Long Distance Providers Rail Against FCC PublicDisclosure Ruling

Posted: 05/1999

Long Distance Providers Rail Against FCC Public
Disclosure Ruling
By Kim Sunderland

The Federal Commun-ications Commission (FCC) may have put itself at legal risk again
with a new ruling that requires interexchange carriers (IXCs) to disclose their rate
information publicly.

The nation’s Big Three long distance providers aren’t so thrilled with the ruling, not
because they don’t want to post this information publicly, but because they want to be
able to do it at their own will. They also feel there is a contradiction between this
ruling and a former commission ruling on tariffs that has been stayed by the U.S. Court of
Appeals for the District of Columbia Circuit. And to their advantage, the IXCs have a
friend at the FCC who feels the same way.

"We are doing a great wrong," says Commissioner Harold Furchtgott-Roth, the
lone dissenter from the FCC’s March 18 vote instituting the public disclosure requirement.
"The long distance carriers don’t need a federal mandate; they are already doing
this. They are among the most consumer-friendly companies in the world." He adds that
he’s convinced this ruling "will put the FCC at some legal risk."

In Common Carrier Docket No. 96-61, the FCC has required that long distance carriers
disclose their rates "in an easy-to-understand, clear format, once these services are
detariffed." Specifically, the order requires long distance carriers to make the
rates, terms and conditions of their interstate, domestic and long distance services
available to the public in at least one location during regular business hours. Carriers
that have an Internet website also must post this information online in a timely and
easily accessible manner, according to the FCC’s public notice. At press time, the actual
order had not been released.

FCC Chairman William Kennard says the ruling empowers "consumers with information
they need to be savvy shoppers in a competitive marketplace." Public disclosure will
make it easier for consumers to obtain information that can aid them in selecting a long
distance plan or provider, he adds.

Consumers will be able to get information directly from carriers, and the online public
disclosure requirement will help ensure that this information is dispersed as widely as
possible. The public disclosure requirement also will make it easier for consumer
organizations and other businesses that collect and analyze long distance rate and service
information to obtain this information.

"Think about when you walk into the grocery store and you’re trying to figure out
which brand of cereal to buy, or which soft drink, or which bar of soap," Kennard
says. "It sure helps that you can compare the prices by looking at the labels that
they stick on the shelves below the products. You don’t always buy the cheapest product,
of course, but the more information you have to compare the products, the better choice
you’ll make. Consumers should be able to do comparison shopping for long distance service
just as easily as they can do it in the grocery store."

The issue is becoming more crucial, Kennard adds, because consumers now have hundreds
of long distance companies to choose from. "We’re always urging consumers to shop
around, but it’s hard to shop around if you can’t tell the difference between the
companies," he says. Increasing competition requires that the FCC quickly get
information into consumers’ hands, which in turn will increase competition even more.
"And thus we produce a very consumer-friendly competitive cycle, with minimum
government involvement," he says, mentioning the plan he sees for the FCC as it turns
from regulatory agency to consumer protector (see related story, below, FCC Revamp
Steams Ahead on Capitol Hill).

The local exchange carrier (LEC) spin, such as that of Atlanta-based BellSouth Corp.,
is naturally one of attack. Randy New, BellSouth’s vice president of public policy, issued
a statement saying that "it’s pretty clear from this decision that the FCC is still
concerned consumers don’t get the most competitive prices for long distance service."

He says the FCC also is concerned that long distance rates aren’t where they would be
if the market were fully competitive, particularly for low-volume users. Requiring the
IXCs to post their rates is one thing, New says, but "a much better solution would be
to stimulate real competition in the long distance business by letting BellSouth compete
against long distance industry giants AT&T [Corp.], MCI WorldCom [Inc.] and Sprint
[Corp.]."

The Big Three see it another way.

"This is just removing one requirement and instituting another," Sprint
spokesman James Fisher says. "On the one hand the FCC says that the competitive
nature of the industry means that no formal tariff postings are required. However, then
they require us to do the same thing on our own website. It’s disconnected and it goes
against the FCC’s idea of detariffing."

Washington attorney Mitchell F. Brecher, a partner with the Greenberg Traurig firm,
explains that the rate-posting requirement is caught up in the FCC’s continuing efforts to
get rid of tariffs, which are the public documents that set forth the rates, terms and
conditions of domestic long distance service offerings.

