Mci Telecomm. Corp. v. Bellsouth Telecomm., Inc.

• Decision Date: 06 June 2000
• Docket Number: No. 4:97CV141-RH.,4:97CV141-RH.
• Citation: 112 F.Supp.2d 1286
• Parties: MCI TELECOMMUNICATIONS CORPORATION, et al., Plaintiffs, v. BELLSOUTH TELECOMMUNICATIONS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Florida

112 F.Supp.2d 1286

MCI TELECOMMUNICATIONS CORPORATION, et al., Plaintiffs, v. BELLSOUTH TELECOMMUNICATIONS, INC., et al., Defendants.

No. 4:97CV141-RH.

United States District Court, N.D. Florida, Tallahassee Division.

June 6, 2000.

Donald B Verrilli, Donald B Verrilli Jr, PA, Washington, DC, Richard Dent Melson, Hoppig Green Sams & Smith, Tallahassee, FL, Carolyn Songer Raepple, Hopping Green Sams & Smith PA, Tallahassee, FL, for plaintiffs.

Jon W Zeder, Adorno & Zeder, PA, Miami, FL, William Wallace Deem, Mahoney Adams & Criser, Jacksonville, FL, Sean A Lev, Kellogg Huber Hansen, Washington, DC, Michael Kellogg, Kellogg Huber Hansen, Washington, DC, David E Smith, Public Service Commission, State of Florida, Tallahassee, FL, for defendants.

ORDER ON MERITS

HINKLE, District Judge.

This action is a challenge under the Telecommunications Act of 1996, 47 U.S.C. §§ 251-52, to a decision of the Florida Public Service Commission with respect to the terms and conditions under which the defendant incumbent local exchange carrier must make facilities and network elements available to the plaintiff competitors. I rule in favor of the plaintiff competitors and against the defendant incumbent local exchange carrier on each of the four contested issues. I direct the defendant Commissioners of the Florida Public Service Commission to take appropriate action to implement this decision.¹

Background—The Statutory Framework

Historically, local telephone service was provided in the United States on a monopoly basis by carriers regulated under state law by state public service commissions. Congress fundamentally changed that approach by enacting the Telecommunications Act of 1996. The Act imposes on local carriers, as a matter of federal law, various duties designed to foster competition. The Act allows state commissions the option of taking a major role in implementing the Act's requirements.²

The federal duties imposed on each "incumbent local exchange carrier"—that is, on each carrier who previously provided local service on a monopoly basis—include these. First, incumbents must offer their services for resale at wholesale rates, must not prohibit or unreasonably limit resale, must provide number portability and dialing parity to competitive carriers, must afford competitive carriers access to existing rights-of-way, and must establish reciprocal compensation arrangements for transport and termination of calls handled by more than one carrier. See 47 U.S.C. §§ 251(b) & 251(c)(4).³ More fundamentally, each incumbent must allow any other carrier to interconnect with its facilities and equipment on "rates, terms, and conditions that are just, reasonable, and non-discriminatory." 47 U.S.C. § 251(c)(2). Finally, each incumbent must provide to any requesting carrier nondiscriminatory access to "network elements" on an unbundled basis, again on "rates, terms and conditions that are just, reasonable, and non-discriminatory," 47 U.S.C. § 251(c)(3), at least when access to such network elements is "necessary" (in the case of proprietary network elements) or when failure to provide such access would "impair" the requesting carrier's ability to provide services (in the case of non-proprietary network elements). See 47 U.S.C. § 251(d)(2). "Network elements" are broadly defined by the act to include any "facility or equipment used in the provision of a telecommunications service" as well as features, functions, and capabilities that are provided by means of any such facility or equipment. 47 U.S.C. § 153(29).

The Act also imposes on each incumbent the duty to negotiate in good faith with any requesting carrier on the terms and conditions of an agreement under which these various duties will be fulfilled. See 47 U.S.C. § 251(c)(1). The Act likewise imposes on requesting carriers the duty to negotiate in good faith. Id.

If the parties reach a negotiated agreement, it must be submitted to the state commission for approval. 47 U.S.C. § 252(e)(1). If the parties fail to agree on all terms and conditions, any party to the negotiation may request binding arbitration before the state commission of "any open issues." 47 U.S.C. § 252(b)(1). If the state commission chooses not to act on either a negotiated agreement or request for arbitration, the Federal Communications Commission must assume the responsibilities of the state commission. 47 U.S.C. § 252(e)(5).

