03-9687. NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership (“NOS/ANI” or “the Companies”), Order To Show Cause and Notice of Opportunity for Hearing

AGENCY:

Federal Communications Commission.

ACTION:

Notice; order to show cause and opportunity for hearing.

SUMMARY:

This document is an order for NOS/ANI to show cause and give the Companies the opportunity for a hearing before the Commission. The Commission has found that an evidentiary hearing is required to determine whether: (1) The Commission should revoke the operating authority of the Companies, (2) NOS/ANI and its principal should be ordered to cease and desist from any future provision of interstate common carrier services without the prior consent of the Commission, and (3) a forfeiture against NOS/ANI is warranted and, if so, the amount of the forfeiture.

DATES:

Effective April 21, 2003.

FOR FURTHER INFORMATION CONTACT:

Donna Cyrus, Attorney Advisor for Telecommunications Consumers Division, Enforcement Bureau [phone].

SUPPLEMENTARY INFORMATION:

This is a synopsis of the Commission's document regarding EB Docket No. 03-96, released on April 7, 2003. The complete text of this document is available for inspection and copying during normal business hours in the FCC Reference Information Center, 445 12th Street, SW., CY-A257, Washington, DC, 20554, and also may be purchased from the Commission's copy contractor, Qualex International, 445 12th SW., CY-B402, Washington, DC, 20554, [phone]. It is also available on the Commission's Web site at http://www.fcc.gov/​Daily_​Releases/​Daily_​Business/​2003/​db0407/​FCC-03-68A1.pdf.

Synopsis

A. Background

1. NOS/ANI are switchless resellers of MCI long distance service. Their customers are primarily small and medium-sized companies. NOS/ANI operates as a common carrier subject to Title II of the Communications Act of 1934, as amended (the “Act”). Specifically, NOS/ANI currently provides or has provided resale interstate long distance telecommunications services to consumers in numerous states. Under the regulatory scheme established by the Act and the Commission's rules, NOS/ANI is classified as a nondominant interexchange carrier. As such, it is considered to have “blanket” authority to operate domestic common carrier facilities within the meaning of section 214 of the Act.

2. It appears that NOS/ANI may have willfully or repeatedly violated sections 201(b) of the Act, by conducting a misleading marketing campaign (the “Winback Campaign”) apparently designed to improperly induce former customers into authorizing switches back to NOS/ANI. These improper inducements apparently included the Companies contacting their former customers and describing “problems” that the customers' chosen carriers were allegedly having in completing the customers' requests to establish new service. NOS/ANI apparently threatened their former customers with loss of service unless they agreed to retain NOS/ANI services as a “temporary measure.” Under coercion, some of these customers signed Letters of Agency (“LOAs”) that authorized the Companies to be their preferred carriers, believing that doing so was necessary to keep receiving service while their new preferred carriers completed their switches. The representations of NOS/ANI to their former customers appear to be knowingly false. In reality, the consumers had already been switched to their new preferred carriers and the Companies' marketing campaign was an apparently misleading scheme to trick consumers into returning to the Companies' services.

3. The Enforcement Bureau (the “Bureau”) initiated this investigation against NOS/ANI after receiving information about the Companies' marketing campaign from Mr. Robert Faulkner, a former NOS/ANI employee. Based upon the information provided by Mr. Faulkner, the Bureau contacted numerous consumers to investigate the allegations. All of the consumers who form the basis of this Order have signed declarations under penalty of perjury stating that NOS/ANI contacted them after they switched to new carriers and told them that their new carriers had not picked up all of their lines, and that as result, their lines were still billing with NOS/ANI. The consumers also state that they were threatened with service disruption if they did not sign new LOAs, which they were told were temporary, but necessary to keep their service running. Some of the consumers were induced into signing the LOAs with the assurance that it was only temporary, while others refused to sign.