The commission initially established a public disclosure requirement in its Second
Report and Order in October 1996 that ordered complete detariffing. The District of
Columbia Circuit subsequently stayed the rules adopted in that detariffing order pending a
decision on appeal. The court also put its proceedings in that appeal on hold to allow the
FCC to act on petitions for reconsideration of the Second Report and Order and the
subsequent Order on Reconsideration. This newly adopted public disclosure requirement,
therefore, won’t be effective until the Appeals Court rules on the merits of the Second
Report and Order, which at press time remained unresolved.

"We were the company that brought that appeal," says MCI WorldCom spokesman
Peter Lucht, "and we intend to go forward with the appeal."

"The appeals case is now ripe for a decision," Brecher says, adding that it’s
"legally dubious" for the FCC to order carriers not to file tariffs when the
Telecommunications Act of 1996 says they must.

While the public disclosure requir-ment might fulfill the FCC’s aim of making long
distance offerings public, it won’t substitute for tariffs when it comes to the carriers
establishing service relationships with their customers, says Len Cali, vice president and
director of federal regulatory affairs for AT&T.

This ruling, he says, "would force the long distance industry to enter into
separate contracts with each of its tens of millions of customers–an immense and costly
administrative undertaking with no tangible benefits to consumers." Cali says that
AT&T advocates the adoption of "permissive detariffing," which would permit
a carrier to use contracts in place of tariffs where appropriate, while still allowing the
continued use of tariffs where that makes the most sense.

Kennard, however, believes that requiring public disclosure should reduce some burdens
on IXCs, because it’s intended to replace the rigid disclosure requirement they currently
satisfy through their tariff filings at the FCC.

He also says the public disclosure order is one of a series of actions that the FCC is
taking to help consumers reap the full benefits of a competitive marketplace. In other
proceedings, the commission has required disclosure of long distance rates at public
payphones, and is considering measures to simplify telephone bills (see related story,
above).

Similar to those proceedings, Commissioner Gloria Tristani says, this public disclosure
ruling would enable consumers to make more fully informed choices and protect their
rights.

MCI’s Tariff Is Illegal, Pioneer Says
By Kim Sunderland

he Federal Communications Commission (FCC) was asked March 23 to strike down part of
MCI Telecommunications Corp.’s (now MCI WorldCom Inc.) federal tariff that requires the
use of an arbitrator hand picked by MCI to resolve customer billing disputes.

In its petition, Kansas-based Pioneer Communi-cations, a rural telco and long distance
carrier, alleges that MCI uses its tariff privileges "to strip customers of their
right under the law to a day in court." The tariff forces customers to submit
disputes for arbitration by a company that has signed lucrative, exclusive contracts to
serve as MCI’s arbitrator, according to Pioneer.

MCI stands by its independent arbitrator program, which it introduced in February 1994,
according to Jamie DePeau, director of corporate communications. The company uses it
because it’s a fast, effective and private way to resolve disputes, "and many courts
have affirmed this process," DePeau says.

In its petition, Pioneer calls the arrangement between MCI and the for-profit
arbitration company a "sham" and an "obvious conflict of interest."
Pioneer says the arbitration company receives various perks, including free MCI long
distance service, and has asked the FCC to stop MCI from forcing customers to comply with
the arbitration provision of its tariff.

Pioneer also alleges that the arbitration provisions of MCI’s tariff are intended to
deny MCI customers their right to bring disputes to the FCC or the federal courts. Under a
legal principle called the "filed rate doctrine," MCI’s tariff takes precedence,
even over the law, until and unless the FCC finds the tariff unlawful. Using this
loophole, MCI has succeeded in blocking customers from exercising this right and forcing
them to submit to arbitration by an arbitrator chosen solely by MCI, according to Pioneer.

DePeau says MCI is reviewing Pioneer’s petition "and will take the most
appropriate action."

Truthful Billing Initiative in Works
By Kim Sunderland

Federal Communications Commission (FCC) Chairman William E. Kennard hopes to have new
truth-in-billing rules issued this spring.

Speaking during the Annual Con-ference of the Consumer Federation of America (CFA) in
Washington in March, Kennard outlined his vision for the initiative, noting that phone
bills "must be clear and easy to read" and "nothing should be crammed onto
them that you don’t want or don’t understand." He said he wants the new rules to
require that:

"If the chairman of the FCC can’t understand his phone bill, then we’ve got a
problem," Kennard said at the conference. "And this has the potential for
getting even worse. In the next few years, more of us will be buying advanced services
from a huge array of companies. You should be able to read your bill and know what you’re
paying for."

He said the FCC has received thousands of complaints "about companies cramming all
these strange and hard-to-understand choices on bills."

