DR 98-061
CTC COMMUNICATIONS CORPORATION
Petition for Enforcement of Resale Agreement and to Permit
Assignment of Retail Contracts
Order Permitting Assignment of Certain Retail Contracts
O R D E R N O. 23,040
October 7, 1998
APPEARANCES: Downs Rachlin & Martin P.L.L.C. by Nancy
S. Malmquist, Esq. for CTC Communications Corporation; Victor C.
Del Vecchio, Esq. for Bell Atlantic; Office of the Consumer
Advocate by Mr. William Homeyer for residential ratepayers, E.
Barclay Jackson, Esq. for the Staff of the New Hampshire Public
Utilities Commission.
I. PROCEDURAL HISTORY
On January 26, 1998, the New Hampshire Public Utilities
Commission (Commission) approved a Resale Service Agreement
(Resale Agreement) between New England Telephone and Telegraph
Company (Bell Atlantic) and CTC Communications Corporation (CTC)
dated December 1, 1997. On April 27, 1998, CTC filed a Petition
requesting that the Commission enforce the Resale Agreement
(Petition) by ordering Bell Atlantic to permit assignment of
customer accounts and term agreements without imposing contract
termination charges.
On May 14, 1998, noting the need to expeditiously
resolve interconnection agreement disputes, the Commission issued
an Order of Notice which set a final hearing date of June 8,
1998. Responding to a request for postponement from CTC, the
Commission issued a Supplemental Order of Notice on June 8, 1998,
rescheduling the hearing for July 13, 1998. By Secretarial
Letter dated June 18, 1998, the Commission requested that the
parties file testimony in support of their respective positions
on or before July 6, 1998, and rescheduled the hearing for July
16, 1998.
At the hearing on July 16, 1998, the Commission granted
a motion for intervention filed by the Telecommunications
Resellers Association (TRA). TRA was not present at the hearing.
The Commission granted Bell Atlantic's Motion for Protective
Treatment, which was filed on July 6,1998, pursuant to N.H.
Admin. Rules Puc 204.06, for materials contained in the testimony
of Bell Atlantic witness Kenneth Gordon.
Members of the public speaking in favor of CTC's
petition at the July 16th hearing included Richard Morgan,
Communications Manager of Pike Industries; William Carr,
representing Waterville and Booth Creek Ski Holding Companies and
Eaton Resorts; Patricia Witthaus, Director of Information
Services, Valley Regional Health Care; John Wills, Network
Administrator for Monadnock Family Services Community Mental
Health Center; John Adams, Director of Accounting for the Town of
Hampton and representative of the Government and Finance Officers
Association; and Michael Gilbar, Director of Administration
Services for the Town of Hanover.
At the July 16th hearing, CTC and Bell Atlantic
presented testimony and exhibits. The parties reserved exhibit
numbers 12 and 20 for record requests made by the Commission.
Staff and the OCA cross-examined witnesses but did not present
testimony. Subsequent to the hearing, in the process of filing
Exhibits 12 and 20, CTC and Bell Atlantic commented further in
letters dated July 21 and July 28. By letter dated August 5,
1998, CTC requested that the Commission strike Bell Atlantic's
letter of July 28 from the record.
The Commission publicly deliberated the issues
presented in this docket on August 17, 1998. By letter dated
September 17, 1998, CTC requested that the Commission's pending
order insure that no impediment to CTC's resale of contracts be
raised by Bell Atlantic. By letter dated September 25, 1998,
Bell Atlantic responded.
II. POSITIONS OF THE PARTIES AND STAFF
A. CTC
CTC, an authorized New Hampshire reseller, argues that
Bell Atlantic violated the terms of the Resale Agreement by
rejecting orders made by CTC at the request of end-users to
assume the contract accounts of end-users for resale purposes.
