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Misery Loves Company
AT&T Calling Card Saga Continues
By Jonathan Marashlian |
Bet you thought you heard the last of the AT&T “enhanced”
calling card story when, on February 23, 2005, the FCC found the
company responsible for hundreds of millions in Universal Service
Fund contributions and intrastate access charges. But, with the
recent airing of what could be perceived as the prepaid calling
card industry’s “dirty laundry,” the story may
just be getting started.
To quickly recap developments in the AT&T calling card saga,
in May 2003, AT&T filed a petition asking FCC regulators to
declare one of its prepaid calling services exempt from USF charges
and state access fees. The request was based on AT&T’s
contention that its prepaid product was really an “enhanced”
service and thus not subject to the same charges and fees that other,
supposedly non-enhanced, services are required to pay. The “enhancement”
that AT&T based its argument on was a brief advertising message
that callers listened to prior to making a call. Based on this distinction
AT&T asked the FCC to rule that it was neither required to contribute
to the USF nor pay state access fees to local exchange carriers
for revenue from its prepaid calling card service.
The FCC rejected AT&T’s claims and ordered the company
to pay $160 million in USF contributions dating back to 1999. And,
while not specifically ruled on, the FCC decision opened AT&T
up to potential liability from local exchange companies seeking
to recover an estimated $340 million in network access fees AT&T
avoided paying since 2002.
Staring at a half billion dollars in potential liabilities, AT&T
decided to fight back.
On March 28, 2005, AT&T filed a Petition for Review with the
D.C. Circuit Court of Appeals asking the court to overturn the FCC
decision. Simultaneously, AT&T filed a Motion for Stay with
the FCC seeking to delay enforcement of the Commission’s decision
until the D.C. Circuit’s ruling.
While neither of AT&T’s filings came as a shock, what
is surprising and what could be troubling to many in the industry,
is that instead of simply arguing in support of an FCC stay pending
appeal, AT&T took the opportunity to drag its prepaid calling
card competitors under the bus alongside it by exposing alleged
“tricks” of the calling card trade. And AT&T was
not afraid to name names.
AT&T openly claims in its Motion for Stay that other “leading
providers of basic prepaid card services are not paying USF or intrastate
access charges on what appear to be prepaid card services that fall
squarely within the Commission’s historical definition of
basic services.” AT&T informs the FCC that this “appears
to be starkly the case for the nation’s leading provider of
these cards – IDT.” And if you thought AT&T would
be satisfied grabbing hold of just IDT as its own prepaid ship sank,
think again. AT&T also makes grabs at MCI, Sprint, Verizon and
other leading prepaid providers, including STI, PT1 and Global Crossing.
AT&T not only makes bold accusations, it also supports each
one with “facts” developed by Adam Panagia, an AT&T
District Manager of Network Fraud Investigations.
In a Declaration cited in AT&T’s Motion for Stay, Panagia
describes how AT&T purchased numerous calling cards from competing
providers and made a series of test calls using each card. After
analyzing the call detail information (such as calling party number
(CPN), called party number, time and duration of call) that showed
up in AT&T’s databases, AT&T informed the FCC of some
“interesting” findings:
• AT&T tested IDT’s “Super Quick” prepaid
card, a product AT&T claims provides basic phone-to-phone telephony
services. AT&T placed 15 calls from locations in Alaska to other
locations in Alaska. Ten of the fifteen calls showed up in AT&T’s
databases as having been terminated by AT&T and all ten calls
were missing CPN when received for termination. Eight of these calls
were handed off to AT&T by a Japanese carrier, the other two
from a carrier in Chile. For each such IDT call terminated over
AT&T’s network, AT&T presumably paid interstate access
charges to the local carrier in Alaska instead of higher intrastate
access charges because the calls “appeared” to originate
from international carriers. AT&T’s suggestion of access
charge avoidance is clear.
• AT&T tested additional IDT cards from locations throughout
the U.S. and these tests also revealed either CPN stripping or masking.
When terminated over AT&T’s network, the intrastate test
calls were, again, presumably treated as interstate calls for purposes
of compensation. Once more, the inference of access charge avoidance
is unavoidable.
• Similar tests were conducted on cards purchased from Verizon,
Sprint and others. All of the tests showed signs of CPN stripping
or masking in combination with interstate & international routing
of purportedly intrastate calls. All of the actions, according to
AT&T, likely resulted in payment of interstate, as opposed to
higher intrastate access charges that would otherwise apply given
the end-to-end analysis used to determine the jurisdiction of calls
for access charge purposes.
Given the manner in which AT&T presented its test results, without
a doubt AT&T intended the FCC to draw negative inferences.
But AT&T wasn’t done. Quoting comments made by IDT’s
CEO and CFO at a recent earnings conference call, AT&T’s
Panagia drew the inference that IDT is not in full compliance with
USF rules. Questioned about IDT’s reaction to the FCC’s
decision on AT&T’s “enhanced” calling cards,
Panagia recants the explanation of IDT’s executives, “we
have high confidence that where we do pay Universal Service payments,
we’re paying them correctly. Where we don’t pay, we
don’t have to pay based on the way we do business.”
AT&T’s decision to throw its competitors under the bus
in its FCC filing perhaps came out of spite. For two years, AT&T
battled the FCC over its enhanced calling cards, but very few in
the industry came to AT&T’s defense. In deed, two of the
companies AT&T seeks to expose, Sprint and Verizon, were strident
opponents of AT&T’s petition.
Yet, although spite and revenge make for page turning novels, the
more likely reason AT&T attacked its competitors before the
FCC is in order to “level the playing field.” [See related
article] AT&T’s practices for achieving cost savings for
its calling card users having been exposed and discredited by the
FCC, it is clear that AT&T is hoping the same fate will befall
its competitors, large and small.
Whether any of AT&T’s “allegations” are indeed
true and, if so, whether any of the practices complained of actually
violate FCC regulations remains to be seen. What is clear, however,
is that a Pandora’s Box of regulatory scrutiny in the prepaid
industry, having been opened, may be difficult to close.
Disclaimer: None of the information contained in this article should
be construed as legal advice. If you need legal advice regarding
any of the matters addressed in the article, please seek the assistance
of legal counsel.
Jonathan S. Marashlian is partner at The Helein Law Group, www.thlglaw.com,
a Washington, D.C.-area law firm specializing in federal and state
telecommunications and technology matters. He can be reached at
jsm@thlglaw.com.
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