4. The Companies' Winback Campaign apparently began in December 2001. As alleged by the consumers, and reflected in audiotapes, the conversations between consumers and NOS/ANI representatives followed a similar script, during which NOS/ANI apparently made numerous false representations to the consumers to induce them to switch their services back to NOS/ANI. NOS/ANI representatives also represented to these consumers that their lines were still billing with the Companies because their new carrier had not yet switched over the services. During the calls made in this marketing campaign, NOS/ANI representatives also advised the consumers that they needed to execute new LOAs until the consumers' new carriers picked up their lines, to ensure continuity of service. Consumers were incorrectly informed that once they signed an LOA with another company to switch their services from NOS/ANI, even though their lines were still being billed by NOS/ANI, NOS/ANI did not “have authorization to carry the traffic anymore.” NOS/ANI representatives apparently told consumers that once they signed the Companies' allegedly standard, FCC-approved LOA, with a notation to “See attached addendum,” the consumers’ service would continue, and all ties with NOS/ANI would be severed as soon as the new carriers picked up their lines.

5. The apparent pattern of these conversations NOS/ANI had with former customers bears a remarkable similarity to a “Winback Script” provided by Mr. Faulkner, who attested that the Companies originated the script in December 2001, with top management handing down the script to branch managers and sales representatives in the Winback/Quality Assurance Department. Under the script, the LOA is described as providing temporary authority for NOS/ANI to keep their former customers' service running “til the new carrier picks them up.”

B. Discussion

6. The consumer complaints and information from a former company executive all suggest a continuous telemarketing campaign, apparently intended for the sole purpose of tricking and threatening former customers into signing new LOAs to switch their services back to NOS/ANI. This practice depicts a callous disregard for the requirements of the Communications Act and section 201(b) in particular. Section 201(b) of the Act, states, in pertinent part, that “[a]ll charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable, and any such charge, practice, classification, or regulation that is unjust or unreasonable is hereby declared to be unlawful.” Based upon our review of the evidence before us, we find that NOS/ANI's apparent telemarketing campaign evidences apparently willful or repeated violations of section 201(b) of the Act. The Companies' apparent Winback Campaign involving misleading representations to consumers regarding the switch status of their services and threats of service disruption to scare consumers into signing LOAs appears to constitute an “unjust and unreasonable practice” within the meaning of section 201(b).

7. Further, there is nothing in the Act or in our rules which supports NOS/ANI's statements to consumers that NOS/ANI would lose authority to carry a consumer's lines once the consumer signs a new LOA with another carrier. In fact, this interpretation of our rules would provide absurd results, as it often is the case that a preferred carrier change is not executed until days after the consumer has requested the change and the request has been submitted to the local carrier and executed. Under NOS/ANI's theory, every carrier would be providing service without authorization if it did not immediately obtain “transitional” or “temporary” LOAs from consumers switching from their service to another carrier the moment those consumers requested the change or signed new LOAs with the other carriers. Further, administration in such an event would be nearly impossible, as most consumers do not even contact the old carrier when requesting a change to a different carrier. They simply give authorization to the new carrier. Given that carriers are only notified of lost accounts from the local carriers after the switches have been complete, the old carriers would have no way of knowing from whom to request these temporary LOAs.

8. It necessarily follows, therefore, that an old carrier loses authorization when the carrier change has been completed, and not when the consumer signs a new LOA or otherwise requests a carrier change. That said, NOS/ANI's statements to consumers that new LOAs are needed because consumers' new carriers did not pick up all of their lines are apparently false and misleading and not based upon any reasonable interpretation of the Act or our rules. In the unlikely event that a new carrier does not pick up all of a consumer's lines, NOS/ANI would continue to be the authorized carrier until the lines were switched over notwithstanding the Companies' dubious policy against partial accounts.

9. It appears that NOS/ANI engaged in an unjust and unreasonable marketing practice in apparent violation of the Act. It thus appears that the continued operation of NOS/ANI as a common carrier may not serve the public convenience and necessity within the meaning of section 214 of the Act. We therefore direct the ALJ to determine whether the NOS/ANI blanket section 214 authorization should be revoked. Further, in light of the egregious nature of NOS/ANI's apparently unlawful activities, we direct the ALJ to determine whether specific Commission authorization should be required for NOS/ANI, or the principal or principals of NOS/ANI, to provide any interstate common carrier services in the future.