According to CTC, Bell Atlantic unilaterally changed its policy
of allowing end-users to assign their contract accounts to
resellers without penalty. As of January 1998, Bell Atlantic
requires end-user retail customers to terminate the retail
contract and pay termination charges before obtaining service via
resale from CTC. This, according to CTC, is contrary to the
Resale Agreement and the Telecommunications Act of 1996 (TAct).
CTC argues that Section 6.3.1.1(b) of Attachment A in
the Resale Agreement grants CTC the right to assume an end-user
customer's account. That section reads:
If the reseller assumes the account of an
existing Telephone Company end user at the
end user's existing premises, the order must
identify the end user's billing telephone
number and line(s) and indicate that the end
user's existing service (or any specified
modification to and/or cancellation of the existing
service) is to be transferred to the reseller.
(1) Authorization to Assume an Account - A reseller placing
an order under which it will assume the account of an
existing Telephone Company end user customer, or the account
of an existing end user customer of another reseller, must
obtain appropriate authorization from that end user for the
change of service provider.
CTC claims Section 6.3.1.1(b) authorizes the assumption of
contracts by resellers, codifying Bell Atlantic's long-standing
policy as confirmed in contract discussions between CTC and Bell
Atlantic. Assumption of the contract, according to CTC, would
bind the reseller for the remaining duration of the contract at
the retail rate the end-user was paying Bell Atlantic. The
retail rate could be subject to the wholesale discount only if
the tariff associated with the contract included criteria
permitting the contract to be reviewed and re-established as a
recast contract. According to CTC, Bell Atlantic has changed its
contract assumption policy in order to maintain its control of
customers and its position as the dominant carrier, contrary to
the intent of the TACT.
CTC also argues that Bell Atlantic changed the position
it held in Re Petition Requesting that Incumbent LECs Provide
Customers with a Fresh Look Opportunity, DE 96-420, regarding
assumption of contracts without penalty. CTC cites Bell
Atlantic's brief in the Fresh Look docket, identifying two
options for reselling Bell Atlantic services, one of which "is to
allow a competitive provider to assume the special contract or
tariff payment-plan agreement of a NYNEX retail end user, so long
as the provider, through resale, assumes all terms and conditions
of the agreement, including its length. Accordingly, no early
termination of the agreement arises and no penalty is paid." Id.
Furthermore, CTC claims that during negotiation of the Resale
Agreement Bell Atlantic representatives gave assurances that Bell
Atlantic customer contracts could be assumed without penalty.
CTC argues that because the end-user's service
continues without change or interruption, the end-user would be
unwilling to pay any termination charges. The imposition of
termination charges therefore represents an economic barrier to
competition, the effect of which would be to insulate a portion
of the business market from competition.
CTC contends that Bell Atlantic is not entitled to a
termination fee for the following reasons:
(1) Bell Atlantic's prices to resellers cover investment costs,
even when the wholesale discount is applied. Since the wholesale
discount is not applied here, Bell Atlantic covers its investment
costs and collects additional payment for costs which are
avoided. Termination charges therefore would be inappropriate.
(2) CTC assumes the contract obligations for the entire term
Bell Atlantic's end-user was obligated. Therefore, since Bell
Atlantic retains the entire benefit of its contract, termination
charges would be inappropriate.
(3) Termination charges are intended to compensate for tangible
losses, not intangibles. Therefore, the "customer relationship"
and/or the possibility that a customer may purchase other
services outside the contract are not compensable. The customer
relationship, CTC argues, is not a property interest and,
accordingly, termination charges would be inappropriate.
(4) Resale does not terminate a contract. CTC asserts that the
contract continues. Because there is no breach of contractual
obligations or loss of revenue, termination charges would be
inappropriate.
