ORDER ON MERITS
HINKLE, District Judge.
This action is a challenge under the Telecommunications Act of 1996, 47 U.S.C. §§ 251-52, to a decision of the Florida Public Service Commission with respect to the terms and conditions under which the defendant incumbent local exchange carrier must make facilities and network elements available to the plaintiff competitors. I rule in favor of the plaintiff competitors and against the defendant incumbent local exchange carrier on each of the four contested issues. I direct the defendant Commissioners of the Florida Public Service Commission to take appropriate action to implement this decision.
Background—The Statutory Framework
Historically, local telephone service was provided in the United States on a monopoly basis by carriers regulated under state law by state public service commissions. Congress fundamentally changed that approach by enacting the Telecommunications Act of 1996. The Act imposes on local carriers, as a matter of federal law, various duties designed to foster competition. The Act allows state commissions the option of taking a major role in implementing the Act's requirements.
The federal duties imposed on each "incumbent local exchange carrier"—that is, on each carrier who previously provided local service on a monopoly basis—include these. First, incumbents must offer their services for resale at wholesale rates, must not prohibit or unreasonably limit resale, must provide number portability and dialing parity to competitive carriers, must afford competitive carriers access to existing rights-of-way, and must establish reciprocal compensation arrangements for transport and termination of calls handled by more than one carrier. See 47 U.S.C. §§ 251(b) & 251(c)(4).
The Act also imposes on each incumbent the duty to negotiate in good faith with any requesting carrier on the terms and conditions of an agreement under which these various duties will be fulfilled. See 47 U.S.C. § 251(c)(1). The Act likewise imposes on requesting carriers the duty to negotiate in good faith. Id.
If the parties reach a negotiated agreement, it must be submitted to the state commission for approval. 47 U.S.C. § 252(e)(1). If the parties fail to agree on all terms and conditions, any party to the negotiation may request binding arbitration before the state commission of "any open issues." 47 U.S.C. § 252(b)(1). If the state commission chooses not to act on either a negotiated agreement or request for arbitration, the Federal Communications Commission must assume the responsibilities of the state commission. 47 U.S.C. § 252(e)(5).
Background—The Case at Bar
Defendant BellSouth is the incumbent local exchange carrier in parts of the state of Florida. Plaintiff MCI is a prospective competitor. In accordance with the Telecommunications Act, BellSouth and MCI entered negotiations for an agreement under which MCI would interconnect with BellSouth's facilities and have access to BellSouth's network elements. They were unable to agree on all terms and conditions of an agreement and thus sought and obtained arbitration before the Florida Public Service Commission. Following an evidentiary hearing, the Florida Commission issued a final arbitration order and, on motions of each side for reconsideration, an amended final order. MCI now brings this action challenging the Florida Commission's decision in certain respects, and BellSouth counterclaims challenging the decision in another respect.
Specifically, MCI challenges the pricing methodology employed by the Florida Commission to set the rates for network elements and non-recurring charges; the Florida Commission's exclusion of "dark fiber"—fiber optic cable that is in place but not in active use—from the group of network elements that must be provided by BellSouth; and the Florida Commission's failure to require a compensation mechanism (in the nature of a liquidated damages provision) as part of the agreement. In its counterclaim, BellSouth challenges the Florida Commission's treatment of "recombining" unbundled network elements for sale as complete service. This order addresses these four issues in turn.
The parties have agreed that this court's review should be conducted based solely on the record as compiled in the Florida Commission. The parties have submitted briefs and presented oral argument, and more recently have submitted supplemental briefs addressing the decision of the United States Supreme Court in AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). This order constitutes the court's ruling on the merits.
I conclude that (1) the Florida Commission's pricing methodology for network
Standard of Review
The Telecommunications Act provides for actions such as the case at bar in a single sentence:
47 U.S.C. § 252(e)(6).
I conclude that district court review of the meaning and import of the Telecommunications Act should be de novo and that, when acting in conformance with a correct interpretation of the Act, state commissions have broad discretion reviewable only under the arbitrary and capricious standard. I base this conclusion on the statutory language, the standards generally applicable to judicial review of administrative action, the apparent purpose of involving state commissions in this process while providing for federal district court review of their decisions, and the emerging case law under the Act. I address each of these considerations in turn, beginning with the statutory language.
