At&T Comm of Southern States v. Bellsouth Telecomm, 5:97-CV-405-BR.

• Decision Date: 22 May 1998
• Docket Number: No. 5:97-CV-405-BR.,5:97-CV-405-BR.
• Citation: 7 F.Supp.2d 661
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: AT & T COMMUNICATIONS OF THE SOUTHERN STATES, INC., Plaintiff, v. BELLSOUTH TELECOMMUNICATIONS, INC., et al., Defendants.

7 F.Supp.2d 661

AT & T COMMUNICATIONS OF THE SOUTHERN STATES, INC., Plaintiff, v. BELLSOUTH TELECOMMUNICATIONS, INC., et al., Defendants.

No. 5:97-CV-405-BR.

United States District Court, E.D. North Carolina, Western Division.

May 22, 1998.

Peter J. Covington, Smith, Helms, Mulliss & Moore, Charlotte, NC, for AT & T Communications of the Southern States, Inc. R.A. Renfer, Jr., Asst. U.S. Attorney, Office of U.S. Attorney, Raleigh, Theodore Hirt, U.S. Dept. of Justice, Civil Div., Washington, DC, for United States of America, Federal Communications Commission.

James P. Cain, Petree & Stockton, M. Gray Styers, Jr., Petree Stockton, L.L.P., Raleigh, NC, for BellSouth Telecommunications, Inc.

Robert H. Bennink, Jr., N.C. Utilities Commission, V. Lane Wharton, Jr., Bode, Call & Stroupe, Raleigh, NC, for North Carolina Utilities Commission, Joanne Sanford, Charles H. Hughes, Laurence A. Cobb, Allyson K. Duncan, Ralph A. Hunt, Judy Hunt, William Pittman, J. Richard Conder, Robert V. Owens, Jr.

ORDER

BRITT, Senior District Judge.

THIS MATTER is in the nature of an appeal by AT & T from orders of the North Carolina Utilities Commission ("NCUC") pursuant to the Telecommunications Act of 1996 ("the Act" or "the 1996 Act"). 47 U.S.C. §§ 151-614 (West Supp.1997), Pub.L. No. 104-104, 110 Stat. 56 (1996). These orders set out the terms of an interconnection agreement arbitrated by the NCUC between AT & T and BellSouth Telecommunications, Inc. for access by AT & T to the market for local telephone services in North Carolina.¹

As is its prerogative under the 1996 Act, AT & T challenged certain terms of the arbitrated Agreement by filing a complaint in this court. 47 U.S.C. § 252(e)(6). AT & T alleges that certain terms of the Agreement are inconsistent with §§ 251 and 252 of the Act, with the ruling of the Eighth Circuit Court of Appeals in Iowa Utilities Board v. FCC, 120 F.3d 753 (8th Cir.1997) petition for cert. granted, AT & T v. Iowa Utilities Board, ___ U.S. ___, 118 S.Ct. 879, 139 L.Ed.2d 867 (1998), and with regulations issued by the Federal Communications Commission. A hearing was held on all issues on 13 January 1998.²

I. Introduction

Prior to the enactment of legislation in 1996, local telephone companies such as BellSouth (commonly referred to as local exchange carriers or LECs) enjoyed a regulated monopoly in the provision of local telephone services to business and residential consumers within their designated service areas. In exchange for legislative and judicial imprimatur for this scheme, these local monopolies agreed to ensure universal telephone service. Through the regulatory manipulation of prices, LECs were essentially guaranteed a profitable rate of return and constructed ubiquitous local telephone networks in their service areas.

The Telecommunications Act of 1996 was passed to end this regime of local monopolies and to introduce competition into the local telephone market. However, because the existing system had entrenched the LECs with a prohibitive advantage based on their extensive facilities, Congress elected not to simply issue a proclamation opening the markets. Instead, Congress imposed a comprehensive regulatory scheme designed to ease the transition to competitive markets and to facilitate entry of other telecommunications carriers into the local markets. This litigation arises from that scheme.

II. THE TELECOMMUNICATIONS ACT OF 1996

In 1996, Congress enacted a massive restructuring of the telecommunications field. Pertinent to this discussion, two provisions, 47 U.S.C. §§ 251 and 252, overhauled the local telephone market. Generally, §§ 251 and 252 operate by requiring the current provider of local phone service for a particular area to enter into interconnection agreements with other telecommunications carriers enabling the requesting carriers to access the infrastructure to provide local phone services. The resulting agreement is designed to provide the means for a new carrier to offer local phone services by either purchasing the necessary components to create a service or buying the finished service from the existing local provider in order to resell to local consumers. The following provides a rough outline of both sections.

