Illinois Bell Telephone Co. v. Worldcom Technologies, Inc., s. 98-3150

• Decision Date: 18 June 1999
• Docket Number: 98-4080,98-3322,Nos. 98-3150,s. 98-3150
• Citation: 179 F.3d 566,1999 WL 436474
• Parties: ILLINOIS BELL TELEPHONE COMPANY d/b/a Ameritech Illinois, Plaintiff-Appellant, Cross-Appellee, v. WORLDCOM TECHNOLOGIES, INC., as successor in interest to MFS Intelenet of Illinois, Inc., Teleport Communications Group, Inc., MCI Telecommunications Corp. and MCImetro Access Transmission Services, Inc., AT & T Communications of Illinois, Inc., and Focal Communications Corporation, Defendants-Appellees, and Dan Miller, Richard Kohlhauser, Ruth Kretschmer, Karl McDermott, and Brent Bohlen, Commissioners of the Illinois Commerce Commission (in their official capacities and not as individuals), Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

179 F.3d 566

ILLINOIS BELL TELEPHONE COMPANY d/b/a Ameritech Illinois Plaintiff-Appellant, Cross-Appellee, v. WORLDCOM TECHNOLOGIES, INC., as successor in interest to MFS Intelenet of Illinois, Inc., Teleport Communications Group Inc., MCI Telecommunications Corp. and MCImetro Access Transmission Services, Inc., AT & T Communications of Illinois, Inc., and Focal Communications Corporation Defendants-Appellees and Dan Miller, Richard Kohlhauser, Ruth Kretschmer, Karl McDermott, and Brent Bohlen, Commissioners of the Illinois Commerce Commission (in their official capacities and not as individuals), Defendants-Appellees, Cross-Appellants.

Nos. 98-3150, 98-3322, 98-4080.

United States Court of Appeals, Seventh Circuit.

Argued May 10, 1999.

Decided June 18, 1999.

Theodore A. Livingston (argued), Mayer, Brown & Platt, Chicago, IL, for Illinois Bell Telephone Company doing business as Ameritech Illinois, Plaintiff-Appellant in 98-3150, 98-3322, and 98-4080.

Darryl M. Bradford (argued), Jenner & Block, Chicago, IL, Thomas F. O'Neil III, Mark B. Ehrlich, MCI Worldcom Inc., for Worldcom Technologies, Inc., Defendant-Appellee in 98-3150.

Frederick J. Artwick, Sidley & Austin, Chicago, IL, for Teleport Communications Group, Inc., Defendant-Appellee in 98-3150.

Darryl M. Bradford, Jenner & Block, Chicago, IL, Adam H. Charnes, MCI Worldcom Inc., Washington, DC, for MCI Telecommunications Corp., Defendant-Appellee in 98-3150.

John P. Kelliher, Office of the Attorney General, Chicago, IL, Thomas R. Stanton (argued), Illinois Commerce Commission, Chicago, IL, for Dan Miller, Richard Kolhauser, Defendant-Appellees in 98-3150 and 98-3322.

Darryl M. Bradford, John R. Harrington, John J. Hamill, Jenner & Block, Chicago, IL, Richard M. Rindler, Swidler & Berlin, Washington, DC, Adam H. Charnes, Thomas F. O'Neil, III, Mark B. Ehrlich, MCI Worldcom Inc., Washington, DC, for Worldcom Technologies Inc., Defendant-Appellee in 98-3322.

Douglas W. Trabaris, Chicago, IL, for Teleport Communications Group, Inc., Defendant-Appellee in 98-3322.

Darryl M. Bradford, Jenner & Block, Chicago, IL, Darrel Townsley, MCI Telecommunications Corp., Chicago, IL, Adam H. Charnes, Thomas F. O'Neil, III, Mark B. Ehrlich, MCI Worldcom Inc., Washington, DC, for MCI Telecommunications Corp., Defendant-Appellee in 98-3322.

Thomas R. Stanon, Illinois Commerce Commission, Chicago, IL, for Dan Miller, Richard E. Kolhauser, Ruth K. Kretschmer, Karl A. McDermott, Brent S. Bohlen, Defendant-Appellants in 98-4080.

Before BAUER, KANNE, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

Once we determine whether we have jurisdiction (and the scope of that jurisdiction) under the Telecommunications Act of 1996, 47 U.S.C. §§ 251 and 252, what we will have before us today is a rather narrow issue on the merits: whether a decision of the Illinois Commerce Commission regarding reciprocal compensation for telephone connections to Internet service providers violates federal law.

Until the 1990's, local phone service was monopolistic; in fact, many people viewed it as a natural monopoly. Regulation was left to the states. Now, technological advances have taken us far beyond the sort of telephone services parodied by Ernestine. ¹ Today, we even have competition in local markets. Through the Telecommunications Act of 1996 Congress has opened the door to competing local exchange carriers and has inserted both the Federal Communications Commission (FCC) and the federal courts into the previously state-regulated monopoly. Just how far into the scheme does the federal presence reach? is the $64,000 question.