B. Bell Atlantic
According to Bell Atlantic, the issue raised in this
docket is whether termination liability pertains to long-term
contracts and payment-plan arrangements for telecommunications
service in New Hampshire, an issue Bell Atlantic asserts was
resolved by Order No. 22,798 in Re Petition Requesting that
Incumbent LECs Provide Customers with a Fresh Look Opportunity
(Fresh Look Order),dated December 8, 1998. The Fresh Look Order
included a termination liability formula balanced to permit Bell
Atlantic to retain the reasonably anticipated benefit of its
bargain while fostering competition. Bell Atlantic argues that
CTC's proposal disturbs the balance achieved by the Commission's
order; CTC's proposal removes even the reduced, Fresh Look
termination charges when a customer abandons the contract.
In opposition to CTC's interpretation of Section
6.3.1.1 as mandating contract assignment without termination
charges, Bell Atlantic points out that the section is completely
silent on the issue of termination charges. Furthermore, Bell
Atlantic states that CTC must necessarily have known, as a result
of representations made during negotiations and before beginning
resale operations in New Hampshire, that Bell Atlantic would not
waive end-user termination liabilities.
Bell Atlantic further asserts that tariff language
exists which specifically restricts transfer of service. For
example, Paragraph C of Tariff 4.2.8, Superseded Analog Centrex
Services (effective May 15, 1998), states "Transfer of Service is
not permitted;" Tariff 5.1.3, Intellipath Digital Centrex Service
(effective January 18, 1996) prohibits transfer without Bell
Atlantic's written permission. Bell Atlantic pointed out that
all contracts subject the end-user to future changes approved by
the Commission. Therefore, Bell Atlantic argues, the contracts
CTC seeks to assume are not freely assignable.
Bell Atlantic contends that further support for its
position is found by the nature of the market that CTC seeks to
enter. Bell Atlantic asserts that the market for the services in
question, Centrex, is competitive because PBX is a substantially
sufficient alternative to Centrex. Bell Atlantic concludes that
it therefore has no ability to use market power to price Centrex
abusively and that the contracts should not be available for
unilateral assignment to a reseller.
Moreover, Bell Atlantic claims that CTC's proposal
damages competition. Bell Atlantic argues that long-term
contracts possess two benefits in addition to revenues: the
possibility of ancillary sales of features and services, and the
increased probability of retaining the customer. Bell Atlantic
asserts that the loss of these benefits necessitates compensation
via termination charges. Losing these two benefits without
compensation upsets the balance between contractual integrity and
competition established by the Commission in the Fresh Look
Order. Moreover, to reduce the risk of loss of customer control
posed by the imbalance thus created by regulatory interference,
Bell Atlantic will hesitate to enter into lower-priced, long-term
special contracts, depriving customers of this choice. Hence, as
interpreted by Bell Atlantic, CTC's proposal harms competition.
Bell Atlantic also foresees that assignment of
contracts without imposing termination charges will increase
customer confusion and operational inefficiency. According to
Bell Atlantic, when customers receive a final bill and
termination charges, they receive clear notification that their
relationship with Bell Atlantic is severed. Without that
notification, customers will not understand that the relationship
is severed and will try to report troubles, complaints, billing
inquiries, and repair requests to Bell Atlantic, to which Bell
Atlantic would be unable to respond. Bell Atlantic reports that
its actual experience in the resale environment supports this
contention.
Prior to NYNEX's merger with Bell Atlantic, end users
were allowed to assign contracts to resellers without terminating
the end user's contract. However, Bell Atlantic's witness
reports that this practice created customer confusion because
customers did not understand that NYNEX would no longer provide
customer assistance or repair services. NYNEX had to expend
resources educating and redirecting customers. Beginning in
April 1998, the merged Bell Atlantic/NYNEX company instituted a
policy of terminating the end user contract and selling the
service to the reseller for resale rather than allowing the
reseller to assume the contract itself. Bell Atlantic argues
that this policy minimizes customer confusion and relieves the
company of the expense of educating customers.
In further support of its policy, Bell Atlantic
indicates that terminating the contract means that Bell
Atlantic's wholesale service channel (TISOC) is activated. The
TISOC is streamlined; it electronically processes the services
provided to resellers and CLECs. Bell Atlantic implies that
without termination of the contract the TISOC would be
unavailable to CTC.
III. COMMISSION ANALYSIS
Having considered the testimony, exhibits, and
arguments in this case, we find the arguments advanced by CTC to
be persuasive. Our interpretation of the Resale Agreement
further implements the complex restructuring of the
telecommunications industry enacted by Congress as the TAct. The
TAct was passed to introduce competition into the local telephone
market which until that time existed as a regulated monopoly,
essentially guaranteeing Local Exchange Carriers (LECs) a
profitable rate of return in exchange for ensuring universal
telephone service.
The TAct did not merely decree an open market but
constructed a "comprehensive regulatory scheme designed to ease
the transition to competitive markets and to facilitate entry of
other telecommunication carriers into the local markets." AT&T
Communications of the Southern States v. Bell South
Telecommunications, U.S. District Court (E.D.N.C.) (May 22,
1998). The regulatory scheme, 251 and 252 of the TAct,
requires incumbent LECs (ILECs) to make interconnection
agreements with other telecommunication carriers for access to
the ILEC's infrastructure, either by purchasing network elements
to create a service or by buying the finished service at a
wholesale rate for resale to consumers.
CTC chose the resale avenue for entering the local
market. CTC planned to assume the contractual rights of certain
Bell Atlantic customers who have long-term, large volume service
arrangements pursuant to Bell Atlantic's tariff or pursuant to
special contracts. Bell Atlantic, which once permitted such an
assumption, objected, asserting that (1) denying the assumption
is within its discretion by virtue of tariff provisions, (2) that
assumption acts to its detriment, (3) the assumption is anti-competitive, upsetting the balance between competition and
sanctity of contract created by the Commission in the Fresh Look
Order, and (4) the assumption creates unnecessary inefficiency
and customer confusion. Accordingly, Bell Atlantic changed its
policy. It now terminates end user contracts that resellers
submit for resale, imposes a termination fee, and provides the
services to the reseller at wholesale prices.
We find the language of the Resale Agreement
controlling. We read the Resale Agreement as clearly
contemplating CTC's assumption of an existing end-user account
for service as a reseller. Bell Atlantic's prior and subsequent
practice strengthens this view, as does Bell Atlantic's brief in
the Fresh Look docket and its representations to CTC during
negotiation of the Resale Agreement. Bell Atlantic could have
included different language in the Resale Agreement if it wanted
to depart from this interpretation and change its policy. In the
absence of such language, we find that Bell Atlantic contracted
to extend that policy to CTC so that CTC would be able to assume
the account of an enduser, without penalty, and service the
account via resale. We will order Bell Atlantic to fulfill the
intent of the contract, placing CTC in the same position it would
have enjoyed had Bell Atlantic not changed its policy.
Under New Hampshire law, all service contracts are
freely assignable unless they fall into one of the exceptions to
that general rule. See, e.g., Hampton v. Hampton Beach
Improvement Company, 107 NH 89, 218 A2d. 442 (1996), citing 4
Corbin Contracts, 865. "A contract and the right of either
party to the contract to its performance by the other party, may
be assigned unless the assignment changes the obligator's
position to his detriment." 6 CJS 29.
Bell Atlantic does not claim that the contracts at
issue here fall into an exception to the general rule. Bell
Atlantic argues that the contracts are non-assignable by virtue
of tariff provisions requiring its express assent to assignment.
We find this tariff provision argument inadequate. At least one
of the tariff provisions addressing assignability was filed
within a compliance tariff on another matter, during the pendency
of this docket disputing assignability. It cannot be used to
support Bell Atlantic's argument. Other provisions pre-date the
TAct and should not be used to thwart the goal of the TAct.
Moreover, we find that the contract clause incorporating all
future tariff changes into the contract is appropriate for
changes as to the rates and terms of telecommunication services
but not for changes to assignability rights. We therefore find
that contracts signed prior to the issuance of this order are
freely assignable. However, this order puts resellers and end-users on notice that contracts signed after the date of this
order are subject to Bell Atlantic's tariff limitation on
assignment.
