Opinion ID: 3011524
Heading Depth: 2
Heading Rank: 2

Heading: Terms of the Interconnection Agreement

Text: 1. Interconnection in Access Tandem Serving Areas The first merits issue we must consider is the PUC's requirement that Worldcom interconnect in each access tandem serving area, even when there is more than one access tandem area within a single LATA. It is Worldcom's position that it need interconnect only once within each LATA. The Act provides that a CLEC must be permitted to interconnect at any technically feasible point within the carrier's network. 47 U.S.C. S 251(c)(2)(B). An ILEC that denies interconnection at a particular point must prove that interconnection at that point is not technically feasible. See 47 C.F.R. S 51.305(e). Generally, these provisions have been interpreted to permit a CLEC to have access at any point on the incumbent network where connection is technically feasible. See, e.g., U.S. West Communications v. AT&T Communications of the Pac. Northwest, Inc., 31 F. Supp. 2d 839, 852 (D. Or. 1998) (AT&T-Pac). The instant case presents a twist on the usual situation. Verizon, as ILEC, is not attempting to deny Worldcom, as CLEC, access to the network at a particular point or points, nor is Verizon attempting to require that Worldcom interconnect at another point than the one at which 36 Worldcom chooses to interconnect. Rather, Verizon wants Worldcom to take access at several additional points in the network, to interconnect at multiple points within the LATA, even if Worldcom does not want to do so. The PUC and Verizon contend that, because the Act and the FCC regulations do not specify whether a CLEC may be required to interconnect at additional points or how many points of interconnection a CLEC may be required to have, the issue is left to the PUC's discretion. To the degree that a state commission may have discretion in determining whether there will be one or more interconnection points within a LATA, the commission, in exercising that discretion, must keep in mind whether the cost of interconnecting at multiple points will be prohibitive, creating a bar to competition in the local service area. See AT&T-Pac., 31 F. Supp. 2d at 852. If only one interconnection is necessary, the requirement by the commission that there be additional connections at an unnecessary cost to the CLEC, would be inconsistent with the policy behind the Act. Moreover, the fact that S 251(c)(2) permits the CLEC to choose the points in the network at which to interconnect suggests that the Act provides for a balanced resolution in the determination of interconnection points: While the ILEC cannot be required to allow interconnection at technically unfeasible points, similarly the CLEC cannot be required to interconnect at points where it has not requested to do so. If we accept this proposition, the PUC and Verizon cannot require Worldcom to interconnect at any point in the network at which Worldcom does not wish to interconnect. The decision where to interconnect and where not to interconnect must be left to Worldcom, subject only to concerns of technical feasibility. Verizon has not presented evidence that it is not technically feasible for Worldcom to interconnect at only one point within a LATA. Nor has Verizon shown that it is technically necessary for Worldcom to interconnect at each access tandem serving area. The PUC's requirement that Worldcom interconnect at these additional points is not consistent with the Act. We will affirm the District Court's decision, rejecting the PUC's interconnection requirements. To the extent, however, that 37 Worldcom's decision on interconnection points may prove more expensive to Verizon, the PUC should consider shifting costs to Worldcom. See 11 F.C.C.R. 15499 P 209 (1996). 2. Remote Switching Modules The PUC determined that Worldcom would be permitted to collocate RSMs in Verizon's offices. The District Court affirmed this portion of the interconnection agreement. This ruling was consistent with the original interpretation of the Act by the FCC. The Act provides that CLECs are permitted to collocate equipment necessary for interconnection or access to unbundled network elements. 47 U.S.C. S 251(c)(6). At the outset, the FCC interpreted necessary to mean not indispensable, but used or useful for interconnection, regardless whether other equipment could be used to perform the same functions. See Local Competition Order P 579. The FCC found that this definition was most consistent with the pro-competitive purposes of the Act, as it permitted CLECs to interconnect with greater efficiency and at less cost. Id. The FCC further found that this definition applied regardless whether the equipment contained other functions, such as switching. See In the Matter of Deployment of Wireline Services Offering Advanced Telecommunications Capability, 14 F.C.C.R. 4761P 28 (1999) (Wireline Services Order); see also 47 C.F.R. S 51.323(c) (providing that ILECs may not place any limitations on the ability of CLECs to use all the features, functions, and capability of collocated equipment, including switching and routing features). An ILEC objecting to collocation of a piece of equipment was required to prove that the equipment will not be actually used by the telecommunications carrier for the purpose of obtaining interconnection. 