blake@pro-party.cts.com (Blake Farenthold) (04/10/89)
{{{ This is the first of three special issues of the [TELECOM Digest] }}}
{{{ which are being posted in their original digest format. -chip }}}
TELECOM Digest Sun, 9 Apr 89 01:46:44 CDT Special: FCC/AOS Regs - I
Today's Topics: Moderator: Patrick Townson
Introduction: FCC/AOS Regs (TELECOM Moderator)
FCC / AOS Regulations: Part 1 of 3 (TELECOM Moderator)
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Date: Sun, 9 Apr 89 1:45:52 CDT
From: TELECOM Moderator <telecom@eecs.nwu.edu>
Subject: Introduction: FCC/AOS Regs
This three part special edition of [TELECOM Digest] brings you a complete
transcription of the recent ruling by the Federal Communications Commission
regarding Alternate Operator Services.
I am grateful to Blake Farenthold for taking the time to prepare this and
send it to the Digest.
Parts 1 and 2 contain the text of the ruling by the Commission. Part 3 is
the footnotes, referred to in the first two parts with the carot ^ symbol
followed by a number, as in ^17.
Because of software and mailer constraints pertaining to the mailing
of Digests, it was necessary to break this special report into three parts.
[TELECOM Digest] readers will receive three 'special editions' during the
morning hours on Sunday. Readers of comp.dcom.telecom will see four messages
in total; this introduction and the three messages which follow.
{{{ Actually USENET readers will see three messages, with this }}}
{{{ note included in the first message. -chip }}}
This report is being sent as 'special edition' to the [TELECOM Digest]
mailing list so that it can be archived separately as desired, without
causing the digest serial numbers to be out of order in the process. After
you have received all three parts, if you wish to keep this file for
further reference, please take the three parts and combine in your editor
and paste them all together again, minus the header at the top of each.
Again, thanks go to Blake Farenthold for his research on this and his
diligence in submitting the whole thing.
Patrick Townson
TELECOM Digest Moderator
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Date: Mon, 3 Apr 89 16:15:37 CST
From: Blake Farenthold <blake@pro-party.cts.com>
Subject: FCC's AOS order
With all the recent discussion in the digest about COCOTS and bum deals, I
figured 'yall might be interested in what the FCC has had to say about the
issue. Reprinted below is a copy of the FCC's AOS order.
____ cut here ___
Before The
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of ) DA 89-237
TELECOMMUNICATIONS RESEARCH AND )
ACTION CENTER AND CONSUMER ACTION )
)
Complainants, )
)
v. )
)
CENTRAL CORPORATION ) File No. E-88-104
INTERNATIONAL TELECHARGE, INC.; ) File No. E-88-105
NATIONAL TELEPHONE SERVICES, INC.; ) File No. E-88-106
PAYLINE SYSTEMS, INC.; AND ) File No. E-88-107
TELESPHERE NETWORK, INC. ) File No. E-88-108
Defendants.
MEMORANDUM OPINION AND ORDER
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Adopted February 24, 1989; Released February 27, 1989
By the Chief, Common Carrier Bureau:
I. INTRODUCTION
1. We have before us a formal complaint filed by Telecommunications
Research and Action Center ("TRAC") and Consumer Action ("CA") (together
"TRAC/CA"), two not-for-profit consumer advocacy groups, against the above-
named providers of alternative operator services (AOS). ^1 The complainants
request that the Commission find the defendant AOS companies to be dominant
carriers, revoke any operating authority under which the Defendants are
operating, order them to cease and desist from offering service, and find
that the rates and practices of the defendants are unjust and unreasonable in
violation of Section 201(b) of the Act. For the reasons set forth below, the
complaint is granted in part and denied in part.
II. BACKGROUND
2. This complaint grows out of the activities of a new segment of the
partially deregulated telecommunications industry, the "alternative operator
services", or "AOS" providers' industry. ^2 Indeed, Commission policy
encourages the entry of new competitors in interstate and international
service markets. This open entry policy provides competitive prices and
stimulates the introduction of innovative new service and consumer options.
Generally, AOS companies lease long distance lines from interexchange
carriers and combine that transport element with their own operator services.
The AOS companies then enter into agreements with client companies, called
"call aggregators", who typically are hotels, motels, hospitals,
universities, airports, and other businesses and organizations that have
telephones available to transient users. Under these agreements, the call
aggregator's customers are automatically connected to the AOS provider when
they make certain operator assisted long distance calls. ^3 In the case of
such agreements, the telephones on the call aggregator's premises are said to
be "presubscribed" to the particular AOS company.
3. An AOS company's operator services are generally associated with
"O+" calls, _e.g._, collect, third-party billed, and credit card calls
(including calls made with telephone company calling cards and major credit
cards). ^4 For the services they provide, each AOS company charges its own
rates, which in addition to a return on investment are allegedly designed to
recover the costs of leasing the underlying long-distance transport, plus
their own costs of providing the operator assistance. Local exchange
carriers ("LECs") generally bill customers and collect payments for AOS
companies in accordance with contracts between the AOS provider and the LEC
or, in some instances, under intrastate rate schedules. Calls billed to a
telephone company calling card will often appear on the user's monthly
telephone bill. Calls billed to a bank or consumer credit card (e.g.
