Verizon New England v. Maine Public Utilities

• Decision Date: 06 September 2007
• Docket Number: No. 06-2429.,No. 06-2151.,06-2151.,06-2429.
• Citation: 509 F.3d 1
• Parties: VERIZON NEW ENGLAND, INC., Plaintiff, Appellant, v. MAINE PUBLIC UTILITIES COMMISSION; Stephen L. Diamond, in his official capacity as Commissioner of the Maine Public Utilities Commission; Sharon M. Reishus, in her official capacity as Commissioner of the Maine Public Utilities Commission; Kurt W. Adams, in his official capacity as Commissioner of the Maine Public Utilities Commission, Defendants, Appellees. Verizon New England, Inc., Plaintiff, Appellee, v. New Hampshire Public Utilities Commission; Thomas B. Getz, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission; Graham J. Morrison, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission; and Michael D. Harrington, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

509 F.3d 1

VERIZON NEW ENGLAND, INC., Plaintiff, Appellant, v. MAINE PUBLIC UTILITIES COMMISSION; Stephen L. Diamond, in his official capacity as Commissioner of the Maine Public Utilities Commission; Sharon M. Reishus, in her official capacity as Commissioner of the Maine Public Utilities Commission; Kurt W. Adams, in his official capacity as Commissioner of the Maine Public Utilities Commission, Defendants, Appellees.

Verizon New England, Inc., Plaintiff, Appellee, v. New Hampshire Public Utilities Commission; Thomas B. Getz, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission; Graham J. Morrison, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission; and Michael D. Harrington, in his official capacity as Commissioner of the New Hampshire Public Utilities Commission, Defendants, Appellants.

No. 06-2151.

No. 06-2429.

United States Court of Appeals, First Circuit.

Heard May 9, 2007.

Decided September 6, 2007.

Scott H. Angstreich with whom Kelly P. Dunbar, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C. and Bruce P. Beausejour, Verizon New England Inc., were on brief for plaintiff.

David S. Rosenzweig and Keegan Werlin LLP on brief for AT & T Inc. and BellSouth Corporation, Amici Curiae.

Andrew B. Livernois, Assistant Attorney General, Department of Justice, with whom Kelly A. Ayotte, Attorney General, State of New Hampshire, was on brief for defendants, appellants.

Andrew S. Hagler with whom Trina M. Bragdon, Maine Public Utilities Commission, was on brief for defendants, appellees.

Thomas F. Reilly, Attorney General, and Jed M. Nosal, Special Assistant Attorney General, General Counsel, Massachusetts Department of Telecommunications and Energy, on brief for the Commonwealth of Massachusetts Department of Telecommunications and Energy, Amicus Curiae.

Russell M. Blau, Philip J. Macres and Bingham McCutchen, LLP on brief for Alpheus Communications, L.P., Biddeford Internet Corporation d/b/a Great Works, Covad Communications Company/DIECA Communications Inc., Freedom Ring Communications, L.L.C. d/b/a BayRing Communications, segTEL, Inc. and XO Communications, Inc., Amici Curiae.

Before BOUDIN, Chief Judge, LYNCH and LIPEZ, Circuit Judges.

BOUDIN, Chief Judge.

Verizon is a major telephone company comprising, among other components, several of the former Bell System operating companies ("BOCs") based in the New England and Mid-Atlantic regions. In the federal district court in Maine, Verizon challenged rulings of the Maine Public Utilities Commission ("PUC") and lost; Verizon won in a comparable case in the New Hampshire district court directed against the New Hampshire PUC. The resulting appeals, one by Verizon and the other by the New Hampshire agency, are now before us.

Background. When the Bell System's "substantial domination of the telecommunications industry" was ended by antitrust decree in 1982, United States v. AT & T Co., 552 F.Supp. 131, 163 (D.D.C.1982), the framers of the decree conceived that telephone service would be separated into two spheres. In the long-distance market, it was expected that competition would grow between AT & T (now stripped of its local operating companies) and new entrants such as MCI, permitting reduced regulation.¹

By contrast, the former local Bell System operating companies—initially grouped under the decree into a number of independent regional BOC entities called RBOCs—were expected to continue as local monopolies, providing local service within their exclusive local areas as well as local distribution for AT & T and its new long distance competitors. The RBOCs were forbidden, with few exceptions, to provide any service other than a kind of broadly conceived local service. Huber et al., Federal Telecommunications Law 45 (2d ed.1999).

The retreat from this illusion of wholly separate spheres began in earnest with the 1996 Telecommunications Act, Pub.L. No. 104-104, 110 Stat. 56 ("1996 Act"). The RBOCs, like Verizon, wanted to provide long distance service; other companies, including both new entrants and established long distance carriers like AT & T and MCI, wanted to secure from the RBOCs access to local BOC facilities to use for long distance services, competing local services, or both. The 1996 Act established a complex regulatory regime for both entry and competition in both spheres.

The same set of local facilities — importantly (but not exclusively) traditional connections (called "loops"), usually copper wires, between the customers and the local carrier switching center — are used for both intrastate and interstate service. Prebreak up, when the Bell System provided most telephone service without competition, the principal regulatory issues revolved around rates, and agency authority could be easily divided: the Federal Communications Commission set interstate rates; the state commissions set intrastate rates.

In many cases, it is wasteful to duplicate local facilities, for example, by having each long distance carrier construct a separate loop to the customer's house. Under the 1996 Act, RBOCs and other "incumbent" local carriers are expected to provide access to certain elements of their local facilities to other companies. The statute also held out to the RBOCs the prospect of eventual entry — provided certain conditions are met — into the long distance market. However, regulation of facilities used in common for local and long distance service is less easily divided than was regulation of rates for telephone calls.

Thus, the 1996 Act set up a complicated dual regime. Pertinently, in sections 251-52, the statute divided authority between the FCC and states over the initial sharing of local facilities, whether owned by RBOCs or other independent incumbent carriers. 47 U.S.C. §§ 251-52 (2000). In section 271, the statute established special sharing requirements for the RBOCs to enter the long distance market and gave the FCC the controlling role in regulation under that section. Id. § 271(c), (d). Further complicating matters, the two sets of provisions overlap.

Importantly, sections 251-52 require that the incumbents provide competitors various "network elements" (e.g., local loops), as specified by the FCC from time to time, on an "unbundled" basis (such elements are commonly called "UNEs"). 47 U.S.C. § 251(c)(3).² The pricing for such elements is determined by inter-carrier agreement or, if they fail to agree, by arbitration under state-commission supervision and subject to review in federal courts. Id. § 252(a). The FCC, with court backing, ultimately determined that such prices should be based on total long run incremental costs ("TELRIC" rates), which are highly favorable to the competitors. See AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 374 & n. 3, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999).

Section 271 applies only to those incumbents, like Verizon, that are or incorporate former BOCs. 47 U.S.C. § 271(a). Among various conditions for FCC permission to provide long distance service, it requires — by contrast to sections 251-52 — that statutorily specified network elements be made available (e.g., "local loop transmission" and "local switching"). Id. § 271(c)(2)(B). In the past several years, the RBOCs have been applying for and receiving such permissions from the FCC.

Until recently, there was a substantial overlap between what the FCC deemed required UNEs under sections 251-52 and the statutory list in section 271. But, as a result of FCC orders in 2003 and 2005, a number of the UNEs have been "delisted," so that incumbents including RBOCs are no longer required to provide them under sections 251-52. Further, where section 271 still requires network elements by RBOCs who provide long distance service, the FCC has said that TELRIC pricing would be inappropriate and that the traditional "just and reasonable" standard would apply, likely generating higher prices to be paid by the competitors.³

It is against this background that the present cases arose. Each case involves an application by Verizon under section 271 to enter the long-distance market — in one case from Maine, in the other from New Hampshire. In each instance, the resulting district court litigation has posed the question whether the state commission can insist (despite delisting) that Verizon continue to provide the disputed network elements and do so at TELRIC pricing. We describe the two cases separately.

Maine. In seeking section 271 approval for interstate service for Maine customers, Verizon solicited support from the Maine PUC. In March 2002, the Maine PUC agreed to recommend that the FCC approve the application, assuming Verizon agreed with the state agency that it would comply with specified conditions, including a commitment to file with the Maine PUC a "wholesale tariff" embodying the UNE offerings.

Verizon agreed, the Maine PUC filed its favorable recommendation and in June 2002 the FCC granted Verizon's application. Thereafter, controversy developed between the Maine PUC and Verizon as to just what should appear in the wholesale tariff — a matter complicated by the intervening FCC rulings delisting various UNEs under section 251 and adopting the just and reasonable standard for section 271 elements. Verizon sought to adjust its tariff filings accordingly, and competing carriers complained.

The result was a set of Maine PUC orders in 2004 and 2005 which, among other things, ruled that Verizon was obligated to provide section 271 elements at TELRIC prices until the Maine PUC ordered otherwise. In addition, the Maine PUC determined that several elements that were delisted under sections 251-52 remain required under section 271 — which Verizon denies. These included three dark fiber elements (transport, loops, and entrance facilities) and "line sharing."⁴

Verizon then brought suit in the federal district court in Maine seeking to enjoin the Maine PUC from imposing these...