Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | File No. E-97-28             |
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| AT&T CORP.,                      | ) |                              |
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| U S WEST COMMUNICATIONS, INC.,   | ) |                              |
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| In the Matter of                 | * | File No. E-97-40A            |
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| MCI TELECOMMUNICATIONS           | ) |                              |
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| U S WEST COMMUNICATIONS, INC.,   | * |                              |
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**MEMORANDUM OPINION AND ORDER**

> **Adopted:** February 14, 2001 **Released:** February 16, 2001

By the Chief, Enforcement Bureau:

# Introduction

1.  In this Memorandum Opinion and Order, we grant in part two formal
    complaints, one filed by MCI Telecommunications Corporation
    ("MCI")[^1] and one by AT&T Corp. ("AT&T"), against U S WEST
    Communications, Inc. ("U S WEST")[^2] concerning U S WEST's
    1-800-4USWEST service (the "Service").[^3] The Service provides a
    calling platform that permits U S WEST's local subscribers to place
    local and long distance calls originating inside and outside the U S
    WEST service area. Section 271 of the Communications Act of 1934, as
    amended ("Act"), prohibits any Bell Operating Company ("BOC") \--
    including U S WEST \-- from providing long distance ("interLATA")
    service originating in the region where it provides local service,
    unless and until the Commission determines that various conditions
    relating to competition in local telephone service are
    satisfied.[^4] U S WEST has not received Commission approval to
    provide long distance service in any state in its service region,
    and therefore is subject to the general section 271 prohibition.

2.  The Commission recently addressed the legality of a similar calling
    platform service offered by another BOC, the Ameritech Operating
    Companies ("Ameritech"). In the *1-800-AMERITECH Order*, the
    Commission determined that Ameritech's service violated section 271
    of the Act.[^5] The Commission relied upon its earlier *Qwest
    Teaming Order* to reach this conclusion.[^6]

3.  The evidence in this case demonstrates that U S WEST's Service is,
    in all material respects, the same as Ameritech's unlawful service.
    Specifically, like Ameritech, U S WEST: (1) designed and developed a
    combined service offering for its local service customers that
    includes a long distance component; (2) relied on its brand name in
    marketing the combined offering; (3) used bill inserts and other
    mailings to promote the combined offering to its local calling
    subscriber base; (4) maintained control and ownership of the
    customer relationship in connection with the combined service
    offering; (5) exercised exclusive control over the marketing of the
    Service; (6) selected the long distance provider that would carry
    in-region, interLATA calls and dictated certain of the terms and
    conditions of the Service; and (7) reserved the right to substitute
    its own services in place of the long distance provider's service as
    U S WEST obtained authority under section 271 to provide long
    distance service in various states. Accordingly, we conclude, based
    on the totality of circumstances, that U S WEST's 1-800-4USWEST
    Service violates section 271. Because we find that U S WEST's
    Service violates section 271, we do not reach the remaining claims
    raised by AT&T and MCI regarding other alleged violations of the
    Act.[^7]

# BACKGROUND

4.  In April 1997, U S WEST began offering its 1-800-4USWEST Service,
    which permits its subscribers to place local, long distance, and
    international calls from anywhere in the country by accessing a
    dialing platform through the Service's toll-free number.[^8] U S
    WEST promoted the Service as a way for its customers to make calling
    card calls from payphones without paying excessive fees.[^9] Thus,
    the promotional materials mailed to U S WEST's local-service
    customers asserted that, by dialing 1-800-4USWEST, customers could
    "bypass unknown pay phone companies that can charge . . . exorbitant
    rates" and instead obtain a single "great low rate" for calling card
    calls, including domestic long distance calls.[^10] Similarly, U S
    WEST's advertisements for the Service stated that, by using the
    Service, callers could ensure that they would avoid having their
    calls blocked from completion.[^11]

5.  A year earlier, U S WEST sent a Request for Proposal ("RFP") to long
    distance carriers, seeking in-region, interLATA transport to support
    its new 1-800-4USWEST Service.[^12] Among other things, the RFP
    required the long distance carrier to allow its calls to be listed
    on the bill that U S WEST sent to its customers for U S
    WEST-provided services, and provided that portions of the long
    distance provider's contract with U S WEST would be terminable on a
    state-by-state basis on 60 days' notice, as U S WEST became eligible
    in each state to offer in-region interLATA service under section
    271.[^13] From the responses that U S WEST received, it chose
    Frontier Communications Services, Inc. ("Frontier")[^14] to carry
    the in-region, interLATA calls.[^15] The RFP specifically
    contemplated that U S WEST could contract with other long distance
    providers, and could utilize its own or its affiliate's resources to
    provide similar services.[^16]

6.  U S WEST's name and trademark have been far more prominently
    featured in advertisements promoting the Service than Frontier's.
    The toll-free number for the Service conspicuously links U S WEST's
    name to the Service. Similarly, the promotional materials that U S
    WEST mailed to its local-service subscribers highlight U S WEST's
    name and logo.[^17] Only in smaller type do the materials identify
    the carriers that actually transmit the calls, and, in many cases,
    the materials are not specific as to which carrier handles which
    calls.[^18] Subsequently, U S WEST changed the promotional materials
    to state, usually in small print, that Frontier provides in-region,
    long distance services.[^19]

7.  When a customer accesses the platform by dialing 1-800-4USWEST, he
    or she hears a greeting referencing the U S WEST name, and then
    receives a prompt to enter the called number, the calling card
    number, and a personal identification number. Once the calling card
    number is verified, a customer placing a local, intraLATA toll, or
    out-of-region interLATA call hears "\[t\]hank you for using U S
    WEST."[^20] A customer placing an in-region, interLATA call hears a
    thank-you message that mentions Frontier by name.[^21]