A. Section 251

Section 251, titled "Interconnection," begins by imposing certain duties on each of the likely participants in the new scheme. The section envisions three classifications of participants: telecommunications carriers, LECs, and incumbent local exchange carriers (ILECs). A telecommunications carrier is defined as a provider of telecommunications services. 47 U.S.C. § 153(44). Telecommunications service means "the transmission, between or among points specified by the user, of information ... without change in the form or content of the information" for a fee directly to the public. 47 U.S.C. §§ 153(46), -(43). In context, AT & T, as a basic provider of long-distance services, is a telecommunication carrier. BellSouth also qualifies for this classification.

Next, an LEC is defined as a provider of telephone exchange service or exchange access. 47 U.S.C. § 153(26). Telephone exchange service essentially means the provision of intercommunicating service to subscribers in an exchange area. 47 U.S.C. § 153(47) (offering the enlightening definition that "[t]he term `telephone exchange service' means (A) service within a telephone exchange"). In layman's terms, a local exchange carrier is an entity that has the infrastructure, or access to the infrastructure, necessary to route telephone calls to individual subscribers. An ILEC is a company, like BellSouth, that was providing local phone services and routing long distance phone calls under the regulatory monopolies when the Act was effected on 8 February 1996. 47 U.S.C. § 252(h).

Under § 251, each telecommunications carrier has the duty to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers. 47 U.S.C. § 251(a). An LEC is also directed "not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of its telecommunications services." 47 U.S.C. § 251(b). LECs are thus obligated to sell their services to other telecommunications carriers seeking to enter the local markets who can then resell the services to local consumers.

Under § 251(c), an ILEC must comply with more onerous duties in addition to the ones imposed on telecommunication carriers and LECs. First, an ILEC is ordered to negotiate in good faith when developing an interconnection agreement with a requesting telecommunications carrier pursuant to the detailed guidelines in § 252. 47 U.S.C. § 251(c)(1). Next, an ILEC must provide a requesting telecommunications carrier with interconnection to the ILEC's network for: "the transmission and routing of telephone exchange service and exchange access;" at any technically feasible point; equal in quality to its own provision; on rates, terms, and conditions that are just, reasonable, and nondiscriminatory. 47 U.S.C. § 251(c)(2). Essentially, this subsection requires an ILEC to allow a company, such as AT & T, to hook up to and avail itself of the ILEC's existing facilities and infrastructure allowing that company to reach customers within the ILEC's service area. Guidance regarding just, reasonable, and nondiscriminatory rates is supplied in later subsections.

The next two subsections, (c)(3) and (c)(4), are arguably the most important, not only to this case, but with respect to the underlying goal of fostering competition in the local markets. Section 251(c)(3), titled "unbundled access," states that an ILEC has:

[t]he duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis .... An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunication service.

47 U.S.C. § 251(c)(3). In this context, unbundling is the procedure by which the components of an ILEC's facilities and provision of services are broken down into their individual parts.

In the context of telecommunications services, § 251(c)(3) authorizes unbundled access to "network elements." A network element is defined as:

a facility or equipment used in the provision of a telecommunications service. Such term also includes features, functions, and capabilities that are provided by means of such facility or equipment, including subscriber numbers, databases, signaling systems, and information sufficient for billing and collection or used in the transmission, routing, or other provision of a telecommunications service.

47 U.S.C. § 153(29).

Section 251(c)(3) also establishes that the rates for purchase of network elements should be just, reasonable, and nondiscriminatory in accordance with § 252. Section 252(d)(1) elaborates that "[d]eterminations by a State commission of ... the just and reasonable rate for network elements for purposes of subsection (c)(3) of [section 251](A) shall be (i) based on the cost ... of providing the ... network element, and (ii) nondiscriminatory; and (B) may include a reasonable profit." Thus, a requesting carrier is entitled to purchase unbundled network elements for cost plus a reasonable profit as determined by the relevant state commission.

Like § 251(c)(3), § 251(c)(4) equips a requesting carrier with another means of entering the local markets. This subsection directs ILECs:

(A) to offer for resale at wholesale rates any telecommunications service that the [ILEC] provides at retail to subscribers who are not telecommunications carriers; and

(B) not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of such telecommunications service, except that a State commission may, consistent with...