Centennial Puerto Rico License Corp. v. Telecommunications Regulatory Board

United States Court of Appeals
For the First Circuit

No. 10-1091

CENTENNIAL PUERTO RICO LICENSE CORP.,

Plaintiff, Appellee,

PUERTO RICO TELEPHONE COMPANY, INC.,

Plaintiff, Appellant,

v.

TELECOMMUNICATIONS REGULATORY BOARD OF PUERTO RICO,

Defendant, Appellee,

VICENTE AGUIRRE ITURRINO; SANDRA TORRES LÓPEZ;
NIXYVETTE SANTINI HERNÁNDEZ,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. José Antonio Fusté, U.S. District Judge]

Before

Torruella, Ripple,* and Lipez, Circuit Judges.

Eduardo R. Guzmán-Casas, with whom Joe D. Edge, Christopher C.
Sabis and Drinker Biddle & Reath LLP were on brief, for appellant.

Robert F. Reklaitis, with whom Leslie Paul Machado and LeClair
Ryan were on brief, for appellee Telecommunications Regulatory
Board of Puerto Rico.

*
Of the Seventh Circuit, sitting by designation.
 Christopher W. Savage, with whom Davis Wright Tremaine LLP was
on brief, for appellee Centennial Puerto Rico License Corp.

February 7, 2011

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 RIPPLE, Circuit Judge. The plaintiff telecommunications

companies brought these consolidated actions in the United States

District Court for the District of Puerto Rico against defendants-

appellees Telecommunications Regulatory Board of Puerto Rico ("the

Board") and various individual commissioners. They alleged

violations of federal and commonwealth law in connection with the

arbitration and approval of the companies' interconnection

agreements. On cross-motions for summary judgment, the district

court issued an opinion and order granting in part and denying in

part summary judgment for the Board, granting in part and denying

in part summary judgment for plaintiff-appellee Centennial Puerto

Rico License Corporation ("Centennial"), vacating in part the

Board’s order on reconsideration and denying in full summary

judgment for plaintiff-appellant Puerto Rico Telephone Company,

Inc. ("PRTC"). PRTC now seeks review of the district court’s

decision. We believe that the Board was correct in all aspects of

its order. Therefore, we affirm in part and reverse in part the

judgment of the district court and remand for proceedings

consistent with this opinion.

I

BACKGROUND

A. The Statutory Scheme

Congress enacted the Telecommunications Act of 1996 ("the

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Act") to reduce regulation of the telecommunications industry and

to end the historical monopoly of incumbent local exchange carriers

("LECs") over local telecommunications services.1 In addition to

removing state regulatory barriers to new entry, see 47 U.S.C. §

253,2 Congress sought to encourage competition by mandating that

carriers interconnect with one another and by requiring incumbent

LECs to share elements of their existing telecommunications

infrastructure with competing LECs. See id. §§ 251-252.

To achieve these goals, the Act creates "a three-tier

system of obligations imposed on separate, statutorily defined

telecommunications entities." Atlas Tel. Co. v. Oklahoma Corp.

Comm'n, 400 F.3d 1256, 1262 (10th Cir. 2005). First, all

telecommunications carriers have a duty "to interconnect directly

or indirectly with the facilities and equipment of other

telecommunications carriers." 47 U.S.C. § 251(a)(1). Second, the

1
Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56, 56 (1996) (codified as amended in scattered sections of
Title 47 of the United States Code). The stated purposes of the
Act are "[t]o promote competition and reduce regulation in order to
secure lower prices and higher quality services for American
telecommunications consumers and encourage the rapid deployment of
new telecommunications technologies." Id.
2
In particular, subsection 253(a) provides that "[n]o State
or local statute or regulation, or other State or local legal
requirement, may prohibit or have the effect of prohibiting the
ability of any entity to provide any interstate or intrastate
telecommunications service," and subsection 253(d) instructs the
FCC to preempt any state or local laws, regulations or enactments
the FCC determines to be inconsistent with the provisions of
section 253. 47 U.S.C. § 253(a),(d).

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Act imposes a number of duties upon all LECs (both incumbent and

competing), including the duty "not to prohibit, and not to impose

unreasonable or discriminatory conditions or limitations on, the

resale of its telecommunications services." Id. § 251(b)(1).

Finally, the Act obliges incumbent LECs to lease to competitors

unbundled elements of their existing local networks, id. §

251(c)(3), to interconnect calls from customers of one LEC to

customers of another LEC, id. § 251(c)(2), to allow competitors to

purchase the incumbents' services at wholesale rates and resell

those services at retail, id. § 251(c)(4), and to negotiate in good

faith the terms of providing interconnection and services to other

carriers, id. § 251(c)(1). The Act also directs the FCC to

promulgate regulations implementing these provisions and to set

standards of service and interconnection. See id. § 251(d).

Although the incumbent LECs' obligations to furnish

network elements and allow interconnection are mandatory, Congress

intended that the parties negotiate, in the first instance without

government intervention, the terms of use and interconnection. See

id. § 252(a). Section 252 sets forth the procedures for

telecommunications providers to follow in requesting and

negotiating the terms of these agreements.

Upon a request for access from a telecommunications

provider, an incumbent LEC must enter into good-faith negotiations

to reach a voluntary interconnection agreement. Id. § 252(a)(1).

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At any time during the negotiations, a party may ask a state

commission to participate as a mediator. Id. § 252(a)(2). If

negotiations prove unsuccessful, subsection 252(b) establishes a

mechanism through which any party may petition the state commission

to compel arbitration of any unresolved terms. In addition,

subsection 252(e) requires any interconnection agreement reached by

negotiation or arbitration to be submitted to the state commission

for approval; it also specifies the grounds on which the commission

may reject the agreement. See § 252(e)(1)-(2).

Specifically, a state commission may reject an arbitrated

agreement only if it finds that "the agreement prescribed by the

arbitrator (1) does not hold the carriers to their obligations

under section 251 . . . or (2) fails to meet the pricing standards

of section 252(d)." WorldNet Telecomms., Inc. v. Puerto Rico Tel.

Co., 497 F.3d 1, 5-6 (1st Cir. 2007) (citing 47 U.S.C. §

252(e)(2)(B)). In reviewing agreements, the state commission is

also bound by any standards set by the FCC. See AT&T Corp. v. Iowa

Utils. Bd., 525 U.S. 366, 384-85 (1999); Global NAPs, Inc. v.

Verizon New Eng., Inc. (Global NAPs I), 396 F.3d 16, 19 (1st Cir.

2005). Despite these limitations, the Act provides that "nothing

in this section shall prohibit a State commission from establishing

or enforcing other requirements of State law in its review of an

agreement, including requiring compliance with intrastate

telecommunications service quality standards or requirements." 47

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U.S.C. § 252(e)(3). A party dissatisfied with the state

commission's determination can seek review in federal district

court. See id. § 252(e)(6).

