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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
AT&T CORP., )
)
)
Complainant, ) File No. E-97-28
)
v. )
)
U S WEST COMMUNICATIONS, INC., )
)
)
Defendant. )
)
In the Matter of )
)
MCI TELECOMMUNICATIONS )
CORPORATION, )
) File No. E-97-40A
)
Complainant, )
)
v. )
)
U S WEST COMMUNICATIONS, INC., )
Defendant.
MEMORANDUM OPINION AND ORDER
Adopted: February 14, 2001 Released: February 16, 2001
By the Chief, Enforcement Bureau:
I. INTRODUCTION
1. In this Memorandum Opinion and Order, we grant in part
two formal complaints, one filed by MCI Telecommunications
Corporation (``MCI'')1 and one by AT&T Corp. (``AT&T''), against
U S WEST Communications, Inc. (``U S WEST'')2 concerning U S
WEST's 1-800-4USWEST service (the ``Service'').3 The Service
provides a calling platform that permits U S WEST's local
subscribers to place local and long distance calls originating
inside and outside the U S WEST service area. Section 271 of the
Communications Act of 1934, as amended (``Act''), prohibits any
Bell Operating Company (``BOC'') -- including U S WEST -- from
providing long distance (``interLATA'') service originating in
the region where it provides local service, unless and until the
Commission determines that various conditions relating to
competition in local telephone service are satisfied.4 U S WEST
has not received Commission approval to provide long distance
service in any state in its service region, and therefore is
subject to the general section 271 prohibition.
2. The Commission recently addressed the legality of a
similar calling platform service offered by another BOC, the
Ameritech Operating Companies (``Ameritech''). In the 1-800-
AMERITECH Order, the Commission determined that Ameritech's
service violated section 271 of the Act.5 The Commission relied
upon its earlier Qwest Teaming Order to reach this conclusion.6
3. The evidence in this case demonstrates that U S WEST's
Service is, in all material respects, the same as Ameritech's
unlawful service. Specifically, like Ameritech, U S WEST: (1)
designed and developed a combined service offering for its local
service customers that includes a long distance component; (2)
relied on its brand name in marketing the combined offering; (3)
used bill inserts and other mailings to promote the combined
offering to its local calling subscriber base; (4) maintained
control and ownership of the customer relationship in connection
with the combined service offering; (5) exercised exclusive
control over the marketing of the Service; (6) selected the long
distance provider that would carry in-region, interLATA calls and
dictated certain of the terms and conditions of the Service; and
(7) reserved the right to substitute its own services in place of
the long distance provider's service as U S WEST obtained
authority under section 271 to provide long distance service in
various states. Accordingly, we conclude, based on the totality
of circumstances, that U S WEST's 1-800-4USWEST Service violates
section 271. Because we find that U S WEST's Service violates
section 271, we do not reach the remaining claims raised by AT&T
and MCI regarding other alleged violations of the Act.7
II. BACKGROUND
4. In April 1997, U S WEST began offering its 1-800-
4USWEST Service, which permits its subscribers to place local,
long distance, and international calls from anywhere in the
country by accessing a dialing platform through the Service's
toll-free number.8 U S WEST promoted the Service as a way for
its customers to make calling card calls from payphones without
paying excessive fees.9 Thus, the promotional materials mailed
to U S WEST's local-service customers asserted that, by dialing
1-800-4USWEST, customers could ``bypass unknown pay phone
companies that can charge . . . exorbitant rates'' and instead
obtain a single ``great low rate'' for calling card calls,
including domestic long distance calls.10 Similarly, U S WEST's
advertisements for the Service stated that, by using the Service,
callers could ensure that they would avoid having their calls
blocked from completion.11
5. A year earlier, U S WEST sent a Request for Proposal
(``RFP'') to long distance carriers, seeking in-region, interLATA
transport to support its new 1-800-4USWEST Service.12 Among
other things, the RFP required the long distance carrier to allow
its calls to be listed on the bill that U S WEST sent to its
customers for U S WEST-provided services, and provided that
portions of the long distance provider's contract with U S WEST
would be terminable on a state-by-state basis on 60 days' notice,
as U S WEST became eligible in each state to offer in-region
interLATA service under section 271.13 From the responses that U
S WEST received, it chose Frontier Communications Services, Inc.
(``Frontier'')14 to carry the in-region, interLATA calls.15 The
RFP specifically contemplated that U S WEST could contract with
other long distance providers, and could utilize its own or its
affiliate's resources to provide similar services.16
6. U S WEST's name and trademark have been far more
prominently featured in advertisements promoting the Service than
Frontier's. The toll-free number for the Service conspicuously
links U S WEST's name to the Service. Similarly, the promotional
materials that U S WEST mailed to its local-service subscribers
highlight U S WEST's name and logo.17 Only in smaller type do
the materials identify the carriers that actually transmit the
calls, and, in many cases, the materials are not specific as to
which carrier handles which calls.18 Subsequently, U S WEST
changed the promotional materials to state, usually in small
print, that Frontier provides in-region, long distance
services.19
7. When a customer accesses the platform by dialing 1-800-
4USWEST, he or she hears a greeting referencing the U S WEST
name, and then receives a prompt to enter the called number, the
calling card number, and a personal identification number. Once
the calling card number is verified, a customer placing a local,
intraLATA toll, or out-of-region interLATA call hears ``[t]hank
you for using U S WEST.''20 A customer placing an in-region,
interLATA call hears a thank-you message that mentions Frontier
by name.21
8. The Service is promoted through, among other means,
bill inserts and other mailings sent to U S WEST's local customer
base.22 U S WEST serves as the initial sales and customer care
contact for the 1-800-4USWEST Service, and exercises exclusive
control over the marketing and promotion of the Service.23 U S
WEST's agreement with Frontier provides that U S WEST ``owns and
creates all marketing communications (card creation, creation
design, collateral, fulfillment, messages, etc.) as well as the
caller relationship.''24 The Service is billed through the
customer's U S WEST monthly service bill.25
III. DISCUSSION
I.A. U S WEST's Service Violates Section 271.
