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

• Decision Date: 17 July 2007
• Docket Number: No. CV 06-1030-PHX-ROS.,CV 06-1030-PHX-ROS.
• Citation: 496 F.Supp.2d 1069
• Parties: QWEST CORPORATION, Plaintiff, v. ARIZONA CORPORATION COMMISSION, et al., Defendants.
• Court: U.S. District Court — District of Arizona

496 F.Supp.2d 1069

QWEST CORPORATION, Plaintiff, v. ARIZONA CORPORATION COMMISSION, et al., Defendants.

No. CV 06-1030-PHX-ROS.

United States District Court, D. Arizona.

July 17, 2007.

COPYRIGHT MATERIAL OMITTED

John M. Devaney, Perkins Coie LLP, Washington, DC, Steven J. Monde, Perkins Coie Brown & Bain PA, Phoenix, AZ, for Plaintiff.

Maureen Ann Scott, Arizona Corporation Commission, Michael W. Patten, John Matthew Derstine, Roshka Dewulf & Patten, PLC, Phoenix, AZ, Gregory T. Diamond, Covad Communications Company, Denver, CO, for Defendants.

ORDER

SILVER, District Judge.

This case involves what is now an interpretation of the Telecommunications Act of 1996 adopted by a majority of the courts that have considered it.

Section 251 of the Telecommunications Act of 1996 defines the interconnection duties of telecommunications carriers. 47 U.S.C. § 251. Under that section, every telecommunications carrier has the duty "to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers." Section 251(c) states that incumbent local exchange carriers (ILECs)¹, must negotiate in good faith with any competitive local exchange carrier (CLEC) the particular terms and conditions of agreement to fulfill the duties listed in paragraphs (1) through (5) of subsection (b).² Further, all ILECs must provide for interconnection with any requesting CLEC's, here Covad's, network and provide to all requesting CLECs nondiscriminatory access to network elements on an unbundled basis.

Section 252 of the Act provides the procedures for negotiation, arbitration, and approval of interconnection agreements. If the ILEC and the CLEC can reach a voluntary negotiated agreement, such agreement may be entered into without regard to the requirements of subsections (b) and (c) of section 251. If no voluntary agreement has been reached 135 to 160 days after the CLEC's request for interconnection, the CLEC may petition the appropriate state commission, in this case, the Arizona Corporation Commission (ACC), for compulsory arbitration, in which the parties must participate.³ Regardless, all interconnection agreements must be submitted to the ACC for approval. 47 U.S.C. § 252(e)(1). Under § 252(b)(4), the ACC must limit its consideration of the petition to the issues set forth in the petition and the response from the ILEC. Further, the State commission shall resolve each issue set forth in the petition and the response ... by imposing appropriate conditions as required to

(1) ensure that such resolution and conditions meet the requirements of section 251 of this title, including the regulations prescribed by the Commission pursuant to section 251 of this title;

(2) establish any rates for interconnection, services, or network elements according to subsection (d) of this section; and

(3) provide a schedule for implementation of the terms and conditions by the parties to the agreement.

Section 271 of the Telecommunications Act of 1996 states that no Bell operating companies (BOCs)⁴ may provide interLATA⁵ services except as provided in that section. Section 271 states that a BOC may provide interLATA services only after an application is filed with and approved by the Federal Communications Commission (FCC). Section 271(d)(2)(B) provides that before a determination is made with respect to a BOC's application, the FCC must consult with the appropriate state commission, in this case the ACC, in order to "verify the compliance of the [BOC] with the requirements of subsection (c) of this section". Section 271(c) lists the requirements for providing interLATA services.

The first requirement under section 271(c) is that all BOCs must have either:

(A) entered into one or more binding agreements that have been approved under section 252 of this title specifying the terms and conditions under which the Bell operating company is providing access and interconnection to its network facilities for the network facilities of one or more unaffiliated competing providers of telephone exchange service to residential and business subscribers; or

(B) not entered into one or more binding agreements if no CLEC has requested access and interconnection before the date which is 3 months before the date the BOC makes its application for interLATA, and a statement of the terms and conditions that the company generally offers to provide such access and interconnection has been approved or permitted to take effect by the state commission under section 252(f) of this title.

