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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
APCC Services, Inc., )
Data Net Systems, LLC, )
Davel Communications, Inc., ) File No. EB-003-MD-011
Jaroth, Inc. d/b/a Pacific )
Telemanagement )
Services, and )
Intera Communications Corp., )
)
Complainants, )
)
v.
)
Network IP, LLC, and )
Network Enhanced Telecom, LLP, )
)
Defendants. )
MEMORANDUM OPINION AND ORDER
Adopted: January 31, 2005 Released: February 1,
2005
By the Chief, Enforcement Bureau:
I. INTRODUCTION
1. In this Memorandum Opinion and Order, we largely grant
a formal complaint1 filed by APCC Services, Inc., Data Net
Systems, LLC, Davel Communications, Inc., Jaroth, Inc. d/b/a
Pacific Telemanagement Services, and Intera Communications Corp.
(collectively, ``Complainants'') against Network IP, LLC, and
Network Enhanced Telecom, LLP (collectively, ``NIP'') pursuant
to section 208 of the Communications Act of 1934, as amended
(``Act'').2 Complainants claim that NIP violated sections
201(b), 276, and 416(c) of the Act3 by failing to pay
Complainants the compensation required by section 64.1300 of the
Commission's rules4 for certain payphone calls completed during
the period October 7, 1997 through November 23, 2001 (the
``Relevant Period'').5 For the reasons explained below, we find
that NIP's failure to pay compensation to Complainants violates
section 64.1300 of the rules and thus sections 201(b) and 276 of
the Act. Because we grant Complainants' claims under sections
201(b) and 276 of the Act, and such grant will afford
Complainants all the relief to which they would be entitled
under section 416(c) of the Act, we dismiss without prejudice
Complainants' claims under section 416(c).6
II. BACKGROUND
II.A. The Parties
2. APCC Services, Inc., Data Net Systems, LLC, Davel
Communications, Inc., and Intera Communications Corp. are
billing and collection agents for payphone service providers
(``PSPs'').7 Jaroth, Inc. d/b/a Pacific Telemanagement Services
is itself a PSP and also a billing and collection agent for
other PSPs.8 NIP is a telecommunications carrier that owns
switches and that offers other companies a package of
telecommunications services that enables those companies to
provide prepaid calling cards to end-user customers.9 End-user
customers can use those prepaid calling cards to make
``coinless'' calls from payphones.10 In this proceeding,
Complainants seek compensation from NIP for such ``coinless''
calls placed from payphones owned by Complainants' PSP
principals.
II.B. The Rules Governing Compensation for Coinless
Payphone Calls
3. Section 276 of the Act and the Commission's
implementing orders determine PSPs' rights to compensation for
calls made from their payphones. Section 276(b)(1)(A) of the
Act directs the Commission to ``establish a per call
compensation plan to ensure that all payphone service providers
are fairly compensated for each and every completed intrastate
and interstate call using their payphone . . . .''11
4. Two kinds of calls may be placed from a payphone. The
first kind is the ``coin call,'' in which the caller initiates
the call by depositing coins into the payphone and then dialing
the call recipient's number.12 With respect to these calls, the
caller directly compensates the PSP for use of the payphone, and
thus section 276 does not require the Commission to ``establish
a per call compensation plan.'' The second kind of call is the
``coinless call,'' in which the caller initiates the call not by
depositing coins, but rather by dialing a special access number
that triggers a specific service (which may or may not then
require the dialing of additional numbers), such as directory
assistance, operator service, toll-free (e.g., ``800'') service,
and calling card service (either pre-paid or credit).13 With
respect to these calls, the caller does not directly compensate
the PSP for use of the payphone, and thus section 276 does
require the Commission to ``establish a per call compensation
plan.''
5. Complicating the Commission's task of establishing a
per call compensation plan for coinless payphone calls is the
fact that several entities may be involved, in one way or
another, in a particular coinless payphone call. The local
exchange carrier (``LEC'') serving the payphone transports the
call to the switching facilities of an interexchange carrier
(``IXC'').14 In some instances, this IXC then transports the
call to the LEC serving the call recipient.15 In other
instances, however, the IXC transports the call to a
``reseller,'' and the call may then be transported to one or
more additional resellers before arriving at the LEC serving the
call recipient.16
6. Some of these resellers possess the switching equipment
required to perform the function of transmitting the call; some
resellers lack such equipment (i.e., ``switchless resellers'')
however, so they only resell the telecommunications service
(i.e., the ability to place a coinless payphone call), and rely
on other carriers to perform the actual switching and
transmission functions required to complete the call.17 In
other words, only a reseller that possesses switching equipment
can physically receive the call and route it onward, either to
the LEC serving the call recipient or to the switch of another
reseller.18 In a quite separate function, however, any reseller
may resell only the telecommunications service to the public, or
to a switchless reseller. Such a switchless reseller may, in
turn, resell the service to another switchless reseller, or may
sell the service to the public, often in the form of prepaid
calling cards.19
7. Thus, with respect to each coinless payphone call,
there may be two daisy-chains of carriers: one transporting the
call toward the call recipient, and a separate one conveying
only the service to the end-user consumer who pays for placing
the call.20 And each of these chains can be lengthy.
