United States Court of Appeals

For the First Circuit

No. 06-1563, No. 06-1564

WORLDNET TELECOMMUNICATIONS, INC.,

Plaintiff, Appellee,

v.

PUERTO RICO TELEPHONE COMPANY; TELECOMMUNICATIONS

REGULATORY BOARD OF PUERTO RICO; MIGUEL REYES-DÁVILA,

in his official capacity as member; VICENTE AGUIRRE-ITURRINO,

in his official capacity as member; NIXYVETTE SANTINI-HERNÁNDEZ,

in her official capacity as member,

Defendants, Appellants.

____________________

No. 06-1565, No. 06-1566

PUERTO RICO TELEPHONE COMPANY,

Plaintiff, Appellant/Cross-Appellee,

v.

TELECOMMUNICATIONS REGULATORY BOARD OF PUERTO RICO;

MIGUEL REYES-DÁVILA, in his official capacity as member;

VICENTE AGUIRRE ITURRINO, in his official capacity as member;

NIXYVETTE SANTINI-HERNÁNDEZ, in her official capacity as member,

Defendants, Appellees/Cross-Appellants.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. José Antonio Fusté, U.S. District Judge]

____________________
Of the Northern District of Illinois, sitting by designation. *

Before

Boudin, Chief Judge,

Lipez, Circuit Judge,

and Shadur, Senior District Judge. *

___________________

Joshua S. Turner with whom John E. Barry, John W. Kuzin, Wiley

Rein & Fielding LLP, Ricardo L. Ortiz-Colón, Luis A. Oliver and

Fiddler, González & Rodríguez, P.S.C. were on brief for Puerto Rico

Telephone Company.

Robert F. Reklaitis with whom Leslie Paul Machado was on

consolidated brief for Telecommunications Regulatory Board of Puerto

Rico and Its Individual Members on liquidated damages issue.

Robert F. Reklaitis with whom Leslie Paul Machado was on

consolidated brief for Telecommunications Regulatory Board of Puerto

Rico and Its Individual Members on performance standards issue.

R. Bruce Beckner with whom Fleischman and Walsh, L.L.P., Frank

A. Rullán and GrayRobinson, P.A. were on consolidated brief for

WorldNet Communications, Inc. 

May 11, 2007
The Act, Pub. L. No. 104-104, 110 Stat. 56 (1996) (codified 1

in various portions of 47 U.S.C.), amends Title II of the

Communications Act of 1934, under which interstate common carrier

telephone service had long been regulated; intrastate service

regulation had been left to state commissions.

-3-

BOUDIN, Chief Judge. Seeking to spur competition in the

telecommunications industry, Congress a decade ago passed the

Telecommunications Act of 1996 ("the Act"). The Act not only 1

permitted competitors to operate their own local exchange networks

in competition with the local telephone company, 47 U.S.C.

§ 253(a), (d) (2000), but also obliged the local incumbent to

assist new entrants in several respects, id. § 251(b)-(c).

Pertinently, section 251 places on incumbent carriers a duty to

provide competitors the ability to

interconnect[] with the [incumbent] carrier's

network-- (A) for the transmission and routing

of telephone exchange service and exchange

access; (B) at any technically feasible point

within the carrier's network; (C) that is at

least equal in quality to that provided by the

local exchange carrier to itself or to any

subsidiary, affiliate, or any other party to

which the carrier provides interconnection;

and (D) on rates, terms, and conditions that

are j u s t , r e a s o nable, and

nondiscriminatory . . . .

47 U.S.C. § 251(c)(2). 

Interconnection allows customers of the competitor to

"place calls to, and to receive calls from, customers on the

incumbent's network." Huber et al., Federal Telecommunications Law

54 (2d ed. 1999). Incumbent carriers must negotiate
-4-

interconnection terms with competitors in good faith (e.g.,

facilities, timing), 47 U.S.C. § 251(c)(1), and if negotiations

fail, either party "may petition a State commission to arbitrate

any open issues." Id. § 252(b)(1).