The Act thus engages in a process of "cooperative

federalism," Puerto Rico Tel. Co. v. Telecomms. Regulatory Bd. of

Puerto Rico, 189 F.3d 1, 8 (1st Cir. 1999): It sets certain

minimum interconnection and service obligations and provides the

FCC with the power to set general standards. However, it also

leaves room for otherwise consistent state regulations, see 47

U.S.C. § 253(b),3 and it vests in the several state commissions the

authority to implement state policy and to impose additional,

individual requirements on telecommunications providers by

reviewing interconnection agreements. See Verizon New Eng., Inc.

v. Maine Pub. Utils. Comm'n, 509 F.3d 1, 7 (1st Cir. 2007)

(describing the "dual federal-state regime"); WorldNet, 497 F.3d at

9 (stating that "the Act sets a federally mandated floor of equal

service, and State commissions retain authority to ‘raise the

3
Subsection 253(b) provides:

Nothing in this section [prohibiting State and local
governments from creating barriers to entering the market
for telecommunications services] shall affect the ability
of a State to impose, on a competitively neutral basis
and consistent with section 254 of this title,
requirements necessary to preserve and advance universal
service, protect the public safety and welfare, ensure
the continued quality of telecommunications services, and
safeguard the rights of consumers.

47 U.S.C. § 253(b).

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bar'") (quoting Indiana Bell Tel. Co. v. McCarty, 362 F.3d 378,

391-93 (7th Cir. 2004)).

In order to strike a balance between federal and state

interests, the Act provides that the FCC "shall not preclude the

enforcement of any regulation, order, or policy of a State

commission" that is "consistent with the requirements" of § 251 and

"does not substantially prevent implementation of the requirements

of [§ 251] and the purposes" of the Act. 47 U.S.C. § 251(d)(3)(B)-

(C). The Act also disclaims--at least to a certain extent--

preemption of state law:

Nothing in this part precludes a State
from imposing requirements on a
telecommunications carrier for intrastate
services that are necessary to further
competition in the provision of telephone
exchange service or exchange access, as long
as the State's requirements are not
inconsistent with this part or the
Commission's regulations to implement this
part.

Id. § 261(c).

B. Proceedings Before the Board

In 2005, PRTC, an incumbent LEC, and Centennial, a

competing LEC, completed two interconnection agreements, which they

renegotiated in 2008. During the renegotiation, PRTC and

Centennial failed to reach an agreement on eighteen issues, and

Centennial petitioned the Board, the commission responsible for

administering the Act in Puerto Rico, to compel arbitration. The

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Board-appointed arbitrator conducted a hearing, and then the Board

issued a decision resolving the outstanding issues. Later, the

Board modified its decision on reconsideration.4 Three of those

issues are relevant here:

1. Billing Dispute Fees

The 2005 agreements contained a term governing billing

disputes between the parties. Under this term, if an invoiced

party disputed a service bill, that party was required to put the

invoiced amount in escrow. If the invoicing party prevailed in the

dispute, it was entitled to the escrowed funds plus interest and a

"late payment penalty." R.1, Ex. 1 at 9 (Report and Order, Aug. 8,

2008, at 6). The agreement did not provide, however, for a

reciprocal erroneous billing penalty if the invoiced party

prevailed. During renegotiation, Centennial (which, it seems, is

usually the invoiced party) wished to dispense with the late

payment penalty, and PRTC wished to retain it. The Board

determined that the agreements would retain the late payment fee.

On reconsideration, the Board reversed its initial

determination. In order to achieve symmetry, the Board decided

that the parties should either include both a "late payment fee"

4
See R.1, Ex. 1 (Report and Order, Aug. 8, 2008); R.1, Ex.
4 (Order on Reconsideration, Nov. 25, 2008). The Board’s order
addressed the twelve issues remaining after the parties reached a
settlement on six of the eighteen issues.

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and an "erroneous billing fee" or abjure both fees. R.1, Ex. 4 at

10 (Order on Reconsideration, Nov. 25, 2008) (quotation marks

omitted). According to the Board, although it believed at first

that a late payment fee would compensate the party wrongly denied

use of the funds in a way that an erroneous billing fee would not,

upon reconsideration it determined that the party billed

erroneously also was denied use of the funds while in escrow and

that an erroneous billing fee would encourage responsible billing

practices. After the Board's order, the parties chose to include

both billing dispute fees.

2. Direct Connection with Claro

PRTC operates a mobile telephone service carrier division

called Claro.5 When calls are made between customers of Claro and

customers of Centennial or its mobile service division, PRTC

facilitates an indirect connection (that is, a connection running

first from Centennial to PRTC's wired network and then to Claro

rather than directly from Centennial to Claro) and charges

Centennial a transiting fee for the connection. Although

Centennial had reached direct connection agreements with most other

5
Our use of the term "mobile service carrier" refers to
providers of cellular telephone and other wireless
telecommunications services and is intended to capture what the FCC
and the Board call "commercial mobile radio service" providers or
"CMRS providers." See In re Interconnection & Resale Obligations
Pertaining to Commercial Mobile Radio Servs., 10 F.C.C.R. 10666,
10668 (1995); R.1, Ex. 1 at 35 (Report and Order at 32).

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mobile service providers in Puerto Rico, PRTC had refused to

facilitate negotiations between Claro and Centennial. During

renegotiation, Centennial demanded that PRTC either use

commercially reasonable efforts to facilitate a direct connection

or cease charging the transiting fee. The Board agreed in part,

giving PRTC three months to use "commercially reasonable efforts"

to facilitate a direct connection between Claro and Centennial.

R.1, Ex. 1 at 35 (Report and Order at 32) (quotation marks

omitted). If a direct connection did not result, the Board would

require PRTC to explain why a direct connection was infeasible for

business, technical or efficiency reasons. During that period of

explanation, Centennial could withhold transiting fees pending a

further determination by the Board. The Board upheld this

determination on reconsideration.

3. Meet Points

The points at which Centennial's and PRTC's networks

physically interconnect (called "meet points," id. at 15 (Report

and Order at 12),) can be used to exchange many different types of

telecommunications traffic, but the 2005 agreements limited the

types of traffic permitted to be exchanged at the meet points to

certain, specifically enumerated categories. During the

renegotiation, Centennial asserted that federal law provided it

with an absolute right to exchange any type of traffic it wished.

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As such, Centennial asked the Board to amend the agreements to

permit PRTC and Centennial to exchange "any lawful traffic." Id.

(quotation marks omitted). Centennial particularly was interested

in ensuring that the agreement permit voice-over internet protocol

("VOIP") traffic. VOIP refers to calls routed in whole or in part

over the internet rather than over traditional telephone lines.

VOIP users can place telephone calls from their computers to, and

receive calls from, other computers or regular telephones, or can

place calls through VOIP-connected telephones. Although the calls

are routed through the internet for the VOIP user, calls going to

or originating from traditional telephone users are switched

through local exchange carriers, creating a substantial set of

interconnection issues.

The Board ruled against Centennial on this point,

determining that federal law does not give Centennial a right to

exchange all types of traffic at meet points, that the FCC was

still wrestling with how to resolve issues posed by various types

of interconnection traffic, and that it would be more prudent to

limit exchanged traffic to categories specifically enumerated

absent a showing of anti-competitive efforts on the part of an LEC

to refuse reasonable interconnection requests.

On reconsideration, the Board retained its determinations

regarding the enumeration of permissible meet-point traffic. In

addition, the Board refused Centennial's alternative request to

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enumerate specifically VOIP traffic in the agreements. According

to the Board, Centennial had failed to demonstrate

that there is any need to specifically call
out VoIP traffic--which can encompass
different services--for special attention. We
understand that the Parties today exchange
VoIP traffic without difficulty. Obviously,
if the status of VoIP traffic changes in the
future, or if other circumstances warrant, the
Parties can renegotiate this provision.

R.1, Ex. 4 at 7.

