Us West Communications, Inc. v. Hix

• Decision Date: 13 April 2000
• Docket Number: Civ.A.No. 97-D-934.,Civ.A.No. 97-D-152.,Civ.A.No. 97-D-2096.,Civ.A.No. 97-D-1667.,Civ.A.No. 98-D-934.,Civ.A.No. 97-D-2047.,Civ.A.No. 97-D-387.
• Parties: US WEST COMMUNICATIONS, INC., a Colorado corporation, Plaintiff, v. Robert J. HIX, et al., Defendants.
• Court: Colorado Supreme Court

93 F.Supp.2d 1115

US WEST COMMUNICATIONS, INC., a Colorado corporation, Plaintiff, v. Robert J. HIX, et al., Defendants.

Civ.A.No. 97-D-152.

Civ.A.No. 97-D-387.

Civ.A.No. 97-D-934.

Civ.A.No. 97-D-1667.

Civ.A.No. 97-D-2047.

Civ.A.No. 97-D-2096.

Civ.A.No. 98-D-934.

United States District Court, D. Colorado.

April 13, 2000.

William M. Ojile, Jr., Colleen M. Rea, Evergreen, CO, Bobbee J. Musgrave, B. Lawrence Theis, Perkins Coie, Denver, CO, Kathryn E. Ford, Steven Harold Denman, Richard L. Corbetta, Melissa A. O'Leary, Denman & Corbetta PC, Denver, CO, Russell Paul Rowe, Michael Craig Thompson, Denver, CO, for U.S. West Communications, Inc., a Colorado corporation, plaintiff.

Linda Ann Surbaugh, United States Attorney's Office, Civil Division, Denver, CO, Theodore C. Hirt, U.S. Department of Justice, Civil Division, Washington, DC, Martha Hirschfield, for USA, F.C.C., intervenor-plaintiffs.

David Alexander Beckett, Attorney General's Office, Department of Law, Denver, CO, Anthony Marquez, Attorney General's Office, Human Resources Section, Denver, CO, for Robert J. Hix, Commissioner of the Public Utilities Commission of the State of Colorado, Brent Alderfer, Vincent Majkowski, defendants.

Joseph W. Halpern, Robert M. Pomeroy, Jr., Marcy Geoffrey Glenn, Holland & Hart, LLP, United States District Court, Denver, CO, Michael D. Warden, Sidley & Austin, Washington, DC, Paul Michael Gordon, Wendell Hume Goddard, Gordon & Goddard LLP, Oakland, CA, David R. DeMuro, Vaughan & DeMuro, Denver, CO, Deborah S. Waldbaum, Deborah Waldbaum, Atty at Law, Englewood, CO, for TCG Colorado, a New York General Partnership, Teleport Communications Group, Inc., defendants.

Craig D. Joyce, Anne Baudino Holton, Walters & Joyce, P.C., Denver, CO, Albert H. Kramer, David Blair Killalea, Dickstein, Shapiro, Morin & Oshinsky, Washington, DC, for ICG Telecom Group, Inc., a Colorado corporation, defendant.

Robert W. Nichols, Phillisa Scott Shoemaker, Nichols & Hecht, LLC, Denver, CO, Charles B. Hecht, Petrie, Bauer, Vriesman & Hecht, Denver, CO, for McImetro Access Transmission Services, Inc., intervenor-defendant.

Letty S.D. Friesen, Ireland, Stapleton, Pryor & Pascoe, P.C., United States District Court, Denver, CO, Joseph W. Halpern, Robert M. Pomeroy, Jr., Marcy Geoffrey Glenn, Dorsey & Whitney, Denver, CO, for AT & T of the Mountain States, Inc., intervenor-defendant.

Theodore C. Hirt, U.S. Department of Justice, Civil Division, Washington, DC, Martha Hirschfield, for Federal Communications Commission, amicus.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

DANIEL, District Judge.

THIS MATTER arises under Sections 251 and 252 of the Telecommunications Act of 1996, 47 U.S.C. §§ 251 and 252 ("the Telco Act"). The Telco Act fundamentally restructured local telephone markets, ending the monopolies that States historically granted to local exchange carriers (LECs) and subjected incumbent LECs to an array of duties intended to facilitate market entry, including the obligation under 47 U.S.C. § 251(c) to share their market with competitors.

Under the Telco Act, U.S. West Communications, Inc. ("USWC"), the incumbent local exchange carrier ("ILEC"), brings suit against certain competitive local exchange carriers ("CLECs") challenging provisions of interconnection agreements approved by the Colorado Public Utilities Commission ("CPUC" or "the Commission") pursuant to the Telco Act. The CLECs have asserted a number of counterclaims also challenging provisions of the interconnection agreements.

A hearing was held on September 22, 1998, in connection with certain issues concerning the merits of this case. The Court, being fully advised in the premises, hereby issues its Findings of Fact and Conclusions of Law in regard to sham unbundling and directory listing requirements.