WorldNet Telecommunications, Inc. ("WorldNet"), sought to

enter the Puerto Rico market in competition with the local

incumbent, the Puerto Rico Telephone Company ("PRT"). The local

regulatory authority in Puerto Rico is the Telecommunications

Regulatory Board of Puerto Rico ("the Board"). In 2003, after the

requisite period of negotiation, WorldNet petitioned the Board for

arbitration to resolve 355 issues relating to an interconnection

agreement it sought with PRT.

These issues included the performance standards to which

PRT would be held--for example, the time within which PRT must

enter WorldNet service orders or make line repairs for it--and a

liquidated damages schedule requested by WorldNet to back up the

standards. The Board appointed an arbitrator, who held a three-day

hearing and issued an order adopting (among other things)

WorldNet's proposed performance standards as well as its proposed

liquidated damages schedule for non-performance.

The parties amended their interconnection agreement to

match the arbitrator's order and, as required by the statute, 47

U.S.C. § 252(e)(1), submitted the agreement to the Board for

approval. Before the Board, PRT challenged the terms imposed by
The arbitrator had not provided for an implementation period, 2

and had required 85 percent compliance for the first nine months,

95 percent compliance for the next nine months, and 100 percent

compliance for the remaining eighteen months of a three-year

agreement. 

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the arbitrator, including the performance standards and the

liquidated damages amounts. The Board ultimately upheld the

standards but modified the arbitrator's order to allow PRT to rampup its performance more slowly over the duration of the three-year

agreement: after an implementation period of six months during

which the performance standards would not be in effect, PRT would

have to maintain compliance for successive 10 month periods at an

85 percent level, then 90 percent and then 95 percent.2

As for liquidated damages, the Board said that the

amounts endorsed by the arbitrator were unreasonable because they

were intended to punish PRT, not to compensate WorldNet for actual

damages. Finding that the record lacked evidence as to WorldNet's

predicted actual damages from PRT's failure to comply with the

various performance standards, the Board set aside the liquidated

damages remedy in its entirety. It concluded that other means,

such as the Board's power to fine PRT for breaches, provided PRT

with a sufficient incentive to perform.

PRT and WorldNet each sought federal district court

review, 47 U.S.C. § 252(e)(6): PRT alleged that the Board's

performance standards impermissibly required PRT to provide

WorldNet with better service than it provided to its own customers;
E.g., Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 3

546-47 (1949) (giving finality a "practical rather than a technical

construction"); Rhode Island v. EPA, 378 F.3d 19, 24-25 (1st Cir.

2004).

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and WorldNet challenged the Board's rejection of its liquidated

damages proposal. The district court (adopting the magistrate

judge's recommendation) affirmed the Board as to the performance

standards, but remanded the liquidated damages issue for further

consideration by the Board.

PRT now seeks review of the Board's performance standards

ruling, and PRT and the Board both seek review on the liquidated

damages issue. In light of the district court's remand to the

Board for further proceedings, we face at the outset the question

whether the district court's action constitutes a "final decision"-

-a jurisdictional requirement for us, 28 U.S.C. § 1291 (2000),

subject to various exceptions.

"Finality" is not a self-defining label but a bundle of

rules and policies, framed by judges, to implement a concept. The 3

problem is especially complicated where the district court is

itself reviewing an agency. If the district court had affirmed the

Board outright, the judgment would clearly be final; it would also

be final if the court had remanded with directions to reach a

specified result, since deferring review would serve no practical

purpose. Catlin v. United States, 324 U.S. 229, 233 (1945). 
Global Naps, 427 F.3d at 41-42; Colon v. Sec'y of Health & 4

Human Servs., 877 F.2d 148, 151 (1st Cir. 1989); Mall Props., Inc.

v. Marsh, 841 F.2d 440, 443 (1st Cir.) (per curiam), cert. denied

sub nom, 488 U.S. 848 (1988).

-7-

By contrast, where a remand by the district court leaves

the agency with latitude for action, a court of appeals will

ordinarily defer review of the remand order since the ultimate

outcome is uncertain. Global Naps, Inc. v. Mass. Dep't of

Telecomm. & Energy, 427 F.3d 34, 41 (1st Cir. 2005). But our

decisions have made prudential exceptions--pertinently, where

deferral would compromise the agency's ability to ever get

effective review of a district court remand order with which it

disagrees.4

This is not a risk if the district court tells the agency

to better explain its position or address a missed issue. But if

the remand requires the agency to take action under a legal

standard with which it disagrees, the agency may be compelled to

enter a new order and--on further judicial review--may be forced to

defend its new order as a proper application of a mandate that the

agency opposes and that it has never had an opportunity to

challenge on appeal. Global Naps, 427 F.3d at 42-43.

