Telecom Law Monitor : Washington D.C. Telecom Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

While the FCC has taken an interest in mobile marketing by carriers -- most notably with investigations of carrier early termination fees and proceedings examining wireless consumer "bill shock" -- it also is helpful to remember that the mobile content providers are subject to enforcement for deceptive marketing practices.  Our colleagues at the Ad Law Access blog covered a recent settlement of a class action lawsuit by several mobile marketers.  They remind marketers to clearly and conspicuously disclose costs so that consumers know what they are obligated to pay.  Mobile service providers should ensure that their billing and collection agreements impose such an obligation on the content provider and that the carrier properly polices compliance.

Read the Ad Law Access story here. 

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The FCC today adopted and released its highly anticipated Notice of Inquiry (“NOI”) regarding the potential regulatory reclassification of facilities-based broadband Internet access services.  This proceeding will explore the "third way" toward regulation that Chairman Genachowski suggested in response to the recent decision issued by the U.S. Court of Appeals for the D.C. Circuit in the Comcast case.  In Comcast, the D.C. Circuit rejected the FCC's attempt to rely upon its "ancillary authority" to enjoin a cable operator from degrading its customers' lawful Internet services.  This sparked a concern that similar decisions could cause the Commission to lose regulatory authority over time in connection with most, if not all, Internet access services.  The heart of the problem is that the FCC made a series of decisions over the past decade that have classified wireline broadband Internet access services as "information services" that are exempt from Title II common carrier regulation, and this classification was upheld by the U.S. Supreme Court in its Brand X decision.   If the Commission cannot exert "ancillary authority" to regulate them, then the FCC could be left with virtually no control over services provided over a broadband platform. 

The NOI seeks comment in three areas.  First, the FCC seeks input on whether the current "information service" classification remains adequate for the Commission to perform its mission.  Second, it seeks comment on the legal and practical consequences of "reclassifying Internet services used to communicate with others that have Internet connections" as "telecommunications service" and then applying all of the regulatory requirements of Title II.   Finally, and most importantly, the Commission seeks comment on the "third way" position by which so-called "Internet connectivity service" that is offered as part of a wired broadband Internet service would be reclassified as a "telecommunications service", but that the Commission would forbear from applying all Title II regulatory authority over it except such as necessary to implement a set of discrete rules applicable to universal service, consumer protection, competition and small business opportunity. 

The Commission has fast-tracked the comment cycle in this case.  Comments will be due by July 15, with replies due August 12. 

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A diverse group of telecom companies and trade groups have jointly submitted a supporting brief to the U.S. Court of Appeals in the Paetec v. CommPartners appeal.  The Joint Brief includes ILECS like AT&T and Verizon, CLECs like Neutral Tandem, and normally contrary trade associations like USTA and the VON Coalition. Although these parties have wildly divergent views on how the VoIP access charge dispute should be resolved, they all agree that the Court of Appeals should decide the issue now.  The Joint Brief states that the parties submitting  "have differing views about the merits" of the district court ruling, "but all agree that a decision from" the Court of Appeals is desirable to clarify the situation for all concerned.  

No one knows for sure, but the many pending cases and disputes on VoIP access charges collectively probably have hundreds of millions of dollars at stake.   The FCC has exerted much effort to avoid making a decision on the court referrals and various petitions that it has received on the subject since 2005. 

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The US Court of Appeals for the DC Circuit vacated the FCC's decision declaring illegal Comcast's 2007 blocking of P2P internet traffic.  This decision is not surprising, given how poorly the oral argument went for the FCC.  (see our post here). 

Click here to download the Court's decision.  We will post a discussion of the jurisdictional issue later.

UPDATE 4/6/10:  The Court of Appeals vacated the FCC Order because the Commission had not adequately justified its exercise of Title I "ancillary" authority over Comcast's network management practices.  Discussing at length appellate Title I jurisdiction cases over the last 40 years, the Court in essence held that the FCC failed to relate Internet network management to common carrier telephone service (Title II), broadcast service (Title II) or cable TV service (Title VI).  One quote from the decision sums up the conclusion:  "On the record before us, we see 'no relationship whatever' between the Order and services subject to Commission regulation."  In other words, the FCC must connect its assertion of authority to something that it indisputably can regulate.

Since the decision was released, there has been much discussion about whether the FCC will reclassify Internet access services as Title II common carrier services.  While it is premature to predict these issues with any confidence, one alternative not being discussed is to accept the Court's invitation to connect regulation of Internet access service with regulation of pure transmission services.  In the Wireline Broadband Order, the Martin Commission concluded that Internet access did not have a separate transmission component.  The decision today may lead the Commission to reverse that determination -- and find that a separate transmission component is inherent in the offering -- so that it may then regulate bundled Internet access due to its impact on stand alone transmission services. 