9. Complainants' primary contention is that the 1-800-
4USWEST Service violates section 271 of the Act, because it
amounts to the provision of in-region, interLATA service before U
S WEST has received approval from the Commission to offer such
service. Section 271(a) states that ``[n]either a Bell operating
company nor any affiliate of a Bell operating company, may
provide interLATA services except as provided in this
section.''26 The statute permits a BOC to provide interLATA
service originating within its local service area on a state-by-
state basis only upon application to and approval from the
Commission pursuant to section 271(d).27 Section 271 thus ``both
gives the BOCs an opportunity to enter the long distance market
and conditions that opportunity on the BOCs' own actions in
opening up their local markets.''28 Congress intended section
271 to create a strong incentive for the BOCs to comply with new
obligations in sections 251 and 252 of the Telecommunications Act
of 1996,29 which, in turn, were designed to facilitate
competition in local markets (including interconnection,
unbundling, and resale). The statute creates this ``powerful
incentive'' by conditioning BOC entry into the in-region, long-
distance market on compliance with a checklist of local market-
opening criteria and other requirements.30
10. U S WEST has not received approval from the Commission
to provide long distance service in any state in its region.31
It is therefore subject to section 271(a)'s general prohibition
against offering such services. Complainants' section 271 claim
presents the generic issue, previously addressed by the
Commission in the Qwest Teaming Order (affirmed by the Court of
Appeals) and the 1-800-AMERITECH Order, of whether a challenged
offering for which a BOC does not actually transmit in-region,
interLATA traffic may nevertheless amount to the ``provision'' of
interLATA service. In the Qwest Teaming Order and the 1-800-
AMERITECH Order - as in this case - the relevant BOCs were
offering a combined service that included their own local and
intraLATA toll service bundled with in-region, interLATA
transport provided by an unaffiliated long distance carrier.
11. The Qwest Teaming Order sets forth the issue that the
Commission considers in deciding whether an offering violates
section 271: ``whether a BOC's involvement in the long distance
market enables it to obtain competitive advantages, thereby
reducing its incentive to cooperate in opening its local market
to competition.''32 Thus, the ``provision'' of interLATA
services, within the meaning of section 271(a), ``must encompass
activities that, if otherwise permitted, would undermine
Congress's method of promoting both local and long distance
competition by prohibiting BOCs from full participation pursuant
to section 271's competitive checklist.''33 In order to
determine whether a BOC's long distance-related activities run
afoul of this standard, the Commission balances the following
non-exclusive factors: ``whether the BOC obtains material
benefits (other than access charges) uniquely associated with the
ability to include a long-distance component in [the challenged
offering], whether the BOC is effectively holding itself out as a
provider of long distance service, and whether the BOC is
performing activities and functions that are typically performed
by those who are legally or contractually responsible for
providing interLATA service to the public.''34 In evaluating the
challenged BOC actions, the Commission considers ``the totality
of [the BOC's] involvement, rather than focus[ing] on any one
particular activity.''35
12. The Commission applied this fact-based test in the 1-
800-AMERITECH Order and concluded that Ameritech's service
violated section 271. The U S WEST Service at issue in this case
is substantially the same as Ameritech's unlawful service.
Accordingly, as described below, application of the Qwest Teaming
Order's fact-based test and the Commission's 1-800-AMERITECH
Order similarly leads us to conclude that the U S WEST Service
violates section 271.36
III.A.1. U S WEST Obtains Material Benefits Uniquely
Associated With Its Ability to Include a Long-
Distance Component in the Service.
13. One of the principal factors that led the Commission to
find section 271 violations in the Qwest Teaming Order and the 1-
800-AMERITECH Order was that the challenged offerings would have
afforded the defendants a ``significant jumpstart when they do
obtain 271 authorization.''37 Thus, by developing an extensive
customer base for the challenged services, the defendant carriers
could ``pre-position'' those customers for a seamless transition
to the long distance services of the carriers' section 272
affiliates, once the carriers received section 271 authority to
begin providing in-region, interLATA service.
14. As with the arrangements in the Qwest Teaming Order and
the 1-800-AMERITECH Order, we find that the 1-800-4USWEST Service
permits U S WEST to obtain material benefits uniquely associated
with the ability to include a long distance component in the
Service. Specifically, the Service allows U S WEST, prior to
gaining section 271 approval, to build up goodwill as a full
service provider with its local-service customers, who can place
their long distance calling-card calls through the Service.38
Upon receiving section 271 authority, U S WEST would be well
positioned to substitute the interLATA service of its section 272
affiliate for that of Frontier, thereby capturing a ready base of
customers.
