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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
AT&T Corp., )
Com- )
plainant, )
) File No. EB-04-MD-010
v. )
)
BellSouth Telecommunications, )
Inc.,
Defen-
dant.
MEMORANDUM OPINION AND ORDER
Adopted: December 8, 2004 Released: December 9, 2004
By the Commission:
Table of Contents
para. no.
I. INTRODUCTION 1
II. BACKGROUND
A. The Parties and Market Context 2
B. The Transport Savings Plan - History and Operation
8
C. AT&T's Complaint 17
III. DISCUSSION
A. BellSouth's TSP Violates Sections 272(c)(1) and
272(e)(3) 18
of the Act by Discriminating in Favor of BellSouth Long
Distance.
1. The TSP's disproportional discounts 22
discriminate in favor of BellSouth Long Distance,
in
violation of section 272.
2. The TSP's 90% commitment requirement
34
discriminates in favor of BellSouth Long Distance,
in
violation of section 272.
B. Neither the Statute of Limitations nor Equitable
Estoppel 44
Bars AT&T's Complaint.
C. The Discrimination Caused by the TSP Is Appropriately
52
Redressed Through Removal of the Evergreen Provision
and,
After a Reasonable Period, Termination of the TSP.
D. AT&T's Claims Against the PSIP Are Denied.
58
IV. ORDERING CLAUSES 59
I. INTRODUCTION
1. In this Order, we partially grant and otherwise dismiss
or deny the claims alleged in the formal complaint1 that AT&T
Corp. Inc. (``AT&T'') filed against BellSouth Telecommunications,
Inc. (``BellSouth'') under section 208 of the Communications Act
of 1934, as amended (``the Act'').2 Briefly, AT&T's complaint
alleges that two of BellSouth's optional tariff discount plans
for special access services, the Transport Savings Plan (``TSP'')
and the Premium Service Incentive Plan (``PSIP''), violate
sections 201(b), 202(a), and 272 of the Act3 because they lack
cost justification, impede the development of facilities-based
competition in the BellSouth region, and discriminate in favor of
BellSouth's interexchange affiliate. We find that BellSouth's
TSP discriminates in favor of BellSouth's interexchange
affiliate, BellSouth Long Distance, Inc. (``BellSouth Long
Distance''), in violation of section 272. In light of this
finding, and because the remedy we apply under section 272 grants
to AT&T all the relief it would be due under sections 201(a) and
202(b), we dismiss without prejudice AT&T's claims alleging that
the TSP violates sections 201(b) and 202(a). In addition, we
deny all of AT&T's claims concerning the PSIP.4
II. BACKGROUND
A.The Parties and Market Context
2. AT&T offers telecommunications services, including
interexchange and local exchange services.5 AT&T purchases
special access services from BellSouth.6
3. BellSouth is an incumbent local exchange carrier
(``incumbent LEC'') and a Bell Operating Company (``BOC'') within
the meaning of sections 3(4) and 251(h) of the Act.7 BellSouth
provides local exchange, exchange access, special access, and
other telecommunications services in a nine-state service area.8
4. BellSouth Long Distance is a corporate affiliate of
BellSouth that provides retail interexchange services.9 Created
in 1996, BellSouth Long Distance first obtained operational
authority under section 271 of the Act, 47 U.S.C. §271, in May
2002.10 Like AT&T, BellSouth Long Distance purchases special
access services from BellSouth and uses those services as inputs
for its retail interexchange services.11
5. Special access is a service that provides a dedicated
connection between two points.12 Special access customers run
the gamut from telecommunications carriers and information
service providers to all types of businesses in every segment of
the economy.13 For example, special access is purchased (by end
user customers or by interexchange carriers) to connect end user
locations that generate large volumes of long distance traffic to
an interexchange carrier's network.14 Similarly, special access
is purchased by wireless carriers to connect their radio towers
to their mobile switching centers, and by various carriers to
connect their networks to particular tandem or end office
switches on the incumbent carrier's network.15 Special access is
also purchased by Internet service providers, other information
service providers, and end user customers to obtain dedicated
connections between specific points.16
6. AT&T and its interexchange and local exchange competitors
purchase special access to facilitate their provision of retail
communications services.17 Certain retail data and voice
services that AT&T provides to large and medium-sized
enterprises, and long distance voice services that AT&T provides
to small businesses and residential consumers, use BellSouth's
special access services.18 AT&T also purchases special access
from BellSouth to provide retail voice and other services as a
local carrier to businesses and consumers.19 End users,
including AT&T, also purchase BellSouth's special access services
for their own telecommunications requirements.20
7. BellSouth provides its interstate special access services
pursuant to its Tariff FCC No. 1.21 In addition to its basic
rates for special access services, BellSouth offers various
optional discount plans to customers that are willing to make
various commitments with respect to their purchases of
BellSouth's special access services.22 One such plan is the
Transport Savings Plan, i.e., the TSP.
B.The Transport Savings Plan - History and Operation
8. BellSouth filed the TSP on March 22, 1999.23 Although
AT&T and MCI WorldCom (``MCI'') both objected to the TSP,24
Commission staff found that their objections did not ``present[ ]
compelling arguments that [the] transmittal[ ] [is] so patently
unlawful as to require rejection,''25 and the TSP became
effective April 6, 1999, without suspension or investigation.26
9. The TSP is an optional tariff volume discount plan for
special access services.27 It is primarily an ``overlay'' plan,
meaning that it may function in combination with other BellSouth
special access discount plans, and provides incremental discounts
beyond those available under those other plans.28 Except for the
PSIP, the TSP is BellSouth's only special access plan that offers
volume discounts.29
10. The discount level of the TSP varies according to two
factors: the customer's volume (or revenue) band, and the year
in the plan.30 For example, a customer whose Committed Volume
Level is in the $3 million - $10 million revenue band (the lowest
volume band) earns a discount of 1% in the first year of its TSP
term (to a maximum of 3% in year 5 and any extension year), while
a customer whose Committed Volume Level is in the $500 million -
$600 million revenue band earns a discount of 5% in the first
year of its TSP term (to a maximum of 12% in the fifth of its
five years and any extension year), above and beyond the
discounts earned in other BellSouth (non-volume-based) plans.31
The TSP's discounts apply not just to the Committed Volume Level,
but also to any eligible purchases above that Level.32
11. In order to qualify for the TSP, a customer initially
had to agree to commit for five years to buy special access
services from BellSouth in annual amounts equal to at least 90%
of its purchases from BellSouth in the six months immediately
prior to its subscription to the plan, annualized (the customer's
``Committed Volume Level'').33 If the customer does not meet its
Committed Volume Level in a particular period, it must pay
certain shortfall charges;34 if it leaves the TSP before the
plan's scheduled end, the customer must pay certain termination
charges.35 At the end of the five-year term, TSP customers have
the option to invoke the ``evergreen'' provision and extend the
TSP in one-year increments,36 which enables them to continue the
plan perpetually. A customer extending for another year must
maintain or increase its Committed Volume Level.37
12. The TSP allows a customer to adjust its Committed Volume
Level upward but not downward.38 As originally filed, however,
the TSP permitted a customer the possibility of establishing a
lower Committed Volume Level by (i) terminating its subscription
early or allowing its 5-year term to lapse; (ii) waiting six
months; (iii) re-subscribing to the TSP, and (iv) obtaining a new
Committed Volume Level, based on the greater of 90% of its
qualifying revenues or its selected volume band.39 As discussed
below,40 BellSouth subsequently amended the TSP to eliminate that
possibility.
13. [Confidential Information regarding the identity, number,
and relative size of TSP subscribers, including AT&T and
BellSouth Long Distance].
14. [Confidential Information regarding AT&T's Committed
Volume Level and the timing of AT&T's TSP subscribership].
15. BellSouth Long Distance subscribed to the TSP beginning
April 19, 2001.41 Within a matter of months, BellSouth Long
Distance upgraded its Committed Volume Level to $10 million on
October 23, 2001.42
16. On June 24, 2004, BellSouth filed an amendment to the
TSP that closed the plan to new subscribers.43 Under this
amendment, current TSP customers may continue in the TSP through
the remainder of their terms, and may continue indefinitely to
extend their subscriptions in one-year increments at their
current Committed Volume Levels or higher.44 Current customers,
however, can no longer allow their terms to lapse, wait six
months, and re-subscribe at a lower Committed Volume Level.45
C. AT&T's Complaint
17. On July 1, 2004, AT&T filed the instant Complaint. In
brief, AT&T alleges that: (1) the TSP is unlawfully
discriminatory, in violation of section 272 of the Act, because
it provides volume discounts to BellSouth Long Distance that are
neither cost-based nor proportional to the discounts available to
BellSouth Long Distance's larger competitors;46 (2) the TSP is
unjust and unreasonable, in violation of section 201(b) of the
Act, because it facilitates anticompetitive conduct and non-
market-based pricing;47 and (3) the TSP discriminates
unreasonably, in violation of section 202(a) of the Act, because
it unreasonably restricts the availability of volume discounts,
offers different prices and terms for like services without
reasonable justification, and unreasonably seeks to improve the
competitive position of smaller carriers.48
III. DISCUSSION
A. BellSouth's TSP Violates Sections 272(c)(1) and
272(e)(3) of the Act by Discriminating in
Favor of BellSouth Long Distance.
18. AT&T alleges that BellSouth's TSP violates sections
272(c)(1) and 272(e)(3) of the Act by discriminating in favor of
BellSouth's interexchange affiliate, BellSouth Long Distance.49
To support its allegations, AT&T relies on BellSouth's own
description of the operation and purposes of the TSP.50
Specifically, BellSouth states that the TSP was designed and
operates to provide to relatively low-volume customers, including
BellSouth Long Distance, larger discounts than would be available
under a plan whose discounts were more closely proportional to
volume; concomitantly, BellSouth states that the TSP was designed
and operates to provide to relatively high-volume customers,
including AT&T, smaller discounts than would be available under a
plan whose discounts were more closely proportional to volume.51
In AT&T's view, these BellSouth statements prove that the TSP
creates a ``class of favored customers'' that includes BellSouth
Long Distance, in violation of section 272.52 For the following
reasons, we agree with AT&T.
19. Section 272 provides, in pertinent part:
272(c)(1): In its dealings with its affiliate . .
. a Bell operating company . . . may not
discriminate between that . . . affiliate and
any other entity in the provision or
procurement of goods, services, facilities,
and information, or in the establishment of
standards.53
272(e)(3): [A Bell operating company] shall
charge [its] affiliate . . . or impute to
itself . . . an amount for access to its
telephone exchange service and exchange
access that is no less than the amount
charged to any unaffiliated interexchange
carriers for such service.54
The Commission has discussed and interpreted section 272 in a way
that provides significant clarity here.55 As its plain language
indicates, section 272 ``establishes an unqualified prohibition
against discrimination by a BOC in its dealings with its section
272 affiliate and unaffiliated entities.''56 In fact, section
272 ``impos[es] a flat prohibition against discrimination more
stringent than the bar on `unjust and unreasonable'
discrimination contained in section 202 of the Act. In short,
the BOCs must treat all other entities in the same manner in
which they treat their section 272 affiliates.''57 In other
words, section 272 requires, ``at a minimum,'' that the BOC
``must provide to unaffiliated entities the same goods, services,
facilities, and information it provides to its section 272
affiliate at the same rates, terms, and conditions.''58 The
Commission further recognizes that even a facially neutral
practice may have an unlawfully discriminatory impact under
section 272. For example, ``a BOC may have an incentive to offer
tariffs that, while available on a nondiscriminatory basis, are
in fact tailored to its affiliate's specific size, expansion
plans, or other needs.''59
20. Applying those principles to volume and term discounts,
the Commission has concluded that a BOC may offer such discounts
to its interexchange affiliate, as long as the BOC makes such
discounts ``available on a nondiscriminatory basis to all
unaffiliated interexchange carriers.''60 That is because ``price
differences, such as volume and term discounts, when based upon
legitimate variations in cost, are permissible. . . .''61
Accordingly, a BOC accused of offering a volume discount that
allegedly violates section 272 ``may demonstrate, among other
things, that rate differentials between the section 272 affiliate
and unaffiliated entity reflect differences in cost. . . .