8.  The Service is promoted through, among other means, bill inserts and
    other mailings sent to U S WEST's local customer base.[^22] U S WEST
    serves as the initial sales and customer care contact for the
    1-800-4USWEST Service, and exercises exclusive control over the
    marketing and promotion of the Service.[^23] U S WEST's agreement
    with Frontier provides that U S WEST "owns and creates all marketing
    communications (card creation, creation design, collateral,
    fulfillment, messages, etc.) *as well as the caller
    relationship*."[^24] The Service is billed through the customer's U
    S WEST monthly service bill.[^25]

# DISCUSSION

## U S WEST's Service Violates Section 271.

9.  Complainants' primary contention is that the 1-800-4USWEST Service
    violates section 271 of the Act, because it amounts to the provision
    of in-region, interLATA service before U S WEST has received
    approval from the Commission to offer such service. Section 271(a)
    states that "\[n\]either a Bell operating company nor any affiliate
    of a Bell operating company, may provide interLATA services except
    as provided in this section."[^26] The statute permits a BOC to
    provide interLATA service originating within its local service area
    on a state-by-state basis only upon application to and approval from
    the Commission pursuant to section 271(d).[^27] Section 271 thus
    "both gives the BOCs an opportunity to enter the long distance
    market and conditions that opportunity on the BOCs' own actions in
    opening up their local markets."[^28] Congress intended section 271
    to create a strong incentive for the BOCs to comply with new
    obligations in sections 251 and 252 of the Telecommunications Act of
    1996,[^29] which, in turn, were designed to facilitate competition
    in local markets (including interconnection, unbundling, and
    resale). The statute creates this "powerful incentive" by
    conditioning BOC entry into the in-region, long-distance market on
    compliance with a checklist of local market-opening criteria and
    other requirements.[^30]

10. U S WEST has not received approval from the Commission to provide
    long distance service in any state in its region.[^31] It is
    therefore subject to section 271(a)'s general prohibition against
    offering such services. Complainants' section 271 claim presents the
    generic issue, previously addressed by the Commission in the *Qwest
    Teaming Order* (affirmed by the Court of Appeals) and the
    *1-800-AMERITECH Order*, of whether a challenged offering for which
    a BOC does not actually transmit in-region, interLATA traffic may
    nevertheless amount to the "provision" of interLATA service. In the
    *Qwest Teaming Order* and the *1-800-AMERITECH* *Order* -- as in
    this case -- the relevant BOCs were offering a combined service that
    included their own local and intraLATA toll service bundled with
    in-region, interLATA transport provided by an unaffiliated long
    distance carrier.

11. The *Qwest Teaming Order* sets forth the issue that the Commission
    considers in deciding whether an offering violates section 271:
    "whether a BOC's involvement in the long distance market enables it
    to obtain competitive advantages, thereby reducing its incentive to
    cooperate in opening its local market to competition."[^32] Thus,
    the "provision" of interLATA services, within the meaning of section
    271(a), "must encompass activities that, if otherwise permitted,
    would undermine Congress's method of promoting both local and long
    distance competition by prohibiting BOCs from full participation
    pursuant to section 271's competitive checklist."[^33] In order to
    determine whether a BOC's long distance-related activities run afoul
    of this standard, the Commission balances the following
    non-exclusive factors: "whether the BOC obtains material benefits
    (other than access charges) uniquely associated with the ability to
    include a long-distance component in \[the challenged offering\],
    whether the BOC is effectively holding itself out as a provider of
    long distance service, and whether the BOC is performing activities
    and functions that are typically performed by those who are legally
    or contractually responsible for providing interLATA service to the
    public."[^34] In evaluating the challenged BOC actions, the
    Commission considers "the totality of \[the BOC's\] involvement,
    rather than focus\[ing\] on any one particular activity."[^35]

12. The Commission applied this fact-based test in the *1-800-AMERITECH
    Order* and concluded that Ameritech's service violated section 271.
    The U S WEST Service at issue in this case is substantially the same
    as Ameritech's unlawful service. Accordingly, as described below,
    application of the *Qwest Teaming Order's* fact-based test and the
    Commission's *1-800-AMERITECH Order* similarly leads us to conclude
    that the U S WEST Service violates section 271.[^36]

### U S WEST Obtains Material Benefits Uniquely Associated With Its Ability to Include a Long-Distance Component in the Service.

13. One of the principal factors that led the Commission to find section
    271 violations in the *Qwest Teaming Order* and the
    *1-800-AMERITECH* *Order* was that the challenged offerings would
    have afforded the defendants a "significant jumpstart when they do
    obtain 271 authorization."[^37] Thus, by developing an extensive
    customer base for the challenged services, the defendant carriers
    could "pre-position" those customers for a seamless transition to
    the long distance services of the carriers' section 272 affiliates,
    once the carriers received section 271 authority to begin providing
    in-region, interLATA service.

14. As with the arrangements in the *Qwest Teaming Order* and the
    *1-800-AMERITECH Order*, we find that the 1-800-4USWEST Service
    permits U S WEST to obtain material benefits uniquely associated
    with the ability to include a long distance component in the
    Service. Specifically, the Service allows U S WEST, prior to gaining
    section 271 approval, to build up goodwill as a full service
    provider with its local-service customers, who can place their long
    distance calling-card calls through the Service.[^38] Upon receiving
    section 271 authority, U S WEST would be well positioned to
    substitute the interLATA service of its section 272 affiliate for
    that of Frontier, thereby capturing a ready base of customers.

