MCI Telecommunication Corp. v. Bell Atlantic-Pennsylvania, Inc.

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit

11-7-2001

MCI Telecomm Corp v. Bell Atl PA
Precedential or Non-Precedential:

Docket 00-2257

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Recommended Citation
"MCI Telecomm Corp v. Bell Atl PA" (2001). 2001 Decisions. Paper 258.
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Filed November 2, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 00-2257 and 00-2258

MCI TELECOMMUNICATION CORPORATION,
a Delaware Corporation; MCIMETRO ACCESS
TRANSMISSION SERVICES, INC., a Delaware Corporation;

AT&T COMMUNICATION OF PENNSYLVANIA;
UNITED STATES OF AMERICA
(Intervenors-Plaintiffs in District Court)

v.

BELL ATLANTIC-PENNSYLVANIA; PENNSYLVANIA PUBLIC
UTILITY COMMISSION; JOHN M. QUAIN; ROBERT K.
BLOOM; JOHN HANGER; DAVID W. ROLKA; NORA M.
BROWNELL, in their official capacities as Commissioners
of the Pennsylvania Public Utility Commission

PENNSYLVANIA PUBLIC UTILITY
COMMISSION; JOHN M. QUAIN; ROBERT K.
BLOOM; JOHN HANGER; DAVID W. ROLKA;
NORA MEAD BROWNELL, in their official
capacities as Commissioners of the
Pennsylvania Public Utility Commission,

Appellants (00-2257)

BELL ATLANTIC-PENNSYLVANIA, INC.,

Appellant (00-2258)

Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil Action No. 97-cv-01857)
District Judge: Honorable Sylvia H. Rambo
Argued June 21, 2001

Before: ROTH, AMBRO and FUENTES, Circuit Judge s

(Filed November 2, 2001)

Maureen F. Del Duca, Esquire
Jodie L. Kelley, Esquire
James A. Trilling, Esquire
Jenner & Block
601 13th Street, N.W., 12th Floor
Washington, D.C. 20005

Jeffrey A. Rackow, Esquire (Argued)
MCI Worldcom, Inc.
1133 19th Street, N.W.
Washington, D.C. 20036

Attorneys for Appellees
MCI Telecom Corp. and
MCIMETRO Access Transmission
Services, Inc.

David M. Levy, Esquire (Argued)
Stephen B. Kinnaird, Esquire
Michael L. Post, Esquire
Sidley & Austin
1722 Eye Street, N.W.
Washington, D.C. 20006

Daniel Clearfield, Esquire
Alan C. Kohler, Esquire
Joseph C. Crawford, Esquire
Wolf, Block, Schorr & Solis-Cohen
1650 Arch Street, 22nd Floor
Philadelphia, PA 19103-2097

Mark A. Keffer, Esquire
Robert C. Barber, Esquire
AT&T Communications
3033 Chain Bridge Road
Oakton, VA 22185

Attorneys for Appellee
AT&T Communications of PA, Inc.

2
David M. Barasch
United States Attorney
Stuart E. Schiffer
Acting Assistant Attorney General
Mark B. Stern, Esquire
Charles W. Scarborough, Esquire
Kathleen A. Kane, Esquire
United States Department of Justice
Civil Division, Appellate Staff
601 D Street, N.W.
Washington, D.C. 20530

Attorneys for Appellee
United States of America

Thomas B. Schmidt, III, Esquire
Donna L. Fisher, Esquire
Kelly Ann Ryan, Esquire
Pepper Hamilton LLP
200 One Keystone Plaza
North Front and Market Streets
P.O. Box 1181
Harrisburgh, PA 17108-1181

Julia A. Conover, Esquire
Suzan DeBusk Paiva, Esquire
(Argued)
Verizon Pennsylvania Inc.
1717 Arch Street, 32N
Philadelphia, PA 19103

Attorneys for Appellant
Bell Atlantic-Pennsylvania, Inc. in
No. 00-2258

3
 Bohdan R. Pankiw
Chief Counsel
Robert J. Longwell
Deputy Chief Counsel
Maryanne R. Martin (Argued)
Assistant Counsel
Pennsylvania Public Utility
Commission
P.O. Box 3265
Harrisburg, PA 17105-3265

Attorneys for Appellants
Pennsylvania Public Utility
Commission, John M. Quain,
Robert K. Bloom, John Hanger,
David W. Rolka, Nora Mead
Brownell, in their official capacities
as Commissioners of the
Pennsylvania Public Utility
Commission in No. 00-2257

Counsel on Sovereign Immunity
Issues Exclusively
Albert G. Bixler, Esquire (Argued
for Appellants)
Susan D. Paiva, Esquire (Argued
for Appellees)

OPINION OF THE COURT

ROTH, Circuit Judge:

In passing the Telecommunications Act of 1996,
Congress altered the regulatory scheme for local telephone
service. The Act requires that local service, which was
previously operated as a monopoly overseen by the several
states, be opened to competition according to standards
established by federal law. Under the Act, the incumbent
local telephone service carriers must negotiate or arbitrate
agreements with competitive local carriers, allowing
entering carriers either to connect their equipment to the
existing network or to purchase or lease elements and

4
services of the existing network. The terms, rates, and
conditions of such arrangements are set forth in
interconnection agreements established between the
carriers. The state utility commissions are empowered, but
not required, to review and give final approval to
interconnection agreements to ensure that they comport
with federal law.

Verizon Pennsylvania, Inc. (Verizon -- known at that time
as Bell Atlantic-Pennsylvania, Inc.), the incumbent local
carrier in Pennsylvania, entered into negotiations with
MCI/Worldcom (Worldcom), a competing carrier which
sought to provide local telephone service. After various
negotiations and arbitrations by the Pennsylvania Public
Utility Commission (PUC), the parties established an
interconnection agreement and submitted it to the PUC
which approved it contingent on certain revisions and the
incorporation of certain rates. Worldcom then brought suit
in federal court against Verizon, the PUC, and the PUC
Commissioners, under 47 U.S.C. S 252(e)(6), the judicial
review provision of the Act, to challenge certain terms of the
agreement; Verizon counterclaimed and cross-claimed to
challenge other aspects of the agreement. The PUC and
PUC Commissioners moved to dismiss the action, arguing
that they were immune from suit under the Eleventh
Amendment of the United States Constitution. The District
Court rejected the immunity claim and the PUC did not
appeal at that time. The District Court then resolved all the
substantive claims asserted by Worldcom and Verizon. The
PUC and Verizon each appealed and the appeals were
consolidated.

The District Court had jurisdiction to review the
interconnection agreement pursuant to 47 U.S.C.
S 252(e)(6) and had general federal question jurisdiction
pursuant to 28 U.S.C. S 1331. We have jurisdiction over the
final decision of a District Court, pursuant to 28 U.S.C.
S 1291.

For the reasons that follow, we conclude that the PUC
and the Commissioners are not entitled to Eleventh
Amendment immunity from suit in federal court under the
1996 Act. We will, therefore, affirm the decision of the
District Court on this issue. On the questions, raised by

5
Verizon and the PUC regarding the terms of the
interconnection agreement, we will affirm the District Court
in part and reverse it in part.

I. Statutory Background

Prior to 1996, local telephone service operated as a
monopoly, subject to exclusive regulation by the several
states. In each local service area, the states would grant a
monopoly franchise to one local exchange carrier, which
owned the facilities and equipment necessary to provide
telephone service. See AT&T Corp. v. Iowa Utils. Bd., 525
U.S. 366, 370 (1999) (Iowa Utils. I). With the
Telecommunications Act of 1996, Congress fundamentally
restructured local telephone markets by eliminating state-
granted local service monopolies. See id. The Act preempts
exclusive state regulation of local monopolies in favor of the
competitive scheme established in 47 U.S.C. SS 251 and
252. See AT&T Communications v. Bellsouth Telecomm. Inc.,
238 F.3d 636, 641 (5th Cir.), reh'g en banc denied, 252
F.3d 437 (5th Cir. 2001) (Bellsouth).

The Act essentially requires incumbent local exchange
carriers (ILECs) to share their networks and services with
competitors seeking entry into the local service market. See
MCI Telecomm. Corp. v. Illinois Bell Tel. Co., 222 F.3d 323,
328 (7th Cir. 2000), cert. denied, 121 S. Ct. 896 (2001).
Under the Act, a new entrant to the local telephone market,
known as a competitive local exchange carrier (CLEC), is
able to compete with an ILEC without having to bear the
prohibitive cost of building its own telecommunications
network. See id. Both an ILEC and a CLEC are required to
"negotiate in good faith" the "terms and conditions of
agreements" which will permit the CLEC, as well as other
providers, to share the network and to provide service. 47
U.S.C. S 251(c)(1). The FCC is empowered to promulgate
regulations to implement the requirements of the Act. 47
U.S.C. S 251(d)(1); see also Iowa Utils. I , 525 U.S. at 384
(upholding FCC rulemaking authority, including its power
to determine the methodology for establishing prices).

Section 251 and FCC regulations establish three methods
of providing a CLEC access to a local network. See Iowa

6
Utils. I, 525 U.S. at 370; GTE South, Inc. v. Morrison, 199
F.3d 733, 737 (4th Cir. 1999). First, a CLEC may build its
own network and "interconnect" with the incumbent
network. 47 U.S.C. S 251(c)(2). Such interconnection must
be, inter alia, for the "transmission and routing of telephone
exchange service and exchange access," 47 U.S.C.
S 251(c)(2)(A), "at any technically feasible point within the
[incumbent] carrier's network," 47 U.S.C.S 251(c)(2)(B), and
"on rates, terms, and conditions that are just, reasonable,
and nondiscriminatory." 47 U.S.C. S 251(c)(2)(D), 47 C.F.R.
S 51.305. An ILEC which denies a CLEC access to the
network at a particular point must "prove to the state
commission that interconnection at that point is not
technically feasible." 47 C.F.R. S 51.305(e).

Second, a CLEC may lease individual elements of the
existing network on an "unbundled basis" at"any
technically feasible point" on "rates, terms, and conditions
that are just, reasonable, and nondiscriminatory." 47
U.S.C. S 251(c)(3), 47 C.F.R. SS 51.307-51.319. A network
element is "a facility or equipment used in the provision of
a telecommunications service," i.e.,"features, functions,
and capabilities that are provided by means of such facility
or equipment, including subscriber numbers, databases,
signaling systems, and information sufficient for billing and
collection or used in the transmission, routing or other
provision of a telecommunications service." 47 U.S.C.
S 153(29). The FCC determines the network elements that
must be made available for purposes of S 251(c)(3); in so
doing, it must consider 1) whether access to proprietary
network elements is necessary and 2) whether the failure to
provide access to a given element would "impair" the ability
of the CLEC to provide services. 47 U.S.C. S 251(d)(2).

Lease rates for network elements must be based on
forward-looking costs, meaning the sum of the "total
element long-run incremental cost of the element," plus a
reasonable allocation of "forward-looking common costs."
47 C.F.R. S 51.505(a)(1), (2). Total element long-run
incremental cost, or TELRIC, is the "forward-looking cost
over the long run of the total quantity of the facilities and
functions that are directly attributable to, or reasonably
identifiable as incremental to, such element." 47 C.F.R.
S 51.505(b).

7
Third, a CLEC may purchase from the ILEC for resale"at
wholesale rates any telecommunications service the carrier
provides at retail to subscribers who are not
telecommunications carriers." 47 U.S.C. S 251(c)(4)(A), 47
C.F.R. SS 51.601-51.617. In other words, the CLEC will
purchase telecommunications service from the ILEC at
wholesale rates and resell those services to customers.
Telecommunications service is defined as "the offering of
telecommunications for a fee directly to the public, or to
such classes of users as to be effectively available directly
to the public, regardless of the facilities used." 47 U.S.C.
S 153(46). Telecommunications, in turn, means"the
transmission, between or among points specified by the
user, of information of the user's choosing, without change
in the form or content of the information as sent and
received." 47 U.S.C. S 153(43).

