AT&T Communications v. Bellsouth Communications, No. 00-16459

• Decision Date: 11 October 2001
• Docket Number: No. 00-16459
• Parties: (11th Cir. 2001) AT&T COMMUNICATIONS OF THE SOUTHERN STATES, INC., Plaintiff-Counter-Defendant-Cross-Claimant-Appellee, v. BELLSOUTH TELECOMMUNICATIONS, INC., Defendant-Counter-Claimant-Counter- Defendant-Appellant, FLORIDA PUBLIC SERVICE COMMISSION and COMMISSIONERS OF THE FLORIDA PUBLIC SERVICE COMMISSION, in their official capacities, Defendants-Cross-Defendants-Appellants
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1294

268 F.3d 1294 (11th Cir. 2001)

AT&T COMMUNICATIONS OF THE SOUTHERN STATES, INC., Plaintiff-Counter-Defendant-Cross-Claimant-Appellee, v. BELLSOUTH TELECOMMUNICATIONS, INC., Defendant-Counter-Claimant-Counter- Defendant-Appellant, FLORIDA PUBLIC SERVICE COMMISSION and COMMISSIONERS OF THE FLORIDA PUBLIC SERVICE COMMISSION, in their official capacities, Defendants-Cross-Defendants-Appellants.

No. 00-16459

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

October 11, 2001.

Appeal from the United States District Court for the Northern District of Florida. D.C. Docket No. 97-00262-CV-4-RH. Judge: Robert Hinkle.

Sean A. Lev, Michael K. Kellogg, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC. Raoul G. Cantero, III, ADORNO & ZEDER, P.A., Miami, FL., for Bell South

Michael Joseph Hunseder, Sidley Austin Brown & Wood, Washington, DC. David E. Smith, Florida Public Service Commission, Tallahassee, FL., for AT&T.

Before: EDMONDSON, BIRCH and WILSON, Circuit Judges.

BIRCH, Circuit Judge:

This appeal requires us to address whether, under the Telecommunications Act of 1996, an incumbent local exchange carrier must exclude its operator services from its local telephone services package offered to new market entrants for resale. Because we disagree with the district court's determination that an incumbent carrier does have to exclude operator services from its complete services package made available for resale, we REVERSE.

I. BACKGROUND

Congress enacted the Telecommunications Act of 1996 (the "Act")¹ to instigate competition in local and long distance telephone markets by "lifting the shackles of monopoly regulation." H.R. Rep. No. 104-204, at 48 (1995), reprinted in 1996 U.S.C.C.A.N. 10, 11. Accordingly, the Act imposes certain duties upon incumbent local exchange carriers. These carriers historically had a monopoly over local markets because they owned the physical networks needed in supplying telecommunication services. Of particular importance to this appeal is these carriers' "resale" duty, which requires incumbents to provide their complete retail package of services to prospective entrants in the intrastate telephone market. 47 U.S.C. 251(c)(4) (Supp. V 1999). Entrants then can compete with incumbents by reselling these services to their own customers. Id.

To effectuate their resale and other enumerated duties under the Act, incumbents must negotiate interconnection agreements with prospective market entrants. 252. Incumbent carriers and new entrants are first to enter into good faith negotiations to detail the terms for such interconnection. 252(a). Should the parties fail to reach agreement on all terms, the Act provides for binding arbitration before the relevant state public service commission. 252(b)-(c). Once the state commission approves the arbitration agreement, an aggrieved party may bring an action in district court "to determine whether the agreement . . . meets the requirements" of the Act. 252(e)(6).

Appellant, BellSouth Telecommunications, Inc., ("BellSouth"), is an incumbent carrier in the Florida intrastate telephone market, and Appellee, AT&T Communications of the Southern States, Inc., ("AT&T"), is a prospective entrant into that market. Pursuant to the 1996 Act, BellSouth and AT&T began negotiations over an interconnection agreement, but the parties could not agree on all terms, including the particular services BellSouth would offer to AT&T for resale. As a result, AT&T and BellSouth entered into binding arbitration before the Florida Public Service Commission (the "Commission" or "FPSC"). The Commission concluded, among other things, that if AT&T wanted to purchase BellSouth's local telephone services for resale, it would have to purchase BellSouth's operator services, which were part of the basic package of telephone services BellSouth offered to its own retail customers.

