Michigan Bell Telephone Co. v. Strand, 00-1349.

• Decision Date: 30 September 2002
• Docket Number: No. 00-1349.,00-1349.
• Citation: 305 F.3d 580
• Parties: MICHIGAN BELL TELEPHONE CO. d/b/a Ameritech Michigan, Plaintiff-Appellant, v. John G. STRAND and David A. Svanda, Commissioners of the Michigan Public Service Commission, in their official capacities, and BRE Communications, LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

305 F.3d 580

MICHIGAN BELL TELEPHONE CO. d/b/a Ameritech Michigan, Plaintiff-Appellant, v. John G. STRAND and David A. Svanda, Commissioners of the Michigan Public Service Commission, in their official capacities, and BRE Communications, LLC, Defendants-Appellees.

No. 00-1349.

United States Court of Appeals, Sixth Circuit.

Argued July 31, 2001.

Decided and Filed September 30, 2002.

John E. Muench (briefed), Theodore A. Livingston (briefed), Dennis G. Friedman, Demetrios G. Metropoulos (argued and briefed), Mayer, Brown, Rowe & Maw, Chicago, IL, Jeffrey V. Stuckey (briefed), Michael G. Vartanian (briefed), Dickinson, Wright PLLC, Lansing, MI, for Plaintiff-Appellant.

David A. Voges, Asst. Atty. Gen., Michael A. Nickerson (argued), Office of the Atty. Gen., Public Service Div., Lansing, MI, William Reid Ralls (briefed), Leland R. Rosier (briefed), Clark Hill PLC, Okemos, MI, Bradley R. Kruse (briefed), David R. Conn (argued), McLeodusa Inc., Cedar Rapids, IA, for Defendants-Appellees.

Before BOGGS, DAUGHTREY, and

FARRIS, Circuit Judges.¹

OPINION

BOGGS, Circuit Judge.

Ameritech Michigan appeals from the district court's judgment holding that the Michigan Public Service Commission did not reach a result contrary to federal law when it ordered Ameritech not to impose on BRE special construction charges associated with unbundling or conditioning certain local telephone loops, and found that Ameritech's attempt to do so constituted unlawful discrimination. Ameritech has not carried its burden of demonstrating that the Commission acted in an arbitrary and capricious manner when it determined that Ameritech recovers or should recover the costs of the special construction work as part of its long-range recurring charges to BRE. We therefore affirm summary judgment in favor of BRE and the Commissioners on this aspect of Ameritech's complaint. We reverse, however, the district court's holding that the Commissioners' finding of discrimination was consistent with federal law because the Commissioners improperly compared Ameritech's treatment of BRE to its treatment of its retail customers. We remand for entry of an order directing the Commissioners to reconsider their discrimination finding according to the appropriate standard.

I

To facilitate competition in the traditionally monopolized local telephone service market, the Telecommunications Act of 1996 ("TCA" or the "Act"), 47 U.S.C. § 151 et seq., imposed on Incumbent Local Exchange Carriers (ILECs), the telephone companies who held the monopoly, "a host of duties intended to facilitate market entry" by Competing Local Exchange Carriers (CLECs), telephone companies seeking to provide competing services. AT&T Corp. v. Iowa Utils. Bd. (Iowa Utilities Board II), 525 U.S. 366, 371-72, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (citing 47 U.S.C. §§ 251, 252). The Act specifies three methods of competition: 1) the ILEC must provide to a CLEC that has or builds its own local telephone network, interconnection with the ILEC's network, see 47 U.S.C. § 251(c)(2); 2) the ILEC must provide access to its own "network elements" on an "unbundled" basis to a CLEC wishing to acquire a network by leasing all or part of the ILEC's network, see 47 U.S.C. § 251(c)(3); and 3) the ILEC must sell its retail services at wholesale prices to a CLEC planning simply to resell the incumbent's services at retail prices. See 47 U.S.C. § 251(c)(4). See also GTE South, Inc. v. Morrison, 199 F.3d 733, 737 (4th Cir.1999). The ILEC must provide all of these products and services on a "nondiscriminatory" basis, see 47 U.S.C. § 251(c)(2)(D), (c)(3), (c)(4)(B), which term, "as used throughout section 251, applies to the terms and conditions an [ILEC] imposes on third parties as well as on itself." In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, 11 FCC Rcd. 15,499, ¶ 218 (Aug. 8, 1996) ("First Report and Order").

