1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206

ELECTRO NIC CIT

ATION: 2004 FED App . 0232P (6th C ir.) File Name: 04a02 32p.06



### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________
MCI T ELEC OMMUNICATI ONS C ORP ., Plaintiff-Appellee,

v.

T HE O HIO B ELL T ELEP HONE C OMPANY , d/b/a SBC O HIO , Defenda nt-Appel

lant,

A LAN R. S CHRIBER , R HONDA H ARTMAN F ERGUS , J UDY A. J ONES , D ONALD L. M ASON , and C LARENCE D. R OGERS , J R ., in their Official Capacities as Commissioners of the Public Utilities Commission of Ohio, Defenda nts-Appe llees. X - - - -
> , - - - - - - - - - - - - - - - - - N No. 03-3525

Appeal from the United States District Court for the So uthern D istrict of

Ohio at Col

umbus. No. 97-00721—Edmund A. Sargus, Jr., District Judge. 2 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

* The Honorable Robert H. Clel and, Unit ed States Distr ict Judge f or the Eastern Distri ct of Michigan, sit ting by designat ion. Submitted: June 15, 2004 Decided and Filed: July 20, 2004

Before: GI

LMAN and COOK, Circuit Judges; CL ELAND, District Judge. *

_________________ COUNSEL

ON BRIE F: Dennis G. Friedman, MAYER, B ROWN , ROWE & M AW, Ch ic ag o, Ill in oi s, Da ni el R. Co nw ay, PORTER, WRIGH T, MORRI S & ARTHU R, Colu m bus, Ohio, for Appellant. D ona ld B. Ver rilli, Jr., JEN

NER & BLOCK, Washington , D.C ., T err i L . Ma sch eri

n, D ani el J. Weiss, JENNER & BLOC K, Chica go, I llino is, Du

ane W

. Luck ey, Columbus, Ohio, Steven T. Nourse, Jodi J. B air
, OFFI CE OF THE ATTORNEY GEN ERAL , Columbus, Ohio, for Appellee s.

_________________ OPINION

_________________ CL ELAND, District Judge. Defendant-Appellant Ohi o Bell Telephone Company ( “SBC”) appeals the district court’s order affirmingthe arbitration decision of the Public Utilities Commission of Ohi o (“PU CO”). Alth ough PUCO arbitrated
over 40 open issues betwe en SBC an d Appelle e MCI Telecommunications Corp. (“ MCI” ), SB C appeals only one iss ue: whether the district court erred in its interpretation o f FCC Rule 711(a)(3) and i n affirm

ing PUCO’ s decision toNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 3

award MCI the tandem reciproca l compensation rate for

calls that originate on SBC’s network and terminate on MCI ’s. We AFFI RM the judg

ment of the

district c ourt.

I. FACTS AND PROCEDURAL HISTORY

Telecom municat

ions Act o f 1996 and Implement ing Regulatio ns
In1996, pursuant

to the Telecommunications Act of 1996 (the “1996 Act” or “A ct”), MCI beg an negotiating an “interconnection

agreement” with SBC for telephone service inNorthea stern Ohi o. Such ag reemen ts were made possi

ble by the 1996 A ct, which Congre ss enact ed to “pr

omote competition in all telecommunications markets, including the local service market.” Michigan Bell Tel. Co. v. ClimaxTel. Co. , 202 F.3d 862, 865 (6th C ir. 1 999). Cong ress soug ht to eliminate state-sanctioned monopolies and adopt a national policy for tele communic ation com petition in

local mar

kets. See AT& T Corp. v. I

owa Utils. Bd. , 525 U.S. 366, 370 (1999) (“The Telecommunications Act of 1996 (1996 Act or Act), Pu b.L. 104-104, 110 Stat. 56, fundam entally restructures local telephone markets. States may no long er enfor ce laws that impede competition, and incumbent [local exchang e carr

iers]
are sub ject to a host of duties intended to facilitate market
e nt ry. Foremo st amo ng thes e duti es is t he [Loca l Exc hange Carrier’s (LEC's)] obligation under 47 U.S.C. § 251(c) (1994 ed., Supp. II) to share its network with competitors.”).

Before the Act, l ocal t eleph one serv ice was m

ostly provided by state-r egulat ed monopo lies, now c ommonly referred to as inc umben t loca l exc hange carriers (“incumbent providers”). In thi s case, SB C is the incumbent provider for telephone service in Northeast Ohio.

