GTE Sprint Communications Corp. v. Public Utilities Com'n of State of Colo.

• Decision Date: 04 April 1988
• Docket Number: No. 86SA142,86SA142
• Citation: 753 P.2d 212
• Parties: GTE SPRINT COMMUNICATIONS CORPORATION, Plaintiff-Appellant, v. PUBLIC UTILITIES COMMISSION OF the STATE OF COLORADO; and Edythe S. Miller, Andra Schmidt and Ronald L. Lehr, Commissioners, Defendants-Appellees, and the Mountain States Telephone and Telegraph Company, Inc., AT & T Communications of the Mountain States, Inc., and Western Union Telegraph Company, Co-Defendants-Co-Appellees.
• Court: Colorado Supreme Court

Page 212

753 P.2d 212

GTE SPRINT COMMUNICATIONS CORPORATION, Plaintiff-Appellant, v. PUBLIC UTILITIES COMMISSION OF the STATE OF COLORADO; and Edythe S. Miller, Andra Schmidt and Ronald L Lehr, Commissioners, Defendants-Appellees and the Mountain States Telephone and Telegraph Company, Inc AT & T Communications of the Mountain States Inc., and Western Union Telegraph Company, Co-Defendants-Co-Appellees.

No. 86SA142.

Supreme Court of Colorado, En Banc.

April 4, 1988.

McGloin, Davenport & Severson, Michael M. McGloin, Denver, Phyllis A. Whitten, Burlingame, Cal., Reboul, MacMurray, Hewitt, Maynard & Kristol, Robert M. Peak, New York City, for plaintiff-appellant.

Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen., Richard H. Forman, Sol. Gen., Mark A. Davidson, Eugene E. Cavaliere, Asst. Attys. Gen., Denver, for defendants-appellees.

Eiberger, Stacy & Smith, David H. Stacy, Steven H. Denman, Russell P. Rowe, Denver, for co-defendant-co-appellee Mountain States Tel. & Tel. Co.

VOLLACK, Justice.

GTE Sprint Communications Corporation (Sprint) appeals the judgment of the Denver District Court affirming the decision of the Public Utilities Commission (Commission). At issue is whether the Commission regularly pursued its authority in requiring Sprint to reimburse Mountain States Telephone and Telegraph Company (Mountain Bell) for revenue diverted to Sprint as a condition of certification to compete in Colorado's interLATA telecommunications markets. We agree with the district court that the Commission regularly pursued its authority in requiring Sprint to make such compensation to Mountain Bell. Accordingly, we affirm.

I.

Some background concerning the recent history, development, and terminology of the telecommunications industry is critical to an understanding of the legal issues surrounding Sprint's claims. As noted by the Commission, this case is but one outgrowth of the divestiture of American Telephone & Telegraph Company (AT & T) from its operating companies. Prior to divestiture, states were the smallest unit of measurement of telecommunications markets for purposes of regulation. Under the Communications Act of 1934, Pub.L. No. 73-416, 48 Stat. 1064 (1934) (codified at 47 U.S.C. §§ 151-757 (1934 & 1987 Supp.)), federal law regulated interstate phone calls while state law regulated intrastate telephone calls. See 47 U.S.C. § 201(a) (1934) (federal regulatory authority), § 152(b) (1978) (state regulatory authority). AT & T, the sole telecommunications carrier authorized to provide both local and long distance telephone service in the United States, structured itself to reflect this regulatory dichotomy: AT & T handled long distance voice, data and facsimile transmission service, while its operating companies provided local exchange networks.

As a result of improved technology, falling costs, and a change of national policy to regulated competition in the 1970s, telecommunications common carriers such as Sprint, MCI Telecommunications Corporation (MCI), and Western Union Telegraph Company (Western Union) were permitted to enter the interstate long distance telecommunications market that had previously been occupied solely by AT & T. MacAvoy & Robinson, Winning by Losing: The AT & T Settlement and Its Impact on Telecommunications, 1 Yale J. on Reg. 1, 2-5 (1983). The intrastate long distance telecommunications market remained in the hands of AT & T subsidiaries.

Although the other common carriers were permitted to compete with AT & T in the interstate long distance telecommunications market, AT & T retained its technological superiority in providing convenient, clear transmission of long distance signals, which it refused to share with the other common carriers. The electronic signal interconnector system available to the other common carriers, called Feature Group A, lacked among other things ¹ a feature called automatic number identification, which permits a carrier to identify and record the point of origin of a telephone signal. Without automatic number identification, neither local exchange companies nor the other common carriers could differentiate an interstate telephone call from an intrastate telephone call. ² The superior access to signal transmission systems that AT & T enjoyed over the other common carriers continued in the long distance telecommunications market between 1978 and 1982.