Finally, I note that the Court did not address the enforceability of the Policy Statement itself.  As a result, the potential impact on the Universal Service Fund's Form 499-A instructions did not come to pass.  Maybe next time.

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The VoIP jurisdictional saga continues.  Last month, we discussed a decision by the Pennsylvania PUC asserting jurisdiction over intrastate Voice over IP calls and a decision by a US District Court reaching the opposite conclusion.  Tomorrow, parties are asked to comment on a petition seeking, among other things, to preempt the Pennsylvania decision.  We will be watching the comments and will post on anything of interest in the comments.

4/6/10 QUICK UPDATE:  19 entities filed comments in response to the Global NAPs petition.  Most were ILECs or state commissions opposing the specific rulings proposed.

This latest VoIP proceeding has its origins in the Pennsylvania PUC decision. After the decision was issued, the carrier ordered to pay intrastate access charges, Global NAPs, filed a Petition for Declaratory Ruling with the FCC. The Petition seeks four rulings from the FCC:

1. The Vonage Order prohibits state commissions from subjecting VoIP traffic to intrastate tariffs;

2. Once a carrier’s service has been determined to be “primarily nomadic” VoIP, the remainder of its traffic also is interstate, absent “clear proof of purely intrastate calls”;

3. The Local Exchange Routing Guide (“LERG”) is not a reliable proxy for the geographic point of origination of VoIP calls; and

4. Connecting carriers that forward VoIP traffic are immune from interstate and intrastate switched access charges.

In the alternative, Global NAPs seeks preemption of the Pennsylvania PUC decision and “recent and/or impending” rulings in Maryland and New Hampshire.

The FCC released a Public Notice seeking comment on the Global NAPs Petition.  Comments are due April 2; replies April 12. 

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The House Committee on Energy and Commerce has sent a February 16, 2010 letter to 24 rural local exchange carriers seeking information about their access charge services.  The 24 carriers receiving the letters were chosen on the basis of responses to earlier letters sent to long distance carriers who complained of "traffic pumping" by some rural LECs.  The Congressional letter expresses concern that "excessive rates for terminating access" will harm rural consumers because interexchange carriers will refuse to send traffic to those locations.  It requests written responses to twelve questions by March 8, including information about the sharing of access revenues with other entities.  In such cases, the letter seeks the identity of each such sharing party, the total percentage of revenues shared and a sample contract for sharing revenue.  The letter also inquires about the amount of universal service support which the rural LECs receive.  The LECs are asked to inform Congressional staff by March 1 if they intend to refuse to provide the information voluntarily, presumably so that it can be subpeonaed. The letter is signed by Committee Chairman Henry Waxman (D. CA) and subcommittee chairs Rick Boucher (D. VA) (Communications, Technology and the Internet) and Bart Stupak (D. Mich) (Oversight and Investigations). 

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The U.S. District Court in D.C. ruled today that IP-originated calls are "information services" that are subject to the local reciprocal compensation scheme - and not access charges - for intercarrier compensation.  The ruling came in Paetec Communications v. CommPartners, LLC, U.S. Dist Ct for DC, Civ. Action No. 08-0397.   Paetec filed the case against CommPartners seeking to collect access charges for all calls, both TDM and VoIP originated.  CommPartners conceded that it owed access fees on the TDM calls, but argued that VoIP calls are information services exempt from access under the FCC's longstanding access charge exemption for such calls.  The Court agreed.  In reaching its opinion...

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Beehive Telephone has Petitioned the FCC for a declaratory ruling in an effort to salvage a lawsuit that Beehive brought against Sprint in federal court for collection of access charges. According to the Petition, Sprint refused to pay Beehive's access invoices because Sprint believes they are the product of unlawful "traffic stimulation" by Beehive and a conference bridge provider.  In March 2008, Beehive filed an informal complaint with the FCC seeking a finding that Sprint's refusal to pay is an unlawful practice under Section 201 of the Communications Act.  Sprint opposed the informal complaint on various grounds.  In May of 2008, Beehive filed a collections lawsuit against Sprint in federal court in Utah.  Thereafter, the FCC stated that it would take no further action on the informal complaint.  However, the court later dismissed Beehive's lawsuit for lack of jurisdiction, finding that the informal complaint with the FCC was an "election of remedies" that prevents Beehive from pursing the collections matter in court. (Section 207 of the Communications Act allows complaints against carriers to be brought at the FCC or in Court, but not in both places.)  Beehive's February 2010 Petition asks the FCC to clarify that its initial Section 201 informal complaint raised a different issue from the collection action and thus did not foreclose the collection lawsuit under the "election of remedies".  In effect, Beehive is taking the unusual step of asking the FCC to rule that Beehive is barred from bringing its collection action at the FCC.  If successful in having itself barred by the FCC, Beehive hopes to use the ruling to persuade the Court to reinstate its collection lawsuit.  Comments are due at the FCC on March 1, Replies March 11.