15. The opportunity to amass goodwill as a full service
provider appears to be a significant reason why U S WEST
developed the Service in the first place. In announcing the
launch of the Service, U S WEST's Chief Executive Officer stated
that ``[i]ntroduction of this card represents another step toward
offering our customers one-stop shopping with complete,
integrated solutions to meet all their communications needs.''39
U S WEST explained that its new calling card responded to
customers' requests that U S WEST give them a way to make long
distance calls while away from the home or office. The ``one-
stop shopping'' advantage touted by U S WEST was repeated and
emphasized in several reports describing the new offering.40
16. Our concern in this regard is heightened by the
structure of U S WEST's agreement with Frontier to provide in-
region, interLATA transmission for the Service. The Frontier
agreement, much like the agreement in the 1-800-AMERITECH Order,
provides that U S WEST may terminate the contract or any
orders for service made pursuant to the contract ``for its
convenience'' at any time after the contract has been in effect
by giving Frontier 30 days' notice.41 This affords U S WEST the
right not only to contract with other long distance providers,
but to utilize its affiliates' resources to provide similar
services.42 Thus, U S WEST preserved the right to replace
Frontier's services with the services of U S WEST's section 272
affiliate once the Commission grants U S WEST section 271
authorization.43 In doing so, U S WEST positioned itself well
``to substitute the long distance service offered by [its]
section 272 affiliate, when [it] obtain[s] section 271 approval,
into the [1-800-4USWEST] package in the future.''44
17. In the Qwest Teaming Order and the 1-800-AMERITECH
Order, we found that the challenged offerings allowed the
defendant carriers to ``enhance [their] goodwill in the
marketplace'' and to ``add value'' when dealing with their
customers in a way that further cemented their relationships with
their end users before their markets were open to meaningful
competition.45 Here, it is apparent that U S WEST sought to
enhance its goodwill by controlling the customer relationship.
Specifically, the RFP provided that U S WEST ``owns and creates
all marketing communications (card creation, creation design,
collateral, fulfillment, messages, etc.) as well as the customer
relationship.''46 This requirement was ultimately incorporated
into U S WEST's contract with Frontier.47 Thus, U S WEST
controls the information sent to its customers concerning its
Service, as well as all other aspects of the relationship with
its customers.48 This provides U S WEST with a significant
competitive advantage in building goodwill with the 1-800-4USWEST
customers. We believe that once U S WEST receives Commission
authorization to offer in-region, long distance service, the 1-
800-4USWEST customers who receive local service from U S WEST
will be more inclined to select U S WEST as their presubscribed
long distance carrier as well.
18. Another troubling factor is the manner in which U S
WEST promotes the Service to its local subscriber base. In
addition to advertising through various media, U S WEST avails
itself of a communication channel that is uniquely available to
it as the monopoly provider of local service within its region -
bill inserts and other mailings that draw on its subscriber
list.49 Thus, U S WEST can advertise the Service to virtually
every subscriber on its network, and it can do so using a
customer database that is either unavailable, or available only
at a significant additional charge, to its competitors in the
local service market. Moreover, by using bill inserts, U S WEST
can effectively promote the Service at a fraction of what a
stand-alone mailing would cost one of its competitors, even
assuming the competitor had access to U S WEST's subscriber
mailing list. Use of a subscriber list, and the unique benefits
it provides, is one of the factors the Commission found
problematic in the 1-800-AMERITECH Order.50
19. In sum, U S WEST's participation in the long distance
market through its 1-800-4USWEST Service enables it to obtain
significant competitive advantages that are similar to what the
Qwest Teaming Order found to be objectionable and almost
identical to what the 1-800-AMERITECH Order found to be
objectionable. The Service allows U S WEST to build goodwill
with its local-service customers, depicting itself as a full-
service provider prior to receiving section 271 approval.
Indeed, the full-service, or one-stop shopping, advantages
provided by the Service appear to have been U S WEST's primary
objective in implementing the Service in the first place.51 As
the Commission held in the 1-800-AMERITECH Order, these
competitive advantages could reduce U S WEST's incentive to open
its local market to competition and, thus, run counter to
Congress's intent in enacting section 271.52
III.A.2. U S WEST Is Effectively Holding Itself Out As
a Provider of Long-Distance Service.
20. We also must inquire whether U S WEST is effectively
holding itself out to customers as a provider of long distance
services. In the Qwest Teaming Order, the Commission found that,
through the challenged services, the defendant carriers were
holding themselves out in such a manner, because they had ``taken
several specific steps to brand [the challenged offerings] as
their exclusive combined service offerings.''53 In affirming the
Commission, the Court of Appeals agreed that, viewed as a whole,
the challenged promotional materials could lead consumers to
believe that the BOCs were providing in-region long distance
service.54
21. Similarly, in the 1-800-AMERITECH Order, we noted that
the use of the vanity 800 number55 was plainly calculated to
cause customers to associate Ameritech with the services offered
through the 1-800-AMERITECH platform.56 Thus, the 800 number
allowed Ameritech to link the service's long distance offering
(as well as its other offerings) with the carrier's accumulated
customer good will and its established reputation as a local
service provider.57
22. In this case, U S WEST virtually concedes that its
promotional and marketing materials may have caused in the minds
of its customers the type of confusion that the Commission and
Court of Appeals have found to be problematic.58 Specifically, U
S WEST acknowledges that some of its promotional materials
``might have created some confusion in some customers,'' and that
``from a regulatory perspective, some of the materials might be
deemed to have `gone over the line.'''59
23. Indeed, an examination of U S WEST's promotional
materials confirms that U S WEST is holding itself out as a
provider of long distance service. The materials prominently
display the U S WEST brand, creating the impression that U S WEST
provides all components of the Service, including long
distance.60 Other statements in the materials similarly foster
this impression. For example, one advertisement features the U S
WEST logo in large type and, in describing the Service, strongly
suggests that U S WEST is the long distance service provider.61
Several other promotional materials attest to the card's ability
to make all types of calls, including long distance.62 The
promotional materials U S WEST used to introduce and market its
Service are strikingly similar to those found to be troublesome
and misleading in the 1-800-AMERITECH Order.63
24. U S WEST argues that its 1-800-4USWEST customers always
have a choice in selecting their long distance service provider,
because they can dial 0+ to access another service provider.64
Because this 0+ capability is disclosed on the back of its
calling card and on certain promotional materials, U S WEST
contends that it cannot obtain any benefit from holding itself
out as the provider of long distance services.65 However, even
while disclosing in certain materials the availability of the 0+
option, U S WEST actively discourages its customers from using
that option. Almost uniformly, U S WEST describes the 0+ option
as one that customers should never consider using in comparison
to dialing 1-800-4USWEST.66 U S WEST's repeated warnings that
dialing 0+ ``doesn't work'' and that U S WEST cannot ``protect''
customers if they dial 0+ severely undercut U S WEST's reliance
on its advertisements' references to 0+ capability. Moreover,
the references to 0+ capability actually support our conclusion
that U S WEST is unlawfully holding itself out as a long distance
service provider. By comparing the long distance services
provided by its 1-800-4USWEST Service to those furnished by other
long distance carriers through the 0+ option, U S WEST implicitly
suggests to its customers that it is a less expensive provider of
long distance services.67
25. U S WEST also contends that the shortcomings in its
initial promotional materials for the Service were remedied by
the promotional materials it has used since November 1997, which
specify that Frontier handles in-region, interLATA calls.68
However, this is no different from the situation the Commission
confronted in the 1-800-AMERITECH Order. Although later
promotional materials in that case identified the supporting long
distance provider who handled in-region, interLATA calls, they
usually did so in small type.69 In this case, there also is a
proportional dissimilarity in type size between the U S WEST
brand name and the Frontier brand name.70 Moreover, the
disclosures are generally relegated to an obscure portion of the
promotional materials.