Inorder to

promote competition in the telecommunications market, the 1996 Act requires incumbent provide rs t o allow
newmarket entrant s, such as MCI in this case, to utilize the 4 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

incumbent

provider’s network and buy the incumbent provider’s telecommunication services for a fair price. See 47 U.S.C. §§ 251(a)(1) & (c). These arrangemen

ts were necessary to minimize the barriers to market entry erected during the period in which the incumbent provider functioned
as a monopoly . Pursuan

t to the Act, the incumbent provider is required to negotiate an ag reem ent, r eferred to as an “interconnection

agreement,”

with a new market entrant, or a competing local exchange carrier ( “competingprovider”). If the parties cannot agree upon cer tain terms in the agree

ment, eit her par ty c an petition the state utility commission

to arbitra te the open issues. See id. at § 25 2(b)(1). The state commissions arbitra

te the dispute, ensuring that its resolution of the open issues meets the requirements of the 1996 Act and th e Federal Communication Commission’s (“FCC’s”) implementing regulations. Id. at § 252(c).

After the stat e utilities commission arbitrates the open iss ues, the parties submit the completed interconnection agreement

to the stat e commission, which either approves the final agreement or rejects it. The state commissionmay rejec t the agr eement if it does not comply with the 1996 Act or the FCC’s regula

tio n s, discrim

inates a gainst o ther non-

party telecommunications providers, or is inconsistent wi t h the public interest. Id. at § 252(e). If e ither or both parties disagree with the interconnection agreement, as a rbitrated by the state commission, they may seek review

in federal district court. Id. at § 252(e)(6).

Inthe new competitive telecommunications marketplace, a customer who places a call thro u gh his provider may be routed from his pr ov ider’s network to another provider’s network in order to complete the call. This ty pically occurs when a person places a lo ca l call to someone who receives local telephone service from a different provider than

that of the caller (e.g., an

SBC customer calls an MCI customer). In this si tuation, the calling party ’s provider would require the assistance of the called p arty ’s provid er in swit ching the callNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 5

over to the sep arate

netwo rk. Al thou gh th e c al li ng pa rt y pa ys only its provider for the call, the called party’s provider incurs costs intra nsp ort in g an d t erm in ati ng t he c all . In the absence of an agr eement w ith the ca lling pa rty ’s provid

er, th e calle d party’s provide

r would go uncompensated for its service.

Throu gh interconn ection agree me nts, the pr

oviders a gree t o a compensation structure that allows parties from different providers to seamlessly complete c alls to one another. The 1996 Act requires providers to enter into “reciproc al compensation

arrang ements”

to compensate each other when inter-network

calls are completed. Id. at § 251(b)(5). The reciprocalcompensation rates are to be b ased up on a “reasonableapproximation of the additiona l c osts” incurred by the provider that transports and ter minates the call that origin ates on another network. Id. at § 252(d )(2)(A )(ii )

. Congre ss, however, elected to avoid in-depth inqui ries into the actual c osts incurred by provi ders. Id. a t § 252(d)(2) (B) (ii) (the provision regarding re ciprocal compensa tio n s hall not be construed “to authorize the Commission or any State commission to eng age in any rate regulation

proceeding to e stabl ish with particularity the additional co sts of transpor ting or t erminati ng call s, or to require carrier s to maintain records with respect to the additional costs of s

uch call s.”). I nstead, Congress left the task of impleme

nting the 1996 Act, including the reciprocal rate provision, to the FCC. Id. at § 251(d)(1).

In1996, the FCC published its gove rning regulations regarding reciprocal compensation. The FCC concluded that reciprocalcompensation rates should b e symmetrical bet ween interconnected

telecommunications carriers and based on the incumbent

provider ’s cost

studies. See 47 C.F.R. § 51.711(a). Thus, the state commission should apply the same ra te no matter wh ich provider, the incumbent or competitor, transpor ts and terminates a cal l or iginating from the other’s network. 6 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

