Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) File No. ENF-93-045 CHERRY COMMUNICATIONS, Inc. ) CONSENT DECREE 1. The Federal Communications Commission (FCC or Commission) and Cherry Communications, Inc. (Cherry) hereby enter into a consent decree terminating an FCC investigation regarding Cherry's alleged violations of the Commission's policies and rules concerning primary interexchange carrier conversions. 2. In January 1993, the Common Carrier Bureau's Enforcement Division initiated an investigation into Cherry's marketing practices after receiving a large volume of consumer complaints alleging that Cherry may have engaged in widespread violations of Commission rules and orders pertaining to primary interexchange carrier (PIC) changes. The investigation, which is independent of the complaints, concerned allegations from consumers in thirty states that Cherry had switched their PICs without authorization (a practice commonly known as "slamming") or had engaged in misleading and deceptive PIC change marketing practices. Activities similar to those alleged in the complaints have been the subject of investigations by various regulatory and enforcement agencies within a number of states. Cherry has represented that as a result of some of these investigations, it has entered into consent decrees or settlements with a number of state agencies providing for operating requirements, reimbursement for investigative costs and attorneys' fees, or both, in lieu of enforcement actions. 3. In addition, Cherry has represented that it has instituted internal remedial measures and has responded to each of the written consumer complaints filed with the Commission with reimbursement of all PIC change charges as well as offers to adjust consumer bills to the rates that would have been charged by the original PICs. Further, it appears that only three complaints received by the Commission allege wrongful activities occurring between April 1, 1993 and December 31, 1993, that resulted in an unauthorized conversion by Cherry. 4. For the purposes of this Consent Decree, the following definitions apply: (a) "The Commission" means the Federal Communications Commission; (b) "Cherry" means Cherry Communications, Inc., successor in interest to Cherry Payment Systems, Inc.; (c) "Parties" means Cherry and the Commission; (d) "Order" means an order of the Commission adopting the terms and conditions of this Consent Decree; (e) "Slamming" means the unauthorized conversion of a customer's interexchange carrier by another interexchange carrier, interexchange resale carrier, or a subcontracted telemarketer; (f) "PIC Change" is an order transmitted by an interexchange carrier in writing or electronically to a local exchange carrier requesting a change of a customer's primary interexchange carrier (PIC); (g) "Letter of Authority" or "LOA" means a written authorization signed by the customer authorizing a PIC change; (h) "Telemarketing" means sales solicitation by telephone; (i) "Effective Date of this Consent Decree" is the date that the Order is released. 5. Cherry admits the jurisdiction of the Commission over it and over the subject matter of this action for the purposes of this Consent Decree and the Order described in paragraph 4(d) above. 6. The parties agree and acknowledge that this Consent Decree is not dispositive of the rights of the complainants who have filed informal complaints against Cherry and does not resolve those complaints, nor is it dispositive of any matters within the jurisdiction of other federal agencies. 7. The parties further agree that the provisions of this Consent Decree shall be incorporated by reference in the Order described in paragraph 4(d) that formally adopts this Consent Decree and terminates the captioned proceeding. 8. Cherry agrees to waive any rights it may have to seek judicial review or otherwise challenge or contest the validity of the Order described in paragraph 4(d). 9. In consideration for the termination by the Commission of its investigation into the allegations of slamming against Cherry in accordance with the terms of this Consent Decree, Cherry agrees to the following terms, conditions and procedures without admitting any of the alleged violations investigated by the Commission: (a) Cherry will make a voluntary non-tax-deductible contribution to the United States Treasury, without further protest or recourse, in the amount of $500,000. Cherry shall tender payment in thirty-six (36) sequential monthly installments. The first installment shall be in the amount of $25,000 and shall be tendered within the later of ninety (90) days of the Effective Date of this Consent Decree or, in the event of an appeal or petition for reconsideration by a third party, thirty (30) days after the Order is affirmed, non-appealable, and not subject to modification or revision. The succeeding eleven installments shall be in the amount of $6,818 each. The next 23 installments shall be in the amount of $16,666 each. The last installment shall be in the amount of $16,684. Each of installments number 2 through 36 is due on the first business day of each month, beginning with the first full calendar month following the date that the initial installment is due and payable. Each installment payment must be made by check or money order bearing the file number of this proceeding (ENF-93-045) and drawn to the order of the Federal Communications Commission. Such remittance should be mailed to the Federal Communications Commission, Finance Branch, P.O. Box 73482, Chicago, Illinois 60673-7483. (b) (1) In the event Cherry defaults on its payment obligations under this Consent Decree, the entire outstanding amount of the voluntary contribution will become immediately due and payable. In the event of a default by Cherry, the Commission shall notify James Elliott, presently Cherry's chairman of the board and controlling