26. U S WEST further asserts that in-region interLATA calls
are branded and billed as Frontier calls, which purportedly
confirms the distinction between U S WEST and Frontier and
eliminates any possible customer confusion.71 We disagree.
Viewing the Service as a whole and the manner in which U S WEST
promotes it, we conclude that U S WEST holds itself out as a long
distance provider.72 The vanity access number all but ensures
that the offering, and all of its components, generally will be
perceived as a U S WEST-provided service. Furthermore, given the
prominence of U S WEST's brand name on the promotional materials,
the fact that U S WEST does not furnish the in-region, interLATA
transmission for the Service likely will be lost on all but a few
sophisticated consumers.73 This is the case regardless of
whether a customer's monthly U S WEST statement identifies long
distance calls as being carried by Frontier.74
III.A.3. U S WEST Performs Activities Typically
Undertaken by Resellers.
27. In determining whether U S WEST performs activities in
connection with its Service that are typically performed by those
who resell interLATA service, we look to the degree of control U
S WEST exercises over marketing and the customer relationship.75
Although the facts of this case are slightly different than in
the 1-800-AMERITECH Order, the degree of control U S WEST
exercises over the customer relationship appears to be just as
significant.76 U S WEST made it clear in the RFP and the
resulting agreement with Frontier that U S WEST would exercise
exclusive control over messages provided to customers and the
overall customer relationship.77 While Frontier apparently is
not prohibited from responding to certain customer service
inquiries, it does so subject to U S WEST's direction, as U S
WEST is contractually authorized to dictate how Frontier responds
to customer inquiries and what messages Frontier provides to
customers.
28. Similarly, U S WEST exercises exclusive control over
the marketing of the 1-800-4USWEST Service. As described above,
the agreement between U S WEST and Frontier provides that U S
WEST ``owns and creates all marketing communications.''78
Further, the agreement states that ``Frontier does not have any
approval rights about any of the promotional, advertising or
fulfillment packages,'' and that U S WEST, ``as a courtesy,
supplies Frontier with a copy of such materials.''79 Thus, U S
WEST controls the right to market and sell, under the 1-800-
4USWEST name, not only its own local and intraLATA toll services,
but Frontier's long distance services as well.80
29. U S WEST's exercise of exclusive control over customer
relations and marketing demonstrates that U S WEST was
significantly involved in the design and development of the long
distance component of its 1-800-4USWEST Service. The fact that U
S WEST could insist on such requirements, select a long distance
provider who would accept the requirements without modification,
and reject those who would not, is a testament to U S WEST's
control over the design of the Service.81 For these reasons, we
conclude that U S WEST is engaged in activities typically
performed by resellers.82
III.A.4. Conclusion
30. Based on the totality of the circumstances, we conclude
that, through the 1-800-4USWEST service, U S WEST is "providing"
in-region, interLATA service in violation of section 271. First,
the Service affords U S WEST material benefits uniquely
associated with the inclusion of long distance service in the
offering. Specifically, it permits U S WEST to accumulate a
significant base of customers who rely on the Service, and it
enables U S WEST to amass goodwill as a full-service provider
with its local service customers. Second, through the Service
and the many associated promotional materials that prominently
bear U S WEST's brand, the carrier essentially holds itself out
as providing long distance service. Finally, in connection with
the Service, U S WEST controls numerous functions, including
marketing and customer care, that are typically performed by a
reseller of long distance service. All of these factors lead us
to conclude that U S WEST is ``providing'' in-region, interLATA
service in violation of section 271.
I.B. We Reject U S WEST's Arguments Regarding Remedies.
31. U S WEST devotes much of its supplemental briefing to
remedy-related arguments, contending, first, that the
Commission's alleged delay in ruling on liability renders any
damages award inappropriate. According to U S WEST, until a
ruling in this case, the state of the law regarding the legality
of its Service was unclear.83 We disagree, but note that we need
not decide damages at this time. We will address damages when,
and if, complainants file supplemental complaints for damages.
