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Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
Qwest Communications Corporation, )
v. ) File No. EB-07-MD-001
Farmers and Merchants Mutual Telephone )
Memorandum opinion and order
Adopted: October 2, 2007 Released: October 2, 2007
By the Commission:
1. This Memorandum Opinion and Order grants in part a formal complaint
that Qwest Communications Corporation ("Qwest") filed against Farmers
and Merchants Mutual Telephone Company ("Farmers") under section 208
of the Communications Act of 1934, as amended ("Act"). Qwest alleges
that Farmers violated section 201(b) of the Act by earning an
excessive rate of return. According to Qwest, this violation resulted
from Farmers' deliberate plan to increase dramatically the amount of
terminating access traffic delivered to its exchange, via agreements
with conference calling companies. Qwest also alleges that Farmers
violated sections 203(c) and 201(b) of the Act by assessing switched
access charges for services that were not, in fact, switched access.
2. As explained below, we agree with Qwest that Farmers earned an
excessive rate of return during the July 2005 to June 2007 period
("Complaint Period"). However, we reject Qwest's contention that the
Farmers tariff then in effect should be denied "deemed lawful" status.
Accordingly, Qwest may not recover damages from Farmers. In addition,
we deny Qwest's claim that Farmers acted unlawfully by imposing
interstate access charges for the services at issue.
A. The Parties
3. Qwest provides interexchange ("IXC") service, also known as long
distance service, to customers throughout the United States. Farmers
is the incumbent local exchange carrier ("LEC") in Wayland, Iowa
(population 838), serving approximately 800 access lines for local
residents. Farmers provides local exchange and exchange access
services pursuant to tariffs filed with the Iowa Utilities Board and
this Commission. Qwest purchases access service from Farmers, which
enables Qwest's long distance customers to terminate calls to
customers located in Farmers' exchange.
A. Access Charge Regime for Small Carriers
4. The Commission regulates access charges (which are contained in
federal access tariffs) that LECs apply to interstate calls. To reduce
the administrative costs and burdens of filing and maintaining
tariffs, the Commission provides small carriers the options of
utilizing tariffs administered by the National Exchange Carrier
Association ("NECA") or filing their own streamlined "small-carrier"
tariffs. Qualifying carriers are permitted to participate in the
traffic-sensitive cost and revenue pool that NECA administers on
behalf of the vast majority of small telephone companies. NECA files
tariffed access rates that apply whenever an IXC uses any pool
member's NECA-tariffed access services. IXCs making payments pursuant
to the NECA tariff remit them directly to the carriers providing the
access service, which in turn report receipts to NECA. NECA then
computes final settlements due to pool members based upon the members'
settlement status with NECA.
5. NECA pool members may submit company-specific monthly cost data to
NECA to calculate "settlements." NECA pool members that choose not to
file company-specific cost data operate as "average schedule" carriers
and receive settlements determined via formulas proposed annually by
NECA and approved by the Commission. NECA develops the average
schedule formulas to simulate the revenue requirements and authorized
rate of return of a sample of cost companies. During the Complaint
Period, the prescribed rate of return for interstate switched access
rates charged by rate-of-return carriers was 11.25 percent.
6. As an alternative to participating in the NECA pool, the Commission
established an exception for carriers that want to file their own
rates and are non-Bell Operating Companies with 50,000 or fewer access
lines and $40 million or less in annual operating revenues. These
small carriers may establish individual tariff rates based on the
carriers' own historical costs and demand figures. Under this option,
the traffic sensitive rates for average schedule carriers, which do
not report monthly cost figures, are based initially on the carriers'
most recent annual settlement from the NECA pool. In subsequent
tariffs, average schedule carriers' rates are based on the settlements
the carriers would have received had they continued to participate in
the NECA pool. Small carriers filing tariffs under this provision
remain subject to the 11.25 percent rate of return.
A. Farmers' Access Tariffs and the Increase in Traffic
7. During the Complaint Period, Farmers qualified as a "small" carrier.
Prior to July 1, 2005, Farmers participated in the traffic-sensitive
portion of NECA FCC Tariff No. 5 ("NECA Tariff"). Farmers thus
received compensation based on the average schedule formulas approved
by the Commission, and not on the basis of Farmers' actual costs,
actual revenue from end users, or actual rate of return.
8. Effective July 1, 2005, Farmers left the NECA pool and became an
issuing carrier for Kiesling Associates LLP Tariff F.C.C. No. 5
("Kiesling Tariff"), which is governed by Commission rule 61.39(b)(2).
The Kiesling Tariff contained separate switched access rates for
Farmers. Farmers' interstate switched access service rates were filed
on 15 days notice pursuant to section 204(a)(3) of the Act.
9. During the time period relevant to the Complaint, Farmers entered into
a number of commercial arrangements with conference calling companies
as a means to increase its interstate switched access traffic and
revenues. Farmers, in turn, paid the companies money or other
consideration in certain circumstances.
10. The Complaint alleges that Farmers "pursued a premeditated plan to
inflate its access-charge revenues by entering into agreements with
[conference calling companies] resulting in vastly increased usage of
Farmers' network, at or about the same time that Farmers exited the
NECA access pool." Discovery confirmed this assertion. [Redacted
confidential information regarding Farmers' business relationships
with conference calling companies.]
11. As a result of these arrangements with conference calling companies,
the number of minutes delivered to the Farmers exchange increased
dramatically. [Redacted confidential information regarding Farmers'
interstate access minutes of use and bills for various months during
the Complaint Period.] This sharp increase in the number of MOUs was
not attributable to an increase in the number of lines serviced by
Farmers, but rather to the significant amount of traffic delivered to
the conference calling companies.
12. Section 61.39(a) of the Commission's rules would have required Farmers
to revise its tariff in June 2007 if it wanted to continue to file its
own access tariff based on traffic for the two prior years (which
would necessarily result in lower rates). Rather than updating its
individual access tariff rates pursuant to rule 61.39, however,
Farmers elected to operate again as an issuing carrier in the
traffic-sensitive portion of the NECA Tariff, effective June 30, 2007.
A. The Complaint
13. Faced with soaring monthly access charges, Qwest ceased paying
Farmers' invoices in full, and it filed the Complaint with the
Commission on May 2, 2007. In Count I, Qwest alleges that, beginning
July 1, 2005, Farmers earned a rate of return far in excess of the
prescribed maximum, and that Farmers' access rates were therefore
unjust and unreasonable in violation of section 201(b) of the Act.
Qwest further contends that Farmers' tariff rates are not entitled to
"deemed lawful" protection, because Farmers' actions "smack of a
deliberate, bad-faith plan to increase dramatically Farmers' access
revenues and to earn a rate of return vastly in excess of the
Commission's prescription." According to Qwest, Farmers' rates should
be declared void ab initio, and Farmers should be held liable for
retrospective damages in an amount to be proven during a subsequent
proceeding. Alternatively, Qwest contends that the traffic at issue is
not "terminating access" traffic as defined in the tariff, and that
Farmers violated section 203(c) (Count II) and 201(b) (Count III) of
the Act, by applying charges not consistent with its tariff.
A. Farmers' Access Rates During the Complaint Period Are Subject to
Rate of Return Review.
