Opinion ID: 1836691
Heading Depth: 1
Heading Rank: 3

Heading: Whether Fast Phones Operates A Telephone Exchange

Text: Fast Phones alleges that it does not operate a telephone exchange because, it argues, it merely resells telephone services. Fast Phones argues that because it resells telephone services, does not own any telephone lines or equipment, and does not control the central office where the telephone services are actually connected and disconnected, it should not be considered an operator of a telephone exchange and, thus, it should not be subject to the license fee imposed by the City. The record reveals that Fast Phones has an agreement with BellSouth Telecommunications, Inc. (BellSouth), pursuant to which Fast Phones leases local telephone lines from BellSouth. Fast Phones then sells local telephone service to consumers whose credit history is poor; it sells that service at a price higher than the price BellSouth ordinarily charges its customers. At the time of the hearing on the City's summary-judgment motion, Fast Phones was leasing approximately 1,000 lines from BellSouth. BellSouth owns all of the facilities and equipment necessary to provide the local telephone service Fast Phones resells. Fast Phones itself does not own any facilities, transmission equipment, telephone lines, switching equipment, or other engineering equipment. Furthermore, Fast Phones does not perform maintenance work on the telephone lines or the equipment, and it does not provide long-distance telephone service. According to Fast Phones, it merely takes orders for service from its limited market and then instructs BellSouth to connect or disconnect a particular customer's telephone service. In other words, Fast Phones purchases services from BellSouth and then offers those services to its own customers at a price it sets. Once a customer contracts with Fast Phones, Fast Phones pays BellSouth an amount to cover the cost of the customer's first month of telephone service at BellSouth's rate and to cover any required deposit so that BellSouth will connect telephone services for that customer. A customer who contracts with Fast Phones does not pay BellSouth directly for telephone services; the customer makes its payments to Fast Phones. In turn, BellSouth bills Fast Phones for all of the telephone services Fast Phones' customers receive. Fast Phones is responsible for paying BellSouth and for collecting any unpaid amounts from its own customers. If Fast Phones' customers do not pay their telephone bills, Fast Phones, not BellSouth, loses money. Thus, Fast Phones is not obtaining customers for BellSouth, but is instead recruiting its own high-risk customers for a profit. Fast Phones' customers do not contact BellSouth to report telephone problems. Fast Phones maintains a toll-free telephone number its customers can call to report problems with their telephone service. Fast Phones then reports those problems to BellSouth and requests that BellSouth investigate and correct the problems. Thus, Fast Phones' customers have no direct contact with BellSouth. In order to conduct its business, Fast Phones is required to obtain a certificate of public convenience and necessity from the Alabama Public Service Commission (the APSC). In its application, Fast Phones requested a certificate of public convenience and necessity to provide resold local exchange service in the State of Alabama. The APSC issued the certificate to Fast Phones. Thus, Fast Phones and the APSC characterize Fast Phones' business as the reselling of local telephone-exchange service. Fast Phones argues that because neither the telephone-exchange ordinance nor § 11-51-128 defines telephone exchange, the Telephone Rules of the APSC are the most logical authority to consult to determine the meaning of that term. Rule T-2(U), Telephone Rules of the APSC, defines an exchange as [t]he entire telephone plant and facilities used in furnishing local telephone service to customers located in an exchange service area. An exchange may include more than one central office unit. Rule T-2(I) defines a central office as [a] switching unit, in a telecommunications system which provides service to the general public, having the necessary equipment and operating arrangements for terminating and interconnecting customer lines and trunks or trunks only. Fast Phones does not operate any switching units and does not have even the first central office unit, much less more than one central office unit. The Alabama Court of Civil Appeals has addressed and rejected the exact argument Fast Phones raises in this Court. In Dial Tone, Inc. v. City of Montgomery, 774 So.2d 592 (Ala.Civ.App.1999), [1] Dial Tone, Inc., also a reseller of local telephone services, challenged the same license fee at issue in this case. Dial Tone argued that because it merely resold telephone service and