At&T Communications of Virginia, Inc. v. Bell Atlantic-Virginia, Inc.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
AT&T COMMUNICATIONS OF VIRGINIA,
INCORPORATED,
Plaintiff-Appellant,
and
MCI TELECOMMUNICATIONS
CORPORATION, a Delaware
corporation; MCIMETRO ACCESS
TRANSMISSION SERVICES OF VIRGINIA,
INCORPORATED, a Virginia
Corporation,
Plaintiffs,
v.
BELL ATLANTIC-VIRGINIA,
INCORPORATED; HULLIHEN WILLIAMS
No. 98-2131
MOORE, in his official capacity as
Commissioner of the
Commonwealth of Virginia State
Corporation Commission; I. CLINTON
MILLER, in his official capacity as
Commissioner of the
Commonwealth of Virginia State
Corporation Commission; THEODORE
V. MORRISON, JR., in his official
capacity as Commissioner of the
Commonwealth of Virginia State
Corporation Commission; STATE
CORPORATION COMMISSION,
Commonwealth of Virginia,
Defendants-Appellees,
and
RICHARD CULLEN, Attorney General
of Virginia,
Intervenor-Defendant,
and
FEDERAL COMMUNICATIONS
COMMISSION,
Party in Interest.
MCI TELECOMMUNICATIONS
CORPORATION, a Delaware
corporation; MCIMETRO ACCESS
TRANSMISSION SERVICES OF VIRGINIA,
INCORPORATED, a Virginia
Corporation,
Plaintiffs-Appellants,
and
AT&T COMMUNICATIONS OF VIRGINIA,
INCORPORATED,
Intervenor-Plaintiff,
v.
No. 98-2147
BELL ATLANTIC-VIRGINIA,
INCORPORATED; HULLIHEN WILLIAMS
MOORE, in his official capacity as
Commissioner of the
Commonwealth of Virginia State
Corporation Commission; I. CLINTON
MILLER, in his official capacity as
Commissioner of the
Commonwealth of Virginia State
Corporation Commission; THEODORE
V. MORRISON, JR., in his official
capacity as Commissioner of the
2
Commonwealth of Virginia State
Corporation Commission; STATE
CORPORATION COMMISSION,
Commonwealth of Virginia,
Defendants-Appellees,
and
RICHARD CULLEN, Attorney General
of Virginia,
Intervenor-Defendant,
and
FEDERAL COMMUNICATIONS
COMMISSION,
Party in Interest.
MCI TELECOMMUNICATIONS
CORPORATION, a Delaware
corporation; MCIMETRO ACCESS
TRANSMISSION SERVICES OF VIRGINIA,
INCORPORATED, a Virginia
Corporation; AT&T
COMMUNICATIONS OF VIRGINIA,
INCORPORATED,
Plaintiffs-Appellees,
No. 98-2196
v.
BELL ATLANTIC-VIRGINIA,
INCORPORATED,
Defendant-Appellant,
and
HULLIHEN WILLIAMS MOORE, in his
official capacity as Commissioner
of the Commonwealth of Virginia
3
State Corporation Commission; I.
CLINTON MILLER, in his official
capacity as Commissioner of the
Commonwealth of Virginia State
Corporation Commission; THEODORE
V. MORRISON, JR., in his official
capacity as Commissioner of the
Commonwealth of Virginia State
Corporation Commission; STATE
CORPORATION COMMISSION,
Commonwealth of Virginia,
Defendants,
and
RICHARD CULLEN, Attorney General
of Virginia,
Intervenor-Defendant,
and
FEDERAL COMMUNICATIONS
COMMISSION,
Party in Interest.
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
James R. Spencer, District Judge.
(CA-97-629-R)
Argued: June 8, 1999
Decided: December 15, 1999
Before MICHAEL, Circuit Judge; Malcolm J. HOWARD,
United States District Judge for the Eastern District of
North Carolina, sitting by designation; and
Jerome B. FRIEDMAN, United States District Judge
for the Eastern District of Virginia, sitting by designation.
4
Affirmed in part, reversed in part, and remanded by published opin-
ion. Judge Michael wrote the opinion, in which Judge Howard and
Judge Friedman joined.
_________________________________________________________________
COUNSEL
ARGUED: David Lee Lawson, SIDLEY & AUSTIN, Washington,
D.C., for Appellants. Robert A. Dybing, SHUFORD, RUBIN & GIB-
NEY, Richmond, Virginia; Warner F. Brundage, Jr., BELL
ATLANTIC-VIRGINIA, INC., Richmond, Virginia, for Appellees.