47 C.F.R. S 51.323(b). The ILEC also had to show that there were technical or space limitations proscribing collocation. 47 U.S.C. S 251(c)(6). The D.C. Circuit, however, vacated P 28 of the Wireline Services Order and required the FCC to give abetter explanation for the requirement that a CLEC be permitted to collocate equipment beyond that which is necessary, required, or indispensable to interconnection. GTE Serv. 38 Corp. v. FCC, 205 F.3d 416, 424 (D.C. Cir. 2000). The court held that the FCC's interpretation of necessary was too broad, particularly in that it would require collocation of any and all equipment that is used for interconnection, without regard to whether such equipment unnecessarily included other features, such as switching. Id. The court rejected the FCC's consideration of cost savings and efficiency in broadening the meaning of necessary, holding that such considerations had been rejected by the Supreme Court. Id. at 424 (citing Iowa Utils. I , 525 U.S. at 390). The FCC has now reissued the collocation rules in the Collocation Remand Order, to take effect September 19, 2001. In the new Order, the FCC has declared that it will allow collocation of dramatically smaller,innovative equipment, including remote switching modules, which are small switches that are used in conjunction with host switches located in different premises. Collocation Remand Order at PP 47 & n.133, 48. We conclude that under this new Order the PUC's ruling allowing collocation of RSMs was proper. Moreover, both the Fourth and the Ninth Circuits have held that RSMs are used for interconnection and can be a necessary piece of equipment that an ILEC may be required to collocate. See U.S. West Communications, Inc. v. Hamilton, 224 F.3d 1049, 1056 (9th Cir. 2000); AT&T- Virginia, Inc. v. Bell Atl.-Virginia, Inc., 197 F.3d 663, 669 (4th Cir. 1999); see also MCI v. U.S. West, 204 F.3d at 1268-69 (holding, in action brought by ILEC, that provision of agreement requiring ILEC to permit collocation of remote switching units was not proscribed by the Act and was valid); AT&T-Pac., 31 F. Supp. 2d at 854 (upholding state utility commission decision requiring collocation of remote switching unit). In choosing the equipment to be used for interconnection, Worldcom cannot be required to strip down its network to its bare essentials and to use equipment that performs only a single function, resulting in a less efficient and cost-effective network and, presumably, in higher consumer prices. Verizon's interpretation-- that equipment is not necessary for interconnection merely because it can perform other functions or because some 39 other equipment could be used instead -- is incompatible with the reissued Collocation Remand Order and with the policy behind the Act. We will therefore affirm the District Court's decision on collocation of RSMs. 3. Wholesale Rates Verizon argues that the District Court erred in approving the wholesale rates to be charged to Worldcom for services to be resold under S 251(c)(4)(A). We agree with Verizon and will reverse the District Court's decision on this point. The Act requires ILECs to offer for resale at wholesale rates any telecommunications service that the [incumbent] carrier provides at retail to subscribers who are not telecommunications carriers. See 47 U.S.C. S 251(c)(4)(A). Wholesale rates are to be determined based on retail rates charged to subscribers, excluding the portion thereof attributable to any marketing, billing, collection, and other costs that will be avoided by the local exchange carrier. See 47 U.S.C. S 252(d)(3) (emphasis added). The FCC interpreted the pricing standard to be the retail rate, less avoided retail costs, see 47 C.F.R.S 51.607; avoided retails costs are those costs that reasonably can be avoided when an incumbent LEC provides a telecommunications service for resale at wholesale rates to a requesting carrier. See 47 C.F.R.S 51.609(b) (emphasis added). This is the standard that the PUC applied in setting the rates contained in the interconnection agreement. The reasonably can be avoided standard was struck down by the Eighth Circuit as contrary to the Act. See Iowa Utils. II, 219 F.3d at 755-56.6 The court determined that the word will indicated certainty or actuality, meaning the statute excluded from the wholesale rates only those costs certainly and actually avoided in providing services to a CLEC for resale. See id. at 755. The Act recognizes that an ILEC will continue to provide its own retail telephone services to consumers and will continue to incur the _________________________________________________________________ 6. Certiorari was not granted on this point. See Iowa Utils. II, 121 S. Ct. 878 (2001) (granting certiorari on 3 issues). That aspect of the Eighth Circuit's decision is final. 