shareholder, that for the period of time ending three (3) years from the time of default, he will be proscribed by the Commission from engaging in common carrier activities subject to regulation under Title II of the Communications Act unless, within thirty (30) days of his receipt of such notice, he tenders payment of the entire remaining balance due on the voluntary contribution. For purposes of this subsection, James Elliott will have engaged in common carrier activities subject to regulation under Title II of the Communications Act if he is either (1) an owner of 25% or more of the shares of a regulated common carrier or an officer, director or other official who may exercise direct or indirect control over such carrier, or (2) a general partner or a limited partner owning 25% or more of a partnership that directly or indirectly controls a regulated common carrier. (2) Cherry also agrees that in the event of any corporate reorganization, including but not limited to merger, acquisition, or change of name, the documents of transfer and/or reorganization shall provide that the new corporate entity shall assume the rights and obligations, both operational and financial, imposed by this Consent Decree. (c) Cherry will voluntarily withdraw its application for section 214 authority to operate as an international resale carrier (File No. ITC-93-106) within 10 days of the Effective Date of this Consent Decree. Cherry has voluntarily agreed to refile such application no earlier than July 1, 1994, and further, until such date, Cherry shall not apply to the Common Carrier Bureau for any other operating authorization unless such authorization is necessary for Cherry to continue functioning as a domestic resale carrier of interexchange services. (d) For two (2) years from the Effective Date of this Consent Decree or unless and until other Commission-approved methods are utilized (e.g., verifications pursuant to paragraph 9(g), below), Cherry agrees to cause no PIC change orders to be submitted to a local exchange carrier (LEC) until Cherry has first obtained an LOA for each PIC change which satisfies the requirements provided in Section (a) of Appendix B of Policies and Rules Concerning Changing Long Distance Carriers (PIC Change Order) and which conspicuously bears the language prescribed in paragraph 9(i) of this Consent Decree. In addition to obtaining an LOA prior to submitting a PIC change order to any LEC, Cherry agrees to perform a second verification on each PIC change. To fulfill the second verification obligation, all LOAs will be individually verified by an agent of Cherry (including in-house verifiers, provided that they are not comprised of Cherry's sales personnel) who will obtain the customer's oral authorization to submit the PIC change order that confirms and includes appropriate verification data (e.g., the customer's date of birth or social security number). (e) As an additional verification method to be used in conjunction with all PIC change orders initiated by Cherry for two (2) years from the Effective Date of this Consent Decree (specifically including PIC change orders made pursuant to paragraphs 9(d) or 9(g)), Cherry agrees to send each individual whose long distance carrier has been switched to Cherry a letter by first class mail containing at least the following information concerning the requested change: (1) that the information is being sent to confirm an order to change long-distance carriers that was verified by Cherry within the previous 14 business days; (2) the name of the newly requested IXC; and (3) a general description or summary of the material terms, conditions or charges that will apply to the customer's long-distance service. (f) For the first twelve (12) months following the Effective Date of this Consent Decree, Cherry agrees to use telemarketing (as defined above) only for the following purposes: (1) identifying sales leads and arranging appointments for sales presentations; (2) marketing products and services in conjunction with PIC change orders that fully comply with paragraphs 9(d), 9(e), 9(i), and 9(j); (3) marketing products and services to customers who have already been verified as having signed LOAs; and (4) marketing products and services when the call is initiated by the prospective customer. (g) For the period beginning twelve (12) months following the Effective Date of this Consent Decree until the end of the two (2) year period prescribed in paragraph 9(d), the Commission authorizes Cherry to use verifications that satisfy the requirements of Section (c) of Appendix B of the PIC Change Order, provided that Cherry complies with the following additional requirements: (1) Cherry complies with paragraph 9(e), above; (2) Cherry complies with paragraph 9(h), below; and (3) Cherry's telemarketers clearly and conspicuously disclose the following information during each telephonic solicitation to switch a customer's long- distance service pursuant to this paragraph: (A) that the customer is being asked to agree to switch their long distance service from their current carrier to Cherry; (B) that Cherry is not affiliated with and is not acting on behalf of any other local or long distance carrier, if such is the case; and (C) that a fee will be incurred if the customer's long distance service is switched to Cherry. (h) No sales agent of Cherry Communications shall either imply that the customer's long distance service will remain with the customer's current long distance carrier or that Cherry will only be acting as a billing agent, if that is not the case. In the case of telemarketing subject to paragraph 9(g), above, Cherry's telemarketing employees and its independent verification agents will be required to follow scripts with potential customers that will be provided by Cherry. To the extent allowed by law, Cherry will ensure compliance with this provision by