**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | File No. E-98-06             |
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| Metrocall, Inc.,                 | ) |                              |
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| WorldCom, Inc.,                  | ) |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted:** June 16, 2000 **Released:** June 19, 2000

By the Chief, Enforcement Bureau:

# Introduction

1.  In this Memorandum Opinion and Order, we deny the complaint filed
    pursuant to section 208 of the Communications Act of 1934, as
    amended (Act),[^1] by Metrocall, Inc. (Metrocall), a
    telecommunications reseller, against WorldCom, Inc. (WorldCom), an
    interexchange carrier from whom Metrocall purchased
    telecommunications services, alleging violations by WorldCom of
    sections 201(b) and 202(a) of the Act. [^2]

    **II. BACKGROUND**

2.  Complainant Metrocall is a "switchless" (i.e., non facilities-based)
    reseller of long distance and international telecommunications
    services. Defendant WorldCom is a facilities-based long distance and
    international telecommunications carrier.[^3]

3.  In August, 1995, WorldCom and Metrocall entered into an agreement
    (Agreement) pursuant to which WorldCom agreed to furnish, and
    Metrocall agreed to purchase, bulk long distance and international
    communications services.[^4] In early 1997, Metrocall agreed to
    provide "Basic DS-1" (or "T-1" high capacity digital transmission)
    service to ADT. Metrocall contacted WorldCom and requested DS-1
    service for resale to ADT. WorldCom did not conduct a credit check
    on ADT before Metrocall began to provide service to ADT. The record
    is silent as to whether Metrocall asked WorldCom to conduct such a
    credit check or conducted such a credit check on its own.[^5]

4.  Metrocall's order was confirmed by WorldCom in March, 1997, and
    Metrocall's service to ADT commenced in late May, 1997. By July 1,
    1997, ADT had used Metrocall's service to place more than 37,000
    calls and had incurred more than \$210,000 in telephone charges
    owing to Metrocall. Many of these calls were to Latin and South
    American countries. ADT placed no calls after July 1, 1997, and
    "disappeared" soon thereafter, having paid none of Metrocall's
    charges.[^6] WorldCom has billed Metrocall approximately \$180,000
    for ADT's calls.[^7]

5.  The billing arrangement between Metrocall and WorldCom was such that
    Metrocall did not know until the third week of July, 1997 that ADT
    had made a large number of calls to Latin and South American
    countries.[^8] Because it is "switchless," Metrocall lacked the
    capacity to monitor ADT's calls as they were placed.[^9] WorldCom,
    however, employs a computerized fraud alert system that almost
    instantaneously detects suspicious calling patterns anywhere in its
    network. WorldCom's system flags traffic indicating a prevalence of
    calls exceeding certain lengths, or a prevalence of calls to various
    international destinations, including certain Latin and South
    American countries.[^10]

    **III. DISCUSSION**

    **A. WorldCom Did Not Violate Section 201(b) of the Act.**

6.  Metrocall asserts that WorldCom violated section 201(b) of the Act
    because it did not take certain steps to protect Metrocall from
    ADT's alleged fraud. Metrocall concedes that the Agreement itself
    does not require WorldCom to detect or prevent the commission of
    fraud by Metrocall's customers. In particular, Metrocall admits that
    the terms of the Agreement did not require WorldCom to check ADT's
    credit or monitor Metrocall's customers' calls.[^11] Nevertheless,
    Metrocall relies on the Commission's decision in *RCI Long Distance,
    Inc. v. NY Telephone Co.*[^12] to argue that WorldCom breached a
    duty owed by carriers "'to protect their customers from practices
    that could detrimentally affect their telephone service.'"[^13]
    Metrocall asserts that, because Metrocall was WorldCom's customer,
    WorldCom was obligated under *RCI Long Distance* to conduct a credit
    check on ADT, to monitor ADT's calls for suspicious calling
    patterns, and to warn Metrocall if its fraud alert system was
    triggered by ADT's calls.[^14]

7.  WorldCom clearly was under no obligation to check ADT's credit. In
    *RCI Long Distance*, the Commission held that local exchange
    carriers (LECs) may have a duty to protect their payphone customers
    from fraudulent practices related to primary interexchange carrier
    (PIC) change requests. The present dispute does not involve LECs,
    payphones or PIC changes. Moreover, the Commission's reasoning in
    *RCI Long Distance* was based on the fact that LECs are often the
    "best line of defense" against PIC-change fraud.[^15] Here, WorldCom
    was not Metrocall's "best line of defense" against customers who do
    not pay their bills, as Metrocall was perfectly able to conduct its
    own credit check of ADT.

