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Before the
Federal Communications Commission
Washington, D.C. 20554
)
)
)
In the Matter of File No. EB-07-IH-5149
)
IDT Corporation NAL/Acct. No. 200832080092
)
Apparent Liability for Forfeiture FRN No. 0003-7900-37
)
)
)
NOTICE OF APPARENT LIABILITY FOR FORFEITURE
Adopted: July 9, 2008 Released: July 10, 2008
By the Commission:
I. INTRODUCTION
1. In this Notice of Apparent Liability for Forfeiture ("NAL"), we find
that IDT Corporation ("IDT" or "the Company"), has apparently violated
section 220 of the Communications Act of 1934, as amended (the "Act"),
and section 43.51 of the Commission's rules by willfully and
repeatedly failing to file with the Commission, within thirty days of
execution, a copy of an agreement with Telecommunications D'Haiti
S.A.M. ("Teleco Haiti") and each of four amendments thereto governing,
among other things, the exchange of services, routing of traffic,
accounting rates, and division of tolls on the U.S.-Haiti route. We
further find that IDT has violated sections 43.51 and 64.1001 of the
Commission's rules by failing to file a modification request for each
of its four amendments to rate schedules under the terms of its
agreement with Teleco Haiti, and by failing to obtain Commission
approval prior to implementing such amendments. Based on our review of
the facts and circumstances surrounding this matter, we find that IDT
is apparently liable for a total forfeiture of $1.3 million.
II. BACKGROUND
2. The Commission's International Settlements Policy ("ISP") is a
longstanding regulatory framework that governs how U.S. carriers
negotiate with foreign carriers for the exchange of international
telecommunications traffic. The ISP is the structure by which the
Commission has sought to respond to concerns that foreign carriers
with market power are able to take advantage of the presence of
multiple U.S. carriers serving a particular market. The Commission
established the ISP to prevent foreign carriers with market power from
discriminating, or using threats of discrimination or other
anticompetitive actions against competing U.S. carriers as a strategy
to obtain pricing concessions regarding the exchange of international
traffic, a practice known as "whipsawing." The Commission thus adopted
the ISP to ensure a competitive playing field among providers of
international services due to the possibility that dominant carriers
on the foreign end of a U.S.-international route could leverage their
market power to the detriment of U.S. carriers and, ultimately, U.S.
consumers.
3. The ISP establishes three conditions on the ability of U.S. carriers
to execute agreements with foreign carriers for the exchange of
international traffic: (1) all U.S. carriers must be offered the same
effective accounting rate, and same effective date for the rate
("nondiscrimination"); (2) U.S. carriers must receive a proportionate
share of U.S.-inbound, or return, traffic based upon their proportion
of U.S.-outbound traffic ("proportionate return"); and (3) the
accounting rate must be divided evenly (i.e., 50-50) between U.S. and
foreign carriers for U.S. inbound and outbound traffic ("symmetrical
settlement rates"). Together, these components are intended to create
a unified bargaining position among U.S. carriers in their
negotiations with foreign carriers possessing market power.
4. To detect instances in which U.S. and foreign carriers have entered
into arrangements that violate the Commission's International
Settlements Policy, the Commission adopted, among other safeguards,
section 43.51 of its rules, which imposes on U.S. carriers specific
filing obligations relating to contracts and other arrangements
between U.S. and foreign carriers for the exchange of international
telecommunications traffic. In particular, the Commission required
that certain U.S. carriers who execute agreements with foreign
carriers concerning the exchange of services, routing of traffic, rate
and other matters, timely file such agreements with the Commission,
and further directed that such carriers file a "modification request"
prior to implementing any arrangement that offered terms different
from those made available to any other carrier serving the same
U.S.-international route. In section 64.1001 of its rules, the
Commission, among other things, barred subject carriers from
implementing any such arrangement absent prior Commission approval,
and further required that such carriers notify all other carriers
providing service on the same international route of its modification
request, concurrently with the filing of such request with the
Commission. Collectively, the obligations imposed by sections 43.51
and 64.1001 were intended to enable the Commission to identify
potential instances of anticompetitive conduct and enforce compliance
with the International Settlements Policy.
5. As the U.S.-international market and foreign markets for
telecommunications services have become more competitive, the
Commission has increasingly relaxed its application of the ISP. Most
recently, the Commission, in 2004, lifted the ISP and certain
associated requirements for all U.S.-international routes where U.S.
carriers had negotiated termination rates that fell below certain
thresholds, or "benchmarks" previously established by the Commission
in order to reduce international settlement rates by bringing them
closer to cost. The Commission determined that, in such cases, market
forces were sufficiently competitive to justify removing the ISP as it
applied to U.S. carriers. The Commission further found that removing
the ISP requirements from benchmark-compliant routes would simplify
the Commission's current regulatory regime and facilitate the
expansion of opportunities for flexible, commercial arrangements on
more routes, to the benefit of U.S. competition and U.S. consumers.
Pursuant to the procedures established in the ISP Reform Order, the
Commission began to identify U.S.-international routes that were
considered exempt from the ISP. On November 4, 2004, the Commission
lifted the ISP as it applied to the route between the United States
and Haiti, among others.
6. IDT is a publicly-traded, New Jersey-based company that provides a
range of telecommunications services domestically and internationally,
including local, long distance, wireless, a range of voice over
Internet protocol services, and pre-paid calling cards. IDT offers
services to retail and wholesale markets in more than 230 countries
and territories worldwide. In 2007, IDT's telecommunications division
generated revenues of approximately $1.73 billion.
