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). No. 02-2322 Verizon North et al. v. Strand et al. 15 16 Verizon North et al. v. Strand et al. No. 02-2322
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.