**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matters of                | * | EB-01-MD-001                 |
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| AT&T Corp.,                      | ) | EB-01-MD-002                 |
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| Complainant,                     | * |                              |
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| Business Telecom, Inc.,          | ) |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted:** May 25, 2001 **Released:** May 30, 2001

By the Commission: Commissioner Furchtgott-Roth dissenting and issuing a
separate statement.

> TABLE OF CONTENTS Paragraph

I. INTRODUCTION [1](#introduction)

II\. BACKGROUND [1](#background)

A. The Parties [1](#the-parties)

B. The Parties' Business Relationship
[2](#the-parties-business-relationship)

C. The Procedural History [3](#the-procedural-history)

III\. DISCUSSION [4](#discussion)

A. The Commission Has Authority to Adjudicate the Lawfulness of BTI's
Past and Present Access Rates.
[4](#the-commission-has-authority-to-adjudicate-the-lawfulness-of-btis-past-and-present-access-rates.)

B. BTI's Access Rates are Unjust and Unreasonable Under Section 201(b).
[8](#btis-access-rates-are-unjust-and-unreasonable-under-section-201b.)

1\. Marketplace Data, Rather than BTI's Costs, Provide the Principal
Tools for Assessing the Reasonableness of BTI's Access Rates.
[8](#marketplace-data-rather-than-btis-costs-provide-the-principal-tools-for-assessing-the-reasonableness-of-btis-access-rates.)

2\. Rates for Services Using Comparable Network Functions are
Appropriate Marketplace Data on Which to Assess the Reasonableness of
BTI's Access Rates.
[10](#rates-for-services-using-comparable-network-functions-are-appropriate-marketplace-data-on-which-to-assess-the-reasonableness-of-btis-access-rates.)

a\. BTI's Access Rate Greatly Exceeds ILECs' Access Rates.
[14](#btis-access-rate-greatly-exceeds-ilecs-access-rates.)

b\. BTI's Access Rate Exceeds the Access Rates of Many Other CLECs.
[16](#btis-access-rate-exceeds-the-access-rates-of-many-other-clecs.)

c\. The Differential Between BTI's Access Rate and Reciprocal
Compensation Rate is Enormous, and Far Larger than BellSouth's
Differential.
[17](#the-differential-between-btis-access-rate-and-reciprocal-compensation-rate-is-enormous-and-far-larger-than-bellsouths-differential.)

3\. BTI's Access Revenue-Sharing Practices Are Also Appropriate
Marketplace Data on Which to Assess the Reasonableness of BTI's Access
Rates.
[19](#btis-access-revenue-sharing-practices-are-also-appropriate-marketplace-data-on-which-to-assess-the-reasonableness-of-btis-access-rates.)

4\. The Foregoing Market Data Amply Indicate that BTI's Access Rates
Were and Are Unjust and Unreasonable.
[19](#the-foregoing-market-data-amply-indicate-that-btis-access-rates-were-and-are-unjust-and-unreasonable.)

5\. BTI's "Cost Showing" Does Not Justify Its Access Rates.
[20](#btis-cost-showing-does-not-justify-its-access-rates.)

6\. AT&T Is Not Estopped From Challenging BTI's Access Rates.
[23](#att-is-not-estopped-from-challenging-btis-access-rates.)

C. The Lawful Per-Minute Access Rate for Purposes of Calculating Damages
Ranges From 3.8 Cents to 2.7 Cents During the Relevant Period.
[24](#the-lawful-per-minute-access-rate-for-purposes-of-calculating-damages-ranges-from-3.8-cents-to-2.7-cents-during-the-relevant-period.)

D. AT&T Is Not Entitled to Additional Relief Under Section 254(k) of the
Act.
[26](#att-is-not-entitled-to-additional-relief-under-section-254k-of-the-act.)

IV\. Ordering Clauses [27](#ordering-clauses)

*Re: AT&T Corp. v. Business Telecom, Inc.; Sprint Communications
Company, L.P. v. Business Telecom, Inc.*, Memorandum Opinion and Order,
File Nos. EB 01-MD-001 & EB-01-MD-002.
[29](#re-att-corp.-v.-business-telecom-inc.-sprint-communications-company-l.p.-v.-business-telecom-inc.-memorandum-opinion-and-order-file-nos.-eb-01-md-001-eb-01-md-002.)

# INTRODUCTION

1.  In this Order, we grant in part and deny in part complaints filed by
    AT&T Corp. ("AT&T") and Sprint Communications Company, L.P.
    ("Sprint") (collectively "Complainants") against Business Telecom,
    Inc. ("BTI")[^1] pursuant to section 208 of the Communications Act
    of 1934, as amended ("Act" or "Communications Act").[^2] In
    particular, we grant Complainants' claims that BTI's access rates
    were and are unjust and unreasonable under section 201(b) of the
    Act.[^3] In conjunction with granting these claims, we define a just
    and reasonable rate on which Complainants' damages should be based.
    Further, we deny AT&T's claim for relief arising from BTI's alleged
    cross-subsidization, assertedly in violation of section 254(k) of
    the Act.[^4]

# BACKGROUND

## The Parties

2.  AT&T and Sprint are, *inter alia*, non-dominant interexchange
    carriers ("IXCs"). [^5] BTI is a competitive local exchange carrier
    ("CLEC") that provides facilities-based interstate and intrastate
    exchange access services, telephone toll services, and local
    exchange services in urban areas of the southeastern United States,
    including North and South Carolina, Georgia, and Florida.[^6] BTI
    principally serves small business and residential users in the
    following states and cities: South Carolina -- Columbia, Greenville,
    and Charleston; North Carolina -- Raleigh, Greensboro, and
    Charlotte; Florida -- Jacksonville, Tampa, and Orlando; Tennessee --
    Nashville and Knoxville; and Georgia -- Atlanta.[^7] As of September
    2000, BTI served approximately 125,000 access lines in at least 12
    urban areas.[^8] In all of BTI\'s service areas, the incumbent local
    exchange carrier ("ILEC") was either BellSouth Telecommunications,
    Inc. ("BellSouth") or GTE Telephone Operating Companies ("GTE").[^9]

## The Parties' Business Relationship

3.  The matters at issue relate to BTI's provision of switched
    interstate access services to Complainants.[^10] Access service
    generally consists of "originating" access, by which a call is
    transported from a caller's premises over a local exchange carrier's
    network to the IXC's network, and "terminating" access, by which a
    call is transported from the IXC's network over a local exchange
    carrier's network to the called party's premises. [^11]

4.  BTI's rates for its switched interstate access services were set
    forth in its FCC Tariff No. 4, which BTI initially filed with the
    Commission in July 1998.[^12] At all relevant times, BTI's tariffed
    switched access rate per minute of use was 7.1823 cents per minute
    for both originating and terminating access.[^13] BTI did not base
    its access rates on any analysis of its costs of providing access
    service.[^14] Instead, BTI developed its access rates by simply
    reviewing the rates that other CLECs were charging in 1998.[^15]

5.  Beginning in 1998, BTI invoiced Complainants for access services it
    provided them.[^16] Complainants have only partially paid the
    invoiced amounts.[^17] For example, Sprint has paid BTI at a level
    approximating the interstate access rates of the ILECs operating in
    BTI's service areas, which rates are substantially below BTI's.[^18]
    Complainants assert that they refused to pay the invoiced amounts
    because, in their view, (1) BTI's access rates were unreasonably
    high; (2) Complainants never actually "ordered" BTI's access
    services; and, (3) in any event, Complainants properly requested
    discontinuance of any "ordered" access services.[^19]

## The Procedural History

6.  These complaint proceedings arise from primary jurisdiction referral
    orders in *Advamtel, LLC d/b/a Plan B Communications, et al. v.
    Sprint Communications Co.*, and *Advamtel, LLC d/b/a Plan B
    Communications, et al. v. AT&T Corp.* (collectively "*Advamtel
    Litigation*").[^20] BTI and other CLECs filed suit in the *Advamtel
    Litigation* against AT&T and Sprint for nonpayment of the CLECs'
    interstate access charges.[^21] In response, AT&T and Sprint filed
    several counterclaims against BTI and other CLECs, including
    counterclaims challenging the lawfulness of the CLECs' access rates
    under section 201(b) of the Act.[^22] AT&T also alleged that BTI and
    other CLECs used excess access revenues to cross-subsidize their
    long distance and local exchange services, in violation of section
    254(k) of the Act.[^23]

7.  In July 2000, the federal district court granted Complainants'
    motions to refer certain of their counterclaims to the Commission
    pursuant to the doctrine of primary jurisdiction.[^24] Specifically,
    the court referred Complainants' claims that BTI and other CLECs
    charged unreasonably high access rates, in violation of section
    201(b) of the Act.[^25] The court also referred AT&T's claim that
    BTI and other CLECs engaged in cross-subsidization prohibited by
    section 254(k) of the Act. [^26]

8.  To effectuate the court's referrals, Complainants filed these formal
    complaints against BTI with the Commission on January 16, 2001, and
    the Enforcement Bureau promptly consolidated them.[^27] Complainants
    contend that BTI's access rates are unjustly and unreasonably high
    under section 201(b) of the Act.[^28] AT&T also contends that BTI
    cross-subsidized its retail local and long distance services with
    revenues from its access services, in violation of section 254(k) of
    the Act.[^29]

# DISCUSSION

## The Commission Has Authority to Adjudicate the Lawfulness of BTI's Past and Present Access Rates.

9.  BTI makes several arguments challenging the Commission's authority
    to review the rates at issue.[^30] BTI first alleges that its access
    rates are conclusively presumed to be lawful because the rates are
    contained in a validly filed tariff.[^31] To support this argument,
    BTI correctly observes that we must presume tariffed rates to be
    reasonable when the tariff has been validly filed.[^32] This
    presumption of reasonableness is rebuttable, however, in the context
    of a section 208 complaint alleging a violation of section
    201(b).[^33] Consequently, even though Complainants do not challenge
    the validity of the filing of BTI's tariff, we have authority to
    conclude in this proceeding that BTI's tariffed access rates were
    and are unjust and unreasonable in violation of section 201(b).[^34]

10. According to BTI, any specification of a just and reasonable rate
    for past periods in order to calculate damages would constitute
    prohibited retroactive ratemaking.[^35] As support for its position,
    BTI points out that section 205 only permits the Commission to
    impose *prospective* rate changes.[^36] BTI's assertions disregard
    the fact that our authority to award damages stems from sections
    207, 208, and 209 of the Act, and not section 205.[^37] The
    adjudicatory scheme established by Congress specifically allows for
    the recovery of damages in instances such as this. Section 208(b)
    expressly refers to complaints involving "the lawfulness of a
    charge,"[^38] and section 207 permits complainants to recover
    damages pursuant to section 208.[^39] Moreover, section 209 states
    that, "\[i\]f after hearing on a complaint, the Commission shall
    determine that any party complainant is entitled to an award of
    damages . . ., the Commission shall make an order directing the
    carrier to pay to the complainant the sum to which he is entitled .
    . . ."[^40]

11. The Commission has repeatedly explained its statutory authority to
    award damages in section 208 complaint cases concerning the
    lawfulness of tariffed charges. For example, the Commission has
    previously stated that, if "a tariff filing is subsequently
    determined to be unlawful in a complaint proceeding commenced under
    section 208 of the Act, customers who obtained service under the
    tariff prior to that determination may be entitled to damages."[^41]
    The Commission also has held "that a proper measure of the damages
    suffered by a customer as a consequence of a carrier's unjust and
    unreasonable rate is the difference between the unlawful rate the
    customer paid and a just and reasonable rate."[^42] Consistent with
    this authority to award damages arising from unlawful rates, the
    Commission has stated on several occasions that, in lieu of directly
    regulating CLEC access rates, the Commission would, instead, rely on
    complaints filed under section 208 seeking to enforce the "just and
    reasonable" standard of section 201(b) to constrain and discipline
    CLEC access rates.[^43]

12. Federal court decisions confirm the Commission's statutory authority
    to award damages in section 208 complaint cases concerning the
    lawfulness of tariffed charges. In upholding a Commission order
    invalidating a tariff, the D.C. Circuit recently rejected as
    "clearly wrong" the view that "relief under Section 208 of the Act
    cannot be retroactive in effect."[^44] In doing so, the D.C. Circuit
    stated that, "insofar as Section 208 authorizes the award of damages
    or other remedies, it is always 'retroactive' in its application in
    that it will always be changing the economic consequences of a
    carrier's prior conduct."[^45] Thus, we conclude that we have the
    authority, in the context of this complaint proceeding, to establish
    the reasonable rates that BTI should have charged during the period
    at issue to enable the assessment of damages.[^46]

13. BTI also argues that the Commission cannot order any prospective
    rate changes in resolving this complaint, because the Commission's
    formal complaint procedures did not afford BTI a "full opportunity
    for a hearing" within the meaning of section 205.[^47] Although we
    do not prescribe future rates here, we take this opportunity to make
    clear that BTI's argument is manifestly incorrect. Section 205(a) of
    the Act states that "\[w\]henever, *after full opportunity for
    hearing*, upon a *complaint* . . . the Commission shall be of
    opinion that any charge . . . is or will be in violation of any of
    the provisions of this chapter, the Commission is authorized and
    empowered to determine and prescribe what will be the just and
    reasonable charge . . . ."[^48] Section 205 thus expressly
    authorizes the Commission to prescribe rates in the context of a
    complaint proceeding under section 208. The only question is whether
    the formal complaint procedures employed in this proceeding met the
    "hearing" requirement contained in section 205.

