The Telecommunications Act of 1996(Act) is designed to foster competition in local and long distance telephone markets. The local competition provisions of the Act require incumbent local exchange carriers (defined in 47 U.S.C. § 251(h)(1)) to allow other local exchange carriers access to the incumbent carrier's networks or services to enable them to compete in providing local telephone services: (1) incumbent carriers must interconnect their networks with new entrants "at any technically feasible point," and the interconnection must be "at least equal in quality" to the interconnection the incumbent carrier provides for itself, 47 U.S.C. § 251(c)(2); (2) incumbents must provide nondiscriminatory, unbundled access to network elements
Incumbent carriers must negotiate in good faith agreements (commonly referred to as interconnection agreements) with competing carriers setting forth particular terms and conditions upon which incumbent carriers will satisfy their duties under the Act. See 47 U.S.C. § 251(c)(1). If the parties are unable to reach agreement through good faith negotiations, a party to the negotiation may request that the state utilities commission arbitrate unresolved issues. See 47 U.S.C. § 252(b)(1). A state commission may impose terms by arbitration only if the terms meet the substantive requirements of section 251, including regulations implementing that section, and the pricing standards of section 252. See 47 U.S.C. § 252(c). After the state commission approves an interconnection agreement, a party to the agreement may bring an action in district court "to determine whether the agreement or statement meets the requirements" of the Act. 47 U.S.C. § 252(e)(6).
The Federal Communications Commission (FCC) issued rules implementing the local competition provisions of the Act. See In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499 (Aug. 8, 1996) (Local Competition Order). Suits challenging the rules were consolidated in the Eighth Circuit. The Eighth Circuit vacated the pricing rules on the ground that the Act authorized state utility commissions, not the FCC, to set rates. See Iowa Utilities Bd. v. FCC, 120 F.3d 753, 793-800 (8th Cir.1997). The court expressly declined to review the pricing rules on the merits. See id. at 800. The court also vacated non-pricing rules that required incumbent carriers to combine unbundled network elements for competing carriers, and prohibited incumbent carriers from separating already combined network elements before leasing them to competing carriers.
In relevant part, the Supreme Court reversed the Eighth Circuit's ruling that the FCC did not have jurisdiction to promulgate pricing rules, holding the FCC had jurisdiction to "prescribe such rules and regulations as may be necessary in the public's interest to carry out the provisions of the Act," including the "jurisdiction to design a pricing methodology." See AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 729, 733, 142 L.Ed.2d 835 (1999). The Supreme Court also reinstated the rule prohibiting incumbent carriers from separating already combined network elements. See id. 119 S.Ct. at 737-38.
MFS Intelenet, Inc. (MFS) and TCG Seattle (TCG), competing local exchange carriers, asked U.S. West Communications (U.S. West), the incumbent local exchange carrier, to negotiate an interconnection agreement. The parties were unable to resolve all issues by negotiation, and MFS and TCG requested arbitration by the Washington Utilities and Transportation Commission (Commission). The Commission appointed an arbitrator in each case, and arbitration hearings were held. Arbitrators' reports and decisions were filed and comments and objections received. The Commission concluded the agreements met the requirements of sections 251 and 252 of the Act, and approved them. US West challenged the Commission's decisions and asserted takings claims in district court. The district court held that the agreements complied with the Act and dismissed the taking claims as unripe. US West appealed.
Standard of Review
We review the district court's grant of summary judgment de novo. See San Diego Gas & Elec. Co. v. Canadian Hunter Mktg., 132 F.3d 1303, 1306 (9th Cir.1997). The Act confers jurisdiction upon district courts to review interconnection agreements for compliance with the Act:
47 U.S.C. § 252(e)(6) (emphasis added). We apply the same standard the district court should apply, considering de novo
1. Ripeness of Challenge to Interim Rates
US West challenges several of the pricing provisions as inconsistent with pricing
Federal courts must refrain from premature adjudication of agency action to avoid "entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties." Abbott Lab. v. Gardner, 387 U.S. 136, 148, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). Principles of federalism lend this doctrine additional force when a federal court is reviewing a state agency decision at an interim stage in an evolving process. See 13A Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3532.1 n. 16 & accompanying text (2d ed. 1984 & Supp.1998).
