Bellsouth Telecomms., Inc. v. Kentucky Pub. Serv. Comm'n

• Decision Date: 24 January 2012
• Docket Number: Nos. 10–5310,10–5311.,s. 10–5310
• Parties: BELLSOUTH TELECOMMUNICATIONS, INC., dba AT & T Kentucky, Plaintiff–Appellee/Cross–Appellant, v. KENTUCKY PUBLIC SERVICE COMMISSION; David L. Armstrong, in his official capacity as Chairman of the Public Service Commission; James W. Gardner, in his official capacity as Vice Chairman of the Public Service Commission; Charlie Borders, in his official capacity as Commissioner of the Public Service Commission, Defendants–Appellants/Cross–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

55 Communications Reg. (P&F) 314

669 F.3d 704

BELLSOUTH TELECOMMUNICATIONS, INC., dba AT & T Kentucky, Plaintiff–Appellee/Cross–Appellant,

v.KENTUCKY PUBLIC SERVICE COMMISSION; David L. Armstrong, in his official capacity as Chairman of the Public Service Commission; James W. Gardner, in his official capacity as Vice Chairman of the Public Service Commission; Charlie Borders, in his official capacity as Commissioner of the Public Service Commission, Defendants–Appellants/Cross–Appellees.

Nos. 10–5310

10–5311.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 6, 2011.Decided and Filed: Jan. 24, 2012.

Limited on Preemption Grounds

KRS 278.030KRS 278.040

ARGUED: John E.B. Pinney, Kentucky Public Service Commission, Frankfort, Kentucky, for Appellants. Brendan J. Crimmins, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Appellee. ON BRIEF: John E.B. Pinney, Tiffany J. Bowman, Kentucky Public Service Commission, Frankfort, Kentucky, for Appellants. Brendan J. Crimmins, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., Mary K. Keyer, BellSouth Telecommunications, Inc., Louisville, Kentucky, for Appellee. Maureen K. Flood, Richard K. Welch, Federal Communications Commission, Washington, D.C., for Amicus Curiae.

OPINION

SUTTON, Circuit Judge.

This case arises from efforts of the Kentucky Public Service Commission to enforce several provisions of the Telecommunications Act of 1996, its accompanying regulations and state law. AT & T Kentucky argues, and the district court held, that the state commission wrongly interpreted two of the federal regulations and is preempted from using state law to impose other obligations. AT & T Kentucky also cross-appeals the district court's interpretation of a third federal regulation. We affirm.

I.

“The Telecommunications Act of 1996 imposed a number of duties on incumbent providers of local telephone service in order to facilitate market entry by competitors.” Talk America, Inc. v. Mich. Bell Tel. Co., 564 U.S. ––––, 131 S.Ct. 2254, 2257, 180 L.Ed.2d 96 (2011). This case concerns two sections of the Act: § 251 and § 271. Section 251 requires incumbent local exchange carriers to lease to new market entrants (often referred to as “competitive LECs”) the facilities and services that the FCC determines are necessary to provide local telephone service. See id. at 2258; 47 U.S.C. § 251(c)(3), (d)(2). Incumbent LECs must provide these facilities and services (often referred to as “network elements”) on an “unbundled”—à la carte—basis and at a low, cost-based rate known as TELRIC. See 47 U.S.C. § 251(c)(3); Verizon Commc'ns v. FCC, 535 U.S. 467, 495–96, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002).

Unlike § 251, which applies to all incumbent LECs, § 271 imposes its obligations only on “Bell operating compan[ies]”—remnants of AT & T after the government broke up the company in the early 1980s—that seek to provide long-distance service. 47 U.S.C. § 271. AT & T Kentucky is one such company. Section 271 requires Bell companies to make available to other telecommunications companies a “competitive checklist” of services to facilitate competition in the market for local phone service. Id. § 271(c)(2)(B).

Soon after passage of the 1996 Act, the FCC required incumbent LECs to lease out, under § 251, all of the network elements necessary for competitors to provide local service. Because the key items on the § 271 competitive checklist were already available at TELRIC rates under § 251, the list played little role. Beginning in 2003, the FCC decided that incumbent LECs no longer needed to provide certain network elements under § 251, because competitive LECs could construct their own or buy them on the open market. See Triennial Review Order (“TRO”), 18 FCC Rcd. 16978 (2003), vacated and remanded in part, U.S. Telecom Ass'n v. FCC, 359 F.3d 554 (D.C.Cir.2004); Triennial Review Remand Order, 20 FCC Rcd. 2533 (2005). This development gave new relevance to the § 271 competitive checklist, which now imposed some requirements on Bell companies that the FCC no longer imposed under § 251.