The FCC’s Notice of Proposed Rulemaking (NPRM) on truth-in-billing and billing format
(Common Carrier Docket No. 98-170) requested comments in November 1998 and replies in
December 1998 for the issuance of new billing rules. New rules were expected from the FCC
by the end of 1998. And until such rules are issued, sources say the use of unclear,
confusing phone bills will persist.

Many comments received by the FCC late last year showed some agreement on the need for
clarity. Several industry trade groups suggested that standard, yet flexible, billing
rules might help the industry police itself while furthering competition.

"Simple is smart," says Irene A. Etzkorn, executive vice president and
director of Simplified Communications Worldwide of Siegel & Gale, a strategic
marketing and communications firm based in New York. "The FCC should not take a
perspective approach, but should create writing and design guidelines, which show how
clear writing and information design can transform dense, convoluted bills into readable,
understandable bills."

Other Siegel & Gale billing suggestions include:

"The telephone bill is an integral part of the new competitive landscape,"
Etzkorn says. "It is a branding vehicle that must keep a company’s voice and
logo."

Apparently, Kennard agrees. "This truth-in-billing initiative makes sense,"
he says. "You know what’s in the medicine you take, the clothes you wear or the food
you eat. Considering how much you spend on your phone bill and how important a service it
is, don’t you think you should know what you’re paying for? I think so. And with these
rules, we’ll make it happen."

FCC Revamp Steams Ahead on Capitol Hill
By Kim Sunderland

The role of the Federal Communications Commission (FCC) must change, according to
recent testimony given to the House Commerce Committee’s subcommittee on
telecommunications, trade and consumer protection, which is charging ahead with plans to
redesign the federal agency.

March 17 was a very serious day for the FCC with all five of the commissioners
testifying before the subcommittee. This hearing was the first of three that will be held
this year "before we draft legislation to reauthorize the FCC," says Ken
Johnson, press secretary for Congressman W.J. "Billy" Tauzin, who is chairman of
the telecom subcommittee.

Several members of Congress have been agitated with what they call the FCC’s slow
response to promoting competition. Rep. Tauzin, a hard charging Republican from Louisiana
who’s bent on having the FCC revamped, is in step with his Senate Republican counterpart
John McCain of Arizona, who continually trounces much of what the FCC does or doesn’t get
accomplished, and who wouldn’t mind seeing the FCC eradicated altogether. Despite such
pressure, the commissioners hung together during testimony.

"In five years the FCC should be dramatically changed," FCC Chairman William
E. Kennard told the subcommittee. "We must expect that in five years, there can be
fully competitive domestic communications markets with minimal or no regulation, including
total deregulation of all rate regulation in competitive telephone services."

In such a marketplace, he said, the FCC would focus only on those core functions that
can’t be accomplished by normal market forces. Those functions are universal service,
consumer protection and information, enforcement and promotion of pro-competition goals
domestically and internationally and spectrum management.

In the FCC’s defense, Commissioner Harold Furchtgott-Roth admitted to the subcommittee
that "we should use our specific authority under Sections 10 and 11 of the
Communications Act [of 1934] to help meet Congress’ twin goals ‘to promote competition and
reduce regulation.’ Unfortunately, we have been both slow and reluctant to forebear from
law and regulation pursuant to Section 10, and only timidly have exercised our duty to
review and reduce our regulations pursuant to Section 11." He suggested that FCC
reorganization won’t help if the FCC doesn’t follow the law narrowly.

Meanwhile, Chairman Kennard put forth an ambitious plan on reorganizing the FCC, which
includes revamping the agency’s bureaus. Already the commission is working on the
transition by developing its report to House members into a five-year strategic plan that
outlines the objectives and a timetable "for achieving our restructuring,
streamlining and deregulatory objectives," Kennard said during his testimony.
Consolidation of some FCC bureaus began in late 1998 with the creation of both the
Enforcement and Public Information Bureaus. The agency also is in the process of
streamlining and automating its licensing process.

"New entrants and competitors should not be subjected to legacy regulation"
as competition further develops and technologies continue to advance, Kennard said. He
doesn’t believe that all media should be regulated identically, rather that the FCC needs
to make sure that the rules for different forms of media delivery "reflect a coherent
and sensible overall approach."

"To the extent we cannot do that" within the confines of the
Telecom-munications Act of 1996, Kennard told the subcommittee, "we need to work with
Congress to reform the statute."

As the nation moves toward fully competitive communications markets, Kennard also said
the FCC has six critical transition goals, which basically mirror the FCC’s current roles.
They are to:

"Our transition goals must be accomplished with minimal regulation or no
regulation where appropriate in a competitive marketplace," Kennard testified.
Naturally, he added, there will have to be some downsizing and the FCC has requested
buyout authority in its budget request to Congress for fiscal year 2000.