The D.C. Circuit, which decides most petitions for review of federal agency actions, explained:
Mississippi Valley Gas Co. v. Federal Energy Regulatory Comm'n (MVGC), 68 F.3d 503, 508 (D.C.Cir.1995) (quoting Eagle-Picher Indus. v. EPA, 759 F.2d 905, 915 (D.C.Cir.1985)) (internal quotation marks omitted).
"In considering whether a case is ripe for review, a court must evaluate ` the fitness of the issues for judicial decision and  the hardship to the parties of withholding court consideration.'" Winter v. California Med. Review, Inc., 900 F.2d 1322, 1325 (9th Cir.1990) (quoting Abbott, 387 U.S. at 149, 87 S.Ct. 1507). "A claim is fit for decision if the issues raised are primarily legal, do not require further factual development, and the challenged action is final." Standard Alaska Prod. Co. v. Schaible, 874 F.2d 624, 627 (9th Cir. 1989). "To meet the hardship requirement, a litigant must show that withholding review would result in direct and immediate hardship and would entail more than possible financial loss." Winter, 900 F.2d at 1325 (internal quotation marks omitted).
a. Fitness of Issues for Judicial Decision
We conclude that U.S. West's challenge to the interim rates is not yet fit for judicial decision. First, we cannot determine whether these rates are final since the Commission may not have reached a final decision on the rates that will be charged during the period between the effective date of the agreements and the establishment of permanent rates. The Commission adopted a two-stage process for fixing interconnection rates: interim rates were to be set by arbitration; permanent rates were to be determined in a generic price proceeding. The generic proceeding is still underway. US West challenges the interim rates, but says its concerns would be resolved if TCG and MFS were ordered to compensate U.S. West for any differences between the interim rates and the permanent prices, referred to as an "administrative true-up." US West apparently requested a true-up in arbitration proceedings. The arbitrators' orders cryptically provide that the rates in the agreements "will remain in effect pending the outcome of the Commission's generic pricing proceeding." The Commission's orders approving the arbitrated agreements are similarly ambiguous: "The prices contained in the Agreement are interim prices, subject to replacement by prices adopted in the Commission's generic cost and price proceeding...." When asked at oral argument to clarify whether a true-up might
Accordingly, we avoid unnecessary adjudication by declining to review the interim prices now.
b. Hardship to the Parties
Delaying review of the interim rates will not impose an undue hardship on any of the parties. US West indicated at oral argument that it would not object to deferred review, as long as it may renew its appeal at the conclusion of the generic proceeding if the Commission denies a true-up. Clearly, U.S. West may do so. Cf. MVGC, 68 F.3d at 509 (explaining that at the conclusion of ratemaking, the court will have "jurisdiction to review the entire proceeding").
TCG objects to continued uncertainty regarding the rates it must pay to U.S. West, which affect the rates it charges its customers. TCG notes that it entered the local phone market and conducted business based on the approved agreements and the interim rates they fixed, and the generic proceeding may not conclude before the agreements expire. TCG has known, however, that the rates were subject to judicial review and might be revised in the generic proceeding, at least prospectively. Delay alone ordinarily is not a sufficient hardship to preclude a finding of unripeness. See Pennzoil Co. v. FERC, 645 F.2d 394, 399-400 (5th Cir.1981) (holding that mere delay is an inadequate showing of hardship, absent showing that delay will result in irreparable losses, intrusion into daily business decision-making, or the imposition of a Hobson's choice of whether to comply with a possibly invalid regulation or to violate it in order to challenge it).
Moreover, it is unclear whether declining to review the rates now will significantly delay a final resolution. At oral argument, the parties informed us that the generic proceeding was almost completed. Once it is completed, and following review in the district court, an accelerated schedule for briefing and argument can be set.
We conclude that the possible hardship caused by deferring review is outweighed by the factors favoring deferral.
2. Charges for Interim Number Portability
US West argues the district court erred in affirming the interim number portability provisions in the agreements because the assignment of costs based on the number of each exchange carrier's active local numbers violates the Act. The district court upheld the Commission's approval of the provisions because the FCC had approved the methodology. We affirm.