32. Second, U S WEST attempts to expand the scope of this
proceeding by arguing that proposed marketing and promotional
changes to its Service convert the Service into a lawful
offering.84 We decline U S WEST's invitation to issue a
declaratory ruling regarding its prospective conduct. Our task
in this section 208 complaint proceeding is to adjudicate the
lawfulness of prior or current conduct and not to opine on the
lawfulness of hypothetical or future conduct. However, U S WEST
is free to file a Petition for Declaratory Ruling requesting an
opinion as to the lawfulness of proposed changes to its Service.
I.C. We Need Not and Do Not Reach Complainants' Other
Claims.
33. In addition to their section 271 claims, complainants
argue that: (1) the 1-800-4USWEST service amounts to an
unreasonable practice, in violation of section 201(b); (2) U S
WEST excluded complainants in a discriminatory manner from
providing transport services to support the Service, in violation
of section 202(a); (3) the structure of the Service contravenes
U S WEST's equal access obligations, in violation of section
251(g); and (4) by holding out itself as a provider of in-region,
interLATA services prior to receiving authorization under section
271, U S WEST has circumvented separate affiliate safeguards, in
violation of section 272. Because we find that U S WEST violated
section 271, we need not and do not reach complainants' claims
alleging other violations of the Communications Act.85
IV. CONCLUSION
34. We find that U S WEST, through its 1-800-4USWEST
Service, is providing in-region, interLATA services without
authorization, in violation of section 271 of the Act. We do not
reach other statutory claims raised by complainants.
V. ORDERING CLAUSES
35. Accordingly, IT IS ORDERED, pursuant to sections 1,
4(i), 4(j), 208, and 271 of Act, as amended, 47 U.S.C. §§ 151,
154(i), 154(j), 208, and 271, that the Formal Complaints filed by
MCI Telecommunications Corporation and AT&T Corporation ARE
GRANTED to the extent that they allege that the 1-800-4USWEST
Service violates section 271 of the Act.
FEDERAL COMMUNICATIONS COMMISSION
David H. Solomon
Chief, Enforcement Bureau
_________________________
1 Effective September 14, 1998, MCI Telecommunications Corp.
merged with WorldCom, Inc. to form MCI WorldCom, Inc. This
Order uses ``MCI'' to refer to the complainant in File No. E-97-
40A.
2 On June 30, 2000, U S WEST merged with Qwest Corporation
(``Qwest''), and Qwest is now the legal successor to U S WEST.
This Order refers to the defendant company in the two
proceedings as ``U S WEST.''
3 Pursuant to section 1.735(a) of the Commission's formal
complaint rules (47 C.F.R. § 1.735(a)), we have consolidated
AT&T's and MCI's actions against U S WEST, because the U S WEST
Service challenged in both actions is identical.
4 47 U.S.C. § 271(a) (``Neither a Bell operating company, nor
any affiliate of a Bell operating company, may provide interLATA
services except as provided in this section.''). InterLATA
service ``means telecommunications between a point located in a
local access transport area [LATA] and a point located outside
such area.'' 47 U.S.C. § 153(21). LATAs are contiguous
geographic areas established by a BOC such that no exchange area
includes points within more than one metropolitan statistical
area or state. 47 U.S.C. § 153(25).
5 See MCI Telecommunications Corp. v. Illinois Bell Tel. Co.,
et al., Memorandum Opinion and Order, 15 FCC Rcd 23184 (2000)
(``1-800-AMERITECH Order'').
6 See AT&T Corp. v. U S WEST Corp., 13 FCC Rcd 21438 (1998)
(``Qwest Teaming Order''), aff'd sub nom., U S WEST
Communications, Inc. v. FCC, 177 F.3d 1057 (D.C. Cir. 1999),
cert. denied, 120 S. Ct. 1240 (2000). In the Qwest Teaming
Order, the Commission found that a self-described ``teaming''
arrangement between U S WEST and Qwest (and a similar
arrangement between Ameritech and Qwest) violated section 271.
U S WEST combined Qwest's long distance service with its own
local services and offered the resulting package to U S WEST
customers under a U S WEST brand, with U S WEST customer
support. As noted above, U S WEST subsequently merged into
Qwest.
7 In addition to section 271, AT&T contends that U S WEST's
Service violates sections 202, 251(g), and 272 of the Act.
Complaint of AT&T Corp., File No. E-97-28 (May 22, 1997) (``AT&T
Complaint'') at 9-10 (citing 47 U.S.C. §§ 202, 251(g), and 272).
MCI argues that U S WEST's Service violates section 201(b), as
well as section 271. Complaint of MCI Telecommunications, Inc.,
File No. E-97-40 (July 21, 1997) (``MCI Complaint'') at 7-10
(citing 47 U.S.C. § 201(b)).
8 See Answer of U S WEST Communications, Inc., File No. E-97-
28 (June 23, 1997) (``U S WEST Answer in AT&T Case'') at 12-13,
¶¶ 49-50, and Attachment 9.
9 MCI Complaint, Exhibit B.
10 Id.
11 Id.; see Letter dated Jan. 25, 1999 from Robert B. McKenna
(counsel for U S WEST) to Tonya Rutherford (Attorney-Advisor,
FCC), File Nos. E 97-28 and E-97-40 (``U S WEST January 25, 1999
Letter''), Attachments.
12 U S WEST Answer in AT&T Case, Attachment 11.
13 Id. (RFP at 9).
14 Frontier has since merged with Global Crossing Ltd. This
Order refers to the company as ``Frontier.''
15 U S WEST Answer in AT&T Case at 19, ¶ 69. U S WEST itself
is the carrier for both local and intraLATA calls for its 1-800-
4USWEST Service. Id. at 13-15, ¶ 51. U S WEST's interLATA
affiliate, U S WEST Long Distance, Inc., carries the interLATA
calls originating outside U S WEST's region (out-of-region
interLATA traffic). Id. Section 271(b) permits a BOC, upon
passage of the Telecommunications Act of 1996, to provide
interLATA calls originating outside of its local service
territory through a structurally separate affiliate. 47 U.S.C.