14. Qwest argues that, during the Complaint Period, Farmers' interstate
switched access rates resulted in returns exceeding the maximum
allowable return for the rate category including rates for Line
Termination, Intercept, Local Switching, Transport, and Information,
and/or exceeding the maximum allowable return for interstate access
charges overall. According to Qwest, the vast increase in demand that
Farmers experienced after it left the NECA pool in July 2005 and
established its own tariff was not accompanied by an equivalent
increase in costs. In Qwest's view, this fact establishes that
Farmers' interstate switched access rates exceed the authorized rate
of return "many times over." Qwest further contends that rates
exceeding the authorized rate of return are per se unlawful and
violate section 201(b) of the Act.
15. Farmers maintains that it is not required to calculate its interstate
access rates on the basis of its own costs or to calculate an
individual rate of return, because it is an average schedule company.
According to Farmers, subjecting it to individual rate of return
review is inconsistent with its average schedule status. Farmers
contends that "individual rate of return regulation" applies "to only
`companies electing to use the historical cost approach,'" and that
Farmers is not such a company because it uses the "historical average
schedule settlement approach set forth in Section 61.39(b)(2) [of the
Commission's rules]," rather than the "historical cost approach set
forth in Section 61.39(b)(1) [of the Commission's rules]." Farmers
also contends that, going forward, the Commission's regulatory regime
will cause Farmers' rates to decline in subsequent tariff filings.
Thus, Farmers maintains that it has "fully complied with the
authorized rate of return by calculating its access service rates on
the basis of the average schedule formulas approved by the Commission
to earn the authorized rate of return."
16. Farmers' average schedule status does not immunize it from rate of
return review. As explained above, the Commission in 1987 adopted
rules permitting small carriers to establish their access rates based
on the prior year's costs and demand or their NECA settlements. Those
rules were designed to "reduce federal regulatory burdens on small
telephone companies," while simultaneously eliminating "incentives for
small companies to file access tariffs producing excessive returns."
To further the latter goal, the Commission clarified that small
carriers "remain subject to the [established] rate of return," and
that the Commission retains the right to "enforce its rate of return
prescription by appropriate action, including the imposition of
refunds." Thus, if the use of historical figures proves not to be
"rate neutral," the Commission "may request that carrier to submit the
data specified by the data filing provisions in the Commission's Rules
. . . to monitor that carrier's earnings." This allows the Commission
to "assess the need for corrective action." The Commission's rules
accordingly require small carriers to adhere to the prescribed rate of
return and, upon request, to submit to the Commission information
necessary to monitor the carrier's earnings.
17. Farmers' contention that it is not a company that employs the
"historical cost approach" (and, therefore, is not subject to rate of
return review) is unfounded. The phrase "historical cost approach"
that appears in footnote 27 of the Small Carrier Tariff Order refers
to the Commission's decision to allow small carriers to use historical
cost figures, rather than projections, to calculate rates. The
Commission did not draw a distinction between cost carriers' use of
historical cost figures and average schedule carriers' use of
historical settlement data. Indeed, rule 61.39 discusses both types of
18. Farmers correctly notes that carriers participating in the NECA pool
do not prepare cost studies and are not subject to individual rate of
return scrutiny. That is not the case, however, for carriers that have
left the NECA pool. At that point, a carrier's receipts are not
calculated pursuant to Commission-approved settlement formulas
(although its prior years' settlements are used as a proxy for its
costs), and its rates are subject to company-specific review. For that
reason, Farmers' repeated reliance on a Commission Order approving
NECA-proposed modifications to average schedule formulas is
inapposite, because, during the relevant period, Farmers did not
participate in the NECA pool.
19. The Commission has investigated and invalidated access rates charged
by a carrier pursuant to a section 61.39 tariff. Specifically, in
1998, the Commission invalidated access rate increases proposed by
Beehive Telephone Company, Inc. of Nevada ("Beehive"), a LEC, which
had filed its own tariff under section 61.39 but had failed to
demonstrate increased capital- or business-related costs. The
Commission found that Beehive had earned an excessive rate of return,
prescribed new rates for prospective application based in part on
costs for the services at issue, and ordered Beehive to pay refunds.
In 2002, the Commission in a section 208 complaint proceeding
determined that Beehive's access rates (set under section 61.39) for a
period preceding the rates at issue in the above-described tariff
investigation were unjust and unreasonable. The Commission found that
"Beehive had earned a 15.18 percent rate of return in 1994, a 62.60
percent rate of return in 1996, and a 67.95 percent rate of return in
1996, all well above the prescribed rate of return of 11.25%."
20. In addition, Farmers asserts that section 204(a)(3) of the Act
(enacted in 1996) results in its tariffed access rates being "deemed
lawful" as a matter of law and, therefore, that no claim for
overcharges can be brought against it based on statements in the Small
Carrier Tariff Order (released in 1987). Farmers is incorrect with
respect to prospective relief. "[S]ection 204(a)(3) does not mean that
tariff provisions that are deemed lawful when they take effect may not
be found unlawful subsequently in section 205 or 208 proceedings." In
other words, the Commission retains its ability "to find under section
208 that a rate will be unlawful if charged in the future." And, in
such circumstances, the Commission "may prescribe a new rate to be
effective prospectively." The D.C. Circuit has upheld these principles
in the context of section 208 complaint proceedings. Consequently, the
rate of return review discussed by the Commission in the Small Carrier
Tariff Order is entirely consistent with a prospective review of rates
deemed lawful under section 204(a)(3). Indeed, as noted above, rule
61.39(c), which provides for such review, remains intact.
A. Farmers Earned an Unlawful Rate of Return During the Complaint
21. Qwest argues that Farmers earned revenues greatly in excess of the
Commission-prescribed rate of return. In this litigation, Farmers
chose not to produce its actual cost data or a calculation of its rate
of return as established by Commission rules. Instead, Farmers
provided NECA settlement figures in lieu of actual cost data.
Consequently, to estimate Farmers' rate of return, Qwest argues that
we should compare Farmers' interstate switched access bills during the
Complaint Period (which represent its revenues) and Farmers' revenue
requirements had it remained in the NECA pool (which Qwest argues
serves as a useful surrogate for Farmers' costs plus a reasonable rate
of return.) [Redacted confidential information comparing Farmers'
total interstate switched access bills for the Complaint Period with
Farmers' aggregate traffic-sensitive revenue requirement had it
remained in the NECA pool for the same period.]
22. Farmers disputes the propriety of relying on the NECA average schedule
formula in assessing its rate of return. According to Farmers,
although average schedule carriers participating in the NECA tariff
are compensated and regulated on the basis of NECA's formula, these
companies do not calculate a rate of return and are not required to
perform the cost studies that would be necessary to calculate a rate
of return. As shown above, Farmers did not produce actual cost data
that could be used to calculate a rate of return, but instead provided
NECA settlement figures. In adopting rule 61.39, the Commission
recognized that average schedule formula settlements could be used by
average schedule companies instead of actual costs in setting rates.
As such, although it might not be appropriate to compare Farmers'
earnings with the results of the settlement formula when determining
refund liability, such a comparison is appropriate for the limited
purpose of determining whether Farmers overearned during the Complaint
Period. Thus, we do not use the average schedule formula to establish
a specific rate of return for Farmers.
