Worldcom v. Connecticut Dept. of Public Utility

• Decision Date: 28 June 2005
• Docket Number: No. CIV. 3:00CV1919CFD.,CIV. 3:00CV1919CFD.
• Citation: 375 F.Supp.2d 86
• Court: U.S. District Court — District of Connecticut
• Parties: WORLDCOM, INC., et al., Plaintiffs, v. CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL, et al. Defendants.

375 F.Supp.2d 86

WORLDCOM, INC., et al., Plaintiffs, v. CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL, et al. Defendants.

No. CIV. 3:00CV1919CFD.

United States District Court, D. Connecticut.

June 28, 2005.

Moyahoena N. Ogilvie, Cummings & Lockwood, Hartford, CT, Robert J. Sickinger, Robert P. Dolian, Cummings & Lockwood, Stamford, CT, Maureen F. Del Duca, Michael B. Desanctis, Jenner & Block, Washington, DC, for Plaintiffs.

Robert S. Golden, Jr., Tatiana D. Eirmann, Attorney General's Office Public Utility Control, New Britain, CT, Ralph G. Elliot, Tyler Cooper & Alcorn, Hartford, CT, Keith M. Krom, New Haven, CT, for Defendants.

MEMORANDUM OF DECISION

DRONEY, District Judge.

Plaintiffs WorldCom, Inc., Brooks Fiber Communications of Connecticut, Inc., MCI WorldCom Communications, Inc., and MCIMetro Access Transmission Services, LLC (collectively, "WorldCom") brought this action under the Telecommunications Act of 1996, 47 U.S.C. §§ 251 et seq. (the "Act" or "1996 Act") and its implementing regulations against defendants Connecticut Department of Public Utility Control ("DPUC"), Donald W. Downes, Glenn Arthur, Jack R. Goldberg, Linda J. Kelly Arnold, and John W. Betkowski (collectively, the "Commissioners"), and Southern New England Telephone Company ("SNET").¹ In its complaint, WorldCom sought review of a DPUC order issued pursuant to the Act.² The Court grants WorldCom the declaratory and equitable relief sought in its complaint.

The following constitutes the Court's findings of fact and conclusions of law.

I. Background

A. The 1996 Act

Until recently, local telephone service was essentially a monopoly. As the United States Supreme Court explained: "States typically granted an exclusive franchise in each local service area to a local exchange carrier (`LEC'), which owned, among other things, the local loops (wires connecting telephones to switches), the switches (equipment directing calls to their destinations), and the transport trunks (wires carrying calls between switches) that constitute a local exchange network." AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). The 1996 Act fundamentally altered this regime. "States may no longer enforce laws that impede competition, and incumbent LECs are subject to a host of duties intended to facilitate market entry." Id. One of the principal responsibilities of an incumbent LEC under the Act is to allow its competitors to share its network; this sharing is termed "interconnection." See 47 U.S.C. § 251(c)(2). An incumbent LEC also has the duty to provide to "any requesting telecommunications carrier for the provision of telecommunications service, non-discriminatory access to network elements on an unbundled basis at any technically feasible points on rates, terms and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of [47 U.S.C. § 252]."³ 47 U.S.C. § 251(c)(3).

When an incumbent LEC receives a request for interconnection from a competing telecommunications carrier, the incumbent LEC may negotiate and enter into a binding agreement with the competitor. Id. § 252(a). The agreement must contain itemized charges for each service or network element covered by the agreement. Id. When negotiating interconnection agreements with its competitors, the incumbent LEC has a duty to act in good faith. Id. § 251(c)(1). However, if differences can not be resolved, either the incumbent LEC or the competitor may ask the state commission that regulates local telephone service to become involved in the negotiations as a mediator, or may petition the state commission to arbitrate any remaining open issues. Id. §§ 252(a)(2), (b)(1). Each interconnection agreement, whether adopted by negotiation or arbitration, must be approved by the state commission. Id. § 252(e)(1). The state commission has limited grounds on which it may base a rejection of an agreement. Id. § 252(e)(2). For example, it may reject an arbitrated agreement if it finds that it does not meet the requirements of § 251, such as the requirement that the incumbent LEC's rates, terms and conditions for interconnection and unbundled network elements must be "just, reasonable, and nondiscriminatory." Id. § 251(c)(2), (3). After the state commission acts,⁴ "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." Id. § 252(e)(6).