This regula

tion is bas ed on the FCC’s conclusion that the incumbent

provide r’s costs for transporting and terminating
a call should be a reasonable approximation, or “presumptive pr ox y” of t he costs for other providers. In the Matter of Implementation of the Lo cal C ompetition Provisions in the Telecommunications Act of 1996 , 11 F.C.C.R. 15,499, 16,040 (1996) (“Both the incumbent LEC and the interconnecting
c arriers usually will be providing ser vice in the s am e geog raphic area, so the forward-looking e con omic costs should be similar in m

ost case s. We also conclude that using the incumben

t LEC' s forwar

d-looking costs for transport

and terminationof traffic a s a prox y for the c osts incurred by interconnecting

carriers satisfies the requirement of sec tion 252(d)(2) tha t c osts be determined ‘on the basis of a
reasona ble approximation of the addi tional costs of terminating such cal ls.’ Using the incum

bent LEC 's cost studies as p roxie s for reciprocal compensation is consistent with section 252(d)(2)(B)(ii), which prohibits ‘estab lis hing with particulari ty the additional costs of transporting or termin ati ng calls.’”). The incumbent’s economic cost study is relied upon to determine the appropriate co sts beca use smaller new entrants are ty

pically not

in aposition to conduct a “forward-looking economic c ost study.” Id.

Reco gniz i ng the intricacies of local telecommunications network s, beyond the

general policy

of symmetrical

rates, the FCC estab li shed a more detailed two-tier scheme for determining reciprocal compensation rates. T he two-tiered app ro ach takes into account the telecommunications eq uip ment used to transfer and complete a particular c all-- either “t an de m” or “e nd -o ff

ic e” sw it ch es . H is to ri ca ll y, incumbent

providers used th ese two switches to rout e calls. A tandem switch acts as a hub connectingother switches and is gener ally able to ha ndle calls over a broad

geographic are a. End-office switches typ ically serve smaller geogra

phic areas and fewer c ustomers. Acknowle dging that the c ost

associated with transferring calls differs de pending on

the type of

switch used, the FCC he ld that “st ates may establi sh tr ansport andNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 7

terminationrates in the arbitration process that vary according to whether the traffi c is routed through a tandem switch or d i rectly to the end-office switch.” In the Matter of Implementation of the Loca l Competiti on Pro visio ns in the Telecommunications Act of 1996
, 11 F.C.C.R. at 16042. The FCC also rec ognized t

hat new e

ntrants m ay utilize new techn ology other than t he two switches commonly used by incumben t provi ders. “I n such ev ent, state s shall als o consider whether [these] new technologies (e.g., fibe r ring or wireles s network s) perf orm functions simila

r to those performed

by an incumbent L

EC's tand em swi tch and th us, whether som e or a ll cal ls ter minat ing on the ne w entr ant's network should be priced the same as thesum of transport and termination via the incumbent LEC's tandem switch.” Id

. Most importantto the issue

curren tly before the court, the FCC established a rule fo rdetermining whether the new provider’s switch g eneral ly s erves th e same r ole as a tandem switch serves i

nthe i ncumbent’s network (i.e., whether the entrant can charg e the tandem rate when employ ing new technology

). Rule 711( a)(3) p

rovides: “Where the switch of
a carrie r other than an in cumb ent L EC serve s a geo graph ic
area compa rable t o the a rea ser ved by the incum bent LEC 's tandem sw

itch, the appropr iate rate for the carrier

other than
anincumbent LEC is the in cumbent LEC's tandem interconnection rate.” 47 C.F.R. § 51.711(3). The Interconnection Agreement Between SBC and MCI

Inthis case, M CI was begi nnin g t o offer local telephone service in Ohio and sought an interconnection agre ement fromthe incumbent provider, SBC. n 1994, under pre-Act pro-competitive state re gulations, MCI applied t o PUCO for permission to offer

local se rvice in three Oh

io countie s: Cuyahoga
, Franklin, and Montgomery . P UCO examined MCI’s business and

technical capabilities and, on December 31 , 1996, certified MCI to provide local ser vice in the thre e counties

. 8 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

One of the sticking points during negotiation of the interconnection

agreement was the appropriate reciprocal compensation

rate tha t SBC would

pay MCI when MCI incurred co st s b y t ransp orting a

nd termina

ting a c all on its
ne twork that originated from SBC’s network. Rather than using a series of tandem switches and end-o ffice sw

itches, MCI utilized new

technolo gy , especi ally

fiber op tic ring s, to reach all of itscustomers in a loca l service area by using on ly
one switch--a “Siemen’s Class 5" telecommunications switch located inCleveland, Ohio. The parties could not agree upon the appropriate reci

proca l compens ation ra

te to comp ensate MCI for transporting and terminating ca lls that originate on SBC’s network , and thus s ubmitted th

is issue, a

long with nearly 50 oth ers, t o PUCO for arbitra tion pursu

ant to 47 U.S.C. § 252.

