On July 2, 2009, AT&T, through several of its affiliated incumbent local exchange carriers ("LECs"), filed a lawsuit in the United States District Court for the Northern District of Texas against numerous prepaid calling card companies, including IDT Telecom, Inc. (collectively "IDT").  AT&T alleged that IDT improperly attempted to avoid paying AT&T for the use of its network facilities to make long-distance calls.  Specifically, its lawsuit alleges that IDT sells calling cards that use "local" numbers to originate interstate calls to its calling card platforms. 

On October 9, 2009, IDT filed a Motion to Stay AT&T's complaint until the Federal Communications Commission ("FCC" or "Commission") resolves the regulatory questions at issue. Alternatively, IDT requests that the court dismiss AT&T's action for failure to state a viable claim.  First, IDT asks the court to defer to the FCC pursuant to the doctrine of primary jurisdiction.  IDT charges AT&T with incorrectly assuming first that switched access charges are due on prepaid calling card calls, and second that prepaid calling card providers must pay such charges. IDT reasons that an FCC decision on the matter would resolve the issues on an industry-wide basis rather than by piecemeal litigation.

Second, IDT asserts that AT&T failed to state a valid claim because IDT did not contract directly with AT&T but with third party Competitive Local Exchange Carriers ("CLECs") unrelated to AT&T. Specifically, IDT contends that AT&T makes conclusions of law, arguing that IDT violated unidentified tariffs. Further, AT&T failed to allege that these tariffs contractually bind IDT. Finally, IDT maintains that AT&T failed to make a claim for unjust enrichment because AT&T provides no services to IDT for which IDT could accept benefits and become unjustly enriched.

In response, AT&T claims that the FCC's 2006 Prepaid Calling Card Order unequivocally required all prepaid calling card providers to pay access charges.  And, AT&T reasons that because it "originates" IDT's calls and delivers them to its switch for routing to IDT's networks, access charges are due on these calls. AT&T argues that because the Order clearly applies, no stay is required. AT&T believes that the FCC's review of compensation regimes pertains to matters going forward and is irrelevant to the issues in its complaint and charges IDT with attempting to avoid the mandates in the Commission's Order.

AT&T further seeks denial of IDT's request for dismissal, arguing that its tariffs are not contracts but have the force and effect of law thereby "constructively" binding IDT to their terms.  Finally, AT&T suggests that it properly asserted a claim for unjust enrichment based on IDT's receipt of the benefit of origination of IDT's customers' long-distance calls without making switched access payments.

In its reply, filed on December 29, 2009, IDT asserts that the FCC's 2006 Order did not resolve the questions at issue.  Instead, according to IDT, the FCC sought public comment on the issues and continues to consider them.  IDT also challenges AT&T's "constructive ordering" argument because it failed to include the allegation in its complaint and further failed to allege the requisite elements of the doctrine, the first of which is interconnection.  Finally, IDT retorts that because AT&T receives compensation for originating calls from its end-users, the company has not been unjustly enriched.

Client Advisory

This current lawsuit is not the first time that AT&T has sought access charges for or attempted to prevent prepaid calling card companies from using local Direct Inward Dialing numbers ("DIDs").  In late 2008, several companies began receiving cease and desist letters from AT&T.  In these letters, AT&T demanded that the companies discontinue their use of DID arrangements to secure local access numbers through which their consumers could access a prepaid calling card platform or pay access charges for AT&T's origination of the calls. 

While many companies have received such letters, AT&T has seemingly filed the IDT lawsuit to "test the waters" and may, if successful, subsequently file suit against other providers.  However, if the court grants IDT's motion, AT&T may be forced to seek redress with the FCC.  Or, AT&T could resort to seeking access charges from CLECs that own the DIDs sold to prepaid calling card providers.  Note that AT&T sought a stay of the case instead of direct referral of the complaint to the FCC for resolution.  In the interim, AT&T continues to demand payment from prepaid providers for access charges allegedly owed.

Clients are advised to monitor the case as the impact upon prepaid calling card providers in particular could be substantial.  Clients with questions about this Advisory should contact Jonathan Marashlian at jsm@commlawgroup.com or 703-714-1313.