At & T Communications v. Bellsouth Telecom., No. 4:97cv262-RH.

• Decision Date: 28 September 2000
• Docket Number: No. 4:97cv262-RH.
• Citation: 122 F.Supp.2d 1305
• Parties: AT & T COMMUNICATIONS OF the SOUTHERN STATES, INC., Plaintiff, v. BELLSOUTH TELECOMMUNICATIONS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Florida

122 F.Supp.2d 1305

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

No. 4:97cv262-RH.

United States District Court, N.D. Florida, Tallahassee Division.

September 28, 2000.

COPYRIGHT MATERIAL OMITTED

Marsha Ellen Rule, AT & T, Tallahassee, FL, David L. Lawson, Sidley & Austin, Washington, DC, Mark K. Logan, Smith Ballard Logan PA, Tallahassee, FL, Paul Race Bradshaw, Paul R. Bradshaw PA, Tallahassee, FL, for AT & T Communications of the Southern States, Inc.

Wesley Robert Parsons, Adorno & Zeder PA, Miami, FL, William Wallace Deem, Mahoney Adams & Criser, Jacksonville, FL, Sean A. Lev, Michael Kellogg, Kellogg Huber Hansen, Washington, DC, for BellSouth Telecommunications Inc.

David E. Smith, Public Service Commission, State of Florida, Tallahassee, FL, for Commissioners of Florida Public Service Com'n.

ORDER ON MERITS

HINKLE, District Judge.

These consolidated actions present a challenge under the Telecommunications Act of 1996, 47 U.S.C. §§ 251-52, to a decision of the Florida Public Service Commission with respect to the terms and conditions under which the defendant incumbent local exchange carrier must provide services and make facilities and network elements available to the plaintiff competitor. I uphold the Florida Commission's basic pricing methodology but vacate its decision in certain respects for further explanation or consideration.

Background — The Statutory Framework

Historically, local telephone service was provided in the United States on a monopoly basis by carriers regulated under state law by state public service commissions. Congress fundamentally changed that approach by enacting the Telecommunications Act of 1996. The Act imposes on local carriers, as a matter of federal law, various duties designed to foster competition. The Act allows state commissions the option of taking a major role in implementing the Act's requirements.

The federal duties imposed on each "incumbent local exchange carrier" — that is, on each carrier who previously provided local service on a monopoly basis — include the obligation to sell local services at wholesale to any competing carrier for resale by the competing carrier to customers, the obligation to allow competitors to interconnect with the incumbent's facilities for the purpose of providing services to the competitor's own customers, and the obligation to make certain "network elements" — parts of its telecommunications system — available to competing carriers for their use in providing service to their own customers. These duties are described in greater detail in MCI Telecomms. Corp. v. BellSouth Telecomms., Inc., 2000 WL 1239840 (N.D.Fla.2000).

The Act also imposes on each incumbent the duty to negotiate in good faith with any requesting carrier on the terms and conditions of an agreement under which these various duties will be fulfilled. See 47 U.S.C. § 251(c)(1). The Act likewise imposes on requesting carriers the duty to negotiate in good faith. Id.

If the parties reach a negotiated agreement, it must be submitted to the state commission for approval. See 47 U.S.C § 252(e)(1). If the parties fail to agree on all terms and conditions, any party to the negotiation may request binding arbitration before the state commission of "any open issues." 47 U.S.C. § 252(b)(1).¹

The Act provides for judicial review of the commission's decisions in federal district court. See 47 U.S.C. § 252(e)(6). The case at bar is an action for judicial review under this provision.

Background — The Case at Bar

Defendant BellSouth Telecommunications, Inc. ("BellSouth") is the incumbent local exchange carrier in parts of the State of Florida. Plaintiff AT & T Communications of the Southern States, Inc. ("AT & T") is a competitor. In accordance with the Telecommunications Act of 1996, BellSouth and AT & T entered negotiations for an agreement under which AT & T would purchase certain services for resale, would interconnect with BellSouth's facilities, and would have access to BellSouth's network elements. They were unable to agree on all terms and conditions of an agreement and thus sought and obtained arbitration before the Florida Public Service Commission. Following an evidentiary hearing, the Florida Commission issued a final arbitration order and, in due course, an order on reconsideration. AT & T now brings this action challenging the Florida Commission's decision in certain respects, and BellSouth counterclaims challenging the decision in another respect. AT & T has named as additional defendants the Commissioners of the Florida Public Service Commission, in their official capacities.²