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A few months ago, AT&T sued IDT Corp. for failing to pay access charges allegedly due on local-dialed prepaid calling cards.  As we expected, IDT has moved the court to stay, or in the alternative, dismiss, AT&T's action.  IDT contends that the FCC, not the court, should decide whether access charges apply to this type of call.  In a strategic move, IDT seeks a stay of the case, rather than referral of AT&T's complaint to the FCC for resolution. 

The case bears watching because AT&T appears to be using the IDT litigation as a test case before proceeding with actions it has threatened against other providers.  If IDT is successful, AT&T likely will have to present its case directly to the FCC, perhaps by filing a petition for declaratory ruling, or maybe by bringing a formal complaint before the Enforcement Bureau.    Alternatively, AT&T may switch approaches and seek to recover access charges from the CLECs to whom it hands off the calls.

In the meantime, AT&T has continued to send monthly demands to prepaid card providers, allegedly calculating the amount of access charges due from the carrier.  We are not aware of any other cases AT&T has filed against prepaid card providers.   Yet.

Follow the jump for a discussion of the pleadings on IDT's motion.

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A federal district court in Dallas, Texas has issued a preliminary injunction ordering AT&T to cease reducing amounts it pays to local Resellers when it gives promotions offered to AT&T's own retail customers, Budget Prepay et al v. AT&T Inc. The AT&T ILECs often promote new local services by offering a $50 bill credit to new retail customers. Effective September 1, AT&T initiated a new policy which gave Resellers only about $4 (the actual amount varies by state) for their new sign-ups on the AT&T local networks. The Resellers filed suit against AT&T, seeking an injunction against the new policy. On November 30, the Court granted a Preliminary Injunction and instructed AT&T not to apply the new, reduced promotional policy until it has received approval from each affected state PUC.  The Court reasoned that the FCC's rules require any "restriction on resale" to be approved by a PUC before it is implemented.  Since AT&T admitted in open court that it had never sought nor received permission for the new reduced promotions payments, it is in violation of the FCC's rules.  The court concluded that the FCC requirement that AT&T get prior approval is turned upside down if AT&T is allowed to simply change its policies, thus reversing the obligation and forcing the Resellers to go to the PUCs to seek revocation of the new AT&T policy.  AT&T has appealed the ruling to the U.S. Court of Appeals for the Fifth Circuit and has received an expedited schedule from that court, with oral argument to be held in February.
 

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The Federal Trade Commission has sued Diamond Phone Card and two individuals for allegedly(1) misrepresenting the number of minutes provided by the cards and (2) failing to disclose adequately the effect of fees on the number of minutes available.  Federal Trade Commission v. Diamond Phone Card, Inc. (U.S.E.D.N.Y. No. 09-3257).  The Complaint asks for a permanent injunction to prevent future violations, refunds and restitution for consumers, and the agency's costs of investigation. 

This case was announced on August 5, and follows the FTC's June settlement with Clifton Telecard Alliance (paid $1.3 million) and the February settlement with Alternatel and Mystic Prepaid (paid $2.25 million).   All three cases have been brought against card distributors, not telecom carriers, in deference to the "common carrier" exclusion from the FTC's enforcement jurisdiction.  Diamond Phone is based in the New York City area.  The FTC News Release announcing the suit thanked authorities in El Salvador, Colombia, Egypt, Mexico, Panama and Peru for their help in investigating the case.  The news release and a link to the Complaint can be found here. 

It is noteworthy that the Diamond Phone cards included written disclosures on their posters and on the cards themselves, as described in the FTC Complaint.  Diamond also had voice prompts.  However, the FTC lawsuit alleges the disclosures are inadequate because they are too small (10 point font on posters), are too separated from the larger rate claims (at the bottom of the poster) and were too vague ("connection fee may apply").  The disclosures on the cards themselves were said to be in 5 point font that is "nearly impossible to read" and appear on a portion of the card which is below a perforation and discardable.  The FTC said it tested several cards and the initial prompts stated different numbers of minutes than that stated on the cards and posters, and that even those minutes were not actually delivered. For example, the FTC said that a 50 minute card initially prompted 37 minutes and then delivered only 20 minutes in a single call.   Another card was said to be for 400 minutes to Mexico, but prompted 391 minutes and delivered only 106 minutes in a series of five calls of about 20 minutes each.

