Southwestern Bell Telephone Co. v. Waller Creek Communications, Inc.

August 22, 2000

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

___________________________

No. 99-50752
___________________________

SOUTHWESTERN BELL TELEPHONE COMPANY,

Plaintiff -- Appellant,

VERSUS

WALLER CREEK COMMUNICATIONS, INC.; PUBLIC UTILITY COMMISSION OF
TEXAS; PAT WOOD, III; JUDY WALSH; BRETT A. PERLMAN,

Defendants -- Appellees.

___________________________________________________

Appeal from the United States District Court
for the Western District of Texas
___________________________________________________
August 21, 2000

Before REAVLEY, DAVIS, and BARKSDALE, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Southwestern Bell Telephone (“SWBT”) appeals from the

district court’s order affirming the Texas Public Utilities

Commission’s (“PUC”) approval of an arbitrated interconnection

agreement between SWBT and Waller Creek Communications, Inc.

(“Waller”). SWBT contends that the PUC erred in allowing Waller

to adopt selected provisions from a prior SWBT agreement with

AT&T without further negotiation, while at the same time allowing

Waller to arbitrate additional provisions. We find no error in

the PUC’s arbitration procedures based upon its interpretation of

the Telecommunications Act and the FCC’s regulations. Nor do we
find any error in the substantive decisions of the PUC. We

therefore affirm.

I

The Telecommunications Act of 19961 was adopted to promote

competition by encouraging and facilitating the entry of new

telecommunications carriers into local service markets. See AT&T

Corp. v. Iowa Utilities Board (“Iowa Utilities II”), 525 U.S.

366, 371-72, 119 S.Ct. 721, 726-27 (1999); Reno v. ACLU, 521 U.S.

844, 857-58, 117 S.Ct. 2329, 2337-38 (1997). It requires

incumbent local exchange carriers (“ILECs”) to interconnect with

competitors (competing local exchange carriers, or “CLECs”) upon

request, and to negotiate interconnection agreements in good

faith. See 47 U.S.C. §§ 251(a)(1) and (c). If the parties are

unable to reach an interconnection agreement through negotiation,

either party may request that a state commission (here, the Texas

PUC) arbitrate the areas of dispute identified by the parties.

See 47 U.S.C. § 252 (a)(2), (b). Interconnection agreements,

whether reached by negotiation or arbitration, must be presented

to the PUC for approval. See 47 U.S.C. § 252(e)(1). When an

agreement has been arbitrated, the PUC can reject it only for

failure to satisfy the requirements of 47 U.S.C. §§ 251 and

252(d). See 47 U.S.C. § 252(e)(2)(B).

Pursuant to the Telecommunications Act, Waller (a CLEC)

1
Pub. L. No. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. § 151 et
seq.

2
requested negotiation of an interconnection agreement with SWBT

(an ILEC). When negotiations failed to produce an agreement,

Waller asked the PUC to arbitrate.

As a basis for its own agreement with SWBT, Waller sought to

adopt most of the provisions of an existing interconnection

agreement between SWBT and AT&T. In addition, Waller sought to

arbitrate some additional provisions regarding services, uses of

technology, and business plans not addressed by the AT&T/SWBT

agreement. The PUC agreed with Waller that the so-called “most

favored nation” (“MFN”) clause of the Telecommunications Act, 47

U.S.C. § 252(i), permitted this procedure.

Section 252(i) provides that: “A local exchange carrier

shall make available any interconnection, service, or network

element provided under an agreement approved under this section

to which it is a party to any other requesting telecommunications

carrier upon the same terms and conditions as those provided in

the agreement.”

The FCC regulation interpreting the MFN clause has been

termed the “pick and choose” rule, and it provides in relevant

part that:

An incumbent LEC shall make available without
unreasonable delay to any requesting
telecommunications carrier any individual
interconnection, service, or network element
arrangement contained in any agreement to which
it is a party that is approved by a state
commission pursuant to section 252 of the Act,
upon the same rates, terms, and conditions as
those provided in the agreement....