15. The opportunity to amass goodwill as a full service provider appears
    to be a significant reason why U S WEST developed the Service in the
    first place. In announcing the launch of the Service, U S WEST's
    Chief Executive Officer stated that "\[i\]ntroduction of this card
    represents another step toward offering our customers *one-stop
    shopping* with complete, integrated solutions to meet all their
    communications needs."[^39] U S WEST explained that its new calling
    card responded to customers' requests that U S WEST give them a way
    to make long distance calls while away from the home or office. The
    "one-stop shopping" advantage touted by U S WEST was repeated and
    emphasized in several reports describing the new offering.[^40]

16. Our concern in this regard is heightened by the structure of U S
    WEST's agreement with Frontier to provide in-region, interLATA
    transmission for the Service. The Frontier agreement, much like the
    agreement in the *1-800-AMERITECH Order*, provides that U S WEST may
    terminate the contract or any orders for service made pursuant to
    the contract "for its convenience" at any time after the contract
    has been in effect by giving Frontier 30 days' notice.[^41] This
    affords U S WEST the right not only to contract with other long
    distance providers, but to utilize its affiliates' resources to
    provide similar services.[^42] Thus, U S WEST preserved the right to
    replace Frontier's services with the services of U S WEST's section
    272 affiliate once the Commission grants U S WEST section 271
    authorization.[^43] In doing so, U S WEST positioned itself well "to
    substitute the long distance service offered by \[its\] section 272
    affiliate, when \[it\] obtain\[s\] section 271 approval, into the
    \[1-800-4USWEST\] package in the future."[^44]

17. In the *Qwest Teaming Order* and the *1-800-AMERITECH Order*, we
    found that the challenged offerings allowed the defendant carriers
    to "enhance \[their\] goodwill in the marketplace" and to "add
    value" when dealing with their customers in a way that further
    cemented their relationships with their end users before their
    markets were open to meaningful competition.[^45] Here, it is
    apparent that U S WEST sought to enhance its goodwill by controlling
    the customer relationship. Specifically, the RFP provided that U S
    WEST "owns and creates all marketing communications (card creation,
    creation design, collateral, fulfillment, messages, etc.) *as well
    as the customer relationship*."[^46] This requirement was ultimately
    incorporated into U S WEST's contract with Frontier.[^47] Thus, U S
    WEST controls the information sent to its customers concerning its
    Service, as well as all other aspects of the relationship with its
    customers.[^48] This provides U S WEST with a significant
    competitive advantage in building goodwill with the 1-800-4USWEST
    customers. We believe that once U S WEST receives Commission
    authorization to offer in-region, long distance service, the
    1-800-4USWEST customers who receive local service from U S WEST will
    be more inclined to select U S WEST as their presubscribed long
    distance carrier as well.

18. Another troubling factor is the manner in which U S WEST promotes
    the Service to its local subscriber base. In addition to advertising
    through various media, U S WEST avails itself of a communication
    channel that is uniquely available to it as the monopoly provider of
    local service within its region -- bill inserts and other mailings
    that draw on its subscriber list.[^49] Thus, U S WEST can advertise
    the Service to virtually every subscriber on its network, and it can
    do so using a customer database that is either unavailable, or
    available only at a significant additional charge, to its
    competitors in the local service market. Moreover, by using bill
    inserts, U S WEST can effectively promote the Service at a fraction
    of what a stand-alone mailing would cost one of its competitors,
    even assuming the competitor had access to U S WEST's subscriber
    mailing list. Use of a subscriber list, and the unique benefits it
    provides, is one of the factors the Commission found problematic in
    the *1-800-AMERITECH* *Order*.[^50]

19. In sum, U S WEST's participation in the long distance market through
    its 1-800-4USWEST Service enables it to obtain significant
    competitive advantages that are similar to what the *Qwest Teaming
    Order* found to be objectionable and almost identical to what the
    *1-800-AMERITECH* *Order* found to be objectionable. The Service
    allows U S WEST to build goodwill with its local-service customers,
    depicting itself as a full-service provider prior to receiving
    section 271 approval. Indeed, the full-service, or one-stop
    shopping, advantages provided by the Service appear to have been U S
    WEST's primary objective in implementing the Service in the first
    place.[^51] As the Commission held in the *1-800-AMERITECH Order*,
    these competitive advantages could reduce U S WEST's incentive to
    open its local market to competition and, thus, run counter to
    Congress's intent in enacting section 271.[^52]

### U S WEST Is Effectively Holding Itself Out As a Provider of Long-Distance Service.

20. We also must inquire whether U S WEST is effectively holding itself
    out to customers as a provider of long distance services. In the
    *Qwest Teaming Order*, the Commission found that, through the
    challenged services, the defendant carriers were holding themselves
    out in such a manner, because they had "taken several specific steps
    to brand \[the challenged offerings\] as their exclusive combined
    service offerings."[^53] In affirming the Commission, the Court of
    Appeals agreed that, viewed as a whole, the challenged promotional
    materials could lead consumers to believe that the BOCs were
    providing in-region long distance service.[^54]

21. Similarly, in the *1-800-AMERITECH Order*, we noted that the use of
    the vanity 800 number[^55] was plainly calculated to cause customers
    to associate Ameritech with the services offered through the
    1-800-AMERITECH platform.[^56] Thus, the 800 number allowed
    Ameritech to link the service's long distance offering (as well as
    its other offerings) with the carrier's accumulated customer good
    will and its established reputation as a local service
    provider.[^57]

22. In this case, U S WEST virtually concedes that its promotional and
    marketing materials may have caused in the minds of its customers
    the type of confusion that the Commission and Court of Appeals have
    found to be problematic.[^58] Specifically, U S WEST acknowledges
    that some of its promotional materials "might have created some
    confusion in some customers," and that "from a regulatory
    perspective, some of the materials might be deemed to have 'gone
    over the line.'"[^59]

23. Indeed, an examination of U S WEST's promotional materials confirms
    that U S WEST is holding itself out as a provider of long distance
    service. The materials prominently display the U S WEST brand,
    creating the impression that U S WEST provides all components of the
    Service, including long distance.[^60] Other statements in the
    materials similarly foster this impression. For example, one
    advertisement features the U S WEST logo in large type and, in
    describing the Service, strongly suggests that U S WEST is the long
    distance service provider.[^61] Several other promotional materials
    attest to the card's ability to make all types of calls, including
    long distance.[^62] The promotional materials U S WEST used to
    introduce and market its Service are strikingly similar to those
    found to be troublesome and misleading in the *1-800-AMERITECH
    Order*.[^63]