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             Local resellers of AT&T ILEC services have sued AT&T over the treatment of promotions offered by AT&T ILECs to new retail customers. Budget Prepay v. AT&T, Inc., Civ. Action No. 3:09CV1494-P (U.S.N.D. Texas – Dallas). The resellers contend that AT&T must give its wholesale customers, like them, the full value of any promotions that AT&T provides to new AT&T retail customers. For example, if Southwestern Bell offers new retail customers a $100 credit to sign up for new local telephone service in Texas, the resellers argue that Southwestern Bell is required to give wholesale customers the same $100 promotion for each new local customer they put on AT&T’s network. AT&T rejects this claim and contends that it may give its wholesale customers a lesser promotional amount than its retail customers. This argument has festered for over two years and now has escalated into millions of dollars in dispute. Recently, it has bubbled over into federal district court lawsuits in Texas and North Carolina.  CGM, Inc. v. BellSouth, Civ. Action No. 3:09-CV-377 (W.D.N.C) (Full disclosure, the author is counsel to the reseller in the North Carolina case.)

        Wholesale prices for local resellers are set by the State public utility commissions following FCC guidelines. The approach mandated by law is a “costs avoided” analysis that starts with the retail price and then applies discounts for wholesale customers based on costs that the ILEC avoids in serving wholesale customers rather than retail customers. This reduction in price is expressed as a percentage discount from the retail price, and in most states falls in a 15-20 percent range. Thus, in a typical state, if the monthly cost of local telephone service from BellSouth is $40, the wholesale discount might be 20 percent, resulting in a wholesale price of $32. For the past two years, AT&T has taken the position that any promotions given to resellers should first be discounted by an amount equal to the percentage discount applicable to wholesale pricing in general. For example, in a state with a 20 percent wholesale discount, a retail promotion of $50 would result in a discounted promotional payment to resellers of only $40. It is this $10 difference that is in dispute in most cases.

            The disputes have been pending for more than two years, but were recently given impetus by a new AT&T policy. In Accessible Letters published in July and August, AT&T announced a new formula for calculating the promotional amounts to be paid to resellers starting September 1. (“Accessible Letters” are public announcements by which AT&T states new policies it intends to apply to wholesale arrangements.) The new formula itself is extremely complex, but the bottom line is that the typical wholesale promotional amount will stop being approximately 80 percent of the retail amount – and instead drop to about 15 percent.  

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As we discussed previously, AT&T has been sending threatening letters to prepaid card providers who offer local telephone numbers as an alternative to 1-800 access.  In our last post, we noted that the parties were far apart in their legal positions and we warned you to "stay tuned" for developments.  That warning proved appropriate, for on July 2, 2009, AT&T brought suit against a prepaid provider for failing to pay access charges on calls originated through local telephone numbers.

AT&T brought its lawsuit in federal district court against IDT Telecom, Inc. and Entrix Telecom, Inc., an affiliate of IDT.  The complaint alleges three counts (violations):  1.  Violation of the AT&T LECs' federal tariffs; 2.  Violation of the AT&T LECs' state tariffs; and 3.  Unjust Enrichment. 

It is noteworthy that AT&T chose not to bring claims against the CLEC(s) that provided the local numbers to IDT.  Instead, AT&T is suing IDT, even though IDT did not receive traffic directly from AT&T.  The lack of a direct relationship will make it harder for AT&T to establish that IDT is a customer under either the federal or state tariffs alleged to be violated. 

Presumably, IDT will move to refer the case to the FCC under the doctrine of primary jurisdiction.  If IDT is successful, the FCC will have to decide what, if any, access charges apply when customers dial local numbers to reach a prepaid card provider.  That question has been before the Commission since 2006, but the FCC has not yet made a decision.

The complaint is available here.

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In the last month, AT&T sent another round of demand letters to prepaid card providers seeking access charges on prepaid card calls. AT&T sent the first round of such letters in the fall of 2008. Now, we are seeing signs that a second group of targets has received similar letters. In all of these letters, AT&T targets prepaid calling card providers who make available local telephone numbers as an alternative to 1-800 access numbers. In this scenario, the prepaid provider typically purchases local DID numbers from a CLEC, and resells this local service along with its prepaid card service. The arrangement is similar to "foreign exchange" service in that it provides a distant entity with a "local" presence, accessible by dialing a local number, instead of requiring customers to dial long distance. AT&T contends that the use is subject to its access tariffs, and has threatened lawsuits against prepaid providers that do not cease and desist from the practice.