47 C.F.R. § 51.809(a) (1998).

3
 SWBT argues that the MFN clause may not be invoked to adopt

certain provisions of an earlier agreement if the CLEC also seeks

to create additional provisions not covered in the earlier

agreement. According to SWBT, a CLEC must either adopt all of

its desired terms from an existing agreement or negotiate (and,

if necessary, arbitrate) every provision of its agreement from

scratch.

Although the PUC allowed Waller to arbitrate issues not

arbitrated between SWBT and AT&T, it did not allow re-arbitration

of terms decided in the prior arbitration. The PUC-approved

agreement between Waller and SWBT included some amendments and

additions to the AT&T agreement, but most of the AT&T terms were

adopted without change. The district court affirmed the PUC’s

order and dismissed SWBT’s complaint with prejudice, finding no

error in the PUC’s interpretation of the most favored nation

provision. It also found that the PUC’s actions were supported

by substantial evidence and were not arbitrary or capricious.

SWBT now appeals.

II

We first address Waller’s contention that we lack

jurisdiction over this appeal. Waller contends that the district

court’s order was not final because it dismissed only Counts III

and IV of SWBT’s five-count complaint.2

2
The complaint alleged that: (1) the Commission erred by treating traffic
destined for the Internet as local (Count I); (2) features contained in the AT&T
agreement that Waller adopted and retained were unlawful (Count II); (3) the
Commission had applied the MFN provision, 47 U.S.C. § 252(i), improperly (Count
III); (4) the modifications Waller was allowed to make to the AT&T agreement were

4
 Because the legal issues presented in Counts I, II, and V

were the same as those presented by SWBT in two separate related

cases pending in other courts,3 the parties filed a joint motion

to limit issues for briefing and trial to issues raised in Counts

III and IV.4 The district court granted the joint motion and

ordered that no briefing or argument occur on Counts I, II, and

V.5 The agreed order further provided that the outcome of Counts

I, II, and V be controlled by the other two pending appeals, and

that the parties would be bound thereby. On July 2, 1999, the

district court entered the order which is the subject of this

appeal, affirming the decision of the PUC and dismissing SWBT’s

Counts III and IV with prejudice.

Waller argues that the July 2, 1999 order did not constitute

a final order as to Counts I, II, and V. Thus, it contends that

we lack jurisdiction over this appeal because the district court

improper (Count IV); and (5) the procedures adopted by the Commission to govern
arbitrations, and applied in the Waller arbitration, were erroneous and unlawful
(Count V).
3
Waller was not a party in either of those appeals. Counts II and V were
raised by SWBT in its appeal to this Court in the AT&T proceeding. See
Southwestern Bell v. AT&T Communications, Nos. 98-51005, 99-50060, and 99-50073.
Count I raised the same issue presented to this Court in the Time Warner
proceeding. See Southwestern Bell Telephone Co. v. Public Utility Comm’n of
Texas, 208 F.3d 475 (5th Cir. 2000).
4
The Agreed Joint Motion to Limit Issues for Briefing and Trial and for
Continuance, filed November 13, 1998, provides, in relevant part: “[A]ll parties
agree to be bound by the ultimate disposition, including disposition on appeal,
of these other decisions, to the extent these other decisions adjudicate the
issues raised in Counts I, II, and V of Southwestern Bell’s Complaint.”
5
The Agreed Order, filed November 13, 1998, provides that, as to these
counts, “all parties shall be bound by the ultimate disposition, including
disposition on appeal, of the decisions in the cases listed below, to the extent
these other decisions adjudicate issues raised in Counts I, II and V of
Southwestern Bell’s Complaint.”

5
has not entered an order pursuant to Federal Rule of Civil

Procedure 54(b).

We agree with SWBT that we have appellate jurisdiction in

this case. Based on the parties’ consent, the district court

ordered that all parties would be bound by the ultimate

disposition of the pending appeals in the other cases as to the

issues in Counts I, II, and V.6 The district court’s July 1999

order affirmed the PUC’s decision, dismissed counts III and IV

with prejudice, and entered judgment. Further, it expressly

stated that “[a]ll other claims have been disposed pursuant to

this Court’s Agreed Order, filed November 13, 1998.” Nothing

remains for the district court to decide in this case, because it

has disposed of all counts of SWBT’s complaint. If either party

disputes the application to this case of any new law created in

the other appeals,7 their recourse -- under the intervening law

clause of their arbitrated agreement -- is to the PUC, not to the

district court. Thus, we conclude that the district court’s

order was final and appealable, and we therefore have

jurisdiction over this appeal.

