Opinion ID: 781586
Heading Depth: 2
Heading Rank: 4

Heading: the generic orders

Text: 31 The First CPUC Order, issued after the California Telecommunications Coalition petitioned for a general ruling regarding the jurisdictional status of and billing treatment for ISP traffic, and the Second CPUC Order modifying the First in light of the FCC Remand Order, are contrary to the Act because they exceed the CPUC's statutory authority over interconnection agreements. By its rulings, the CPUC determined that reciprocal compensation provisions of interconnection agreements apply to ISP-bound traffic in California. According to the CPUC, these orders were adopted as part of a generic rule-making proceeding that would affect all existing applicable interconnection agreements in California. However, the FCC has defined ISP traffic as interstate for jurisdictional purposes, thereby placing it under the purview of federal regulators rather than state public utility commissions. Under this scheme the CPUC lacks authority under the Act to promulgate general generic regulations over ISP traffic. 32 The CPUC's only authority over interstate traffic is its authority under 47 U.S.C. § 252 to approve new arbitrated interconnection agreements and to interpret existing ones according to their own terms. By promulgating a generic order binding on existing interconnection agreements without reference to a specific agreement or agreements, the CPUC acted contrary to the Act's requirement that interconnection agreements are binding on the parties, or, at the very least, it acted arbitrarily and capriciously in purporting to interpret standard interconnection agreements. 33
34 Although it is an unsettled question under federal law (and the primary controversy animating these appeals) whether ISP traffic is local for purposes of reciprocal compensation provisions in interconnection agreements, under § 251(b)(5), the FCC and the D.C. Circuit have made it clear that ISP traffic is interstate for jurisdictional purposes. See Bell Atl. Tel. Co. v. FCC, 206 F.3d 1, 5 (D.C.Cir.2000) (There is no dispute that the Commission has historically been justified in relying on [end-to-end call] analysis when determining whether a particular communication is jurisdictionally interstate.); see generally id. at 5-7 (distinguishing between jurisdictional analysis of what constitutes interstate or intrastate traffic, and the analysis of what constitutes local or interexchange traffic for the purposes of reciprocal compensation). Indeed, the FCC recently reaffirmed its position that ISP-bound traffic is jurisdictionally interstate. In the Matter of Starpower Communications v. Verizon South, Inc. ( Starpower II ), 17 F.C.C.R. 6873, 6886 (¶ 30), 2002 WL 518062 (2002). 35 Before the 1996 Act, the FCC had general rule-making authority to regulate interstate traffic and the states had general authority to regulate intrastate traffic. See 47 U.S.C. § 152; First Report & Order, 11 F.C.C.R. 15499 (¶ 83). The 1996 Act changed this division of labor somewhat; it granted the FCC regulatory authority over those intrastate matters governed by the Act, id. (¶¶ 83 103); AT & T v. Iowa Utils. Bd., 525 U.S. 366, 377-86, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999), and it granted the state commissions limited defined authority over interstate traffic under §§ 251 and 252 of the Act, MCI Telecomm. Corp. v. Bell Atl.-Pa., 271 F.3d 491, 510 (3d Cir.2001); Southwestern Bell Tel. v. Pub. Util. Comm'n, 208 F.3d 475, 480 (5th Cir.2000). 10 36 It is clear from the structure of the Act, however, that the authority granted to state regulatory commissions is confined to the role described in § 252 — that of arbitrating, approving, and enforcing interconnection agreements. As the Supreme Court noted in AT & T v. Iowa Utilities Board, the Act limited state commissions' authority to regulate local telecommunications competition. 525 U.S. at 378 & n. 6, 385 & n. 10, 119 S.Ct. 721; see also MCI v. Ill. Bell, 222 F.3d at 342 ([W]ith the 1996 Telecommunications Act, we believe it equally clear that Congress did take over some aspects of the telecommunications industry.). The Act did not grant state regulatory commissions additional general rule-making authority over interstate traffic: 37 Under the Act, there has been no delegation to state commissions of the power to fill gaps in the statute through binding rulemaking ... State commissions have been given only the power to resolve issues in arbitration and to approve or reject interconnection agreements, not to issue rulings having the force of law beyond the relationship of the parties to the agreement. 38 Bell Atl.-Pa., 271 F.3d at 516. 39 Thus, the CPUC's resort to its general rule-making authority under California law 11 to issue a generic order applicable to all interconnection agreements between telecommunication companies in California is precluded by § 252. 40 B. RETROSPECTIVE RULE-MAKING ALSO IS INCONSISTENT WITH § 252's COMMAND THAT INTERCONNECTION AGREEMENTS ARE BINDING 41 The CPUC's resort to its general rule-making authority also is inconsistent with the Act because it effectively changes the terms of applicable interconnection agreements in California, and therefore contravenes the Act's mandate that interconnection agreements have the binding force of law. See 47 U.S.C. § 252(a)(1). Indeed, the point of § 252 is to replace the comprehensive state and federal regulatory scheme with a more market-driven system that is self-regulated through negotiated interconnection agreements. See, e.g., Bell Atl.-Pa., 271 F.3d at 499 (The Act's clear preference is for [] negotiated agreements.). 42 Arguably, there are other provisions in the Act that suggest that the CPUC may engage in general rule-making as part of its authority over interconnection agreements or its authority under state law. Section 252(e)(3), for example, provides: 43 Notwithstanding paragraph (2), but subject to section 253 of this title, 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. And, section 251(d)(3) provides: 44 In prescribing and enforcing regulations to implement the requirements of this section, the Commission shall not preclude the enforcement of any regulation, order, or policy of a State commission that — 45 (A) establishes access and interconnection obligations of local exchange carriers; 46 (B) is consistent with the requirements of this section; and 47 (C) does not substantially prevent implementation of the requirements of this section and the purposes of this part. Finally, § 261(c) states: 48 Nothing in this part precludes a State 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. 