In this case, the district court altered the legal

template by telling the Board that it could not reject liquidated

damages solely on the basis that they exceeded WorldNet's actual

damages. This in turn sets the stage for the likely adoption of
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liquidated damages exceeding WorldNet's costs--which is just what

the agency opposes. Immediate review is justified in this case not

merely for the sake of efficiency but because the Board could

otherwise be compromised on a later appeal because its own decision

would rest on a position that it opposes. 

Turning to the merits, we start with the district court's

remand on the liquidated damages issue. Where as here judicial

review is based on the agency record, we apply to the agency

ordinary review standards, accepting the district court decision

merely as it may be persuasive. Assoc. Fisheries of Me., Inc.

v. Daley, 127 F.3d 104, 109 (1st Cir. 1997).

The ordinary standards for reviewing agency decisions are

deferential (in varying degrees) as to matters of fact, policy and

application of general standards, but de novo as to questions of

law, Global Naps, Inc. v. Verizon New England, Inc., 396 F.3d 16,

23 n.8 (1st Cir.), cert. denied, 544 U.S. 1061 (2005), save that an

agency also receives deference in interpreting its own statute.

Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837,

843-44 (1984). Where a statute prescribes a different review

standard, it governs.

Here, a further wrinkle exists because the Board is

itself engaged in reviewing an arbitrator's decision and, under the

Act, may reject an arbitrated agreement (or part of an agreement)

only if the agreement prescribed by the arbitrator (1) does not
-9-

hold the carriers to their obligations under section 251 (primarily

interconnection obligations) or (2) fails to meet the pricing

standards of section 252(d), see 47 U.S.C. § 252(e)(2)(B)--with the

further qualification that

nothing in this section shall prohibit a State

commission from establishing or enforcing other

requirements of State law in its review of an

agreement, including requiring compliance with

intrastate telecommunications service quality

standards or requirements. 

Id. § 252(e)(3). 

The arbitrator's decision is thus the starting point for

the Board, and we agree with the district court that the Board has

not adequately justified its rejection of liquidated damages. But

our reasoning differs substantially from that of the magistrate

judge's recommendation adopted by the district court. The

difference in reasoning directly affects the Board's latitude on

remand.

The Board acknowledged that liquidated damages comprising

actual damages would encourage PRT to comply with performance

standards. But the liquidated damages schedule proposed by

WorldNet--figures adopted wholesale by the arbitrator--were

(WorldNet itself conceded) not limited to likely actual damages.

The Board therefore deemed the schedule adopted in the agreement to

be unreasonable and punitive.

Since WorldNet could not identify the portion that

comprised actual damages rather than what WorldNet deemed an
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"incentive" element, the Board said it had before it no evidence

that would enable it to calculate actual damages. Finally, the

Board pointed to other means to assure PRT's compliance: Board

fines up to $25,000 per violation, its contempt power, and court

proceedings by WorldNet to secure equitable and damages relief for

violations of the agreement.

If we were reviewing an ordinary decision by an agency

charged with overseeing interconnection, this might well be an

adequate explanation for declining to adopt a liquidated damages

provision as an enforcement tool. Nothing in the Act mandates

liquidated damages. The burden was on WorldNet to supply evidence

for a provision it sought. A regulatory agency ordinarily has

considerable latitude in deciding how to regulate. 

Under the Act, however, the Board's review of an

arbitrated agreement is constrained by section 252(e)(2) (quoted

above). This provision allows the state agency to override an

arbitrator's decision on two explicit grounds, neither of which is

applicable here. But the statute goes on in a further provision to

reserve state authority on such review to impose "other

requirements of State law" so long as not inconsistent with section

253. Id. § 252(e)(3).

The Board seemingly assumed that liquidated damages

exceeding a reasonable estimate of damages to WorldNet were

forbidden either by Puerto Rico law or by something inherent in the
See, e.g., Priebe & Sons, Inc. v. United States, 332 U.S. 5

407, 411 (1947) (applying general principles of contract law to a

government contract); Checkers Eight Ltd. P'ship v. Hawkins, 241

F.3d 558, 562 (7th Cir. 2001) (Illinois law); Space Master, 940

F.2d at 18 (Massachusetts law); Leasing Serv. Corp. v. Justice, 673

F.2d 70, 73 (2d Cir. 1982) (New York law).