6
See Agreed Order, filed November 13, 1998.
7
The related counts in the AT&T proceeding (corresponding to Counts II and
V) were dismissed by SWBT as reflected in this Court’s Order of October 21, 1999.
The related count in the Time Warner proceeding (corresponding to Count I) has
been decided on appeal by this Court. See Southwestern Bell, 208 F.3d 475.

6
 III

A.

We next turn to the merits of SWBT’s appeal. In doing so,

we review the PUC’s interpretation of the Telecommunications Act

and the FCC’s regulations de novo. Southwestern Bell Telephone

Co. v. Public Utility Comm’n of Texas, 208 F.3d 475, 482 (5th

Cir. 2000); US West Communications v. MFS Intelenet, Inc., 193

F.3d 1112, 1117 (9th Cir. 1999); GTE South, Inc. v. Morrison, 199

F.3d 733, 742 (4th Cir. 1999). We review the PUC’s resolution of

all other issues under the “arbitrary and capricious” standard.

Id.

B.

The dispute in this case centers around the scope of the

“most favored nation” (“MFN”) clause of the Telecommunications

Act, 47 U.S.C. § 252(i), and the FCC’s “pick and choose” rule

interpreting that clause.8 The FCC’s “pick and choose” rule

“allow[s] requesting carriers to ‘pick and choose’ among

individual provisions of other interconnection agreements that

have previously been negotiated between an incumbent LEC and

other requesting carriers without being required to accept the

terms and conditions of the agreements in their entirety.” Iowa

Utilities Board v. FCC (“Iowa Utilities I”), 120 F.3d 753, 800

(8th Cir. 1997) (rev’d in part by 119 S.Ct. 721 (1999)).

The question we face today is whether, under the MFN clause,

8
47 C.F.R. § 51.809 (1998).

7
a CLEC may “pick and choose” certain provisions of an existing

agreement without being required to accept the entire agreement,

while at the same time seeking to negotiate and/or arbitrate new

provisions not contemplated in the existing agreement.

The PUC found that, “[r]egarding new requests based upon new

business ideas and arguments, ... a requesting carrier/CLEC may,

consistent with [Federal Telecommunications Act] § 252(i), MFN

into an existing agreement, then arbitrate new issues and

incorporate the results into a new interconnection agreement.”9

If new carriers were allowed to opt into a previously-arbitrated

agreement while also seeking new terms as to new business plans,

technologies, or services, it would “allow[] local competition in

Texas to move forward as new ideas are formulated in the

competitive marketplace, thereby, building upon the groundwork

laid by this Commission, SWBT, and various competitors that have

arbitrated their disputes before this Commission.”10

SWBT criticizes the PUC’s interpretation of the MFN

provision and the FCC’s “pick and choose” rule as creating a

“super-MFN” or “MFN-plus” approach, and contends that it creates

a hybrid procedure not authorized or contemplated by the

Telecommunications Act. SWBT argues that the Telecommunications

Act creates two mutually exclusive procedures applicable to this

case: (1) use of the MFN clause, § 252(i), to create an agreement

9
PUC’s Order Approving Interconnection Agreement (“PUC Order”), filed April
28, 1998, at 4.
10
Id.

8
composed only of terms adopted unchanged from existing

agreements; or (2) negotiation and, if necessary, arbitration --

under 47 U.S.C. § 252(a)-(c) -- of every term of the desired new

agreement. Thus, argues SWBT, the MFN clause only allows a CLEC

to opt into provisions from another existing SWBT agreement if

the CLEC seeks no additions or changes to that agreement. If a

CLEC wishes to include in its agreement any new term not found in

a prior agreement, it may not invoke the MFN clause for any

provision.

Waller contends that the MFN clause was designed to

facilitate the completion of new interconnection agreements,

without the need for time-consuming and costly re-litigation and

re-arbitration of numerous and complex issues already decided by

regulatory commissions.11 It urges that -- contrary to

Congressional intent -- SWBT’s interpretation of the MFN

provision would discourage innovations and new technologies by

requiring CLECs with such plans to start from scratch and

negotiate every minute detail of their desired agreement.