14. BTI acknowledges that "the language 'after full opportunity for
    hearing' contained in Section 205 does not trigger the detailed oral
    hearing requirements of Sections 556 and 557 of the Administrative
    Procedure Act \['APA'\]."[^49] BTI asserts, nonetheless, that the
    formal complaint procedures employed here fall short of a "hearing,"
    because they did not amount to notice and comment type
    rulemaking.[^50] Again, we disagree.

15. The "hearing" requirement in section 205 means that a defendant in a
    complaint proceeding must have fair notice of, and reasonable
    opportunity to comment upon, the issues raised concerning the
    appropriate level of its future rates.[^51] BTI was amply afforded
    such notice and comment opportunity here. The parties filed
    substantial pleadings and briefs, conducted extensive discovery --
    including interrogatories, document requests, and depositions --
    participated in several in-person and telephonic conferences with
    Commission staff, and submitted dozens of documentary exhibits.
    Thus, we reject BTI's argument that the procedures employed here do
    not amount to a "hearing."

16. In any event, even if some type of notice and comment rulemaking
    procedures were required by section 205, we find that the procedures
    employed here more than adequately met those requirements. Section
    553 of the APA governs rulemaking procedures, and it permits the
    Commission to forego publication of a proposed rule in the Federal
    Register if "persons subject thereto are named and either personally
    served or otherwise have actual notice thereof in accordance with
    law."[^52] Section 553 further requires that persons subject to the
    rule be given an opportunity to submit "written data, views or
    arguments."[^53] Here BTI, the sole defendant in this complaint
    proceeding, had actual notice of this proceeding and a full
    opportunity to submit data, views, and arguments. We thus have ample
    authority under sections 205 and 208 of the Act to prescribe a
    tariffed access rate that BTI must charge in the future.

## BTI's Access Rates are Unjust and Unreasonable Under Section 201(b).

### Marketplace Data, Rather than BTI's Costs, Provide the Principal Tools for Assessing the Reasonableness of BTI's Access Rates.

17. The parties agree that we should assess the reasonableness of BTI's
    access rates by evaluating the market for access services, rather
    than by ascertaining BTI's costs of providing access services. [^54]
    The parties are correct, for at least two reasons.

18. First, the Commission has interpreted the Telecommunications Act of
    1996[^55] as directing the Commission to refrain -- whenever
    possible -- from applying to CLECs the legacy, cost-based
    regulations long applicable to the access services of ILECs.[^56]
    For example, the Commission has found that, in light of the 1996
    Act, "\[c\]ompetitive markets are superior mechanisms for protecting
    consumers" by ensuring that services are provided and priced in the
    most efficient possible manner.[^57] The Commission also has
    determined that reliance on competitive market forces "minimize\[s\]
    the potential that regulation will create and maintain distortions
    in the investment decisions of competitors as they enter local
    communications markets."[^58] As a result, the Commission has
    concluded that the policies and purposes of the 1996 Act demand a
    "market-based approach" to the regulation of access charges.[^59]
    Consequently, the Commission has chosen not to apply the historical
    ILEC rules and regulations to CLECs. [^60] Examining BTI's costs as
    the touchstone of the reasonableness of BTI's rates would contradict
    this trend towards reliance on market factors to dictate appropriate
    rates.

19. Second, given the Commission's decision not to apply to CLECs the
    accounting and separations rules applicable to ILECs, there would be
    substantial "legal and practical difficulties involved with
    comparing CLEC rates to any objective \[*i.e.*, cost-based\]
    standard of reasonableness."[^61] Moreover, precedent exists for
    examining the reasonableness of rates by means other than reviewing
    the costs of an individual CLEC.[^62]

20. Although the parties correctly agree that we should examine market
    factors rather than BTI's costs in determining whether BTI's access
    rates are just and reasonable, they differ as to the scope and
    nature of such examination. Complainants argue that, because of
    market failures in the access services market, the Commission should
    examine certain market statistics -- such as ILEC access rates,
    other CLECs' access rates, BTI's reciprocal compensation rates, and
    BTI's local and long distance rates -- to ascertain what BTI would
    have charged had the access market been truly competitive.[^63] BTI
    contends, on the other hand, that because the Commission has
    previously determined that CLECs lack market power, the Commission
    must essentially assume that BTI was free to charge whatever the
    market would bear, regardless of whether BTI's access rates exceeded
    the market indicia proffered by Complainants.[^64]

21. We agree with Complainants that we should examine certain market
    data to determine the reasonableness of BTI's access rates. Despite
    previous indications that market forces might constrain CLEC access
    rates, the Commission recently found that, in actuality, the market
    for access services is not structured in a manner that allows
    competition to discipline rates. [^65] Specifically, the Commission
    found that the originating and terminating access markets consist of
    a series of bottleneck monopolies over access to each individual end
    user.[^66] Once an end user decides to take service from a
    particular LEC, that LEC controls an essential component of the
    wireline system that provides interexchange calls, and it becomes a
    bottleneck for IXCs wishing to complete calls to, or carry calls
    from, that end user.[^67] Thus, with respect to access to their own
    end users, CLECs have just as much market power as ILECs.[^68] In
    addition, the Commission determined that "the combination of the
    market's failure to constrain CLEC access rates, the Commission's
    geographic rate averaging rules for IXCs, the absence of effective
    limits on CLEC rates and the tariff system created an arbitrage
    opportunity for CLECs to charge unreasonable access rates."[^69]

22. Given these competitive failures in the CLEC access market, we must
    decline BTI's invitation to take a *laissez faire* approach to its
    access rates. Because the CLEC access market is not truly
    competitive, we cannot simply assume that "whatever the market will
    bear" translates into a just and reasonable rate.[^70] Instead, to
    "correct" retroactively the market failures described above, we must
    examine market factors to try to ascertain whether BTI's rates were
    just and reasonable. If our examination of these factors reveals
    that BTI charged just and reasonable access rates, despite its
    market power, then we must deny Complainants' complaints. If our
    examination demonstrates otherwise, then we must invalidate those
    access rates and determine what reasonable access rates would have
    been for purposes of calculating damages.

### Rates for Services Using Comparable Network Functions are Appropriate Marketplace Data on Which to Assess the Reasonableness of BTI's Access Rates.

23. Complainants argue that comparing BTI's access rates to the rates
    charged by BTI and others for services using comparable network
    functions is an appropriate mechanism for determining whether BTI's
    access rates were and are just and reasonable pursuant to section
    201(b).[^71] We agree. The Commission has previously recognized that
    services offered under substantially similar circumstances using
    similar facilities lead to the expectation of similar charges.[^72]
    In addition, the Commission has frequently used rate comparisons,
    benchmarks, and non-cost factors to evaluate the justness and
    reasonableness of rates and to prescribe just and reasonable rates
    for regulated entities.[^73] Moreover, examining rates for services
    using comparable network functions is consistent with the
    Commission's *CLEC Access Charge Order*. [^74] In that order, the
    Commission compared existing CLEC access rates with what the rates
    likely would have been in a properly functioning competitive market,
    and prospectively limited CLEC's tariffed access rates in an effort
    to mimic the actions of a competitive marketplace.[^75]

24. We reject BTI's assertion that prior Commission orders or court
    decisions prohibit such comparisons.[^76] Our approach fully
    comports with the Commission's prior decisions to rely upon market
    forces and complaint proceedings to constrain and discipline CLEC
    access rates.[^77] In particular, in choosing not to regulate CLEC
    access rates, the Commission has previously concluded that, if it
    needed to examine the reasonableness of a CLEC's access rates in an
    individual complaint case, it could do so by taking into account all
    relevant factors, including relationships to other rates.[^78]
    Similarly, the Commission has acknowledged that an upward disparity
    between a CLEC's access rates and those charged by the ILEC serving
    the same market may suggest that the CLEC's access rates are
    excessive. [^79]

25. Moreover, the Commission has broad discretion in selecting methods
    to evaluate the reasonableness of rates.[^80] In fact, courts are
    "particularly deferential" when reviewing the Commission's
    evaluation of rates, because such agency action is far from an exact
    science and involves "policy determinations in which the agency is
    acknowledged to have expertise." [^81] As long as the Commission
    makes a "reasonable selection from the available alternatives," its
    selection of rate evaluation methods will be upheld, "even if the
    court thinks \[that\] a different decision would have been more
    reasonable or desirable."[^82]

26. Contrary to BTI's argument, we find that *Sprint v. MGC* [^83] does
    not require denial of Complainants' claims. [^84] In *Sprint v.
    MGC*, Sprint argued that MGC's tariffed access rates were unjust and
    unreasonable under section 201(b) *solely* because they exceeded the
    rates charged by the competing ILECs.[^85] The Commission denied
    Sprint's claim, because doing otherwise would have effectively
    established a *per se* requirement that CLEC access rates never
    exceed ILEC access rates.[^86]

27. Unlike in *Sprint v. MGC*, the competing ILEC rate is only one of
    several factors on which Complainants rely to assert that BTI's
    rates are unjust and unreasonable. These other factors include: (1)
    the rates charged by other ILECs operating outside of BTI's service
    areas; (2) BTI's rate to its end-user customers for competitive
    services such as local exchange and long distance; (3) access rates
    charged by other CLECs; and (4) the rate BTI accepts as compensation
    for the transport and termination of local exchange traffic.[^87]
    Thus, *Sprint v. MGC* is inapposite.

28. Moreover, we disagree with BTI that the *Permian Basin Area Rate
    Cases*[^88] limit the Commission's ability to use market benchmarks
    in assessing the justness and reasonableness of a purportedly
    market-based rate.[^89] To the contrary, this decision clearly
    demonstrates that there is no single regulatory formula required in
    assessing the justness and reasonableness of a carrier's rates.[^90]

29. We also disagree with BTI that *Beehive Telephone*[^91] and *IT&E
    Overseas*[^92] limit our ability to rely on rate comparisons to
    assess the validity of BTI's access rates.[^93] In *Beehive
    Telephone*, the Commission prescribed a carrier's rates using a
    methodology based on industry averages for comparable carriers.[^94]
    BTI mistakenly characterizes this holding as imposing rigid rules on
    the Commission's rate analysis. Rather than narrowing the
    Commission's flexibility, *Beehive Telephone* rests on the broad
    discretion that courts have afforded the Commission in \"selecting
    methods \... to make and oversee rates."[^95] Thus, *Beehive
    Telephone* reflects the understanding that federal agencies with
    ratemaking authority similar to the Commission's may establish a
    regulatory scheme that produces a "zone of reasonableness" for
    rates, rather than insisting upon a single method of determining
    whether rates are just and reasonable.[^96] In *IT&E Overseas,* the
    Commission declined to find that the rates of a price cap regulated
    LEC were unlawful merely because they differed from the rates of a
    rate-of-return regulated LEC participating in NECA's cost averaging
    pools.[^97] *IT&E Overseas* does not undermine our approach,
    however, because both of the ILECs involved in that case, unlike
    BTI, were subject to regulatory regimes that operated to constrain
    the carriers' access pricing and to prevent the carriers from
    misusing their monopoly power. Other than section 201(b), BTI is not
    subject to any such regulatory constraints.[^98]

30. Accordingly, we conclude that comparing BTI's access rates to the
    rates charged by BTI and others for services using comparable
    network functions is an appropriate mechanism for determining the
    justness and reasonableness of BTI's access rates under section
    201(b). We proceed to do so below.

#### BTI's Access Rate Greatly Exceeds ILECs' Access Rates.

31. The access rates charged by ILECs operating in BTI's service areas
    are a relevant benchmark, because ILEC switched access services are
    functionally equivalent to CLEC switched access services. In
    addition, according to fundamental economic principles, in a
    properly functioning competitive market, the access rates of BTI's
    primary access competitors would have been a substantial factor in
    BTI's setting of its own access rates.[^99] Indeed, in other
    markets, BTI's pricing behavior adhered to these principles. BTI's
    rates for its local exchange service were approximately 15 to 25
    percent below those of its primary competitors, BellSouth and
    GTE;[^100] and BTI's rates for long distance service were roughly
    the same as those of its primary IXC competitors.[^101]

32. Nevertheless, during all relevant times, BTI's access rate was
    significantly higher than the competing ILECs' rates. In July 2000,
    BTI's access rate of 7.1823 cents per minute was more than 15 times
    higher than BellSouth's average rate of approximately 0.48 cents per
    minute, [^102] and more than 7 times higher than GTE's average rate
    of approximately 1.0 cent per minute.[^103] In July 1999, BTI's
    access rate was more than 5 times higher than BellSouth's average
    rate of approximately 1.4 cents per minute, and more than 3.5 times
    higher than GTE's average rate of approximately 2.0 cents per
    minute.[^104] In July 1998, BTI's access rate was approximately 4.5
    times higher than BellSouth's average rate of approximately 1.6
    cents per minute, and more than 2.5 times higher than GTE's average
    rate of approximately 2.8 cents per minute.[^105]

33. BTI argues that comparing its access rates with the access rates of
    BellSouth and GTE yields irrelevant information, because those
    carriers' rates were set by price controls rather than market
    forces, and have different cost structures.[^106] We disagree.
    Although BellSouth's and GTE's access rates are subject to price cap
    regulation, those rates were, nevertheless, the prevailing market
    rates that BTI would have needed to consider in pricing its access
    services, had the access market been truly competitive.
    Consequently, even though they are regulated, BellSouth's and GTE's
    access rates provide guidance as to the reasonableness of BTI's
    access rates.

