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Iowa Network Services, Inc. v. AT&T Corp.

United States District Court, D. New Jersey

October 2, 2019

Iowa Network Services, Inc., Plaintiff,
AT&T Corp., Defendant.


          PETER G. SHERIDAN, U.S.D.J.

         This matter comes before the Court on a motion filed by Defendant AT&T Corp. ("AT&T") to maintain a stay of this case pending further action by the Federal Communications Commission ("FCC") and the D.C. Circuit. The parties' respective briefs raise the following issues regarding the motion to maintain the stay: (1) whether a stay is permitted under the Hobbs Act, 28 U.S.C. § 2341; (2) whether the Court should continue to invoke the primary jurisdiction doctrine to continue the stay until the final outcome of the FCC proceeding; and (3) whether it would be appropriate for the Court to issue a stay pending appeal of the FCC ruling to the D.C. Circuit under Landis v. N. Am. Co., 299 U.S. 248 (1936).


         Defendant AT&T is a provider of long-distance telecommunications services to all states. Plaintiff Iowa Network Services d/b/a Aureon ("INS") provides telecommunication services known as Central Equal Access ("CEA") services within Iowa. AT&T transports telecommunication traffic to and from local telephone companies that serve end user customers. To transport communication traffic to end users in rural Iowa, AT&T delivers traffic to INS, then INS sends or switches the traffic to its network or the network of other local telephone companies who then, in turn, deliver the call to the end user. For INS services, INS charges AT&T a fee set forth in a tariff filed with the FCC, as discussed below.

         AT&T has denied that it owes any fees to INS, and has filed counterclaims alleging that INS's operational practices in imposing tariffed rates for CEA service violate several provisions of the Federal Communications Act ("Communications Act"), including those provisions proscribing unjust and unreasonable practices. Generally speaking, AT&T alleges that INS operated contrary to the FCC's authorization by allegedly violating the Communications Act because, inter alia: (1) INS has refused to comply with certain FCC rate caps; and (2) INS has channeled most of its traffic through rural local exchanges. The critical facts underlying these two contentions are that these rural exchanges are authorized to charge higher tariff rates, and as a result, the cost of the services to AT&T substantially rises, even though INS could have more effectively routed the call through local exchanges whose rates were lower. This practice is referred to as "access stimulation." AT&T alleges that, in order to stop access stimulation, the FCC capped such rates for those charges in 2011.

         On October 14, 2015, the Court, among other things, referred this matter to the FCC pursuant to the primary jurisdiction doctrine. (See ECF No. 43). In determining whether to refer the matter to the FCC, the Court undertook an in-depth review of the facts alleged in AT&T's counterclaims. (See id.; ECF No. 9). For context, some of these facts are recapitulated below.

         i. Access Services

         According to AT&T's counterclaims, INS provides a service known as "exchange access" or more specifically, "switched access." (Defendant's Answer and Counterclaims ("Counterclaims") ¶¶ 19-29, ECF No. 9). "Switched access" is offered by local exchange carriers ("LECs") to long distance carriers (also known as interexchange carriers or "IXCs") to complete long distance calls. (Id. ¶ 20). An LEC can be classified generally as an "incumbent" LEC (referred to herein as "ILEC"), which is the traditional provider of telephone services in a local exchange, or a "competitive" LEC ("CLEC"), which is a new entrant to the local telephone market. (Id.). The LECs provide switch access services to IXCs pursuant either to tariffs or express contracts. (Id.) The counterclaims provide the following example of how a long distance call is completed through these carriers: On a traditional long distance call, a caller places a call from, for example, Des Moines, Iowa to a friend in, for example, Chicago, Illinois. The caller's local Iowa phone company accepts the outgoing call at a local switch that connects the caller's premises to its network, carries the call over the local network, and eventually hands off the call in or near Des Moines to the caller's selected long distance company. The long distance company (i.e., the IXC) carries the call over its national network to a location near Chicago, and hands it off to a local phone company (an LEC) near Chicago that serves the called party. That Chicago LEC routes the call over its local network, including to a local "end office" switch that is directly connected to the called party's premises in Chicago, and the long distance call is completed. (Id. ¶ 21). In this example, the LEC that originated the call in Des Moines will assess an "originating" switch access charge on the IXC, and similar charges will be billed to the IXC for the "terminating" end of the call by the LEC in Chicago.

