At&T Communications v. Southwestern Bell Tele., No. 97-1573-CV-W-5.

CourtUnited States District Courts. 8th Circuit. Western District of Missouri
Writing for the CourtLaughrey
PartiesAT & T COMMUNICATIONS OF THE SOUTHWEST, INC., Plaintiff, v. SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Defendants.
Decision Date31 August 1999
Docket NumberNo. 97-1573-CV-W-5.,No. 98-0501-CV-W-5.,No. 98-0540-CV-W-5.,No. 97-4337-CV-W-5.
86 F.Supp.2d 932
AT & T COMMUNICATIONS OF THE SOUTHWEST, INC., Plaintiff,
v.
SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Defendants.
No. 97-1573-CV-W-5.
No. 97-4337-CV-W-5.
No. 98-0540-CV-W-5.
No. 98-0501-CV-W-5.
United States District Court, W.D. Missouri. Western Division.
August 31, 1999.

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Paul S. DeFord, Alok Ahuja, William C. Odle, Lathrop & Gage L.C., Kansas City, MO, Michael D. Warden, David L. Lawson, Sidley & Austin, Washington, DC, Mark Witcher, Michelle Bourianoff, Austin, TX, for AT & T Communications of the Southwest, Inc., plaintiffs.

Kirk J. Goza, Michael D. Moeller, Shook, Hardy & Bacon, L.L.P., Kansas City, MO, Michael K. Kellogg, Sean A. Lev, Kellogg, Huber, Hansen, Todd & Evans, Washington, DC, Paul G. Lane, Diana J. Harter, Southwestern Bell Telephone Co., St. Louis, MO, for Southwestern Bell Telephone Co.

Penny G. Baker, Missouri Public Service Commission, Dana K. Joyce, Missouri Public Service Commission, Jefferson City, MO, Marc D. Poston, Columbia, MO, for Missouri Public Service Commission, Sheila A Lumpe, M Dianne Drainer, Harold Crumpton, Connie Murray, defendants.

Theodore Hirt, U.S. Dept. of Justice, Washington, DC, for Federal Communications Com'n

ORDER AFFIRMING IN PART AND REMANDING IN PART THE ORDERS OF THE MISSOURI PUBLIC SERVICE COMMISSION

LAUGHREY, District Judge.


These consolidated cases come to this Court for judicial review of an administrative order entered by the Missouri Public Service Commission ("PSC") pursuant to the Telecommunications Act of 1996 ("the Act," "the Telecommunications Act"), Pub.L. 104-104, 110 Stat. 56 (codified at various sections of 47 U.S.C.).1 The Telecommunications Act ended the era of monopoly-based local telephone service by eliminating legal barriers to competition and by requiring local telephone companies to lease elements of their existing networks to new competitors. In the absence of an agreement between the local company and its competitors, the Act authorizes state utility commissions to determine the terms of these interconnection contracts and the price which the local company can charge its competitors for interconnection services. These consolidated cases involve interconnection agreements between Southwestern Bell Telephone Company ("SWBT") and AT & T Communications of the Southwest ("AT & T"), which have been ordered by the PSC.

I. The Telecommunications Act of 1996

"It would be gross understatement to say that the Telecommunications Act of 1996 is not a model of clarity. It is in many respects a model of ambiguity or even self-contradiction." AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S.Ct. 721, 738, 142 L.Ed.2d 835 (1999) (Justice Scalia, delivering the opinion of the Court). Even for the United States Supreme Court, interpreting the Telecommunications Act is no simple task. An understanding of the Act's overall structure and purpose therefore provides an essential background for addressing the many issues raised by the parties in these consolidated cases.

Until the 1990s, local telephone service was regarded as a natural monopoly. Id. at 726. States, therefore, granted exclusive franchises to one local exchange carrier

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("LEC") in each area. In exchange, the LECs were required to provide universal service and were subjected to pervasive regulation by state commissions. This legal arrangement encouraged LECs to develop extensive networks that branched out to reach every customer in a particular area. The networks were expensive to build and maintain, and duplication of a network was thought to be economically infeasible.