34. Comparing BTI's access rate to those of ILECs operating outside
    BTI's service areas also provides some guidance, because of the
    functional equivalence of access services nationwide.[^107] BTI's
    7.1823 cents per minute access rate is approximately 4 times higher
    than the 1998 industry average ILEC rate of 1.9 cents per minute,
    approximately 5 times higher than the 1999 industry average ILEC
    rate of 1.4 cents per minute, and approximately 8 times higher than
    the 2000 industry average ILEC rate of 0.96 cents per minute.[^108]
    In addition, BTI's own expert confirmed in a 1999 study that BTI's
    access rates exceeded industry average rates for ILECs in 1999. This
    study reports that the average of the access rates charged in 1999
    by the Regional Bell Operating Companies,[^109] GTE, and Sprint were
    less than 2 cents per minute, whereas BTI's access rates were almost
    4 times higher.[^110] This study further reports that the average
    access rate of all 1,435 ILECs nationwide in 1999 was in the range
    of 3 cents per minute, whereas BTI's access rates were more than
    twice as high.[^111]

#### BTI's Access Rate Exceeds the Access Rates of Many Other CLECs.

35. Comparing BTI's access rates to those of other CLECs provides
    further guidance regarding the reasonableness of BTI's rates, again,
    because of the functional equivalence of access services
    nationwide.[^112] Indeed, BTI has implicitly acknowledged the
    relevance of other CLECs' access rates, because BTI based its own
    rates solely on a survey of some other CLECs' rates.[^113]

36. According to BTI's own expert, BTI's access rates are considerably
    higher than the rates charged by many other CLECs. [^114] For
    example, of the 36 CLECs that BTI's expert surveyed in December
    2000, only five had access rates as high as BTI's.[^115] Moreover,
    BTI's expert determined that the average access rate of the 36 CLECs
    was 4.19293 and 4.18519 cents per minute for originating and
    terminating access, respectively, well below BTI's rate of 7.1823
    cents per minute for originating and terminating access.[^116]

#### The Differential Between BTI's Access Rate and Reciprocal Compensation Rate is Enormous, and Far Larger than BellSouth's Differential.

37. Complainants argue that we should consider BTI's reciprocal
    compensation rates in assessing the justness and reasonableness of
    BTI's access rates.[^117] Generally speaking, reciprocal
    compensation is the manner in which local exchange carriers
    operating in the same territory compensate each other for the
    transport and termination of a local call from a customer of one
    carrier to a customer of another carrier.[^118] The Commission has
    found that "the transport and termination of traffic, whether it
    originates locally or from a distant exchange, involves the same
    network functions."[^119] Therefore, in determining the
    reasonableness of BTI's access rates (*i.e.*, rates for transporting
    and terminating long distance traffic), it is relevant to compare
    them to BTI's reciprocal compensation rates (*i.e.*, rates for
    transporting and terminating local traffic).

38. We must assess this comparison differently from the other
    comparisons described above, however, and give it far less weight.
    Access rates and reciprocal compensation rates derive from
    substantially different regulatory regimes, with markedly different
    histories. As a result, even ILECs' present access rates lawfully
    and significantly exceed their reciprocal compensation rates
    (although, as historical subsidies in access rates diminish, the
    rates for local transport and termination services and for exchange
    access services should converge).[^120] Therefore, we cannot focus
    merely on whether BTI's access rates exceed its reciprocal
    compensation rates, but must examine the magnitude of such
    disparity, and whether it exceeds the disparity between the
    competing ILEC's access and reciprocal compensation rates.

39. Here, BTI's reciprocal compensation rate in 2000 was the same as
    BellSouth's reciprocal compensation rate -- less than 0.3 cents per
    minute -- far lower than BTI's access rate of 7.1823 cents per
    minute.[^121] Furthermore, in 2000, BTI's access rate was
    approximately 24 times higher than its reciprocal compensation rate,
    whereas BellSouth's access rate was only about 1.5 times higher than
    its reciprocal compensation rate.

40. BTI argues that its reciprocal compensation rate is not a fair basis
    for comparison, because its local transport and termination services
    and its exchange access services use different network
    functions.[^122] But BTI's evidence fails to demonstrate that its
    network is substantially different from most other carriers'
    networks, which, as described above, the Commission has found use
    essentially the same functions to provide these two services.[^123]
    BTI further argues that its decision to mirror BellSouth's
    reciprocal compensation rate was not an acknowledgement of the
    rate's reasonableness, but merely a pragmatic decision based on the
    regulatory cost of trying to seek a higher rate.[^124] This actually
    bolsters the usefulness of the reciprocal compensation rate as a
    benchmark, however, at least in the absence of record evidence that
    BTI anticipated a traffic imbalance that would diminish the appeal
    of seeking asymmetrical compensation. If the cost of trying to
    obtain a higher rate exceeded the benefit of doing so, then BTI
    likely viewed the ILEC's rate as being close to on the mark.

41. BTI further contends that, if we use its reciprocal compensation
    rate as a benchmark, we will effectively require ILEC access rates
    to equal ILEC reciprocal compensation rates. [^125] This contention
    mischaracterizes the nature of our comparison. As described above,
    we are not deeming relevant the mere existence of a rate
    differential, but rather examining the magnitude of the rate
    differential and comparing it to the competing ILEC's rate
    differential.

### BTI's Access Revenue-Sharing Practices Are Also Appropriate Marketplace Data on Which to Assess the Reasonableness of BTI's Access Rates.

42. Although BTI contends otherwise,[^126] the record indicates that BTI
    offered certain of its customers a cash payment or credit of up to
    24% of BTI's access revenues generated by the customers' toll
    traffic.[^127] BTI's ability to share such a large portion of its
    access revenues with its customers is relevant in determining
    whether the level of BTI's access rates was just and reasonable.

### The Foregoing Market Data Amply Indicate that BTI's Access Rates Were and Are Unjust and Unreasonable.

43. As described above, BTI's access rates greatly exceeded each
    relevant market benchmark during the applicable period, and BTI has
    failed to demonstrate any lawful reason for the huge disparities.
    First, BTI's access rates substantially exceeded its ILEC
    competitors' rates; and BTI has not demonstrated (1) any legitimate
    reason why it should escape the general economic principle that a
    new entrant's rates should not significantly exceed those of a
    primary incumbent; or (2) any material difference in its service
    offering, network architecture, or service quality that would
    explain such a rate differential. Second, BTI's access rates
    substantially exceeded both ILEC and CLEC industry averages; and BTI
    again has not demonstrated any material differences in its service
    offering, network architecture, or service quality that would
    explain such a rate differential. Third, BTI met or beat the rates
    of its competitors in the local exchange and long distance markets,
    but greatly exceeded the rates of its competitors in the access
    market; and BTI has proffered no legitimate explanation for its
    disparate pricing policies across markets. Fourth, BTI shared with
    certain of its customers up to 24% of the access revenues generated
    by the customers' toll traffic; and BTI has not explained how
    revenues from a truly reasonable access charge could profitably
    permit such arrangements. Finally, the differential between BTI's
    access rates and its reciprocal compensation rates was enormous --
    and far greater than BellSouth's differential; yet BTI has not
    demonstrated any material differences in its network functions,
    network architecture, or service quality that would explain such
    disparities.

44. All of these factors confirm what the Commission concluded in the
    *CLEC Access Charge Order* -- that the access market in which BTI
    participates is not truly competitive, and that CLECs, such as BTI,
    possess market power with respect to access to their end
    users.[^128] These factors also clearly reveal that the level of
    BTI's access rates derives from abuse of such market power.
    Consequently, we find that, taken together as a whole, these factors
    clearly demonstrate that BTI's access rate of 7.1823 cents per
    minute was and is unjust and unreasonable under section 201(b).

### BTI's "Cost Showing" Does Not Justify Its Access Rates.

45. For the reasons described above, we agree with the parties that we
    should examine marketplace factors, rather than BTI's costs, to
    determine whether BTI's rate was and is just and reasonable.[^129]
    BTI argues, however, that if we decline to adopt its version of a
    marketplace analysis, *i.e.*, whatever the market would bear was
    reasonable, then we must examine BTI's costs, after all.[^130] As
    described above, we reject BTI's version of a marketplace analysis,
    but we do not believe that an examination of BTI's costs is either
    necessary or appropriate. However, even if such an examination were
    deemed necessary or appropriate, we would find with little
    difficulty that BTI's attempt to justify its rates on the basis of
    costs fails, for the reasons described below.

46. Before addressing BTI's cost-based defense, we reject BTI's
    contention that, as the parties seeking relief in this proceeding,
    Complainants bear the burden of showing that BTI's costs did *not*
    justify its rates, rather than BTI bearing the burden of showing
    that its costs *did* justify its rates.[^131] Because BTI had
    exclusive possession of the information needed to assess its own
    costs,[^132] and BTI pled cost-justification as an affirmative
    defense,[^133] BTI bears the burden of proving the cost-basis of its
    access rates.[^134]

47. To shoulder this burden, BTI submitted a "cost showing."[^135] As an
    initial matter, we view BTI's cost showing with substantial
    skepticism, for several reasons. First, despite full knowledge of
    the exigencies created by the five-month statutory deadline
    applicable to these kinds of complaints, BTI repeatedly failed to
    comply with our rules regarding production of supporting
    information,[^136] and repeatedly failed to comply in a timely
    manner with Commission staff's discovery rulings.[^137] Second,
    BTI's pricing practices for long distance services belie the
    assertion that its access services are cost-based. [^138] Third, BTI
    offered certain of its customers a credit of up to 24% of BTI's
    access revenues generated by the customer's toll traffic.[^139]
    BTI's ability to essentially share such a large portion of its
    access revenues with its customers further undermines the assertion
    that BTI's access rates were cost-based. Finally, because BTI admits
    that it did not examine its costs when it set its access rates in
    July 1998, it would appear to be a remarkable coincidence -- but
    nothing more -- if BTI were able to generate a cost analysis three
    years after the fact that justifies the previously selected rate.

48. In any event, BTI's cost justification is so riddled with conceptual
    flaws and factual errors as to be of minimal evidentiary value in
    assessing the cost basis of BTI's access rates. Although these
    deficiencies are too numerous to discuss in detail, the following
    examples demonstrate their egregious nature.[^140] BTI's purported
    switching expert, who admitted under oath that he was not an expert
    on switching,[^141] failed to consider a number of relevant factors
    in assessing BTI's ability to utilize its switches
    efficiently.[^142] He omitted such basic criteria as the actual cost
    for each of BTI's switches. In addition, BTI's capital costs
    analysis included a number of significant errors. For example, in
    calculating the cost of the debt component of BTI's capital
    structure, BTI's expert used the wrong interest rate for a \$250
    million bond offering.[^143] When this error alone was corrected,
    BTI's expert's calculation of the cost of capital was reduced from
    25 percent to approximately 18 percent.[^144] Likewise, BTI's
    experts included BTI's marketing and advertising expenses, which
    accounted for 50 percent of BTI's common costs,[^145] in their
    estimate of common costs that could be recovered through access
    services, without determining whether BTI expended any marketing
    expenses for access services.[^146] During discovery, BTI's own
    expert conceded that including costs not attributable to a specific
    service in the rates for such service was an improper
    attribution.[^147]

49. Nevertheless, even when viewed in the light most favorable to BTI,
    its cost showing, as described by its own expert, demonstrates, at
    best, that BTI's access costs "*may"* be "higher than the access
    charge costs of large ILECs," and that BTI's access costs "are more
    likely to approach those of smaller" ILECs.[^148] Thus, there is
    hardly any record basis to conclude that BTI's costs exceeded those
    of its ILEC competitors at all, much less that such disparity
    justified an access rate 15 times greater than that of the competing
    ILEC.[^149] Indeed, although the fundamental purpose of the cost
    showing was to demonstrate the cost justification of BTI's access
    rates, neither of BTI's experts ever stated unequivocally -- in
    either their affidavits or their depositions -- that BTI's costs
    justified its access rate of 7.1823 cents per minute.[^150]

50. In sum, we find that BTI's cost showing, even when reviewed in the
    light most favorable to BTI, does little more than suggest that
    BTI's access costs *might* exceed those of BellSouth or GTE by some
    indeterminate, small amount. Thus, we conclude that, even if it were
    relevant, BTI's cost showing would fall far short of cost-justifying
    its access rate of over 7 cents per minute.

### AT&T Is Not Estopped From Challenging BTI's Access Rates.

51. BTI asserts as an affirmative defense that we should equitably estop
    AT&T from challenging BTI's access rates because ACC Corp. ("ACC"),
    AT&T's wholly owned CLEC subsidiary, allegedly charges even higher
    access rates than BTI.[^151] In support of this affirmative defense
    of equitable estoppel,[^152] BTI contends that ACC charges exchange
    access rates of nearly 9 cents per minute to IXCs other than
    AT&T.[^153]

52. We conclude that BTI's estoppel argument fails as a matter of law.
    BTI did not properly plead the essential elements of estoppel in its
    Amended Answer.[^154] The Commission has repeatedly held that, in
    order to invoke equitable estoppel to preclude a party from
    asserting a right he would otherwise possess, but has forfeited
    because of his conduct, "\[t\]he aggrieved party must have
    justifiably *relied* upon such conduct and *changed* his position so
    that he will suffer injury if the other is allowed to repudiate his
    conduct."[^155] BTI made no such showing in either its Amended
    Answer or its briefs. Thus, the record is devoid of evidence that
    BTI relied upon AT&T's or ACC's conduct in any way in setting its
    access rates or that, because of AT&T's or ACC's actions, BTI
    changed its behavior in a manner that caused it harm.