7. On October 22, 2003, IDT entered into a Carrier Service Agreement
("agreement") with Teleco Haiti that established the terms and
conditions for the provision and purchase of wholesale
telecommunications services on the U.S.-Haiti route, including the
rates for such services. During the time period beginning February 5,
2004, until November 4, 2004, when the ISP was lifted from the
U.S.-Haiti route, IDT and Teleco Haiti ("the parties") amended the
agreement by establishing or amending four times the rates that would
apply to Teleco Haiti's termination of U.S.-originated traffic. The
four rates became effective on February 5, February 23, May 12, and
August 1, 2004. On March 1, 2007, IDT filed its Carrier Service
Agreement with the Commission at the request of Commission staff, and,
on May 23, 2007, IDT identified the rates established under the
agreement, again at the request of Commission staff.
III. DISCUSSION
8. Pursuant to section 220 of the Act, the Commission may "prescribe the
forms of any and all accounts, records, and memoranda to be kept by
carriers subject to [the Act]," and "may classify [such] carriers and
prescribe different requirements . . . for different classes of
carriers," including international telecommunications carriers. In
addition, section 220 makes it unlawful for subject carriers "to keep
the accounts in any other manner than that prescribed or approved by
the Commission." In cases where a carrier fails to keep its accounts
and records as required, or "to submit such accounts, records,
memoranda, documents, papers, and correspondence . . . to the
inspection of the Commission," section 220 imposes a forfeiture of
"$6,000 for each day of the continuance of each such offense." To
impose such a forfeiture penalty, the Commission must issue a notice
of apparent liability, and the person against whom the notice has been
issued must have an opportunity to show, in writing, why no such
penalty should be imposed. The Commission will then issue a forfeiture
if it finds, by a preponderance of the evidence, that the person has
violated the Act or a Commission rule. As set forth in greater detail
below, we conclude under this standard that IDT is apparently liable
for forfeiture for its apparent violations of section 220 of the Act,
and sections 43.51 and 64.1001 of the Commission's rules.
9. The fundamental issues in this case are whether IDT apparently
violated the Act and the Commission's rules by: (1) failing to file,
within thirty days of execution, a copy of its Carrier Service
Agreement with Teleco Haiti, and four subsequent amendments to the
agreement; (2) failing to file a "modification request" for Commission
authorization for each of four rate amendments to the agreement that
established terms and conditions different from equivalent terms
provided to another carrier serving the same U.S.-international route;
and (3) failing to obtain Commission authorization prior to
implementing such rate amendments. We answer these questions
affirmatively. Based on a preponderance of the evidence, therefore, we
conclude that IDT is apparently liable for a forfeiture of $1.3
million for apparently violating section 220 of the Act, and sections
43.51 and 64.1001 of the Commission's rules.
10. Specifically, we propose the following forfeitures for IDT's apparent
violations: (1) a total of $500,000 for IDT's failure to file, within
thirty days of execution, a copy of its Carrier Service Agreement with
Teleco Haiti, and four subsequent amendments to the agreement; (2) a
total of $400,000 for IDT's four failures to file a modification
request with the Commission prior to establishing, or amending,
contractual termination rates for Haiti-bound traffic; and (3) a total
of $400,000 for IDT's implementation of rate terms on four occasions
that varied from equivalent rates provided to another carrier serving
the same U.S.-international route, prior to receiving Commission
approval.
A. Filing of Agreements
11. Based on a preponderance of the evidence, we conclude that IDT has
apparently violated section 220 of the Act, and section 43.51(a) of
the Commission's rules by failing to file with the Commission a copy
of its Carrier Service Agreement with Teleco Haiti, as well as four
amendments to such agreement, from November 22, 2003 to November 4,
2004, when the Commission lifted the ISP and its implementing rules
from the U.S.-Haiti route. IDT's failure to satisfy its obligations
under section 43.51(a) constitutes a clear violation of a vital
Commission requirement. As noted above, the 2003 version of section
43.51(a) unambiguously required that all subject carriers file with
the Commission, within thirty days of execution, "a copy of each
contract, agreement . . . or other arrangement to which it is a party
and amendments thereto with respect to . . . the exchange of services
and the interchange or routing of traffic and matters concerning
rates, accounting rates, division of tolls, or the settlement of
traffic balances." With certain exceptions, section 43.51(a) applied,
by its terms, to all carriers "engaged in foreign communications [that
enter] into a contract, agreement . . . or other arrangement and
amendments thereto with a foreign carrier that does not qualify for
the presumption . . . that it lacks market power on the foreign end of
one or more of the international routes included in the contract."
12. At the time that IDT and Teleco Haiti executed their agreement, and
for a period when the Agreement was effective, Teleco Haiti was a
telecommunications provider presumed to possess market power on a
route that was subject to the ISP. Although section 43.51(a) thus
obligated IDT to file its Carrier Service Agreement with the
Commission by November 22, 2003 -- thirty days after its execution --
IDT failed to do so. In addition, IDT only apprised the Commission of
its four contractual amendments relating to termination rates for the
first time on May 23, 2007, in response to a Commission staff request.
13. IDT contends that it did not file its Carrier Service Agreement with
Teleco Haiti in accordance with section 43.51(a) because it "believed
[the agreement] fell under the Commission's policy of not requiring
the filing of interim agreements under the International Settlements
Policy." To buttress its assertion, IDT points to a 2004 Order on
Review in which the Commission stated that it "does not require
carriers to file interim agreements under the ISP." We reject IDT's
claim that its agreement with Teleco Haiti constituted an "interim
agreement" not subject to the requirements of section 43.51(a). First,
IDT puts forth no evidence to support its assertion that the Carrier
Service Agreement was interim in nature. Indeed, the agreement on its
face strongly suggests otherwise, and nowhere purports to establish
terms, including rates, that were intended by the parties to be merely
interim. We find that the establishment of sequential, short-term
rates that IDT has now provided to the Commission does not constitute
an interim arrangement, particularly where, as here, such rates were
established pursuant to the terms of an agreement that was clearly
intended to be final, and there is no evidence to the contrary. We
also find disingenuous IDT's reliance on the Commission's statement
that it "does not require carriers to file interim agreements under
the ISP" in justifying its failure to file, given that IDT and Teleco
Haiti executed the agreement prior to the Commission's June 2004 Order
on Review.