-11-

concept of liquidated damages. This is suggested, although not

established, by the Board's own cryptic description of the

arbitrator's figures as designed to "punish"--which is a common

short-hand, along with "penalty," for liquidated damages in excess

of actual damages. See, e.g., Space Master Int'l, Inc. v. City of

Worcester, 940 F.2d 16, 18 (1st Cir. 1991).

It is further suggested, more explicitly, by the Board's

brief in this court. On the liquidated damages issue, it devotes

itself to case law from various jurisdictions showing that courts

regularly strike down liquidated damages provisions in commercial

contracts where the amounts are intended to exceed actual damages.

Courts have historically been opposed to penalty clauses in private

contracts and many still take this view.5

Yet the interconnection agreements are not ordinary

commercial contracts: the Act dictates their creation; they are

imposed by involuntary arbitration and agency review if the parties

cannot agree; and their aim is to secure the public benefit of

competition. Incentive payments not limited to actual damages

(e.g., civil penalties and criminal fines) are familiar devices to

achieve public ends. So courts, as a matter of federal law, have
Sw. Bell Tel., L.P. v. Pub. Util. Comm'n of Texas, 467 F.3d 6

418, 421, 425 (5th Cir. 2006); MCI Telecomms. Corp. v. Mich. Bell

Tel. Co., 79 F. Supp. 2d 768, 776 (E.D. Mich. 1999), aff'd 37 Fed.

Appx. 767 (6th Cir. 2002); US West Comms., Inc. v. Hix, 57 F. Supp.

2d 1112, 1121-22 (D. Colo. 1999); US West Comms., Inc. v. TCG Or.,

31 F. Supp. 2d 828, 837 (D. Or. 1998).

-12-

allowed states to approve interconnection agreements imposing

liquidated damages that include incentive elements exceeding actual

compensation. 

6

While the law of some states may forbid such damages

provisions even in interconnection agreements, Puerto Rico courts

have been more solicitous of liquidated damages clauses than their

Anglo-American counterparts, seeming even in private contracts to

permit coercive and punitive clauses so long as they are not

excessively so. E.g., Rochester Capital Leasing Corp. v. Williams

Int'l Ltd., 103 D.P.R. 163, 1974 PR Suo. LEXIS 452, at *9 (P.R.

1974); Rodriguez Lopez v. Jimenez Aponte, 1997 PR App. LEXIS 271,

at *10-*13 (P.R. Cir.). If the Board thought that some legal rule

precluded it from adopting liquidated damages in excess of actual

costs, this was a mistake.

However, local agencies make policy on their own and

section 252(e)(3) reserves the Board's authority to "establish[]

. . . requirements of State law in its review of an agreement"

(emphasis added). And the Act, although imposing certain federal

requirements, is intended to defer to state agencies on matters

that do not compromise the achievement of federal aims.
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§ 252(e)(3); City of Abilene, Tex. v. FCC, 164 F.3d 49, 53 (D.C.

Cir. 1999); Aegerter v. City of Delafield, Wis., 174 F.3d 886, 887-

88 (7th Cir. 1999). 

In reconciling the limitation on the Board's authority in

section 252(e)(2) with the preservation of its authority in section

252(e)(3), we treat an arbitrated agreement governed by section

252(b) as a presumptive solution: it must be accepted if consistent

with sections 251 and 252(d), unless the local agency reasonably

finds that the arbitrator's solution conflicts with state statutes,

agency rules, or considered policy determinations that the agency

would follow in matters wholly within its jurisdiction. 

