BELLSOUTH TELECOMM. v. KENTUCKY PUBLIC SERV.

• Decision Date: 22 February 2010
• Docket Number: Civil Action No. 3:08-07-DCR.
• Citation: 693 F. Supp.2d 703
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff, v. KENTUCKY PUBLIC SERVICE COMMISSION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

693 F. Supp.2d 703

BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff, v. KENTUCKY PUBLIC SERVICE COMMISSION, et al., Defendants.

Civil Action No. 3:08-07-DCR.

United States District Court, E.D. Kentucky, Central Division at Frankfort.

February 22, 2010.

Mark R. Overstreet, Stites & Harbison, PLLC, Frankfort, KY, Mary Karre Keyer, Bellsouth Telecommunications, Inc., Louisville, KY, for Plaintiff.

John Edward Brooks Pinney, Tiffany J. Bowman, Kentucky Public Service Commission, Frankfort, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

DANNY C. REEVES, District Judge.

Plaintiff Bellsouth Telecommunications, Inc., doing business as AT & T Kentucky (AT & T Kentucky), seeks declaratory and injunctive relief from decisions of Defendant Kentucky Public Service Commission (the Commission). SouthEast Telephone, Inc. (SouthEast) and Competitive Carriers of the South, Inc. (CompSouth) intervened as defendants pursuant to Rule 24(b)(2) of the Federal Rules of Civil Procedure and argue in support the Commission's findings. For the reasons discussed below the Court will grant, in part, and deny, in part, the relief sought by AT & T Kentucky and remand the matter to the Commission for further proceedings.

I.

The legislative and procedural history of this dispute is relevant to this analysis. Although the facts are straightforward, the parties have submitted voluminous briefs and exhibits detailing various provisions of the Telecommunications Act of 1996 (the 1996 Act). These provisions— §§ 251, 252, and 271—regulate the activities of both incumbent and competitive local exchange carriers (LECs). AT & T Kentucky is an incumbent LEC. SouthEast is a competitive LEC.

Under the 1996 Act, incumbent LECs are required to provide certain services and resources to competitive LECs to promote the over-arching goal of the 1996 Act: competition within local telecommunications service markets. See 1996 Act prmbl., 110 Stat. 56 ("An 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"). In furtherance of this effort, AT & T Kentucky was, until recently, required to provide various network elements, to competitive LECs at a low, regulated rate. 47 U.S.C. § 251 (2000) (the rate is best-known as "TELRIC"). The Supreme Court has described the TELRIC rate as being just above the confiscatory level. Verizon Communications, Inc. v. FCC, 535 U.S. 467, 489, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002). This obligation to provide various network elements, referred to as "unbundling," is embodied in contracts, or "interconnection agreements" between LECs. Unbundling provisions in these interconnection agreements force incumbent LECs like AT & T Kentucky to "interconnect with and rent parts of their networks to new entrants—especially those parts of a local network that it is least economic for a new entrant to duplicate." Qwest Corp. v. Pub. Utils. Comm'n of Colorado, 479 F.3d 1184, 1187 (10th Cir.2007) (quoting James B. Speta, Antitrust and Local Competition Under the Telecommunications Act, 71 ANTITRUST L.J. 99, 102-103 (2003)).

However, the FCC eliminated incumbent LECs' § 251 unbundling obligation for various network elements.¹ Up until that point, there was substantial overlap between those § 251 network elements for which the FCC required unbundling and those elements listed in § 271 of the 1996 Act. Verizon New England, Inc. v. Maine Pub. Util. Comm'n, 509 F.3d 1, 5 (1st Cir.2007). Section 271 requires certain incumbent LECs—former Bell System operating companies ("BOC")—to make specific network elements permanently available to other LECs. Section 271 requires certain incumbent LECs—former Bell System operating companies—to make specific network elements permanently available to other LECs, in contrast to the incumbent LEC duties under §§ 251 and 252, which fluctuate based on the FCC's unbundling requirements at any given time. Once the FCC issued the Triennial Review Remand Order and incumbent LECs were no longer required to provide certain network elements at the TELRIC rate plan, state commissions and LECs were left in limbo trying to determine the appropriate rate for these now "delisted" network elements. Many state commissions turned to § 271 for guidance and applied its "just and reasonable" pricing standard, allowing incumbent LECs to charge higher rates than they previously charged.²

After the FCC eliminated AT & T Kentucky's unbundling obligations, numerous competitive LECs in Kentucky petitioned the Commission to require AT & T Kentucky to continue to provide unbundled network elements until they could renegotiate their interconnection agreements. The Commission granted the requested relief, prompting AT & T Kentucky to file a complaint with this Court. In a series of decisions issued by Judge Joseph M. Hood, the Commission was enjoined from forcing AT & T Kentucky to continue to provide unbundled network elements. See BellSouth Telecomms., Inc. v. Cinergy Comm'ns Co., No. 3:05-CV-16-JMH, 2006 WL 695424 (E.D.Ky. Mar. 20, 2006). At that point, most competitive LECs negotiated new agreements with AT & T Kentucky, finally giving up their battle to obtained discounted network elements from the incumbent LEC. SouthEast, however, continued the battle.