49 These provisions are best interpreted, however, as indicating that state regulatory commissions may continue to regulate aspects of intrastate telecommunications service, as long as the state requirements are not inconsistent with the procompetitive intent of the Act. To do otherwise would undercut the purposes of § 251 and § 252 — to replace a state regulated system with a market-driven system that is self-regulated by binding interconnection agreements — and also would be inconsistent with the more specific requirements of the Act. For example, § 251(d)(3)(C) limits state commission actions under § 251(d)(3) to those that do not substantially prevent implementation of the requirements of this section and the purposes of this part. Similarly, § 261(c) provides that a state's requirements may not be inconsistent with this part or the Commission's regulations to implement this part. Section 253 also limits the requirements that a state may impose under § 252(e)(2) to those that are competitively neutral, 47 U.S.C. § 253(b). And finally § 252(d)(2)(B)(ii) makes clear that state regulatory commissions may not engage in rate making for reciprocal compensation under its § 252 powers. 12 Thus we reject any suggestion that §§ 252(e)(3), 251(d)(3) or 261(c) support the CPUC's resort to its general rule-making authority to adopt the generic orders at issue here. 50 C. THE GENERIC ORDERS CANNOT BE ACCURATELY CONSTRUED AS INTERPRETING STANDARD AGREEMENTS UNDER § 252 51 Although the CPUC's generic orders were adopted pursuant to its general rule-making authority, the district court suggested that in doing so, it was interpreting standard agreements under § 252. The record does not support this characterization of the two orders. It is clear from the record that when the CPUC issued its orders, it did not consider a specific interconnection agreement or even a specific reciprocal compensation provision. Furthermore, there is no evidence in the record that there was a model or standard agreement that the ILECs and CLECs in California followed in negotiating their interconnection agreements. To suggest that the CPUC could interpret an agreement without reference to the agreement at issue is inconsistent with the CPUC's weighty responsibilities of contract interpretation under § 252. As noted by one court, the agreements themselves and state law principles govern the questions of interpretation of the contracts and enforcement of their provisions. Southwestern Bell v. Pub. Util. Comm'n, 208 F.3d at 485. But the CPUC relied on neither in its generic orders; indeed it could not have considered the terms of the agreements because the agreements never were made part of the administrative record. 52 We also note that the CPUC explicitly stated in its generic orders that it was purporting to make a general rule that would bind Appellants. Cf. Bell Atl., 206 F.3d at 9 (noting that it is improper to substitute a judicial judgment if the agency failed to offer a sufficient rationale for its determination). We therefore conclude that the district court erred in repositioning the CPUC's orders as an interpretation of some form of a standard agreement. D. PREJUDICE AND WAIVER ARGUMENTS 53 We also reject Appellees' arguments that we should uphold the CPUC Orders because Appellants were not prejudiced or alternatively because Appellants waived their objections to the CPUC's orders. First, Appellees argue that Appellants were not prejudiced because they have not provide[d] even one example of an interconnection agreement including language that precludes the conclusion that its reciprocal compensation provisions apply to the ISP-bound traffic. Appellees misconstrue the prejudice inquiry and misinterpret cases in which we have refused to invalidate agency action because the party challenging it could not show that he or she was prejudiced as a result of the alleged error. 54 Appellants clearly were prejudiced by the errors because the allegedly unlawful generic orders compel them, as carriers subject to interconnection agreements containing reciprocal compensation provisions, to make payments under those provisions for ISP-bound traffic. The fact that Appellants might also challenge the CPUC's proceedings at another time does not mean that they were not prejudiced by the generic orders that they presently challenge. None of the parties suggest that the generic orders were not effective when issued by the CPUC or that Appellants have no obligation to pay reciprocal compensation as directed by the CPUC. 55 Second, Appellants did not waive their objection to the CPUC's proceeding; on the contrary, in their motion for rehearing before the CPUC, Appellants argued that the CPUC's orders were issued in excess of its authority and in violation of federal law. The CPUC had a sufficient opportunity to address fully the issues that Appellants have raised in their challenges to the generic orders. See Ecological Rights Found. v. Pac. Lumber Co., 230 F.3d 1141, 1154 (9th Cir.2000). We also reject Appellees' waiver-related argument that the CPUC did not err in issuing a generic order because the question posed to it was a generic one, and that if Appellants wanted the CPUC to resolve the reciprocal compensation issue with reference to specific interconnection agreements they should have presented these agreements to the CPUC. 13 To conclude that Appellants should have introduced evidence of the terms of specific interconnection agreements is to ignore the fact that it was the Appellees who were seeking to benefit from the ruling that they sought from the CPUC. It therefore was their burden to establish their entitlement to compensation under specific interconnection agreements. In any event, the parties' failure to present key evidence does not permit the CPUC to act in excess of its statutory authority. In sum, we agree with Appellants that the district court erred in granting summary judgment in favor of Appellees.