Covad Communications Co. v. Bellsouth Corp., No. 01-16064.

• Decision Date: 20 December 2002
• Docket Number: No. 01-16064.
• Citation: 314 F.3d 1282
• Parties: COVAD COMMUNICATIONS COMPANY, Dieca Communications, Inc., d.b.a. Covad Communications Company, Plaintiffs-Appellants, v. BELLSOUTH CORPORATION, BellSouth Telecommunications, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

314 F.3d 1282

COVAD COMMUNICATIONS COMPANY, Dieca Communications, Inc., d.b.a. Covad Communications Company, Plaintiffs-Appellants, v. BELLSOUTH CORPORATION, BellSouth Telecommunications, Inc., Defendants-Appellees.

No. 01-16064.

United States Court of Appeals, Eleventh Circuit.

December 20, 2002.

Michael J. Guzman, Washington, DC, Tony G. Powers, Kimberly L. Myers, Rogers & Hardin, Atlanta, GA, Alfred C. Pfeiffer, Frank M. Hinman, Jason A. Yurasck, Bingham McCutchen, LLP, San Francisco, CA, for Plaintiffs-Appellants.

A. Stephens Clay, Kilpatrick & Cody, James F. Bogan, III, Kilpatrick Stockton, Atlanta, GA, Jeffrey W. Sarles, Stephen Michael Shapiro, Mayer, Brown, Rowe & Maw, Chicago, IL, J. Henry Walker, Ashley B. Watson, Marc William Franklin Galonsky, Marc Gary, BellSouth Corp., Atlanta, GA, Michael K. Kellogg, Aaron M Panner, Mark C. Hansen, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC, for Defendants-Appellees.

Richard G. Taranto, Farr & Taranto, Washington, DC, for Competitive Telecommunications Ass'n, Florida Competitive Carriers Ass'n and Verizon Communications, Inc., Amici Curiae.

Appeal from the United States District Court for the Northern District of Georgia (No. 00-03414-CV-BBM-1); Beverly B. Martin, Judge.

ON PETITION FOR REHEARING

(Opinion Aug. 2, 2002, 11th Cir., 299 F.3d 1272)

Before EDMONDSON, Chief Judge, and TJOFLAT, ANDERSON, BIRCH, BLACK, CARNES, BARKETT, MARCUS and WILSON, Circuit Judges.^*

BY THE COURT:

The Court having been polled at the request of one of the members of the Court and a majority of the Circuit Judges who are in regular active service not having voted in favor of it (Rule 35, Federal Rules of Appellate Procedure; Eleventh Circuit Rule 35-5), the Petition for Rehearing En Banc is DENIED.

TJOFLAT, Circuit Judge, dissenting from the denial of Rehearing En Banc, in which ANDERSON and BIRCH, Circuit Judges, join:

I. Background

A. Telephone Regulation

Not long after Alexander Graham Bell invented the telephone, government regulators sought to deal with the public policy issues inherent in a service that was both considered to be a natural monopoly (due to the economies of scale and network effects of local telephony) and essential for the day-to-day functioning of the American public. Prior to 1996, government regulators operated under the assumption that local exchange carriers (LECs) should not only be rate-regulated, but also quarantined to the business of local telephony. The latter premise was embodied by the consent decree that broke up AT&T. In the government's 1974 antitrust suit against AT&T, the government argued that AT&T (1) discriminated against rivals who needed access to the local loop (such as long distance companies or providers of information services) and (2) engaged in predatory pricing against rivals — a scheme of cross-subsidization that was made more likely by the fact that AT&T simultaneously operated in both regulated/monopolistic and unregulated/competitive markets. See Roger Noll & Bruce Owen, The Anticompetitive Uses of Regulation: United States v. AT&T, in The Antitrust Revolution 290, 295-96 (J. Kwoka & L. White, eds., 1989). District Judge Harold Greene approved a consent decree between the government and AT&T in the form of the Modified Final Judgment (MFJ) entered in 1982. See United States v. Am. Tel. & Tel. Co., 552 F.Supp. 131 (D.D.C.1982), aff'd, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472.¹ Judge Greene retained jurisdiction over the case, and the Department of Justice promised to report to court every three years regarding the continuing need for the "line of business" restrictions. With the case on his docket for eighteen years, Judge Greene in effect became the telecommunications czar of the nation 1996 marked a paradigm change in telephone regulation; competition, not quarantine, would best advance the public interest. In that year, Congress passed monumental legislation, the Telecommunications Act of 1996, Pub.L. 104-104, 110 Stat. 56 (codified at 47 U.S.C. § 151 et seq.). The legislation aimed to spark competition in the provision of local telephony. Congress also hoped to foster additional competition in telecommunications markets which had, due the MFJ's line-of-business restrictions, been insulated from competition by very important competitors — namely, the RHCs. See Glen Robinson, The Titanic Remembered: AT&T and the Changing World of Telecommunications, 5 Yale J. on Reg. 517, 534-44 (1988). The 1996 Act has three components which are especially noteworthy. First, the Act made an important change in who regulates the telecommunications industry. The Act abolished the MFJ, see Pub.L. 104-104, Title VI, § 601, 110 Stat. 142 (codified at 47 U.S.C. § 152 note),² and it delegated to the FCC authority to implement regulations that advance the pro-competition objectives of the Act, see, e.g., 47 U.S.C. § 251(d)(1).³ Judge Greene was, in short, replaced by the FCC.⁴ Second, the Act substantively changed the way the telecommunications industry is regulated by imposing various obligations on incumbent local exchange carriers (ILECs). These obligations are defined by section 251,⁵ whereas section 252 governs the implementation of the obligations. Specifically, section 252(a) provides that ILECs and competitive local exchange carriers (CLECs) can voluntarily enter into interconnection agreements, and section 252(b) provides that state public service commissions (PSCs) can fashion an agreement through arbitration in the event that negotiations stall. The Act thus contemplates top-down regulation by the FCC, voluntary or arbitrated agreements,⁶ and resolution of post-agreement disputes in the form of contract adjudication. Section 252 also covers additional matters, such as the grounds PSCs must give in order to reject an agreement,⁷ what happens if a PSC chooses not to make an approve-or-reject determination at all,⁸ and how PSC or FCC decisions can be appealed to a federal court.⁹ The final component of the Act is the removal of the line-of-business restrictions. Some restrictions, for example, sunset automatically. See, e.g., 47 U.S.C. § 275 (precluding RBOC¹⁰ entry into the alarm monitoring business until 2001). Others are removed only after ILECs prove that they have fulfilled their obligations under the 1996 Act. See, e.g., 47 U.S.C. § 271(c)(2)(B) (establishing a fourteen-point "competitive checklist" that RBOCs must meet before they may offer in-region long distance service).

