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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 MCI TELECOMMUNICATIONS ) CORPORATION, ) ) Complainant, ) ) v. ) File No. E-94-19 ) AT&T CORPORATION, ) ) Defendant. ) ) ) ) ) MEMORANDUM OPINION AND ORDER Adopted: April 15, 1997 Released: May 7, 1997 By the Chief, Common Carrier Bureau: I. INTRODUCTION 1. We have before us a complaint filed by MCI Communications Corporation ("MCI") against AT&T Corporation ("AT&T") pursuant to Section 208 of the Communications Act of 1934, as amended. MCI alleges that AT&T violated Section 201(b) of the Communications Act, 47 U.S.C.  201(b), by leveraging its market power in technologically advanced payphone equipment to win a competitive bid to provide regulated service at the Orlando Florida International Airport (the "Orlando Airport"). AT&T has filed an answer denying MCI's allegations and has moved to dismiss the complaint for failure to state a claim. For the reasons discussed below, we deny MCI's complaint. II. BACKGROUND 2. MCI's complaint centers around certain statements and actions by AT&T concerning its technologically advanced public payphone, the AT&T Public Payphone 2000 ("PP2000"), in connection with its 1993 contract bid for the public payphone concession at the Orlando Airport. The PP2000, also called the Stand-alone Public Enhanced Communications System ("SPECS"), can provide callers with basic voice and data communications services and certain enhanced services, including weather and stock market information, electronic mail, and abbreviated dialing access (also called "speed-dialing) for certain telephone numbers. The PP2000 incorporates into a single terminal device a handset, keypad, dataport, card reader, and video screen. Optionally, it may also include a computer keyboard, and may have computer storage and processing capabilities that use proprietary software to provide enhanced services. 3. The facts are largely undisputed. In the spring of 1993, AT&T and MCI were the only remaining applicants in bidding for a contract to supply presubscribed 1+ and O+ interexchange service and approximately 500 basic payphone stations to the Orlando Airport. AT&T was already providing approximately 50 PP2000 payphones to the Orlando Airport under a previous separate contract, renewable annually at the option of the parties. 4. On May 10, 1993, the Greater Orlando International Aviation Authority's committee for telecommunications ("the Committee") met to present their recommendations on the bids, with representatives of MCI and AT&T present. In the meeting, AT&T's Regional Sales Manager stated that it was AT&T's policy to place the PP2000 only where AT&T had the primary service contract, i.e., 1+ and 0+ interexchange service, because it was a "loss leader." The manager further stated that the commission revenues and other benefits from the existing PP2000 phones would no longer be available to the Orlando Airport unless AT&T won the pending contract for basic interexchange service and provision of standard payphones. The Committee concluded the meeting by voting in favor of MCI over AT&T, with one dissenting vote. 5. On or about June 16, 1993, AT&T distributed written materials to the governing board of the Greater Orlando International Aviation Authority (the "Board"), describing the PP2000 as expensive, unique state-of-the-art equipment which could not be replaced by any other carrier. The materials further stated that AT&T would remove the existing PP2000 phones from the Orlando Airport unless it won the contract. In a subsequent meeting on June 16, 1993, the Committee presented its findings to the Board. In the meeting, AT&T's representative orally reiterated the foregoing statements about the advantages of the PP2000 and AT&T's intention of removing the existing PP2000 units from the Orlando Airport if it did not receive the contract. The Board ultimately voted to award the entire concession to AT&T. In a Florida state court action brought by MCI contesting the award of the contract to AT&T, all seven members of the Board testified or stated under oath that AT&T's comments regarding removal of the PP2000 played no role in their decision. The state court denied MCI's request for injunctive relief. 6. On October 13, 1993, MCI filed the instant complaint against AT&T alleging that AT&T's statements and actions regarding the PP2000 in the Orlando Airport bidding violated various provisions of the Communications Act and the Commission's rules and orders. On December 2, 1993, AT&T filed an answer, denying the allegations and moving to dismiss the complaint. After discovery, MCI and AT&T filed simultaneous briefs on June 16, 1994 and simultaneous reply briefs on July 6, 1994. After the briefing cycle had closed, AT&T moved on July 26, 1994, to file a surreply, primarily pursuant to Section 1.732(g) of the Commission's rules. AT&T's motion for surreply seeks to introduce additional affidavits and written material on the issue of the PP2000's uniqueness, including statements by an MCI attorney in the state court proceeding. MCI opposed the motion as untimely and otherwise inappropriate, and, alternatively, sought to present a similar rebuttal in the form of an affidavit by the MCI attorney. Although we do not routinely accept additional submissions under Section 1.732(g) when initiated by a party after the normal pleading cycle is closed, we believe the material here is relevant to a key issue and contributes to a full, fair, and expeditious resolution of the proceeding. We therefore grant the AT&T motion to introduce its surreply and accept the proffered surreplies of both parties into the record. III. CONTENTIONS OF THE PARTIES A. MCI 7. MCI's first argument is that AT&T's threat to remove the PP2000 payphones to win the Orlando Airport concession was an anti-competitive and, therefore, unreasonable practice, in violation of Section 201(b) of the Act. MCI relies on the AT&T manager's statements about the uniqueness of the PP2000 for the argument that AT&T leveraged its market power in the advanced payphone portion of the payphone market to win the regulated service concession. MCI also points to an affidavit by its own account executive involved in the Orlando Airport bidding stating that, although alternative equipment to the PP2000 might have been available at the time, it would not have been "equivalent equipment." MCI claims that, exploiting this alleged uniqueness, AT&T attempted to coerce the Committee and Board into choosing a carrier for regulated service and basic payphone network equipment for reasons that had nothing to do with the quality of that basic transmission service and equipment. 8. MCI maintains that AT&T's practice is inimical to competition and, therefore, injurious to the public interest, whether viewed from the standpoint of: (1) end-users, who would be deprived of access to the advanced equipment; (2) subscribers such as the Orlando Airport, which would be deprived of commission payments and satisfied customers; and (3) competitors of AT&T in both the telecommunications services and equipment markets. MCI argues that AT&T's practice constitutes the same kind of unlawful leveraging condemned by the Commission in AT&T's Private Payphone Commission Plan. MCI further argues that, even without directly applicable precedent, the scope of Section 201(b) of the Act is sufficiently broad to encompass AT&T's anti-competitive conduct. 9. MCI states that the fact that all of the Board members stated in the state court proceeding that the PP2000 did not influence their decision is immaterial because AT&T has made clear it will follow the same policy in future bidding situations. MCI states that the crux of its complaint goes not to AT&T's actions in the Orlando Airport bidding process, but rather to similar coercive measures AT&T has made clear it will take in future competitive bidding encounters. MCI further contends that the state court proceeding did not, and jurisdictionally could not, address AT&T's policy and conduct under the Section 201(b) of the Act. According to MCI, a determination of the lawfulness of AT&T's actions lies with the Commission. 10. MCI's second argument is that the costs of the PP2000 appear to be cross- subsidized with revenues from regulated interexchange transmission service. MCI points to statements by AT&T's Regional Sales Manager that the PP2000 is a loss-leader and that installation of these expensive payphones can only be justified when AT&T has the primary telephone service contract. In addition, MCI notes certain statements by AT&T representatives disclosed in discovery that the PP2000 are expensive to deploy and must generate more traffic than other public telephones. 11. MCI's final argument is that the Commission's previous finding that AT&T had provided unauthorized enhanced services from certain PP2000 phones provides a separate and independent basis for finding a violation of Section 201(b). According to MCI, the "unique" PP2000 telephones that are the subject of the SPECS NAL were likely programmed and used to furnish unauthorized enhanced services as part of AT&T's efforts to win the Orlando Airport contract. MCI notes that the PP2000 payphones at issue in its complaint were installed and in operation at the Orlando Airport prior to the SPECS NAL and during the time AT&T made representations about the PP2000's unique capabilities in the bidding process. MCI argues that if these phones did in fact provide those enhanced features at that time, it would be a separate and independent basis for finding a violation of Section 201(b) in this complaint. 12. With respect to relief, MCI's complaint requests that the Commission (1) declare AT&T's practice of leveraging its market power in advanced payphone equipment to be unlawful, (2) order AT&T to cease and desist from the practice, and (3) order AT&T to pay compensatory and exemplary damages, the amount of which cannot be specified without records within AT&T's sole custody. MCI further urges the Commission to impose maximum forfeitures against AT&T for its unlawful conduct. Finally MCI's Brief emphasizes that, despite the finding of the state court that AT&T's statements about the PP2000 did not affect the Board's award of the concession, AT&T has adopted the same practice as a general policy and should be subject to injunctive relief to stop it. B. AT&T 13. AT&T maintains that its actions in bidding for the Orlando Airport payphone service were lawful and consistent with its established policy. According to AT&T, it generally places PP2000 telephones on the premises of those owners that choose to presubscribe public or hospitality telephones to AT&T, and generally does not place PP2000 telephones on the premises of owners that do not presubscribe public or hospitality telephones to AT&T. AT&T argues that the state court clearly established that AT&T's statements about the PP2000 played no role in the Board's decision to grant it the basic telephone concession at the Orlando Airport. AT&T argues that MCI lost in a fair bidding proceeding, lost in state court, and now complains to the Commission "for a third bite at the apple." 14. AT&T disputes on several grounds MCI's claim that the threat to remove the existing PP2000 payphones during the bidding process was an anti-competitive leveraging of market power, in violation of Section 201(b). First, AT&T cites the state court testimony of MCI's account executive in the Orlando Airport bidding and various trade press excerpts to show that MCI could have provided a functional equivalent of AT&T's PP2000. According to AT&T, this establishes that AT&T had no market power to leverage. Second, AT&T notes that the PP2000, insofar as it functions to provide basic telecommunications service, is an integral part of regulated services and part of the same product market as those services. Therefore, AT&T concludes, leveraging, which requires two distinct markets, cannot occur. Finally, AT&T denies that its policy of linking PP2000 phones with regulated service is anti-competitive. On the contrary, AT&T argues, the offer of equipment as consideration to the subscriber for taking service is, like the payment of commissions, another form of value offered to premises owners for choosing AT&T. 15. Regarding MCI's cross-subsidy claim, AT&T states that MCI has made no claim that AT&T has failed to properly allocate the PP2000 between regulated and nonregulated accounts. AT&T states that it has in fact assigned and apportioned these costs in accordance with the Commission's rules and orders. 16. Finally, AT&T asserts that the PP2000 phones at the Orlando Airport were deployed to furnish basic service and that the SPECS NAL is therefore irrelevant to MCI's complaint. IV. DISCUSSION 17. After consideration of the record, we deny MCI's complaint. As a threshold matter, we reject AT&T's claim that the state court finding that the PP2000 played no role in the Board's award of the concession to AT&T forecloses MCI's claim before this Commission. Our authority to determine the lawfulness of AT&T's conduct under the Communications Act is independent of the state court action on the issues raised in that state proceeding. 18. Regarding MCI's substantive claims, we find that MCI has failed to carry its burden of proof that AT&T's actions violated Section 201(b) of the Act. MCI has not shown that AT&T engaged in unjust and unreasonable practices regarding the PP2000, within the meaning of Section 201(b) of the Act. MCI's only specific support for its claim that AT&T had market power with the PP2000 consists of numerous references to AT&T's promotional descriptions of it as "unique" and to an affidavit by MCI's own representative. Contrary to MCI's assertions, AT&T has presented persuasive evidence that substantially similar alternatives to the PP2000 may have been available or could have been readily developed in time for the Orlando Airport concession. We do not believe that AT&T must go so far as to show the immediate availability to MCI of precisely identical equipment at the time of the Committee and Board meetings in question in order to overcome the inference, arising from MCI's initial showing, that AT&T had decisive market power by virtue of the PP2000. Accordingly, we conclude that AT&T has rebutted MCI's showing sufficiently to shift the burden of proof regarding AT&T's alleged market power back to MCI, and MCI has adduced nothing further to carry this reestablished burden. 19. In addition, MCI's attempt to compare AT&T's marketing approach at issue here with AT&T's tie-in of 0+ and 1+ service, which we found to be unlawful in AT&T's Private Payphone Commission Plan, supra, is unavailing. AT&T's market power in 0+ operator service considered in that decision was the result of decades of a complete monopoly. The present case is distinguishable because the market power that the PP2000 may have bestowed on AT&T in the payphone equipment market in 1993, if any, was nominal, as indicated by AT&T's evidence that alternatives to the PP2000 could have been obtained in a relatively short time. 20. Next, we reject MCI's claim that AT&T is unlawfully cross-subsidizing the PP2000 with revenues from regulated basic services. The question before us is whether AT&T violated the Commission's rules and requirements on the allocation of the costs associated with the PP2000 between the regulated and nonregulated categories under Parts 32 and 64 of our rules. MCI nowhere asserts, nor do we find any evidence in the record, that AT&T has violated these rules. Our own related proceedings regarding AT&T's petition for waiver of these rules and certain Computer III requirements for the PP2000 are consistent with this conclusion. 21. Finally, we reject MCI's contention that the SPECS NAL compels a finding that AT&T violated Section 201(b) of the Act. The record here contains no evidence that the SPECS phones installed at the Orlando Airport featured the unauthorized enhanced or non-basic services addressed in that proceeding. Moreover, the SPECS NAL proceeding was concluded by a Commission order incorporating a consent decree, in which AT&T specifically denied, and the Commission did not affirmatively find, liability. V. CONCLUSION AND ORDERING CLAUSES 22. For the reasons discussed above, we conclude that MCI has not met its burden of establishing that AT&T violated the Communications Act or the Commission's rules or orders in connection with the 1993 contract bid for the Orlando Airport. 23. Accordingly, IT IS ORDERED pursuant to Sections 1, 4(i), 4(j), 201(b), 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), 201(b), 208, and the authority delegated under Sections 0.91, 0.291 of the Commission's rules, 47 C.F.R.  0.91, 0.291, that the formal complaint filed on October 13, 1993, by MCI Telecommunications Corporation against AT&T Corporation IS DENIED. 24. IT IS FURTHER ORDERED that the Motion to File Surreply in Support of Judgment filed by AT&T Corp. on July 26, 1994 IS GRANTED. 25. IT IS FURTHER ORDERED that this proceeding IS TERMINATED. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Common Carrier Bureau