Opinion ID: 1698996
Heading Depth: 1
Heading Rank: 4

Heading: the local calling area issue

Text: In its order, the Commission noted that there was no significant disagreement among the parties that it had jurisdiction to implement the rates, terms, and conditions of intercarrier compensation mechanisms for intrastate traffic so long as they are not inconsistent with the FCC's rules and orders governing intercarrier compensation. Additionally, the Commission adopted the consensus view among the parties that the policies established in the docket would stand as default mechanisms, effectively serving as regulatory standards to which a carrier may defer in the event negotiations between carriers regarding agreements on interconnections, services, or network elements are unsuccessful. One such default policy addresses the definition of local calling area, which affects whether a call is subject to access charges or reciprocal compensation. [6] In this appeal, Verizon and Sprint argue that the Commission lacked the authority to define a local calling area. Additionally, they argue that the Commission's establishment of the originating carrier's retail local calling area as the default definition is not supported by competent, substantial evidence. The following sections address the specific arguments raised by Verizon and Sprint.
In the order below, the Commission stated that its authority to provide a definition of a local calling area derives from section 364.01(4)(b), (g), and (i), Florida Statutes (2002), which provides: The commission shall exercise its exclusive jurisdiction[ [7] ] in order to: .... (b) Encourage competition through flexible regulatory treatment among providers of telecommunications services in order to ensure the availability of the widest possible range of consumer choice in the provision of all telecommunications services. .... (g) Ensure that all providers of telecommunications services are treated fairly, by preventing anticompetitive behavior and eliminating unnecessary regulatory restraint. .... (i) Continue its historical role as a surrogate for competition for monopoly services provided by local exchange telecommunications companies. The Commission also cited Florida Interexchange Carriers Ass'n v. Beard, 624 So.2d 248, 251 (Fla.1993), wherein this Court stated: By giving the Commission exclusive jurisdiction over telecommunications services, the Legislature has provided the Commission with broad authority to regulate telephone companies.... The exclusive jurisdiction in section 364.01 to regulate telecommunications gives the Commission the authority to determine local routes. On the basis of these authorities, the Commission concluded that it had the authority to define a local calling area where necessary to ensure the widest range of consumer choice and to eliminate barriers to competition. Because the Commission further found that the issue of defining a local calling area had become too commonplace in arbitration cases between carriers and some finality was necessary to avoid the issue being litigated multiple times, it decided to establish a default definition that was as competitively neutral as possible. Sprint and Verizon, however, argue that section 364.01(4) provides only a general pronouncement of legislative intent and that sections 364.16(3)(a) and 364.163, Florida Statutes (2002), [8] more specifically prohibit the Commission's action. They assert that the decision to set the default definition as the originating carrier's local calling area allows ALECs to limit the charge to be paid to ILECs for terminating ALEC-originating calls by enlarging the ALECs' local calling areas. This practice, they argue, would run counter to the purposes behind the Legislature's 1995 enactment of sections 364.16(3)(a) and 364.163, which were to take away from the Commission the authority to adjust access charges and to prevent a diminution of access revenues to which ILECs are entitled. Sprint and Verizon argue that the specific provisions within sections 364.16(3)(a) and 364.163, therefore, must control over the general provisions of section 364.01(4). In response, the Commission acknowledges that sections 364.16(3)(a) and 364.163 restrict its authority in the area of access charges but also asserts that those provisions relate to access charges once the local calling scope has been defined. The Commission points out that those sections contain no language expressly prohibiting it from defining a default local calling area. The Commission also acknowledges that the Legislature has reserved for itself the authority to determine access charge rates but asserts that revenues and rates are distinct entities in intercarrier compensation schemes and under the law. Sprint and Verizon do not argue that sections 364.16(3) and 364.163 expressly and directly prohibit the Commission from establishing a definition of local calling area. Rather, Sprint and Verizon argue that the Commission's choice for the default, i.e., the originating carrier's local calling areas, will create a situation in which ALECs may circumvent access charges in violation of sections 364.16(3) and 364.163. However, what future actions ALECs may or may not take as a result of the Commission's order does not affect the Commission's jurisdiction to enter the order. [9] We agree with the Commission that the Commission's broad authority to regulate telephone companies under section 364.01 provides the Commission with jurisdiction to enter an order that sets out the default provision.
