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IT & E OVERSEAS, INC. v. RCA GLOBAL COMMUNS.

June 12, 1990

IT & E OVERSEAS, INC., Plaintiff,
v.
RCA GLOBAL COMMUNICATIONS, INC., Defendant



The opinion of the court was delivered by: SPORKIN

 STANLEY SPORKIN, UNITED STATES DISTRICT JUDGE

 Background

 Guam, an unincorporated territory of the United States, is under the general administrative supervision of the Secretary of Interior. See 48 U.S.C. §§ 1421-28e. Under the Organic Act of Guam, enacted in 1950, Guam is self-governing. The government of Guam consists of a 21-member Legislature and a civilian governor charged with general supervision and control of "agencies, and other instrumentalities of the executive branch of the government of Guam." 48 U.S.C. §§ 1422, 1423. Laws enacted by the government of Guam must be reported to the Secretary of the Interior, or any other official designated by the President, and may be annulled by Congress. 48 U.S.C. § 1423i

 Prior to 1950, the United States Navy was responsible for providing public utilities on Guam, including telephone service. After the passage of the Organic Act, the Navy transferred its responsibilities for the civilian portions of the island to the Public Utility Agency of Guam, the predecessor of GTA. In 1973, the Guam Legislature created GTA, a not-for-profit public corporation, and granted it the franchise to "install, maintain, sell and supply to individuals, firms, corporations and governments, including the Government of Guam, telephone service." 12 Guam Code Ann. § 7104. GTA was also authorized to establish "reasonable rates" for telephone service and to enter "into contracts and execute all instruments necessary or convenient in the exercise of all its powers." 12 Guam Code Ann. § 7104.

 The U.S. armed forces still maintain facilities on Guam and own approximately one-third of the land on the island. Telephone service in these areas is provided by the U.S. Navy Public Works Center ("PWC"). Thus, two separate local telephone systems exist on Guam: the GTA system serving civilian areas and the PWC system serving military areas. Neither GTA nor PWC provides long distance telephone service to residents of Guam. Rather, the residents of Guam must subscribe to a long distance carrier. However, because all Guam telephone subscribers are connected to either GTA or PWC, their facilities must be used in every long distance call to or from Guam. In effect, a long distance carrier must depend upon access to GTA's local telephone exchange in order to originate or terminate calls from civilian areas.

 From 1951 to 1983, defendant Globcom was the sole provider of long distance telephone service on Guam. Globcom provided its long distance service pursuant to interconnection agreements with GTA and PWC. Under these interconnection agreements, GTA and PWC forwarded outgoing long distance calls to Globcom and completed incoming long distance calls received from Globcom for a percentage of revenues Globcom derived from the calls.

 In December 1982, IT & E received authorization from the FCC to enter the long distance telephone market of Guam. In April 1983, IT & E began to offer long distance telephone service in competition with Globcom. However, unlike Globcom, IT & E offered "dial up" service rather than direct dial service. *fn1" Neither Globcom nor IT & E carries long distance calls all the way to or from their ultimate destination. Both companies have agreements with "correspondent" carriers, such as AT&T and MCI, to forward outgoing calls to and receive incoming calls from the correspondents. Globcom and IT & E compensate their correspondent carriers for handling outgoing calls and are paid by their correspondents for handling incoming calls.

 Since January 1, 1979, Globcom has been provided with direct dial access to the local telephone exchange on Guam pursuant to a written traffic agreement between RCA and GTA ("Traffic Agreement"). This Traffic Agreement provided that Globcom would compensate GTA for providing local access on the basis of a division of revenues or a percentage of Globcom's Guam overseas long-distance telephone service revenues. Specifically, GTA received a percentage of Globcom's gross revenues for "paid-on-Guam" calls, increasing over the term of the Agreement from 34 to 35 percent. *fn2" The term of the original 1979 Traffic Agreement was for three and one-half years, until June 30, 1982, and was terminable upon 60 days notice by either party.