Subcommittee chairman Tauzin didn’t hear anything new from the testimony, Johnson says,
but "he was pleased overall," particularly with Kennard’s reorganization plans.
"Struct-urally reorganizing the FCC won’t be a problem," Johnson adds, "but
when we try to change its mission, that’s where we will face a clash of wills. We believe
that’s where [the commissioners] will draw a line in the sand and look to the White House
for cover, when we rein in most of the FCC’s assumed authority."

Commissioner Furchtgott-Roth says that "perhaps future generations will know [the
FCC] directly; or perhaps we will be consigned to footnotes in history. Congress in
general, and [the Commerce] Committee in particular, hold the keys to that future."

Third-Party Slamming Liability Administrator Proposed
By Kim Sunderland

The nation’s long distance industry has submitted a preliminary plan to the Federal
Communications Com-mission (FCC) outlining how a third-party liability administrator can
implement the goals and objectives of the FCC’s slamming order.

Such industry giants as AT&T Corp., MCI WorldCom Inc. and Sprint Corp. have been
working with various telecommunications trade groups to devise alternatives to the
liability rules adopted in the FCC’s Second Report and Order (Common Carrier Docket No.
94-129) adopted in December 1998. Their solution is in response to the FCC’s Further
Notice of Proposed Rulemaking (FNPRM), which was issued along with the order asking, among
other things, how to handle liability.

"MCI WorldCom has met with carriers and carrier representatives in the long
distance industry representing virtually the entire spectrum of interexchange carriers
(IXCs)," wrote MCI WorldCom attorney Bradley C. Stillman in an ex parte letter
to the FCC March 18. "These carriers agree that the liability rules adopted … are
cumbersome and impractical."

The slamming order requires that a subscriber be absolved of liability for all calls
made within 30 days after being slammed. If, however, the subscriber fails to notice that
he was slammed and pays the unauthorized carrier for such calls, the unauthorized carrier
must remit this payment to the authorized carrier. The authorized long distance carrier
then would refund or credit a consumer, who then only would get the difference between
what he paid the unauthorized carrier compared to what he would have paid an authorized
carrier absent the slam. Unauthorized carriers additionally are required to pay for any
"reasonable" billing and collection expenses incurred by an authorized carrier
trying to collect charges from them. And they must pay for any expenses associated with
restoring a subscriber to his authorized carrier. Meanwhile, authorized carriers were
ordered to bear the burden of investigating alleged slamming complaints.

These rules were to take effect this month, but the IXCs were expected to file their
new proposal in its entirety prior to this deadline, and then file a waiver asking that
the FCC consider this plan in lieu of the commission’s slamming rules.

"The hope is that when the proposal is filed, the FCC will put it out into the
industry for comment," explains Mary Brown, senior policy counsel for MCI WorldCom.
"We’re trying to establish a streamlined process that protects the industry and
honors the FCC’s principles in its slamming order."

The IXCs want to establish a third-party administrator (TPA) that basically would serve
as a one-stop shop for consumers making slamming complaints. "The idea is to take
some of the burden off the shoulders of the consumers," explains Robert McDowell,
vice president and assistant general counsel for the Competitive Telecommunications
Association/America’s Carriers Telecommunication Association (CompTel/ACTA).

McDowell says talks first began on this slamming plan between AT&T, Sprint, MCI
WorldCom, CompTel/ACTA and the Telecommunications Resellers Association (TRA). In recent
months, these companies and trade groups also have received input from incumbent local
exchange carriers (ILECs), billing clearinghouses and the Association for Local
Telecommuni-cations Services (ALTS).

"We’re trying to build consensus with this but it’s been a difficult
process," McDowell says. "Ironing out the details about something that everyone
has a different perspective on and that is this complex is going to be difficult. We have
come a long way."

One item of the plan that’s unlike the FCC’s rules instructs the TPA to require an
unauthorized carrier to reimburse a slammed consumer 50 percent of his total invoice
amount, rather than the exact amount of the slam. This is a neutral attempt at eliminating
the FCC requirement that unauthorized carriers submit detailed traffic reports to the
preferred carrier, which usually results in "rerating," Brown says.

In the IXCs’ outline to the FCC, they list and explain the following areas–the TPA
definition, what its functions are, the customer change process, nonbinding dispute
resolution, customer credits, carrier-to-carrier compensation, and the establishment and
funding of the TPA.

According to the IXCs’ plan, the TPA would be an independent, single source for
consumers to contact to raise and resolve slamming complaints. Contact would be available
via a toll-free number, the web and regular mail. The TPA also can receive complaints
originally re-ceived by carriers, or federal or state regulatory agencies, through
"hot transfer." Such mechanisms could be established between carriers,
regulatory complaint departments and the TPA.

