The Federal Communications Commission (FCC) issued a ruling in a Formal Complaint proceeding initiated by three competitive local exchange carriers (CLECs), All American Telephone Co., Inc., e-Pinnacle Communications, Inc., and ChaseCom, against AT&T Corp. All American Telephone Co., Inc., et al. v. AT&T Corp., Memorandum Opinion and Order, File No. EB-10-MD-003. A complete copy of the FCC’s Memorandum Opinion and Order (MO&O) can be found here.

The Formal Complaint effectuated, in part, a referral of issues from the Southern District of New York in the case All American Telephone Co., Inc., et al. v. AT&T Corp., 07-cv-00861-WHP (S.D.N.Y.). The crux of the Formal Complaint was that AT&T Corp. violated various provisions of the Communications Act by failing to pay for terminating switched access services provided by the CLECs and invoiced pursuant to their federally-filed tariffs. AT&T argued that payments were not required because the services provided by the CLECs were not covered under the terms of the CLECs’ access tariffs.

In the Memorandum Opinion and Order, the FCC denies the CLECs’ Formal Complaint and overrules prior precedent, indicating that AT&T’s failure to provide payment to the CLECs is not a violation of the Communications Act. In explaining its reasoning, the FCC concludes that the Communications Act only relates to the obligations that a carrier has to its customer, not the obligations that a customer may have to a carrier. With regard to the allegations of non-payment for switched access services, the FCC concluded that AT&T was acting solely as a “customer,” rather than a carrier, in refusing to tender payment. MO&O ¶¶ 2, 10. Further, the FCC indicated that its rules and the Communications Act “govern only what the provider may charge, not what the customer must pay.” MO&O ¶ 18.

Although the FCC did note that it does not “endorse such withholding of payment outside the context of any applicable tariffed dispute resolution provisions,” it nonetheless sought to distinguish prior precedent in order to conclude that a failure to pay tariffed access charges does not violate any provision of the Communications Act. MO&O ¶ 13. Instead, the FCC continued, “an IXC that refused payment of tariffed rates within the safe harbor would be subject to suit on the tariff in the appropriate federal district court. . . .” MO&O ¶ 15 (emphasis in original). As a result the FCC is essentially treating tariff breaches as breaches of contract rather than as violations of the Communications Act.

The Commission did acknowledge that its analysis could be viewed as a departure from its prior decision in MGC Communications, Inc. v. AT&T Corp., 14 FCC Rcd. 11647 (1999) and 15 FCC Rcd. 308 (1999). However, the Commission went on to conclude that “[t]o the extent that the Commission’s decision in MGC can be read to stand for the proposition that a carrier’s failure to pay access charges violates the Act, we hold that it is not good law.” MO&O ¶ 20.