases contained therein). Neither
party asserts that the Virginia SCC has addressed the virtual NXX
issue. But cf. Letter to Marlene H. Dortch, Secretary, FCC, from
Russell M. Blau, Counsel for Starpower, File No. EB-00-MD-19
(filed May 23, 2003) (``May 23 Letter''), Attachment A
(Application of MFS Intelenet of Pennsylvania, Inc., et al.,
Opinion and Order-Short Form, 1996 Pa. PUC LEXIS 196 (Pa. PUC
July 31, 1996) at 8) (imposing a regulatory requirement, that
does not exist in the present case, on CLECs to comply with the
incumbent LEC's local calling area)).
66 Starpower Opposing Brief at 11-12 (and cases cited therein);
Verizon South Opening Brief at 10-12 (and cases cited therein).
The Commission cases Verizon South cites do not directly address
the virtual NXX issue, and were issued after the parties entered
into the Agreement. See Verizon South Opening Brief at 8;
Verizon South Reply Brief at 5 (both citing Mountain
Communications, Inc. v. Qwest Communications International, Inc.,
Order on Review, 17 FCC Rcd 15135 (2002), affirming Mountain
Communications, Inc. v. Qwest Communications International, Inc.,
Memorandum Opinion and Order, 17 FCC Rcd 2091 (Enf. Bur. 2002)
(addressing a wide area calling arrangement between Qwest and a
wireless carrier)); Verizon South Opening Brief at 9-10 (citing
AT&T Corporation, MCI Telecommunications Corporation v. Bell
Atlantic-Pennsylvania, Memorandum Opinion and Order, 14 FCC Rcd
556, 587, 590, ¶¶ 71-80 (1998), recon. denied, 15 FCC Rcd 7467
(2000) (adjudicating formal complaints concerning the assessment
of carrier common line charges for interstate calls involving
optional calling services, including Foreign Exchange service,
and not addressing intercarrier compensation for virtual NXX
calls under section 251 or 252 of the Act)).
67 Verizon South asserts that, regardless of how it rated and
billed virtual NXX traffic, it never intended to allow Starpower
to collect reciprocal compensation for those calls under the
Agreement, and that Starpower instead should pay Verizon
originating access charges. Verizon South Response Brief at 11;
Verizon South Reply Brief at 7-8. As explained at length above,
however, this bald contention runs directly counter to all the
record's indicia of intent, including the language of the
68 In this complaint proceeding, we need not and do not address
the legal and policy question of whether incumbent LECs have an
affirmative obligation under sections 251(b)(5) and 252(d)(2) of
the Act (47 U.S.C. §§ 251(b)(5), 252(d)(2)) to pay reciprocal
compensation for virtual NXX traffic. This issue has been raised
and ultimately may be resolved in a pending rulemaking
proceeding. See Intercarrier Compensation Proceeding, 16 FCC Rcd
at 9652, ¶ 115. Verizon South argues that, for several reasons,
requiring the payment of reciprocal compensation to Starpower for
virtual NXX traffic is contrary to sound regulatory policy.
Verizon South Opening Brief at 12-15, 17-18; Verizon South Reply
Brief at 6-9. None of these arguments, which Verizon South has
already raised in the Intercarrier Compensation Proceeding, is
relevant to the parties' obligations under the current Agreement,
which is all that is before us here. See, e.g., Intercarrier
Compensation Proceeding, Comments of Verizon (filed Aug. 21,
2001) at 4-11.
69 Damages Phase Joint Statement at 8, ¶ 6; Starpower Opening
Brief at 22-23; Verizon South Response Brief at 29.
70 Starpower Opening Brief at 24-25.
71 Starpower Opening Brief at 24-25; Starpower Reply Brief at 11-
12. Section 6.1-330.53 of the Virginia Code states:
The judgment rate of interest shall be an annual rate
of nine percent, except that a money judgment entered
in an action arising from a contract shall carry
interest at the rate lawfully charged on such contract,
or at nine percent annually, whichever is higher.
Interest at the judgment rate, where no rate is fixed
by contract, shall apply to both prejudgment interest
pursuant to § 8.01-382 and to post-judgment interest.
Va. Code Ann. § 6.1-330.54. The Starpower Opening Brief also
cites section 8.01-382 of the Virginia Code, which provides, in
In any action at law or suit in equity, the verdict of
the jury, or if no jury the judgment or decree of the
court, may provide for interest on any principal sum
awarded, or any part thereof, and fix the period at
which the interest shall commence. The judgment or
decree entered shall provide for such interest until
such principal sum be paid. If a judgment or decree be
rendered which does not provide for interest, the
judgment or decree awarded shall bear interest from its
date of entry, at the rate as provided in § 6.1-330.54,
and judgment or decree entered accordingly; . . . .
Va. Code Ann. § 8.01-382.
72 Verizon South Response Brief at 29 (citing Rainbow Programming
Holdings, Inc. v. Bell Atlantic-New Jersey, Inc., Memorandum
Opinion and Order, 15 FCC Rcd 11754, 11763 n.58 (Enf. Bur.
2000)). The IRS rate is set pursuant to section 6621 of the
Internal Revenue Code. 26 U.S.C. § 6621; see also 26 C.F.R. §§
301.6621-1. Current IRS interest rates are listed at Rev. Rul.
2003-25 I.R.B. 1037 (2003).
73 Verizon South Response Brief at 28-29 (citing Va. Code Ann. §
74 See, e.g., General Communications, Inc. v. Alaska
Communications Systems Holdings, Inc., Memorandum Opinion and
Order, 16 FCC Rcd 2834, 2862, ¶ 73 (2001) (and cases cited
therein), aff'd in substantial part, remanded in part sub. nom.
ACS of Anchorage, Inc. v. FCC, 290 F.3d 403 (D.C. Cir. 2002)
(ordering the Commission to explain why it calculated prejudgment
interest based on the IRS rate for corporate overpayments rather
than the rate for ``large'' corporate overpayments), dismissed,
18 FCC Rcd 6331 (Enf. Bur. 2003).
75 Liability Order, 17 FCC Rcd at 6882-83, ¶ 24.
76 Liability Order, 17 FCC Rcd at 6882 n.73 (citing Complaint,
Exhibit A (Agreement) at 27, ¶ XIX.J (``This Agreement shall be
governed by and construed in accordance with the domestic laws of
the state of Virginia. . . .'')).
77 Verizon South Response Brief at 28-29.
78 Starpower Reply Brief at 11-12.
79 Va. Code Ann. § 6.1-330.54.
80 Verizon South Response Brief at 29.
81 Post-judgment interest is mandatory under both state and
federal law. See, e.g., Dairyland Ins. Co. v. Douthat, 248 Va.
627, 631 (1994); 28 U.S.C. § 1961.
82 Starpower Opening Brief at 24.
83 Supplemental Joint Statement, File No. EB-00-MD-19 (filed July
31, 2003) (``Supplemental Damages Phase Joint Statement'') at 2,
84 Supplemental Damages Phase Joint Statement at 1, ¶ 2.