Opinion ID: 2996815
Heading Depth: 2
Heading Rank: 1

Heading: Ameritech’s Appeal

Text: One term of the interconnection agreement between Ameritech and AT&T covers the price to be paid when a telecommunication (e.g. telephone call, facsimile, modem dial-up, etc.) originates on the network Ameritech built but terminates on AT&T’s equipment. Under the Act, not only can AT&T pay to use certain elements of Ameritech’s vast telecommunications network, AT&T can build switches of its own, which Ameritech then must allow to interconnect with its network. That way, consumers who use AT&T as their local telephone service provider may call consumers who use Ameritech as their local telephone service provider. However, AT&T must pay Ameritech for its costs in allowing the call to travel through its switch and arrive at its customer’s receiver and vice versa. See Ill. Bell Tel. Co., 179 F.3d at 568; 47 U.S.C. § 251(b)(5). The compensation paid by AT&T and Ameritech to each other for transport and termination of telecommunications is called “reciprocal compensation.” 47 U.S.C. § 251(b)(5). Problems in calculating the reciprocal compensation rate arise because, as the FCC has recognized, new entrants design their networks and deploy their switches differently than incumbents due to changes in technology. See In re Implementation of the Local Competition Provisions of the Telecomms. Act of 1996, 11 FCC Rcd. 15,499, 16,042, ¶ 1090 (Aug. 8, 1996) (“Local Competition Order”). Incumbents, which usually have older networks and thus older technology, typically route calls from new entrants’ customers either through an “end-office switch” (a computer that directly serves the Ameritech customer being called) or a “tandem switch” (a computer hub that connects end-office Nos. 03-1123, 03-1122 & 03-1124 7 switches). If Ameritech routes an AT&T customer’s call directly through Ameritech’s end-office switch, AT&T is charged the “end-office rate.” The end-office rate is a lower rate that compensates Ameritech for the cost of end-office switching alone. But, if Ameritech must route the call through a tandem switch, then AT&T pays Ameritech the higher “tandem rate.” The tandem rate compensates Ameritech for (1) the tandem switching it performs to route the call to the end-office switch; (2) the transport between the tandem switch and the end-office switch; and (3) the end-office switching that delivers the call to the customer. See MCI Telecomms. Corp., 79 F. Supp. 2d at 790 (E.D. Mich. 1999). New entrants cannot hope to replicate the incumbents’ network switch for switch but, as stated before, have the advantage of newer technology. Thus, a new entrant can typically deploy a single switch in a central location, then lease various elements from the incumbent in order to connect the new entrant’s customers to its central switch and the incumbent’s end-office switches. In this way, the new entrant is able to serve with one switch a geographic area that the incumbent would serve with a minimum of ten-to-fifteen end-office switches. The new entrant’s central switch and leased transport facilities, therefore, “perform functions similar to those performed by an [incumbent’s] tandem switch.” Local Competition Order, 11 FCC Rcd. at 16,042, ¶ 1090. Hence, if a new entrant can show that its one switch “serves a geographic area comparable to the area served by the [incumbents’] tandem switch,” 47 C.F.R. § 51.711(a)(3) (2003), then the new entrant can charge the incumbent the higher tandem rate for calls terminating on the new entrant’s network. Otherwise, the new entrant receives the lower end-office rate. 8 Nos. 03-1123, 03-1122 & 03-1124 The IURC determined that AT&T met the geographic coverage test established by 47 C.F.R. § 51.711(a)(3)7 and that Ameritech owed AT&T the tandem rate for calls terminating on AT&T’s network. Ameritech argues that in awarding AT&T the higher tandem reciprocal compensation rate, the IURC misinterpreted Rule 711(a)(3) to mean that AT&T only had to have the ability to serve and not actually be serving the same geographic area as Ameritech. Because of this purported misapplication of the geographic coverage test, Ameritech argued below that the portion of the interconnection agreement establishing AT&T’s entitlement to the tandem reciprocal compensation rate should be enjoined. The district court disagreed and affirmed the IURC’s determination. Ameritech first challenges the affirmance of the tandem reciprocal compensation rate award on the basis that the district court applied the wrong standard of review. The district court found that whether AT&T met the geographic coverage test established by 47 C.F.R. § 51.711(a)(3) was a question of fact to be overturned only if the IURC’s determination was arbitrary or capricious. Questions of fact, Ameritech agrees, are reviewed by the district court under the arbitrary and capricious standard. Southwestern Bell Tel. Co. v. Apple, 309 F.3d 713, 717-18 (10th Cir. 2002); US W. Communications, Inc. v. Hamilton, 224 F.3d 1049, 1052 (9th Cir. 2000). But, Ameritech argues, whether the IURC properly interpreted the FCC regulation to require an examination into AT&T’s “ability to serve” the same geographic area as Ameritech rather than AT&T’s “actual 7 Rule 711(a)(3) reads in full: 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. Nos. 03-1123, 03-1122 & 03-1124 9 service” of the same geographic area