We have been busy lately covering the FCC’s decision to make switched access a non-dominant service.  However, a couple of recent orders are too important to let slip through the cracks. On July 15, 2016, the Commission released two orders regarding AT&T’s special access tariff pricing plans (TPPs). Specifically, the Commission found that AT&T’s proposed revisions to its All-or-Nothing TPPs are unlawful and thus rejected them.  In a separate Order, the Commission found that AT&T’s proposed revisions to its special access “Early Termination” and “Shortfall” TPPs raised significant questions and were suspended for one day with an investigation into their lawfulness initiated.  Here is the background that led to these Orders.

On May 2, 2016, in Docket 16-143, the FCC released a proposal to modify regulations for the business data services (BDS) market. At that time, in a separate Tariff Investigation Order, it found that some tariffed AT&T, Verizon, CenturyLink and Frontier special access TPPs were unlawful. The Commission was concerned about three specific types of TPPs:

All-Or-Nothing Plans - that require customers to purchase all (or almost all) of their special access plans from a specific ILEC.

Excessive Shortfall Plans– Plans that require ILEC customers to pay excessive penalties if their commitment for purchasing services on a percentage basis falls short of the promised level.

Early Termination Liabilities - Plans that impose termination liabilities for leaving before the end of the plan term that require customers to excessive prices for the remaining term of the contract.

It is important to clarify that while the Commission wants changes to both current and future All-or-Nothing plans, it decided to take immediate action against prospective plans only. The agency is currently accepting industry comments regarding how it should handle current All-Or-Nothing plans to ensure that current special access customers signed up for these plans are not adversely impacted.

In the Tariff Investigation Order, the Commission specifically found All-or Nothing TPPs offered in the following tariffs unlawful: 

The Verizon CDPs, NDPs, and TVPs, the Ameritech DCP, the Southwestern Bell DS1 TPP and Pacific Bell DS1 TPP, the CenturyLink RCP, and the Frontier DS1 OPP and TPP, TVPs and NDP plans.    

It directed these ILECs to amend their tariffs by removing the relevant language requiring customers to aggregate all their purchases under a single plan and to submit appropriate tariff revisions by July 1, 2016.  

In response, Verizon, CenturyLink and Frontier filed tariff revisions that were found lawful by the Commission. Only AT&T’s proposed revisions were rejected. These revisions were filed on July 1, 2016 by Ameritech, Pacific Bell, and Southwestern Bell in Transmittal Nos. 1847, 539, and 3428 respectively. 

In rejecting these transmittals, the Commission stated:

The United States Court of Appeals for the District of Columbia Circuit has explained that the Commission has “the power and in some cases the duty to reject a tariff that is demonstrably unlawful on its face,” including “a tariff that conflicts with a statute, agency regulation or order.”  Under this standard, we reject the specified language in Transmittal Nos. 1847, 539, and 3428 because the proposed language constitutes a restructured service for which AT&T has failed to make the showing required by the Commission’s rules and fails to make a substantial cause showing for the grandfathering of portability for existing customers of PBTC and SWBT. We also note that the proposed language raises significant questions about whether AT&T’s grandfathering violates the Tariff Investigation Order directive to remove language requiring customers to aggregate all of their purchases under a single plan from the Ameritech DCP, SWBT DS1 TPP, and PBTC DS1 TPP (AT&T Tariff Rejection Order at para. 5).

AT&T must try again and file tariff revisions compliant with the Tariff Investigation Order by August 14, 2016. If AT&T includes revisions that grandfather portability for either new or existing customers, it must treat such filings as a restructured service and file the appropriate materials required by section 61.49(e) of the Commission’s rules. If AT&T files tariff revisions grandfathering portability for existing customers of the Pacific and Southwestern Bell plans, by prohibiting the renewal of such plans, it must provide a substantial explanation for its action.

In the Tariff Investigation Order the Commission also ordered AT&T to remove the shortfall and early termination provisions from its Southwestern Bell DS1 High Capacity Service Portability Commitment and the Pacific Bell DS1 High Capacity Service Portability Commitment TPPs. It noted that AT&T could choose to file tariff revisions that set shortfall and early termination penalties at an amount that is no greater than the amount of revenue that a customer would have paid had it met its minimum volume or term commitments. 

In response, AT&T  reduced the fixed per circuit shortfall and early termination liability to the current 2-year Zone 1 Channel Termination rate for the DS1 Term Payment Plan, which is $126 for Pacific and $195 for Southwestern Bell. Several CLECs filed petitions opposing these changes.

In a July 15, 2016 Order, the Commission found these revisions raised substantial questions:

The petitions collectively cite a number of concerns about the methodology AT&T utilized in calculating the revised shortfall and early termination penalties and raise questions about whether the revisions comply with the Tariff Investigation Order. For example, Birch argues that AT&T’s methodology “would require that customers pay penalties that in many cases—and possibly all cases—would exceed expectation damages in violation of the Tariff Investigation Order.” Birch explains that because most or perhaps all customers purchase circuits for terms longer than three years, “all such customers that fall short of their volume commitments and/or disconnect circuits before the end of a term would be liable for shortfall and early termination penalties that exceed expectation.” Similarly, TelePacific/Alpheus argues that the rates AT&T chose were arbitrary and are significantly higher than other rates.  In response, AT&T argues that the amount it chose was reasonable because the rates chosen are well below what AT&T would actually expect to receive for an average circuit (AT&T Tariff Suspension Order at para. 5).

Therefore, the Commission suspended these tariff filings for one day, imposed an accounting order, and initiated an investigation into the lawfulness of the shortfall and early termination penalties. The specific issues that will be the subject of the investigation will be identified in an upcoming designation order.

Eventually, AT&T will revise its TPPs to meet the Commission’s satisfaction. That is a given. More problematic and more important for the industry is the Commission’s solution for unlawful current All-or-Nothing TPPs. So many special access customers have most if not all of their circuits included in these plans that any changes would involve millions of dollars and potential gridlock if customers are free to move their circuits to different providers. If you are a special access customer or carrier you need to keep an eye on FCC Docket 16-143 because its outcome could have serious financial and operation impacts on your company.

By Andy Regitsky, CCMI