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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 In the Matter of ) ) WATS International Corporation, ) Plaintiff, ) ) v. ) File No. ENF-94-05 ) Group Long Distance (USA), Inc., ) National Independent Carrier ) Exchange, James J. McKeeff, and ) Sprint Communications Company, L.P., ) Defendants. ) ) Request for Declaratory Ruling ) MEMORANDUM OPINION AND ORDER Adopted: January 23, 1997 ; Released: February 4, 1997 By the Commission: I. INTRODUCTION & SUMMARY 1. On November 9, 1995, the Common Carrier Bureau (Bureau) released an order (Bureau Order) granting in part and denying in part the above-captioned request for declaratory ruling of WATS International Corporation (WIC). In this order, we deny the Application for Review (WIC Application) of the Bureau Order that WIC filed with the Commission on December 11, 1995. 2. WIC's sole argument on review is that the Bureau concluded erroneously that Sprint Communications Company, L.P. (Sprint) did not violate Section 64.1100 of the Commission's rules. Section 64.1100 is a consumer protection safeguard against overzealous telemarketing activities that result in unauthorized changes in consumers' PIC selections, or "slamming." The rule requires interexchange carriers (IXCs) to follow verification procedures before submitting to local exchange carriers (LECs) orders generated by telemarketing to change an end-user customer's primary interexchange carrier (PIC) selection. The above-captioned matter, however, does not involve slamming because the orders that Sprint submitted to LECs in this case were not PIC-change orders as this term is used in Section 64.1100. WIC's contentions notwithstanding, therefore, Sprint did not violate or even implicate Section 64.1100 when it submitted these orders to local exchange carriers. 3. This case involves a switchless resale IXC that changed its facilities-based network provider in 1993 from AT&T Corp. (AT&T) to Sprint. WIC's Application ignores this significant regulatory and marketplace distinction in its effort to have us declare that Sprint violated Section 64.1100. WIC's Application also ignores the Commission's approval in 1993 of the very "two-step letter of agency" procedure that Sprint followed in this case. In addition, WIC's Application suggests that finding Sprint in violation of Section 64.1100 is necessary to further our goal of protecting consumers from unauthorized PIC changes via telemarketing. This suggestion, however, ignores the Bureau's uncontested finding that the switchless reseller's failure to inform its customers of the change in underlying carriers constituted an unjust and unreasonable practice within the meaning of Section 201(b) of the Act. We also decline to speculate as to whether WIC communicated with the end-user consumers in good faith, e.g., based on its understanding of the telemarketing agreement it entered with the resale carrier. We do, however, reject WIC's use of the Commission's consumer-protection rules in its attempt to shift to Sprint liability based on the actions or inactions of the other parties to this proceeding. II. BACKGROUND 4. U.S. District Court Referral. WIC is the plaintiff in an action pending before the United States District Court for the Eastern District of Pennsylvania (District Court) against Group Long Distance (USA), Inc. ("GLD"), National Independent Carrier Exchange ("NICE"), James J. McKeeff, and Sprint. WIC alleges in the District Court action, inter alia, that the defendants have violated the Commission's prohibitions against the unauthorized change of an end user's primary interexchange carrier ("PIC"). The District Court referred the parties to the Commission for resolution of the issues raised by WIC's action that are within the Commission's primary jurisdiction. The District Court did not specifically delineate the communications issues to be decided by the Commission, but instead directed that "[a]ny party may submit such issues to the Common Carrier Bureau by April 15, 1994." On April 15, 1994, the defendants in the District Court proceeding submitted to the Bureau copies of the briefs the parties had submitted to the District Court. On May 31, 1994, the Common Carrier Bureau, held a conference with counsel for the parties to identify and discuss material issues contemplated by the District Court Order. As a result of that conference, the parties agreed to file briefs setting forth their views on the issues contemplated by the District Court. The Bureau subsequently ruled on WIC's request pursuant to delegated authority. 5. Underlying Facts. The material facts that underlie the dispute between the parties are largely undisputed. GLD is a "switchless" reseller of interexchange services that "facilities- based" carriers, such as AT&T, MCI Telecommunications Corp., and Sprint, offer on a common carrier basis. During the period at issue, GLD initially resold AT&T's Software Defined Network (SDN) service. WIC is a sales agent whose principal business involves soliciting end-user customers on behalf of telecommunications companies, including IXCs, through direct sales and telemarketing. On February 6, 1991, WIC entered into an agreement with GLD in which it agreed to obtain customers for GLD's resold AT&T SDN service in return for a commission for each customer it brought to GLD. Thus, the end users that WIC brought to GLD became "presubscribed" to GLD. 6. In April 1992, GLD began to receive a series of letters from AT&T reflecting difficulties with GLD's resale account. The letters were notices to GLD that it was behind in payments and that AT&T would refuse to provide service to new GLD end-user customers and terminate service to existing GLD customers if GLD did not make payments on the accounts current. 