## The Lawful Per-Minute Access Rate for Purposes of Calculating Damages Ranges From 3.8 Cents to 2.7 Cents During the Relevant Period.

53. We conclude above that BTI's access rate of 7.1823 cents per minute
    was and is unjust and unreasonable under section 201(b) of the Act.
    Consequently, we must determine what a reasonable rate would have
    been during the relevant period so that the court may calculate
    Complainants' damages arising from BTI's violation of section
    201(b). In this regard, we note that neither side has provided much
    in the way of useful guidance on what a reasonable rate would have
    been. In particular, BTI has contented itself with bald assertions
    that, because its rate appeared in a filed tariff, the rate was
    necessarily reasonable. BTI has failed to include in the record any
    factors or useful analogies that could guide our consideration of
    what rate other than 7.1823 cents per minute would have been a
    reasonable rate during the time period at issue. On the other hand,
    the Complainants have restricted themselves to asserting that the
    competing ILEC rate is the only alternative for a reasonable rate.
    These record deficiencies, combined with the absence of clear CLEC
    access pricing rules during the relevant period, make the task of
    establishing a specific benchmark rate for calculating damages a
    challenging one.

54. We recently determined in the *CLEC Access Order* that, in a
    properly functioning competitive market, CLECs would charge no more
    for their access services than do the ILECs with which they compete.
    Nevertheless, because of the lack of clear regulatory guidance on
    the pricing issue, and because of concerns about industry
    dislocations resulting from a flash-cut to the ILEC rate, the
    Commission established a declining benchmark to define the
    reasonableness of CLEC rates in the future.[^156] The lack of clear
    rules to guide previous CLEC access rates similarly motivates us
    here -- in seeking to achieve fairness in hindsight -- to adopt as
    reasonable a rate somewhat above that charged by the competing ILEC
    during the relevant period.[^157]

55. To determine the level of that rate, and faced with the gaping holes
    in this record, we find substantial guidance in the *CLEC Access
    Charge Order*'s determination that, for a year after its issuance, a
    rate of up to 2.5 cents per minute will be presumptively reasonable
    for CLEC access.[^158] Nothing in this record indicates that the
    considerations bearing on rate reasonableness during the
    retrospective period at issue here were markedly different from the
    circumstances the Commission considered in setting prospective
    tariff benchmarks. Thus, the record in this proceeding provides no
    basis for concluding that a reasonable rate for the damages period
    should diverge greatly from 2.5 cents per minute. We note, however,
    that during the three-year period at issue in this proceeding,
    access rates generally declined due to a variety of Commission
    initiatives.[^159] Accordingly, we conclude that a reasonable access
    rate for BTI to have charged back in 1998, 1999, and 2000, should be
    at least marginally higher than the 2.5 cents that we have
    determined to be reasonable prospectively.

56. Here again, the record provides little guidance in determining the
    level of this marginal difference. To determine the path that BTI's
    reasonable rate should have followed, therefore, we look to the
    rates of the only alternative category of carriers that the record
    provides any basis for viewing as even arguably similar to BTI. In a
    context unrelated to damages, BTI argued that it somewhat resembles
    a small ILEC.[^160] The record demonstrates that BTI had about
    125,000 access lines, scattered throughout approximately 12 urban or
    concentrated areas, and lacked the resources of larger ILECs. [^161]
    Based on this evidence, which is all the record provides on point,
    we conclude that, although the "fit" is far from exact, BTI bears at
    least some resemblance to a small, urban ILEC, given its size,
    business operations, and service areas.

57. Many such small ILECs operating in concentrated areas participate in
    the National Exchange Carriers Association ("NECA") tariffs, and
    they generally fit into the lowest rate band in NECA's tariff.[^162]
    Therefore, although BTI did not and does not qualify to participate
    in NECA tariffs, in the absence of any record evidence suggesting an
    alternative damages methodology consistent with our liability
    finding, and in light of the fact that the five-month statutory
    deadline precludes a supplemental briefing period, we find that the
    changes in these low-band NECA rates over the past three years is
    instructive on the question of how a reasonable rate for BTI should
    have declined over the same period.

58. In 1998, 1999, and 2000, the lowest NECA rate band for access
    services was approximately 3.8, 3.0, and 2.7 cents per minute,
    respectively.[^163] We note that this declining path provides a
    final rate that is very close to the 2.5 cents per minute that is
    deemed reasonable on a prospective basis in the *CLEC Access Charge
    Order*. Accordingly, solely for purposes of calculating damages in
    this proceeding, we find that the just and reasonable rates for both
    originating and terminating access services during the relevant time
    period are as follows:[^164]

-   July 1, 1998 through June 30, 1999 3.8 cents per minute

-   July 1, 1999 through June 30, 2000 3.0 cents per minute

-   July 1, 2000 through the release date 2.7 cents per minute

    of this order.[^165]

59. We emphasize, however, that this tool for calculating damages here
    should not be taken as a finding, as a general matter, that CLECs
    are similar to low-band NECA carriers or that such NECA rates would
    be appropriate on a prospective basis. To the contrary, the *CLEC
    Access Charge Order* determined, based on a full record and numerous
    competing considerations, what presumptively reasonable CLEC access
    rates will be in the future. We adopt the proxy of low-band NECA
    carriers here only for the purpose of defining the retrospective
    path that BTI's reasonable rate should have followed, given the
    dearth of record information on the question.

## AT&T Is Not Entitled to Additional Relief Under Section 254(k) of the Act.

60. AT&T argues that BTI violated section 254(k) of the Act by using the
    revenues derived from its high access rates to cross-subsidize BTI's
    efforts to compete in the provision of local and long distance
    services.[^166] AT&T contends that this cross-subsidization is
    evidenced by the enormous disparity between (1) the high level of
    BTI's access rates in relation to the rates of competing access
    providers, and (2) the low level of BTI's rates for competitive
    local and long distance services in relation to the rates of
    competing local and long distance service providers.[^167] AT&T
    further contends that BTI's calling plans that use the revenues
    earned by BTI's provision of access service to lower the price of
    BTI's competitive services to its end users are an explicit
    cross-subsidy.[^168] In response, BTI contends that AT&T's claim
    fails as a matter of law, because the exchange access market is
    "competitive" within the meaning of section 254(k), and the
    Commission has never found otherwise.[^169] BTI further argues that
    there is no evidence that its rates for competitive services are at
    below-cost levels, or that BTI actually used revenues from its
    access services to offset the costs of its other services.[^170]

61. BTI is subject to section 254(k)'s prohibition against
    cross-subsidization.[^171] However, in light of our ruling in Part
    III C. above, which effectively reduces BTI's access rate by
    approximately half during the entire period at issue, AT&T's claim
    for relief under section 254(k) fails for insufficient evidence. In
    particular, although AT&T submitted evidence that might have
    supported a conclusion that revenues derived from an access rate of
    over 7 cents per minute subsidized BTI\'s competitive services, such
    evidence does not support a conclusion that revenues derived from an
    access rate of approximately half of BTI's rate would have been
    sufficient to do so. Therefore, by limiting BTI's ability to recover
    access revenues from AT&T to the lower rates specified herein, AT&T
    has received all of the monetary relief to which it is entitled on
    this record. Accordingly, we decline to provide what would be merely
    an advisory opinion on the lawfulness of BTI's conduct under section
    254(k). Therefore, we deny AT&T's claim under section 254(k).

# Ordering Clauses

62. Accordingly, IT IS ORDERED, pursuant to sections 4(i), 4(j), 201(b),
    and 208 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 154(j), 201(b), and 208, that Count I of AT&T's Second
    Amended Complaint and Counts I, II, and III of Sprint's Complaint
    ARE GRANTED as against defendant BTI to the extent described herein,
    and are in all other respects DENIED.

63. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j), 208, and
    254(k) of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 154(j), 208, and 254(k), that Count II of AT&T's Second
    Amended Complaint IS DENIED as against defendant BTI.

64. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j), 201(b), and
    208 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 154(j), 201(b), and 208, that BTI's tariffed switched access
    rate per minute as specified in paragraph 4, *supra*, WAS AND IS
    UNJUST AND UNREASONABLE in violation of section 201(b) of the
    Communications Act.

65. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j), 201(b), 207,
    208, and 209 of the Communications Act of 1934, as amended, 47
    U.S.C. §§ 154(i), 154(j), 201(b), 207, 208, and 209, that BTI's
    tariffed switched access rate per minute for access services, for
    purposes of calculating damages during the relevant time period, are
    the rates specified in paragraph 58, *supra*.

66. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(j), and 208 of
    the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i),154(j), and 208, and section 1.115 of the Commission's rules,
    47 C.F.R. § 1.115, that BTI's Motion to Dismiss and Application for
    Review are DISMISSED AS MOOT.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Magalie Roman Salas
>
> Secretary

**DISSENTING STATEMENT OF**

**COMMISSIONER HAROLD FURCHTGOTT-ROTH**

# *Re: AT&T Corp. v. Business Telecom, Inc.; Sprint Communications Company, L.P. v. Business Telecom, Inc.*, Memorandum Opinion and Order, File Nos. EB 01-MD-001 & EB-01-MD-002. {#re-att-corp.-v.-business-telecom-inc.-sprint-communications-company-l.p.-v.-business-telecom-inc.-memorandum-opinion-and-order-file-nos.-eb-01-md-001-eb-01-md-002. .unnumbered}

Until April of 2001, the Commission had no rules in effect governing
CLEC access charges. Instead, the Commission explicitly stated that such
charges should be set by the market. *See*, *e.g.*, *Access Charge
Reform*, First Report and Order, 12 FCC Rcd 15982, ¶ 361 (1997); *see
also* Order ¶ 18. Nevertheless, in today's order, the Commission holds
that for a period of time between 1998 and 2000, the access charges
assessed by Business Telecom, Inc. ("BTI") were "unjust and unreasonable
under section 201(b)" of the Communications Act of 1934. Order ¶ 1. The
Commission comes to this conclusion through a purported "market-based"
approach -- an approach that largely ignores the actual market for
exchange access, but instead looks at particular, mostly regulated rates
in other markets -- to determine how BTI should have priced its access
charges were market failures in the access charge market "correct\[ed\]
retroactively." Order ¶ 22 (internal quotation marks omitted). The
Commission then holds that BTI is liable for roughly the difference
between its rates and what it should have charged in a properly
functioning market. *See* Order ¶ 53. I respectfully dissent.

First, the Commission's purported "market-based" approach has no basis
in law or logic. Rather than look at the actual rates set in the access
charge market, the Commission looks at isolated examples of other rates
for other services, most of which are set by regulation, to determine
how the market should have set access charge rates. This methodology is,
on its face, in direct conflict with the very idea of market-based
rates.

Second, the Commission failed to provide BTI any notice that its access
charges would be retroactively judged according to the standard
announced in this order. To the contrary, the Commission invited BTI and
other CLECs to use the market to set rates, an invitation that
necessarily sanctioned the use of any rate-setting methodology, or,
indeed, no methodology at all. Moreover, to add insult to injury, the
particular rate-setting methodology adopted here -- which refuses to
examine BTI's costs (order ¶ 44) -- is directly at odds with the
Commission's decision in *Sprint Communications Company, L.P. v. MGC
Communications, Inc.*, Memorandum Opinion and Order, 15 FCC Rcd. 14027
(2000). In that decision, the Commission held that CLEC access charges
higher than ILEC charges are not necessarily unreasonable, in part,
because "a review of the reasonableness of a CLEC's rates \[may\]
depend\[\] on a carrier-specific review of the costs of providing
service." *Id.* ¶ 6.

This failure to provide BTI any notice of the rate-setting standard that
would govern its liability retroactively renders the Commission's order
legally suspect at best. Indeed, I am unaware of *any* decision in the
history of the Commission in which damages were awarded for unreasonable
rates when there were in effect *no rules governing how rates should be
set*. Accordingly, I dissent.

[^1]: Second Amended Complaint of AT&T Corp., AT&T Corp. v. Business
    Telecom, Inc., File No. EB-01-MD-001 (filed Jan. 29, 2001) ("AT&T
    Second Amended Complaint"); Complaint of Sprint Communications
    Company, L.P., Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed Jan. 16, 2001) ("Sprint
    Complaint").

[^2]: 47 U.S.C. § 208.

[^3]: 47 U.S.C. § 201(b).

[^4]: 47 U.S.C. § 254(k).

[^5]: Second Consolidated Joint Statement of Stipulated Facts, Disputed
    Facts, and Key Legal Issues of AT&T Corp., Sprint Communications
    Company, L.P., and Business Telecom, Inc.*,* AT&T Corp. v. Business
    Telecom, Inc., File No. EB-01-MD-001 and Sprint Communications
    Company, L.P. v. Business Telecom, Inc., File No. EB-01-MD-002
    (filed Mar. 12, 2001) ("Joint Statement"), at ¶¶ 7-8.

[^6]: Joint Statement at ¶ 10.