8.  We do not decide whether WorldCom had any obligation to monitor
    ADT's calls or to notify Metrocall if its fraud alert system was
    triggered, as Metrocall has not shown that WorldCom failed to do
    so.[^16] In support of its allegations, Metrocall establishes that a
    large number of ADT's calls were to Latin and South America.[^17] In
    addition, Metrocall's Director of Telecommunications for Engineering
    declares under oath that Michael Kelly, Manager of Network Security
    for WorldCom, told him "that WorldCom's usual business procedure was
    to monitor and investigate patterns of calls made to Latin America,
    including all calls more than 20 minutes in length, and that in
    spite of ADT's calling patterns, which would normally trigger
    Worldcom's fraud alert system, ADT's calls were not monitored by
    WorldCom... ."[^18]

9.  WorldCom counters with the declaration of Mr. Kelly, who states that
    WorldCom *did* monitor ADT's calls, and that its fraud alert system
    detected no suspicious calling patterns. Mr. Kelly states that
    "there was nothing in \[ADT's\] calling patterns sufficient to
    trigger a fraud alert in WorldCom's fraud detection system."[^19]
    Mr. Kelly declares under oath (1) that his random sampling of ADT's
    calls revealed that roughly half terminated domestically, not in
    Latin or South America; (2) that his review of Metrocall's billing
    invoices revealed that the average duration of ADT's calls was less
    than six minutes; [^20] and (3) that WorldCom's system "observes ...
    only total aggregate traffic patterns and fluctuations,"[^21] and
    that the volume of ADT's calls on the trunk assigned to Metrocall
    was not sufficient to trigger WorldCom's fraud alert system.[^22]

10. Although Mr. Kelly does not directly deny that he made the
    statements attributed to him by Metrocall's Director of Technology,
    he nevertheless specifically declares that WorldCom *did* monitor
    ADT's calls, and provides a detailed and reasonable explanation as
    to why ADT's calling pattern did not trigger WorldCom's fraud alert
    system. Weighing the evidence, we conclude that Metrocall has not
    met its burden of proving that WorldCom failed to monitor ADT's
    calls or failed to notify Metrocall that its fraud alert system was
    triggered. Accordingly, even if WorldCom was obligated to perform
    these activities (an issue we need not decide), Metrocall's
    complaint fails on this issue. [^23]

11. In sum, Metrocall's claim under section 201(b) of the Act fails.
    WorldCom was not obligated to conduct a credit check on ADT, and
    Metrocall has not shown that WorldCom failed to monitor ADT's calls
    or to warn Metrocall that its fraud alert system had been triggered.

    **B. WorldCom Did Not Violate Section 202(a) of the Act.**

12. Metrocall asserts that WorldCom engaged in unjust and unreasonable
    discrimination against Metrocall in violation of section 202(a) of
    the Act when it (i) allegedly failed to monitor ADT's calls,
    and (ii) failed to conduct a credit check on ADT.[^24] Metrocall
    asserts that these failures "dramatically depart from \[WorldCom's\]
    usual carrier/customer practices . . .".[^25]

13. An inquiry into whether a carrier is discriminating in violation of
    section 202(a) has three prongs. The complainant has the burden of
    persuasion to establish that (1) the services at issue are "like",
    and (2) there is disparate pricing or treatment between the "like"
    services. If the complainant succeeds in establishing the first two
    prongs, thereby making a *prima* *facie* showing of discrimination,
    the defendant has the burden of persuasion to establish that (3) the
    disparity is not unjust or unreasonable.[^26]

14. Metrocall's discrimination claim with respect to WorldCom's alleged
    failure to monitor ADT's calls fails. As previously discussed,
    Metrocall has not met its burden of proving that WorldCom failed to
    monitor ADT's calls.

15. Metrocall's discrimination claim with respect to WorldCom's failure
    to check ADT's credit also fails. In order to establish the first
    prong of that claim, Metrocall attempts to establish that WorldCom
    conducted credit checks of its other resellers' end-user
    customers.[^27] Yet WorldCom denies this allegation,[^28] and
    Metrocall's evidence on this point is insufficient. Metrocall relies
    solely on one of its employee's declarations that "it is common
    practice in the telecommunications industry for facilities-based
    carriers such as WorldCom to conduct credit checks, require credit
    references and security deposits from T-1 applicants such as
    \[ADT\]."[^29] That statement begs the question: The declarant may
    merely be stating that facilities-based carriers conduct credit
    checks of their *own* *customers* who order T-1 lines.[^30] Further,
    the declarant does not state that it was *WorldCom's* practice (as
    opposed to general industry practice) to conduct credit checks.
    Finally, the declarant does not set forth the basis for his
    knowledge or provide specific examples of such credit checks being
    made.[^31] Thus, Metrocall has not proved the first prong of its
    discrimination claim (that the services at issue are "like"), and
    its claim under section 202(a) of the Act is therefore denied.