The FCC established a wholesale pricing standard for
S 251(c)(4), equal to "the rate for the telecommunications
service, less avoided retail costs." 47 C.F.R.S 51.607. The
regulations define avoided retail costs as "those costs that
reasonably can be avoided when an incumbent ILEC
provides a telecommunication service for resale at
wholesale rates to a requesting carrier." 47 C.F.R.
S 51.609(b). The Eighth Circuit has, however, struck down
that pricing standard as contrary to the Act. See Iowa Utils.
Bd. v. FCC, 219 F.3d 744, 755-56 (8th Cir. 2000), cert.
granted in part, denied in relevant part, 121 S. Ct. 878
(2001) (Iowa Utils. II).

In addition, in gaining access to a local network, a CLEC
must be permitted to physically collocate on the ILEC's
premises any equipment necessary for interconnection or
for access to unbundled network elements, on rates, terms,
and conditions that are just, reasonable, and
nondiscriminatory. 47 U.S.C. S 251(c)(6). An ILEC may
provide for virtual collocation instead if it demonstrates
that physical collocation is not practical for technical
reasons or because of space limitations. 47 U.S.C.
S 251(c)(6).

Section 252 sets out the process by which
interconnection agreements between ILECs and CLECs are
to be established. See MCI, 222 F.3d at 328; GTE South,

8
199 F.3d at 737. An incumbent and a requesting carrier
may "negotiate and enter into a binding agreement." 47
U.S.C. S 252(a)(1). Such negotiations generally will begin
with a request for interconnection by the CLEC. 47 U.S.C.
S 252(a)(1). At any time during negotiations, either party
may ask the state utility commission to participate in
negotiations and mediate any differences. 47 U.S.C.
S 252(a)(2). The Act's clear preference is for such negotiated
agreements. See Iowa Utils. I, 525 U.S. at 405 (Thomas, J.,
concurring in part and dissenting in part). An agreement
reached through negotiation need not conform to all the
detailed, specific requirements of S 251; negotiation
consequently bestows a benefit to those carriers able to
resolve issues through negotiation and compromise. See
MCI Telecomm. Corp. v. U.S. West Communications, 204
F.3d 1262, 1266 (9th Cir. 2000); 47 U.S.C. S 252(a)(1). A
negotiated agreement must merely be nondiscriminatory to
a carrier not a party to the agreement and also be in the
public interest. See 47 U.S.C. S 252(e)(2)(A).

Negotiations may, however, prove unsuccessful. Cf. GTE
South, 199 F.3d at 737 (stating that it is hard to see how
negotiations would not fail). Either party, during the period
from 135 to 160 days after a CLEC's request for
interconnection, may petition a state utility commission to
arbitrate any unresolved issues. 47 U.S.C. S 252(b)(1). The
Act and FCC regulations detail the procedures and
standards that the state must follow in conducting the
arbitration. 47 U.S.C. S 252(b), (c), (d); MCI, 222 F.3d at
328. The state utility commission must resolve all the
issues raised in the arbitration and may impose appropriate
conditions on the parties in order to resolve those issues.
47 U.S.C. S 252(b)(4)(C). When a state utility commission
engages in arbitration, it must ensure that resolution of the
issues and any conditions imposed on the parties to the
arbitration meet the requirements of S 251 and of the FCC
regulations, it must establish any rates, and it must
provide a schedule for implementation of the terms and
conditions by the parties to the agreement. 47 U.S.C.
S 252(c). The arbitrated terms are incorporated into the
parties' interconnection agreement.

Any interconnection agreement, whether reached through
negotiation or arbitration, must be submitted to the state

9
utility commission, which "shall approve or reject the
agreement, with written findings as to any deficiencies." 47
U.S.C. S 252(e)(1). The standards for the commission's
review depend, however, on whether the agreement was
reached by negotiation or by arbitration. A state
commission may reject a negotiated agreement only if it
finds that 1) the agreement discriminates against a carrier
not a party to the agreement or 2) implementation of the
agreement would not be consistent with the "public
interest, convenience, and necessity." 47 U.S.C.
S 252(e)(2)(A); see also MCI v. U.S. West , 204 F.3d at 1266.
A state utility commission may reject an arbitrated
agreement, or part of an arbitrated agreement, if it finds
that the agreement, or part of the agreement, does not meet
the requirements of S 251, including FCC regulations under
S 251, or the pricing standards of S 252(d). 47 U.S.C.
S 252(e)(2)(B); see also MCI, 222 F.3d at 328-29. If the state
utility commission does not act to approve or reject a
negotiated agreement within 90 days of its submission or
an arbitrated agreement within 30 days of submission, the
agreement "shall be deemed approved." See 47 U.S.C.
S 252(e)(4); 47 C.F.R. S 51.801(c).

If a state utility commission "fails to act" to carry out any
of its responsibilities under S 252, the FCC is to assume
responsibility and act in place of the state commission in
carrying out these duties. 47 U.S.C. S 252(e)(5); 47 C.F.R.
S 51.803-51.807. Pursuant to FCC regulations, a state
utility commission "fails to act" if it fails to respond within
a reasonable amount of time to a request for mediation or
arbitration. 47 C.F.R. S 51.801(b). If a state utility
commission fails to act, the carrier's exclusive remedy is to
present the issues and agreement to the FCC and to seek
judicial review of any FCC determinations on those issues.
47 U.S.C. S 252(e)(4); see also MCI, 222 F.3d at 329. A state
commission does not fail to act if, because of the
commission's inaction, an agreement is deemed approved.
47 C.F.R. S 51.801(c). As the Seventh Circuit explained,
sections 252(e)(1), (e)(4), and (e)(5) together"create a
scheme that provides regulatory oversight of
interconnection agreements, either by a state commission
or by the FCC in the state commission's place." See MCI,
222 F.3d at 329.

10
When a state utility commission has approved or rejected
an agreement under S 252(e)(1), "any party aggrieved by
such determination may bring an action in an appropriate
Federal district court to determine whether the agreement
or statement meets the requirements" of SS 251 and 252.
47 U.S.C. S 252(e)(6). No state court has jurisdiction to
review the actions of a state commission in approving or
rejecting an interconnection agreement. 47 U.S.C.
S 252(e)(4).

II. Litigation Background

Worldcom requested interconnection and began
negotiations with incumbent carrier Verizon for an
agreement to permit Worldcom to provide local service in
Pennsylvania. Certain issues were not resolved by
negotiation. The parties then went to arbitration before the
PUC, which issued orders resolving those issues and
requiring the arbitrated terms to be incorporated into the
final agreement. After continued negotiations and additional
rulings from the PUC, the parties reached a final agreement
and submitted it to the PUC, which approved it contingent
on certain revisions and the incorporation of certain rates.

Worldcom then brought suit under S 252(e)(6) in federal
court, naming as defendants the PUC, several individual
PUC Commissioners, and Verizon. The suit challenged
several terms of the approved agreement. AT&T
Communications of Pennsylvania (AT&T), another CLEC
seeking to gain entry into local telephone service,
intervened as a plaintiff. Verizon counterclaimed against
Worldcom and AT&T and cross-claimed against the PUC to
challenge other aspects of the agreement. The United States
intervened as a plaintiff in order to defend the
constitutionality of S 252(e)(6).

The PUC and the Commissioners moved to dismiss the
action on Eleventh Amendment grounds, arguing that they
had sovereign immunity from suit in federal court under
the Act and that S 252(e)(6), which authorized the suit, was
unconstitutional. The District Court denied the motions.1
_________________________________________________________________

1. The District Court also rejected PUC challenges to the Act under the
Commerce Clause, U.S. Const. art. I, S 8, cl. 1, and the Tenth
Amendment. None of these issues has, however, been raised in the
present appeal.

11
The PUC and the Commissioners did not at that time
appeal the denial of their Eleventh Amendment immunity
claim.

Because there were no disputed issues of fact, the parties
then cross-moved for summary judgment. The Magistrate
Judge made a Report and Recommendation, which the
District Court adopted in part and rejected in part. The
District Court considered and resolved five issues that now
are on appeal before this Court.

The first issue concerns interconnection in Local Access
and Transport Areas (LATAs). The PUC had required that
Worldcom interconnect in each access tandem serving area,
rather than at a single point within each LATA. An access
tandem serving area is a geographic area containing several
local switches that subtend a single access tandem switch.
Each LATA contains at least one access tandem area, but
some LATAs in Pennsylvania contain more than one. The
PUC's order required Worldcom to interconnect at each
tandem switch, even if it already had connected at another
point within that LATA. The District Court vacated that
term of the interconnection agreement as contrary to the
Act.

Second, the PUC had required Verizon to permit
Worldcom to collocate remote switching modules (RSMs) in
Verizon's central offices. RSMs are devices used for
interconnection. An RSM also contains switches with the
limited capability of so-called line-to-line switching,
switching calls between two customers, each of whom is
served by unbundled loops. An RSM can be used to access
unbundled loops and to interconnect to them, but it can
also switch calls between Worldcom customers. In other
words, RSMs are a single piece of equipment that enables
the CLEC to perform several functions, including both
interconnection and switching. Verizon contended that an
RSM was not "necessary" for interconnection and that
Verizon could not be required to permit collocation of such
equipment. The Magistrate Judge and District Court
rejected this argument and affirmed that portion of the
interconnection agreement.

Third, the PUC had required Verizon to sell directory
publishing services at wholesale rates as a

12
telecommunications service. Directory publishing services
include basic listings with customer telephone numbers, as
well as additional services such as vanity numbers, bold
and foreign listings in the White Pages, and non-listing and
non-publication of customers' telephone numbers. Verizon
argued that directory publishing services were not
telecommunications services under the Act. The Magistrate
Judge rejected this argument, but the District Court
accepted it and struck down this provision of the
agreement.

Fourth, the PUC had established wholesale rates to be
charged to Worldcom for resale of telecommunications
services. Verizon objected to the rates, but the District
Court rejected Verizon's argument and affirmed the PUC-
approved rates contained in the agreement.

Fifth, the PUC had established the prices to be charged
for unbundled network elements, using what it called
TSLRIC, or total service long-run incremental cost,
methodology. Worldcom argued that the PUC had not used
the required forward-looking TELRIC methodology
established by the FCC. The District Court agreed and
remanded to the PUC for it to establish new rates using the
proper TELRIC methodology.

The PUC and Verizon both timely appealed the decisions
of the District Court; the appeals were consolidated.

III. Sovereign Immunity

We first address the PUC's and Commissioners' appeal of
the District Court's rejection of their claims of sovereign
immunity under the Eleventh Amendment.2 Our review of a
District Court's denial of sovereign immunity is plenary.
See Lavia v. Pennsylvania Dept. of Corr., 224 F.3d 190,
194-95 (3d Cir. 2000).
_________________________________________________________________

2. We consolidated oral argument on the sovereign immunity issues in
this case with the same issues raised in Bell Atl.-Pennsylvania, Inc. v.
Pennsylvania Public Util. Comm'n, Nos. 00-2619, 00-2620, decided this
day. The legal issues and arguments and our resolution of them are the
same in both cases.

13
A. Background to the Eleventh Amendment

We begin with an overview of Eleventh Amendment
jurisprudence. That amendment has been interpreted to
make states generally immune from suit by private parties
in federal court. See Board of Tr. of Univ. of Alabama v.
Garrett, 121 S. Ct. 955, 962 (2001); College Sav. Bank v.
Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S.
666, 669-70 (1999); Idaho v. Coeur d'Alene Tribe of Idaho,
521 U.S. 261, 267 (1997); Seminole Tribe of Florida v.
Florida, 517 U.S. 44, 54 (1996); Lavia, 224 F.3d at 195.
This immunity extends to state agencies and departments.
See C.H., ex rel. Z.H. v. Oliva, 226 F.3d 198, 201 (3d Cir.
2000) (en banc).

Eleventh Amendment immunity is subject to three
exceptions: 1) congressional abrogation, 2) state waiver,
and 3) suits against individual state officers for prospective
relief to end an ongoing violation of federal law.