was a question of law to be reviewed de novo. See Hamiliton, 224 F.3d at 1052 (stating that courts consider de novo a state commission’s interpretation of the Act and the FCC’s regulations). We agree with the argument advanced by Ameritech that the district court should have conducted a de novo review of the IURC’s interpretation of the regulation in question. See, e.g., MCI Telecomms. Corp., 79 F. Supp. 2d at 791 (applying a de novo standard of review to the new entrant’s challenge to the state commission’s interpretation of 47 C.F.R. § 51.711(a)(3)). However, we affirm the district court judge’s decision because the IURC interpreted the regulation correctly to mean that the tandem reciprocal rate applies when the new market entrant’s network has the ability to serve, although may not yet be actually serving, the same geographic area as the incumbent. There is precious little case law interpreting 47 C.F.R. § 51.711(a)(3), and the few district court cases dealing specifically with the issue before us are either inapposite or unpersuasive. For guidance, we turn to the Memorandum Opinion and Order issued by the Chief of the Wireline Competition Bureau, acting with authority delegated by the FCC to forge an interconnection agreement between telecommunications providers in Virginia. See In re Petition of WorldCom, Inc., 17 FCC Rcd. 27,039 (Jul. 17, 2002) (“Virginia Arbitration Order”). There, the FCC delegated authority to the chief of one of its subdivisions, the Wireline Competition Bureau (“WCB”), to arbitrate interconnection agreement disputes between Verizon, the incumbent local telephone service provider, and three new entrants—AT&T Communications of Virginia, Inc., WorldCom, Inc. and Cox Virginia Telcom, Inc.—when the Virginia State Corporation 10 Nos. 03-1123, 03-1122 & 03-1124 Commission refused to do so.8 Virginia Arbitration Order, 17 FCC Rcd at 27,044-45, ¶¶ 6, 7; see also 47 U.S.C. § 252(e)(5) (giving the FCC authority to preempt the arbitration authority of state commissions). The purpose of the WCB is to “advise[] and make[] recommendations to the Commission, or act [] for the Commission under delegated authority, in all matters pertaining to the regulation and licensing of communications common carriers.” 47 C.F.R. § 0.91. As such, it has unique expertise in the area of interpreting rules promulgated by the FCC.9 8 In refusing to arbitrate the providers’ interconnection agreement disputes, the Virginia State Corporation Commission stated that it could not apply federal standards as required by the Act in arbitrating interconnection agreements without potentially waiving its Eleventh Amendment sovereign immunity, which it did not have the authority to do. Virginia Arbitration Order, 17 FCC Rcd. at 27,045, ¶ 6. 9 According to 47 C.F.R. § 0.91, some additional functions of the WCB are as follows: The Bureau will, among other things: (a) Develop and recommend policy goals, objectives, programs and plans for the Commission in rulemaking and adjudicatory matters concerning wireline telecommunications, drawing on relevant economic, technological, legislative, regulatory and judicial information and developments. Overall objectives include meeting the present and future wireline telecommunications needs of the Nation; fostering economic growth; ensuring choice, opportunity, and fairness in the development of wireline telecommunications; promoting economically efficient investment in wireline telecommunications infrastructure; promoting the development and widespread availability of wireline telecommunications services; and developing deregulatory initiatives where appropriate. (b) Act on requests for interpretation or waiver of rules. (c) Administer the provisions of the Communications Act (continued...) Nos. 03-1123, 03-1122 & 03-1124 11 The Virginia Arbitration Order addresses the precise issue before us—whether the geographic area test outlined in Rule 711(a)(3) requires the new entrant to actually serve, as opposed to merely be capable of serving, the same geographic area as the incumbent. 17 FCC Rcd. at 27,18283, ¶ 304. In siding with the new entrants and determining that Rule 711(a)(3) requires that new entrants demonstrate only that they are capable of serving the same geographic area as the incumbent, the WCB stated: [T]he determination whether a [new entrant’s] switch “serves” a certain geographic area does not require an examination of the competitor’s customer base. . . . The tandem rate rule recognizes that new entrants may adopt network architecture different from those deployed by the incumbent; it does not depend upon how successful the [new entrant] has been in capturing a “geographically dispersed” share of the [incumbent’s] customers, a standard that would penalize new en- trants. We agree . . ., therefore, that the requisite comparison under the tandem rate rule is whether the [new entrant’s] switch is capable of serving a geographic area that is comparable to the architecture served by the [incumbent’s] tandem switch. Id. at 27,186-87, ¶ 309 (emphasis added). We find the WCB’s pronouncement on this issue not only persuasive, given the Act’s overarching goal of promoting competition and the WCB’s expertise in this area, but one requiring deference as the voice of the FCC interpreting its own rules. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984); US W. Communications, Inc. (...continued) requiring that the charges, practices, classifications, and regulations of communications common carriers providing interstate and foreign services are just and reasonable. . . . 12 Nos. 03-1123, 03-1122 & 03-1124 v. Pub. Serv. Comm’n of Utah, 75 F. Supp. 2d 1284, 1287 (D. Utah 1999) (“[I]f the FCC were to act for a state commission that did not accept its responsibilities under the Act, a reviewing court would give deference to the FCC, as a federal agency, under Chevron.”); see also Ill. Bell Tel. Co., 179 F.3d at 571 (“We have long given deference to the pronouncements of the FCC.”). According to the FCC’s rules on delegation of authority, the WCB literally stepped into the shoes of the FCC when it assumed responsibility of the Virginia arbitration: (a) The person, panel, or board to which functions are delegated shall, with respect to such functions, have all the jurisdiction, powers, and authority conferred by law upon the Commission, and shall be subject to the same duties and obligations. (b) . . . any action taken pursuant to delegated authority shall have the same force and effect and shall be made, evidenced, and enforced in the same manner as actions of the Commission. 47 C.F.R. § 0.203. See also 47 U.S.C. § 155(c)(3) (“Any order, decision, report, or action made or taken pursuant to any such delegation [of authority] . . . shall have the same force and effect, and shall be made, evidenced, and enforced in the same manner, as orders, decisions, reports, or other actions of the Commission.”). When, as here, Congress has expressly permitted delegation of authority by statute, see 47 U.S.C. § 155(c), and the agency delegates authority to a subdivision, “the decision of the subdivision is entitled to the same degree of deference as if it were made by the agency itself.” MCIMetro Access Transmission Servs., Inc. v. BellSouth Telecomms., Inc., 352 F.3d 872, 880 n.8 (4th Cir. 2003) (citing Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566 n.9 (1980)). Although we recognize that actions decided by delegation of authority are subject to review by the FCC under Nos. 03-1123, 03-1122 & 03-1124 13 47 U.S.C. § 155(c) and 47 C.F.R. § 1.115, we do not believe, as Ameritech urges, that this deprives the Virginia Arbitration Order of the FCC’s imprimatur as outlined above in 47 U.S.C. § 155(c)(3) and 47 C.F.R. § 0.203. Unless and until the FCC modifies the Order, it remains in effect and is entitled to our deference. 47 C.F.R. § 1.102(b) (stating that non-hearing actions such as the Virginia Arbitration Order are effective upon release and are not stayed pending a petition for reconsideration by the FCC, except in limited circumstances not present here).10 See also MCIMetro Access Transmission Servs., Inc., 352 F.3d at 880 n.8 (according the Virginia Arbitration Order the same deference as if it had been rendered by the FCC itself). Ameritech does not make the alternative argument that even if the IURC applied the test appropriately, which we have found it did, the evidence presented by AT&T fails to establish that its switches have the ability to serve the same areas served by the Ameritech tandem switches. Indeed, Ameritech concedes that AT&T provided evidence supporting the IURC’s findings on this issue. (See, e.g., App. Opening Br. p. 20.) Because the IURC correctly interpreted the geographic coverage test established in Rule 711(a)(3), and because Ameritech does not contest the IURC’s findings of fact showing that AT&T met the test, the district court’s decision upholding the IURC’s determination 10 We note that on August 16, 2002, Verizon filed a petition seeking reconsideration of portions of the Virginia Arbitration Order, including the interpretation of Rule 711(a)(3). See Verizon’s Petition for Clarification and Reconsideration of July 17, 2002 Memorandum Opinion and Order, p. 23, available at http://gullfoss2.fcc.gov/prod/ecfs/ retrieve.cgi?native_or_pdf=pdf &id_ document= 6513288259. However, the FCC has not yet ruled on the petition, and the Virginia Arbitration Order remains in effect. 14 Nos. 03-1123, 03-1122 & 03-1124 that AT&T is entitled to the tandem reciprocal compensation rate was correct.
“Dark fiber” is excess cable laid in anticipation of future use, but not currently connected to electronics, or “lit,” enabling it to carry telecommunications signals. In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, 15 FCC Rcd. 3696, 3776, ¶ 174 (Nov. 5, 1999) (“UNE Remand Order”). The act of connecting dark fiber to electronics so that it can carry a signal is called “splicing.” Ameritech conceded in one of its several Federal Rule of Appellate Procedure 28(j) letters that the FCC’s newest formal rulemaking, the Triennial Review Order,11 released August 21, 2003, was “inconsistent” with its appeal arguing that it was not required to splice dark fiber upon AT&T’s request because to do so would be concomitant to providing AT&T with superior, not just nondiscriminatory, access to Ameritech’s network. The Triennial Review Order foreclosed that argument by explicitly stating: We require incumbent LECs to make routine network modifications to unbundled transmission facilities used by requesting carriers where the requested transmission facility has already been constructed. By “routine network modifications” we mean that incumbent LECs must perform those activities that incumbent LECs regularly undertake for their own customers.