engaging in regular, systematic monitoring of telemarketing at all sites where its telemarketing is conducted. (i) Cherry agrees to include in all LOAs it acquires under the terms prescribed in paragraph 9(d), above, the following text printed in prominent and clear typeface immediately above the customer's signature line: I understand that by signing this Letter of Agency, Cherry Communications will become my long distance telephone company and that I will no longer be served by my current long distance carrier. I also understand that my local telephone company may charge me a fee to switch my primary long distance carrier to Cherry Communications. At Cherry's option, Cherry may also insert the following statement at the end of the foregoing prescribed language: Cherry Communications has promised to reimburse such fee if I submit a copy of that bill to them. (j) Cherry agrees that it will not include any language in LOAs (acquired pursuant to paragraph 9(d), above) that detracts from the clear meaning of the prescribed language in paragraph 9(h), above. (k) For two (2) years beginning on the Effective Date of this Consent Decree, Cherry agrees to keep a record, subject to Commission inspection, of all unauthorized PIC change complaints submitted in writing directly to Cherry, including those filed against Cherry in any local, state or federal jurisdiction that Cherry has actually received. This record shall include the name, address and telephone number of each complainant, Cherry's response, and the final disposition of each complaint. Inspection by Commission personnel may be made during normal business hours, and Cherry shall be permitted such time as is reasonably necessary to compile the records and obtain such records from its branch offices as may be necessary to satisfy the Commission's inspection request. Inspection may also be made by written request of the Commission for copies of such records. With respect to records copied by or for the Commission pursuant to this paragraph, Cherry reserves the right to claim that such records are non-releasable proprietary information under the Freedom of Information Act, 5 U.S.C.  552(b) and the Trade Secrets Act, 18 U.S.C.  1905, and the Commission agrees to allow Cherry an opportunity to establish such claims prior to the release or dissemination of any such material. (l) Cherry agrees that all customers who allege that Cherry slammed them will, at the minimum, (1) have any and all PIC change fees resulting from the alleged unauthorized conversions refunded to them, and (2) for customers who send re-rating documentation to Cherry, have all calls billed by Cherry re-rated to reflect no more than the lesser of the amount billed by Cherry or the amount that would have been billed by the customer's original PIC. 10. In light of the covenants and representations contained in this Consent Decree, and in express reliance thereon, the Commission agrees to accept this Consent Decree and to issue an Order incorporating this Consent Decree and terminating its investigation in the above-captioned proceeding without any finding of liability on the part of Cherry. This Consent Decree disposes of any possible fines or penalties, including forfeitures, related to the conduct described in paragraph 1, above, for the period of time beginning with Cherry's inception through December 31, 1993. Nothing in this Consent Decree shall prevent the Commission from adjudicating complaints filed against Cherry alleging slamming, or from instituting a new investigation and/or enforcement proceeding against Cherry, including the revocation of Cherry's blanket authority to function as a resale carrier, in the event of future misconduct. If such an enforcement proceeding is initiated, Cherry's earlier conduct may be adduced, but not for the purpose of assessing monetary forfeitures. 11. The parties agree that any violation of the Order incorporating the terms of this Consent Decree shall constitute a separate violation of a Commission Order, entitling the Commission to exercise any rights and remedies attendant to the enforcement of a Commission Order. 12. If the Consent Decree is not signed by the Commission and each of the parties or if the Order deviates from the terms of this Consent Decree, or if either the Order or the Consent Decree are otherwise rendered invalid by any court of competent jurisdiction, the Consent Decree and the Order shall become null and void and may not be used in any fashion in a legal proceeding. The parties agree, however, that except for Cherry's financial rights and obligations herein or except as otherwise ordered by any court of competent jurisdiction, the parties will comply with the operational rights and obligations of this Consent Decree during the pendency of any proceeding initiated by a third party seeking to void, nullify, or otherwise modify this Consent Decree or the Order. 13. The parties further agree that this Consent Decree shall become effective on the date of the release of the Order. The Commission shall notify Cherry of the release by providing Cherry with a copy of the Order. 14. If the Commission brings an action in the United States District Court to enforce the terms of the Order, the parties agree that they will not contest the validity of the Order (unless it has become null and void under paragraph 12), will waive any statutory right to a trial de novo and will consent to a judgment enforcing the rights and obligations of the parties as set forth in this Consent Decree. For the For Federal Communications Commission: Cherry Communications, Incorporated: /S/ /S/ William F. Caton David Giangreco Acting Secretary President April 18, 1994 January 26, 1994 Date Date I, James Elliott, in my individual capacity, hereby acknowledge my personal rights and obligations pursuant to the foregoing agreement. /S/ James Elliott January 26, 1994 Date