This is a workable solution to the inherent conflict, not

crisply addressed in the Act, between the arbitrator's authority

and that of the appointing Board. The Board has to remain free to

adopt and implement general policies; otherwise, among other

problems, different arbitrators could inflict inconsistent

interconnection agreements on different new competitors. At the

same time, the agency policies that override the arbitrator's

choice ought be ones that the Board would follow in other

situations and not just ad hoc preferences. 

In this case, it is not enough that the Board, if framing

the agreement itself, would eschew incentive payments exceeding

projected actual damages. Rather, the Board must reasonably

conclude that such incentive payments are inconsistent with
-14-

regulatory policy that it would adhere to in comparable "local"

cases where the Act plays no role. It may take this position on

remand despite our own holding that neither federal nor Puerto Rico

law automatically forbids such "penalties" in this context.

Indeed, in a regulatory context, terms like "penalty" or "punitive"

are not usually decisive. 

Rather, for regulators, creating special incentives for

compliance is often a permissible option. See note 6, above. And,

from a prudential standpoint, the more typical questions are

whether an extra incentive element in damages is necessary in light

of other tools for securing compliance and whether it may have

negative effects of its own, especially where the substantive

standards are untested or ambitious. In all events, these are the

kinds of considerations that expert agencies can weigh better than

courts in relation to the conditions before them. 

Also, although WorldNet did not supply information

allowing the Board to calculate cost-based liquidated damages, this

information could likely be determined by further hearings at the

Board or arbitrator level. And, of course, liquidated damages can

be reasonable approximations; one reason for using them is the

difficulty of making exact calculations. Vazquez v. Eastern Air

Lines, Inc., 579 F.2d 107, 110 n.3 (1st Cir. 1978). This does not

mean that the Board has to pursue such an option; the Act does not

say what should be done if an arbitrator's award is found
-15-

inadequate in part, and the Board arguably retains a good deal of

latitude in such cases.

On remand, the Board must recognize that neither the Act

nor Puerto Rico precedent forbids incentive-based liquidated

damages; that the arbitrator's solution cannot be set aside unless

it violates general agency policy; and that the Board should not

assume an inability to use cost-based liquidated damages. If the

Board takes the position that liquidated damages may not exceed

actual damages, whether to consider further the possibility of

designing such liquidated damages is a matter for it to decide.

This brings us to the second large issue raised on

appeal, namely whether the Board has authority to impose

performance standards that require PRT to provide service to

WorldNet superior to the service it currently provides itself. The

question turns on issues of both federal and Puerto Rico law. We

begin by tracing briefly how the question arose and how the issues

were addressed by the arbitrator, by the Board and finally by the

district court.

In adopting performance standards largely as proposed by

WorldNet, the arbitrator recognized PRT's claim that it was only

obliged to provide equal treatment to WorldNet and said that PRT

could present evidence to the Board showing that individual

standards exceeded the service PRT provided to itself. The Board

decided that it was empowered to adopt performance standards
-16-

requiring PRT to provide WorldNet with service superior to the

service PRT currently provided to its own customers, and the

district court agreed.

In this court, PRT renews its claim that the Board has no

power to adopt performance standards requiring superior service,

arguing that nothing in the Act warrants such standards for

competitors and that under federal law PRT cannot be forced to

discriminate against its own customers. And, according to PRT, the

Board has no independent power under local law to require PRT to

provide superior service to WorldNet.

Starting with federal law, we agree with PRT that the Act

does not explicitly provide for the local carrier to offer superior

service to competitors, but neither does it forbid such an outcome.

Section 251(c)(2) provides that the incumbent carrier--here, PRT--

is under an obligation to provide the competitor with transmission

and routing services "at least equal in quality to that provided by

the local exchange carrier to itself" (emphasis added).

In a decision cited to us by PRT, the Eighth Circuit held

that the FCC could not rely upon the quoted language to create a

right to superior service under federal law. Iowa Utils. Bd. v.

F.C.C., 120 F.3d 753, 812-813 (8th Cir. 1997), rev'd in part on

other grounds sub nom, 525 U.S. 366 (1999). But that decision is

inapposite: in setting superior performance requirements for
See also § 261(c) ("Nothing in this part precludes a State 7

from imposing requirements on a telecommunications carrier for

intrastate services that are necessary to further competition in

the provision of telephone exchange service or exchange access, as

long as the State's requirements are not inconsistent with this

part or the Commission's regulations to implement this part.").