did not own or operate any equipment that enabled the telephone service to function, it could not be considered to be operating a telephone exchange. Thus, Dial Tone argued, it could not be subject to the license fee imposed pursuant to the telephone-exchange ordinance. The Court of Civil Appeals stated: We reject the argument that, to operate a telephone exchange, one must own or handle the equipment that allows a telephone system to function.... We hold that a service provider such as Dial Tone is the operator of a telephone exchange, because it furnishes the benefits of telephone communication to its customers by `directly facilitat[ing] two-way communication between a significant number of unrelated persons or businesses.' See Alabama State Dep't of Revenue v. Telamarketing Communications, 514 So.2d 1388, 1390 (Ala.Civ.App. 1987) (quoting United States Transmission Systems, Inc. v. Board of Assessment Appeals, 715 P.2d 1249, 1254 (Colo.1986)). In Telamarketing Communications of Montgomery, supra, this court held that companies that resell long-distance telephone services are engaged in the `telephone business' for purposes of the telephone gross-receipts license tax of § 40-21-58, Ala.Code 1975.... . . . . Our decision in Telamarketing Communications recognized the business and economic reality that `resellers' of telephone service perform the same functions as the `traditional' telephone companies. Because of that reality, they are subject to many of the same requirements as the traditional companies, among those requirements being the obligation to pay tax and business-license assessments. 774 So.2d at 594. Being in the telephone business and operating a telephone exchange are distinctly different. Alabama State Department of Revenue v. Telamarketing Communications of Montgomery, 514 So.2d 1388 (Ala.Civ.App.1987), relied upon by the Court of Civil Appeals in Dial Tone, recognizes business and economic reality when it treats resellers of telephone services as engaging in the telephone business. Nevertheless, it ignores reality to treat Fast Phones as an operator of a telephone exchange. Fast Phones merely resells telephone services. Simply because the APSC authorized Fast Phones to provide  resold local exchange service does not make Fast Phones a telephone exchange. (Emphasis added.) To accept the concept that a reseller of telephone services is a telephone exchange is an impermissible stretch of logic. Telephone exchange is a term that has been with us since the invention of the telephone. In Davidson v. Alabama Power Co., 203 Ala. 77, 82 So. 91 (1919), an action against Alabama Power Company alleging that a telephone exchange had been destroyed as a result of a power surge through a telephone line, this Court described such an operation: [T]he plaintiffs owned a building at Helena, Ala., in which was operated a telephone exchange owned by the plaintiffs, and there was in said building a large number of telephones, office furniture, and fixtures stored, and in connection with said telephone business plaintiffs had in said building a telephone switchboard and all appliances and apparatus necessary to operate the same, together with telephone wires, telephone attachments and equipments, and $86.60 in cash in said building. 203 Ala. at 77, 82 So. at 91 (quoting the plaintiffs' complaint). Viewed in the proper historical perspective, Fast Phones' operation does not remotely resemble the operation of a telephone exchange. This Court is not at liberty to update the definition of a telephone exchange to embrace resellers of services originating in a telephone exchange under the guise of recognizing business and economic reality. Any amendments to the telephone-exchange ordinance should fall exclusively within the province of the City. To hold otherwise would convert a reseller of automobiles purchased from the manufacturer into a manufacturer of automobiles. A newspaper carrier would become a publisher. Every local hotel and motel providing a telephone in a guest's room and charging a fee per local call and providing an employee to handle any complaints about the telephone service would become a telephone exchange subject to the flat $12,000 per year license fee charged by the City. Such activity by a local hotel or motel is indistinguishable from the activity the Court of Civil Appeals erroneously described in Dial Tone as furnish[ing] the benefits of telephone communication to its customers by `directly facilitat[ing] two-way communication between a significant number of unrelated persons or businesses.' 774 So.2d at 594 (quoting Telamarketing Communications, 514 So.2d at 1390, quoting in turn United States Transmission Systems, Inc. v. Board of Assessment Appeals, 715 P.2d 1249, 1254 (Colo. 1986)). We expressly overrule Dial Tone, to the extent it conflicts with our holding in this case.