7. James J. McKeeff and other principals of GLD formed a new company in December 1992. The new company, NICE, acquired all of the stock in GLD and then proceeded to change the underlying carrier serving GLD's customers from AT&T to Sprint. NICE made this change without informing GLD's end-user customers, although those same customers were apparently informed in a letter dated March 1, 1993, that NICE had acquired all GLD stock. Sprint submitted the orders it received from NICE to local exchange carriers (LECs) pursuant to NICE's written assurance that it was authorized to request these changes because the end users had selected GLD as their PIC, and NICE was the successor-in-interest to GLD. 8. WIC, upon facing the prospect of losing commissions for all of the customers it brought to GLD/NICE, because of NICE's conversion from AT&T to Sprint, filed suit in the District Court. The suit alleges that the defendants violated the Communications Act of 1934, as amended (the Act), and the Civil RICO Act, and engaged in tortious interference with contractual relations, conversion, and breach of contract. The District Court referred communications law issues to the Commission for resolution. 9. The Bureau Order. The Bureau reviewed the evidence and arguments submitted by the parties and reached two conclusions. First, the Bureau found no persuasive support for WIC's claim that each of the defendants had violated the Commission's PIC-verification rules in connection with GLD/NICE's change in its underlying network provider from AT&T to Sprint. Second, the Bureau found that WIC had demonstrated that defendants GLD/NICE violated the just and reasonable provisions of Section 201(b) of the Act by failing to adequately inform its end-user customers of the change in their underlying carrier from AT&T to Sprint. WIC's Application asks us to partially reverse the Bureau's first conclusion by declaring that Sprint violated Section 64.1100 of the Commission's rules in connection with the orders it received from NICE and submitted to LECs. III. CONTENTIONS AND DISCUSSION A. Application for Review Contentions of the Parties 10. WIC asserts that the Bureau erred by concluding that WIC failed to establish that Sprint violated the Commission's PIC-change rules and orders. According to WIC, the Bureau's decision conflicts with the clear language of Section 64.1100, which states in relevant part that "[n]o IXC shall submit to a LEC a primary interexchange carrier (PIC) change order generated by telemarketing unless and until the order has first been confirmed in accordance with [one of the four specified confirmation] procedures[.]" 11. To prevail on its claim that Sprint violated Section 64.1100, WIC must, as a threshold matter, establish that the orders Sprint received from NICE, a switchless reseller of Sprint's common carrier interexchange service, and submitted to LECs were PIC-change orders under Section 64.1100. In examining WIC's allegations in this regard, the first question we must decide is, who is the PIC? More specifically, when end users select a switchless reseller as their 1+ long-distance carrier, is the PIC nonetheless the underlying, resold facilities-based carrier? Or, is the switchless reseller that the end user selects the PIC, because of its proximate business relationship with the end user? 12. According to WIC, the orders that Sprint received from NICE and submitted to LECs were "PIC-change orders," as this term is used in Section 64.1100, because these orders listed Sprint's carrier identification code (CIC), thereby directing the LECs to switch NICE's end-user customers from AT&T to Sprint. WIC asserts that AT&T and Sprint are the relevant PICs under Section 64.1100 -- not GLD/NICE as the Bureau concluded -- because: (1) Sprint submitted the PIC-change orders to the LECs; (2) only AT&T and Sprint CICs appeared on the PIC-change order forms, (3) LEC records for NICE's end users reflect AT&T's CIC before Sprint submitted the PIC- change orders and Sprint's CIC afterwards; and (4) the Commission does not recognize switchless resellers, such as GLD/NICE, as PICs for purposes of its PIC-change verification rules. In support of this latter assertion, WIC states that the end-user customers it obtained for GLD specifically contracted to use AT&T's SDN service by signing letters of agency (LOAs) that listed WIC and AT&T, but not GLD/NICE or Sprint. According to WIC, these LOAs further demonstrate that these end users had selected AT&T as their PIC, and not GLD/NICE. 13. Sprint answers that the orders it submitted to LECs for NICE were not PIC-change orders under Section 64.1100. Sprint avers that WIC's contentions are based on the flawed notion that the end users' selection of GLD/NICE as their PIC can be ignored. Moreover, Sprint states that WIC misrepresents the law when it asserts that switchless resellers have no status under the Commission's PIC-verification rules. Sprint contends that because the end users in question obtained their communications services from GLD and NICE, at rates which were set by GLD and NICE, GLD and NICE were the relevant carriers under Commission precedent. Moreover, Sprint avers that the Commission has specifically recognized that a switchless reseller is the PIC of its customers