§§ 271(b), 272.
16 U S WEST Answer in AT&T Case, Attachment 11 (RFP at 9).
17 MCI Complaint, Exhibit B. Thus, the materials emphasize
the U S WEST brand as the source for the services provided with
the calling card: ``use the 1-800-4USWEST Calling Card to make
local calls, long distance calls, international calls. . . .''
MCI Complaint at Exhibit B; ``Introducing 1-800-4USWEST. All
your calls with just one card.'' U S WEST Answer in AT&T Case,
Attachment 9; ``U S WEST has introduced the U S WEST Express
Calling Card, which allows users to place domestic long distance
calls anytime from anywhere in the United States for just 20
cents a minute.'' AT&T Complaint, Exhibit K; ``Because 1-800-
4USWEST gives you a low 20-cents-per-minute rate on every call
you make when you're away from home. It's a better rate than
those charged by our long distance competitors.'' U S WEST
Answer in AT&T Case, Attachment 8 (emphasis added).
18 See, e.g., MCI Complaint, Exhibit B (``[C]alls made via 1-
800-4USWEST will be handled by U S WEST Communications, U S WEST
Long Distance or Frontier. Call Customer Service for more
details.''). Moreover, in some instances, no mention is made of
Frontier at all. See, e.g., Letter dated Sept. 30, 1997 from
Peter H. Jacoby (counsel for AT&T) to Deena M. Shetler
(Attorney-Advisor, FCC), File No. E-97-28, attaching U S WEST
brochure entitled ``Small Business Guide to Communications
Services.'' On a page entitled ``U S WEST Complementary Long
Distance Services,'' the 1-800-4USWEST card is described as
``the simple way to make long distance calls when you're away
from the office.'' Id. at 23. The brochure fails to mention
Frontier or its role in providing long distance service.
19 U S WEST January 25, 1999 Letter, Attachments.
20 U S WEST Responses to MCI's First and Further Set of
Interrogatories, File No. E-97-40 (Oct. 3, 1997) (``U S WEST
October 3, 1997 Interrogatory Responses'') at 20-21.
21 Id.
22 Id. at 3-6.
23 See Supplemental Responses of U S WEST to AT&T's First Set
of Interrogatories, File No. E-97-28 (Aug. 22, 1997) (``U S WEST
August 22, 1997 Supplemental Interrogatory Responses'') at 22,
28.
24 U S WEST August 22, 1997 Supplemental Interrogatory
Responses at 28. U S WEST identified several related agreements
involving its Service that U S WEST, U S WEST's affiliate (U S
WEST Long Distance), Frontier, and Frontier's affiliate (LinkUSA
Corporation (``LinkUSA'')) executed. Id. at 3-28. This Order
refers to these agreements collectively as one agreement between
U S WEST and Frontier.
25 Stipulation of Undisputed Facts, File No. E-97-28 (Sept. 9,
1997) (``Stipulation of Undisputed Facts'') at 1, ¶ 1.
26 47 U.S.C. § 271(a).
27 47 U.S.C. § 271(d).
28 U S WEST Communications, 177 F.3d at 1060.
29 See 47 U.S.C. §§ 251, 252. The Telecommunications Act of
1996, Pub. L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C.
§§ 151 et seq., amended the Communications Act of 1934.
30 U S WEST Communications, 177 F.3d at 1060; 47 U.S.C. §
271(c). See also AT&T Corp. v. FCC, 220 F.3d 607, 612 (D.C.
Cir. 2000) (conditional long distance entry pursuant to section
271 is designed ``[t]o encourage BOCs to open their markets to
competition as quickly as possible''). The Commission's
decision in the Qwest Teaming Order contains a more extensive
explanation of the market-opening incentives behind section 271.
13 FCC Rcd at 21441-47, ¶¶ 3-7.
31 Supplemental Brief of WorldCom, Inc., File No. E-97-40A
(Dec. 8, 2000) at 5; Stipulation of Undisputed Facts at 2, ¶ 4.
U S WEST has not requested authorization from the Commission to
provide long distance service in any state in its region.
32 Qwest Teaming Order, 13 FCC Rcd at 21465, ¶ 37.
33 Id. at 21462, ¶ 30.
34 Id. at 21465-66, ¶ 37.
35 Id.
36 U S WEST argues that the 1-800-AMERITECH Order is not
relevant precedent, and encourages the Commission to rely
instead upon the Common Carrier Bureau's decision involving
BellSouth's pre-paid calling card. See AT&T Corp. v. BellSouth
Corp., Memorandum Opinion and Order, 14 FCC Rcd 8515 (Com. Car.
Bur. Mar. 30, 1999). We decline to do so; reliance on the
staff-level pre-paid calling card decision would be misplaced in
these circumstances. The BellSouth pre-paid calling card is
meaningfully different than the offerings at issue in the 1-800-
AMERITECH Order and in this case. As the Commission pointed out
in the 1-800-AMERITECH Order, the Common Carrier Bureau
determined that BellSouth's pre-paid card offering did not
violate section 271 because, inter alia, (1) the card did not
involve a continuing, presubscribed relationship that would
allow BellSouth to gain meaningful information about card
purchasers and to exploit that relationship in customer
retention or win-back efforts; and (2) the card served a segment
of the telecommunications market that is replete with similar
prepaid offerings sponsored by non-carriers, thereby reducing
the risk that consumers would perceive BellSouth as offering in-
region, interLATA services. Id. at 8525-28, ¶¶ 19-27. In light
of these differences, the BellSouth pre-paid card case does not
support a conclusion in this case that U S WEST's Service passes
muster under section 271. Rather, as explained below, this case
is controlled by the Commission's 1-800-AMERITECH Order.