24. U S WEST argues that its 1-800-4USWEST customers always have a
    choice in selecting their long distance service provider, because
    they can dial 0+ to access another service provider.[^64] Because
    this 0+ capability is disclosed on the back of its calling card and
    on certain promotional materials, U S WEST contends that it cannot
    obtain any benefit from holding itself out as the provider of long
    distance services.[^65] However, even while disclosing in certain
    materials the availability of the 0+ option, U S WEST actively
    discourages its customers from using that option. Almost uniformly,
    U S WEST describes the 0+ option as one that customers should never
    consider using in comparison to dialing 1-800-4USWEST.[^66] U S
    WEST's repeated warnings that dialing 0+ "doesn't work" and that U S
    WEST cannot "protect" customers if they dial 0+ severely undercut U
    S WEST's reliance on its advertisements' references to 0+
    capability. Moreover, the references to 0+ capability actually
    support our conclusion that U S WEST is unlawfully holding itself
    out as a long distance service provider. By comparing the long
    distance services provided by its 1-800-4USWEST Service to those
    furnished by other long distance carriers through the 0+ option, U S
    WEST implicitly suggests to its customers that it is a less
    expensive provider of long distance services.[^67]

25. U S WEST also contends that the shortcomings in its initial
    promotional materials for the Service were remedied by the
    promotional materials it has used since November 1997, which specify
    that Frontier handles in-region, interLATA calls.[^68] However, this
    is no different from the situation the Commission confronted in the
    *1-800-AMERITECH Order*. Although later promotional materials in
    that case identified the supporting long distance provider who
    handled in-region, interLATA calls, they usually did so in small
    type.[^69] In this case, there also is a proportional dissimilarity
    in type size between the U S WEST brand name and the Frontier brand
    name.[^70] Moreover, the disclosures are generally relegated to an
    obscure portion of the promotional materials.

26. U S WEST further asserts that in-region interLATA calls are branded
    and billed as Frontier calls, which purportedly confirms the
    distinction between U S WEST and Frontier and eliminates any
    possible customer confusion.[^71] We disagree. Viewing the Service
    as a whole and the manner in which U S WEST promotes it, we conclude
    that U S WEST holds itself out as a long distance provider.[^72] The
    vanity access number all but ensures that the offering, and all of
    its components, generally will be perceived as a U S WEST-provided
    service. Furthermore, given the prominence of U S WEST's brand name
    on the promotional materials, the fact that U S WEST does not
    furnish the in-region, interLATA transmission for the Service likely
    will be lost on all but a few sophisticated consumers.[^73] This is
    the case regardless of whether a customer's monthly U S WEST
    statement identifies long distance calls as being carried by
    Frontier.[^74]

### U S WEST Performs Activities Typically Undertaken by Resellers.

27. In determining whether U S WEST performs activities in connection
    with its Service that are typically performed by those who resell
    interLATA service, we look to the degree of control U S WEST
    exercises over marketing and the customer relationship.[^75]
    Although the facts of this case are slightly different than in the
    *1-800-AMERITECH Order*, the degree of control U S WEST exercises
    over the customer relationship appears to be just as
    significant.[^76] U S WEST made it clear in the RFP and the
    resulting agreement with Frontier that U S WEST would exercise
    exclusive control over messages provided to customers and the
    overall customer relationship.[^77] While Frontier apparently is not
    prohibited from responding to certain customer service inquiries, it
    does so subject to U S WEST's direction, as U S WEST is
    contractually authorized to dictate how Frontier responds to
    customer inquiries and what messages Frontier provides to customers.

28. Similarly, U S WEST exercises exclusive control over the marketing
    of the 1-800-4USWEST Service. As described above, the agreement
    between U S WEST and Frontier provides that U S WEST "owns and
    creates all marketing communications."[^78] Further, the agreement
    states that "Frontier does not have any approval rights about any of
    the promotional, advertising or fulfillment packages," and that U S
    WEST, "as a courtesy, supplies Frontier with a copy of such
    materials."[^79] Thus, U S WEST controls the right to market and
    sell, under the 1-800-4USWEST name, not only its own local and
    intraLATA toll services, but Frontier's long distance services as
    well.[^80]

29. U S WEST's exercise of exclusive control over customer relations and
    marketing demonstrates that U S WEST was significantly involved in
    the design and development of the long distance component of its
    1-800-4USWEST Service. The fact that U S WEST could insist on such
    requirements, select a long distance provider who would accept the
    requirements without modification, and reject those who would not,
    is a testament to U S WEST's control over the design of the
    Service.[^81] For these reasons, we conclude that U S WEST is
    engaged in activities typically performed by resellers.[^82]

### Conclusion

30. Based on the totality of the circumstances, we conclude that,
    through the 1-800-4USWEST service, U S WEST is \"providing\"
    in-region, interLATA service in violation of section 271. First, the
    Service affords U S WEST material benefits uniquely associated with
    the inclusion of long distance service in the offering.
    Specifically, it permits U S WEST to accumulate a significant base
    of customers who rely on the Service, and it enables U S WEST to
    amass goodwill as a full-service provider with its local service
    customers. Second, through the Service and the many associated
    promotional materials that prominently bear U S WEST's brand, the
    carrier essentially holds itself out as providing long distance
    service. Finally, in connection with the Service, U S WEST controls
    numerous functions, including marketing and customer care, that are
    typically performed by a reseller of long distance service. All of
    these factors lead us to conclude that U S WEST is "providing"
    in-region, interLATA service in violation of section 271.

## We Reject U S WEST's Arguments Regarding Remedies.

31. U S WEST devotes much of its supplemental briefing to remedy-related
    arguments, contending, first, that the Commission's alleged delay in
    ruling on liability renders any damages award inappropriate.
    According to U S WEST, until a ruling in this case, the state of the
    law regarding the legality of its Service was unclear.[^83] We
    disagree, but note that we need not decide damages at this time. We
    will address damages when, and if, complainants file supplemental
    complaints for damages.

