Bellsouth Telecommunications v. Mcimetro Access

• Decision Date: 15 September 2005
• Docket Number: No. 05-11880.,05-11880.
• Citation: 425 F.3d 964
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff-Counter-Defendant-Appellee, v. MCIMETRO ACCESS TRANSMISSION SERVICES, LLC, a Delaware Limited Liability Company, Defendant-Counter-Claimant-Appellant, NuVox Communications, Inc., a Delaware Corporation, KMC Telecom Holdings, Inc., a Delaware Corporation, KMC Telecom V, Inc., a Delaware Corporation, KMC Telecom III, LLC, a Delaware limited liability company, Xspedius Management Co. Switched Services, LLC, AT&T Communications of the Southern States, LLC, Xspedius Management Co. of Atlanta, Talk America, Inc., a Pennsylvania Corporation, LecStar Telecom, Inc., a Georgia Corporation, ITC^DeltaCom Communications, Inc., an Alabama Corporation d.b.a. ITC^DeltaCom, Business Telecom, Inc., a North Carolina Corporation, Broadriver Communications Corp., a Delaware Limited Liability Company, Cbeyond Communications, LLC, a Delaware Limited Liability Company, Consumers' Utility Counsel Division of the Governor's Office of Consumer Affairs, DIECA Communications, Inc., d.b.a. Covad Communications Corporation, Southern Digital Network, Inc., d.b.a. FDN Communications, US-Carrier Telecom, a Georgia Limited Liability Co., US LEC of Georgia, Inc., Georgia Public Service Commission, Defendants-Appellants, XO Communications Services, Inc., et al., Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

425 F.3d 964

BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff-Counter-Defendant-Appellee, v. MCIMETRO ACCESS TRANSMISSION SERVICES, LLC, a Delaware Limited Liability Company, Defendant-Counter-Claimant-Appellant, NuVox Communications, Inc., a Delaware Corporation, KMC Telecom Holdings, Inc., a Delaware Corporation, KMC Telecom V, Inc., a Delaware Corporation, KMC Telecom III, LLC, a Delaware limited liability company, Xspedius Management Co. Switched Services, LLC, AT&T Communications of the Southern States, LLC, Xspedius Management Co. of Atlanta, Talk America, Inc., a Pennsylvania Corporation, LecStar Telecom, Inc., a Georgia Corporation, ITC^DeltaCom Communications, Inc., an Alabama Corporation d.b.a. ITC^DeltaCom, Business Telecom, Inc., a North Carolina Corporation, Broadriver Communications Corp., a Delaware Limited Liability Company, Cbeyond Communications, LLC, a Delaware Limited Liability Company, Consumers' Utility Counsel Division of the Governor's Office of Consumer Affairs, DIECA Communications, Inc., d.b.a. Covad Communications Corporation, Southern Digital Network, Inc., d.b.a. FDN Communications, US-Carrier Telecom, a Georgia Limited Liability Co., US LEC of Georgia, Inc., Georgia Public Service Commission, Defendants-Appellants, XO Communications Services, Inc., et al., Defendants.

No. 05-11880.

United States Court of Appeals, Eleventh Circuit.

September 15, 2005.

Jeffrey A. Rackow, MCI, Inc., Washington, DC, Teresa Wynn Roseborough, Dara Loren Steele-Belkin, Sutherland, Asbill & Brennan, LLP, Daniel Stephen Walsh, Asst. Atty. Gen., Dept. of Law, Clare A. McGuire, Governor's Office of Consumer Affairs, Barry J. Armstrong, McKenna, Long & Aldridge, LLP, Atlanta, GA, Newton M. Galloway, Galloway & Lyndall, LLP, Griffin, GA, for Appellants.

Jill Warner, Matthew H. Patton, Michael E. Brooks, Kilpatrick & Stockton, L.L.P., Atlanta, GA, Sean A. Lev, Kellogg, Huber, Hansen, Todd & Evans & Figel, P.L.L.C., Washington, DC, for Appellees.

Joseph M. Ruggiero, Arlington, VA, Bruce David Cohen, Verizon, Newark, NJ, for Amici Curiae.

Appeals from the United States District Court for the Northern District of Georgia.

Before TJOFLAT, PRYOR and ALARCÓN^*, Circuit Judges.

PRYOR, Circuit Judge:

The key issue in this appeal is whether the district court abused its discretion when it entered a preliminary injunction that barred enforcement of an order of the Georgia Public Service Commission, which had required BellSouth Telecommunications, Inc., to negotiate the terms of providing its competitors unlimited access to its facilities. Because the Federal Communications Commission, in a regulatory order, had ruled that unlimited access was no longer permitted, the district court did not abuse its discretion when it determined that BellSouth showed a substantial likelihood of success on the merits and both the balance of harms and the public interest supported the entry of a preliminary injunction.

I. BACKGROUND

In the Telecommunications Act of 1996, Congress sought to enhance competition in the local telephone service market to promote better quality and lower prices. Pub.L. No. 104-104, 110 Stat. 56. Congress delegated to the FCC the task of implementing this scheme of enforced competition. The FCC responded by requiring "Incumbent Local Exchange Carriers" (ILECs) to offer "Competitive Local Exchange Carriers" (CLECs) "unbundled" access to various components of the local telephone network known collectively as "unbundled network elements" (UNEs). In practical terms, unbundled access meant that ILECs provided CLECs access to UNEs at greatly reduced rates.