First, Congress may, in some limited circumstances,
abrogate sovereign immunity and authorize suits against
states. If a statute has been passed pursuant to
congressional power under S 5 of the Fourteenth
Amendment to enforce the provisions of that amendment,
Congress can abrogate a state's sovereign immunity. See
Garrett, 121 S. Ct. at 962; College Savings , 527 U.S. at 670;
U.S. Const. amend. XIV, S 5 (1868).3 Congress may not,
however, abrogate state sovereign immunity when a statute
is passed pursuant to its Article I powers, such as the
Commerce Clause, U.S. Const. art. I, S 8, cl. 3. See Garrett,
121 S. Ct. 962; Seminole Tribe, 517 U.S. at 72-73 (holding
that the Eleventh Amendment limits the federal judicial
power and Article I cannot be used to circumvent the
constitutional limits placed on the courts). The
Telecommunications Act of 1996 was clearly a
_________________________________________________________________

3. A federal statute does not abrogate Eleventh Amendment immunity
where the statute, although purportedly passed pursuant to S 5, is not
appropriate S 5 legislation because it goes beyond the scope of what the
Fourteenth Amendment itself protects. See Garrett, 121 S. Ct. at 962; id.
at 967-68 (holding that nonconsenting states could not be sued under
Title I of the Americans With Disabilities Act, which accorded more
protection to disabled persons than did the Equal Protection Clause).

14
congressional exercise of its Commerce Clause power.
Congress did not, and could not, abrogate Eleventh
Amendment immunity in providing for federal court review
in S 252(e)(6). Abrogation is not implicated here.

Second, a state may waive sovereign immunity by
consenting to suit. See College Savings, 527 U.S. at 670
(citing Clark v. Barnard, 108 U.S. 436, 447-48 (1883)). The
waiver by the state must be voluntary and our test for
determining voluntariness is a stringent one. See College
Savings, 527 U.S. at 675 (citing Atascadero State Hosp. v.
Scanlon, 473 U.S. 234, 241 (1985)). The state either must
voluntarily invoke our jurisdiction by bringing suit (not the
case here) or must make a " `clear declaration' that it
intends to submit itself to our jurisdiction." See College
Savings, 527 U.S. at 676 (citing Great Northern Life Ins. Co.
v. Read, 322 U.S. 47, 54 (1944)). The decision to waive
immunity must be an "altogether voluntary" one, and, as
with any other waiver of a constitutional right, there must
be an "intentional relinquishment or abandonment of a
known right or privilege." College Savings , 527 U.S. at 681-
82.

The difficult question we now face is how do we infer
waiver from a state's actions. To answer this question, we
must turn to the Supreme Court's recent decision in
College Savings. There, the Court held that a suit against a
state agency under the Trademark Remedy Clarification
Act, alleging that the state agency had made false and
misleading advertising statements, was barred by the
Eleventh Amendment. See College Savings, 527 U.S. at
691. The Court held that the state's sovereign immunity
was not validly abrogated by the Act and not voluntarily
waived by the state's mere participation in an activity in
interstate commerce, such as providing student loan
services and advertising those services. See id.

The Court, in rejecting waiver of Eleventh Amendment
immunity in College Savings, overturned the constructive
waiver doctrine formerly established in Parden v. Terminal
R. of Alabama State Docks Dept., 377 U.S. 184 (1964). See
College Savings, 527 U.S. at 680 ("Whatever may remain of
our decision in Parden is expressly overruled."); id. ("We
think that the constructive-waiver experiment of Parden

15
was ill conceived, and see no merit in attempting to salvage
any remnant of it."). Parden involved the operation by a
state of a railroad in interstate commerce. In Parden, the
Court had held that, if the state had notice when it entered
a field which was subject to congressional oversight or
regulation that it would be subject to suit in federal court,
then the state was deemed to have waived immunity and
consented to suit. Parden, 377 U.S. at 192 (concluding that
state, when it began operation of a railroad in interstate
commerce, 20 years after the enactment of the Federal
Employers' Liability Act, necessarily consented to such suit
as was authorized by the Act).

Since College Savings, a state's mere participation in a
federally regulated activity no longer may be understood as
a constructive waiver of state sovereign immunity and
consent to suit in federal court. Congress no longer may
statutorily coerce a state into relinquishing its sovereign
immunity on threat of the state being excluded from
participating in an otherwise lawful and permissible
activity. See College Savings, 527 U.S. at 687; see also id.
at 683 ("Recognizing a congressional power to exact
constructive waivers of sovereign immunity through the
exercise of Article I powers would also, as a practical
matter, permit Congress to circumvent the antiabrogation
holding of Seminole Tribe.").

But the College Savings Court distinguished and left
intact conditional types of constructive waiver as previously
established in two cases. In Petty v. Missouri Bridge
Comm'n, 359 U.S. 275, 277-78 (1959), two states entered
into an interstate compact, approved by Congress, that
contained a sue-or-be-sued clause. The Court held that the
states assumed the conditions, such as consent to suit,
that Congress attached to the compact by accepting the
conditions and acting on the compact containing those
conditions. See id. at 281-82. In South Dakota v. Dole, 483
U.S. 203, 208-09 (1987), the Court upheld a federal law,
passed pursuant to the Spending Clause, U.S. Const. art.
I, S 8, cl. 1, that conditioned a state's receipt of federal
highway funds on the establishment of a minimum
drinking age of 21 in the state; the Court found that the
condition on the funds was clearly stated and that

16
acceptance of the funds entailed agreement to those
conditions.

The College Savings Court described these cases as
"fundamentally different" from Parden-type forced
constructive waivers because both the grant of consent to
form an interstate compact and the disbursement of federal
monies are congressionally bestowed gifts or gratuities,
which Congress is under no obligation to make, which a
state is not otherwise entitled to receive, and to which
Congress can attach whatever conditions it chooses. See
College Savings, 527 U.S. at 686-87. A waiver in return for
receiving a benefit which a state could not otherwise enjoy
is very different from a situation, such as in College Savings
or Parden, where a state's refusal to consent to the
condition of being sued would result in a congressionally
imposed sanction, i.e., the exclusion of the state from
activities in which it otherwise was legally permitted to
engage.

A fair reading of College Savings suggests that Congress
may, pursuant to its regulatory power under the Commerce
Clause, require a state to waive immunity in order to
engage in an activity in which the state may not engage
absent congressional approval, or in order to receive a
benefit to which the state is not entitled absent a grant or
gift from Congress. Four of our sister circuits have adopted
this understanding of College Savings, recognizing that
"gift" or "gratuity" waivers are permissible under a law
passed pursuant to Article I powers, provided that Congress
made its intent to require a waiver of immunity clear and
unambiguous. See Bell Atl. Md., Inc. v. MCI Worldcom, Inc.,
240 F.3d 279, 292 (4th Cir.) (recognizing congressional
power to impose gift waiver, so long as its intent to do so
is clear), cert. granted in part, 121 S. Ct. 2548 (2001);
Bellsouth, supra, 238 F.3d at 645 (5th Cir.) ("[A]fter College
Savings, Congress may still obtain a non-verbal voluntary
waiver of a state's Eleventh Amendment immunity if the
waiver can be inferred from the state's conduct in accepting
a gratuity after being given clear and unambiguous
statutory notice that it was conditioned on waiver of
immunity."); MCI, supra, 222 F.3d at 339-40 (7th Cir.)
(holding that College Savings set boundaries on

17
congressional attempts to obtain waivers from states but
that it endorsed certain types of waivers, such as in Dole
and Petty); id. at 344 ("We believe that College Savings does
not alter the principle that states may waive their immunity
by accepting a benefit from Congress that has conditions
attached to that acceptance."); MCI Telecomm. Corp. v.
Public Serv. Comm'n of Utah, 216 F.3d 929, 937 (10th Cir.
2000) (Public Serv. Comm'n of Utah) (reading College
Savings as permitting constructive waivers that are
voluntary, meaning waivers given in order to obtain a gift or
gratuity that would be denied if the state refuses to consent
to suit in federal court), cert. denied, 121 S. Ct. 1167
(2001).

Congress must be unmistakably clear and unambiguous
in stating its intent to condition receipt of the gratuity on
the state's consent to waive its sovereign immunity and to
be sued in federal court. See Atascadero State Hosp., 473
U.S. at 247. This requirement that Congress speak with a
"clear voice" ensures that the states exercise their choice
knowingly and voluntarily, cognizant of the consequence
(waiver of constitutional immunity) of participating in the
permitted activity. See Pennhurst State Sch. and Hosp. v.
Halderman, 451 U.S. 1, 17 (1981) (Pennhurst I).

The third exception to the Eleventh Amendment is the
doctrine of Ex Parte Young, 209 U.S. 123 (1908), under
which individual state officers can be sued in their
individual capacities for prospective injunctive and
declaratory relief to end continuing or ongoing violations of
federal law. In Young, the Supreme Court held that the
Eleventh Amendment did not prohibit a federal court from
enjoining a state attorney general from enforcing an
unconstitutional state law. The theory behind Young is that
a suit to halt the enforcement of a state law in conflict with
the federal constitution is an action against the individual
officer charged with that enforcement and ceases to be an
action against the state to which sovereign immunity
extends; the officer is stripped of his official or
representative character and becomes subject to the
consequences of his individual conduct. See Young, 209
U.S. at 159-60; see also Pennhurst State Sch. and Hosp. v.
Halderman, 465 U.S. 89, 103 (1984) (Pennhurst II) (stating

18
that, under the theory of Young, an action for prospective
relief against the state officer was not an action against the
state because the allegation of a violation of federal law
would strip the officer of his official authority). The relief
sought must be prospective, declaratory, or injunctive relief
governing an officer's future conduct and cannot be
retrospective, such as money damages. See Pennhurst II,
465 U.S. at 102-03.

The Young doctrine is accepted as necessary to permit
federal courts to vindicate federal rights and to hold state
officials responsible to the "supreme authority of the United
States." See id. at 105. The doctrine applies both to
violations of the United States Constitution and to
violations of federal statutes. See Balgowan v. New Jersey,
115 F.3d 214, 218 (3d Cir. 1997) (holding that suit for
declaratory relief against state officer under Fair Labor
Standards Act is permissible under Young); see also
Allegheny County Sanitary Auth. v. U.S.E.P.A., 732 F.2d
1167, 1174 (3d Cir. 1984). However, Young does not apply
if, although the action is nominally against individual
officers, the state is the real, substantial party in interest
and the suit in fact is against the state. See Pennhurst II,
465 U.S. at 101.

Some confusion has arisen as to the scope and
application of Young as a result of the Supreme Court's
recent decision in Coeur d'Alene. There, an Indian tribe
brought suit against Idaho state officers arguing that,
under federal law, the Tribe should hold title to the banks,
bed, and submerged lands of Lake Coeur d'Alene and the
various navigable rivers and streams forming part of its
waterway. See Coeur d'Alene, 521 U.S. at 264. A five-
Justice majority concluded that Young did not permit the
action because the Tribe's suit, although brought against
individual officers for prospective relief from an ongoing
violation of federal law, was the functional equivalent of a
quiet title action against the state, which, if successful,
would divest the state of title and sovereign control over the
waters and submerged lands. See id. at 283. Submerged
land beneath navigable waters has a unique status in law
and is infused with a public trust; state ownership of such
lands has been "considered an essential attribute of

19
sovereignty." See id. (citations and internal quotation marks
omitted); id. at 287-88 (emphasizing the ties between the
waters and submerged lands and the state's own dignity
and sovereignty and the severance and diminishment of
that sovereignty were prospective relief to be granted); id. at
296 (O'Connor, J., concurring in part and concurring in the
judgment) ("Where a plaintiff seeks to divest the State of all
regulatory power over submerged lands--in effect, to invoke
a federal court's jurisdiction to quiet title to sovereign lands
--it simply cannot be said that the suit is not a suit against
the State.").

The principal opinion in Coeur d'Alene, authored by
Justice Kennedy, garnered five votes in its determination
that the Tribe's action was equivalent to a quiet title action
against the state itself and was barred by the Eleventh
Amendment. Justice Kennedy's opinion also suggested,
however, that Young is not applicable to every case in
which prospective relief is sought against an individual
officer from an ongoing violation of federal law. See 521
U.S. at 270 (describing that view as adhering to an"empty
formalism" and undermining the real limits imposed by the
Eleventh Amendment). Rather, Justice Kennedy suggested
that Young applies primarily in two instances: where there
is no state forum available to vindicate federal rights, see
id., and where the case calls for the interpretation of federal
law. See id. at 274. Justice Kennedy urged that there
always be a careful balancing and accommodation of
federal and broad state interests when determining whether
Young applies, applying a case-by-case balancing approach.
See id. at 278.

The portion of Justice Kennedy's opinion adopting this
narrowed view of Young was joined only by the Chief
Justice. In a separate opinion, Justice O'Connor, joined by
Justices Scalia and Thomas, sharply criticized the
replacement of a "straightforward inquiry into whether a
complaint alleges an ongoing violation of federal law and
seeks relief properly characterized as prospective with a
vague balancing test that purports to account for a`broad'
range of factors." Id. at 296 (O'Connor, J., concurring in
part and concurring in the judgment); see id. at 291
(criticizing the principal opinion as unnecessarily narrowing

20
Young without warrant); id. at 296-97 ("I would not narrow
our Young doctrine."); see also id. at 297-98 (Souter, J.,
dissenting) (stating that Justice O'Connor had rejected the
call for case-by-case balancing in applying Young and
expressing "great satisfaction" that this view is the
controlling one).

Justice Kennedy's opinion in Coeur d'Alene cannot be
read to establish the controlling standard for Young. Seven
Justices rejected such a balancing and agreed that Young
generally should apply when an action against a state
officer alleges an ongoing violation of federal law and seeks
prospective relief. See id. at 296 (O'Connor, J., joined by
Scalia and Thomas, JJ., concurring in part and concurring
in the judgment); id. at 298-99 (Souter, J., joined by
Stevens, Ginsburg, and Breyer, JJ., dissenting). The Fifth
Circuit has held that, because a majority of the Supreme
Court would adhere to the more traditional application of
Young, the Fifth Circuit would also continue to do so. See
Bellsouth, 238 F.3d at 648-49 (quoting Earles v. State Bd.
of Certified Pub. Accountants of Louisiana, 139 F.3d 1033,
1039 (5th Cir. 1998)). We agree and similarly hold that
Young continues to permit actions against state officers for
prospective relief from ongoing violations of federal law; no
case-by-case balancing is necessary or proper.

Coeur d'Alene did carve out one narrow exception to
Young: An action cannot be maintained under Young in
those unique and special circumstances in which the suit
against the state officer affects a unique or essential
attribute of state sovereignty, such that the action must be
understood as one against the state. One example of such
special, essential, or fundamental sovereignty is a state's
title, control, possession, and ownership of water and land,
which is equivalent to its control over funds of the state
treasury. See Coeur d'Alene, 521 U.S. at 287; id. at 296-97
(O'Connor, J., concurring in part and concurring in the
judgment). This exception is best understood as an
application of the general rule that Young does not permit
actions that, although nominally against state officials, in
reality are against the state itself. See Pennhurst II, 465
U.S. at 102.

21
In addition, the Court in Seminole Tribe has carved out a
second exception to Young. Young will not apply where
Congress has created a detailed remedial scheme for the
enforcement of a federal statutory right against a state. See
Seminole Tribe, 517 U.S. at 74. The statute at issue in
Seminole Tribe was the Indian Gaming Regulation Act
(IGRA), under which Congress established a limited set of
remedies and detailed, elaborate procedures for obtaining
those remedies. Pursuant to IGRA, the state was under an
obligation to negotiate with a tribe in good faith and if a
court found that the tribe had failed to do so, the sole
remedy was for a court to order the state and the tribe to
conclude a compact within 60 days. See id. If the parties
did not complete the compact within that time, the sole
sanction was that each party was to present a proposed
compact to a mediator, who would choose the compact best
embodying federal law. See id. If the state still failed to
comply, the tribe was to notify the Secretary of the Interior,
who would prescribe regulations. See id. at 74-75. This
limited remedy contrasted with the full panoply of
prospective judicial remedies available in an action against
individual officers under Young, including contempt
sanctions for violation of an injunction. See id. at 75.
Where, as in IGRA, Congress has created such a detailed
and limited remedial scheme in the statute itself, a federal
court cannot obtain jurisdiction through Young over an
action against state officers which seeks a remedy beyond
that which Congress itself has made available against the
state under federal law.

B. The Eleventh Amendment and S 252(e)(6)

With this overview of the Eleventh Amendment in mind,
we turn to the question whether S 252(e)(6), providing for
federal court review of an interconnection agreement
approved by a state utility commission, violates the PUC's
and the Commissioners' Eleventh Amendment sovereign
immunity. We are not the first court of appeals to address
this question. The Fifth, Seventh, and Tenth Circuits have
all concluded that S 252(e)(6) does not violate the Eleventh
Amendment, both because the state utility commissions
knowingly and voluntarily waived immunity by accepting

22
the congressionally bestowed gratuity of participating in the
process of approving interconnection agreements, fully
aware that they would be subject to suit under S 252(e)(6),
and because Young permits suits for prospective relief
against individual commissioners. See Bellsouth , supra, 238
F.3d 636 (5th Cir.); MCI, supra, 222 F.3d 323 (7th Cir.);
Public Serv. Comm'n, supra, 216 F.3d 929 (10th Cir.). The
Sixth Circuit also held that a S 252(e)(6) action was not
barred, relying solely on Young. See Michigan Bell Tel. v.
Climax Tel. Co., 202 F.3d 862 (6th Cir.), cert. denied, 121 S.
Ct. 54 (2000). Only the Fourth Circuit, over a dissent, has
reached a different conclusion, holding that actions against
state commissions and commissioners are barred by the
Eleventh Amendment. See Bell Atl. Md., 240 F.3d 279 (4th
Cir.); see also Bellsouth Telecomm., Inc. v. North Carolina
Util. Comm'n, 240 F.3d 270 (4th Cir. 2001) (same result in
companion case).4

1. Waiver

We will first consider whether the Telecommunications
Act of 1996, by taking control of local telephone companies
away from the states and then giving back to them the
option of participating in local telecommunications
regulation, has established the type of gratuity or gift
waiver of Eleventh Amendment immunity that the College
Savings Court recognized as permitted under Commerce
Clause powers. We must answer two questions: 1) whether
_________________________________________________________________

4. The Supreme Court has granted certiorari on both parts of the
sovereign immunity question in Bell Atl. Md. and also in a case from the
Seventh Circuit, Mathias v. Worldcom Tech., Inc. , 121 S. Ct. 1224 (2001).
The cases have been consolidated for oral argument. We have
determined, however, that we should resolve the legal issues before us
and not await the Supreme Court's decision on sovereign immunity. The
reason we do so is consistent with the purpose of the 1996 Act -- to
establish competition in local telephone service as quickly and
expeditiously as possible. We cannot reach the merits of our appeals
until we have resolved the issue of sovereign immunity. If we do resolve
that issue, even if our conclusion is ultimately overturned, our decision
on the merits will still assist the parties in their efforts to establish
interconnection agreements. For that reason, and because we have
persuasive precedent to follow, we have decided to move forward.

23
the authority to participate in the regulatory scheme is in
fact a gift or gratuity to which Congress may attach as a
condition the state's agreement to waive sovereign
immunity and be sued in federal court and 2) whether
Congress in the statute made clear, explicit, and
unambiguous its intent that state utility commissions
participating in the regulatory process would subject
themselves to suit in federal court, so that the states can
be said to have knowingly and voluntarily waived sovereign
immunity by participating in that process.

(a)

We conclude that under the Act the authority to regulate
local telecommunications is a gratuity to which Congress
may attach conditions, including a waiver of immunity to
suit in federal court. Thus, the submission to suit in federal
court, provided for in S 252(e)(6), is valid as a waiver,
conditioned on the acceptance of a gratuity or gift, as
permitted by College Savings.

We find a gratuity because, with the 1996 Act, Congress
federalized the regulation of competition for local
telecommunications service. The Act preempted the
regulation of interconnection agreements and of the terms
on which a CLEC can provide competitive local service.
Local telephone service had previously been a monopoly
service within the exclusive regulatory province of the
states. See Iowa Utils. I, 525 U.S. at 370. The 1996 Act
fundamentally restructured local service by requiring
competition and establishing the mechanisms by which
competing carriers may enter the market. See id. The Act,
passed pursuant to Congress's power over interstate
commerce (which is plenary, see Oregon Waste Sys., Inc. v.
Department of Envtl. Quality of State of Or., 511 U.S. 93, 98
(1994)), validly preempted state regulation over competition
to provide local telecommunications service. See Iowa Utils.
I, 525 U.S. at 378 n.6 (stating that Congress
"unquestionably" took the regulation of local
telecommunications competition away from the states); see
also Bellsouth, 238 F.3d at 646; MCI, 222 F.3d at 343;
Public Serv. Comm'n, 216 F.3d at 938.

24
Congress could have made that preemption complete. It
could have entirely eliminated any state role in regulating
local competition and in conducting arbitration, review and
approval of interconnection agreements, and it could have
reserved to the FCC all such review and regulation. See
Bellsouth, 238 F.3d at 646; MCI, 222 F.3d at 342; Bell Atl.
Md., 240 F.3d at 316 (King, J., dissenting); see also FERC
v. Mississippi, 456 U.S. 742, 764 (1982) ("[T]he commerce
power permits Congress to preempt the States entirely in
the regulation of private utilities."). Congress instead
preserved a role for state utility commissions in the federal
regulatory scheme, giving them back some regulatory power
by allowing them the first opportunity to conduct
arbitrations and to approve or reject interconnection
agreements. See 47 U.S.C. S 252(b)(1); 47 U.S.C. S 252(e)(1),
(e)(2), (e)(4).

Because Congress validly terminated the states' role in
regulating local telephone competition and, having done so,
then permitted the states to resume a role in that process,
the resumption of that role by a state is a congressionally
bestowed gratuity. The state commission's authority to
regulate comes from S 252(b) and (e), not from its own
sovereign authority. See MCI, 222 F.3d at 343. Regulating
local telecommunications competition under the 1996 Act
no longer is, in the words of College Savings , an "otherwise
lawful" or "otherwise permissible" activity for a state.
Rather, it is an activity in which states and state
commissions are not entitled to engage except by the
express leave of Congress.

Indeed, the "states are not merely acting in an area
regulated by Congress; they are now voluntarily regulating
on behalf of Congress." MCI, 222 F.3d at 343; see Bellsouth,
238 F.3d at 647 (stating that the state "accepted Congress's
offer under the 1996 Act to delegate federal authority to the
state commission"); Public Serv. Comm'n, 216 F.3d at 938
(stating that the Act "invites states to participate in the
federal government's regulation of local telephone service").
Because this opportunity for the states to exercise federal
power is a gratuity from Congress, Congress may then
attach to that grant of regulatory power any conditions it
chooses. The condition which it did attach was the

25
submission to suit in federal court. Thus, when a state
accepts that grant of regulatory power, it does so under the
condition that it be subject to suit in federal court. See
MCI, 222 F.3d at 344 n.10 ("By accepting the grant of
regulatory power offered by Congress, and by allowing the
state commission to exercise that power, [the states] cannot
contend now that they are not bound by the conditions
attached to that grant of power.").

The PUC contends, however, that the power to regulate
local telephone service is not a congressional gratuity but a
primary aspect of core state sovereignty, a power the
states have exercised exclusively for decades. This
argument ignores the fundamental restructuring of
telecommunications markets worked by the 1996 Act, see
Iowa Utils. I, 525 U.S. at 370. Through the Act's
restructuring, the federal government has "unquestionably"
taken the regulation of local telecommunications
competition away from the states. See id. at 378 n.6.
Whatever the power of the states in the area of local
telephone regulation prior to 1996, that power did not
survive passage of the Act. State commissions now exercise
power over local competition only pursuant to S 252(e) and
only to the extent and in the manner provided by Congress.

The fact that the PUC was required under pre-1996 state
law to regulate local telephone service and that the pre-
1996 law has not been repealed by the Pennsylvania
legislature does not mean that the present participation by
the PUC in regulation is not voluntary. The relationship
between the state and the state utility commission under
state law is irrelevant to the Eleventh Amendment analysis.
If the state's participation in the federal scheme is
voluntary, then its delegated commission's participation is
also voluntary. And, as a result of the federal preemption,
resulting from the Act, the decision by a state to regulate
competition in the provision of local telecommunications
service is a voluntary one. When, therefore, the state directs
the state commission to participate in regulation under the
Act, the commission's participation is also voluntary.