B. This Dispute

Covad is the CLEC in this case; BellSouth is the ILEC. Covad is in the business of providing DSL service¹¹ — primarily through the use of BellSouth's physical plant. BellSouth and Covad entered into an interconnection agreement — ultimately approved by the Georgia PSC — pursuant to 47 U.S.C. § 252. Covad claims that BellSouth has not fulfilled its obligations under the 1996 Act and the BellSouth/Covad interconnection agreement. Specifically, Covad argues the following: BellSouth should have provided UNEs more promptly; BellSouth did not sufficiently provide space so that Covad could "collocate" its equipment on BellSouth's premises; BellSouth engaged in a "price squeeze" by pricing its UNEs too high while selling its DSL services to consumers at retail prices that are too low;¹² and BellSouth understaffed its wholesale division. The basic theory, then, is that Covad needs BellSouth's local loop to compete, and BellSouth has done a poor job of turning it over. Covad wants access, and it wants access more promptly and on less costly terms than BellSouth presently provides.¹³

The district court granted a dismissal, pursuant to Fed.R.Civ.P. 12(b)(6), based upon the reasoning of the Seventh Circuit in Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir.2000). A three-judge panel of this Court reversed, concluding that the obligations of ILECs under the 1996 Act and the Sherman Act are essentially coterminous, and therefore Covad's complaint alleges harms that, if proved, are cognizable under the antitrust laws. See Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir.2002). Specifically, the panel found that BellSouth's alleged failure to promptly turn over its network would, if proved, give rise to liability under the essential facilities doctrine and the refusal-to-deal doctrine. The panel also held that BellSouth's allegedly high wholesale prices for its DSL UNEs, in conjunction with low retail prices on DSL service, states a "price squeeze" claim under Section 2 of the Sherman Act. This court declined to reconsider the panel's decision en banc. I dissent because the panel's holding has troubling implications for telecommunications law and, indeed, antitrust law as a whole. The panel decision took a turn that is bad policy, undermines Congress's regulatory scheme, and usurps regulatory power that belongs to the FCC under the 1996 Act by placing it in the hands of federal courts.

C. Overview

In part II of this opinion, I explain why the duty Covad seeks to impose — namely, the duty to help one's competitor — is required by the 1996 Act but not the antitrust laws. This proposition is supported by traditional antitrust doctrine and the fact that antitrust suits premised upon forced-access obligations would flout the intent of Congress. On the latter point, I explain how an overlap between the antitrust laws and the 1996 Act would make the 1996 Act's scheme of post-agreement dispute resolution a nullity and would put federal judges back into the regulatory mix, micromanaging telecommunications firms far beyond what Judge Greene could have imagined. Part III examines the panel's holding regarding Covad's "price squeeze" claim, concluding that Covad's allegations fail to state a claim under the antitrust laws. This part also explains how the panel's "price squeeze" holding will harm consumers and impede the rollout of broadband Internet access, resulting in considerable tension with FCC...