Next, Verizon argues that the Legislature's 1999 amendments to the Administrative Procedure Act (APA), providing that agencies may adopt those rules that implement or interpret the specific powers and duties granted by the Legislature, overrules this Court's holding in Beard that section 364.01 provides broad authority to the Commission to adopt rules regulating telecommunications. However, we find this argument procedurally barred as it was not raised below.
In addition to relying upon section 364.01 for authority, the Commission stated in its order: Furthermore, [paragraph 1035 of the local competition order] appears unequivocal in granting authority to state commissions to determine what geographic areas should be considered local areas for the purpose of applying reciprocal compensation obligations under Section 251(b)(5) of the Act. ILEC parties offer nothing to dispute what appears to be a clear delegation of authority from the FCC to state commissions to make determinations as to the geographic parameters of a local calling area. Sprint and Verizon contest this point and argue that reliance upon the local competition order is misplaced because that order did not delegate authority but, rather, simply expressed that the Act does not modify a state commission's existing authority over reciprocal compensation provisions. Specifically, in a section primarily addressing the distinction between transport and termination, which is subject to reciprocal compensation, and access services for long distance telecommunications, which are subject to access charges, the local competition order states: With the exception of traffic to or from a CMRS network, state commissions have the authority to determine what geographic areas should be considered local areas for the purpose of applying reciprocal compensation obligations under section 251(b)(5), consistent with the state commissions' historical practice of defining local service areas for wireline LECs. Local competition order ¶ 1035 (emphasis added). We conclude from the emphasized portion of this text that in implementing the local competition provisions of the Act, the FCC has not preempted state law regarding the issue of defining local service areas. While we do not agree with the Commission that the local competition order is a grant of authority to define a local calling area, we do find that it indicates that the Commission is not precluded by federal law from providing such a definition. Furthermore, because Sprint and Verizon have failed to show the Commission's action with regard to the local calling area issue is preempted by federal law and have failed to overcome the statutory presumption that the Commission's order does not exceed its powers under state law, we conclude that the Commission has complied with the essential requirements of law.
Finally, Sprint and Verizon argue that there is insufficient evidence in the record to support the Commission's choice of the originating carrier's retail local calling area as the default definition. They assert that the record does not support the determination that this method is the most competitively neutral. In the order below, the Commission extensively reviewed the evidence supporting and opposing numerous default options. The Commission then reached the following conclusions: We agree that using either the ILEC's retail local calling area or the LATA as a wholesale local calling area seems to suffer from a lack of competitive neutrality. Using the ILEC's retail local calling area appears to effectively preclude an ALEC from offering more expansive calling scopes.... A LATA-wide wholesale calling regime appears to discriminate against IXCs.... We believe it is important that the default be as competitively neutral as possible. A default which is defined in accordance with the ILECs' preference for their existing retail local calling areas or the ALECs' preference for LATA-wide local calling may create a disincentive to negotiate. Adopting either of these two options would seem counterproductive, as it could chill negotiations and lead to one-sided outcomes. .... One approach to defining the wholesale local calling area which receives less attention from the parties is to use the originating carrier's retail local calling area. BellSouth witness Shiroishi actually supports this approach and believes that such a plan is administratively manageable, while acknowledging that there may be some concerns. In addition, she testifies that BellSouth currently has the arrangement ... in many of its interconnection agreements. Of the options presented, we believe this approach is more competitively neutral than the others. Verizon witness Trimble and Sprint witness Ward believe that BellSouth's proposal is administratively complex.... We note, however, that BellSouth witness Shiroishi explains that her company has implemented this approach through the use of billing factors.... The second complaint, that wholesale compensation should not vary depending on the direction of the call, is more thought-provoking since directional differences in compensation appear to be anomalous and inequitable. While we believe that such a plan may result in directional differences initially, we question whether these differences will be sustainable over time. As carriers experiment with different retail local calling areas, market forces will eventually determine which plans