AT&T's first round of letters prompted a dust-up in the FCC's pending intercarrier compensation docket.  More recently, Cinco Telecom, which received one of AT&T's second round of letters, asked the FCC for clarification in the face of AT&T's threats. This request was followed by a letter from One Communications, supporting the need for clarification. On June 15, 2009 AT&T filed a response to the Cinco Telecom Corp. letter. The response submitted by AT&T denounces any need for clarification, stating that the request is "unfounded because the Commission’s order is quite clear." But AT&T ignores the pending petition for reconsideration in the docket that asks for the very relief AT&T claims is clear. And AT&T still does not explain how its tariff enables it to bill a prepaid provider for traffic when the prepaid card provider does not subscribe to any AT&T service.

The letter is significant because AT&T opens a new front against prepaid card providers -- the payment of USF. Prepaid calling card providers, like other providers of telecommunications services, must contribute directly to the federal USF based on their interstate and international telecommunications revenues. In the letter, AT&T complains that by using local dialed numbers, prepaid card providers receive an intrastate service instead of an interstate service, thereby reducing the interstate revenues available to the USF. Tellingly, AT&T copies Enforcement Bureau staff, in a clear attempt to bring additional investigations upon prepaid card providers.

Only one thing is clear in this situation: AT&T and the prepaid card providers are far apart on this issue. We have not seen any evidence that AT&T has filed suit against a prepaid card provider, but that may just be a matter of time. Unless the FCC acts, of course. Stay tuned.

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The U.S. Court of Appeals for the Eighth Circuit has ruled in favor of Vonage and rejected an attempt by the Nebraska PSC to claim regulatory authority over VoIP.  Vonage v. Nebraska PSC, 564 F. 3d 900 (8th Cir. 2009).  Specifically, Nebraska argued that the FCC's original ruling that VoIP is subject to exclusive federal jurisdiction was effectively modified by the FCC's subsequent creation of a "safe harbor" for payment of federal universal service payments by VoIP providers.  Nebraska argued that when the FCC created a presumption that VoIP calls are 64.5% interstate, and directed VoIP providers to make USF contributions on that basis, the inevitable corollary is that 35.5% of VoIP calls are intrastate.  On that basis, the Nebraska PSC sought to levy state universal service fees on 35.5% of Vonage's Nebraska calling.  The Court of Appeals rejected the Nebraska argument, finding that the FCC's preemption of all state regulation of nomadic VoIP was not modified or inconsistent with the FCC's creation of a 64.5% safe harbor for USF purposes.  It is noteworthy, however, that the court focused expressly on "nomadic" VoIP, leaving open the possibility of a different outcome for fixed VoIP services because the FCC's earlier preemption order is based on the nomadic nature of the service being considered in that instance. Nebraska has now petitioned the FCC to modify its order to allow for state assessment of USF on VoIP providers.

Click here to read the Kelley Drye Client Advisory.
 

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The FCC is seeking comment on Blue Casa Communications’ petition to apply access charges to VNXX calls sent to ISPs.

On December 19, 2008, Blue Casa filed a petition asking the FCC to issue a declaratory ruling that originating interstate switched access charges apply to all calls bound for Internet service providers (ISPs) that are delivered via Virtual NXX (VNXX) arrangements.

Blue Casa contends that ISP-bound VNXX traffic is subject to originating access charges under pre-existing Commission policy and that, accordingly, such traffic is “carved out” pursuant to section 251(g) from the scope of traffic covered by section 251(b)(5) of the Communications Act, as amended. Thus, Blue Casa seeks a ruling that originating interstate switched access charges, not reciprocal compensation charges, should now apply to calls bound for ISPs that are delivered via VNXX-type foreign exchange arrangements.

Blue Casa seeks this relief to resolve actual, on-going controversies with other competitive telecommunications carriers over their respective liability for invoiced originating access charges and reciprocal compensation charges.

Comments are due on March 12, and reply comments are due on March 23, 2009.

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Qwest has begun following in the footsteps of SBC/AT&T by bringing collection actions against CLECs and their IXC customers for access charges which are allegedly due for terminating traffic to Qwest customers. On November 26, 2008 Qwest sued several companies in federal district court in Seattle, Washington. Defendants included Anovian, Broadvox, Transcom Enhanced Services and Transcom Communications, Maskina and Unipoint. The lawsuit claims that long distance calls were terminated to Qwest local customers without paying access charges due to Qwest.

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