Northwestern Bell Telephone Co. v. Iowa Utilities Bd.

• Decision Date: 20 November 1991
• Docket Number: No. 90-97,90-97
• Citation: 477 N.W.2d 678
• Court: Iowa Supreme Court
• Parties: 1992-1 Trade Cases P 69,783, Util. L. Rep. P 26,158 NORTHWESTERN BELL TELEPHONE COMPANY, Appellant, v. IOWA UTILITIES BOARD, Appellee, Iowa Network Services, Inc.; MCI Telecommunications Corp.; Office of Consumer Advocate; AT & T Communications of the Midwest, Inc.; and Teleconnect Long Distance Services and Systems Company; Intervenors-Appellees.

Page 678

477 N.W.2d 678

1992-1 Trade Cases P 69,783, Util. L. Rep. P 26,158

NORTHWESTERN BELL TELEPHONE COMPANY, Appellant, v. IOWA UTILITIES BOARD, Appellee Iowa Network Services, Inc.; MCI Telecommunications Corp.; Office of Consumer Advocate; AT & T Communications of the Midwest, Inc.; and Teleconnect Long Distance Services and Systems Company; Intervenors-Appellees.

No. 90-97.

Supreme Court of Iowa.

Nov. 20, 1991.

William K. Schaphorst, Gen. Counsel, Northwestern Bell Telephone Co., Des Moines, and James Gallagher of Maun & Simon, St. Paul, Minn., for Northwestern Bell.

Susan Allender, Gen. Counsel, Allan Kniep, Asst. Gen. Counsel, and Diane Munns, Deputy Gen. Counsel, for Iowa Utilities Bd.

Michael P. Joynt and John T. Ward of Wasker, Sullivan & Ward, Des Moines, and Ellen S. Deutsch, Philip J. Mause, and Robert C. Lopardo of Thelen, Marrin, Johnson & Bridges, Washington, D.C., for Iowa Network Services.

James R. Maret, Consumer Advocate, and David R. Conn and Alice J. Hyde, for Office of Consumer Advocate.

Considered by McGIVERIN, C.J., and CARTER, LAVORATO, SNELL, and ANDREASEN, JJ.

SNELL, Justice.

The appellant, Northwestern Bell Telephone Company, seeks review of an Iowa Utilities Board (the board) decision approving the establishment, by Iowa Network Services (INS), of a fiber-optic network and modern switching system that will concentrate the long-distance traffic to and from 135 independent, rural Iowa telephone companies. Specifically, Northwestern Bell (NWB) objects to the exclusive use of the system to terminate all long-distance calls destined for customers of the participating telephone companies (hereinafter referred to as PTC's). The district court affirmed the board's decision, and we affirm the district court.

Prior to discussing the facts unique to this dispute, a general description of the provision of long-distance telephone services is in order. A long-distance call is initiated when a caller, or "end user," conveys the number of the desired recipient to their "local exchange utility." See Iowa Admin.Code 199.22.1(3) ("Local exchange utility means a telephone utility that provides local service under tariff filed with the board. The utility may also provide other services and facilities such as access services."). The PTC's described above own and operate 275 local exchange utilities across Iowa. A connection must then be made between the originating local exchange and a long-distance carrier or "interexchange utility." See Iowa Admin.Code 199.22.1(3) ("Interexchange utility means a utility, a resale carrier or other entity that provides intrastate telecommunications services and facilities between exchanges within Iowa, without regard to how such traffic is carried. A local exchange utility that provides exchange service may also be considered an interexchange utility."). The above sequence of connections and communications is known as "intrastate access service." See Iowa Admin.Code 199.22.1(3) ("Intrastate access services are services of telephone utilities which provide the capability to deliver intrastate telecommunications services which originate from end-users to interexchange utilities and the capability to deliver intrastate telecommunications services from interexchange utilities to end-users."). After the provision of originating access service, the interexchange carrier conveys the call to the local exchange of the intended recipient of the call; this service is quite appropriately defined as "interexchange service." See Iowa Admin.Code 199.22.1(3) ("Interexchange service is the provision of intrastate telecommunications services and facilities between local exchanges...."). Once the call reaches the terminating exchange, terminating access service must be provided to enable receipt of the call by the intended recipient. As is the case with originating access, terminating access service is defined to include all the connections and communications that the local exchange must either make or contract for to enable receipt of the call by the intended recipient or terminating "end user."

