By Paul Feldman

Last month, we alerted you to the FCC’s Enforcement Bureau’s "Recommended Decision" that the Commission deny in part a formal complaint filed by a number of cable operators against Verizon, in regards to the retention marketing practices Verizon has been using when it receives a notice to port a phone number to one of the cable operators.  While the trade press at that time seemed to present Bureau’s decision as a victory for Verizon, we were much less optimistic, noting that the reasoning in the Bureau’s decision was very questionable, and that the whole thing would have to be considered by the Commission itself.  Predictably, the full Commission just released its Order and overturned the Bureau: the Commission prohibited Verizon’s specific practices of using retention marketing to try to keep a customer after receiving a local service request ("LSR") from a competitor to port that customer’s number, but before service has been commenced by the competing carrier.  Verizon has already sought a stay of the Order from the FCC, in anticipation of an appeal to a federal court to overturn the FCC’s decision.

Unfortunately, the Commission’s most recent Order does not create a clean or clear result.  Last month, we noted that the legal status of retention marketing under Section 222 of the Communications Act is a mess, and that the Bureau’s Decision was a "mess on top of a mess."  The most recent Order adds another level of mess on top of that, and there is a real chance that the Order could be reversed by an appellate court.  Until that time, however, carriers would be wise not to engage in the retention marketing practices that Verizon performed.

The core issue in the case involves the question of whether under Section 222, it is the carrier submitting customer change information, or the carrier receiving that information, that must perform a telecommunications service with the information.  Contrary to the Bureau’s conclusion, the full Commission has now decided that the Section 222 prohibition applies when proprietary information is given so that the submitting carrier (here the affiliates of cable companies) can perform a telecom service.  The Commission also observed that even if Section 222(b) applies only when the receiving carrier uses the information for the purpose of providing its own telecommunications service, then Verizon’s retention marketing practices violate the statute because Verizon’s provision of local number portability ("LNP") constitutes a telecommunications service.  While recognizing that LNP does not involve transmission and is not provided for a fee, the Commission makes an analogy to other findings that services "adjunct" to basic transmission services are themselves telecommunications services, such as collocation and billing and collection.

There were other contested issues in this case.  Verizon suggested that the LSR did not contain proprietary information, but the Commission noted that it had already ruled in 1999 that carrier change information was proprietary under Section 222. The FCC also rejected Verizon’s arguments that even if the information is proprietary, the information belongs to the customer and the competitor is merely acting as an agent when it conveys it.  The Commission’s logic, however,  produces the following dilemma:  if the customer had called Verizon directly to cancel service, Verizon could engage in retention marketing, but if the customer uses a competitor to relay that information, Verizon cannot engage in retention marketing.  The Commission addresses this dilemma by asserting that when the competitor sends an LSR, the competitor is not only relaying the customer’s information, but also acting to promote its own commercial interests, which requires conveying its own proprietary information.  That is, the customer’s choice of new carrier is proprietary information owned by the competitor.  By the way, by rejecting Verizon’s assertion that the competitor is merely the customer’s agent, the FCC may be showing its hand as to how it may rule on Verizon’s petition at the FCC seeking a ruling that cable operators must recognize carriers as "agents" of customers when the carrier contacts the cable operator to deliver a request to cancel cable service.

One other interesting and potentially impactful legal issue arises in this Order.  Verizon argued that Section 222 is not triggered in this case since the complaining entities were affiliates of cable operators, and each provided (wholesale) service only to their single affiliates.  Thus, according to Verizon, the complainants were not "telecommunications carriers" under Section 222 of the Act.  The issue of defining a "telecommunications carrier" or a "common carrier" has been litigated a number of times over the last 30 years in different contexts, and while some decisions have found that "holding oneself out as offering service to the public" is one of the indicia of a common carrier, there have been exceptions to this.  In response to Verizon’s argument, the Order notes that the complainants have received certificates of public convenience and necessity from their respective PUCs, that they have submitted certifications to the FCC that they operate as common carriers and would serve similarly situated customers; and that while the complainants have no tariffs, none are needed for this service. Thus, the Commission held that the complainants are telecommunications carriers for the purposes of Section 222 of the Act; however, the Commission states that it is not ruling as to whether complainants are telecommunications carriers for any other provision of the Act.  While this sort of distinction is not unheard of, it will be ripe for attack if Verizon chooses to appeal.

This Order is unusual in that the Chairman is the lone (and unusually strident) dissent.  This will raise a problem for the Commission if Verizon files an appeal:  typically the Chairman controls legal strategy for the FCC in an appeal.  That would be difficult here.

In sum, the Commission’s Order is less messy than the Bureau’s Decision, and unlike the Bureau’s Decision, the Order has a real legal effect.  As noted above, Verizon appears to be in the process of appealing the Commission’s Order. It is hard to predict at this time what their likelihood of success will be, however, given some unclarity in the language of Section 222, a court may feel an obligation to defer to the Commission’s read of the statute. In the meantime, we will keep you up to date as this matter progresses.