Indiana Bell Tel. Co., Inc. v. McCarty

• Decision Date: 05 March 2004
• Docket Number: No. 03-1123.,No. 03-1122.,No. 03-1124.,03-1123.,03-1122.,03-1124.
• Citation: 362 F.3d 378
• Parties: INDIANA BELL TELEPHONE COMPANY, INCORPORATED d/b/a Ameritech Indiana, Plaintiff-Appellant, Cross-Appellee, v. William D. McCARTY, David W. Hadley, and David E. Zeigner, in their capacity as Commissioners of the Indiana Utility Regulatory Commission and not as individuals, Defendants-Appellees, Cross-Appellants, and AT & T Communications of Indiana, GP, and TCG Indianapolis, Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

362 F.3d 378

INDIANA BELL TELEPHONE COMPANY, INCORPORATED d/b/a Ameritech Indiana, Plaintiff-Appellant, Cross-Appellee, v. William D. McCARTY, David W. Hadley, and David E. Zeigner, in their capacity as Commissioners of the Indiana Utility Regulatory Commission and not as individuals, Defendants-Appellees, Cross-Appellants, and AT & T Communications of Indiana, GP, and TCG Indianapolis, Defendants-Appellees, Cross-Appellants.

No. 03-1123.

No. 03-1122.

No. 03-1124.

United States Court of Appeals, Seventh Circuit.

Argued September 12, 2003.

Decided March 5, 2004.

As Amended on Denial of Rehearing and Rehearing En Banc March 5, 2004.^*

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Dennis G. Friedman (argued), Mayer, Brown, Rowe & Maw, Chicago, IL, for Plaintiff-Appellant.

David L. Steiner, Office of the Attorney General, Indianapolis, IN, David W. Carpenter (argued), Sidley Austin Brown & Wood, Chicago, IL, for Defendants-Appellees.

Before BAUER, KANNE and EVANS, Circuit Judges.

KANNE, Circuit Judge.

This appeal stems from the interconnection agreement established between Indiana Bell Telephone Company, Incorporated d/b/a Ameritech Indiana ("Ameritech") and AT & T Communications of Indiana, GP and TCG Indianapolis (collectively "AT & T") pursuant to the Telecommunications Act of 1996 ("Act").¹ Because the parties could not reach a consensus regarding the content of the agreement, they submitted it to arbitration before the Indiana Utility Regulatory Commission ("IURC"). 47 U.S.C. § 252(b) (2001). The IURC hammered out the differences and ordered that the agreement be amended to reflect its determinations. The parties redrafted the agreement as directed, and it was approved by the IURC.²

Ameritech then sought declaratory and injunctive relief from the district court. It argued that various provisions established by the IURC through arbitration and incorporated into the approved agreement violated the Act. The district court granted the request for an injunction in part and denied it in part, remanding certain issues to the IURC for further findings. Ameritech, the IURC Commissioners, and AT & T appealed portions of the district court's order, and those appeals were consolidated for our review.³ We affirm in part and reverse in part.

I. Background

The Telecommunications Act of 1996 seeks primarily to promote competition in the previously monopoly-driven local telephone service market. See Verizon Communications, Inc. v. FCC, 535 U.S. 467, 475-76, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002). It requires the incumbent local telephone service provider⁴ (here, Ameritech) to allow new market entrants⁵ (here, AT & T) to interconnect with and access the incumbent's network for a fair price. 47 U.S.C. § 251(c); See Verizon, 535 U.S. at 491, 122 S.Ct. 1646. Congress recognized that without allowing new entrants to use the incumbents' local exchange networks⁶ and other technology and services, the incumbents would maintain a stranglehold on local telephone service: no new entrant could realistically afford to build from the ground up the massive communications grid the incumbents had developed through years of monopolistic advantage. See Verizon, 535 U.S. at 490, 122 S.Ct. 1646.

The Act seeks, with regard to its rate-setting and other features, to "give aspiring competitors every possible incentive to enter local retail telephone markets, short of confiscating the incumbents' property." Id. at 489, 122 S.Ct. 1646. It also requires incumbents to negotiate an agreement, referred to as an "interconnection agreement," with new entrants at their request. 47 U.S.C. § 252(a); See Ill. Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 566, 568-69 (7th Cir.1999) (describing the procedure by which interconnection agreements are reached). The agreement's purpose is to lay out in specific detail what access to network elements the new entrant wishes to purchase from the incumbent, the price to be paid, and other parameters of their relationship. If the parties to the agreement can't come to resolution within a statutorily specified time frame, either party can petition the state utility commission (here, the IURC) to arbitrate the open issues, or, if the state commission refuses to do so, the Federal Communications Commission ("FCC" or "Commission") can step in and resolve the differences between the parties. 47 U.S.C. § 252(b)(1), (e)(5). The duty of the state commissions in arbitration is to uphold the Act and the FCC regulations promulgated under it, ensuring that the interconnection agreement works to foster competition and benefit the public, without discriminating against other would-be entrants. See 47 U.S.C. § 252(c)(1).

