Southwestern Bell v. Public Utility

• Citation: 208 F.3d 475
• Decision Date: 30 March 2000
• Docket Number: No. 98-50787,98-50787
• Parties: (5th Cir. 2000) SOUTHWESTERN BELL TELEPHONE CO., Plaintiff-Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS; PAT WOOD III; JUDY WALSH; BRETT PEARLMAN; TIME WARNER COMMUNICATIONS OF AUSTIN, L.P.; TIME WARNER COMMUNICATIONS OF HOUSTON, L.P.; AND FIBRCOM, INC., Defendants-Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 475

208 F.3d 475 (5th Cir. 2000)

SOUTHWESTERN BELL TELEPHONE CO., Plaintiff-Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS; PAT WOOD III; JUDY WALSH; BRETT PEARLMAN; TIME WARNER COMMUNICATIONS OF AUSTIN, L.P.; TIME WARNER COMMUNICATIONS OF HOUSTON, L.P.; AND FIBRCOM, INC., Defendants-Appellees.

No. 98-50787

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

March 30, 2000

[Copyrighted Material Omitted]

Appeal from the United States District Court for the Western District of Texas.

Before WIENER and STEWART, Circuit Judges. ¹

WIENER, Circuit Judge.

This appeal involves a dispute between two interconnecting telephone companies ("carriers") in the same local calling areas about whether modem calls placed by local customers of one carrier to the Internet Service Provider ("ISP") customers of another carrier should be charged for as a "local" call. The contracts between the carriers that are parties to this appeal specify that local calls placed by customers of one carrier to customers of the other are to be "reciprocally compensated." In the district court, Plaintiff-Appellant Southwestern Bell Telephone Co. ("Southwestern Bell") disavowed any obligation to compensate Defendants-Appellees Time Warner Communications of Austin, L.P. (collectively "Time Warner"), for calls made by Southwestern Bell's customers to Time Warner's ISP customers as local calls. The district court, like the Texas Public Utilities Commission ("PUC") before it, held that the carriers' contracts require such calls to be treated as local calls and as such, to be compensated for reciprocally. The procedural history of this case also presents thorny jurisdictional questions at the state regulatory commission and federal district court levels. Concluding that the PUC and the district court had jurisdiction to adjudicate the merits of this case, and agreeing with their dispositions of it, we affirm.

I. FACTS AND PROCEEDINGS

In the interest of opening previously monopolistic local telephone markets to competition, the Federal Telecommunications Act of 1996 (the "Act") requires all telecommunications carriers to interconnect their networks so that customers of different carriers can call one another. 47 U.S.C. 251(a)(1) (West Supp. 1999). Both Southwestern Bell and Time Warner are local exchange carriers ("LECs"). Having historically held monopolies in the subject markets, Southwestern Bell is the incumbent LEC or ILEC, and Time Warner is a competing LEC or CLEC. The Act requires ILECs to negotiate reciprocal compensation arrangements or interconnection agreements with CLECs to establish the terms by which they will compensate each other for the use of the other's networks. 47 U.S.C. 251(b)(5), (c)(1). When an LEC's customer places a local call to a customer of another LEC, the LEC whose customer initiated the call compensates the receiving LEC for transporting and terminating the call through its network. See 47 U.S.C. 251(b)(5); 47 C.F.R. 51.701(e) (1998).

In two reciprocal compensation agreements (one executed in 1996 and the other in 1997), Time Warner and Southwestern Bell agreed to base reciprocal compensation on minutes of use. That way each party would pay the other a fixed rate for each minute that one of its customers used the other's network for "Local Traffic." The instant dispute originated when Southwestern Bell refused to pay Time Warner reciprocal compensation for modem calls that Southwestern Bell's customers made to Time Warner's ISP customers. ( ISPs typically purchase local business phone service from LECs for a flat monthly fee that allows unlimited incoming calls.) An Internet user can through use of a modem, dial an ISP's local phone number without incurring long-distance tolls, but can nevertheless access websites around the globe. Southwestern Bell based its refusal to pay reciprocal compensation to Time Warner on the theory that, because modem calls to ISPs involve the continuous transmission of information across state lines, such calls are interstate and thus should not be billed as Local Traffic.

