Case Title: Level 3 Communications v. State Corp. Comm'n

Citation: 

Docket Number: 040481

State: virginia

Court: Virginia Supreme Court

Date: 2004-11-05T00:00:00Z

Document:
Present:  All the Justices 
 
LEVEL 3 COMMUNICATIONS OF VIRGINIA, INC. 
 
v.  Record No. 040481     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
November 5, 2004 
 
STATE CORPORATION COMMISSION, ET AL. 
 
FROM THE STATE CORPORATION COMMISSION 
 
Level 3 Communications of Virginia, Inc. (Level 3), 
appeals an order of the State Corporation Commission 
(Commission) denying its application for certificates of 
public convenience and necessity to provide local and 
interexchange telecommunications services throughout the 
Commonwealth.  Level 3's primary complaint is that the 
Commission misinterpreted the public interest criteria 
contained in Code § 56-265.4:4 and that the Commission's 
actions violated the Telecommunications Act of 1996.  47 
U.S.C. § 151, et seq. 
In reviewing a decision of the Commission, we apply well-
established principles.  The Commission is a specialized body 
with broad discretion in regulating public utilities.  A 
decision by the Commission comes to this Court with a 
presumption of correctness.  We will not substitute our 
judgment in matters within the province of the Commission and 
will not overrule the Commission's findings of fact unless 
they are contrary to the evidence or without evidentiary 
 
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support.  Virginia Gas Distribution Corp. v. Washington Gas 
Light Co., 201 Va. 370, 375, 111 S.E.2d 439, 443 (1959).  
However, we will reverse the Commission's order if it is based 
upon a mistake of law.  Northern Virginia Electric Coop.v. 
VEPCO, 265 Va. 363, 368, 576 S.E.2d 741, 744 (2003). 
 
Level 3 is a wholly owned subsidiary of Level 3 
Communications, LLC (Level 3 LLC).  In March 1998, the 
Commission granted Level 3 LLC's certificates of public 
convenience and necessity to provide local and interexchange 
telecommunications services in the Commonwealth.  (SCC report, 
Case no. PUC-1997-00197, 1998 SCC Ann. Rpt. 245 (March 31, 
1998)).  Level 3 LLC became embroiled in controversies when it 
laid fiber optic cable to provide those services without the 
permission of the property owners.  Level 3 LLC decided that 
the controversies could be resolved by creating Level 3 as a 
Virginia public service corporation with the power of eminent 
domain to condemn the affected properties.  Level 3 LLC 
intended to transfer all its Virginia utility assets to Level 
3 after Level 3 received its own certificates of public 
convenience and necessity to provide local and interexchange 
telecommunications service. 
Level 3 was incorporated as a Virginia public service 
corporation on February, 11, 2003 and filed its application 
for certificates of public convenience and necessity to 
 
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provide interexchange and local telecommunications services on 
February 20, 2003.  Pursuant to the Commission's order, Level 
3 published notice of its application.  In response, Brenda L. 
Stewart filed comments and asked for a hearing on Level 3's 
application.  Ms. Stewart was one of the landowners involved 
in the disputes with Level 3 LLC.  The request for a hearing 
was accompanied by a petition signed by other landowners who 
also had claims against Level 3 LLC. 
 
The Commission held a two-day hearing and, on November 6, 
2003, entered a final order denying Level 3's application 
without prejudice.  Noting that Level 3 agreed that its 
management could be measured by the practices of Level 3 LLC's 
management, the Commission concluded that Level 3 had "not 
established that it possesses sufficient managerial resources, 
policies, and abilities such that granting the requested 
certificates would be in the public interest."  Specifically, 
the Commission found that Level 3 LLC did not obtain the 
necessary permission to enter the land to construct its 
facilities and, after learning of the problems associated with 
the installation of the fiber optic cable, "Level 3 LLC failed 
to take reasonable steps" to identify potentially affected 
landowners and failed to "establish reasonable means" to 
address the problem.  The Commission concluded that Level 3 
LLC's actions involving the installation of the fiber optic 
 
