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Before the FEDERAL COMMUNICATIONS COMMISSION , D.C. 20554

In the Matter of ) ) WCB/Pricing File 10-10 Bluegrass , Inc. ) D/B/A Kentucky Telephone Company ) WC Docket No. 10- ) FILED!ACCEPTED Transmittal No.3, FCC TariffNo. 3 ) ------) NOV 10 l010 ;~L:deral l:unllYlUt';i,,' ;'i,;(,~lq~) :>:J:Hnlssion iJt;ice li( n-';i,; ':;U'l r:tlfY APPLICATION FOR REVIEW OF SPRINT COMMUNICATIONS COMPANY L.P.

Sprint Communications Compapy L.P. ("Sprint"), pursuant to Section 1.115 of the . -\ Commission's Rules, 47 C.F.R. § 1.115, hereby respectfully applies for Conunission review of

the "decision" ofthe Wireline Competition Bureau ("Bureau") set forth in Public Notice DA 10-

1970 released October 14, 2010, denying Sprint's Petition to Reject or Suspend and Investigate

the above-captioned tariff revisions filed by Bluegrass Telephone Company, Inc. D/B/A

Kentucky Telephone Company ("Bluegrass"). I Both Sprint and demonstrated that

Bluegrass's proposed tariffclearly violated Commission Rules and Commission precedent and

thus should have been rejected or at the very least suspended and investigated.

The Bureau incorrectly concluded that neither Sprint nor Qwest presented "compelling

arguments that these transmittals are so patently unlawful as to require rejection ... [or] raise[d]

significant questions oflawfulness that require investigation ofthe transmittals." The Bureau did

not provide any explanation, let alone justification, as to why it came to this conclusion and

enabled Bluegrass's patently unlawful tariff not only to become effective but also to be deemed

lawful under Section 204(a) of the Act, 47 USC §204(a). A regulatory agency "has the power

The Public Notice also denied the petition of Qwest Communications Company, LLC C'Qwest"). and in some cases the duty to reject a tariffthat is demonstrably unlawful on its face" and "will reject a tariffthat conflicts with a statute, agency regulation or order, or with a rate fixed in a contract sanctioned by statute." Associated Press v FCC, 448 P.2d 1095,1103 (D.C. 1971).

That the Bureau failed to meet its statutory duty in this regard constitutes reversible error.2

Bluegrass claims to be a competitive ("CLEC"). However, its provision ofcompetitive telephone services to the end users residing in or operating a business in the rural Kentucky territory where it is located and presmnably authorized by the Kentucky

Public Service Commission to operate is, ifanything, an afterthought. It generates most, ifnot all, ofits revenue by engaging in a traffic pumping scheme.

The characteristics ofsuch schemes are by now well~known. Bluegrass and other 50- called rural CLECs claim to offer telephone exchange services in rural territories so that they can match the high switched access rates ofthe incumbent LEC ("ILEC") operating in the same territory.3 OThe rates ofthe rural ILEC are based on the low traffic volumes typically generated in rural territories. However, these CLECs generate millions of calls to their switches through business arrangements with entities to whom they assign telephone numbers for use in the provision ofthese entities' "free" calling services, e.g., conferencing, pornographic chat line, and international services. The rural CLEC bills Sprint, Qwest and other interexchange carriers

47 C.P.R. §1.IIS(b)(2)(i). See also Emergency Application for Review of Qwest Communications Company LLC, filed November 8, 2010 in this proceeding. Sprint strongly supports Qwest's position that the Commission should, indeed must, act expeditiously to reverse the Bureau's decision allowing the Bluegrass tariff to take affect. 3 Certain rural incumbent local exchange carriers also have exploited their ability to charge high switched access rates through traffic pumping schemes. Most ofthese ILECs no longer engage in traffic pumping, at least directly, thanks in part to the Commission's Order Designating Issues/or Investigation in WC Docket No. 07-184, In the Matter of1nvestigation of Certain 2007 Annual Access Tarf/fs, 22 FCC Rcd 16109 (2007). Some, however. have formed CLEC affiliates through which they have continued to engage in traffic pumping.

2 ("IXCs") whose wireline and wireless customers call these nwnbers the high rural switched access rates and share the revenue generated with the entities promoting the "free" calling services through various types ofkick-back arrangements.

There can be no doubt that these traffic pumping schemes are nothing more than arbitrage. The Commission has previotlsly found that the sharing ofaccess revenues - an essential component ofthe current traffic pumping schemes -leads to the inescapable conclusion that the access charges being imposed violate Section 201(b) since a "truly reasonable access charge could [not] profitably permit such arrangements. ,,4 Moreover such schemes simply do not promote overall consumer welfare. While individual callers may benefit from "free" conference calling and other services, the costs associated with these "free" services are inevitably passed through to and borne by other end user customers (including millions of end users who do not avail themselves ofthe "free" services). As the National Broadband Plan correctly concluded (at 142, footnote omitted), such schemes will inevitably lead to higher rates for the telecommunications and other services:

Most ICC [intercarrier compensation] rates are above incremental cost, which creates opportunities for access stimulation, in which carriers artificially inflate the amount ofminutes subject to ICC payments. For example, companies have established "free" conference calling services, which provide free services to consumers while the carrier and conference call company share the ICC revenues paid by interexchange carriers. Because the arbitrage opportunity exists, investment is directed to free conference calling and similar schemes for adult enteltainment that ultimately cost consumers money, rather than to other, more productive endeavors.