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service to WorldNet, the Board in this case relied upon its own

authority under local law. 

The authority of the Board to adopt under local law

additional interconnection requirements not mandated by the Act is

explicitly set forth. See section 252(e)(3) (quoted above). As 7

the Seventh Circuit held, the Act sets a federally mandated floor

of equal service, and State commissions retain authority to "raise

the bar." Ind. Bell Tel. Co. v. AT & T, 362 F.3d 378, 391-93 (7th

Cir. 2004). As performance standards affect local service as well

as interstate service, this is hardly surprising.

This assumes, of course, that local law provides the

agency with power to raise the bar--an issue to which we will

return. Before doing so, we address a different claim by PRT that

other provisions of federal law bar the Board from ordering the

incumbent to provide better service to a competitor than it

provides to itself. Specifically, PRT relies upon section 253(a),

which states: 

No State . . . statute or regulation, or other

. . . requirement, may prohibit or have the

effect of prohibiting the ability of any

entity to provide any interstate or intrastate

telecommunications service.
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PRT says that the performance standards imposed by the

Board are unattainable and are therefore within the ban of section

253(a). Of course, if the standards were really unattainable, they

could hardly be what Congress had in mind in framing the Act. PRT

says that the standards prescribed are unattainable, but its

examples are limited and our review of its evidence does not bear

out its claims. The technical detail is in an addendum to this

decision.

Where an agency requires service superior to existing

standards, uncertainty may very well exist as to whether it can be

achieved; but the carrier is in the best position to prove the

limits of its own capability and PRT has not done so here. The

Board has adopted a phase-in approach and refused thus far to adopt

automatic liquidated damages. If experience shows that the

standards cannot be achieved, PRT can ask the Board to modify them.

PRT's next argument that the superior service

requirements are inconsistent with the Act is grounded in section

251(c)(2)(D), which places a duty on incumbent carriers to provide

interconnection services "on rates, terms, and conditions that are

. . . nondiscriminatory," and section 202(a), which makes it

"unlawful for any common carrier to make any unjust or unreasonable

discrimination in . . . services." 

Nothing prevents PRT from doing for its own customers

anything that it does for WorldNet under the new standards. If PRT
Section 253(b) reads: "Nothing in this section shall affect 8

the ability of a State to impose, on a competitively neutral basis

. . . , 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."

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chooses not to give its own customers equal service, possibly it

will be liable for discriminating against them. But it has little

incentive to provide worse service to itself than it provides to

competitors and, if it does, it can hardly use this as a defense

against offering proper service to others.

PRT also argues that superior service requirements are

not "competitively neutral," in violation of section 253(b).8

Assuming without deciding that this subsection provides an

independent limitation on state and local government action,

compare TCG Detroit v. City of Dearborn, 206 F.3d 618, 624 (6th

Cir. 2000), with BellSouth Telecomms., Inc. v. Town of Palm Beach,

252 F.3d 1169, 1187-91 (11th Cir. 2001), the superior service

requirements do not violate the statute: PRT remains free to offer

its own customers the same level of service it offers WorldNet, and

so can remain competitive.

This brings us to the question whether the Board was

authorized by state law to require improved service standards. We

must begin by determining whether we have authority to consider

this question, an issue discussed by neither of the parties. The

federal courts are empowered to review a state commission's
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approval or rejection of an interconnection agreement under section

252(e)(6), which provides: 

In any case in which a State commission

makes a determination . . . any party

aggrieved . . . may bring an action in

. . . Federal district court to determine

whether the agreement . . . meets the

requirements of section 251 of this title

and this section. 

In Puerto Rico Telephone Co. v. Telecommunications

Regulatory Board of Puerto Rico, 189 F.3d 1 (1st Cir. 1999), this

court declined to review a decision of the Board on the ground that

it was not within this grant of review authority. The Board had

held that PRT violated Puerto Rico law when it failed to give

notice before imposing long-distance charges on its own customers

for calls made to customers of a competitor with which PRT had an

interconnection agreement.