ON BRIEF: David Carpenter, Stephen F. Smith, SIDLEY & AUS-
TIN, Washington, D.C.; James C. Roberts, George A. Somerville,
Dabney J. Carr, IV, MAYS & VALENTINE, L.L.P., Richmond, Vir-
ginia; John J. Langhauser, Wilma R. McCarey, AT&T COMMUNI-
CATIONS OF VIRGINIA, INC., Oakton, Virginia; Donald B.
Verrilli, Jr., Maureen F. Del Duca, Jodie L. Kelley, JENNER &
BLOCK, Washington, D.C.; Thomas F. O'Neil, III, William Single,
IV, Matthew B. Pachman, MCI WORLDCOM, INC., Washington,
D.C., for Appellants. Michael D. Lowe, BELL ATLANTIC-
VIRGINIA, INC., Richmond, Virginia; James C. Dimitri, William H.
Chambliss, Robert M. Gillespie, STATE CORPORATION COM-
MISSION OF VIRGINIA, Richmond, Virginia; Anthony Gambar-
della, WOODS, ROGERS & HAZLEGROVE, Richmond, Virginia,
for Appellees. Philip D. Bartz, Acting Assistant Attorney General,
Helen F. Fahey, United States Attorney, Mark B. Stern, Charles W.
Scarborough, Appellate Staff, Civil Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C.; Christopher J.
Wright, General Counsel, John E. Ingle, Deputy Associate General
Counsel, FEDERAL COMMUNICATIONS COMMISSION, Wash-
ington, D.C., for Amicus Curiae.
_________________________________________________________________
OPINION
MICHAEL, Circuit Judge:
After Congress enacted the Telecommunications Act of 1996, Pub.
L. 104-104, 110 Stat. 56, codified at 47 U.S.C.§ 251 et seq. (the Act),
5
AT&T Communications of Virginia, Inc. (AT&T) and MCI Telecom-
munications Corp. and MCImetro Access Services of Virginia, Inc.
(collectively, MCI) tried to enter the local telephone market in Vir-
ginia served by Bell Atlantic-Virginia, Inc. (Bell Atlantic), an autho-
rized monopoly prior to the Act. When AT&T and MCI were
unsuccessful in negotiating all of the terms and prices for access to
Bell Atlantic's network and services, the parties went to arbitration
before the Virginia State Corporation Commission (SCC), as the Act
allows. Next, AT&T and MCI sought review of the arbitration by
suing Bell Atlantic and the SCC commissioners in district court. Bell
Atlantic cross-claimed, also seeking review on certain issues. The
issues are (1) whether AT&T and MCI may use the switching func-
tion of their remote switching modules collocated on Bell Atlantic's
premises, (2) whether Bell Atlantic has a duty to renegotiate (for the
benefit and use of MCI) licenses on intellectual property contained
within Bell Atlantic's network, (3) whether MCI should be allowed
access to Bell Atlantic's dark fiber, (4) whether Bell Atlantic must
provide certain directory publishing services to AT&T at cost-based
rates, and (5) whether the SCC used the proper methodology in set-
ting wholesale prices for retail services. The district court resolved the
issues on cross-motions for summary judgment. We now have the
case on appeal, and for the reasons that follow, we affirm in part,
reverse in part, and remand.
I.
In a related opinion filed today, GTE South, Inc. v. Morrison, ___
F.3d ___, No. 98-1887 (4th Cir. Dec. 15, 1999), we explain how the
Act sets a course for restructuring local telephone markets:
The breakup of AT&T in the early 1980s brought compe-
tition to the long distance telephone market. The local mar-
ket, however, has been a different story. Until the passage
of the 1996 Act, state utility commissions continued to regu-
late local telephone service as a natural monopoly. Commis-
sions typically granted a single company, called a local
exchange carrier (LEC), an exclusive franchise to provide
telephone service in a designated area. Under this protection
the LEC built a local network -- made up of elements such
as loops (wires), switches, and transmission facilities -- that
6
connects telephones in the local calling area to each other
and to long distance carriers.
The 1996 Act brought sweeping changes. It ended the
monopolies that incumbent LECs held over local telephone
service by preempting state laws that had protected the
LECs from competition. See 47 U.S.C. § 253. Congress rec-
ognized, however, that removing the legal barriers to entry
would not be enough, given current technology, to make
local telephone markets competitive. In other words, it is
economically impractical to duplicate the incumbent LEC's
local network infrastructure. To get around this problem, the
Act allows potential competitors, called competing local
exchange carriers (CLECs), to enter the local telephone
market by using the incumbent LEC's network or services
in three ways. First, a CLEC may build its own network and
"interconnect" with the network of an incumbent. See id.§ 251(c)(2). Second, a CLEC may lease elements (loops,
switches, etc.) of an incumbent LEC's network "on an
unbundled basis." See id. § 251(c)(3). Third, a CLEC may
buy an incumbent LEC's retail services "at wholesale rates"
and then resell those services to customers under its (the
CLEC's) brand. See id. § 251(c)(4).
The Act details procedures for allowing a CLEC access
to the incumbent LEC's facilities and services. The CLEC
first makes a request to the incumbent for interconnection or
for access to its network or services. Thereafter, both parties
must negotiate in good faith in an effort to reach agreement
on terms and conditions (including price) of access. See id.
§§ 251(c)(1), 252(a)(1). If negotiations fail-- it is hard to
see how they would not -- either party may petition the
state utility commission to arbitrate open issues. See id.
§ 252(b). The terms imposed by the state commission in
arbitration must "meet the requirements of section 251 . . .
including the regulations prescribed by the [FCC] pursuant
to section 251." Id. § 252(c)(1). The Act includes general
standards for a state commission to use in arbitrating open
price (or rate) issues. See id. §§ 251(c), 252(d). Finally, the
Act authorizes any party aggrieved by the arbitration deci-
7
sion of a state commission to bring an action in federal dis-
trict court to determine whether the arbitration decision
"meets the requirements of" §§ 251 and 252. See id.
§ 252(e)(6).
Id. at ___ (footnote omitted).
On August 8, 1996, the FCC (pursuant to § 251(d)(1) of the Act)
issued an order and rules, including rules governing pricing, to imple-
ment the local competition provisions of the Act. See In the Matter
of Implementation of the Local Competition Provisions in the Tele-
communications Act of 1996, First Report and Order, 11 F.C.C.R.
15499 (1996) (First Report and Order). After the rules were chal-
lenged in petitions for review filed in several circuits, the proceedings
were consolidated and assigned to the Eighth Circuit. See 28 U.S.C.
§ 2112(a). The Eighth Circuit first stayed the FCC's pricing rules
before their effective date, see Iowa Utils. Bd. v. FCC, 109 F.3d 418,
427 (8th Cir. 1996), and then vacated the rules in July 1997, holding
that state utility commissions, not the FCC, had exclusive authority
to make pricing decisions under the Act. See Iowa Utils. Bd. v. FCC,
120 F.3d 753, 800 (8th Cir. 1997), aff'd in part, rev'd in part sub
nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 119 S. Ct. 721(1999). On January 25, 1999, the Supreme Court reversed this part of
the Eighth Circuit's judgment, holding that the FCC had jurisdiction
to issue "rules to guide the state-commission judgments." AT&T
Corp. v. Iowa Utils. Bd., 525 U.S. at ___, 119 S. Ct. at 738. Although
the Supreme Court remanded for consideration of substantive chal-
lenges to the pricing rules, these rules became effective when the
Supreme Court issued its judgment. And although the Supreme Court
invalidated one of the FCC rules governing access to unbundled net-
work elements, see Iowa Utils. Bd., 525 U.S. at ___, 119 S. Ct. at 736,
other (non-pricing) rules relating to local competition have been in
effect since October 15, 1996. See Iowa Utils. Bd., 109 F.3d at 427.
In this case, AT&T and MCI were unsuccessful in negotiating
interconnection agreements with Bell Atlantic (the incumbent LEC)
to cover their entry into Virginia's local telephone market. In July
1996 AT&T petitioned the SCC to arbitrate the unresolved issues.
Shortly thereafter, AT&T's petition was consolidated with a petition
filed by MCI, and the SCC proceeded to arbitrate the open issues.
8
After the SCC's arbitration decisions were incorporated into intercon-
nection agreements between Bell Atlantic and each of the CLECs, the
CLECs (AT&T and MCI) sued Bell Atlantic and the SCC commis-
sioners in district court, alleging that certain of the SCC's determina-
tions violated the Act. Bell Atlantic filed a cross-claim because it
objected to different SCC rulings.
The SCC (and the district court) resolved the issues now contested
as follows. First, the SCC denied AT&T and MCI the right to use the
switching functions of their collocated remote switching modules
(RSMs), although the RSMs may be used for interconnection and
access to unbundled network elements. Second, the SCC determined
that Bell Atlantic, in providing access to its network elements, is not
required to negotiate and obtain license modifications from its third-
party vendors to allow MCI use of intellectual property embedded in
Bell Atlantic's network. Third, the SCC determined that Bell Atlantic
was not required to allow MCI access to its (Bell Atlantic's) dark
fiber, that is, fiber optic transmission cable that has been installed but
not activated. (The district court dismissed the claim underlying issue
two and granted summary judgment for Bell Atlantic and the SCC
commissioners on issues one and three. AT&T and MCI appeal.)
Fourth, the SCC required Bell Atlantic to provide certain directory
publishing services to AT&T at cost-based rates, instead of tariff
rates. (The district court granted summary judgment to AT&T and the
SCC commissioners on this issue, and Bell Atlantic cross-appeals.)
Fifth, the SCC decided that wholesale prices (for services the CLECs
will resell) should be determined by assuming that the incumbent
LEC, Bell Atlantic, will leave the retail market altogether. (The dis-
trict court granted summary judgment to AT&T, MCI, and the SCC
commissioners on this issue, and Bell Atlantic cross-appeals.)1
We will address the issues after we summarize the standard of
_________________________________________________________________
1 MCI also appealed the SCC's refusal to compel Bell Atlantic to pro-
vide its directory assistance database for Bell Atlantic customers in
Washington, D.C., and Maryland. In addition, Bell Atlantic cross-
appealed the SCC's order requiring it to give MCI actual possession of
its directory assistance database for Virginia, instead of merely granting
read-and-use access. MCI and Bell Atlantic settled these issues prior to
oral argument.
9
review. The district court's grant of summary judgment is reviewed
de novo. We also review de novo the SCC's interpretations of the
Act, and we accord no deference to the state commission's interpreta-
tions. Finally, we review the SCC's factfindings under the substantial
evidence standard. See GTE South, Inc. v. Morrison, ___ F.3d ___
(4th Cir. 1999).
II.
AT&T and MCI argue that the SCC and the district court erred in
deciding that AT&T and MCI cannot use the switching function of
RSMs (remote switching modules) that they place, or collocate, at
Bell Atlantic's premises. We agree with AT&T and MCI.
The SCC did correctly determine that Bell Atlantic must allow
AT&T and MCI to collocate RSMs because this equipment is neces-
sary for interconnection and access to unbundled network elements.
The SCC went on to hold, however, that the switching capability of
collocated RSMs must be disabled. This holding was erroneous.
An RSM has an important, although limited, switching capability.
It can perform a local call routing function when one customer served
by a loop connected to the RSM calls another customer who is also
connected to that same RSM. This limited switching function avoids
the more costly and inefficient routing of the call to a distant main
switch and back. Bell Atlantic uses this local call routing function on
its own RSMs, taking advantage of the attendant operating and cost
efficiencies. Under the SCC's order AT&T and MCI cannot use this
switching function on their RSMs placed in Bell Atlantic's premises.
This puts AT&T and MCI at a competitive disadvantage. The ques-
tion, of course, is whether the Act and the FCC's implementing rules
require the elimination of this disadvantage.
Section 251(c)(6) of the Act requires Bell Atlantic, as an incum-
bent LEC, to allow new entrants, such as AT&T and MCI, to collo-
cate at Bell Atlantic's premises any equipment that is "necessary for
interconnection or access to unbundled network elements" on terms
and conditions that are "nondiscriminatory." 47 U.S.C. § 251(c)(6).
While the Act requires that the collocated equipment be "necessary"
for one of the two specified purposes (interconnection or access to
10
network elements), the equipment is not rendered"unnecessary"
because it can perform other functions such as switching. See First
Report and Order at ¶ 579 ("necessary" simply means that the equip-
ment is "used" or "useful" for interconnection or access to unbundled
network elements). Because the RSMs are used for interconnection
and access, they are necessary and must be collocated, as the SCC
determined.
AT&T and MCI argue, however, that a discriminatory term was
imposed on the collocation here because they cannot use their RSMs
for a different function, switching, and that deprives them of efficien-
cies available to Bell Atlantic, the incumbent LEC. The question
therefore is a narrow one: is it a discriminatory condition of colloca-
tion to require that the switching function of the CLECs' collocated
RSMs be disconnected.
The Act sets the general standard -- "nondiscriminatory" -- for
collocation terms, see 47 U.S.C. § 251(c)(6), and leaves the details to
FCC rulemaking. But the FCC rules are also fairly general. The First
Report and Order does make clear that the "nondiscrimination" stan-
dard is meant to be a strict one and that an incumbent LEC, such as
Bell Atlantic, cannot impose on CLECs less favorable terms of inter-
connection or access to unbundled network elements than it (the LEC)
enjoys. See First Report and Order at ¶¶ 217-18. The SCC did not
interpret the First Report and Order to permit AT&T and MCI to use
the switching function of their collocated RSMs, even though Bell
Atlantic could use their RSMs for that very purpose.
Fortunately, we do not have to decide whether the SCC interpreted
the First Report and Order properly. The FCC has issued a clarifying
rule, effective June 1, 1999, that resolves the collocation issue before
us: "an incumbent LEC may not place any limitations on the ability
of requesting carriers to use all the features, functions, and capabili-
ties of equipment collocated [for interconnection or access to unbun-
dled network elements], including, but not limited to, switching and
routing features." 47 C.F.R. § 51.323(c) (1999).2
_________________________________________________________________
2 The rule does provide that an incumbent LEC is not required "to per-
mit collocation of equipment used solely for switching or solely to pro-
vide enhanced services." 47 C.F.R. § 51.323(c) (1999).
11
The revised rule plainly requires Bell Atlantic to allow AT&T and
MCI to use their collocated RSMs for switching and routing. The dis-
trict court's judgment to the contrary is reversed, and we instruct that
court to remand to the SCC for it to amend the necessary instruments
to conform to 47 C.F.R. § 51.323(c).
III.
According to MCI, the SCC erred by failing to require Bell Atlan-
tic to negotiate and obtain license modifications from its third-party
vendors that would allow MCI to use intellectual property embedded
in Bell Atlantic's network. Because we hold that Bell Atlantic must
use its best efforts to renegotiate modifications, a remand is necessary
on this issue.
Much of the hardware and software that make up Bell Atlantic's
network is licensed from third-party patent and copyright holders. If
MCI uses unbundled elements in that network, as the Act gives it the
right to do, it will be exposed to potential intellectual property
infringement claims. Meanwhile, Bell Atlantic, which holds licenses
for that intellectual property, faces no such liability. MCI argues that
this disparity in conditions of access discriminates against it in viola-
tion of § 251(c)(3) of the Act. Therefore, MCI argues, Bell Atlantic
must renegotiate its licensing agreements to permit use by CLECs.
The SCC rejected this argument. Instead, it required Bell Atlantic
(1) to indemnify MCI against third-party intellectual property claims
arising from its use of any network equipment or software acquired
by Bell Atlantic in the future; (2) to allow MCI the protection of any
indemnities given by Bell Atlantic's vendors to cover intellectual
property, but only to the extent those indemnities flow through to
third parties; and (3) to notify MCI of any pending or threatened intel-
lectual property claims. The district court dismissed MCI's challenge
to the SCC's order, concluding that MCI lacked standing.
We disagree with both the SCC and the district court. The standing
question presents little difficulty. Again, MCI seeks to invoke its stat-
utory right to access to unbundled network elements on nondiscrimi-
natory terms. See 47 U.S.C. § 251(c)(3). According to MCI, the SCC
imposed terms that do not allow MCI equal access to Bell Atlantic's
12
network: Bell Atlantic's use of the intellectual property is protected
by third-party licensing agreements, but MCI's use is not. Unequal
access is a statutory injury that is sufficient to confer standing on
MCI. See Linda R.S. v. Richard D., 410 U.S. 614, 617 n.3 (1973)
("Congress may enact statutes creating legal rights, the violation of
which creates standing, even though no injury would exist without the
statute.").
The Act imposes the duty on Bell Atlantic, as an incumbent LEC,
to provide "access to network elements on an unbundled basis . . . on
rates, terms, and conditions that are just, reasonable and nondiscrimi-
natory." 47 U.S.C. § 251(c)(3). "Nondiscriminatory," in turn, means
access on the same terms and conditions that Bell Atlantic itself
enjoys. See 47 C.F.R. 51.311(b) (1999); First Report and Order at
¶ 218. The interconnection agreement approved by the SCC fails to
satisfy this requirement in one respect: although it grants MCI access
to Bell Atlantic's network, it discriminates because it does not pro-
vide MCI equal license to use the intellectual property embedded in
that network. This part of the agreement leaves MCI with several
unsatisfactory options. First, it can use the network elements without
obtaining licenses, risking infringement suits. Second, it could
attempt to independently negotiate for licensing, also an untenable
option. Only Bell Atlantic knows which of its licensing agreements
might be implicated by the lease of network elements. In addition, the
lease rate set by the SCC already accounts for licensing fees paid by
Bell Atlantic, so any additional fees paid by MCI to third parties
would constitute double payment. Third, MCI might limit itself to
using only network elements that are not subject to licenses from third
parties. Even if this option provided some access, it would not be
access on equal footing with Bell Atlantic. The SCC's resolution of
the intellectual property issue therefore discriminates under the mean-
ing of the Act. Moreover, the resolution is inconsistent with the Act's
purpose of fostering competition by removing barriers to entry in the
local telephone market.
As a result, we conclude that the Act requires Bell Atlantic to
attempt to renegotiate its existing intellectual property licenses to
cover use by MCI. Cf. In the Matter of Implementation of Infrastruc-
ture Sharing Provisions in the Telecommunications Act of 1996, 12
F.C.C.R. 5470 at ¶ 70 (1997) (requiring that incumbent LECs renego-
13
tiate terms of intellectual property licenses when necessary to satisfy
the infrastructure sharing requirements of 47 U.S.C.§ 259). In those
negotiations, Bell Atlantic must exercise its best efforts to obtain
licensing for CLECs on the terms that it has obtained for itself.3 We
recognize that negotiations might not be successful in every instance.
