American Tel. & Tel. Co. v. IMR Capital Corp., Civ. A. No. 90-12866-NG
| Citation | 888 F. Supp. 221 |
| Decision Date | 10 May 1995 |
| Docket Number | Civ. A. No. 90-12866-NG,92-10919-NG. |
| Parties | AMERICAN TELEPHONE & TELEGRAPH CO., Plaintiff, v. IMR CAPITAL CORP., Defendant and Third-Party Plaintiff, v. NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, Third-Party Defendant. IMR CAPITAL CORP., Plaintiff, v. AMERICAN TELEPHONE & TELEGRAPH CO., Defendant. |
| Court | U.S. District Court — District of Massachusetts |
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Lawrence G. Green, James A.G. Hamilton, Perkins, Smith & Cohen, Boston, MA, for American Tel. & Tel. Co.
Douglass W. Stoddart, Goodman, Goguen & McLaughlin, P.C., South Natick, MA, Paul C. Besozzi, Besozzi & Gavin, Washington, DC, Lawrence G. Green, Perkins, Smith & Cohen, Boston, MA, for IMR Capital Corp.
Thomas A. Barnico, Atty. General's Office, Boston, MA, for Massachusetts Dept. of Public Utilities.
William J. McDonald, Boston, MA, for New England Tel.
MEMORANDUM AND DECISION
This is yet another chapter in the multi-volume saga of litigation which has arisen out of the break-up of the Bell System and the deregulation of the telephone industry. The subject of this episode is "Consumer Owned Coin Operated Telephones," better known in the industry as "COCOTs." A COCOT is a type of coin-operated pay telephone. Unlike most pay telephones, which are owned by the Local Exchange Carrier ("LEC"),1 COCOTs are owned by third parties, which must gain access to the telephone grid through the LEC. Because LECs also own pay telephones, they function both as suppliers and competitors of COCOT owners. It is this inherent conflict of interest and, in particular, the potential for unfair monopolistic practices, which forms the core of this case.
Two of the actors in this saga need little introduction. American Telephone & Telegraph Co. ("ATT") is the largest provider of long-distance telephone service in the United States and formerly held a monopoly on all telephone services in most areas of the country. ATT also owns and operates a small number of pay telephones in Massachusetts. New England Telephone ("NET") was formerly a subsidiary of ATT and now, as a subsidiary of Nynex Corporation, serves as the LEC for virtually all telephone customers in Massachusetts. NET also owns and operates the vast majority of pay telephones in Massachusetts.
Less well known is IMR Capital Corporation ("IMR"). IMR is, and has been since 1987, the owner of several hundred COCOTs throughout Massachusetts. Through these COCOTs, IMR resells local and long-distance telephone service to its customers. IMR, in turn, purchases access to the telephone grid from NET, and, prior to the filing of these actions, subscribed to long-distance service from ATT. In 1990, having become dissatisfied with ATT's service, IMR entered into agreements with other long-distance carriers, including MCI, which now provide long distance service to its COCOTs.2 IMR claims that it switched to MCI because MCI agreed to provide it with the terms of service which ATT had refused to provide.
Although similar in appearance to NET-owned pay telephones, COCOTs are, according to the amended third-party complaint, fundamentally different devices. NET's pay telephones are connected to NET's central switching office through special dedicated "coin lines." Through these coin lines, the NET phones are able to transmit payment information (i.e. information about the insertion of coins into the phone) from the phone to the central switching office, and NET is able to transmit commands (to return or keep deposited coins) back to the phones. As a result, NET is able to control access to these phones from its switching office, and to prevent the completion of calls unless proper payment has been made.
By contrast, COCOTs are connected to NET's switching offices via ordinary business phone lines. Calls made from a COCOT are ordinarily billed to its owner, just as any other business customer would be billed. Because business lines do not have the ability to transmit control or payment information between the telephone and NET's central office, the COCOTs attached to them must be "smart" enough to perform all required functions on their own, without any external control. Thus, in order for IMR to make a profit from its operation of COCOTs, its COCOTs' internal circuits must insure that the user of the phone has deposited an amount of money in excess of the anticipated cost (to IMR) of the call.