[W]here costs differ, rate differences that accurately reflect
those differences are not unlawfully discriminatory.''62
21. AT&T's allegations that BellSouth's TSP violates section
272 fall into two general areas: (i) the discount levels
themselves discriminate in favor of BellSouth Long Distance, and
(ii) the 90% commitment requirement discriminates in favor of
BellSouth Long Distance. We consider each of these allegations
below.
1. The TSP's disproportional discounts discriminate
in favor of BellSouth Long Distance, in
violation of section 272.
22. In general, the Commission has looked favorably upon
tariffed volume discount plans where, as for special access
services, volume and cost appear to have a fairly direct, inverse
relationship that reflects the economies and efficiencies gained
as volumes increase.63 Accordingly, the volume discounts
contained in typical federal tariffs are significantly linear,
i.e., the discounts rise in close proportion to the rise in
volume, reflecting the ever-diminishing per-unit costs of
providing service in increasingly higher volumes.64
23. BellSouth points out that the TSP is not a typical,
proportional volume discount plan.65 Specifically, BellSouth
asserts that it designed the TSP's discounts to be somewhat
disproportional to volume, in order to achieve BellSouth's stated
goal of providing more substantial discounts to a broader range
of BellSouth's customers than would be possible under a
proportional volume discount plan; this, in turn, enhances the
competitiveness of smaller carriers more than a proportional
volume discount plan would do.66 As a result, the relationship
of the TSP's discounts to volume is far from linear, and the
discounts skew substantially in favor of relatively low-volume
customers, such as BellSouth Long Distance, and substantially
against relatively high-volume customers, such as AT&T and
[Confidential Information identifying another TSP customer]. 67
24. BellSouth quantifies this skewing effect by comparing the
discounts provided by the TSP with the discounts that would be
provided by a proportional volume and term discount plan.68 For
example, as shown in the table below, comparing the TSP's fifth-
year discounts with discounts calculated under a more directly
proportional plan, the TSP discount is 43 times higher (3.0%
versus .07%) for volumes of $3 million - $10 million; some 21
times higher (5% versus .24%) for volumes of $10 million -$100
million ([Confidential Information regarding specific TSP
customer]); almost four times higher (9.0% versus 2.40%) for
volumes of $100 million - $300 million; about a third higher
(10.0% versus 7.2%) for volumes of $300 million - $500 million;
and some 15% lower (12.5% versus 14.4%) for volumes over $600
million.69
Comparison of Discount Levels70
Customer size (in under TSP (year under
eligible revenues) 5) proportional
volume discount
plan
$3 - $10 million 3% 0.07%
$10 - $100 million 5% 0.24%
$100 - $300 9% 2.40%
million
$300 - $500 10% 7.20%
million
$500 - $600 12% 12.00%
million
over $600 million 12.5% 14.40%
25. These substantial boosts to the discount levels available
to relatively small carriers under the TSP benefit such carriers
not only in absolute terms, but also in relation to their larger
competitors. Specifically, the discount percentages available to
relatively small carriers are much closer in amount to the
discount percentages available to relatively large carriers.71
For example, under a more proportional discount plan, a carrier
with volume in the $10 million - $100 million range would receive
a discount (in the fifth year) of 0.24%, which is almost 12
percentage points less than (or 1/50 of) the discount a carrier
with volume in the $500 million - $600 million range would
receive, i.e., 12%. By contrast, under the TSP, that same small
carrier receives a discount (in the fifth year) of 5%, which is
only 7 percentage points less than (or almost ½ of) the discount
received by the large carrier, i.e., 12%.72 Thus, the TSP favors
relatively small carriers by substantially reducing the "discount
differential" between small and large carriers that would occur
in a closely proportional volume discount plan.73
26. Moreover, the TSP's volume band structure increases its
discriminatory impact. The TSP's relatively narrow bands at
lower volumes, and relatively wide bands at higher volumes,
particularly serve to benefit a quickly growing customer such as
BellSouth Long Distance.74 In addition, the TSP's relatively
wide volume bands at higher volumes render its discounts even
less reflective of any volume-based cost differences. For
example, a carrier with a little over $100 million in volume
receives the same discount as a carrier with almost three times
that volume (i.e., almost $300 million). Thus, as compared to a
volume discount plan more reflective of cost differences, the
TSP's wide ``stair-steps'' favor smaller carriers over larger
carriers within the same wide bands (and [Confidential
Information identifying a potential customer in this band]).75
27. In sum, the TSP accomplishes exactly what BellSouth
states it was designed to do: it provides relatively low-volume
customers, such as BellSouth Long Distance, with far greater
discounts than would be available under a strictly proportional
plan, both in absolute terms and in comparison to the discounts
provided to relatively high-volume customers, such as AT&T. In
turn, as BellSouth acknowledges, the TSP enhances the
competitiveness of relatively low-volume customers, such as
BellSouth Long Distance, vis-à-vis relatively high-volume
customers, such as AT&T.
28. BellSouth proffers no cost justification for the non-
proportional relationship between the TSP's discounts and the
volumes to which those discounts apply. In particular, BellSouth
does not argue that its costs decrease in anything other than
fairly close proportion to increases in volume, or that its
savings rise with increases in volume at low levels, then dip (or
rise more slowly) as volumes increase further. BellSouth simply
asserts, instead, that the TSP's substantial departure from the
typical, proportional volume discount structure is a reasonable
means to achieve laudable goals: spreading ``meaningful''
discounts across its entire customer base,76 and ``leveling the
playing field'' a bit.
29. BellSouth's own description of the operation of the TSP
reveals the TSP's unlawfulness under section 272 of the Act. The
TSP's discounts substantially favor BellSouth Long Distance and
substantially disfavor BellSouth Long Distance's larger
competitors in a manner that appears to lack any cost basis.
Section 272 ``flatly'' forbids such discrimination.
30. According to BellSouth, in other contexts, the Commission
and courts have found practices that favored smaller customers to
be reasonable.77 BellSouth's assertion, even if accurate,78 is
irrelevant in the unique context of section 272. As previously
stated, section 272 imposes an ``unqualified prohibition'' on BOC
discrimination that favors the BOC's affiliate, regardless of
whether the discrimination is arguably reasonable.79 Likewise,
the fact that several relatively small customers other than
BellSouth Long Distance also benefit from the TSP's skewed
discounts does not shield the TSP from section 272's reach; 80
section 272's prohibition on discrimination favoring a BOC
affiliate is ``flat,'' ``unqualified,'' and ``stringent,'' and
thus permits no exception for conduct that happens to benefit
certain non-affiliates, as well.81 Similarly, the fact that
BellSouth Long Distance has, thus far, received far fewer dollars
in TSP discounts than many other carriers82 is beside the point.
The point under section 272 is that BellSouth Long Distance has
received far more than a de minimis dollar amount in discounts
above what it would have received in the absence of the TSP's
discriminatory rates; and, but for our ruling today, the
difference between the total amount of discount dollars received
by BellSouth Long Distance and the total amount received by its
larger competitors would surely shrink over time, as BellSouth
Long Distance's volumes and time of participation in the plan
grew - even assuming those larger competitors could maintain
their participation in the TSP.
31. Finally, we reject BellSouth's assertion that, as long as
the TSP provides higher discounts for higher volumes, the
discounts need not be closely proportional to volume, because the
TSP allegedly serves reasonable business goals.83 BellSouth
argues that the Commission should not unduly straight-jacket
carriers' flexibility to devise volume discounts to meet the
particular competitive needs of specific markets.84 In
BellSouth's words, "[i]t cannot be the case...that Section 272
imposes a blanket, strict cost justification standard on volume
discounts, prohibiting BOCs in every instance from softening the
advantage they confer on larger customers, simply because the BOC
affiliate falls within the class of customers who benefit from a
departure from strictly linear discounts."85
32. BellSouth's argument that section 272 does not require
strict linear proportionality has some force. Here, however, our
determination that the TSP violates section 272 rests on more
than just the absence of strictly proportional discounts.
Specifically, on these facts, we find that: (i) when challenged
with this allegation of discrimination, BellSouth has
acknowledged the disproportionality, but has proffered no cost
justification for it; (ii) the discounts depart dramatically from
a linear relationship to volume; (iii) the TSP produces a large,
disproportionate benefit to BellSouth's affiliate, BellSouth Long
Distance; and (iv) by BellSouth's own admission, the
disproportionate nature of the discounts derives not from the
discount structure alone, but from the discount structure in
combination with the 90% commitment requirement - a requirement
that is itself unlawful under section 272, as we explain, infra.
Thus, this Order does not preclude disproportional special access
volume discounts per se; we merely reaffirm the Commission's
prior finding that a BOC charged with discrimination in violation
of section 272 may defend its challenged tariff by, inter alia,
providing a cost showing that justifies the rates and
practices.86 Here, the disproportionality is very significant,87
yet BellSouth has not attempted to cost-justify it.88
33. We note that, although the Commission has, in fact,
allowed LECs a substantial amount of discretion in their creation
of volume discounts,89 and has in certain contexts removed the
requirement that such discounts be supported ab initio by cost
justification,90 the Commission has never allowed such discretion
to produce discrimination favoring a BOC's affiliate.91 In
addition, the Commission orders granting flexibility and allowing
discretion in the creation of volume discounts concerned the
reasonableness of volume discounts under sections 201(b) and
202(a),92 whereas in the 272 context the Commission has focused
on the unqualified avoidance of discrimination, and has
emphasized the primacy of cost-based pricing as a defense to an
alleged violation.93 In fact, even in contexts not involving
section 272, the Commission has reiterated the need to avoid
departures from cost that foster anti-competitive
discrimination.94
2. The TSP's 90% commitment requirement discriminates
in favor of BellSouth Long Distance,
in violation of section 272.
34. Although we have found the TSP's disproportional
discounts to be unlawful, we cannot decline to evaluate also the
TSP's 90% commitment requirement. Indeed, BellSouth urges us to
view the TSP as a whole, and that the TSP's 90% commitment
requirement and the discount structure are inseparable.
Specifically, BellSouth states that, but for the TSP's 90%
commitment requirement, BellSouth could not and would not have
skewed the TSP's discounts in favor of smaller customers
(including BellSouth Long Distance).95
35. This statement by BellSouth demonstrates the unlawfulness
of the 90% commitment requirement under section 272. As just
explained above, we conclude that the TSP's discounts
discriminate unlawfully under section 272. It follows,
therefore, that the TSP's 90% commitment requirement is likewise
unlawful under section 272, as an inextricable component of the
discriminatory effect.
36. Furthermore, AT&T alleges that the TSP's 90% commitment
requirement, in itself, violates section 272 by favoring smaller,
growing customers, such as BellSouth Long Distance, over larger,
established customers, such as AT&T.96 AT&T adds that
BellSouth's recent closure of the TSP to all but existing
customers exacerbates this discrimination by precluding some
existing and potential competitors of BellSouth Long Distance
from obtaining the higher discounts that BellSouth Long Distance
enjoys.97 AT&T also contends that the TSP's evergreen provision
further exacerbates the discrimination by allowing BellSouth Long
Distance to maintain its access to the higher discounts
indefinitely.98 For the following reasons, we agree with AT&T
that the 90% commitment requirement has unlawful flaws under
section 272, independent of its relationship to the skewed
discount levels.
37. In certain material ways the TSP's 90% commitment
requirement resembles a so-called ``growth discount,'' which the
Commission has consistently rejected.99 A growth discount is a
pricing plan under which an incumbent LEC offers either (i)
reduced per-unit access service prices to customers that commit
to purchase a certain percentage above their past usage, or (ii)
reduced prices based on growth in traffic placed over the
incumbent LEC's network.100 The Commission has stated that such
``[g]rowth discounts violate [section 272] because they offer
reduced prices based on growth in interexchange traffic, and they
therefore create `an artificial advantage for BOC long distance
affiliates with no subscribers, relative to existing IXCs and
other new entrants.'''101 In other words, growth discounts
unlawfully discriminate in favor of BOC affiliates, ``because BOC
affiliates will begin with existing relationships with end users,
name recognition, and no subscribers, [and thus] they will grow
much more quickly than existing IXCs and other new entrants. . .
