Southwestern Bell Telephone Company v. Apple

• Decision Date: 16 October 2002
• Docket Number: No. 00-6030.,00-6030.
• Citation: 309 F.3d 713
• Parties: SOUTHWESTERN BELL TELEPHONE COMPANY, Plaintiff-Appellant, v. Ed APPLE, Chairman, Bob Anthony, Vice Chairman, and Denise Bode, Commissioner, in their official capacities as Commissioners of the Oklahoma Corporation Commission; Oklahoma Corporation Commission; and AT & T Communications of the Southwest, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

309 F.3d 713

SOUTHWESTERN BELL TELEPHONE COMPANY, Plaintiff-Appellant, v. Ed APPLE, Chairman, Bob Anthony, Vice Chairman, and Denise Bode, Commissioner, in their official capacities as Commissioners of the Oklahoma Corporation Commission; Oklahoma Corporation Commission; and AT & T Communications of the Southwest, Inc., Defendants-Appellees.

No. 00-6030.

United States Court of Appeals, Tenth Circuit.

October 16, 2002.

Colin S. Stretch (Mary W. Marks, Southwestern Bell Telephone Company, Oklahoma City, OK, Michael K. Kellogg & Sean A. Lev, Kellogg, Huber, Hansen, Todd, & Evans, P.L.L.C., Washington, DC, with him on the briefs), Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC, for Plaintiff-Appellant, Southwestern Bell Telephone Company.

Michael J. Hunseder (Lawrence Lafaro, AT & T Corp., Basking Ridge, NJ, Mark Witcher, AT & T Corp, Austin, TX, & David L. Lawson, Sidley, Austin, Brown & Wood, Washington, DC, with him on the brief), Sidley, Austin, Brown & Wood, Washington, DC, for Defendant-Appellee, AT & T Communications of the Southwest, Inc. Rachel Lawrence Mor, Deputy General Counsel, Andrea Johnson, Senior Attorney, Oklahoma City, OK, submitted a brief for Defendant Appellee, Oklahoma Corporation Commission.

Before EBEL, McKAY, and LUCERO, Circuit Judges.

EBEL, Circuit Judge.

This case concerns certain obligations that the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (codified at 47 U.S.C. § 251 et seq.), ("the Act"), imposed on incumbent providers of local telephone service. Two of the Act's obligations on incumbent service providers, such as Southwestern Bell ("SWBT"), are at issue in this case: a resale duty and a duty to provide access to elements of the incumbent's network. The United States District Court for the Western District of Oklahoma found that an end-user limitation imposed by SWBT on its optional toll calling plans sold to AT & T was an unreasonable resale restriction, in violation of the Act. In a separate order, it instructed SWBT to provide AT & T with immediate access to certain network elements. Exercising our jurisdiction pursuant to 28 U.S.C. § 1291, we reverse the district court's order pertaining to the end-user limitation and vacate its order dealing with access to network elements.

I. THE ACT

In 1996, Congress enacted the Telecommunications Act of 1996, which "fundamentally change[d] telecommunications regulation" by introducing competition in the local service market. See First Report and Order, Implementation of the Local Competition Provisions in the Telecomm. Act of 1996, 11 FCCR 15,499 ¶ 1 (1996) ("Local Competition Order".)¹ Prior to the Act, telephone service was a regulated monopoly, in which incumbent providers enjoyed protection from new companies entering the market. The Act sought to "remove the outdated barriers that protect monopolies from competition and affirmatively promote efficient competition." Id. Under the Act, incumbent local exchange carriers ("ILECs"), ones which previously had enjoyed a monopoly over the provision of local telephone service, acquired affirmative duties. Incumbent LECs must (1) provide unbundled access to their network elements² ("unbundled access provision"), 47 U.S.C. § 251(c)(3), and (2) "offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers" ("resale provision"). 47 U.S.C. § 251(c)(4)(A). The resale duty also prohibits ILECs from imposing "unreasonable or discriminatory conditions or limitations" on the resale of "such telecommunications service." 47 U.S.C. § 251(c)(4)(B).

These distinct duties on ILECs offer unique opportunities to new market entrants and are premised on different pricing strategies. Under the unbundled access provision, a new competitor local exchange carrier ("CLEC") can acquire various network elements from an ILEC and can reconfigure them in various packages to sell to end-users. Unbundled access "permit[s] new entrants to offer competing local services by purchasing from incumbents, at cost-based prices, access to elements which they do not already possess, unbundled from those elements that they do not need." See Local Competition Order ¶ 231 (emphasis added). In contrast, if a CLEC buys services under the resale provision, it is able to resell that service under its own name, but is limited to selling the service that the ILEC provides "at retail." 47 U.S.C. § 251(c)(4)(A). These services are purchased at wholesale rates, which are determined by subtracting costs avoided from the ILEC's retail rate. See 47 U.S.C. § 252(d)(3). In other words, the proper starting point for determining the wholesale price under the resale provision is the retail price (from which one subtracts the ILEC's avoided costs), whereas under the unbundled access provision, the starting point is cost.³ See generally AT & T Communications of the S. States, Inc. v. BellSouth Telecomm., Inc., 268 F.3d 1294, 1297-98 (11th Cir.2001) (discussing different pricing methodologies).