If a state commission chooses to act on either a negotiated agreement or request for arbitration, the Act provides for judicial review of the commission's decisions in federal district court. See 47 U.S.C. § 252(e)(6). The case at bar is an action for judicial review under this provision.⁴

Background—The Case at Bar

Defendant BellSouth is the incumbent local exchange carrier in parts of the state of Florida. Plaintiff MCI is a prospective competitor. In accordance with the Telecommunications Act, BellSouth and MCI entered negotiations for an agreement under which MCI would interconnect with BellSouth's facilities and have access to BellSouth's network elements. They were unable to agree on all terms and conditions of an agreement and thus sought and obtained arbitration before the Florida Public Service Commission. Following an evidentiary hearing, the Florida Commission issued a final arbitration order and, on motions of each side for reconsideration, an amended final order. MCI now brings this action challenging the Florida Commission's decision in certain respects, and BellSouth counterclaims challenging the decision in another respect.

Specifically, MCI challenges the pricing methodology employed by the Florida Commission to set the rates for network elements and non-recurring charges; the Florida Commission's exclusion of "dark fiber"—fiber optic cable that is in place but not in active use—from the group of network elements that must be provided by BellSouth; and the Florida Commission's failure to require a compensation mechanism (in the nature of a liquidated damages provision) as part of the agreement. In its counterclaim, BellSouth challenges the Florida Commission's treatment of "recombining" unbundled network elements for sale as complete service. This order addresses these four issues in turn.⁵

The parties have agreed that this court's review should be conducted based solely on the record as compiled in the Florida Commission. The parties have submitted briefs and presented oral argument, and more recently have submitted supplemental briefs addressing the decision of the United States Supreme Court in AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). This order constitutes the court's ruling on the merits.

I conclude that (1) the Florida Commission's pricing methodology for network elements and non-recurring charges is invalid because it is inconsistent with governing FCC regulations, and the Florida Commission thus must reconsider its pricing decisions; (2) the Florida Commission incorrectly concluded that "dark fiber" is not a "network element" within the meaning of the Act, and the Florida Commission therefore must reconsider its decision not to require BellSouth to provide MCI access to dark fiber; (3) the Florida Commission has authority to, and must, arbitrate the issue of whether the parties' interconnection agreement should include a compensation mechanism; and (4) BellSouth's counterclaim challenging the Florida Commission's treatment of the issue of "recombining" unbundled network elements is unfounded.

Standard of Review

The Telecommunications Act provides for actions such as the case at bar in a single sentence:

In any case in which a State commission makes a determination under [the Act], any party aggrieved by such determination may bring an action in an appropriate Federal district court to determine whether the agreement or statement meets the requirements of [the Act].

47 U.S.C. § 252(e)(6).⁶ The Act does not further specify the standard of review to be applied in determining "whether the agreement ... meets the requirements of" the Act.

I conclude that district court review of the meaning and import of the Telecommunications Act should be de novo and that, when acting in conformance with a correct interpretation of the Act, state commissions have broad discretion reviewable only under the arbitrary and capricious standard. I base this conclusion on the statutory language, the standards generally applicable to judicial review of administrative action, the apparent purpose of involving state commissions in this process while providing for federal district court review of their decisions, and the emerging case law under the Act. I address each of these considerations in turn, beginning with the statutory language.

The statute provides for an action in federal district court "to determine whether the agreement ... meets the requirements of" the Act. 47 U.S.C. § 252(e)(6). Although this language does not explicitly set forth a standard of review, it provides guidance in two ways. First, the statute assigns to the district court the job of determining whether the agreement as approved or mandated by the state commission meets the requirements of the Act, and in doing so the statute suggests not at all that any deference is due the state commission. Second, the statutory language makes no reference to any district court review of the state commission's action other than for compliance with the Act. Although some level of review of state commission action may be necessary to render meaningful the district court's review for compliance with the Act's legal requirements, the omission of any provision for review for any other purpose suggests that, within the bounds of the Act's legal requirements, review should be deferential.

This standard of review is generally consistent with the standards applicable to judicial review of administrative action in other settings. Courts generally review agency factual...