Qwest Corp. v. City of Santa Fe, CV 10-0617 RB/KBM
| Decision Date | 02 December 2013 |
| Docket Number | CV 10-0617 RB/KBM |
| Parties | QWEST CORPORATION, Plaintiff, v. CITY OF SANTA FE, Defendant. |
| Court | U.S. District Court — District of New Mexico |
Qwest Corporation ("Qwest") and the City of Santa Fe ("City") have a long, contentious history. Since at least the early 1900s, Qwest and its predecessors have maintained facilities in the City's public rights-of-way to provide telecommunication and other services to its customers, and the City has charged fees for Qwest's use and occupation. Given the pressures on both parties to maximize revenue, it is unsurprising that they again appear before this Court. Though the parties and issues are familiar, Qwest's position relative to the City has changed substantially over time. Qwest once wielded significant power over the City as the monopoly provider of telecommunication services; now, the law and the market have forced Qwest to compete with other providers. As the monopoly provider, Qwest invested substantial capital in infrastructure; now, Qwest is the provider of last resort and is required, by law, to install and maintain that infrastructure, though advances in technology and increased competition have reduced the customer base and rendered such infrastructure nonessential.
This matter is now before the Court on Qwest's claims that the City's latest ordinance governing the fees payable to the City for the occupation and use of the public rights-of-way by telecommunication service providers, enacted in 2010 and amended in 2010 and 2012 (the "2010 Ordinance"), violates Section 253 of the Telecommunications Act of 1996, 47 U.S.C. § 253, and the dormant Commerce Clause. The Court conducted a five-day bench trial in July 2013. After considering the evidence adduced in the course of trial, the arguments of counsel, relevant law, and otherwise being fully advised, the Court makes the following findings of fact and conclusions of law.
1. Qwest is a telecommunication carrier that is organized and exists under the laws of the state of Colorado, with its principal place of business in Monroe, Louisiana. Qwest is a subsidiary of CenturyLink, Inc. and does business under the "CenturyLink" trade name. Qwest provides wholesale and retail services throughout a fourteen-state region to residential and business customers, including customers located within the City of Santa Fe.
2. Defendant City of Santa Fe ("City") is a municipality organized and incorporated pursuant to the laws of the State of New Mexico.
3. Qwest provides a variety of retail and wholesale services through its network. The primary retail service that Qwest provides is basic dial tone, or local exchange service, which is the simple ability to make a telephone call within the local network. Qwest also offers retail customers advanced features, including call forwarding, call waiting, caller ID, three-way calling, and voicemail. Qwest provides limited long distance, or toll, service. In New Mexico, Qwest's toll service allows customers to complete calls within the state. For business customers, Qwest provides a private line service in addition to its other services. That private line is a dedicated circuit that enables a business to establishconnections between various office locations. In addition to retail services, Qwest offers wholesale services including switched access service, which allows a long distance carrier to terminate or originate a call within Qwest's local network. Qwest charges the long distance carrier a per minute fee for switched access. A second category of wholesale products involves the lease of elements of Qwest's local network, as mandated by the Telecommunications Act, 47 U.S.C. § 251(c). Qwest provides both unbundled network elements and dedicated circuits, also known as special access service. Unbundled network elements are parts of Qwest's network including portions of circuits, switches, and cables that transport calls, while special access service is a complete circuit akin to the private line that Qwest offers to business customers. Both unbundled network elements and special access service give Qwest's competitors dedicated access to Qwest's network, enabling them to provide telecommunication services to their customers. Finally, Qwest offers an internet access product.
