Q: When is a carrier’s local subscriber not an “end user”? A: When the subscriber doesn’t have to pay.

In a recent decision in the ongoing saga of who should pay the cost of “free” conference calling services, the full Commission – not just a subordinate Bureau – declared unlawful the interexchange switched access charge tariff of a competitive local exchange carrier (CLEC) because some of the CLEC’s end user customers do not pay for their local exchange service.

The FCC normally cuts CLECs a lot of slack in setting rates. That’s because if a CLEC charges too much, it won’t be able to woo customers away from the local incumbent local exchange carrier (ILEC) with which it must compete. But there is one area that is not so competitive – access charges imposed on interexchange carriers (IXCs) for incoming calls. An IXC must deliver each call to whichever LEC serves the destination subscriber, and the IXC has no influence over which local carrier the destination subscriber uses. So if a call is destined for a CLEC customer, the IXC has to pay that CLEC’s rates, or else the call won’t go through.

The opportunity to set incoming access charges with relative impunity has led to arrangements where the principal business of a CLEC may be providing local service to services that generate large volumes of incoming traffic and nearly no outgoing traffic – for example, conference call and chat line services. The CLEC files a tariff with terminating charges that are high enough to cover all of its costs and then some. To attract high volume customers, the CLEC provides local service for free and may even pay the customer a share of its access charge revenues. Needless to say, these arrangements are highly attractive to conference calling and chat line providers. They’re also appealing to the general public, which may enjoy the services for no more than the normal cost of a long distance call – and that cost may be essentially zero if they use one of the newly popular bundles with flat rate unlimited long distance.

The attitude of IXCs toward such arrangements is substantially more negative, to say the least, because the access charges they pay sometimes exceed the toll rates they charge their customers.

Qwest Communications Company decided to blow the whistle on Northern Valley Communications, which operates in South Dakota, by filing a formal complaint under Section 208 of the Communications Act.

The FCC ruled in Qwest’s favor, holding that tariffed rates apply only to “end users.”  Citing Section 69.2(m) of its rules, the FCC says that an “end user” is “any customer of an interstate or foreign telecommunications service that is not carrier.” A “telecommunications service” is defined by Section 153(46) of the Communications Act as “the offering of telecommunications for a fee.”   So, the FCC concludes, if a customer neither is a carrier nor pays a fee, it can’t be an end user. And if it’s not an end user, it’s disqualified from being served by a tariff. That means that when calls are delivered to subscribers who do not pay a fee, any charges must be determined other than by tariff – in other words, by privately negotiated contract.

If we could get into the room, the negotiation between Qwest and Northern Valley would probably be fun to watch. But Northern Valley, of course, isn’t interested in a bargaining session. In an apparent effort to avoid a private slugfest, they filed a revised tariff where they tinkered with the definitions of “customer” and “end user”, adjusting the language tariff to create the impression of accommodating the Commission’s decision.

But the FCC didn’t buy it.

In an order issued two weeks after the revised tariff was filed, the Wireline Competition Bureau flat out rejected that tariff. The Bureau said that the new tariff language was vague and ambiguous because it said only that the carrier must receive a fee; it did not say that its customer must pay the fee. So the Bureau concluded that if a fee were squeezed out of an IXC that delivers terminating traffic, the tariff might still allow the end user customer to keep its checkbook in the drawer. According to the Wireline Competition folks, Northern Valley’s revised approach fell short of complying with the Commission’s earlier order, so Northern Valley was sent home to try again. In an observation probably intended to discourage any more attempts to sidestep the Commission’s Order, the Bureau ominously mentioned in passing that the willful and repeated failure to comply with Commission orders can lead to a forfeiture.

Do tariffs now have to recite explicitly that all customers must pay fees? And if so, can the FCC legally impose that requirement without a rulemaking? We await further developments. We have undoubtedly not seen the end of litigation over a CLEC’s right set rates by a tariff and to collect fees where and when it chooses, since the implications of the FCC’s ruling are rather broad, to say the least, for quite a number of competitive local carriers nationwide.