IN RE QWEST'S WHOLESALE SERVICE QUALITY, No. A03-1409.

• Decision Date: 13 April 2004
• Docket Number: No. A03-1409.
• Citation: 678 N.W.2d 58
• Parties: In the Matter of QWEST'S WHOLESALE SERVICE QUALITY STANDARDS.
• Court: Minnesota Court of Appeals

678 N.W.2d 58

In the Matter of QWEST'S WHOLESALE SERVICE QUALITY STANDARDS.

No. A03-1409.

Court of Appeals of Minnesota.

April 13, 2004.

Jason D. Topp and Larry D. Espel, John M. Baker, Jeanette M. Bazis, Greene Espel P.L.L.P., Minneapolis, MN, for relator Qwest Corporation.

Mike Hatch, Attorney General, Steven H. Alpert, Cassandra Opperman O'Hern, Assistants Attorney General, St. Paul, MN, for respondent Minnesota Public Utilities Commission.

Virginia K. Zeller, Assistant Attorney General, St. Paul, MN, for respondent Minnesota Department of Commerce.

Dan M. Lipschultz, Michael J. Bradley, Moss & Barnett, P.A., Minneapolis, MN, for respondents McLeod USA, Inc., North-Star Access, LLC, Onvoy, Inc., U.S. Link, Inc., Encore Communications L.L.C., Integra Telecom of Minnesota, Inc., Global Crossing Local Services, Inc., New Edge Networks, Inc., Otter Tail Telecom, and VAL-AD Joint Venture, L.L.P. d/b/a 702 Communications. Gregory R. Merz, Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, MN; and Lesley J. Lehr, St. Paul, MN, for respondent WorldCom, Inc.

Karen L. Clauson, Eschelon Telecom of Minnesota, Inc., Minneapolis, MN, for respondent Eschelon Telecom of Minnesota, Inc.

Steven H. Weigler, AT & T Law Department, Denver, CO; and Thomas E. Bailey, Mark J. Ayotte, Briggs & Morgan, P.A., Minneapolis, MN, for respondent AT & T Communications of the Midwest, Inc.

W. Patrick Judge, Briggs & Morgan, P.A., St. Paul, MN, for respondent DIECA Communications, d/b/a Covad Communications Co.

Rebecca McElfresh Liethen, Robins, Kaplan, Miller & Ciresi, Minneapolis, MN, for respondent Time Warner.

Considered and decided by RANDALL, Presiding Judge, HARTEN, Judge, and MINGE, Judge.

OPINION

HARTEN, Judge.

Respondent Minnesota Public Utilities Commission (MPUC) issued an order imposing on relator Qwest Corporation, the incumbent local exchange carrier, benchmark service quality standards and an enforcement mechanism for those standards affecting wholesale transactions between Qwest and respondents competitive local exchange carriers (CLECs). Qwest unsuccessfully moved for reconsideration and a stay of the order and appeals from the denial of these motions.¹

FACTS

Qwest agreed to "participate and cooperate in an expedited proceeding to establish permanent wholesale service quality (WSQ) standards" as a condition of MPUC approval of the merger of Qwest and U.S. West.² In July 2000, Qwest filed proposed WSQ standards that required parity between the services Qwest provided to the CLECs and the services Qwest provided to itself and its retail customers, but the proposed WSQ standards included no means of enforcing compliance. In December 2000, the CLECs and the Department of Commerce filed proposed WSQ standards that set benchmark levels of service and included an enforcement mechanism requiring Qwest to make payments to the CLECs or the state when Qwest's performance fell below the WSQ standards.

In March 2002, the MPUC rejected both sets of proposed standards and deferred action on the matter. In April 2002, the MPUC issued its own set of standards.

In July 2002, in connection with Qwest's petition to the Federal Communications Commission (FCC) for approval to offer certain long distance services, the MPUC adopted a Minnesota Performance Assurance Plan (MPAP) for Qwest that included parity WSQ standards. In August 2002, the MPUC asked Qwest and the CLECs to comment on the merits of the MPAP.

In October 2002, the CLECs proposed modifications to WSQ standards of the MPAP; these modifications included benchmark service levels and payments linked to failure to meet the benchmark service levels. Ultimately, over Qwest's objection, the MPUC adopted the CLECs' modifications to the WSQ standards included in the MPAP.