    **IV. ORDERING CLAUSES**

16. Accordingly, IT IS ORDERED, pursuant to sections 4(i), 4(j), 201(b),
    202(a), and 208 of the Communications Act of 1934, as amended, 47
    U.S.C. §§ 154(i), 154(j), 201(b), 202(a), and 208, and the authority
    delegated in sections 0.111 and 0.311 of the Commission\'s rules,
    47 C.F.R. §§ 0.111 and 0.311, that the formal complaint filed by
    Metrocall, Inc. against WorldCom, Inc., IS DENIED.

17. 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 the authority delegated in sections 0.111 and
    0.311 of the Commission\'s rules, 47 C.F.R. §§ 0.111 and 0.311, that
    the above-captioned complaint is DISMISSED WITH PREJUDICE and this
    proceeding IS TERMINATED.

    FEDERAL COMMUNICATIONS COMMISSION

    David H. Solomon

Chief, Enforcement Bureau

[^1]: 47 U.S.C. § 208.

[^2]: Section 201(b) of the Act provides, in pertinent part: "All
    charges, practices, classifications, and regulations for and in
    connection with \[interstate and international\] 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). Section 202(a) of the Act provides, in pertinent part: "It
    shall be unlawful for any common carrier to make any unjust or
    unreasonable discrimination in charges, practices, classifications,
    regulations, facilities, or services for or in connection with like
    communication service...". 47 U.S.C. § 202(a).

[^3]: Amended Complaint, File No. E-98-06 (filed Dec. 24, 1997) (Amended
    Complaint) at 2 ¶¶ 1-2; Answer and Affirmative Defenses of WorldCom,
    Inc., File No. E-98-06 (filed Dec. 23, 1997) (Answer) at 2 ¶¶ 2-3.
    The events at issue here involved A+ Network, Inc., a
    telecommunications reseller that merged into Metrocall in 1995, and
    LDDS Communications, Inc., which would later become WorldCom. For
    convenience, we will refer to the parties as Metrocall and WorldCom.
    Amended Complaint ¶¶ 1-3, Ex. 1; Answer at 2 ¶ 5.

[^4]: Amended Complaint at 1 ¶¶ 1-3, Ex. 1; Answer at 2 ¶ 5.

[^5]: Amended Complaint at 2 ¶ 5; Answer at 2 ¶ 6.

[^6]: Amended Complaint at 4-5 ¶¶ 9-11; Answer at 3 ¶¶ 2-3.

[^7]: Amended Complaint at 6 ¶ 18; Answer at 4 ¶ 2.

[^8]: Metrocall's billing system worked as follows: At the end of each
    month, WorldCom sent Metrocall a written report containing the total
    minutes, total calls, and total charges for all of Metrocall's
    end-users for that month. The report did not reveal which of
    Metrocall's end-users were making the calls, the dates the calls
    were made, or where the calls were terminated. WorldCom
    simultaneously sent Metrocall's billing company magnetic tape
    containing itemized billing information for the prior month. The
    billing company would decipher the tape and send the information to
    Metrocall, a process which usually consumed approximately ten days.
    Amended Complaint at 3-4 ¶¶ 7- 8, 5 ¶ 12; Answer at 2 ¶¶ 7-8, 4 ¶ 5.

[^9]: Amended Complaint at 9 ¶ 25; Answer at 5 ¶ 2.

[^10]: Amended Complaint Ex. 7 (Declaration of James Lambeth) (Lambeth
    Dec'n) at ¶¶ 14-15; Answer Ex. 1 (Declaration of Michael W. Kelly)
    (Kelly Dec'n) at ¶¶ 5-6.

[^11]: Reply at 3-4 ¶¶ 7-8.

[^12]: *RCI Long Distance, Inc. v. NY Telephone Co.,* Memorandum Opinion
    and Order, 11 FCC Rcd 8090 (1996) (*RCI Long Distance*).

[^13]: Amended Complaint at 10 ¶ 27 (citing *RCI Long Distance*, 11 FCC
    Rcd at 8094 ¶ 16). *See* *also*, *Reply* at ¶ 18.