MasterCard, Visa, etc.) appear on that credit card bill rather than on a
monthly telephone bill.
4. In the aftermath of the AT&T divestiture and the ongoing changes
in regulation of the telecommunications industry, consumers have
understandably experienced a certain amount of confusion as the traditional
ways of obtaining and using telephone service have given way to the sudden
appearance of new options and alternatives in an increasingly competitive
environment. So too has the advent of AOS brought with it its share of
confusion and complaints. The Commission has received a large number of
informal complaints involving AOS carriers, many of which involve the
defendant companies. In many cases, consumers claim they were not adequately
informed by the call aggregator or the AOS provider that their call would be
handled by an AOS company or what charges would be incurred. In other
instances, consumers complain that they were unaware of the existence of
numerous AOS companies as opposed to traditional service providers. Since
each AOS company charges its own individual rates, even when the caller uses
another telephone company's calling card, and because of the rate variations
that may result from technical anomalies such as "call splashing", ^5 some
consumers have expressed surprise and confusion over their bills. Along with
complaints about rate levels and improper billing, other informal complaints
have arisen from the practice of "call blocking". ^6 In short, call blocking
and splashing, coupled with the fact that many AOS companies charge rates
higher than AT&T, have led to consumer dissatisfaction with some of the AOS
providers and, in turn, to complaints such as the instant one.
III. CONTENTIONS
5. The complainants, relying principally on the Commission's orders
in the _Competitive Carrier_ proceeding ^7 argue that the defendant AOS
companies fit the Commission's definition of a firm with market power and
therefore should be regulated as dominant carriers. As dominant carriers,
complainants contend, the defendants are providing services without the
requisite authorization pursuant to Section 214 of the Communications Act, 47
U.S.C. section 214 ^8 and should be ordered immediately to cease and desist
from providing such service. Complainants advance two arguments in support of
their claim of market power. First, complainants cite what they perceive as
the inability of market forces to constrain AOS rates and practices. They
argue that because of a lack of factual information end-users are unable to
make market decisions as to which carrier to use in certain circumstances and
thus the defendants are able to charge prices above those of their underlying
carrier, _e.g._, AT&T, MCI and US Sprint, without losing market share in
these circumstances. Second, the complainants allege that the ability of the
AOS providers and their call aggregators to control the facilities where
calls are routed (_i.e._, the PBX equipment on the call aggregators'
premises) and engage in call blocking clearly establishes that the defendants
possess market power. Citing the Commission's _First Competitive Carrier
Order_, the complainants contend that the exercise of control by the
defendants over these bottleneck facilities is _prima facie_ evidence of
their market power. ^9
6. As a separate but related matter, the complainants assert that the
rates charged by defendants are exhorbitant [sic] and therefore unjust and
unreasonable in violation of Section 201 of the Communications Act, 47 U.S.C.
section 201. ^10 Complainants contend, in effect, that the Commission
established a standard in _Competitive Carrier_ which provides that the
underlying carriers' rates operate as a "just and reasonable" ceiling on the
resellers' rates and that a reseller may not price its services above the
underlying carrier. ^11 Complainants argue that since the rates charged by
the defendants are in excess of those charged by AT&T, they must be found to
be unjust and unreasonable within the meaning of Section 201.
7. An adjunct of complainants' market power contention is the claim
that call splashing and call blocking are unreasonable practices. They
contend that because AOS providers typically fail to identify themselves or
notify consumers that they will pay rates higher than AT&T's, the effect of
these practices is to leave uninformed or captive consumers ^12 with no
practical alternative but to pay the higher rates. The Complainants argue
that such practices are contrary to the public interest and provide adequate
grounds to revoke the operating authority of the defendants.
8. The arguments advanced by the various defendants in response to
the complainants' allegations are for the most part identical in their
essentials. Therefore we will summarize the arguments as if they were part of
the same pleading. Insofar as individual defendants set forth unique
arguments, they are treated individually. The central thrust of the
defendants' collective response is that:
1. they are not dominant carriers, since none of them possess
market power over any bottleneck facility; ^13
2. no case has been made that their rates are unjust or un-
reasonable ^14 and
3. they either do not engage in the practices that are alleged
to be unlawful, or in those limited instances in which they do,
such practices are not unjust or unreasonable. ^15
Moreover, the companies affirmatively assert that their presence in the
marketplace is pro-competitive and that they now provide or are developing
and will soon provide innovative services that AT&T does not provide, such as
the use of bank credit cards, multilingual operators, voice messaging and
voice mail. ^16
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End of TELECOM Digest Special: FCC/AOS Regs - I
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