47 U.S.C. § 271(c)(1).

The second requirement under section 271(c) is that access or interconnection provided or generally offered by the BOC to other telecommunications carriers must comply with a checklist.⁶

After consultation with the ACC, the FCC must then issue a written determination within 90 days after receiving the application approving or denying the BOC's request to provide interLATA services. 47 U.S.C. 271(d)(3). After approval, under section 271(d)(6), if the FCC determines that a BOC has ceased to meet any of the interLATA requirements, it may issue an order requiring the BOC to correct the deficiency, suspend or revoke the approval, or impose penalties on the BOC.

Defendant Covad, as a CLEC, pursuant to sections 251 and 252 of the Telecommunications Act requested interconnection with Qwest, as a ILEC. After failing to reach an agreement, the parties underwent compulsory arbitration with the ACC. On February 2, 2006, the ACC issued an Arbitration Order which resolved the disputed issues between the parties regarding their ICA. The parties agree that the only issue of relevance at this point is issue # 2: "May Section 271 Elements and Unbundled Elements Under State Law be Included in the Interconnection Agreement?"

In its order, the ACC included provisions in the ICA that defined Qwest's interconnection and access obligations under Section 271. The ACC found that since section 252(e) requires that "[a]ny interconnection agreement adopted by negotiation or arbitration shall be submitted for approval to the [ACC]," it had the authority to monitor and enforce Qwest's obligations under Section 271 and impose Section 271(c)(2) interconnection requirements into the arbitrated ICA. The ACC also found that it had authority under Arizona law to impose unbundling requirements even though they had been eliminated by the FCC under Section 251 and by the D.C. Circuit in U.S. Telecom Ass'n, v. FCC, 359 F.3d 554 (D.C.Cir.2004).⁷ Finally, the ACC found that the total element long-run incremental cost (TELRIC) pricing method⁸ for unbundled network elements (UNEs) that was in effect when the FCC approved Qwest's entry into the Arizona interLATA market would remain in effect.

Qwest argues the three rulings made by the ACC are incorrect and must be overturned. First, it is argued that the Telecommunications Act does not give the ACC any decision making or enforcement authority relating to Section 271 obligations. Second, Qwest argues that the ACC has no authority to require unbundling under Arizona law that the FCC has explicitly rejected. Finally, Qwest argues that the Arbitration Order improperly applies TELRIC prices to Section 271 elements because the TELRIC pricing standard only applies to UNEs that ILECs provide under Section 251(c)(3). The ACC and Covad disagree, and argue that the ACC was correct in its order for the reasons discussed below.

I. Standard of Review

Qwest brings this action pursuant to 47 U.S.C. § 252(e)(6), which states that "[i]n any case in which a State commission makes a determination under this section, 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 section 251 of this title and this section."⁹ The scope of review is confined to the administrative record. U.S. West Communications, Inc. v. Jennings, 46 F.Supp.2d 1004, 1008-09 (D.Ariz.1999), reversed in part on other grounds, 304 F.3d 950 (9th Cir.2002). With regard to the standard of review, this court does not sit as a surrogate public utilities commission to second-guess the decisions made by the state agency to which Congress has committed primary responsibility for implementing the Act in Arizona. Id. Rather, this court's principal task is to determine whether the ACC properly interpreted the Act and any implementing regulations, which is a question of federal law that is reviewed de novo. Id. In all other respects, review will be under the arbitrary and capricious standard. Id.

II. The ACC's Role Under Section 271

Qwest argues that the Telecommunications Act does not give the ACC the authority to ensure compliance with the Section 271 checklist requirements. Qwest maintains that because there is an absence of specific language in the Act which authorizes the ACC to perform such a function, it is forbidden as preempted by federal law. Qwest maintains that the only role that the ACC is authorized to perform under Section 271 is to consult with the FCC before the FCC makes a final determination regarding a BOC's interLATA application. Further, Qwest argues the Act does not contemplate that the ACC could impose Section 271 requirements into ICAs that the ACC arbitrates under Section 252. Finally, Qwest contends that the only requirements that the ACC may impose into the ICAs are those in Section 251 regarding interconnection. See 47 U.S.C. § 252(c) (stating that state commissions are to resolve open issues by imposing conditions that meet the requirements of Section 251)

The ACC and Covad respond by arguing that under the Act, the ACC plays a major role in implementing Section 271, specifically through the Section 252 ICA arbitration process. They claim that since the FCC only has a limited 90 days to grant or deny Section 271 applications, which are extremely complex, the FCC has placed reliance on state commissions to develop factual...