32. Second, U S WEST attempts to expand the scope of this proceeding by
    arguing that proposed marketing and promotional changes to its
    Service convert the Service into a lawful offering.[^84] We decline
    U S WEST's invitation to issue a declaratory ruling regarding its
    prospective conduct. Our task in this section 208 complaint
    proceeding is to adjudicate the lawfulness of prior or current
    conduct and not to opine on the lawfulness of hypothetical or future
    conduct. However, U S WEST is free to file a Petition for
    Declaratory Ruling requesting an opinion as to the lawfulness of
    proposed changes to its Service.

## We Need Not and Do Not Reach Complainants' Other Claims.

33. In addition to their section 271 claims, complainants argue
    that: (1) the 1-800-4USWEST service amounts to an unreasonable
    practice, in violation of section 201(b); (2) U S WEST excluded
    complainants in a discriminatory manner from providing transport
    services to support the Service, in violation of section 202(a); (3)
    the structure of the Service contravenes U S WEST's equal access
    obligations, in violation of section 251(g); and (4) by holding out
    itself as a provider of in-region, interLATA services prior to
    receiving authorization under section 271, U S WEST has circumvented
    separate affiliate safeguards, in violation of section 272. Because
    we find that U S WEST violated section 271, we need not and do not
    reach complainants' claims alleging other violations of the
    Communications Act.[^85]

# CONCLUSION

34. We find that U S WEST, through its 1-800-4USWEST Service, is
    providing in-region, interLATA services without authorization, in
    violation of section 271 of the Act. We do not reach other statutory
    claims raised by complainants.

# ORDERING CLAUSES

35. Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 4(j), 208,
    and 271 of Act, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), 208,
    and 271, that the Formal Complaints filed by MCI Telecommunications
    Corporation and AT&T Corporation ARE GRANTED to the extent that they
    allege that the 1-800-4USWEST Service violates section 271 of the
    Act.

FEDERAL COMMUNICATIONS COMMISSION

David H. Solomon

Chief, Enforcement Bureau

[^1]: Effective September 14, 1998, MCI Telecommunications Corp. merged
    with WorldCom, Inc. to form MCI WorldCom, Inc. This Order uses "MCI"
    to refer to the complainant in File No. E-97-40A.

[^2]: On June 30, 2000, U S WEST merged with Qwest Corporation
    ("Qwest"), and Qwest is now the legal successor to U S WEST. This
    Order refers to the defendant company in the two proceedings as "U S
    WEST."

[^3]: Pursuant to section 1.735(a) of the Commission's formal complaint
    rules (47 C.F.R. § 1.735(a)), we have consolidated AT&T's and MCI's
    actions against U S WEST, because the U S WEST Service challenged in
    both actions is identical.

[^4]: 47 U.S.C. § 271(a) ("Neither a Bell operating company, nor any
    affiliate of a Bell operating company, may provide interLATA
    services except as provided in this section."). InterLATA service
    "means telecommunications between a point located in a local access
    transport area \[LATA\] and a point located outside such area." 47
    U.S.C. § 153(21). LATAs are contiguous geographic areas established
    by a BOC such that no exchange area includes points within more than
    one metropolitan statistical area or state. 47 U.S.C. § 153(25).

[^5]: *See MCI Telecommunications Corp. v. Illinois Bell Tel. Co., et
    al.*, Memorandum Opinion and Order, 15 FCC Rcd 23184 (2000)
    ("*1-800-AMERITECH Order*").

[^6]: *See AT&T Corp. v. U S WEST Corp*., 13 FCC Rcd 21438 (1998)
    ("*Qwest Teaming Order*"), *aff'd sub nom., U S WEST Communications,
    Inc. v. FCC*, 177 F.3d 1057 (D.C. Cir. 1999), *cert. denied*, 120 S.
    Ct. 1240 (2000). In the *Qwest Teaming Order*, the Commission found
    that a self-described "teaming" arrangement between U S WEST and
    Qwest (and a similar arrangement between Ameritech and Qwest)
    violated section 271. U S WEST combined Qwest's long distance
    service with its own local services and offered the resulting
    package to U S WEST customers under a U S WEST brand, with U S WEST
    customer support. As noted above, U S WEST subsequently merged into
    Qwest.

[^7]: In addition to section 271, AT&T contends that U S WEST's Service
    violates sections 202, 251(g), and 272 of the Act. Complaint of AT&T
    Corp., File No. E-97-28 (May 22, 1997) ("AT&T Complaint") at 9-10
    (citing 47 U.S.C. §§ 202, 251(g), and 272). MCI argues that U S
    WEST's Service violates section 201(b), as well as section 271.
    Complaint of MCI Telecommunications, Inc., File No. E-97-40 (July
    21, 1997) ("MCI Complaint") at 7-10 (citing 47 U.S.C. § 201(b)).

[^8]: *See* Answer of U S WEST Communications, Inc., File No. E-97-28
    (June 23, 1997) ("U S WEST Answer in AT&T Case") at 12-13, ¶¶ 49-50,
    and Attachment 9.

[^9]: MCI Complaint, Exhibit B.

[^10]: *Id.*

[^11]: *Id.*; *see* Letter dated Jan. 25, 1999 from Robert B. McKenna
    (counsel for U S WEST) to Tonya Rutherford (Attorney-Advisor, FCC),
    File Nos. E 97-28 and E-97-40 ("U S WEST January 25, 1999 Letter"),
    Attachments.

[^12]: U S WEST Answer in AT&T Case, Attachment 11.

[^13]: *Id.* (RFP at 9).

[^14]: Frontier has since merged with Global Crossing Ltd. This Order
    refers to the company as "Frontier."