UNE components include "loops," "switches," and "transport facilities." Loops are copper wires that connect a home or business to the local phone company switch. A switch is a device, usually software, that routes a call from a home or office to the intended recipient. Transport facilities are devices such as copper wires or fiberoptic cables that transport calls between switches.

For eight years, the FCC tried and failed to implement a regulatory scheme that, after review by federal courts, satisfied the 1996 Act. For most of those eight years, the FCC required unbundling on the theory that it enhanced competition. The FCC required ILECs and CLECs to enter "voluntary" agreements to provide unbundled access to local telephone networks. If the parties could not agree, an agreement was provided either by the FCC or by state commerce commissions. States were given the authority to oversee voluntary agreements and arbitrate disputes arising from those agreements. 47 U.S.C. § 252(a), (b).

Under this regulatory scheme, BellSouth entered many agreements with CLECs. BellSouth agreed to provide network access at specified rates. Included in those agreements was a standard "change of law" provision, which required the parties, upon any change of law that materially altered the agreement, to "renegotiate in good faith such mutually acceptable new terms as may be required."

In 2004, in a challenge to the FCC scheme filed by ILECs, the D.C. Circuit vacated the second attempt of the FCC to implement the directive of Congress regarding local phone service. See U.S. Telecom Ass'n v. FCC, 359 F.3d 554 (D.C.Cir.2004). The D.C. Circuit concluded, in part, that the unbundling regime enacted by the FCC was not based on a rational analysis of whether "CLECs are impaired in the mass market without unbundled access to ILEC switches." Id. at 569. The D.C. Circuit also expressed some frustration regarding the "failure [of the FCC], after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings." Id. at 595. In response to the ruling of the D.C. Circuit, the FCC issued interim rules that preserved the status quo ante while the FCC wrote new rules, and the FCC established a transition period, ending in early 2005, in which only existing customers could be served through UNEs.

In February 2005, the FCC released its Triennial Review Remand Order (TRRO), which stated that the unbundling of certain "UNE-Platform" (UNE-P) elements harmed competition by discouraging innovation. To redress that harm, the FCC stated that ILECs would no longer be obliged to provide CLECs "with unbundled access to mass market local switching," and the FCC provided more limited relief from unbundling for loops and transport. The FCC stated that existing, or "embedded," customers could continue to have access to UNE-Ps for up to twelve months, although at higher rates. The FCC also required CLECs to submit orders within one year to convert embedded UNE-P customers to "alternative arrangements." During the transition period, the FCC banned new orders for unbundled access to local mass market switching: "This transition period shall apply only to the embedded customer base, and does not permit competitive LECs to add new customers using unbundled access to local circuit switching." The FCC required both ILECs and CLECs to negotiate, under the change-of-law provisions in their contracts, any "necessary" changes to the interconnection agreements: "We expect that [carriers] will implement [our] findings. . . . Thus, carriers must implement changes to their interconnection agreements consistent with our conclusions in this Order. . . . Thus, [carriers] must negotiate in good faith regarding any rates, terms, and conditions necessary to implement our rule changes." Based on the "need for prompt action," the FCC stated that the TRRO was effective on March 11, 2005.

On February 11, 2005, BellSouth informed various CLECs that, as of the effective date of the TRRO, BellSouth would not accept new orders for unbundled local switching or UNE-P, nor would it accept loop and transport orders no longer required under the TRRO. In response to that decision by BellSouth, MCImetro Access Transmission Services, LLC, a CLEC, filed an emergency motion with the Georgia Public Service Commission and argued that BellSouth was required to continue serving the embedded base and accept new UNE-P orders so long as the change-of-law negotiating process was ongoing. Other CLECs then filed similar motions with the Commission.

The Commission granted the motions. The Commission ruled that the FCC, in paragraph 233 of the TRRO, required carriers to implement through negotiations all changes mandated by the TRRO. Although the Commission stated that the FCC had the power, under the "proper circumstances," to alter carriers' rights under interconnection agreements, the Commission concluded that the FCC had not intended to abrogate the usual change-in-law process between carriers. The Commission, therefore, required BellSouth to negotiate with MCImetro and other CLECs regarding an amendment to their interconnection agreements.

BellSouth sued the CLECs and the Commission in federal court and moved for a preliminary injunction. The district court granted the injunction and held that BellSouth had established a substantial likelihood of success on the merits. The district court concluded that, because the TRRO was immediately effective, there was nothing to negotiate regarding the determination of the FCC that unbundling was no longer permitted for local switching and, in limited circumstances, for loops and transport facilities. The district court reasoned that to allow CLECs to add new UNE-P customers would be inconsistent with the plain language of the TRRO.

The district court also found that BellSouth was suffering irreparable harm due to the loss of customers and those customers' goodwill, and the harm to BellSouth outweighed the harm to CLECs. The district court found that the CLECs would suffer harm "only if they intended to compete by engaging in conduct that the FCC has concluded is anticompetitive and contrary to federal policy." The district court determined that a preliminary injunction was in the interest of the public, because the FCC "authoritatively determined" that...