Further, Waller argues that the PUC’s approach was balanced

and fair to both parties. The PUC did not give Waller an

unrestricted right to arbitrate new terms; rather, the PUC

allowed it to arbitrate only as to new issues not contemplated by

the AT&T agreement, recognizing that “not all entrants have the

11
Waller notes that the AT&T arbitration took two years to resolve all
disputed issues between the parties, and that there were “thousands of discrete
issues” before the PUC. Quoting PUC Order, at 3-4.

9
same business plan and may need additional terms and conditions

not addressed in an existing agreement.”12 13
Waller was not

allowed to re-litigate issues already litigated and decided in

the AT&T arbitration.14

The Supreme Court’s decision in Iowa Utilities II is

instructive on this issue. In that case, the issue was whether

the MFN clause permitted a CLEC to “‘pick and choose’ among

individual provisions of other interconnection agreements that

have previously been negotiated between an incumbent LEC and

other requesting carriers without being required to accept the

terms and conditions of the agreements in their entirety.” Iowa

Utilities I, 120 F.3d at 800; see also Iowa Utilities II, 525

U.S. at 395-96, 119 S.Ct. at 738.

The Eighth Circuit vacated the “pick and choose” rule,

reasoning that it would deter voluntary negotiations favored by

the Telecommunications Act by making ILECs reluctant to make

12
PUC Order, at 4.
13
For example, Waller sought “dark fiber” for the purpose of offering
Ethernet service for retail customers. Ethernet service was already provided by
SWBT to its customers, but was not a service provided for in the AT&T agreement.
Thus, the AT&T agreement made dark fiber available only at a higher level of
usage (“OC-12") not consistent with Ethernet service, did not include dark fiber
access and information rights on a parity with SWBT, and did not include
efficient use standards for the use of fiber by the ILEC and its competitors.
Thus, the PUC allowed the Waller agreement with SWBT to permit usage of dark
fiber below the OC-12 level. See PUC Order at 5. Although this amendment favored
Waller, the PUC also amended the AT&T provision in favor of SWBT by shortening
the length of “take-back” notice that SWBT must provide to Waller from one year
to forty five days. Id. Also, the PUC required that access to dark fiber be
reciprocal, such that Waller must make its dark fiber resources available to SWBT
on similar terms.
14
For example, the PUC refused to allow modification to the reciprocal
compensation bill-and-keep period because that issue had already been addressed
in the AT&T agreement and arbitration. See PUC Order, at 5-6.

10
concessions on one term in exchange for benefits on another term,

knowing that a later CLEC could receive the same concession

without having to grant the same benefit. Iowa Utilities I, 120

F.3d at 801.

The Supreme Court reversed and reinstated the “pick and

choose” rule, holding that a CLEC who wants to incorporate one

term from an existing agreement is not required to accept the

entire agreement. Iowa Utilities II, 525 U.S. at 395-96, 119

S.Ct. at 738. Instead, it found that an ILEC can only require a

CLEC to accept those terms in an existing agreement that it can

prove are “legitimately related” to the desired term. Id. at

396, 119 S.Ct. at 738.

In Iowa Utilities I, as in this case, the ILECs argued that

the FCC’s “pick and choose” rule was unduly burdensome and would

“thwart negotiations” by allowing later entrants “to select the

favorable terms of a prior approved agreement without being bound

by the corresponding tradeoffs that were made in exchange for the

favorable provisions sought by the new entrant.” 120 F.3d at

800. The Supreme Court dismissed concerns that the “pick and

choose” rule would hinder the negotiation of interconnection

agreements, as “a matter eminently within the expertise of the

[FCC] and eminently beyond our ken.”15 Iowa Utilities II, 525

15
Similarly, the district court noted in this case, “Already, inherent in
§ 252(i)’s language, incumbent carriers like Southwestern Bell must certainly
negotiate or arbitrate interconnection agreements with an eye towards what future
carriers may do with those provisions. In this case, the PUC specifically found
that Waller Creek’s unique business ventures required a modification of the AT&T
terms. It was not error to arbitrate these terms into the Waller Creek
Agreement. Does this create a ‘ratcheting effect’? Perhaps so. But, this is