23. Farmers does not deny that its demand during the Complaint Period far
exceeded its historical demand used to calculate its individual tariff
rates at the time it left the NECA pool. According to Farmers,
however, its revenues predictably rose as a result of increases in
traffic volume. In addition, Farmers maintains that its costs also
increased, to some unspecified extent. Further, Farmers contends that:
(1) Qwest has not properly calculated Farmers' revenue requirement
(because Qwest excluded settlement amounts for common line and SS7
services); (2) Qwest improperly commingled information for two
different monitoring periods (i.e., that any analysis of the 2005-2006
and 2007-2008 monitoring periods would have to take into account any
under-earnings in 2005 and 2008, respectively); and (3) Farmers'
access rates are reasonable "when compared to the rates that the large
price cap carriers charge for conferencing services."
24. We reject Farmers' assertions. First, Qwest presented persuasive
expert testimony demonstrating that Farmers' costs did not rise by
nearly the same proportion as its access revenues. Although Farmers
submitted with its Reply Brief a declaration of its General Manager
attesting that Farmers incurred greater costs as its traffic volume
expanded, the declaration is not sufficiently detailed or probative to
counter the specific testimony and supporting analysis presented by
Qwest's expert. Second, contrary to Farmers' contention, Qwest
properly excluded common line and SS7-related costs from the revenue
requirement, because such costs are recovered via a rate element not
at issue here. In any event, excluding the costs works in Farmers'
favor, because they are excluded from the total revenue figure as
well. Third, Farmers gets little mileage from its contention that
Qwest's calculations ought to include potential under-earnings that
Farmers allegedly experienced while in the NECA pool. Farmers'
earnings during the Complaint Period are subject to company-specific
review. Because section 61.39 carriers are exempt from the monitoring
period requirements of section 65.701 of the Commission's rules, we
find that the two year period that Farmers was out of the NECA
traffic-sensitive pool is a reasonable time frame over which to
measure and evaluate Farmers' earnings. Finally, the rates that Qwest
charges for its conference calling services simply are not relevant to
determinations of whether rates for Farmers' access service - an
entirely different service - are just and reasonable and whether
Farmers exceeded the permissible rate of return.
25. In sum, given Farmers' failure to produce actual data regarding its
costs, we agree with Qwest that it is appropriate to use the results
of applying the NECA average schedule formula for the purpose of
determining whether Farmers overearned. Moreover, we find that Qwest
persuasively has demonstrated that Farmers' revenues increased many
fold during the period at issue, without a concomitant increase in
costs. As a result, the conclusion that Farmers vastly exceeded the
prescribed rate of return is inescapable.
A. Although Farmers Earned an Unlawful Rate of Return During the
Complaint Period, Qwest Is Not Entitled to Damages.
26. Qwest asks the Commission to depart from the prohibition against
awarding retrospective relief in conjunction with "deemed lawful"
tariffs, because Farmers engaged in a "deliberate, bad-faith plan" to
vastly increase its access revenues and earn an unlawfully high rate
of return. Specifically, Qwest maintains that, at the time Farmers
filed new rates to be effective July 1, 2005, Farmers already had
entered into a contract with a conference calling company [Redacted
confidential information regarding the terms of Farmers' contract with
a conference calling company]. Qwest argues that Farmers nonetheless
based its new rates on much lower historical volume figures. Qwest
contends that section 204(a)(3)'s "deemed lawful" provision does not
apply in such circumstances, and it seeks a declaration that Farmers'
tariffed rates are "void ab initio," thereby entitling Qwest to a
27. We decline to rule as Qwest requests. As an initial matter, Qwest
contends that factual statements Farmers made to the Commission in
support of its tariff filing were "incorrect" and/or "misleading," in
violation of Commission rule 1.17(a)(1) and (2), because Farmers
failed to disclose its purported plan to increase interstate access
volumes. Under the Commission's rules, Farmers was required to report
its historical cost and demand figures, which the Commission
determined are "likely to be a close and unbiased substitute for
prospective data." In fact, the Commission specifically declined to
include a requirement that carriers provide any projected demand data
or combine such future projections with historical data. In this case,
Farmers reported its historical data accurately. Farmers was not
required to opine on whether its historical volume figures were an
accurate proxy for future volume figures. As it turns out, the
historical data was not a good substitute for prospective data, and
Farmers overearned. Under the existing rules, however, Farmers'
statements are not unlawful. Nor do we consider Farmers' failure to
disclose its future plans to be a "case of a carrier that furtively
employs improper accounting techniques in a tariff filing, thereby
concealing potential rate of return violations." Although Qwest
characterizes Farmers' actions as "underhanded," and we agree that
Farmers manipulated the Commission's rules to achieve a result
unintended by the rules, Qwest does not identify any "improper
accounting techniques" employed by Farmers. Finally, Qwest has not
alleged that revenue-sharing arrangements between Farmers and the
conference calling companies violate section 201(b) per se.
Consequently, the prior Commission decision relied on by Qwest
(finding that certain conduct by an IXC toward a competitive access
provider ("CAP") was permissible when the CAP was established as a
sham entity) is not dispositive.
A. We Deny Farmers' Request for a Ruling Regarding Qwest's Alleged
28. Farmers asserts that Qwest has only made partial payments for the
terminating access services Farmers provided. According to Farmers,
"[e]ach time that Qwest has withheld payment of Farmers's tariffed
charges, it has violated Farmers's tariff and engaged in unlawful
self-help." Farmers asks the Commission to find that "Qwest's
self-help is unlawful and a continuing violation of Sections 201(b)
and 203(c) of the Act and Farmers's federal tariff."
29. We decline to rule as Farmers requests. To begin, Farmers' request is
tantamount to a "cross-complaint," which the Commission's formal
complaint rules expressly prohibit. Moreover, any complaint instituted
by Farmers to recover fees allegedly owed by Qwest would constitute a
"collection action," which the Commission repeatedly has declined to
A. Farmers Did Not Violate Sections 203 or 201(b) of the Act by Imposing
Terminating Access Charges on Traffic Bound for Conference Calling
30. Qwest alleges that Farmers violated sections 203 and 201(b) of the Act
by imposing terminating access charges on traffic that Farmers does
not, in fact, terminate. Qwest argues that traffic delivered to the
conference calling companies does not terminate in Farmers' exchange,
but merely passes through it to terminate elsewhere. We find, however,
that Farmers does terminate the traffic at issue, and therefore we
deny Counts II and III of the Complaint.
31. Qwest correctly notes that only a carrier whose facilities are used to
originate or terminate a call may impose access charges. The
Commission has generally used an "end-to-end" analysis in determining
where a call terminates. As Qwest points out, the Commission has
focused on the end points of the communications, "and consistently has
rejected attempts to divide communications at any intermediate points
of switching or exchanges between carriers."
32. Qwest argues that calls to the conference calling companies are
ultimately connected to - and terminate with - users in disparate
locations. According to Qwest, when a caller dials one of the
conference calling companies' telephone numbers, the communication
that he or she initiates is not with the conference calling company,
but with other people who have also dialed in to the conference
calling company's number. Qwest argues that such calls terminate at
the locations of those other callers, and that Farmers is providing a
transiting service, not termination. Farmers' view of the calls,
however, is that users of the conference calling services make calls
that terminate at the conference bridge, and are connected together at
that point. We find Farmers' characterization of the conference
calling services to be more persuasive than Qwest's.