PUCO considered the parties’ positions and acc epted bot h writtenand live testi mony duri ng the a rbitr ation procee ding, and, on January 9, 1997, issued its Arbitration Award. In the Award, PUCO decided all outstanding issues and directed the parties t o submit a mo dified int

erconne ction ag

reemen t.
PUCO decided that MCI coul d charge SBC the tandem reciprocalcompensa

tion rate rather than the lower end office reciprocalcompensation rate. PUCO considered the prefiled testimony of Maria Marzulla, a senior manager of MCI’s Local Network Engineering Group, who desc ribed MCI’s techno lo gy

and network capabilities. She testified that

“ MC I’ s switches all serve areas at least equal in size if not greater than the serving area of the [incumbent pro vide r’s] tandem[switch],” a

nd cited t o examples of MCI’s network in Baltimore and New Yor k. Al th ou gh du ri ng li ve te st im on y, Ms. Marzulla was unable to give an estimate of actual customers being served by MCI’s switch at the time of the hearing, she reemphasized that the MCI switch iscapable of servinga geographic ar

ea comparable to the area ser ved by SBC’s tandem sw

itch. SBC d

id not o ffer testimony or eviden ce regarding the g eographical reach of MCI’s switch,No. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 9

butinstead argued

that MCI was required to show that it was already servicin g customers in a g eogra

phic are a compar

able to SBC. PUCO reje cted SBC’ s argument:
The fundam en tal question then becomes: does MCI’s switch located

in Clevela

nd serve an area compara ble to that served by A

meritech’s tandem switch. We turn our attentionto MCI’s conditional certificate app ro ved in Case No. 94-2012-T P-A CE, wherein the Commission granted MC I authority to provide loca l telecomm unications servic e in

Cuyahoga , Franklin, and Montgomery

counties . We will

presume, given

the start

up nature of

MCI’ s operat

ions, that MCI shall serve the
area for which we found

it worthy of a ce

rtificate. In our view, that is a comparable service are a.
In the Matter of Petition of MCI Telecommuni c ations Corp. for Arbitration Pursuant to Section 25 2(b) o f the Telecom munic ations Act of 1996 to Establish an Int erconnection Agreement with Ameritec h Ohio , No. 96-888- TP-ARB (Jan. 9, 1997) (“PUCO Arbitration”). PUCO based its decision

on the “be st in format ion” it had and asked the parties to “provide regular reports to the Commis sion’s telecommunications staff so that [it] may receive ong oing information.” (

Id. ) Appeal of The Arbitration Decision

Pursuant to 47 U.S.C. § 252(e)(6), SBC sought review of the arbitration determination in the United Stat es District Court(S.D. Ohio), challenging vari ous aspects of PUCO’s decision, including the recipr ocal co mpens ation rate fi ndin g. SBC claimed that, to the extent MCI was permitte d to charge the tandem r

eci procal compensation rate, the agr eement (entered into after the arbi tration)violated 47 U.S.C. § 252(d)(2) because MCI had not shown that its switch 10 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

1 The matter

r emain ed pendi ng bef ore the di str ict

court for app roxim ately six years . The district court stayed t

he action, await ing decisions from the FCC and United States Supreme Court that could have had a bearing on the case. In the meantime, whil e the action was pending, the parties’ interconnecti on agreement expired and the parties entere d into

a new a greeme nt i n ear ly 2003. actually served customers in acomparable geogr aphic area as SBC.

OnMarch 21, 2 003, 1 the district court affirmed PUCO’s decisionawarding

MCI the tandem

reciprocal compensation rate. The cour

t conclud ed that PU CO ap plied the correct legal test because it considered the appropriate re gulation, 47 C.F.R. § 51.711(a). It then we nt on to conclude, under the arbit rary and capricious st

andard, that PUCO d

id not err in finding that “MCI

had the c apacity

t o serve a

region in northeastern

Ohio for which it had applied and ob taineda Certific ate of Operation.” (03/19/03 Order at 11.) The court deferred to PUCO’s previous determination that “MCI

[was] able to serve the area

in questi on” and the issuance of an operati n g license to MCI. (

Id. ) Accor

dingly , SBC’s cl aim was dismissed.