40 general costs of providing retail services. See id. The reasonably can be avoided standard would exclude from the wholesale rates all costs that could be associated with all provision of retail telephone services to all retail customers, regardless whether the ILEC is avoiding such costs in its sales to the CLEC. A standard based on actually avoided costs should, however, focus on the costs avoided in sales made to the CLEC, while recognizing that the ILEC will continue other retail sales. See id. We agree with the Eighth Circuit that the wholesale rates must be based on the costs actually avoided by Verizon in its wholesale sales to Worldcom or to any other CLEC. A wholesale rate such as the one set by the PUC, based on costs that could be but were not actually avoided, is inconsistent with the language of the Act and cannot stand. We conclude that the PUC erred in setting the wholesale rates for services sold to Worldcom for resale. We will remand this issue to the District Court with orders to remand to the PUC for a new determination of wholesale rates, applying whatever new rate standard the FCC promulgates on remand from Iowa Utils. II. 7 4. Directory Publishing Services The PUC ordered Verizon to provide to Worldcom directory publishing services at wholesale prices. The District Court rejected the recommendation, vacating this portion of the agreement. Verizon must offer at wholesale rates any telecommunications service to be resold by Worldcom. See 47 U.S.C. S 251(c)(4)(A). A telecommunications service is the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used. See 47 U.S.C. S 153(46). Telecommunications means transmission, between or among points specified by the user, of information of the user's choosing, without change _________________________________________________________________ 7. MCI does not contest this result. It recognizes that the FCC will promulgate new wholesale pricing regulations and that the PUC will apply that standard on remand. 41 in the form or content of the information as sent and received. See 47 U.S.C. S 153(43). Directory publishing services include basic listings with customer telephone numbers, as well as additional services such as vanity numbers, bold and foreign listings in the White Pages, and non-listing and non-publication of customers' telephone numbers. At issue is the price that Verizon may charge Worldcom for directory publishing services, which requires that we decide if directory publishing services are telecommunications services under the relevant statutory definitions. If they are, Verizon must charge wholesale rates. See 47 U.S.C. S 252(c)(4)(A). If they are not, Verizon may charge the tariffed rates. The District Court held that the statutory definitions could not be strained to include directory publishing services as telecommunications services. We agree.8 The PUC argues that it is undisputed that directory publishing services are retail tariff service offerings, that is, services offered by Verizon to retail customers at prices established in tariffs filed with the FCC or the PUC. While this perhaps is true, it is irrelevant. Section 251(c)(4) does not require the wholesale provision of all retail tariff services that an ILEC offers to subscribers, only the wholesale provision of telecommunications services. The two categories are not coextensive. All retail tariff services are not telecommunications services, given the limited definitions of S 153(43) and (46). Telecommunications services involve the offering of telecommunications, the transmission of information. Directory publishing services do not involve the transmission of information and do not fall within the statutory definitions. _________________________________________________________________ 8. We have found no cases addressing whether directory publishing services fit within the definitions of telecommunications services. We have found cases holding that directory publishing services are network elements within the meaning of S 153(29) that must be sold at the costbased rates of S 252(d)(1). See AT&T-Va. , 197 F.3d at 674-75; Bell-Atl.- Delaware, Inc. v. McMahon, 80 F. Supp. 2d 218, 251-52 (D. Del. 2000). These decisions, however, are not persuasive on the question of whether directory publishing services are telecommunications services, subject to a different statutory definition and a different pricing standard. 42 Verizon is not required to provide directory publishing services to Worldcom at wholesale prices for resale. It may provide such services at tariffed rates or at some other rates to be determined in a new interconnection agreement on remand to the PUC. We will therefore affirm the District Court on this issue. 