The statute provides for an action in federal district court "to determine whether the agreement ... meets the requirements of" the Act. 47 U.S.C. § 252(e)(6). Although this language does not explicitly set forth a standard of review, it provides guidance in two ways. First, the statute assigns to the district court the job of determining whether the agreement as approved or mandated by the state commission meets the requirements of the Act, and in doing so the statute suggests not at all that any deference is due the state commission. Second, the statutory language makes no reference to any district court review of the state commission's action other than for compliance with the Act. Although some level of review of state commission action may be necessary to render meaningful the district court's review for compliance with the Act's legal requirements, the omission of any provision for review for any other purpose suggests that, within the bounds of the Act's legal requirements, review should be deferential.
This standard of review is generally consistent with the standards applicable to judicial review of administrative action in other settings. Courts generally review agency factual determinations under a deferential standard such as whether the agency decision is supported by substantial evidence. See, e.g., 5 U.S.C. § 706(2)(E). Courts generally review an agency's policy determinations or actions implementing established legal standards under a deferential standard such as whether the action is arbitrary and capricious or an abuse of discretion. See, e.g., 5
This approach makes sense, both as an original matter and based on the apparent purpose of Congress's decision (1) to involve the state commissions in this process but (2) to provide for federal district court review of their determinations. Congress of course could have provided for judicial resolution of disputes in the first instance, or could have provided for initial resolution of disputes by an administrative law judge, or could have provided for arbitration before a private arbitrator or arbitration panel chosen by the parties or designated in various other ways. Congress chose instead to have disputes resolved initially by the appropriate state commission (if it agreed to participate in the process), and Congress undoubtedly did so in recognition of the state commission's considerable expertise in the telecommunications field generally and in the state at issue in particular. It would make no sense to adopt a standard of review that did not recognize that expertise. At the same time, however, Congress chose not to leave the matter solely to the state commission but to have a federal district court determine "whether the agreement ... meets the requirements of" the Telecommunications Act. State commissions have no special expertise in interpreting federal statutes and no authority to make federal law. Federal courts are or should be at least as adept as state commissions in interpreting federal statutes. There is thus far less reason for deference to state commissions on issues of the meaning and import of the Act, and it makes sense for district courts to address such issues de novo, as Congress apparently intended.
In sum, I will review de novo issues regarding the meaning and import of the Telecommunications Act and will review the Florida Commission's determinations of how to implement the Act as so construed only under the arbitrary and capricious standard. This accords with the consistent approach of courts that have addressed this issue under the Act. See, e.g., MCI Telecommunications Corp. v. Michigan Bell Telephone Co., 79 F.Supp.2d 768, 773 (E.D.Mich.1999); Bell Atlantic-Delaware, Inc. v. Global Naps South, Inc., 77 F.Supp.2d 492, 502 (D.Del. 1999); Bellsouth Telecommunications, Inc. v. ITC Deltacom Communications,
The Telecommunications Act directs state commissions to set "just and reasonable" prices for interconnection and network elements "based on the cost (determined without reference to a rate-of-return or other rate-based proceeding) of providing the interconnection or network element." 47 U.S.C. § 252(d)(1). All parties to this action apparently agree that this means prices must be based on cost that reasonably would be incurred to provide the service or network element at issue prospectively, not cost that may have been incurred historically but would not reasonably be incurred to provide the service or network element prospectively. As the parties have said, prices must be based on "forward-looking," not historical, cost.
The parties disagree, however, on the proper method of calculating "forward-looking" cost. MCI advocates the use of Total Element Long-Run Incremental Cost ("TELRIC"), a methodology adopted by regulations of the Federal Communications Commission ("FCC"). See 47 C.F.R. §§ 51.505, 51.511. The FCC regulations were stayed before they took effect and eventually were invalidated by a controlling decision of the United States Court of Appeals for the Eighth Circuit on the grounds they were beyond the FCC's jurisdiction.