are most viable, and more uniformity will emerge as a result. In the short run, it is important to encourage experimentation, and this plan accomplishes that objective. Order on reciprocal compensation at 53-54. Later, in addressing the parties' motions for reconsideration, the Commission responded to arguments similar to those raised in this appeal: Verizon argues that the originating carrier ruling provides the same disincentive to negotiate as the LATA-wide reciprocal compensation alternative. We clearly disagreed. Order at 53. Verizon hypothesizes that the originating carrier ruling, because it will result in more uniform retail local calling areas, will eventually lead to uniform LATA-wide calling areas. However, Sprint reasons that because of the ILECs' statutory and regulatory constraints, the local calling areas would not even out over time. This divergence in opinions indicates that it is pure speculation that consumers' range of choice will diminish. We unmistakably considered the originating carrier local calling area to be the most competitively neutral and pointed out that market forces would eventually determine the most viable plans. Order at 53-54. Further, we have only stated that the originating carrier local calling area is the most competitively neutral of the alternatives offered. Again, no error has been identified on this point. Order denying motions for reconsideration at 14. A review of the transcript of the Commission's May 8, 2002, hearing on the local calling area issue reflects that the ILEC parties, Verizon, Sprint, BellSouth, and ALLTEL, primarily argued for the ILEC's local calling area to be the default definition while the ALEC parties, AT & T, WorldCom, and FDN, primarily argued for a LATA-wide local calling area to be the default. The first witness to testify on this issue was BellSouth witness Elizabeth Shiroishi, who stated: BellSouth's position is that, for purposes of determining the applicability of reciprocal compensation, a local calling area can be defined as mutually agreed to by the parties and pursuant to the terms and conditions contained in the parties' negotiated interconnection agreement, with the originating Party's local calling area determining the intercarrier compensation between the Parties. BellSouth currently has the arrangement described above in many of its interconnection agreements, and is able to implement such arrangement through the use of billing factors.... Although BellSouth believes that its plan is administratively manageable, BellSouth does understand the concerns raised as to the implementation of different calling areas. If the Commission ultimately determines that BellSouth's plan is not administratively feasible, BellSouth is in support of setting the default as the local calling scope ... as set forth in the ILEC's tariff.... Later in her testimony, Shiroishi agreed with the statement that defining the local calling area as anything other than the ILEC's or the originating carrier's local calling area would create arbitrage opportunities. Specifically, she testified that a LATA-wide calling area would create arbitrage opportunities [10] for IXCs and ALECs and that BellSouth had some interconnection agreements providing that the ILEC's local calling area would govern and some providing that the originating carrier's local calling area would govern. The second witness was Verizon witness Dennis Trimble, who testified that he recommended that the Commission maintain the status quo  that is, approve the [ILECs'] local calling area for purposes of applying intercarrier compensation. He also extensively testified regarding why a LATA-wide local calling area for reciprocal compensation purposes would put both the IXCs and the ILECs at a competitive disadvantage and enhance the ALECs' opportunities to arbitrage the ILEC's existing rate structures. His testimony only touched briefly on the use of the originating carrier's retail local calling area as the default: Basing intercarrier compensation on the originating carrier's retail local calling area would be even worse than LATA-wide reciprocal compensation. This approach is administratively infeasible and fraught with irrational outcomes. It could enable ALECs to pay lower reciprocal compensation rates for outbound traffic, to receive higher access rates for inbound traffic, or even a combination of the two.... ... [A]n ALEC may set up shop to market outbound calling services. In that case, it may establish a large local calling area for its retail customers, and would, under this misguided proposal, pay the lower reciprocal compensation rate for calls that would otherwise be subject to terminating access charges. But the same ALEC may instead choose to market inbound calling services. In that case, it would charge higher terminating access rates for its inbound traffic  for calls between the same local exchange carriers and the same geographic points to which it pays the lower reciprocal compensation rate. .... ... This approach will prompt ALECs to formulate business plans based on avoiding access charges and receiving maximum reciprocal compensation  rather than focusing on the end user. The third witness was Sprint witness Julie Ward, who asserted Sprint's preference for the default definition to be based upon the ILEC's local calling scope and argued that a LATA-wide local calling scope would put IXCs at a severe competitive