         In the most basic scenario, the IXC establishes a "direct connection" with an LEC. This type of arrangement is used in areas where the IXC and the LEC exchange a large volume of traffic. However, with smaller LECs, there may be insufficient traffic to justify a direct connection with a particular IXC's network, and the carriers may exchange traffic indirectly through another provider. (Id. ¶ 27). This "indirect" calling arrangement is approved by the FCC for use in Iowa and a few other states where competition for long distance services is developing. In order to successfully complete long-distance traffic through indirect exchanges, a CEA provider is utilized, and approved by the FCC. Because each remote ILEC had insufficient traffic volume to connect directly with each competing IXC, the remote ILECs cooperatively formed a CEA provider to transmit by long distance service to LEC. (Id. ¶ 28). The CEA provider should provide the services at a less costly rate due to economies of scale by handling larger volumes of access traffic. (Id.). Such CEA rates are provided by a tariff approved by the FCC.

         ii. INS

         INS was formed in 1987 by approximately 130 rural LECs to provide transport and other access services on behalf of the rural LECs. (Id. ¶ 29), INS was approved to provide CEA services and has deployed tandem switching and transport facilities in order to offer equal access to multiple competitive IXCs at a single centralized location. (Id. ¶¶ 29, 32). At that time (i.e., prior to the Telecommunications Act of 1996, which opened up local telephone service competition), there was only a single provider of local telephone service in a given area; there were no CLECs at that time. (Id. ¶ 30). Also at that time, prices for services offered by LEC were determined by "rate of return" regulation, which examined a carrier's reasonable costs and demand, and then rates were set to achieve a reasonable rate of return. (Id. ¶ 31).

         INS offers a particular package of access services; specifically, INS offers access to a centralized telephone facility (called a "switch") in Des Moines, Iowa, and a network to transport calls across Iowa. (Id. ¶¶ 34-35). INS hands off the long distance calls to or from rural LECs, who use their own facilities to terminate or originate the calls placed to end user customers, and these carriers impose their own access charges on AT&T. Specifically, call routing works as follows:

[W]hen a customer of an IXC places a long distance call to a customer of one of the LECs that uses INS, the IXC carries the call over its network to INS's switch in Des Moines, and hands off the call to INS. INS then transports the call to a point on its fiber network that is close to the local facilities of the rural LEC. The rural LEC then picks up the call and transports it to the called party within its authorized local exchange.

(Id. ¶ 34). INS generally charges the IXCs a flat, per minute rate for each call. (Id. ¶ 35).

         iii. Access Stimulation

         AT&T's counterclaims describe an alleged "scheme" referred to "access stimulation." (Id. ¶ 10). Under this "scheme," a remote LEC, which charges higher rates for access services under the FCC's rules, partners with a company that has less expensive rates due to its generation of a great deal of traffic through free calling services. (Id.). As a result of this "traffic-pumping," there is a sharp increase in the call traffic coming over the IXCs to the remote LECs and a sharp increase in the fees incurred by the IXC. (Id. ¶ 11). As set forth in the counterclaims, such traffic in Iowa would typically be routed over INS's transport ring. (Id. ¶ 10). AT&T claims that as a result of these access stimulation practices, the mix of traffic that INS carries has changed significantly. Formerly, nearly all of the traffic transported by INS involved the aggregation of small volumes for each of the ILECs connected to ENS. Presently, it is alleged that about 89% of the traffic handled by INS consists of traffic from CLECs engaged in access stimulation. (Id. ¶ 39).

         iv. FCC Price Caps

         The access services provided by LECs are regulated by the FCC. In 2011, the FCC created several new rules with respect to pricing, and capped all interstate access rates that were in effect at the time. See In the Matter of Connect Am. Fund A Nat'l Broadband Plan for Our Future Establishing Just & Reasonable Rates for Local Exch. Carriers High-Cost Universal Serv. Support Developing an Unified Interearrier Comp. Regime Fed.-State Joint Bd. on Universal Serv. Lifeline & Link-Up Universal Serv. Reform - Mobility Fund ("Connect America Order"), 26 F.C.C. Red. 17663, ¶ 18 (2011). LECs were also required over time to reduce access rates for intrastate calls to the same level as interstate calls. The parties' briefing, as well as this memorandum, refers to these rules at "rate caps."

         v. AT&T's Dispute With INS

         According to AT&T, after INS filed its tariffs with rates that AT&T claims exceeded the rate caps set by FCC rules, AT&T disputed ENS's charges pursuant to the billing dispute provisions in INS's tariff. (Counterclaims ¶ 54). AT&T also began withholding payment on certain charges, but continued to pay INS some of the amounts it has billed based upon AT&T's own estimate of what the lawful charges should be. (Id.). Nevertheless, AT&T claims that it has paid millions of dollars in charges associated with access stimulation, of which it contends should be refunded. (Id. ¶ 55). In sum, AT&T alleges, inter alia, that INS, and the Iowa LECs that engage in access stimulation, have engaged in unreasonable, anticompetitive, and unlawful practices by (1) conspiring to refuse to allow AT&T to use more efficient means to transport access stimulation traffic, such as a direct connection with the LEC; and (2) insisting that AT&T route traffic through INS. AT&T seeks damages as ...

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