Moreover, a state's participation in telecommunications
regulation is not mandatory. If a state commission declines
or fails to participate in arbitration or review of

26
interconnection agreements, responsibility for regulation
falls to the FCC. See 47 C.F.R. SS 51.803-807. There is no
requirement or obligation in federal law that a state
participate in this regulation.5 A state or state commission's
decision not to act is not subject to review. See 47 U.S.C.
S 252(e)(6) (providing that an aggrieved party's only remedy
if the state commission fails to act is to pursue its
challenge to the agreement with the FCC). The state
commission is "free to accept or reject such participation as
a gratuity without abstaining from any lawful activity
within its power." See Bellsouth, 238 F.3d at 647. A state or
state commission wishing to preserve its Eleventh
Amendment immunity may simply decline the invitation to
regulate local competition on behalf of the federal
government and allow that power to return to the FCC.
Indeed, the state commission in Virginia has declined to
resolve petitions to interpret and enforce interconnection
agreements and the FCC has stepped in to exercise
regulatory responsibility in Virginia. See FCC Order, In the
Matter of Starpower Communications, LLC Petition for
Preemption of Jurisdiction of the Virginia State Corporation
Commission Pursuant to Section 252(3)(5) of the 1996 Act,
CC Docket No. 00-52 (June 14, 2000).

If the Commonwealth of Pennsylvania continues to direct
the PUC to perform these regulatory functions, however,
this decision by the Commonwealth, as delegated to the
PUC, is a voluntary decision. See MCI, 222 F.3d at 344
n.10.

(b)

Even though we have concluded that the right to
participate in the regulation of local telecommunications
competition is a gratuity or benefit bestowed on the states
by Congress, we must still determine whether Congress was
unmistakably explicit, clear, and unambiguous inS 252(e)
_________________________________________________________________

5. This voluntariness is critical. Because the state commissions are given
a choice whether to participate in federal regulation, the Act cannot be
said impermissibly to "commandeer" state regulatory agencies to enforce
federal law. See MCI, 222 F.3d at 343 (citing Printz v. United States, 521
U.S. 898, 935 (1997)).

27
in providing that a state utility commission's determination,
approving interconnection agreements affecting local
telecommunications competition, would be subject to review
in federal court.

In considering whether S 252(e) is explicit, clear, and
unambiguous, we look to its language and to the language
of the Act as a whole. The regulatory process begins with
negotiations by an ILEC and a CLEC to form an
interconnection agreement. The Act provides that such an
agreement, whether adopted through negotiation or
arbitration, is submitted to the state utility commission,
which reviews the agreement for consistency with the Act
and the public interest and which approves or rejects the
agreement. See 47 U.S.C. S 252(e)(1). The commission is
also the first body to which carriers turn for arbitration if
negotiations are unsuccessful or if issues remain
unresolved. See 47 U.S.C. S 252(b)(1). The Act then provides
that, when the state commission has made a determination
on the agreement, "any party aggrieved by such
determination may bring an action in an appropriate
Federal district court," challenging whether the agreement
meets the requirements of SS 251 and 252. See 47 U.S.C.
S 252(e)(6). In other words, S 252(e)(6) specifically provides
for "actions" in federal court brought by"aggrieved" parties
to review "agreements" and "statements" approved by state
utility commissions. Moreover, S 252(e)(4) provides that
"[n]o State court shall have jurisdiction to review the action
of a State commission in approving or rejecting an
agreement under this section." See 47 U.S.C. S 252(e)(4).
Federal jurisdiction for the review of commission decisions
on interconnection agreements is exclusive.

Consequently, a state commission that decides to
participate in this statutory scheme is on notice from the
outset that it will be subject to suit, brought only in federal
court, by any party aggrieved by its decision. See MCI, 222
F.3d at 337 (stating that SS 252(e)(4) and 252(e)(6), read
together, indicate "that Congress envisioned suits reviewing
`actions' by state commissions" and that "Congress
intended that such suits be brought exclusively in federal
court."). The statutory language places the state utility
commission on notice that, by choosing to act on an

28
interconnection agreement and to make a decision as to its
legality, it submits itself to the jurisdiction of the federal
courts.

We agree with our sister circuits that this language
constitutes a sufficiently clear congressional statement that
a state will and must waive its sovereign immunity when it
acts to regulate local competition agreements. See
Bellsouth, 238 F.3d at 646; MCI, 222 F.3d at 341 ("[T]he
1996 Telecommunications Act satisfies the requirement
that Congress clearly state that participation by the state in
the regulatory scheme entails a waiver of immunity from
suit in federal court."); Public Serv. Comm'n , 216 F.3d at
938 ("[Section] 252 puts Utah on notice that Congress
intends to subject it to suits brought by individuals if it
acts under S 252."); see also Bell Atl. Md., 240 F.3d at 314
(King, J., dissenting) (arguing that the provisions of the Act
"clearly show Congress's intent to subject participating
states to suits in federal court"); but see Bell Atl. Md., 240
F.3d at 292 (holding that Congress did not clearly manifest
an intent to condition state commissions' participation in
the regulatory scheme on a waiver of sovereign immunity).

Moreover, a state commission is not obligated to waive
sovereign immunity by participating in the regulatory
process. The Act clearly provides that, if a state does not
respond to a request to mediate or to arbitrate an
interconnection agreement, the FCC is to assume that
responsibility. For that reason, state participation in the
regulation of local telecommunications competition is a
choice, not a mandate.

It is true that the Act does not include magic words such
as "waiver" or "immunity" or "suit." The Act became
effective in 1996, prior to the Supreme Court's decision in
Seminole Tribe that Congress may not abrogate Eleventh
Amendment immunity under the Commerce Clause and
prior to the decision in College Savings overturning the
constructive waiver doctrine of Parden. Perhaps, were
Congress drafting the statute in 2001 with Seminole Tribe
and College Savings in the mix, it would have been more
explicit than it was. We believe, however, that the language
that Congress did use is sufficiently clear to establish that
a state commission's decision will be subject to review in an

29
action brought in federal court by an aggrieved party and
sufficiently clear that the commission may be made a party
to that federal court action.

The argument is made in Bell Atl. Md. that the statute
merely puts states on notice that their decisions will be
subject to judicial review in federal court but that"it is a
leap of logic to infer from this consent to federal-court
review a consent by a State commission itself to be made a
party to that federal review." 240 F.3d at 293; id. at 290.
However, as the dissent in Bell Atl. Md. aptly states,
consent to federal court review of a decision "necessarily
entails" being made a party to the action. There is in fact
no "leap of logic" from consent by a state commission to
having its decision reviewed to consent by a state
commission to being a party to that review. See id. at 314
(King, J., dissenting). We agree that "by allowing State
commissions to substitute as regulators for the FCC,
Congress obviously intended that State commissions, just
like the FCC, be made parties to federal court actions
challenging their decisions." Id. at 315 (King, J.,
dissenting); see MCI, 222 F.3d at 337 (holding that the
language of S 252(e) shows Congress's intent that state
commissions be parties to the federal-court suits reviewing
their decisions in the same way that the FCC is a party to
the federal-court suits reviewing its actions).

We hold therefore, along with the Fifth, Seventh, and
Tenth Circuits, that the PUC is subject to suit in federal
court under the 1996 Act because the PUC knowingly
waived its Eleventh Amendment immunity by voluntarily
accepting the congressional gift or gratuity of the power to
regulate local telecommunications competition under the
Act. The District Court had jurisdiction over the PUC and
we affirm the court's rejection of the PUC's Eleventh
Amendment arguments.

2. Ex Parte Young

In the alternative, we hold that the action against the
individual PUC Commissioners is not barred by the
Eleventh Amendment because the case presents, in the
Sixth Circuit's terms, "a straightforward Ex Parte Young

30
case." Michigan Bell, 202 F.3d at 867. The Fifth, Seventh,
and Tenth Circuit have all agreed. See Bellsouth , 238 F.3d
at 647 (5th Cir.) (stating that the Act presents a
straightforward application of Young); MCI, 222 F.3d at 345
(7th Cir.) (holding that Eleventh Amendment does not bar
telecommunications carriers from pursuing injunctive relief
against individual members of state utility commissions);
Public Serv. Comm'n, 216 F.3d at 939 (10th Cir.) (holding
that telephone carrier could proceed against individual
Commissioners); see also Bell Atl. Md., 240 F.3d at 317
(King, J., dissenting) (agreeing with other circuits that suit
under S 252(e)(6) was straightforward Young case); but see
Bell Atl. Md., 240 F.3d at 294-95 (4th Cir.) (holding that
Young did not permit suit against individual
Commissioners).

Application of Young here is, indeed, straightforward. As
discussed in Part III A supra, we continue to view Young as
generally applicable any time a plaintiff seeks prospective
relief against individual state officers from an ongoing
violation of federal law. See Coeur d'Alene, 521 U.S. at 296
(O'Connor, J., concurring in part and concurring in the
judgment); see also Bellsouth, 238 F.3d at 648-49.

Worldcom, AT&T, and Verizon all allege that various
terms, rates, and conditions contained in the
interconnection agreement established and approved by the
PUC are inconsistent with and violative of the requirements
of SS 251 and 252. Those terms and conditions govern and
will continue to govern the current and future relations
among the telephone carriers and the establishment of local
competition in Pennsylvania by the parties to the
agreement. The PUC (acting through the individual
commissioners) is charged not only with establishing those
original terms but also with overseeing the implementation
and enforcement of the interconnection agreement against
the parties.

If the terms of the approved interconnection agreement
do violate the Act, that violation constitutes an ongoing
violation of federal law. The Commissioners individually are
parties to the suit. The carriers seek prospective relief in a
declaration that certain provisions of the approved
interconnection agreement violate the Act and in an

31
injunction prohibiting enforcement of the agreement and
requiring the PUC to establish different, more appropriate
rates, terms, and conditions. This is the paradigmatic
Young framework. See Bellsouth, 238 F.3d at 647; MCI, 222
F.3d at 345; Public Serv. Comm'n, 216 F.3d at 939;
Michigan Bell, 202 F.3d at 867.

The Fourth Circuit is the only court of appeals to reach
a different conclusion on the application of Young to the
1996 Act. The majority there relied on Justice Kennedy's
case-by-case balancing theory, set out by him in Coeur
d'Alene, by which the federal interests served by permitting
the suit against the Commissioners are balanced against
the important values of state sovereignty. See Bell Atl. Md.,
240 F.3d at 295. The Fourth Circuit concluded that the
federal interest in federal review could not overcome the
"affront to the sovereignty" of the state in being brought
before a federal court to defend a decision made when
acting within the scope of its regulatory authority. See id.
at 295, 298. As stated in Part III A, however, we have
rejected the use of such a balancing approach to Young. We
therefore decline to follow the decision in Bell Atl. Md.

Moreover, we conclude that neither of the two recognized
exceptions to Young bars the instant action. First, the
"special sovereignty interests" exception, acknowledged by
the majority of justices in Coeur d'Alene, is not implicated.
The ability of a state to make and carry out its regulatory
decisions, which would be interrupted by a federal court
injunction and declaration that the decision of the PUC
Commissioners violated federal law, cannot be viewed as a
core or fundamental matter of state sovereignty comparable
to the ability of a state to maintain ownership of and title
to its submerged lands. See MCI, 222 F.3d at 348. Any
sovereign interest that the Commonwealth might have in
regulating local telephone competition exists solely by
virtue of the role that Congress bestowed upon the states in
S 252(e); the state interest in regulating in this area no
longer derives from its general sovereign powers. See id.
Thus, an action against the individual Commissioners no
longer affects these general sovereign powers.

Second, the Seminole Tribe exception for a detailed and
limited remedial scheme is inapplicable. An aggrieved party

32
"may bring an action in an appropriate Federal district
court to determine whether the agreement or statement
meets the requirements" of the Act. See 47 U.S.C.
S 252(e)(6). The Act places no restrictions on the scope of
the court's review or on the remedies it may impose. It
places no restrictions on the form and nature of prospective
relief that an aggrieved party may obtain. The relief
available in an action under S 252(e)(6) is precisely the relief
that would be available through a Young action -- the full
panoply of declaratory and injunctive remedies. See Bell Atl.
Md., 240 F.3d at 318 (King, J., dissenting) (quoting Bell-Atl.-
Delaware, Inc. v. Global Naps South, Inc., 77 F. Supp. 2d
492, 501 (D. Del. 1999)).

