$// Ord.,ACC v. Yankee Microwave, rev. den'd., FCC 93- //$ $/ 300.154 Provisions Relating to the Commission /$ $/ 300.201 Service and Charges /$ $/ 300.202 Discrimination and Preferences /$ $/ 300.203 Schedules of Charges /$ $/ 300.208 Complaints to the Commission /$ $/ 300.211 Copies of Contracts to be Filed /$ $/ 300.415 Limitations as to Actions /$ $/ 001.115 Application for review of action taken under delegated authority /$ $/ 001.720 General pleading requirements /$ $///FCC 94-347 1/12/95///$ ///newjob/// FCC 94-347 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) ACC LONG DISTANCE CORP. ) ) Complainant, ) ) v. ) File No. E-91-94 ) YANKEE MICROWAVE, INC., ) ) Defendant. ) MEMORANDUM OPINION AND ORDER Adopted: December 23, 1994; Released:January 17, 1995 By the Commission: I. INTRODUCTION 1. In this order, we address an Application for Review and a Motion for Expedited Review filed by ACC Long Distance Corp. (ACC). ACC seeks reversal of an order issued by the Chief, Common Carrier Bureau (Bureau), which denied its complaint in the above-captioned proceeding. In its underlying complaint, ACC alleged that rates contained in a 1985 contract between a non-dominant specialized common carrier, Yankee Microwave, Inc. (Yankee), and another carrier, Petricca Communications Systems, Inc. (Petricca), were patently unlawful under Sections 201(b) and 202(a) of the Communications Act of 1934, as amended, 47 U.S.C.  201(b), 202(a). We have carefully examined the record of this proceeding in light of ACC's Application for Review and its Motion for Expedited Review. For the reasons discussed below, we affirm the Bureau's decision to reject ACC's complaint. II. BACKGROUND 2. The background of this proceeding is discussed at some length in the Bureau Order. A more detailed recitation of the pertinent facts surrounding the contract offering at issue will be helpful to our analysis of ACC's Section 201(b) and 202(a) claims, however. 3. In or around 1982, Yankee commenced development of a digital microwave transmission network to carry voice and data traffic between New York City and Boston, Massachusetts. According to Yankee, it did not plan to begin construction of the digital microwave network until relay sites and frequencies had been located for the entire New York to Boston route. In 1983, Yankee secured sites for constructing portions of its network to carry traffic between Boston, Massachusetts and Trumbull, Connecticut and between New York City and White Plains, New York, but was unable to secure sites and frequencies to connect these two legs of its proposed Boston to New York network. In October 1983, following a request for service from Cablevision, Yankee filed applications for 8 digital microwave stations linking Boston and Norwalk, Connecticut. Cablevision subsequently withdrew its service request. 4. In 1984, Petricca discussed with Yankee the possibility of securing digital microwave service between Pittsfield, Worcester and Springfield, Massachusetts, and Glastonbury, Connecticut. On or about January 31, 1985, Yankee and Petricca, both common carriers, entered into a six-year intercarrier agreement for digital microwave service to be provided by Yankee over the requested routes (Petricca Contract). The agreement required Yankee to construct, operate and maintain a microwave network connecting Petricca's Pittsfield, Springfield, Worcester, and Glastonbury locations. The service agreement was amended in April, 1985 to delete Springfield and add Boston as a point of connection. The Petricca Contract initially required Yankee to construct microwave transmission facilities at a total of seven service sites (hops), three of which Yankee claims were not envisioned as part of its Boston to New York network. The amended contract required the construction of two additional hops at Maynard, Massachusetts and Boston to provide service for Petricca to Boston. Under the contract, beginning in February 1987, Yankee would provide Petricca three T1 circuits between Pittsfield and Glastonbury at a monthly rate of $5,745.60 per circuit, two T1 circuits between Pittsfield and Boston at a monthly rate of $7,937.30 per circuit, and two T1 circuits between Pittsfield and Worcester at a monthly rate of $7,291.30 per circuit. The total payment due for the six-year term of the contract was $3,958,920. The record indicates that the rates in the Petricca Contract would save Petricca $40,000 per month compared to the rates Petricca was then paying AT&T for analog service, a savings of roughly 40%. 5. During 1985, Yankee completed construction of the majority of the microwave facilities designated for use by Petricca under the Petricca Contract. Final construction was not completed until late 1986 due to delays in obtaining the required local and state governmental approvals to construct the Petricca tower on Washington Mountain in Pittsfield. Full service to Petricca under the terms of the Service Agreement began on February 1, 1987. 