14. We view IDT's failure to file its Carrier Service Agreement with
Teleco Haiti, and four subsequent amendments, as a serious dereliction
of IDT's obligations under the Act and our rules. As the Commission
has noted, "[t]he primary purpose for requiring the filing of
contracts between carriers is to assist the Commission in monitoring
whether carriers are following the Commission's rules or are otherwise
acting in an anti-competitive manner." The Commission adopted section
43.51(a) in recognition that foreign carriers who possess market power
on the foreign end of a route can adversely affect competition in the
U.S. market by entering into exclusive arrangements, "whipsawing," or
engaging in other such practices. The obligations imposed by section
43.51(a) thus were designed to reduce or eliminate the potential for
such competitive harm by "enabl[ing] the Commission to enforce the
International Settlements Policy and maintain regulatory oversight of
accounting rate agreements. . . ."
15. A carrier's compliance with section 43.51(a) is critical to
enforcement of the ISP and related policies because it enables the
Commission to monitor the existence of arrangements that could
undermine competition in the market for telecommunications services on
a particular international route, in this case, the U.S.-Haiti route.
By failing to file its Carrier Service Agreement with Teleco Haiti in
accordance with section 43.51(a), IDT fundamentally undermined
the Commission's implementation of the ISP on the U.S.-Haiti route.
In particular, IDT's failure deprived the Commission of any
opportunity to review the agreement and possibly seek clarifications
about its terms and conditions. More significantly, IDT's failure
prevented the Commission from judging the agreement's overall
compliance with the ISP and taking any steps needed to ensure the
agreement was consistent with the Commission's pro-competitive rules
and policies.
B. Accounting Rate Modifications
16. Based on a preponderance of the evidence, we further conclude that IDT
apparently has violated section 220 of the Act and sections 43.51(e)
and 64.1001(b) of the Commission's rules by failing to file a
modification request for Commission approval for four separate
amendments to its Carrier Service Agreement that established terms and
conditions different from equivalent terms provided to another carrier
serving the same U.S.-international route.
17. Although the parties amended their agreement four times after its
execution to establish different termination rates, IDT failed to file
with the Commission the requisite modification requests seeking
approval for such amendments, in accordance with sections 43.51(e) and
64.1001(b). As noted above, section 43.51(e) of the Commission's rules
required the filing of a modification request where a carrier has
executed an agreement, or amendment, with a foreign carrier
establishing terms different from "the equivalent terms and conditions
in the operating agreement of another carrier providing . . . similar
service between the U.S. and the same foreign point." At the time that
IDT entered into its agreement with Teleco Haiti, another carrier,
AT&T, was providing service on the U.S.-Haiti route pursuant to an
agreement with Teleco Haiti that established an accounting rate
different from the rate negotiated between IDT and Teleco Haiti.
Because AT&T had filed a modification request with the Commission on
April 22, 2003 disclosing its new accounting rates for the exchange of
traffic with Teleco Haiti, IDT was, or should have been, aware that
AT&T's rate was different from - indeed, higher than - the rate that
IDT had negotiated with Teleco Haiti, and thus triggered IDT's
obligation to file its own modification request, pursuant to sections
43.51(e) and 64.1001(b) of the Commission's rules.
18. We view IDT's failure to file a modification request for each of the
four rate amendments to its Carrier Service Agreement with Teleco
Haiti as a serious offense. As the Commission has noted, "[t]he
requirement for filing accounting rate modification requests . . . is
intended to prevent harm to U.S. consumers resulting from the exercise
of market power by foreign carriers. . . . [and] assists the
Commission in ensuring compliance with the ISP and the Commission's
benchmarks . . . [policy]." As we noted above, one of the underlying
purposes of the ISP is to protect against discriminatory treatment by
assuring U.S. carriers access to the same rate with the foreign
carrier considered to have market power on the U.S.-international
route. To that end, modification requests filed pursuant to section
64.1001 serve as a means by which to alert other U.S. carriers of rate
changes and other arrangements on the U.S.-international route to
which they are entitled access under the ISP, and thus are critical to
enforcement of the ISP.
19. The failure of a carrier such as IDT to abide by its filing obligation
under section 64.1001 undermines enforcement of the ISP by allowing
the carrier, among other things, to enter into an exclusive or
anticompetitive arrangement absent any scrutiny or oversight by its
competitors or the Commission. Moreover, the Commission and
competitors are denied any opportunity to raise objections or concerns
relating to the new arrangements, as contemplated by section 64.1001.
The harm resulting from such failure ultimately falls on U.S.
consumers because competing U.S. carriers are deprived access to the
newly negotiated arrangement. In this case, IDT failed to file a
modification request for each of four amendments to its agreement with
Teleco Haiti that established rates different from those in effect
between Teleco Haiti and AT&T.
C. Implementation of Rate Amendments Absent Commission Approval
20. Based on a preponderance of the evidence, we further conclude that IDT
apparently has violated section 220 of the Act, and section 64.1001(e)
of the Commission's rules by implementing four amendments to its
Carrier Service Agreement with Teleco Haiti absent prior Commission
approval. Despite section 64.1001(e)'s clear prohibition, IDT and
Teleco Haiti, on February 5, February 23, May 12 and August 1, 2004,
effectuated amendments to their operating agreement that established
rates for Teleco Haiti's termination of U.S.-Haiti traffic.