C. Proceedings Before the District Court

PRTC and Centennial filed separate petitions for review

in the district court under 47 U.S.C. § 252(e)(6), each alleging

that the Board violated different provisions of federal and

commonwealth law in its approval and modification of the

agreements. After the petitions were consolidated, the companies

and the Board each moved separately for summary judgment. The

district court held that the parties had stipulated that no genuine

issues of material fact existed and resolved which parties were

entitled to judgment as a matter of law on the various disputed

issues. See Centennial Puerto Rico License Corp. v. Telecomms.

Regulatory Bd. of Puerto Rico, Nos. 08-2436, 09-1002, 2009 WL

4407214, at *1 (D.P.R. Nov. 25, 2009).6

6
The district court addressed five issues, only three of
which PRTC contests on appeal. Centennial and the Board do not
appeal the issues decided adversely to them.

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 1. Billing Dispute Fees

With respect to the billing dispute fees, the district

court rejected PRTC's contention that Puerto Rico Law 213,7 which

Puerto Rico courts have held does not provide the Board with

jurisdiction to award damages in suits between telecommunications

providers, prohibits the Board from including terms in an

interconnection agreement that require one telecommunications

provider to pay a penalty fee to another. According to the

district court, PRTC's position was foreclosed by our holding in

WorldNet Telecommunications, Inc. v. Puerto Rico Telephone Co., 497

F.3d 1, 8 (1st Cir. 2007), that "neither the Act nor Puerto Rico

precedent forbids [the imposition of] incentive-based liquidated

damages" in an arbitrated interconnection agreement.

2. Direct Connection with Claro

With respect to the transiting fees between Centennial

and Claro, the district court rejected PRTC's claim that the FCC's

decision not to promulgate regulations imposing interconnection

obligations on mobile service carriers preempts state authority to

require PRTC to make commercially reasonable efforts to facilitate

a direct connection between Claro and Centennial. The district

court held, however, that the Board did not impose a direct

connection requirement as such, but only a requirement to

7
P.R. Laws Ann. tit. 27, §§ 265-272.

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facilitate negotiations. The arbitration and approval of an

interconnection agreement did not constitute state regulation of

mobile service carriers. Further, the court noted that the Board's

decision was consistent with the FCC's fears that "'LEC-affiliated

[mobile service] carriers,' like Claro, might unreasonably deny

efficient connection" and with the FCC's suggestion that such a

"denial would justify regulatory intervention." Centennial Puerto

Rico License Corp., 2009 WL 4407214, at *5 (quoting In re

Interconnection & Resale Obligations Pertaining to Commercial

Mobile Radio Servs., 10 F.C.C.R. 10666, 10687-88 (1995)).

3. Meet Points

With respect to VOIP traffic, the district court

disagreed with Centennial's claim that federal law entitles it to

exchange all lawful traffic at meet points. It agreed with

Centennial, however, that the Board's decision not to enumerate

VOIP traffic separately was arbitrary and capricious. According to

the court:

The parties agree that VoIP traffic does not
fall into any of the categories already
enumerated, yet Centennial and PRTC are
allowed to exchange VoIP traffic. Since the
Board decided that Centennial and PRTC must
maintain a list of allowed traffic, thereby
excluding all other traffic, its decision to
allow VoIP traffic without including it on the
enumerated list is arbitrary and capricious.
Thus, the Board erred in excluding VoIP
traffic from the enumerated list, to the
extent that VoIP traffic does not already fall

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 under an enumerated category.

Id. at *9. This appeal followed.

II

DISCUSSION

A. Standard of Review

"Where as here judicial review is based on the agency

record, we apply to the agency ordinary review standards, accepting

the district court decision merely as it may be persuasive."

WorldNet, 497 F.3d at 5. We review the Board's interpretations of

federal and state law de novo, see id. at 5, 11; Global NAPs I, 396

F.3d at 23, but we note that "it is customary where any doubt

exists to give some deference to the agency charged with

administering the statute," WorldNet, 497 F.3d at 11.

We have not yet had occasion to determine the correct

standard for reviewing other determinations by the Board, such as

its findings of facts and applications of the law in resolving

disputes over the terms of an agreement; however, we have noted

that other circuits have applied an arbitrary and capricious

standard. See Global NAPs I, 396 F.3d at 24 n.8 (citing MCI

Telecomms. Corp. v. Ohio Bell Tel. Co., 376 F.3d 539, 548 (6th Cir.

2004); U.S. West Commc'ns, Inc. v. Sprint Commc'ns Co., 275 F.3d

1241, 1248 (10th Cir. 2002); Sw. Bell Tel. Co. v. Waller Creek

Commc'ns, Inc., 221 F.3d 812, 816 (5th Cir. 2000); US West

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Commc'ns, Inc. v. MFS Intelenet, Inc., 193 F.3d 1112, 1117 (9th

Cir. 1999)); cf. WorldNet, 497 F.3d at 5 (stating that "[t]he

ordinary standards for reviewing agency decisions are deferential

(in varying degrees) as to matters of fact, policy and application

of general standards, but de novo as to questions of law").

Because we must evaluate the Board's decision regarding VOIP

traffic,8 a decision based on findings of fact and policy

determinations, we now must determine the appropriate standard of

review. The parties all agree that arbitrary and capricious review

applies. Our earlier decisions have implied that this standard of

review is the correct one, and we see no reason that "ordinary

standards for reviewing agency decisions," WorldNet, 497 F.3d at 5,

should not apply. We therefore adopt the position taken by our

sister circuits and explicitly hold that, "where no error of law

exists, the state agency's other determinations are reviewed under

the arbitrary and capricious standard," Global NAPs I, 396 F.3d at

24 n.8.

B. Billing Dispute Fees

We begin with PRTC's contention that, because the Board

lacks jurisdiction under Puerto Rico law to adjudicate claims for

damages between telecommunications carriers, it similarly lacks the

ability, when reviewing an interconnection agreement, to order or

8
See text ante p. 41.

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approve the insertion of monetary penalty provisions that are "akin

to an award of damages." PRTC Br. 27. As support, PRTC invites

our attention to two cases from Commonwealth courts that limited

the ability of the Board to act as a traditional court in

adjudicating actions for damages or for fines that would result

effectively in the payment of damages to a third party (rather than

to the Board itself). See Caribe Commc'ns, Inc. v. Puerto Rico

Tel. Co., 157 P.R. Dec. 203, 228 (2002); Pan Am. Tel. Co. v. Junta

Reglamentadora de Telecomunicaciones de Puerto Rico, Nos. KLRA

0300394, KLRA 0300400, KLRA 0300402, 2004 P.R. App. LEXIS 704 (P.R.

Cir. May 25, 2004). These precedents, PRTC believes, apply with

equal force to the Board's authority to impose terms in arbitrated

interconnection agreements providing for liquidated damages or

penalties without the consent of all of the parties.

This is not the first time we have considered the Board's

authority to adopt liquidated damages provisions in an

interconnection agreement. In WorldNet, we reviewed the Board's

decision to reject an arbitrator's order including a liquidated

damages provision in an interconnection agreement between PRTC and

WorldNet, another LEC, because the amount of liquidated damages did

not correspond to predicted actual damages, and thus was "intended

to punish [PRTC], not to compensate WorldNet." 497 F.3d at 4. We

took this statement to mean that the Board "assumed that liquidated

damages exceeding a reasonable estimate of damages to WorldNet were

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forbidden either by Puerto Rico law or by something inherent in the

concept of liquidated damages." Id. at 6.