According to IMR, NET refuses to permit the connection of COCOTs to NET's dedicated coin lines. The resulting disadvantage to COCOT owners is twofold. First, COCOTs are simply more expensive than conventional pay telephones, as they must contain, in addition to all of the features of an ordinary pay telephone, sophisticated circuitry for performing all of the "gatekeeping" functions which NET performs at its central office. As a result, COCOT owners must spend more on pay telephone equipment than NET in order to provide the same level of service.
Second, and perhaps more significantly, COCOTs are susceptible to certain types of fraudulent calling to which NET's coin line phones are immune. The principal type of COCOT fraud by which IMR claims to be victimized entails access to "secondary dial tones." Because COCOTs are connected to the telephone network through "dumb" business phone lines (i.e. lines without special "coin line" circuitry), the dial tone on these lines is "open." The COCOT controls access to the line by generating its own dial tone, and storing the number dialed by a customer in its memory. After checking to see if sufficient funds have been deposited, the COCOT retransmits the stored number to the telephone switching office, and the call is completed.
Secondary dial tone fraud occurs by taking advantage of a particular weakness in this system. Once the COCOT has retransmitted the dialed number to NET's central switching office, it must open a direct connection to the switching office so that the customer's conversation can be transmitted. In the ordinary course, this direct connection is terminated when the customer finishes speaking and hangs up. However if a call made from a COCOT is terminated by the receiving party, but the caller does not hang up, the central switching office will detect the termination of the call and, after a time, automatically generate a new dial tone for the COCOT. If the COCOT customer fails to hang up after the termination of the call, he will eventually gain access to a central office generated dial tone, which can be used to make new calls which the COCOT is unable to screen.
In a typical fraud described by IMR, a customer dials the operator from a COCOT. Because there is no charge for dialing the operator, the COCOT puts the call through without requiring the deposit of any coins. The customer then says nothing and the operator eventually hangs up, thus prompting the generation of a new dial tone, from which the customer can make unlimited calls without paying for them. The charges for these calls, however, still get billed to the COCOT owner.
IMR alleges that it has taken all practical steps to prevent fraudulent calls from being made on it COCOTs. One such step was to reprogram its COCOTs to disable the pushbuttons after a certain number of seconds off-hook. While this change made it harder to engage in secondary dial tone fraud, it also limited the utility of the COCOTs by preventing customers from accessing voice mail, answering machines, pagers and similar services which require the pushbuttons to operate after the call has been put through.
IMR also alleges that it has subscribed to all call screening and blocking services available from NET. These services include "billed-number screening," which prevents operator assisted long distance calls from being billed to the subscriber's number through third-party billing,3 and "originating-line screening," which prevents operator assisted calls from being billed to the originating telephone line. IMR alleges that NET has failed to properly implement these services. IMR has also asked both NET and ATT to block certain types of calls (such as international calls) from being made from its phones entirely. IMR alleges that both NET and ATT have the ability to block such calls, but have refused to do so. Thus, IMR alleges that, despite its best efforts, fraudulent calling from its COCOTs continues.
IMR contends that NET's failure to provide IMR with access to "coin lines" and NET and ATT's failure to provide necessary call blocking services are all part of a larger scheme by NET to monopolize the pay telephone market in Massachusetts and by ATT to monopolize long distance service from pay telephones in Massachusetts. IMR claims that, in addition to the above, NET has engaged in anti-competitive practices by predatory pricing of its commissions to location owners,4 by making misleading comments about the quality of IMR's service, by charging COCOT owners rates in excess of the effective rate which it charges itself for pay telephone lines, by improperly installing the local exchange access lines upon which IMR's COCOTs depend, by billing IMR for calls never made, by failing to timely respond to service calls, and by engaging in discriminatory practices against COCOT owners with respect to billing, deposit requirements, payment dates, and the like.
IMR also alleges that NET and ATT conspired to eliminate IMR from the pay telephone market in Massachusetts. According to IMR, this conspiracy involved both NET and ATT refusing to provide necessary call blocking services to IMR and to properly implement the ones they did provide, thus interfering with...
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