Although the parties there had an interconnection

agreement, it had previously been approved. The relief granted by

the Board did not constitute enforcement of the agreement and

rested solely upon Puerto Rico law. This court held that the

Board's decision as to the charges had "an insufficient nexus" to

the interconnection agreement and was not the kind of

"determination" properly reviewed in a federal court under section

252(e)(6) of the Act. P.R. Tel. Co., 189 F.3d at 11-13. 

In our own case, the Board's reading of Puerto Rico law

directly controls its approval of the interconnection agreement, so
Accord Ill. Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 9

566, 571 (7th Cir. 1999), cert. denied, 535 U.S. 1107 (2002). But

see Mich. Bell Tel. Co. v. MCIMetro Access Transmission Svcs.,

Inc., 323 F.3d 348, 356-57 (6th Cir. 2003); Sw. Bell Tel. Co. v.

Pub. Util. Comm'n of Tex., 208 F.3d 475, 482 (5th Cir. 2000); Sw.

Bell Tel. Co. v. Brooks Fiber Comms. of Okla., Inc., 235 F.3d 493,

498 (10th Cir. 2000); US West Comms. v. MFS Intelenet, Inc., 193

F.3d 1112, 1117 (9th Cir. 1999), cert. denied, 530 U.S. 1284

(2000). 

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the nexus could not be closer. The agreement itself incorporates

enhanced performance standards which are not mandated by the

federal statute, which the Board has adopted on its own authority,

and which PRT claims to be invalid under Puerto Rico law. The

validity of the agreement as to the standards thus depends on local

law. 

Puerto Rico Telephone Co. also rests on the alternative

ground that federal courts have limited authority to review

determinations of state law made by state commissions. 189 F.3d at

13-14. But our decision explicitly left room for federal court 9

review in situations where the state law issue is essential for

deciding whether to approve or reject an interconnection agreement.

Id. at 15. Otherwise, the statute--which bars state courts from

reviewing a state commission's action in approving or rejecting

such an agreement, § 252(e)(4)--would leave a serious gap in the

availability of judicial review. 

Although the Board's authority under local law is a legal

issue, it is customary where any doubt exists to give some

deference to the agency charged with administering the statute.
-22-

Cf. Chevron, 467 U.S. at 843. The Telecommunications Act of Puerto

Rico, P.R. Laws Ann. tit. 27, § 265 (2004) et seq. ("Law 213")

gives the Board general authority to make regulations, id.

§ 267f(a); says that it should be guided by the public interest and

"especially" to protect consumers, id. § 267f(f); and says that the

statute should be "liberally construed in order to achieve its

purposes," id. § 267i.

Although there is no express Puerto Rico statutory

provision addressed to the setting of performance standards,

neither is there any provision that prohibits them. The statute

states that

whenever any specific power or authority is

granted to the Board such specification shall

not be construed as excluding or impeding any

other power or authority otherwise conferred

on it. The Board created herein shall have,

in addition to the powers specified in this

chapter, all those additional implicit or

incidental powers that are pertinent and

necessary to put into effect and carry out,

perform and exercise all the above-mentioned

powers and to attain the purposes of this

chapter . . . . 

Id. Setting performance or quality standards is routinely done in

utility regulation, and it would be peculiar if Law 213 had

withheld this authority from the Board.

PRT cites Caribe Communications v. Puerto Rico Telephone

Co., 2002 PR Sup. LEXIS 81 (P.R. 2002), holding that the Board did

not have authority to award compensatory damages in an

adjudication, but the power to award damages--unlike standard
Iowa Utils. Bd. is explained in part by the FCC's regulation 10

at issue, which required that incumbent carriers provide superior

service so long as technically feasible "if so requested" by

another carrier, 47 C.F.R. § 51.305 (a)(4) (1997); as the Eighth

Circuit explained, this regulation forced incumbent carriers to

"cater to every desire of every requesting carrier." Iowa Utils.

Bd., 120 F.3d at 813.

-23-

setting--is historically associated with judicial authority. We do

not read Caribe to establish any general rule that the Board's

powers are to be narrowly construed. See P.R. Tel. Co. v.

Regulatory Telecomms. Bd., 151 D.P.R. 269, 290 (2000).