4. To provide these services, Qwest utilizes a wireline system and must locate at least some of its telecommunication facilities on or under public rights-of-way, including streets, trenches, ditches, and sidewalks. Places of service, such as residences, are connected to Qwest's network through one or more "drop lines." A drop line is, essentially, a wire that runs into a home through which telecommunication service is provided. The drop line connects the house to what is called a pedestal. At the pedestal, several drop lines are joined into a larger cable. If placed underground, the larger cable runs through a four-inch pipe, called conduit, from the pedestal to an interface, referred to as a cross-connect or cross-box. Alternatively, the cable could be attached to a pole above ground. From the cross-connect, the cable and conduit or poles run to the central office, or switch. As theconduit and cable approach the central office, they become larger, thus requiring more underground access. Throughout the network, the conduit is connected through splicing vaults and utility holes, which allow technicians to access the conduit and cable. As explained by Rachel Torrence, a director within CenturyLink's Regulatory Operations Department who has an engineering background and extensive experience working for Qwest and its predecessors, Qwest places cabling structures, utility holes and splicing vaults in the public rights-of-way. However, Qwest's more expensive electronics, including the central office and cross-connects, are typically located in private easements.
5. Within Qwest's service area in New Mexico, Qwest is the incumbent local exchange carrier ("ILEC") and the provider of last resort. CenturyLink's State Legislative Affairs Director, Leo Baca, explained that Qwest's designation as the ILEC means that it is obliged by law to unbundle elements of its network and lease these elements to competitors at cost-based prices. Additionally, Qwest's tariff with the New Mexico Public Regulation Commission ("PRC") requires it to act as the provider of last resort, which means that Qwest must provide telecommunication service when requested by a customer. Qwest is obligated to lay telecommunication lines in new developments so that service can be provided if requested and to connect customers within 1,000 feet of a terminal at no additional cost.
6. For the use of the public rights-of-way in the City and approximately forty-five other New Mexico jurisdictions, Qwest pays fees pursuant to franchise agreements. Qwest has historically recovered these fees by charging them to its customers located in the city that imposes the fee, a practice known as pass-through.
7. From 1975 through 2000, the City allowed Qwest and its predecessor to install andmaintain telecommunication facilities in the City's public rights-of-way pursuant to a franchise agreement signed in 1975 ("1975 Agreement") by Qwest's predecessor, Mountain States Telephone & Telegraph. This agreement was executed when Mountain States was the monopoly provider of telecommunication service in the City. Mountain States and Qwest's earlier predecessors operated in the City under similar franchise agreements dating back to the 1930s. These agreements were likewise executed when Qwest's predecessors were monopoly providers.
8. Under the 1975 Agreement, Qwest annually paid the City two-percent of revenues generated from local exchange services to customers with service addresses in the City.1 The 1975 Agreement also set a minimum annual payment by Qwest - $83,160 for the first year and increasing by eight-percent annually for the succeeding four franchise years. After the first five years, the minimum payment was to be "based on the linear average annual percentage growth of the Company's gross receipts in the Santa Fe franchise area during the five-year period immediately preceding." Qwest's payments to the City were made quarterly, and any balance of the payment necessary to satisfy the required minimum, which the parties referred to as a "true-up" payment, was paid in the fourth quarter.
9. In addition to the franchise fee, the City imposed one-time charges on Qwest for individual permits necessary to install and maintain facilities in the rights-of-way, called street cut permits.
10. The term of the 1975 Agreement was twenty-five years, and it expired on April 9, 2000.
11. Prior to the expiration of the 1975 Agreement, the City enacted a new ordinance intended to govern all future access to and utilization of its rights-of-way by telecommunication carriers, Chapter 27 SFCC 1987 ("1998 Ordinance"). The 1998 Ordinance replaced the franchise fee system with a scheme that, among other things, required telecommunication carriers to register with the City, obtain an appraisal of the relevant right-of-way's value each time they sought to obtain a permit, and pay an annual fee to lease the right-of-way based on the appraisal.
12. Upon the expiration of the 1975 Agreement in 2000, Qwest filed a lawsuit against the City in federal court, contending that the fees resulting from the lease/appraisal system in the 1998 Ordinance were unlawful under Section 253 of the Telecommunications Act. Qwest v. Santa Fe, 224 F. Supp. 2d 1305 (D.N.M. 2002) ("Santa Fe I").
13. Because they were in litigation concerning the lawfulness of the 1998 Ordinance, the parties executed an "Interim Agreement" on July 26, 2000, agreeing to "preserve the status quo." Pursuant to that agreement, Qwest paid the City two-percent of revenue from local exchange services for use of the public rights-of-way pending a decision by the court as to the lawfulness...
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