.''102 This unique capacity for expansion appears to place BOC
affiliates in a unique position to qualify for and benefit from
growth discounts.
38. Similarly here, given BellSouth Long Distance's rapid and
substantial growth,103 and that much of its future growth will
likely derive from business won from existing competitors rather
than from new demand,104 the 90% commitment requirement
unlawfully favors BellSouth Long Distance over its established
competitors under section 272.105 Specifically, BellSouth Long
Distance will continue to qualify readily for the TSP's discounts
throughout its five-year term and as the annual renewal periods
arrive; meanwhile, BellSouth Long Distance's established
competitors will likely come to lack the volume needed to qualify
for renewing the TSP, or incur significant shortfall penalties,
as they lose business to BellSouth Long Distance or others. In
addition, Bell South Long Distance's ``headroom,'' i.e., the
excess of its total qualifying volume over its Committed Volume
Level, [Confidential Information regarding BellSouth Long
Distance's headroom]; at the same time, even established
competitors who continue to qualify for renewing the TSP will
likely experience diminishing headroom and, thus, diminishing
flexibility in how they manage that traffic, as they lose
business to BellSouth Long Distance or others. 106 Moreover,
BellSouth's recent limitation on the TSP's availability
exacerbates the foregoing effects, because existing TSP customers
whose volumes are stagnant or declining no longer have the option
of allowing their terms to lapse, waiting six months, and then
re-subscribing at a lower Committed Volume Level.107 Therefore,
even though the TSP does not require a customer to grow in order
to obtain discounts, the TSP still favors the predictably fast
and substantial growth of BellSouth Long Distance, in violation
of section 272.108
39. BellSouth argues that it could not have designed the 90%
commitment requirement in order to favor BellSouth Long Distance,
because BellSouth filed the TSP in April 1999, whereas BellSouth
Long Distance did not subscribe to the TSP until 2001, and did
not obtain authorization to start providing service until
2002.109 BellSouth's argument is unavailing. As described
above, liability under section 272 hinges on effect, not intent
(although evidence of intent might be probative of effect).
Thus, whether BellSouth designed the TSP intentionally to benefit
BellSouth Long Distance is irrelevant.110 In any event,
BellSouth created BellSouth Long Distance in 1996; BellSouth had
twice applied for authority to provide long distance service by
April 1999; and obtaining authority to provide long distance
authority was a principal ``carrot'' for the BOCs in the 1996
Act. Therefore, BellSouth's assertion that it designed the TSP
without BellSouth Long Distance in mind is unpersuasive.
40. BellSouth maintains that the 90% commitment requirement
is cost-justified because it facilitates network utilization and
planning and ensures recovery of costs incurred to build and
maintain facilities for each TSP customer.111 The Commission has
never before adopted this customer-retention theory of cost
justification. Carried to its logical conclusion, this theory
would ``justify'' a 100% commitment requirement. We need not
approve or reject this theory per se, however, because BellSouth
has provided no actual evidence that it has not already recovered
its facilities costs or cannot recover its facilities costs
through means other than discriminating in favor of BellSouth
Long Distance. In other words, even assuming, arguendo, that
BellSouth's theory could prevail, it fails here for lack of
proof.
41. Finally, BellSouth contends that the 90% commitment
requirement (as well as the skewed discount levels) cannot
violate section 272, because the TSP is available to all existing
customers on the same terms.112 Even assuming, arguendo, that
the TSP is facially neutral, BellSouth's contention lacks merit,
because it assumes incorrectly that facial neutrality equates to
lawfulness. We must examine the actual effect of the tariff's
terms to determine whether unlawful discrimination exists. As
the Commission has recognized, ``a BOC may have an incentive to
offer tariffs that, while available on a non-discriminatory
basis, are in fact tailored to its affiliate's specific size,
expansion plans, or other needs.''113 Indeed, the Commission has
rejected growth discounts under section 272, even though such
discounts appeared in the context of a facially neutral
tariff.114 The TSP is likewise unlawful, even assuming it
appears in the context of a facially neutral tariff, for all of
the reasons stated above.
42. Similarly, though BellSouth asserts that it recently
closed the TSP to new customers to address AT&T's concerns,115
and that AT&T cannot logically claim additional injury from this
limitation on the very plan it attacks as discriminatory,116 in
fact the discriminatory impact of the TSP is exacerbated by both
the TSP's evergreen provision and its newly limited availability,
singly and in combination. First, the evergreen provision
continues indefinitely the discount benefits for any current
customer that can maintain its commitment level.117 As discussed
herein, that effect favors small and growing companies, including
BellSouth Long Distance, over BellSouth Long Distance's larger
competitors. Thus, over time, BellSouth Long Distance will have
a growing edge over its larger competitors. Moreover, the
absence of the TSP as an option for those who are currently not
TSP customers creates a perpetual advantage for BellSouth Long
Distance over those customers, because the TSP's overlay
discounts exceed all other discounts available to those
customers. In addition, the recent closure of TSP to ``new''
customers deprives even existing customers of an option they had
previously: terminating their terms or allowing their terms to
lapse, waiting six months, and then re-subscribing to the TSP at
a lower Committed Volume Level.118 That option might have been
especially attractive to BellSouth Long Distance's larger
competitors, whose volumes are stagnant or declining.
* * * * * *
43. AT&T claims that the TSP violates sections 201(b) and
202(a) of the Act, as well as section 272. Because we find the
TSP unlawful under section 272, and because we award AT&T under
section 272 all the injunctive relief to which it would be
entitled under sections 201(b) and 202(a),119 we need not reach
those claims and thus dismiss them without prejudice.
B. Neither the Statute of Limitations Nor Equitable
Estoppel Bars AT&T's Complaint.
44. Section 415(b) of the Act provides, in pertinent part,
that ``[a]ll complaints against carriers for the recovery of
damages . . . shall be filed with the Commission within two years
from the time the cause of action accrues, and not after.''120
BellSouth argues that section 415(b) bars AT&T's Complaint
because the causes of action therein accrued on April 6, 1999,
when the TSP became effective, which predates the filing of the
Complaint by more than five years.121 We disagree, for the
following reasons.
45. The Commission has repeatedly held that the two-year
statute of limitations in section 415(b) applies only to claims
for damages, and not to claims for prospective relief.122 AT&T's
Complaint seeks prospective relief as well as damages.123
Therefore, section 415(b) does not bar AT&T's Complaint.
Moreover, we need not decide in this Order whether or to what
extent section 415(b) limits AT&T's ability to recover damages,
because AT&T ``bifurcated'' its damages request from its
liability and prospective relief requests pursuant to section
1.722(d) of our rules, 47 C.F.R. § 1.722(d).124 We will address
those questions if and when AT&T files a supplemental complaint
for damages.125
46. According to BellSouth, we should not follow the
Commission orders holding that section 415(b) applies only to
claims for damages, because court decisions and other Commission
orders have stated that the running of the statute of limitations
in section 415(b) (and its counterpart in the Interstate Commerce
Act) ``not only bars the remedy, but destroys the liability.''126
In BellSouth's view, that phrase means that no part of a
complaint - not even a claim seeking a liability determination
for the purpose of obtaining prospective relief - survives if a
damages claim therein is barred by section 415(b).127
47. BellSouth places more weight on that phrase than it can
bear. First, BellSouth's interpretation contradicts the plain
language of section 415(b), which by its clear terms applies to
``complaints against carriers for the recovery of damages. . .
.''128 In addition, none of the cases in which that phrase
appears involved a situation where, as here, the complaint sought
both damages and prospective relief. Therefore, the phrase about
``destroying'' liability was not designed, as BellSouth would
have it, to ``destroy'' claims for prospective relief along with
claims for damages. Indeed, upon close examination of the cases,
it appears that the phrase was designed, instead, solely to
emphasize that the limitations period in section 415(b) cannot be
waived or tolled in the absence of extraordinary circumstances,
because the limitations period plays an important role in
achieving the Act's goals of preventing discrimination and
ensuring prompt payment of carrier charges.129 Allowing a claim
for prospective relief to proceed, even while a related claim for
damages is time-barred, would not undermine either of those
goals. Consequently, where, as here, a complaint seeks both
damages and prospective relief regarding circumstances that
continue to exist when the complaint is filed, section 415(b)
does not apply to the prospective relief portion of the
complaint.
48. That said, a complainant cannot sit on its alleged right
to prospective relief indefinitely. As the Commission has
observed, if a complainant ``delay[s] unreasonably in bringing
its claims for declaratory and injunctive relief, we have
discretion to dismiss those claims on equitable grounds.''130
49. BellSouth asserts that such equitable grounds for
dismissal of AT&T's Complaint exist here.131 To support that
assertion, BellSouth points out principally that (i) AT&T filed
its complaint over five years after knowing fully about the terms
of the TSP on which AT&T's Complaint largely, if not exclusively,
focuses;132 and (ii) two years after the TSP became available,
and three years before AT&T filed its Complaint, AT&T
[Confidential Information regarding AT&T business decision.]133
50. BellSouth's argument has some persuasive force.
Nevertheless, on the particular facts here, we decline to
exercise our discretion to dismiss AT&T's Complaint on equitable
grounds. Some of the relevant events occurred more recently than
five years ago, e.g., the addition of the evergreen provision in
2001, and the preclusion of new customers (including current or
former customers re-subscribing at lower Committed Volume Levels)
in 2004. As explained above,134 these actions exacerbate the
TSP's unlawful discrimination in favor of BellSouth Long
Distance.135 Furthermore, since the TSP began, certain changes
in the marketplace - including the `bursting' of the `Internet
bubble,' and the substitution of wireless and VoIP136 services
for traditional long distance services - have substantially
dampened demand for special access services in recent years,137
which renders the TSP's illegalities more acute.138 Moreover,
BellSouth has pled or argued neither that it detrimentally relied
on the absence of any challenge to the TSP's legality, nor that
AT&T has failed to meet its commitments under the TSP; thus,
BellSouth has received the benefit of its bargain to date.139
Finally, the Complaint raises issues of exceptional importance
going to the core of the Commission's mission of protecting the
public interest.
51. We caution, however, that neither AT&T nor any other
prospective complainant should view this decision as condoning
lassitude in the filing of complaints seeking prospective relief.
To avoid the risk of dismissal, such complaints should be brought
without undue delay.
C. The Discrimination Caused by the TSP Is Appropriately
Redressed Through Removal of the
Evergreen Provision and, After a Reasonable
Period, Termination of the TSP.
52. Upon a finding of liability, AT&T seeks a Commission
order (i) striking the 90% commitment requirement; (ii) striking
the requirement that a customer maintain its initial (or higher,
in the case of a voluntary increase) Committed Volume Level for
the term of the plan, thereby allowing existing TSP customers to
re-select their Committed Volume Levels (and associated
discount); (iii) requiring BellSouth to reopen the TSP, as
revised, to new customers; and (iv) leaving the remainder of the
TSP intact.140 BellSouth argues that such a remedy would amount
to an unjustified and unauthorized prescription of a new
tariff.141
53. For the reasons discussed below, we grant in part and
deny in part AT&T's requested relief.142 We direct BellSouth to
strike the TSP's evergreen provision immediately, so that no TSP
customer may further extend its term;143 and we direct BellSouth
to terminate the TSP entirely on June 9, 2005, six months after
the release date of this Order.144
54. Under sections 4(i) and 208 of the Act,145 the Commission
has broad discretion to fashion an injunctive remedy for a
violation of the Act, much like a court under similar
circumstances.146 In exercising that discretion, we consider the
totality of the circumstances to determine a just and fair
result. Here, the relevant circumstances include (i) the nature
and extent of the violation; (ii) the expectations and reliance
of the parties; (iii) the expectations and reliance of non-party
subscribers of the TSP; and (iv) the nature of the TSP.
