Bellsouth Telecomm. v. Southeast Telephone

• Citation: 462 F.3d 650
• Decision Date: 28 August 2006
• Docket Number: No. 05-6657.,05-6657.
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff-Appellant, v. SOUTHEAST TELEPHONE, INC. and PUBLIC SERVICE COMMISSION OF KENTUCKY, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

462 F.3d 650

BELLSOUTH TELECOMMUNICATIONS, INC., Plaintiff-Appellant, v. SOUTHEAST TELEPHONE, INC. and PUBLIC SERVICE COMMISSION OF KENTUCKY, Defendants-Appellees.

No. 05-6657.

United States Court of Appeals, Sixth Circuit.

Argued: July 19, 2006.

Decided and Filed: August 28, 2006.

ARGUED:

Sean A. Lev, Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., for Appellant. Jonathon Nicholas Amlung, Louisville, Kentucky, Amy E. Dougherty, Kentucky Public Service Commission, Frankfort, Kentucky, for Appellees.

ON BRIEF:

Mark R. Overstreet, Stites & Harbison, Frankfort, Kentucky, Dorothy J. Chambers, Bellsouth Telecommunications, Inc., Louisville, Kentucky, for Appellant. Amy E. Dougherty, John E.B. Pinney, Kentucky Public Service Commission, Frankfort, Kentucky, Christopher T. Handman, David L. Sieradzki, Martin A. Price, Hogan & Hartson, Washington, D.C., for Appellees.

Before: GILMAN and SUTTON, Circuit Judges; HOOD, District Judge.^*

GILMAN, Circuit Judge.

The principal question in this appeal is whether the Public Service Commission of Kentucky (the PSC) correctly applied a superseded Federal Communications Commission (FCC) regulation on the ground that application of the current regulation to a pending case would be impermissibly retroactive. This issue arises in the context of Southeast Telephone, Inc.'s attempt to modify the terms of its contract with BellSouth Telecommunications, Inc. Underlying the dispute is a complex statutory and regulatory scheme, as well as important principles of retroactivity analysis. The district court agreed that applying the current FCC rule would be impermissibly retroactive, and thus upheld the administrative ruling. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND the case with instructions to vacate the order of the PSC.

I. BACKGROUND

A. Statutory and regulatory background

In passing the Telecommunications Act of 1996(Act), 47 U.S.C. § 251 et seq., Congress sought to "end[] the longstanding regime of state-sanctioned monopolies" in the local telephone markets. AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). To that end, the Act imposes on incumbent local exchange carriers (ILECs) the obligation to share their existing networks with new entrants to the market, who are referred to as competing local exchange carriers, or CLECs. See id.; 47 U.S.C. § 251(c). The Act, as this court has explained,

specifies three methods of competition: 1) the ILEC must provide to a CLEC that has or builds its own local telephone network, interconnection with the ILEC's network; 2) the ILEC must provide access to its own "network elements" on an "unbundled" basis to a CLEC wishing to acquire a network by leasing all or part of the ILEC's network, and 3) the ILEC must sell its retail services at wholesale prices to a CLEC planning simply to resell the incumbent's services at retail prices.

Michigan Bell Tele. Co. v. Strand, 305 F.3d 580, 582 (6th Cir.2002) (citations omitted).

One of the key obligations imposed by the Act is the requirement that ILECs make "interconnection" and "network elements" services available to a CLEC that requests those services. See id.; 47 U.S.C. § 252(c)(2). Interconnection is the actual physical "linking of two networks for the mutual exchange of traffic." 47 C.F.R. § 51.5. Network elements, as the name indicates, are individual components of the ILEC's existing network, "including but not limited to, subscriber numbers, databases, signaling systems, and information sufficient for billing and collection." Id. These services must be provided "on rates, terms and conditions that are just, reasonable, and nondiscriminatory." 47 U.S.C. § 251(c)(2)(D).

ILECs are not, however, required to provide these services to CLECs free of charge. Instead, the Act includes "specified procedures for forming `interconnection agreements,' the Congressionally prescribed vehicle for implementing the substantive rights and obligations set forth in the Act." Strand, 305 F.3d at 582. Parties may reach these agreements through direct negotiation or arbitration, although the agreements remain subject to the approval of the relevant state's regulatory commission. If the agreement is a negotiated one, the state commission may reject it only by finding (1) that the agreement discriminates against a carrier not a party to the agreement, or (2) that the agreement "is not consistent with the public interest, convenience, and necessity." 47 U.S.C. § 252(e)(2)(A). State commissions may reject arbitrated agreements that fail to comply with the statutory requirements, including the pricing standards set forth in § 252(d) of the Act.