 The 1979 Traffic Agreement has been amended three times. The first amendment was executed on May 23, 1979 and provided for Globcom to assume responsibility for its own billing and collection. The second amendment executed on July 1, 1981 after extensive negotiations provided, among other things, that: (1) the term of the Traffic Agreement be extended five years, until June 30, 1987; (2) termination be permitted only by mutual consent; (3) after June 30, 1984, GTA's compensation would be increased to 40 percent of Globcom's gross revenues for outgoing calls; and (4) Globcom pay GTA an "incentive fee" of $ 900,000 per year, provided GTA met certain minimal service obligations. It is the third amendment to the Traffic Agreement, executed on December 12, 1984, that is at the heart of the current dispute.

 IT & E alleges that Globcom "secretly" *fn3" renegotiated its Traffic Agreement with GTA a third time in response to the initial success of IT & E following its market entry in April 1983 and to the competitive threat of GTA's prospective entry into the long distance market. *fn4" See Complaint at para. 35. This third amendment revised the Traffic Agreement in numerous ways. First, the amendment increased GTA's compensation to 50 percent of Globcom's revenues on outgoing and incoming calls, net of payments to correspondent. *fn5" See Third Amendment to Traffic Agreement ("Third Am.") at para. 1, attached as Exhibit to Defendant's Memorandum in Support of Motion for Summary Judgment ("Def. Mem."). Second, the term of the Traffic Agreement was extended seven years, until June 30, 1994. Third Am. para. 3. Third, the $ 900,00 per year incentive fee was eliminated. Third Am. para. 5. Fourth, Globcom was guaranteed "the right to interconnection services and facilities at least equal in type and quality to those which GTA provides to any other overseas message toll telephone carrier" and, if GTA entered the long distance market or outgoing GTA traffic on Globcom's system fell to less than 300,000 minutes per month for three consecutive months, Globcom has the right to interconnection at a price "no less favorable" than any other carrier. Third Am. paras. 7, 8. Fifth, if GTA entered the long distance business, it would route at least 300,000 minutes per month of outgoing traffic, including all traffic to destinations where GTA did not have a correspondent carrier, on Globcom's facilities. Third Am. para. 10. Finally, only long distance companies that "interconnect with GTA in such a manner as to provide the full range of overseas toll services that [Globcom] provides" would be listed in GTA's telephone directory instruction section. *fn6" Third Am. para. 15.

 In a separate letter agreement executed concurrently with the Third Amendment, GTA and Globcom further agreed to jointly plan for the implementation of Automatic Number Identification ("ANI") *fn7" and to "consult and cooperate concerning customer service, marketing and advertising, to encourage use of the services available on Guam." See Letter Agreement dated December 12, 1984, attached as Exhibit to Def. Mem. The letter agreement also provided that "this letter shall not be construed to limit either party's discussions, agreements or freedom of action with respect to any other communications service provider."

 During 1985, GTA and Globcom each proceeded with plans to replace their existing switching facilities to obtain increased switching capacity and permit deployment of ANI. Representatives from both companies met periodically to discuss how their new switches would interconnect. Although GTA originally specified that its new switch would use the "CAMA-ANI" signaling protocol, GTA's new switch could not operate the specified protocol. On July 11, 1987, GTA's new switch was placed in operation. This new switch permitted implementation of ANI on Guam for the first time. However, GTA's new switch adversely affected IT & E's ability to interconnect with GTA's system. For a period, PWC subscribers could not place calls on IT & E and IT & E lost answer/disconnect supervision signalling. These difficulties allegedly resulted in a loss of subscribers for IT & E.

 On November 13, 1987, IT & E filed suit against Globcom in this Court for violations of the federal antitrust laws. *fn8" On May 16, 1988, this Court denied both Globcom's motion to dismiss and Globcom's motion to transfer. On May 20, 1988, IT & E filed an amended complaint. *fn9" In its amended complaint, IT & E identifies GTA as an unnamed co-conspirator. para. 6. The amended complaint alleges that GTA, in furtherance of its conspiracy with Globcom, discriminated against IT & E with respect to the provision of GTA's monopoly local exchange access services. The amended complaint further alleges that GTA engaged in other discriminatory conduct against IT & E, including, but not limited to the following:

 
(a) GTA refused to file an access tariff in compliance with FCC regulations;
 
(c) IT & E's requests for direct trunking between IT & E's switch and particular local exchanges were denied by GTA, notwithstanding the fact that such "premium" direct trunking was provided to Globcom, thereby resulting in the ...

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