On July 2, 2009, Southwestern Bell Telephone Company, Bell South Telecommunications, Inc., and several other AT&T-affiliated Incumbent Local Exchange Carriers (collectively “AT&T Plaintiffs” or “Plaintiffs”) jointly filed a complaint in the United States District Court for the Northern District of Texas against IDT Telecom, Inc., Entrix Telecom, Inc. and several as yet unnamed defendant companies (collectively “Prepaid Calling Card Defendants” or “Defendants”). Notably, by filing their complaint in the Northern District of Texas, the AT&T Plaintiffs will be playing on their home court, so to speak, as AT&T recently transferred its corporate headquarters to the Dallas area. This advisory was originally drafted shortly after the filing of the Plaintiffs‘ complaint. However, due to a technical issue, it was not timely distributed. The firm is now re-distributing this advisory with updated details to ensure that clients are provided with this valuable information.
The main thrust of the complaint is that the Prepaid Calling Card Defendants are improperly attempting to evade paying access charges to the Plaintiffs when local access numbers are used to make long-distance and international calls.Specifically, the complaint asserts that the Defendants sell calling cards that use Direct Inward Dialing Numbers (“DIDs”) which are often considered “local” in the area in which cards are sold (rather than using 1-800 numbers) to originate international, interstate and intrastate interexchange calls to their calling card platforms. The local phone numbers are assigned to the Defendants by Competitive Local Exchange Carriers (“CLECs”) – not affiliated with AT&T – that provide service within Plaintiffs’ service areas. The AT&T Plaintiffs take the position that the use of DIDs by the Prepaid Calling Card Defendants constitutes an improper attempt to evade federal law and is contrary to the terms of AT&T access tariffs.
In support for this position, the AT&T Plaintiffs rely heavily on the Federal Communications Commission‘s (“FCC”) Prepaid Calling Card Order, wherein the FCC first articulated that all prepaid calling card providers (“PPCCs”) should be treated as telecommunications providers. In particular, in the PPCC Order, the FCC stated its intention that all PPCCs pay the applicable interstate and intrastate access charges for prepaid calls. While AT&T insists that PPCCs cease the use of DIDs, the PPCC Order contains no explicit prohibition on that practice; it does not mention of the use of local access numbers by providers of prepaid calling cards. While the FCC may have erroneously assumed that that every prepaid calling card call will require the calling party to initiate such calls using an 8YY number, it is questionable whether this misunderstanding can equate to a prohibition on the use of DIDs by prepaid providers.
Similarly, the AT&T Plaintiffs reliance on their access tariffs may be misplaced to the extent that they are seeking to dictate the conduct of parties with whom they have no direct relationship. In other words, while AT&T has privity with the CLECs, it lacks privity with the CLECs‘ customers, such as PPCC providers. Prior to the issuance of the PPCC Order, AT&T requested that the FCC grant it sweeping auditing rights and that the FCC impose broad reporting obligations on PPCCs with which AT&T had no direct relationship. The FCC declined to grant AT&T such authority in the PPCC Order, which specifically states:
“While AT&T‘s proposal would require calling card providers to make certifications regarding the actions of other carriers, the requirements we adopt here require calling card providers to certify only to their own activities.”
This current lawsuit is not the first time a carrier has expressed concern over the use of local DIDs by PPCCs. Subsequent to the FCC‘s release of the PPCC Order, Arizona Dialtone, a CLEC providing wireline service, filed a petition seeking reconsideration of the PPCC Order. Arizona Dialtone‘s petition is still pending before the FCC. In its petition, Arizona Dialtone requested that the FCC clarify the party responsible for paying access charges when local access is used to place a prepaid calling card call and to impose additional reporting requirements for those carriers providing DIDs and for PPCCs using DIDs. Notably, in its petition, Arizona Dialtone did not assert that the PPCC Order created such a prohibition, nor did Arizona Dialtone seek the imposition of such a restriction. Rather than questioning whether the use of DIDs should be permissible, Arizona Dialtone‘s petition focused on how to regulate such use.