6. On February 3, 1987, Petricca's business was acquired by ACC Corp., parent company of the complainant, ACC. Pursuant to the asset purchase agreement between ACC Corp. and Petricca, ACC Corp. acquired substantially all of Petricca's assets and liabilities except the Petricca contract. In a separate contract with Petricca, however, ACC agreed to guarantee Petricca's payment obligations under the Petricca Contract for a period of 18 months. During this 18-month period, ACC provided Petricca with the funds to make the payments required by the Petricca Contact. 7. In July 1987, Yankee activated new circuits for ACC as a separate customer over the Yankee network from Pittsfield to New York City. Yankee subsequently activated other circuits for ACC between Pittsfield and Glastonbury and Pittsfield and Boston, the same routes over which Petricca took service under the Petricca Contract. ACC's service agreements with Yankee covered three year periods and required Yankee to provide ACC five T1 circuits between Pittsfield and Glastonbury at a monthly rate $2,146.00, and one T1 between Pittsfield and Boston at a monthly rate of $2,850. These rates were substantially lower than those assessed to Petricca under its agreement with Yankee. 8. In October 1987, ACC asked Yankee to reduce the rates charged to Petricca under the Petricca Contract to match those ACC was paying for its own circuits over the same routes. In November 1987, Yankee submitted a revised contract to ACC with lower rates for the Petricca circuits. For reasons not clear from the record, Yankee and ACC never reached agreement on new contract terms. In August 1988, ACC's guarantee obligation under its agreement with Petricca expired and it ceased making payments to Petricca. In a letter dated August 23, 1988, Petricca advised Yankee that it would no longer make the monthly payments called for by the Petricca Contract. In September 1988, ACC advised Yankee that all traffic from Pittsfield had been moved from Petricca circuits to ACC circuits and that it would no longer pay for the Petricca circuits. 9. Yankee thereafter brought an action for breach of contract and other claims against ACC and Petricca in the Superior Court for Berkshire County, Massachusetts (the state court). On April 11, 1991, ACC filed a complaint with the Commission pursuant to Section 208 asking the Commission to: (1) abrogate portions of the Petricca contract rates as unlawful under Sections 201(b) and 202(a) of the Act; (2) direct Yankee to file tariffed rates for the Petricca service as allegedly required by the Petricca Contract; (3) prescribe the rates that Petricca should have been charged for the service; and (4) order Yankee to refund payments made by Petricca in excess of the prescribed rates. On May 27, 1992, the state court granted a motion filed by the defendants to stay the action before it "until such time as the Federal Communications Commission shall, by approval of a tariff filed by [Yankee] or otherwise, have determined the level of 'just and reasonable' rates that [Yankee] is permitted to charge [Petricca] for common carrier microwave transmission services." 10. The Bureau's consideration of ACC's Section 201(b) claims centered around ACC's contention that Yankee's rates to Petricca were excessive and not related to its costs of providing the digital microwave service. ACC argued that Yankee's use of an individual case basis (ICB) methodology to derive the Petricca contract rates improperly allocated 100% of Yankee's network costs to Petricca and, therefore, produced "grossly" excessive charges within the meaning of Section 201(b). The Bureau found that the record reasonably supported findings that Petricca sought to lock in, for a six-year term, rates that were 40% lower than those it was then paying AT&T and that the Petricca Contract was executed by two parties, neither of which had a bargaining advantage, in a competitive market where alternative service providers existed. The Bureau further determined that Yankee had not allocated 100% of its network costs to Petricca and was not persuaded that the Petricca Contract rates were not reasonably related to Yankee's actual allocated costs for the facilities used by Petricca. The Bureau also rejected ACC's claim that Yankee's use of ICB rates was per se unlawful. 