Teliax, Inc. v. AT&T Corp.

Citations: 220 F. Supp. 3d 1094; 2016 U.S. Dist. LEXIS 188220; 2016 WL 6777830Docket: Civil Action No 15-cv-01472-RBJ

Court: District Court, D. Colorado; November 1, 2016; Federal District Court

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The Court grants Teliax, Inc.’s motion for summary judgment to dismiss AT&T Corp.’s counterclaim regarding alleged overcharges for toll-free 8YY call routing services. Teliax, a competitive local exchange company in Colorado, asserts that AT&T has not fully compensated it for these services. AT&T counters that Teliax improperly billed it based on 'end office' service rates, which Teliax allegedly does not provide, leading AT&T to seek a counterclaim to recover unspecified overcharged amounts.

Teliax operates both retail and wholesale 8YY services, receiving calls from end users as well as through contracts with local exchange carriers (LECs) and VoIP providers. These calls, originating in either Internet Protocol (IP) or older time division multiplexing (TDM) formats, are routed through Teliax's network to the appropriate interexchange carrier (IXC), such as AT&T, via a third-party tandem switch. The billing process involves the tandem provider billing AT&T directly for the calls delivered, with a portion of that revenue being passed on to Teliax, along with an additional fee for continued traffic provision.

Teliax compensates its wholesale providers based on contractually agreed rates and explicitly prohibits billing between parties, designating itself as the biller for certain services. Teliax bills AT&T for various services related to its wholesale 8YY traffic, including an 'end office switching' charge, a 'local switching common trunk port' charge, and an '8YY database query' charge. Teliax's interstate services are governed by its tariff, filed with the Federal Communications Commission (FCC), which requires common carriers to submit a schedule of charges and associated regulations. The tariff, filed on September 18, 2012, became effective on September 28, 2012, as neither AT&T nor the FCC objected to it, establishing a presumption of legality for the rates.

Between February 2013 and February 2015, AT&T paid Teliax's access charges under the tariff without issue. However, starting in February 2015, AT&T began to 'short-pay' Teliax, disputing charges for 'originating switched access' and 'DBQ' services, arguing that Teliax's services did not qualify as 'end office switching.' AT&T recalibrated its payments based on a lower national average rate it deemed appropriate for the services provided, allegedly withholding $1,339,325.94 of the charges due under the tariff between February 2015 and July 2016, despite paying Teliax $1,777,520.25. In contrast, AT&T claims that it had previously overpaid Teliax prior to February 2015 by paying higher rates than legally owed.

On July 13, 2015, Teliax initiated legal proceedings against AT&T to recover alleged owed funds, subsequently amending its complaint to include three claims: a collection action based on higher tariff rates, quantum meruit, and unjust enrichment. AT&T responded on September 11, 2015, counterclaiming for an unspecified overpayment and seeking dismissal of Teliax's latter two claims. The court denied Teliax's motion to dismiss AT&T's counterclaim and required Teliax to withdraw its second and third claims, resulting in a Second Amended Complaint filed on December 11, 2015, which omitted those claims. Teliax later filed a motion for summary judgment on AT&T's counterclaim on September 2, 2016, but did not seek summary judgment on its own claims. The court outlined the standard for summary judgment, emphasizing the burden on the moving party to demonstrate the absence of genuine material facts and the necessity for the nonmoving party to present specific facts indicating a trial issue. The court found that the FCC's 'VoIP Symmetry Rule' applied, allowing Teliax to lawfully charge AT&T for end office services related to OTT VoIP traffic. Consequently, the court granted Teliax’s motion for summary judgment, confirming the applicability of the Tariff and the associated charges.

The 'VoIP Symmetry Rule' (VSR) established by the FCC in 2011 aims to address compensation issues in the evolving landscape of telecommunications, particularly as companies began using internet-based methods to transmit calls instead of traditional wireline systems. The VSR allows Competitive Local Exchange Carriers (CLECs) to charge the same intercarrier compensation for VoIP-PSTN traffic as incumbent Local Exchange Carriers (LECs), thereby fostering a level playing field. This rule permits CLECs to charge for access services, including 'end office' access services, which involve switching traffic at the carrier's end office switch. It also allows charging for services functionally equivalent to traditional wireline end office switches, provided that the CLECs incorporate the VSR into their tariffs properly.

Despite the VSR, tensions persisted between CLECs, their VoIP partners, and Interexchange Carriers (IXCs) like AT&T and Verizon. In a 2015 ruling, the FCC noted complaints from CLECs claiming that AT&T and Verizon were withholding payments for access services, arguing that CLECs and their VoIP partners did not perform end office switching or its functional equivalent. AT&T and Verizon contended that end office switching required physical infrastructure for connecting calls, which only occurs when a CLEC collaborates with a facilities-based VoIP provider.

The Commission affirmed that the Voice Service Rule (VSR) applies even when a Competitive Local Exchange Carrier (CLEC) partners with a non-facilities-based VoIP provider. It rejected claims from AT&T and Verizon, clarifying that the VSR does not necessitate a CLEC or its VoIP partner to provide physical last-mile facilities to end users for accessing charges. Instead, the VSR evaluates the overall delivery of calls to end users. The Commission identified several Time-Division Multiplexing (TDM) switching functions that CLECs might replicate but emphasized that this list is not exhaustive regarding what constitutes the functional equivalent of end-office switching. It defined this equivalence in terms of the intelligence involved in call setup, supervision, and management, asserting that CLECs and their VoIP partners fulfill these roles.