We held that this assumption was erroneous. Not only are

Puerto Rico courts "more solicitous of liquidated damages clauses

than their Anglo-American counterparts," id. at 7,9 but the

interconnection agreements are also a special breed of contract,

one that mixes the commercial interests of the parties with the

policy interests of the federal and state governments. We noted

that

interconnection agreements are not ordinary
commercial contracts: the Act dictates their
creation; they are imposed by involuntary
arbitration and agency review if the parties
cannot agree; and their aim is to secure the
public benefit of competition. Incentive
payments not limited to actual damages (e.g.,
civil penalties and criminal fines) are
familiar devices to achieve public ends. So
courts, as a matter of federal law, have
allowed states to approve interconnection

9
This difference can be explained by the fact that courts
grounded in the traditions of the civil law of continental Europe,
such as the courts of Puerto Rico, see Borschow Hosp. & Med.
Supplies, Inc. v. Cesar Castillo Inc., 96 F.3d 10, 15 (1st Cir.
1996), take a more forgiving view of penalty clauses than courts
grounded in the traditions of the English common law. See
Aristides N. Hatzis, Having the Cake and Eating It Too: Efficient
Penalty Clauses in Common and Civil Contract Law, 22 Int'l Rev. L.
& Econ. 381, 383 (2002) (noting that in most civil law European
countries, "liquidated damages are readily enforced, as are penalty
clauses when they are not extravagant (sometimes even then) and
pure[] gambling"); cf. Richard A. Posner, Let Us Never Blame a
Contract Breaker, 107 Mich. L. Rev. 1349, 1352 n.12 (2009) ("[B]y
not distinguishing between liquidated damages clauses and penalty
clauses, the civil law expands freedom of contract, although civil
law judges do refuse to enforce clearly unreasonable damages
clauses." (internal quotation marks omitted)).

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 agreements imposing liquidated damages that
include incentive elements exceeding actual
compensation.

Id. at 7. Although we acknowledged that the Board may wish to

prohibit such provisions as an independent policy choice, we held

that, in making that determination, "the Board must recognize that

neither the Act nor Puerto Rico precedent forbids incentive-based

liquidated damages . . . and that the Board should not assume an

inability to use cost-based liquidated damages." Id. at 8.

Recognizing the difficulty that WorldNet poses to its

position, PRTC attempts to explain why the doctrine of issue

preclusion should not prevent it from relitigating this issue even

though it failed to raise its theory about the Board's authority

during the WorldNet litigation. We do not think that the issue

before us is best regarded as one of issue preclusion, but simply

as one of binding precedent. Regardless of whether

WorldNet considered the particular theory now offered by PRTC, the

fundamental holding of WorldNet is that an arbitrated

interconnection agreement may contain liquidated damages provisions

that are designed to create incentives or to approximate costs and

are inserted over the objection of one of the parties.

Nevertheless, PRTC invites us to overrule (or at least to

distinguish) WorldNet based on PRTC's assertion that, despite the

general appropriateness of penalty clauses under commonwealth law,

Puerto Rico courts have denied the Board itself the power to

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require the addition of liquidated damages provisions into

arbitrated interconnection agreements. WorldNet addressed the

Board's perception that Puerto Rico law forbids penalty clauses as

a general matter. However, PRTC now has devised a new theory that

Puerto Rico law does not grant the Board specific jurisdiction to

impose liquidated damages provisions on unconsenting parties. In

other words, the old theory targeted the content of the provision,

and the new theory targets the scope of the Board's authority to

require the provision.

At the outset, we note that the Board did not actually

mandate the inclusion of the erroneous billing fee. Instead, it

declined to order the imposition of any fee related to billing

disputes and left to the parties the option to include--if they so

desired--reciprocal fee provisions. PRTC, apparently believing

that reciprocal fees would be better than no fees at all,

voluntarily agreed to include both the late payment fee and the

erroneous billing fee.10 Thus, PRTC's challenge is not directed at

10
PRTC asserts that it did not agree voluntarily to the
erroneous billing fee. Instead, PRTC was "coerced" into accepting
the lesser of two evils: "either losing something to which it is
lawfully entitled (i.e., the opportunity to recover the costs
associated with not being paid for services rendered) or accepting
a proposal in which PRTC still could recover its costs but at the
expense of being exposed to the risk of an unlawful penalty." PRTC
Br.29 n.6. This contention takes an overly narrow view of
voluntariness. PRTC may be entitled to be paid for its services,
but just as the prevailing party in a breach of contract action
usually is not entitled to its attorney's fees, PRTC is not
entitled to be compensated for the difficulty of collecting debts
owed to it. The standard measure of the lost use of funds is the

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the Board's authority to mandate terms, but instead at the

possibility of including such terms in an interconnection agreement

at all. That question actually is foreclosed by WorldNet: Puerto

Rico law does not prohibit liquidated damages provisions in

arbitrated interconnection agreements.

More fundamentally, PRTC's theory regarding the Board's

jurisdiction is unpersuasive. None of the cases that it relies on

apply to the Board's function in reviewing arbitrated

interconnection agreements. Instead, those cases address the

Board's role in adjudicating lawsuits between carriers. In Caribe

Communications, Inc. v. Puerto Rico Telephone Co., 157 P.R. Dec.

203, 208 (2002), a competing LEC sued PRTC before the Board for

breach of contract. The Board asserted jurisdiction to adjudicate

the matter on the rationale that Law 213 provided it with the power

to adjudicate suits between carriers. Id. at 209. The Supreme

Court of Puerto Rico disagreed, holding that Law 213 does not

permit the Board to hear a suit for damages. Id. at 228.

According to the court, Law 213 does not confer expressly such a

jurisdiction. Id. at 227-28. Moreover, the Board's assertion of

interest those funds would have earned, and the invoicing party
already receives the interest generated by the escrowed funds if it
prevails. The presence or absence of an additional late payment
fee is a matter of contractual agreement dictated in part by
external factors, such as federal and commonwealth policy. The
Commonwealth's policy in this instance is that reciprocal fees will
deter both parties from engaging in petty and meritless billing
disputes and are more equitable than a one-sided late payment fee.

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implicit authority contradicted the purposes of Law 213 by removing

the ability of litigants to utilize judicial procedures designed to

guarantee due process of law and by attempting to usurp a

quintessential aspect of the judicial power traditionally vested in

courts. Id.11

In Pan American Telephone Co. v. Junta Reglamentadora de

Telecomunicaciones de Puerto Rico, Nos. KLRA 0300394, KLRA 0300400,

KLRA 0300402, 2004 P.R. App. LEXIS 704, at *41 (P.R. Cir. May 25,

2004), the Puerto Rico Court of Appeals built upon Caribe's

rationale, holding that Law 213 also does not permit the Board to

impose administrative fines if those fines would be paid by one

telecommunications carrier to a third party, such as another

telecommunications carrier. The Board had promulgated regulations

providing for the imposition of fines upon telecommunications

providers to encourage compliance with the Act, Law 213 and Board

regulations. Some of these fines were payable to the Board, but

others were payable directly to another party harmed by a

violation. See id. at *34-37.

The court determined that this latter arrangement was

11
Subsequently, the Puerto Rico legislature amended Law 213
to provide the Board with "primary and exclusive jurisdiction for
adjudicating any damages and losses claim caused by any natural or
juridical person to a user [of telecommunications services], except
for claims between telecommunications and cable companies," under
$5,000 and arising out of violations of Law 213, Board regulations
or service contracts. P.R. Laws Ann. tit. 27, § 269j-1. This
amendment by its terms excludes suits for damages, of whatever
amount, between telecommunications carriers.