We hold, consistent with the Fifth, Sixth, Seventh, and
Tenth Circuits, that this action may go forward against the
individual PUC Commissioners under Ex Parte Young
because the carriers seek prospective relief against the
individual Commissioners to stop an ongoing violation of
federal law. We will affirm the District Court on this
alternative ground.

IV. Verizon and PUC Appeals of the Merits

The District Court addressed and resolved several
challenges, raised by Worldcom (supported by intervenor
AT&T) and by Verizon, to various terms, rates, and
conditions contained in the Worldcom/Verizon
interconnection agreement. Five such merits issues are
before us on separate, consolidated appeals by the PUC and
Verizon.

A. Standard of Review

Before considering the merits of these issues, we must
determine our standard of review. The District Court
resolved the telecommunications challenges on summary
judgment and our review of the District Court is plenary.
See Ideal Dairy Farms, Inc. v. John LaBatt, Inc., 90 F.3d
737, 743 (3d Cir. 1996). The more difficult question is the
proper standard for reviewing the PUC's determinations as
established in arbitration and contained in the approved
interconnection agreement. Section 252(e)(6) provides for

33
judicial review and a determination whether the approved
agreement "meets the requirements" of the Act, see 47
U.S.C. S 252(e)(6), but does not prescribe the standard for
that review. The District Court reviewed the PUC's
interpretations of federal law de novo and its factual
determinations under the arbitrary and capricious
standard.

The PUC argues that its interpretations of federal law
contained in the interconnection agreement are entitled to
deference under Chevron USA, Inc. v. National Resources
Defense Council, Inc., 467 U.S. 837, 843-44 (1984),
pursuant to which the construction of a federal statute by
a federal agency is accorded deference by reviewing courts
when there has been an explicit or implicit delegation of
authority to an agency to fill a gap in the statute and the
agency interpretation is a reasonable one. Chevron
deference is warranted when the agency was given the
power to make rules carrying the force of law and when the
interpretation at issue was promulgated in the exercise of
that authority. See United States v. Mead Corp. , 121 S. Ct.
2164, 2171 (2001). Delegation may be shown by the grant
to an agency of power to engage in adjudication or notice-
and-comment rulemaking. See id. at 2172.

Generally, however, such deference is accorded to the
interpretations of federal statutes by federal administrative
agencies, not to interpretations by state agencies. See GTE
South, 199 F.3d at 745 (quoting Orthopaedic Hosp. v.
Belshe, 103 F.3d 1491, 1495-96 (9th Cir. 1997)). The PUC
argues for an exception to this general rule, given the
unique structure of the Act by which Congress delegated
federal regulatory power to state utility commissions and
the commissions exercise federal power that the FCC
otherwise would exercise.

The PUC argues that its interpretations of federal law,
made in reviewing and approving interconnection
agreements, should be entitled to the same deference as
would the FCC's interpretations if the FCC were primarily
responsible for reviewing the agreements. Arguably, the
state commissions do possess the same institutional
competence as the FCC to make such decisions in the area
of telecommunications law. See Philip J. Weiser, Chevron,

34
Cooperative Federalism, and Telecommunications Reform, 52
Vand. L. Rev. 1, 22-23 (1999). If the state commissions
enjoy the confidence of Congress, they (and their
interpretations of federal law) should enjoy similar
confidence from the federal courts. See id. at 36. We reject
this argument, however, and instead join the Ninth and
Fourth Circuits in holding that a state utility commission's
interpretations of the Act are reviewed de novo , not under
Chevron, because the state commissions are not federal
agencies to which deference is due. See MCI v. U.S. West,
204 F.3d at 1266; GTE South, 199 F.3d at 745.

Under the Act, there has been no delegation to state
commissions of the power to fill gaps in the statute through
binding rulemaking. See Mead, 121 S. Ct. at 2171. The
power to promulgate binding regulations to implement the
requirements of the Act and to fill statutory gaps was
granted to the FCC, see 47 U.S.C. S 251(d)(1), and those
regulations are entitled to deference. See Mead , 121 S. Ct.
at 2172 (stating that a good indicator of delegation meriting
Chevron deference is an express congressional
authorization for an agency to engage in the rulemaking
process); see also Iowa Utils. II, 219 F.3d at 748-49
(according Chevron deference to FCC rate regulations
promulgated pursuant to S 251(d)(1)). State commissions
have been given only the power to resolve issues in
arbitration and to approve or reject interconnection
agreements, not to issue rulings having the force of law
beyond the relationship of the parties to the agreement.

In fact, deference to the state commissions would often
be impossible, given the explicit delegation of rulemaking
authority to the FCC in S 251(d)(1). The interconnection
agreement must comply with the Act and with FCC
regulations; if the approved agreement, containing the state
commission's interpretations of the law, conflicts with the
legal interpretations in the FCC regulations, the FCC
interpretation must control under the Supremacy Clause
and under the plain language of the Act. If, therefore, the
PUC's interpretation conflicts with that of the FCC, the
PUC's determination must be struck down.

Our conclusion not to accord deference to a state
commission's interpretation of the Act is enforced by the

35
Supreme Court's recent decision in Mead which suggests
that not every formal agency act involving interpretation of
a federal statute is entitled to deference. See Mead, 121 S.
Ct. at 2173 (holding that classification rulings by Customs
Service not entitled to Chevron deference).

We will, therefore, review any PUC legal interpretations
contained in the arbitration and interconnection agreement
de novo. We will review factual findings under a substantial
evidence standard. See MCI v. U.S. West, 204 F.3d at 1267;
GTE South, 199 F.3d at 745. Under the substantial
evidence test, we must uphold a decision that has
"substantial support in the record as a whole." See GTE
South, 199 F.3d at 746 (citations omitted).

B. Terms of the Interconnection Agreement

1. Interconnection in Access Tandem Serving Areas

The first merits issue we must consider is the PUC's
requirement that Worldcom interconnect in each access
tandem serving area, even when there is more than one
access tandem area within a single LATA. It is Worldcom's
position that it need interconnect only once within each
LATA.

The Act provides that a CLEC must be permitted to
interconnect "at any technically feasible point within the
carrier's network." 47 U.S.C. S 251(c)(2)(B). An ILEC that
denies interconnection at a particular point must prove
that interconnection at that point is not technically feasible.
See 47 C.F.R. S 51.305(e). Generally, these provisions have
been interpreted to permit a CLEC to have access at any
point on the incumbent network where connection is
technically feasible. See, e.g., U.S. West Communications v.
AT&T Communications of the Pac. Northwest, Inc., 31 F.
Supp. 2d 839, 852 (D. Or. 1998) (AT&T-Pac).

The instant case presents a twist on the usual situation.
Verizon, as ILEC, is not attempting to deny Worldcom, as
CLEC, access to the network at a particular point or points,
nor is Verizon attempting to require that Worldcom
interconnect at another point than the one at which

36
Worldcom chooses to interconnect. Rather, Verizon wants
Worldcom to take access at several additional points in the
network, to interconnect at multiple points within the
LATA, even if Worldcom does not want to do so. The PUC
and Verizon contend that, because the Act and the FCC
regulations do not specify whether a CLEC may be required
to interconnect at additional points or how many points of
interconnection a CLEC may be required to have, the issue
is left to the PUC's discretion.

To the degree that a state commission may have
discretion in determining whether there will be one or more
interconnection points within a LATA, the commission, in
exercising that discretion, must keep in mind whether the
cost of interconnecting at multiple points will be
prohibitive, creating a bar to competition in the local service
area. See AT&T-Pac., 31 F. Supp. 2d at 852. If only one
interconnection is necessary, the requirement by the
commission that there be additional connections at an
unnecessary cost to the CLEC, would be inconsistent with
the policy behind the Act.

Moreover, the fact that S 251(c)(2) permits the CLEC to
choose the points in the network at which to interconnect
suggests that the Act provides for a balanced resolution in
the determination of interconnection points: While the ILEC
cannot be required to allow interconnection at technically
unfeasible points, similarly the CLEC cannot be required to
interconnect at points where it has not requested to do so.
If we accept this proposition, the PUC and Verizon cannot
require Worldcom to interconnect at any point in the
network at which Worldcom does not wish to interconnect.

The decision where to interconnect and where not to
interconnect must be left to Worldcom, subject only to
concerns of technical feasibility. Verizon has not presented
evidence that it is not technically feasible for Worldcom to
interconnect at only one point within a LATA. Nor has
Verizon shown that it is technically necessary for Worldcom
to interconnect at each access tandem serving area. The
PUC's requirement that Worldcom interconnect at these
additional points is not consistent with the Act. We will
affirm the District Court's decision, rejecting the PUC's
interconnection requirements. To the extent, however, that

37
Worldcom's decision on interconnection points may prove
more expensive to Verizon, the PUC should consider
shifting costs to Worldcom. See 11 F.C.C.R. 15499 P 209
(1996).

2. Remote Switching Modules

The PUC determined that Worldcom would be permitted
to collocate RSMs in Verizon's offices. The District Court
affirmed this portion of the interconnection agreement. This
ruling was consistent with the original interpretation of the
Act by the FCC. The Act provides that CLECs are permitted
to collocate equipment "necessary for interconnection or
access to unbundled network elements." 47 U.S.C.
S 251(c)(6). At the outset, the FCC interpreted "necessary"
to mean not indispensable, but "used or useful" for
interconnection, regardless whether other equipment could
be used to perform the same functions. See Local
Competition Order P 579. The FCC found that this definition
was most consistent with the pro-competitive purposes of
the Act, as it permitted CLECs to interconnect with greater
efficiency and at less cost. Id. The FCC further found that
this definition applied regardless whether the equipment
contained other functions, such as switching. See In the
Matter of Deployment of Wireline Services Offering Advanced
Telecommunications Capability, 14 F.C.C.R. 4761P 28
(1999) (Wireline Services Order); see also 47 C.F.R.
S 51.323(c) (providing that ILECs may not place any
limitations on the ability of CLECs to use all the features,
functions, and capability of collocated equipment, including
switching and routing features). An ILEC objecting to
collocation of a piece of equipment was required to prove
"that the equipment will not be actually used by the
telecommunications carrier for the purpose of obtaining
interconnection." 47 C.F.R. S 51.323(b). The ILEC also had
to show that there were technical or space limitations
proscribing collocation. 47 U.S.C. S 251(c)(6).

The D.C. Circuit, however, vacated P 28 of the Wireline
Services Order and required the FCC to give a"better
explanation" for the requirement that a CLEC be permitted
to collocate equipment beyond that which is "necessary,
required, or indispensable" to interconnection. GTE Serv.

38
Corp. v. FCC, 205 F.3d 416, 424 (D.C. Cir. 2000). The court
held that the FCC's interpretation of "necessary" was too
broad, particularly in that it would require collocation of
any and all equipment that is used for interconnection,
without regard to whether such equipment unnecessarily
included other features, such as switching. Id. The court
rejected the FCC's consideration of cost savings and
efficiency in broadening the meaning of "necessary," holding
that such considerations had been rejected by the Supreme
Court. Id. at 424 (citing Iowa Utils. I , 525 U.S. at 390).

The FCC has now reissued the collocation rules in the
Collocation Remand Order, to take effect September 19,
2001. In the new Order, the FCC has declared that it will
allow collocation of "dramatically smaller,""innovative
equipment," including "remote switching modules, which
are small switches that are used in conjunction with host
switches located in different premises." Collocation Remand
Order at PP 47 & n.133, 48. We conclude that under this
new Order the PUC's ruling allowing collocation of RSMs
was proper.