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cable and its efforts to identify and remedy "potential 
wrongdoings" related to the installation were not in the 
public interest.  The Commission denied Level 3's motion for 
rehearing and Level 3 filed this appeal. 
Level 3 maintains that the Commission denied its 
application for certificates of public convenience and 
necessity to provide local and interexchange 
telecommunications service in this Commonwealth because of the 
actions its parent company, Level 3 LLC, took in creating and 
failing to resolve controversies with landowners over the 
laying of fiber optic cable.  Level 3 argues that denying its 
application on this basis violates the statutory standards of 
public interest required for granting such applications, the 
Commission's own rules for granting such applications, and the 
provisions of the Telecommunications Act of 1996.  For the 
following reasons, we conclude that the Commission did not 
apply improper statutory standards, did not violate its rules, 
and did not violate the Telecommunications Act of 1996. 
1.  Statutory Standards of Public Interest 
 
 
By statute, the Commission is required to make a finding 
that granting a certificate to provide local or interexchange 
telecommunications service is in the public interest.  Code 
§ 56-265.4:4(A), relating to interexchange service, provides 
in pertinent part: 
 
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The Commission may grant certificates to 
competing telephone companies . . . for 
interexchange service where it finds that such 
action is justified by public interest, and is 
in accordance with such terms, conditions, 
limitations, and restrictions as may be 
prescribed by the Commission for competitive 
telecommunications services. 
 
(emphasis added).  Subsection (B)(1) of that section governs 
certificates for the provision of local exchange service and 
provides in pertinent part: 
In determining whether to grant a certificate 
. . . the Commission may require that the 
applicant show that it possesses sufficient 
technical, financial, and managerial resources. 
Before granting any such certificate, the 
Commission shall:  (i) consider whether such 
action reasonably protects the affordability of 
basic local exchange telephone service . . . 
and reasonably assures the continuation of 
quality local exchange telephone service; and 
(ii) find that such action will not 
unreasonably prejudice or disadvantage any 
class of telephone company customers or 
telephone service providers, including the new 
entrant and any incumbent local exchange 
telephone company, and is in the public 
interest. 
 
(emphasis added).  The parties agree that both provisions are 
unambiguous and, accordingly, the language is to be given its 
ordinary meaning and intent.  Brown v. Lukhard, 229 Va. 316, 
321, 330 S.E.2d 84, 87 (1985). 
Level 3 asserts that the phrase "such terms, conditions, 
limitations, and restrictions as may be prescribed by the 
Commission" in subsection (A) modifies the public interest 
 
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finding required by that subsection.  According to Level 3, 
the Commission adopted a rule, 20 VAC 5-411-30, to implement 
this section.  Therefore, Level 3 contends, the "terms, 
conditions, limitations, and restrictions" contained in the 
Commission's rule define the statutory public interest 
standard.  We disagree. 
The language of the statute does not support Level 3's 
position.  The statute identifies two findings the Commission 
must make when granting an interexchange certificate.  These 
findings are stated in the conjunctive.  Under the plain 
language of the subsection, the requisite finding of "public 
interest" is an independent finding and not limited by other 
portions of the subsection.  Accordingly, we reject Level 3's 
construction of Code § 56-265.4:4(A). 
The public interest inquiry contained in subsection 
(B)(1), according to Level 3, is limited to consideration of 
whether the grant of the certificate will "unreasonably 
prejudice or disadvantage" telephone customers or other 
telephone service providers.  Level 3 contends that subsection 
(B)(1) allows the Commission to require information about an 
applicant's management resources, but does not allow the 
Commission to consider that information as part of the public 
interest analysis when considering applications for provision 
of local exchange service.  Again, we disagree. 
 