- 23 -
improper. According to the court, because the Board could not

adjudicate actions for damages between telecommunications

providers, it similarly was barred from imposing fines payable to

another provider harmed by a violation, which as a practical matter

was no different than awarding the provider damages. See id. at

*40-41.

At most, Caribe and Pan American stand for the

proposition that the Board may not adjudicate a claim for a billing

penalty filed by Centennial or PRTC against the other company or

decide to award the fee in a suit for breach of the agreement.

That limitation, however, bears no relation to the Board's review

of disputed terms in an arbitrated agreement, a function akin not

to awarding damages but to imposing regulatory requirements. See

Illinois Bell Tel. Co. v. Global NAPs Illinois, Inc., 551 F.3d 587,

591 (7th Cir. 2008) (noting that the "arbitration" specified by the

Act "is really the first stage in a regulatory proceeding"

conducted by the state commission in reviewing and approving the

agreement (quotation marks omitted)).

Although, as PRTC observes, Law 213 applies to the Board

in the exercise of all of its powers, including adjudications,

rulemaking and reviewing interconnection agreements, Caribe and Pan

American reach only the first of those functions. See WorldNet,

497 F.3d at 11 (holding that Caribe does not "establish any general

rule that the Board's powers are to be narrowly construed" in

- 24 -
setting standards in interconnection agreements, a function which

is not "historically associated with judicial authority"). The

Board has not assumed the power to adjudicate claims between

Centennial and PRTC. It did not decide that in a particular

instance a bill was justified or unjustified, nor has it awarded

judgment to Centennial or PRTC for an erroneous billing fee. The

Board simply has employed its review authority to determine that

creating a duty and a corresponding remedy in the contract would

further the goals of the Act. If, down the road, Centennial

believes that it is entitled to a fee and PRTC refuses to pay it,

Centennial still must bring an action against PRTC to recover.

Virtually every contract contains terms that contemplate

a future remedy of monetary damages.12 Thus, whenever the Board

imposes a term in an interconnection agreement, it creates the

framework for a potential award of damages. See, e.g., Global

NAPs, Inc. v. Verizon New Eng., Inc. (Global NAPs IV), 603 F.3d 71

(1st Cir. 2010) (appeal of an award of damages for payments owed

12
See 24 Richard A. Lord, Williston on Contracts § 64:1 (4th
ed. 2002) (explaining that "[t]he primary if not the only remedy
for injuries caused by nonperformance of most contracts is an
action for damages for the breach" and that, usually, "a judgment
for damages will be given for any breach of any contract, unless
the right has been suspended or discharged" (footnote omitted));
Oliver Wendell Holmes, The Path of the Law, 10 Harv. L. Rev. 457,
462 (1897) ("The duty to keep a contract at common law means a
prediction that you must pay damages if you do not keep it,--and
nothing else.").

- 25 -
under an arbitrated interconnection agreement).13 The billing

dispute fees are no different; they create future remedies that the

parties may invoke upon the other party's erroneous billing or

unjustified refusal to pay a bill, and they are designed both to

incentivize attentive billing and payment practices and to

compensate the parties for the lost use of funds.

Although the contract itself specifies the proper amount

of liquidated damages (the "fee"), there is nothing exceptionable

about that arrangement. As WorldNet makes clear, incentive-based

or cost-based liquidated damages--at least as far as

interconnection agreements go--are permissible under Puerto Rico

law. Accordingly, we reaffirm our holding in WorldNet that Puerto

Rico law does not prevent the inclusion--whether voluntarily

negotiated, imposed by an arbitrator, or imposed by the Board--of

incentive- or cost-based liquidated damages in interconnection

agreements between telecommunications carriers.

13
See also, e.g., Illinois Bell Tel. Co. v. Global NAPs
Illinois, Inc., 551 F.3d 587, 591 (7th Cir. 2008) (holding that a
suit to collect charges provided for by an interconnection
agreement is based on state contract law); Core Commc'ns, Inc. v.
Verizon Pennsylvania, Inc., 493 F.3d 333 (3d Cir. 2007)
(determining the proper forum for a suit for damages predicated
upon breach of an interconnection agreement); ICG Telecom Grp.,
Inc. v. Qwest Corp., 375 F. Supp. 2d 1084 (D. Colo. 2005) (action
to compel arbitration over the payment of disputed bills as
provided for in an interconnection agreement); New Access Commc’ns,
L.L.C. v. Qwest Corp., 368 F. Supp. 2d 952 (D. Minn. 2005)
(examining an arbitration award of money damages for overcharges
made in violation of an interconnection agreement).

- 26 -
C. Direct Connection with Claro

We turn next to PRTC's claim that federal law preempts

the Board's decision to require PRTC to make commercially

reasonable efforts to facilitate a direct connection between

Centennial and Claro. PRTC's view is that by requiring PRTC to

facilitate the negotiation of a direct connection or lose its

transiting fees, the Board is using the threat of a penalty

obliquely to require Claro to agree to a direct interconnection

with Centennial, although the Act does not place an obligation on

mobile service carriers to interconnect directly with other

carriers. According to PRTC, this arrangement treads on an area

that Congress and the FCC intended to leave free from state

regulation.

Under the Supremacy Clause of Article VI of the

Constitution,14 Acts of Congress or pronouncements of "'a federal

agency acting within the scope of its congressionally delegated

authority'" may preempt inconsistent state laws or state regulatory

authority. Global NAPs, Inc. v. Verizon New Eng., Inc. (Global

NAPs III), 444 F.3d 59, 71 (1st Cir. 2006) (quoting Louisiana Pub.

Serv. Comm'n v. FCC, 476 U.S. 355, 369 (1986)). Sometimes

14
"This Constitution, and the Laws of the United States which
shall be made in Pursuance thereof; and all Treaties made, or which
shall be made, under the Authority of the United States, shall be
the supreme Law of the Land; and the Judges in every State shall be
bound thereby, any Thing in the Constitution or Laws of any State
to the Contrary notwithstanding." U.S. Const. art. VI, § 2.

- 27 -
preemption occurs through a clear statement of intent to preempt

state law. Other times preemption occurs when state law directly

conflicts with the dictates or purposes of federal law or when

Congress or an agency has created a regulatory framework so

comprehensive that it is intended to occupy the field to the

exclusion of state supplementation. See Weaver's Cove Energy, LLC

v. Rhode Island Coastal Res. Mgmt. Council, 589 F.3d 458, 472-73

(1st Cir. 2009); see also Verizon New Eng., Inc., 509 F.3d at 9

("State regulation, even when authorized by local law, must give

way not only ‘where Congress has legislated comprehensively' in a

field with an aim to occupy it, but also ‘where the state law

stands as an obstacle to the accomplishment and execution of the

full objectives of Congress.'" (quoting Louisiana Pub. Serv.

Comm'n, 476 U.S. at 368-69)).15

15
As we explained in Weaver’s Cove Energy, LLC,

To simplify a complex area of law, preemption
arguments are generally divided into three categories.
The first, express preemption, results from language in
a statute revealing an explicit congressional intent to
preempt state law. The second, field preemption, is that
Congress may implicitly preempt a state law by creating
a pervasive scheme of regulation. The third category is
conflict preemption. In this category, state law is pre-
empted to the extent it actually conflicts with federal
law, that is, when compliance with both state and federal
law is impossible, or when the state law stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.

