Verizon North v. Strand

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Verizon North et al. v. Strand et al. No. 02-2322
ELECTRONIC CITATION: 2004 FED App. 0123P (6th Cir.)
File Name: 04a0123p.06 _________________
COUNSEL
UNITED STATES COURT OF APPEALS
ARGUED: Michael A. Nickerson, OFFICE OF THE
FOR THE SIXTH CIRCUIT ATTORNEY GENERAL, Lansing, Michigan, for Appellants.
_________________ Gerald Masoudi, KIRKLAND & ELLIS, Washington, D.C.,
for Appellees. ON BRIEF: Michael A. Nickerson, OFFICE
VERIZON NORTH INC. et al., X OF THE ATTORNEY GENERAL, Lansing, Michigan, for
Plaintiffs-Appellees, - Appellants. Gerald Masoudi, KIRKLAND & ELLIS,
- Washington, D.C., Seth D. Gould, WEINNER & GOULD,
- No. 02-2322 Troy, Michigan, for Appellees.
v. -
> _________________
,
JOHN G. STRAND et al., - OPINION
Defendants-Appellants, - _________________
-
COAST TO COAST - KAREN NELSON MOORE, Circuit Judge. The Federal
TELECOMMUNICATIONS, INC., - Telecommunications Act of 1996 (the “1996 Act” or the
Defendant. - “Act”), Pub. L. No. 104-104, 110 Stat. 56 (1996) (codified in
- various sections of 47 U.S.C.) fundamentally restructured
N local telephone markets by ending the era of state-granted
Appeal from the United States District Court telecommunications monopolies and by encouraging
for the Eastern District of Michigan at Detroit. competition among providers of local telephone service.
No. 00-71442—George E. Woods, District Judge. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1996). To
reach this objective, the 1996 Act required incumbent
Argued: January 30, 2004 telecommunications carriers to share their networks with
competitors in various ways. Nestled within the Act’s local
Decided and Filed: April 28, 2004 competition provisions is a detailed scheme for the creation
of interconnection agreements that serve as the foundation for
Before: MARTIN and MOORE, Circuit Judges; WEBER, increased competition between Incumbent Local Exchange
District Judge.* Carriers (“incumbents”) and Competitive Local Exchange
Carriers (“competitors”). See 47 U.S.C. §§ 251, 252. The
Act’s regulatory scheme explicitly foresees but also clearly
circumscribes the participation of state regulatory entities in
the commencement and enforcement of interconnection
*
agreements. It is within this context that we consider the
The Hono rable Herman J. Weber, United States District Judge for extent to which a state regulatory commission can encourage
the Southern District of Ohio, sitting by designation.
1
No. 02-2322 Verizon North et al. v. Strand et al. 3 4 Verizon North et al. v. Strand et al. No. 02-2322
competitors to enter the market independent of the Act’s incumbent, under which Coast provided telephony and other
provisions governing interconnection agreements. services within the territory of Ameritech.
Defendants-Appellants John G. Strand, Robert B. Nelson, When a Verizon customer attempts to contact an ISP that
and David A. Svanda, in their official capacities as is a Coast customer, the Verizon customer uses a computer
Commissioners of the Michigan Public Service Commission modem to place a “local” call to an ISP with an NPA/NXX
(“MPSC” or “Commissioners”), appeal a judgment of the number assigned to Coast (NPA represents the area code,
United States District Court for the Eastern District of NXX represents the first three digits of a seven-digit local
Michigan vacating an MPSC order. The MPSC order, issued number). The call is first transferred to Ameritech’s facilities
in February 2000, forced the corporate precursors of before it is routed to Coast via Coast’s Pontiac Exchange
Plaintiffs-Appellees Verizon North Inc. and Verizon North switch. Coast eventually connects the call to the ISP. The
Systems (collectively, “Verizon”) to pay reciprocal presence of Ameritech as a carrier is necessary because Coast
compensation to Defendant Coast To Coast neither provides local exchange service within Verizon’s
Telecommunications, Inc. (“Coast”) for the costs of territory nor connects its facilities directly with those
terminating telecommunications traffic bound for Internet belonging to Verizon. ISP-bound calls are considered to be
Service Providers (“ISP”) served by Coast. Verizon “local,” and end-users are charged for a local call only by
contended in federal court that the MPSC’s order conflicted virtue of prior pronouncements of the Federal
with the negotiation and arbitration provisions of the Act and Communications Commission (“FCC”) on the issue. In
thus was preempted. The district court vacated the MPSC reality, ISP-bound calls often travel beyond the local
order, and we AFFIRM for the reasons explained below. exchange area, and the websites accessed via the ISP are often
located in different states or even different countries.