A specialized form of originating access service, known as "equal access," enables the caller to predesignate a given interexchange utility as their desired long-distance carrier. Under the equal-access system, this predesignated carrier is accessed merely by dialing one plus the area code plus the seven-digit number or just one plus the recipient's seven-digit number. In the absence of equal access, the caller has no choice as to the interexchange carrier when using "one-plus" dialing; all one-plus long-distance calls are automatically handled by a single interexchange carrier. In this latter situation, the only means of accessing an alternative interexchange carrier is by dialing a special, multidigit access code in addition to the desired seven or ten-digit number.

The INS system now in operation is designed to enable the PTC's to offer their customers equal-access service accessing. Prior to the inception of INS's centralized accessing system, the PTC's had to rely on other relatively larger, local phone companies, such as NWB, to assist them in the provision of accessing services. Because the accessing services were not of the equal-access type, the caller had no choice as to their interexchange carrier when making one-plus long-distance calls. Moreover, since NWB is an interexchange utility as well as a purveyor of access services, NWB enjoyed a de facto monopoly in the realm of one-plus, intra-LATA ¹ long-distance calling. Thus, the INS network will not only replace NWB as a purveyor of access services with respect to the PTC's, but it will introduce a measure of competition into the one-plus, intra-LATA long-distance market.

Equal access was apparently not forthcoming to these smaller accessing facilities because the competing interexchange carriers who could have instituted an equal-access system concluded that it would not be economically feasible given the thinness of the market within any given PTC. As a consequence, INS initiated its plan to collectivize the accessing needs of the various independent phone companies by providing a centralized, equal-access network with a single switching unit located in Des Moines. The INS network is designed to foster competition among interexchange carriers in the one-plus long-distance market by making it economically feasible for long-distance carriers to absorb the costs of the more sophisticated, equal-access switching system. The network will also offer "modern information systems" to the PTC's, another feature formerly unavailable because of the thinness of the market in any single independent, local telephone company prior to the INS collectivization.

Since providing telephonic access service is a communications service subject to the jurisdiction of the Iowa Utilities Board, INS was required to initiate tariff proceedings before the board prior to implementing its accessing network. See Iowa Code § 476.1 (1991) (authorizing the board to regulate rates and services of utilities providing communication services). The board approved INS's plan for a centralized, equal-access network and the associated rate structure. Under the INS system, the PTC's will be allowed to enter into five-year contracts with INS. These contracts will grant INS the exclusive right to provide accessing services for long-distance calls originating as well as those terminating within the PTC's. As a result, NWB's role with respect to the PTC's will be limited to providing intra-LATA long-distance services should NWB elect to do so. NWB will not be permitted to maintain any direct connections with the PTC's; all connections, if NWB elects to provide intra-LATA long-distance services, must be made at the INS switch in Des Moines.

Because NWB supplied access services and one-plus intra-LATA long-distance services for the various PTC's prior to the advent of the INS network, NWB presently has a system in place that would enable it to provide terminating access to the PTC's. NWB contends that, notwithstanding the board-sanctioned accessing agreements freely entered into between INS and the PTC's, it should be permitted to provide terminating access service to the PTC's in competition with the INS network. NWB offers five arguments in support of their position.

First, NWB contends that the board's approval of the INS network is in excess of the board's statutory authority. Second, it is argued that the agency's decision is arbitrary and capricious and not supported by substantial evidence. Third, NWB maintains that the board's decision is violative of the state and federal antitrust laws. In a similar argument, it is asserted that approval of INS's system contravenes article VIII, section twelve, of the Iowa Constitution, which provides that no exclusive privileges shall ever be granted to a corporation by the legislature. Finally, NWB argues that the board's action with respect to INS interferes with the lawful managerial authority of NWB.

I. Standard of Review.

As a general principal, "[i]n the highly technical field of public utility rate regulation, it is proper, even necessary, to grant considerable deference to the expertise of the board." Consumer Advocate v. Iowa Utils. Bd., 454 N.W.2d 883, 885 (Iowa 1990). As a consequence, "nearly all disputes are won or lost at the agency level." Iowa-Illinois Gas & Elec. Co. v. Iowa State Commerce Comm'n, 412 N.W.2d 600, 604 (Iowa 1987). Moreover, when reviewing an agency decision, the court is limited to a consideration of the grounds of error assigned under Iowa Code section 17A.19(8) (1991). Northwestern Bell Tel. Co. v. Iowa State Commerce Comm'n, 419 N.W.2d 712, 714 (Iowa 1988).

Iowa Code section 17A.19(8)(b) calls upon the reviewing court to reverse an agency action that is in excess of the statutory authority of the agency. An administrative agency has only such jurisdiction and authority as...