[^15]: U S WEST Answer in AT&T Case at 19, ¶ 69. U S WEST itself is the
    carrier for both local and intraLATA calls for its 1-800-4USWEST
    Service. *Id.* at 13-15, ¶ 51*.* U S WEST's interLATA affiliate, U S
    WEST Long Distance, Inc., carries the interLATA calls originating
    outside U S WEST's region (out-of-region interLATA traffic). *Id.*
    Section 271(b) permits a BOC, upon passage of the Telecommunications
    Act of 1996, to provide interLATA calls originating outside of its
    local service territory through a structurally separate affiliate.
    47 U.S.C. §§ 271(b), 272.

[^16]: U S WEST Answer in AT&T Case, Attachment 11 (RFP at 9).

[^17]: MCI Complaint, Exhibit B. Thus, the materials emphasize the U S
    WEST brand as the source for the services provided with the calling
    card: "use the 1-800-4USWEST Calling Card to make local calls, long
    distance calls, international calls. . . ." MCI Complaint at Exhibit
    B; "Introducing 1-800-4USWEST. All your calls with just one card." U
    S WEST Answer in AT&T Case, Attachment 9; "U S WEST has introduced
    the U S WEST Express Calling Card, which allows users to place
    domestic long distance calls anytime from anywhere in the United
    States for just 20 cents a minute." AT&T Complaint, Exhibit K;
    "Because 1-800-4USWEST gives you a low 20-cents-per-minute rate on
    every call you make when you're away from home. It's a better rate
    than those charged by *our* long distance competitors." U S WEST
    Answer in AT&T Case, Attachment 8 (emphasis added).

[^18]: *See, e.g.,* MCI Complaint, Exhibit B ("\[C\]alls made via
    1-800-4USWEST will be handled by U S WEST Communications, U S WEST
    Long Distance or Frontier. Call Customer Service for more
    details."). Moreover, in some instances, no mention is made of
    Frontier at all. *See, e.g.,* Letter dated Sept. 30, 1997 from Peter
    H. Jacoby (counsel for AT&T) to Deena M. Shetler (Attorney-Advisor,
    FCC), File No. E-97-28, attaching U S WEST brochure entitled "Small
    Business Guide to Communications Services." On a page entitled "U S
    WEST Complementary Long Distance Services," the 1-800-4USWEST card
    is described as "the simple way to make long distance calls when
    you're away from the office." *Id.* at 23. The brochure fails to
    mention Frontier or its role in providing long distance service.

[^19]: U S WEST January 25, 1999 Letter, Attachments.

[^20]: U S WEST Responses to MCI's First and Further Set of
    Interrogatories, File No. E-97-40 (Oct. 3, 1997) ("U S WEST October
    3, 1997 Interrogatory Responses") at 20-21.

[^21]: *Id.*

[^22]: *Id.* at 3-6.

[^23]: *See* Supplemental Responses of U S WEST to AT&T's First Set of
    Interrogatories, File No. E-97-28 (Aug. 22, 1997) ("U S WEST August
    22, 1997 Supplemental Interrogatory Responses") at 22, 28.

[^24]: U S WEST August 22, 1997 Supplemental Interrogatory Responses at
    28. U S WEST identified several related agreements involving its
    Service that U S WEST, U S WEST's affiliate (U S WEST Long
    Distance), Frontier, and Frontier's affiliate (LinkUSA Corporation
    ("LinkUSA")) executed. *Id.* at 3-28. This Order refers to these
    agreements collectively as one agreement between U S WEST and
    Frontier.

[^25]: Stipulation of Undisputed Facts, File No. E-97-28 (Sept. 9, 1997)
    ("Stipulation of Undisputed Facts") at 1, ¶ 1.

[^26]: 47 U.S.C. § 271(a).

[^27]: 47 U.S.C. § 271(d).

[^28]: *U S WEST Communications*, 177 F.3d at 1060.

[^29]: *See* 47 U.S.C. §§ 251, 252. The Telecommunications Act of 1996,
    Pub. L. No. 104-104, 110 Stat. 56, *codified at* 47 U.S.C. §§ 151
    *et seq.*, amended the Communications Act of 1934.

[^30]: *U S WEST Communications*, 177 F.3d at 1060; 47 U.S.C. § 271(c).
    *See also AT&T Corp. v. FCC*, 220 F.3d 607, 612 (D.C. Cir. 2000)
    (conditional long distance entry pursuant to section 271 is designed
    "\[t\]o encourage BOCs to open their markets to competition as
    quickly as possible"). The Commission's decision in the *Qwest
    Teaming Order* contains a more extensive explanation of the
    market-opening incentives behind section 271. 13 FCC Rcd at
    21441-47, ¶¶ 3-7.

[^31]: Supplemental Brief of WorldCom, Inc., File No. E-97-40A (Dec. 8,
    2000) at 5; Stipulation of Undisputed Facts at 2, ¶ 4. U S WEST has
    not requested authorization from the Commission to provide long
    distance service in any state in its region.

[^32]: *Qwest Teaming Order*, 13 FCC Rcd at 21465, ¶ 37.

[^33]: *Id.* at 21462, ¶ 30.

[^34]: *Id.* at 21465-66, ¶ 37.

[^35]: *Id*.