I. FACTUAL AND PROCEDURAL BACKGROUND
The chief dispute between Verizon and Coast revolves
A. FACTUAL HISTORY around the costs of terminating telecommunications traffic.
Local carriers often reciprocally compensate each other for
The dispute between Verizon, an incumbent, and Coast, a the transportation and termination of local telephone calls
competitor, concerns telecommunications traffic connecting according to rates established in their interconnection
end-user consumers to ISPs through equipment owned by agreements. There has been considerable debate over
Verizon and Coast. One of the purposes of the Act was to whether incumbents must broach the issue of reciprocal
create a mechanism that forced incumbents to provide compensation for the termination of ISP-bound “local calls”
interconnectivity with the facilities and equipment of when forming interconnection agreements, see infra pps. 14-
competitors. Otherwise, incumbents could halt efforts to 19, but in any event, Coast and Verizon had no
increase competition in any local market. To this end, interconnection agreement.
Congress provided a statutory mechanism to encourage the
development of interconnection agreements between Coast claimed that Verizon was responsible for the costs of
competitors and incumbents. Coast did not have any such terminating ISP-bound traffic originating from Verizon
agreement with Verizon. However, Coast did have an customers. Coast had filed a tariff with the MPSC pursuant
interconnection agreement with Ameritech, a different to which Coast established a rate of 1.5 cents per minute in
reciprocal compensation charges. Coast informed Verizon
No. 02-2322 Verizon North et al. v. Strand et al. 5 6 Verizon North et al. v. Strand et al. No. 02-2322
that based upon 7.9 million minutes of ISP-bound traffic Verizon brought an action against the Commissioners and
between March 9 and July 31, 1999, Verizon owed Coast Coast in the U.S. District Court for the Eastern District of
almost $120,000. Verizon refused to pay. Consequently, on Michigan on March 24, 2000, seeking declaratory and
August 18, 1999, Coast filed an application with the MPSC, injunctive relief.1 Both parties agreed to have the district
requesting that the MPSC resolve the dispute. Verizon court decide the case without any additional discovery, and
argued in response that the MPSC did not possess subject both parties contended that they were entitled to summary
matter jurisdiction over ISP-bound calls because they are judgment. The district court initially rejected Verizon’s
interstate in nature. Verizon also contended that it was not contention that ISP-bound traffic was exempted from the
required to pay reciprocal compensation for the termination Act’s reciprocal compensation requirements because the
of calls in the absence of an interconnection agreement FCC’s regulations reaching such a conclusion had been
negotiated or arbitrated pursuant to 47 U.S.C. §§ 251, 252. vacated by the D.C. Circuit. See WorldCom, Inc. v. FCC, 288
The MPSC denied Verizon’s motion to dismiss on September F.3d 429, 433 (D.C. Cir. 2002). The district court agreed
30, 1999, and held a full evidentiary hearing on November 4, with Verizon that the MPSC erred when it required Verizon
1999. to pay Coast in the absence of an interconnection agreement
between the parties. The court reasoned that using a state
The MPSC made its ruling on February 22, 2000. It tariff as a substitute for an interconnection agreement
exercised jurisdiction over the dispute even though Coast sidestepped the negotiation and arbitration provisions of the
relied “on its tariff, and not an interconnection agreement, as Act. See 47 U.S.C. § 252. Accordingly, the district court
the basis for imposing termination charges on [Verizon].” held, “Because the MPSC approved [Coast]’s tariff without
Joint Appendix (“J.A.”) at 11. In so holding, the MPSC the parties satisfying the clear dictates of § 252’s
relied on a past decision, Bierman v. CenturyTel of Mich., negotiation/arbitration process, the MPSC acted contrary to
Inc., Case No. U-11821 (Mich. Pub. Serv. Comm’n Apr. 12, the [Act].” J.A. at 32. The district court vacated the MPSC
1999), in which it ruled that interconnection between two decision and remanded the case, and the Commissioners
local exchange carriers can be accomplished by timely appealed.2
interconnection agreement or by tariff. The MPSC rejected
Verizon’s argument that ISP-bound traffic was subject to the On appeal, the Commissioners renew the argument they
exclusive jurisdiction of the federal government because it presented at the district court, i.e., that state enforcement of
was inherently interstate. In rejecting this contention, the
MPSC noted that even if the FCC did construe such traffic as
being interstate in nature, the FCC did not disrupt preexisting 1
state-commission decisions to the contrary. To further The original plaintiffs in this case were captioned as GTE North Inc.