21. Section 64.1001 of the Commission's rules sets out a detailed and
comprehensive framework for notification and approval of arrangements
between a U.S. and foreign carrier that are different from those the
foreign carrier has brokered with competing U.S. carriers. That
framework establishes a specific time period for deliberation and
comment on modification requests by competitors and the Commission,
and provides a vehicle for possible objections to, or denial of, such
requests. Where, as here, a carrier implements an agreement with a
foreign correspondent prior to requesting, and receiving, the
requisite approval, it circumvents the Commission's process for
ensuring that arrangements between U.S. and foreign carriers are
consistent with the ISP and otherwise serve the public interest.
Moreover, it deprives competing carriers an opportunity to raise
competitive concerns or to opt in to more favorable arrangements, as
contemplated by section 64.1001.
D. Proposed Forfeiture Amount
22. In light of IDT's apparent violations of section 220 of the Act, and
sections 43.51 and 64.1001 of the Commission's rules, we find that a
proposed forfeiture is warranted pursuant to section 220(d). The rules
that IDT apparently violated in this case -- sections 43.51 and
64.1001 -- prescribe the manner in which certain carriers, including
IDT, must maintain their records, and direct that such carriers submit
specified documents to the inspection of the Commission and other
interested parties. Indeed, the Commission expressly relied upon
section 220, among other provisions, as a statutory basis for its
adoption of sections 43.51 and 64.1001 of the rules. Accordingly, we
find that IDT is apparently liable for forfeiture, pursuant to section
220(d) of the Act, for violating these provisions.
23. Based on our review of the facts and circumstances of this case, we
find that IDT is apparently liable for a forfeiture of $1.3 million.
We find IDT apparently liable for a total of thirteen discrete
offenses, including five violations of section 43.51(a), four
violations of sections 43.51(e) and 64.1001(b), and four violations of
section 64.1001(e). As noted above, apparent violations of section 220
of the Act, such as those at issue here, carry a
statutorily-prescribed per day penalty pursuant to section 220(d).
Such penalties are then subject to mitigation or remission in
accordance with section 504 of the Act. Section 220 violations thus
stand in contrast to other infractions for which the Act establishes
no specific forfeiture amount. The inflation-adjusted statutory
forfeiture that was effective for violations of section 220(d) in 2003
was $7,600 for each day in which a violation continued, and $8,600 per
day in 2004.
24. Our review of the record indicates that IDT's thirteen violations,
which varied in duration, continued for a minimum of approximately two
weeks, to almost one year. If we were to apply strictly the per day
forfeiture dictated by section 220(d) to each of IDT's apparent
violations, our calculation would yield an amount that we find
excessive under the circumstances. Given the totality of the
circumstances, including IDT's overall history of compliance and
ability to pay, we find IDT liable for a penalty of $100,000 per
violation. We believe this amount reasonably reflects our commitment
to ensure compliance with the Commission's International Settlements
Policy and its implementing rules, yet is not unduly burdensome to a
large and highly profitable company such as IDT. Given the central
importance of sections 43.51 and 64.1001 in the Commission's
pro-competitive regulatory framework governing international
telecommunications services, we find that this amount represents an
appropriate balance. Our proposed per violation forfeiture of
$100,000, multiplied by IDT's thirteen apparent continuing violations,
results in a total proposed penalty of $1.3 million.
IV. ORDERING CLAUSES
25. ACCORDINGLY, IT IS ORDERED THAT, pursuant to section 220(d) of the
Communications Act of 1934, as amended, 47 U.S.C. S 220(d), and
section 1.80 of the Commission's rules, 47 C.F.R. S 1.80, that IDT is
hereby NOTIFIED of its APPARENT LIABILITY FOR A FORFEITURE in the
amount of $1.3 million for willfully and repeatedly violating the Act
and the Commission's rules.
26. IT IS FURTHER ORDERED THAT, pursuant to section 1.80 of the
Commission's Rules, within thirty days of the release date of this
NOTICE OF APPARENT LIABILITY, IDT SHALL PAY the full amount of the
proposed forfeiture or SHALL FILE a written statement seeking
reduction or cancellation of the proposed forfeiture.
27. Payment of the forfeiture must be made by check or similar instrument,
payable to the order of the Federal Communications Commission. The
payment must include the NAL/Acct. No. and FRN No. referenced above.
Payment by check or money order may be mailed to Federal
Communications Commission, P.O. Box 358340, Pittsburgh, PA
15251-8340. Payment by overnight mail may be sent to Mellon
Bank/LB 358340, 500 Ross Street, Room 1540670, Pittsburgh, PA 15251.
Payment by wire transfer may be made to ABA Number 043000261,
receiving bank Mellon Bank, and account number 9116229.
28. The response, if any, to this NOTICE OF APPARENT LIABILITY must be
mailed to Hillary DeNigro, Chief, Investigations and Hearings
Division, Enforcement Bureau, Federal Communications Commission, 445
12^th Street, S.W., Room 4-C330, Washington, D.C. 20554 and must
include the NAL/Acct. No. referenced above.
29. The Commission will not consider reducing or canceling a forfeiture in
response to a claim of inability to pay unless the petitioner submits:
(1) federal tax returns for the most recent three-year period; (2)
financial statements prepared according to generally accepted
accounting practices (GAAP); or (3) some other reliable and objective
documentation that accurately reflects the petitioner's current
financial status. Any claim of inability to pay must specifically
identify the basis for the claim by reference to the financial
documentation submitted.
30. Requests for payment of the full amount of this NOTICE OF APPARENT
LIABILITY FOR FORFEITURE under an installment plan should be sent to
Deputy Chief Financial Officer, Federal Communications Commission,
Room 1-A637, 445 12th Street, S.W., Washington, D.C. 20554.