11. The Bureau denied ACC's claims that Yankee engaged in unjust discrimination by offering rates in subsequent contracts that were lower than the rates negotiated in the Petricca contract. The Bureau determined that nothing in Section 202(a) requires carriers to renegotiate their private contractual agreements to allow customers to avail themselves of lower rates so long as there is a "neutral rational basis" underlying the disparate rates. The Bureau found that the fact that Yankee had to construct facilities in order to fulfill the Petricca Contract and the fact that Yankee's generally available rates steadily declined from the time of the Petricca Contract to the time of subsequent contracts with other customers constituted a neutral rational basis for the rate disparities. III. CONTENTIONS ON REVIEW 12. ACC asks the Commission to reverse the Bureau's decision. ACC contends that the Bureau improperly approved Yankee's use of ICB rates and erroneously failed to find the Petricca Contract rates to have been both excessive under Section 201(b) and unreasonably discriminatory under Section 202(a). ACC also asserts that: (1) the Bureau's "refusal" to order Yankee to file an interstate tariff conflicts with its duty to enforce Section 203(a) of the Act in accordance with American Telephone and Telegraph Co. v. FCC, 978 F.2d 727 (D.C. Cir. 1992), aff'd, MCI Telecommunications Corp. v. AT&T, 114 S.Ct. 2223 (1994); (2) the Bureau applied Section 415(b) "to ACC's request for declaratory rulings" contrary to Bunker Ramo Corp. v. Western Union Telegraph Co., 31 FCC 2d 449, 453 (Rev. Bd. 1971); and (3) the Bureau erred in placing the burden of proof on ACC to show that Yankee's rates violated Sections 201 and 202 of the Act. Yankee responds that ACC's challenges to the Bureau's decision consist largely of mischaracterizations of the ruling, inaccurate or irrelevant procedural arguments, and a number of unwarranted and groundless attacks on the Bureau's "motives" in relation to "the recent D.C. Court of Appeals decision vacating the Commission's forbearance rules for non-dominant carriers." IV. DISCUSSION 13. We begin by addressing ACC's principal argument -- that the Bureau erred in refusing to find the Petricca contract rates unlawful under Sections 201(b) and 202(a) and to prescribe the rates Yankee should have charged Petricca. We then address other arguments raised by ACC. A. Section 201(b) and 202(a) 14. While we conclude that the Bureau correctly denied ACC's complaint, we believe it necessary to clarify the legal basis for such denial. ACC, which is not a party to the Petricca Contract, asked the Commission, in effect, to declare unlawful and abrogate a contract entered into by two carriers bargaining at arms length six years after the contract was signed and three years after Petricca stopped payment under the contract. Moreover, ACC bases its complaint on facts and circumstances existing not at the time the contract was executed, but rather two or more years later when service under the contract commenced and Yankee added additional customers to its digital microwave system. 15. The contract at issue was a private contract between two carriers. As such, it falls under the Mobile-Sierra doctrine, as ACC recognized. That doctrine holds that, where a regulatory statute "expressly recognizes that rates to particular customers may be set by individual contracts," a regulatory agency may modify the terms of the contract only where, after investigation, it determines that the terms of the contract would "adversely affect the public interest." We explain our reasoning below. 16. It is well established that the Mobile-Sierra doctrine applies to contracts between communications common carriers. For example, in Bell Telephone Company of Pennsylvania v. FCC, the Third Circuit held that AT&T could not abrogate a contract with Western Union, under which Western Union leased local distribution facilities, simply by filing superseding tariffs. In its opinion, the court reasoned that sections 201(b) and 211(a) of the Communications Act clearly contemplate that carriers can enter into contracts for services with other carriers which would then be filed with the Commission, and that accordingly, the Mobile-Sierra doctrine applies to such carrier-to-carrier contracts. Similarly, the District of Columbia Court of Appeals applied the Mobile-Sierra doctrine in MCI Telecommunications Corp. v. FCC, where it reversed a Commission decision accepting a revised AT&T tariff on the ground that the revised tariff violated an underlying settlement agreement. Furthermore, while the Mobile-Sierra doctrine has been most frequently applied where a supplier seeks unilaterally to raise rates, it also applies where, as here, a buyer subsequently demands lower rates when the market price falls after the contract has been signed. Because both Petricca and Yankee were common carriers subject to the Communications Act, the contract they signed is therefore subject to the Mobile-Sierra doctrine. 17. The Supreme Court, in its Mobile and Sierra decisions, established a strict "public interest" standard that a regulatory agency must meet before it can modify the terms of a private contract that had been freely negotiated by the parties. In Mobile, for example, the Court held that natural gas companies, operating pursuant to contracts authorized under the Natural Gas Act, may not unilaterally abrogate or modify such contracts simply because it is in their private interest to do so. The Court stated that only "when their interests coincide with the public interest" would relief be available. Similarly, in Sierra, the Court stated that the mere fact that a rate produces less than a fair return is insufficient to modify the contract. Rather, "the rate [must be] so low as to adversely affect the public interest -- as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory." Accordingly, the Commission can abrogate that contract only if it finds that the terms of the contract "adversely affect the public interest." Thus, any carrier challenging the terms of an intercarrier contract before the Commission faces a heavy burden. 