In the Matters ofAT&T Corp., v. Business Telecom, Inc., and Sprint Cmnrmmications Company. L. P. v. Business Telecom, Inc., 16 FCC Red 12312, 12332 (2001). Further evidence that the traffic pwnping schemes are unlawful is set forth in the record

developed in the complaint proceeding initiated by Qwest challenging the lawfulness of the

traffic pumping scheme of Farmers and Merchants Mutual Telephone Company ("Fanners")

The Commission found not only that the switched access rates being charged by Farmers were

unreasonably high in violation ofSection 201(b) but also that Farmers was not entitled to impose

such charges under the terms ofits access tariffs on file with the Commission.5

The Commission's findings in Farmers and the decision by the Iowa Utilities Board have now led to new tarifffilings by several CLECs engaged in traffic pumping, e.g., Northern

Valley, Tekstar and Aventure. Plainly, the CLECs who have filed revisions to their interstate tariffs in the wake ofthe Commission's decision in Farmers have determined that their then- existing tariffs did not enable them to impose access charges on the IXCs which under

Commission precedent are required, except in limited cases, to deliver the traffic that is being generated through the CLECs' illicit traffic pumping schemes. However, as Sprint, Qwest and others explained to the Bureau, these new tariffs are patently unlawfu1. 6

0vest Communications Corporation v. .Farmers and Merchants Mutual Telephone Company, File No. EB-07-MD-00I, Memorandum Opinion and Order, 22, FCC Rcd 17973 (2007) ("October 2 Order"), Order on Reconsideration, 23 FCC Rcd 1615 (2008) Second Order on Reconsideration, 24 FCC 14801 (2009), Third Order on Reconsideration, 25 FCC Red 3422 (2010), appeal pending, sub nom Farmers and Merchants Mutual Telephone Company v. FCC, Case No. 10-1093 (DC Cir. filed May 7, 2010) ("Farmers"). See also Qwest Commn'cs Corp. v. Superior Tel. Coop., 2009 WL 3052208 (Iowa Utils. Bd. Sept. 21,2009) where the Iowa Utilities Board found, inter alia, that the intrastate tariffs ofthe LECs and CLECs engaged traffic pumping did not authorize them to collect intrastate access on the trame they recei ved from IXCs to be delivered to their business paliners providing free conference, adult chat line and other services. Qwest filed a petition seeking rejection or suspension and investigation of Northern Valley's tariff revisions. Sprint filed comments in support. The Bureau took no action on the petition. Both Sprint and Qwest filed petitions challenging the lawfulness of Tekstar's revisions. The Bureau denied the denied the petitions using the same boilerplate language it did in denying Sprint's and Qwest's challenges to Bluegrass's tariff filing at issue here. "'lee Public Notice, DA

Footnotc continucs 011 next page.

4 That the Bureau committed reversible error in failing to grant the petitions to reject or

suspend and investigate filed by Sprint and Qwest, or at least explain why the challenged tariffs

would be eligible for deemed lawful status, is confirmed by Bluegrass's meritless responses to

the arguments ofSprint and Qwest demonstrating that the tariff was unlawful. Qwest, in its

Emergency Application for Review has explained that Bluegrass's responses to Qwest's

arguments were either unsupported or unsupportable. See Qwest's Petition at 15-25. Similarly,

Bluegrass's responses to Sprint's arguments in its Petition to Reject or Suspend and Investigate

were without merit. For example, Bluegrass did not deny Sprint's assertion that its access rates

included an element for tandem switching despite the fact it did not provide such switching. See

Sprint's Petition at 3-4. Rather it claims in a footnote that it is entitled to include this element

apparently because its "composite rate is well below the rural CLEC benchmark that [Bluegrass]

is entitled to charge... and, as such, there is no basis upon which to assign amounts to tandem switching.,,7 Bluegrass cites no precedent for the absurd notion that a carrier is permitted to charge for services that it does not provide as long as its rates are below a certain benchmark rate, nor could it. A fundamental principle ofratemaking is that a carrier is allowed only to include the costs ofthe services it actually provides in its rates. Bluegrass's further assertion that

"there is no basis upon which to assign amounts to tandem switching" is simply nonsense.

10-1917, released October 1,2010. Sprint has filed an application for review seeking Commission reversal ofthe Bureau's decision. And on November 12,2010, a coalition comprised of AT&T, Qwest, Sprint, T-Mobile and Verizon filed ajoint petition which clearly demonstrated that Aventure's recently filed tariff revisions are patently unlawful and must be rejected or suspended and investigated. The Bluegrass revisions at issue here were Bluegrass's second attempt to evade the consequences of the Commission's decision in Farmers Bluegrass's first attempt was filed on 16-days notice and thus did not receive "deemed lawful" status. 7 Bluegrass Response at footnote 4.

