Opinion ID: 1698996
Heading Depth: 1
Heading Rank: 5

Heading: the tandem interconnection rate issue

Text: Cross-appellant AT & T argues that the Commission acted outside the scope of its powers in reaching certain findings regarding the tandem interconnection rate. Specifically, AT & T alleges that the Commission's order places requirements on ALECs, in order to be compensated at the tandem interconnection rate, that exceed those required by the FCC. AT & T argues that the FCC, in In re Petition of WorldCom, Inc. Pursuant to Section 252(r)(5) of the Comms. Act for Preemption of the Jurisdiction of the Virginia State Corp. Comm'n re Interconnection Disputes with Verizon Virginia, Inc., and for Expedited Arbitration, 17 FCC Rcd. 27039, CC Docket No. 00-218 et al., Memorandum Op. and Order (2002) (Virginia arbitration order), delineated the only requirement and thereby preempted any state commission action to the contrary. Additionally, AT & T asserts that the Commission's requirements impose an unlawful barrier to entry on ALECs, in violation of 47 U.S.C. § 253. Following the enactment of the Act, the FCC adopted rules to implement the new, market-opening measures therein. However, [u]nder the 1996 Act's design, it has been largely the job of the state commissions to interpret and apply those rules. Virginia arbitration order ¶ 1. The FCC's rulemaking sets minimum, uniform, national rules, but also relies heavily on states to apply these rules and to exercise their own discretion in implementing a pro-competitive regime in their local telephone markets. Local competition order ¶ 22. Prior to the Act, ILECs served virtually all subscribers in their local serving areas. Therefore, ILECs had little economic incentive to assist ALECs in entering the market by establishing interconnection agreements. An ALEC that constructs its own network will not necessarily need the services or facilities of an ILEC to enable its own subscribers to communicate with each other but will need an interconnection agreement with the ILEC to enable its customers to place calls to and receive calls from the ILEC's subscribers. Thus, the Act and subsequent FCC rules are designed to encourage interconnection agreements. One such rule is 47 C.F.R. § 51.711 (rule 51.711), which states in part: (a) Rates for transport and termination of telecommunications traffic shall be symmetrical, except as provided in paragraphs (b) and (c) of this section. (1) For purposes of this subpart, symmetrical rates are rates that a carrier other than an incumbent LEC assesses upon an incumbent LEC for transport and termination of telecommunications traffic equal to those that the incumbent LEC assesses upon the other carrier for the same services. .... (3) Where the switch of a carrier other than an incumbent LEC serves a geographic area comparable to the area served by the incumbent LEC's tandem switch, the appropriate rate for the carrier other than an incumbent LEC is the incumbent LEC's tandem interconnection rate. (Emphasis added.) As subsection (a)(1) indicates, the purpose of this rule is to require ILECs to pay rates to ALECs for use of the ALECs' services at the same level as the rates ILECs charge ALECs for use of the ILECs' services. While this sort of rate symmetry is the standard, subsection (a)(3) is designed to address the additional costs incurred by a carrier when routing a call through a tandem switch as opposed to an end-office switch. As the FCC explained in the local competition order at paragraph 1090: We find that the additional costs incurred by a LEC when transporting and terminating a call that originated on a competing carrier's network are likely to vary depending on whether tandem switching is involved. We, therefore, conclude that states may establish transport and termination rates in the arbitration process that vary according to whether the traffic is routed through a tandem switch or directly to the end-office switch. In such event, states shall also consider whether new technologies (e.g., fiber ring or wireless networks) perform functions similar to those performed by an incumbent LEC's tandem switch and thus, whether some or all calls terminating on the new entrant's network should be priced the same as the sum of transport and termination via the incumbent LEC's tandem switch. Where the interconnecting carrier's switch serves a geographic area comparable to that served by the incumbent LEC's tandem switch, the appropriate proxy for the interconnecting carrier's additional costs is the LEC tandem interconnection rate. (Emphasis added.) After the enactment of rule 51.711 and the issuance of the local competition order, some confusion arose regarding functional equivalency. Thus, in In re Developing a Unified Intercarrier Compensation Regime, 16 FCC Rcd. 9610, CC Docket No. 01-92, Notice of Proposed Rulemaking (2001) (Intercarrier Compensation NPRM), the FCC clarified that rule 51.711(a)(3) requires only a geographic area test and confirmed that a carrier demonstrating that its switch serves a geographic area comparable to that served by the incumbent LEC's tandem switch is entitled to the tandem interconnection rate. Id. ¶ 105. In the proceedings below, the Commission addressed many issues regarding when an ALEC is entitled to be compensated at the ILEC's tandem interconnection rate. In its first finding, the Commission rejected the ILECs' argument of a two-pronged eligibility test requiring both geographic comparability and similar functionality. Relying on the local competition order, the Commission instead held that an ALEC is entitled to be compensated at the tandem interconnection rate when it establishes either geographic comparability or similar functionality. The Commission then defined the two tests of similar functionality and comparable geographic area. AT & T's sole point of appeal relates to the Commission's definition of the latter. Regarding that test, the Commission framed the following question: [I]n this issue we are to determine what qualifies