In the 1990s, however, technological advances convinced Congress that competition in local telephone markets was not only possible but also desirable. Congress believed that consumers would reap the benefits of competition in the form of lower prices and better quality services. First Report & Order at ¶ 3, In re Implementation of Local Competition Provisions, 11 FCC Red. 15499 (1996) ("Local Competition Order") (listing the principal goals of the Act). Congress, therefore, designed the Act "to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Telecommunications Act, quoted in Iowa Utils. Bd. v. F.C.C., 120 F.3d 753 (8th Cir.1997), rev'd in part on other grounds, 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999).

To achieve its goal of ending monopoly based local telecommunication services, Congress preempted state laws that granted exclusive franchises to incumbent local exchange providers ("ILECs"). Realizing that potential competitors would be deterred from entering local telecommunications markets if they had to build entire networks from the ground up before they could begin providing services, Congress also required ILECs to share their networks with new competitors referred to as competitor local exchange providers ("CLECs"). S. Conf. Rep. 104-230, at 148 ("it is unlikely that competitors will have a fully redundant network in place when they initially offer local service.").

The Telecommunications Act imposes the following requirements on ILECs. First, an ILEC must allow its competitors to "interconnect" their equipment to the ILEC's network at "any technically feasible point," thus enabling competitors to process telephone calls through the network. 47 U.S.C. § 251(c)(2)(B) (Supp. 1998). This interconnection must be "at least equal in quality" to that which the incumbent provides to itself. § 251(c)(2)(C).

Second, an ILEC must provide access to "network elements," on "an unbundled basis." § 251(c)(3). A network element is defined broadly as "a facility or equipment used in the provision of a telecommunications service." § 153(29). Competitors have a right to purchase network elements separately, "in a manner that allows requesting carriers to combine such elements in order to provide telecommunications service." § 251(c)(3). In determining which network elements must be provided, the FCC was directed to consider whether access was "necessary" and whether the failure to provide such access would impair a CLEC's ability "to provide the services that it seeks to offer." § 251(d)(2). The rates ILECs may charge both for interconnection and unbundled network elements ("UNEs") must be "based on the cost ... of providing the interconnection or network element." § 252(d)(1). Also, both interconnection and UNEs must be provided "on rates, terms, and conditions that are just, reasonable, and nondiscriminatory." § 251(c)(2)(D) and (c)(3).

Finally, an ILEC must sell its complete retail services at wholesale prices so that competitors can resell those services to their customers. § 251(c)(4). Wholesale rates are retail rates minus the "costs that will be avoided" by selling to a competitor rather than a customer, such as marketing, billing, and collection. § 252(d)(3). ILECs are forbidden from imposing "unreasonable or discriminatory conditions or limitations" on the resale of these services. § 251(c)(4)(B).

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The Act's requirements raise a host of questions when applied to a particular local telephone network. What is a network element? What kind of interconnection or level of unbundling is technically feasible? What are an ILEC's costs of providing services? All such issues must be resolved for incumbents and new competitors to enter interconnection agreements allowing competitors to use incumbents' networks. Parties, state commissions, and courts are to be guided in their efforts to answer such questions by regulations passed by the Federal Communications Commission ("FCC"). § 251(d)(1). Congress also designed an elaborate dispute resolution system. First, when an incumbent receives a request for interconnection, it may try to reach an agreement with its potential competitor through negotiations. § 252(a). In the event that these negotiations leave some issues unresolved, state utility commissions may arbitrate these disputes, § 252(b)(1), unless the state declines to act, in which case the disputes are arbitrated by the FCC. Congress required that all issues presented for arbitration should be resolved within nine months after the ILEC received the initial request for interconnection. § 252(b)(4)(C). Finally, federal courts hear appeals from the decisions of these state agencies or the FCC. § 252(e)(6) (providing for review in federal district courts).

II. The PSC's Proceedings

A. The First Arbitration

After the Telecommunications Act was passed in 1996, AT & T and SWBT began negotiating about an interconnection agreement, but these negotiations failed to resolve all of the issues between them. On July 29, 1996, AT & T filed a Petition for Arbitration with the PSC. On August 16, 1996, MCI filed a similar petition. The PSC consolidated the two cases.