II. BACKGROUND

AT & T seeks to enter the Oklahoma market for local telephone service. The parties agree that SWBT, an incumbent provider of local service in the state, is obligated to resell to AT & T telephone services that SWBT provides to its own customers. The services at issue are certain optional toll calling plans ("OTCP"), under which customers can opt to make unlimited calls within a certain geographic radius for a flat monthly fee. The OTCP allows customers to widen their "`free calling' area, and thereby turn what would otherwise be considered toll calls [long distance] into local calls that are covered by the local service fee." (Aplt. B. at 10.) SWBT offers these plans to single-users only, and specifically prohibits multiple users from sharing one plan. SWBT seeks to impose this single-user limitation on AT & T's resale of the plan, essentially requiring that AT & T only sell one plan to one end-user. AT & T contends that this condition is a "restriction on resale," which is generally presumed to be unreasonable under the Act. SWBT, on the other hand, contends that the condition is a "use limitation" as opposed to a restriction on resale, and that eliminating the restriction would allow AT & T to resell services that SWBT does not currently provide to its own customers.

AT & T challenged the single-user limitation before the Oklahoma Corporation Commission ("OCC"), which agreed with SWBT. The OCC concluded that AT & T literally would be offering a different service for resale than the one that SWBT currently offers its customers, a situation that the Act does not require. It further concluded that the restriction was reasonable and non-discriminatory. AT & T appealed the OCC's decision to the United States District Court for the Western District of Oklahoma, which disagreed with the OCC and held that the restriction was a resale restriction and that SWBT had not overcome the restriction's presumption of unreasonableness.

III. DISCUSSION

A. Standard of Review

Although the Act provided for federal court review of state commission decisions concerning interconnection agreements, see 47 U.S.C. § 252(e)(6),⁴ it did not articulate the standard of review that courts should apply to those decisions. See Philip J. Weiser, Chevron, Cooperative Federalism, and Telecommunications Reform, 52 Vand. L.Rev. 1, 20 (1999). The Tenth Circuit has joined most other federal courts in applying a de novo standard when reviewing state commissions' interpretations of the Act and its regulations, as those decisions turn on determinations of federal law. Southwestern Bell Tel. Co. v. Brooks Fiber Communications of Okla., Inc., 235 F.3d 493, 498 (10th Cir.2000). See also MCI Telecomm. Corp. v. Bell Atlantic-Pennsylvania, 271 F.3d 491, 517 (3d Cir.2001); US West Communications v. MFS Intelenet, Inc., 193 F.3d 1112, 1117 (9th Cir.1999); MCI Telecomm. Corp. v. BellSouth Telecomm., Inc., 112 F.Supp.2d 1286, 1290-1292 (N.D.Fla.2000); US West Communications, Inc. v. Hix ("Hix I"), 986 F.Supp. 13, 19 (D.Colo.1997) (holding that courts should apply de novo review to questions of whether the state commissions' actions were "procedurally and substantively in compliance with the Act and [its] implementing regulations"); see also Michigan Bell Tel. Co. v. Climax Tel. Co., 121 F.Supp.2d 1104, 1108-09 (W.D.Mich. 2000) (stating that the Fourth, Fifth, and Ninth circuits have used de novo review of state commissions' application of the Act); US West Communications, Inc. v. Hix ("Hix II"), 93 F.Supp.2d 1115, 1130 (D.Colo.2000) (applying de novo review to state commission's interpretation of the Act and its regulations); BellSouth Telecomm., Inc. v. ITC Deltacom Communications, Inc., 62 F.Supp.2d 1302, 1307 (M.D.Ala.1999) (adopting de novo standard of review for questions of whether state commission "properly interpreted and applied the Act") (internal quotation marks omitted); Weiser, supra, at 20 (stating that "federal courts have declined to accord state agencies [deference] ... when it comes to construing ambiguous statutory terms or filling gaps in the Telecom Act" and collecting cases).⁵

Once federal courts determine that state commissions properly interpreted the Act and its regulations, courts apply an arbitrary and capricious standard to review the remaining state commissions' determinations. MCI Telecomm. Corp., 112 F.Supp.2d at 1291; see also AT & T Communications of the S. States, Inc. v. BellSouth Telecomm., Inc., 7 F.Supp.2d 661, 668 (E.D.N.C.1998) (explaining that federal courts review de novo state commission's interpretation of the Act, but that if state commission's interpretation is in compliance with federal law, that federal courts review all other issues using arbitrary and capricious standard); Hix I, 986 F.Supp. at 19 (same).

Most federal courts to analyze claims similar to the ones at issue in this case have applied de...