Similarly, we reject U S WEST's contention that its Service is
not meaningfully different than calling card offerings that were
lawful under the Modified Final Judgment. QWEST Corporation
Supplemental Opening Brief on the Relevance of the AMERITECH
Calling Card Order, File No. E-97-28 (Dec. 8, 2000) (``U S WEST
Brief re Applicability of Ameritech in AT&T Case'') at 2-4, 12-
14. The Commission addressed and rejected this same contention
in the 1-800-AMERITECH Order. 1-800-AMERITECH Order, 15 FCC Rcd
at __, ¶ 22.
37 Qwest Teaming Order, 13 FCC Rcd. at 21467, ¶ 41 (internal
quotation omitted).
38 See U S WEST Communications, 177 F.3d at 1060 (``By
offering one-stop shopping for local and long distance under
their own brand name and with their own customer care . . . [the
BOCs] could build up goodwill as full service providers,
positioning themselves in these markets before section 271
allows them actually to enter.'').
39 AT&T Complaint, Exhibit K (emphasis added).
40 AT&T Complaint, Exhibits G, I, and J. Further, U S WEST
emphasized in a late 1996 filing to the Iowa Utilities Board
that its calling card Service was ``essential for U S WEST's
effective participation in the long distance market.'' Id.,
Exhibit H. These contemporaneous representations concerning the
one-stop shopping advantage U S WEST sought to gain with its
Service severely undercut U S WEST's current contention that it
was not seeking a ``jumpstart.'' See U S WEST Brief re
Applicability of Ameritech in AT&T Case at 9, 11-14. U S WEST's
argument is also belied by an independent industry analysis
which concludes that BOC calling card services, like U S WEST's,
are targeted to ``jumpstarting'' the BOC's entry into the long-
distance market. See Yankee Group Report, Exhibit 1 to AT&T's
Reply Brief Concerning Effect of QWEST Order, File No. E-97-28
(Feb. 12, 1999), at 21 (BOCs are ``using calling card platforms
in preparation for authorization for in-region long-distance
entry,'' and the cards are designed, in part, to ``accustom [the
BOC's] local customer base to perceiving the [BOC] as an all-
distance, multiple service provider'').
41 U S WEST August 22, 1997 Supplemental Interrogatory
Responses at 15.
42 See U S WEST Answer in AT&T Case, Attachment 11 (RFP at 9);
U S WEST August 22, 1997 Supplemental Interrogatory Responses at
15, 18.
43 The RFP provides additional evidence that U S WEST intended
the Service to afford a considerable jumpstart for its in-
region, long distance operations as it received section 271
authority in each state. For example, pursuant to the RFP, U S
WEST could cancel the portion of the contract concerning
Frontier's provision of in-region interLATA service on 60 days'
notice, and could effect such a cancellation on a state-by-state
basis. U S WEST Answer in AT&T Case, Attachment 11 (RFP at 9).
Thus, the RFP expressly contemplated that U S WEST quickly would
move, on a state-by-state basis, to substitute its section 272
long-distance affiliate as the provider of record for in-region,
interLATA traffic generated by 1-800-4USWEST customers.
44 Qwest Teaming Order, 13 FCC Rcd at 21467, ¶ 41. See also U
S WEST Communications, 177 F.3d at 1060.
45 Qwest Teaming Order, 13 FCC Rcd at 21468, ¶ 42; 1-800-
AMERITECH Order, 15 FCC Rcd at ___, ¶ 14.
46 U S WEST Answer in AT&T Case, Attachment 11 (RFP at 10)
(emphasis added).
47 U S WEST August 22, 1997 Supplemental Interrogatory
Responses at 28.
48 While Frontier, through its affiliate LinkUSA, apparently
provides some customer service to U S WEST customers in
connection with their use of the 1-800-4USWEST Service, it is of
little significance given U S WEST's contractual control over
messages provided to customers and over the customer
relationship in general.
49 U S WEST October 3, 1997 Interrogatory Responses at 3-6.
50 1-800-AMERITECH Order, 15 FCC Rcd at ___, ¶ 15.
51 See, supra, at ¶ 15.
52 See 1-800-AMERITECH Order, 15 FCC Rcd at ___, ¶ 16; U S
WEST Communications, 177 F.3d at 1060.
53 Qwest Teaming Order, 13 FCC Rcd at 21471, ¶ 45.
54 U S WEST Communications, 177 F.3d at 1061.
55 A vanity number is a telephone number for which the letters
associated with the number's digits on a telephone handset spell
a name or word of value to the number holder. In re Toll Free
Service Access Codes, Fourth Report and Order and Memorandum
Opinion and Order, 13 FCC Rcd 9058, 9058, ¶ 1 (1998) (``Toll
Free Service Access Codes Order'').
56 1-800-AMERITECH Order, 15 FCC Rcd at __, ¶ 18.
57 As the Commission stated in the Toll Free Service Access
Codes Order, vanity numbers ``are of value to their subscribers
because they can generate high visibility and consumer
recognition when used in advertising.'' Id. at 9064, ¶ 11.
58 QWEST Teaming Order, 13 FCC Rcd at 21471, ¶ 45; U S WEST
Communications, 177 F.3d at 1061.
59 U S WEST Brief re Applicability of Ameritech in AT&T Case
at 18.
60 See generally MCI Complaint, Exhibit B; U S WEST Answer in
AT&T Case, Attachments 6-9.
