Re: Sham telecoms created to scam AT&T must pay back ill-gotten gains

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It's not all that simple. One man's sham is another man's entrepreneur.  
And this story goes back a LONG way. What changes is the politics -- who  
is in charge at the FCC. What one Commission finds acceptable is  
another's sham.

The three carriers in question all provided conference call and similar  
incoming-only services. If you use FreeConferenceCall and other such  
services, you can thank them for making that business possible. In this  
case they may have overplayed their hands, especially All American  
Telephone.

One of the most colorful characters in the phone business in the late TC  
(twentieth century) was the late Art Brothers, founder of Beehive  
Telephone, which served the most remote deserts in Utah and a bit of  
Nevada too. (Beehive today is under new management.) He also wrote a  
column for America's Network, a trade mag. He figured out a lot of  
angles and played them, making a lot of enemies in the process. (He made  
a lot in his personal life too, but that's another story. I liken him to  
Wayne Green, who published 73 Amateur Radio magazine and was equally  
"colorful"; the two were friends.)

The controversy in question is now called "access stimulation". The idea  
is that local telephone companies are (or were) paid minute-of-use fees  
by long distance companies who deliver calls to them. The fees for a  
small rural carrier are higher than for Bell or larger carriers. The  
fees for a competitive carrier (CLEC) are benchmarked against the ILEC  
they're competing with.

Well, in the 1990s, Beehive Tel was charging something like 40c/minute  
for terminating calls. At one point they opened a new exchange and asked  
Mountain Bell for a prefix code, and were given 802-234. This was  
supposed to be for spite, since Mountain Bell hated Beehive (who they  
had to pay those high rates to). Kids would pick up touch-tone phones  
and dial 123435678 and ring in to Beehive. Brothers turned this around  
and put in a machine to answer the number, making the call billable.

Then he got really clever and created Joy Communications, who ran GAB  
(group audio bridging, but mostly sex-chat) lines on his exchange and  
got a share of the termination payments. This quintupled incoming  
traffic. Terminating access rates for rural carriers are reset every two  
years based on the last two years' volumes, so for a short time he got a  
really high per-minute fee, then the rate fell from around 40c to 8c  
based on the higher volume (dividing a fixed revenue requirement by  
minutes of use). This kicked off the whole GAB and conference business.  
The LD carriers at the time protested but the FCC at the time approved.

What seems to have happened here is that the CLECs in question did not  
actually do anything but GAB. They didn't have switches; they put  
conference bridges inside Beehive's facilities. And they had common  
ownership with Joy and close connections to Beehive. They benchmarked  
their rates against Beehive's, but because they were not Beehive, that  
didn't average-down Beehive's rates. The FCC found, in the 2013 order,  
that they were not actually competing with Beehive, and not entitled to  
their rates. AAT, in fact, in its CLEC authorization, was specifically  
not allowed to compete in small exchanges of rural carriers (i.e.  
Beehive) but nonetheless benchmarked its rates against Beehive, rather  
than against the Bell rate. And their "leasing" switching from Beehive  
was seen as not bona fide CLEC operation, though switch leasing in  
general is (or was) totally normal.

So while the defendants here did step over some lines, it's not as if  
they were simply sham carriers submitting bills for nothing. I am  
familiar, ahem, of cases where carriers did actually bill other carriers  
for minutes of use that didn't actually happen. (Ah, the wonders of  
protective orders.) But these minutes of use did happen; it's just a  
question of who deserved to be paid how much.

--  

Fred R. Goldstein      k1io     fred "at" ionary.com

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