ISSUES

1. Does the MPUC have authority to impose benchmark WSQ standards on Qwest?

2. Does the MPUC have authority to impose an enforcement mechanism on Qwest?

ANALYSIS

Standard of Review

An agency exercises a legislative as opposed to a quasi-judicial function when it balances cost and noncost factors and makes choices among public policy alternatives. Arvig Tel. Co. v. Northwestern Bell Tel. Co., 270 N.W.2d 111, 116 (Minn.1978). The agency acts in its legislative capacity in determining the extent to which competition should be permitted or limited. Id. at 116-17. When an agency exercises a legislative function, its decision is affirmed unless it is shown, by clear and convincing evidence, to be in excess of statutory authority or to have unjust, unreasonable, or discriminatory results. City of Moorhead v. Minn. Pub. Utils. Comm'n, 343 N.W.2d 843, 846 (Minn.1984). This court cannot substitute its judgment for that of an agency when the agency's finding is properly supported by the evidence. Vicker v. Starkey, 265 Minn. 464, 470, 122 N.W.2d 169, 173 (1963).

Qwest challenges the entire MPUC order and the penalty provisions in particular.

1. The MPUC Order

Qwest argues that the MPUC order exceeds its statutory authority because federal law both preempts regulation of intrastate telecommunications service and mandates parity standards and because state law, when properly construed, does not permit the MPUC order. Qwest also argues that the MPUC order is unsupported by the evidence.

a. Federal Law

Qwest argues first that the Federal Telecommunications Act of 1996 (the Act) "withdrew from states and their commissions the power to adopt their own regulations and standards for competition." We disagree—the language of the Act itself refutes this argument. See, e.g., 47 U.S.C. § 251(d)(3) (1996) (the FCC "shall not preclude the enforcement of any regulation, order, or policy of a State commission that (A) establishes access and interconnection obligations of local exchange carriers"); 47 U.S.C. § 252(e)(3) (1996) ("[N]othing in this section shall prohibit a State commission from establishing or enforcing other requirements of State law in its review of an [interconnection] agreement, including requiring compliance with intrastate telecommunications service quality standards or requirements"); 47 U.S.C. § 253(b) (1996) ("Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254 of this section, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.");³ 47 U.S.C. § 261(c) (1996) ("Nothing in this part precludes a State from imposing requirements on a telecommunications carrier for intrastate services that are necessary to further competition in the provision of telephone exchange service or exchange access, as long as the State's requirements are not inconsistent with this part or the Commission's regulations to implement this part.").

The Minnesota Federal District Court construed 47 U.S.C. § 252(e)(3) (1996) in U.S. West Communications, Inc. v. Edward A. Garvey, No. 97-913 ADM/AJB (D.Minn.1999):

[T]he Act provides that a state commission can establish "other requirements of State law in its review of an agreement, including requiring compliance with intrastate telecommunications service quality standards or requirements." 47 U.S.C. § 252(e)(3). It is appropriate for a state commission to implement its own state's laws during the review process so long as those laws do not conflict with or impede the federal act.

Both the Act and its construction by the federal district court defeat the argument that the Act deprives the MPUC of all authority to regulate intrastate telecommunications service.

Qwest asserts that the MPUC order violates 47 U.S.C. § 251(d)(3)(B) (1996), providing that state orders must be "consistent with the requirements of this section," because federal law mandates parity and the MPUC order mandates super-parity. Qwest also asserts that caselaw has construed 47 U.S.C. § 251(c)(2)(C) (1996), requiring that incumbent local exchange carriers provide interconnection "that is at least equal in quality to that provided by the [incumbent] local exchange carrier to itself," to mandate parity standards. We disagree with both assertions.

The FCC view that this language "require[d] incumbent LECs to provide superior quality interconnection and network elements when requested" was rejected in Iowa Utils. Bd. v. F.C.C., 120 F.3d 753, 812 (8th Cir.1997), aff'd in part, rev'd in part, and remanded sub nom. AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (Iowa Utilities I)

. "[47 U.S.C. § 251(c)(2)(C)] does not mandate that incumbent LECs cater to every desire of every requesting carrier." Id. at 813.⁴ The objective of Iowa Utilities I was to preclude competing carriers from forcing incumbent carriers to provide services superior to the services the incumbents provided to themselves. Here, the MPUC, not the competing carriers, is setting a minimum standard of service for Qwest; Iowa Utilities I does not preclude states from setting minimum standards.

Moreover, the MPUC order itself refutes Qwest's claim that "[its][p]urpose and [e]ffect ... is [s]uper-[p]arity." Its language reveals that its purpose is to remedy some of the deficiencies in parity standards:

* Parity standards are not designed to ensure high quality service. Benchmark standards are.

* Parity standards can potentially impede the development of competitive markets because they are not always competitively neutral. They place one actor in a competitive market in a position to influence the service quality provided to all other competitors. And, because competitors may have different sensitivities to service quality fluctuations, a standard that permits fluctuations may affect carriers in an unequal way. Benchmark standards improve predictability and reduce the influence that any competitor can wield over any other.

* Parity standards can impede the development

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