Weaver's Cove Energy, LLC v. Rhode Island Coastal Res. Mgmt.
Council, 589 F.3d 458, 472-73 (1st Cir. 2009) (internal citations
and quotation marks omitted).

- 28 -
 Certain state laws touching telecommunications, such as

those preventing competing LECs from entering the market, are

preempted by the terms of the Act. See 47 U.S.C. § 253(a).

Congress took pains, however, to preserve traditional state

authority over telecommunications services and to maintain a role

for states within the dual regulatory regime. For instance, § 252

provides that "nothing in this section shall prohibit a State

commission from establishing or enforcing other requirements of

State law in its review of an agreement, including requiring

compliance with intrastate telecommunications service quality

standards or requirements." Id. § 252(e)(3). Section 261

similarly states that the Act does not prevent a state "from

imposing requirements on a telecommunications carrier for

intrastate services that are necessary to further

competition . . . , as long as the State's requirements are not

inconsistent with" the Act or the FCC's implementing regulations.

Id. § 261(c).

Whether the Act or the FCC have preempted state

telecommunications regulation thus depends on a determination that

a specific requirement is "inconsistent" with federal law; that is,

that the state directly has violated a clear statement in the Act

or FCC rules, or that the state's chosen means of regulation

clearly interfere with a federal policy goal or a method of

achieving that goal. See Verizon New Eng., Inc., 509 F.3d at 9;

- 29 -
Global NAPs III, 444 F.3d at 72-75. Making this determination

requires us to examine carefully the specific language in the

congressional and FCC pronouncements that PRTC claims foreclose the

Board's decision.

PRTC locates explicit congressional intent to preempt

state regulation of mobile service interconnection in § 6002 of the

Omnibus Budget Reconciliation Act of 1993.16 Specifically, that act

provides that "no state or local government shall have any

authority to regulate the entry of or the rates charged by any

commercial mobile service . . . , except that this paragraph shall

not prohibit a State from regulating the other terms and conditions

of commercial mobile services." 47 U.S.C. § 332(c)(3)(A). PRTC's

reliance on this section is misplaced. On its face, § 332(c)

preempts only state attempts to prevent new mobile service carriers

from entering the market or to regulate the rates charged for

wireless services, neither of which situation is at issue here.

Any other state regulation of mobile service providers remains

unaffected.

PRTC also contends that direct connection is not required

by law, by which it means that the Act does not specify whether

mobile service carriers must connect directly or indirectly with

other telecommunications carriers. The Act places a general

16
Omnibus Budget Reconciliation Act of 1993 §
6002(b)(2)(A)(iii), Pub. L. No. 103-66, 107 Stat. 312, 394 (1993)
(codified in relevant part in 47 U.S.C. § 332).

- 30 -
interconnection obligation (direct or indirect) on all

telecommunications providers, including mobile service providers,

but imposes the stricter duty of direct connection and state

arbitration only on incumbent LECs. See id. § 251(a)-(c). As PRTC

contends, the FCC has declined to treat mobile service providers as

LECs subject to the more strenuous obligations in the three-tier

framework.17 See Atlas Tel. Co., 400 F.3d at 1262 & n.3 (explaining

that "[t]he FCC has determined that [mobile service] providers

qualify as telecommunications carriers, and thus are subject to the

provisions of § 251(a)" but distinguishing these provisions from

the obligations imposed on LECs in § 251(b)-(c) (internal quotation

marks omitted)); In re Implementation of the Local Competition

Provisions in the Telecomms. Act of 1996, 11 F.C.C.R. 15499, 15995-

96 (1996) (order from the FCC "declin[ing] at this time to treat

CMRS providers as LECs" and determining that "states are preempted

from requiring CMRS providers to classify themselves as 'local

exchange carriers'"). On this view, the Board lacks the authority

to require PRTC to facilitate negotiations because federal law does

not require Claro to connect directly or to engage in mandatory

interconnection arbitration.

Although sections 253 and 332 do not interfere with the

Commonwealth's power to establish regulations for the provision of

17
For an explanation of the three-tiers of obligations
imposed by the Act on various telecommunications entities, see the
discussion in section I.A., supra.

- 31 -
mobile services additional to the requirements of the Act, see 47

U.S.C. §§ 253(b), 332(c)(3)(A), we note, without deciding, that it

is not at all clear that the Act itself gives the Board the

authority to use the interconnection arbitration and review process

to impose interconnection requirements on an incumbent LEC-

affiliated mobile service carrier. See Qwest Corp. v. Arizona

Corp. Comm'n, 567 F.3d 1109, 1117 (9th Cir. 2009) (holding that

"all state commission arbitration authority under Section 252 is

inextricably tied to the duties imposed under Section 251" and

cannot be extended to duties created by other sections of the Act);

Qwest Corp. v. Pub. Utils. Comm'n of Colorado, 479 F.3d 1184, 1197

(10th Cir. 2007) (stating that the commission "may only compel an

[incumbent LEC] to arbitrate with respect to services that it is

under a duty to provide").

Here, however, the Board has set its sights not on Claro,

but on PRTC's transiting fee, a matter subject to arbitration under

the Act. Because of PRTC's refusal to articulate any sort of

justification for why it has impeded negotiations between

Centennial and Claro, the Board concluded that PRTC very likely was

motivated by a desire to raise Centennial's costs. As we have

noted, most mobile service providers in Puerto Rico have agreed to

establish direct connections with Centennial. The reason for this

is simple. By connecting directly where technically feasible, both

companies are able to lower their costs by cutting out the

- 32 -
middleman's transiting fee. The only person who would object to

such an arrangement would be the middleman himself. In this case,

however, the middleman controls Claro, giving it an obvious motive

to prevent direct connection and to impose a transiting fee that

raises Centennial's costs but has less of an effect on its own

(because Claro will not have to pay itself). Therefore, as a

condition of continuing to charge a transiting fee, the Board

included a requirement in the agreement that PRTC would use

commercially reasonable efforts to facilitate a direct connection.

WorldNet again provides important guidance. A second

issue in WorldNet was whether the Board could require PRTC to

provide a competing LEC with service performance standards

"superior to the service [PRTC] . . . provided to its own

customers." WorldNet, 497 F.3d at 8 (emphasis omitted). PRTC

contended that because the Act required incumbent LECs only to

provide service "at least equal in quality to that provided by the

local exchange carrier" to others, 47 U.S.C. § 251(c)(2)(C), the

Board had no authority to oblige incumbent LECs to provide any

greater amount of service. We disagreed. Although the Act does

not establish a right to superior service, we explained, the Act

does not forbid states from imposing requirements above those

mandated by Congress or the FCC. WorldNet, 497 F.3d at 9. We also

determined that Commonwealth law permitted the Board to impose such

requirements: "[T]he Board is endowed with general regulatory

- 33 -
powers and is entitled to read its grant of authority broadly."

Id. at 12.

