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Illinois Bell Telephone Co. v. Box

September 21, 2007

ILLINOIS BELL TELEPHONE COMPANY, PLAINTIFF,
v.
CHARLES E. BOX, ERIN M. O'CONNELL-DIAZ, LULA M. FORD, ROBERT F. LIEBERMAN, AND KEVIN K. WRIGHT, IN THEIR OFFICIAL CAPACITIES AS COMMISSIONERS OF THE ILLINOIS COMMERCE COMMISSION AND NOT AS INDIVIDUALS, DEFENDANTS. AND ACCESS ONE, INC., CIMCO COMMUNICATIONS, INC., FORTE COMMUNICATIONS, INC., AND XO COMMUNICATIONS SERVICES, INC. INTERVENORS/DEFENDANTS



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

This action was filed by Illinois Bell Telephone Company ("AT&T")*fn1 seeking declaratory and injunctive relief under the Telecommunications Act of 1996 (the "Act"). AT&T brought this action against Charles E. Box, Erin M. O'Connell-Diaz, Lula M. Ford, Robert F. Lieberman, and Kevin K. Wright (the "Commissioners") to challenge determinations of the Illinois Commerce Commission ("ICC") as set forth in an arbitration order issued November 2, 2005 (the "Arbitration Decision").*fn2 Specifically, AT&T challenges the ICC's determinations that: (1) AT&T must make pieces of its telecommunications network known as "entrance facilities" available to competitors if they are used for the sole purpose of interconnection; and (2) the FCC's rules for certain loops -- lines running from a customer location to a telecommunications carrier's switch -- apply only to loops used to serve "mass market" customers.*fn3 AT&T seeks a declaration that the ICC's decisions violate federal law and seeks a permanent injunction preventing any of the defendants from enforcing any provision of the ICC's arbitration order that violates federal law. The matter is before this Court on AT&T's motion for summary judgment. For the reasons stated herein, AT&T's motion for summary judgment is granted in part and denied in part.

BACKGROUND

The Regulatory Framework

Until the 1990's, local telephone service was thought to be a natural monopoly. AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 371 (1999). However, in recognition of the fact that technological advances had presented the possibility of competition among providers of local telephone service, Congress passed the Telecommunications Act of 1996, 47 U.S.C. § 251, et seq. ("the Act"). Verizon Communications, Inc. v. FCC, 535 U.S. 467, 476 (2002). The Act "seeks primarily to promote competition in the previously monopoly-driven local telephone service market." Indiana Bell Tel. Co., Inc. v. McCarty, 362 F.3d 378, 382 (7th Cir. 2004) (citing Verizon, 535 U.S. at 475-76). To that end, the Act requires the former monopolists, incumbent local exchange carriers ("ILECs," here, AT&T), to allow new market entrants -- competing local exchange carriers ("CLECs," here, the intervening defendants) -- to interconnect with and access the incumbent's network at a fair price. Id. (citing 47 U.S.C. § 251(c)). "Congress recognized that without allowing new entrants to use the incumbents' local exchange networks and other technology and services, the incumbents would maintain a stranglehold on local telephone service: no new entrant could realistically afford to build from the ground up the massive communications grid the incumbents had developed through years of monopolistic advantage." Id. (citing Verizon, 535 U.S. at 490).

The Act gave the Federal Communications Commission (the "FCC") broad powers to require ILECs to make pieces of their networks available as "unbundled" building blocks -- unbundled network elements ("UNEs") -- which CLECs may lease, repackage, and use to compete against the ILECs in telecommunications markets across the country. Covad Communications Co. v. FCC, 450 F.3d 528, 531 (D.C. Cir. 2006). "Congress left to the Commission the choice of elements to be 'unbundled,' specifying that it must 'consider, at a minimum, whether [access to such network elements as are proprietary in nature is necessary; and] the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.'" Id. at 531-32 (quoting 47 U.S.C. § 251(d)(2)) (emphases added by the Covad court).

Under the Act, CLECs must pay ILECs for each facility or piece of equipment that the ILEC requests from the CLEC on an unbundled basis. Id. at 532. The FCC has concluded that UNE prices are to be based upon each element's Total Element Long-Run Incremental Cost ("TELRIC"), which is akin to a wholesale rate. Id. Given the lower price of UNEs, the CLECs favor widespread unbundling. Contrariwise, the ILECs favor fewer UNEs. Accordingly, the ILECs and CLECs have been engaged in a power struggle over UNEs since shortly after the passage of the Act. Id. at 533.