33. Qwest's view of how to treat a conference call leads to anomalous
results. For instance, suppose parties A, B, C, and D dial in to a
conference bridge. According to Qwest, A has made three calls, one
terminating with B, one with C, and one with D. But in fact, B, C, and
D have actually initiated calls of their own in order to communicate
with A. What Qwest calls the termination points are actually call
initiation points. Moreover, under Qwest's theory, the exchange
carriers serving B, C, and D would all be entitled to charge
terminating access. In fact, each of those carriers would be entitled
to charge terminating access three times - B's carrier could charge
for terminating calls from A, C, and D, and so forth. This conference
call with four participants would incur terminating access charges
twelve times. Qwest has not addressed this logical consequence of its
theory, nor has it offered any evidence that conference calls are
treated as terminating with the individual callers for any purpose
beyond the circumstances of this case.
34. Qwest tries to analogize this case to calling card platform cases in
which the Commission applied an end-to-end analysis and found that
calls dialed in to a calling card platform and then routed on to
another party terminated with the ultimate called party, not at the
platform. In other words, the Commission found that there was one call
(from A to B via the calling card platform), not two (A to the
platform plus platform to B). This argument is circular, however. It
assumes that the calls at issue are routed on to another party, when
the very issue to be decided here is whether that is the case. The
calling card cases merely address the issue of whether the call
terminates at the platform if, in fact, it is routed on to another
party beyond the platform.
35. In addition to its argument about where the calls at issue terminate,
Qwest also argues that Farmers' tariff does not allow Farmers to
assess terminating access charges on calls to the conference calling
companies. Farmers' tariff provides that terminating access service
allows the customer "to terminate calls from a customer designated
premises to an end user's premises." Qwest asserts that the conference
calling companies are not end users, and that therefore delivering
calls to them does not constitute terminating access service. The
record indicates, however, that the conference calling companies are
end users as defined in the tariff, and we therefore find that
Farmers' access charges have been imposed in accordance with its
36. Farmers' tariff defines "end user" as "any customer of an interstate
or foreign telecommunications service that is not a carrier," and in
turn defines "customer" as any entity "which subscribes to the
services offered under this tariff." Qwest asserts that the conference
calling companies do not subscribe to services offered under Farmers'
tariff, and are therefore neither customers nor end users. Thus, Qwest
concludes, delivery of traffic to the conference calling companies
cannot constitute terminating access under the tariff.
37. Farmers asserts that the conference calling companies are customers
because they purchase interstate End User Access Service and pay the
federal subscriber line charge. Qwest, however, argues that the
conference calling companies nevertheless do not "subscribe" to
Farmers' services "under any meaningful definition of that term."
Qwest asserts that "subscription" requires the payment of money, but
that the conference calling companies effectively pay nothing for
Farmers' service because all of their payments are refunded to them in
another form - the marketing fees.
38. We find that Farmers' payment of marketing fees to the conference
calling companies does not affect their status as customers, and thus
end users, for purposes of Farmers' tariff. Qwest offers scant support
for its assertion that one cannot subscribe to a service without
making a net payment to the service provider. For this pivotal
proposition, Qwest cites nothing in the tariff itself, but only
Black's Law Dictionary's definition of "subscription" as a "written
contract by which one engages to . . . contribute a sum of money for a
designated purpose . . . in consideration of an equivalent to be
rendered, as a subscription to a periodical, a forthcoming book, a
series of entertainments, or the like." Another dictionary, however,
defines "subscribe" as merely "to enter one's name for a publication
or service," and we note that offers of "free subscriptions" are quite
common. We reject Qwest's premise that the conference calling
companies can be end users under the tariff only if they made net
payments to Farmers. The question of whether the conference calling
companies paid Farmers more than Farmers paid them is thus irrelevant
to their status as end users. The record shows that the conference
calling companies did subscribe, i.e., enter their names for, Farmers'
tariffed services. Thus, the conference calling companies are both
customers and end users, and Farmers' tariff therefore allows Farmers
to charge terminating access charges for calls terminated to the
conference calling companies.
39. Qwest has failed to prove that the conference calling company-bound
calls do not terminate in Farmers' exchange, and has failed to prove
that Farmers' imposition of terminating access charges is inconsistent
with its tariff. We therefore deny Counts II and III of the Complaint.
IV. ordering clauses
40. Accordingly, IT IS ORDERED, pursuant to sections 4(i), 4(j), and 201,
203, 206, 207, 208, and 209 of the Communications Act of 1934, as
amended, 47 U.S.C. S:S: 154(i), 154(j), 201, 203, 206, 207, 208, and
209, that Count I of the Complaint IS GRANTED IN PART and IS OTHERWISE
DENIED, as discussed above.
41. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j), and 201, 203,
206, 207, 208, and 209 of the Communications Act of 1934, as amended,
47 U.S.C. S:S: 154(i), 154(j), 201, 203, 206, 207, 208, and 209, that
Counts II and III of the Complaint ARE DENIED.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Formal Complaint of Qwest Communications Corp., File No. EB-07-MD-001
(filed May 2, 2007) ("Complaint").
47 U.S.C. S: 208.
47 U.S.C. S: 201(b).
47 U.S.C. S:S: 203(c), 201(b). 47 U.S.C. S: 203(c) prohibits carriers from
imposing any charge not specified in their tariffs ("no carrier shall . .
. charge, demand, collect, or receive a greater or less or different
compensation . . . than the charges specified in the schedule then in
effect"). 47 U.S.C. S: 201(b) requires that "all charges, practices,
classifications, and regulations for and in connection with . . .
communication service shall be just and reasonable, and any such charge,
practice, classification or regulation that is unjust or unreasonable is
hereby declared to be unlawful."
Complaint at 4, P: 4; Joint Statement, File No. EB-07-MD-001 (filed June
6, 2007) ("Joint Statement") at 1, P: 2.
Joint Statement at 1-2, P: 4.
Joint Statement at 2, P: 5.
Joint Statement at 1-2, P: 4.
47 C.F.R. S:S: 69.1-69.2.
Complaint at 6, P: 8; Answer of Farmers & Merchants Mutual Telephone
Company, File No. EB-07-MD-001 (filed May 29, 2007) ("Answer") at 12, P:
See 47 C.F.R. S:S: 69.601-69.612.
Complaint at 6-7, P: 9; Answer at 12, P: 9; see 47 C.F.R. S: 69.3(d).
Complaint at 6-7, P: 9; Answer at 12, P: 9; see 47 C.F.R. S:S: 69.604,
See 47 C.F.R. S:S: 69.605, 69.606.
47 C.F.R. S: 69.605(a).
Complaint at 6-7, P: 9; Answer at 12, P: 9. See 47 C.F.R. S: 69.606; In
the Matter of National Exchange Carrier Association, Inc. 2006
Modification of Average Schedules, Order, 21 FCC Rcd 6220 (Wireline Comp.
Joint Statement at 2, P: 7; 47 C.F.R. S: 69.606(a).
Represcribing the Authorized Rate of Return for Interstate Services of
Local Exchange Carriers, Order, 5 FCC Rcd 7507, 7507, P: 1, 7532, P: 216,
7533, P: 231 (1990), recon. granted on other grounds, 6 FCC Rcd 7193
(1991), aff'd sub nom. Illinois Bell Telephone Co. v. FCC, 988 F.2d 1254
(D.C. Cir. 1993); AT&T Corp. and AT&T of the Virgin Islands, Inc. v.