II. JURISD ICTION

This case arises under the T elecommunications Act of 1996, which perm it s a party to appe al the final arbitration decision of the state utilities commission to a federal district court. 47 U.S.C. § 252(e)(6). Generally
, t his court has jurisdiction over an app eal from the district court’s order pursuant to 28 U.S.C. § 1291. Appellee PUCO, however, argue s th at jurisdi ction is lackingbecause

the case is eit he r moot or because the maj ority of SBC’s c

halleng e to the r

eciproc al compe

nsati o n rate is not yet ripe f

or decision.No. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 11

First, we disagree with t h e contention that this case has been re nder ed moot by the parties’ 1997 inter connection agreement

or the sup ersedin

g inter connec tion agr

eement in 2003. The fact that the parties accepted PUCO’s arbitration d ecisions and incor

porated them into th eir

1997 interconnection

agree ment, and thus agreed to operate under suchterms during the pendency of this appeal, does not preclude SBC from seeking reimbursement based on the lower rate. MC I, a p art y to t he 1 997 agr eem ent , ag ree s. If we were to ho ld otherwise and find that the interconnection agreement

render ed the ap peal fr om the ar bitr at ion decision moot, telec ommunication companie s woul d be fo rced to forgo enteringinto inter

connec tion agr

eements in order to preserve their appeal. The new e

ntrant to the mark et would not be abl e to efficiently se

rve its customers (without aninterconnection
a greement) until the appellate process ran its course, furthe r entrenching

the incumbent provider and creating the risk that the new entrant’s technology cou ld beco me outdated in the meantime. Parties are freeto continue business r elations w ith
anunderstanding that one party might pursue appeal, and thus seek reimbursement, through the process permitted by federal law. See 47 U.S.C. § 252 (e)(6) . MCI maintaine d its relation ship with SBC with this understanding. See Indiana B ell Tel. Co. Inc. v

. McCarty , 362 F.3d 378 (7th Cir. 2004) (considering

the merit s of an ap

peal fr om the ar

bitrati o n decisiondespite the fact t hat the parties entered into, and operated under, an i ntercon

nection a

greeme nt tha t incorporated the arbitrator’s disputed decisions).

Si mi la rl y, the parties’ most recent interconnection agree ment, entere d into in 200 3, does n ot aff ect the justiciab ility

of SBC’s appeal. The contract expressly permits either party to seek a

judicial order revising the agre em en t and authorizes retroactive relief (i.e., reimburseme nt for rates paid). The parties reserved all ri ghts and

remedie s with respect to collection of

ra tes and charges under the interconnec tion agree

ment. Acc ordingl

y, by its express 12 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

terms, the 20 03 interconnection agreement does not re nder the instant ap peal moot

. PUCO next argues that a refund, or retroactive relief, is not availab le to SBC under the “filed rate doctrine.” The classic exampleof application of the filed rate doctrine, often referred to as the filed tariff doctrine, can be foundin the Supreme Court’s de cision in Louisville & Nashville R. Co. v. Maxwell, 237 U.S. 94 (1915). In that case, the Sup reme Court held

that a passeng er who pu

rchase d a train

ticket at a ratemisquoted by the ticket ag ent did not have a defen se agains tthe subse quent col lectio n of the higher tariff rate by the railroad.

Under the Interstate Commerce Act, the rate of the
carr ier duly filed is the only lawful charge. Deviation from it is not permitted upon any prete xt. Shippers and travelers are charged

with notice of it, and they as well as the carrier must abide by it, unl ess it is found by the Commission to be unre aso na ble. Ignora nce or misquotation of r at es is not an excuse for pay ing or charging either le ss or more than the rate fil ed. This r ule is undeniab ly

strict and it obviously may work hardship insome cases, but

it embodies the policy which has been adopted by Congre ss in the regulation of inte rstate commerce in order to prevent unjust discrimination.