An additional duty imposed on ILECs is at the heart of this case. Section 252(i) of the Act requires ILECs to "make available any interconnection, service, or network element provided under an agreement . . . to which it is a party to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement." This section effectively allows a CLEC to "opt in" to the terms of an agreement that an ILEC has previously entered into with another carrier and that a state commission has already approved. See BellSouth Telecomm., Inc. v. Universal Telecom, Inc., 454 F.3d 559, 2006 WL 2032866, at *1 (6th Cir. July 21, 2006) (explaining that § 252(i) "permits an entrant to a local telephone market . . . to forgo negotiation or arbitration with an incumbent (like BellSouth) by adopting a previously negotiated or arbitrated interconnection agreement between the incumbent and another carrier"). What the statute does not specify, however, is whether a CLEC that chooses to opt in can do so on a service-by-service (or term-by-term) basis or must instead agree to be bound by the entirety of the existing interconnection agreement.

The FCC initially resolved this ambiguity in favor of the former interpretation when it promulgated what came to be known as the "pick-and-choose rule." See First Report and Order, Implementation of Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd. 15499, 16139 ¶ 1314 (1996) ("First Report and Order"). This rule permitted CLECs "to obtain access under section 252(i) to any individual interconnection, service, or network element arrangement on the same terms and conditions as those contained in any agreement approved under section 252," id. (emphasis added), and also instructed state commissions to adjudicate opt-in requests on "an expedited basis." Id. at 16141 ¶ 1321, 454 F.3d 559. The final version of the rule, which was codified at 47 C.F.R. § 51.809 (1997), highlighted the importance of expeditiously processing claims by requiring ILECs to make the covered services and facilities available to CLECs "without unreasonable delay." Id. § 51.809(a).

At the same time, the final rule explicitly permitted ILECs to raise specified challenges before the state commission regarding a CLEC's attempt to opt in to the terms of an existing agreement. Three limitations on a CLEC's power to opt in were included in the final rule, and a fourth was set forth in the First Report and Order. First, an individual agreement was available for opting in only "for a reasonable period of time after the approved agreement is available for public inspection under [the Act]." Id. § 51.809(c); see BellSouth Telecomm., Inc., 454 F.3d 559, 2006 WL 2032866, at *1 (recognizing that "[t]he right to adopt an existing interconnection agreement contains several limitations, one of which is time").

The final rule also permitted ILECs to interpose a challenge to the requested opt in on one of two other grounds: (1) that "[t]he costs of providing a particular interconnection, service, or element to the requesting [CLEC] are greater than the costs of providing it to the telecommunications carrier that originally negotiated the agreement," or (2) that "[t]he provision of a particular interconnection, service, or element to the requesting carrier is not technically feasible." 47 C.F.R. § 51.809(b) (1997); see also Global NAPs, Inc. v. Verizon New England, Inc., 396 F.3d 16, 26 (1st Cir.2005) (describing these three "limitations to a CLEC's opt in rights under § 252(i)"). Finally, the FCC explained in its First Report and Order that ILECs could "require a third party [to] agree to certain terms and conditions" beyond the requested service so long as the ILEC proved "to the state commission that the terms and conditions were legitimately related to the purchase of the individual element being sought." 11 FCC Rcd. at 16139 ¶ 1315.

ILECs across the country challenged the validity of the pick-and-choose rule, eventually convincing the Eighth Circuit to strike it down. See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 801 (8th Cir.1997). But the Supreme Court reversed the Eighth Circuit, holding that "[t]he FCC's interpretation is not only reasonable, it is the most readily apparent." AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 396, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). The Court rejected the ILECs' contention, endorsed by the Eighth Circuit, that the rule unreasonably "threaten[ed] the give-and-take of negotiations" because ILECs would not make concessions in any agreement out of fear that all other market entrants could benefit from the same concession. Id. at 395, 119 S.Ct. 721. In so ruling, however, the Court emphasized both the protections afforded ILECs by the rule itself and by the FCC's statement that an ILEC "can require a requesting carrier to accept all terms that it can prove are `legitimately related' to the desired term." Id. at 396, 119 S.Ct. 721 (citing the First Report and Order). The Court concluded that the ultimate question of whether the rule would positively or negatively affect negotiations was "a matter eminently within the expertise of the Commission and eminently beyond our ken." Id.

Based upon the cumulative...