Virgin Islands Telephone Corp., Memorandum Opinion and Order, 19 FCC Rcd
15978, 15979, P: 3 (2004), rev'd on other grounds, Virgin Islands
Telephone Corp. v. FCC, 444 F.3d 666 (D.C. Cir. 2006).
47 C.F.R. S: 61.39; Regulation of Small Telephone Companies, Report and
Order, 2 FCC Rcd 3811, 3812, P: 11 (1987) ("Small Carrier Tariff Order").
See Complaint at 8, P: 11; Answer at 3, P: 11. During the Complaint
Period, carriers were required to file access tariffs at least once every
two years, although they were permitted to file new tariffs more often.
See generally 47 C.F.R. S: 61.39.
See 47 C.F.R. S:S: 61.39(a), 69.602(a)(3). A carrier may also establish
individual tariff rates based on the carrier's projected costs and demand
under section 61.38 of the Commission's rules. 47 C.F.R. S: 61.38(b).
47 C.F.R. S: 61.39(b)(2)(i).
47 C.F.R. S: 61.39(b)(2)(ii).
Small Carrier Tariff Order, 2 FCC Rcd at 3813, P: 18.
Complaint at 10-11, P: 16; Answer at 15, P: 16. In addition, as the
independent incumbent LEC in its serving area, Farmers was a "dominant"
carrier and therefore required to file tariffs. See 47 C.F.R. S: 61.31.
The Commission has forborne from tariffing requirements for non-dominant
carriers. See In the Matter of Policy and Rules Concerning the Interstate,
Interexchange Marketplace Detariffing Order, Second Report and Order, 11
FCC Rcd 20730 (1996).
Joint Statement at 2, P: 6.
Joint Statement at 2, P: 6.
47 C.F.R. S: 61.39(b)(2). See Joint Statement at 3, P: 8. Complaint,
Exhibit B, Declaration of Lisa Hensley Eckert at 8, P: 18 (referencing
Complaint Exhibit 9, Kiesling Tariff).
Complaint at 11, P: 18; Answer at 15, P: 18. See Joint Statement at 3, P:
47 U.S.C. S: 204(a)(3); Joint Statement at 4, P: 10.
Joint Statement at 4, P: 13.
Joint Statement at 4, P: 13.
Complaint at 18, P: 33 (emphasis added).
Joint Statement at 4, P: 13.
Joint Statement at 4, P: 12.
47 C.F.R. S:S: 61.39(a), 61.39(b)(2)(ii); see also Small Carrier Tariff
Order, 2 FCC Rcd at 3812, P: 12.
Joint Statement at 5, P: 15. Although Farmers' individual access tariff no
longer is in effect, a ruling addressing whether Farmers earned an
unlawfully high rate of return through its efforts to enhance access
charge revenue will provide important guidance to the telecommunications
industry. See Bell Atlantic-Delaware, Inc. v. Global NAPs, Inc., Order on
Reconsideration, 15 FCC Rcd 5997, 6000, P: 8 (2000) (the Commission's
"adjudication of cases generates precedents and clarifies the law,
providing benefits to the public at large"), petition for review denied,
Global NAPs, Inc. v. FCC, 347 F.3d 252 (D.C. Cir. 2001). See also MCI
Telecommunications Corp. v. Southern Bell Telephone and Telegraph,
Memorandum Opinion and Order, 4 FCC Rcd 8135, 8136, P: 7 (1989) (holding
that revision of a contested tariff did not render moot a formal complaint
challenging the reasonableness of the tariff).
See Joint Statement at 9, P: 35; Initial Brief of Farmers and Merchants
Mutual Telephone Company, File No. EB-07-MD-001 ("Farmers' Opening Brief")
at 13 & Exhibit J, Declaration of Rex McGuire ("McGuire Opening Brief
Declaration") at 3, P: 7; Qwest Communication Corporation's Reply Brief,
File No. EB-07-MD-001 (filed July 24, 2007) ("Qwest's Reply Brief") at 4-5
Complaint at 20-22, P:P: 37-41.
Complaint at 18, P: 33.
Complaint at 22, P: 41. Qwest initially argued that the Commission should
order Farmers to continue to offer its own tariff relying on "company
specific rates reflecting recent volume figures in its new tariff, rather
than reentering the NECA pool." Reply at 4. See Complaint at 27, P: 60
(asking the Commission to "direct Farmers to immediately amend its
access tariffs to reflect its current demand and costs"). Qwest
subsequently withdrew that request. Qwest's Reply Brief at 4 n.21.
Complaint at 22-26, P:P: 42-55.
Complaint at 1-2, 6, P: 7 & n.3, 15, P: 26, 20-21, P:P: 38-39; Complaint,
Exhibit A (Legal Analysis in Support of Qwest Communications Corp.'s
Complaint ["Qwest's Legal Analysis"]) at ii, 3-6, 11-17; Reply of Qwest
Communications Corp., File No. EB-07-MD-001 (filed June 1, 2007) ("Reply")
at 2; Qwest's Opening Brief at 9.
Complaint at 2, 14-15, P:P: 24-26, 21, P: 38; Qwest's Legal Analysis at
ii, 3, 12-13; Reply at 2; Qwest's Opening Brief at 7.
Complaint at 21, P: 38; Qwest's Legal Analysis at 14.
Complaint at 2, 20, P: 38; Qwest's Legal Analysis at 5, 7; Reply at 9;
Qwest's Opening Brief at 9. See Global Crossing Telecommunications, Inc.
v. Metrophones Telecommunications, Inc., 127 S. Ct. 1513, 1519-20 (2007);
Virgin Islands Telephone v. FCC, 444 F.3d 666, 669-70 (D.C. Cir. 2006);
MCI Telecommunications Corp. v. FCC, 59 F.3d 1407, 1414 (D.C. Cir. 2005).
Answer at iii, 2-3, 12, P: 7, 23, P: 39, 30, P: 60, 32. See also Answer,
Exhibit E (Legal Analysis of Farmers and Merchants Mutual Telephone
Company ["Farmers' Legal Analysis"]) at 7-8; Farmers' Opening Brief at 5;
Farmers' Reply Brief at 7.
Answer at 3, 12, P: 7, 22, P: 38; Farmers' Legal Analysis at 8; Farmers'
Opening Brief at 5.
Farmers' Opening Brief at 5 (quoting Small Carrier Tariff Order, 2 FCC Rcd
at 3813 n.27).
Answer at 18, P: 26.
Answer at 3, 12, P: 7, 23, P: 39; Farmers' Legal Analysis at 9. See Answer
at 16, P: 20, 18, P: 26, 22, P: 38. Farmers also disputes Qwest's
purported contention that Farmers "should have calculated its access rates
based on demand projections." Answer at 4, 24-25, P: 41, 32; Farmers'
Legal Analysis at 8; Farmers' Opening Brief at 7. In its Reply Brief,
however, Qwest clarified its position that Farmers had three choices in
the face of its plan to increase traffic volumes: "(1) remain in the NECA
pool, (2) rely on projections pursuant to section 61.38, or (3) seek
Commission guidance on how best to account in its filing for its knowledge
that volumes were about to skyrocket." Qwest's Reply Brief at 3.
Small Carrier Tariff Order, 2 FCC Rcd at 3811-12, P:P: 1, 7.
