AT&T Drops Part of Prepaid Card Appeal, Startling Court
An attorney representing AT&T unexpectedly announced at a Mon. oral argument that the company was withdrawing part of an appeal of an FCC order the court had expected to hear discussed at the session. The company decided to “narrow the issues” in its challenge to a 2005 FCC decision (CD Feb 24/05 p1), David Carpenter, outside counsel for AT&T, told a 3- judge panel of the U.S. Appeals Court, D.C. That decision demanded AT&T make universal service contributions and pay intrastate access charges on some of the revenues from its enhanced prepaid calling card (EPCC) service. “This is an interesting turn of events,” said FCC Assoc. Gen. Counsel Richard Welch, who argued the case for the Commission.
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Some onlookers said the shift wasn’t surprising, since the issues in the case basically pit partners of the newly merged AT&T and SBC against one other. AT&T’s argument that it shouldn’t have to make regulatory payments on revenue from the prepaid service denied SBC intrastate access charges. SBC sued AT&T the day after the FCC ruled. SBC and AT&T settled on a $60 million payment soon after announcing their merger. The merged company has taken AT&T’s name. The EPCC issue raises questions of how to define enhanced services for purposes of freeing such services from regulation -- for the parent AT&T and other Bell companies, another sensitive issue. AT&T had argued its EPCC was an “enhanced” service because it included advertisements.
Carpenter told the court the merged AT&T will pursue the case only as it applies “retroactively,” not “prospectively.” In other words, the firm will challenge the requirement that AT&T pay past due universal service fees but won’t challenge the decision going forward. The service no longer is being offered as it was and the firm’s main goal is a future “level playing field,” he told the court. Asked afterwards if AT&T’s views changed due to the merger, Carpenter wouldn’t speculate. Several attorneys in the audience were seen later wishing him luck in the unusual case.
It isn’t clear how the “narrowed” challenge might affect pending suits by the Bells and other ILECs seeking past-due intrastate access charges (CD Feb 10 p8). But based on talk between the judges and attorneys, AT&T seems no longer to be pushing its “2-call” theory to justify paying interstate instead of intrastate access charges, said Eric Branfman, an attorney litigating medium and small ILECs’ intrastate access claims. AT&T argued earlier that seemingly in-state prepaid calling card calls actually are interstate, since they involve 2 calls: One from the caller to the card’s computer platform, located outside the state, and the other from the platform to the called party. Interstate access charges tend to be less expensive than intrastate.
The court accepted Carpenter’s change after raising a few questions on its parameters. Precedent exists for cases that focus on laws’ retroactive impact, Judge Stephen Williams said. The court then continued the oral argument on the remaining issues, which focused on legalistic questions about the FCC order’s language. For example, the court questioned Carpenter about whether the enhanced part of the EPCC service was “offered” to consumers as a separate service.
Observers said comments by Judge Raymond Randolph hinted at a tilt against Carpenter’s arguments. Randolph said AT&T leadership may have just been “taking a risk” when it chose to treat EPCC as an enhanced, unregulated service. “I think they gambled and lost” when the FCC ruled the EPCC a telecom rather than enhanced service, the FCC’s Welch said. Williams asked Welch if any other carriers would benefit from the FCC’s ruling. Yes, said Welch -- when a carrier doesn’t pay fully into the fund, other carriers must make up the difference.
Michael Kellogg, attorney for the Bells, criticized an earlier AT&T argument that retailers are actually the carriers of prepaid calling cards. “AT&T has tried to say Wal-Mart is the carrier. AT&T is [clearly] the carrier of the calls. The story is over. They have to pay universal service,” he said. Responding to Judge Merrick Garland’s question about whether ads are an “integral part” of the EPCC service, Carpenter said they are because they enable users to make calls at a low rate.