SouthEast filed a complaint with the Commission. Once again, the Commission ordered AT & T Kentucky to provide a "delisted" network element to SouthEast and set the rate at one dollar more than the old, low unbundled TELRIC rate plan, relying on § 271 as authority. Judge Karen K. Caldwell enjoined the Commission's actions, explaining that state commissions had no authority to act pursuant to § 271. BellSouth Telecomm., Inc. v. Kentucky Pub. Serv. Comm'n, No. 06-65-KKC, 2007 WL 2736544, at *6 (E.D.Ky. Sept. 18, 2007). In fact, almost every federal court to address this issue has found that state commissions have no authority to enforce or set rates under § 271—it is solely the province of the FCC. See Southwestern Bell Telephone, L.P. v. Missouri Public Service Comm'n, 530 F.3d 676 (8th Cir. 2008); Nuvox Commc'ns, Inc. v. BellSouth Commc'ns, Inc., 530 F.3d 1330 (11th Cir. 2008); Verizon New England, Inc. v. Maine Pub. Utils. Comm'n, 509 F.3d 1 (1st Cir.2007); Qwest Corp. v. Pub. Utils. Comm'n of Colorado, 479 F.3d 1184 (10th Cir.2007). Judge Caldwell remanded the matter to the Commission to determine "the amount of damages, if any, owed" to AT & T Kentucky. BellSouth Telecomm., Inc. v. Kentucky Pub. Serv. Comm'n, No. 06-65-KKC, 2007 WL 2736544, at * 11 (E.D.Ky. Sept. 18, 2007).

On remand, the Commission refused to calculate damages and this Court once again directed the Commission to calculate the amount due to AT & T Kentucky and reminded the Commission that it has no authority to act pursuant to § 271. Bell-South Telecomm., Inc. v. Kentucky Pub. Serv. Comm'n, 613 F.Supp.2d 903 (E.D.Ky.2009). This battle has found its way once more to this federal court. AT & T Kentucky has filed this complaint requesting declaratory and injunctive relief from the Commission's decision³ and the subsequent order denying reconsideration.⁴

II.

AT & T Kentucky specifically appeals five findings in the PSC Order. It appeals the Commission's determinations: (1) that the Commission has the authority based on Kentucky statutory law to regulate the terms and rates of those network elements which were "delisted" by the FCC; (2) that interconnection agreements containing obligations under 47 U.S.C. § 271 must be filed with the Commission pursuant to 47 U.S.C. § 252(e)(1); (3) that AT & T Kentucky must make certain network elements available to competitive LECs on a commingled basis; (4) that AT & T Kentucky must provide the network element known as a splitter upon request of competitive LECs that are engaged in line-splitting arrangements; and (5) that AT & T Kentucky is obligated to unbundle newly-built fiber loops as to enterprise market consumers. PSC Order. Each determination will be addressed in turn.

The Commission's findings of facts are reviewed based on an "arbitrary and capricious" standard, which requires that the decision be upheld if it is the result of a deliberate principled reasoning process and supported by substantial evidence. Michigan Bell Telephone Co. v. Strand, 305 F.3d 580, 586-587 (6th Cir.2002)(citing Killian v. Healthsource Provident Adm'rs, Inc., 152 F.3d 514, 520 (6th Cir.1998)). However, the Commission's interpretation of the 1996 Act will be reviewed de novo and not given any deference regarding its interpretation. See id. at 586; Michigan Bell Telephone Co. v. MCIMetro Access Transmission Services, Inc., 323 F.3d 348, 354 (6th Cir.2003).

A. The Commission's State Law Authority

CompSouth requested that the Commission establish rates for those network elements that the FCC "delisted" in the Triennial Review Remand Order. PSC Order at 10. The Commission found "as a matter of Kentucky statutory law, that AT & T Kentucky must furnish the "delisted" network elements ... at fair, just, and non-discriminatory rates." Id. at 10-11. The Commission found that it has the authority to establish the rates requested by CompSouth pursuant to KRS §§ 278.030 and 278.170. Id. at 11. AT & T Kentucky does not dispute that Kentucky law provides such authority to the Commission. Record No. 59, p. 10. Instead, it asserts that the state-law authority claimed by the Commission is contrary to, and thus preempted by, federal law. Id.

The Commission points out that it has relied on state authority to promote competition in the intrastate marketplace for nearly eighty years. It maintains that its state authority is preserved in 47 U.S.C. § 152(b), which states, in part, "nothing in this chapter shall be construed to apply or to give the Commission jurisdiction with respect to charges, classifications, practices, services,...