MCI WorldCom Communications, Inc. v. Department of Telecommunications and …
| Citation | 810 NE 2d 802,442 Mass. 103 |
| Parties | MCI WORLDCOM COMMUNICATIONS, INC., & another v. DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY & another. |
| Decision Date | 05 April 2004 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, SOSMAN, & CORDY, JJ.
William J. Rooney, Jr. (Jeffrey C. Melick with him) for Global NAPs, Inc. Daniel J. Hammond, Assistant Attorney General, for Department of Telecommunications and Energy.
Scott Angstreich (Keefe B. Clemons with him) for Verizon New England, Inc.
Eric J. Krathwohl, James T. Finnigan, & Michael Tenore, for RNK, Inc., amicus curiae, submitted a brief.
On December 20, 2002, the Department of Telecommunications and Energy (department), pursuant to a remand order of the Federal District Court, see Global NAPs, Inc. v. New England Tel. & Tel. Co., 226 F. Supp. 2d 279, 281 (D. Mass. 2002) (Global NAPs),4 conducted a "contract analysis" of an "interconnection agreement" between MCI WorldCom Communications (MCI) and Verizon New England (Verizon) (MCI agreement).5 See D.T.E. 97-116-G at 26 (2002) (2002 department order). The department concluded that the parties had intended that certain portions of the MCI agreement track Federal law, and therefore that Verizon was not obligated to pay "reciprocal compensation" to MCI, Global NAPs (Global), and other companies that had entered into similar agreements with Verizon. Id. at 31. MCI and Global appealed pursuant to G. L. c. 25, § 5. A single justice of this court reserved and reported the matter without decision to the full court. We affirm the decision of the department.
Background. Because the context of this case is complex, we begin with an overview of the relevant statutory and regulatory provisions that govern this proceeding. Until the 1990's, the provision of local telephone service was not competitive. Individual telephone companies, sometimes called "incumbent local exchange carriers" (ILECs), maintained monopolies over defined geographic areas. See Global NAPs, supra at 285, and cases cited. In an effort to dispense with these monopolies and introduce competition into the market, Congress passed the Telecommunications Act of 1996 (Act), Pub. L. 104-104, 110 Stat. 56 (). See Pacific Bell v. Pac-West Telecomm, Inc., 325 F.3d 1114, 1118 (9th Cir. 2002) (). Toward that end, the Act required that ILECs enter into "interconnection agreements" with their new competitors, the "competing local exchange carriers" (CLECs). See 47 U.S.C. § 251 (a), (c) & § 252. These agreements set forth the terms by which the ILECs and CLECs would interconnect their networks. In plain English, the requirement of interconnection agreements simply assured that, for example, a Verizon customer could call an MCI customer who resided within the same local calling area, and vice versa.6 The Act gave State commissions, such as the department, authority to approve or reject the agreements, and to resolve disputes between the parties. 47 U.S.C. § 252 (a), (b), (e). See BellSouth Telecom., Inc. v. MCIMetro Access Transmission Servs., Inc., 317 F.3d 1270, 1275-1276 (11th Cir. 2003) ().
When two local telephone service networks are interconnected, the issue of costs must be resolved. For example, when a Verizon customer initiates a call to an MCI customer in the same calling area, both Verizon and MCI bear certain costs associated with originating and "terminating" (or completing) the call. However, only the originator, the Verizon customer, pays for the call; the MCI customer does not pay a fee to receive the call, and thus MCI is not compensated for those costs. See Illinois Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 566, 568 (7th Cir. 1999), cert. denied, 535 U.S. 1107 (2002). To correct this imbalance, the Act mandated that interconnection agreements must provide for "[r]eciprocal compensation" for local calls. 47 U.S.C. § 251 (b)(5).7 In our example, this means that the originating customer pays Verizon for the call in her monthly bill, and then Verizon compensates MCI for MCI's costs in terminating that call.8 The basic assumption behind reciprocal compensation is that it would be roughly balanced, that is, neither company would receive a windfall of compensation. See New England Tel. & Tel. Co. v. Conversent Communications of R.I., L.L.C., 178 F. Supp. 2d 81, 85 (D.R.I. 2001), and cases cited.