If negotiations fail, we do not interpret § 251(c)(3) to impose an abso-
lute duty to provide identical licensing terms in the case of existing
agreements. Cf. First Report and Order at¶ 313 (interpreting
§ 251(c)(3) to require equal access rather than absolute equality of
treatment to allow for "rare circumstances where it is technically
infeasible for an incumbent LEC to provision access or elements that
are equal-in-quality"). Still, there must be a duty to negotiate. Other-
wise, the Act's goal -- competition in local telephone markets --
would be ignored.
The district court's dismissal of the intellectual property licensing
claim is reversed. On this issue, the district court is directed to enter
summary judgment for MCI, granting it relief to the extent we have
specified.4 This issue will then be remanded to the SCC.
IV.
MCI argues that the SCC and district court erred in denying it
access to Bell Atlantic's "dark fiber," that is, transmission cable that
has been laid but is not attached to the electronics required to "light"
it. MCI says the Act entitles it to use the dark fiber because, without
it, its ability to provide local telephone service is impaired. This issue
must be remanded to the SCC for further proceedings.
The Act requires that an incumbent LEC allow new entrants access
to unbundled elements of the incumbent's network. See 47 U.S.C.
_________________________________________________________________
3 Because the cost of renegotiating license agreements would be part of
the cost of providing the network element, Bell Atlantic would be enti-
tled to compensation for its efforts. See 47 U.S.C. § 252(d)(1).
4 See Nat'l Coalition for Students with Disabilities Educ. & Legal
Defense Fund v. Virginia, 152 F.3d 283, 293 (4th Cir. 1998) (observing
that when facts are uncontroverted, court of appeals may direct entry of
an order awarding summary judgment to a party whose motion below
was denied).
14
§ 251(c)(3). According to the FCC rules in effect when the SCC and
district court rendered their decisions, a nonproprietary network ele-
ment had to be made available if "the failure to provide access to such
. . . element[ ] would impair the ability of the [CLEC] seeking access
to provide the services that it seeks to offer." Id. § 251(d)(2)(B). See
47 C.F.R. 51.317(b)(2) (1997). MCI wants to lease Bell Atlantic's
dark fiber, splice in its own electronics, and then deploy its own net-
work technology and design. Before the SCC, MCI argued that with-
out access to Bell Atlantic's dark fiber, it would be left with two non-
competitive options: (1) laying its own fiber in the ground, an expen-
sive and time-consuming effort, or (2) leasing Bell Atlantic's "lit"
fiber, bundled with Bell Atlantic's electronics. The SCC rejected this
argument without comment, and the district court affirmed. The dis-
trict court found that while MCI had "introduced evidence that dark
fiber is necessary in its provision of local services," denial of access
would "inconvenience," but not impair, the company's ability to pro-
vide local telephone service.
Before we reach the impairment issue, we consider a more funda-
mental objection that Bell Atlantic has made to MCI's demand for
dark fiber. Bell Atlantic claims that dark fiber is not a network ele-
ment at all. And if it is not a network element, the company has no
obligation to grant the CLECs access to it. A "network element" is "a
facility or equipment used in the provision of a telecommunications
service." 47 U.S.C. § 153(29)(emphasis added). Seizing on "used,"
Bell Atlantic argues that this word requires that the equipment be in
actual use, not merely capable of being used. Since dark fiber is
equipment that (currently) is not being used, it is not a network ele-
ment, according to Bell Atlantic.
Like every other court that has heard this argument, we reject it.
See, e.g., US West Communications, Inc. v. Jennings, 46 F. Supp.2d
1004, 1018-19 (D. Ariz. 1999); MCI Telecommunications Corp. v.
BellSouth Telecommunications, Inc., 40 F. Supp.2d 416, 425 (E.D.
Ky. 1999). First, it places undue weight on "used," a word commonly
appearing in definitions. For example, according to Webster, a ham-
mer is a "hand tool consisting of a solid head set crosswise on a han-
dle and used for pounding." Webster's Third New International
Dictionary 1025 (1981)(emphasis added). We doubt that a hand tool
becomes a hammer only when someone starts to pound with it. Sec-
15
ond, Bell Atlantic's narrow interpretation conflicts with the Supreme
Court's acknowledgment that "network element" is broadly defined.
See Iowa Utils. Bd., 525 U.S. at ___, 119 S. Ct. at 734. Third, an
interpretation of network element that includes dark fiber is in har-
mony with Congress's express goal of fostering competition to pro-
mote more efficient, cheaper, and better phone service. See H.R. Rep.
No. 104-204 at 89 (1995). If CLECs can lease incumbents' dark fiber,
they can use their own electronics to deploy newer, more efficient
technologies instead of remaining captive to the existing network
architecture. Each of these factors counsels in favor of construing
"used" to include equipment and facilities, such as dark fiber, that are
part of the network, even though they may not be in actual use when
the access request is made.
It is a closer question whether MCI's ability to provide local ser-
vice will be impaired without access to Bell Atlantic's dark fiber. As
the district court recognized, MCI presented the SCC with evidence
that dark fiber is "necessary" for it to provide the service. MCI's evi-
dence tended to show that denial of access to dark fiber would force
it either to incur substantial costs by laying its own wire or to tie itself
to Bell Atlantic's electronics, thereby restricting its ability to deploy
its own network design. An SCC expert confirmed the value of dark
fiber to MCI, testifying that while "dark fiber is a pure cost savings
. . ., there are many other reasons for MCI to use dark fiber." Despite
this evidence, the district court concluded that other unbundled net-
work elements (Bell Atlantic's lit fiber and electronics) were avail-
able to MCI and that use of these alternative elements would
inconvenience rather than impair MCI.
Section 251(d)(2)'s language concerning impairment of service
does not directly qualify the right to access granted by § 251(c)(3).
Rather, in light of the general duty under § 251(c)(3) to provide
access "at any technically feasible point,"§ 251(d)(2) directs the FCC
to consider whether particular proprietary network elements are nec-
essary and whether denial of access to particular nonproprietary net-
work elements would impair service. Thus, § 251(d)(2) "requires the
FCC to apply some limiting standard, rationally related to the goals
of the Act." Iowa Utils. Bd., 525 U.S. at ___, 119 S. Ct. at 734-35.
When the SCC and the district court made their decisions in this case,
the FCC had interpreted the impairment of service standard as fol-
16
lows: service "would [be] impair[ed]" if "the failure of an incumbent
to provide access to a network element would decrease the quality, or
increase the financial or administrative cost of the service a requesting
carrier seeks to offer, compared with providing that service over other
unbundled elements in the incumbent LEC's network." First Report
and Order at ¶ 285. See also 47 C.F.R. 51.317(b)(2) (1997). If this
rule still provided the applicable standard, we would be inclined to
reverse outright and say that MCI must have access to the dark fiber.
However, in Iowa Utilities Board the Supreme Court vacated a
related FCC rule, 47 C.F.R. § 51.319 (1997), which had specified par-
ticular network elements that the FCC deemed "necessary" for provid-
ing local telephone service. Iowa Utils. Bd., 525 U.S. at ___, 119
S. Ct. at 734-36. In vacating this rule, the Court rejected the FCC's
interpretation of "impaired" in paragraph 285 of the First Report and
Order, holding that:
the Commission'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 abil-
ity to furnish its desired services is simply not in accord
with the ordinary and fair meaning of those terms.
Id. at ___, 119 S. Ct. at 735 (emphasis added). Although the Court did
not provide an alternative definition of "impaired," the exchange
between the majority and the dissent provides some guidance. Reject-
ing Justice Souter's suggestion that the absence of a ladder may
impair someone's ability to change a light bulb, even if he had access
to "a chair, a milk can, or eight volumes of Gibbon," id. at ___, 119
S. Ct. at 739 (Souter, J., dissenting), the majority said that impairment
was better illustrated by "the presence of a ladder tall enough to
enable one to do the job, but not without stretching one's arm to its
full extension. A ladder one-half inch taller is not, ``within an ordinary
and fair meaning of the word,' ``necessary,' nor does its absence
``impair' one's ability to do the job." Id. at ___, 119 S. Ct. at 735 n.11.
Similarly, the Court noted that a one-percent decrease in anticipated
profits resulting from denial of access to a network element would not
constitute an "impairment" under the terms of the statute. Id. at ___,
119 S. Ct. at 735.
17
We understand the Court's illustrations to mean that de minimis
decreases in the quality of service or de minimis increases in the cost
of providing service do not require that an incumbent provide access
to a particular network element. When denying access to an unbun-
dled network element has more than a de minimis effect, however, the
Act requires that access be provided. Accord, MCI v. Bell Atlantic, 36
F. Supp.2d 419, 425 (D.D.C. 1999)(interpreting Iowa Utilities Board
to mean that "a market entrant must demonstrate something more than
a minor decrease in quality or rise in costs"). Thus, we are confronted
with the following issue: if MCI is denied access to dark fiber, will
MCI experience more than a de minimis effect on the quality of its
service or the cost of providing it.
On the record before us, we are unable to make that determination.
We have no explicit findings of fact from the SCC. The district
court's conclusion that access to dark fiber was"necessary," but that
the denial of access was only an "inconvenience," rested on an errone-
ous application of a vacated standard. The record itself contains no
estimates of the added cost to MCI to provide service without Bell
Atlantic's dark fiber. Nor does the record contain any details about
the disadvantages resulting to MCI if it cannot use its own electronics.