Id. at 97 . The filed rate doctrine requires that common carriers and their customers adhere to t ariffs filed and approved by t he appro priate r egulat ory agenc ies. In essence, PUCO argues that SBC cannot obtain a refun d for ra tes paid to MCI in the past under this doctrine. We disagre e. First, and most importantly, SBC is not arguing that the tandemrate itse lf

should be d

iffere nt (i.e., SBC is not arguing that the rate is incorrect or

was unre asonably

set) or that it is per se unreasonable. The issue is whethe r SBC is re quired to pay the tandem rate or

the end office rate, which may depe ndNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 13

2 There is also no real disput e that SBC, if s uccessf

ul on appeal , may als o be enti tled t o prospecti ve rel ief. We reject PUCO ’s mi splace d argument that

SBC’s clai m for prospec tiv e relief is not yet ripe because the issue is cur rently fi t f or judi cial

revi ew and w il l cl ari fy not only fut ure decisions affecting the interco nnec tion ag reem ent, bu t also th e pas t and current agree men ts. M oreo ver, SB C’s arg ume nts regardi ng the pot enti al that thi s i ssu e coul d evade judici al revie w because of the re lati vely quick turnover of i nter connec ti on agr eem ents furthe r pers uad es the co urt to render a decision in thi s matter. uponthe interpretation of the regul ati ons governing symmetrical

rates. A ruling by this cour twill have no effect
onthe filed tariff or rate. Thus, SBC is not challenging the filed tariff, but is mere ly

a ppealing the arbitration decision that applied one rate rather than another. Such a ppeals are expressly permitte d under the Telec ommunica tions Act a

nd the parties agreed that

a refun d could be soug ht in their most recent interconnect ion agreement. PUCO has cited no persuasive authority

otherwise. Further, the two most importantpurposes for the f iled rate doctrine are not

impl icated if the court reviews PUCO’s decisionand the resulti ng rate terms of the interconnection agree ment. The filed rate doctrine preven ts carrier discrimination by committing the carriers to one set tariff and preserves the role of administrative agencies in approving and setting rates, a practice at which they are parti cularly

adept. See FaxTelecommunications Inc. v. A .T.& T. , 138 F.3d 479, 489 (2d Cir. 1998) (describing the two principles emanating fromthe filed rate doctrine). Neit her of these principles are threatened

in this cas e, nor is t

here a p otential t

hat SBC is vying for a low er rate

in someunfair manner or for some ulterior motive. Rather, S BC mer ely wants the

court to review PUCO’s an

d the distr

ict cour t’s inter pretation (and possibly applica tion) of the regu

lations. T

he filed rate doctrine does not reach

a circumstance such as this one, and thus SBC is entitled to seek retroactive relief. 2 14 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

3 SBC agrees that , under an int erpreta tion t hat does not re quire act ual servi ce to cust omers (the int erpreta tion t hat it argues a gainst), the re is no challenge to the factua l finding tha t M CI’s switch ca n serve a geo grap hic area equ al in coverage to SB C’s.

III. STANDARD OF REVIEW

We review t

he distric

t court’s interpre tation of R

ule 711(a)(3) de novo and its ulti mate factual findings under the arbitrary and capricious standard of revi ew . Although the districtcourt reviewed PUCO’s ar bitration decision strictly under the arbitra ry and ca

pricious standard of review, the primary issue before that court, and currently before t his court, is a question of law--whether FCC Rule 711(a)(3) requires that the ne w market entrant’s switch actually serve custome rs ac ross a comparable geog raphic area in order for the new entrant to charg e the incumbent’s tandem interconnection

rate. 3 The interpretation of the rule, a qu e stion of law, must be reviewed de novo

. See Michigan Bell Tel. Co. v. Strand , 305 F.3d 580, 586 (6th Cir. 2002).

IV. DISCU SSION

Alth ough PUCO’s and the district court’s decisions are somewhat

equivoca l, the cou rt acce pts SBC’s propositio

n that both PUCO and the district court iss ued their decision s, awarding MCI tandem reciproca

l compensation, based upon
anint erpr etation of Rule 711(a)(3) that merely requires MCI’s switchto have the abili ty tose rve a comparabl e geog raphic
area rather t han a requirement that MCI a ctually serve customers over th e same geographic are a. Rule 711(a)(3) provides :
Wh ere the switch of a carrier other than an inc umbent LEC serves a geogra

phic area comparable to the are a served by the incumbent L

EC's tand em switch, the appropr iate rate for the ca

rrie r o ther than an incumbentNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 15

4 Perhaps a fi tti ng example f or il lust rati ve (or gr ammatical ) purposes is a city f

ire department. Alt

ho ugh the depart

ment may have never h ad to put ou t a fire or re spo nd to a call on a p articular bloc k or lo cale w ithin the city, it still “serves” the entire city.

