Opinion ID: 793196
Heading Depth: 2
Heading Rank: 2

Heading: The Language and Policy of the 1996 Act and FCC Orders

Text: 9 The remainder of Qwest's arguments about the validity of the April 4 Order center around the language and policy of the 1996 Act. Qwest argues that Congress intended parties to know the rates for network elements prior to the transactions to which they would apply because under the 1996 Act, rates for network elements must be included in ICAs. See 47 U.S.C. § 252(a)(1), (c)(2). However, merely because state public utilities commissions must arbitrate and establish any rates for interconnection, services, or network elements, § 252(c)(2), there is nothing in the 1996 Act to suggest that these rates may not be interim. 10 Qwest further argues that interim rates and true-up payments are inconsistent with the 1996 Act and FCC pricing rules, which were designed to facilitate a market-driven telecommunications industry with a preference for voluntarily negotiated ICAs and UNE rates that send the correct economic signals to CLECs. See Pac. Bell v. Pac-W. Telecomm, Inc., 325 F.3d 1114, 1127 (9th Cir.2003); Iowa Utils. Bd. v. FCC, 120 F.3d 753, 801 (8th Cir.1997), rev'd on other grounds, AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999); In re Review of the Commission's Rules Regarding the Pricing of Unbundled Network Elements and the Resale of Service by Incumbent Local Exchange Carriers, Notice of Proposed Rulemaking, 18 F.C.C.R. 18,945, 20,265 ¶ 7 (FCC rel. Sept. 15, 2003) ( TELRIC NPRM ). However, none of the policy goals noted by Qwest changes the state public utilities commissions' responsibility to ensure that the rates charged by ILECs comply with the cost-based standards of the 1996 Act. See Verizon Communications, Inc. v. FCC, 535 U.S. 467, 476, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002); 47 U.S.C. § 252(d). Rather, the need for correct economic signals actually supports the use of interim rates and true-up payments. While some regulatory lag is inevitable and even helpful to ensure facilities-based competition, see Verizon, 535 U.S. at 504-07, 122 S.Ct. 1646, a rate that is long out of date . . . frustrates the goals of TELRIC. AT & T Communications of Illinois, Inc. v. Illinois Bell Tele. Co., 349 F.3d 402, 411 (7th Cir.2003). A limited adjustment of UNE rates that are no longer TELRIC-compliant will not discourage CLECs from investing in their own facilities. 5 See Verizon, 535 U.S. at 505-07, 122 S.Ct. 1646. 11 Moreover, interim rates and true-up payments will not discourage voluntary negotiations by CLECs. Parties may not seek arbitration until after negotiations have failed. § 252(a), (b). The possibility of true-up payments will not reduce the parties' incentive to initially negotiate. Rather, potential true-up payments that may favor either an ILEC or the CLECs provide a disincentive for any party to delay negotiations so that out of date rates may continue to be charged. Nothing in the language or policy of the 1996 Act suggests that interim rates subject to true-up are forbidden when a state public utility commission is uncertain whether the current rates are TELRIC-compliant. In fact, contrary to Qwest's assertions, the FCC Orders actually support the opposite conclusion. 12 The FCC approved the use of interim rates subject to true-up when state public utilities commissions were initially attempting to arbitrate TELRIC-compliant rates after the passage of the 1996 Act. Local Competition Order ¶ 693. The FCC has also authorized the use of interim rates subject to true-up in proceedings under 42 U.S.C. § 271. ILECs enter into ICAs and make their local network infrastructure available to CLECs so that the ILEC may enter the interLATA market. § 271(c). The FCC has approved several ILECs' entry into the interLATA market under § 271 even though the rates in the relevant ICAs were interim and subject to true-up. See In re Application by SBC Communications Inc., for Authorization to Provide In-Region, InterLATA Services in California, 17 F.C.C.R. 25,650 ¶ 37 (FCC rel. Dec. 19, 2002) ( California 271 Order ); In re Application by SBC Communications Inc., Pursuant to Section 271 of the Telecommunications Act of 1996 to Provide In-Region, InterLATA Services in Texas, 15 F.C.C.R. 18,354 ¶¶ 85-90 (FCC rel. June 30, 2000) ( Texas 271 Order ); In re Application by Bell Atlantic New York for Authorization Under Section 271 of the Communications Act to Provide In-Region, InterLATA Service in the State of New York, 15 F.C.C.R. 3953 ¶¶ 256-60 (FCC rel. Dec. 22, 1999) ( New York 271 Order ). 13 Interim rates are also used in orders by the FCC's Wireline Competition Bureau. If states refuse to arbitrate UNE rates, the FCC will preempt the state commission's jurisdiction and assume responsibility for the matter. See 47 U.S.C. § 252(e)(5). The FCC has delegated this authority to the Wireline Competition Bureau. See In re Procedures for Arbitrations Conducted Pursuant to Section 252(e)(5) of the Communications Act of 1934, As Amended, 16 F.C.C.R. 6231 ¶ 8 (FCC rel. Jan. 19, 2001). When the Wireline Competition Bureau arbitrates UNE rates for ICAs, the FCC requires the Bureau to set the rates as interim subject to true-up in the event the FCC ultimately modifies any of the rates set by the Bureau. Id. ¶ 10. In 2003, the Wireline Competition Bureau arbitrated UNE rates in Virginia. In re Petition of WorldCom, Inc. Pursuant to Section 252(e)(5) of the Communications Act for Preemption of the Jurisdiction of the Virginia State Corporation Commission Regarding Interconnection Disputes with Verizon Virginia Inc., 18 F.C.C.R. 17,722 (FCC rel. Aug. 29, 2003) ( Virginia Arbitration Order ). The Wireline Competition Bureau set UNE rates for Virginia and, in accordance with FCC requirements, ordered that any rate established would be subject to a retroactive true-up if the FCC established different rates upon review. Id. ¶ 26. 