55. In light of section 272's unqualified prohibition of
discrimination in favor of a BOC affiliate, and the significant
extent of such discrimination found here, the TSP must end, and
end soon. There are [Confidential Information identifying the
number of TSP customers] non-parties who are TSP customers,
however, and they likely have formed some business expectations
regarding the continued availability of the TSP's substantial
discounts, especially because the TSP has been in place for over
five years. On balance, therefore, we conclude that existing TSP
customers should be allowed to continue their participation until
their present terms expire, or until six months from the date of
this Order, whichever occurs first.147 This remedy ends the
discriminatory conduct quickly, but somewhat ameliorates the
industry disruption that might otherwise occur if the TSP were
terminated immediately, i.e., non-party TSP customers will have
some time to adjust their business plans to account for the
elimination of the TSP.148
56. Assuming, arguendo, that we would have authority under
section 205 of the Act149 to afford the prescriptive relief
sought by AT&T,150 we decline to do so. AT&T has cited no
Commission order, and we have found none, where the Commission
has required a carrier to implement a plan that is optional to
customers (i.e., a plan concerning a service that customers can
obtain via a required, approved tariff), and to omit from the
optional plan terms but for which the carrier would never have
volunteered the plan in the first place.151 Such a result would
be unduly punitive to BellSouth. Moreover, we are not convinced
that the present record contains sufficient evidence for us to
conclude, as we must under section 205, that the plan that would
result from the deletions and changes sought by AT&T would be
``just, fair, and reasonable.''152
57. We recognize that a potential negative result of our
remedy is that special access customers in BellSouth's region may
ultimately have no volume discount option with BellSouth.
Therefore, we encourage BellSouth to fashion a volume discount
plan that does not suffer from the discriminatory effects
identified in this Order. Indeed, one of the virtues of the
remedy imposed here is that BellSouth has some time to formulate
a new volume discount plan before a large number of the TSP terms
conclude. If BellSouth fails to do so, that failure may be
relevant evidence in determining, in other Commission
proceedings, whether the Commission's predictive judgments about
the development of special access competition were accurate.
D.AT&T's Claims Against the PSIP Are Denied.
58. AT&T also claims that another of BellSouth's special
access discount plans, the Premium Savings Incentive Plan
("PSIP"), violates sections 201(b), 202(a), and 272 of the
Act.153 Although the PSIP is somewhat similar to the TSP, it
differs in some determinative respects. First, the PSIP has (and
always will have) [Confidential Information identifying the
number of PSIP customers].154 Moreover, the PSIP contains no
evergreen provision, and thus does not have the ``perpetual''
characteristic of the TSP.155 Finally, BellSouth Long Distance
does not and cannot subscribe to the PSIP.156 Given these
circumstances, we conclude that the PSIP does not unlawfully
discriminate in favor of BellSouth Long Distance under section
272, and does not have an unjust or unreasonable effect on the
special access market under sections 201(b) and 202(a).
Accordingly, AT&T's claims concerning the PSIP are denied.
IV. ORDERING CLAUSES
59. Accordingly, IT IS ORDERED, pursuant to sections 4(i),
201, 202, 208, and 272 of the Communications Act of 1934, as
amended, 47 U.S.C. §§ 154(i), 201, 202, 208, and 272, that the
formal complaint filed by AT&T Corporation, Inc., against
BellSouth Telecommunications, Inc. is GRANTED IN PART and is
OTHERWISE DISMISSED without prejudice or DENIED, as discussed
above.
60. IT IS FURTHER ORDERED, pursuant to sections 272 and 4(i)
of the Act, 47 U.S.C. §§ 272 and 154(i), that BellSouth
Telecommunications, Inc. SHALL REVISE its FCC Tariff No. 1, in
compliance with relevant requirements of the Commission's rules,
to remove the evergreen provision, BellSouth Tariff FCC No.1 §
2.4.8(E)(4), and SHALL FILE this revision no later than December
16, 2004, one week following the release of the instant Order.
61. IT IS FURTHER ORDERED, pursuant to sections 272 and
4(i) of the Act, 47 U.S.C. §§ 272 and 154(i), that BellSouth
Telecommunications, Inc. SHALL TERMINATE its Transport Savings
Plan (``TSP''), Tariff FCC No. 1 § 2.4.8(E), through a tariff
revision filed in compliance with relevant requirements of the
Commission's rules, effective June 9, 2005.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
Confidential Appendix
Not Included in Public Files
_________________________
1Complaint of AT&T Corp. v. BellSouth Telecommunications, Inc.,
File No. EB-04-MD-010 (filed July 1, 2004) (``Complaint'').
247 U.S.C. § 208.
347 U.S.C. §§ 201(b), 202(a), 272.
4Pursuant to section 1.731 of the Commission's rules, 47 C.F.R. §
1.731, Commission staff entered a Protective Order limiting the
disclosure of sensitive business information that either AT&T or
BellSouth designated as confidential (``Confidential
Information"). AT&T Corp. v. BellSouth Telecommunications, Inc.,
File No. EB-04-MD-010, Letter Ruling (July 8, 2004) (``Protective
Order''). Pursuant to that Protective Order, this public version
of the Memorandum Opinion and Order redacts all Confidential
Information that is contained in the confidential version of the
Memorandum Opinion and Order, and that redacted Confidential
Information appears in the Confidential Appendix. Such
redactions are signified herein by bracketed, generic references
to Confidential Information.
5Joint Statement of Stipulated Facts, Disputed Facts, and Key
Legal Issues, File No. EB-04-MD-010 (filed Aug. 3, 2004) (``Joint
Statement'') at para. 3.
6Id.
7 47 U.S.C. §§ 153(4), 251(h); Joint Statement at para. 4.
8Id.
9Id.
10See, e.g., www.bellsouth.com/longdistance/history.html; Joint
Application by BellSouth Corp., BellSouth Telecommunications,
Inc., and BellSouth Long Distance, Inc. for Provision of In-
Region, InterLATA Services in Georgia and Louisiana, Memorandum
Opinion and Order, 17 FCC Rcd 9018 (2002).
11Joint Statement at para. 4.
12Id. at para. 6. In this proceeding, ``special access
services'' includes dedicated switched transport services, which
are deployed when an interexchange carrier connects its points of
presence to a LEC end office switch or tandem switch. Id.
13Id.
14Id.
15Id.
16Id.
17Id. at para. 7.
18Id.
19Id.
20Id.
21Id. at para. 8.
22Id.
23Id. at para. 15; BellSouth Telecommunications, Inc.'s Answer to
AT&T Corp.'s Formal Complaint, File No. EB-04-MD-010 (filed July
21, 2004) (``BellSouth Answer'') at Tab 3, Attachment B,
BellSouth Transmittal No. 495.
24Joint Statement at para. 25. MCI challenged one section of
Transmittal No. 495, a ``growth'' discount provision, while AT&T
challenged the entire filing, arguing that BellSouth had not
provided sufficient cost support. BellSouth Answer at Tab 3,
Attachments C, D. AT&T asserted that the cost support provided
by BellSouth -- two worksheets alleged to demonstrate that the
discount rates would not produce below-cost prices -- did not
adequately support the proposed discount plans. Under special
permission, before the TSP became effective, BellSouth struck the
section of the TSP to which MCI had objected. BellSouth Answer
at Tab 3, Attachment E.
25Protested Tariff Transmittals Action Taken, Public Notice, 14
FCC Rcd 6199 (Com. Carr. Bur.-Comp. Pr. Div. 1999) (``TSP Public
Notice'').
26Joint Statement at para. 15.
27Id. at para. 16.
28Id. At the time that the TSP was introduced, BellSouth had in
place three optional payment and savings discount plans for its
special access customers, and these plans continued in place:
the Area Commitment Plan (``ACP''); the Channel Services Payment
Plan (``CSPP''); and the Transport Payment Plan (``TPP''). All
three of these plans are still available to current and new
customers. Joint Statement at paras. 9-14.
29Id. at paras. 16, 38.
30The TSP's revenue bands are from $3 million to $10 million
(with discounts ranging from 1% in the first year to 3% in the
fifth); from $10 million to $100 million (with discounts ranging
from 2% to 5%); from $100 million to $300 million (with discounts
ranging from 3% to 9%); from $300 million to $500 million (with
discounts ranging from 4.5% to 10%); from $500 million to $600
million (with discounts ranging from 5% to 12%); and above $600
million (with discounts ranging from 5.5% to 12.5%). Complaint,
Tab H (citing BellSouth Tariff FCC No. 1 at section
2.4.8(E)(7)(b)). As just indicated, the discount levels increase
within each band over time, and between bands, so a TSP customer
can increase its discount just by staying in the plan, and can
increase it still more by voluntarily raising its Committed
Volume Level above the ceiling of its current band. Joint
Statement at para. 21; Complaint Tab H, BellSouth Tariff FCC No.
1, section 2.4.8 (E)(7).
31Joint Statement at para. 21.
32Id.; Complaint Tab H, BellSouth Tariff FCC No. 1, section 2.4.8
(E)(8).
33Joint Statement at para. 17. The customer could also commit
to a particular revenue band amount, as long as that amount was
90% or more of its historic expenditure with BellSouth. Id.
Most, but not all, of BellSouth's special access services are
eligible for inclusion in the TSP. Joint Statement at para. 16.
Revenues generated by a customer's purchase of TSP-eligible
special access services, plus some additional specified low-
volume services, are called ``qualifying revenues.'' Joint
Statement at para. 21; BellSouth Answer, Tab 3, Declaration of
Greg Mims (``Mims Declaration'') at para. 37 .
34Joint Statement at para. 18; Complaint Tab H, BellSouth Tariff
FCC No. 1, section 2.4.8 (E)(8).
35Mims Declaration at para. 34; Complaint Tab H, BellSouth Tariff
FCC No. 1, section 2.4.8 (E)(10).
36Joint Statement at para. 18. This ``evergreen'' provision was
added in December 2001. Id. at para. 30; Complaint Tab H,
BellSouth Tariff FCC No. 1 section 2.4.8 (E)(4); Mims Declaration
at para. 84; BellSouth's Reply Brief, File No. EB-04-MD-010
(filed Oct. 4, 2004) (``BellSouth Reply Brief'') at 28.
37Joint Statement at para. 18; Complaint Tab H, BellSouth Tariff
FCC No. 1, section 2.4.8 (E)(6).
38Joint Statement at paras. 17, 19.
39Complaint Tab H, BellSouth Tariff FCC No. 1, sections 2.4.8
(E)(1), (4), and (10) (the current tariff, as modified in June
2004); Answer Tab 9 B, BellSouth Tariff FCC No. 1, section 2.4.8
(E)(11) (the tariff as filed March 22, 1999); Complaint at 36;
Complaint Tab G, Affidavit of John W. Mayo on Behalf of AT&T
Corp. (``Mayo Affidavit'') at para. 67; AT&T Initial Brief at
111, 135. Such a customer would also return to the lower, first-
year discount levels, and work its way to higher discounts over
the course of the new five-year term. Mims Declaration at para.
84; BellSouth Reply Brief at 28.
40See discussion, infra, at para. 16.
41See www.bellsouthcorp.com/policy/transactions/tariffsum.vtml,
cited in AT&T Supplemental Filing in Response to Commission
Notice of Formal Complaint of AT&T, File No. EB-04-MD-010 (filed
July 13, 2004) (``AT&T Supplement''), Tab P, Supplemental
Affidavit of Jeffrey C. Huels in Support of Formal Complaint of
AT&T Corp. (``Huels Supplemental Affidavit'') at 2; Mims
Declaration at Attachment G; BellSouth Telecommunications, Inc.'s
Responses to AT&T Corp.'s First Set of Interrogatories, EM-04-MD-
010 (filed Aug. 27, 2004) (``BellSouth Interrogatory Response'')
No. 4 at Tab A, page 2.