PRT also points to section 269c(c), which states that

interconnection agreements must be made "in accordance with terms

not less favorable than those provided to the affiliates of the

local exchange service carrier." P.R. Laws Ann. tit. 27, § 269c(c)

(emphasis added). But the statute does not by its terms preclude

setting standards that exceed current service and requiring them to

be available to competitors. "Not less favorable" implies that

more favorable is an option. 

There is, as PRT points out, counterpart language in

section 251(c)(2) of the Act ("at least equal in quality"); and (as

discussed above) one circuit court has construed this to prohibit

the FCC from requiring superior service for interconnection

competitors. Iowa Utils. Bd., 120 F.3d at 812-813. But the

contexts are different: the FCC was given a limited mandate as to

interconnection, but the Board is endowed with general regulatory

powers and is entitled to read its grant of authority broadly.10
-24-

Thus, we conclude that the Board is permitted to adopt

the superior service standards. On this issue, we affirm the

Board, while on the liquidated damages issue we remand. The two

issues could be deemed interrelated; unproved high performance

standards obviously weigh against generous liquidated damages. So

nothing in our affirmance prevents the Board from revisiting the

standards if it determines that liquidated damages should be

adopted.

WorldNet's motion to dismiss the appeals for lack of

subject matter jurisdiction is denied, and the case is remanded to

the district court with directions to remand to the Board for

further action not inconsistent with this decision. Each party

shall bear its own costs.

It is so ordered. 
-25-

ADDENDUM

In its opening brief, PRT asserts generally that "among

the dozens of superior service requirements imposed by the Board

are requirements that are indisputably unattainable." It cites to

Appendix B of its Motion on Reconsideration, but this Appendix

simply lists the performance standards that PRT alleges would

require it to provide better service to WorldNet than it currently

provides to itself. The mere fact that the standards require

superior service does not necessarily mean that they are

unattainable; and the Board and the arbitrator both credited

testimony by two WorldNet witnesses that the standards were

achievable by PRT. 

Nor does PRT ever explain why the Board's ramp-up

solution is insufficient to enable its performance. PRT argued

before the Board that requiring 100 percent compliance, even in the

last third of the contract term as required by the arbitrator, was

unreasonable, and it proposed a 90 percent compliance rate. The

Board responded by lowering the maximum compliance level to 95

percent and creating a six-month implementation phase during which

the performance standards were suspended. In its briefs on appeal,

PRT never explains why, even with this adjustment, the performance

standards are still unattainable. 
-26-

In addition to its general averment that the standards

cannot be achieved, PRT also specifically lists five performance

standards as unattainable. But the Board found to the contrary,

and PRT does not explain why it erred in doing so. 

First, performance standard #27 requires that PRT notify

WorldNet within three business days if it is unable to complete a

WorldNet order because the necessary facilities are unavailable. 

PRT argues--supported by an affidavit from one of its employees--

that such notice cannot feasibly be provided because "a technician

must be dispatched to examine the area to determine if cables are

available and . . . in working condition." 

The Board responded: "To the extent PRTC retail has

access to this information, it should be provided to WorldNet. The

performance standard is affirmed." We understand the Board to have

modified the performance standard so that PRT is obligated to

provide WorldNet within three days only with the information to

which it has access. On appeal, PRT never explains why, as

modified, this performance standard is unattainable. 

Second, performance standard #54 requires PRT to

provision special service loops within 15 business days. PRT

asserts that this time-frame is unreasonable; in 2004, it took PRT

an average of 44.62 business days to provide special service DS-3

loops to its wholesale customers and 48.6 business days to its

retail customers. The Board did not credit PRT's assertion,
-27-

finding that "[t]he ramp-up period provides PRTC with sufficient

time to improve its performance." On appeal, PRT nowhere explains

why the ramp-up period is insufficient. 

Finally, performance standard #45 requires PRT to clear

a POTS trouble report within two business days; standard #46

requires PRT to clear a special service trouble report within one

business day; and standard #53 requires PRT to provision POTS loops

within ten business days. PRT never alleged that these time-frames

are unattainable; it noted only that the standards would require

much faster service than it currently provides to its own retail

customers. The Board found with respect to each standard that the

ramp-up period would give PRT sufficient time to improve its

performance, and on appeal PRT never explains why the Board is

mistaken.