18. We conclude that ACC's showing in this case falls well short of meeting this burden. It has made no showing that the terms of Petricca's contract with Yankee had any impact at all on the public interest. On the contrary, ACC alleges only private injury, an injury that resulted solely from Petricca's improvident bargain. 19. Moreover, even if, contrary to Mobile-Sierra, we apply a lesser standard which considers the private interests of ACC, Petricca and Yankee, we still find that ACC has failed to demonstrate that the rates in the Petricca contract were unreasonable or unduly discriminatory. 20. ACC rests its Section 201(b) claims primarily on the allegation that Yankee used the Petricca Contract as a vehicle to finance its entry into the risky digital microwave business. According to ACC, the contract rates were unlawful per se because Yankee used an individual case basis (ICB) pricing methodology that allocated 100% of its network costs to Petricca. ACC contends, in effect, that Yankee should have averaged its network costs over the life of the Petricca Contract and allocated those costs proportionally among all customers on its digital microwave network. ACC maintains that Yankee's failure to adjust the Petricca Contract rates after additional customers were added to the system rendered the Petricca Contract rates grossly excessive within the meaning of Section 201(b). 21. Our review of the evidence and pleadings convinces us that ACC has failed to demonstrate that the Petricca Contract rates were unreasonable under the circumstances of this case. We agree with the Bureau's determination that the record supports findings that Petricca sought to freeze, for a six-year term, rates that were 40% lower than those it was then paying AT&T, and that the Petricca Contract was "entered into between two not-unequal bargaining parties in a competitive market where alternative service providers existed, and ... represented a good deal for Petricca based on the price it was then paying AT&T for microwave transmission service and its forecast of future price trends ...." 22. The Bureau also properly determined that Yankee could reasonably develop its rates on an ICB basis. Yankee could not reasonably be expected to have developed at the time Yankee and Petricca entered into their agreement an average rate to be applied to all future customers. Yankee had no basis for estimating with any degree of certainty future demand for service along the routes Petricca specified, nor could it foresee overall demand on its system once its core New York to Boston digital microwave system was completed. Under such circumstances, we have previously held that ICB rates are appropriate to insure cost recovery. Thus, we find that the contract rates were not unreasonable under Section 201(b). 23. We also find no basis in the record to disturb the Bureau's determination that ACC failed to show that the Petricca Contract rates were not reasonably related to Yankee's actual costs of providing service to Petricca. Contrary to ACC's assertions, Yankee has provided extensive data in the record which establishes that it did not allocate 100 percent of its network costs to Petricca over the life of the contract. According to Yankee, it derived the Petricca Contract rate by first calculating the sum of: (1) the estimated total cost of constructing the facilities used to provide service to Petricca, (2) equipment, operational and maintenance costs, and (3) interest payments on loan obligations. Yankee's cost calculation included amounts to recover a return on the investment and to allow for unforeseen contingencies. Yankee then divided the total cost by the number of months in the contract to determine the Petricca Contract rate. Data submitted by Yankee indicate that 50 percent of the operating expenses incurred by Yankee in providing service over routes Petricca shared with other customers was allocated to Petricca through 1991. The record also shows that, taking into account the costs allocated to Petricca through 1991, Yankee's expected rate of return, assuming that payments were made as specified under the Petricca Contract, was approximately 13.4%. We find that this amount is not outside the zone of reasonableness under the facts and circumstances of this case. We are satisfied that Yankee's rates to subsequent customers for service over the Petricca routes were reasonably based on a number of factors, including volume of service, length of contract term and the price and availability of alternative or competitive service over the same routes at the time those later agreements were negotiated. 