8. Faced with this complex array, the Commission had a
number of options in establishing a plan under section 276 of
the Act to ensure that PSPs receive compensation for each
coinless payphone call. During the Relevant Period, the
Commission chose the following plan: with respect to each
coinless payphone call, the party responsible for paying the PSP
is the last identified ``facilities-based'' carrier that
physically routes the call to the recipient's LEC.21 The
Commission determined that establishing such a bright-line test
for allocation of payment responsibility would be easier to
administer, and reasoned that non-facilities-based resellers,
who often sell services in advance, would be harder to locate
than facilities-based entities.22
II.C. The Coinless Payphone Calls at Issue
9. The coinless payphone calls at issue here were made by
end-user customers with prepaid calling cards. When the card-
holder placed a coinless call from a payphone owned by one of
Complainants' principals, the LEC serving the payphone
transported the call to the IXC that NIP had engaged to provide
transport services.23 The IXC transported the call to one of
three switches owned by NIP; that NIP switch then routed the
call to the terminating LEC (i.e., the LEC serving the call
recipient) for completion.24
10. The prepaid calling cards used to make the coinless
payphone calls at issue here were sold to end-user customers by
entities (``Debit Card Providers'') to which NIP sold a package
of telecommunications services that enabled the Debit Card
Providers to offer prepaid calling cards to the public.25 NIP's
package included (i) internet access to traffic and billing
records specific to the Debit Card Provider, (ii) call routing
by NIP, and (iii) resold transport services of the underlying
IXC.26 The Debit Card Providers played no role in actually
transporting the coinless payphone calls at issue here.
11. NIP's relationship with the Debit Card Providers was
set forth in detailed contracts.27 These contracts bear the
title ``PREPAID CALLING CARD SERVICES AGREEMENT'' or
``USAGE-BASED UNIVERSAL PIN SERVICES AGREEMENT'' (``Service
Contract'').28 The Service Contracts describe the services that
NIP provided to the Debit Card Providers, such as internet
access to account information (including traffic and billing
records), custom branding, and technical support.29 Moreover,
many of the Service Contracts specify that the ``[Debit Card
Provider] shall be responsible for all applicable taxes or
assessments . . . (including Universal Service Fund and Payphone
Compensation) relating to the Services.''30
12. The Service Contracts do not suggest any intent for NIP
to lease its switching equipment to the Debit Card Providers.
For example, the Service Contracts contain no provision
describing NIP's switch or switches, or specifying the switch
type, manufacturer, or serial number.31
13. This dispute began when, during the Relevant Period,
end users used prepaid calling cards sold by Debit Card
Providers to make coinless calls on payphones owned by
principals of Complainants. Upon learning which carriers were
involved in transporting those calls, Complainants sought per-
call compensation from NIP, arguing that NIP was the last
identified facilities-based carrier within the meaning of the
Commission's orders.32 NIP declined to pay, asserting that
Complainants should look, instead, to the various Debit Card
Providers for compensation because, inter alia, the Debit Card
Providers, not NIP, were the last identified facilities-based
carriers within the meaning of the Commission's rules.33
Complainants ultimately filed the instant Complaint alleging
that NIP's failure to pay compensation violated the Commission
orders implementing section 276 of the Act, and thus violated
sections 276, 201(b), and 416(c) of the Act.
III. DISCUSSION
14. NIP effectively acknowledges, as it must, that
whichever entity is the last identified ``facilities-based''
carrier with respect to the coinless payphone calls at issue
here owes Complainants compensation for the use of their
payphones to place those calls.34 Therefore, the task presented
is deciding which entity is the last identified ``facilities-
based'' carrier, NIP or a Debit Card Provider. For the
following reasons, we conclude that NIP, and not a Debit Card
Provider, is the last ``facilities-based'' carrier, and thus is
the entity responsible for paying payphone compensation to
Complainants.
III.A. The Debit Card Providers Are Not ``Facilities-
Based,'' Because They Lack a Possessory Interest in
Relevant Equipment.
15. The adjective ``facilities-based'' is a term of art in
the telecommunications industry. It is commonly understood - in
payphone contexts and non-payphone contexts - to mean a carrier
with some form of possessory interest in at least some of the
equipment (such as a switch) used to complete calls.35
16. Here, the Debit Card Providers plainly fail to qualify
as ``facilities-based'' carriers within the commonly understood
meaning of that term of art: the Debit Card Providers do not
have any possessory interest in any of the telecommunications
equipment used to complete the coinless payphone calls at issue,
i.e., they do not own or lease a switch.36 Consequently, we
have little difficulty in concluding that the Debit Card
Providers are not ``facilities-based'' carriers for purposes of
the payphone compensation rules, and that NIP is the facilities-
based carrier responsible for paying compensation to
Complainants during the relevant period. As a result, NIP's
failure to pay compensation violates rule 64.1300(c) and thus
sections 276 and 201(b) of the Act.37
17. NIP contends that, in the payphone compensation
context, the Commission has essentially carved out an exception
to the Commission's own explanations, and the industry's common
understanding, of the meaning of ``facilities-based'' carrier.38
In particular, according to NIP, the Commission has held that an
entity may be considered a ``facilities-based'' carrier under
the payphone compensation rules, even if the entity has no
possessory interest in any telecommunications equipment, as long
as the entity somehow manages in some other way to ``maintain
its own switching capability.''39 To support this contention,
NIP relies on one sentence in one Commission order, to wit:
``In [a prior Order], we concluded that the
underlying facilities-based carrier should be
required to pay compensation to the PSP in lieu of a
non-facilities-based carrier that resells services .
. . . We clarify that a carrier is required to pay
compensation and provide per-call tracking for the
calls originated by payphones if the carrier
maintains its own switching capability, regardless if
the switching equipment is owned or leased by the
carrier . . . . If a carrier does not maintain its
own switching capability, then, as set forth in the
[prior Order] and consistent with our clarification
here, the underlying carrier remains obligated to pay
compensation to the PSP in lieu of its customer that
does not maintain a switching capability.''40
In NIP's view, the sentence emphasized above means that a carrier
may qualify as ``facilities-based'' if it ``maintain[s] its own
switching capability'' by some mechanism other than owning or
leasing a switch. NIP is mistaken.