To be sure, the Act itself also does not require PRTC to

facilitate negotiations as part of its obligation to interconnect

telecommunications carriers. Yet, it certainly does not forbid it,

nor does it forbid state commissions from exercising their own

authority in order to effectuate state policy. See id. at 7

("[L]ocal agencies make policy on their own[,] and section

252(e)(3) reserves the Board's authority to 'establish[] . . .

requirements of State law in its review of an agreement' (emphasis

added). And the Act, although imposing certain federal

requirements, is intended to defer to state agencies on matters

that do not compromise the achievement of federal aims." (third

alteration and ellipsis in original)). Law 213 grants the Board

the power to adopt policies promoting competition, efficient

service and consumer welfare and penalizing anti-competitive

practices. See P.R. Laws Ann. tit. 27, §§ 265, 267(a), 267f. It

was well within the scope of that power to target perceived anti-

competitive behavior and to adopt a policy--the denial of

transiting fees if PRTC's failure to facilitate negotiations cannot

be justified on business, technical or efficiency grounds--designed

to address that behavior and to promote competition, efficiency and

consumer welfare.

Finally, PRTC points to two orders issued by the FCC,

- 34 -
which declined to promulgate regulations that would establish

interconnection standards for mobile service carriers. In those

orders, the FCC stated that, because most mobile service providers

do not possess the same sort of market power in the provision of

local telecommunications services as does an incumbent LEC, the FCC

preferred to rely primarily on voluntary private agreements to

achieve interconnection. See In re Interconnection & Resale

Obligations Pertaining to Commercial Mobile Radio Servs., 15

F.C.C.R. 13523, 13528 (2008); In re Interconnection & Resale

Obligations Pertaining to Commercial Mobile Radio Servs., 10

F.C.C.R. at 10684-86. The FCC also stated that it stood ready to

intervene should later developments--such as attempts by LEC-

affiliated mobile service providers to impede efficient

interconnection--demonstrate a need for general standards. In re

Interconnection & Resale Obligations Pertaining to Commercial

Mobile Radio Servs., 10 F.C.C.R. at 10687-88. PRTC interprets

these decisions as establishing a clear intent on the part of the

FCC both to assert exclusive authority over mobile service

interconnection and to prevent states from interfering with its

scheme of voluntarily negotiated, private interconnection

agreements involving mobile service carriers.

We have stated previously that the structure created by

the Act demands that the FCC make its intent to foreclose state

regulation especially plain:

- 35 -
 The requirement of a clear indication of
the agency's intent to preempt is especially
important in the context of the TCA, which
"divide[d] authority among the FCC and the
state commissions in an unusual regime of
'cooperative federalism,' with the intended
effect of leaving state commissions free,
where warranted, to reflect the policy choices
made by their states."

Global NAPs III, 444 F.3d at 72 (quoting Global NAPs, Inc. v.

Massachusetts Dep't of Telecomms. & Energy (Global NAPs II), 427

F.3d 34, 46 (1st Cir. 2005)) (alteration in original).

For example, in Global NAPs III, 444 F.3d 59, 75 (1st

Cir. 2006), we refused to find preemption of all state regulation

of intercarrier compensation for internet service provider traffic

where the FCC had issued a preemption order addressing only one

aspect of such compensation while "deferr[ing] fuller consideration

of a unified system of intercarrier compensation to a future

rulemaking." The order at issue in Global NAPs III provides an

example of the clarity the FCC employs when it intends to preempt

state regulatory authority:

The interim compensation regime we
establish here applies as carriers renegotiate
expired or expiring interconnection
agreements. It does not alter existing
contractual obligations, except to the extent
that parties are entitled to invoke
contractual change-of-law provisions. This
Order does not preempt any state commission
decision regarding compensation for ISP-bound
traffic for the period prior to the effective
date of the interim regime we adopt here.
Because we now exercise our authority under
section 201 to determine the appropriate
intercarrier compensation for ISP-bound

- 36 -
 traffic, however, state commissions will no
longer have authority to address this issue.

In re Implementation of the Local Competition Provisions in the

Telecomms. Act of 1996, 16 F.C.C.R. 9151, 9189 (2001) (emphasis

added).

Nothing even approaching such a clear statement exists in

either order at issue in this case. The FCC's orders declined only

to promulgate rules of general applicability. See In re

Interconnection & Resale Obligations Pertaining to Commercial

Mobile Radio Servs., 15 F.C.C.R. at 13532 ("We do not think there

is an adequate record to support regulations addressing such issues

. . . ."); In re Interconnection & Resale Obligations Pertaining to

Commercial Mobile Radio Servs., 10 F.C.C.R. at 10668 (concluding

that "at present it would be premature for the Commission to

propose or adopt rules of general applicability requiring direct

interconnection arrangements between CMRS providers"). A

determination that it would be imprudent to adopt a rule imposing

interconnection standards and obligations on every mobile service

provider at the national level is a far cry from a determination

that state commissions should be barred from imposing requirements

on individual LECs in the context of an arbitrated interconnection

agreement because they might affect wireless interconnection. Cf.

WorldNet, 497 F.3d at 9, 12 (explaining that the FCC's inability to

promulgate general regulations does not circumscribe a state

commission's power to effectuate state policy when reviewing

- 37 -
interconnection agreements); Indiana Bell Tel. Co., 362 F.3d at 393

("[W]e do not agree with the premise . . . that because the FCC may

not implement a blanket regulation requiring superior quality, the

[state commission] may not require acceptance testing when, after

individualized review, it finds it to be in the public interest and

a means of promoting competition in [the state].").

The Board did not adopt a regulation requiring all mobile

service providers in Puerto Rico to agree to direct connections

from all suitors. Indeed, it did not even require Claro to

interconnect directly. Instead, it offered PRTC an opportunity

either to facilitate negotiations or to explain why its failure to

do so was justified on any business, technology or efficiency

ground other than to raise its rival's costs. This obligation

extends only to "commercially reasonable efforts." R.1, Ex. 4 at

14. If PRTC can offer a reason for not connecting Claro directly

with Centennial other than anti-competitive animus, the Board will

decline to take action, thereby preserving Claro's ability "to

provide interconnection . . . either directly or indirectly, based

upon [its] most efficient technical and economic choices." In re

Implementation of the Local Competition Provisions in the

Telecomms. Act of 1996, 11 F.C.C.R. at 15991.

The Board's requirement also does not interfere with the

FCC's policy goal of fostering voluntary interconnection agreements

- 38 -
with mobile service providers.18 In declining for the time being

to promulgate general interconnection obligations for mobile

service carriers, the FCC noted the possibility that "LEC-

affiliated CMRS carriers may have a unique incentive to deny

interconnection so as to keep CMRS-to-CMRS traffic interconnected

through the local exchange landline network, and to continue to

collect CMRS interconnection charges from both sets of CMRS

providers through their access charge structures." In re

Interconnection & Resale Obligations Pertaining to Commercial

Mobile Radio Servs., 10 F.C.C.R. at 10688. The FCC also stated

that "some potential might exist for CMRS providers to raise their

rivals' costs by denying direct interconnection, or increasing the

price of direct interconnection to the price charged by the LEC for

indirect interconnection." Id. at 10682-83.

Given that the FCC's statements focus on the behavior

that the Board is attempting to address here, we cannot find a

clear indication on the part of the FCC to preempt attempts by

state commissions to address the fee structure charged by incumbent

LECs in order to remove an incentive for anti-competitive and

18
Cf. Verizon New Eng., Inc. v. Maine Pub Utils. Comm'n, 509
F.3d 1, 9 (1st Cir. 2007) (finding a state commission's ability to
impose interconnection requirements preempted where the
requirements were "in direct conflict with specific FCC policies"
designed to "free the carriers from such compulsion"); Wisconsin
Bell, Inc. v. Bie, 340 F.3d 441 (7th Cir. 2003) (holding that a
state requirement that incumbent LECs file a tariff directly
frustrated the Act's system of negotiated agreements because it
damaged the bargaining position of the incumbent LECs).