Illinois Bell Telephone Company, doing business as Ameritech Illinois (Ameritech) is the incumbent local exchange carrier in Chicago and most of the rest of Illinois. Worldcom Technologies, Inc., Teleport Communications Groups, Inc., MCI Telecommunications Corp., Inc. and MCIMetro Access Transmission Services, Inc., AT & T Communications of Illinois, Inc., and Focal Communications Corporation have, under the Act, recently become competitors with Ameritech for local telephone business. When a competitor builds its own local network it interconnects its facilities with Ameritech so that calls can be made between customers of the two networks. For example, when an Ameritech customer makes a call, the person or entity called may be the customer of another of the carriers; Ameritech bills its customer for the call as a local call. The same is true if a customer of a competing carrier calls an Ameritech customer. If this were all that happened, the carrier whose customer received the call would not be compensated for its part in the transaction. But the 1996 Act provides for "reciprocal compensation" for local calls and it requires companies to establish agreements for intercarrier compensation for the calls. If the call is a local call, then, under the Act in the first example, Ameritech would have to pay reciprocal compensation to the other carrier for "terminating" the call (in the lingo of the industry). In this way, both carriers get money. Ameritech and each of the other carriers have interconnection agreements as required by the Act, 47 U.S.C. §§ 252(b)(5) and 252(d).

Section 252(d) sets out the procedure by which interconnection agreements are to be reached. The carriers must first attempt to negotiate in good faith to reach voluntary agreements. At any time in the negotiations a party may ask a state commission to participate as a mediator. If no agreement is reached, the Act provides for compulsory arbitration of unresolved issues. Any party may petition a state commission to arbitrate the dispute. Furthermore, any agreement reached by negotiation or arbitration must be submitted to the state commission for approval. If a state commission fails to carry out its responsibilities, the FCC will preempt the state commission's jurisdiction and act for the state commission. A state commission's failure to approve or reject an agreement, however, is not a failure to act; rather, the agreement will be deemed approved.

The interconnection agreements between Ameritech and each of the other carriers in this case are nearly identical. They became effective in late 1996 and early 1997 and have been approved by the Illinois Commerce Commission (ICC). For a time, the parties routinely paid reciprocal compensation under the agreements.

Trouble arose, however, when Ameritech became concerned that it was paying out more in reciprocal compensation than it was collecting. On July 3, 1997, it sent a letter to the other carriers, claiming that the imbalance was due to their inclusion of calls involving Internet service providers (ISPs) in the requests for reciprocal compensation. Ameritech said that it would no longer pay compensation for calls to Internet service providers because those calls were not local calls. It seems that the other carriers may have been concentrating their marketing on ISPs. The agreements provided for compensation per minute of use, and calls to ISPs are, quite predictably, of long duration.

That is true because Internet service providers are companies which offer their customers connections to the Internet through the telephone network. ISPs are assigned a local telephone number and the telephone companies, including Ameritech, bill their customers for a local call when the customers call ISPs within the local calling area. However, the ultimate connection is usually to a website in a distant location, giving Ameritech a basis for claiming that the calls were not local calls subject to the reciprocal compensation agreements. For reasons we need not get into, Ameritech is not obligated to compensate the carrier of the ISP if the call is deemed to be long-distance, rather than local. In other words, at the present time if a call to an ISP is not subject to reciprocal compensation, the ISP's carrier is not compensated.

Not surprisingly, when Ameritech cut off payments the other carriers filed complaints with the ICC. On March 11, 1998, the ICC ruled in their favor, finding that the plain language of the agreements mandates reciprocal compensation; that there is no basis for treating these calls differently from other local calls. The ICC, in fact, called Ameritech's conduct anticompetitive.

Ameritech filed the present case in the District Court for the Northern District of Illinois, naming as defendants the competing carriers and the Commissioners of the ICC in their official capacity. Ameritech also filed a petition for review of the order in a state court. District Judge David H. Coar, to whom the federal case was assigned, reached a decision, as Ameritech says, "affirming the ICC Order" on July 21, 1998, and entered judgment in favor of the competing companies on August 4, 1998. In entering judgment under Rule 54(b) of the Federal Rules of Civil Procedure, Judge Coar stated:

This Court has currently pending motions to dismiss the Illinois Commerce Commission [which, correctly labeled, would be a motion of the Commissioners] from this action. Because of the novelty and urgency of the issues presented on the merits of the action and because the Eleventh Amendment issues presented by the Commission's Motions to Dismiss were not related to the merits of the underlying claim, this Court directed the Commission to participate in briefing of the issues on the merits without prejudice to its rights to proceed on its Eleventh Amendment Motions.

On August 25 the motions of the Commissioners to dismiss the action were denied. Before August 25 Ameritech had filed an appeal of the July 21 decision; after the decision on the motions to dismiss, it filed a second notice of appeal naming all defendants; the Commissioners filed a cross-appeal. All three appeals were consolidated.

Appellate jurisdiction over the Commissioners is somewhat problematic in that no formal judgment was entered against them. However, it is clear that the Commissioners...