18. First, even when read in isolation, the sentence
emphasized above can reasonably be interpreted to mean precisely
the opposite of NIP's proffered construction: in order to be
``facilities-based,'' a carrier may ``maintain its own switching
capacity'' in two ways - by either owning or leasing switching
equipment - but it does not matter which of those two ways the
carrier chooses. In other words, rather than rejecting a
possessory interest requirement, the sentence simply clarifies
the kinds of possessory interests that will suffice.41
19. Second, NIP's construction fatally ignores the context
in which the Commission made the statement emphasized above.
Specifically, NIP's construction fails to account for the fact
that, when the Commission made that statement, the pre-existing
regulatory context reflected the prevailing industry
understanding that a ``facilities-based'' carrier is one that
has some form of possessory interest in equipment.42 Read in
that context, NIP's construction of the sentence emphasized
above is wholly implausible. Specifically, if the Commission
had intended to depart so significantly from precedent and
industry usage by eliminating altogether the possessory interest
requirement for ``facilities-based'' carriers, the Commission
surely would have done so expressly. Indeed, what the
Commission did do expressly, instead, was clarify that, in the
payphone compensation context, the possessory interest
requirement for ``facilities-based'' carriers may be satisfied
not just by outright ownership of facilities, but by leasing of
facilities, as well. Subsequent Commission orders confirm the
correctness of this interpretation (and the incorrectness of
NIP's interpretation) by reiterating that, to be ``facilities-
based,'' a carrier must own or lease equipment. 43
20. Finally, read in the context of the principal purpose
of the Commission's payphone compensation rules - to ensure that
PSPs receive compensation for every completed coinless payphone
call - NIP's contention that ``facilities-based'' does not
require a possessory interest is not persuasive. It may be
true, as NIP asserts and as discussed below, that the Service
Contracts purport to enable Debit Card Providers to track calls,
which the Commission has recognized is an important component of
ensuring that PSPs receive payment.44 However, just because an
entity has call-tracking ability does not mean that the entity
can be easily traced down the potentially long chain of entities
with a financial interest in the completion of the call, or
that, if found, the entity will likely have assets sufficient to
permit recovery of payphone compensation.45 By contrast, an
entity with a possessory interest in the telecommunications
equipment used to complete the calls is more likely to be found
and capable of paying its bills. Moreover, the possessory
interest requirement creates a bright-line, easily administrable
test for determining the identity of the responsible party.
NIP's ``maintaining switching capability'' test, on the other
hand, eliminates the key distinction between entities that
actually route calls, and entities that merely resell services,
and is therefore vague, ambiguous, and ripe for confusion and
litigation.46 That NIP found it desirable to try to disperse
the payment responsibility among the numerous Debit Card
Providers, whose ``own switching capability'' consisted of
nothing more than access to data via an internet web site,
demonstrates the prudence of locating the compensation
responsibility squarely on carriers who have a possessory
interest in the relevant equipment.
21. Perhaps sensing the weakness of its argument that
``facilities based'' does not require a possessory interest in
switching equipment, NIP argues alternatively that we should
take a broad view of what constitutes such a possessory
interest.47 According to NIP, the Commission has, in various
circumstances, recognized novel forms of conveying assets,
including indefeasible rights of use (``IRUs''),48 Switch
Partitioning,49 unbundled network elements (``UNEs''),50 and
Virtual Collocation.51 NIP appears to analogize its contractual
relationship with the Debit Card Providers to these forms of
conveyance. Other than a vague assertion about switch
partitioning,52 however, NIP does not describe any resemblance
between its Service Contracts and any such arrangements, and we
find none.53
III.B. Call Tracking Ability Does Not Equate to Switching
Capability.
22. Even assuming, arguendo, that NIP is correct that a
company need not own or lease a switch to be considered
``facilities-based'' under the payphone compensation rules, NIP
must still establish that a carrier ``maintains its own
switching capability'' in order for such a carrier to bear
payment responsibility. NIP fails here, as well. NIP observes
that, in deciding which entity should bear the responsibility of
compensating PSPs, the Commission examined the question of which
entity had the ability to track payphone calls.54 In NIP's
view, therefore, an entity that can track payphone calls is an
entity that ``maintains its own switching capability'' within
the meaning of the Commission's orders.55 We disagree.
23. Contrary to NIP's suggestion, the Commission never
treated the terms ``call tracking ability'' and ``switching
capability'' as synonymous in the relevant orders.56 Moreover,
as evidenced by definitional rules that the Commission adopted
in an analogous context, ``switching capability'' involves the
possession of facilities, not just the ability to perform
certain functions.57 Moreover, regarding functions, ``switching
capability'' includes, at a minimum, the basic switching
function of receiving and routing calls.58 Thus, even assuming
the Debit Card Providers had call tracking ability, this
ability, standing alone, hardly equates to the full range of
facilities and functions that, in combination, constitute
``switching capability.''
III.C. The Terms of the Service Contracts Do Not Warrant
Shifting the Payment Obligation to the Debit Card
Providers Under The Rules.