Unsatisfied with the FPSC's conclusions, AT&T commenced this action under 252(e)(6) against BellSouth, the FPSC, and the FPSC commissioners in their official capacities in the Northern District of Florida. The district court reversed the FPSC on the operator services issue based on its interpretation of the 1996 Act and on accompanying Federal Communication Commission ("FCC") regulations. The district court concluded that BellSouth had to eliminate its operator services from its services package offered to AT&T for resale. Upon entry of judgment, BellSouth, the FPSC, and the FPSC commissioners sought review from this court on the limited question of whether the district court erred with regard to the operator services issue.

II. DISCUSSION

A. The Standard of Review

Whether the 1996 Act and accompanying FCC regulations require operator services to be eliminated from an incumbent's local telephone services package offered to new entrants for resale is a purely legal question. Consequently, we review de novo the district court's determinations on this issue. United States v. Plummer, 221 F.3d 1298, 1302 (11th Cir. 2000).

B. The Telecommunications Statutory Landscape

Historically, states exclusively regulated intrastate telephone service, and the FCC generally lacked jurisdiction over such service. See 47 U.S.C. 152 (b)(1). States like Florida treated local telephone service networks as natural monopolies and granted certain exchange carriers exclusive franchises for providing local services. As the FCC explains, "in the old regulatory regime government encouraged monopolies. . . .State and federal regulators devoted their efforts over many decades to regulating the prices and practices of. . .[telecommunications] monopolies and protecting them against competitive entry."²

In return for an exclusive franchise, Florida local carriers had their telephone rates regulated and were required to provide "universal service,"³ which "mandates lower-than-market local phone rates" based on the "policy that local phone service should be affordable by all who wish it" and "subsidized from some other source, including long-distance and business service." See AT&T Communications of the Southern States, Inc. v. Marks, 515 So. 2d 741, 742 (Fla. 1987). Florida implemented its universal service framework through "tariff" agreements instituted between the FPSC and local carriers.⁴ Under this tariff regime, monopoly carriers were to provide affordable local telephone service to residential customers where the expense would otherwise create economic discentives to providing service. This rate/subsidy framework ensured that affordable telephone service was available in all locales throughout the state.

The telecommunications structure premised on exclusive franchises and subsidized local services began to undergo rapid change in the 1990s. The goals of the Act included opening local telephone markets to competition and eliminating the exclusive franchise system. See 47 U.S.C. 253(a). The Act aimed "to shift monopoly markets to competition as quickly as possible." H.R. Rep. No. 104-204, at 89, reprinted in 1996 U.S.C.C.A.N. at 55. In lieu of exclusive local carriers, the Act institutes a regulatory framework that encourages new entrants to enter local markets. To facilitate new entry, the Act provides three distinct entry paths for potential competitors. First, the new entrant can build new network facilities to compete with the facilities already owned by incumbent local carriers. AT&T, 525 U.S. at 371-73 & n.1, 119 S. Ct. at 726-27 & n.1. Second, it can buy access to network elements owned by incumbents on an unbundled basis by purchasing access to individual pieces of an incumbent's telecommunications network, such as local loops and local switching devices, that can then be used by the entrant to offer competing local services. 47 U.S.C. 251(c)(3) (unbundled access provision). Third, it can buy retail telephone services offered by incumbents and then resell these services to its own customers. 251(c)(4) (resale provision). Because the unbundled access provision and resale provision are particularly significant to this case, we will discuss each in turn.

Under the unbundled access provision, incumbent carriers have "the duty to provide[] to. . .[new entrants] nondiscriminatory access to network elements on an unbundled basis at any technically feasible point." 251(c)(3). "Network elements" are defined broadly to include any "facility or equipment used in the provision of a telecommunications service," as well as "features, functions, and capabilities provided" by any "facility or equipment." 153(29). Unbundled access "permits new entrants to offer competing local services by purchasing from incumbents at cost-base prices, access to elements which they do not already possess, unbundled from those elements that they do not need." 11 FCC Rcd at 15617-18, P 231 (emphasis added). To use a simple analogy, the unbundled access provision is akin to requiring one car manufacturer to sell a competitor access not to one of its completed vehicles, but to the individual elements of the vehicle, such as the engine, radiator, and tires, all of which the manufacturer has unbundled, or segregated out, for the competitor's convenience.

Additionally, the Act provides a distinct pricing mechanism for purchase of network elements from incumbents. New entrants are to obtain access to these elements at "rates, terms, and conditions that are just, reasonable, and nondiscriminatory." 47 U.S.C. 251(c)(3). In turn, these rates are to be "based on the cost (determined without reference to a rate-of-return or other rate-based proceeding) of providing" network elements and "may include a reasonable profit." 252(d)(1)(A)(1) & (B).

The resale provision creates a separate set of duties for incumbents. Incumbent carriers must "offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers. 251(c)(4)(A) (emphasis added). To...