The PSC allowed the parties to file written testimony and held formal hearings including cross-examination between October 8 and October 17, 1996. One key issue in this arbitration was the amount AT & T would be required to pay to use SWBT's network. The parties presented evidence of the Total Element Long Run Incremental Cost ("TELRIC") of providing this access, because FCC regulations then in effect mandated that this methodology be used to determine rates under the Telecommunications Act. See 47 C.F.R. §§ 51.503, 51.505 (1999). On October 15, 1996, however, the Eighth Circuit stayed these regulations in part because it found that the FCC lacked jurisdiction to issue them. Iowa Utils. Bd., 120 F.3d at 799.

On December 11, 1996, the PSC entered an order setting interim rates using the TELRIC methodology. This order...

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    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
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    ...Naps S., Inc., 77 F. Supp. 2d 492, 500 (D. Del. 1999); AT&T; Communications of the Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F. Supp. 2d 932, 946-47 (W.D. Mo. 1999), rev'd in part & vacated in part on other grounds sub nom. Southwestern Bell Tel. Co. v. Missouri Pub. Serv. Comm'n, N......
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    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
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    ...Bell, 222 F.3d at 338-44; Public Serv. Comm'n, 216 F.3d at 935-39; AT&T Communications of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 946-47 (W.D.Mo.1999); Global Naps South, 77 F.Supp.2d at 498-500. Under this theory, if Congress offers the states a gift or gratuity th......
  • Mci Telecommunications Corp. v. New York Telephone, No. 97-CV-1600(LEK/RWS).
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    ...Inc. v. Global Naps South, 77 F.Supp.2d 492, 500 (D.Del.1999); AT&T Comms. of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 947 (W.D.Mo.1999) (rev'd, in part, on other grounds); Indiana Bell Tel. Co. v. Smithville Tel. Co., Inc., 31 F.Supp.2d 628, 637 (S.D.Ind.1998); Mich......
  • U.S. West Communications v. Hix, No. 97-D-152.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • June 23, 2000
    ...Magistrate's Report & Recommendation at 32-33 (M.D.Pa. Sept. 16, 1999); AT & T Commun. of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 948-49 (W.D.Mo.1999); U S West Commun., Inc. v. Thoms, No. 4-97-CV-70082, slip op. at 51 (S.D.Iowa Apr. 19, 1999); MCI Telecomms. Corp. ......
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9 cases
  • Bell Atlantic Maryland v. MCI WorldCom, No. 99-2459
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • May 1, 2000
    ...Naps S., Inc., 77 F. Supp. 2d 492, 500 (D. Del. 1999); AT&T; Communications of the Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F. Supp. 2d 932, 946-47 (W.D. Mo. 1999), rev'd in part & vacated in part on other grounds sub nom. Southwestern Bell Tel. Co. v. Missouri Pub. Serv. Comm'n, N......
  • Bell Atlantic-Pennsylvania v. Penn. Public Utility, No. CIV. A. 99-5391.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • August 3, 2000
    ...Bell, 222 F.3d at 338-44; Public Serv. Comm'n, 216 F.3d at 935-39; AT&T Communications of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 946-47 (W.D.Mo.1999); Global Naps South, 77 F.Supp.2d at 498-500. Under this theory, if Congress offers the states a gift or gratuity th......
  • Mci Telecommunications Corp. v. New York Telephone, No. 97-CV-1600(LEK/RWS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Northern District of New York
    • March 7, 2001
    ...Inc. v. Global Naps South, 77 F.Supp.2d 492, 500 (D.Del.1999); AT&T Comms. of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 947 (W.D.Mo.1999) (rev'd, in part, on other grounds); Indiana Bell Tel. Co. v. Smithville Tel. Co., Inc., 31 F.Supp.2d 628, 637 (S.D.Ind.1998); Mich......
  • U.S. West Communications v. Hix, No. 97-D-152.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • June 23, 2000
    ...Magistrate's Report & Recommendation at 32-33 (M.D.Pa. Sept. 16, 1999); AT & T Commun. of Southwest, Inc. v. Southwestern Bell Tel. Co., 86 F.Supp.2d 932, 948-49 (W.D.Mo.1999); U S West Commun., Inc. v. Thoms, No. 4-97-CV-70082, slip op. at 51 (S.D.Iowa Apr. 19, 1999); MCI Telecomms. Corp. ......
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