Small Carrier Tariff Order, 2 FCC Rcd at 3813, P: 18. In 1987, the
Commission could order a carrier that over-earned to pay refunds. Since
the passage of section 204(a)(3) of the Act, the Commission cannot award
refunds in connection with tariffs that are "deemed lawful." See
discussion at paragraph 20, below. However, that does not preclude the
Commission from awarding prospective relief in a complaint proceeding. Id.
See Small Carrier Tariff Order, 2 FCC Rcd at 3813, P: 13 n.23 (noting that
rates under a section 61.39 tariff "would, of course, be subject to
challenge in a Section 208 complaint proceeding").
Small Carrier Tariff Order, 2 FCC Rcd at 3813, P: 18.
Small Carrier Tariff Order, 2 FCC Rcd at 3813, P: 18.
47 C.F.R. S: 61.39(c) ("The Commission may require any carrier to submit .
. . information if it deems it necessary to monitor the carrier's
earnings. However, rates must be calculated based on the local exchange
carrier's prescribed rate of return applicable to the period during which
the rates are effective."). See also 47 C.F.R. S: 61.38(a) (stating that
the Commission may require any carrier that has submitted a tariff filing
under rule 61.39 "to submit such information as may be necessary for a
review of a tariff filing").
See Small Carrier Tariff Order, 2 FCC Rcd at 3812, P: 13 ("We conclude in
this Order that permitting small carriers to file access tariffs using
historical cost and demand data to set rates appropriately reduces the
regulatory burdens faced by these companies.") (emphasis added); id. at
3815, P: 33 ("We have determined in this Order that the reduction of the
administrative and regulatory burdens on small telephone companies is
warranted . . . The rules adopted herein reduce the frequency of required
filings and provide small companies the option of choosing to file
interstate access tariffs based on historical cost and demand data, or to
participate in NECA's pooling arrangements.") (emphasis added).
See July 1, 2004 Annual Access Charge Tariff Filings, Memorandum Opinion
and Order, 19 FCC Rcd 23877, 23878, P: 2 n.4 (2004) ("The pool revenues of
average schedule companies are determined on the basis of a series of
formulas . . . For qualifying small companies, the average schedule option
avoids the expense of preparing cost studies.").
See Answer at 3, 12, P: 7, 22, P: 38; Farmers' Legal Analysis at 8 (citing
National Exchange Carrier Ass'n, Inc. Proposed Modifications to the
Interstate Average Schedules, Memorandum Opinion and Order, 8 FCC Rcd
4861, 4863, P: 17 (1993) (rejecting MCI's assertion regarding the
possibility of overearnings by individual average schedule companies
participating in the NECA pool and noting that requiring individual
companies to produce a cost study "would be inconsistent with the purpose
of having interstate average schedule formulas")). Farmers' reliance on
the Commission's decision in the Joint Cost Reconsideration Order
similarly is inapposite. Farmers' Legal Analysis at 7-8. See Separation of
Costs of Regulated Telephone Service from Costs of Nonregulated Activities
Amendment of Part 31, the Uniform System of Accounts for Class A and Class
B Telephone Companies to Provide for Nonregulated Activities and to
Provide for Transactions between Telephone Companies and Their Affiliates,
Order on Reconsideration, 2 FCC Rcd 6283 (1987) ("Joint Cost
Reconsideration Order"). There, the Commission declined to require average
schedule carriers to separate their nonregulated costs from their
regulated costs because it "would be a meaningless exercise, . . .
would create an unnecessary regulatory burden[, and] . . . would have
no resulting impact on interstate rates." Joint Cost Reconsideration
Order, 2 FCC Rcd at 6300, P: 155. In that rulemaking proceeding, the
Commission was not addressing the scenario contemplated by rule 61.39(c) -
promulgated that same year - where a particular carrier's earnings are at
Joint Statement at 3, P: 8.
Beehive Telephone Company, Inc., Tariff F.C.C. No. 1, Memorandum Opinion
and Order, 13 FCC Rcd 2736 (1998) ("Beehive I"), modified on recon., 13
FCC Rcd 11795 (1998), aff'd, Beehive Telephone Co., Inc. v. FCC, 180 F.3d
Beehive I, 13 FCC Rcd at 2742-46, P:P: 17-26.
AT&T Corporation v. Beehive Telephone Company, Inc., Memorandum Opinion
and Order, 17 FCC Rcd 11641 (2002) ("Beehive II").
Beehive II, 17 FCC Rcd at 11650-51, P: 19.
Answer at iii, v, 5-6, 14, P: 14, 18, P: 26, 22, P: 38, 23, P: 39, 24, P:
41, 30, P: 60, 31; Farmers' Legal Analysis at 8-9. See also Farmers'
Opening Brief at 3-4 (arguing that, because Farmers filed its tariff rates
pursuant to section 204(a)(3) of the Act, they "are, as a matter of law,
`just and reasonable' within the meaning of 47 U.S.C. S: 201(b)" and that
"[e]ven a very high rate of return does not state a cognizable cause of
action under Section 201(b) if the rates are just and reasonable").
Farmers disputes the relevance of the Beehive decisions, discussed above,
on this basis, because the tariffs at issue in those cases were not filed
under section 204(a)(3). Reply Brief of Farmers and Merchants Mutual
Telephone Company, File No. EB-07-MD-001 (filed July 24, 2007) ("Farmers'
Reply Brief") at 5.
See discussion at paragraph 27, below, regarding retrospective relief.
Implementation of Section 402(b)(1)(A) of the Telecommunications Act of
1996, 12 FCC Rcd 2170, 2183, P: 21 (1997) ("Streamlined Tariff Order").
Streamlined Tariff Order, 12 FCC Rcd at 2183, P: 21 (emphasis added). Id.
at 2182, P: 19 ("[W]e do not find, however, that the Commission is
precluded from finding, under section 208, that a rate will be unlawful if
a carrier continues to charge it during a future period or from
prescribing a reasonable rate as to the future under section 205.").
Implementation of Section 402(b)(1)(A) of the Telecommunications Act of
1996, Order on Reconsideration, 17 FCC Rcd 17040, 17043, P: 6 (2002)
("2002 Deemed Lawful Order").
See Virgin Islands Telephone Corp. v. FCC, 444 F.3d 666, 669 (D.C. Cir.
2006) (holding that, under the "deemed lawful" regime, "[r]emedies against
carriers charging lawful rates later found unreasonable must be
prospective only"); id. at 671 n.4 ("The Commission may still impose its
own remedy for overearnings during 1998; this remedy, if any, must be
prospective rather than retrospective."); ACS of Anchorage, Inc. v. FCC,
290 F.3d 406, 411 (D.C. Cir. 2002) ("ACS of Anchorage") (holding that,
even with respect to a rate deemed lawful under section 204(a)(3),
prospective remedies are available if "later examination shows" the rate
"to be unreasonable"). See also 2002 Deemed Lawful Order, 17 FCC Rcd at
17042, P: 6 ("The [ACS of Anchorage] court's holding was limited to the
question of refund liability for rates that were `deemed lawful'; it in
fact acknowledged that the Commission might order prospective relief `if a
later reexamination shows them to be unreasonable.'").
Qwest's Opening Brief at 11-12.
As noted above, under rule 61.39(c), a carrier may be required to submit
information the Commission deems necessary to monitor the carrier's
earnings. 47 C.F.R. S: 61.39(c). Farmers objected to providing actual cost
data in response to Qwest's discovery requests. See Farmers & Merchants
Mutual Telephone Company's Objections to Complainant's Interrogatories and
Document Requests, File No. EB-07-MD-001 (filed May 14, 2007) at 7-9.