11
U.S. at 395-96, 119 S.Ct. at 738.16

We also find nothing in the language of the MFN provision

that prohibits a CLEC from accepting some provisions of an

existing agreement and then negotiating and arbitrating the terms

of other provisions it wishes to include in its own agreement in

order to implement its own unique business plan, technologies, or

services. We agree with the district court that the MFN

provision is not a separate and exclusive method of creating an

interconnection agreement; rather, it is a tool to facilitate the

creation of negotiated or arbitrated agreements.17

There is nothing inherently unfair in allowing such a

procedure. Under the FCC’s rules, when a CLEC invokes the MFN

provision, an ILEC can require it to “accept all terms that [the

ILEC] can prove are ‘legitimately related’ to the desired term.”

Iowa Utilities II, 525 U.S. at 396, 119 S.Ct. at 738. Consistent

with this principle, the PUC in this case refused to allow Waller

to re-arbitrate issues already decided in prior arbitration;

rather, it limited arbitration to new issues. On those new

issues, a hearing was provided and both parties had opportunity

to present evidence and arguments.

The PUC’s application of the MFN provision furthers the

Congress’s policy decision to lay the burden upon incumbent carriers. Congress
turns the wheel.” District Court Order, filed July 2, 1999, at 15-16.
16
The Supreme Court also found that the FCC rule tracked the statutory
language almost exactly and was therefore a reasonable and the “most readily
apparent” interpretation. Id. at 396, 119 S.Ct. at 738.
17
District Court Order, at 14.

12
purpose of the Telecommunications Act to encourage competition

and “encourage the rapid deployment of new telecommunications

technologies.” See 110 Stat. 56 (1996). It does this by

efficiently resolving disputes over interconnection agreements

and permitting new competitors to enter the marketplace. The

entrance of new players into the marketplace encourages new

innovations and technologies to improve services for consumers.

In contrast, SWBT’s proposed interpretation of the MFN provision

would drastically slow the resolution of new interconnection

agreements by requiring potential competitors to start

negotiations from scratch if they sought to provide any services

not found in prior agreements. This position finds no support

from Iowa Utilities II and is contrary to the purpose of the

Telecommunications Act. We therefore conclude that the PUC

committed no error in its application of the MFN provision and

the FCC’s “pick and choose” rule.

C.

Although SWBT’s primary argument on appeal is that the PUC

followed an improper “hybrid” procedure in arbitrating the

agreement between SWBT and Waller, SWBT also challenges four

specific aspects of the agreement approved by the PUC as being

unfair, each of which we address below: (1) dark fiber; (2)

combining elements; (3) ISDN connection; and (4) switch

collocation.

We review the PUC’s determinations on these issues under an

13
arbitrary and capricious standard. See Southwestern Bell

Telephone Co., 208 F.3d at 482; US West Communications, 193 F.3d

at 1117.

1. Dark Fiber

“Dark fiber” refers to fiber-optic cable that has been

installed but is not currently in use, as it has not been

equipped with electronic devices allowing it to send transmission

signals. The AT&T agreement permitted AT&T to access SWBT’s dark

fiber only for transmission of data at speeds18 of OC-12 and

above. The PUC’s order in this case allowed Waller to gain

access to SWBT’s dark fiber for transmission of data at speeds as

low as OC-3.

SWBT complains that Waller should have been required to

adopt the “dark fiber” network element upon the “same terms and

conditions” contained in the AT&T agreement.19 Under Iowa

Utilities II, 525 U.S. at 396, 119 S.Ct. at 738, an ILEC can

require a CLEC to accept all terms of an existing agreement that

the ILEC can prove are “legitimately related” to the terms the

CLEC wants to adopt. SWBT contends that the dark fiber

provisions in the AT&T agreement are on their face legitimately

related to Waller obtaining dark fiber from SWBT.