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The proper construction of the subsection requires that 
the Commission make two findings before a certificate can be 
granted.  It must find that "such action," the granting of the 
certificate, (1) does not unreasonably prejudice or 
disadvantage other telephone customers and companies; and (2) 
is in the public interest.  The language of the subsection 
does not limit the public interest inquiry to the impact of 
the certificate on other telephone customers and companies.  
Furthermore, in construing a statute, all the words used are 
presumed to have an effect.  Raven Red Ash Coal Corp. v. 
Absher, 153 Va. 332, 335, 149 S.E. 541, 542 (1929).  The 
subsection unequivocally requires the Commission make a 
finding regarding the impact of the certificate on other 
customers and companies.  Requiring a second finding on the 
same basis as part of the public interest inquiry, as Level 3 
asserts, would be superfluous and would render the language 
referring to a finding of public interest meaningless. 
Accordingly, we conclude that the public interest 
determination required by subsection (B)(1) of Code § 56-
265.4:4 is an independent finding, not limited by other 
portions of the subsection. 
2.  Commission Rules 
 
Level 3 also argues that the Commission failed to follow 
its own rules.  Level 3 maintains that, in considering 
 
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management resources necessary for a local exchange 
certificate under subsection (B), the Commission was limited 
to the management issues addressed in the Commission's rule 
promulgated to evaluate applications for local exchange 
service.  That rule, 20 VAC 5-417-20(G), requires information 
showing the applicant's ability "to render local exchange 
telecommunications services."  Level 3 LLC's actions in laying 
fiber optic cable are not related to the rendering of such 
services, according to Level 3 and, therefore, by considering 
these actions, the Commission violated its rule. 
We reject this argument.  The Commission's rule, 20 VAC 
5-417-20(G), prescribes the information an applicant must 
submit in its application for a certificate to provide local 
exchange service.  Nothing in that rule limits the Commission 
to the information contained in the application when it is 
considering whether to grant the certificate.  Furthermore, 
the Commission in its order in this case determined that the 
installation of telecommunications facilities including the 
laying of fiber optic cable was part of the applicant's 
rendering of telecommunication services.  The Commission's 
interpretation of its own rules is entitled to deference, see 
generally 1 Richard J. Pierce, Administrative Law Treatise, 
§ 6:11 at 394-404 (4th ed. & Supp. 2004), and we find nothing 
in the Commission's determination that would support our 
 
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reversal of the interpretation.  Finally, the Commission by 
rule could not supersede or limit the statutory standards for 
granting a certificate, standards which we have held include 
consideration of the public interest. 
Accordingly, we conclude that the Commission's 
consideration of Level 3's application for a certificate to 
provide local exchange service was not limited to the 
information required by 20 VAC 5-417-20(G). 
3.  Telecommunications Act of 1996 
 
 
The Telecommunications Act of 1996 provides in pertinent 
part: 
(a) In general.  No state or local statute or 
regulation . . . may prohibit or have the 
effect of prohibiting the ability of any 
entity to provide any interstate or intrastate 
telecommunications service. 
(b) State regulatory authority.  Nothing in 
this section shall affect the ability of a 
State to impose, on a competitively neutral 
basis and consistent with section 254 
requirements necessary to preserve and advance 
universal service, protect the public safety 
and welfare, ensure the continued quality of 
telecommunications services, and safeguard the 
rights of consumers. 
(c) State and local government authority.  
Nothing in this section affects the authority 
of a State or local government to manage the 
public rights-of-way or to require fair and 
reasonable compensation from 
telecommunications providers, on a 
competitively neutral and nondiscriminatory 
basis, for use of public rights-of-way on a 
nondiscriminatory basis, if the compensation 
required is publicly disclosed by such 
government.  
 
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47 U.S.C. § 253.  Level 3 asserts that the Commission's 
expansive definition of public interest gives the Commission 
"unfettered discretion" in denying the applications at issue 
and that this "unfettered discretion" constitutes a "barrier 
to entry" prohibited by 47 U.S.C. § 253(a). 
 
