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Give the little guy a break. That was the message a group of rural telecom providers brought to the Iowa congressional delegation this spring. Their Coalition for Carrier Neutrality painted a picture of industry giants such as AT&T, Sprint, and Qwest Communications International Inc. putting the squeeze on their businesses after the small companies figured out a way to increase profits and drive telephone calls to their lines through free conference calling services and sex chat lines. That meant that the telecom behemoths, which pay rural providers for access to local networks, saw their bills skyrocket from thousands to millions. In response, they started blocking some of the calls from going through and stopped paying their tab entirely. “We had no anticipation, literally, of what we were getting into,” says Ronald Laudner, head of Farmers Telephone Co. of Riceville, Iowa, a member company of the coalition. “All we simply wanted to do was tell [Congress] we abided by the rules.” That didn’t stop the big companies from trying to drop the hammer on their tiny brethren. So, what started out as a dispute over money has mushroomed into much more than that and has spread beyond its humble Iowa roots to multiple venues in Washington, including Congress and the Federal Communications Commission, as well as federal courts in New York and elsewhere. At the center of the whirlwind is Kelley Drye Collier Shannon, which is advising the rural telecoms in two ways, aiding them both in court and on the Hill, and providing a picture-perfect illustration of how D.C. firms can serve clients across several distinct platforms. The firm first became involved as the battle over fees went to court in January. But then Kelley Drye decided to pull an end-around and take matters to the Hill. Hence the spring meeting between their clients and members of the Iowa delegation. When the rural telecoms met with members such as Sen. Charles Grassley (R-Iowa), Kelley Drye lawyers and lobbyists Mark Anderson and Jonathan Canis were there, too, shepherding the group around the Hill and hoping to convince the lawmakers to press the FCC to take up their cause and force the larger telecoms to ante up. So far it hasn’t worked. The commission hasn’t given the rural clients everything they wanted. But that possibility remains. Meanwhile, a key stage of the litigation over the fees comes this week, and Kelley Drye’s lawyers will be in that Iowa courtroom, too. The firm represents seven of the 14 Iowa companies that AT&T, Qwest, and Sprint sued in the U.S. District Court for the Southern District of Iowa earlier this year, charging that the rural companies are misusing the current system, which allows smaller carriers to charge high fees when calls terminate on their lines. The rural companies have increased traffic by contracting with the “free” calling services and paying them a fee to ensure more traffic passes though them. With $40 million at stake, the meetings on Capitol Hill are part of a three-pronged campaign that Kelley Drye helped devise — one that includes meeting with Congress and FCC officials and working on related lawsuits in New York and Iowa. The issue, which both sides agree will set a precedent for future use of this provision, will come to a head this week in the Iowa district court, when Judge James Gritzner concurrently hears the three cases and decides whether to remand them to the FCC or to push forward. “The Iowa cases and the FCC cases will probably set pretty strong precedent for this kind of activity,” says Todd Lundy, associate general counsel for Qwest, which is using Colorado-based Steese & Evans to assist in the litigation. STORMING THE HILL When the rural companies first reached out to Kelley Drye last November, a Washington strategy wasn’t even on the radar. The companies were too busy trying to figure out how to deal with AT&T’s decision to stop paying its monthly fees. Talking with Kelley Drye’s veteran telecom lawyer Thomas Cohen, the companies were concerned about recouping the roughly $8 million that AT&T owed them. Cohen looked no further than his telecom partner Canis, who had been a lead counsel during the last big round of telecom wars in early 2000 for many of the local exchange carriers. After looking at the dispute, Canis says, he thought to himself, “We just went through all of this.” And he liked the rural telecom companies’ odds. In the last go-round with big telecom, the suits all settled, and Canis says the terms were “very favorable” to his clients. So Canis started escalating the fee dispute with AT&T, which at the time was going through its merger with SBC Communications. In an attempt to make litigation more cost-effective, the firm got together a group of seven local exchange and commercial carriers — including Farmers Telephone of Riceville, Great Lakes Communications, Superior Telephone Cooperative, Aventure Communications, Chase Com, e-Pinnacle Communications Inc., and All American Telephone Co. — to pool their resources and fight the telecom behemoth. Unable to resolve the issue, Canis sent AT&T and its outside counsel, Sidley Austin, a final demand letter saying he was going to file a collection action for around $7 million in mid-January. But AT&T beat the firm to the punch. On Jan. 29, AT&T filed suit in Iowa. The coalition responded by filing its collection action in the federal court in the Southern District of New York. Qwest and Sprint followed suit, arguing on similar principles. By their action, the telecom giants showed they were going to fight at every level. As Travis Sowders, a Sprint spokesman, says, the conflict “can only be solved in the end through legal and regulatory means, so we’ve been engaging all the appropriate government bodies to resolve it.” Sprint is relying on its lawyers from Jenner & Block and Dickinson Mackaman Tyler & Hagen to rebuff the smaller telecoms’ claims. At the same time, some of the big telecom companies started blocking traffic to the rural telecoms, resulting in a spat that found its way to the FCC. Kelley Drye engaged the commissioners and their staffs to try to persuade them to make the companies stop blocking calls because, the rural telecoms claim, it is illegal, harms customers, and degrades the entire network. The large companies also lobbied the FCC, and the U.S. Telecom Association and 15 of its rural members each sent letters to the commission opposing the traffic pumping. Although no formal action was taken, the FCC chairman’s office, prompted by more than 1,000 consumer calls, called the large telecom companies and also stated publicly that blocking phone calls was unacceptable. Although Canis was happy the FCC told the companies to stop, he says he wanted the commission to formally rebuke the big telecoms. Just because the FCC weighed in on blocking doesn’t mean the flap is over in that venue. The commission is reviewing a June tariff complaint filed by Qwest against Farmers and Merchants Telephone Co. Although it will be narrow, the FCC’s decision will show how the commission may resolve future spats of this type. SIMMERING TENSIONS The friction between big and small telecom companies flares up regularly. Five years ago, AT&T was in massive disagreement with about 80 rural carriers. Settling that dispute cost billions. “It’s a different version of the same thing that was battled years ago,” says Gregory Vogt, a solo telecom lawyer who formerly worked at Wiley Rein. So far, outside groups are keeping a close eye on the ongoing litigation. The Iowa Telecommunications Association is staying out of the fray, calling it a commercial dispute. But association President David Duncan says the group’s members were concerned when AT&T resorted to blocking phone traffic and payment to the companies. And, with AT&T recently filing suit in Minnesota and more lawsuits likely in Minnesota and South Dakota, the outcome of the Iowa dispute will likely set a precedent. Although the companies’ efforts on the Hill haven’t yet produced congressional action, Kelley Drye is continuing its lobbying efforts. And this week Canis and litigation partner Ira Kasden will be in Iowa trying to defend their clients’ rights to keep the telephone wires open in the more traditional way: in court.
Anna Palmer can be contacted at [email protected].

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