Over the last 30 years, the Federal Communications Commission has adopted policies designed to stimulate competitive choice for consumers of telecommunications services. These policies have paralleled convergence in the telecommunications marketplace as traditional telephone companies have sought to enter the video business, cable TV companies have sought to enter telephony, and both have sought to provide Internet access. One of these FCC policies allows consumers to change their telephone service provider while keeping their number. This process is known as "porting" (customers are said to move or "port" their number from one provider to another). This Alert deals with an unusual FCC decision involving porting.

The facts were these. Three cable TV companies, Comcast, Bright House and Time Warner, complained to the FCC that Verizon was misusing information it obtained as part of the porting process. In particular, the complaint alleged that when Verizon was informed of its customers' decisions to switch their service from Verizon to one of the complainants, Verizon promptly contacted the customers with offers designed to retain their business, e.g., price discounts.

The Complainants proposed to provide service by relying upon wholesale services furnished by competitive local exchange carriers. Two of the three complainants (Comcast and Bright House) proposed to obtain the voice telephone service from their own affiliates.

In order to port service from one provider to another, the incumbent (here, Verizon) must be furnished certain information by the new provider. That information includes the name and number of the customer, the name of the new carrier, and other data. Thus the incumbent is in a position to know, in advance, that one of its customers is about to take its business elsewhere, and act on that information in an effort to retain the customer's business. This is the information that had been furnished to Verizon.

In a 4-1 decision, with FCC Chairman Kevin Martin dissenting, the Commission held that Verizon had violated the Communications Act ("the Act"). In so doing, the majority rejected the staff's recommendation that the conduct at issue be held not to constitute a violation.

The Commission's decision turned on a close reading of Section 222(b) of the Act.1 Contrary to the staff's recommendation, the Commission held that the information furnished to Verizon was within the ambit of Section 222(b), even though it was for the purpose of the submitting parties' provision of service rather than the receiving carrier's provision of telecommunications service as Verizon had argued; and that the information in question (the fact that certain customers were looking to change providers on certain dates) was part and parcel of the provision of "telecommunications service," even if not necessarily telecommunications itself.

Where the majority, on the one hand, and the Chairman (and staff), on the other hand, parted company was chiefly over the issue of whether the Comcast and Bright House affiliates qualify for the protections of Section 222(b), namely whether they are "telecommunications carriers" within the meaning of the Act. (Neither Comcast nor Bright House itself is a telecommunications carrier; rather, they are regulated as cable companies under Title VI of the Act.)

While neither affiliate generally had held itself out as offering the kinds of telecommunications services indiscriminately to the public which they provided to their affiliated cable companies — the traditional test for a common carrier — the Commission majority held that the affiliates were telecommunications carriers. In seeming recognition of the weakness of this position, however, the majority stressed that its holding was limited to the facts of this case; and even asserted that it was permissible as a matter of law to read a statutory definition one way for purposes of construing one section of an Act, and a different way for purposes of construing another section of the same Act.

The Chairman's Dissenting Statement accused the majority of being arbitrary and capricious on this point and driven by a desire to reach a particular result rather than adhere to settled Commission precedent and the law. Among other things, he said:

The majority's attempt to dodge the issue and deny the consequences of today's action by holding that we are determining that the [affiliates] are carriers for purposes of 222(b) based on the specific record and specific facts of this case but not for other purposes makes no sense and is not legally sustainable. A provider either is or is not a "telecommunications carrier." This "pick and choose, rule by rule" approach is the very height of arbitrary and capricious conduct by the Commission, and is a thinly veiled attempt by the majority to reach a desired result without accepting responsibility for the legal consequences of their action.

Adding to what some would call questionable reasoning is the fact that the thrust of the majority's decision appears to subject one set of players (incumbent local exchange companies like Verizon) to one set of rules, while another set of players (franchised cable TV companies) to a different, more liberal set of rules. Under current policy, cable TV companies, not being governed by Title II of the Act and, in particular, Section 222(b), may be free to engage in the kind of aggressive marketing techniques to retain their video customers that are forbidden to telcos under the decision. This could have market-distorting consequences given the increasing competition between and among providers of bundled service, which includes voice, video and Internet access.2

It is likely that the Commission will initiate a broad-ranging rulemaking to bring greater consistency to the agency's treatment of the players in the converged marketplace. But for now, at least, separate is not equal when it comes to porting obligations for different players in the converged telecom marketplace.