[^7]: Joint Appendix, AT&T Corp. v. Business Telecom, Inc., File No.
    EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed Mar. 26, 2001) ("Joint
    Appendix"), at Exhibit 3, Deposition of Sean Pflaging at 45
    ("Pflaging Deposition").

[^8]: Opening Brief of AT&T Corp., AT&T Corp. v. Business Telecom, Inc.,
    File No. EB-01-MD-001 and Sprint Communications Company, L.P. v.
    Business Telecom, Inc., File No. EB-01-MD-002, (filed Mar. 26, 2001)
    ("AT&T Opening Brief"), at Exhibit 12, Business Telecom Inc.'s
    November 11, 2000 SEC Form 10-Q.

[^9]: Joint Statement at ¶ 15. GTE merged with Bell Atlantic Telephone
    Companies in June 2000, and the successor entity is now known as
    Verizon, Inc.

[^10]: Joint Statement at ¶ 11.

[^11]: *Id.*

[^12]: Joint Appendix, at Exhibit 4, Deposition of Jean Houck at 21-22
    ("Houck Deposition"). *See* Joint Statement at ¶ 13.

[^13]: BTI's access rate is the sum of its local switching charge per
    minute of use (\$0.063) and its transport charge per minute of use
    (\$0.0084), for a total of \$0.0714 per minute, plus a charge of
    \$0.000423 per minute per mile for transport mileage (the total rate
    in the text above is based on one mile of transport mileage). BTI
    also charges, where appropriate, an 800 database per query charge
    (\$0.0079). Joint Statement at ¶¶ 19-20.

[^14]: Joint Statement at ¶ 23. BTI contends that it did not have the
    resources to conduct any financial analyses, cost models, or cost
    studies. *See* Joint Appendix, at Exhibit 3, Pflaging Deposition at
    129.

[^15]: Joint Statement at ¶ 24.

[^16]: Joint Statement at ¶¶ 17-18.

[^17]: Joint Statement at ¶¶ 35-36, 54.

[^18]: Joint Statement at ¶ 53.

[^19]: AT&T Second Amended Complaint, ¶¶ 4, 14-18; Sprint Complaint, ¶¶
    9-10.

[^20]: *Advamtel LLC, et al., v. AT&T Corp*., 105 F. Supp.2d 507 (E.D.
    Va. 2000); *Advamtel LLC, et al., v. Sprint Communications Company,
    L.P.*, 105 F. Supp.2d 476 (E.D. Va. 2000); Joint Statement at ¶ 1.

[^21]: *Advamtel, LLC, et al. v. AT&T Corp*., Civil Action No. 00-643
    (E.D. Va. Jan. 5, 2000); *Advamtel, LLC, et al. v. Sprint
    Communications Company, L.P.,* Civil Action No. 00-1074-A (E.D. Va.
    Jan. 5, 2000).

[^22]: Joint Statement at ¶ 2. Section 201(b) of the Act provides, in
    pertinent part: "All charges, practices, classifications, and
    regulations for and in connection with such communication service,
    shall be just and reasonable, and any such charge, practice,
    classification, or regulation that is unjust or unreasonable is
    hereby declared to be unlawful . . .." 47 U.S.C. § 201(b).

[^23]: AT&T Opening Brief, at Exhibit 57, Counterclaim IV of Answer to
    Second Amended Complaint and Counterclaims of AT&T Corp., *Advamtel,
    LLC, et al. v. AT&T Corp.*, Civil Action No. 00-643 (filed Aug. 18,
    2000); *Advamtel. v. AT&T Corp.*, 105 F. Supp.2d at 510.

[^24]: *Advamtel v. AT&T*, 105 F. Supp.2d at 515; *Advamtel v. Sprint*,
    105 F. Supp.2d at 483.

[^25]: *Advamtel v. AT&T*, 105 F. Supp.2d at 511-12; *Advamtel v.
    Sprint*, 105 F. Supp.2d at 481.

[^26]: *Advamtel v. AT&T*, 105 F. Supp.2d at 511-12; Joint Statement at
    ¶ 3. Subsequently, on January 5, 2001, the court referred two
    additional issues to the Commission under the doctrine of primary
    jurisdiction. *Advamtel LLC, et al. v. Sprint Communications
    Company, L.P.*, 125 F. Supp.2d 800 (E.D. Va. 2001). Pursuant to this
    latter referral, Complainants filed with the Commission two
    Petitions for Declaratory Ruling regarding the following issues: (1)
    whether any statutory or regulatory constraints prevent an IXC from
    declining access services, or from terminating access services
    previously ordered or constructively ordered; and if not, (2) what
    steps must IXCs take either to avoid ordering access service or to
    cancel service after it has been ordered or constructively ordered.
    *AT&T and Sprint File Petitions for Declaratory Ruling on CLEC
    Access Charge Issues*, CCB/CPD File No. 01-02, Public Notice,
    DA-01-301, 2001 WL 92220 (Com. Car. Bur. Feb. 5, 2001) (establishing
    a public comment period ending on March 2, 2001).

[^27]: Joint Statement at ¶ 4. *See* Letter from Anthony J. DeLaurentis,
    Attorney, Market Disputes Resolution Division, Enforcement Bureau,
    to James Bendernagel, Counsel for AT&T; Jonathan E. Canis, Counsel
    for BTI; and Cheryl A. Tritt, Counsel for Sprint, AT&T Corp. v.
    Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002 (dated Feb. 15, 2001). To effectuate further the
    court's referrals, both AT&T and Sprint filed informal complaints
    against all of the other CLECs remaining in the *Advamtel
    Litigation* pursuant to sections 1.716-18 of the Commission's rules.
    47 C.F.R. §§ 1.716-18.

[^28]: AT&T Second Amended Complaint, ¶¶ 3, 5-6, 20-35; Sprint
    Complaint, ¶ 2, 12-23. This claim appears in Counts I, II, and III
    of Sprint's Complaint, which we consider collectively rather than
    individually, and in Count I of AT&T's Second Amended Complaint.

[^29]: AT&T Second Amended Complaint, ¶¶ 36-42. Complainants request
    that the Commission (1) declare that BTI's access rates were and are
    unjust and unreasonable; (2) determine the lawful rate for the
    disputed past period for purposes of calculating damages; (3)
    prescribe a just and reasonable rate going forward; and (4) require
    BTI to revise its tariff to lower its access charges to such
    prescribed level. Complainants also request damages in an amount to
    be determined in a supplemental damages proceeding. AT&T Second
    Amended Complaint, Prayer for Relief ¶¶ 1-5; Sprint Complaint, ¶¶
    25-26.

[^30]: BTI included some of these arguments -- as well as others -- in a
    motion to dismiss. Motion to Dismiss of Business Telecom, Inc., AT&T
    Corp. v. Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002 (filed Mar. 8, 2001). Because we address in this Order
    all of the arguments made by BTI in its Motion to Dismiss, we
    dismiss the Motion as moot.

[^31]: Initial Brief of Business Telecom, Inc., AT&T Corp. v. Business
    Telecom, Inc., File No. EB-01-MD-001 and Sprint Communications
    Company, L.P. v. Business Telecom, Inc., File No. EB-01-MD-002
    (filed Mar. 26, 2001) ("BTI Initial Brief"), at 6-7.

[^32]: BTI Initial Brief at 6-10, 13. *See generally* *Implementation of
    Section 402(b)(1)(A) of the Telecommunications Act of 1996*, Report
    and Order, 12 FCC Rcd 2170, 2181-82 (1997) ("*Section 402 Order*").

[^33]: *See, e.g.*, *Arizona Grocery Co. v. Atchison, T. & S. Ry. Co.,
    et al.*, 284 U.S. 370 (1932) (holding that damages relating to
    tariffed charges are recoverable if the tariffed rate is proven to
    be unreasonable) ("*Arizona Grocery")*; *Access Charge Reform*,
    Seventh Report and Order and Further Notice of Proposed Rulemaking,
    FCC No. 01-146, 2001 WL 431685, ¶ 21 (rel. Apr. 27, 2001) ("*CLEC
    Access Charge Order*"); *New Valley Corp. v. Pacific Bell*,
    Memorandum Opinion and Order, 15 FCC Rcd 5128, 5133 (2000) ("*New
    Valley Corp. v. Pacific Bell"*); *Halprin, Temple, Goodman & Sugrue
    v. MCI Telecommunications Corporation, et al.*, Memorandum Opinion
    and Order, 13 FCC Rcd 22568, 22573 (1998) ("*Halprin Order*"),
    *recon. denied,* 14 FCC Rcd 21092 (1999); *Hyperion
    Telecommunications, Inc. Petition for Forebearance,* Memorandum
    Opinion and Order, 12 FCC Rcd 8596, 8609 (1997) ("*Hyperion
    Order*"); *Section 402 Order*, 12 FCC Rcd at 2182; *Communications
    Satellite Corporation*, Memorandum Opinion and Order, 3 FCC Rcd
    2643, 2647 (1988); *National Exchange Carrier Association, Inc.*,
    Memorandum Opinion and Order, 2 FCC Rcd 3679, at ¶ 5 (1987).

[^34]: Despite its argument to the contrary, BTI admits in its Amended
    Answer to Sprint's Complaint that, even as a non-dominant carrier,
    its rates are subject to section 201(b), and that its tariffs may be
    challenged under section 208 of the Communications Act. Amended
    Answer of Business Telecom, Inc. to Sprint Complaint, Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002 (filed Feb. 14, 2000), at ¶ 11.

[^35]: BTI Initial Brief at 60-62; Consolidated Reply Brief of Business
    Telecom, Inc., AT&T Corp. v. Business Telecom, Inc., File No.
    EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed Apr. 2, 2001) ("BTI
    Reply Brief"), at 54-57.

[^36]: BTI Reply Brief at 55-56. Section 205 of the Act provides, in
    pertinent part: "\[T\]he Commission is authorized and empowered to
    determine and prescribe what will be the just and reasonable charge
    or the maximum or minimum, or maximum and minimum, charge or charges
    to be thereafter observed . . . ." 47 U.S.C. § 205.

[^37]: 47 U.S.C. §§ 207-09. Hence, BTI's reliance on *Illinois Bell
    Telephone Co. v. FCC*, 966 F.2d 1478 (D.C. Cir. 1992) is misplaced.
    BTI Reply Brief at 55. In *Illinois Bell*, the Court held that,
    absent a pre-existing tariff suspension order, the Commission lacks
    authority *under sections 204 and 205* of the Act to invalidate a
    tariffed rate and direct the carrier to pay refunds to its customers
    based on the difference between the tariffed rate and a newly
    prescribed, reasonable rate. The Commission had not acted under ---
    and the court therefore did not address --- the Commission\'s
    damage-awarding authority under sections 207 -- 209 of the Act.
    Accordingly, as the Commission has repeatedly ruled, sections 204
    and 205 of the Act do not preclude the Commission from awarding
    damages under sections 207 -- 209 of the Act arising from a
    carrier\'s unreasonable tariffed rates. *See, e.g.*, *AT&T v.
    Telephone Utilities Exchange Carrier Association*, Memorandum
    Opinion and Order, 10 FCC Rcd 8405, 8414-15 (1995) (emphasizing that
    actions brought under section 208 are different from those brought
    under sections 204-205); *Complaints Alleging Violations of Section
    208 of the Commission's Rate of Return Prescription for the 1989-90
    Monitoring Period*, Memorandum Opinion and Order, 10 FCC Rcd 3657,
    3664-65 (1994).

[^38]: 47 U.S.C. § 208(b)(1).

[^39]: 47 U.S.C. §207 (stating, in pertinent part, that "\[a\]ny person
    claiming to be damaged by any common carrier subject to the
    provisions of this Act may make . . . *complaint to the Commission*
    as hereinafter provided for . . . .") (emphasis added).

[^40]: 47 U.S.C. § 209.

[^41]: *Section 402 Order*, 15 FCC Rcd at 2183. *See also* footnote
    Error: Reference source not found, *supra*.

[^42]: *New Valley Corp. v. Pacific Bell*, 15 FCC Rcd at 5133.

[^43]: *See Access Charge Reform*, First Report and Order, 12 FCC Rcd
    15982, 16141, at ¶ 363 (1997) ("*Access Charge Reform Order*");
    *Hyperion Order*, 12 FCC Rcd at 8597, ¶ 2, 8609, ¶ 25. Thus, BTI had
    ample notice that there was an outside limit on the level of access
    rates that it could lawfully charge without risking the imposition
    of damages in a complaint proceeding.

[^44]: *Global NAPs v. Federal Communications Commission, et al.*, 247
    F.3d 252, 2001 WL 427607, at \*7 (D.C. Cir. 2001).

[^45]: *Global Naps v.* FCC, 247 F.3d 252, 2001 WL 427607, at \*7. *See
    Hi-Tech Furnace Systems, Inc. v. FCC*, 224 F.3d 781, 786 (D.C. Cir.
    2000) (stating that section 208 enables the Commission, upon
    complaint by an injured party, to adjudicate the lawfulness of a
    carrier's past and present rates). *See also ACC Long Distance Corp.
    v. New York Tel. Co.*, Memorandum Opinion and Order, 9 FCC Rcd 1659,
    1661-1662, at ¶ 11 (1994); *Allnet Communication Services, Inc. v. U
    S West, Inc.*, Memorandum Opinion and Order, 8 FCC Rcd 3017,
    3021-3022, at ¶¶ 22-24 (1993).

