Southwestern Bell Telephone Co. v. Public Utilities Commission of Texas

United States Court of Appeals
Fifth Circuit
F I L E D
October 21, 2003
UNITED STATES COURT OF APPEALS
For the Fifth Circuit Charles R. Fulbruge III
Clerk

No. 03-50107

Southwestern Bell Telephone Co.

Plaintiff-Counter-Defendant-Appellant,

VERSUS

Public Utilities Commission of Texas; Paul Hudson, Commissioner
of the Public Utility Commission of Texas; Rebecca Armendariz
Klein, Chairman of the Public Utility Commission of Texas; Julie
Parsley, Commissioner of the Public Utility Commission of Texas,

Defendants-Appellees,

and

AT&T Communications of Texas, LP, AT&T Communications of Texas,
Inc., also known as AT&T Communications; TCG Dallas; Teleport
Communications of Houston, Inc.,

Defendants-Counter-Claimants-Appellees.

Appeal from the United States District Court
For the Western District of Texas

Before BARKSDALE, DeMOSS, and BENAVIDES, Circuit Judges

DeMOSS, Circuit Judge:

Plaintiff-Appellant and Counter-Defendant, Southwestern Bell

Telephone Company ("Southwestern Bell") prevailed over AT&T
Communications of Texas, L.P., TCG Dallas, and Teleport

Communications Houston, Inc. (collectively "AT&T"), Defendants and

Counter-Plaintiffs and Cross-Appellees, in an arbitration conducted

by the Public Utility Commission of Texas ("PUC") and the

Commissioners of the PUC, Defendants and Cross-Appellees. The

arbitration ruling determined that AT&T, and not Southwestern Bell,

was responsible for paying the increased interconnection costs

resulting from Southwestern Bell having to carry traffic outside a

particular calling area to a distant point of interconnection

("POI") selected by AT&T.1 Both Southwestern Bell and AT&T

appealed the PUC order in district court under the Federal

Telecommunications Act. AT&T moved for summary judgment on the POI

issue. The district court granted final summary judgment for AT&T,

reversing the PUC order and remanding the case. Southwestern Bell

now appeals.

BACKGROUND AND PROCEDURAL HISTORY

Prior to the passage of the Federal Telecommunications Act

("the Act"), Southwestern Bell held a monopoly over the

telecommunications market in most of Texas and is considered an

incumbent local exchange carrier ("ILEC"). AT&T is a new entrant

1
A point of interconnection, or POI, is a point designated for
the exchange of traffic between two telephone carriers. It is also
the point where a carrier's financial responsibility for providing
facilities ends and reciprocal compensation for completing the
other carrier's traffic begins.

2
into the local telephone market in Texas and is termed a

competitive local exchange carrier ("CLEC"). The Act provides for

integration of competitive carriers with the existing networks of

incumbent carriers. The Act further provides for the voluntary

negotiation of interconnection agreements between ILECs and CLECs.

If the incumbents and competitive carriers cannot agree on terms

for interconnecting their networks, the Act provides for compulsory

arbitration of any disputed terms and conditions by the state

commission empowered to regulate intrastate telecommunications.

47 U.S.C. § 252(b) (2001). The relevant state commission in Texas

is the PUC. Tex. Util. Code § 52.002 (Vernon 1998).

On March 23, 2000, Southwestern Bell sought arbitration by the

PUC of all unresolved issues related to the negotiation of a

successor interconnection agreement with AT&T. After full

discovery, briefing, and a hearing conducted before PUC

arbitrators, an arbitration award was submitted to the PUC for

approval. In March 2001, the PUC issued its decision approving the

rulings of the arbitrators.

In its order, the PUC concluded that AT&T could select the

location of its POI on Southwestern Bell's network without cost

considerations, as long as the location was technically feasible.

However, the PUC decided that once technical feasibility was

established, costs could be taken into account in determining the

amount AT&T would have to pay Southwestern Bell for its proposed

3
interconnection plan.2 The PUC noted that § 252(c)(2)(D) of the

Act requires ILECs to provide interconnection "at rates, terms, and

conditions that are just, reasonable, and nondiscriminatory."

Therefore, the PUC held that pursuant to § 252(c)(2)(D), "the

interconnection rates to be paid by AT&T to recover the additional

costs incurred by [Southwestern Bell] in transporting the call to

the AT&T designated POI should be cost-based." Petition of

Southwestern Bell Tel. Co. for Arbitration with AT&T Comm. of Tex.,

L.P., TCG Dallas, and Teleport Comm., Inc. Pursuant to Section

252(b)(1) of the Federal Telecommunications Act of 1996, Pub. Util.

Comm'n of Texas Docket No. 22315, at 6. The PUC based its holding

on the rationale that "requiring the cost causer to absorb

additional costs incurred as a result of the siting of the POI . .

. is sound public policy," concluding that "[p]arties are therefore

encouraged to facilitate agreements that are also 'economically

feasible' once technical feasibility has been established." Id.