Waller contends that dark fiber is not a single network

18
The term “speeds” refers not to the velocity at which data travels but
rather the amount of data that is packaged together to travel simultaneously on
the same strand.
19
Although SWBT raises the dark fiber issue as an example of the
unfairness resulting from the “hybrid” procedure used by the PUC, it does not ask
this court to invalidate this particular aspect of the approved agreement.

14
element, which must be adopted on the same terms and conditions

as that of the prior approved agreement, if it is provided for

different functions. According to Waller, it did not opt into

the dark fiber provisions of the AT&T agreement because it wanted

to offer Ethernet service to customers –- something not

contemplated by the AT&T agreement.20 Because speeds of OC-12

are not consistent with Ethernet service, Waller sought to obtain

dark fiber usage at a lower speed. The PUC treated as separate

issues dark fiber provided for use at speeds of OC-12 and dark

fiber provided to allow Ethernet service.21

Waller argues that this “functional” approach to defining

“network elements” for purposes of the MFN provision means that a

CLEC need not opt into provisions of an existing agreement with

no functional relevance to the services the CLEC seeks to

provide. This approach, it contends, is in accord with the

holding of Iowa Utilities II because provisions with no

functional relevance to the CLEC’s services would not be

“legitimately related to the desired term.”

Waller argues further that, although the PUC allowed Waller

to access SWBT dark fiber at speeds of OC-3, it modified the AT&T

agreement’s dark fiber terms in other ways that favored SWBT

rather than Waller. For example, while the AT&T agreement

required SWBT to give twelve months notice for the return of dark

20
SWBT apparently was already providing Ethernet service to its own
customers.
21
PUC Order, at 4-5.

15
fiber, the PUC reduced the required “take-back” notice to forty-

five days for dark fiber used at levels below OC-12.22 This was

done to address concerns that the fiber would be underutilized.23

Also, the PUC required that access to dark fiber be reciprocal,

such that Waller must make its dark fiber available to SWBT on

similar terms.24

We find nothing arbitrary and capricious in the PUC’s

decision to allow arbitration regarding dark fiber for Ethernet

service. Although Waller opted into many terms of the AT&T

agreement, it was not required to adopt that agreement in toto.

Waller sought arbitration on dark fiber to accommodate its plan

to offer Ethernet service –- a service not contemplated by the

AT&T agreement. In arbitrating the dark fiber terms, the PUC

balanced the interests of both parties –- as reflected in its

provisions regarding take back notice and reciprocity.

2. Combining Elements

Telephone networks are composed of a large number of

elements, including switches, signaling systems, wires, fiber

optic cables, wiring panels, buildings, and emergency power

supplies. In its agreement with AT&T, SWBT agreed to combine

elements for AT&T in order to allow AT&T to provide certain

22
PUC Order, at 5.
23
Id.
24
Id.

16
services. SWBT argues that it agreed to this term only because

an FCC rule required it to do so, and that rule has now been

vacated by the Eighth Circuit Court of Appeals. See 47 C.F.R. §

51.315(c)-(f); Iowa Utilities I, 120 F.3d at 801.25 Thus, it

contends that the Telecommunications Act does not require it to

assemble combinations of elements for a CLEC. SWBT complains

that the PUC’s decision to allow Waller to use the MFN clause to

opt into the combining elements provisions of the AT&T agreement

was in error because: (1) the provisions are now “illegal” and

“unlawful;” and (2) Waller was ineligible to use the MFN clause

because it chose to arbitrate other issues not contained in the

AT&T agreement. Instead, SWBT contends that the PUC should have

allowed it to reopen the combining elements issue in arbitration,

since Waller was allowed to arbitrate other issues.

The PUC, in response to this argument, argues that the Ninth

Circuit – contrary to the Eighth Circuit – upheld 47 C.F.R. §

51.315(c)-(f), finding that a state commission can require an

ILEC to combine elements for competitors even if it did not

combine such elements for itself. US West Communications, 193

F.3d at 1121. The Ninth Circuit based its decision on the

Supreme Court’s upholding of an FCC rule requiring an ILEC to

combine those network elements for a requesting CLEC that the

ILEC already combined for its own use. Id. (citing Iowa

Utilities II, 525 U.S. 366, 119 S.Ct. 721).