[^36]: U S WEST argues that the *1-800-AMERITECH* *Order* is not
    relevant precedent, and encourages the Commission to rely instead
    upon the Common Carrier Bureau's decision involving BellSouth's
    pre-paid calling card. *See AT&T Corp. v. BellSouth Corp.*,
    Memorandum Opinion and Order, 14 FCC Rcd 8515 (Com. Car. Bur. Mar.
    30, 1999). We decline to do so; reliance on the staff-level pre-paid
    calling card decision would be misplaced in these circumstances. The
    BellSouth pre-paid calling card is meaningfully different than the
    offerings at issue in the *1-800-AMERITECH Order* and in this case.
    As the Commission pointed out in the *1-800-AMERITECH Order*, the
    Common Carrier Bureau determined that BellSouth's pre-paid card
    offering did not violate section 271 because, *inter alia*, (1) the
    card did not involve a continuing, presubscribed relationship that
    would allow BellSouth to gain meaningful information about card
    purchasers and to exploit that relationship in customer retention or
    win-back efforts; and (2) the card served a segment of the
    telecommunications market that is replete with similar prepaid
    offerings sponsored by non-carriers, thereby reducing the risk that
    consumers would perceive BellSouth as offering in-region, interLATA
    services. *Id.* at 8525-28, ¶¶ 19-27. In light of these differences,
    the BellSouth pre-paid card case does not support a conclusion in
    this case that U S WEST's Service passes muster under section 271.
    Rather, as explained below, this case is controlled by the
    Commission's *1-800-AMERITECH Order*. Similarly, we reject U S
    WEST's contention that its Service is not meaningfully different
    than calling card offerings that were lawful under the Modified
    Final Judgment. QWEST Corporation Supplemental Opening Brief on the
    Relevance of the AMERITECH Calling Card Order, File No. E-97-28
    (Dec. 8, 2000) ("U S WEST Brief re Applicability of Ameritech in
    AT&T Case") at 2-4, 12-14. The Commission addressed and rejected
    this same contention in the *1-800-AMERITECH Order*.
    *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶ 22.

[^37]: *Qwest Teaming Order*, 13 FCC Rcd*.* at 21467, ¶ 41 (internal
    quotation omitted).

[^38]: *See U S WEST Communications*, 177 F.3d at 1060 ("By offering
    one-stop shopping for local and long distance under their own brand
    name and with their own customer care . . . \[the BOCs\] could build
    up goodwill as full service providers, positioning themselves in
    these markets before section 271 allows them actually to enter.").

[^39]: AT&T Complaint, Exhibit K (emphasis added).

[^40]: AT&T Complaint, Exhibits G, I, and J. Further, U S WEST
    emphasized in a late 1996 filing to the Iowa Utilities Board that
    its calling card Service was "essential for U S WEST's effective
    participation in the long distance market." *Id.*, Exhibit H. These
    contemporaneous representations concerning the one-stop shopping
    advantage U S WEST sought to gain with its Service severely undercut
    U S WEST's current contention that it was not seeking a "jumpstart."
    *See* U S WEST Brief re Applicability of Ameritech in AT&T Case at
    9, 11-14. U S WEST's argument is also belied by an independent
    industry analysis which concludes that BOC calling card services,
    like U S WEST's, are targeted to "jumpstarting" the BOC's entry into
    the long-distance market. *See* Yankee Group Report, Exhibit 1 to
    AT&T's Reply Brief Concerning Effect of *QWEST* Order, File No.
    E-97-28 (Feb. 12, 1999), at 21 (BOCs are "using calling card
    platforms in preparation for authorization for in-region
    long-distance entry," and the cards are designed, in part, to
    "accustom \[the BOC's\] local customer base to perceiving the
    \[BOC\] as an all-distance, multiple service provider").

[^41]: U S WEST August 22, 1997 Supplemental Interrogatory Responses at
    15.

[^42]: *See* U S WEST Answer in AT&T Case, Attachment 11 (RFP at 9); U S
    WEST August 22, 1997 Supplemental Interrogatory Responses at 15, 18.

[^43]: The RFP provides additional evidence that U S WEST intended the
    Service to afford a considerable jumpstart for its in-region, long
    distance operations as it received section 271 authority in each
    state. For example, pursuant to the RFP, U S WEST could cancel the
    portion of the contract concerning Frontier's provision of in-region
    interLATA service on 60 days' notice, and could effect such a
    cancellation on a state-by-state basis. U S WEST Answer in AT&T
    Case, Attachment 11 (RFP at 9). Thus, the RFP expressly contemplated
    that U S WEST quickly would move, on a state-by-state basis, to
    substitute its section 272 long-distance affiliate as the provider
    of record for in-region, interLATA traffic generated by
    1-800-4USWEST customers.

[^44]: *Qwest Teaming Order*, 13 FCC Rcd at 21467, ¶ 41. *See also U S
    WEST Communications*, 177 F.3d at 1060.

[^45]: *Qwest Teaming Order*, 13 FCC Rcd at 21468, ¶ 42;
    *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_\_, ¶ 14.

[^46]: U S WEST Answer in AT&T Case, Attachment 11 (RFP at 10) (emphasis
    added).

[^47]: U S WEST August 22, 1997 Supplemental Interrogatory Responses at
    28.

[^48]: While Frontier, through its affiliate LinkUSA, apparently
    provides some customer service to U S WEST customers in connection
    with their use of the 1-800-4USWEST Service, it is of little
    significance given U S WEST's contractual control over messages
    provided to customers and over the customer relationship in general.

[^49]: U S WEST October 3, 1997 Interrogatory Responses at 3-6.

[^50]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_\_, ¶ 15.

[^51]: *See*, *supra*, at ¶ 15.

[^52]: *See 1-800-AMERITECH* Order, 15 FCC Rcd at \_\_\_, ¶ 16; *U S
    WEST Communications*, 177 F.3d at 1060.

[^53]: *Qwest Teaming Order*, 13 FCC Rcd at 21471, ¶ 45.

[^54]: *U S WEST Communications*, 177 F.3d at 1061.

[^55]: A vanity number is a telephone number for which the letters
    associated with the number's digits on a telephone handset spell a
    name or word of value to the number holder. *In re Toll Free Service
    Access Codes*, Fourth Report and Order and Memorandum Opinion and
    Order, 13 FCC Rcd 9058, 9058, ¶ 1 (1998) ("*Toll Free Service Access
    Codes Order*").

[^56]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶ 18.

[^57]: As the Commission stated in the *Toll Free Service Access Codes
    Order*, vanity numbers "are of value to their subscribers because
    they can generate high visibility and consumer recognition when used
    in advertising." *Id.* at 9064, ¶ 11.

[^58]: *QWEST Teaming Order*, 13 FCC Rcd at 21471, ¶ 45; *U S WEST
    Communications*, 177 F.3d at 1061.

