Bell Atlantic-Delaware, Inc. v. McMahon

• Decision Date: 06 January 2000
• Docket Number: No. 97-616-SLR.,No. 97-511-SLR.,97-511-SLR.,97-616-SLR.
• Parties: BELL ATLANTIC-DELAWARE, INC., Plaintiff, v. Robert J. McMAHON, Chairman, et al., Defendants. AT & T Communications of Delaware, Inc., Plaintiff, v. Bell Atlantic-Delaware, Inc., et al., Defendants.
• Court: U.S. District Court — District of Delaware

80 F.Supp.2d 218

BELL ATLANTIC-DELAWARE, INC., Plaintiff, v. Robert J. McMAHON, Chairman, et al., Defendants.

AT & T Communications of Delaware, Inc., Plaintiff, v. Bell Atlantic-Delaware, Inc., et al., Defendants.

No. 97-511-SLR.

No. 97-616-SLR.

United States District Court, D. Delaware.

January 6, 2000.

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William E. Manning, and Bonnie L. Metz, of Duane, Morris & Heckscher, Wilmington, Delaware. Counsel for Bell Atlantic-Delaware, Inc. Of Counsel: David A. Hill, of Bell Atlantic-Delaware, Inc., Wilmington, Delaware. John M. Walker, of Bell Atlantic Network Services, Inc., Washington, D.C. Lydia R. Pulley, of Bell Atlantic Network Services, Inc., Richmond, Virginia.

P. Clarkson Collins, Jr., and Barbara McDonald, of Morris, James, Hitchens & Williams, Wilmington, Delaware. Counsel for the Delaware Public Service Commission.

Wendie C. Stabler, and Scott J. Jensen, of Saul, Ewing, Remick & Saul, Wilmington, Delaware. Counsel for AT & T Communications of Delaware, Inc. Of Counsel: David M. Levy, Clinton F. Beckner, David L. Lawson, and Michael L. Post, of Sidley & Austin, Washington, D.C.

Pamela Davis Joseph, of Conectiv Communications, Wilmington, Delaware and Gregory A. Inskip, of Potter, Anderson & Corroon, LLP, Wilmington, Delaware. Counsel for Conectiv Communications, Inc. Of counsel: Peter Tannenwald, of Irwin, Campbell & Tannenwald, P.C., Washington, D.C.

Patricia A. Stowell, of the Delaware Division of the Public Advocate. Counsel for the Public Advocate.

Carl Schnee, and Virginia Gibson-Mason, of the United States Attorney's Office, Wilmington, Delaware. Counsel for United States. Of Counsel: Theodore C. Hirt, and David T. Zaring, of the United States Department of Justice, Civil Division, Federal Programs Branch, Washington, D.C.

OPINION

SUE L. ROBINSON, District Judge.

I. INTRODUCTION

This is a consolidated action consisting of appeals filed by Bell Atlantic-Delaware, Inc. ("Bell") and AT & T Communications of Delaware, Inc. ("AT & T") from two orders entered by the Delaware Public Service Commission ("the Commission"). The parties bring this action under § 252(e)(6) of the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (1996) ("Act" or "Telecommunications Act"), which provides for federal judicial review of state commission determinations made pursuant to the Telecommunications Act.

Bell challenges the Commission's order rejecting Bell's Statement of Generally Available Terms ("SGAT") and establishing prices under which Bell must agree to sell elements of its local telephone network to its competitors. Bell alleges that the Commission's order violates Bell's rights under the Act by setting prices for the use of Bell's services and network elements substantially below Bell's actual costs. Bell seeks a permanent injunction to prevent the individual Commissioners (sued in their official capacities only) from enforcing the Commission's order. Bell moves for summary judgment on its complaint. See Docket Item ("D.I.") 45.

Two of Bell's competitors, AT & T and Conectiv Communications, Inc. ("Conectiv"), have intervened in defense of the Commission on Bell's claims, but also have filed counterclaims challenging certain aspects of the Commission's SGAT Order. AT & T also has filed a separate appeal from the Commission's approval of an interconnection agreement between AT & T and Bell. AT & T challenges two aspects of the Interconnection Agreement as violative of the Telecommunications Act. Unlike Bell, AT & T has not submitted a formal motion relating to its appeal.

The Delaware Public Advocate has intervened to argue in support of the Commission's orders. For its part, the Commission has filed a motion to dismiss both Bell's and AT & T's appeals, arguing that the Telecommunications Act's provision for federal judicial review of state commission determinations violates the Eleventh Amendment. The Civil Division of the United States Department of Justice has intervened to defend the constitutionality of the Act.