The Act requires U.S. West to provide number portability, defined as the "ability of users of telecommunications services to retain, at the same location, existing telecommunications numbers without impairment of quality, reliability, or convenience when switching from one telecommunications carrier to another." 47 U.S.C. § 153(30). The Act provides that "the costs of establishing ... number portability shall be borne by all telecommunications carriers on a competitively neutral basis as determined by the [FCC]." 47 U.S.C. § 251(e)(2) (emphasis added). The FCC has ruled that a mechanism assigning costs based on each exchange carrier's active local numbers is "competitively neutral," see In re Telephone Number Portability, 11 F.C.C.R. 8352, ¶ 135 (July 2, 1996) (Number Portability Order), but a mechanism requiring new entrants to bear all the costs of number portability is not. See id. at ¶ 138. The FCC order is not subject to collateral attack in this proceeding. The Hobbs Act grants exclusive jurisdiction to courts of appeals to determine the validity of all final orders of the FCC. See 28 U.S.C. § 2342; 47 U.S.C. § 402(a); see also FCC v. ITT World Communications, 466 U.S. 463, 468-69, 104 S.Ct. 1936, 80 L.Ed.2d 480 (1984); Wilson v. A.H. Belo Corp., 87 F.3d 393, 397-400 (9th Cir. 1996). An aggrieved party may invoke this jurisdiction only by filing a petition for review of the FCC's final order in a court of appeals naming the United States as a party. See 28 U.S.C. §§ 2342, 2344.
US West also argues that mandatory sharing of switched access charges required by the MFS Agreement violates the Act. The district court upheld the Commission's approval of a provision requiring U.S. West to share these charges because the Act and the FCC's Number Portability Order permit such sharing.
Switched access charges are fees paid by interexchange (long distance) carriers to local exchange carriers for transporting long distance telephone calls over the local exchange carrier's networks to complete the calls. The MFS Agreement requires U.S. West to share with MFS all access charges paid by interexchange carriers to U.S. West, including charges for local transport, local switching, interconnection, and a common carrier line charge. US West argues it should be required to share only the common carrier line charge because MFS provides only final call termination.
The Act states the cost of establishing the number portability system must be borne by all carriers on a "competitively neutral basis." 47 U.S.C. § 251(e)(2). The FCC's Number Portability Order stated the "overarching principle is that the carriers are to share in the access revenues received for a ported call."
The district court correctly held that the number portability cost recovery provisions do not violate the Act.
3. Requirement to Combine Unbundled Elements
The district court's holding sustaining the provision in the MFS Agreement requiring U.S. West to combine unbundled network elements at MFS's request before leasing must be affirmed under the rationale of AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 736-38, 142 L.Ed.2d 835 (1999), sustaining a provision prohibiting an incumbent from separating already-combined elements before leasing.
The Act states that an incumbent carrier must provide
47 U.S.C. § 251(c)(3) (emphasis added).
In sustaining a provision that prohibited the incumbent from separating already-combined elements before leasing, the Supreme Court held that the phrase, "on an unbundled basis," does not necessarily mean "physically separated"; an equally reasonable interpretation is that it means separately priced. AT & T, 119 S.Ct. at 737. The Court also held that the statutory language requiring incumbent carriers to "provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service" indicates that network elements may be leased in discrete parts, but "does not say, or even remotely imply, that elements must be provided only in this fashion and never in combined form." Id. It follows, the Court held, that the FCC regulation prohibiting an incumbent carrier from separating already-combined network elements, see 47 C.F.R. § 51.315(b), was not inconsistent with the Act.
It also necessarily follows from AT & T that requiring U.S. West to combine unbundled network elements is not inconsistent with the Act: the MFS combination provision does not conflict with the Act because the Act does not say or imply that network elements may only be leased in discrete parts.
US West nevertheless argues that the Eighth Circuit's invalidation of the FCC regulation that required incumbent carriers to combine unbundled elements for competing carriers, see 47 C.F.R. § 51.315(c)-(f), requires this court to conclude that the MFS combination provision violates the Act. The Supreme Court opinion, however, undermined the Eighth Circuit's rationale for invalidating this regulation. Although the Supreme Court did not directly review the Eighth Circuit's invalidation of § 51.315(c)-(f), its interpretation of 47 U.S.C. § 251(c)(3) demonstrates that the Eighth Circuit erred when it concluded that the regulation was inconsistent with the Act. We must follow the Supreme Court's reading of the Act despite the Eighth Circuit's prior invalidation of the nearly identical FCC regulation.