Moreover, both the Fourth and the Ninth Circuits have
held that RSMs are used for interconnection and can be a
necessary piece of equipment that an ILEC may be required
to collocate. See U.S. West Communications, Inc. v.
Hamilton, 224 F.3d 1049, 1056 (9th Cir. 2000); AT&T-
Virginia, Inc. v. Bell Atl.-Virginia, Inc., 197 F.3d 663, 669
(4th Cir. 1999); see also MCI v. U.S. West, 204 F.3d at
1268-69 (holding, in action brought by ILEC, that provision
of agreement requiring ILEC to permit collocation of remote
switching units was not proscribed by the Act and was
valid); AT&T-Pac., 31 F. Supp. 2d at 854 (upholding state
utility commission decision requiring collocation of remote
switching unit).

In choosing the equipment to be used for
interconnection, Worldcom cannot be required to strip
down its network to its bare essentials and to use
equipment that performs only a single function, resulting in
a less efficient and cost-effective network and, presumably,
in higher consumer prices. Verizon's interpretation-- that
equipment is not necessary for interconnection merely
because it can perform other functions or because some

39
other equipment could be used instead -- is incompatible
with the reissued Collocation Remand Order and with the
policy behind the Act. We will therefore affirm the District
Court's decision on collocation of RSMs.

3. Wholesale Rates

Verizon argues that the District Court erred in approving
the wholesale rates to be charged to Worldcom for services
to be resold under S 251(c)(4)(A). We agree with Verizon and
will reverse the District Court's decision on this point.

The Act requires ILECs to "offer for resale at wholesale
rates any telecommunications service that the [incumbent]
carrier provides at retail to subscribers who are not
telecommunications carriers." See 47 U.S.C. S 251(c)(4)(A).
Wholesale rates are to be determined based on retail rates
charged to subscribers, excluding "the portion thereof
attributable to any marketing, billing, collection, and other
costs that will be avoided by the local exchange carrier."
See 47 U.S.C. S 252(d)(3) (emphasis added). The FCC
interpreted the pricing standard to be the retail rate, less
"avoided retail costs," see 47 C.F.R.S 51.607; avoided
retails costs are "those costs that reasonably can be
avoided when an incumbent LEC provides a
telecommunications service for resale at wholesale rates to
a requesting carrier." See 47 C.F.R.S 51.609(b) (emphasis
added). This is the standard that the PUC applied in setting
the rates contained in the interconnection agreement.

The "reasonably can be avoided" standard was struck
down by the Eighth Circuit as contrary to the Act. See Iowa
Utils. II, 219 F.3d at 755-56.6 The court determined that the
word "will" indicated certainty or actuality, meaning the
statute excluded from the wholesale rates only those costs
certainly and actually avoided in providing services to a
CLEC for resale. See id. at 755. The Act recognizes that an
ILEC will continue to provide its own retail telephone
services to consumers and will continue to incur the
_________________________________________________________________

6. Certiorari was not granted on this point. See Iowa Utils. II, 121 S.
Ct.
878 (2001) (granting certiorari on 3 issues). That aspect of the Eighth
Circuit's decision is final.

40
general costs of providing retail services. See id. The
"reasonably can be avoided" standard would exclude from
the wholesale rates all costs that could be associated with
all provision of retail telephone services to all retail
customers, regardless whether the ILEC is avoiding such
costs in its sales to the CLEC. A standard based on
"actually avoided" costs should, however, focus on the costs
avoided in sales made to the CLEC, while recognizing that
the ILEC will continue other retail sales. See id.

We agree with the Eighth Circuit that the wholesale rates
must be based on the costs actually avoided by Verizon in
its wholesale sales to Worldcom or to any other CLEC. A
wholesale rate such as the one set by the PUC, based on
costs that could be but were not actually avoided, is
inconsistent with the language of the Act and cannot stand.

We conclude that the PUC erred in setting the wholesale
rates for services sold to Worldcom for resale. We will
remand this issue to the District Court with orders to
remand to the PUC for a new determination of wholesale
rates, applying whatever new rate standard the FCC
promulgates on remand from Iowa Utils. II. 7

4. Directory Publishing Services

The PUC ordered Verizon to provide to Worldcom
directory publishing services at wholesale prices. The
District Court rejected the recommendation, vacating this
portion of the agreement.

Verizon must offer at wholesale rates "any
telecommunications service" to be resold by Worldcom. See
47 U.S.C. S 251(c)(4)(A). A telecommunications service is the
"offering of telecommunications for a fee directly to the
public, or to such classes of users as to be effectively
available directly to the public, regardless of the facilities
used." See 47 U.S.C. S 153(46). Telecommunications means
"transmission, between or among points specified by the
user, of information of the user's choosing, without change
_________________________________________________________________

7. MCI does not contest this result. It recognizes that the FCC will
promulgate new wholesale pricing regulations and that the PUC will
apply that standard on remand.

41
in the form or content of the information as sent and
received." See 47 U.S.C. S 153(43). Directory publishing
services include basic listings with customer telephone
numbers, as well as additional services such as vanity
numbers, bold and foreign listings in the White Pages, and
non-listing and non-publication of customers' telephone
numbers.

At issue is the price that Verizon may charge Worldcom
for directory publishing services, which requires that we
decide if directory publishing services are
telecommunications services under the relevant statutory
definitions. If they are, Verizon must charge wholesale
rates. See 47 U.S.C. S 252(c)(4)(A). If they are not, Verizon
may charge the tariffed rates. The District Court held that
the statutory definitions could not be strained to include
directory publishing services as telecommunications
services. We agree.8

The PUC argues that it is undisputed that directory
publishing services are retail tariff service offerings, that is,
services offered by Verizon to retail customers at prices
established in tariffs filed with the FCC or the PUC. While
this perhaps is true, it is irrelevant. Section 251(c)(4) does
not require the wholesale provision of all retail tariff
services that an ILEC offers to subscribers, only the
wholesale provision of telecommunications services. The
two categories are not coextensive. All retail tariff services
are not telecommunications services, given the limited
definitions of S 153(43) and (46). Telecommunications
services involve the offering of telecommunications, the
transmission of information. Directory publishing services
do not involve the transmission of information and do not
fall within the statutory definitions.
_________________________________________________________________

8. We have found no cases addressing whether directory publishing
services fit within the definitions of telecommunications services. We
have found cases holding that directory publishing services are network
elements within the meaning of S 153(29) that must be sold at the cost-
based rates of S 252(d)(1). See AT&T-Va. , 197 F.3d at 674-75; Bell-Atl.-
Delaware, Inc. v. McMahon, 80 F. Supp. 2d 218, 251-52 (D. Del. 2000).
These decisions, however, are not persuasive on the question of whether
directory publishing services are telecommunications services, subject to
a different statutory definition and a different pricing standard.

42
Verizon is not required to provide directory publishing
services to Worldcom at wholesale prices for resale. It may
provide such services at tariffed rates or at some other
rates to be determined in a new interconnection agreement
on remand to the PUC. We will therefore affirm the District
Court on this issue.

5. Price of Unbundled Network Elements

The District Court held that the PUC's pricing model for
the leasing of unbundled network elements did not use a
forward-looking TELRIC pricing methodology, but an
improper TSLRIC model. The court remanded the issue to
the PUC to apply the proper pricing model. The District
Court never addressed the PUC's actual application of its
methodology or the details of the pricing decision that the
PUC reached. We will vacate the District Court's decision
and remand this issue to the District Court to review the
details and substance, as opposed to the nomenclature, of
the pricing model that the PUC used and the pricing
decision it made.

The PUC must determine the "just and reasonable rate"
to be charged for access to unbundled network elements, a
rate that must be nondiscriminatory and "based on the cost
. . . of providing the . . . network element," along with a
reasonable profit for the ILEC. See 47 U.S.C. S 252(d)(1)(A),
(B); Iowa Utils. II, 219 F.3d at 749. The FCC has
promulgated regulations establishing the methodology for
determining the rates to be charged. See Iowa Utils. I, 525
U.S. at 384-85 (holding that FCC has jurisdiction to design
a pricing methodology).

The rate must be based on the forward-looking TELRIC of
a discrete network element plus a "reasonable allocation of
forward-looking common costs." See 47 C.F.R. S 515.505(a).
TELRIC is the "forward-looking cost over the long run of the
total quantity of the facilities and functions that are directly
attributable to, or reasonably identifiable as incremental to,
such element, calculated taking as a given the incumbent
LEC's provision of other elements." See 47 C.F.R.
S 51.505(b).

43
We note several points about the FCC pricing regulations.
First, TELRIC "should be measured based on the use of the
most efficient telecommunications technology currently
available and the lowest cost network configuration, given
the existing location of the incumbent LEC's wire centers."
See 47 C.F.R. S 51.505(b)(1). Second, forward-looking costs
are "economic costs efficiently incurred in providing a group
of elements or services." See 47 C.F.R.S 51.505(c)(1). Third,
the sum of TELRIC and a reasonable allocation of forward-
looking common costs "shall not exceed the stand-alone
costs associated with the element." See 47 C.F.R.
S 51.505(c)(2).

The Eighth Circuit struck down the FCC's TELRIC
methodology, holding that S 51.505(b)(1) was inconsistent
with the statutory language, in that it based prices on what
the cost would be of particular elements if the ILEC
provided the most efficient technology in the most efficient
configuration of a hypothetical efficient network, rather
than the actual cost of providing the elements of the actual,
existing network. See Iowa Utils. II, 219 F.3d at 750; id.
(stating that Congress did not intend rates to be based on
the cost some imaginary ILEC would incur, but on the
actual costs that ILECs incurred in sharing network
elements). The Eighth Circuit did hold that a forward-
looking pricing methodology, if based on actual incremental
costs incurred or that will be incurred by an ILEC, would
produce a price consistent with the Act. See id. at 752-53.
The court also rejected the argument that cost under
S 252(d)(1)(A) must mean historical costs. See id. at 751.
The Supreme Court granted certiorari on these issues, see
FCC v. Iowa Utils. Bd., 121 S. Ct. 878 (2001), leaving
undecided the question of whether prices can be based on
a hypothetical efficient network configuration until the
Supreme Court determines the validity of the FCC
regulations during its next term.

The FCC explained the terms TSLRIC and TELRIC. Under
TSLRIC, "total service" refers to the entire quantity of the
service (either single service or a class of similar services)
that a firm produces, along with the costs of dedicated
facilities and operations used in providing that service. See
Local Competition Order P 677. The FCC coined and adopted

44
the term TELRIC in the Local Competition Order to describe
a different version of that methodology, one based on the
specific network element or elements to be priced. See id.
P 678. Essentially, TELRIC appears to be an unbundled
version of TSLRIC methodology, pricing discrete network
elements rather than entire services. The PUC and Verizon
argued that the required TELRIC methodology was a
version of TSLRIC and that the PUC's pricing model was
proper.

The PUC set prices based on what it labeled a TSLRIC
methodology.9 But in reviewing that decision, the District
Court did not look any further than the acronym applied by
the PUC to determine whether, in fact, the PUC based
prices on the forward-looking costs of discrete network
elements. The record suggests that the PUC attempted to
use a forward-looking, element-based methodology and
believed that it had done so. The labels that the PUC used
apparently confused the issue.

The PUC's use of the TSLRIC acronym without more,
however, does not provide a basis for vacating the pricing
decision. The District Court never reviewed the substance
of the pricing standard, never considered whether the
inputs that the PUC used in setting prices (based on the
pricing model offered by Verizon) were proper or whether
the prices it established were consistent with the Act. This
determination is primarily a factual issue, subject to
substantial evidence review, that must be performed by the
District Court in the first instance.

We will remand this issue to the District Court with
instructions to review the substance and merits of the PUC
methodology and its pricing decision and, with the
guidance of the Supreme Court's expected ruling on the
validity of the FCC regulations, to determine whether the
prices for unbundled network elements established in the
interconnection agreement comport with the Act.
_________________________________________________________________

9. See A-1378 ("[W]e adopted the use of TSLRIC as the appropriate cost
methodology to set prices for unbundled elements.")

45
Conclusion

For the foregoing reasons, we will affirm the District
Court's denial of the PUC's and Commissioners' claims of
Eleventh Amendment sovereign immunity. As to the terms
of the interconnection agreement, we will reverse the
District Court's decision with respect to the wholesale rates
set by the PUC and the pricing of unbundled network
elements; we will affirm the District Court in all other
respects. We remand this case to the District Court for
further proceedings consistent with this opinion.