More specifically, AT & T challenges the overall pricing methodology employed by the Florida Commission to set the rates for network elements; the imposition of an allegedly excessive "per message" charge for the local switching network element; the use of statewide averaged rates for the local loop network element rather than deaveraged rates reflecting geographic disparities in actual costs; and the adoption of wholesale rates for services sold to AT & T for resale that fail to eliminate costs of operator services provided by BellSouth to retail customers but not ordered by AT & T. In its counterclaim, BellSouth challenges the Florida Commission's treatment of the combining of network elements for sale as complete service. This order addresses these five issues in turn.³

The parties have agreed that this court's review should be conducted based solely on the record as compiled in the Florida Commission. The parties have submitted briefs and presented oral argument, and more recently have submitted supplemental briefs addressing the decision of the United States Supreme Court in AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). This order constitutes the court's ruling on the merits.

I uphold the Florida Commission's overall pricing methodology. I conclude that the Florida Commission must further explain or reconsider the per message charge. I uphold the decision to use statewide averaged rates for local loops on a temporary basis but require further consideration regarding the relationship of that decision to the May 1, 2000, effective date of a Federal Communications Commission regulation requiring deaveraging. I disapprove the Florida Commission's failure to deduct from wholesale rates the avoided costs of operator services. Finally, I conclude that the Florida Commission must reconsider its treatment of the combining of network elements in light of intervening developments.

Standard of Review

The Telecommunications Act provides for actions such as the case at bar in a single sentence:

In any case in which a State commission makes a determination under [the Act], any party aggrieved by such determination may bring an action in an appropriate Federal district court to determine whether the agreement or statement meets the requirements of [the Act].

47 U.S.C. § 252(e)(6).⁴ The Act does not further specify the standard of review to be applied in determining "whether the agreement ... meets the requirements of" the Act.

For the reasons set forth at length in MCI Telecomms. Corp. v. BellSouth Telecomms., Inc., 112 F.Supp.2d 1286 (N.D.Fla.2000), I will review de novo issues regarding the meaning and import of the Telecommunications Act, and I will review state commission determinations of how to implement the Act as so construed only under the arbitrary and capricious standard. This apparently is the standard of review advocated by all parties to this proceeding.

Merits

I addressed two of the issues presented by the case at bar in MCI Telecomms. Corp. v. BellSouth Telecomms., Inc., 112 F.Supp.2d 1286 (N.D.Fla.2000). That action was a challenge to the Florida Commission's rulings on issues presented for arbitration by BellSouth and a different competitor, MCI. I disapproved the Florida Commission's decision on the issue of general pricing methodology and upheld the decision with respect to the combining of network elements. The ruling was based on then-controlling regulations of the Federal Communications Commission. Had the law not changed, in the case at bar I would simply follow my MCI decision on these issues.

But the law has changed. The FCC regulations I relied on in MCI have been invalidated by a controlling decision of the United States Court of Appeals for the Eighth Circuit, which has exclusive jurisdiction to determine the validity of those regulations, subject only to discretionary review by the United States Supreme Court. See 28 U.S.C. § 2342. This development underscores the accuracy (and perhaps too-prophetic nature) of the statement I made in MCI:

The rapidly evolving judicial, administrative and technological developments in the telecommunications field render the task of the Florida Commission (and this court on review) somewhat akin to shooting at a moving target, one whose movements are neither constant nor predictable.

MCI Telecomms. Corp. v. BellSouth Telecomms., Inc., 112 F.Supp.2d 1286, 1293 at n. 10 (N.D.Fla.2000). My decision in MCI is now on appeal to the United States Court of Appeals for the Eleventh Circuit, where it presumably will be reversed in relevant part, based on the Eighth Circuit's ruling, unless the Eighth Circuit reconsiders its ruling or the Supreme Court grants certiorari and the target moves again.

So that there will be a clear record of the movement of the target and its current location as this order is issued, I recount the chronology. On August 8, 1996, the FCC issued its First Report and Order, announcing regulations on some of the topics now at issue. See First Report and Order, In the Matter of Implementation of Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15,499 (1996). On September 27, 1996, the Eighth Circuit stayed some of the regulations; this was prior to...