42Mims Declaration at Attachment G; BellSouth Interrogatory
Response No. 4, Tab A at 2.
43Joint Statement at para. 51; AT&T Supplement, Tab 8, BellSouth
Transmittal No. 829, filed June 23, 2004, effective June 24,
2004. BellSouth's tariff amendment closed both the TSP and the
PSIP (which BellSouth had filed just three months earlier, on
March 20, 2004) to new subscribers. Joint Statement at para. 36.
44Joint Statement at para. 51.
45Id. BellSouth FCC Tariff No. 1, sections 2.4.8 (E)(1) and
(10). See Complainant's Initial Brief, File. No. EB-04-MD-010
(filed Sept. 22, 2004) (``AT&T Initial Brief'') at 134-35;
Complainant's Reply Brief, File No. EB-04-MD-010 (filed Oct. 4,
2004) (``AT&T Reply Brief'') at 6; BellSouth Reply Brief at 28.
46Complaint at 4-6, 8-9, 28, 55-62, 65-67; Complaint at Tab C,
Affidavit of Stephen G. Huels in Support of AT&T Corp. (``Huels
Affidavit'') at paras. 34-35; Complaint at Tab G, Mayo Affidavit
at paras. 5-6, 11, 20, 51-52; Complainant AT&T's Reply to
Defendant BellSouth's Answer, File No. EB-04-MD-010 (filed July
26, 2004) (``Reply'') at 2-3, 12, 13-14 & n.52, 15-16, 37-40, 42-
43; AT&T Initial Brief at 4, 11-12, 49 & n.174, 54-55, 140-44,
148, 156-63; AT&T Reply Brief at 3, 58, 72-76.
47Complaint at 27-54; Reply at 6-20; AT&T Initial Brief at 87-
127; AT&T Reply Brief at 9-49.
48Complaint at 4-6, 8-9, 28, 55-62, 65-67; Huels Affidavit at
paras. 34-35; Mayo Affidavit at paras. 5-6, 11, 20, 51-52; Reply
at 12, 13-14 & n.52, 15-16, 37-40, 42-43; AT&T Initial Brief at
4, 11-12, 49 & n.174, 54-55, 140-44, 148, 156-63; AT&T Reply
Brief at 58, 72-76.
49Complaint at 4-6, 8-9, 28, 55-62, 65-67; Huels Affidavit at
paras. 34-35; Mayo Affidavit at paras. 5-6, 11, 20, 51-52; Reply
at 12, 13-16, 37-38, 40-44; AT&T Initial Brief at 11-12, 49, 54-
56, 140-44, 148, 156-63; AT&T Reply Brief at 58, 72-76.
50Complaint at 4-6, 8-9, 28, 55-62, 65-67; Huels Affidavit at
paras. 34-35; Mayo Affidavit at paras. 5-6, 11, 20, 51-52; Reply
at 2-3, 12, 13-14 & n.52, 15-16, 37-38, 40-44; AT&T Initial Brief
at 4, 11-12, 49 & n.174, 54-55, 140-144, 148, 156-63; AT&T Reply
Brief at 3, 58, 72-76.
51BellSouth Answer at 2, 17, 19-20, 66-69, 72; BellSouth Answer,
Tab 2, Legal Analysis (``BellSouth Legal Analysis'') at 2-3, 18-
20, 65-69, 73; Mims Declaration at paras. 28, 35, 44-46, 48-51,
72, 78-80; BellSouth's Initial Brief, EB-04-MD-010 (filed Sept.
22, 2004) (``BellSouth Initial Brief'') at 32-33, 35-36, 39, 44-
45, 48-51, 57-62, 70, 105; BellSouth Reply Brief at 8-9, 30-35,
37-38, 53-56; BellSouth Interrogatory Response No. 1 at 2-3;
BellSouth Interrogatory Response No. 4, Attachment A.
52AT&T Reply Brief at 74. See Complaint at 8, 28; Reply at 12,
14, 40-43; Reply at Tab A, Reply Affidavit of John W. Mayo on
Behalf of AT&T Corp. (``Mayo Reply Affidavit'') at paras. 20-21,
48-50; AT&T Initial Brief at 156-63; AT&T Reply Brief at 72-76.
5347 U.S.C. § 272(c)(1).
5447 U.S.C. § 272(e)(3). We note that neither party has argued
that sections 272(c)(1) and (e)(3) impose different substantive
prohibitions, at least as applied to volume discount plans.
Further, as the discussion in this section demonstrates, the
relevant Commission precedent calls into question discount plans
that favor a BOC affiliate under both 272(c)(1) and (e)(3).
Accordingly, our conclusions that the TSP is unlawful arise under
both section 272(c)(1) and section 272(e)(3).
55See, e.g., Joint Application by BellSouth Corp., BellSouth
Telecommunications Inc., and BellSouth Long Distance, Inc., for
Provision of In-Region, InterLata Services in Alabama, Kentucky,
Mississippi, North Carolina, and South Carolina, Memorandum
Opinion and Order, 17 FCC Rcd 17595, 17748-50 (2002) (``BellSouth
5-State Order''); Access Charge Reform, Fifth Report and Order
and Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221,
14288-91 (1999) (``Pricing Flexibility Order'') (subsequent
history omitted); Implementation of the Non-Accounting Safeguards
of Sections 271 and 272 of the Communications Act of 1934, as
Amended, Second Order on Reconsideration, 12 FCC Rcd 8653, 8657-
58, 8663 (1997) (``Non-Accounting Safeguards Recon. Order'')
(subsequent history omitted); Implementation of the Non-
Accounting Safeguards of Sections 271 and 272 of the
Communications Act of 1934, as Amended, First Report and Order
and Further Notice of Proposed Rulemaking, 14 FCC Rcd 21905
(1996) (``Non-Accounting Safeguards Order'') (subsequent history
omitted); Access Charge Reform, Third Report and Order and Notice
of Inquiry, 11 FCC Rcd 21354, 21435-38 (1996) (``Access Charge
Reform Order'') (subsequent history omitted). Regarding
Commission policy on volume discounts in general, see Transport
Rate Structure and Pricing, Fourth Order and Order on
Reconsideration, 10 FCC Rcd 12979, 12979-86 (1995) (``Fourth
Transport Rate Order'') (addressing the propriety of volume and
growth discounts under sections 201(b) and 202(a)); Expanded
Interconnection with Local Telephone Company Facilities,
Amendment of the Part 69 Allocation of General Support Facility
Costs, Report and Order and Notice of Proposed Rulemaking, 7 FCC
Rcd 7369, 7412-15 (1992) (``Expanded Interconnection Order'')
(same) (subsequent history omitted).
56Non-Accounting Safeguards Order, 14 FCC Rcd at 22200, para. 197
(discussing section 272(c)(1)).
57Non-Accounting Safeguards Order, 14 FCC Rcd at 21914, para.16.
See id. at 20999, para. 197 (discussing section 272(c)(1) and
stating that ``Congress did not intend section 272's prohibition
against discrimination in the 1996 Act to be synonymous with the
`unjust and unreasonable' discrimination language used in the
1934 Act, but rather, intended a more stringent standard.'').
58Non-Accounting Safeguards Order, 14 FCC Rcd at 22201, para. 202
(discussing section 272(c)(1)). Congress deliberately made
section 272's anti-discrimination requirements unusually
stringent in order ``to effectuate the goal of preventing
anticompetitive abuses by BOCs that control essential local
facilities and seek to enter competitive markets that require
these facilities as an input.'' Non-Accounting Safeguards Recon.
Order, 12 FCC Rcd at 8657-58, para. 10.
59Non-Accounting Safeguards Order, 14 FCC Rcd at 22028-29, para.
257 (discussing section 272(e)(3)). See BellSouth 5-State Order,
17 FCC Rcd at 17748, para. 272; Pricing Flexibility Order, 14 FCC
Rcd at 14294, para. 135; Access Charge Reform Order, 11 FCC Rcd
at 21437, para. 192; Transport Rate Structure and Pricing, Third
Memorandum Opinion and Order on Reconsideration, 10 FCC Rcd 3030,
3083 at para. 114 (1994) (``Transport Rate Order'') (subsequent
history omitted).
60Non-Accounting Safeguards Order, 14 FCC Rcd at 22028-29, para.
257 (discussing section 272(e)(3)).
61Id. at 22204-05, para. 212 (discussing section 272(c)(1) and
quoting Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996; Interconnection between Local
Exchange Carriers and Commercial Mobile Radio Service Providers,
First Report and Order, 11 FCC Rcd 15499, 15928, at para. 860
(1996) (``First Interconnection Order'') (emphasis added)).
62Non-Accounting Safeguards Order, 14 FCC Rcd at 22204-05, para.
212.
63See, e.g., Access Charge Reform Order, 11 FCC Rcd at 21435,
para. 187 (``[Volume and term] discounts should be permitted . .
. because they encourage efficiency and full competition'');
Fourth Transport Rate Order, 10 FCC Rcd at 12984, para. 13
(citing Expanded Interconnection Order, 7 FCC Rcd 7369 at 7463,
para. 199 (recognizing ``both volume and term discounts as
generally legitimate means of pricing special access facilities
so as to encourage the efficiencies associated with larger
traffic volumes and the certainty associated with longer-term
relationships'')); Price Cap Local Exchange Carrier Performance
Review, First Report and Order, 10 FCC Rcd 8961, 9042-43 at para.
417 (1995) (``LEC Performance Review Order''); Transport Rate
Order, 10 FCC Rcd at 3078-79, 3083, paras. 105, 114 (noting that
acceptable volume discounts grant ``reduced per-unit prices for a
particular number of units of service''); Private Line Rate
Structure and Volume Discount Practices, Report and Order, 97
F.C.C. 2d 923, 947, 948 at paras. 38, 40 (1984) (``Volume
Discount Order'').
64See, e.g., Pricing Flexibility Order, 14 FCC Rcd at 14288-89,
paras. 123-24; Access Charge Reform Order, 11 FCC Rcd at 21437,
para. 190; Fourth Transport Rate Order, 10 FCC Rcd at 12979-86;
Transport Rate Order, 10 FCC Rcd at 3093, para. 141; Expanded
Interconnection Order, 7 FCC Rcd at 7463, paras. 199-200.
65See, e.g., BellSouth Answer at 2, 17, 19-20, 66-69, 72;
BellSouth Legal Analysis at 2-3, 18, 66-69; Mims Declaration at
paras. 28, 35, 44-46, 48-51, 72, 78-80; BellSouth Initial Brief
at 32-33, 35-36, 39, 44-45, 48-51, 59-62, 70, 105; BellSouth
Reply Brief at 8-9, 33-35, 53-56; BellSouth Interrogatory
Response No. 1 at 2-3; BellSouth Interrogatory Response No. 4.
66See, e.g., BellSouth Answer at 2, 17, 19-20, 66-69, 72;
BellSouth Legal Analysis at 2-3, 19, 66-69; Mims Declaration at
paras. 28, 35, 44, 45, 46 (stating that ``the discounts had to be
significant enough to avoid undercutting [smaller customers']
competitiveness''), 48-51, 72, 78-79, 80 (stating that the TSP
offers ``economically rational volume-based marginal discounts
[that] . . . provid[e] attractive discounts to the vast majority
of BellSouth's special access customers.''); BellSouth Initial
Brief at 32-33, 35-36, 39, 44-45, 48-51, 57-62, 70, 105;
BellSouth Reply Brief at 8-9, 30-35, 37-38, 53-56; BellSouth
Interrogatory Response No. 1 at 2-3; BellSouth Interrogatory
Response No. 4, Attachment A.
67BellSouth Answer at 2, 17, 19-20, 66-69, 72; BellSouth Legal
Analysis at 2-3, 18-20, 48-49, 65-69, 73; Mims Declaration at
paras. 28, 35, 44-46, 48-51, 72, 78-80; BellSouth Initial Brief
at 32-33, 35-36, 39, 44-45, 48-51, 57-62, 70, 105; BellSouth
Reply Brief at 8-9, 30-31, 32-33, 33-35, 37-38, 53-56; BellSouth
Interrogatory Response No. 1 at 2-3; BellSouth Interrogatory
Response No. 4, Attachment A.