46
AMBRO, Circuit Judge, concurring in part and dissenting in
part:

Judge Roth has written an exceptional opinion for the
Court. I agree with its reasoning and conclusion that the
Commonwealth has waived its sovereign immunity by
regulating local telephone service in Pennsylvania within
the confines of the Telecommunications Act of 1996.
Nonetheless, I write separately to emphasize that our
holding, and indeed the holdings of the many courts of
appeals that have taken the same position, is a novel one
and should be so recognized. I also write separately to
dissent from the Court's holding that the collocation of
remote switching modules can be required under the 1996
Act.

A.

We hold today that the 1996 Telecommunications Act fits
within the narrow exception for "gratuity waivers" discussed
in College Savings Bank v. Florida Prepaid Postsecondary
Education Expense Board, 527 U.S. 666, 686-87 (1999).
The "gratuity waiver" is an exception from the general rule,
set forth in College Savings Bank, that no constructive
waiver of sovereign immunity can be inferred from a state's
involvement in an area subject to federal regulation. See id.
at 686. There is reason to argue, however, that we are
expanding the scope of the "gratuity waiver" exception
beyond the examples given in College Savings Bank.

In discussing the general rule that there can be no
"constructive waiver" of Eleventh Amendment immunity,
and the resultant overruling of Parden v. Terminal R. of
Alabama Docks Dept., 377 U.S. 184 (1964), the Supreme
Court emphasized that effective waivers of sovereign
immunity, like other constitutional rights, must involve the
"intentional relinquishment or abandonment of a known
right or privilege." College Sav. Bank, 527 U.S. at 682
(citing Johnson v. Zerbst, 304 U.S. 458, 464 (1938)).
Requiring a state to possess knowledge of its immunity and
to intend to waive that immunity imparts upon the state a
requirement of volition -- it must wish to waive its
immunity.

47
Moreover, the Court in College Savings Bank noted one
other component of effective waiver; it requires a" `clear
declaration' by the State of its waiver . . . to be certain that
the State in fact consents to suit." Id. at 680 (emphasis in
original). This expression of intentional relinquishment
must be unequivocal. Id. That is, not only must the waiver
be clear, but the state cannot equivocate in expressing its
intent. Under these standards, it is the rare case that a
federal court would find the waiver of sovereign immunity.

Despite the Supreme Court's invocation of these two
hallmarks of effective sovereign immunity waiver--
intention and clarity of expression -- it left a vestige of
constructive waiver in those situations in which the waiver
is exacted as a condition to the state's acceptance of
Congress's gratuity. College Sav. Bank at 686-87. The
Court cited two cases in support of the concept of"gratuity
waiver," Petty v. Tennessee-Missouri Bridge Comm'n, 359
U.S. 275 (1959), and South Dakota v. Dole, 483 U.S. 203
(1987). In Petty, Congress approved a bistate commission
created by an interstate compact containing a clause
allowing suit. Petty, 359 U.S. at 277-78. The Court in
College Savings Bank concluded that because states were
barred from forming such compacts by the Constitution,
Congress's consent to a compact was a gratuity in that it
granted powers to a state entity previously denied to it.
More importantly for our purposes, the Supreme Court held
that this gratuity -- the approval of an interstate compact
-- could be conditioned on the waiver of sovereign
immunity and that courts could infer waiver from the
state's acceptance of that gratuity. College Sav. Bank, 527
U.S. at 686. Similarly, in South Dakota v. Dole , states
received funding from the federal government conditioned
on each state's acceptance of a uniform drinking age. 483
U.S. at 205. In both cases, Congress lacked the power to
abrogate the states' sovereign immunity (in Petty) or require
a mandatory drinking age (in Dole), but Congress's grant of
a gratuity permitted it to require as a condition of the gift
the very waiver or action it could not accomplish in its own
right. College Sav. Bank, 527 U.S. at 686.

Notably, in both cases cited in College Savings Bank, it
was entirely clear to the state from the face of the statute

48
itself that it was agreeing to Congress's condition. For
example, in Petty, Congress "approved a sue-and-be-sued
clause in a compact under conditions that make it clear
that the States accepting it waived any immunity from suit
which they otherwise might have." Petty, 359 U.S. at 280.
Similarly, the statute at issue in Dole so clearly exacted a
condition on the grant of highway funds that the State of
South Dakota itself sued to establish its
unconstitutionality. Dole, 483 U.S. at 205. Thus, we can
assume that for "gratuity waivers" the clarity the Court
demanded in College Savings Bank, for the state's
expression of waiver has simply shifted sources. Rather
than requiring a " `clear declaration' by the State," College
Sav. Bank, 527 U.S. at 680, we now require a clear
declaration from Congress that, by accepting the gratuity,
the states will forfeit whatever rights Congress chooses to
attach as a condition.1 See Atascadero State Hosp. v.
Scanlon, 473 U.S. 234, 247 (1985) (finding an act of
Congress does not clearly evince its intention to require
states receiving funds to waive their sovereign immunity).

This requirement of clarity on Congress's part is a
necessary component of inferring from a state's actions its
decision to waive its sovereign immunity. Congress's clarity
of expression and the resulting action by the state
substitute for the state's own expression of waiver. It is in
satisfaction of this requirement of a "constructive waiver"
that the courts of appeals have concluded that the 1996
Telecommunications Act clearly expresses Congress's
intention to attach a condition to its gratuity of regulatory
authority over local telephone service. See Maj. Opinion at
23-24 (listing cases); but see Bell Atlantic Maryland, Inc. v.
MCI Worldcom, Inc., 240 F.3d 279, 293 (4th Cir. 2001) ("[a]
State official reading this provision would have no
indication that the State commission, if it chose to make
the reviewable determination, would be compelled to appear
_________________________________________________________________

1. This mirrors the requirement that Congress's abrogation of sovereign
immunity be clear and unequivocal. See Quern v. Jordan, 440 U.S. 332,
343-44 (1979). Of course, abrogation and waiver are closely related.
"Forced waiver and abrogation are not even different sides of the same
coin--they are the same side of the same coin." College Sav. Bank, 527
U.S. at 683.

49
in federal court at the behest of an aggrieved
telecommunications company").

Clarity, however, is only half of the requirements of
effective waiver. As noted above, the Supreme Court
emphasized in College Savings Bank that a waiver of
sovereign immunity must also be "intentional." 527 U.S. at
682. The "gratuity waiver" of the Commonwealth that we
approve today lacks on its face any indicia of being
intentional. The Pennsylvania Utility Commission has
steadfastly maintained that it did not intend to waive its
immunity from suit and that its arbitration and approval of
the interconnection agreement was an action taken
pursuant to state law, not the 1996 Act. Of course, we
recognized in the majority opinion that the 1996 Act
federalized the provision of local telephone services and
therefore rejected the PUC's reliance on state authority. See
Majority Op. at 26-27; AT&T Corp. v. Iowa Utils. Bd., 525
U.S. 366, 378 n.6 (1999) ("With regard to the matters
addressed by the 1996 Act, [Congress has] unquestionably
[taken the regulation of local telecommunications
competition away from the States]").

Nonetheless, the PUC's reliance on state law is
interesting for another reason. Unlike Petty and Dole, the
PUC has not made any affirmative manifestation of its
acceptance of Congress's gratuity, such as the new
operation of a bistate commission or acceptance of federal
highway funds. Instead, it has merely continued what it
has always done -- regulate local telephone service for
Pennsylvanians. When Congress has taken away the PUC's
authority with one hand and returned it (albeit in a new
framework) with the other, it is difficult to understand what
it is that the PUC has to do to manifest its acceding to
Congress's condition that it waive sovereign immunity.
Indeed, we have no indication here that Pennsylvania
intended to waive its sovereign immunity at all, 2 other than
_________________________________________________________________

2. This stands in stark contrast to states such as Delaware, for example,
which has authorized its utility commission to act pursuant to the 1996
Act. See Bell Atlantic-Delaware v. McMahon, 80 F. Supp. 2d 218, 232 (D.
Del. 2000); 26 Del. Code S 703(4) (1998). While the Delaware General
Assembly did not expressly waive its sovereign immunity by this statute,
it is evidence that the State intended to accept the benefit of regulating
under its mandate. See Bell Atlantic-Delaware , 80 F. Supp. 2d at 232
n.10.

50
its continued presence in a field of regulation in which it
has operated for the better portion of the twentieth century.

Thus, our case stands for the proposition that a"gratuity
waiver" can exist even without conduct expressly accepting
that gratuity, if Congress is sufficiently clear in structuring
its condition. It is not simply that Congress has said that
states will waive their sovereign immunity if they accept the
new authority. Congress has said that if states continue to
act as they have, they will waive their sovereign immunity,
and thus has mandated that the states take action if they
do not wish to waive their immunity. Conversely, the
affirmative act indicating an intention to accept the gratuity
is not the simple acceptance of new money or new
authority, it is the failure to refuse the grant of an authority
previously possessed.3

Because I believe that questions of the constitutional
viability of "cooperative federalism" will repeat themselves
as long as Congress continues to fashion such creative
regulatory regimes, we should acknowledge this novelty.
See College Sav. Bank, 537 U.S. at 702-03 (Breyer, J.,
dissenting) (discussing the need for legislative flexibility to
foster national uniformity in regulation while preserving
local control). With as yet no Supreme Court determination
with respect to the issue before us, I believe that the
efficacy of "cooperative federalism" requires our Court's
flexibility in this instance.
_________________________________________________________________

3. If we recognize that the constructive waiver in this case is inferred
based on a state's continuing regulation of telecommunications, and not
any affirmative acceptance of the 1996 Act, one might conclude that
Congress has skirted dangerously close to creating a sanction and not
the grant of a gratuity. The Court in College Savings Bank suggested a
distinction between a condition placed on a gift and a sanction--the
former being an acceptable means of securing the waiver of sovereign
immunity from a state and the latter not. College Sav. Bank, 527 U.S. at
687. A sanction exists if Congress excludes "the State from otherwise
permissible activity." Id. As the majority correctly notes, because the
1996 Act removes local telephone regulation from the states and because
doing so is wholly lawful, see Hodel v. Virgina Surface Mining and
Reclamation Ass'n, 452 U.S. 264, 290 (1981), it is not a sanction. Maj.
Op. at 26-27. Thus, while Pennsylvania has waived its sovereign
immunity without an affirmative expression of its acceptance of a
gratuity, it is nevertheless a gratuity that it has received.

51
B.

I also respectfully dissent from the majority's
interpretation of collocation requirements of the 1996
Telecommunications Act. The Act forces ILECs "to provide,
on rates, terms, and conditions that are just, reasonable,
and nondiscriminatory, for physical collocation of
equipment necessary for interconnection or access to
unbundled network elements at the premises of the local
exchange carrier." 47 U.S.C. S 251(c)(6) (emphasis added).

The majority affirms the District Court's order affirming
the PUC's determination that Worldcom be permitted to
collocate remote switching modules in Verizon's offices.
Instead, I would adopt the position that locating remote
switching modules in the central offices of an ILEC
(Verizon) is not "necessary to interconnect" to the ILEC's
network. 47 U.S.C. S 251(c)(6); see GTE Serv. Corp. v. FCC,
205 F.3d 416, 423-24 (D.C. Cir. 2000) (FCC regulations
permitting collocation of remote switching modules exceeds
the reach of S 251(c)(6) by interpreting "necessary" to mean
efficient or useful).

While the majority correctly notes that the FCC has
promulgated new regulations in response to the D.C.
Circuit's ruling in GTE Serv. Corp., those regulations
continue to permit the collocation of remote switching
modules without regard for Congress's express limitations
in S 251(c)(6) to those devices "necessary" to interconnect.
The majority's reasoning is plausible. Yet it has substituted
its responsibility to interpret what "necessary" means with
broad policy statements regarding what it believes to be the
most efficient means of accomplishing collocation.
Assuming the remote switching devices result in certain
efficiencies, they are not necessary for interconnection of
CLECs to the ILEC's network. Because I would adopt the
position of the D.C. Circuit that the term "necessary"
constrains the authority of the PUC to mandate collocation
of devices that do more than provide the essential
interconnection required by the Telecommunications Act, I
respectfully dissent.

52
A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

53