disadvantage. When asked about the use of the originating carrier's local calling area, Ward stated: It is critical to recognize the inequitable competitive environment that is created when the originating carrier's local calling area determines the intercarrier compensation between carriers. The result of this approach would allow ALECs to pay lower reciprocal compensation rates for their traffic terminated within the LATA by ILECs (assuming the ALEC defines the LATA as the local calling area for retail purposes) while ILECs are forced to change their LCAs or to pay ALECs higher access rates for terminating ILEC-originated traffic. Spring agrees with Verizon witness Trimble in that the direction of the call should play no part in the determining how intercarrier compensation should be assessed (page 17). Furthermore, it would be administratively burdensome for all carriers, not just ILECs, to change their billing systems to maintain the varying local calling areas of each ALEC. BellSouth also recognizes and appreciates the concerns raised as to the implementation of different calling areas, as indicated on page 5 of Beth Shiroishi's testimony. The fourth witness to address this issue was ALLTEL witness Alfred Busbee, who testified that defining the local calling area as something other than the ILEC's local calling area likely would have a financial impact on ILECs and require rate rebalancing. Following the above ILEC witnesses, the next witness to testify was AT & T witness Paul Cain. Cain testified that the Commission should adopt a LATA-wide local calling area default, arguing that all calls would then be rated local, simplifying the process of reciprocal compensation, and benefiting consumers by making it possible for ALECs to offer more flexible retail calling plans. Cain extensively testified to the practical effects and benefits of this default. He also testified that the ILECs advocated use of the ILEC's local calling area in order to limit competitive opportunities, with a cost structure that forces other carriers to limit the options available to their customers. In response to criticisms of the use of a LATA-wide calling area default, Cain asserted that the effect on ILECs and ALECs would be the same but conceded that IXCs might face erosion in their competitive position. Additionally, FDN witness John McCluskey testified that FDN proposed that the default definition be the LATA-wide calling area when the originating carrier hands off LATA-wide calls at the ILEC tandem serving the geographical location of the end user where the call terminates or, if the originator chooses, at the end office serving the geographical location of the end user where the call terminates. He argued that intercarrier compensation schemes that rely on the ILEC's retail local calling area foreclose price competition for retail intra-LATA services. Significantly, however, neither of these ALEC witnesses was asked about the option of establishing the originating carrier's retail local calling area as the default. We find that this record provides competent, substantial evidence in support of the Commission's conclusion that use of either the ILEC's retail local calling area or a LATA-wide calling area as the default lacks competitive neutrality. The ILEC and ALEC parties are consistently divided in their preferences, with the ILECs supporting use of the ILEC's retail local calling area and the ALECs supporting use of a LATA-wide calling area. This supports the Commission's conclusion that adoption of either could chill negotiations and lead to one-sided outcomes in the establishment of interconnection agreements. However, the Commission expressly acknowledged in its order that use of the originating carrier's retail local calling area received less attention from the parties in the proceedings below. As the above summary of the evidence indicates, little testimony was given regarding that option. While competent, substantial evidence  in the form of Shiroishi's testimony that BellSouth had many interconnection agreements that defined the local calling area as the originating carrier's retail local calling area and that BellSouth had been able to implement such agreements through the use of billing factors  supports the Commission's conclusion that such a default is administratively feasible, there is insufficient competent record evidence regarding the competitive neutrality of this option. The Commission appears to rely primarily on the fact that no party advocated for it as evidence of its competitive neutrality. But no witness testified that use of the originating carrier's retail local calling area as the default would be more competitively neutral. In fact, the only testimony addressing the effect on competition of this option came from Trimble and Ward, both of whom argued against it. It appears the Commission chose the originating carrier's retail local calling area as the default definition primarily because no party advocated for it. However, we do not find that the record contains competent, substantial evidence that it is the most competitively neutral option. Because the record does not support the Commission's finding on that point, we remand the case for further proceedings addressing the effect on competition of using the originating carrier's retail local calling plan as the default definition of local calling plan for purposes of reciprocal compensation.