I. USWC's SHAM UNBUNDLING CLAIM

A. Findings of Fact

1. USWC challenges provisions in each of its separate interconnection agreements ("Agreements") with AT & T, MCI, ICG, WorldCom,¹ and Sprint, all of whom are CLECs, claiming that those provisions permit the new entrants to engage in what USWC characterizes as "sham unbundling".² This challenge is, in fact, two separate claims. The CLECs contend that only one of the two claims was raised during the arbitration before the CPUC.³

2. First, USWC asserts that the Telco Act prohibits new entrants from obtaining unbundled network elements ("UNEs") at cost-based rates and using those elements to provide finished telecommunications services (the "sham unbundling" claim). See USWC Communications, Inc.'s Brief on the Merits ("USWC Br. at 4"). USWC argues in this regard that this so called sham unbundling would obliterate the distinction between resale of discounted retail prices and purchase of UNEs at cost as set forth in the Telco Act at 47 U.S.C. § 251(c)(3) and (4). USWC also contends that sham unbundling allows CLECs to evade the restriction on joint marketing of resold services with long-distance service under Section 271(e)(1) of the Telco Act. Second, in the claim that the CLECs contend was not raised in the arbitration, USWC argues that the Agreements violate the Act by requiring USWC either to provide already-combined network elements to new entrants or to rebundle network elements into combinations (the "duty to combine" claim). Id.⁴ 3. With respect to USWC's sham unbundling claim, each of the Agreements permits the new entrant in the local telephone market to use elements of USWC's network obtained at cost-based rates to provide finished telecommunications services to local telephone customers without any requirement that the new entrant own or use its own facilities. See, e.g., USWC-AT & T Interconnection Agreement, Att. 3 (Joint Appendix ("J.A.") Vol. 13, Tab 126, at 25052).⁵

4. USWC argued before the CPUC that, under the Act, a new entrant could not provide finished telecommunications services using only cost-based elements from USWC's network without utilizing its own facilities. USWC claimed that the new entrants wishing to offer finished services solely through unbundled network elements must pay wholesale rates applicable to the resale of telecommunications services under §§ 251(c)(4) and 252(d)(3) of the Act, rather than the cost-based rates for network elements under §§ 251(c)(2) and 252(d)(1). The CPUC succinctly described USWC's position before it:

For its part, USWC recommends that the Commission restrict AT & T's ability to buy unbundled elements such that reassembly of those unbundled elements to create a complete telecommunications service is not possible. USWC witnesses testified that they disagree with the [FCC Local Competition Order] and are of the opinion that the purchase of all of the necessary unbundled elements to form a complete service is not within the intent of the 1996 Telecommunications Act. Specifically, Dr. Harris, a USWC witness, testified that the potential for price arbitrage created by this situation would harm USWC.

AT & T Arbitration Decision, at 66-67 (J.A.Vol. 10, Tab 93, at 10368-69); Decision Regarding MCI's Petition for Arbitration (J.A.Vol. 10, Tab 103, at 11550-551).

5. During the consolidated arbitration hearing, USWC urged the CPUC not to follow provisions of the FCC's Local Competition Order that permit new entrants to replicate a finished service using network elements, describing the FCC's rules as permitting "phantom" or "sham" unbundling. Testimony ("Test.") of Brian Johnson, at 52-53 (J.A.Vol. 1, Tab 6, at 893-94). USWC argued to the CPUC that its competitors would be able to engage in "pricing arbitrage" if they could lease combinations at cost-based rates, and USWC's witness testified that the issue was "principally a pricing issue." USWC's Closing Statement, at 17 (J.A.Vol. 1, Tab 15, at 4471); 9/30/96 Hearing Transcript ("Tr."), at 252 (J.A.Vol. 9, Tab 71); see Test. of Robert G. Harris, at 33 (J.A.Vol. 1, Tab 4, at 570) ("[s]ham unbundling is nothing more — and nothing less — than pure price arbitrage, by which new entrants can circumvent the avoided cost standard for the resale of bundled services").

6. The CPUC rejected USWC's sham unbundling claim, holding that the Agreements should "not include any restrictions on the bundling of network elements apart from any incorporated through the Interconnection Tariff." See, e.g., AT & T Arbitration Decision, at 68 (J.A.Vol. 10, Tab 93, at 10370).

7. The second unbundling claim raised by USWC challenges provisions in each of the Agreements that require USWC to provide combinations of network elements to new entrants. Because most of the agreements between USWC and new entrants differ, I review the specific provisions of each agreement.

8. The AT & T/MCI Agreements. USWC challenges provisions in the AT & T/MCI Agreements that require it to "offer each Network Element individually and in combination with any other Network Element or Network Elements in order to permit AT & T to provide Telecommunications Services to its subscribers." USWC-AT & T Agr., Attachment ("Att.") 3, § 2.3-2.5 (J.A.Vol. 13, Tab 126, at 25053); USWC-MCI Agr., Att. 3, § 2.4 (id., Tab 128, at 26200). The AT & T/MCI Agreements define "combinations" as the "provision by USWC of two or more currently connected Network Elements ordered by [AT & T/MCI] to provide its Telecommunications Services in a geographic area or to a specific subscriber." USWC-AT & T Agreement ("Agr."), part B (id. at 25027); USWC-MCI Agr., part B (J.A.Vol. 13, Tab 128, at 26174). The CLECs assert that because of this limiting definition, USWC contends that it should be permitted to dismantle existing combinations of network elements.

9. The WorldCom Agreement. USWC challenges the combination provision in Section XXXI.A.3 of the WorldCom-USWC Interconnection Agreement. That section provides:

USWC will not restrict the types of telecommunications services MFS may offer through unbundled network elements, nor will it restrict MFS from combining elements with any...