5 The court is not persuaded by SBC’s argument tha t th e tandem in te rconn ecti on rate i s an unf air r ate t o charge when MCI has fewer customers than SB C. If M CI ha s few cus tome rs, SB C will rar ely have to pay the tand em inte rcon nectio n rate becau se f ew cal ls would be trans mitt ed from SB C’s n et work to MCI’s net work. Conver sely , as LEC is the incumbent LEC's tandem interconne ction rate.
47 C.F.R. § 51.711(a)(3). The court must decide whether this rule requires the new e

ntrant to be actually se

rving customers
over a comparable geog

raphic area before c

harging the tandeminterconnection

rate or whether the new entrant’s capability to serve customers over a c omparab le geog raphic
area suffices. For the reasons set forth below, we affirm the districtco urt’ s decision and interpret Rule 711(a)(3) as requiringthe new entrant’s switch to be capa ble of

servi ng a compara ble geographic are a, as opposed to a requirement that the new entrant actually

serve customers in that area.

Fir st, the language of Rule 711(a) (3) does not require the switch to be ser

ving cu stomers di spersed over a c ertain geog raphic area. A s MCI notes, “[n]othing in the text of Rule 711(a)(3) refers to the phy sical location of a carrier’s customers. The grammatical object of the reg ulation’s language--the

thing ‘s erved’ by t

he compe

tin g carrier’s switch-- is the ‘ geograph ic area ,’ n ot particular customers.” The focus of Rul e 711(a) (3) is on the switch’ s ability to transmit communication over a certain area. 4 If a new entrant
can offer a comparable are a for switching and t erminat ing calls that originate o n the incumbent’s network, the tandem interconnection

rate applies so that t

he new entrant may recoup i ts approxima

te costs. 5 16 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

M CI’s custom er ba se exp and s, SB C wil l sur ely h ave to paythe t andem reciprocal

rate more frequently

because more calls will be exchanged, but it will also reap the b enefits o f more calls be ing transfe rred from M CI’s network to SB C’s for termination. Th us, the s ize of MCI’s customer

base,

even if much small er than SBC’s, does not appear to create such a drama tic inequity in costs.

6 The FCC d elegated the tas k of arbitrat ing an int erconn ect ion agreement dis pute, si mil ar t o the on e in t his ca se, to the Bureau. The Bureau “advis es and makes reco mm end ations to the Co mm ission, o r acts forthe Commiss ion under deleg ated a uthor ity, in all matte rs per taining to the reg ul ati on an d li cens in g of commu n ications common carriers and ancillary operati ons (oth er tha n matte rs pert aini ng excl usive l y to th e regu lat ion and lic ensing of wirele ss telecommunications servi ces and facil ities).” 47 C.F.R. § 0.91. “As such, it has unique expertise i n th e
area of interpret ing rules promulga ted b y th e FCC.” Ind iana Bell T el. Co ., Inc. v. M cCa rty , 362 F.3d 37 8, 386 (7th Cir. 2004). As a practical matter, a new entran t to the telecommunications market will not h ave as l arge a customer base as an incumbent that has operated as a monopoly for a number of year s. Under SBC’s interpretation, a new entrant woul d operate under a s ignific ant disad vantag e when it f

irst enters a p ar ti cu la r m ar ke t, an d p os si bl y fore ver, bec ause it would not be permitted to charge the highe r tandem reciprocal ratefo r its new technology even thou

gh that t echnolog y is able to carr

y c ommunica

tions over

expansive

geog raphic
areas. In essen ce, if a new entrant could not charge the tandemrate until it had nearly as many custom ers a s the incumben t, the new e

ntr ant may be hampe

red in gaining market share ( i.e., obta

ining cu stomers)because it may not be able to obtain full compensation for its switch and thus be unable t o co mpetitive ly c

harge its custome

rs. This w ould thwart the main purp ose behind the 1996 Act, the opening of local telecommunications markets to competition.