[^14]: Amended Complaint at 10 ¶ 27. We treat Mertrocall's second cause
    of action, which alleges "negligence" and "breach of duty" by
    WorldCom, *id.*, as brought pursuant to section 201(b) of the Act.
    To the extent that Metocall seeks to impose a duty of care on
    WorldCom other than pursuant to the Act, we deny the complaint on
    jurisdictional grounds. Further, we assume without deciding that
    WorldCom's failure to conduct credit checks of Metrocall's customers
    is a "practice\[\]... in connection with ... communication service"
    within the meaning of section 201(b). 47 U.S.C. § 201(b).

[^15]: *RCI Long Distance*, 11 *FCC Rcd* at 8096 ¶ 16.

[^16]: It is well established that the complainant bears the burden of
    establishing a violation of section 201 of the Act in a formal
    complaint proceeding pursuant to section 208. *See,* *e.g.*,
    *Amendment of the Rules Governing Procedures to be Followed when
    Formal Complaints are Filed Against Common Carriers*, Report and
    Order, 12 FCC Rcd 22497, 22615 ¶ 291 (1997) (*Formal Complaints
    Order*). For the contrary position, Metrocall cites *Matter of
    TeleSTAR, Inc.*, Opinion and Order, 3 FCC Rcd 2860 (1988)
    (*TeleSTAR*), in which the burden of persuasion was shifted to
    defendant. Amended Complaint ¶ 39. *TeleSTAR*, however, did not
    concern alleged violations of section 201 of the Act and was not a
    section 208 complaint proceeding.

[^17]: Amended Complaint at 4 ¶ 10, Exs. 4, 5; Answer at 3 ¶ 2.

[^18]: Amended Complaint Ex. 7 (Lambeth Dec'n) at ¶ 15.

[^19]: Answer Ex. A (Kelly Dec'n) at ¶ 13.

[^20]: Answer Ex. A (Kelly Dec'n) at ¶¶ 7, 10 - 14.

[^21]: Answer Ex. A (Kelly Dec'n) at ¶ 15.

[^22]: *Id*. Metrocall did not request discovery regarding Mr. Kelly's
    allegations or the workings of WorldCom's fraud alert system.

[^23]: Metrocall cites *General Plumbing Corp. v. N.Y. Telephone Co.*,
    11 FCC Rcd 11799 (1996), in which the Commission held that a carrier
    violated section 201(b) of the Act when it charged an end-user for
    unauthorized calls made by a third party who physically compromised
    the network from the carrier's side of the network demarcation
    point. Contrary to Metrocall's assertions, Amended Complaint ¶¶
    22-24, *General Plumbing Corp.* does not stand for the proposition
    that WorldCom may not charge Metrocall for ADT's calls, for that
    order involved charges for toll fraud, which are not at issue here.
    WorldCom is charging Metrocall for calls made by a known party -
    ADT - which was Metrocall's authorized end-user customer. Moreover,
    Metrocall does not allege that the calls were made by physically
    compromising WorldCom's side of the network.

[^24]: Amended Complaint at 12 ¶ 33.

[^25]: Amended Complaint at 13 ¶ 36.

[^26]: *See, e.g., Formal Complaints Order*, 12 FCC Rcd at 22615 n.782
    (citing relevant court precedent).

[^27]: *See* Amended Complaint at 13 ¶ 35.

[^28]: Answer ¶ 30, Ex. A (Kelly Dec'n) at ¶ 2.

[^29]: Amended Complaint Ex. 7 (Lambeth Dec'n) at ¶ 17.

[^30]: An argument that WorldCom discriminated because it conducts
    credit checks of its own T-1 customers also would fail. It is
    neither unjust nor unreasonable within the meaning of section 202(a)
    of the Act for WorldCom to conduct credit checks of its own, but not
    ADT's, subscribers. WorldCom and Metrocall are competitors for the
    business of credit-worthy customers. WorldCom is not obligated to
    aid Metrocall in that competition when Metrocall was perfectly able
    to conduct its own credit check of ADT. *See WATS Int'l v. Group
    Long Distance (USA), Inc.*, 12 FCC Rcd 1743, 1743 n. 5 (1997) (a
    reseller is not only a customer but also a competitor of the carrier
    from whom it purchases bulk services); Answer at ¶¶ 22, 40.

[^31]: In fact, we find it peculiar (if not disingenuous) that a
    reseller is arguing that the facilities-based carrier from which it
    orders service should be evaluating the propriety of serving the
    [reseller's]{.underline} end-user customer.