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The Legal Line
By Ed Maldonado |
Dear Ed:
Received your recent update link to the April 17th Supreme Court ruling on the the DAC (Dial Around Compensation) in the Global Crossings Telecommunications v Metrophones Telecommunications case. First thank you. Second, I have a follow-up question because I am truly confused about the implications of this decision. My concern is that the retroactive application of DAC charges will probably kill my business if applied in one lump sum. I am accounting for DAC in my cards now, but there was a time that I was completely blind to the accounting of completed calls and the collection of DAC. Does this ruling mean that all civil appeals of DAC by Telecom Carriers are now completely fruitless? Are there arguments still remaining as to the DAC? I could not tell from reading the case because of all the references to the Interstate Commerce Act and the history of the Telecom Act of 1996. From my position as a Prepaid Calling Card provider, it looked grim upon the first reading. What are your thoughts?
Average Prepaid
Dear AP:
Thanks, AP, for your question. The case you are referring to is Global Crossings Telecommunications, Inc. v Metrophones Telecommunications, Inc. 500 U.S. (2007) currently available on Slip Opinions from the U.S. Supreme Court at http://www.supremecourtus.gov/opinions/06pdf/05-705.pdf. The case involves the ability of Payphone Providers to maintain a civil lawsuit in federal district court for violation of the 1996 Telecommunications Act based upon a carrier’s refusal to pay DAC. It was a case that was granted a writ of certiorari from the Ninth Circuit Court of Appeals, argued on October 10th 2006, and decided April 17th 2007. In short, the Supreme Court ruled that payphone providers can maintain such actions and may collect damages for refusal to pay, as it constitutes a violation of the Communications Act and FCC orders and rule making over the subject. The reaction I got back from others related to the ruling was similar to yours.
But, you asked me what my thoughts are about this case. Well AP, you may not like what I have to say. From the perspective of a regulatory attorney and a jurist, I think the Supreme Court got it right. They used the correct constitutional analysis and the correct application of the law to reach its decision on what the Telecom Act designates to be enforceable, based upon findings of the FCC of conduct it considers an “unreasonable practice” and “unlawful”. You must remember that the Supreme Court review of a matter is primarily concerned with the constitutionality of a law or its application. The reality is that DAC was specifically incorporated into the 1996 Telecom Act. Under 47 USC § 276(b)(1)(A), Congress gave the FCC the power to “prescribe regulations that…establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call.” Since the passage of the Telecom Act, the FCC has promulgated this plan under a series of evolving orders, culminating in the Tollgate Order. In the FCC rule-making process, parameters where established as to what was reasonable and fair compensation for DAC.
The specific question before the Supreme Court on appeal was the application of 47 USC §207 remedies for refusal to pay established DAC charges. Section 207 gives aggrieved parties the right to sue civilly in federal district court for violations of the Telecom Act. In this instance, the payphone providers have sought remedy under a violation of Section 201which under subsection(s) (a) and (b) state:
“It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor; and, in accordance with the orders of the Commission, in cases where the Commission, after opportunity for hearing, finds such action necessary or desirable in the public interest, to establish physical connections with other carriers, to establish through routes and charges applicable thereto and the divisions of such charges, and to establish and provide facilities and regulations for operating such through routes.” -Found at 47 USC 201(a).
And,
“All charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful: Provided, That communications by wire or radio subject to this chapter may be classified into day, night, repeated, unrepeated, letter, commercial, press, Government, and such other classes as the Commission may decide to be just and reasonable, and different charges may be made for the different classes of communications: Provided further, That nothing in this chapter or in any other provision of law shall be construed to prevent a common carrier subject to this chapter from entering into or operating under any contract with any common carrier not subject to this chapter, for the exchange of their services, if the Commission is of the opinion that such contract is not contrary to the public interest: Provided further, That nothing in this chapter or in any other provision of law shall prevent a common carrier subject to this chapter from furnishing reports of positions of ships at sea to newspapers of general circulation, either at a nominal charge or without charge, provided the name of such common carrier is displayed along with such ship position reports. The Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this chapter.”
-Found at 47 USC 201(b).
The overall application allows for DAC recovery and private civil causes of actions for violations of the Telecommunications Act for any act of a carrier that may be “unlawful”. On page 9 of the Supreme Court’s decision, the Court finds that this remedy is available and applicable under the constructs of the Telecom Act, and, the FCC delegated power as an executive branch administrative agency. This is generally the proper Constitutional interpretation of the Telecom Act in relation to Section 207 relief from a Constitutional point of view.
The problem is that the prepaid industry was, and is, behind the “Eight Ball” with DAC due to its lack of participation in the FCC rulemaking process in the past. I have written about that issue in the past and won’t belabor it now. The prepaid industry must now be forward looking and look at the past as a model of what needs to be done or corrected. Maybe it’s age or maturity, but I actually see more commonality between the payphone and prepaid industry than ever before. Both are providers of segments of a call that is targeted for end-users that do not have a telephone of their own or need the convenience of a payphone. They share some common interests in servicing a niche market of prepaid consumers. The question, which you have stated correctly, is how does the prepaid industry comply with fair compensation for back amounts owed and what would be fair? A civil cause of action in federal court gives rise to a number of additional forms of relief not specifically recognized by the FCC in its rulemaking – Attorney fees; prejudgment interest, post judgment interest, and punitive damages. It is assumed that a refusal to pay equates to a violation, but what if the demand for DAC compensation prior to the lawsuit does not recognize the impact it may have on a small business enterprise in the Prepaid Industry? For example, pay all back DAC owed for three years in one lump sum and I’ll give you a break of current amounts owed, or give you terms of payment.
The point became painfully clear recently when speaking with both regulatory professionals and prepaid providers at the social held by NetworkIP and The Prepaid Press here in Miami recently. Many prepaid companies are accounting and contributing to the DAC, but live in the specter of past liability. In some instances, there is an incentive to resist and refuse all payments demanded. The specter of past liabilities is the core of much of the current tension between the two industries. If there is to be resolution, this must stop at some point - perhaps based upon action taken by the FCC, or perhaps, by the industries communing together under associations (not as law firms or foundations) and coming to agreement once and for all.
While there are well-founded appeals still pending in the courts, I honestly do not see a resolution to all DAC issues being found through the courts. So far, the courts have turned out to be a losing proposition for prepaid providers on this issue. I think that a different approach now needs to be considered by the prepaid industry. We need to do what the payphone providers did, take our issues to Congress and be persistent with the FCC on the impact of application of DAC. There may be some promise on that side. As I write this e-mail, a matter on another issue stands before the FCC that gives me cause to say this. This issue concerns congressional questions about the USF and how the FCC has handled it. On April 2nd 2007 Rep. Edward Markey (D-MA) sent FCC Chairman Kevin Martin a letter critical of the FCC on how it has administered USF and asking for him to reply to five pages of questions. Rep Markey is the Chair of the House Subcommittee on Telecommunications and the Internet. While this may in part be a larger political issue between the new Democrat controlled House and the Republican controlled FCC, it should not overshadow the idea that what Congress gives, it can take away.
Those are generally my thoughts, AP. If you have more detailed or legal questions related to this, consult your local counsel with the specifics.
Good Luck and Success in the Industry.
Ed Maldonado, Esq. is President of the Regnum Group and Founding Partner of the Maldonado Law Group. He can be reached at
eam@maldonado-group.com.
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