4. Factual Background

The following describes the setting in which the two carriers compete. To fully understand the competitive setting, it is important to bear in mind that a carrier providing lines to a payphone service provider collects money from the latter in connection with certain kinds of services but also pays money to the payphone service provider for certain kinds of calls. Defendant SBC California (an incumbent local exchange carrier) and complainant Mpower (a facilities-based competitive local exchange carrier), compete in providing lines to payphone service providers, who are for this purpose customers of the carriers providing the lines. SBC California, pursuant to its intrastate tariffs, bills and collects from payphone service providers a non-recurring charge of $112 to establish a new COPT service line. SBC California also bills and collects from payphone service providers other tariffed charges on a monthly basis, including a service charge of $14.53 per line.²

The revenue from some of the calls placed at coin phones belonging to payphone service providers goes not to those providers but to the local exchange carrier (or interexchange carrier) which then pays compensation to the providers. Specifically, the FCC requires carriers to compensate payphone service providers for "non-sent paid" calls, which generally are 800 platform and access code calls.³ However, the FCC provides latitude on how the compensation is calculated. The carrier can pay compensation to the payphone service provider at a default rate of $0.24 per call or at a negotiated higher amount.⁴ SBC California's June 2001 Compensation Agreement for "O"/"O+" intraLocal Access Transport Areas non-sent paid traffic with G-Five provides volume sensitive monthly compensation per non-sent paid call. (Exhibit C-9, Attachment 1.)

The record shows that G-Five asked SBC California to waive or credit installation charges to payphone service providers to ensure SBC California could compete with new Unbundled Network Element-P competitive local exchange carriers who were teaming up with established carriers like Verizon to offer better compensation plans. SBC California rejected G-Five's proposal and instead agreed to make payments to G-Five pursuant to an "Additional Compensation" agreement with G-Five. (Exhibit 7.)⁵ Under the "Fast Start Program," offered during 90 days in 2002, the payments to G-Five include the "New Connect Award," a fixed amount plus an amount for a "new line added" payable within 30 days of verification of the new order, another amount payable at the end of the 12-month term of the promotion, and a monthly amount. For lines G-Five retains as SBC California lines, SBC California pays an amount at the beginning of the promotion, an amount at the end of the 12-month term, and a monthly payment.

SBC California can pay "commissions" owed to payphone service providers under the Compensation Agreement either directly to G-Five or, at G-Five's direction and as authorized by the payphone service provider, by crediting amounts designated by G-Five to bills for services provided by SBC California to the payphone service provider or by check. (Id.) G-Five could retain a portion of the payments and distribute the remainder to the payphone service providers. These are the payments that Mpower asserts are unlawful rebates in violation of § 532.

In setting the payments to G-Five under the "Additional Compensation" agreement, SBC California calculated average revenue per non sent-paid call, subtracted the amount paid to G-Five per call in commissions, estimated additional revenue per platform call, and set compensation accordingly. Payphone service providers entered into agreements with G-Five to purchase or continue to purchase SBC California's line service. SBC California verified the line information G-Five provided and made payments to G-Five or to a designated payphone service provider at G-Five's direction.