24. We next address whether the disparity in the Petricca Contract rates and the rates subsequently charged to Yankee's additional customers, including ACC, constitutes undue discrimination under the Sierra test or unjust or unreasonable discrimination under Section 202(a). We find that it does not. 25. The crux of ACC's Section 202(a) discrimination claim is that the rates contained in the Petricca Contract are substantially higher than the rates Yankee later charged ACC and other customers for the same service. Yankee has proffered three primary reasons to explain the differentials between the rates charged ACC on the two routes it shared with Petricca (Pittsfield-Glastonbury and Pittsfield-Boston) and the Petricca Contract rates: (1) the facilities were constructed along these routes to provide service to Petricca, and Yankee's additional costs to provide service to ACC over the routes were incremental; (2) ACC ordered a larger volume of service which permitted certain economies of scale in operating costs and administrative overhead; and (3) because industry rates had declined substantially between the time the Petricca Contract was executed and the ACC-Yankee service agreements were signed, Yankee had to charge lower rates in order to attract ACC and other customers. 26. In rejecting ACC's Section 202(a) claims, the Bureau examined the record evidence and found a neutral, rational basis for the rate disparity. Specifically, the Bureau found that Yankee and Petricca had entered into a presumptively lawful inter-carrier contract that required Yankee to construct the facilities needed to serve Petricca and that Yankee had steadily reduced its generally available rates from the time of the Petricca Contract to counter competing service offerings. 27. In reviewing the record evidence describing the circumstances surrounding Yankee's service offerings in the 1985 to 1990 timeframe, we find ample support for the Bureau's finding that Petricca and Yankee's subsequent customers requested and obtained service under materially different conditions and, therefore, were not similarly situated for purposes of Section 202(a). Based on this evidence, we further find that the disparity in rates did not constitute undue discrimination under the Sierra test. 28. The record shows that the Petricca Contract rates were substantially below those Petricca was then paying AT&T for transmission services and that Petricca entered into the long-term contract in 1985 at least partly out of its desire for price stability. Indeed, it is clear that the Petricca Contract was executed at a time when overall industry prices for interstate interexchange services were significantly higher than those agreed to by Petricca. Two or three years later, when the majority of Yankee's subsequent customers contracted for service, industry prices for interstate interexchange services had declined steadily and significantly. We note that the majority of the contracts Yankee executed with subsequent customers were for one year periods, which is consistent with our finding that prices for interstate, interexchange services were declining during this period. As indicated in our discussion of ACC's Section 201(b) claims, no showing has been made by ACC that Yankee's rates to its subsequent customers were not reasonably based on Yankee's costs of providing the facilities used by those customers as well as other factors such as volume of service, length of contract terms and the availability of alternative or competitive service over the same routes. Accordingly, we find that the rates agreed to in the Petricca contract were not unduly discriminatory or violative of Section 202(a). B. Section 203 29. ACC now faults the Bureau Order for not requiring Yankee to file tariffs pursuant to Section 203 of the Act even though its complaint did not allege a violation of that section. The Bureau determined that, because Yankee was in the process of surrendering its licenses for digital microwave facilities, and it appeared that Yankee would soon discontinue offering any digital microwave service, there was no basis upon which to order it to tariff such an offering. To support its new Section 203 claims, it appears that ACC is pursuing in its application for review an entirely new theory not raised in its underlying complaint, i.e., that Yankee should not be permitted to collect the Petricca Contract rates because Yankee violated Section 203(c) of the Act by not tariffing such rates. We reject ACC's new Section 203 claims because Section 1.115(c) of our rules specifically provides that "[no] application for review will be granted if it relies on questions of fact or law upon which the designated authority has been afforded no opportunity to