and Contel of the South, Inc. However, by order of August 22, 200 0, the
support its holding that a state tariff can supplant an district court granted the plaintiffs’ unopposed motion to change the
interconnection agreement, the MPSC stated, “Although the captioning to reflect the renaming of the plaintiffs as Verizon North Inc.
FCC may have assumed that an interconnection agreement and Verizon No rth System s, respe ctively, in the w ake o f a corp orate
will be the typical setting in which reciprocal compensation merger.
disputes over ISP traffic are resolved, it did not dictate that a 2
state act only in that context.” J.A. at 12. The MPSC Defendant Coast is not a party to this ap peal. At oral argum ent,
concluded that Verizon was responsible for the termination neither Verizon nor the Commissioners could explain Coast’s absence.
Coast is still opera ting, although it was purchased by Allegiance Telecom,
charges. Inc. in September 2001.
No. 02-2322 Verizon North et al. v. Strand et al. 7 8 Verizon North et al. v. Strand et al. No. 02-2322
Coast’s tariff is not preempted by the Act. They aver that F.3d at 433. Summary judgment is appropriate when “there
interconnection agreements negotiated pursuant to § 252 are is no genuine issue as to any material fact and [] the moving
not the exclusive manner by which incumbents can be made party is entitled to a judgment as matter of law.” Fed. R. Civ.
responsible for reciprocal compensation. Verizon responds P. 56(c). The moving party has the burden of showing that
by asserting that the MPSC is collaterally estopped from there is an absence of evidence “to establish the existence of
challenging the district court’s ruling because of the MPSC’s an element [that is] essential to” the nonmoving party’s
defeat in Verizon North, Inc. v. Strand, 309 F.3d 935 (6th Cir. action. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
2002). Verizon also alternatively contends that the district (1986). Verizon and the MPSC do not dispute any of the
court was correct in its holding that the MPSC cannot order facts in the state administrative record that the district court
a local exchange carrier to pay termination costs under a state adopted. Therefore, we must simply decide whether the
tariff in the absence of an interconnection agreement. MPSC order was violative of the Act and thus was
preempted. See United States v. Cinemark USA, Inc., 348
B. JURISDICTION F.3d 569, 575 (6th Cir. 2003).
Verizon originally sought injunctive and declaratory relief The de novo summary judgment review must also “employ
against the enforcement of the MPSC order. Based upon the the proper standard or standards of review for review of the
Supreme Court’s ruling in Verizon Md. Inc. v. Pub. Serv. underlying state administrative ruling.” MFS Intelenet, 339
Comm’n of Md., 535 U.S. 635, 643-44 (2002), the district F.3d at 433. We “first review de novo whether a state public
court had subject matter jurisdiction pursuant to 28 U.S.C. service commission’s orders comply with the requirements of
§ 1331. In Verizon Md., the Court explained that the Eleventh the Telecommunications Act.” Id. We hold that the MPSC’s
Amendment does not bar a suit against the commissioners of order does not comply with the requirements of the Act, and
a state regulatory body under the doctrine of Ex Parte Young, thus we do not reach the point of reviewing the state
209 U.S. 123 (1908), when the suit is brought against the commission’s interpretation of Coast’s tariff “under the more
individual commissioners in their official capacities and the deferential arbitrary-and-capricious standard of review
remedy sought is declaratory and/or injunctive relief. Verizon usually accorded state administrative bodies’ assessments of
Md., 535 U.S. at 648; see also Mich. Bell Tel. Co. v. MFS state law principles.” Id.
Intelenet of Mich., Inc., 339 F.3d 428, 432-33 (6th Cir. 2003)
(applying the holding in Verizon Md.). We have proper B. Background of the Statutory Scheme
jurisdiction over the Commissioners’ appeal of a final
judgment of the district court, pursuant to 28 U.S.C. § 1291. A brief foray into the mechanics of the Act’s
interconnection provisions is helpful. To further the goal of
II. ANALYSIS deregulating the local telephony market, the Act places
certain duties and obligations on various classes of
A. Standard of Review telecommunication providers. All telecommunication
carriers, regardless of incumbent status, have “the duty [] to
The standard of review is multi-tiered because the district interconnect directly or indirectly with the facilities and
court granted summary judgment in a review of a decision of equipment of other telecommunications carriers.” 47 U.S.C.
a state administrative body. We review de novo a district § 251(a)(1). The Act creates obligations for local exchange
court order granting summary judgment. MFS Intelenet, 339 carriers generally, including a duty not to prohibit the resale
No. 02-2322 Verizon North et al. v. Strand et al. 9 10 Verizon North et al. v. Strand et al. No. 02-2322
of their telecommunications services, 47 U.S.C. § 251(b)(1), reached or if no negotiations commence within 135 days after
a duty to provide number portability, id. at § 251(b)(2), and the competitor makes its initial request to enter into voluntary
most pertinent to this appeal, a “duty to establish reciprocal negotiations, the competitor can petition the state commission
compensation arrangements for the transport and termination to arbitrate “any open issues” so long as the petition is made
of telecommunications” when competitors interconnect with within 160 days of the initial request. Id. at § 252(b)(1). The
the incumbent’s network. Id. at § 251(b)(5); see also 47 Act provides detailed instructions and standards for the
C.F.R. § 51.701(a) (“The provisions of this subpart apply to arbitration process and the establishment of rates, which the
reciprocal compensation for transport and termination of parties and the state commission must follow and implement
telecommunications traffic between [local exchange carriers] during the compulsory arbitration process. Id. at § 252(b)(2),
and other telecommunications carriers.”). The Act also (c)-(d).
prescribes a more specific mandate for incumbents by
requiring them to share their networks with competitors All interconnection agreements “adopted by negotiation or
through three mechanisms: 1) permit competitors to purchase arbitration shall be submitted for approval to the State
local services at wholesale rates for resale to end users, see 47 commission.” Id. at § 252(e)(1). The state commission can
U.S.C. § 251(c)(4); 2) permit competitors to lease unbundled reject an agreement only under limited circumstances, such as
elements of the incumbent’s network, see id. at § 251(c)(3); when the agreement discriminates against another
and 3) permit competitors to interconnect their facilities to the telecommunications carrier not a party to the agreement, id.
incumbent’s network, see id. at § 251(c)(2). See U.S. West at § 252(e)(2)(A)(i), or when the agreement “is not consistent
Communications, Inc. v. Sprint Communications Co., 275 with the public interest, convenience, and necessity.” Id. at
F.3d 1241, 1244 (10th Cir. 2002) (describing the Act’s § 252(e)(2)(A)(ii). If the state commission fails to carry out
structure). As part of these additional obligations for its responsibilities under § 252, the FCC can preempt the state
incumbents, the Act imposes a “duty to negotiate in good commission’s jurisdiction and assume responsibility for
faith in accordance with section 252 of this title the particular carrying out the requirements of § 252. Id. at § 252(e)(5).
terms and conditions of agreements to fulfill the duties State courts do not have jurisdiction “to review the action of
described in [section 251(b)(1)-(5) and (c)].” 47 U.S.C. a State commission in approving or rejecting an agreement”
§ 251(c)(1). under § 252, id. at § 252(e)(4), as all parties aggrieved by a
state commission determination regarding an interconnection
Section 252 describes the procedures for the negotiation, agreement must bring an action in federal district court. Id.
arbitration, and approval of interconnection agreements. It at § 252(e)(6).
establishes an intricate regulatory scheme with various
burdens and responsibilities placed upon incumbents, The state’s role in assisting the process of interconnection
competitors, and state regulatory commissions. After a agreement formation is clearly bounded by the plain language
competitor requests interconnection from an incumbent, “an of § 252 of the Act. However, the Act does not completely
[incumbent] may negotiate and enter into a binding agreement eliminate the role of the state commissions in regulating
with the requesting telecommunications carrier or carriers interconnection between LECs. Section 251(d)(3) provides,
without regard to the standards set forth in [§ 251(b)-(c)].”