even though it is unable to secure access services directly from the LECs for its customers and cannot obtain carrier identification codes from BellCore. Sprint adds that the Commission has also ruled that, because switchless resellers are prevented for technical reasons from ordering access and PIC-change services for their customers directly from the LECs, they must order LEC services through the facilities-based IXCs. 14. Sprint explains that, in dealing with the change orders from NICE, it followed a "2- step LOA procedure" that the Commission has specifically endorsed. Under this procedure, Sprint states that it obtained from NICE LOAs confirming NICE's authority to provide IXC service to the end users in question and designating Sprint to act as NICE's special agent for the sole purpose of submitting the orders to the LECs. Sprint states that, in those instances where PIC-change disputes arose, Sprint demanded that NICE also furnish it with the LOA that authorized GLD/NICE as the end user's long-distance carrier. Sprint points out that, to the extent NICE could not provide such documentation, Sprint refused to provide service for those end-user customers. B. History of Relevant Commission Rules 15. The Commission's PIC-change Rules and Orders. In its Allocation Order and subsequent Reconsideration Order and Waiver Order, the Commission set forth rules and procedures for implementing equal access and customer presubscription to an IXC. The Commission's original allocation plan required IXCs to have on file a LOA signed by the customer before submitting PIC change orders to the LEC on behalf of the customer. After considering claims by certain IXCs that this requirement would stifle competition because consumers would not be inclined to execute the LOAs even though they agreed to change their PIC, the Commission later modified the requirement to allow IXCs to initiate PIC changes if they have "instituted steps to obtain signed LOAs." 16. In 1992, the Commission again revised its rules because it continued to receive complaints from consumers about unauthorized PIC changes. Specifically, while the Commission recognized the benefits of permitting a telephone-based industry to rely on telemarketing to solicit new business, it required IXCs to institute one of the following four confirmation procedures before submitting PIC change orders generated by telemarketing: (1) obtain the consumer's written authorization; (2) obtain the consumer's electronic authorization by use of a toll-free number; (3) have the consumer's oral authorization verified by an independent third party; or (4) send an information package, including a prepaid, returnable postcard, within three days of the consumer's request for a PIC change, and wait 14 days before submitting the consumer's order to the LEC, so that the consumer has sufficient time to return the postcard denying, cancelling, or confirming the PIC change order. 17. The Commission adopted, and later modified, Section 64.1100 as a consumer protection safeguard against the unauthorized conversion of a customer's IXC by "overzealous carrier telemarketing activities" "by another IXC, an IXC resale carrier, or a subcontracted telemarketer." Section 64.1100, therefore, governs all IXCs -- switchless or facilities-based -- when they submit to a LEC a PIC-change order generated by telemarketing that reflects the IXC's claim that the end user has switched its PIC selection to, and is now a customer of, the IXC. C. Discussion of WIC's Claims 18. The crux of WIC's Application is its claim that the change orders that Sprint received from NICE and submitted to LECs were PIC-change orders under Section 64.1100. The linchpin of this contention is WIC's theory that AT&T was the PIC from 1991-93 until Sprint became the PIC by submitting NICE's orders to the LECs. 19. As Sprint points out, the Commission has recognized that switchless resellers such as GLD/NICE are prevented, for technical reasons, from ordering service for their customers directly from the LECs. Instead, they must order access facilities and execute change orders through carriers such as Sprint or AT&T, which are facilities-based IXCs. Therefore, when a facilities-based IXC submits to a LEC change orders on behalf of the switchless reseller, that carrier is not claiming the end user customer for its own account; rather, it is simply facilitating changes that a switchless reseller, such as GLD/NICE, cannot request on its own. Thus, when Sprint submitted the change orders to the LECs on behalf of GLD/NICE, Sprint did so as an accommodation to GLD/NICE, which was Sprint's customer. Sprint was not claiming the end-user customers of GLD/NICE as its own. 20. WIC's assertion notwithstanding, our PIC-selection rules and orders clearly contemplate that a switchless reseller such as GLD/NICE may be a PIC. In this case, the record reflects that the customers that WIC obtained for GLD, pursuant to the February 6, 1991 agreement, selected GLD/NICE as their PIC. GLD/NICE is also the carrier that sets the rates for the interexchange services that it provides to its end users and, unlike AT&T or Sprint, is the IXC with the proximate business relationship with each end user. In contrast, Sprint had no contractual relationship with GLD/NICE's customers and was never their PIC. The end-users remained the customers of GLD/NICE, the entity with whom they had contracted for service and on whose behalf WIC had solicited business. In view of the foregoing, we affirm the Bureau's conclusion that GLD/NICE is the relevant PIC of the end users in question for purposes of Section 64.1100. 