Without citing any authority for its claim, Bell
Atlantic argued that it should collect a termination fee upon
processing CTC orders which assume an end user's contract. We do
not accept Bell Atlantic's claim; it contradicts the fact that
Bell Atlantic's customers are not terminating or cancelling their
agreements with Bell Atlantic: they are assigning them to CTC.
Bell Atlantic argued that it should be compensated for loss of
customer control, possible ancillary service sales, and stability
of its rate base. However, the value of customer control cannot
be measured, no evidence was presented as to the value of
possible ancillary sales. As to a stable rate base, that appears
to remain stable when assigned at the same retail rate;
furthermore, a stable rate base would appear to be a perquisite
provided to a monopoly, not the right of a competitive carrier.
Accordingly, we will not provide compensation for these items.
Nor will we impose a compensatory fee for an action
Bell Atlantic itself chooses to make. In the scenario proposed
by Bell Atlantic, Bell Atlantic, not the end user, terminates the
contract and then seeks compensation for its own action.
In addressing the fact that assignment of these
customer contracts does not result in their termination, we do
not lose sight of the fact that the contracts are being assumed
for resale of Bell Atlantic services. A number of jurisdictions
have considered whether an ILEC or state commission can exempt
special contracts, often called Customer Service Arrangements
(CSAs), from resale. In FCC 97-418, CC Docket No. 97-208,
Opinion and Order, In the Matter of the 271 Application of Bell
South in South Carolina, (December 24, 1997), the FCC reiterated
the 8th Circuit's holding that general restrictions on resale of
CSAs are impermissible. The Texas Public Utilities Commission
denied Southwestern Bell's claim that only the services provided
under CSAs must be available for resale, as opposed to the CSAs
themselves. In another case, Complaint of KMC
Telecommunications, Inc. v. Southwestern Bell Telephone, Docket
No. 17,759, March 19, 1998, the Texas Public Utilities Commission
categorically stated, "[t]he law is that CSAs cannot be exempted
from resale". Differentiating resale from Fresh Look, the Texas
Public Utilities Commission said that because the reseller agreed
to Southwestern Bell's tariff provisions, including termination
liability, the contracts were not voided or unilaterally changed.
We find that, when it terminates the end user's
contract upon receipt of CTC's order, Bell Atlantic in effect
exempts these contracts from resale, even though the contracts
are neither voided nor unilaterally changed. We find this to be
an unreasonable restriction on resale, in violation of Section
251(c) of the TAct. See, AT&T Communications of the Southern
States v. Bell South Telecommunications, No. 5:97-CV-405-BR, U.S.
District Court, E.D. North Carolina, Western Division (May 22,
1998), 1998 WL 300218, in which the District Court reasoned that
an RBOC's exclusion of certain CSAs from resale is not a
reasonable and nondiscriminatory limitation on resale, in
violation of 251(c)(4)(B). As we pointed out above, resale is
one of the two methods which Congress devised to introduce
competition into the local telephone market. Our interpretation
of the Resale Agreement is consistent both with the language of
the agreement and our understanding of Congressional intent.
Based upon the foregoing, it is hereby
ORDERED, that the Telecommunications Resellers
Association shall be a full intervenor in this docket; and it is
FURTHER ORDERED, that Bell Atlantic's Motion for
Protective Treatment, filed July 6, 1998, is hereby GRANTED; and
it is
FURTHER ORDERED, that Bell Atlantic shall permit CTC
and similarly situated resellers to assume end-user contracts
executed prior to the issuance of this order, for the purposes of
resale, treating CTC and such other similarly situated resellers
in the same manner as other resellers, in conformance with the
discussion above; and it is
FURTHER ORDERED, that Bell Atlantic shall not impose a
termination charge on an end-user or reseller in the above
circumstances.
By order of the Public Utilities Commission of New
Hampshire this seventh day of October, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary