Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | CC Docket No. 00-49          |
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| The New Jersey Division of the   | ) |                              |
| Ratepayer Advocate Petition for  | * |                              |
| Declaratory Ruling Seeking       | * |                              |
| Preemption of Certain Legal      |   |                              |
| Requirements Imposed on          | * |                              |
| Telecommunications Carriers by   | * |                              |
| the New Jersey Board of Public   | ) |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted:** June 6, 2002 **Released:** June 6, 2002

By the Chief, Wireline Competition Bureau:

# Introduction

1.  This *Memorandum Opinion and Order* denies the petition of the New
    Jersey Division of the Ratepayer Advocate (Ratepayer Advocate) for
    preemption of certain legal requirements imposed on
    telecommunications carriers by the New Jersey Board of Public
    Utilities (Board).[^1] Specifically, the Ratepayer Advocate requests
    that the Federal Communications Commission (Commission) issue a
    declaratory ruling finding that the Board's setting of permanent
    rates for unbundled network elements (UNEs) and resale is
    inconsistent with and violates sections 251, 252, and 253 of the
    Telecommunications Act of 1934, as amended (Act), the regulations
    implementing these sections, and applicable Commission orders. For
    the reasons set forth below, we deny the Ratepayer Advocate's
    petition because it fails to demonstrate that the establishment of
    generic rates precludes parties from arbitrating or negotiating
    different rates in New Jersey and because the Ratepayer Advocate's
    claims concerning the validity of the New Jersey Board's generic
    rates are moot.

# Background

2.  The Board initiated an investigation and rulemaking proceeding on
    December 8, 1995, to determine appropriate terms for local telephone
    competition in New Jersey. By order of June 20, 1996, the Board set
    in motion a comprehensive hearing process, or "Generic" Proceeding,
    to set generally available rates and conditions for new market
    entrants in New Jersey without the need for negotiation and
    arbitration of individual interconnection agreements as provided for
    in the Act.

3.  At about this time, AT&T requested interconnection agreements with
    Bell Atlantic/New Jersey (hereinafter, AT&T/Bell Atlantic
    interconnection agreement),[^2] the incumbent local exchange carrier
    (LEC), pursuant to section 252(a) of the Act. Because the parties
    were not able to resolve certain issues through negotiation, AT&T
    filed a petition with the Board to arbitrate several unresolved
    issues.[^3] From September 23, 1996, through October 15, 1996, AT&T
    and Bell Atlantic participated in an extensive arbitration
    proceeding. On November 8, 1996, the Arbitrator assigned to the case
    issued a decision resolving the disputed issues between AT&T and
    Bell Atlantic, finding that AT&T's cost model (with some
    modifications) properly calculated the forward-looking economic
    costs of providing interconnection and network elements. Bell
    Atlantic refused to sign the interconnection agreement, and
    petitioned the Board to insert Commission interim rates rather than
    the arbitrator-approved rates until the Generic Proceedings were
    complete.

4.  At its July 17, 1997 public agenda meeting, the Board established
    generic rates, terms, and conditions that were different from the
    arbitrated provisions resulting from the AT&T and Bell Atlantic
    arbitration and applied them to the AT&T/Bell Atlantic
    interconnection agreement.[^4] On September 9, 1997, the Board
    ordered AT&T to submit a fully executed agreement incorporating the
    generic rates and, on October, 8, 1997, the Board approved the
    AT&T/Bell Atlantic interconnection agreement incorporating the
    generic rates.

5.  On November 24, 1997, AT&T filed a complaint before the United
    States District Court for the District of New Jersey (District
    Court) seeking review of, among other things, the Board's authority
    to substitute generic rates for those won in arbitration between
    AT&T and Bell Atlantic.[^5] The Ratepayer Advocate was later granted
    permission to intervene, and subsequently adopted AT&T's pleadings.
    On June 6, 2000, the District Court found that "the Board acted
    within its statutory authority to determine fair and reasonable
    rates when it substituted the generic rates for the arbitrated
    rates."[^6] The District Court further explained that "\[t\]he
    Board's decision to use rates derived from the comprehensive
    proceeding was consistent with its obligation under the statute to
    obtain all necessary information."[^7] According to the District
    Court, however, the Board's generic rates were the result of
    "arbitrary and capricious" decision- making.[^8] The District Court
    therefore reversed the generic rate determinations and remanded the
    case to the Board for further proceedings.[^9] On June 30, 2000, the
    Ratepayer Advocate filed a Notice of Appeal before the United States
    Court of Appeals for the Third Circuit (Third Circuit) appealing
    that part of the District Court's decision holding that the Act
    authorizes the Board to substitute generic provisions for the terms
    of an agreement reached by arbitration under the Act.[^10] The Third
    Circuit dismissed the Ratepayer Advocate's appeal for lack of
    standing, finding that there was no concrete injury to the Ratepayer
    Advocate as a result of the Board's decision to substitute generic
    rates for those won in arbitration.[^11]

6.  Subsequent to filing its District Court appeal, but before the
    District Court's decision, the Ratepayer Advocate filed this
    preemption petition raising identical issues addressed by the
    District Court and raised on appeal to the Third Circuit.
    Specifically, the Ratepayer Advocate requests that the Commission
    preempt certain legal requirements imposed by the Board in its
    *Generic Proceeding Order* because, it asserts, the establishment of
    permanent rates in the Generic Proceeding conflicts with the Act and
    the Commission's *Local Competition Order*.[^12] We view the
    Ratepayer Advocate's petition as presenting two different issues for
    the Commission's decision: (1) whether the Board's action in
    mandating the Generic Proceeding provisions to the AT&T/Bell
    Atlantic interconnection agreement is unenforceable because the
    Board's action precludes a party from using negotiation and
    arbitration to obtain more favorable rates;[^13] and (2) whether the
    generic rates themselves were invalid.[^14]

# Discussion

7.  Based on the evidence in the record, and without addressing the
    appropriateness of the generic rates themselves, we find no
    violation of section 253(a) of the Act or other applicable federal
    law.[^15] Specifically, we find that the Ratepayer Advocate has not
    provided sufficient evidence that carriers are precluded from
    arbitrating or negotiating different rates in New Jersey. We also
    find that it is not necessary for the Commission to engage in an
    inquiry that duplicates the district court's evaluation in this
    case.[^16] As noted above, the District Court found that the Board
    had acted properly with respect to the AT&T rates, which were
    arbitrated rates in a pending case before the Board when it
    substituted the generic rates.[^17] The Ratepayer Advocate's
    alternative proffer of evidence that no other interconnection
    agreement contains different rates does not constitute evidence that
    competitive carriers are "precluded" from arbitrating or negotiating
    different rates in New Jersey. Accordingly, we do not preempt the
    Board in the instant case pursuant to section 253(d) of the Act
    because the Ratepayer Advocate has not demonstrated that the
    establishment of the generic rates precludes parties from
    arbitrating or negotiating different rates in New Jersey.

8.  Our decision in this case necessarily follows our decision in the
    *Texas Preemption Order*.[^18] In that order, the Commission
    declined to preempt several provisions of the Texas Public Utility
    Regulatory Act of 1995 because the Texas Public Utility Commission
    represented that the provisions in question would not preclude
    parties from negotiating or arbitrating more favorable terms or
    conditions under sections 251 and 252.[^19] Similarly, in the
    instant case, the Board has repeatedly stated that it has not
    precluded carriers from arriving at rates in arbitrations or
    negotiations which differ from those determined by the Board in the
    Generic Proceeding.[^20] Thus, we find that the Generic Proceeding
    Order does not preclude carriers from negotiating or arbitrating
    rates under sections 251 or 252 of the Act.

9.  Concerning the Ratepayer Advocate's claim that preemption relief is
    appropriate because the Generic Proceeding rates set by the Board
    were not based upon a forward-looking economic cost study or a
    generic cost model approved by the Commission, we note that on
    November 20, 2001, the Board set new wholesale rates for competitors
    who utilize parts of Verizon's telephone network to provide local
    service to New Jersey consumers.[^21] Because the challenged rates
    are no longer currently in effect in New Jersey and, thus, there is
    no live controversy over the lawfulness of the rates, we deny as
    moot the Ratepayer Advocate's request to preempt the rates
    originally set by the Board in 1997.

# Conclusion

10. For the foregoing reasons, we deny the Ratepayer Advocate's
    petition, and thus do not preempt the Board's Generic Proceeding
    pursuant to section 253 of the Act.

# Ordering clause

11. Accordingly, IT IS ORDERED that, pursuant to section 253 of the
    Communications Act of 1934, as amended, and sections 0.91 and 0.291
    of the Commission's rules, 47 U.S.C. § 253 and 47 C.F.R. §§ 0.91 and
    0.291, the Petition for Commission preemption of jurisdiction filed
    by the New Jersey Division of the Ratepayer Advocate on March 3,
    2000, IS DENIED.

    FEDERAL COMMUNICATIONS COMMISSION

Dorothy T. Attwood

Chief, Wireline Competition Bureau

**LIST OF COMMENTERS**

Comments

1.  National ALEC Association/Prepaid Communications Association

2.  New Jersey Board of Public Utilities

3.  Nextlink Communications, Inc.

4.  Telecommunications Resellers Association

**Reply Comments**

1.  AT&T

2.  Bell Atlantic

3.  New Jersey Board of Public Utilities

4.  New Jersey Division of the Ratepayer Advocate

[^1]: *New Jersey Division of the Ratepayer Advocate Petition for a
    Declaratory Ruling Seeking Preemption of Portions of the New Jersey
    Board of Public Utilities' Generic Proceeding Order*, CC Docket No.
    00-49 (filed Mar. 3, 2000) (Ratepayer Advocate Petition).

[^2]: We refer to Bell Atlantic, where appropriate, rather than Verizon
    because Bell Atlantic's filings in this docket were made prior to
    the completion of the merger with GTE. *See Application of GTE
    Transferor, and Bell Atlantic Corporation Transferee, For Consent to
    Transfer Control of Domestic and International Sections 214 and 310
    Authorizations and Application to Transfer Control of a Submarine
    Cable Landing License,* 15 FCC Rcd 14032 (2000).

[^3]: 47 U.S.C. § 252(b) (permitting a party negotiating an
    interconnection agreement to petition the relevant state commission
    to arbitrate any open issues).

[^4]: These findings were published in a formal Decision and Order, the
    "Generic" Proceeding Order, on December 2, 1997.

[^5]: *AT&T Communications of New Jersey Inc*. v. *Bell Atlantic - New
    Jersey, Inc.*, No. 97-5762 (D.N.J. 2000). According to section
    252(e)(6) of the Act, any party taking issue with the final
    arbitrated interconnection agreement as approved by the state
    commission may seek judicial review in federal District Court. *See*
    47 U.S.C. § 252(e)(6).

[^6]: *Id.*

[^7]: *Id*.

[^8]: *Id*.

[^9]: *Id.*

[^10]: *See* Brief for the New Jersey Division of the Ratepayer Advocate
    at 3, *AT&T of New Jersey, Inc. v. Bell Atlantic -- New Jersey,
    Inc*., No. 00-2000 (3d Cir. filed Nov. 20, 2000). AT&T was not a
    party to the Ratepayer Advocate's appeal.

[^11]: *AT&T Communications of New Jersey Inc*. v. *Bell Atlantic - New
    Jersey, Inc.*, 270 F.3d 162 (3d Cir. 2001).

[^12]: Ratepayer Advocate Petition at 19-20, 25-29.

[^13]: *Id*. at 19, 25.

[^14]: *Id.* at 18-19. Specifically, the Ratepayer Advocate contends
    that preemption relief is appropriate because the Generic Proceeding
    rates set by the Board were not based upon a forward-looking
    economic cost study or generic model approved by the Commission.
    *Id.* at 19-20.

[^15]: *See*, *e.g.*, Bell Atlantic Comments at 1. We conclude that,
    based on Commission precedent in the *Minnesota 253 Order*, the
    Generic Proceeding Order rises to the level of a "statute,
    regulation, or legal requirement," and that section 253(a) applies
    to the Generic Proceeding Order. *See Petition of the State of
    Minnesota for a Declaratory Ruling Regarding the Effect of Section
    253 on an Agreement to Install Fiber Optic Wholesale Transport
    Capacity in State Freeway Rights-of-Way*, Memorandum Opinion and
    Order, 14 FCC Rcd 21697, 21707 (1999).

[^16]: *See MCI WorldCom Network Services, Inc. v. FCC*, 274 F.3d 542
    (D.C. Cir. 2001) (finding that "it was not unreasonable for the FCC
    to decline to engage in an inquiry that duplicates the function
    given state public utility commissions and the federal courts by law
    in the Telecommunications Act of 1996, 47 U.S.C. § 252").

[^17]: *AT&T Communications of New Jersey Inc*. v. *Bell Atlantic - New
    Jersey, Inc.*, No. 97-5762 (D.N.J. 2000).

[^18]: *The Public Utility Commission of Texas*, *et al.* *Petitions for
    Declaratory Ruling and/or Preemption of Certain Provisions of the
    Texas Public Utility Regulatory Act of 1995*, Memorandum Opinion and
    Order, 13 FCC Rcd 3460 (1997) (*Texas Preemption Order*).

[^19]: *Id*. at 3467; *see also* Ratepayer Advocate Petition at 11.

[^20]: *See* Board Reply Comments at 2. As the Board stated:

    > \[C\]ontrary to the \[Ratepayer\] Advocate's argument, the Generic
    > Order does not preclude the prospective use of negotiations or
    > arbitrations. . . . \[T\]he Board, in the Generic Order, made no
    > ruling and issued no directive precluding ILECs and CLECs from
    > prospectively negotiating or arbitrating in an attempt to obtain
    > more favorable terms, subject to approval by the Board under
    > Section 252's standards. . . . \[P\]rospective arbitrators will be
    > able to be guided by the Board's analysis set forth in the Generic
    > Order in evaluating the records created before them.

    *Id.* (citing December 11, 1998 Brief of the Board, 29-30).

[^21]: Summary Order of Approval, *The Board's Review of Unbundled
    Network Element Rates, Terms and Conditions of Bell Atlantic New
    Jersey, Inc.*, NJ BPU Docket No. TO00060356 (Dec. 17, 2001). The
    Summary Order memorializes the decision of the Board at its public
    agenda meeting of November 20, 2001.