In response, Time Warner filed a complaint with the PUC alleging that Southwestern Bell breached its interconnection agreements when it refused to pay reciprocal compensation for those calls that its customers made to Time Warner's ISP customers. The PUC sided with Time Warner, ruling that calls made by Southwestern Bell's customers to Time Warner's ISP customers are Local Traffic, and as such generate reciprocal compensation obligations.

Southwestern Bell then sought relief in the district court, continuing to insist that Internet calls are not "local" and therefore should not fall under the reciprocal compensation provisions of the interconnection agreements applicable to local calls. The district court upheld the PUC's decision, agreeing that, under the interconnection agreements, "Local Traffic" includes calls to ISPs. Both the PUC and the district court were impressed by the notion that a "call" from a Southwestern Bell's customer to a Time Warner ISP customer terminates locally at the ISP's facility. They considered such telecommunication service to be a component of the call separate and distinct from the information service, which begins at the ISP's facility and continues to distant websites.

Subsequent to the filing of this appeal, the FCC handed down a ruling pertinent to reciprocal compensation for ISP-bound calls, entitled Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Inter-Carrier Compensation for ISP-Bound Traffic, 14 FCC Rcd 3689 (1999) (the "Reciprocal Compensation Ruling"). Holding that it has jurisdiction over calls to ISPs as interstate calls, the FCC declined to separate ISP-bound traffic into two distinct components (intrastate telecommunications service, provided by the LEC, which goes from a user's modem to the local ISP, and interstate information service, provided by the ISP, which goes from the ISP to the websites). Reciprocal Compensation Ruling PP 1, 13. Although the FCC determined the jurisdictional nature of the ISP-bound traffic by the end-to-end analysis of the transmission (from the user to the Internet), it held that LECs are nevertheless controlled by interconnection agreements that include ISP-bound traffic in their reciprocal compensation provisions in the same manner as they include other local traffic. Id. PP 13, 16, 18, 22-24. Taking a hands-off approach, the FCC announced that it will not interfere with state commission determinations of whether reciprocal compensation provisions of interconnection agreements apply to ISP-bound traffic. Id. PP 21-22. ².

II. ANALYSIS

A. Jurisdiction

The substantive question that we are asked today is whether, for purposes of one LEC paying reciprocal compensation to another, a call from the first LEC's customer to the second LEC's ISP customer in the same local exchange area is "Local Traffic" as the term is used in these LECs' interconnection agreements. Before addressing that question, though, we must answer several questions regarding jurisdiction.

The easy one is appellate jurisdiction: We clearly have it under 28 U.S.C. 1291. Jurisdictional questions arising from the presence of this case first before the PUC and subsequently before the district court are not so simple.

As a general proposition, jurisdiction to entertain such matters is conferred on the district court by the judicial review provisions of the Act, which state:

In 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 [252].

47 U.S.C. 252(e)(6) (emphasis ours). ³ With respect to the interconnection agreements, the Act confers jurisdiction on the district court to review the PUC's determination for compliance with the Act, specifically sections 251 and 252. Our chore today is to determine whether the Act, which admittedly provides for federal district court review of some state commission dispositions implicating interconnection agreements, provides for such review in this instance. This determination comprises two parts: (1) the PUC's own jurisdiction to determine the questions presented to it, and (2) the scope of federal review. As to the first part, the Act provides commission jurisdiction in cases "in which a State commission makes a determination under this section," meaning section 252. That section sets forth procedures for negotiation, arbitration, and approval of interconnection agreements. It also requires LECs to enter into interconnection agreements with each other, through either voluntary negotiation or compulsory arbitration. 47 U.S.C. 252(a), (b). The Act specifies that, regardless of how they are confected, all interconnection agreements must be approved by the appropriate state commission. 47 U.S.C. 252(e)(1). Here, the parties had voluntarily negotiated their interconnection agreements, and the PUC had approved them; no one is here seeking district court review of those approvals. It was not until several months after the PUC granted its approvals that Time Warner filed the complaint with the PUC pertaining to reciprocal compensation under those agreements, precipitating the declaratory action in federal court and ultimately this appeal.

The Act's reference to "a State commission . . . determination under this section [252]," could, if construed quite narrowly, limit state commission jurisdiction to decisions approving or disapproving, or arbitrating, an interconnection agreement. Under such a narrow construction, commission jurisdiction would not extend to interpreting or enforcing a previously approved contract. We do not think so narrow a construction was intended. Rather, we are satisfied that the Act's grant to the state commissions of...