Farmers & Merchants Mutual Telephone Co. of Wayland v. Iowa Utilities Bd.

• Decision Date: 13 February 2013
• Docket Number: No. 11–1899.,11–1899.
• Citation: 829 N.W.2d 190
• Court: Iowa Court of Appeals
• Parties: FARMERS & MERCHANTS MUTUAL TELEPHONE COMPANY OF WAYLAND, Iowa; Interstate 35 Telephone Company; and Dixon Telephone Company, Petitioner–Appellants, Reasnor Telephone Company, LLC, Petitioner–Appellant, v. IOWA UTILITIES BOARD, Respondent–Appellee.

829 N.W.2d 190

FARMERS & MERCHANTS MUTUAL TELEPHONE COMPANY OF WAYLAND, Iowa; Interstate 35 Telephone Company; and Dixon Telephone Company, Petitioner–Appellants,Reasnor Telephone Company, LLC, Petitioner–Appellant,

v.IOWA UTILITIES BOARD, Respondent–Appellee.

No. 11–1899.

Court of Appeals of Iowa.

Feb. 13, 2013.

OPINION TEXT STARTS HEREAppeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.

Local exchange carriers appeal the district court order affirming the Iowa Utilities Board's rulings requiring carriers to credit or refund access fees. AFFIRMED.

David J. Hellstern of Sullivan & Ward, P.C., West Des Moines, and Vickie S. Brandt of The Fein Law Firm, P.C., Dallas, Texas, for appellant Reasnor Telephone Company, LLC.

Robert F. Holz Jr., Steven L. Nelson, and Kris Holub Tilley of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellants Farmers & Merchants Mutual Telephone Company of Wayland, Iowa; Interstate 35 Telephone Company; and Dixon Telephone Company.

Jennifer L. Smithson and David J. Lynch of Iowa Utilities Board, Des Moines, for appellee Iowa Utilities Board.

Mark R. Schuling of the Office of Consumer Advocate and Alice Hyde of the Iowa Department of Justice, Des Moines, for appellee Office of Consumer Advocate.

Bret A. Dublinske of Gonzalez Saggio & Harlan LLP, West Des Moines, for appellee Sprint Communications Company, L.P.

David S. Sather of Sather Law Firm, Des Moines, and Charles W. Steese and Sandra L. Potter of Steese, Evans & Frankel, P.C., Denver, Colorado, for appellee Qwest Communications Company, LLC d/b/a CenturyLink QCC.

Richard W. Lozier of Belin McCormick, P.C., Des Moines, and Michael J. Hunseder of Sidley Austin LLP, Washington, D.C., for appellee AT & T Communications of the Midwest, Inc, and TCG Omaha.

Heard by, VOGEL, P.J., and POTTERFIELD and TABOR, JJ.

POTTERFIELD, J.

Four local telephone exchange carriers appeal the district court's ruling on judicial review affirming the Iowa Utilities Board's order that they credit or refund intrastate access fees charged to long distance companies. The Board determined that for the switched access service Iowa Telecommunications Association (ITA) tariff to apply three requirements must exist: (1) calls must be delivered to an “end user”; (2) calls must terminate at the “end user's premises”; and (3) calls must terminate in the certificated local exchange area. Giving the agency's interpretation the deference owed, we do not find this interpretation irrational, illogical, or wholly unjustifiable because it flows from ITA tariff and the terms, conditions, and definitions in the National Exchange Carrier Association's (NECA) access tariff adopted by the ITA tariff. Moreover, the Board's interpretation of the tariff terms is consistent with decisions of other jurisdictions and the Federal Communications Commission (FCC) interpreting the corresponding interstate tariffs. See Farmers & Merchants Mutual Telephone Co. of Wayland, Iowa v. F.C.C., 668 F.3d 714, 723 (D.C.Cir.2011). The Board's findings of fact include that the calls at issue were not delivered to an end user; did not terminate at an end user's premises; and, with respect to some local exchange carriers, did not terminate in the certificated local exchange area. These findings are supported by substantial evidence. The Board concluded that because the services provided to the conferencing calling companies did not qualify as tariffed switched access service, no tariff rates could be charged or collected by the local exchange carriers (LECs). It ordered the LECs to credit or refund the interexchange carriers (IXCs). Because tariffed services were not at issue, the filed rate doctrine is not applicable. We affirm.

I. Background Facts and Proceedings.

On February 20, 2007, Qwest Communications Corporation filed a complaint with the Iowa Utilities Board (Board) alleging violations of the terms and conditions of intrastate tariffs by several telecommunications carriers. Qwest alleged that LECs ¹ engaged in activities including free conference calls, chat rooms, podcasts, voice mail, pornographic calls, and international services to dramatically increase call traffic in the local exchange. This practice is referred to as “traffic pumping.”