31. IT IS FURTHER ORDERED that a copy of this NOTICE OF APPARENT LIABILITY
FOR FORFEITURE shall be sent by certified mail, return receipt
requested, to Troy F. Tanner, Counsel for IDT, Bingham McCutchen, LLP,
2020 K St., N.W., Washington, DC 20006-1806.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
47 U.S.C. S 220(g). Section 220 of the Act gives the Commission discretion
to "prescribe the forms of any and all accounts, records, and memoranda to
be kept by carriers subject to this Act," 47 U.S.C. S 220(a)(1), and
provides that
[a]fter the Commission has prescribed the forms and manner of keeping
accounts, records, and memoranda to be kept by any person as herein
provided, it shall be unlawful for such person to keep any other accounts,
records or memoranda than those so prescribed or such as may be approved
by the Commission or to keep the accounts in any other manner than that
prescribed or approved by the Commission.
47 U.S.C. S 220(g).
47 C.F.R. S 43.51(a)(1) (2003).
47 C.F.R. SS 43.51(e)(2), 64.1001(b) (2003). The amendment of a rate
schedule established pursuant to the terms of a contract constitutes a
contract amendment for which a party must file a modification request in
accordance with section 64.1001 of the Commission's rules.
47 C.F.R. S 64.1001(e) (2003).
See International Settlements Policy Reform, Notice of Proposed
Rulemaking, 17 FCC Rcd 19954, 19956-60 (2002), PP 2-6 ("ISP Reform NPRM").
The ISP was formerly termed the Uniform Settlements Policy ("USP"). The
USP initially applied to telegraph and telex services and evolved through
Commission decisions and practices. The intent of the USP was to ensure
that U.S. carriers were treated fairly and that U.S. customers received
the benefits that result from the provision of international services on a
competitive basis. Among other things, the policy required uniform
accounting rates and uniform terms for sharing of tolls. See, e.g., Mackay
Radio and Telegraph Co., 2 F.C.C. 592 (Telegraph Committee 1936), aff'd
sub nom. Mackay Radio v. FCC, 97 F.2d 641 (D.C. Cir. 1938) (In the 1936
decision, the Commission denied an application for section 214 authority
to serve Norway because the settlement terms would have permitted the
Norwegian carrier to "whipsaw," or engage in anticompetitive behavior
against, U.S. carriers by manipulating traffic flows and retaining a
greater percentage of the accounting rate); Modifications of Licenses in
the Fixed Public and Fixed Public Press Services, 11 F.C.C. 1445 (1946);
Mackay Radio and Telegraph Co., 25 F.C.C. 690 (1951), rev'd on other
grounds sub nom. RCA Communications, Inc. v. FCC, 210 F.2d 694 (D.C. Cir.
1952), vacated and remanded, 346 U.S. 86 (1953); TRT Telecommunications
Corp., 46 F.C.C. 2d 1042 (1974). In 1986, the Commission termed the USP
the "ISP" and extended its application to International Message Telephone
Service ("IMTS") in response to significantly greater reported instances
of "whipsawing." The Commission also streamlined the filing of accounting
rate modifications and chose not to apply the ISP to enhanced services.
See Implementation and Scope of the Uniform Settlements Policy for
Parallel International Communications Routes, Report and Order, 2 FCC Rcd
1118 (1987) ("ISP Order"), modified in part on recon., Order on
Reconsideration, 2 FCC Rcd 1118 (1987) ("ISP Recon Order"); Further
Reconsideration, 3 FCC Rcd 1614 (1988) ("ISP Further Recon").
In general, "whipsawing" is the abuse of market power by a foreign
carrier, or a combination of carriers, within a foreign market that is
intended to play U.S. carriers in foreign markets against each other in
order to gain unduly favorable terms in arrangements for the exchange of
traffic. ISP Reform NPRM, 17 FCC Rcd at 19956-57, P 2. This practice
occurs where a foreign carrier has the ability, through pressure on
multiple U.S. carriers, to extract higher termination rates from a U.S.
carrier than the foreign carrier is required to pay to terminate traffic
on the U.S. end. Id. Thus, the goal of the ISP is to address this
asymmetry in market power. If "whipsawing" were to occur, U.S. carriers
would be paid at or near cost for terminating U.S.-international traffic
on the U.S. end, while paying above-cost settlement rates for termination
of U.S.-international services on the foreign end, thereby forcing the
U.S. carriers to recover those additional costs from U.S. ratepayers in
the form of higher calling prices. Id.
47 C.F.R. S 64.1002(a)(1).
47 C.F.R. S 64.1002(a)(2).
The international accounting rate system evolved as part of a regulatory
tradition in which international telecommunications services were supplied
through a bilateral relationship between national monopoly carriers. An
accounting rate is the price a U.S. facilities-based carrier negotiates
with a foreign carrier for handling one minute of international telephone
service. Each carrier's portion of the accounting rate is referred to as
the settlement rate. 2000 Biennial Regulatory Review, Report and Order, 16
FCC Rcd 10647, 10657 (2001), P 15 n.44 ("2000 Biennial Review").
47 C.F.R. S 64.1002(a)(3).
ISP Reform NPRM, 17 FCC Rcd at 19957, P 3.
See 47 C.F.R. S 43.51; Rules and Policies on Foreign Participation in the
U.S. Telecommunications Market, Report and Order and Order on
Reconsideration, 12 FCC Rcd 23891, 24007 (1997), P 259 ("[O]ur contract
filing requirement in section 43.51 of the Commission's rules enables us
to detect instances where carriers enter into arrangements that are
inconsistent with our rules and policies.") ("Foreign Participation
Order").
