Qwest Corp. v. Arizona Corp. Com'n.

• Decision Date: 08 June 2009
• Docket Number: No. 07-17080.,No. 07-17079.,07-17079.,07-17080.
• Citation: 567 F.3d 1109
• Parties: QWEST CORPORATION, Plaintiff-Appellee, v. ARIZONA CORPORATION COMMISSION; Jeff Hatch-Miller, in his official capacity as Chairman of the Arizona Corporation Commission; Mike Gleason, in his official capacity as a member of the Arizona Corporation Commission; Kristin K. Mayes, in her official capacity as a member of the Arizona Corporation Commission; William A. Mundell, in his official capacity as a member of the Arizona Corporation Commission; Marc Spitzer, in his official capacity as a member of the Arizona Corporation Commission; DIECA Communications, doing business as Covad Communications Company, Defendants-Appellants. Qwest Corporation, Plaintiff-Appellee, v. Arizona Corporation Commission; Jeff Hatch-Miller, in his official capacity as Chairman of the Arizona Corporation Commission; Mike Gleason, in his official capacity as a member of the Arizona Corporation Commission; Kristin K. Mayes, in her official capacity as a member of the Arizona Corporation Commission; William A. Mundell, in his official capacity as a member of the Arizona Corporation Commission; Marc Spitzer, in his official capacity as a member of the Arizona Corporation Commission; DIECA Communications, doing business as Covad Communications Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

567 F.3d 1109

QWEST CORPORATION, Plaintiff-Appellee, v. ARIZONA CORPORATION COMMISSION; Jeff Hatch-Miller, in his official capacity as Chairman of the Arizona Corporation Commission; Mike

Gleason, in his official capacity as a member of the Arizona Corporation Commission; Kristin K. Mayes, in her official capacity as a member of the Arizona Corporation Commission; William A. Mundell, in his official capacity as a member of the Arizona Corporation Commission; Marc Spitzer, in his official capacity as a member of the Arizona Corporation Commission; DIECA Communications, doing business as Covad Communications Company, Defendants-Appellants Qwest Corporation, Plaintiff-Appellee, v. Arizona Corporation Commission; Jeff Hatch-Miller, in his official capacity as Chairman of the Arizona Corporation Commission; Mike Gleason, in his official capacity as a member of the Arizona Corporation Commission; Kristin K. Mayes, in her official capacity as a member of the Arizona Corporation Commission; William A. Mundell, in his official capacity as a member of the Arizona Corporation Commission; Marc Spitzer, in his official capacity as a member of the Arizona Corporation Commission; DIECA Communications, doing business as Covad Communications Company, Defendants-Appellants.

No. 07-17079.

No. 07-17080.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 15, 2009.

Filed June 8, 2009.

Christopher C. Kempley and Maureen A. Scott (argued), Arizona Corporation Commission Legal Division, Phoenix, AZ; John Matthew Derstine and Michael Patten, Roshka DeWulf & Patten, Phoenix, AZ; Gregory T. Diamond, General Counsel for Covad Communications Company, Denver, CO; Jason M. Wakefield (argued), San Jose, CA, for the defendants-appellants.

John Michael Devaney (argued), Perkins Coie, Washington, D.C.; Steven J. Monde, Perkins Coie Brown & Bain, Phoenix, AZ, for the plaintiff-appellee.

Paul K. Mancini, San Antonio, TX; Michael E. Glover, Arlington, VA; Colin S. Stretch, Scott H. Angstreich, and Kelly P. Dunbar (argued), Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., for amici curiae AT & T, Inc. and Verizon.

Appeal from the United States District Court for the District of Arizona; Roslyn O. Silver, District Judge, Presiding. D.C. No. CV-06-01030-ROS.

Before: D.W. NELSON and RICHARD R. CLIFTON, Circuit Judges, and SAMUEL P. KING,^* District Judge.

CLIFTON, Circuit Judge:

The Telecommunications Act of 1996("Act" or "1996 Act"), Pub.L. 104-104, 110 Stat. 56 (codified in part at 47 U.S.C. §§ 251-261, 271), created a complex federal scheme to encourage competition in local telephone service markets previously dominated by state-sanctioned local exchange carrier monopolies. AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371-72, 377-80, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). Sections 251 and 252 of the Act require former monopoly local carriers to enter into interconnection agreements that provide the new competitors with access to some of their telecommunications components on an unbundled basis and on terms favorable to the competitors. Meanwhile, Section 271 allows local phone companies that used to be subsidiaries of AT & T, previously barred by an antitrust decree from entering the long-distance market, to supply long-distance services if their interconnection agreements contain certain access provisions. The Act explicitly authorizes state commissions to play a crucial, but restricted, role in this process, while reserving the power to administer various parts of the Act exclusively to the Federal Communications Commission.

Section 252 of the Act invites carriers engaged in negotiating an interconnection agreement to petition a state commission to arbitrate unsettled issues. In this case, we address whether a state commission overstepped its authority in arbitrating the terms of an interconnection agreement. The Act's language, history, and purpose, in addition to the overwhelming majority of judicial and administrative decisions on the matter, persuade us that state commissions may not impose Section 271 access or pricing requirements in the course of arbitrating interconnection agreements. We further conclude that state commissions are preempted from forcing carriers to make parts of their networks available on a separately purchasable basis when the FCC has determined that they are not required to do so.