14 Qwest contends that these FCC orders do not support the interim rates set by MPUC in this case. First, Qwest argues that the FCC's approval of interim rates is limited to cases where permanent TELRIC-compliant rates were not already established, or where there was misconduct by the ILEC. Second, Qwest attempts to distinguish the Virginia Arbitration Order by arguing that arbitration by the Wireline Competition Bureau is a unique circumstance because the Bureau's orders are always subject to review by the FCC at a party's request. 15 We find Qwest's arguments unpersuasive. First, merely because the FCC has allowed (or in the case of the Wireline Competition Bureau, required) interim rates subject to true-up in instances different than the one presented here does not mean the use of interim rates is limited to those circumstances. Rather, it suggests the FCC recognizes that limited use of interim rates can be valuable when it is uncertain whether the current rates are TELRIC-compliant. See California 271 Order ¶¶ 33, 37; Texas 271 Order ¶¶ 85-90; New York 271 Order ¶¶ 258-60; see also In re Application of Verizon New England Inc. for Authorization to Provide In-Region InterLATA Services in Massachusetts, 16 F.C.C.R. 8988 ¶ 34 (FCC rel. Apr. 16, 2001) (stating that interim rates subject to true-up are appropriate in certain circumstances). Second, the FCC approved TELRIC-based interim rates in the Texas 271 Order, suggesting that the retroactive adjustment of TELRIC-compliant rates is not disfavored by the FCC. Texas 271 Order ¶ 89. Third, while ILEC misconduct was a contributing factor in the use of interim rates in the California 271 Order, California 271 Order ¶¶ 23, 37 n. 85, ILEC misconduct is certainly not the sole instance where interim rates have been approved by the FCC. Rather, the FCC has approved interim rates in § 271 Orders so long as an interim solution to a particular rate dispute is reasonable under the circumstances, the state commission has demonstrated its commitment to [FCC] pricing rules, and provision is made for refunds or true-ups once permanent rates are set. Texas 271 Order ¶ 88, quoted in California 271 Order ¶ 37; see also New York 271 Order ¶¶ 258-59. 16 Qwest argues that the interim rates established by MPUC create too much uncertainty. However, whether rates are interim as arbitrated by the Wireline Competition Bureau or set by a state public utilities commission for the purposes of § 271 proceedings, there is always a significant amount of time where the rates are subject to a refund or true-up in the future. The FCC relies upon a case-by-case approach, where interim rates may be appropriate if they are reasonable under the circumstances. California 271 Order ¶ 37; Texas Order ¶¶ 85, 88; New York Order ¶ 258. Under the circumstances, we consider the limited uncertainty created by the April 4 Order to be reasonable. 17 Finally, Qwest argues that the April 4 Order violates the 1996 Act by retroactively changing the terms of binding ICAs. See 47 U.S.C. § 252(a)(1). Qwest bases this argument on the Ninth Circuit's decision in Pacific Bell v. Pac-West Telecomm, Inc., 325 F.3d 1114 (9th Cir.2003). In Pacific Bell, the California Public Utility Commission (CPUC) issued a generic order that designated all calls to internet service providers as local traffic, thereby subject to reciprocal compensation provisions in the parties' existing ICAs. Id. at 1120-21. The Ninth Circuit first established that CPUC lacked authority under the 1996 Act to promulgate generic regulations over internet service provider traffic because the FCC had deemed this traffic to be interstate. Id. at 1125. CPUC's role over interstate traffic is limited to its authority under § 252 to approve new arbitrated ICAs and to interpret existing agreements. Id. at 1125-27. Second, the court stated that the generic order violated § 252 because it effectively changed the terms of all applicable ICAs in California. Id. at 1127. Finally, the Ninth Circuit concluded that CPUC could not be exercising its power to interpret ICAs under § 252 because CPUC failed to consider any specific ICA or reciprocal compensation provision. Id. at 1128. 18 Unlike CPUC in Pacific Bell, there is no question in the present case that MPUC has authority to arbitrate UNE rates under the 1996 Act. § 252(c), (d), (g). Moreover, the April 4 Order does not purport to interpret the rates or terms of existing ICAs. Rather, MPUC exercised its authority to establish new UNE rates in a generic proceeding. § 252(g). The April 4 Order was not based upon an interpretation of the existing ICAs. Therefore, there was no need for MPUC to review the terms of specific agreements before issuing the April 4 Order.