61 U S WEST Answer in AT&T Case, Attachment 8 (``Because 1-
800-4USWEST gives you a low 20-cents-per-minute rate on every
call you make when you're away from home. It's a better rate
than those charged by our long distance competitors.'')
(emphasis added).
62 MCI Complaint, Exhibit B (``use the 1-800-4USWEST Calling
Card to make local calls, long distance calls, international
calls. . . ''); U S WEST Answer in AT&T Case, Attachment 9
(``Introducing 1-800-4USWEST. All your calls with just one
card''); AT&T Complaint, Exhibit K (``U S WEST has introduced
the U S WEST Express Calling Card, which allows users to place
domestic long distance calls anytime from anywhere in the United
States for just 20 cents a minute.'').
63 1-800-AMERITECH Order, 15 FCC Rcd at __, ¶¶ 3, 19.
64 U S WEST Brief re Applicability of Ameritech in AT&T Case
at 2-4, 16-17.
65 Id.
66 See U S WEST January 25, 1999 Letter at 1 (``Dial 1-800-
4USWEST'' and ``You Will Save . . . It Works . . . [and] It's
Complete;'' ``Dial 0'' and ``We Can't Guarantee You'll Save . .
. It Doesn't Work . . . [and] It's Incomplete.''). Other
advertisements warned customers that, although they could still
dial ``0'' when using the Service, U S WEST could not
``protect'' them if they did. See AT&T Complaint, Exhibit B.
67 Similarly, U S WEST's promotional materials expressly
compare U S WEST's calling card services for long distance calls
with the long distance services provided by MCI, Sprint, and
AT&T. U S WEST January 25, 1999 Letter at 14. This further
bolsters our conclusion that U S WEST is holding itself out as a
provider of long distance services. 1-800-AMERITECH Order, 15
FCC Rcd at __, ¶ 20.
68 U S WEST Brief re Applicability of Ameritech in AT&T Case
at 15-16; U S WEST January 25, 1999 Letter, Attachments.
69 1-800-AMERITECH Order, 15 FCC Rcd at __, ¶ 21.
70 U S WEST January 25, 1999 Letter, Attachments. In
addition, not all of the later disclaimers state that Frontier
handles the in-region, interLATA calls. At least one of the
disclaimers continues to use the original language that ``calls
made via 1-800-4USWEST will be handled by U S WEST
Communications, U S WEST Long Distance or Frontier. Call
Customer Service for more details.'' Id. at 6.
71 U S WEST Brief re Applicability of Ameritech in AT&T Case
at 15.
72 See U S WEST Communications, 177 F.3d at 1061 (considered
in their entirety, the U S WEST and Ameritech promotional
materials could ``lead consumers to link long-distance service
to the BOCs, particularly as long-distance was offered only as
part of a full-service package within a BOC brand name.'').
73 Cf. United States v. Western Elec. Co., 698 F. Supp. 348,
356 nn.38, 42 (D.D.C. 1988) (advertisements for long distance
service in connection with BOC-provided calling cards that
failed to indicate that the BOCs were not providing the long
distance service were misleading and inconsistent with the
Modified Final Judgment's prohibitions, because customers would
be misled into believing the BOCs were carrying the long
distance calls).
74 The fact that the long distance provider's name was listed
on Ameritech's customer bills in the 1-800-AMERITECH Order also
did not save the Ameritech service from a section 271 violation.
1-800-AMERITECH Order, 15 FCC Rcd at __, ¶¶ 7, 22.
75 Qwest Teaming Order, 13 FCC Rcd at 21473, ¶ 48; 1-800-
AMERITECH Order, 15 FCC Rcd at __, ¶¶ 23-25.
76 Indeed, U S WEST makes almost no attempt to distinguish
between the customer control restrictions imposed in its
agreement with Frontier and those described in the 1-800-
AMERITECH Order. U S WEST simply states that ``[t]he business
relationship between Frontier and U S WEST as reflected in the
record demonstrates some similarities and some material
differences as between that relationship and the one outlined in
the AMERITECH Calling Card Order.'' U S WEST Brief re
Applicability of Ameritech in AT&T Case at 10, n. 22. Yet U S
WEST fails to support this assertion with any cites to the
record or discussion of differing contract terms. U S WEST
merely suggests that Frontier's carrying, branding, and rating
of the calls is inconsistent with the conclusion that U S WEST
acts as a reseller. Id. As discussed infra at n.74, however,
it is clear that the long distance company in the 1-800-
AMERITECH Order also branded and carried the calls in question.
1-800-AMERITECH Order, 15 FCC Rcd at __, ¶¶ 7, 22.
77 U S WEST Answer in AT&T Case, Attachment 11 (RFP at 10); U
S WEST August 22, 1997 Supplemental Interrogatory Responses at
28.
78 U S WEST August 22, 1997 Supplemental Interrogatory
Responses at 28.
79 Id. at 22.
80 The parties have not identified any instances in which
Frontier engaged in independent marketing, sales, or promotional
activities in connection with the 1-800-4USWEST Service.
81 U S WEST declared, in its RFP, that it would own the
customer relationship and would exercise exclusive control over
the marketing of the 1-800-4USWEST Service. These requirements
were apparently adopted wholesale in U S WEST's agreement with
Frontier. U S WEST August 22, 1997 Supplemental Interrogatory
Responses at 22, 28.
82 1-800-AMERITECH Order, 15 FCC Rcd at __, ¶¶ 25-26.
83 U S WEST Brief re Applicability of Ameritech in AT&T Case
at 4-6.
84 Id. at 20-22.
85 1-800-AMERITECH Order, 15 FCC Rcd at __, ¶ 28; Qwest
Teaming Order, 13 FCC Rcd at 21476, ¶ 53.