The FCC’s Wireline Competition Bureau 6 recognized this inits Virginia A rbitrat ion Order , in which it held that “the determination

whether a [new en

tr ant’ s] switch ‘serves’ aNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 17

certain geographic are a does notrequire an examination of the competitor’s customer base.” Virginia Arbitration Order
, 17 FCC R ec. at ¶ 307. The Bureau re jected the incumbent ’ s argument that the new entrant had to actually be serving cust ome rs disperse d over a c omparab le geog raphic a rea to charge the tandem reciproc al rat e under Rule 711(a)(3). Instead, it stated:

The tandem rate rule recognizes that new e ntrants may adopt network architecture differe nt from those deployed by the incumbent; it does not depend upo n ho w successful the [n ew en

tran t] h as bee n in ca pturi ng a ‘geog raphica lly dispersed’ sha

re of the [inc

umbent’s ] customers, a standa

rd that wo

uld penal ize new en

trants. We agree . . . therefore
, that the requisite comparison under the tande m rate ru le is whether the [new entrant’s switch is c apable of serving a geog raphic a rea tha t is comparab le to the architecture served by the [incumbent’s] tandem switch.

Id.

As the Seventh Circuit rec ently held, the Bureau’s interpretation

should be afforded

deferenceand thus r

esult in affirmance of

the decisions below. In Indiana Bell Telephone Companyv. M

cCarty , the S event h Cir cuit, sitt ing en banc
, held that the decision of the Bureau outlined above is entitled to deference as a decision of the F CC interpreting its own rule s

. 362 F.3d a

t 386 (“We

find the [B ureau’ s] p ronouncement

on this issue

not only persuas ive, giv en th e Act’s overar

ching g oal of pr

omoting c ompetiti on and the [Bureau ’s] expertise in this area, but one requiring defere nce as the voice of t he FC C interpreting its own rules.”) (citing Chevron, U.S.A., I

nc. v. Nat ural Res. D ef. Counc il , 467 U.S. 837 (198 4)). The Seventh Circuit acknowledged that the Bureau’s decisionwas subject to review by the FCC, but

held that, “[w]he n, as here, Congress has expressly permitted delegation

of authority by

statute, see 47 U.S.C. § 155(c), and 18 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. No. 03-3525

the agenc y de legate s authori

ty to a subdivision, ‘the decision of the subdiv

ision is ent

itled to the

same degree of

deference
as if it were made by the agency itself.’” Id. at 387 (citing MCI Metro Access Transmission Servs., Inc. v . Bell South Telecom municatio ns, Inc. , 352 F.3d 872, 880 n.8 (4th Cir. 2003)). Accord

ingly, the Seve

nth Cir c uit held that it was required to follow the Bureau ’s interpretation until the F CC ruled o therwise . We are not aware of FCC authority to the contrary and we a re convi nced, a s was the S eventh Cir cuit, that t he Bure au’s dec ision is not only persuas ive, but a

ls o entitled to deference under Chevron

. Se e 47 U.S.C. § 155(c)(3).

Under this int erpretation of Rule 711(a)(3), the district court did not err in affi rming th e arbitration panel’s factual finding that MCI ’s s w itch covered a geog raphic area compara ble to SBC’s. M CI de scribed its techno logical capabilities to the panel and offered the testimony of a senior
man ager from MCI who testified that MCI ’s switches serve
area s equal in

size, if not greater than those served by the incumben ts. Finally, PUCO relied

on the fact that MCI had obtained approval from PUCO to serve the three relevant counties in Ohio. In light o f the set-up costs and the procedures t hat M CI had already followed, the panel determined

that MCI was capab le and ready to serve a compara ble geographic are a. Thus, PUCO’s decisionwas not arbitrary and capricious a

nd the dist

rict cou rt corre ctly affirmed PUCO’s decision.

V. CONCLU SION

PUCO and the district court applied the correct

legal test-- whether MCI, the new market entra nt, had the ability to serve cust omers in the same geog raphic a rea as SB C, th e incumbent--and

PUCO’s decisionthat MCI satisfie d this testNo. 03-3525 Ohio Bell T elephone Co. v. MCI Telecom municatio ns Corp., e t al. 19

was not arbitrary a

nd capricious. Accordingly, the judgment of the district court is AFFI RMED.