The essential difference between the FCC's "TELRIC" method and the Florida Commission's "TSLRIC" method lies in their treatment of the existing network structure of the incumbent local exchange carrier at issue. While the Florida Commission's version of TSLRIC uses the current network architecture and future replacement technology as the basis for determining long-run incremental cost, TELRIC assumes only that the existing wire centers are in place and then builds a hypothetical, efficient network around them. See 47 C.F.R. §§ 51.503, 51.505.
Nothing in the Telecommunications Act specifies which of these two methodologies must be followed. Reasonable arguments can be made either way. Congress has not definitively resolved the issue. This is, therefore, an issue on which the appropriate administrative agency's adoption of either methodology would survive judicial review under the applicable arbitrary and capricious standard.
In its initial brief in this court, submitted prior to the Supreme Court's reversal of the Eighth Circuit's decision, the Florida Commission acknowledged that it would have been bound to follow the FCC regulations and apply the TELRIC methodology "[h]ad the FCC's jurisdiction to set national pricing standards been upheld and its rules not invalidated." (Florida Commission Brief at 16). Now, the FCC's jurisdiction to set national pricing standards has been definitively upheld by the United States Supreme Court, and the FCC's rules have not been invalidated. The Florida Commission's adoption of TSLRIC in the order under review thus cannot be upheld.
The result is that the Florida Commission must reconsider its order. This is so notwithstanding three grounds now asserted for reaching a different result.
First, the Supreme Court decision in Iowa Utilities came down only after the Florida Commission's action. I cannot for that reason, however, decline to follow the Supreme Court decision, or review the Florida Commission's decision without regard thereto. My duty is to resolve this case based on the Telecommunications Act as adopted by the Congress, signed by the President, and interpreted by the Supreme Court. A decision to apply instead the now discredited view of the Eighth Circuit would inappropriately expand the reach of that court's error and in effect divest the FCC of lawful jurisdiction to issue pricing standards applicable to the interconnection agreement at issue. Settled law
Third, the Florida Commission also seems to assert that it would have made the same decision based on the record before it anyway, even had it applied the FCC's TELRIC regulations. While that seems at least somewhat unlikely, I need not address at this time whether the Florida Commission could make the same substantive decision by applying the correct standards. It is enough for resolution of this case that the Florida Commission has not yet made a decision based on the proper standards and should be given the first opportunity to do so.
In sum, the Florida Commission's decision on pricing is invalid because it is contrary to the Telecommunications Act of 1996 as interpreted by the FCC. The defendant Commissioners will be directed to reconsider the issue.
Dark fiber is fiber optic cable that is in place but not in active use. Without the associated electronic equipment needed at both ends of the cable, the fiber remains "unlit" and inactive. BellSouth likens dark fiber to warehoused inventory: while the fiber optic cable has been laid, BellSouth says it is essentially stored in that location to facilitate later access. Unlike warehoused inventory, however, dark fiber is in place and connected to the network.
The Telecommunications Act requires an incumbent local exchange carrier to provide competitors nondiscriminatory access to "network elements" on an unbundled basis, 47 U.S.C. § 251(c)(3), subject to consideration of whether such access is "necessary" (in the case of proprietary elements) or failure to provide such access would "impair" the competitor's ability to provide service (in the case of non-proprietary elements).
The Florida Commission refused to require BellSouth to provide MCI access to BellSouth's dark fiber on the grounds that, because dark fiber is not "used" in the provision of telecommunications service, dark fiber is not a "network element" as defined in the Act.
The Act defines "network element" as:
47 U.S.C. § 153(29) (emphasis added).
If "used" within this definition means currently in active use, the Florida Commission correctly determined that dark fiber is not a "network element" and that BellSouth therefore need not provide MCI access to BellSouth's dark fiber. But if "used" is broad enough to include fiber that is "used" in the provision of telecommunications service only in the sense that
This is, once again, an issue on which the legal landscape has changed substantially since the Florida Commission acted. The FCC, an emerging majority of state commissions, and an apparently unbroken line of federal courts reviewing the decisions of state commissions have concluded that dark fiber is a network element.