68Mims Declaration at para. 50.
69Id. These figures flow from holding constant the discount
level for the $500 million - $600 million band and calculating
the discount levels for all other bands on a basis that is
strictly proportional to volume. Id.
70Id.
71Id.
72Id. Put differently, the difference between the discount for a
carrier in the $500 million - $600 million band and the discount
for a carrier in the $10 million - $100 million band would be
about twenty times larger under a proportional volume discount
plan than it is under TSP. (Under TSP, the larger carrier's
discount is only about 2 ½ times larger than the smaller
carrier's; under a proportional discount plan, the larger
carrier's discount would be 50 times larger than the smaller
carrier's.) [Confidential Information regarding specific TSP
customers' volume bands has been redacted from this footnote.]
73[Confidential Information regarding specific TSP customers'
volume bands has been redacted from the text above and from this
footnote.] As suggested by the text above, by "discount
differential," we mean the spread of percentage points between
the discounts available in different volume bands. For example,
in the TSP, the $3 million - $10 million volume band has a 3%
discount in the fifth year, and the $10 million - $100 million
band has a 5% discount, so the ``discount differential'' is two
percentage points. Comparing the complete set of discount
differentials reveals the following: As compared to what the
discount differentials would be in the fifth year under a more
directly proportional plan, the TSP's discount differential is
(i) about 33% less (9 percentage-point differential versus 11.93
percentage-point differential) as between a $3 million - $10
million customer and a $500 million - $600 million customer; (ii)
about 40% less (7 percentage-point differential versus 11.76
percentage point differential) as between a $10 million - $100
million customer and a $500 million - $600 million customer;
(iii) about 70% less (3 percentage-point differential versus 9.6
percentage-point differential) as between a $100 million - $300
million customer and a $500 million - $600 million customer; (iv)
about 60% less (2 percentage-point differential versus 4.8
percentage-point differential) as between a $300 million - $500
million customer and a $500 million - $600 million customer; and
(v) about 500% more (½ percentage-point differential versus 2.4
percentage-point differential) as between a customer in the over-
$600 million band and a customer in the $500 million - $600
million band. Mims Declaration at para. 50.
74See AT&T Initial Brief at 77-78; AT&T Reply Brief at 75
(observing that the TSP's band structure ``particularly serves to
benefit a quickly growing customer such as BellSouth Long
Distance'').
75See BellSouth Interrogatory Response No. 4, Tab A.
76BellSouth Answer at 2, 17, 19-20, 66-69, 72; BellSouth Legal
Analysis at 2-3, 67-69; Mims Declaration at paras. 28, 35, 44-46,
48-51, 72, 78-80; BellSouth Initial Brief at 32-33, 35-36, 39,
44-45, 48-51, 59-62, 70, 105; BellSouth Reply Brief at 8-9, 33-
35, 53-56; BellSouth Interrogatory Response No. 1 at 2-3;
BellSouth Interrogatory Response No. 4, Attachment A. In fact,
although BellSouth argues that the TSP is structured to help
BellSouth retain its customers' business, and that this
constitutes a form of ``cost justification,'' it also
acknowledges that this is the main aim of any volume and term
discount plan. Mims Declaration at para. 49.
77BellSouth Initial Brief at 61-62 (citing Private Line Rate
Structure and Volume Discount Practices, Report and Order, 97
F.C.C. 2d 923, 948 (1984) (``Volume Discount Order''); BellSouth
5-State Order, 14 FCC Rcd at 13440, paras. 12-13; First
Interconnection Order, 11 FCC Rcd at 15971, para. 953; Coastal
Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d
182, 192 (1st Cir. 1996)); BellSouth Answer, Tab 2, Legal
Analysis, at 44-45 (citing NYNEX Mobile Communications Co.,
Memorandum Opinion and Order, 12 FCC Rcd 22280, 22288 at para. 16
(1997) (``NYNEX Mobile'')).
78We note that, in other contexts, courts have disallowed actions
that favored ``minnows over trout.'' See U.S. v. Western
Electric Co., Inc., 969 F.2d 1231, 1243 (D.C. Cir. 1992)
(upholding the district court's denial of a waiver of the MFJ's
line-of-business restrictions, even though granting such a waiver
might have assisted small interexchange carriers to compete
against AT&T and MCI); Competitive Telecommunications Assn' v
FCC, 87 F.3d 522, 531-32 (D.C. Cir. 1996) (rejecting a Commission
rule regarding rate structures, even though the rule helped small
interexchange carriers compete against AT&T).
79Non-Accounting Safeguards Order, 14 FCC Rcd at 21999, para.
197. As the Commission has recognized, ``[e]ven the slightest
preference or discrimination can be highly consequential in a
fast-paced competitive market.'' Non-Accounting Safeguards
Recon. Order, 12 FCC Rcd at 36221, para. 20.
80See, e.g., BellSouth Legal Analysis at 49, 77-78; BellSouth
Initial Brief at 49, 69-70.
81See Non-Accounting Safeguards Order, 14 FCC Rcd at 21914, para.
16; at 21998, para. 197; at 22029, para. 257. See also Access
Charge Reform Order, 11 FCC Rcd at 21437-38, para. 192; Non-
Accounting Safeguards Order, 14 FCC Rcd at 21909, 22001, paras.
197, 202; BellSouth 5-State Order, 17 FCC Rcd at 17750, para. 274
& n.1061. See also BellSouth 5-State Order, 17 FCC Rcd at 17750,
para. 274 & n.1061; Non-Accounting Safeguards Order, 14 FCC Rcd
at 21909, 22001, paras. 197, 202; Access Charge Reform Order, 11
FCC Rcd at 21437-38, para. 192.
82See, e.g., BellSouth Initial Brief at 49-50, 69-70; BellSouth
Reply Brief at 2, 5, 29-30; BellSouth Interrogatory Response No.
4.
83See BellSouth Initial Brief at 45-50, 70, 97 (noting discounts
are somewhat higher for higher volumes, 39-40, 70, and generally
reflect cost savings, 51, thus making them comparable to
traditional volume and term discounts, 93-94); Mims Declaration
at paras. 44-45. See also BellSouth Answer at 2, 17, 19-20, 66-
69, 72; BellSouth Legal Analysis at 2-3, 38-40, 67-69; Mims
Declaration at paras. 28, 35, 44-46, 48-51, 72, 78-80; BellSouth
Initial Brief at 32-33, 35-36, 39, 44-45, 48-51, 59-62, 70, 93-
94, 105; BellSouth Reply Brief at 8-9, 33-35, 53-56; BellSouth
Interrogatory Response No. 1 at 2-3; BellSouth Interrogatory
Response No. 4, Attachment A.
84See, e.g., BellSouth Initial Brief at 48-49, 62-70; BellSouth
Reply Brief at 54-55, 60.
85BellSouth Initial Brief at 48-49. See BellSouth Legal Analysis
at 11, 70-78; BellSouth Answer, Tab 4, Declaration of Dennis W.
Carlton and Hal S. Sider on Behalf of BellSouth
Telecommunications, Inc. (``Carlton Declaration'') at 77-78;
BellSouth Initial Brief at 45-50, 97; BellSouth Reply Brief at
29-30.
86See Non-Accounting Safeguards Order, 14 FCC Rcd at 22004-05,
para. 212. For discussions of cost justification defense
generally, see Price Cap Performance Review Order for Local
Exchange Carriers, First Report and Order, 10 FCC Rcd 8961, 9142-
43 at para. 417 (1995) (discussing balance between pricing
flexibility for LECs and cost justification support in a non-
section 272 context); Amendments of Part 69 of the Commission's
Rules Relating to the Creation of Access Charge Supplements for
Open Network Architecture Policy and Rules Concerning Rates for
Dominant Carriers Petitions for Reconsideration, Memorandum
Opinion and Order on Third Further Reconsideration, 10 FCC Rcd
1570, 1471 at para. 8 (1994) (same); Investigation of Special
Access Tariffs of Local Exchange Carriers, Tentative Decision, 8
FCC Rcd 1059, 1079 at para. 135 (Com. Carr. Bur. 1993)
(discussing departure from cost justification requirement, but
reliance on cost justification as defense against discrimination
in a section 202(b) context).
87See paras. 23-27, supra; Mims Declaration at para. 50.
88BellSouth's efforts to cost-justify the TSP all pertain to the
90% commitment requirement. BellSouth Answer at 69; BellSouth
Legal Analysis at 1-2, 65-66; Carlton Declaration at paras. 29-
30; Mims Declaration at para. 80; BellSouth Initial Brief at 6,
50-51, 56-60, 62-63; BellSouth Reply Brief at 37-38, 55-56;
BellSouth Interrogatory Response No. 1.
89See Pricing Flexibility Order, 14 FCC Rcd at 14291, para. 127;
Access Charge Reform Order, 11 FCC Rcd at 21437, paras. 190-91;
Fourth Transport Rate Order, 10 FCC Rcd at 12984, para. 13
(citing Expanded Interconnection Order, 7 FCC Rcd 7369 at 7463,
para. 199); LEC Performance Review Order, 10 FCC Rcd at 9042-43,
para. 417; Transport Rate Order, 10 FCC Rcd at 3078-79, 3083,
paras. 105, 114; Volume Discount Order, 97 F.C.C. 2d at 947, 948,
paras. 38, 40. See also BellSouth Legal Analysis at 40-41, 43-
44; BellSouth Initial Brief at 63-67; BellSouth Reply Brief at
54-55, 60.
90See Pricing Flexibility Order, 14 FCC Rcd at 14291, para. 127;
TSP Public Notice, 14 FCC Rcd at 6199. See also BellSouth
Initial Brief at 63-67; BellSouth Reply Brief at 54-55, 60.
91See generally Non-Accounting Safeguards Order, 14 FCC Rcd at
22000, para. 197.
92See Pricing Flexibility Order, 14 FCC Rcd at 14291, para. 127;
Access Charge Reform Order, 11 FCC Rcd at 21437, paras. 190-91.
93Non-Accounting Safeguards Order, 14 FCC Rcd. at 22004-05, para.
212 (discussing section 272(c)(1)). Contrary to BellSouth's
suggestion otherwise, BellSouth Initial Brief at 49, the
Commission's refusal to require BOCs to charge their affiliates a
price per unit of traffic that reflects the highest unit price
charged under a volume discount plan does not support BellSouth's
position here. Non-Accounting Safeguards Order, 14 FCC Rcd at
22028-29, para. 257. Indeed, that refusal reflects the same
preference for cost-based pricing that we demonstrate here.
94See Pricing Flexibility Order, 14 FCC Rcd at 14290, para. 125;
Access Charge Reform Order, 11 FCC Rcd at 21437, paras. 190, 192;
Price Cap Local Exchange Carrier Performance Review, First Report
and Order, 10 FCC Rcd 8961, 9042-43 at para. 417 (1995)
(subsequent history omitted); Volume Discount Order, 97 F.C.C. 2d
923 at 947, 948, paras. 38, 40. We note that, pursuant to
section 272(f) of the Act, 47 U.S.C. §272(f), the obligations
imposed on BellSouth by section 272(c)(1) may begin to sunset
in mid-2005 (e.g., in Georgia and Louisiana on May 15, 2005,
absent a Commission order extending the applicable period), but
the obligations imposed by section 272(e)(3) will not.
Specifically, the obligations of section 272(e)(3) will continue
to apply (i) to BellSouth Long Distance, as long as it exists as
a separate section 272 affiliate of BellSouth, and (ii) to
BellSouth, if and when it integrates BellSouth Long Distance and
uses special access for the provision of its own services.
95BellSouth Legal Analysis at 2, 19-20; Mims Declaration at para.
45; BellSouth Initial Brief at 52, 58-60, 62-63; BellSouth Reply
Brief at 31-33; 54-55.