In the years since Congress passed the Act, however, there has been a dramatic rise in Internet usage and concomitant increase of telephone calls to Internet service providers (ISPs). See Pacific Bell v. Pac-West Telecomm, Inc., supra at 1118. Calls to ISPs (ISP-bound traffic) are primarily one way (ISP server computers tend not to call back), and on average are of greater duration than traditional telephone phone calls. See id.; New England Tel. & Tel. Co. v. Conversent Communications of R.I., L.L.C., supra at 85. As a result, a company with many customers that are ISPs is likely to receive more compensation from carriers with few or no customers that are ISPs. It has been suggested by other courts that some CLECs have targeted ISPs as customers in order to take advantage of this phenomenon. Id.
Because reciprocal compensation is available only for local calls, whether ISP-bound traffic is deemed "local" is an important question. If a customer's call to a local ISP is considered as terminating at the ISP server, then it is local and subject to reciprocal compensation. Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 14 F.C.C.R. 3689, 3694 (1999) (Internet Traffic Order). However, if the call is considered as terminating somewhere on the Internet, for example, at a website that the customer visits after calling her ISP, then the call is not local and not subject to reciprocal compensation. Id. The question of the characterization of ISP-bound traffic underlies the dispute in this case.
There is no disagreement about the essential facts. Before the passage of the Act, Verizon was the ILEC for eastern and central Massachusetts, and enjoyed a monopoly over the provision of local telephone service in that region. After passage of the Act, MCI entered the market as a CLEC. On June 26, 1996, MCI and Verizon signed an interconnection agreement (MCI agreement), providing for the interconnection of their respective local networks.
Section 5.81 of the MCI agreement provides that "reciprocal compensation only applies to the transport and termination of [l]ocal [t]raffic," which a customer originates on one network for termination on the other party's network. Section 5.82 provides that "[t]he [p]arties shall compensate each other for transport and termination of [l]ocal [t]raffic . . . ." "Local [t]raffic" is defined by § 1.38 as "a call which is originated and terminated within a given [local access and transport area], in the Commonwealth of Massachusetts, as defined in DPU Tariff 10, Section 5." Section 1.53 provides that "`[r]eciprocal [c]ompensation' is [a]s [d]escribed in the Act, and refers to the payment arrangements that recover costs incurred for the transport and termination of [t]elecommunications originating on one [p]arty's network and terminating on the other [p]arty's network." "As [d]escribed in the Act" is defined "as described in or required by the Act and as from time to time interpreted in the duly authorized rules and regulations of the FCC or the [d]epartment." § 1.6. There is no provision in the MCI agreement that explicitly addresses whether ISP-bound traffic is "local" or subject to reciprocal compensation.
After the agreement was approved by the department, Verizon and MCI paid each other reciprocal compensation for calls originating on one network and terminating on the other, including ISP-bound traffic. In April of 1997, Verizon unilaterally discontinued reciprocal compensation payments to MCI for ISP-bound traffic, on the basis that these calls were interstate and not local. At approximately the same time, Verizon entered into negotiations with Global, another CLEC. Global and Verizon were unable to come to terms on whether ISP-bound traffic would be subject to reciprocal compensation, and ultimately agreed that the provisions of the MCI agreement (and the resolution of the dispute between Verizon and MCI), would govern that aspect of their agreement. Global NAPs, supra at 290. Global NAPs, Inc. v. FCC, 291 F.3d 832, 834 (D.C. Cir. 2002). Global and Verizon entered into an interconnection agreement (Global agreement) on April 15, 1997.9 That same day, Verizon sent a letter to Global, explaining Verizon's position that ISP-bound traffic is not subject to reciprocal compensation, and that the Global agreement would be treated in the same manner as agreements with other CLECs.
On June 26, 1997, MCI filed a petition with the department alleging that Verizon had breached the MCI agreement by refusing to pay reciprocal compensation for ISP-bound traffic. Global and other CLECs intervened in support of MCI. After a hearing, the department concluded that ISP-bound traffic was "local," and therefore subject to reciprocal compensation. D.T.E. 97-116 at 13 (1998) (1998 department order). The reasoning behind the 1998 order was twofold. First, the department concluded that ISP-bound traffic came under the definition of "[l]ocal [t]raffic" in the MCI agreement, because it was identical to traditional local calling in many important respects (including billing and dialing), and because the premises of the originating and receiving callers were in the same local region. Id. at 11. Second, the department looked to rulings of the ...
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