In response to these regulatory developments, some competitive LECs in Kentucky asked the state commission to require AT & T to continue to provide them with the newly de-listed elements. The state commission agreed, but a district court enjoined it from enforcing the order. See BellSouth Telecomms., Inc. v. Cinergy Commc'ns Co., No. 3:05–CV–16–JMH, 2006 WL 695424 (E.D.Ky. Mar. 20, 2006). Undaunted, the commission tried again, this time invoking § 271. The district court rejected this effort too, on the ground that state commissions have “no authority to act pursuant to § 271.” BellSouth Telecomms., Inc. v. Ky. Pub. Serv. Comm'n, No. 06–65–KKC, 2007 WL 2736544, at *7 (E.D.Ky. Sept. 18, 2007). The district court twice ordered the state commission to calculate the amount of damages a competitive LEC owed to AT & T for services it had obtained at the unlawfully imposed rate. Id. at *10; BellSouth Telecomms., Inc. v. Ky. Pub. Serv. Comm'n, 613 F.Supp.2d 903, 907 (E.D.Ky.2009). The state commission instead issued yet another order, invoking its state law authority to require AT & T to provide de-listed network elements at a regulated (though not a TELRIC) rate, and imposed other requirements under its interpretation of FCC regulations implementing the 1996 Act. AT & T returned once more to district court, seeking an injunction against the new order, which the court in large part granted. BellSouth Telecomms., Inc. v. Ky. Pub. Serv. Comm'n, 693 F.Supp.2d 703 (E.D.Ky.2010).

The state commission appeals three of the district court's conclusions: (1) that the commission may not require the continued unbundling of facilities and services the FCC has de-listed; (2) that FCC regulations do not require AT & T to provide to competitive LECs a piece of equipment known as a line splitter; and (3) that FCC regulations do not require AT & T to provide unbundled access to certain high-speed fiber-optic loops in new service areas. AT & T cross-appeals the district court's determination that it must commingle—package together—unbundled network elements it provides under § 251 with de-listed elements that it provides under § 271.

II.

A.

May the state commission require the unbundling of facilities and services that the FCC has determined no longer need to be unbundled under § 251? No. The commission identifies two sources of law that purport to give it the authority to do so: 47 U.S.C. § 271 and Ky.Rev.Stat. §§ 278.030, 278.040. Neither one does the trick.

Section 271. As a Bell operating company, AT & T must comply with the requirements of § 271, including those requirements that the FCC has removed from the purview of § 251. But the authority of state regulatory commissions under § 271 is limited. The FCC alone enforces § 271, subject only to the requirement that it “consult” with state commissions “to verify the compliance of the Bell operating company” with the statute's substantive mandates. 47 U.S.C. § 271(d)(2)(B), (d)(6). None of this gives state commissions authority to enforce § 271, as every federal court of appeals to consider the issue has concluded. See Verizon New England, Inc. v. Maine Pub. Utils. Comm'n, 509 F.3d 1, 7–8 (1st Cir.2007); Ill. Bell Tel. Co. v. Box, 548 F.3d 607, 613 (7th Cir.2008); Sw. Bell Tel., L.P. v. Mo. Pub. Serv. Comm'n, 530 F.3d 676, 682–83 (8th Cir.2008); Qwest Corp. v. Ariz. Corp. Comm'n, 567 F.3d 1109, 1116 (9th Cir.2009); BellSouth Telecomms., Inc. v. Ga. Pub. Serv. Comm'n, 555 F.3d 1287, 1288 (11th Cir.2009). If the commission thinks AT & T is not honoring its § 271 obligations, the 1996 Act gives the commission recourse: file a complaint with the FCC. See 47 U.S.C. § 271(d)(6)(B).

State law. The commission alternatively claims that state law, giving it the authority to set “fair, just and reasonable” rates, Ky.Rev.Stat. §§ 278.030 and 278.040, permits it to enforce the § 271 obligations. Yet when “state and federal law directly conflict,” the state law must yield. PLIVA, Inc. v. Mensing, 564 U.S. ––––, 131 S.Ct. 2567, 2577, 180 L.Ed.2d 580 (2011). That is the case here. “In circumstances where a checklist network element is no longer unbundled” under § 251, the FCC has determined that “it would be counterproductive to mandate that the incumbent offer[ ] the element at forward-looking prices. Rather, the market price should prevail as opposed to a regulated rate.” UNE Remand Order, 15 FCC Rcd. 3696, 3906 ¶ 473 (1999). True, the commission has not imposed the TELRIC rate on the newly de-listed elements; it has imposed “fair, just, and non-discriminatory rates,” which it describes as being “market based.” R.43 Ex. 1 at 11. The FCC's regulation, however, bars the imposition of any rate other than the open-market rate, meaning that any price regulation by a state commission creates a conflict. Otherwise, why claim a right to impose the state-law rate? See Illinois Bell, 548 F.3d at 612 (noting that “the market rate has to be higher” than the “just and reasonable” rate the state commission set, “so there is a real conflict between the federal and state regulatory schemes”).

The commission persists that it merely has imposed “service standards under [a] performance plan[ ],” Br. at 36, and that the FCC has said that performance plans, while not required, facilitate “monitoring and enforcement.” Georgia–Louisiana Order, 17 FCC Rcd. 9018, 9181–82 ¶ 291 (2002). None of this, however, permits a state commission to “parlay its limited role” in making recommendations to the FCC in a performance plan into an attempt to regulate the terms of access to § 271 elements. Ind. Bell Tel. Co. v. Ind. Util. Regulatory Comm'n, 359 F.3d 493, 497 (7th Cir.2004).

Nor do the Act's saving clauses, 47 U.S.C. §§ 252(e)(3) and 253(b), help the commission. Section 253(b) provides only that “[n]othing in this section shall affect the ability of a State to...