25
This aspect of the Eighth Circuit’s decision was not appealed to the
Supreme Court.

17
 We find nothing arbitrary and capricious about the PUC’s

decision to allow Waller to opt into the combining elements

provision of the AT&T agreement. The MFN clause of the

Telecommunications Act permits Waller to adopt any element of an

existing agreement, even if it does not adopt the entire

agreement. See Iowa Utilities II, 525 U.S. at 395-96, 119 S.Ct.

at 738 (upholding FCC’s “pick and choose” rule). The PUC

therefore committed no error in refusing to allow SWBT to reopen

the issue in arbitration. Waller accepted the provision without

modification under the MFN clause. That clause would be stripped

of any meaning if an ILEC could require a CLEC to re-litigate the

provision by asserting that the ILEC erred in accepting that

provision in an earlier agreement.

Further, there is nothing “illegal” about the provision

requiring SWBT to combine network elements for Waller or any

other CLEC. Nothing in the Telecommunications Act forbids such

combinations. Even if the Eighth Circuit’s decision on this

issue is correct –- which we do not decide today –- it does not

hold that such arrangements are prohibited; rather, it only holds

that they are not required by law.

3. ISDN Connection

Integrated Services Digital Network (“ISDN”) technology

creates a new method of interconnecting to a network. According

to Waller, ISDN technology makes possible new types of technical

network configurations and service offerings. SWBT complains

18
that the PUC’s “hybrid” procedure allowed Waller to arbitrate

provisions related to ISDN, although the AT&T agreement contained

no parallel provisions. However, SWBT does not specify any

particular unfairness created by allowing Waller to incorporate

such provisions into its agreement, nor does it point out any

“legitimately related” provisions in the AT&T agreement. Thus,

we find nothing arbitrary and capricious in the PUC’s

determinations.

4. Switch Collocation

At some point during negotiations, Waller requested “virtual

collocation,” a form of network access, for certain switches that

SWBT had leased from Siemens to provide ISDN service. SWBT had

decided to discontinue use of the switches and had begun ”de-

installing” and returning them to Siemens. Waller agreed to buy

them from Siemens and requested access from SWBT, but SWBT

continued to remove the switches and notified Waller that Waller

would have to pay for reinstallation if it wanted access. The

PUC ordered that the switches be reinstalled for collocation

without imposing undue costs on Waller.

SWBT had a duty under 47 U.S.C. § 251(c)(6) to provide

collocation on “just, reasonable, and nondiscriminatory” terms.

The district court agreed with the PUC that SWBT’s actions were

anti-competitive because they would have imposed wasteful costs

19
on Waller.26 It noted that in a similar situation the Supreme

Court upheld an FCC rule aimed at “preventing incumbent [local

exchange carriers] from ‘disconnect[ing] previously connected

elements, over the objection of the requesting carrier, not for

any productive reason, but just to impose wasteful reconnection

costs on new entrants.’”27 The district court found that virtual

collocation provisions allowing SWBT to impose wasteful anti-

competitive costs on Waller would not be just, reasonable, and

nondiscriminatory.28

SWBT complains that Waller was allowed to arbitrate

collocation provisions, although no such provisions were

contained in the AT&T agreement. Waller contends that the switch

collocation issue was never addressed in the AT&T arbitration;

therefore, the PUC was consistent in only allowing arbitration of

issues not already decided.

Once again, SWBT makes no attempt to explain the particular

unfairness created by allowing Waller to incorporate such

provisions into its agreement, nor does it point out any

“legitimately related” provisions in the AT&T agreement. For

this reason, we find nothing arbitrary or capricious in the PUC’s

determinations, including the finding that SWBT sought to impose

unnecessary costs on Waller. Because 47 U.S.C. § 251(c)(6)

26
District Court Order, filed July 2, 1999, at 18-19, 23.
27
District Court Order, at 22 (quoting Iowa Utilities II, 119 S.Ct. at
737).
28
District Court Order, at 22.

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imposes on SWBT a duty to provide collocation on just,

reasonable, and nondiscriminatory terms, the decision to order

collocation without imposing unnecessary costs on Waller is in

accordance with the Telecommunications Act.

IV

For the reasons stated above, we AFFIRM the judgment of the

district court.

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