The LECs are members of the NECA traffic sensitive pool. The NECA pool generally ensures a minimum amount of access revenue, with excess revenue shared among the entire pool. The NECA interstate access tariff applies to interstate traffic, while the ITA tariff applies to intrastate traffic. The ITA tariff generally mirrors the NECA tariff, and incorporates many of the same terms and conditions of the NECA tariff. The LECs may opt out of the NECA pool for a two-year period while maintaining the same rates, keeping all access revenue in the process. After two years, the LEC must re-enter the pool or else provide evidentiary support for its rate.

Traffic pumping occurs when a LEC partners with, or otherwise enters into an arrangement with, a free calling service company (FCSC) providing one or more of the activities described above. The FCSC sends its equipment, such as conference bridges, routers, or chat line computers to the LEC. The LEC then connects the equipment to its network and assigns telephone numbers to the FCSC, often in large blocks. The FCSC then advertises its free calling services to customers. As a result, long distance traffic dramatically increases on the LEC's system.

IXCs such as Qwest; AT & T Communications of the Midwest, Inc. and TCG Omaha (together referred to as AT & T); and Sprint Communications Company, L.P. (Sprint) deliver these long distance calls to the LECs, for which the LECs charged the IXCs intrastate switched access rates of between five and thirteen cents per minute. These rates are generally higher than average because the LECs in questions are rural and traditionally receive low traffic volumes, making switched access service more expensive than an urban carrier with a more geographically dense end-user base. By opting out of the NECA pool, the LECs are able to maintain the higher tariffed rates and keep the excess revenue for themselves for two years rather than sharing it with the rest of the pool. At the end of the two-year opt-out period, the LECs must then either rejoin the pool or accept a switched access rate that would be significantly lower based upon the traffic generated by the FCSC.

The traffic to the LECs under these business arrangements increased dramatically with a resulting increase in access charges—in some instances increasing access revenue charges by 10,000%—at very little cost to the LECs. In exchange for the increased traffic generated by the FCSC and the consequent increased revenue the LEC provided the FCSC a “marketing fee,” a percentage of the switched access fees paid to the LECs by the IXCs.

Following a series of FCC decisions,² many rural LECs entered into the types of business arrangements at issue here. As Farmers writes in its appellate brief,

In 2005, several conference companies contacted the ILECs [incumbent LECs] (and other LECs in Iowa) with a business opportunity. These companies offered to bring part of their business to the ILECs and become their customers. They would market services which would generate toll traffic to the ILECs exchanges from callers utilizing the companies' conferencing, chat rooms, and international calling services. The ILECs would provide local telephone service, space for the companies' equipment, and sufficient trunking and switching capacity to handle the traffic. In exchange for these marketing services, the ILECs would pay a marketing fee.

....

The service agreements between the ILECs and the conference companies ... identified the conference company as the “customer” of the ILEC, provided that the ILEC would provide local telephone service to the conference companies' equipment and provided that the ILEC would pay the company a marketing fee for the traffic generated by the conference company.

The ILECs and conference companies began performing under their contractual agreements in 2005 and 2006. The conference companies marketed the conference calling, chat line calling and international calling to customers via internet, media advertising, and direct sales. The traffic was generated to the ILECs' exchanges where it was switched and delivered to the conference company equipment. The ILECs billed the IXCs for the terminating access charges associated with terminating the toll calls and initially collected those access charges from the IXCs. Pursuant to their agreements, the ILECs then paid the marketing fees to the conference companies.

The business arrangement described has generated much litigation. See generally Northern Valley Commc'ns, LLC v. Qwest Commc'ns Co., L.P., 2012 WL 996999, at *3 (D.S.D. March 23, 2012) (noting several case pending in the District of South Dakota, “some of which have been stayed pending referral of specific issues to the FCC,” as well as “similar cases pending in other jurisdictions”); Sancom, Inc. v. AT & T Corp., 696 F.Supp.2d 1030, 1033 (D.S.D.2010) (listing numerous pending cases in courts and regulatory agencies); see also Connect Insured Tel., Inc. v. Qwest Long Distance, Inc., 3:10–CV–1897–D, 2012 WL 2995063, at *6–7 (N.D .Tex. July 23, 2012) (dealing with a competitive local exchange carrier (CLEC) charging termination switched access fees to IXC; IXC arguing disputed calls did not involve an “end user” because the two entities that the LEC contends were the end users were not customers of LEC and did not subscribe LEC intrastate services); Minnesota Indep. Equal Access Corp. v. Sprint Commc'ns Co., L.P., CIV. 10–2550 MJD/SER, 2011 WL 3610434, at *3 (D.Minn. Aug. 15, 2011) (noting the Minnesota Public Utilities Commission had taken jurisdiction of traffic pumping complaint against a LEC).³

Qwest's complaint with the Board invoked Iowa Code ⁴ sections 476.2, 476.3, and 476.5, and 19...