4. Inclusion of Deregulated/Unregulated Services
US West argues the district court erred in failing to exempt deregulated and unregulated
The FCC instructed the parties to examine the incumbent carrier's retail tariffs to determine which services the incumbent carrier must provide for resale. See Local Competition Order at ¶ 872 ("State commissions, [incumbent carriers] and resellers can determine the [telecommunications] services that an [incumbent carrier] must provide at wholesale rates by examining that [local exchange carrier's] retail tariffs.") (emphasis added). The Local Competition Order, however, only tells the parties they may examine the incumbent's retail tariffs to determine which services an incumbent carrier must provide for resale, and does not say a state commission may impose the duty to sell for resale only telecommunications services covered by the incumbent's retail tariffs. See id.
The plain language of the Act imposes on incumbent carriers the duty "to offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers." 47 U.S.C. § 251(c)(4)(A) (emphasis added). The plain language does not exempt unregulated and deregulated services from the statutory definition of telecommunication services
We affirm the district court's decision that deregulated and unregulated telecommunication services are subject to the resale provisions.
5. Inclusion of ISP-Bound Traffic
US West argues the district court erred in permitting the inclusion of "ISP-Bound Traffic" (a telephone call from an end-user to the end-user's Internet Service Provider
The Act imposes a duty upon all incumbent carriers to "establish reciprocal compensation arrangements for the transport and termination of telecommunications." 47 U.S.C. § 251(b)(5). The FCC concluded that the reciprocal compensation provisions applied only to "local telecommunications traffic." Local Competition Order at ¶ 1412. The FCC issued a declaratory ruling that "ISP-Bound Traffic is jurisdictionally mixed and appears to be largely interstate." ISP Ruling at ¶ 1. At first glance, the FCC's conclusion that ISP-Bound
ISP Ruling at ¶ 1 (emphasis added).
US West may not collaterally attack the FCC's decision that parties are bound by existing interconnection agreements.
We affirm the district court's decision to include ISP-Bound Traffic in MFS Agreement's reciprocal compensation provisions because the ISP Ruling requires U.S. West and MFS to be bound by the MFS Agreement which includes ISP-Bound Traffic in its reciprocal compensation provisions.
6. Treatment of MFS Switch as a Tandem Switch
US West argues that the district court erred in characterizing the MFS switch as a tandem switch. Both MFS and U.S. West presented evidence in the arbitration hearing regarding the geographic area the MFS switch serves and the functions it performs. The Commission's classification of MFS's switch as a tandem switch was not arbitrary or capricious.
US West challenges the rates the Commission required it to pay MFS for using its tandem switch, claiming they are not "reasonable approximations" of the additional costs MFS will incur for terminating U.S. West's calls as required by 47 U.S.C. § 252(d)(2). The rates adopted by the Commission were the rates U.S. West proposed for terminating MFS's calls. Though U.S. West and MFS will not incur precisely the same costs for terminating the other carrier's calls, the district court held the rates were "reasonable approximations" of the additional costs incurred by MFS, and therefore complied with the Act. We affirm.
7. Interconnection at Certain Points
US West argues the district court erred in upholding provisions in the MFS Agreement permitting a single point of interconnection (at the tandem switch) per local access and transport area, and in upholding provisions in the TCG Agreement permitting TCG to interconnect at U.S. West access tandem switches and at local and end office switches.
47 U.S.C. § 251(c)(2) (emphasis added).
The plain language requires local exchange carriers to permit interconnection at any technically feasible point within the carrier's network. An incumbent carrier denying a request for interconnection at a particular point must prove interconnection at that point is not technically feasible. See 47 C.F.R. § 51.305(e). US West provided no evidence that interconnection at its tandem or local or end office switches was not technically feasible. In any event, these regulations state that interconnection at a tandem switch is technically feasible, see 47 C.F.R. § 51.305(a)(2)(iii), and these regulations are not subject to collateral attack in this proceeding. See 28 U.S.C. § 2342(1); ITT World Communications, 466 U.S. at 468-69, 104 S.Ct. 1936.