Consequently, Farmers was given the option of responding to Qwest's
discovery requests targeted at Farmers' costs by providing: (1) the amount
that Farmers' NECA settlement would have been had Farmers participated in
the NECA traffic-sensitive switched access pool for the month at issue; or
(2) its actual cost and demand figures for the month at issue as a
surrogate for its expenses. See Letter from Lisa B. Griffin, Deputy
Division Chief, EB, MDRD, FCC, to David H. Solomon, Counsel for Qwest, and
James U. Troup, Counsel for Farmers, File No. EB-07-MD-001 (dated June 14,
2007). Farmers chose option 1. See Farmers' Discovery Response at 3-4,
Qwest's Opening Brief at 14.
Farmers' Reply Brief at 7-9.
See National Exchange Carrier Association, Inc. (NECA) Proposed
Modifications to the 1997 Interstate Average Schedule Formulas and
Proposed Further Modifications to the 1997-98 Interstate Average Schedule
Formulas, Order on Reconsideration and Order, 13 FCC Rcd 10116, 10118, P:
4 (Com. Car. Bur. 1997) ("`Cost companies' settle with NECA on the basis
of their actual interstate costs of service. `Average schedule companies'
use formulas to estimate the average costs of service and settle with NECA
on the basis of those estimated costs. The average schedule formulas are
designed to simulate the disbursements that would be received by cost
companies that are representative of average schedule companies."). See
also 47 C.F.R. S: 69.606 ("Payments [to average schedule companies] shall
be made in accordance with a formula approved or modified by the
Commission. Such formula shall be designed to produce disbursements to an
average schedule company that simulate the disbursements that would be
received pursuant to S: 69.607 by a [cost] company that is representative
of average schedule companies.").
Farmers' Reply Brief at 7-8.
See paragraph 21 supra.
See Small Carrier Tariff Order, 2 FCC Rcd at 3814, P: 25 (directing cost
companies to base rates on a cost study but permitting average schedule
companies to rely on previous years' NECA settlements as a surrogate for
We also note that the average schedule formulas never contemplated the
extraordinary increases in demand brought about by arrangements such as
those Farmers entered into with conference calling companies. See In the
Matter of Investigation of Certain 2007 Annual Access Tariffs, Order
Designating Issues for Investigation, 2007 WL 3416323 at 6, P: 9, 11, P:P:
24-25 (Wireline Comp. Bur. 2007) ("2007 Access Tariff Designation Order").
When a carrier such as Farmers experiences significant increases in its
MOUs, the NECA average schedule formula likely overstates such carrier's
revenue requirement and therefore understates its rate of return. Cf. In
the Matter of Establishing Just and Reasonable Rates for Local Exchange
Carriers, Notice of Proposed Rulemaking, FCC 07-176 at 12, P: 25 (rel.
Oct. 2, 2007) ("Access Stimulation NPRM") ("We tentatively conclude that
the average schedule formulas can only yield reasonable estimates of an
average schedule carrier's costs when the demand is within the range used
to develop the formulas. When an average schedule carrier experiences a
significant growth in demand that takes it outside the observed range of
demand used to establish the average schedule formulas, the process of
running the increased demand data through the formulas produces what
appear to be extreme increases in costs for the carrier. This increase
appears to be inconsistent with the efficiencies carriers would be
expected to realize as access demand increases.")
Farmers' Discovery Response, Exhibit A. When Farmers left the NECA pool,
its individual tariff rates were calculated based upon its historical
demand as calculated by the NECA settlement formula. Joint Statement at 3,
Farmers' Reply Brief at 8. Farmers argues, for instance, that it made
"substantial investments in additional facilities," and incurred the cost
of marketing fees. Farmers' Reply Brief, Exhibit A, Declaration of Rex
McGuire ("McGuire Reply Brief Declaration") at 2, P: 4.
Farmers' Reply Brief at 8 n.25.
Farmers' Reply Brief at 8-9.
Farmers' Opening Brief at 6-7.
See Complaint, Exhibit C, Declaration of Peter Copeland ("Copeland
Declaration"). Mr. Copeland's testimony shows that the tremendous
expansion in Farmers' traffic was not accompanied by a similar increase in
access lines. Copeland Declaration at 4, P: 7. According to Mr. Copeland,
under the NECA settlement formulas, when a carrier such as Farmers
experiences a substantial increase in access traffic volumes, but that
increase is not accompanied by a similar rise in access line counts, its
costs rise at a much slower pace than its receipts. Copeland Declaration
at 13, P: 24.
Compare Copeland Declaration with McGuire Reply Brief Declaration.
47 C.F.R. S: 61.39(c).
Complaint at 18, P: 33. See also Complaint at 2, 18-20, P:P: 33-36;
Qwest's Legal Analysis at ii, 4, 17-21; Qwest's Opening Brief at 16
("Farmers achieved these grossly excessive revenues through implementation
of a pre-planned, intentional scheme to abuse a perceived loophole in the
Qwest's Opening Brief at 16.
Complaint at 2, 22, P: 41, 27, P: 60; Qwest's Legal Analysis at ii, 4,
17-21; Qwest's Opening Brief at 16-18; Qwest's Reply Brief at 2-3.
47 C.F.R. S: 1.17(a)(1), (2).
Qwest's Opening Brief at 17.
Small Carrier Tariff Order, 2 FCC Rcd at 3812, P: 12 n.22. See Farmers'
Reply Brief at 7 ("Section 61.39(b) of the Commission's rules does not
require supporting data to be filed with the tariff, and Section
61.39(b)(2) prohibits the use of projected demand in lieu of historical
demand. Farmers therefore believed that the Commission would not have been
interested in the contracts that Farmers had with conferencing
See Small Carrier Tariff Order, 2 FCC Rcd at 3813, P:P: 15-16.
We similarly see no grounds to rely on general equitable principles such
as "unclean hands" to award Qwest damages. See Qwest's Legal Analysis at
21 ("A decision to declare Farmers's access rates void ab initio would
also be consistent with other legal principles designed to prevent
wrongdoers from relying on deception to retain ill-gotten gains.");
Qwest's Opening Brief at 18 n.66 (same).
Complaint at 22, P: 41 (citing ACS of Anchorage, 290 F.3d at 413); Qwest's
Legal Analysis at 20 (same); Qwest's Opening Brief at 17-18 (same).
Qwest's Opening Brief at 18.
Although we do not grant the retrospective relief Qwest requests in his
complaint proceeding, the Commission in the future will examine closely
conduct that manipulates the historical volume and pricing rules and may
well find that such conduct violates section 201(b) of the Act. Indeed, we
currently are considering the lawfulness of such arrangements in other
proceedings. Access Stimulation NPRM. In addition, we are considering
whether payments made to the provider of a stimulating activity under such
agreements may be included in a carrier's revenue requirement for purposes
of setting rates. 2007 Access Tariff Designation Order at 7, P:P: 13-14.
Qwest's Legal Analysis at 20 (citing Total Telecommunications Serv., Inc.
v. AT&T Corp., Memorandum Opinion and Order, 16 FCC Rcd 5726 (2001)
("Total v. AT&T")). We express no view on whether a different record could
have demonstrated that the deemed lawful provision does not apply or that
the conduct at issue ran afoul of any other statutory provisions.