pass." C. Section 415 Claims 30. In its complaint, ACC requested that the Commission order "Yankee to refund payments made by Petricca in excess of the prescribed rate." Subsequently, after ACC apparently learned that claims for damages were barred under the statute of limitations in Section 415, ACC's counsel wrote the Bureau that it was only seeking declaratory relief. In a subsequent filing, however, ACC stated that, contrary to the Bureau's understanding, "ACC has not withdrawn the relief requested in paragraph 80 of its complaint." Because of the confusion caused by ACC over whether it was seeking a refund from Yankee, the Bureau, in its order, appropriately held that, to the extent that either ACC or Petricca was seeking a refund or damages based on alleged overcharges in the Petricca contract, such claims were barred by Section 415. Contrary to ACC's suggestion, 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. Nor did the Bureau find that affirmative defenses in Yankee's state court action or any counterclaim by ACC for recoupment in that court action are barred. Rather, because ACC had sought a refund as part of the relief requested in its complaint, and because the time for Petricca or ACC to file a complaint for damages at this Commission had lapsed, the Bureau Order correctly held that, to the extent that ACC's complaint was in substance a request for a Commission ruling that damages were due Petricca or ACC, Section 415(b) of the Act barred such relief. The Bureau Order did not rely on the statute of limitations in concluding that ACC's complaint as a whole should be denied. D. Burden of Proof 31. We reject ACC's claims that the Bureau incorrectly placed the burden on ACC to substantiate its allegations that the Petricca Contract rates were unlawful under Sections 201(b) and 202(a) of the Act. It is well-established that, in a formal complaint proceeding pursuant to Section 208 of the Act, the complainant has the burden of proof. E. Miscellaneous 32. We have examined other arguments of ACC and find them also without merit. Some are based on erroneous premises (e.g., that the Bureau approved ICB rates for an unreasonably long period; that Petricca and other Yankee customers were similarly situated during the relevant contract periods; and that the Bureau "rushed to issue its decision before the [AT&T v. FCC] court issued its mandate"). Others are based on unsupported assumptions (e.g., that differences in the quality and other characteristics of Yankee's digital microwave services, compared to AT&T's analog services, were immaterial to Petricca). Still others assumed findings that the state court may or may not make (e.g., that Yankee breached its contract with Petricca when it elected not to tariff its interstate rates at the FCC). 33. Finally, on April 29, 1993, well after the close of the pleading cycle in this proceeding, ACC filed a "Motion for Leave to File Supplemental Memorandum" (Motion), attaching a "Memorandum of Supplemental Points and Authorities in Support of Application for Review" (Supplemental Memorandum). Although ACC's Motion purports to be filed pursuant to Section 1.720(g) of our rules, ACC's reliance on Section 1.720(g) is misplaced. That section contemplates filings to alert the Commission of changes in information or the status of relevant legal authorities, not filings expanding or reinforcing a party's theory of its case. Therefore, we deny ACC's motion as an unauthorized pleading. V. CONCLUSION 34. We conclude that neither the facts of this case nor the applicable law justify reversing the Bureau Order to grant the relief that ACC seeks. Under the Mobile-Sierra doctrine, we find that ACC has failed to demonstrate that it would be in the public interest to abrogate a contract which was freely entered into by two carriers of not unequal bargaining power. VI. ORDERING CLAUSES 35. Accordingly, IT IS ORDERED, pursuant to Section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), that except as otherwise indicated herein, the "Motion for Leave to File Supplemental Memorandum" filed by ACC Long Distance Corp. on April 29, 1993, IS DENIED. 36. IT IS FURTHER ORDERED that the material findings and conclusions of the Bureau Order, as updated herein, ARE AFFIRMED. 37. IT IS FURTHER ORDERED that the Application for Review filed by ACC on January 26, 1993 IS DENIED. 38. IT IS FURTHER ORDERED that ACC's Motion for Expedited Review IS DISMISSED as moot. 39. IT IS FURTHER ORDERED that the "Motion for Leave to File Supplement to Motion for Expedited Review," filed by ACC on July 12, 1993, IS DISMISSED as moot. 40. IT IS FURTHER ORDERED that the Chief of the Common Carrier Bureau's Formal Complaints and Investigations Branch shall send a copy of this Order to the Honorable Daniel A. Ford, Justice of the Superior Court for Berkshire County, Massachusetts. 41. IT IS FURTHER ORDERED that this proceeding IS TERMINATED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary