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ip: 8th Circuit Court of Appeals Decision on Interconnection
From: David Farber <farber () cis upenn edu>
Date: Sun, 20 Jul 1997 11:23:41 -0400
From: John P. Harris <johnhsa () iamerica net> Subject: 8th Circuit Court of Appeals Decision on Interconnection Order Date: Sat, 19 Jul 1997 14:46:43 -0700 Major Portions of the FCC's Interconnection Order have been Vacated Summary In a decision rendered Friday afternoon, the Eighth Circuit Court of Appeals in St. Louis issued a decision in the consolidated appeal of the FCC's Interconnection order (CC 96-98). Generally, the court found that the FCC exceeded its jurisdiction in promulgating pricing rules regarding local telephone service. As a result, the FCC's rules for establishing resale discounts, and the pricing of unbundled network elements are voided. The court also vacated the FCC's "Pick and Choose" rule which permitted competing carriers to pick individual provisions from an incumbent LEC's contracts with others, without being bound to the entire contract. Furthermore, it is not necessary to obtain state commission approval of agreements which predate the passage of the Act (2/8/96), unless the state rules require such approval. Even then terms, conditions and pricing in such pre-Act agreements may not be available to competitive local carriers unless the state commission explicitly states that they are. Finally, the court's decision clarifies that state commissions have the exclusive authority to determine rural exemptions from interconnections obligations within the framework of the Telecommunications Act. The FCC's standards for making determinations regarding exemptions are of no effect. Jurisdiction The court states that the "FCC exceeded its jurisdiction in promulgating the pricing rules regarding local telephone service". The FCC and its supporters did not contest the fact that the state commissions had final responsibility to set prices under the Act. However, they claimed that section 251 (d)(1) gave the FCC parallel authority to establish parameters which the State pricing policies must follow. The court decided that pricing for local service (and therefore, we believe, elements thereof) is the exclusive domain of the state commissions. State commission pricing rules must conform to section 251 of the Act but are not limited to the FCC's pricing rules. In order to win its position of dual authority with the states, the FCC needed to demonstrate either that the Act specifically granted them that authority, or that they could preempt state authority under the "Impossibility Exception". The court noted that in the Cable Act, Congress explicitly granted the FCC jurisdiction over industry rates and requires state commissions to follow the FCC's rules. The absence of such explicit language in the Telecommunications Act convinced the court that it was not Congress's intent to grant the FCC any such authority. The impossibility exception is a concept evolved out of prior case law. It applies when it is impossible to separate the Interstate and Intrastate components of FCC regulation, or if state regulation negates the FCC's lawful regulation of Interstate communication. On surface this argument is somewhat compelling since a loop cannot be physically split into parts which provide Interstate vs. Intrastate services. However, the court found that the act clearly granted authority to set rates for interconnection, unbundled access, resale, and transport and termination of traffic to state commissions. Further, access is merely a service provided by a LEC while unbundling, resale etc. provides a means of "local" competition. Since the FCC failed to demonstrate either case, the court determined state commissions have exclusive authority over pricing policies for these services. It should be noted that the court did not review the relative merits of the FCC's pricing system. It is possible that a state commission could adopt the FCC's pricing method with little or no changes but they are not required to adopt that method. "Pick and Choose Rule" struck down The court's decision also vacates the rule requiring LECs to make the individual terms of agreements with other carriers available to requesting carriers. That is to say, prior agreements must be viewed in their entirety and not as a collection of terms from which a requesting carrier is free to "pick and choose". The court determined that the FCC rules would discourage the give and take essential to negotiations which was the clear preference of Congress. The "pick and choose" rules do remain in effect for CMRS providers only. Part 51.303 which subjects interconnection agreements made prior to the Act to the "Pick and Choose" provision is also vacated by the court's decision. This ruling by the court could have a substantive impact on the status of EAS, Wide Area Calling Plan, and RCC interconnection agreements. It could make the revision of these agreements unnecessary. Rural Exemptions The ruling reserves to State Commissions the power to decide standards required for determining rural exemption from interconnection. Although it is likely that some states will adopt rules similar to those promulgated by the FCC. Pricing Standards The LECs had challenged the FCC's rules for pricing unbundled network elements on two fronts: As a violation of the terms of the Act and As an unlawful taking of property. Violations of terms of the Act Operational Support Systems The LECs lost their argument that Operations Support Systems (OSS) do not constitute a network element as defined by the Act. The court determined that "network element" also includes operator services, directory assistance, and vertical features such as call waiting. Definition of technically feasible The court agreed with the FCC's interpretation of Act sections 251(c)(2 - 3) regarding interconnection requirements at technically feasible points. However, while economics can not be taken into consideration in the determination of a "technically feasible point", the economics can be considered in establishing the cost of that interconnection and the subsequent pricing of that service. Superior Quality Rules The court ruled that the FCC misinterpreted the phrase "interconn- ection at a level of quality at least equal to that provided to the LEC itself". The Commission had interpreted, in Part 51.305 (a)4, that an incumbent LEC could be required to provide a superior quality of service if so requested by the competing carrier. Unconstitutional taking of property Since the court has vacated the portions of the order dealing with pricing of unbundled elements, the taking of property issue is one that can't be quantified until prices are reset. It is the opinion of the court that if a fair price is paid for the unbundled element, there is no unconstitutional taking of property. Summary In summary, the court declined to vacate the entire interconnection order but did reject FCC rules related to pricing, the applicability of other agreements to current interconnection, and the FCC standards for determination of exemption from certain requirements of section 251 of the Act. Complete text of the decision available at http://ls.wustl.edu/8th.cir
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