C. Conclusion

10. In light of the totality of the information now before us, an evidentiary hearing is warranted to determine whether the continued operation of NOS/ANI as a common carrier would serve the public convenience and necessity within the meaning of section 214 of the Act. Further, due to the egregious nature of NOS/ANI's apparently unlawful activities, NOS/ANI will be required to show cause why an order to cease and desist from the provision of any interstate common carrier services without the prior consent of the Commission should not be issued. In addition, consistent with our practice in revocation proceedings, the hearing will also address whether a forfeiture should be levied against NOS/ANI for willful and repeated violation of section 201(b) of the Act.

Ordering Clauses

11. Pursuant to sections 4(i) and 214 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i) and 214, the principal or principals of NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership are directed to show cause why the operating authority bestowed on NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership pursuant to section 214 of the Communications Act of 1934, as amended, should not be revoked.

12. Pursuant to section 312(b) of the Communications Act of 1934, as amended, 47 U.S.C. 312(b), the principal or principals of NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership are directed to show cause why an order directing them to cease and desist from the provision of any interstate common carrier services without the prior consent of the Commission should not be issued.

13. The hearing shall be held at a time and location to be specified by the Chief Administrative Law Judge in a subsequent order. The ALJ shall apply the conclusions of law set forth in this Order to the findings that he makes in that hearing, upon the following issues:

(a) To determine whether NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership engaged in a misleading and continuous telemarketing campaign in apparent willful and repeated violation of section 201(b) of the Act's prohibition against unjust and unreasonable practices;

(b) To determine, in light of all the foregoing, whether NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership authorization pursuant to section 214 of the Act to operate as common carriers should be revoked;

(c) To determine whether, in light of all the foregoing, NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership and/or their principals should be ordered to cease and desist from the provision of any interstate common carrier services without the prior consent of the Commission.

14. The Chief, Enforcement Bureau, shall be a party to the designated hearing. Pursuant to section 312(d) of the Communications Act of 1934, as amended, both the burden of proceeding and the burden of proof shall be upon the Enforcement Bureau as to issues (a) through (c) inclusive.

15. To avail themselves of the opportunity to be heard, the principal or principals of NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership, pursuant to section 1.91(c) of the Commission's rules, shall file with the Commission within 30 days of the mailing of this Order to Show Cause and Notice of Opportunity for Hearing a written appearance stating that a principal or other legal representative from NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership will appear at the hearing and present evidence on the matters specified in the Show Cause Order. If NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership fail to file a written appearance within the time specified, NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership's right to a hearing shall be deemed to be waived. In the event that the right to a hearing is waived, the Presiding Judge, or the Chief, Administrative Law Judge if no Presiding Judge has been designated, shall terminate the hearing proceeding as to that entity and certify this case to the Commission in the regular course of business, and an appropriate order shall be entered.

16. If it is determined that NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership have willfully or repeatedly violated any provision of the Act or the Commission's rules cited in this Order to Show Cause and Notice of Opportunity for Hearing, it shall be further determined whether an Order for Forfeiture shall be issued pursuant to section 503(b) of the Communications Act of 1934, as amended, for the maximum forfeiture amount of $120,000 per day for more than ten (10) days up to the statutory maximum of $1,200,000.

17. This document constitutes a notice of opportunity for hearing pursuant to section 503(b)(3)(A) of the Communications Act of 1934, as amended, 47 U.S.C. 503(b)(A), for the potential forfeiture liability outlined above.

18. A copy of this order to show cause and notice of opportunity for hearing shall be sent by certified mail, return receipt requested, to NOS Communications, Inc., Affinity Network Incorporated, and NOSVA Limited Partnership at:

NOS Communications, Inc., 6110 Executive Boulevard, Ste. 508, Rockville, MD 20852.

Affinity Network, Inc., 4380 Boulder Highway, Las Vegas, NV 89121.

NOSVA Limited Partnership, 6701 Democracy Boulevard, Ste. 811, Bethesda, MD 20817.

Federal Communications Commission.

Marlene H. Dortch,

Secretary.