47 U.S.C. § 252(a)(1). During the course of these voluntary In prescribing and enforcing regulations to implement the
negotiations, any party may request the state commission to requirements of this section, the [FCC] shall not preclude
mediate. Id. at § 252(a)(2). However, if no agreement is
No. 02-2322 Verizon North et al. v. Strand et al. 11 12 Verizon North et al. v. Strand et al. No. 02-2322
the enforcement of any regulation, order, or policy of a action, (3) the resolution of the issue was necessary and
State commission that — essential to a judgment on the merits in the prior
(A) establishes access and interconnection obligations litigation, (4) the party to be estopped was a party to the
of local exchange carriers; prior litigation (or in privity with such a party), and (5)
(B) is consistent with the requirements of this section; the party to be estopped had a full and fair opportunity to
and litigate the issue.
(C) does not substantially prevent implementation of
the requirements of this section and the purposes Hammer v. INS, 195 F.3d 836, 840 (6th Cir. 1999). Collateral
of this part. estoppel is not proper here because the issue presented on
appeal is not “identical to that resolved in the earlier
Id. at § 251(d)(3). Thus, the MPSC’s order may stand if it is litigation.” Id. In Verizon North, we determined that a state
consistent with the requirements of § 252, but to the extent commission order requiring Verizon to file a tariff in lieu of
the order is inconsistent with the Act or prevents its a negotiated or arbitrated interconnection agreement was
implementation, the order is preempted. preempted by the Act. Dissimilarly, we analyze whether a
state commission order requiring Verizon to pay termination
C. Collateral Estoppel costs based upon a tariff unilaterally filed by Coast is
preempted by the Act. The issues are undoubtedly close, but
As a threshold issue, Verizon contends that the they are not identical because they involve separate MPSC
Commissioners are collaterally estopped from challenging the orders that differ in substance. Collateral estoppel does not
district court’s ruling because of this court’s holding in apply, but, as we explain below, the reasoning of Verizon
Verizon North, Inc. v. Strand, 309 F.3d 935 (6th Cir. 2002). North establishes a principle that is equally, if not more
The MPSC had issued an order that required Verizon to file certainly, applicable here.
a general tariff offering its network elements and services on
fixed terms to all potential competitors. Such a fixed-term D. The MPSC’s Order Is Inconsistent With the 1996 Act
tariff allowed competitors to purchase services “directly off and Is Thus Preempted
of the tariff menu” from Verizon without first negotiating (or
even requesting negotiations) for an interconnection We affirm the district court’s judgment vacating the MPSC
agreement. Id. at 939. We held that the MPSC’s tariff order because the MPSC order is inconsistent with the
requirement was preempted because it was inconsistent with negotiation and arbitration provisions of § 252 and thus is
the negotiation and arbitration system created by Congress. preempted by the Act. As described above, our holding in
Id. at 940-41. Verizon North is closely analogous and carries much
persuasive force. In that case, we agreed with the district
While the issues presented in Verizon North are analogous, court, which had stated,
the MPSC is not collaterally estopped from bringing this
appeal by our prior ruling. Collateral estoppel applies, By requiring Verizon to file public tariffs offering its
network elements at wholesale services for sale to any
[W]hen (1) the issue in the subsequent litigation is party, the MPSC's Order improperly permits an entrant
identical to that resolved in the earlier litigation, (2) the to purchase Verizon’s network elements and finished
issue was actually litigated and decided in the prior services from a set menu without ever entering into the
No. 02-2322 Verizon North et al. v. Strand et al. 13 14 Verizon North et al. v. Strand et al. No. 02-2322
process to negotiate and arbitrate an interconnection rejected the MPSC’s analogy because the “detailed procedural
agreement. It thus evades the exclusive process required scheme — including negotiation, arbitration, state
by the 1996 Act, and effectively eliminates any incentive commission approval, FCC oversight, and federal judicial
to engage in private negotiation, which is the centerpiece review — set out in § 252 is central to the Act in a way that
of the Act. the bundling requirement is not.” Verizon North, 309 F.3d at
941; see also Wisconsin Bell, Inc. v. Bie, 340 F.3d 441, 444
Verizon North, 309 F.3d at 940 (quoting Verizon North, Inc. (7th Cir. 2003) (rejecting an identical tariff on similar grounds
v. Strand, 140 F. Supp. 2d 803, 810 (W.D. Mich. 2000)). We and relying on our decision in Verizon North).
noted that Congress “clearly stated its intent to supersede
state laws that are inconsistent with the provisions of the Our previous decision guides our outcome here. This
[Act].” Id. We accordingly held that the MPSC order MPSC order required Verizon to pay termination costs to
Coast for ISP-bound calls on the basis of a state tariff filed by
bypasse[d] and ignore[d] the detailed process for Coast. There was no interconnection agreement, no request
interconnection set out by Congress in the [Act], under for negotiations by Coast, and no state-administered
which competing telecommunications providers can gain arbitration between Verizon and Coast in the event of
access to incumbents’ services and network elements by commenced, but stalled negotiations. Similar to the order in
entering into private negotiation and arbitration aimed at Verizon North, the MPSC’s order here permits the MPSC to
creating interconnection agreements that are then subject bypass the federal statutory process for reaching an
to state commission approval, FCC oversight, and federal interconnection agreement and to create a competitive
judicial review. This is “inconsistent with the provisions relationship via the filing of a unilateral tariff. Instead of
of [the Act],” and therefore preempted. achieving a reciprocal compensation arrangement via the
negotiation and arbitration mechanism provided in the Act,
Id. at 941. the MPSC permitted the institution of an interconnection
agreement by fiat.3 Such a result is inconsistent with the
In Verizon North, the MPSC contended that § 252 presents elaborate statutory framework of § 252.
local exchange carriers with one but not the sole option for
achieving interconnection. Under the MPSC’s logic, the Act In one sense, we are presented with an easier case than
did not expressly provide that the negotiation and arbitration Verizon North because this order is even more inconsistent
mechanisms were the only methods for gaining with and more deleterious to the Act. The MPSC order in
interconnection, and therefore other methods of achieving Verizon North, and the state order at issue in the Seventh
interconnection, such as the enforcement of state tariffs, could Circuit Bie decision, required an incumbent to file a tariff
be used to create interconnection. Id. The MPSC analogized setting forth the rates for competitor interconnection,
to the Supreme Court’s holding in Verizon Communications, including reciprocal compensation rates for termination of
Inc. v. FCC, 535 U.S. 467 (2002), when the Court “refused to
read the Act’s silence on any obligation or lack thereof on the
part of incumbents to bundle elements as an affirmative
3
statement that the imposition of any such obligation would be Additiona lly, future cha llenges to the spe cific terms of the Coast
inconsistent with the Act.” Verizon North, 309 F.3d at 941 tariff would have to be settled in state court, short-circuiting the statutory
(citing Verizon Communications, 535 U.S. at 534). We grant of federal jurisdiction over negotiated/arbitrated interconnection
agreements. 47 U.S.C. § 252(e)(4), (6).
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calls. Competitors could then accept the terms if they wanted virtues of negotiated competition ensconced in § 252, and it
to interconnect, reject them if they disliked the rates, or eliminates all incentive to adhere to the federal statutory
employ the published rates as a starting point in negotiations. process. Under the MPSC’s order, competitors in the future
As stated by the Seventh Circuit, such an order disrupts the would have the incentive to file a state tariff rather than
statutorily mandated interconnection process; “It places a request a reciprocal compensation agreement under
thumb on the negotiating scales by requiring one of the §§ 251(b)(5) and 252.
parties to the negotiation, the local phone company, but not
the other, the would-be entrant, to state its reservation price, One of the primary purposes of the Act is to increase
so that bargaining begins from there.” Bie, 340 F.3d at 444.4 competition in the telephony marketplace. The Act is labeled
as “An Act To promote competition and reduce regulation in
If the orders in Verizon North and Bie placed a thumb on order to secure lower prices and higher quality services for
the negotiating scales, tipping them in favor of the American telecommunications consumers and encourage the
competitors, then this MPSC order was a fist slamming down rapid deployment of new telecommunications technologies.”
on the scales. The order does not just slightly unbalance the Pub. L. No. 104-104, 110 Stat. 56, 56 (1996) (emphasis
negotiations by forcing the incumbent to show its hand. It added). Part of this statutory imperative is manifested in the
instead completely forestalls the need for negotiations. § 252 process, which encourages private and voluntary
Rather than just forcing the incumbent to reveal the rates it negotiation, backed by the threat of state-commission
wants to charge, which clearly disrupts the negotiations, this intervention, to achieve interconnection. See H.R. Conf. Rep.
MPSC order completely obviates the need for negotiations by No. 104-458, at 124, 1996 U.S.C.C.A.N. at 135. The
allowing the competitor to establish its own rate without any MPSC’s order frustrates Congress’s intent by eviscerating its
interaction between the incumbent and the competitor. chosen mechanism for increasing competition in the local
Section 252 requires the competitor to initiate the bidding. telephony market and by upsetting the intricate balance
The Verizon North MPSC order was faulty because it forced between competitors and incumbents.
the incumbent to commence the negotiation process. From
the perspective of maintaining the viability of the § 252 The MPSC unavailingly offers several counterarguments.
interconnection agreement process, this MPSC order is much First, the MPSC suggests that two vacated FCC orders, which
more damaging — it completely removes the incumbent from attempted to resolve the question of whether ISP-bound calls
the negotiation process. This MPSC order eliminates the must be covered by interconnection agreements, confirm the
MPSC’s authority to regulate reciprocal compensation for
ISP-bound call termination in a manner not discussed by
4
§ 252. The MPSC’s contention fails because the FCC orders
The Seventh Circuit opinion continued, it cites are not only inapplicable but are also inoperable, as
And it allows the other party to challenge the reservation price, they have been struck down twice by the D.C. Circuit. See In
and try to get it lowered, by challenging the tariff before the state
regulatory commission, with further ap peal possib le to a state
re Implementation of the Local Competition Provisions in the
court — even though Congress, in setting up the negotiation Telecommunications Act of 1996: Inter-Carrier
procedure, explicitly excluded the state courts from getting Compensation for ISP-Bound Traffic, Nos. 96-98/99-68, 14
involved in it. At the very least, the tariff requirement F.C.C.R. 3,689 (Feb. 26, 1999) (“ISP Order”), vacated and
complicates the contractual route by authorizing a parallel remanded by Bell Atl. Tel. Co. v. FCC, 206 F.3d 1 (D.C. Cir.
proceeding.
Wis. B ell, Inc. v. Bie, 340 F.3d 44 1, 444 (7th Cir. 2003).
2000); In re Implementation of the Local Competition
No. 02-2322 Verizon North et al. v. Strand et al. 17 18 Verizon North et al. v. Strand et al. No. 02-2322
Provisions in the Telecommunications Act of 1996: the FCC orders confirm the importance and strength of the
Intercarrier Compensation for ISP-Bound Traffic, Nos. 96- § 252 process, because the ISP Order refrained from upsetting
98/99-68, 16 F.C.C.R. 9,151 (Apr. 27, 2001) (“Remand existing interconnection agreements that had been arrived at
Order), vacated and remanded by WorldCom, Inc. v. FCC, through the negotiation process.
288 F.3d 429, 434 (D.C. Cir. 2002). Our opinion in Michigan
Bell Telephone Co. v. MFS Intelenet of Michigan, Inc., 339 As a second counterargument, the Commissioners point to
F.3d 428, 435-36 (6th Cir. 2003), describes the tangled several provisions of the Michigan Telecommunications Act
history of the FCC’s decisionmaking in this area, and we see (“MTA”) and prior rulings of the MPSC to show that “[t]he
no need to replicate it here. absence of an interconnection agreement between Verizon
and [Coast] does not preclude an MPSC order requiring the
These now-vacated FCC orders are ultimately irrelevant to payment of reciprocal compensation based upon the [Coast]
this action. The FCC’s ISP Order assured the lasting validity tariff . . . .” Strand Br. at 16. The MTA provides for the
of state-commission interpretations of preexisting reciprocal establishment of interconnection agreements, the rates to be
compensation arrangements in light of the FCC’s decision to paid for interconnection, and oversight by the commission.
classify ISP-bound traffic as exempt from § 251(b)(5). Under See Mich. Comp. Laws §§ 484.2203, 484.2303(2), 484.2310,
the ISP Order, if two local exchange carriers had agreed to 484.2359.6 The MPSC, for its part, has ruled previously “that
reciprocal compensation in an interconnection agreement, but interconnection can be accomplished by agreement or tariff.”
did not explicitly discuss the issue of ISP-bound traffic, a Bierman v. CenturyTel of Mich., Inc., No. U-11821, at 11
state commission’s judgment that the agreement included (Mich. Pub. Serv. Comm’n Apr. 12, 1999); see also In re
ISP-bound traffic would stand. Because there was no GTE North, Inc., No. U-11580, at 5 (Mich. Pub. Serv.
interconnection agreement between Coast and Verizon for the Comm’n Jul. 13, 1998). Yet, no matter the durability or the
MPSC to interpret, the ISP Order has no impact on this consistency of the MTA’s provisions and the MPSC’s prior
appeal. The FCC’s Remand Order provided that if Verizon rulings, this MPSC order cannot stand if it is inconsistent with
were hypothetically negotiating an interconnection agreement or prevents the implementation of the interconnection
with Coast for the future, Verizon would be under no duty to
include a provision concerning reciprocal compensation for
the termination of ISP-bound traffic. Again, because no interconnection agreements. In Michigan B ell Telephone Co. v. MFS
interconnection agreement existed between Coast and Intelenet of Michigan, Inc., 339 F.3d 428 (6th Cir. 2003), we upheld an
Verizon, the Remand Order is not relevant. Both FCC orders MPSC order that reciprocal compensation was due to a competitor for its
presume the existence of an interconnection agreement with costs of terminating ISP-bound traffic based upon the FC C’s O rders. W e
reciprocal compensation provisions, and neither FCC order held that there was no reason to interfere with a state com mission ’s
determination that reciprocal compensation is appropriate under the terms
explicitly or even implicitly suggests that state commissions of a specific contract. Id. at 435-36. The MFS Intelenet holding
can employ tariffs to sidestep the negotiation and arbitration presumed the existence o f an interconne ction agreem ent. Id.; see also
process under § 252.5 Far from giving an alternative to § 252, Mich. Bell Tel. Co. v. MCIMetro Acce ss Transm ission Servs., Inc., 323
F.3d 348 (6th Cir. 2003 ) (upholding the M PSC’s interp retation of a
preexisting interconnection agreement).
5 6
Our m ost recent holdings on the impact of the FCC ’s now-vacated The MT A was to be repealed effective January 1, 2001, but it was
orders bolster the conc lusion tha t the FCC orders only refrained from amended by 2000 P.A. 295 , which altered the rep eal date to December 31,
preempting state co mm issions’ inter preta tions o f pree xisting 2005.
No. 02-2322 Verizon North et al. v. Strand et al. 19
agreement provisions of the 1996 Act. See 47 U.S.C.
§§ 251(d)(3), 261(b)-(c). As previously explained, the
MPSC’s order enforcing Coast’s tariff is inconsistent with the
Act and thus is preempted despite any state statutes or
regulatory findings to the contrary.
Third, the Commissioners direct our attention to several
district court cases as support for their views. In particular,
the Commissioners note an opinion of the United States
District Court for the Western District of Michigan that
allegedly explains how Verizon North is distinguishable from
this case. See Mich. Bell Tel. Co. v. Baraga Tel. Co., No.
2:00-CV-136 (W.D. Mich. Aug. 8, 2001). No matter how one
could interpret the holding in Baraga, to the extent that the
district court opinion there reaches a contrary conclusion to
our ruling in Verizon North, it is overruled.
III. CONCLUSION
The MPSC order is inconsistent with the negotiation and
arbitration provisions of the Act because it permits the state
commission to bypass the procedures established by
Congress. In doing so, the order distorts the negotiation
mechanism that Congress believed would best achieve the
intended goal of increased competition in the local telephony
market. Accordingly, the MPSC order is preempted.
Therefore, we AFFIRM the district court’s judgment
vacating the MPSC order.