an ALEC's network as serving a comparable geographic area to that served by an ILEC tandem switch.... ... [W]e believe there are several sticking points that must be addressed.... The first is the interpretation of the word `serves' contained in FCC Rule 51.711(a)(3).... The debate revolves around whether this word means that an ALEC is actually providing service to a particular number of geographically dispersed customers in that area, or simply capable of providing service to customers throughout the area. Order on reciprocal compensation at 14 (emphasis added). The ILEC parties argued for the Commission to adopt the former meaning. However, the Commission concluded: We believe that the appropriate application of the term serves... is that an ALEC should be found to serve a geographic area if it has prepared and offered a product throughout that area. Absent any direction from the FCC regarding what they meant by the word serves ..., we believe this more liberal interpretation is appropriate. Order on reciprocal compensation at 17. The Commission then considered how an ALEC is to demonstrate that it is capable and prepared to serve a particular area. It concluded that an ALEC `serves' a comparable geographic area when it has deployed a switch to serve this area, and has obtained NPA/NXXs to serve the exchanges within this area. Id. at 20. Additionally, the Commission found that the ALEC must show that it is serving this area either through its own facilities, or a combination of its own facilities and leased facilities connected to its collocation arrangements in ILEC central offices. Id. As already stated, AT & T, an ALEC, asserts in this appeal that the Commission's findings regarding how an ALEC is to demonstrate that it is capable and prepared to serve a particular area do not conform with FCC findings regarding the same in the Virginia arbitration order. In response, the Commission argues its order is entirely consistent with the Virginia arbitration order. The Virginia arbitration order was rendered by the Wireline Competition Bureau, acting through authority expressly delegated from the [FCC], stand [ing] in the stead of the Virginia State Corporation Commission, Virginia arbitration order at 1, which is the equivalent of the Florida Public Service Commission. The Wireline Competition Bureau summarized the arguments in the Virginia arbitration order, ¶ 304, as follows: AT & T, WorldCom, and Verizon disagree about the standard for establishing geographic comparability under section 51.711(a)(3). AT & T and WorldCom argue that they are entitled to Verizon's tandem rate when any of their switches is capable of serving a geographic area comparable to the area served by Verizon's tandem switch. Verizon argues that the tandem rate is only available when the competitive LEC's switch actually serves a comparable geographic area. The Wireline Competition Bureau held: We agree, however, with AT & T and WorldCom that the determination whether a competitive LEC's switch serves a certain geographic area does not require an examination of the competitor's customer base.... We agree with AT & T and WorldCom, therefore, that the requisite comparison under the tandem rate rule is whether the competitive LEC's switch is capable of serving a geographic area that is comparable to the architecture served by the incumbent LEC's tandem switch. Virginia arbitration order ¶ 309 (emphasis added). Thus, regarding the issue of whether rule 51.711 requires an ALEC to be actually serving an area, the Commission's order below is in agreement with the Wireline Competition Bureau's determination in the Virginia Arbitration Order. The Wireline Competition Bureau went on to state in the Virginia arbitration order: We find, moreover, that Verizon appears to concede that the AT & T and WorldCom switches satisfy this standard. In its brief, Verizon states, `At best, [AT & T] has shown that its switches may be capable of serving customers in areas geographically comparable to the areas served by Verizon's tandems,' and, `[a]s with AT & T, [WorldCom] offered only evidence relating to the capability of its switches.' As we explain above, such evidence is sufficient under the tandem rate rule and Verizon fails to offer any evidence rebutting the evidence provided by the petitioners. Should there be any future dispute regarding the capability of the petitioners' switches to serve a geographical area comparable to Verizon's switches, we expect the parties to use their agreements' dispute resolution procedures to resolve them. Id. This language indicates that, because Verizon conceded that the relevant ALECs in that case were capable of serving the particular area, the FCC never reached the issue of how an ALEC is to demonstrate that it is capable and prepared to serve a particular area. Therefore, the Commission's order below cannot conflict with the Virginia arbitration order on the question of how an ALEC is to demonstrate that it is capable and prepared to serve a particular area. In the absence of a conflict of legal holdings, we conclude that AT & T's argument that the FCC has preempted the Commission on the issue of proof of capability to serve must fail. As for AT & T's argument that the Commission's ruling imposes an unlawful barrier to entry in violation of 47 U.S.C. § 253, we first note that this argument was not made below. We further note that the Commission expressly adopted the more liberal interpretation of rule 51.711, as advocated by the ALEC parties, in finding that an ALEC need not actually be serving a particular area to receive the tandem interconnection rate. Given the Commission's balanced decision that a more liberal application of the term `serves' should be accompanied with a more detailed demonstration of network ability, order on reciprocal compensation at 18, we conclude that the Commission's findings do not have the effect of prohibiting the ability of [an] entity to provide any interstate or intrastate telecommunications service. 47 U.S.C. § 253.