21. We also agree with the Bureau that NICE's customers, i.e., customers that selected GLD/NICE to be their PIC, experienced no PIC change when NICE changed its underlying facilities-based provider in 1993 from AT&T to Sprint. Simply stated, GLD/NICE was still their PIC regardless of whether GLD/NICE decided to use Sprint rather than AT&T as its facilities-based provider. By definition, therefore, the orders in question that Sprint received from NICE and submitted to LECs -- to effectuate NICE's decision to change its network provider -- were not PIC- change orders under Section 64.1100. As such, we also agree with the Bureau that Sprint did not violate or even implicate Section 64.1100 when it submitted to LECs NICE's orders to switch NICE's customers' phone lines from AT&T to Sprint. 22. Moreover, our PIC-change rules that WIC claims were violated are intended to safeguard consumers from unauthorized PIC changes caused by overzealous telemarketing practices. In the scenario just described, the changes in the facilities-based carrier were not the result of any overzealous telemarketing practices, but reflect a business decision made by GLD/NICE, the switchless reseller, that it would prefer to use Sprint to provide services to GLD/NICE's end-user customers. Thus, nothing in this scenario even gives rise to the concerns underlying Section 64.1100 of our rules. 23. WIC has failed to meet its threshold burden of demonstrating that Section 64.1100 is even relevant to the disposition of this matter, much less that Sprint violated the rule. As such, the balance of the contentions in WIC's Application as to how Sprint allegedly violated Section 64.1100 must fail. In view of the foregoing, and because WIC's contention on review is that the Bureau concluded erroneously that Sprint did not violate Section 64.1100, we deny WIC's Application. D. GLD/NICE and McKeeff Motion 24. Finally, we dismiss a December 22, 1995, Motion for Extension of Time to Provide Defendants Group Long Distance (USA), Inc., National Independent Carrier Exchange, and James J. McKeeff, the Opportunity to File Responsive Papers and an Application for Review Nunc Pro Tunc ("GLD/NICE Motion"). This motion requested permission to late file an application for review of the Bureau Order as well as other responsive pleadings. The GLD/NICE Motion was not filed along with any of these pleadings; rather, the motion requested authority to file such pleadings after the District Court resolved then-existing issues related to the defendants' representation by the same counsel. Under our rules, however, any motion for extension was due before the December 11, 1995, deadline date for filing an application for review of the November 9, 1995, Bureau Order. Thus, the request for permission to file an application for review at some future date was untimely filed and we dismiss it as procedurally defective because GLD, NICE, and McKeeff have provided no persuasive argument why we should accept their late-filed motion. 25. We also dismiss the GLD/NICE Motion because it is moot. GLD, NICE, and McKeeff asked for permission to file an application for review 20 days after the date that the District Court issued an Order concerning the defendants' joint counsel's motion to withdraw from the District Court proceeding. The GLD/NICE Motion also asked for permission to file a response to WIC's Application "ten (15) [sic] days after the issuance of an Order" by the District Court ruling on the defendants' joint counsel's motion to withdraw. The District Court issued an Order granting the defendants' counsel's motion to withdraw on May 8, 1996. The Commission's records reflects that, to date, GLD, NICE, and McKeeff have not filed any pleadings in the above-captioned proceeding and the extended deadline dates requested in their motion have long since expired. Thus, even if we now granted the motion, an application for review or other responsive pleadings subsequently filed by GLD, NICE, or McKeeff would be untimely even under the terms of the motion. The GLD/NICE Motion is therefore moot. IV. CONCLUSIONS 26. We find that WIC has provided no evidence or arguments that would persuade us to reverse the rationale or result of the Bureau Order. V. ORDERING CLAUSES 27. ACCORDINGLY, IT IS ORDERED pursuant to Sections 4(i), 4(j), 5(c)(5), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 155(c)(5), 208, and Section 1.115(g) of the Commission's rules, 47 C.F.R.  1.115(g), that the Application for Review filed by WATS International Corporation, in the above-captioned proceeding on December 11, 1995, IS DENIED. 28. IT IS FURTHER ORDERED that the Motion for Extension of Time to Provide Defendants Group Long Distance (USA), Inc. ("GLD"), National Independent Carrier Exchange ("NICE"), and James J. McKeeff, the Opportunity to File Responsive Papers and an Application for Review Nunc Pro Tunc, that was filed with the Commission on January 10, 1996, is DISMISSED. 29. IT IS FURTHER ORDERED that the Motion for Extension of Time filed by Sprint on December 14, 1995, IS GRANTED. 30. IT IS FURTHER ORDERED that the Chief, Formal Complaints and Investigations Branch, Enforcement Division, Common Carrier Bureau, shall forward a copy of this decision to the Chief Clerk for the United States District Court for the Eastern District of Pennsylvania promptly upon release of this Memorandum Opinion and Order. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary