Industry comments are due on March 14, 2018, involving one of the weirdest filings to come before the FCC in a long time. In a Petition for Expedited Declaratory Ruling (Petition) filed by South Dakota Networks (SDN) on February 7, 2018 in Docket 18-41, SDN requests the Commission to issue a declaratory ruling asserting that in a dispute between it and Northern Valley Communications, Inc. (NVC) involving interstate switched access traffic:

A contract between SDN and AT&T, negotiated to terminate large volumes of traffic originally bound to a CLEC (NVC) engaged in access stimulation is lawful; and,CLECs, such as NVC, enjoy no exclusive right to transport terminating traffic to their end offices (or elsewhere). Moreover, the filing of a federal tariff by a CLEC, does not confer a right to compel other carriers to use the tariffed services.

The SDN Petition comes after the two companies have been feuding for years.

SDN is a centralized equal access (“CEA”) network provider operating since 1990.  

SDN’s network was originally authorized and constructed for the purpose of providing equal access and related services for rural incumbent telephone companies in the state of South Dakota. By virtue of the extremely remote, sparsely populated locations served by such companies, IXCs did not seek to serve these low volume traffic areas. SDN’s aggregation of low volume traffic in Sioux Falls, South Dakota solved that problem, and since 1992 a large number of IXCs have been providing competitive long-distance service to a growing number of rural communities (approximately 300 as of today) through SDN’s equal access tandem switch in Sioux Falls. Over time, efficiencies of this centralization and aggregation resulted in further service offerings to these rural communities. (Petition at p. 3)

However, according to SDN, rural CLECs are using the SDN switch for interstate and intrastate transport services and taking access traffic and revenues from SDN.  And at least one of them – NVC – are doing so for their unlawful access stimulation business.

James Valley Cooperative Telephone Company (“James Valley”), is affiliated with Northern Valley Communications, Inc. (“NVC”), a CLEC. NVC is a well-known access stimulator and has been involved in a number of court and Commission proceedings regarding its practices. NVC’s access stimulation scheme has had a material, negative impact upon SDN’s business. In April of 2013, AT&T stopped paying SDN’s tandem switching charges for stimulated traffic associated with NVC. These withheld access charges include significant amounts for interstate traffic. Although SDN has acted diligently to ameliorate the corrosive effect of NVC’s traffic stimulation scheme upon SDN’s business, other major interexchange carriers in addition to AT&T have also failed to pay for the same reason. (Id., p 4).

SDN did not accept these lost revenues without a fight. It negotiated a contract to transport AT&T's traffic between it and NVC in September 2014, thereby replacing the transport function NVC was providing. NVC responded by filing a lawsuit against SDN, its CEO and managers in a South Dakota circuit court. Since that time, the two companies have battled it out in courts.

SDN asked the state Court to move the case to the FCC because it has jurisdiction over all interstate access issues. The Court refused, instead offering the FCC a chance to file an "amicus curiae" (advisory) brief if it felt necessary. Seeing this as a failure, SDN changed its tack and now directly requests the FCC to take over the case.

SDN argues that the FCC has jurisdiction over the issues in dispute here because:

 [The complaint involves a] physically intrastate trunk facility carrying almost entirely interstate traffic. Furthermore, NVC’s complaint and other papers filed in the state proceeding are replete with references to SDN’s interstate tariff filings, the Act, the Commission’s rules, as well as arguments that SDN has violated NVC’s rights under the Act...Against this background, there can be no factual dispute that NVC’s complaint is primarily driven by interstate traffic and, therefore, is subject to the Commission’s jurisdiction. It is well established that it is the nature of the traffic, and not the physical location of the facility, that determines whether the Commission has jurisdiction. (Id., pp. 5-6).

Assuming the FCC determines it has jurisdiction to hear this case, the agency must decide whether the contract signed between SDN and AT&T is lawful, despite the claims by NVC that it is not.  NVC’s complaint even seeks "judicial dissolution" of SDN, claiming that the AT&T agreement violates its “requirements as a rate of return carrier.” Moreover, NVC claims it has the exclusive right to carry AT&T's traffic, even if a significant portion is driven by access stimulation.

For instance, the complaint asserts that NVC and its two affiliates refused to relinquish NVC’s “right” to transport AT&T’s traffic; that SDN “attempted to force NVC to relinquish its existing rights to collect tariffed access charges;” and that SDN interfered with NVC’s “expectancy of future business with AT&T pursuant to NVC’s tariffs.” NVC has argued variously, that its “right” to transport arises because its tariff was “deemed lawful,” that SDN promised to accord NVC “the same terms and conditions” which apply to NVC’s ILEC owner and SDN’s other owners (and thus implicitly agreed that NVC has an exclusive transport arrangement), and that the [Inter-Carrier Compensation] Transformation Order cemented, in an unspecified way, such exclusive transport rights. (Id., at p. 11).

The feeling here is that NVC's complaint is hogwash. To the extent NVC filed this complaint to protect its revenues gained from stimulated access minutes, any solution the FCC chooses to alleviate this scheme is beneficial for the industry. In addition, NVC's claims that it has exclusive rights to carry AT&T's access traffic is simply laughable. As a CLEC, it is not the carrier of last resort for end user customers. In addition, if IXCs were always required to utilize the tariffed LEC access services in a region, there never would have been a CLEC industry. Finally, in the Inter-Carrier Compensation Transformation Order, the Commission made it clear that IXCs and LECs are free to negotiate their own access prices outside the purview of a tariff.  

It will be very interesting to see if NVC gets any support from the industry when comments are filed. We strongly believe (if SDN's facts are correct), it should not have any.