Regarding compensation, the TPA would facilitate credits owed to consumers and direct
the exchange of compensation between carriers. This would happen following nonbinding
dispute resolution, which would be based on whether an accused carrier has FCC-authorized
verification that the switch could occur.

Image: Proposed TPA Consumer Complaint Resolution Process

Regarding neutrality, and to remain truly independent, no telecom carrier would be
allowed to have an ownership interest in the TPA. The FCC would authorize the TPA, which
would be administered by an industry governing board. Four industry trade
groups–CompTel/ACTA, TRA, ALTS and the United States Telephone Association (USTA)–would
select voting board representatives.

Carriers, either individually or collectively through their trade associations,
"opt in" to the TPA process via FCC procedures. This would be "flexible and
open-ended, permitting carriers to opt in during both the initial phase of TPA
implementation and at any point in the future," the plan says.

Sources say the FCC has acknowledged that this approach holds merit. And in March,
McDowell said the FCC had given encouraging signals about this plan’s general concept.

As always, there already are contentious issues regarding this plan.

Money is an issue when it comes to figuring out how to fund this TPA. The plan says
initial and ongoing costs for the TPA would be industry-funded. The plan suggests that
each carrier, including both IXCs and LECs, contribute "in some reasonable proportion
toward the projected annual operations costs," which are not estimated in the
outline. Other possible scenarios for funding the TPA include having unauthorized carriers
pay a specific amount per verified slam, or to assess an administrative fee to the
unauthorized carrier for each slam that could be rolled over into TPA funding.

Another issue, McDowell says, is that the ILECs "could push back hard" on the
industry group’s proposal that the TPA would direct them to switch a customer back to
their authorized carrier. "Some independent LECs are concerned that the customer is
not calling the LEC directly for that switch," he says.

Brown says the IXCs hope to get the glitches worked out as more information is gathered
before a finalized plan is submitted to the FCC. "Slamming complaints should be
handled in a competitively neutral manner," McDowell adds, "so that no one
carrier is considered the ultimate slamming enforcer."

MCI WorldCom Files Appeal of FCC Order on ISP Traffic
By Kim Sunderland

MCI WorldCom Inc. has asked an appeals court to review and vacate a federal ruling that
dial-up calls to Internet service providers (ISPs) should be regulated as interstate
calls.

The long distance giant has asked the U.S. Court of Appeals for the District of
Columbia to abandon the Federal Communications Commission’s (FCC’s) Feb. 25 ruling in
Common Carrier Docket 96-98, which determined that a call connecting to the Internet
constitutes a long distance call, not a local one.

The FCC’s order also retains reciprocal compensation payments in existing
interconnection agreements between competitors and the incumbents. This means that
competitors can continue billing the incumbent local exchange carriers (ILECs) for
terminating calls to ISPs until those agreements expire. And the decision allows
competitors to collect past-due reciprocal compensation payments from the ILECs.

Also with this ruling, the FCC issued a Notice of Proposed Rulemaking (NPRM) that
leaves it up to state regulators to decide if reciprocal compensation will apply to
Internet calls in future interconnection deals. The FCC says the current state
decisions–29 commissions have ruled that such calls are local–should remain in place.
But when the ILECs head back to the state negotiating tables on renewing interconnection
deals, industry experts expect them to use the FCC ruling to support their argument that
the states should overturn their decisions on dial-up calls to ISPs. And if the states
don’t, the ILECs most likely will go to court on appeal. It’s a potential strategy that
has many telecommunications companies worried.

"There are very real costs incurred by competitors in terminating these
calls," MCI WorldCom spokesman Peter Lucht says. "We just want the states to
keep that in mind when these interconnection agreements are being negotiated."

In a roughly one-page petition filed March 8, MCI WorldCom called the FCC’s ruling
"arbitrary, capricious and otherwise contrary to law." The company wants the
court to find the ruling "unlawful and enter an order vacating, enjoining and setting
aside" the FCC’s ruling.

Although Lucht says the company wouldn’t comment on the petition, he does say that MCI
WorldCom’s stance all along has been that such "interstate jurisdiction could lead to
higher prices for consumers." And down the road, MCI WorldCom is concerned that the
Bell companies also might try to argue that ISPs shouldn’t be exempt from access charges.

MCI WorldCom’s petition is likely the first of more legal challenges to the FCC’s
order, Lucht says. "We anticipate that many other companies will file appeals or sign
on to this appeal."