24. NIP further asserts that the Commission should give
effect to the parties' contractual intentions, and should not
redraft or reform the provision of the Service Contracts that
makes the Debit Card Providers responsible for payment of per-
call payphone compensation.59 NIP explains that it has
structured its business in reliance upon its reading of the
Order on Reconsideration60 and that it has never billed or
collected from the Debit Card Providers any charges with which
to pay payphone compensation.61 For these reasons, NIP argues,
we should honor NIP's and the Debit Card Providers' intent,62
and not hold the Service Contracts to ``unreasonable standards
of technical legal precision.''63
25. We disagree. First, as discussed above, NIP's scheme
conflicts with the Commission's reasoned decision to place
responsibility on facilities-based carriers only. Second, in
holding that NIP is liable to Complainants, we do not
``redraft'' or ``reform'' NIP's Service Contracts with the Debit
Card Providers. Our holding does not concern what recourse NIP
may have under the Service Contracts regarding Debit Card
Providers that agreed but failed to pay payphone compensation.64
We hold only that, pursuant to the Commission's orders
implementing section 276 of the Act, the duty to compensate PSPs
remains with the facilities-based carrier, here NIP.65
26. In sum, under the payphone compensation rules, a
carrier is ``facilities-based'' only if it has a possessory
interest in the switching equipment used to transmit the calls
at issue. Somehow ``maintaining'' a switching capability by
means other than having a possessory interest in the switch is
not enough, even if the ``maintaining'' involves having call-
tracking capabilities. Accordingly, NIP, and not the Debit Card
Providers, is the ``facilities-based'' carrier that has the
payphone compensation obligations in dispute here.
Consequently, NIP's failure to pay payphone compensation to
Complainants violated section 64.1300(c) of the rules and thus
sections 276 and 201(b) of the Act.
* * * *
27. With respect to Complainants' claim under section
416(c) of the Act, our ruling under sections 201(b) and 276 of
the Act will afford Complainants all of the relief to which they
would be entitled were we to rule in their favor on this
remaining claim. Accordingly, we need not address this claim,
and we hereby dismiss it without prejudice.
IV. ORDERING CLAUSES
28. Accordingly, IT IS ORDERED, pursuant to sections 1,
4(i), 4(j), 201(b), 208 and 276 of the Communications Act of
1934, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), 201(b), 208,
and 276, sections 1.720-1.736 and 64.1300-64.1320 of the
Commission's rules, 47 C.F.R. §§ 1.720-1.736, 64.1300-64.1320,
and the authority delegated pursuant to sections 0.111 and 0.131
of the Commission's rules, 47 C.F.R. §§ 0.111, 0.131, that
Complainants' claims under sections 201(b) and 276 of the Act
are GRANTED.
29. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j),
208, and 416 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 154(i), 154(j), 208, and 416, sections 1.720-1.736 and
64.1300-64.1320 of the Commission's rules, 47 C.F.R. §§ 1.720-
1.736, 64.1300-64.1320, and the authority delegated pursuant to
sections 0.111 and 0.131 of the Commission's rules, 47 C.F.R. §§
0.111, 0.131, that Complainants' claim under section 416 of the
Act is DISMISSED WITHOUT PREJUDICE.
FEDERAL COMMUNICATIONS COMMISSION
David H. Solomon
Chief, Enforcement Bureau
_________________________
1 Formal Complaint, File No. EB-03-MD-011 (filed June 3, 2003)
(``Complaint'').
2 47 U.S.C. § 208.
3 47 U.S.C. §§ 201(b), 276, and 416(c).
4 47 C.F.R. § 64.1300. Unless otherwise indicated, all C.F.R.
references to Part 64 of the Commission's rules refer to the
rules in effect during the Relevant Period.
5 Although the Complaint does not specifically allege a violation
of section 276 of the Act, the Complaint does repeatedly assert
that NIP violated the Commission's orders implementing section
276. See, e.g., Complaint at 4-6, 10, ¶¶ 4, 7, 16. Given that
the Complaint expressly links section 276 and the relevant
Commission orders, we construe Complainants' allegations that NIP
violated the orders implementing 276 to be tantamount to an
allegation that NIP violated section 276.
6 This Order addresses only whether NIP violated the Act, and not
whether Complainants are entitled to damages, because
Complainants exercised their right under rule 1.722, 47 C.F.R. §
1.722, to bifurcate a damages determination from the liability
determination. Complaint at 1-2.
7 Complaint at 2-3, ¶ 1; Revised Joint Statement, File No. EB-
03-MD-011, at 6, ¶ 9 (filed Oct. 22, 2003) (``Revised Joint
Statement''). Although most sections of the Revised Joint
Statement have numbered paragraphs, some do not. In instances
where the Revised Joint Statement has paragraph numbers, we have
cited to both the page and paragraph number, and in the remaining
instances we have cited only to the page number.
8 Complaint at 2, ¶ 1; Revised Joint Statement at 6, ¶ 9.
9 Revised Joint Statement at 5, 6, ¶¶ 2, 8.
10 See. e.g., Revised Joint Statement at 6, ¶ 8;
Telecommunications Relay Services and the Americans with
Disabilities Act of 1990, Coin Sent-Paid TRS Call from Payphones,
Public Notice, 19 FCC Rcd 14104, 14105 (Com. Car. Bur. 2004).
11 47 U.S.C. § 276(b)(1)(A). See, e.g., Sprint Corp. v. FCC, 315
F.3d 369 (D.C. Cir. 2003) (``Sprint v. FCC''); Implementation of
the Pay Telephone Reclassification and Compensation Provisions of
the Telecommunications Act of 1996, Report and Order, 11 FCC Rcd
20541 (1996) (``First Report and Order'') (some subsequent
history omitted); Order on Reconsideration, 11 FCC Rcd 21233
(``Order on Reconsideration'') (some subsequent history omitted);
Third Report and Order, and Order on Reconsideration of the
Second Report and Order, 14 FCC Rcd 2545 (1999) (Third Report and
Order) (subsequent history omitted).