[^59]: U S WEST Brief re Applicability of Ameritech in AT&T Case at 18.

[^60]: *See generally* MCI Complaint, Exhibit B; U S WEST Answer in AT&T
    Case, Attachments 6-9.

[^61]: U S WEST Answer in AT&T Case, Attachment 8 ("Because
    1-800-4USWEST gives you a low 20-cents-per-minute rate on every call
    you make when you're away from home. It's a better rate than those
    charged by *our* long distance competitors.") (emphasis added).

[^62]: MCI Complaint, Exhibit B ("use the 1-800-4USWEST Calling Card to
    make local calls, long distance calls, international calls. . . ");
    U S WEST Answer in AT&T Case, Attachment 9 ("Introducing
    1-800-4USWEST. All your calls with just one card"); AT&T Complaint,
    Exhibit K ("U S WEST has introduced the U S WEST Express Calling
    Card, which allows users to place domestic long distance calls
    anytime from anywhere in the United States for just 20 cents a
    minute.").

[^63]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶¶ 3, 19.

[^64]: U S WEST Brief re Applicability of Ameritech in AT&T Case at 2-4,
    16-17.

[^65]: *Id*.

[^66]: *See* U S WEST January 25, 1999 Letter at 1 ("Dial 1-800-4USWEST"
    and "You Will Save . . . It Works . . . \[and\] It's Complete;"
    "Dial 0" and "We Can't Guarantee You'll Save . . . It Doesn't Work .
    . . \[and\] It's Incomplete."). Other advertisements warned
    customers that, although they could still dial "0" when using the
    Service, U S WEST could not "protect" them if they did. *See* AT&T
    Complaint, Exhibit B.

[^67]: Similarly, U S WEST's promotional materials expressly compare U S
    WEST's calling card services for long distance calls with the long
    distance services provided by MCI, Sprint, and AT&T. U S WEST
    January 25, 1999 Letter at 14. This further bolsters our conclusion
    that U S WEST is holding itself out as a provider of long distance
    services. *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶ 20.

[^68]: U S WEST Brief re Applicability of Ameritech in AT&T Case at
    15-16; U S WEST January 25, 1999 Letter, Attachments.

[^69]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶ 21.

[^70]: U S WEST January 25, 1999 Letter, Attachments. In addition, not
    all of the later disclaimers state that Frontier handles the
    in-region, interLATA calls. At least one of the disclaimers
    continues to use the original language that "calls made via
    1-800-4USWEST will be handled by U S WEST Communications, U S WEST
    Long Distance or Frontier. Call Customer Service for more details."
    *Id.* at 6.

[^71]: U S WEST Brief re Applicability of Ameritech in AT&T Case at 15.

[^72]: *See U S WEST Communications*, 177 F.3d at 1061 (considered in
    their entirety, the U S WEST and Ameritech promotional materials
    could "lead consumers to link long-distance service to the BOCs,
    particularly as long-distance was offered only as part of a
    full-service package within a BOC brand name.").

[^73]: *Cf. United States v. Western Elec. Co*., 698 F. Supp. 348, 356
    nn.38, 42 (D.D.C. 1988) (advertisements for long distance service in
    connection with BOC-provided calling cards that failed to indicate
    that the BOCs were not providing the long distance service were
    misleading and inconsistent with the Modified Final Judgment's
    prohibitions, because customers would be misled into believing the
    BOCs were carrying the long distance calls).

[^74]: The fact that the long distance provider's name was listed on
    Ameritech's customer bills in the *1-800-AMERITECH Order* also did
    not save the Ameritech service from a section 271 violation.
    *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶¶ 7, 22.

[^75]: *Qwest Teaming Order*, 13 FCC Rcd at 21473, ¶ 48;
    *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶¶ 23-25.

[^76]: Indeed, U S WEST makes almost no attempt to distinguish between
    the customer control restrictions imposed in its agreement with
    Frontier and those described in the *1-800-AMERITECH Order*. U S
    WEST simply states that "\[t\]he business relationship between
    Frontier and U S WEST as reflected in the record demonstrates some
    similarities and some material differences as between that
    relationship and the one outlined in the *AMERITECH Calling Card
    Order.*" U S WEST Brief re Applicability of Ameritech in AT&T Case
    at 10, n. 22. Yet U S WEST fails to support this assertion with any
    cites to the record or discussion of differing contract terms. U S
    WEST merely suggests that Frontier's carrying, branding, and rating
    of the calls is inconsistent with the conclusion that U S WEST acts
    as a reseller. *Id.* As discussed *infra* at n.74, however, it is
    clear that the long distance company in the *1-800-AMERITECH Order*
    also branded and carried the calls in question. *1-800-AMERITECH
    Order*, 15 FCC Rcd at \_\_, ¶¶ 7, 22.

[^77]: U S WEST Answer in AT&T Case, Attachment 11 (RFP at 10); U S WEST
    August 22, 1997 Supplemental Interrogatory Responses at 28.

[^78]: U S WEST August 22, 1997 Supplemental Interrogatory Responses at
    28.

[^79]: *Id.* at 22.

[^80]: The parties have not identified any instances in which Frontier
    engaged in independent marketing, sales, or promotional activities
    in connection with the 1-800-4USWEST Service.

[^81]: U S WEST declared, in its RFP, that it would own the customer
    relationship and would exercise exclusive control over the marketing
    of the 1-800-4USWEST Service. These requirements were apparently
    adopted wholesale in U S WEST's agreement with Frontier. U S WEST
    August 22, 1997 Supplemental Interrogatory Responses at 22, 28.

[^82]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶¶ 25-26.

[^83]: U S WEST Brief re Applicability of Ameritech in AT&T Case at 4-6.

[^84]: *Id.* at 20-22.

[^85]: *1-800-AMERITECH Order*, 15 FCC Rcd at \_\_, ¶ 28; *Qwest Teaming
    Order*, 13 FCC Rcd at 21476, ¶ 53.