In the context of Teliax's Tariff, it was determined that the Tariff incorporated the VSR, supported by a precedent case, Broadvox-CLEC, Inc. v. AT&T Corp., where the court found a similar CLEC Tariff validly included the VSR. The language in Teliax's Tariff closely mirrored that in Broadvox, leading to the conclusion that Teliax's Tariff also incorporated the VSR. Consequently, it was ruled that Teliax lawfully billed AT&T for end-user service charges, which AT&T cannot contest.

AT&T challenged the applicability of the VSR, arguing it only pertains to retail 8YY traffic and requires CLECs to be recognized in the National Portability Administration Center (NPAC) database. The Commission found this argument unpersuasive, suggesting that the interpretation of the regulation presented by AT&T was incorrect.

The FCC's 2015 ruling clarified that it did not determine whether the VSR applies in cases where the LEC does not assign the calling party’s telephone number. AT&T's assertion that only LECs meeting this requirement can invoke the VSR is incorrect. In Broadvox-CLEC, a CLEC successfully invoked the VSR for VoIP calls without assigning numbers, charging AT&T validly for end office switching under its tariff. 

AT&T further argued that Teliax cannot utilize the VSR because it claims the rule applies only to VoIP-PSTN traffic originating in IP format. Teliax is unable to confirm the origin of the 8YY traffic it receives as IP; it only identifies the format upon handoff. However, the FCC defines VoIP-PSTN traffic to include any traffic that terminates in IP format, regardless of its origin. Since all 8YY traffic Teliax carries terminates in IP format, AT&T's argument is deemed unpersuasive.

Lastly, AT&T contends that Teliax's billing practices contradict its Tariff, claiming that Teliax's actions represent 'Tandem Switching' rather than 'End Office Local Switching,' despite Teliax claiming to incorporate the VSR in its billing.

AT&T defends its interpretation of the Tariff, arguing that the end office local switching rate applies only to calls where end-user lines are physically connected to their final destination, while tandem switching charges apply when passing a call between customers and carriers. AT&T claims Teliax's billing conflicts with the Tariff, specifically regarding the 8XX Data Base Query Service, which is intended for calls originated by Teliax’s end users, not calls received from wholesale VoIP providers. However, AT&T's arguments are rejected based on a prior finding that Teliax appropriately incorporated the VoIP symmetry rule into its Tariff. Teliax billed AT&T for end user switching charges under the VoIP symmetry rule for functionally equivalent services, which is consistent with FCC guidelines. 

AT&T’s argument regarding the definition of 'end user' is also dismissed; the Tariff's definition encompasses any individual using interstate service, not just Teliax’s retail customers. Thus, Teliax lawfully charged for Data Base Query services regardless of the origin of the end users. Furthermore, AT&T contends that Teliax improperly charged for end user switching on 8YY calls originating internationally, citing regulatory limits on access service pricing. AT&T asserts that the VoIP symmetry rule does not apply to international services, referencing the definition of 'interstate communication,' which excludes foreign communications. However, the specifics of the international charges and their applicability remain unaddressed by AT&T.

Teliax defends its charges against AT&T using an estoppel-like argument, asserting that AT&T expected and wanted international traffic delivered to its network, thus cannot now seek to recover payments for those charges. The court agrees with Teliax, noting that AT&T had no indications it did not want to pay for these calls, making it unfair for AT&T to reclaim those charges. Additionally, AT&T's attempt to narrow the scope of the VSR by referencing definitions from the United States Code is unconvincing, as the relevant sections of the Code of Federal Regulations do not define "interstate." AT&T’s reliance on the definition of "interstate communication" from the United States Code does not effectively limit the VSR to exclude international traffic. Furthermore, the applicable Tariff defines "interstate" to include traffic originating abroad, asserting its authority over the VSR's application. The court concludes that the Tariff's definition governs, preventing AT&T from reclaiming previously paid charges for routing international calls through Teliax.

The Court granted Teliax’s motion for summary judgment and dismissed AT&T’s counterclaim. Teliax provides retail 8YY services over the internet as a Voice over Internet Protocol (VoIP) provider and a Competitive Local Exchange Carrier (CLEC). The 8YY service allows subscribers to pay an interexchange carrier (IXC) for calls made to a designated toll-free number, facilitating free communication for customers. The excerpt notes the ambiguity regarding whether Teliax’s wholesale providers act as middlemen by passing on calls from intermediate carriers. Teliax typically delivers all calls intended for AT&T’s network but blocks fraudulent calls and international calls at AT&T’s request. The excerpt explains that in telecommunications, a carrier's FCC-approved tariff functions as law, defining the rights and liabilities between the carrier and customer. AT&T allegedly refused to pay originating switched access charges, despite Teliax’s role in originating 8YY calls. Additionally, Teliax moved to dismiss BellSouth Long Distance, Inc. as a defendant, which the Court granted. The FCC defines VoIP-PSTN traffic broadly to include all traffic exchanged over PSTN facilities in IP format and established a billing framework to transition to an all-IP network by 2020.

The FCC delineates the 'call control' functions in traditional TDM and VoIP systems, noting that local switching connects transport to the termination point via local switches in TDM and call management systems in VoIP. AT&T contends that Teliax cannot charge for end-office switching functions, asserting that Teliax, as a middleman, did not provide these functions directly. Teliax, however, argues that it offered a functional equivalent of end-office switching for its wholesale 8YY traffic. The analysis finds AT&T's argument largely irrelevant and unpersuasive, as much of its support is based on FCC orders predating the adoption of the Virtual Switching Rate (VSR). The FCC has clarified that the VSR represents a shift from prior policy, allowing providers to charge for services they do not directly provide. Additionally, the FCC rejected AT&T's argument that Competitive Local Exchange Carriers (CLECs) can only bill for end office charges when partnering with facilities-based VoIP providers responsible for physical connections.