12 See, e.g., Third Report and Order, 14 FCC Rcd at 2548, ¶ 4
(discussing methods of placing calls at payphones); Sprint v.
FCC, 315 F.3d at 370 (distinguishing ``coin calls'' from
``coinless calls'').
13 See, e.g., Third Report and Order, 14 FCC Rcd at 2549, ¶ 6
(discussing long-distance payphone calls not using the pre-
subscribed long-distance carrier); First Report and Order, 11 FCC
Rcd at 20551-52, ¶ 21 (listing types of payphone calls); Sprint
v. FCC, 315 F.3d at 370 (describing coinless payphone calls).
14 Revised Joint Statement at 6, ¶ 8.
15 See, e.g., Bell Atlantic-Delaware Inc., v. Frontier
Communications Services, Inc., 16 FCC Rcd 8112, 8118 at ¶ 13
(2001) (``Bell Atlantic I'') (``[T]he first facilities-based
carrier (i.e., the IXC handling the traffic) compensate[s] PSPs
for calls that it transfers directly to the terminating LEC.'');
Bell Atlantic-Delaware Inc., v. MCI Telecommunications Corp.,
Memorandum Opinion and Order, 17 FCC Rcd 15918, 15922, at ¶ 9
(Com. Car. Bur. 2002) (``Bell Atlantic II'') (``A first
facilities-based carrier must compensate PSPs for calls that the
facilities-based carrier transfers directly to a terminating
LEC''); The Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, Report and
Order, 18 FCC Rcd 19975, 19978 at ¶ 6 (2003) (noting that first
facilities-based carrier sometimes transmits calls directly to
terminating LEC) (``Tollgate Remand Order'') (subsequent history
omitted).
16 See. e.g., Bell Atlantic I, 16 FCC Rcd at 8118, ¶ 13; Bell
Atlantic II, 17 FCC Rcd at 15918, ¶ 5; Tollgate Remand Order, 18
FCC Rcd at 19979, ¶ 8. The foregoing description applies only to
a long-distance coinless payphone call, which is the only kind of
call at issue here. Revised Joint Statement at 6-7, ¶¶ 8, 10.
17 See, e.g., Order on Reconsideration, 11 FCC Rcd at 21277, ¶ 92
(holding responsible resellers that maintain their own switching
capability); Bell Atlantic I, 16 FCC Rcd at 8114, n.8
(``Resellers can be divided into two categories - `switchless'
and `switch-based.' Switchless resellers simply rename the
underlying IXC service. Switch-based (or `facilities-based')
resellers install their own switch to handle traffic.); Bell
Atlantic II, 17 FCC Rcd at 15920, ¶ 5 (``Resellers can be divided
into two categories - ``switchless'' and ``switch-based.''
Switchless resellers simply rename the underlying IXC service.
Switch-based resellers . . ., on the other hand, install their
own switch to handle traffic.''); AT&T Request for Limited Waiver
of the Per-call Compensation Obligation, Memorandum Opinion and
Order, 13 FCC Rcd 10893, 10915-16, at ¶ 38, (Com. Car. Bur. 1998)
(``Coding Digit Waiver Order'') (clarifying obligations of
switch-based resellers); Tollgate Remand Order, 18 FCC Rcd at
19978-79, ¶¶ 7-8 (noting differing responsibilities of
switchless- and switch-based resellers).
18 Id.
19 See, e.g., First Report and Order, 11 FCC Rcd at 20586, ¶ 86
(``[T]elecommunications services are often sold in advance,
particularly in the debit card context, and resold more than once
before a caller ultimately uses the service.''); Order on
Reconsideration, 11 FCC Rcd at 21270-71, ¶ 75 (paraphrasing
language quoted above from the First Report and Order); Coding
Digit Waiver Order, 13 FCC Rcd at 10915-16, ¶ 38 (paraphrasing
language quoted above from the First Report and Order).
20 See, e.g. Bell Atlantic I, 16 FCC Rcd at 8114, ¶ 3 (``[A]n IXC
and several resellers may carry a single payphone call before the
call is transferred to a LEC for completion.'') (emphasis added);
First Report and Order, 11 FCC Rcd at 20586, ¶ 86
(``[T]elecommunications services are often sold in advance,
particularly in the debit card context, and resold more than once
before a caller ultimately uses the service.'') (emphasis added).
21 First Report and Order, 11 FCC Rcd at 20586, ¶ 86; Order on
Reconsideration, 11 FCC Rcd at 21270-71, 21277, ¶¶ 75, 92; Bell
Atlantic I, 16 FCC Rcd at 8118-19, ¶¶ 13-14; Bell Atlantic II, 16
FCC Rcd at 15920-22, ¶ 9 (all promulgating or construing 47
C.F.R. § 64.1300(c)). 47 C.F.R. § 64.1300(c) provides: ``In the
absence of an agreement as required by subsection (a) herein, the
carrier obligated to compensate the payphone service provider
shall do so at a per-call rate equal to its local coin rate at
the payphone in question.'' Although the codified rule did not
specifically mention the term ``facilities-based,'' it is clear
when read in conjunction with the relevant orders that the rule
imposed the payment obligations on facilities-based carriers
only. Further, this allocation of payment responsibility to
facilities-based carriers was expressly stated in the Federal
Register summaries and thus is binding. See, e.g., In Re
Applications of Nelson Broadcasting Corporation, Memorandum
Opinion and Order, 6 FCC Rcd 1765 (1991) (requirement in text of
a rulemaking order but not in rule is binding if requirement is
included in Federal Register summary). See also 44 U.S.C. § 1507
(publication in Federal Register generally serves as constructive
notice of agency action).
22 First Report and Order, 11 FCC Rcd at 20586, ¶ 86
23 Revised Joint Statement at 6, ¶ 8.
24 Revised Joint Statement at 6, ¶ 8.
25 Revised Joint Statement at 5, ¶¶ 2-3. Some of the Debit Card
Providers did not, in fact, sell calling cards directly to end
users, but rather resold NIP's services to other entities, which
then sold calling cards directly to end users. Id. Some
provided ``PIN-based services.'' Id. These nuances have no
bearing on the issues here.
26 Revised Joint Statement at 5-6, ¶¶ 2, 4, 8.
27 Revised Joint Statement at 5, ¶ 1; Answer, File No. EB-03-MD-
011, Exh. B. (filed Sept. 13, 2003) (``Answer'').
28 Revised Joint Statement at 8, ¶ 18. See, e.g., the opening
words of the Prepaid Calling Card Services Agreement between
NIP and Alltel Communications, Inc. (Sept. 22, 2000):
A. Provider [i.e., NIP] is in the business of
providing Services . . .; and
B. Customer desires to purchase Prepaid Calling
Services from Provider for resale to Card Holders.
Such language describing the parties' relationship does not
differ materially among the Service Contracts.
29 See Revised Joint Statement at 5-6, ¶ 4; Service Contracts at
3.7 (custom branding) and 4.0 or 4.1 (technical support).
30 Revised Joint Statement at 7-8, ¶ 16.
31 Revised Joint Statement at 9, ¶¶ 20-21. See generally Uniform
Commercial Code § 2A-103 (stating that identification of the
goods to be let is the sine qua non of a lease).
32 APCC Services et al. v. NetworkIP, Informal Complaint, File
No. EB-02-MDIC-0017, at 2-4 (filed Mar. 29, 2002); APCC Services
et al. v. NetworkIP, Informal Complaint, File No. EB-02-MDIC-
0071, at 1-2 (filed Sept. 30, 2002); Complaint at 12-13, ¶¶ 25,
28. See Complaint Attach. 6 (e-mail from Greg Haledjian, Manager
of Regulatory Affairs, APCC, to Toni Van Burkleo, Chief Financial
Officer, NIP (Aug. 18-21, 2000)). See generally Complaint at 11,
17, ¶¶ 19-20, 40-42; Reply to Defendant's Answer, File No. EB-03-
MD-011, at 3, 4, 7 (filed Sept. 24, 2003) (``Reply'');
Complainants' Reply Brief, File No. EB-03-MD-011, at 2-6 (filed
Jan. 12, 2004) (``Complainants' Brief'').
33 Complaint, Attach. 2, Letter from Anthony S. Doria, Chief
Operating Officer, Network Operator Services, to Vincent R.
Sandusky, APCC, (Jan. 14, 2000); Complaint, Attach. 4, Letter
from Toni Van Burkleo, Chief Financial Officer, NIP, to Vince
Sandusky, President, APCC (Jan. 26, 2000); Complaint, Attach. 6,
e-mail from Toni Van Burkleo, NIP, to Greg Haledjian, APCC (Aug.
17-19, 2000). See Complaint at 9-11, ¶¶ 15, 17, 19. At least
some of the Debit Card Providers have not paid the per-call
payphone compensation that Complainants seek. Revised Joint
Statement at 4, 8, ¶ 17.
34 Answer at iv, 2-3, 8-10, ¶¶ 40-41; Answer, Proposed
Conclusions of Fact and Law, 19-20, ¶¶ 7-8, 11-13; Answer,
Affidavit of Ronald Hutchison, ¶¶ 1, 5; Brief of NIP, File No.
EB-03-MD-011, at 3-6, 9-12, nn.9, 18, 24. (filed Dec. 19, 2003)
(``NIP's Brief'').
35 Although context-specific variations exist, the term
``facilities-based'' always denotes having some form of
possessory interest in equipment or capacity. See, e.g., 47
U.S.C. § 271(c)(1)(A) (defining ``facilities-based competitors''
as carriers providing service ``either exclusively over their own
telephone exchange service facilities or predominantly over their
own telephone exchange service facilities in combination with the
resale of the telecommunications services of another carrier.'');
Federal-State Joint Board on Universal Service, Order on
Reconsideration, FCC 04-237, 2004 WL 2709589 ¶ 9 (rel. Nov. 29,
2004) (holding that a carrier must be ``facilities-based'' to be
eligible for universal service support under section 214(e)(1)(A)
of the Act, 47 U.S.C. § 214(e)(1)(A), which itself requires that
an eligible carrier use ``its own facilities.''); 47 C.F.R. §
63.09(a) (``Facilities-based carrier means a carrier that holds
an ownership, indefeasible-right-of-user, or leasehold interest
in bare capacity . . . .''); Verizon Communications Inc. v. FCC,
535 U.S. 467, 491 (2002) (``[T]o engage in pure facilities-based
competition [is] to build its own network to replace or
supplement the network of the incumbent.''); Implementation of
the Local Competition Provisions of the Telecommunications Act of
1996, First Report and Order, 11 FCC Rcd 15499, 15508 at ¶ 10
(1996) (``Local Competition Order'') (``An incumbent LEC's
existing infrastructure enables it to serve new customers at a
much lower incremental cost than a facilities-based entrant that
must install its own switches, trunking and loops to serve its
customers.'') (subsequent history omitted); Clarification of
Section 43.61 International Traffic Data Reporting Requirements,
Public Notice, 13 FCC Rcd 12809, 12810 (Int. Bur. 1998) (defining
``facilities-based'' service as a service provided using channels
of communication that the carrier owns, or in which the carrier
has some other possessory interest, such as an indefeasible right
of use (IRU) or a lease); Reporting Requirements For U.S.