96Complaint at 8, 55-62; Reply at 12, 14-17, 40-44; Mayo Reply
Affidavit at paras. 20-21, 48-50; AT&T Initial Brief at 156-63;
AT&T Reply Brief at 3, 58-60, 72-76.
97Complaint at 9-10, 35-36, 42; Mayo Affidavit at para. 67; Huels
Affidavit at para. 27; Reply at 16, 20-21; AT&T Initial Brief at
6-7, 111, 134-35, 163; AT&T Reply Brief at 6, 7, 8, 39-40, 80,
89; but see BellSouth Reply Brief at 28-29.
98Complaint at 9, 55-57, 59, 61; Mayo Affidavit at para. 67;
Reply at 20-21; AT&T Reply Brief at 41, 47-49.
99See BellSouth 5-State Order, 17 FCC Rcd at 17748, para. 272;
Pricing Flexibility Order, 14 FCC Rcd at 14294, para. 135; Access
Charge Reform Order, 11 FCC Rcd at 21437-38, para. 192; Fourth
Transport Rate Order, 10 FCC Rcd at 12986, para. 17; Transport
Rate Order, 10 FCC Rcd at 3083, at para. 114. We recognize that
the analogy to growth discounts is not perfect (e.g., growth
discounts apply to volume above past levels, while the TSP's
discounts apply to volume below past levels); nevertheless, for
the reasons described in this Order, it is sufficiently close to
be instructive.
100See, e.g., Pricing Flexibility Order, 14 FCC Rcd at 14294,
para. 134 (citing Access Reform Order, 11 FCC Rcd at 21437).
101BellSouth 5-State Order, 17 FCC Rcd at 17749, para. 272
(citing section 272(c)(1) and (e)(3) and quoting Pricing
Flexibility Order, 14 FCC Rcd at 14294, para. 134).
102Access Charge Reform Order, 11 FCC Rcd at 21437-38, para. 192.
103In the period from 2002 to 2004, BellSouth Long Distance's
total qualifying volume [Confidential Information regarding
BellSouth Long Distance's total qualifying volume], while that of
its largest competitors [Confidential Information regarding
certain large carriers' total qualifying volume]. BellSouth
Interrogatory Response No. 4, Tab A.
104In this same 2002-2004 period, BellSouth's TSP-eligible
revenues [Confidential Information regarding BellSouth's TSP-
eligible revenues]. Id
105We recognize that our conclusion that the TSP's 90% commitment
requirement is akin to growth discounts -- and thus unlawful
under section 272 -- rests partially on our assessment of current
market conditions and predictive judgments about future
conditions in a notoriously volatile market. It is well settled,
however, that the Commission may rely on its predictive judgment
regarding matters within its expertise. See generally Sioux
Valley Regional Television, Inc. v. FCC, 349 F.3d 667, 679 (D.C.
Cir. 2003); Consumer Electronics Assoc. v. FCC, 347 F.3d 291,
300, 303 (D.C. Cir. 2003); Time Warner Entertainment Co., L.P. v.
FCC, 240 F.3d 1126, 1133 (D. C. Cir. 2001); Fresno Mobile Radio,
Inc. v. FCC, 165 F.3d 965, 971 (D.C. Cir. 1999); BellSouth Corp.
v. FCC, 162 F.3d 1215, 1221-22 (D.C. Cir. 1999) (subsequent
history omitted); Melcher v. FCC, 134 F.3d 1143, 1151-52 (D.C.
Cir. 1998).
106[Confidential Information regarding TSP customers' headroom
and revenue trends]. See AT&T Initial Brief at 83; BellSouth
Reply Brief at 51-52; BellSouth's Interrogatory Response No. 4,
Tab A. [Confidential Information regarding TSP customers'
headroom and revenue trends]. BellSouth's Response to
Interrogatory No. 4, Tab A. [Confidential Information regarding
TSP customers' headroom and revenue trends]. Id.
107Complaint at 35-36; Complaint Tab H, BellSouth Tariff FCC No.
1, sections 2.4.8 (E)(1), (4), and (10) (the current tariff, as
modified in June 2004); Answer Tab 9 B, BellSouth Tariff FCC No.
1, section 2.4.8 (E)(11) (the tariff as filed March 22, 1999);
AT&T Initial Brief at 111, 135; Mayo Affidavit at para. 67.
108BellSouth argues that the analogy to growth discounts must
fail because growth discounts require the customer to commit
demand as to which the carrier has not yet sunk any investment,
whereas the TSP's 90% commitment requirement encourages customers
to continue using facilities that BellSouth has already built for
the customers' use. Thus, in BellSouth's view, the latter is
cost-justified, while the former is not. BellSouth Legal
Analysis at 6-7, 41-47; BellSouth Initial Brief at 36-38, 68-69.
BellSouth's argument is unpersuasive, however. First, the TSP
does not necessarily encourage a customer to continue using
facilities that BellSouth has already built for the customer's
use. A customer can, and inevitably does, meet its 90%
commitment requirement through a shifting range of purchases, as
its retail customer base churns and changes. That is, TSP
customers secure new facilities and abandon old ones, and the
TSP's discounts are not linked to particular facilities.
Moreover, BellSouth has presented no evidence that it cannot
recover, and has not recovered, its facility investments at the
time customers sign up for or renew their TSP subscriptions. See
Reply at 3, 12-13, 35-38, 41-42; AT&T Initial Brief at 4, 139-40,
150-51; AT&T Reply Brief at 3, 65, 68-70.
109See BellSouth Legal Analysis at 77-78; BellSouth Initial Brief
at 45-46, 49 n.142; BellSouth Reply Brief at 2, 5, 29-30. See
also Huels Affidavit at 2;
www.bellsouthcorp/policy/transactions/tariffsum/vtml.
110Also irrelevant is the fact that the Commission denied
petitions to suspend or investigate the TSP. BellSouth Answer,
Tab 2, Legal Analysis, at 37-38 (citing TSP Public Notice, 14 FCC
Rcd 6199). It is well-established that such Commission action
does not preclude a subsequent challenge to the tariff on the
same grounds under section 208 of the Act. See, e.g.,
Examination of Current Policy Concerning the Treatment of
Confidential Information Submitted to the Commission, Notice of
Inquiry and Notice of Proposed Rulemaking, 11 FCC Rcd 12406,
12428 at para. 45 (1996); Bell Atlantic Telephone Companies,
Memorandum Opinion and Order, 8 FCC Rcd 2732, 2733 at para. 7
(1993) (``Bell Atlantic Order''); Policy and Rules Concerning
Rates for Dominant Carriers, Notice of Proposed Rulemaking, 2 FCC
Rcd 5208, 5209 at para. 7 (1987); In the Matter of AT&T
Communications Tariff F.C.C. Nos. 1 and 2, Transmittal Nos. 604
and 628, Memorandum Opinion and Order, 2 FCC Rcd 548, 550 at
para. 14 (1987); AT&T Communications Revisions to Tariff F.C.C.
Nos. 1, 9 and 10, Transmittal Nos. 434 and 435, Memorandum
Opinion and Order on Reconsideration, 1 FCC Rcd 930, 931 at para.
10 (1986); Bell Atlantic Co. Tariff F.C.C. No. 1, Order on
Reconsideration, 7 FCC Rcd 5271, 5272 at para. 7 (Com. Carr. Bur.
1992) (``Bell Atlantic Recon. Order''); In the Matter of American
Telephone and Telegraph Co. Revisions to Tariff F.C.C. No. 1,
Transmittal No. 1105, Order on Reconsideration, 3 FCC Rcd 3572,
3572 at para. 3 (Com. Carr. Bur. 1988); In the Matter of
Southwestern Bell Telephone Company Transmittal Nos. 1537 and
1560 Revisions to Tariff F.C.C. No. 68, Order Designating Issues
for Investigation, 3 FCC Rcd 2339, 2339 at paras. 6-7 (Com. Carr.
Bur. 1988) (subsequent history omitted). BellSouth's reliance on
NYNEX Tel. Cos. Revision to Tariff F.C.C. No. 1, Trans. Nos. 311,
314 and 350, Order, 9 FCC Rcd 7832 (Com. Carr. Bur.-Tar. Div.
1994) (``NYNEX'') is likewise misplaced, because the Commission
there simply denied petitions to suspend or investigate the
tariff at issue. Moreover, that tariff differed materially from
the TSP by allowing the customer to choose the amount of volume
to commit to the plan. NYNEX, 9 FCC Rcd at 7832, para. 1; AT&T
Reply Brief at 65-67.
111See BellSouth Initial Brief at 58 (noting its goal of
``ensuring relatively high usage of BellSouth's deployed
facilities, which thus continue to earn a return on the
investment made on behalf of that customer''). See also
BellSouth Legal Analysis at 65-66, 69; Carlton Declaration at
paras. 29-30; Mims Declaration at paras. 44, 80, 96; BellSouth
Initial Brief at 6, 50-51, 56-59, 62-63; BellSouth Reply Brief at
14, 31-32, 37-38, 55-56; BellSouth Interrogatory Response No. 1;
but see BellSouth Initial Brief at 56 (noting that TSP customers
may use any combination of services and facilities in meeting
their Committed Volume Levels). Supporting this view of non-
specific facility use, see generally Reply at 12; Mayo Reply
Affidavit paras. 18-19 & n.2; AT&T Initial Brief at 39, 51-52,
124-27, 132-34; AT&T Reply Brief at 50-52.
112BellSouth Legal Analysis at 71, 76; BellSouth Initial Brief at
31-32, 43-44, 47-48; BellSouth Reply Brief at 24-26; BellSouth
Interrogatory Response No. 1.
113Non-Accounting Safeguards Order, 14 FCC Rcd at 22028-29, para.
257 (discussing section 272(e)(3)) (emphasis added).
114Access Charge Reform Order, 11 FCC Rcd at 21437, para. 192.
115BellSouth Legal Analysis at 4, 32.
116BellSouth Reply Brief at 28.
117Joint Statement at para. 18; but cf. BellSouth Reply Brief at
12-13, 19-20, 28-29 (arguing that the evergreen provision was
developed at the request of TSP customers, including AT&T).
118Complaint Tab H, BellSouth Tariff FCC No. 1, sections 2.4.8
(E)(1), (4), and (10) (the current tariff, as modified in June
2004); Answer Tab 9 B, BellSouth Tariff FCC No. 1, section 2.4.8
(E)(11) (the tariff as filed March 22, 1999); Complaint at 36;
Mayo Affidavit at para. 67; AT&T Initial Brief at 111, 135.
119See Part III. C, infra. Moreover, we have no reason to
believe that AT&T's right to damages, if any, would be any
different for liability arising under sections 201(b) and 202(a)
than under section 272.
12047 U.S.C. § 415(b).
121BellSouth Answer at 22; BellSouth Legal Analysis at 5, 32-36;
BellSouth Initial Brief at 26-30; BellSouth Reply Brief at 68-69.
122See, e.g., AT&T v. Winback & Conserve Program, Inc.,
Memorandum Opinion and Order, 16 FCC Rcd 16074, 16081 at n.53
(2001) (``Winback'') (``Section 415(b) applies only to claims for
damages.''); ACC Long Distance Corp. v. Yankee Microwave, Inc.,
Memorandum Opinion and Order, 10 FCC Rcd 654, 670 at para. 30
(1995) (affirming a Bureau order because ``the Bureau did not
find that ACC's entire complaint, including its requests for
declaratory rulings, is barred by the statute of limitations in
Section 415 of the Act.'') (subsequent history omitted); Bunker
Ramo Corp. v. Western Union Telegraph, Memorandum Opinion and
Order, 31 F.C.C. 2d 449, 454 (Rvw. Bd. 1971) (``Section 415(b),
both by its terms and as it has been construed in past
proceedings, applies exclusively as a bar to the recovery of
damages; it does not operate as a bar to other forms of
relief.'') (subsequent history omitted); Municipality of
Anchorage v. Alascom, Inc., Memorandum Opinion and Order, 4 FCC
Rcd 2472, 2465 at para. 25 (Com. Carr. Bur. 1989) (``Anchorage v.