5 Certainly, it could deduct from the composite rate the amount charged for tandem switching by

the NECA carrier in whose territory Bluegrass is allegedly providing service.

In its petition (at 4), Sprint also challenged Bluegrass's tiered switched access rate

stlUcture, pointing out that under long standing Commission policy switched access rates are

"based on the total costs divided by the total minutes ofuse." Thus, every carrier is charged the

same rate regardless ofthe volume oforiginating traffic it receives from the LEe or the amount

oftraffic it terminates with the LEC. Bluegrass did not reply to Sprint's argument here. Rather

it claims that Sprint's challenge goes to the issue as to whether an IXC will be able to determine

whether it crossed the threshold of500,000 user minutes to a so-called Volume End User and

therefore be charged the lower rate. It claims that "the IXCs need only look to their own billing

records to determine whether, for example, a particular conference calling provider has received

or originated 500,000 minutes ofcalls in that month." Answer at 14.

It is one thing for Bluegrass not to respond to the actual argument made by Sprint in its petition - which, of course, suggests that it has no response. It is quite another that Bluegrass's response is itself incorrect. The fact is that the bills Sprint receives from CLECs, especially those from those engaged in traffic pumping, do not sort the minutes by telephone number or by customer. Rather the bills that Sprint receives simply show the total number of minutes Sprint terminated with the particular CLEC.

In any event, Bluegrass now concedes that unless it sends detailed bills to the [Xes delineating the traffic terminated to each telephone number and to each high volume customer, the IXCs will not be able to determine which rate applies in any given month. Thus, Bluegrass's tariff provides it with a license to engage in the type of discrimination condemned by Section

6 202(a) ofthe Act, 47 USC § 202(a). This fact provides further justification, as if more were

needed, for the full Commission to reverse the Bureau's decision and reject the tarUI.

In sum, allowing Bluegrass's demonstrably unlawful tariffto remain in effect will simply

encourage other CLECs currently engaged in traffic pumping to file equally unlawful revisions

to their current tariffs in an attempt to evade the consequences ofthe Commission's decision in

Farmers. Indeed, the Bureau now has before it Aventure's tariff revisions which, like

Bluegrass's tariffsimply ignore the Commission's Rules and precedent governing the imposition

ofswitched access charges.8 The Commission must send a strong signal to the traffic pumping

CLECs that it will not tolerate their abuse ofthe Commission's tarifffiling system. It can do so

by granting the applications for review filed by Sprint and Qwest in this matter and reversing the

Bureau's decision that allowed Bluegrass's patently unlawful tariffs to become effective.

Respectfully submitted,

e W. McK e Michael B. Fingerhut 900 i h Street NW Suite 700 Washington, DC 20001 (703) 592-5112

Its Attorneys

November 15,2010

As noted, a coalition comprised of AT&1', Qwest, Sprint T-Mobile and Verizon has filed a petition demonstrating why the Aventure tariff must be rejected, or at least suspended and investigated.

7 CERTIFICATE OF SERVICE

I, Jo-Ann Monroe, do hereby certify that the foregoing Application for Review was served this 15 th day of November, 2010 by delivering true and correct copies thereof, first class postage prepaid, to the United States Postal Service, and via facsimile or electronic mail, as indicated below:

Craig J. Brown Albc11 Lewis, Chief Robert B. McKenna Pricing Policy Division Qwest Communications Comp,my, LLC Wireline Competition Bureau 607 141h Street, NW Federal Communications Commission Washington, DC 20005 445 12th Street, SW (Via E-mail) Washington, DC 20554

Robcrt.McKennafQ)Qwest.com...... - .._-_.- _ I.!•.;I. ._._._._ .•...... _ .. (Via E-mail)

alberUewis@fcc.(loy_,._·_._"_.~.' e ••.·_ •.·•• •.•• >.""'",.. •.•.·._.,•• -_ •.. 0.···_. David H. Solomon William F. Maher, Jr. John Hunter Frank W. Krogh Wireline Competition Bureau Wilkinson Barker Knauer, LLP Federal Communications Commission 2300 N Street, NW, Suite 700 445 12th Street, SW Washington, DC 20037 Washington, DC'20554 (Via E-mail) (Via E-mail) Q.~(2J.9JJlQg@\YQk@~~,-C..QID. i9 hll,.h\Jt1.1~[@f9.<;,g())'

Ross A. Buntrock Pamela Arluk G. David Carter Wircline Competition Bureau Katherine B. Marshall Federal Communications Cornrnission Arent Fox 445 12th Street, SW 1050 Connecticut Avenue, NW Washington, DC 20554 Washington, DC 20036 (Via E-mail) (Via Facsimile and l I,S, Mail) P.9ill eIQ.i!.!1l!k@Jc;c,gQ\I Facsimile: 202-857-h395 Best Copy & Printing, Inc, Sharon Gillett Chief Portals n Wireline Competition Bureau 445 12th Street, SW, Room CY-13402 Federal Communications Commission Washington, DC 20554 445 12th Street SW (Via E-mail) Washington. DC 20554 fQ9@J29piyyep,(;PLD (Via E-mail)

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