Providers Of International Telecommunications Services Amendment
of Part 43 of the Commission's Rules, Notice of Proposed
Rulemaking, 19 FCC Rcd 6460, 6488, at ¶ 74 (2004) (proposing
revision of ``facilities-based'' definition that would continue
to require ``ownership, indefeasible-right-of-user, or leasehold
interest''); Bell Atlantic I, 16 FCC Rcd at 8114, n.8 (``Switch-
based (or `facilities based') resellers install their own
switches to handle traffic.''); Bell Atlantic II, 17 FCC Rcd
15918, 15920, n.12 (``Switch-based resellers also are known as
`facilities-based' resellers.''); Tollgate Remand Order, 18 FCC
Rcd at 19976, ¶ 1 (``[F]acilities-based long distance carrier is
the switch-based reseller (SBR) or interexchange carrier that
completes the call on a switch that it owns or leases.''); Harry
Newton, Newton's Telecom Dictionary, 340 (16th ed. 2000)
(defining ``Facilities Based Carrier'' as a ``telecommunications
carrier which owns most of its own facilities . . . such as
switching equipment and transmission lines . . . . Non
facilities based long distance carriers are known as switchless
resellers.'').
36 NIP's Answer seems to contend that the Service Contracts
conveyed to the Debit Card Providers a leasehold interest in
NIP's switches. Answer 3, 9-10, 19-20; ¶¶ 40-41, 7-9, 11-13;
Answer, Affidavit of Ronald Hutchison at 2, 4, ¶ 4-6, 10
(``Hutchison Affidavit''). However, by failing to mention that
contention again in its subsequent Brief, NIP appears to concede,
wisely, that the Service Contracts do not convey to the Debit
Card Providers any leasehold interest in NIP's switches. In all
material respects, the Service Contracts do nothing more than
create fee-for-service arrangements. Nothing in the Service
Contracts suggests an intention to lease, such as a provision
describing NIP's switch or switches, or identifying the switch
type, manufacturer, or serial number. See Revised Joint
Statement at 9, ¶¶ 20-21. The Service Contracts contain no
provisions covering insurance, or stating that NIP reserves title
to its switching equipment. See Revised Joint Statement at 9, ¶¶
22-23. The words ``lessor'' and ``lessee'' never appear in the
Service Contracts, and the word ``lease'' appears only once, in
an unrelated context. See Complainants' Reply at 8; Revised
Joint Statement at 9, ¶ 19. The Contracts' pricing provisions
are not based on flat monthly fees, but rather on per-minute-
usage. See Revised Joint Statement at 9, ¶ 20; Bruce E. Fritch,
Equipment Leasing - Leveraged Leasing, 57 (3d ed. 1988)
(``Equipment Leasing Treatise'') (``Most leases provide for equal
monthly or quarterly rental payments over the fixed term of the
lease.'') (Fritch). Finally, the Service Contracts - which the
parties stipulate ``are true, accurate, and speak for
themselves'' - identify themselves as ``Services Agreement'' in
their titles. Revised Joint Statement at 8-9, ¶¶ 18, 24. See
Complainants' Reply Exh. 4, Fritch Appendix A at 1303-1316, Lease
Agreement (reviewing terms typical of a lease agreement).
37 47 U.S.C. §§ 201(b), 267; 47 C.F.R. § 64.1300.
38 NIP's Brief at 3-7, 9-11.
39 NIP's Brief at 3-7.
40 Order on Reconsideration, 11 FCC Rcd at 21277, ¶ 92 (emphasis
added) (footnote and quotation marks omitted).
41 See Sprint v. FCC, 315 F.3d at 375 (``[In] the First
Reconsideration Order, . . . the Commission simply clarified the
definition of a phrase that it had used in the initial rule. 11
F.C.C.R. at 21,277 ¶ 92.'').
42 See n.35, supra.
43 Id. NIP further argues that, if we limit ``facilities-based''
carriers to carriers with a possessory interest in equipment,
then we can apply that holding prospectively only, because such a
holding was not sufficiently predicable from existing precedent.
NIP's Brief at 1, 12-13; see generally Answer at 9, ¶ 40. We
disagree. If NIP is referring to the Commission's orders, then
the possessory interest requirement was clearly established
therein, for the reasons explained above. See Report and Order,
11 FCC Rcd at 20586, at ¶ 86; Order on Reconsideration, 11 FCC
Rcd at 21271-72, 21277, ¶¶ 75, 92; Bell Atlantic I, 16 FCC Rcd at
8114, 8118, n.8, ¶ 13. If NIP is referring to the rule itself,
which does not specifically mention the term ``facilities-
based,'' it is well-established that where, as here, a
requirement in the text of an order is not included, the
requirement is nevertheless binding if it is included in the
Federal Register summary. See n.21, supra.
44 Answer at 9; NIP's Brief at 3-7 (citing Order on
Reconsideration, 11 FCC Rcd at 21277, ¶ 92; The Pay Telephone
Reclassification and Compensation Provisions of the
Telecommunications Act Of 1996, Second Order On Reconsideration,
16 FCC Rcd 8098, 8101, at ¶ 5 (2001) (subsequent history
omitted)).
45 See generally First Report and Order, 11 FCC Rcd at 20586-
20592 ¶ 86.
46 In this regard, the Commission has found debit card providers
as a class particularly unsuited to bear the payphone
compensation responsibility. First Report and Order, 11 FCC Rcd
at 20586, ¶ 86 (``[T]elecommunications services are often sold in
advance, particularly in the debit card context, and resold more
than once before a caller ultimately uses the service. In such
situations, it would be difficult to identify the party that is
liable for the per-call compensation.'') (emphasis added); Coding
Digit Waiver Order, 13 FCC Rcd at 10915-16, ¶ 38 (paraphrasing
the language quoted above). See generally Flying J, Inc., and
Ton Services, Inc., Petition for Expedited Declaratory Ruling
Regarding a Primary Jurisdiction Referral from the United States
District Court for the District of Utah, Northern Division,
Memorandum Opinion and Order, 18 FCC Rcd 10311, 10315 at ¶ 10
(2003) (declining to find that credit card-based platforms
constitute switches under current technology and Commission
rules).
47 NIP's Brief at i, 10, 18.
48 NIP's Brief at 11-12.
49 NIP's Brief at 15-16.
50 NIP's Brief at 16-17.
51 NIP's Brief at 17-18.
52 NIP contends that its relationship with its Debit Card
Providers might be ``viewed'' as switch partitioning, but does
not argue that such partitioning in fact occurred. NIP's Brief
at 16. Switch partitioning arose as an alternative to the
single-user private branch exchange (``PBX''). Policies
Governing the Provision of Shared Telecommunications Service,
Report and Order, 3 FCC Rcd 6931, 6931 at ¶ 4 (1988). In a
``partitioned switch,'' software and special hardware treat
certain lines as dedicated. Id. In contrast, an ``unpartitioned
switch'' uses the minimum number of shared lines required to meet
overall system needs. Id. In the instant proceeding, nothing
suggests that NIP's Debit Card Providers' traffic used the same
switch consistently, much less traveled via dedicated lines or
ports. Thus, NIP's arrangement bears no relation to
partitioning.
53 NIP itself states that UNEs are ``leased,'' NIP's Brief at 16;
that virtual collocation is ``designated equipment . . .
dedicated to the use of a particular interconnector,'' id. at 17;
and that an IRU involves ``conveying assets,'' id. at 11. No
such circumstances exist here.
54 NIP's Brief at 3-4, 6, 10 (citing Report and Order, 11 FCC Rcd
at 20586, at ¶ 86; Order on Reconsideration, 11 FCC Rcd at 11 FCC
Rcd 21277, ¶ 92; The Pay Telephone Reclassification and
Compensation Provisions of the Telecommunications Act Of 1996,
Second Order On Reconsideration, 16 FCC Rcd 8098, 8101, at ¶ 5
(2001) (quoting ¶ 92 of the Order on Reconsideration.).
55 To support this argument, NIP points out that the Service
Contracts purport to give Debit Card Providers the ability to
track, in real time, the number of completed calls made through
the use of a NIP switch and a Debit Card Provider's prepaid
calling card. Answer at 9, 20; NIP's Brief at 3-7, 14-15. For
the purposes of this Order only, we accept as true, arguendo,
NIP's assertion that the Debit Card Providers ``can track [calls]
and pay payphone compensation to the exact extent as can [NIP].''
NIP's Brief at 5. NIP's assertion is not supported in the
record, however, and Complainants credibly suggest that, at times
during the Relevant Period, the Debit Card Providers' call-
tracking ability may not have equaled NIP's. See Complainants'
Reply at 12, n.23.
56 First Report and Order, 11 FCC Rcd 20586-20592, ¶¶ 88-101;
Order on Reconsideration, 11 FCC Rcd at 21278-79, ¶¶ 93-96
(sections in both orders titled Ability of Carriers to Track
Calls From Payphones and not discussing payment obligation). NIP
cites to no Commission statement concluding or opining that
``call tracking'' and ``switching capability'' refer to the same
functions.
57 See 47 C.F.R. § 51.319(c) (All our C.F.R. references to Part
51 of the Commission's rules refer to the rules in effect during
the Relevant Period ).
58 See generally id.
59 NIP's Brief at 8-9. Answer 3, 9-10, 19-20; ¶¶ 40-41, 8, 13;
Hutchison Affidavit at 2, ¶ 4.
60 NIP's Brief at 3-4.
61 NIP's Brief at 5.
62 Revised Joint Statement at 7-8, ¶ 16; Answer at 3, 9, 19, 21,
22; NIP's Brief at 8-9.
63 NIP's Brief at 11. In its Answer, NIP describes the Service
Contracts as written evidence of the Debit Card Providers'
switching capability. Answer at 10, ¶ 41.
64 See generally First Report and Order, 11 FCC Rcd at 20586, ¶
86 (observing that facilities-based carriers may recover expense
of payphone per-call compensation from reseller customers as they
deem appropriate, including negotiating future contract
provisions requiring reseller to reimburse facilities-based
carrier for payphone compensation amounts associated with that
particular reseller).
65 Complainants exercised their right under section 1.722(d) of
the rules, 47 C.F.R. § 1.722(d), to bifurcate this proceeding and
address only liability first. Complaint at 1-2. In its Answer,
NIP raised various affirmative defenses that the parties
subsequently stipulated ``would be more appropriately decided in
the damages phase of this proceeding.'' Answer at 14-17; Revised
Joint Statement at 4. We concur with the parties' stipulation.