[^46]: *See, e.g.*, *Arizona Grocery*, *supra*; *CLEC Access Charge
    Order*, 2001 WL 431685, ¶ 21; *New Valley Corp. v. Pacific Bell*, 15
    FCC Rcd at 5133; *Halprin Order*, 13 FCC Rcd at 22573; *Access
    Charge Reform Order*, 12 FCC Rcd at 16141; *Hyperion Order*, 12 FCC
    Rcd at 8609; *Section 402 Order*, 12 FCC Rcd at 2182;
    *Communications Satellite Corporation*, 3 FCC Rcd at 2647; *National
    Exchange Carrier Association, Inc.*, 2 FCC Rcd at 3679.

[^47]: BTI Initial Brief at 58-60; BTI Reply Brief at 34-37.

[^48]: 47 U.S.C. § 205 (emphasis added).

[^49]: BTI Reply Brief at 34.

[^50]: *Id.*

[^51]: *See generally United States, et al. v. Florida East Coast
    Railway, Co.* 410 U.S. 224, 239 (1973) (finding that a similar
    hearing requirement in the Interstate Commerce Act did not trigger
    the detailed oral hearing requirements of sections 556 and 557 of
    the APA; *AT&T v. FCC*, 572 F.2d 17, 22 (2d Cir. 1978), *cert.
    denied*, 439 U.S. 875 (1978); *American Telephone and Telegraph Co.
    Wide Area Telecommunications Services*, Memorandum Opinion and
    Order, 67 FCC 2d 246, 248, at ¶ 5 (1977) (stating that section 205
    requirements can be met via a paper hearing); *Implementation of the
    Non-Accounting Safeguards of Sections 271 and 272 of the
    Communications Act of 1934*, Notice of Proposed Rulemaking, 11 FCC
    Rcd 18877, 18928, at ¶ 106 (1996) (noting that section 205
    proceedings generally occur through written responses)**.**

[^52]: 5 U.S.C.§ 553(b).

[^53]: 5 U.S.C. § 553(c).

[^54]: BTI Initial Brief at 7-13, 21; AT&T Opening Brief at 11-14;
    Opening Brief of Sprint Communications Company, L.P., AT&T Corp. v.
    Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002 (filed Mar. 26, 2001) ("Sprint Opening Brief"), at
    18-23.

[^55]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (codified at 47 U.S.C. §§ 151 *et. seq.*) ("1996 Act").

[^56]: *See, e.g., Access Charge Reform Order*, 12 FCC Rcd at 16094-105,
    ¶¶ 262-84*.* In contrast to the situation with CLECs, the
    Commission's rules prescribe the precise manner in which ILECs may
    assess interstate access charges on interexchange carriers and end
    users. First, an ILEC must keep its books in accordance with the
    Uniform System of Accounts set forth in Part 32 of the Commission
    rules. *See* 47 C.F.R. §§ 32.1 -- 32.9000. Second, Part 64 of the
    Commission's rules divides an ILEC's costs between those associated
    with regulated telecommunications services and those associated with
    non-regulated activities. *See* 47 C.F.R. §§ 64.901 - 64.904. Third,
    Part 36 separations rules determine the fraction of the ILEC's
    regulated costs, expenses, and investment that should be allocated
    to the interstate jurisdiction. *See* 47 C.F.R. §§ 36.1 - 36.741.
    After the total amount of regulated, interstate cost is identified,
    the access charge and price cap rules translate these interstate
    costs into charges for the specific interstate access services and
    rate elements. Part 69 specifies in detail the rate structure for
    recovering these costs. *See* 47 C.F.R. §§ 69.1 - 69.731. Finally,
    Part 61 requires ILECs to publish their rates in tariffs, and the
    rules restrict how and when incumbents may change their rates. *See*
    47 C.F.R. §§ 61.1 - 61.193. Additionally, the Commission regulates
    the rate levels ILECs may charge for their access services,
    requiring them to comply with either the rate-of-return or the
    price-cap regulations. *Compare* 47 C.F.R. §§ 65.1 - 65.830
    (relating to rate of return that certain non-price-cap ILECs may
    earn on interstate access service) *with* *Access Charge Reform,*
    Sixth Report and Order in CC Docket Nos. 96-262 and 94-1, Report and
    Order in CC Docket No. 99-249, Eleventh Report and Order in CC
    Docket No. 96-45, 15 FCC Rcd 12962, 13026-13039, at ¶¶ 151-84 (2000)
    ("*CALLS Order*") (adopting rate level components for price-cap
    carriers).

[^57]: *Access Charge Reform Order*, 12 FCC Rcd at 16094-95, ¶ 263.

[^58]: *Id*.

[^59]: *Id*.

[^60]: *See, e.g., Access Charge Reform*, Notice of Proposed Rulemaking,
    11 FCC Rcd 21354, 21472, at ¶ 271 (1996) ("*Access Reform NPRM");*
    *Access Charge Reform Order*, 12 FCC Rcd at 16140, ¶ 360.

[^61]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶ 41.

[^62]: *See CLEC Access Charge Order*, 2001 WL 431685, at ¶ 46 and
    n.105. *See also* footnotes Error: Reference source not found and
    Error: Reference source not found, *infra*.

[^63]: AT&T Opening Brief at 11-21; Sprint Opening Brief at 18-32; Reply
    Brief of AT&T Corp., AT&T Corp. v. Business Telecom, Inc., File No.
    EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed Apr. 2, 2001) ("AT&T
    Reply Brief"), at 4-12; Reply Brief of Sprint Communications
    Company, L.P., AT&T Corp. v. Business Telecom, Inc., File No.
    EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed Apr. 2, 2001) ("Sprint
    Reply Brief"), at 13-25.

[^64]: BTI Initial Brief at 6-14, 16-34.

[^65]: *CLEC Access Charge Order,* 2001 WL 431685, at ¶¶ 30-32.

[^66]: *Id.*

[^67]: *Id.*

[^68]: *Id.*

[^69]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶ 34.

[^70]: In any event, in this case, the market did not really "bear"
    BTI's access rates, as demonstrated by Complainants' refusal to pay
    those rates.

[^71]: AT&T Opening Brief at 11-21; Sprint Opening Brief at 18-32; AT&T
    Reply Brief at 4-12; Sprint Reply Brief at 13-25.

[^72]: *See Local Exchange Carriers' Rates, Terms, and Conditions for
    Expanded Interconnection Through Physical Collocation for Special
    Access and Switched Transport*, Second Report and Order, 12 FCC Rcd
    18730, 18790-93 (1997) ("*Expanded Interconnection Order*"),
    *aff'd*, *Southwestern Bell Telephone Company v. Federal
    Communications Commission*, 168 F.3d 1344 (D.C. Cir. 1999)
    ("*Southwestern Bell v. FCC*"); U*.S. Dept. of Defense v. Hawaiian
    Telephone Company*, Memorandum Opinion and Order, 61 FCC 2d 565,
    566-68 (1976).

[^73]: *See, e.g., Access Charge Reform Order*, 12 FCC Rcd at 16141-42,
    ¶ 364; *Expanded Interconnection Order*, 12 FCC Rcd at 18790-93;
    *Annual 1990 Access Tariff Filings*, Memorandum Opinion and Order, 5
    FCC Rcd 7487 (1990) (rejecting rates 8 times higher than benchmark
    rate); *Beehive Telephone Co.*, Memorandum Opinion and Order, 13 FCC
    Rcd 12275 (1998) (rejecting rate above "industry averages" for
    comparable companies); *Operator Communications, Inc. d.b.a. Oncor
    Communications, Inc*., Memorandum Opinion and Order and Order to
    Show Cause, DA-95-02, 1995 WL 248343 (Com. Car. Bur. Apr. 27, 1995)
    ("*Oncor Communications*") (finding that rates that "substantially
    exceed" rates charged by other service providers for comparable
    services in the same market to be unjust and unreasonable)*; Capital
    Network System, Inc.*, Memorandum Opinion and Order and Order to
    Show Cause, 10 FCC Rcd 13732 (1995) (same as *Oncor
    Communications*); *International Settlement Rates*, Report and
    Order, 12 FCC Rcd 19806, 19943 at ¶ 295 (1997), *aff'd*, *Cable &
    Wireless PLC v. Federal Communications Commission*, 166 F.3d 1224
    (D.C. Cir. 1999) (establishing benchmark governing international
    settlement rates based, in part, upon non-cost factors). Cases
    decided under the Interstate Commerce Act, from which the
    Communications Act derived, also determine the reasonableness of a
    carrier's rates by comparing them to the rates of other carriers and
    other rates of the same carrier. *See, e.g., Railroad Comm'rs of
    Fla. v. Seaboard Air Line Ry.*, 16 ICC 1, 5 (1909) (examining
    charges by carrier's competitor for similar services to determine
    the reasonable rate); *Freight Bureau v. Cincinnati, N.O. & Tx. Pac.
    Ry. Co.,* 4 ICC 92 (1894) ("where the reasonableness of rates is in
    question, comparison may be made, not only with rates on another
    line of the same carrier, but also with those on the lines of other
    and distinct carriers").

[^74]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶ 60.

[^75]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶¶ 44-45.

[^76]: BTI Initial Brief at 16-25; BTI Reply Brief at 38-41.

[^77]: *See, e.g., Access Reform NPRM*, 11 FCC Rcd at 21472, at ¶ 271*;*
    *Access Charge Reform Order*, 12 FCC Rcd at 16140, ¶ 360; *Hyperion
    Order*, 12 FCC Rcd at 8609, ¶ 25.

[^78]: *See Access Charge Reform Order*, 12 FCC Rcd at 16141, ¶ 363.
    *See also* *Hyperion Order*, 12 FCC Rcd at 8609, ¶ 25.

[^79]: *See Access Charge Reform Order,* 12 FCC Rcd at 16142, ¶ 364.
    *See also* *Hyperion Order*, 12 FCC Rcd at 8609, ¶ 25.

[^80]: *See, e.g., Southwestern Bell v. FCC*, 168 F.3d at 1352; *MCI
    Telecommunications Corp. v. FCC*, 675 F.2d 408, 413 (D.C. Cir.
    1982); *Aeronautical Radio, Inc. v. FCC*, 642 F.2d 1221, 1228 (D.C.
    Cir. 1980), *cert. denied*, 451 U.S. 920 (1981).

[^81]: *Southwestern Bell v.* FCC, 168 F.3d at 1352 (internal quotations
    omitted)*.* *See Time Warner Entertainment v. FCC*, 56 F.3d 151, 163
    (D.C. Cir. 1995) (*quoting United States v. FCC*, 707 F.2d 610, 618
    (D.C. Cir. 1983)).

[^82]: *Southwestern Bell v.* FCC, 168 F.3d at 1352 (*quoting MCI v.
    FCC*, 675 F. 2d at 413).

[^83]: *Sprint Communications Company, L.P. v. MGC Communications,
    Inc.*, Memorandum Opinion and Order, 15 FCC Rcd 14027 (2000)
    ("*Sprint v. MGC*").

[^84]: BTI Initial Brief at 17-19, 22, 35-36; BTI Reply Brief at 9, n.
    10, 12-15, 28. Although *Sprint v. MGC* does not preclude
    Complainants' claims that BTI's total access rates are unjust and
    unreasonable under section 201(b), we find that it does affect
    Complainants' claim that BTI's 800 database query charge of 0.79
    cents per call is unjust and unreasonable. AT&T Second Amended
    Complaint, ¶ 14, n.4; Sprint Complaint, ¶ 12. Complainants cursorily
    assert that BTI's 800 database query charge is unjust and
    unreasonable *solely* because it exceeded BellSouth's 800 database
    query charge in 2000. AT&T Opening Brief at 14, n. 15; Sprint
    Opening Brief at 19. This evidence alone is insufficient under
    *Sprint v. MGC*. Moreover, BTI's charge in 2000 was actually less
    than the average of GTE's charges in the relevant region (*i.e.*,
    .84 cents per call). Therefore, to the extent that Complainants'
    allegations concerning BTI's 800 database query charge can be deemed
    to constitute a stand-alone claim, the claim is denied; and we do
    not consider this query charge in the rest of our analysis above.

[^85]: *Sprint v. MGC,* 15 FCC Rcd at 14028-29.

[^86]: *Sprint v. MGC*, 15 FCC Rcd at 14029 ("Relying, as it does,
    solely on the competing ILEC rate as a benchmark for what is just
    and reasonable, Sprint has failed to meet its burden in this
    action.").

[^87]: AT&T Opening Brief at 11-21; Sprint Opening Brief at 18-32; AT&T
    Reply Brief at 4-12; Sprint Reply Brief at 13-25.

[^88]: *Permian Basin Area Rate Cases*, 390 U.S. 747 (1968) ("*Permian
    Rate Base Cases*").

[^89]: BTI Reply Brief at 38-41.

[^90]: *See CLEC Access Charge Order*, 2001 WL 431685, at ¶ 46, n.105.
    In the *Permian Basin Area Rate Cases*, the Supreme Court stated
    that "rate-making agencies are not bound to the service of any
    single regulatory formula" and are permitted "to make the pragmatic
    adjustments which may be called for by particular circumstances."
    *Permian Rate Base Cases,* 390 U.S. at 776-77 (citing *FPC v.
    Natural Gas Pipeline Co.*, 315 U.S. 575, 586 (1942)). *See FERC v.
    Pennzoil Producing Co.*, 439 U.S. 508, 517 (1979) (holding that
    agency is not required "to adhere rigidly to a cost-based
    determination of rates, much less to one that bases each producer's
    rates on his own costs") (internal quotations omitted); *American
    Public Gas Association v. Federal Power Commission*, 576 F.2d 1016,
    1037 (D.C. Cir. 1977) (approving economic modeling as basis for
    ratemaking).