The FCC three times unsuccessfully undertook to implement the unbundling provisions in section 251 of the Act. The FCC's first attempt -- the Local Competition Order -- very broadly interpreted the section 251(d)(2)(B) impairment standard governing the ILECs' unbundling obligations. See In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499(1996) ("Local Competition Order" or "LCO"). The Supreme Court vacated the LCO, finding that "the [FCC's] assumption that any increase in cost (or decrease in quality) imposed by denial of a network element renders access to that element 'necessary,' and causes the failure to provide that element to 'impair' the entrant's ability to furnish its desired services, is simply not in accord with the ordinary and fair meaning of those terms." Iowa Utilities Bd., 525 U.S. at 389-90. The Court agreed with ILECs that "the Act requires the FCC to apply some limiting standard, rationally related to the goals of the Act, which it has simply failed to do." Id. at 388. The Court concluded that "if Congress had wanted to give blanket access to incumbents' networks on a basis as unrestricted as the scheme the [FCC] has come up with, it would not have included § 251(d)(2) in the statute at all. It would simply have said (as the Commission in effect has) that whatever requested element can be provided must be provided." Id. at 390.

In response to the Supreme Court's decision in Iowa Utilities Board, the FCC issued the UNE Remand Order, in which it adopted narrower requirements for determining the UNEs that ILECs must provide pursuant to the "necessary" and "impair" standards. The FCC adopted a new definition of what constitutes "impairment" under section 251(d)(2)(B), stating that an ILEC's failure to provide access to a network element impairs a requesting CLEC if, taking into consideration the availability of alternative elements outside the ILEC's network, lack of access to the element in question materially diminishes a requesting CLEC's ability to provide the services it seeks to offer. See UNE Remand Order, 15 F.C.C.R. 3696, 3725. Applying that standard, the FCC set forth a list of network elements that must be unbundled in all markets and pledged, in light of the rapid changes in technology and competition, to re-examine the national list of UNEs in three years.

The United States Court of Appeals for the District of Columbia Circuit found the impairment standard articulated in the UNE Remand Order to be unlawful because it did not differentiate between those cost disparities that a new entrant in any market might likely face and those that arise from market characteristics "linked (in some degree) to natural monopoly . . . that would make genuinely competitive provision of an element's function wasteful." Covad, 450 F.3d at 533 (citing United States Telecom Ass'n v. FCC, 290 F.3d 415, 427 (D.C. Cir. 2002) ("USTA I")). "USTA I concluded that the FCC's broad concept of impairment failed to 'balance' the costs and benefits of unbundling . . . [and instructed the FCC] to make nuanced impairment determinations." Id. USTA I held that the Act does not require the FCC to make unbundling determinations on a market-by-market basis, but that it does require "a more nuanced concept of impairment than is reflected in findings . . . detached from any specific markets or market categories." Id. (quoting USTA I, 290 F.3d at 426).

On remand from USTA I, the FCC again refined its impairment standard and revised its list of UNE's that ILECs must provide to requesting carriers. The FCC's refined standard provided that a CLEC would be impaired when "a lack of access to an incumbent LEC network element poses a barrier or barriers to entry, including operational and economic barriers, that are likely to make entry into a market uneconomic." In re Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 18 F.C.C.R. 16978, 17035 (2003) ("Triennial Review Order" or "TRO"). The United States Court of Appeals for the District of Columbia Circuit subsequently invalidated much of the TRO. See United States Telecom Ass'n v. FCC, 359 F.3d 554, 576 (D.C. Cir. 2004) ("USTA II"). The court concluded that the FCC's "'touchstone' of impairment -- 'uneconomic' entry -- was excessively vague." Covad, 450 F.3d at 534. The court also rejected the FCC's attempt to delegate power to state regulatory commissions to make impairment determinations. USTA II, 359 F.3d at 565-66. Instead, the court held that "the FCC must establish unbundling criteria that take into account relevant market characteristics, which capture significant variation, sensibly define the relevant markets, connect those markets to the FCC's impairment findings, and consider whether the element in question is significantly deployed on a competitive basis." Covad, 450 F.3d at 534 (citing USTA II) (internal citations and quotations omitted). "The fact that CLECs can viably compete without UNEs . . . precludes a finding that the CLECs are impaired by lack of access to the element under § 251(c)(3)." Id. (citing USTA II) (internal citations and quotations omitted).

On remand from USTA II, the FCC issued an interim order and notice of proposed rulemaking and then, after receiving and considering comments, issued a four-part order that, among other things, clarified that impairment would be found where it would be uneconomic for a "reasonably efficient" CLEC to compete without UNEs. Id. at 534-35 (citing In re Unbundled Access to Network Elements, Order on Remand, 20 F.C.C.R. 2553, 2547-49 (2005) ("Triennial Review Remand Order" or "TRRO"). The TRRO -- representing the FCC's fourth and final set of unbundling rules -- was upheld on appeal to the D.C. Circuit. See id.

Procedural History

The interconnection obligations imposed by the Act are implemented through "interconnection agreements" between ILECs and CLECs. See 47 U.S.C. § 252. The Act requires ILECs and CLECs to negotiate the terms of such interconnection agreements in good faith to fulfill the duties described in Sections 251(b) and (c). See id.; 47 U.S.C. § 251(c)(1). In the event that negotiations are not successful, either the ILEC or the CLEC may petition the appropriate state public utility commission -- in this case, the ICC -- to arbitrate "any open issues" that the parties have not been able to resolve through negotiation. 47 U.S.C. § 252(b)(1). The state commission charged with resolving open issues via arbitration must "ensure ...


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