8. Combination of Toll and Local Traffic
US West argues the district court erred in upholding the provisions in the TCG Agreement permitting TCG to combine local and toll traffic on two-way trunks. The FCC regulations require an incumbent carrier to provide two-way trunking where the competing carrier has insufficient traffic to justify use of separate one-way trunks and two-way trunking is technically feasible. See Local Competition Order at ¶ 219; see also 47 C.F.R.
9. Providing Adequate Security at Collocation Sites
Because of the sensitive nature of the technology at incumbent carriers' facilities, the FCC permits incumbent carriers to "require reasonable security arrangements" to separate a collocating carrier's space from the incumbent carrier's facilities. 47 C.F.R. § 51.323(i). US West proposed providing escorts, at TCG's expense, while TCG employees were in U.S. West's facilities. The Commission concluded less costly arrangements would be adequate, and adopted TCG's proposal to permit U.S. West to require screening and bonding in reasonable amounts for TCG personnel in U.S. West facilities.
We affirm the district court's holding that the bonding and screening provision provided a "reasonable" security arrangement as required by the Act and its implementing regulations. See 47 U.S.C. § 251(c)(6); 47 C.F.R. § 51.323(i). This is the same security standard U.S. West imposes on its own workforce. The Commission's decision that this arrangement was preferable to U.S. West's suggestion of escorts was not arbitrary and capricious.
10. Requiring U.S. West to Enter Into Future Agreement on Access to Poles, Conduits, Ducts, Rights of Way
We uphold a provision in the TCG Agreement
State commissions impose "appropriate conditions as required" only to "ensure that such resolutions and conditions meet the requirements of section 251." 47 U.S.C. §§ 252(b)(4)(C), 252(c)(1). Section 251 lists many duties of incumbent carriers, including the "duty to afford access to the poles, ducts, conduits, and rights-of-way of the [incumbent] carrier to competing providers of telecommunications services on rates, terms, and conditions that are consistent with section 224." 47 U.S.C. § 251(b)(4).
Because U.S. West and TCG could not agree to a provision regarding U.S. West's duty to afford TCG access to poles and conduits, requiring the parties to enter into a future agreement was appropriate to ensure U.S. West fulfills its duty to provide access.
US West argues that the Commission's imposition of arbitration terms constituted a taking of U.S. West's property without just compensation, because the rates included in the agreements do not provide for full cost recovery. The district court concluded this Fifth Amendment claim was not ripe and dismissed it. We affirm.
In Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985), the Supreme Court held that a regulatory taking claim against a state is not ripe until (1) the state agency imposing the allegedly confiscatory regulation has taken final action against the plaintiff's property and (2) the plaintiff has pursued all available remedies under state law. See id. at 186-97, 105 S.Ct. 3108. Because the rates included in the agreements approved by the Commission are interim rates and U.S. West may receive retroactive compensation for the interim period, the agency has not taken final action on the allegedly confiscatory rates and the takings claim is not ripe. Moreover, because Washington law provides a remedy for takings, see Washington State Const. art. I, § 16; see also, Manufactured Housing Communities v. Washington, 90 Wn.App. 257, 951 P.2d 1142 (1998), U.S. West must pursue that remedy before bringing an action under the Fifth Amendment in federal court.
US West argues that the Act effects a physical taking of its property, rather than a regulatory taking, but does not explain how this difference affects the ripeness of its claim. A court often must await final agency action before it can determine if a taking has occurred, because it must assess whether the regulation has deprived the property owner of all economically viable use of the property. In physical taking cases, whether a taking has occurred usually is not disputed. Even if the taking is established, however, a taking claim is not ripe until the state has taken final action on the plaintiff's request for just compensation. No court could determine whether U.S. West will receive just compensation until the pricing issues have been finally resolved. Even after the Commission approves permanent prices, U.S. West must pursue its state remedies before a federal court can determine whether the state has provided just compensation.
We affirm the district court's dismissal of U.S. West's takings claims because they are not ripe for review.