As a result of unequal access in the long distance telecommunications market and other alleged monopolistic practices, the United States Department of Justice brought an antitrust claim against AT & T in 1974. This claim was settled in 1982 as a court-approved order known as the modified final judgment. United States v. American Tel. & Tel. Co., 552 F.Supp. 131, 226-32 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983).

The modified final judgment divested AT & T from its regional operating companies, one of which was Mountain Bell. ³ New geographic classifications were also created. States were divided into local access and transport areas (LATAs), which are geographic zones centered about a "city or other identifiable community of interest." United States v. Western Elec. Co., 569 F.Supp. 990, 994 (D.D.C.1983). ⁴

Under the modified final judgment, national long distance telephone service was divided into three categories for purposes of regulation: interstate service, regulated by the Federal Communication Commission (FCC); intrastate interLATA service, regulated by the states; and intrastate intraLATA service, also regulated by the states. See GTE Sprint Communications Corp. v. AT & T Communications, 230 Va. 295, 298, 337 S.E.2d 702, 704 (1985). Operating companies such as Mountain Bell retained the exclusive right to service intraLATA markets through local direct distribution networks, while AT & T and the other common carriers received the exclusive right to service interLATA markets. Finally, the operating companies were required to provide the other common carriers with access to the local exchange network "equal in type, quality and price" to that of AT & T. United States v. American Tel. & Tel., 552 F.Supp. at 196. The plan created by the modified final judgment was scheduled to go into effect on January 1, 1984.

Before that plan could go into effect, however, the Commission determined that, despite the national movement toward regulated competition, the Colorado interLATA telecommunications markets would be regulated under the doctrine of regulated monopoly, with the result that only one telecommunications carrier could be certified to service them. On December 23, 1983, the Commission granted AT & T Communications of the Mountain States, Inc., a subsidiary of AT & T, a certificate of public convenience and necessity as the exclusive provider of interLATA telecommunications service for the state of Colorado.

The General Assembly responded to the Commission's decision by promulgating House Bill 1264. House Bill 1264, signed into law on April 2, 1984, ⁵ and codified as sections 40-15-101 to -110, 17 C.R.S. (1984), made clear the intent of the legislature that the Colorado interLATA telecommunications market be governed by the doctrine of regulated competition, thereby permitting more than one carrier to provide service to a given geographic area. See § 40-15-101(7), 17 C.R.S. (1984). The General Assembly recognized that some competition in the Colorado interLATA markets is desirable, but that unregulated competition can be destructive to the public interest. ⁶ See § 40-15-101, 17 C.R.S. (1987 Supp.); Morey v. Public Util. Comm'n, 629 P.2d 1061, 1065-66 (Colo.1981). The Commission was therefore empowered to protect the public interest by issuing certificates of public convenience and necessity to those telecommunications carriers desiring to provide service to Colorado interLATA markets which the Commission believed would further the needs of the public. § 40-15-104(1), 17 C.R.S. (1984). The General Assembly also reconfirmed its intent to maintain Colorado's intraLATA markets under the doctrine of regulated monopoly, which limits the number of providers of telecommunications service within a given geographic area to one. §§ 40-15-101(8), -104(2), 17 C.R.S. (1984).

Once the regulatory scheme established by House Bill 1264 was signed into law, other common carriers became eligible to apply for certificates of public convenience and necessity to service Colorado's interLATA telecommunications markets. But one problem remained. The provision of the modified final judgment requiring regional operating companies to provide equal access to all carriers of interLATA service did not become effective until September 1, 1986. United States v. American Tel. & Tel., 522 F.Supp. at 196. In the interim, other common carriers desiring to enter the interLATA market were required to use the Feature Group A signal interconnector system, while AT & T used the more sophisticated Feature Group C system. Because Feature Group A lacked automatic number identification, it was impossible for the other common carriers to identify and divert intraLATA telephone calls through Mountain Bell's facilities. Neither was it possible under Feature Group A to prevent transmission of intraLATA calls through facilities of the common carriers by means of "blocking" switches. As a result, some intraLATA telephone calls were diverted through facilities owned by common carriers other than Mountain Bell. This condition, known as "intraLATA leakage," generated revenue for the carriers that would otherwise have accrued to Mountain Bell. AT & T did not experience intraLATA leakage because Feature Group C was capable of identifying, blocking, and diverting intraLATA calls properly through Mountain Bell's facilities. IntraLATA leakage theoretically disappears once equal access becomes available throughout Colorado to all common carriers of...