In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, 15 FCC Rcd. 3696 ¶¶ 325-28 (1999) ("Third Report & Order") (footnotes omitted).
Whether this FCC view should be applied in this case presents a different issue from the question addressed above about the applicability of the Supreme Court's Iowa Utilities decision. That decision addressed FCC regulations adopted prior to the Florida Commission decision under review. The FCC's dark fiber interpretation as quoted above came after the Florida Commission's decision. While judicial interpretations of preexisting statutes or regulations ordinarily apply back to the date of adoption of the statute or regulation at issue, it is less clear that administrative interpretations—which appropriately may have legislative as well as judicial elements—should always do so.
I conclude, for the reasons set forth by the FCC and Fourth and Ninth Circuits, that dark fiber is a "network element" within the meaning of the Telecommunications Act.
This does not necessarily mean, however, that the Florida Commission must require BellSouth to provide MCI access to its dark fiber. When the Florida Commission acted, the FCC's Rule 319, 47 C.F.R. § 51.319 (1997), had interpreted the Telecommunications Act's "necessary" and "impair" standards in a manner that posed little obstacle to a competitive carrier seeking access to an incumbent carrier's network elements. In Iowa Utilities, however, the Supreme Court invalidated Rule 319, putting teeth back into the "necessary" and "impair" standards. See AT & T Corp. v. Iowa Utilities Bd., 525 U.S. at 387-92, 119 S.Ct. 721. The Florida Commission has not had the opportunity to address the application of this decision to MCI's request for access to BellSouth's dark fiber. That issue is not foreclosed by this decision.
III. COMPENSATION PROVISION
As part of its petition for arbitration before the Florida Commission, MCI sought to include in the interconnection agreement specific performance criteria and a compensation mechanism similar to a liquidated damages provision.
The Florida Commission refused to address MCI's requested approach because, it concluded, it lacked authority to do so under either the Telecommunications Act or state law. The Florida Commission determined that the Telecommunications Act authorized arbitration only on "the items enumerated to be arbitrated in Sections 251 and 252 of the Act, and matters necessary to implement those items." (Arbitration Order at 74). The Florida Commission determined that a compensation mechanism was not such an item. The Florida Commission also concluded that it had no authority under state law to mandate a compensation mechanism of the type at issue.
I reject the Florida Commission's narrow reading of the Telecommunications Act's arbitration provisions. The Act imposes various duties on incumbent local exchange carriers and sets forth two methods for determination of the terms and conditions under which any specific incumbent will allow any given competitive carrier to interconnect with the incumbent's facilities and obtain access to its network elements. The first method—the preferred method—is through an agreement voluntarily negotiated between the incumbent and competitive carriers. The second method, applicable only to the extent that voluntary negotiation fails, is through arbitration of "any open issues." 47 U.S.C. § 252(b)(1). The statutory term "any open issues" makes clear that the right to arbitrate is as broad as the freedom to agree; any issue on which a party unsuccessfully seeks agreement may be submitted to arbitration.
MCI and BellSouth obviously would have been free to enter a voluntary agreement that included a compensation mechanism for breaches of the agreement. Nothing in the Telecommunications Act would have foreclosed any such voluntary agreement. Neither the Florida Commission nor BellSouth apparently contends otherwise. BellSouth chose, however, not to agree voluntarily to any such provision. That was BellSouth's right. When BellSouth determined not to agree, this became an "open issue" that MCI was entitled to submit to arbitration.
When the Florida Commission chose to act as the arbitrator in this matter, its obligation was to resolve "each issue set forth in the petition and the response, if any." 47 U.S.C. § 252(b)(4)(C). MCI's request for a compensation provision was such an issue. This was, therefore, an issue the Florida Commission was obligated to resolve.