5. Price of Unbundled Network Elements The District Court held that the PUC's pricing model for the leasing of unbundled network elements did not use a forward-looking TELRIC pricing methodology, but an improper TSLRIC model. The court remanded the issue to the PUC to apply the proper pricing model. The District Court never addressed the PUC's actual application of its methodology or the details of the pricing decision that the PUC reached. We will vacate the District Court's decision and remand this issue to the District Court to review the details and substance, as opposed to the nomenclature, of the pricing model that the PUC used and the pricing decision it made. The PUC must determine the just and reasonable rate to be charged for access to unbundled network elements, a rate that must be nondiscriminatory and based on the cost . . . of providing the . . . network element, along with a reasonable profit for the ILEC. See 47 U.S.C. S 252(d)(1)(A), (B); Iowa Utils. II, 219 F.3d at 749. The FCC has promulgated regulations establishing the methodology for determining the rates to be charged. See Iowa Utils. I, 525 U.S. at 384-85 (holding that FCC has jurisdiction to design a pricing methodology). The rate must be based on the forward-looking TELRIC of a discrete network element plus a reasonable allocation of forward-looking common costs. See 47 C.F.R. S 515.505(a). TELRIC is the forward-looking cost over the long run of the total quantity of the facilities and functions that are directly attributable to, or reasonably identifiable as incremental to, such element, calculated taking as a given the incumbent LEC's provision of other elements. See 47 C.F.R. S 51.505(b). 43 We note several points about the FCC pricing regulations. First, TELRIC should be measured based on the use of the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the incumbent LEC's wire centers. See 47 C.F.R. S 51.505(b)(1). Second, forward-looking costs are economic costs efficiently incurred in providing a group of elements or services. See 47 C.F.R.S 51.505(c)(1). Third, the sum of TELRIC and a reasonable allocation of forwardlooking common costs shall not exceed the stand-alone costs associated with the element. See 47 C.F.R. S 51.505(c)(2). The Eighth Circuit struck down the FCC's TELRIC methodology, holding that S 51.505(b)(1) was inconsistent with the statutory language, in that it based prices on what the cost would be of particular elements if the ILEC provided the most efficient technology in the most efficient configuration of a hypothetical efficient network, rather than the actual cost of providing the elements of the actual, existing network. See Iowa Utils. II, 219 F.3d at 750; id. (stating that Congress did not intend rates to be based on the cost some imaginary ILEC would incur, but on the actual costs that ILECs incurred in sharing network elements). The Eighth Circuit did hold that a forwardlooking pricing methodology, if based on actual incremental costs incurred or that will be incurred by an ILEC, would produce a price consistent with the Act. See id. at 752-53. The court also rejected the argument that cost under S 252(d)(1)(A) must mean historical costs. See id. at 751. The Supreme Court granted certiorari on these issues, see FCC v. Iowa Utils. Bd., 121 S. Ct. 878 (2001), leaving undecided the question of whether prices can be based on a hypothetical efficient network configuration until the Supreme Court determines the validity of the FCC regulations during its next term. The FCC explained the terms TSLRIC and TELRIC. Under TSLRIC, total service refers to the entire quantity of the service (either single service or a class of similar services) that a firm produces, along with the costs of dedicated facilities and operations used in providing that service. See Local Competition Order P 677. The FCC coined and adopted 44 the term TELRIC in the Local Competition Order to describe a different version of that methodology, one based on the specific network element or elements to be priced. See id. P 678. Essentially, TELRIC appears to be an unbundled version of TSLRIC methodology, pricing discrete network elements rather than entire services. The PUC and Verizon argued that the required TELRIC methodology was a version of TSLRIC and that the PUC's pricing model was proper. The PUC set prices based on what it labeled a TSLRIC methodology.9 But in reviewing that decision, the District Court did not look any further than the acronym applied by the PUC to determine whether, in fact, the PUC based prices on the forward-looking costs of discrete network elements. The record suggests that the PUC attempted to use a forward-looking, element-based methodology and believed that it had done so. The labels that the PUC used apparently confused the issue. The PUC's use of the TSLRIC acronym without more, however, does not provide a basis for vacating the pricing decision. The District Court never reviewed the substance of the pricing standard, never considered whether the inputs that the PUC used in setting prices (based on the pricing model offered by Verizon) were proper or whether the prices it established were consistent with the Act. This determination is primarily a factual issue, subject to substantial evidence review, that must be performed by the District Court in the first instance. We will remand this issue to the District Court with instructions to review the substance and merits of the PUC methodology and its pricing decision and, with the guidance of the Supreme Court's expected ruling on the validity of the FCC regulations, to determine whether the prices for unbundled network elements established in the interconnection agreement comport with the Act. _________________________________________________________________ 9. See A-1378 ([W]e adopted the use of TSLRIC as the appropriate cost methodology to set prices for unbundled elements.) 45