B. The parties

Plaintiff WorldCom, Inc. offers telephone service in Connecticut through its wholly owned indirect subsidiaries and fellow plaintiffs, Brooks Fiber Communications of Connecticut, Inc., MCI WorldCom Communications, Inc., and MCIMetro Access Transmission Services, LLC. Each subsidiary is a telecommunications provider under the 1996 Act.

Defendant SNET is an incumbent LEC under the meaning of § 252(h)(1) of the Act. Defendant DPUC is a state commission that has "regulatory jurisdiction with respect to intrastate operations of carriers." Id. § 153(41). The remaining defendants are commissioners of the DPUC, and they are sued only in their official capacities.

C. The dispute

In 1996, SNET and WorldCom, a requesting telecommunications carrier, engaged in negotiations regarding a proposed interconnection agreement. After the parties were unable to resolve certain issues, WorldCom filed a petition with the DPUC for compulsory arbitration as provided under the Act. On April 23, 1997, the DPUC issued a final order approving an interconnection agreement between the parties, which was the product of arbitration. Under its terms, the prices of certain unbundled network elements ("UNE") were to be incorporated into the agreement when they were updated, approved and filed in another, ongoing, DPUC proceeding.

In that other proceeding, the DPUC was attempting to establish a tariff pursuant to which SNET would offer UNEs to telecommunications carriers such as WorldCom. On May 20, 1998, the DPUC issued its final decision in that proceeding. In that decision, the DPUC noted that it accepted SNET's costs studies on a preliminary basis, and requested that SNET file additional cost studies by September 1, 1998. On the basis of the preliminary cost studies, however, the DPUC approved an interim rate for recurring and nonrecurring charges based on the total service long run incremental cost (TSLRIC) methodology, plus 35% "contribution." That interim rate was limited to UNEs that had not been offered previously, however, and did not extend to services that were available already from SNET. The DPUC concluded that four of the services contained in SNET's tariff request already were being offered to competitors under the Connecticut Access Services Tariff (CAST): namely, (1) interoffice transmission facilities, (2) signaling networks, (3) call-related databases and (4)DS1 loops.⁵ Indeed, the DPUC found that those four services "constitute identical services and perform identical functions to those services currently contained in Section 4 and 12 of [SNET's] Connecticut Access [Services] Tariff." Therefore, the DPUC rejected the application of the TSLRIC rate to those four services, and set the rate applicable to them at parity with the rates already established by the previously approved tariff: CAST. In so doing, the DPUC acknowledged that the access tariff rates established in the CAST "were not set by [the DPUC] using a TSLRIC methodology."

On January 3, 2000, in response to the DPUC's prior request, SNET submitted new cost studies, which led to hearings in which WorldCom participated. On June 29, 2000 the DPUC issued its final decision on the pricing issue, which approved most of SNET's proposals, but, in WorldCom's view, did not address certain of its objections. WorldCom, as well as AT & T Communications of New England, Inc., filed a motion for reconsideration, claiming, inter alia, that the DPUC's June 29, 2000 decision failed to reevaluate the May 20, 1998 decision to price the rates for the four services at the levels set previously in the CAST. Both motions for reconsideration were denied. Subsequently, SNET filed a tariff containing rates consistent with the DPUC's order, which became effective July 1, 2000. These rates were incorporated into the interconnection agreement between SNET and WorldCom pursuant to the DPUC's April 23, 1997 order approving that agreement, and included the CAST rates for the four services.

On October 5, 2000, pursuant to 47 U.S.C. § 252(e)(6), WorldCom filed the instant action, alleging that its interconnection agreement with SNET violates the 1996 Act and its implementing regulations. More specifically, WorldCom alleges that:

1) The 1996 Act requires that tariffs for UNEs be established by a long-run, forward-looking cost methodology;

2) The rates set forth in the CAST, which were approved prior to the enactment of the 1996 Act, were not established by a long-run, forward-looking cost methodology;

3) The rates set forth in the CAST were based on a historical cost-based rate that is expressly prohibited by the 1996 Act; and

4) Therefore, the DPUC violated the 1996 Act by setting the rates for the four services at parity with the CAST rates.

In response, the defendants contend that: (1) the UNEs were set according to appropriate cost studies; (2) the 1996 Act allows a state commission to include a "reasonable profit" within the rates for the CAST services; and (3) the DPUC's decision to set the new UNE rates in parity with the CAST rates is neither arbitrary or capricious because it was necessary to prevent tariff shopping by WorldCom and other competing carriers.

II. Analysis

A. Standard of Review

The parties first disagree about which standard of review this Court should apply in its review of the DPUC's decision. WorldCom claims that a district...