This does not mean, of course, that the Florida Commission was obligated to adopt a provision of the type MCI seeks. Had the Florida Commission decided, as a matter of discretion, not to adopt such a provision, MCI would bear a substantial burden in attempting to demonstrate that that determination was contrary to the Telecommunications Act or arbitrary and capricious. But the Florida Commission made no such determination, instead deciding it lacked authority to address the
The Florida Commission also asserts that it was precluded by state law from adopting a compensation mechanism of the type sought by MCI, because any such mechanism would require the Florida Commission in effect to make an award of damages, contrary to the principle of Southern Bell Tel. and Tel. Co. v. Mobile America Corp., 291 So.2d 199 (Fla.1974). That is incorrect, for two reasons.
First, any compensation provision in the arbitrated agreement would not necessarily require enforcement by the Florida Commission. A compensation provision could, for example, be self-executing or, to the extent necessary, enforceable in court. Thus, whatever the effect of Mobile America on the Florida Commission's ability to enforce a compensation provision, there is assuredly nothing in that decision that precludes the Florida Commission from arbitrating a request for a compensation provision as part of an arbitration proceeding otherwise properly undertaken by the Florida Commission.
Second, if a compensation provision were truly required by the Telecommunications Act and could be adopted in some form without imposing on the Florida Commission an unconstitutional burden, see Printz v. United States, 521 U.S. 898, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997), then any contrary Florida law obviously would not preclude adoption of such a provision. Under the Supremacy Clause, see U.S. Const. Art. VI, the Telecommunications Act, not any contrary Florida provision, is the supreme law of the land.
In sum, when the Florida Commission undertook to arbitrate the dispute between BellSouth and MCI, it became obligated under the Telecommunications Act to arbitrate all "open issues," including MCI's request for a compensation provision. The defendant Commissioners will be directed to arbitrate this issue.
"RECOMBINING" UNBUNDLED NETWORK ELEMENTS
In its counterclaim, BellSouth asserts that the Florida Commission improperly required BellSouth to provide MCI with "recombined" unbundled network elements, thus in effect allowing MCI to purchase complete service from BellSouth not at the wholesale price properly charged in connection with the sale of complete service for resale, but instead at the substantially lower price determined by adding up the prices of the various unbundled network elements that, when combined, constitute complete service. BellSouth asserts this "sham unbundling" violates the Telecommunications Act. In response, the Florida Commission asserts that in the order under review, it did not decide the issues BellSouth now raises.
The dispute over what the Florida Commission did or did not decide is of little consequence. The United States Supreme Court now has definitively resolved this issue against BellSouth. In AT & T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 119 S.Ct. 721, 736-38, 142 L.Ed.2d 835 (1999), the Court upheld the FCC's Rule 315(b), 47 C.F.R. § 51.315(b), by which the FCC adopted the very approach BellSouth now challenges. In reaching this result, the Court rejected the same arguments BellSouth now makes, as advanced in that case by incumbent local exchange carriers challenging Rule 315(b). See also MCI Telecommunications Corp. v. U.S. West Communications, 204 F.3d 1262, 1268 (9th Cir. 2000) (holding that Supreme Court's decision
BellSouth is entitled to no relief on its counterclaim.
The Florida Commission acted contrary to the Telecommunications Act of 1996 when it (1) adopted the TSLRIC pricing methodology, (2) concluded that "dark fiber" is not a "network element" within the meaning of the Telecommunications Act of 1996, and (3) decided not to arbitrate the open issue of whether the interconnection agreement between BellSouth and MCI should include a compensation provision. Accordingly,
IT IS ORDERED:
The clerk shall enter judgment stating, "The Florida Public Service Commission's Final Order on Arbitration, as amended, is declared invalid, as set forth in the Order on Merits entered June 6, 2000. Defendants Susan F. Clark, J. Terry Deason, Julia L. Johnson, Diane K. Kiesling and Joe Garcia, in their official capacities as Commissioners of the Florida Public Service Commission, shall conduct further proceedings consistent with the Court's Order on Merits and this judgment." The clerk shall close the file.
AT & T Communications of Virginia, Inc. v. Bell Atlantic-Virginia, Inc., 197 F.3d 663, 672 (4th Cir. 1999) (emphasis in original). On this view, fiber does not become "used in the provision of telecommunications service" only when someone starts to communicate with it.