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FILED!ACCEPTED Transmittal No.3, FCC Tariffno

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FILED!ACCEPTED Transmittal No.3, FCC Tariffno \ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) WCB/Pricing File 10-10 Bluegrass Telephone Company, 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 Qwest 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 local exchange carrier ("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
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