[^91]: *Beehive Telephone Company*, *Inc.,* Memorandum Opinion and
    Order, 13 FCC Rcd 12275 (1998) ("*Beehive Telephone*").

[^92]: *IT&E Overseas, Inc. v. Micronesian Telecommunications
    Corporation*, Memorandum Opinion and Order, 13 FCC Rcd 16058 (1998)
    ("*IT&E Overseas*").

[^93]: BTI Initial Brief at 16-22 ; BTI Reply Brief at 38-41.

[^94]: *Beehive Telephone*, 13 FCC Rcd at 12286.

[^95]: *Beehive Telephone*, 13 FCC Rcd at 12286-86. *See MCI v. FCC*,
    675 F.2d at 413 (*quoting Aeronautical Radio v. FCC*, 642 F.2d at
    1228).

[^96]: *See, e.g.,* *FERC v. Pennzoil Producing Co.¸*439 U.S. at 517*;
    American Telephone & Telegraph Company v. Federal Communications
    Commission*, 836 F.2d 1386, 1390 (D.C. Cir. 1988) (*quoting Jersey
    Cent. Power & Light v. FERC*, 810 F.2d 1168, 1177 (D.C. Cir. 1987)).
    *See also Wisconsin v. FPC*, 373 U.S. 294, 309 (1963); *FPC v.
    Natural Gas Pipeline Co.*, 315 U.S. 575, 585-86 (1942).

[^97]: *IT&E Overseas*, 13 FCC Rcd at 16062-16064.

[^98]: *See* BTI Initial Brief at 13.

[^99]: *See CLEC Access Charge Order*, 2001 WL 431685, at ¶¶ 37, 45.
    AT&T Opening Brief, at Exhibit 11, Affidavit of Frederick R.
    Warren-Boulton ("Warren-Boulton Affidavit"), ¶ 20.

[^100]: Joint Appendix, at Exhibit 3, Pflaging Deposition at 175-76,
    191-93.

[^101]: *See* Joint Appendix, at Exhibit 3, Pflaging Deposition at
    206-09.

[^102]: We derive BellSouth's access rates by averaging the originating
    and terminating access rates in BellSouth's tariff filings in effect
    on July 1, 2000 for the following access rate elements for the
    relevant service areas in which BTI competes (based upon
    hypothetical one-mile transport mileage): access tandem (facility),
    access tandem (termination), access tandem (switching), carrier
    common line charge (originating), carrier common line (terminating),
    local switching, information surcharge, transport interconnection
    charge, and common multiplexing. *See* BellSouth Telecommunications,
    Inc., Tariff F.C.C. No. 1 (effective July 1, 2000); AT&T Opening
    Brief at 14-15. This information is publicly available in the
    Federal Communications Commission's Information Center at 445 12^th^
    Street, N.W., Washington, D.C. 20554. *See also* Sprint Opening
    Brief, Exhibit 12; AT&T Opening Brief at 14-15; AT&T Opening Brief,
    Exhibit 10. We do not include the primary interexchange carrier
    charge ("PICC") in this calculation or our GTE calculation, because
    nothing timely submitted in this record proposed a methodology for
    "per-minutizing" this flat per-line charge or proffered data
    suggesting that the level of this charge was significant on a
    per-minute basis. On May 22, 2001, well after the record had closed,
    and only three weeks before the statutory deadline for resolving
    these complaints, BTI submitted approximately 500 pages of
    information that, *inter alia*, purports to show what BellSouth and
    GTE charged for access, and to "per-minutize" GTE's and BellSouth's
    PICC rates, in the relevant regions during the relevant period.
    Letter from Ronald J. Jarvis, Counsel for BTI, to Anthony J.
    DeLaurentis, Attorney, Market Dispute Resolution Division,
    Enforcement Bureau, AT&T Corp. v. Business Telecom, Inc., File No.
    EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002 (filed May 22, 2001). We
    decline to consider this information, because it was untimely filed,
    depriving both the Commission and Complainants of a fair opportunity
    to rigorously assess its complex contents.

[^103]: We derive GTE's access rates by averaging the originating and
    terminating access rates in GTE's tariff filings in effect on July
    1, 2000 for the following access rate elements for the relevant
    service areas and zones in which BTI competes (based upon
    hypothetical one mile transport mileage): access tandem (facility),
    access tandem (termination), access tandem (switching), carrier
    common line charge (originating), carrier common line (terminating),
    local switching, information surcharge, transport interconnection
    charge, and common multiplexing. *See* GTE Telephone Operating
    Companies, Tariff F.C.C. No. 1 in effect on July 1, 2000. This
    information is publicly available in the Federal Communications
    Commission's Information Center at 445 12^th^ Street, N.W.,
    Washington, D.C. 20554.

[^104]: We derive BellSouth's and GTE's access rates in 1999 in the same
    manner as those calculated for 2000, based upon BellSouth's and
    GTE's tariff filings in effect on July 1, 1999. *See* BellSouth
    Telecommunications, Inc., Tariff F.C.C. No. 1 (effective July 1,
    1999); GTE Telephone Operating Companies, Tariff F.C.C. No. 1 in
    effect on July 1, 1999. This information is publicly available in
    the Federal Communications Commission's Information Center at 445
    12^th^ Street, N.W., Washington, D.C. 20554.

[^105]: We derive BellSouth's and GTE's access rates in 1998 in the same
    manner as those calculated for 2000, based upon BellSouth's and
    GTE's tariff filings in effect on July 1, 1998. *See* BellSouth
    Telecommunications, Inc., Tariff F.C.C. No. 1 in effect on July 1,
    1998; GTE Telephone Operating Companies, Tariff F.C.C. No. 1 in
    effect on July 1, 1998. This information is publicly available in
    the Federal Communications Commission's Information Center at 445
    12^th^ Street, N.W., Washington, D.C. 20554.

[^106]: BTI Initial Brief at 17-22; BTI Reply Brief at 19-20.

[^107]: *See Southwestern Bell v. FCC*, 168 F.3d at 1353 (explaining
    that "the use of industry-wide averages is one commonly-employed
    technique in evaluating the reasonableness of rates charged by
    regulated entities").

[^108]: *See* Industry Analysis Division, Federal Communications
    Commission, TRENDS IN TLECOMMUNICATIONS SERVICE (December 2000),
    Table 1.2. *See also* Industry Analysis Division, Federal
    Communications Commission, TELECOMMUNICATIONS INDUSTRY REVENUES 1999
    (September 2000). This information is publicly available in the
    Federal Communications Commission's Information Center at 445 12^th^
    Street, N.W., Washington, D.C. 20554 and at
    \<http://www.fcc.gov/ccb/stats\>. *See generally* AT&T Opening
    Brief, Exhibit 20.

[^109]: *See* 47 U.S.C. § 153(4) (defining Bell Operating Companies).

[^110]: AT&T Opening Brief, at Exhibit 22, QSI Survey. Complainants
    attribute the data differences in the reports prepared by BTI's
    experts and by the Commission to the fact that BTI's experts
    included rate elements that BTI itself does not consider to be part
    of access. AT&T Opening Brief, at Exhibit 8, Business Telecom, Inc's
    Responses to AT&T Corp. Interrogatory No. 1; AT&T Opening Brief at
    16, n.18.

[^111]: AT&T Opening Brief, Exhibit 22.

[^112]: *See generally, Southwestern Bell v. FCC*, 168 F.3d at 1352-53
    (approving the use of composite industry data or other averaging
    methods in evaluating reasonableness of rates).

[^113]: Joint Statement at ¶¶ 23-24.

[^114]: Joint Statement at ¶ 31. *See* Amended Answer of Business
    Telecom, Inc. to AT&T Second Amended Complaint, AT&T Corp. v.
    Business Telecom, Inc., File No. EB-01-MD-001 (filed Feb. 14, 2001)
    ("BTI Amended Answer to AT&T Complaint"), Exhibit 4.

[^115]: Joint Appendix, at Exhibit 2, Deposition of Peter J. Gose ("Gose
    Deposition"), at 202. AT&T Opening Brief, Exhibit 33.

[^116]: AT&T Opening Brief, Exhibit 33.

[^117]: AT&T Opening Brief at 17-19; Sprint Opening Brief at 23-28.

[^118]: *See* 47 U.S.C. § 251(b)(4).

[^119]: Joint Statement at ¶ 29, quoting *Implementation of the Local
    Competition Provisions in the Telecommunications Act of 1996*, First
    Report and Order, 11 FCC Rcd 15499, 16012 (1996) ("*Local
    Competition Order*") (subsequent history omitted). *See* Sprint
    Complaint, Exhibit 12, Declaration of Kent W. Dickerson at ¶ 3.

[^120]: *Local Competition Order*, 11 FCC Rcd at 16012. Although our
    analysis utilizes a comparison of the disparities between access
    rates and reciprocal compensation rates for BTI and BellSouth,
    respectively, nothing in our discussion should be construed as an
    endorsement of any such disparity in rates. *See* *Developing a
    Unified Intercarrier Compensation Regime*, CC Docket No. 01-92,
    Notice of Proposed Rulemaking, FCC 01-132, 2001 WL 455872, ¶ 5 (rel.
    Apr. 27, 2001) (seeking comment on reforming the existing access
    charge and reciprocal compensation regulations because, among other
    things, \"\[t\]hese regulations treat different types of carriers
    and different types of services disparately, even though there may
    be no significant differences in the costs among carriers or
    services\").

[^121]: The record does not contain any of the reciprocal compensation
    rates that BTI and GTE charged each other during the relevant time
    period. The record also does not contain the reciprocal compensation
    rates that BTI and BellSouth charged each other in 1998 and 1999.

[^122]: BTI Initial Brief at 22-25; BTI Reply Brief at 18.

[^123]: The record in this case supports the Commission's prior
    conclusion that the transport and termination of local calls between
    a CLEC and an ILEC involves the use of similar, if not identical,
    switching and transport facilities as the provision of interstate
    switched access services for long distance calls. *See* AT&T Opening
    Brief at Exhibit 23, Affidavit of John C. Klick ("Klick Affidavit")
    at ¶ 11; AT&T Opening Brief at Exhibit 1, Affidavit of William J.
    Taggart, III ("Taggart Affidavit") at ¶ 10; Sprint Complaint,
    Exhibit 12, Declaration of Kent W. Dickerson at ¶ 3; Joint Appendix,
    at Exhibit, 3, Plfaging Deposition at 55-77, 118-20.

[^124]: BTI Initial Brief at 24-25. A CLEC and an ILEC operating in the
    same area establish rates for reciprocal compensation through the
    negotiation and arbitration processes provided in sections 251 and
    252 of the Act. 47 U.S.C. §§ 251-252. In the arbitration process, a
    state commission can order the ILEC to pay more than the CLEC
    (*i.e.*, "asymetrical compensation") only if the CLEC demonstrates
    that its costs for transporting and terminating local traffic exceed
    those of the ILEC. 47 C.F.R. § 51.711(b).

[^125]: BTI Initial Brief at 24.

[^126]: BTI Initial Brief at 68. Joint Appendix, at Exhibit 3, Pflaging
    Deposition, Exhibit 7 at 1304-05.

[^127]: Joint Appendix, at Exhibit 3, Pflaging Deposition at 143-48;
    Joint Appendix, at Exhibit 3, Plfaging Deposition Exhibit 7, at
    1302-06 (BTI's "Local Business Partner's Plan"). BTI's marketing
    materials clearly describe this program as "a product that pays the
    *customer* to use it" and as a means for its customers' toll-traffic
    to help the *customer* recapture lost revenue and pay for the cost
    of the customer's local and other telecommunications needs. *Id*.
    (emphasis added). Although BTI's current program offers customers a
    credit against BTI services, BTI previously offered the customers
    the option of receiving a cash payment. Joint Appendix, at Exhibit
    3, Pflaging Deposition at 146-47.

[^128]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶¶ 28, 31-34.

[^129]: *See* Part 1, *supra*.

[^130]: BTI Initial Brief at 34-35.

[^131]: BTI Initial Brief at 30-34.

[^132]: BTI Amended Answer to AT&T Second Amended Complaint at ¶ 28.

[^133]: BTI Amended Answer to AT&T Second Amended Complaint at ¶¶ 84-85;
    BTI Amended Answer to Sprint Complaint at ¶¶ 42-43.

[^134]: *See General Plumbing v. New York Tel. Co. and MCI
    Telecommunications Corp.*, Memorandum Opinion and Order, 11 FCC Rcd
    11799, 11809 n. 63 (1996). *See also Environmental Defense Fund,
    Inc. v. Environmental Protection Agency*, 548 F.2d 998, 1014 (D.C.
    Cir. 1976).

[^135]: *See* Letter from Ronald J. Jarvis, Counsel for BTI, to David M.
    Miles, Counsel for AT&T, and Frank Krogh, Counsel for Sprint, AT&T
    Corp. v. Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002 (filed Feb. 20, 2001).

[^136]: For example, BTI's initial Answers to Complainants' Complaints
    were stricken without prejudice because of numerous failures by BTI
    to comply with the Commission's formal complaint rules regarding
    production of supporting information. *See* Letter from Anthony J.
    DeLaurentis, Attorney, Market Disputes Resolution Division,
    Enforcement Bureau, to Jonathan E. Canis, Counsel for BTI; James F.
    Bendernagel, Counsel for AT&T; and Cheryl A. Tritt, Counsel for
    Sprint (Feb. 12, 2001), AT&T Corp. v. Business Telecom, Inc., File
    No. EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002. BTI's Amended Answers also
    contained many of the same deficiencies as BTI's initial Answers,
    but were accepted by Commission staff because of the time
    constraints resulting from the five-month statutory deadline
    applicable to these complaints. *See* Letter from Anthony J.
    DeLaurentis, Attorney, Market Disputes Resolution Division,
    Enforcement Bureau, to Jonathan E. Canis, Counsel for BTI; James F.
    Bendernagel, Counsel for AT&T; and Cheryl A.Tritt, Counsel for
    Sprint (Feb. 23, 2001), AT&T Corp. v. Business Telecom, Inc., File
    No. EB-01-MD-001 and Sprint Communications Company, L.P. v. Business
    Telecom, Inc., File No. EB-01-MD-002.

[^137]: For example, despite staff rulings directing them to do so, BTI
    failed or refused to produce, among other things, documents
    collected and created by BTI's cost accounting group reflecting
    BTI's costs; documents reflecting the amounts BTI paid for
    facilities it owns or leases; documents reflecting BTI's margins on
    relevant revenue streams; bills sent by BTI to itself for access
    services; and documents relating to BTI's costs that were available
    to BTI personnel when they established BTI's access rates. *See*
    Letters from Anthony J. DeLaurentis, Attorney, Market Disputes
    Resolution Division, Enforcement Bureau, to Jonathan E. Canis,
    Counsel for BTI; James F. Bendernagel, Counsel for AT&T; and Cheryl
    A. Tritt, Counsel for Sprint (Feb. 23, 2001 and Mar. 5, 2001), AT&T
    Corp. v. Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002; Letter from James F. Bengernagel, Counsel for AT&T, to
    Jonathan E. Canis, Counsel for BTI (Feb. 26, 2001), AT&T Corp. v.
    Business Telecom, Inc., File No. EB-01-MD-001 and Sprint
    Communications Company, L.P. v. Business Telecom, Inc., File No.
    EB-01-MD-002; Letter from James F. Bengernagel, Counsel for AT&T, to
    Anthony J. DeLaurentis, Attorney, Market Disputes Resolution
    Division, Enforcement Bureau (Mar. 13, 2001), AT&T Corp. v. Business
    Telecom, Inc., File No. EB-01-MD-001 and Sprint Communications
    Company, L.P. v. Business Telecom, Inc., File No. EB-01-MD-002. *See
    also* Joint Appendix, at Exhibit 3, Pflaging Deposition at 10-11,
    19-21, 58-60, 66-70, 74-76, 87-88, 98-100, 108-110, 130-31, 146-48,
    168-71, 180-81, 196-200, 216-17, 219-20, 227-28, 260, and 238-40;
    AT&T Opening Brief at 34-35. BTI has filed an application for review
    of one of the Enforcement Bureau's rulings requiring BTI to produce
    certain customer information relied upon by its experts in support
    of BTI's cost showing. Application for Review of Business Telecom,
    Inc., AT&T Corp. v. Business Telecom, Inc., File No. EB-01-MD-001
    and Sprint Communications Company, L.P. v. Business Telecom, Inc.,
    File No. EB-01-MD-002 (filed Apr. 4, 2001). Because we do not rely
    upon the presence or absence of the specified information, we hereby
    dismiss BTI's Application for Review as moot.

[^138]: AT&T Reply Brief at 28-29. In particular, although access is one
    -- and only one -- cost of providing long distance service, BTI
    priced its long distance service roughly at or below the price of
    its access service. If BTI's access rate were truly cost-based, BTI
    would have had to price its long distance service much higher in
    order to make a profit.

[^139]: Joint Appendix, at Exhibit 3, Pflaging Deposition at 143-48;
    Joint Appendix, at Exhibit 3, Pflaging Deposition, Exhibit 7, at
    1302-06.

[^140]: For fuller discussions of the cost showing's inadequacies, good
    sources are Complainants' briefs, which we find provide, by and
    large, a fair analysis. AT&T Opening Brief at 21-39; Sprint Opening
    Brief at 42-52; AT&T Reply Brief at 12-24.

[^141]: Joint Appendix, at Exhibit 1, Deposition of Warren R. Fischer
    ("Fischer Deposition"), at 74, 290.

[^142]: Joint Appendix, at Exhibit 1, Fischer Deposition at 290. AT&T
    Opening Brief at 23.

[^143]: AT&T Opening Brief, at Exhibit 23, Klick Affidavit at ¶ 25; AT&T
    Opening Brief at 27.

[^144]: AT&T Opening Brief, at Exhibit 23, Klick Affidavit at ¶ 25. *See
    also* Joint Appendix, at Exhibit 1, Fischer Deposition at 167-70,
    189-90.

[^145]: *See* AT&T Opening Brief, at Exhibit 23, Klick Affidavit at ¶¶
    34-5.

[^146]: Joint Appendix, at Exhibit 1, Fischer Deposition at 226-27.

[^147]: Joint Appendix, at Exhibit 2, Gose Deposition, at 225. For
    example, when asked about the inclusion of various expenses in BTI's
    common costs, such as a \$65,000 expense for the company Christmas
    party, BTI's expert replied: "The only thing I specifically excluded
    as being inappropriate was the corporate jet." Joint Appendix, at
    Exhibit 1, Fischer Deposition at 193-94.

[^148]: Letter from Ronald J. Jarvis, Counsel for BTI, to Magalie Roman
    Salas, Secretary, Federal Communications Commission, attaching
    Affidavit of Peter J. Gose, AT&T Corp. v. Business Telecom, Inc.,
    File No. EB-01-MD-110 and Sprint Communications Company, L.P. v.
    Business Telecom, Inc., File No. EB-01-MD-002 (filed Feb. 23, 2001)
    ("Gose Affidavit") at ¶ 21 (emphasis added).

[^149]: Although BTI acknowledges that its "cost showing" has problems,
    it blames Commission staff for not allowing it additional time to
    complete a more comprehensive "cost study." BTI Initial Brief at
    30-31; BTI Consolidated Reply Brief at 30-31. For the reasons
    previously stated in these proceedings, we categorically reject
    BTI's assertion that any flaws in BTI's cost justification defense
    derive from Commission staff's imposition of the strict schedule
    needed to allow us to comply with the five-month statutory deadline
    applicable to this kind of complaint under section 208(b)(1) of the
    Act. 47 U.S.C. § 208(b)(1). *See* Letter Ruling from Anthony J.
    DeLaurentis, Attorney, Market Disputes Resolution Division,
    Enforcement Bureau, to Jonathan E. Canis, Counsel for BTI; James F.
    Bendernagel, Counsel for AT&T; and Cheryl A. Tritt, Counsel for
    Sprint, AT&T Corp. v. Business Telecom, Inc., File No. EB-01-MD-001
    and Sprint Communications Company, L.P. v. Business Telecom, Inc.,
    File No. EB-01-MD-002 (Feb. 15, 2001).

[^150]: *See* Gose Affidavit at ¶ 21; *see also* Letter from Ronald J.
    Jarvis, Counsel for BTI, to Magalie Roman Salas, Secretary, Federal
    Communications Commission, attaching Affidavit of Warren R. Fischer,
    AT&T Corp. v. Business Telecom, Inc., File No. EB-01-MD-110 and
    Sprint Communications Company, L.P. v. Business Telecom, Inc., File
    No. EB-01-MD-002 (filed Feb. 23, 2001) ("Fischer Affidavit") at ¶¶
    24-26.

[^151]: BTI Amended Answer to AT&T Second Amended Complaint, ¶¶ 70-71;
    BTI Initial Brief at 14-15.

[^152]: Although BTI affirmatively pled "equitable estoppel" in its
    Amended Answer, it modified this legal argument in its Initial Brief
    to a "quasi-estoppel" argument. BTI Amended Answer to AT&T Second
    Amended Complaint, at ¶¶ 35, 54-55, 70-71; BTI Initial Brief at
    14-15; BTI Reply Brief at 31-34. Our conclusion is the same under
    either legal theory, however.

[^153]: BTI Initial Brief at 14. BTI also contends that ACC charges AT&T
    the competing ILEC access rate rather than the tariffed rate. BTI
    Amended Answer to AT&T Second Amended Complaint, ¶ 26.

[^154]: In any event, BTI's attempt to plead an estoppel defense in its
    Amended Answer does not comply with the Commission's rules, *see* 47
    C.F.R. §§ 1.724(b), 1.720(b), because BTI failed to cite any legal
    authority supporting the affirmative defense and failed to allege
    and provide evidentiary support for facts which, if true, would
    establish an estoppel defense. *See* BTI Amended Answer to AT&T
    Second Amended Complaint, ¶ 70-71.

[^155]: *See* *Bell Atlantic Delaware, et al. v. Global NAPS, Inc.*,
    Memorandum Opinion and Order, FCC No. 00-383, 2000 WL 1593346, ¶ 17
    (Oct. 26, 2000); *NextWave Personal Comm, Inc.*, Order on
    Reconsideration, 15 FCC Rcd 17500, 17515 at ¶ 28 (2000); *Communique
    Telecommunications, Inc.*, Declaratory Ruling and Order, 10 FCC Rcd
    10399, 10404 at ¶ 30 (Com. Car. Bur. rel. May 25, 1995).

[^156]: *CLEC Access Charge Order*, 2001 WL 431685, at ¶¶ 52-53.

[^157]: This approach comports with *Sprint v. MGC*, wherein the
    Commission ruled that, during some of the same period at issue here,
    a CLEC's access rate was not *per se* unreasonable solely because it
    exceeded the competing ILEC's access rate.

[^158]: Over the course of the three subsequent years, subject to
    certain qualifications, the presumptively reasonable tariffed rate
    drops to the rate of the competing ILEC. *See CLEC Access Charge
    Order*, 2001 WL 431685, at ¶ 52.

[^159]: *See* Industry Analysis Division, Federal Communications
    Commission, TRENDS IN TELECOMMUNICATION SERVICE (December 2000),
    Table 1.2. This information is publically available in the Federal
    Communications Commission's Information Center at 445 12^th^ Street,
    N.W., Washington, D.C. 20554 and at
    \<http://www.fcc.gov/ccb/stats\>.

[^160]: BTI Initial Brief at 47-55.

[^161]: *See* Part A, *supra*; *see also* Joint Appendix, at Exhibit 3,
    Pflaging Deposition at 129.

[^162]: *Cf.,* AT&T Opening Brief, Exhibit 22.

[^163]: *See* National Exchange Carrier Association, Inc., Tariff F.C.C.
    No. 5. This information is publicly available at the Federal
    Communications Commission's Electronic Tariff Filing System located
    on the Commission's E-Filing website located at
    \<http://www.fcc.gov\>. These rates derive from the average of the
    originating and terminating access rates for the following access
    rate elements in the lowest rate band of NECA's tariff filings
    effective January 1, 1999, January 1, 2000, and January 1, 2001:
    access tandem (facility), access tandem (termination), access tandem
    (switching), carrier common line charge (originating), carrier
    common line charge (terminating), local switching, information
    surcharge, transport interconnection charge, and common
    multiplexing. *See CLEC Access Charge Order*, 2001 WL 431685, ¶ 55
    and n.126.

[^164]: Because BTI's initial tariff was filed with the Commission in
    July 1998, we align the yearly time periods for purposes of
    calculating damages to correspond with the effective date of the
    annual access tariff filings of price-cap carriers pursuant to
    Commission rules. 47 C.F.R. § 69(h). In setting a just and
    reasonable rate for purposes of calculating damages, we decline to
    set specific rates for originating and terminating access or for
    each of BTI's access elements. Rather, the rate chosen reflects the
    total amount that BTI could have lawfully charged per access minute
    for the local switching, transport termination, and transport
    mileage associated with providing originating and terminating access
    services. This approach is consistent with the Commission's recent
    limitation on the total access charges CLECs may tariff. *CLEC
    Access Charge Order*, 2001 WL 431685, at ¶ 55.

[^165]: We do not prescribe a rate for the future, as Complainants
    requested, because the *CLEC Access Charge Order* will govern BTI's
    future conduct.

[^166]: AT&T Second Amended Complaint, ¶¶ 36-42. AT&T Opening Brief at
    48. Section 254(k) of the Act provides, in pertinent part: "A
    telecommunications carrier may not use services that are not
    competitive to subsidize services that are subject to competition."
    47 U.S.C. § 254(k).

[^167]: AT&T Second Amended Complaint, ¶¶ 37-41. AT&T Opening Brief at
    46-52; AT&T Reply Brief at 25-30.

[^168]: AT&T Opening Brief at 48-52.

[^169]: BTI Initial Brief at 26-30, 63-68; BTI Reply Brief at 51-54.

[^170]: BTI Initial Brief at 26-30.

[^171]: *Implementation of Section 254(k) of the Communications Act of
    1934, as Amended*, Order, 12 FCC Rcd 6415, 6421 (1997).