- 39 -
inefficient interconnection arrangements. Moreover, the FCC's

promise to remain "particularly vigilant in policing, where they

exist, any efforts by CMRS providers to deny interconnection in

order to gain an unfair competitive advantage," id. at 10687, was

not, as PRTC asserts, a statement of an intent to occupy the field,

but instead a promise to keep an eye out in case it needed to

"revisit the need for adopting interconnection rules of general

applicability." Id. (emphasis added). On an intent to occupy the

field, "it is, at best, ambiguous . . . , and ambiguity is not

enough to preempt state regulation here." Global NAPs III, 444

F.3d at 72.

To summarize, we hold that because Law 213 authorizes the

Board to foster competition in the market for telecommunications

services and because federal law does not preempt the Board's

decision to require PRTC to use commercially reasonable efforts to

facilitate a direct connection between Centennial and Claro, the

Board's order was proper. First, neither the Act nor the FCC

orders contain a clear statement of "an explicit . . . intent to

preempt state law." Weaver's Cove Energy, LLC, 589 F.3d at 472.

Second, the Act has not "creat[ed] a pervasive scheme of

regulation," id., that implicitly preempts state authority to

regulate anti-competitive practices by incumbent LECs. Quite the

contrary, the Act's scheme of coordinate federalism explicitly

preserves a role for states to implement policy in their review of

- 40 -
interconnection agreements. Finally, the Board's order does not

stand "in direct conflict with specific FCC policies" or "as an

obstacle to the accomplishment and execution of the full objectives

of Congress." Verizon New Eng., Inc., 509 F.3d at 9 (quotation

marks omitted).

D. VOIP Traffic

We turn, then, to PRTC's final contention, which is that

we should reverse the district court's holding that the Board's

decision not to enumerate VOIP separately as a permissible traffic

activity was arbitrary and capricious. According to PRTC, VOIP is

a kind of technology, not a kind of traffic, and thus at least some

of the calls placed through VOIP technology can be covered by

enumerated traffic types. Given this distinction, PRTC asserts,

the Board's decision not to enumerate VOIP was rational and avoided

the possibility of creating new, unforeseen problems. Centennial

asserts, however, that the Board committed a clear, irrational

error of logic by acknowledging that the parties already exchange

VOIP traffic and limiting the meet points to specified classes of

traffic, yet refusing to include VOIP among the permissible types

of traffic. The Board does not defend its decision at all.19

19
The Board does not contest the district court's
determination, nor does it explain how it reached the decision it
did. Instead, its only comment on the matter is:

The Board does not join [PRTC's] argument. The district

- 41 -
 Under the arbitrary and capricious standard of review, an

agency's decision will be upheld unless "the agency lacks a

rational basis for making the determination or if the decision was

not based on consideration of the relevant factors." River St.

Donuts, LLC v. Napolitano, 558 F.3d 111, 114 (1st Cir. 2009)

(quotation marks omitted).

If the district court is correct that VOIP is a kind of

traffic, then one might conclude from reviewing the record that the

Board "commit[ted] a clear error of judgment," Town of Winthrop v.

Fed. Aviation Admin., 535 F.3d 1, 8 (1st Cir. 2008), justifying

reversal. On the other hand, if VOIP is merely a technology

already covered in part by other categories, then that would

explain how the Board could say simultaneously that only enumerated

traffic types could be exchanged at meet points and that the

parties already were exchanging VOIP calls. That decision would,

moreover, be based on a consideration of the relevant factors, such

as a lack of history of disputes over VOIP calls, uncertainty about

future FCC action and the potential that enumerating VOIP traffic

court's opinion held that VOIP traffic should be included
in the enumerated categories to the extent they are not
already covered by those categories. If, as PRTC argues,
VOIP is covered by the existing enumerated categories of
traffic to be exchanged, then there is no issue. If not,
then, given that the parties are already exchanging such
traffic, the Board does not object [to] confirming this
practice by including VOIP traffic in the interconnection
agreement.

Board Br. 36-37 (internal citation omitted).

- 42 -
separately could create new problems.

Unfortunately, whether VOIP already is covered by the

parties' interconnection agreement is an unresolved question. PRTC

asserts that VOIP is a technology, but that does little to resolve

the central question: whether VOIP calls are subsumed by types of

traffic enumerated in the agreement. On that point, PRTC

equivocates, saying only that "VOIP technology may very well be."

PRTC Br. 54. Nor does the Board do much to clarify its decision,

telling us only that if VOIP is already covered, then there is no

issue.

We are hesitant to insert ourselves into the

classification and regulation of VOIP traffic on such a muddled

record. VOIP presents a number of sensitive technical and policy

considerations better left to the FCC and state commissions. Some

VOIP calls originate on a computer and terminate at a telephone, or

vice versa. Other VOIP calls, however, both originate and

terminate on an actual telephone; for this type of call, the

internet provides the medium of transmission on at least one end of

the conversation. There are obvious differences between these

types of calls. The FCC may choose to treat each configuration in

a different way; conversely, it may choose to treat them in the

same way, or not to regulate them at all.

In addition, at argument, counsel for the Board explained

that a key consideration in refusing to enumerate VOIP separately

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was its fear that Centennial would use a general VOIP category as

a Trojan horse to give it access to the meet points for types of

calls for which it would otherwise owe PRTC separate compensation.

Given the possibility for abuse, the lack of past

disputes and the uncertain regulatory environment, we believe the

Board was wise to keep its powder dry and save final resolution of

the VOIP question for a later day. Cf. Town of Winthrop, 535 F.3d

at 13 (holding that, when an agency is faced with an "area of

research . . . still developing," it is not arbitrary and

capricious to decline to take action while "evaluat[ing] the issue

more fully").

Although we agree with the district court that the

Board's language is confusing, we believe that the Board's order

meant to convey that some, if not all, VOIP traffic has been and

will continue to be exchanged at the meet points under other,

specifically enumerated headings. See FCC v. Fox Television

Stations, Inc., 129 S. Ct. 1800, 1810 (2009) (stating that a court

"should 'uphold a decision of less than ideal clarity if the

agency's path may reasonably be discerned'" (quoting Bowman

Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281,

286 (1974))). Nothing in the Act mandates that the Board permit

all types of VOIP traffic to be exchanged, so the exclusion of

certain types of calls not covered by enumerated traffic categories

is permissible. If later disputes create a need for specific

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intervention, then the Board can tailor a remedy to the specific

problems presented before it. Moreover, the Board can certainly

take into account PRTC's representations during this litigation in

assessing a proper response to any future problems.

Conclusion

We hold that neither Puerto Rico nor federal law cabin

the Board's authority as narrowly as PRTC contends. The Board

possesses the power under Puerto Rico law to impose liquidated

damages clauses in telecommunications interconnection agreements.

Moreover, federal law does not prevent the Board from regulating

potentially anti-competitive behavior associated with transiting

fees charged by incumbent local exchange carriers. We also hold

that the Board's reluctance to enumerate VOIP calls separately was

supported by a consideration of relevant factors and possessed a

rational basis. Accordingly, the judgment of the district court is

affirmed in part and reversed in part, and we remand to allow the

district court to enter summary judgment for the Board. The

parties shall bear their own costs in this appeal.

AFFIRMED in PART and REVERSED in PART.

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