Southwestern Bell filed a complaint in the United States

District Court for the Western District of Texas, pursuant to

47 U.S.C. § 252(e)(6), appealing several of the PUC's decisions.

In response, AT&T filed counterclaims and cross-claims, including

2
The PUC determined that an ILEC incurs transport costs as part
of providing interconnection within its network. In an effort to
identify a benchmark for computing appropriate reciprocal
compensation rates, the PUC established a de minimis traffic
threshold of 14 miles as a standard distance for local transport,
noting that an alternate compensation mechanism would need to be
established to address local traffic sent to a distant POI located
beyond the 14-mile limit.

4
a motion for summary judgment on the POI issue. Among AT&T's

claims was its contention that the PUC violated the Federal

Communications Commission's ("FCC") "reciprocal compensation"

regulation by allowing Southwestern Bell to charge AT&T when

Southwestern Bell customers call AT&T customers (but not vice

versa) if the POI selected by AT&T is outside Southwestern Bell's

local calling area.3

On July 17, 2002, approximately four months prior to the

hearing in the district court presenting AT&T's motion for summary

judgment, the FCC published an arbitration decision in Petition of

WorldCom, Inc., et al., Pursuant to § 252(e)(5) of the

Communications Act for Preemption of the Jurisdiction of the

Virginia State Corporation Comm'n, 2002 WL 1576912 (2002),

("WorldCom") in which the FCC, on similar facts and under its

current regulations, confirmed that: 1) a CLEC is permitted to

choose to interconnect with ILECs at any technically feasible

point, including a single-LATA-POI;4 and, 2) an ILEC is prohibited

3
Specifically, AT&T argued that the FCC's "reciprocal
compensation" regulation, 47 C.F.R. § 51.703(b), required each LEC
to carry the traffic that originates within its network to the POI,
without receiving any compensation from the other LEC for that
portion of the traffic's travel. After handing off the traffic to
the other carrier at the POI, the originating LEC must, under the
reciprocal compensation rules, pay the other carrier for the
transport and termination (i.e., call completion) of the traffic
picked up at the POI.
4
A Local Access and Transport Area ("LATA") is a contiguous
geographic area for the provision and administration of
communications service, created by federal consent decrees opening
long-distance to competition in the 1980s. 47 U.S.C. § 153(25); 16

5
from imposing charges for delivering its local traffic to a POI

outside the ILEC's local calling area. After the release of the

WorldCom decision, the PUC confessed that it erred on the issue of

POI cost calculation and requested that the district court remand

the issue back to the PUC for reconsideration in light of the FCC's

decision. The district court subsequently granted AT&T's motion

for summary judgment, declaring that the Act gives AT&T the right

to select any technically feasible location for a POI.

Furthermore, the district court concluded that the PUC's order

allowing Southwestern Bell to charge AT&T for delivering

Southwestern Bell-originated traffic to the POI when the POI is

outside Southwestern Bell's local calling area violates FCC

regulations.

On appeal, Southwestern Bell argues that the district court

erred in declaring unlawful the PUC's decision. Although

Southwestern Bell does not dispute the Act's requirement that an

ILEC must provide interconnection within its network at any

technically feasible point, it insists that the Act requires that

an ILEC recover "just and reasonable" rates for interconnecting

Tex. Admin. Code § 26.5(116). Most states have more than one LATA,
and Texas has more than a dozen. In Texas, each LATA is named for
its most prominent city, e.g., the Austin LATA, the Houston LATA,
etc. Therefore, a LATA is larger than, but not synonymous with, an
"exchange area." The latter is a geographic area, usually
comprising of a city and its environs, in which calls therein are
treated as "local." 16 Tex. Admin. Code § 26.5(79),(117). An
ILEC's "local calling area" can include more than one exchange
area, such as in major metropolitan areas with "expanded local-
calling scopes." Id. § 26.5(117),(118).

6
CLECs to its network. Specifically, Southwestern Bell contends

that the PUC ruling properly approved the transport costs as

"interconnection terms" under 47 U.S.C. §§ 251(c)(2) and 252(d)(1),

rather than as "reciprocal compensation" under §§ 251(b)(5) and

252(d)(2). Southwestern Bell argues that the PUC has discretion

under §§ 251(c)(2)(D) and 252(d)(1) of the Act to set rates, terms,

and conditions of interconnection that are just, reasonable, and

non-discriminatory. Otherwise, according to Southwestern Bell, the

effect of the district court's order allows AT&T to make free and

beneficial use of Southwestern Bell's physical network by having a

single, remote POI whereas Southwestern Bell bears the burden of

transporting its own traffic out to the POI selected by AT&T.