Joint Statement at 9, P: 35; McGuire Opening Brief Declaration at 3, P: 7.
Farmers' Opening Brief at 13. See also Answer at 10; Farmers' Legal
Analysis at 1, 11-12.
Farmers' Opening Brief at 2, 14.
47 C.F.R. S: 1.725 ("Cross-complaints seeking any relief within the
jurisdiction of the Commission against any carrier that is a party
(complainant or defendant) to that proceeding are expressly prohibited.
Any claim that might otherwise meet the requirements of a cross-complaint
may be filed as a separate complaint in accordance with S:S: 1.720 through
1.736. For purposes of this subpart, the term `cross-complaint' shall
See U.S. Telepacific Corp. v. Tel-America of Salt Lake City, Inc.,
Memorandum Opinion and Order, 19 FCC Rcd 24552, 24555-56, P: 8 (2004)
(citing "long-standing Commission precedent" holding that the Commission
does not act as a collection agent for carriers with respect to unpaid
tariffed charges, and that such claims should be filed in the appropriate
state or federal courts).
See Complaint at 22-26, Counts II and III.
See Complaint at 22-23 (arguing that imposition of terminating access
charges violates sections 201(b) and 203 of the Act); Qwest's Legal
Analysis at 21-30 (same); Reply at 14-19 (same). See also Qwest's Opening
Brief at 23-24; Qwest's Reply Brief at 6-7.
Qwest's Legal Analysis at 21 (noting that section 3(16) of the Act defines
exchange access as "the offering of access to telephone exchange services
or facilities for the purpose of origination or termination of telephone
toll services") (emphasis added).
Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) ("Bell
Atlantic v. FCC").
Bell Atlantic v. FCC, 206 F.3d at 4.
Complaint at 23; Qwest's Legal Analysis at 24; Reply at 14-15; Qwest's
Opening Brief at 23-24; Qwest's Reply Brief at 6-7. Qwest initially
asserted that calls bound for the conference calling companies do not
terminate at Farmers' exchange because at least some of the traffic
"appears to be" transported to equipment owned by the conference calling
companies and located outside the exchange. Qwest's Legal Analysis at 24;
Reply at 14. Farmers, however, stated that the traffic at issue is all
routed to conference bridges located in Farmers' exchange. McGuire Opening
Brief Declaration at 3. In its Opening Brief, Qwest indicated that it was
no longer relying on this point. Qwest's Opening Brief at 23 n.90.
Qwest's Legal Analysis at 22; Qwest's Opening Brief at 23-24; Qwest's
Reply Brief at 6-7.
Answer at 26. Farmers' Opening Brief at 9-10.
The parties argue about whether Qwest would assess terminating access
charges in this situation, but the record does not answer the question.
According to Farmers, Qwest has admitted that it also bills terminating
access for calls to a conference bridge. Farmers' Opening Brief at 2
(citing Response of Qwest Communications Corporation to Interrogatories,
File No. EB-07-MD-001 (filed July 10, 2007)). Qwest, however, indicates
that conference call providers generally use a different service
configuration, relying on special access and 800 service, and states that
Qwest has no knowledge of any end user providing a conference bridge
service in the same manner as the conference calling companies that
entered agreements with Farmers. Qwest Response to Interrogatory No. 1.
Qwest does state that in the rare case that a conference call provider did
interconnect in the same manner as the conference calling companies in
this case, Qwest would assess terminating access charges. In its Reply
Brief, however, Qwest says that it would do so only to the extent that it
had no reason to know that its customer was a conference calling company.
Qwest's Reply Brief at 7. Qwest gives no indication of what it would do if
it knew that the customer was a conference calling company. Because the
parties have not identified any specific instance in which Qwest actually
did charge - or chose not to charge - terminating access for calls to a
conference bridge, we find the record inconclusive on this point. In any
event, what Qwest would hypothetically charge under similar circumstances
is not dispositive here.
Newton's Telecom Dictionary's definition of a "conference bridge" also
seems consistent with Farmers' view, speaking of the callers being
connected by the bridge, rather than describing the bridge as routing the
calls on from one caller to another. Newton's describes a conference
bridge as "[a] telecommunications facility or service which permits
callers from several diverse locations to be connected together for a
conference call." H. Newton, Newton's Telecom Dictionary, at 260 (2006).
Qwest's Legal Analysis at 25-26 (citing AT&T Corp. Petition for
Declaratory Ruling Regarding Enhanced Prepaid Calling Card Services, Order
and Notice of Proposed Rulemaking, 20 FCC Rcd 4826 (2005), and Regulation
of Prepaid Calling Card Services, Declaratory Ruling and Report and Order,
21 FCC Rcd 7290 (2006)).
We also find inapposite a number of cases cited by Farmers to suggest that
the Commission has already found that it is lawful to impose access
charges for the type of service at issue here. See Farmers' Legal Analysis
at 10 (citing AT&T Corp. v. Jefferson Telephone Co., Memorandum Opinion
and Order, 16 FCC Rcd 16130 (2001); AT&T v. Frontier Communications of
Mt. Pulaski, Inc., Memorandum Opinion and Order, 17 FCC Rcd 4041 (2001);
Beehive II, 17 FCC Rcd at 11641). In those cases, the issue of whether
access charges were appropriate was never addressed. The parties and the
Commission simply assumed that the LECs involved were providing access
service, and the dispute was about the lawfulness of their rates.
Farmers' tariff incorporates the NECA tariff's terms with respect to
switched access services. See Complaint, Exhibit 9 (Kiesling Tariff) at S:
6. The quoted language appears in the NECA Tariff. See Complaint, Exhibit
8 (NECA Tariff) at S: 6.1.
Complaint Exhibit 8 (NECA Tariff) at S: 2.6.
Complaint at vii, 27.
Qwest's Legal Analysis at 27.
Qwest cites only to the Black's Law Dictionary definition of
"subscription" for this proposition. Qwest's Legal Analysis at 27.
We express no view on whether the conduct at issue ran afoul of any other
statutory provisions not raised by Qwest.
Qwest complains that Farmers has not offered authority to support the
alternative view, Qwest's Reply Brief at 5, but Qwest bears the burden of
Qwest's Legal Analysis at 27.
Webster's New Collegiate Dictionary, G. & C. Merriam Co., 1981, p. 1152.
We also note that Qwest has failed to prove that the conference calling
companies do not pay Farmers for service because the marketing fees cancel
out the tariff payments. Qwest cites a District Court decision concerning
the filed rate doctrine to argue that the Commission must consider related
transactions in analyzing the amount paid for tariffed services. Qwest
Corp. v. Public Service Comm'n of Utah, 2006 WL 842891 (D. Utah Mar. 28,
2006) (in determining whether AT&T was paying Qwest the full tariffed rate
for a private line, court considered payments from Qwest to AT&T for
Qwest's occasional use of the line). As the judge in that case recognized,
however, another district court reached the opposite result on the same
issue. See Qwest Corp. v. Minnesota Public Service Comm'n, 2005 WL 1431652
(D. Minn. Mar. 31, 2005) (once AT&T leased the private line, the
transaction was complete, and the tariff was no longer relevant to what
price was paid for the tariffed service). Qwest offers no argument as to
why we should find the Utah decision more persuasive than the Minnesota
See Answer at vii.
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