In addition, the current lawsuit is not the first time AT&T has attempted to prevent PPCCs from using DIDs without paying access charges. In late 2008, several PPCCs began receiving cease and desist letters from AT&T. In these letters, AT&T demanded that the providers discontinue their use of DID arrangements to secure local access numbers through which consumers could access a prepaid calling card platform.
Notably, one prepaid provider, STi Prepaid, LLC (“STi”), brought AT&T‘s actions to the attention of the FCC and requested that the Commission clarify that PPCCs are not required to pay access charges to third party local exchange carriers for calls placed to local DIDs. STi articulated three arguments in support of its request: (1) it is receiving access to the PSTN by virtue of local service purchased from CLECs – a legal practice; (2) the PPCC Order did not address the exchange of locally-dialed prepaid card traffic and that “interstate or intrastate jurisdiction determined by end points of a communications is not relevant to determining whether traffic is subject to access charges”; and (3) “locally dialed calls originated by AT&T customers are subject to reciprocal compensation, not access charges.” Finally, STi predicted that AT&T‘s proposed approach would result in piece-meal litigation and argued that the dispute would be better resolved through an industry-wide decision.
Despite the fact that the FCC has yet to make a ruling resolving either Arizona Dialtone‘s or STi‘s requests, the Plaintiffs‘ complaint presents the issue of who is responsible for paying access charges when local access is used to place a prepaid calling card call as a settled matter and focuses the burden on PPCCs. The complaint requests that the court (i) declare that the Prepaid Calling Card Defendants are in violation of FCC’s orders regarding access charges and in violation of the AT&T Plaintiffs’ interstate and intrastate tariffs; (ii) enjoin the Prepaid Calling Card Defendants from further violations; (iii) order the Prepaid Calling Card Defendants to provide an accounting of any access charges they have been accused of evading; and (iv) order the Prepaid Calling Card Defendants to compensate the AT&T Plaintiffs for any potential damages, including the recovery of access charges and applicable late payment charges.
On October 9, 2009, the Defendants IDT Telecom, Inc. and Entrix Telecom Inc. (collectively, “IDT Telecom”) filed a motion to stay the lawsuit or in the alternative dismiss the Plaintiffs‘ complaint entirely. IDT Telecom‘s motion detailed the proceedings currently pending before the FCC, such as the Arizona Dialtone petition noted above, and requested that the Court stay the case until the contested regulatory issues are resolved by the FCC. Alternatively, IDT Telecom requested that the Court dismiss the Plaintiffs‘ causes of action that seek access charges from the Defendants based on two arguments. First, IDT Telecom asserts that the “Plaintiffs have failed to allege a necessary prerequisite for [their] claims that IDT Telecom violated federal and state tariffs” (i.e. that IDT Telecom actually ordered services from the AT&T Plaintiffs). Second, IDT Telecom argues that the AT&T Plaintiffs cannot support their claim for unjust enrichment, because they cannot demonstrate that “(i) they conferred any benefit on IDT Telecom since [the] Plaintiffs did not provide any services to IDT Telecom; (ii) they have suffered any damages since they have received compensation for their services; and (iii) it is unjust to permit IDT Telecom to contract with third parties instead of with [the] Plaintiffs.”
This ongoing dispute over the use of local access to place prepaid calling card calls is shaping up to be a major issue for the prepaid calling card industry. Indeed, we are aware that AT&T and its outside law firm have been sending letters to several firm clients, demanding payment of access charges and threatening lawsuit if payment is not rendered within a number of days.
Clients who have received threatening letters from AT&T or any other ILEC regarding this issue are directed to contact the firm. If you have any questions about the impact of this pending AT&T litigation or have concerns about possible exposure, please contact Jonathan Marashlian at: firstname.lastname@example.org or 703-714-1313.