II. THE TELECOMMUNICATIONS ACT OF 1996

A. Overview

At issue are the "Development of Competitive Markets" provisions of the Telecommunications Act. See 47 U.S.C. §§ 251 and 252. These sections implement a "procompetitive, de-regulatory" framework designed to spur competition in local telephone markets. See S. Conf. Rep. No. 104-230, at 113 (1996). Local telephone markets typically are dominated by a single regulated monopoly, known as an Incumbent Local Exchange Carrier ("ILEC"), that owns all of the equipment and lines necessary to provide local telephone service. In order to foster competition in these markets, the Act preempts all state and local legal barriers to entry into the local telephone market, such as the exclusive local franchises formerly enjoyed by ILECs. See 47 U.S.C. § 253(a).

The Act also attempts to alleviate some of the natural barriers to entry in local telecommunications markets, such as ILEC monopoly control over "bottleneck" or "essential" facilities. Bottleneck facilities are those needed by any competitor seeking entry in the local telecommunications market. See Joseph D. Kearney & Thomas W. Merrill, The Great Transformation of Regulated Industries Law, 98 Colum. L.Rev. 1323, 1326 n. 6 (1998). Examples of such facilities are the copper wire "loops" that connect users to local telephone exchanges. See id. A local telephone network is composed of numerous "local loops" — cables strung on poles and buried underground — that connect each telephone subscriber to local or "central-office" switches that, in turn, route calls or "traffic" along the network and provide other features like call waiting and call forwarding. These central-office switches are connected to each other through "trunks" and other transport facilities. These and other facilities are integrated by various computer systems and databases that support network operations by providing connection to other telecommunications carriers and by coordinating marketing, billing, and collection. To compete in any meaningful way with an ILEC like Bell, a new entrant would have to construct its own fully redundant network (i.e., one coextensive with Bell's) — a prohibitively expensive and time-consuming task. See Joint Explanatory Statement of the Committee of Conference, H.R.Rep. No. 104-458, at 148 (1996). Moreover, even if a competitor installed its own telecommunications network, an ILEC has a powerful economic incentive "to discourage entry and robust competition by not interconnecting its network with the new entrant's network or by insisting on supra competitive prices or other unreasonable conditions for terminating calls from the entrant's customers to the [ILEC's] subscribers." S. Conf. Rep. No. 104-230, at 113 (1996).

Because of these significant barriers to entry, Congress concluded that robust competition in local markets would occur only if the Act put new entrants on a level playing field by mandating interconnection and "unbundled" access to an ILEC's existing network. See In re Implementation of the Local Competition Provisions in the Telecomms. Act of 1996, 11 FCC Rcd. 15499 ¶¶ 11-12, at 11-12 (1996) ("Local Competition Order"). To this end, the Act establishes three mechanisms for entry into the local telephone market: (1) interconnection with an ILEC's network (2) the use of "unbundled" elements of an incumbent's network, and (3) resale of an ILEC's retail telecommunications services purchased at wholesale by the new entrant. See 47 U.S.C. § 251(c)(2), (3), (4). A competitor's use of all three mechanisms, depending upon economic exigencies, is possible. See Local Competition Order ¶ 12, at 12. Section 251 imposes specific obligations upon ILECs with respect to these three mechanisms, while § 252 establishes pricing standards appropriate to each strategy and procedures relating to interconnection agreements and SGATs.

1. Interconnection

Some competitors, such as cable companies, will have existing networks of their own that enable their subscribers to communicate with each other. See id. ¶ 13, at 12. Although these types of new entrants will have little need for an ILEC's services or facilities, a fair agreement with the ILEC will be required to enable the new entrant's customers to place calls to, and receive calls from, the ILEC's subscribers. See id. Sections 251(b)(5) and (c)(2), therefore, require ILECs to enter into interconnection agreements on just, reasonable, and nondiscriminatory terms. The Act also facilitates efficient interconnection by obligating ILECs to lease space on their premises so that a new entrant may "collocate" any of its equipment necessary for interconnection.¹ See 47 U.S.C. § 251(c)(6).

2. The Purchase of ILEC Network Elements

More often than not, new entrants will lack a fully redundant network of their own and, consequently, new entrants will be unable to compete with the ILEC. See Local Competition Order ¶ 14, at 13. To address this scenario, the Act authorizes new entrants to purchase elements of an ILEC's network on an "unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory."² 47 U.S.C. § 251(c)(3). This allows new entrants to fill in the gaps of their own network by purchasing pieces of an ILEC's network. These pieces are known as "unbundled network elements" or "UNEs." Section 252(d)(1) requires that an ILEC's charges for its network elements be based on the "cost (determined without reference to a rate-of-return or other rate-based proceeding³) of providing the ... network element." Id. § 252(d)(1). An ILEC's charges for UNEs may include a reasonable profit. Id. Congress left the job of determining how to calculate the cost of providing these services to the FCC. In its Local Competition Order, the FCC adopted a "forward looking cost methodology" (also known as the "total-element-long-run-incremental-...