Alascom''). See generally Heritage Cablevision v. Texas
Utilities Electric Co., Memorandum Opinion and Order, 6 FCC Rcd
7099, 7106 at para. 36 (1991) (noting that ``Section 415(b) does
not limit our ability to redress harm caused by longstanding
misconduct such as this on a prospective basis.'').
123Complaint at 68-69.
124Complaint at 2, para. 2.
125Compare Complaint at 68; AT&T Supplement at 6-9; Reply at 24-
26, with BellSouth Answer at 22; BellSouth Legal Analysis at 32-
36; BellSouth Initial Brief at 26-28 (taking opposing views on
when AT&T's damages claims accrued). For the same reasons, we
need not and do not decide in this Order whether 47 U.S.C. §
204(a)(3) bars all, or only part, of AT&T's entitlement to seek
recovery of any damages. Compare BellSouth Legal Analysis at 37-
38; BellSouth Initial Brief at 9, 11-12 (arguing that section
204(a)(3) bars retrospective (but not prospective) relief and
thus eliminates all of AT&T's entitlement to damages, if any),
with AT&T Reply Brief at 78-79 (acknowledging that section
204(a)(3) does bar its recovery of some of its alleged damages,
but not all such damages).
126Armstrong Utilities, Inc. v. General Telephone Co. of PA,
Memorandum Opinion, Order, and Temporary Authorization, 25 F.C.C.
2d 385, 389 at para. 11 (1970) (``Armstrong'') (subsequent
history omitted). See MCI Telecommunications Corp. v. Pacific
Tel. Co. of PA, Memorandum Opinion and Order, 12 FCC Rcd 13243,
13252 at para. 15 (1997) (subsequent history omitted); Michael J.
Valenti and Real Estate Marketplace v. AT&T Co., Memorandum
Opinion and Order, 12 FCC Rcd 2611, 2621 at para. 24 (1997)
(``Valenti''); Tele-Valuation, Inc. v. AT&T Co., Memorandum
Opinion and Order, 73 F.C.C. 2d 450, 451 at para. 6 (1979)
(``Tele-Valuation v. AT&T''); MCI Telecommunications Corp. v.
Northwestern Bell Tel. Co., Order to Show Cause, 4 FCC Rcd 6096,
6097-98 n.8 (Com. Car. Bur. 1989) (``MCI v. Northwestern Bell'');
Anchorage v. Alascom, 4 FCC Rcd at 2473, para 14; Mid-State
Horticultural Co. v. Pennsylvania Railway, 320 U.S. 356, 364
(1943) (``Mid-State''); A.J. Phillips Co. v. Grand Trunk W.
Railway Co., 236 U.S. 662, 667 (1915) (``Grand Trunk''); Ward v.
Northern Ohio Telephone Co., 251 F. Supp. 606, 609 (N.D. Ohio
1966), aff'd, 381 F. 2d 16 (6th Cir. 1967).
127See BellSouth Legal Analysis at 32-35; BellSouth Initial Brief
at 28-29.
12847 U.S.C. § 415(b) (emphasis added).
129See Valenti, 12 FCC Rcd at 2621-22, para. 24; Tele-Valuation
v. AT&T, 73 F.C.C. 2d at 451, para. 6; Armstrong, 25 F.C.C. 2d at
389, para. 11; MCI v. Northwestern Bell, 4 FCC Rcd at 6097-98,
n.8; Mid-State, 320 U.S. at 367; Grand Trunk, 236 U.S. at 667.
130Winback, 16 FCC Rcd at 16081, n.53. See Black Radio Network
v. New York Telephone Co., Memorandum Opinion and Order, 12 FCC
Rcd 13737 at 13748, n.40 (Com. Carr. Bur. 1997) (noting that
``even in the absence of a damage claim, the Bureau is always
concerned with the timeliness of complaints. We will not
hesitate to dismiss causes of action as untimely when
considerations of equity so require.''). But cf. AT&T, MCI v.
Bell Atlantic - PA, Memorandum Opinion and Order, 14 FCC Rcd 556,
566 at para. 18 (1998) (``AT&T v. Bell Atlantic PA'') (declining
to dismiss a complaint as untimely on equitable grounds, because
the defendants failed to cite specific authority supporting such
a dismissal).
131BellSouth Answer at 22; BellSouth Legal Analysis at 32-36;
BellSouth Initial Brief at 26-30.
132BellSouth Answer at 22; BellSouth Legal Analysis at 33, 34;
BellSouth Initial Brief at 26-27.
133BellSouth Legal Analysis at 3-4, 22-25, 36; Joint Statement at
para. 29; BellSouth Initial Brief at 2-3, 26, 27, 30, 37-38, 74,
78-79, 81-82, 84; BellSouth Reply Brief at 11, 23-24, 27, 48, 61.
BellSouth also observes that: (i) but for [Confidential
Information regarding AT&T business decision and subsequent
events], eliminating any competitive or financial harm that the
TSP allegedly causes AT&T today, BellSouth Initial Brief at 2-3,
30; BellSouth Reply Brief at 11; (ii) given that the TSP existed
for years without legal challenge, other TSP customers and
potential customers have formed business plans based on the
continued availability of the TSP, BellSouth Initial Brief at 21-
22; (iii) some of the evils that statutes of limitation are
designed to prevent have occurred in this proceeding --
specifically, potentially relevant witnesses and documents that
might have been available had the complaint been filed sooner
were not available, BellSouth Reply Brief at 35-36; and (iv) AT&T
has [Confidential Information regarding the amount of TSP
discounts received by AT&T], BellSouth Interrogatory Response No.
4, Tab A; BellSouth Initial Brief at 30; BellSouth Reply Brief at
11.
134See para. 42, supra.
135We do not, in our discussion here, make any determination
about when AT&T's claim for damages accrued under section 415(b).
136Voice over Internet Protocol (``VoIP'').
137For example, from 2002 to 2004, BellSouth's TSP-eligible
revenue [Confidential Information regarding BellSouth revenues].
BellSouth Interrogatory Response No. 4.
138Complaint at 15-17 & n.40, 22, 45, 58-59; Huels Affidavit at
paras. 11-16; Mayo Affidavit at paras. 6, 33-34; Mayo Reply
Affidavit at para. 5; AT&T Initial Brief at 48, 82-85; AT&T
Interrogatory Response No. 1 at 17-19.
139See ,e.g., AT&T v. Business Telecom, Inc., Memorandum Opinion
and Order, 16 FCC Rcd 12312 (2001) (``AT&T v. BTI'') (subsequent
history omitted).
140Complaint at 68-69; AT&T Supplement at 6-9; Reply at 24-26;
AT&T Initial Brief at 163-73; AT&T Reply Brief at 76-92.
Although AT&T seeks damages from BellSouth, in an amount to be
determined in a supplemental proceeding, AT&T states that it
``principally seeks other relief (declaratory, injunctive, and
prescriptive) . . .''. AT&T Initial Brief at 14.
141BellSouth Answer at 23-24, 68; BellSouth Legal Analysis at 20-
21, 37-38, 78-86; BellSouth Initial Brief at 4-5, 9-11, 12-25;
BellSouth Reply Brief at 9-10, 68-70.
142Given that we find in favor of AT&T on liability, AT&T may now
file a supplemental complaint for damages in compliance with 47
C.F.R. § 1.722. If BellSouth plans to seek reconsideration or
court review of this Order, however, the parties may wish to seek
jointly a waiver and extension of our 60-day deadline for filing
such a damages complaint.
143As a practical matter, [Confidential Information regarding the
impact on TSP customers of this action].
144Between now and the expiration of a TSP customer's term, the
customer remains liable for any shortfall charges it may incur.
14547 U.S.C. §§ 154(i), 208.
146Implementation of the Telecommunications Act of 1996:
Amendment of Rules Governing Procedures To Be Followed When
Formal Complaints Are Filed Against Common Carriers, 12 FCC Rcd
22497, 22565-66 at para. 159 & n.464 (``Formal Complaints
Rulemaking Order'') (subsequent history omitted); Bell Atlantic
Order, 8 FCC Rcd at 2733, n.8.
147Both parties agree that we have authority under sections 4(i)
and 272 of the Act to order this result. AT&T Supplement at 4-
10; Reply at 26-28; AT&T Reply Brief at 82 n.268; BellSouth
Initial Brief at 5, 8. Both parties also agree that we have the
authority to strike just the evergreen provision, so that the TSP
would terminate customer-by-customer, as each reached the end of
its five-year commitment or one-year extension. AT&T Supplement
at 6-9; Reply at 26-28; AT&T Initial Brief at 163-67; AT&T Reply
Brief at 82 n.268; BellSouth Initial Brief at 5, 6, 8. The
virtue of such a result is that some TSP customers would have
longer than six months to adjust to the future elimination of the
TSP, thereby reducing market disruption. The vice of such a
result, however, is that BellSouth Long Distance would be one of
those favored TSP customers; indeed, BellSouth Long Distance
would remain under the TSP until April 10, 2006, [Confidential
Information regarding the remaining terms of other TSP
customers], thereby perpetuating and exacerbating the very
discrimination that this Order seeks to remedy. Mims
Declaration, Attachment G; AT&T Initial Brief at 6-7; AT&T Reply
Brief at 82 n.268. Thus, we decline to adopt this approach.
148In this regard, the remedy we fashion here is analogous to the
Commission's actions in the CLEC Access Charge Order, Access
Charge Reform: Reform of Access Charges Imposed by Competitive
Local Exchange Carriers, Seventh Report and Order and Further
Notice of Proposed Rulemaking, 16 FCC Rcd 9924 (2001)
(subsequent history omitted), and in the ISP Remand Order,
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996: Intercarrier Compensation for
ISP-Bound Traffic, Order on Remand and Report and Order, 16 FCC
Rcd 9151 (2001), where the Commission ordered the gradual
reduction of rates, rather than a ``flashcut,'' so as to minimize
industry disruption (subsequent history omitted). Cf. In the
Matter of Unbundled Access to Network Elements, Order and Notice
of Proposed Rulemaking, FCC 04-179, 2004 WL 1900394, at para. 30
(Aug. 20, 2004) ("We recognize that transition plans are always
imperfect, as they by definition retain -- temporarily -- aspects
of the regime being discarded.").
14947 U.S.C. § 205.
150See generally National Ass'n of Motor Bus Owners v. FCC, 460
F.2d 561, 565 (2d Cir. 1972); Implementation of Section
402(b)(1)(A) of the Telecommunications Act of 1996, Order on
Reconsideration, 17 FCC Rcd 17040, 17042-43 at para. 6 (2002)
(confirming Commission's authority to prescribe rates in a
complaint proceeding); AT&T v BTI, 16 FCC Rcd at 12312, para. 13
(``Section 205 thus expressly authorizes the Commission to
prescribe rates in the context of a complaint proceeding under
section 208''); MTS/WATS, Report and Order, 83 F.C.C. 2d 167, 191
at paras. 70-73 (1980); Implementation of Section 402(b)(1)(A) of
the Telecommunications Act of 1996, Notice of Proposed
Rulemaking, 11 FCC Rcd 11233, 11236-37 at para. 8 & n.22 (1996);
Regulatory Policies Concerning Resale and Shared Use of Common
Carrier Services and Facilities, Order, 60 F.C.C. 2d 261,284-85,
321-22 at paras. 42, 130-32 (1976).
151See, e.g., BellSouth Legal Analysis at 67-69; Mims Declaration
at paras. 45-51.
15247 U.S.C. § 205(a).
153Complaint at 3-10, 18-69; Reply at 1-22, 35-48; AT&T Initial
Brief at 156-163; AT&T Reply Brief at 72-76.
154BellSouth Legal Analysis at 30-31; Mims Declaration at para.
94 and Attach. H.
155Joint Statement at para. 40; Mims Declaration at para. 55.
156Mims Declaration at para. 95.