FCC’s Order on Conference Center Access Stimulators Upheld in Appeals Court

Great Lakes Communication Corp. and AT&T Corp.’s challenge to a Federal Communications Commission’s Order on competitive telephone carriers was rejected by the District of Columbia Court of Appeals on Friday. The order allegedly discourages competitive carriers from stimulating access fees that long-distance carriers must pay when routing calls to a local carrier. The court sided with the agency, finding that it acted within its authority.

The FCC’s order deals with three types of phone carriers: incumbent carriers, “descendants of AT&T’s broken up monopoly” that own local phone networks; competitive carriers that “lease or purchase at wholesale the use of the incumbent’s network to deliver services;” and rate-of-return carriers that operate in rural areas whose “prices are set by a regulatory formula based on their costs plus a profit percentage.” Competitive carriers have “greater geographic flexibility” since they use others’ networks, which allows them to “act quickly to exploit profitable market opportunities and engage in regulatory arbitrage.”

The FCC order at issue focuses on toll conference centers, where competitive carriers “route calls through (profitable) rural areas and encourage toll conference centers to operate there.” Toll conference centers host calls where multiple users call in to a joint call. Competitive carriers charge incumbent or long-distance carriers a fee for delivering calls to such centers; competitive carriers allegedly work with call centers to situate their facilities in rural areas, where competitive carriers can charge higher fees. The court said such arrangements often include revenue-sharing, and allow conference centers to charge low or no fees.

As a result, long-distance carriers complained to the FCC about these arrangements, which, in 2011, “designated carriers who exploited this regulatory loophole as ‘access stimulators.’” This designation had two requirements: a revenue sharing agreement with a third-party based on access charges, and a 3:1 ratio of long distance calls coming (terminating) in as going out (originating). The new order, which was being contested by the petitioners, changed the qualifications for this designation: any competitive carrier that exceeded a 6:1 ratio would be deemed an access stimulator even without a revenue sharing agreement, but rate-of-return carriers could avoid this status if their ratio did not exceed 10:1 for at least three consecutive months.

The petitioners argued that this order “exceeded the Commission’s statutory authority,” that the rule was arbitrary and capricious, and a violation of the Administrative Procedure Act, claiming that the rule was not a “logical outgrowth of the Notice of Proposed Rulemaking.” The court deemed that the FCC was within their right to amend their Order, and that it was reasonable and in fact a logical outgrowth of their previous policies, and therefore denied the petitions for review.

The FCC is represented by their lead counsel, James M. Carr, alongside other lawyers from the Federal Communications Commission, Department of Justice, and the Office of the U.S. Attorney General. The carriers were represented by Womble Bond Dickinson, the Law Office of Anthony T. Caso, and the Claremont Institute.