We have only conclusory statements about the cost and service
advantages that use of the dark fiber would bring to MCI. This void
is understandable because the record was created under a standard
that required only some impairment, without regard to degree. On
remand, however, further evidence will be necessary.
For these reasons, we vacate the district court's judgment on the
dark fiber issue. The district court will remand this issue to the SCC.
The SCC should determine whether MCI, if denied access to Bell
Atlantic's dark fiber, will experience more than a de minimis increase
in costs or decrease in the quality of its service to customers.
V.
On cross-appeal Bell Atlantic claims that the SCC erred in requir-
ing it to provide certain directory publishing services to AT&T at
cost-based rates. Bell Atlantic argues that these services are not net-
work elements, which means that it can charge AT&T the tariff rate,
that is, the retail rate charged to Bell Atlantic customers. We reject
18
Bell Atlantic's argument and affirm the district court's judgment
upholding the SCC on this issue.
Bell Atlantic, as part of its local service, provides customers a free
listing in the white pages of the company's telephone directory. Other
directory publishing services (additional white pages listings and the
non-listing and non-publication of numbers) are provided at addi-
tional tariff rates. It is undisputed that a CLEC, such as AT&T, would
need to offer these features to be competitive in the local telephone
market. The question here is the price (tariff or cost-based) at which
the incumbent has to make these services available. If these directory
publishing services qualify as "network elements," they must be made
available at cost-based rates. See 47 U.S.C.§ 252(d)(1).
The Act says that the term "network element"includes features
. . . that are provided by means of [a] facility or equipment, including
subscriber numbers [and] databases . . . used in the . . . provision of
a telecommunications service." 47 U.S.C. § 153(29). This is a broad
definition. The FCC's implementing rules provide that network ele-
ments encompass the "features, functions, and capabilities of the
switch," which provide customers with "a telephone number,
directory listing, dial tone, signaling, and access to 911, operator ser-
vices and directory assistance." First Report and Order at ¶ 412
(emphasis added). The Supreme Court has recognized that the Act's
definition of "network element" is broad and that a network element
need not be "part of the physical facilities and equipment used to pro-
vide local phone service." Iowa Utils. Bd. , 525 U.S. at ___, 119 S. Ct.
at 734 (upholding FCC's determination that operator services and
directory assistance are network elements).
The one free listing in the white pages is indisputably a "directory
listing" and therefore a network element. It is a network element
because it is a feature used in providing (through the company's facil-
ities) telephone service. If the basic directory listing is a network ele-
ment, it stands to reason that the other directory services -- additional
listings and the non listing and non-publication of numbers -- must
also be network elements. As the SCC points out, additional white
pages listings are necessary to local telephone service because many
customers (spouses with different surnames, for example) require
additional listings. In addition, some customers prefer non-listed or
19
non-published numbers for reasons of privacy or security. A CLEC
that had to acquire these features at tariff rates before providing them
to customers would be at a competitive disadvantage in the local mar-
ket. The Act's definition and the FCC's interpretation of the term
"network element" are broad enough to include the additional direc-
tory services. The SCC and the district court were therefore correct
to count these services as network elements that Bell Atlantic must
provide to AT&T at cost-based prices. We affirm on this issue.
VI.
Bell Atlantic also argues on cross-appeal that the SCC erred in its
methodology for determining the wholesale prices Bell Atlantic may
charge AT&T and MCI for its retail telecommunications services.
The district court upheld the SCC's approach. We considered this
same issue in GTE South, Inc. v. Morrison, ___ F.3d at ___, and we
affirm on our reasoning there. Id. at ___.
VII.
To summarize, (1) we hold that AT&T and MCI may use the
switching functions of their RSMs collocated on Bell Atlantic's prop-
erty; the district court will remand this issue for the SCC to see that
the necessary instruments are amended; (2) we hold that Bell Atlantic
must use its best efforts to renegotiate its intellectual property licenses
on network hardware and software to allow use by MCI; the district
court will remand to the SCC for appropriate proceedings on this
issue; (3) we hold that dark fiber is a network element, and the district
court will remand to the SCC for further proceedings on whether MCI
will be impaired at more than a de minimis level if it does not have
access to Bell Atlantic's dark fiber; (4) we affirm the portion of the
district court's judgment upholding the SCC's determination that Bell
Atlantic must provide the identified directory publishing services to
AT&T at cost-based prices; and (5) we affirm the portion of the dis-
trict court's judgment that upholds the SCC's methodology for setting
wholesale prices for retail telecommunications services.
AFFIRMED in part, REVERSED in part,
and REMANDED
20