In support of its argument, Level 3 cites a number of 
cases finding that "unfettered discretion" by a municipality 
violated 47 U.S.C. § 253(a).  New Jersey Payphone Ass'n, Inc. 
v. Town of West New York, 130 F.Supp.2d 631, 640 (D. N.J. 
2001); TCG New York, Inc. v. City of White Plains, 305 F.3d 67 
(2d Cir. 2002) cert. denied, 538 U.S. 923 (2003); City of 
Auburn v. Qwest Corp., 260 F.3d 1160 (9th Cir. 2001); Qwest 
Corp. v. City of Santa Fe, 224 F.Supp.2d 1305 (D. N.M. 2002).  
However, Level 3's supporting case law concerns application of 
subsection (c) of 47 U.S.C. § 253 to actions of local 
government.  See New Jersey Payphone, 130 F.Supp.2d at 639; 
TCG of New York, 305 F.3d at 77; City of Auburn, 260 F.3d at 
1177; and Qwest Corp., 244 F.Supp.2d at 1317-18.  The 
Commission's actions at issue come within the provisions of 
subsection (b) of 47 U.S.C. § 253 which provide a "safe 
harbor" for state regulations based on protection of the 
interest of public welfare and safety.  As the Commission 
 
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notes, there is a vast difference in authority protected by 
subsections (b) and (c): 
[T]he division between (b) and (c) seems to define 
the boundaries of each body's regulatory authority:  
it suggests that states may regulate broadly with 
respect to public safety and welfare, service 
quality, and consumer protection, while local 
governments, in addition to any powers specifically 
delegated by the state, have narrower residual 
authority to manage and demand compensation for the 
use of their rights of way. 
 
Cablevision of Boston, Inc. v. Public Improvement Comm'n of 
the City of Boston, 184 F.3d 88, 98 (1st Cir. 1999). 
The only limitation on the broad exception set out in 47 
U.S.C. § 253(b) of the Telecommunications Act of 1996 is that 
the decisions or procedures must be competitively neutral.  
See US West Communications, Inc. v. Arizona Corporation 
Commission, 34 P.3d 351, 355 (Ariz. 2001); In re Regulation of 
Operator Serv. Providers, 778 A.2d 546, 558 (N.J. Super. Ct. 
App. Div. 2001); RT Communications, Inc. v. FCC, 201 F.3d 
1264, 1267 (10th Cir. 2000).  The public interest standard as 
applied by the Commission involved the protection of public 
welfare, was competitively neutral and, therefore, did not 
violate § 253(a) of the Telecommunications Act of 1996. 
4.  Miscellaneous 
 
 
The remaining issues raised by Level 3 are also without 
merit.  Level 3 asserts that the Commission erred by 
considering the disputes between the property owners and Level 
 
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3 LLC in making its certification determination and, 
therefore, failed to make appropriate findings of fact and 
conclusions of law in contravention of Code § 56-
265.4:4(B)(2).  To the extent the Commission considered the 
property disputes, it did so in the context of items relevant 
to the certificating decision − the applicant's managerial 
resources, policies and abilities, concededly measured by the 
managerial actions of Level 3 LLC. 
 
We also reject Level 3's argument that it was treated 
inequitably in violation of Code § 56-265.4:4(B)(3)(ii) 
because the Commission applied "unique and unjustified 
criteria" that it did not apply to other applicants.  The 
cited Code section does not apply to Level 3.  Subsection 
(B)(3) contains legislative directives to the Commission 
regarding policies that the Commission should follow in the 
regulation of certificated local exchange companies.  The 
provision cited by Level 3 provides that the Commission 
"require equity in the treatment of the certificated local 
exchange companies so as to encourage competition based on 
service, quality, and price differences between alternative 
providers."  Code § 56-265.4:4(B)(3)(ii) (emphasis added).  
Level 3 is not a certificated local exchange company and this 
section does not establish policies or standards to be applied 
to applications for certification.  
 
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Accordingly, for the reasons stated, we will affirm the 
judgment of the Commission denying without prejudice Level 3's 
application for certificates of public convenience and 
necessity to provide local and interexchange 
telecommunications services in the Commonwealth. 
Affirmed.