Pursuant to the 2003 version of section 43.51(a) of the Commission's
rules, certain common carriers generally must file with the Commission,
within thirty days of execution:
a copy of each contract, agreement, concession, license, authorization,
operating agreement or other arrangement to which it is a party and
amendments thereto with respect to the following: (i) the exchange of
services; and, (ii) the interchange or routing of traffic and matters
concerning rates, accounting rates, division of tolls, or the basis of
settlement of traffic balances. . . .
47 C.F.R. S 43.51(a)(1) (2003). This version of section 43.51(a) applied
to any carrier that was:
engaged in foreign communications and enters into a contract, agreement,
concession, license, authorization, operating agreement or other
arrangement . . . with a foreign carrier that does not qualify for the
presumption . . . that it lacks market power on the foreign end of one or
more of the U.S.-international routes included in the contract.
47 C.F.R. S 43.51(b)(2) (2003).
47 C.F.R. S 43.51(e) (2003). The 2003 version of section 43.51(e)
provided, in pertinent part:
[I]f a carrier files an operating or other agreement with a foreign
carrier pursuant to [section 43.51(a)] to begin providing switched voice,
telex, telegraph, or packet-switched service between the United States and
a foreign point and the terms and conditions of such agreement relating to
the exchange of services, interchange or routing of traffic and matters
concerning rates, division of tolls, the allocation of return traffic, or
the basis of settlement of traffic balances, are not identical to the
equivalent terms and conditions in the operating agreement of another
carrier providing the same or similar service between the United States
and the same foreign point, the carrier must also file with the
International Bureau a modification request under section 64.1001 [of the
Commission's rules].
47 C.F.R. S 43.51(e) (2003). The 2003 version of section 64.1001 similarly
stated that:
[i]f the international settlement arrangement in the operating agreement
or amendment referred to in [section 43.51(e)] differs from the
arrangement in effect in the operating agreement of another carrier
providing service to or from the same foreign point, the carrier must file
a modification request under this section unless the international route
is exempt from the international settlements policy under [section
43.51(e)].
47 C.F.R. S 64.1001(b) (2003). Section 43.51(e)(2) of the Commission's
rules similarly required carriers to file a modification request where
such carriers amended an existing operating agreement with a foreign
carrier. See 47 C.F.R. S 43.51(e)(2) (2003).
47 C.F.R. S 64.1001(e), (f) (2003). In particular, section 64.1001(e) of
the Commission's rules provided that "[a]n operating agreement or
amendment filed under a modification request cannot become effective until
the modification request has been granted. . . ." 47 C.F.R. S 64.1001(e)
(2003).
Section 64.1002 of the Commission's rules, which codifies the
International Settlements Policy, directs that carriers subject to the ISP
"must . . . duly comply with the requirements in S 43.51 and S 64.1001 [of
the Commission's rules]." 47 C.F.R. S 64.1002.
International Settlements Policy Reform, First Report and Order, 19 FCC
Rcd 5709, 5723 (2004), P 27 ("ISP Reform Order"). As early as 1992, the
Commission adopted benchmarks for international settlement rates that were
applicable to specific U.S.-international routes. See Regulation of
International Accounting Rates, CC Docket No. 90-337 (Phase II), Second
Report and Order and Second Further Notice of Proposed Rulemaking, 7 FCC
Rcd 8040 (1992). These benchmark settlement rates served as guidelines for
what constituted the maximum just and reasonable amount that U.S. carriers
should pay foreign carriers for the termination of U.S.-international
traffic.
ISP Reform Order, 19 FCC Rcd at 5723, P 27.
Id., 19 FCC Rcd at 5771, Appendix D; Additional U.S.-International Routes
Exempted from the International Settlements Policy, Public Notice, 19 FCC
Rcd 22032 (2004).
Additional U.S.-International Routes Exempted from the International
Settlements Policy, Public Notice, 19 FCC Rcd 22032, 22035 (2004).
http://idt.net (as of June 17, 2008).
[1]http://idt.net (as of June 17, 2008).
[2]http://idt.net (as of June 17, 2008).
Letter from Troy F. Tanner, Bingham McCutchen, Counsel for IDT Corp., to
Marlene H. Dortch, Secretary, Federal Communications Commission, dated
March 1, 2007 (attaching Carrier Service Agreement between IDT and
Telecommunications D'Haiti S.A.M., October 22, 2003) ("Tanner March 1
Letter").
Letter from Troy F. Tanner, Bingham McCutchen, Counsel for IDT Corp., to
Helen Domenici, Chief, International Bureau, Federal Communications
Commission, dated May 23, 2007, at 2 ("Domenici May 23 Letter").
Id. at 2.
Tanner March 1 Letter, Attachment.
Domenici May 23 Letter, at 2.
47 U.S.C. S 220(a)(1).
47 U.S.C. S 220(h). By establishing certain filing and notification
requirements to implement the ISP, the Commission has deemed certain
international carriers to be a "class of carriers" necessitating
"different requirements" to satisfy the main purpose of section 220 of the
Act.
47 U.S.C. S 220(g).
47 U.S.C. S 220(d). The inflation-adjusted forfeiture that was effective
in 2003 for violations of section 220 was $7,600 per day. 47 C.F.R. S
1.80(b)(4), Note, Section III (2003).
47 C.F.R. S 1.80(f).
See, e.g., SBC Communications, Inc., Apparent Liability for Forfeiture,
Forfeiture Order, 17 FCC Rcd 7589, 7591, P 4 (2002) (forfeiture paid).