After a state commission arbitrates the open issues, the parties submit their interconnection agreement reflecting the arbitrated resolutions to the state commission for approval. 47 U.S.C. § 252(e). If either or both parties disagree with the interconnection agreement arbitrated by the state commission, they may seek review in federal district court, as Ameritech did here. 47 U.S.C. § 252(e)(6). The district court's sole responsibility is to determine whether the interconnection agreement meets the requirements of sections 251 and 252 of the Act. Id. On appeal, we review the district court's interpretation of the Act de novo. US W. Communications v. Jennings, 304 F.3d 950, 956 (9th Cir. 2002).

II. Analysis

We turn now to the issues before us on appeal. Each of these issues was contested during the IURC arbitration and decided by the arbitrator, then ordered to become part of the interconnection agreement between the parties. Ameritech argues that the district court erred when it affirmed (1) the IURC's decision to award AT & T the "tandem reciprocal compensation rate" rather than the lower "end-office rate;" and (2) the IURC's determination that Ameritech must splice "dark fiber" for AT & T upon request. As we lay out below, we affirm the district court on both issues appealed by Ameritech.

AT & T appeals three of the district court's decisions. First, AT & T argues that the district court erred in remanding for further findings the agreement provisions requiring Ameritech to provide AT & T with combinations of network elements that Ameritech ordinarily combines for itself as well as combinations that it ordinarily does not combine for itself. Second, AT & T states that the district court erred in enjoining the portion of the interconnection agreement requiring Ameritech to perform "acceptance testing" before opening a loop circuit requested by AT & T. Third, AT & T contests the district court's order remanding for further findings the IURC's decision requiring Ameritech to unbundle packet switching. While we affirm the district court's remand on issues one (combination of network elements) and three (packet switching), we reverse on issue two, reinstating the IURC's decision with respect to acceptance testing.

A. Ameritech's Appeal

1. Tandem Reciprocal Compensation Rate

One term of the interconnection agreement between Ameritech and AT & T covers the price to be paid when a telecommunication (e.g. telephone call, facsimile, modem dial-up, etc.) originates on the network Ameritech built but terminates on AT & T's equipment. Under the Act, not only can AT & T pay to use certain elements of Ameritech's vast telecommunications network, AT & T can build switches of its own, which Ameritech then must allow to interconnect with its network. That way, consumers who use AT & T as their local telephone service provider may call consumers who use Ameritech as their local telephone service provider. However, AT & T must pay Ameritech for its costs in allowing the call to travel through its switch and arrive at its customer's receiver and vice versa. See Ill. Bell Tel. Co., 179 F.3d at 568; 47 U.S.C. § 251(b)(5). The compensation paid by AT & T and Ameritech to each other for transport and termination of telecommunications is called "reciprocal compensation." 47 U.S.C. § 251(b)(5).

Problems in calculating the reciprocal compensation rate arise because, as the FCC has recognized, new entrants design their networks and deploy their switches differently than incumbents due to changes in technology. See In re Implementation of the Local Competition Provisions of the Telecomms. Act of 1996, 11 FCC Rcd. 15,499, 16,042, ¶ 1090 (Aug. 8, 1996) ("Local Competition Order"). Incumbents, which usually have older networks and thus older technology, typically route calls from new entrants' customers either through an "end-office switch" (a computer that directly serves the Ameritech customer being called) or a "tandem switch" (a computer hub that connects end-office switches). If Ameritech routes an AT & T customer's call directly through Ameritech's end-office switch, AT & T is charged the "end-office rate." The end-office rate is a lower rate that compensates Ameritech for the cost of end-office switching alone. But, if Ameritech must route the call through a tandem switch, then AT & T pays Ameritech the higher "tandem rate." The tandem rate compensates Ameritech for (1) the tandem switching it performs to route the call to the end-office switch; (2) the transport between the tandem switch and the end-office switch; and (3) the end-office switching that delivers the call to the customer. See MCI Telecomms. Corp., 79 F.Supp.2d at 790 (E.D.Mich.1999).

New entrants cannot hope to replicate the incumbents' network switch for switch but, as stated before, have the advantage of newer technology. Thus, a new entrant can typically deploy a single switch in a central location, then lease various elements from the incumbent in order to connect the new entrant's customers to its central switch and the incumbent's end-office switches. In this way, the new entrant is able to serve with one switch a geographic area that the incumbent would serve with a minimum of ten-to-fifteen end-office switches. The new entrant's central...