AT&T argues that an ILEC, such as Southwestern Bell, without

consideration of economics, must allow a CLEC, like AT&T, to

interconnect at any technically feasible point pursuant to

47 C.F.R. § 51.305(a). Moreover, AT&T contends that allowing

Southwestern Bell to impose charges for hauling its originating

traffic to the POI selected by AT&T simply because the POI is

outside Southwestern Bell's local calling area is expressly

precluded by the FCC's "reciprocal compensation rules" pursuant to

47 C.F.R. § 51.703. Specifically, § 51.703(b) prohibits one LEC

from charging another carrier for transporting telecommunications

traffic that originates on the LEC's network. AT&T contends that

the PUC erred in considering the rates associated with transport

costs as "interconnection terms" rather than as "reciprocal

7
compensation." AT&T also argues that the PUC's ruling is an

impediment to the pro-competitive purposes of the Act. Finally,

AT&T asserts that by granting AT&T's motion for summary judgment

and remanding the case to the PUC, the district court properly

invalidated the PUC's order as being contrary to binding FCC

precedent, and thus an erroneous application of federal law.

DISCUSSION

We review a district court's grant of summary judgment de

novo, applying the same standards as the district court. Tango

Transp. v. Healthcare Fin. Servs. LLC, 322 F.3d 888, 890 (5th Cir.

2003). Summary judgment is appropriate if no genuine issue of

material fact exists and the moving party is entitled to judgment

as a matter of law. Fed. R. Civ. P. 56(c).

To satisfy its pro-competitive purpose, the Act imposes on an

ILEC and CLEC a duty to negotiate the terms and conditions of

interconnection agreements in good faith. 47 U.S.C. § 251(c)(1).

In furtherance of this objective, an ILEC must provide a CLEC

interconnection within its network at "any technically feasible

point." Id. § 251(c)(2); see also AT&T v. Iowa Utils. Bd., 525 U.S.

366, 371-72 (1999). The FCC has determined that "technical

feasibility" does not include consideration of economic,

accounting, or billing concerns. 47 C.F.R. §§ 51.5, 51.305(a),

51.321. Further, the FCC has stated that § 251(c)(2) "allows

8
competing carriers to choose the most efficient points at which to

exchange traffic with incumbent LECs, thereby lowering the

competing carriers' costs of, among other things, transport and

termination of traffic." First Report and Order, Implementation of

the Local Competition Provisions in the Telecommunications Act of

1996, 1996 WL 452885 (1996), modified, 1996 WL 557116 (1996),

partially vacated, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir.

1997), rev'd in part, AT&T v. Iowa Utils. Bd., 525 U.S. 366 (1999).

Recognizing that ILEC networks were not designed to accommodate

third-party interconnection, the FCC notes that ILECs are

nevertheless required "to adapt their facilities to interconnection

or use by other carriers," and "must accept the novel use of, and

modification to, its network facilities to accommodate the

interconnector.” Id. ¶ 202.

Section 251 of the Act, entitled "Interconnection," imposes on

ILECs "[t]he duty to provide, for the facilities and equipment of

any requesting telecommunications carrier, interconnection with the

local exchange carrier's network . . . at any technically feasible

point within the carrier's network . . . on rates, terms, and

conditions that are just, reasonable, and nondiscriminatory." Id.

§ 251(c)(2). Meanwhile, § 51.703 of the FCC regulations, entitled

"Reciprocal Compensation for Transport and Termination of

Telecommunications Traffic," prohibits an ILEC from assessing

"charges on any other telecommunications carrier for

telecommunications traffic that originates on the [ILEC]'s

9
network."

Section 252(b)(1) of the Act expressly provides that a state

commission (i.e., the PUC) is empowered to arbitrate any "open

issues" concerning an interconnection agreement between

telecommunications carriers. The district court found that the

PUC, acting pursuant to this authority, issued an arbitration award

it later determined was inconsistent with FCC rules. The district

court determined that the transport costs imposed on AT&T by the

PUC were charges related to reciprocal compensation under

§ 51.703(b), rather than interconnection terms under § 251(c)(2),

and therefore, in violation of FCC regulations. The district court

noted that the FCC reciprocal compensation regulations are quite

specific in prohibiting Southwestern Bell from charging AT&T for

"local" traffic originating on Southwestern Bell's network, despite

the fact that the PUC had previously authorized Southwestern Bell

to do so. The district court also found it was not an

insignificant factor that the PUC, in light of the FCC's decision

in WorldCom, urged the district court to ignore the Commission's

original order as being erroneous and remand the case back to the

PUC. The district court concluded that the PUC order did not

comply with the current FCC rules and remanded the PUC's order back

to the PUC.

In light of the recent FCC decision in WorldCom, the PUC's

subsequent confession of error, and its own factual findings, the

district court properly determined that the transport costs imposed

10
on AT&T by Southwestern Bell are governed by the FCC's "reciprocal

compensation" rules pursuant to § 51.703, rather than by

"interconnection terms" under §§ 251(c)(2)(D) and 252(d)(1) of the

Act. Therefore, the district court correctly remanded the case

back to the PUC to reform the interconnection agreement between

Southwestern Bell and AT&T in accordance with this determination.

CONCLUSION

Having carefully reviewed the record of this case, the

parties' respective briefing and arguments, and for the reasons set

forth above, we affirm the district court's grant of summary

judgment and remand of the case to the PUC to approve an

interconnection agreement consistent with the opinion of the

district court.

AFFIRMED.

11