47 U.S.C. S 220; 47 C.F.R. SS 43.51, 64.1001 (2003).
47 U.S.C. S 220.
47 C.F.R. SS 43.51, 64.1001.
It is unclear, based upon the record, whether IDT and Teleco Haiti amended
their Carrier Service Agreement through oral or written agreement. Even if
the parties had amended their agreement orally, however, IDT still would
have been obligated to file a "certified statement covering all the
details of the arrangement," in accordance with section 43.51(a)(2) of the
Commission's rules. 47 C.F.R. S 43.51(a)(2).
Section 43.51(a) of the Commission's rules required that IDT file its
agreement with the Commission by November 22, 2003, thirty days after the
agreement was executed. See 47 C.F.R. S 43.51(a) (2003).
Although we exercise our prosecutorial discretion and limit our finding of
liability to the period of time from November 22, 2003 to November 4,
2004, we note that IDT arguably is also subject to liability for failing
to file its agreement and amendments until March 1, 2007, over three years
after Commission rules required it to do so. In our view, the fact that
section 43.51(a) no longer applied to carriers serving the U.S.-Haiti
route as of November 4, 2004 arguably does not excuse the company from
discharging an obligation that attached prior to that date.
47 C.F.R. S 43.51(a)(1)(i), (ii) (2003).
47 C.F.R. S 43.51(b)(2) (2003).
See the International Bureau Revises and Reissues the Commission's List of
Foreign Telecommunications Carriers that are Presumed to Possess Market
Power in Foreign Telecommunications Markets, Public Notice, 18 FCC Rcd
2438 (2003).
As noted above, IDT ultimately filed its agreement with the Commission on
March 1, 2007. The Commission has repeatedly stated, however, that
subsequent corrective measures to address a violation do not eliminate a
licensee's responsibility for the period during which the violation
occurred. IDT's untimely filing thus neither excuses nor mitigates in any
way its apparent violation of section 43.51(a). SBC Communications, Inc.,
Order of Forfeiture, 16 FCC Rcd 5535, 5542, P 18 (2001); see also Coleman
Enters., Inc. d/b/a Local Long Distance, Inc., Order of Forfeiture, 15 FCC
Rcd 24385, 24388, P 8 (2000); American's Tele-Network Corp., Order of
Forfeiture, 16 FCC Rcd 22350, 22355-56, P 15 (2001).
Domenici May 23 Letter, at 2. Based upon the record, it is unclear
precisely when IDT and Teleco Haiti executed the four rate amendments at
issue. Irrespective of when they were executed, however, IDT was required
by section 43.51(a) to apprise the Commission of such amendments in 2004,
long before IDT saw fit to do so.
See Tanner March 1 Letter, at 1; Tanner May 23 Letter, at 1-2.
AT&T Corp. Emergency Petition for Settlements Stop Payment Order and
Request for Immediate Interim Relief, Order on Review, 19 FCC Rcd 9993,
9995 (2004), P 2 n.9.
See Tanner March 1 Letter.
See Carrier Service Agreement between IDT and Telecommunications D'Haiti
S.A.M., October 22, 2003, PP 1, 3.1, 7.12, Annex A P 1.2 ("Carrier Service
Agreement"); Domenici May 23 Letter, P 3. The Commission's practice
regarding interim agreements is limited and intended largely to keep
U.S.-international circuits open when a U.S. carrier and its foreign
correspondent are renegotiating expired rate agreements. Once service is
disrupted due to inconclusive or failed negotiations, it becomes
increasingly difficult for the parties involved to reach agreement,
particularly where there is an ongoing dispute concerning amounts owed.
The Commission's practice regarding interim agreements allows parties to
continue negotiations while exchanging traffic at an agreed-upon interim
rate, often the rate that has just expired. Once final agreement is
reached, the parties typically "true-up" any difference between the
interim and final rate. In light of these industry practices, requiring
that interim terms be publicly filed with the Commission is unnecessary,
and could hamper negotiations for the exchange of telecommunications
traffic. IDT has offered no evidence of ongoing negotiations with Teleco
Haiti that support its characterization of the Carrier Service Agreement
as "interim."
See Carrier Service Agreement.
Id., Section III, P 7.12.
2000 Biennial Review, 16 FCC Rcd at 10678, P 68.
Id.
47 U.S.C. S 220; 47 C.F.R. SS 43.51(e), 64.1001(b) (2003). Although we
find IDT apparently liable for its failure to file a modification request
for each of the four amendments to its agreement with Teleco Haiti, we
note that IDT arguably is also liable for failing to file its agreement
and amendments until March 1, 2007, over three years after Commission
rules required it to do so. As we stated above, that sections 43.51 and
64.1001 no longer applied to carriers serving the U.S.-Haiti route as of
November 4, 2004 arguably does not excuse the company from discharging an
obligation that attached prior to that date.
47 C.F.R. S 43.51(e) (2003); see also 47 C.F.R. S 64.1001(b) (2003). While
the applicability of section 43.51(e) appears limited to carriers who have
"file[d] an operating or other agreement with a foreign carrier," we
interpret the section more broadly to apply to any carrier who is required
to file an operating agreement pursuant to section 43.51(a). We find that
a more restrictive interpretation would thwart detection of
anticompetitive practices by U.S. and foreign carriers, and undermine
enforcement of the ISP.
See Application for Accounting Rate Change, filed by AT&T Corp., dated
April 22, 2003 (reporting a change in the accounting rate for the exchange
of traffic with Teleco Haiti from $.60 to $.46).
2004 Biennial Regulatory Review, Staff Report, 20 FCC Rcd 343, 379 (2005),
Appendix VII. As noted above, the Commission has established benchmarks
that govern the international settlement rates that U.S. carriers may pay
foreign carriers to terminate international traffic originating in the
United States. See International Settlement Rates, IB Docket No. 96-261,
Report and Order, 12 FCC Rcd 19806 (1997), aff'd sub nom. Cable and
Wireless P.L.C. v. FCC, 166 F.3d 1224 (D.C. Cir. 1999), Report and Order
on Reconsideration and Order Lifting Stay, 14 FCC Rcd 9256 (1999).