The Arizona Corporation Commission ("ACC") and DIECA Communications, Inc., d/b/a Covad Communications Company, appeal the district court's entry of summary judgment in favor of Qwest Corporation in its action under the 1996 Act challenging the ACC's arbitration order. We affirm the district court's decision and hold that the Act bars the ACC from insisting Qwest's interconnection agreement with Covad include Section 271 access or pricing obligations or provide for element unbundling that the FCC has lifted.

I. Background

A. The Statutory Framework

Congress rang in a new era of telecommunications regulation with the passage of the Communications Act of 1934. At the time, AT & T controlled the long-distance telephone service market while its subsidiary Bell Operating Companies ("BOCs"), of which Qwest is a descendant, enjoyed a "virtual monopoly" over local telephone service.¹ S.Rep. No. 104-23, at 2 (1995). For the next 50 years, telephone service regulatory issues mainly revolved around rates, with the FCC setting interstate rates and state commissions setting intrastate rates. Verizon New England, Inc. v. Maine Public Utils. Comm'n, 509 F.3d 1, 4 (1st Cir.2007).

In 1982, a federal antitrust consent decree was entered to promote competition in long-distance services by disconnecting AT & T from its subsidiary BOCs, which were in turn initially barred from dialing into the long-distance market. See AT & T Corp., 525 U.S. at 413-15, 119 S.Ct. 721(Breyer, J., concurring in part and dissenting in part); United States v. Am. Tel. & Tel. Co., 552 F.Supp. 131, 222-25 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983) (mem.); see also SBC Commc'ns, Inc. v. FCC, 138 F.3d 410, 412(D.C.Cir.1998) ("Divestiture was called for, in large part, because it was thought that a corporation that enjoyed a monopoly on local calls would ineluctably leverage that bottleneck control in the interexchange (long distance) market." (internal quotation marks omitted)). The framers of the decree envisioned a dual telephone service universe: AT & T was expected to compete with new entrants in the long-distance market, and the BOCs would continue as local service monopolies.² Verizon New England, 509 F.3d at 3-4.

"The retreat from this illusion of wholly separate spheres began in earnest with the 1996 Telecommunications Act." Id. at 4. The BOCs wanted to provide long-distance services, while established and new long-distance carriers alike wanted to gain "access to local BOC facilities to use for long distance services, competing local services, or both." Id. "The 1996 Act established a complex regulatory regime for both entry and competition in both spheres." Id. Under the Act, BOCs and other incumbent local exchange carriers ("ILECs")³ must provide competitive local exchange carriers ("CLECs") access to certain elements of their local facilities. BOCs, meanwhile, are permitted to enter the long-distance market if certain prerequisites are met.

Sections 251 and 252 of the 1996 Act define the required access to ILEC facilities, while Section 271 speaks to long-distance entry conditions for BOCs. The overlap between these two parts of the Act sends a mixed message as to what regulatory authority state commissions retain.

Specifically, Section 251(a)(1) compels every telecommunications carrier "to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers." Section 251(c)(1) requires an ILEC like Qwest to engage in good faith negotiations with a CLEC like Covad to form an interconnection agreement to fulfill the various duties imposed on all local exchange carriers under Section 251(b).⁴

Section 251(c)(3) also requires ILECs to offer CLECs certain "network elements"⁵ on an unbundled basis at cost-based, regulated rates. These unbundled network elements are commonly referred to as "UNEs." The FCC designates UNEs by determining if access to a given UNE is "necessary" and if the failure to provide such access would "impair" CLECs in providing services. 47 U.S.C. § 251(d)(2); Covad Commc'ns Co. v. FCC, 450 F.3d 528, 531-32 (D.C.Cir.2006); see also U.S. Telecom Ass'n v. FCC, 359 F.3d 554, 568 (D.C.Cir.2004) (concluding the FCC cannot delegate the authority to classify UNEs to state commissions). The FCC shortened its list of mandatory UNEs in 2005 following a series of D.C. Circuit cases holding that the FCC's impairment standard was overly broad. See Covad Commc'ns Co., 450 F.3d at 533-37. State commissions set UNE rates by applying the FCC's Total Element Long-Run Incremental Cost (TELRIC) pricing methodology. 47 U.S.C. § 252(d)(1); see Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 523, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002) (upholding the FCC's TELRIC rate regulations); 47 C.F.R. §§ 51.503, 51.505; Local Competition Order ¶ 672, 11 F.C.C.R. 15499, 15844 (1996). These below-market TELRIC prices are highly favorable to CLECs.⁶

Section 252(a) permits carriers to negotiate an interconnection agreement voluntarily without regard to the duties otherwise imposed under Section 251(b) or (c). If, like here, negotiations fail, pursuant to Section 252(b)(1) either party "may petition a State commission to arbitrate any open issues." The state commission may only consider issues identified in the arbitration petition and must ensure Section 251 requirements are met. 47 U.S.C. § 252(b)(4)(A), (c). All interconnection agreements, whether adopted through negotiation or arbitration, must be submitted to the appropriate state...