Access to an ILEC's network facilities comes only through specified procedures for forming "interconnection agreements," the Congressionally prescribed vehicle for implementing the substantive rights and obligations set forth in the Act. The Act requires ILECs to enter into these agreements with CLECs, see 47 U.S.C. § 251(c)(1); permits the parties to enter into a binding agreement without regard to the standards set forth in § 251(b) and (c), see 47 U.S.C. § 252(a)(1); requires submission of the final agreement to the appropriate state commission for approval, see 47 U.S.C. § 252(e)(1) and (2); gives the state commission authority to interpret and enforce agreements when post-approval disputes arise, see 47 U.S.C. § 252(c), (e)(1) and (2), and Michigan Bell Tel. Co. v. Climax Tel. Co., 202 F.3d 862, 868 (6th Cir.), cert. denied, 531 U.S. 816, 121 S.Ct. 54, 148 L.Ed.2d 22 (2000); and provides for federal court review "in any case in which a State commission makes a determination" under section 252, see 47 U.S.C. § 252(e)(6), and Michigan Bell, 202 F.3d at 866-68.

Michigan Bell Telephone Company d/b/a Ameritech Michigan ("Ameritech") is the ILEC in Michigan. BRE Communications ("BRE") is one of several CLECs attempting to compete with Ameritech by delivering local telephone service to customers in various locations. Ameritech and BRE executed an Interconnection Agreement,² which gave BRE leasehold rights to certain elements of Ameritech's network necessary for BRE to deliver service to consumers itself while maintaining the connection between these elements and the central elements of Ameritech's network. Section 9.0 of the Interconnection Agreement tracked the terms of 47 U.S.C. § 251(c)(3), providing: "Ameritech shall provide non-discriminatory access to Network Elements on an unbundled basis... on rates, terms and conditions that are just, reasonable and nondiscriminatory in accordance with the terms and conditions of this Agreement and Sections 251(c)(3) and 252 of the Act."

One such localized facility, known as a "loop," comprises three elements³ and links a customer's home or business to a wire center, thereby providing access to the central Ameritech network and its connection to the worldwide telecommunication network. When a customer changes service from Ameritech to BRE and BRE seeks access to the same loop Ameritech used to serve the customer, in most cases Ameritech simply disconnects the loop from its switch and cross-connects it to BRE's designated equipment or switch. Ameritech does not charge for this simple service. When two of the three elements of a loop are in place but not connected, or when the third and final element must be added, Ameritech must dispatch a technician to connect the loop in a single running linkage. Ameritech also does not charge CLECs for this relatively simple service. Advances in digital technology have, however, made certain transfers from Ameritech to a CLEC such as BRE a labor-intensive and expensive endeavor.

Traditionally, each customer's communications ran over the customer's own individual dedicated copper loop. Now, companies can increase efficiency by electronically integrating parts of loops into digital systems in which the middle elements of several customers' loops meet in a single place and then join together to share a single high-speed digital path to the wire center.⁴ A specific customer whose voice or data transmissions travel over the integrated path cannot easily be reassigned from Ameritech to BRE because only one company at a time can use the integrated path, known as a "bundled loop," and the bundled loops cannot be "unbundled."⁵ If Ameritech will still serve certain customers using that bundled loop after the requested transfer to BRE is made, the customer who wants to use BRE's service has, essentially, no place to go. When BRE requests access loops running over integrated paths, Ameritech determines whether there exists a "spare" non-integrated loop element that follows the same route as the integrated loop. If so, Ameritech electronically disconnects the specified loop from its integrated element and transfers the loop to the spare non-integrated element at no extra charge. Where no spare single-loop facility exists, Ameritech generally must design and install one to parallel the integrated path in order for a CLEC to provide service to its customer; this is a process known as "disaggregating" or "de-multiplexing."⁶ Ameritech seeks to charge CLECs the cost of installing these parallel loop elements.

A related problem arises in two more complex situations. Most of Ameritech's loops were engineered and built to carry voice traffic, but a CLEC may want to use the loop to carry high-speed data traffic for its customer. Or, if the CLEC has several customers in one area, it may want to use a single high-capacity loop in lieu of multiple individual loops, i.e., maintain its own integrated digital loop element. To fill such requests by CLECs like BRE, Ameritech technicians would have to perform special work to upgrade or "condition" the loops for high-speed data or high-capacity traffic. Ameritech seeks to charge CLECs for the cost of "conditioning" loops pursuant their requests.

On July 16, 1998, BRE filed a complaint against Ameritech with the MPSC, contesting Ameritech's charges for work it performed on 65 loops.⁷ BRE claimed that charging for these instances of work breached the Interconnection Agreement and constituted unlawful "discrimination" under the Agreement and the Act.⁸ Following the recommendation of its administrative law judge, the MPSC entered an order ruling in BRE's favor on February 9, 1999. Rejecting Ameritech's interpretation of the Interconnection Agreement, the Commission determined that the loops at issue were all "available" within the meaning of section 9.4.2 of the Agreement⁹ and that, therefore, any additional work Ameritech undertook to make these loops available to BRE was routine. Since the work was routine, Ameritech was...