See ISP Reform Order, 19 FCC Rcd at 5725, P 30 ("As the ISP provides that
foreign carriers offer the same rates to all U.S. carriers, a showing that
one U.S. carrier has negotiated a benchmark-compliant rate with the
foreign carrier with market power triggers the ability for all other U.S.
carriers to take the same rate. Once the foreign carrier with market power
is under an obligation to provide services at benchmark rates to all U.S.
carriers, we find it reasonable to conclude that the concerns underlying
our use of the ISP on that route have been sufficiently alleviated to lift
the ISP.").
See Foreign Participation Order, 12 FCC Rcd at 24030, P 313 ("parties that
might have concerns with the reductions, i.e., those with operating
agreements with the same carrier, are given notice of the filing directly
by the applicant. Therefore, a public notice would only prove to delay a
procedure for approving modifications that is designed to allow
expeditious grants in most cases while giving those parties potentially
affected a chance to respond.").
The 2003 version of section 64.1001(g) provided, in pertinent part, that:
All modification requests will be subject to a twenty-one (21) day
pleading period for objections and comments, commencing the date after the
request is filed. If the modification request is not complete when filed,
the carrier will be notified that additional information is to be
submitted, and a new 21 day pleading period will begin when the additional
information is filed. The modification request will be deemed granted as
of the twenty-second (22^nd) day without any formal staff action being
taken, provided (1) no objections have been filed; and (2) the
International Bureau has not notified the carrier that grant of the
modification request may not serve the public interest and that
implementation of the proposed modification must await formal staff action
on the modification request. If objections or comments are filed, the
carrier requesting the modification request may file a response . . . .
Modification requests that are formally opposed must await formal staff
action by the International Bureau before the proposed modification can be
implemented.
47 C.F.R. S 64.1001(g) (2003).
While the applicability of section 64.1001 as it existed in 2003 appears
limited to an operating agreement or amendment "filed under a modification
request," we interpret the provision more broadly to apply to any
agreement or amendment for which a modification request must be filed,
e.g., an agreement or amendment whose terms and conditions are not
identical to the equivalent terms and conditions in the operating
agreement of another carrier providing the same or similar service between
the United States and the same foreign point. We find that a more
restrictive interpretation would thwart detection of anticompetitive
conduct by foreign carriers and undermine Commission enforcement of the
ISP and related policies. Consistent with our interpretation, the
Commission in 2004 revised section 64.1001 to state that "[a]ny operating
agreement or amendment for which a modification request is required to be
filed cannot become effective until the modification request has been
granted. . . ." 47 C.F.R. S 64.1001(a) (2004) (emphasis added).
Domenici May 23 Letter, at 2.
See 47 C.F.R. S 64.1001 (2003).
See 47 C.F.R. S 64.1001(g) (2003).
See 47 C.F.R. SS 43.51, 64.1001 (2003).
Section 1.80 of the Commission's rules, which governs forfeiture
proceedings, provides that, "[i]n the case of a forfeiture imposed against
a carrier under sections 202(c), 203(e) and 220(d), no forfeiture will be
imposed if the violation occurred more than 5 years prior to the issuance
of a notice of apparent liability." 47 C.F.R. S 1.80(c)(2). Each of the
thirteen apparent violations in this case occurred within the five-year
statute of limitations because they occurred in 2003 and 2004.
IDT's apparent violations of section 43.51(a) include its failures to file
with the Commission its Carrier Service Agreement with Teleco Haiti by
November 22, 2003, and four subsequent rate amendments that became
effective on February 5, February 23, May 12 and August 1, 2004.
IDT's apparent violations of sections 43.51(e) and 64.1001(b) include its
failures to file with the Commission a modification request for each of
the four rate amendments to its Carrier Service Agreement with Teleco
Haiti.
IDT's apparent violations of section 64.1001(e) include its failures to
obtain Commission approval prior to implementing each of the four rate
amendments to its Carrier Service Agreement with Teleco Haiti.
47 C.F.R. S 1.80(b)(4), Note, Section III. Pursuant to section 504, "[t]he
forfeitures imposed by title II . . . shall be subject remission or
mitigation by the Commission, under such regulations and methods of
ascertaining the facts as may seem to it advisable. . . ." 47 U.S.C. S
504(b). For convenience, the Commission treats such forfeitures as
prescribed base amounts that are subject to downward adjustment, using the
downward adjustment criteria applicable to section 503 forfeitures in
section II of the note to section 1.80(b)(4). 47 C.F.R. S 1.80(b)(4),
Note, Section III.
In cases where there is no prescribed penalty, forfeiture determinations
are governed by section 503 of the Act, which, among other things,
establishes maximum forfeiture amounts that are subject further adjustment
based upon the circumstances.
47 C.F.R. S 1.80(b)(5) (2003). The statutory maximum amount of a
forfeiture penalty assessed under section 1.80 of the Commission's rules
is subject to inflation-based adjustments at least once every four years.
47 C.F.R. S 1.80(b)(5). We note that some of IDT's apparent violations
continued into 2004, when the applicable forfeiture penalty for section
220(d) violations increased to $8,600 per day. Nevertheless, for
simplicity, we will use the $7,600 amount effective in 2003 to calculate
IDT's apparent liability.
See 47 C.F.R. S 1.80.
See 47 C.F.R. S 1.1914.
(Continued from previous page)
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Federal Communications Commission FCC 08-165
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Federal Communications Commission FCC 08-165
References
Visible links
1. http://idt.net/
2. http://idt.net/