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Qwest Corporation v. Minnesota Public Utilities Commission; David Boyd

July 12, 2012


Appeal from the United States District Court for the District of Minnesota.

The opinion of the court was delivered by: Riley, Chief Judge.

Submitted: February 15, 2012

Before RILEY, Chief Judge, WOLLMAN and SMITH, Circuit Judges.

The Minnesota Public Utilities Commission (commission) entered an order requiring Qwest Corporation, a successor Bell operating company (BOC), to submit*fn1 for review and approval a price list and supporting rationale for certain telecommunication network facilities 47 U.S.C. § 271 requires Qwest to provide to its Minnesota competitors. Qwest sought judicial review and declaratory relief in the district court, arguing the commission's order was preempted by the Telecommunications Act of 1996 (Act), Pub. L. No. 104--104, 110 Stat. 56 (codified as amended in scattered sections of Title 47 of the United States Code). The district court concluded federal law and regulations did not preempt the commission's order. We disagree and reverse.


Qwest provides intrastate telecommunication services in Minnesota. Historically, such local phone service was dominated by local service providers known as incumbent local exchange carriers (ILECs) with an exclusive franchise. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999); see also 47 U.S.C. § 251(h) (defining incumbent local exchange carrier). Under the Communications Act of 1934, 47 U.S.C. § 151 et seq., intrastate services were generally regulated by state commissions while interstate services were regulated by the Federal Communications Commission (FCC). See 47 U.S.C. § 152(b).

That structure changed dramatically in 1996. The Act "fundamentally restructure[d] local telephone markets," taking "the regulation of local telecommunications competition away from the States" and imposing on ILECs "a host of duties intended to facilitate market entry" by competitors, and end "the longstanding regime of state-sanctioned monopolies." AT&T Corp., 525 U.S. at 371, 378 n.6. To facilitate competition in local markets, Congress imposed two distinct sets of statutory requirements designed to remove barriers to market entry. See 47 U.S.C. §§ 251 and 271; Sw. Bell Tel., L.P. v. Mo. Pub. Serv. Comm'n, 530 F.3d 676, 680 (8th Cir. 2008).

Section 251(c)(3) of the Act requires ILECs like Qwest to share their network by leasing certain property-unbundled network elements (UNEs) -to their*fn2 competitors, known as competitive local exchange carriers (CLECs), on "just, reasonable, and nondiscriminatory" terms. 47 U.S.C. § 251(c)(3); see also Sw. Bell, 530 F.3d at 680. "This makes it easier for a competitor to create its own network without having to build every element from scratch." Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. ___, ___, 131 S. Ct. 2254, 2258 (2011). The FCC determines which network elements ILECs must make available for lease by considering whether access to the elements is "necessary" and whether failing to provide access "would impair the ability of the [CLEC] to provide the services that it seeks to offer." 47 U.S.C. § 251(d)(2).

If the carriers are unable to agree on a rate for those § 251 network elements, they can petition the state commission to arbitrate unresolved issues under 47 U.S.C. § 252(b). The state commissions use the "total element long-run incremental cost" (TELRIC) methodology adopted by the FCC to set cost-based regulated rates under § 251. See 47 C.F.R. § 51.505; see also Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 495-97, 522-23, 539 (2002) (explaining the TELRIC methodology and validating its use for setting rates under the Act).

Section 271 of the Act provides a means for BOCs like Qwest, who could not provide long distance to their local customers under the consent decree, to petition the FCC for permission to provide long-distance services under certain access and interconnection requirements contained in a "competitive checklist" in § 271(c)(2)(B). See 47 U.S.C. § 271. If Qwest wants to provide long-distance services, it must comply with § 251 and make certain unbundled network facilities that are not covered by § 251 available to competitors. See id.

In contrast to the dual federal and state regime created in § 251, "the plain language of § 271 makes clear states have no authority to interpret or enforce the obligations of § 271." Sw. Bell, 530 F.3d at 681-82. Unlike § 251, which creates a role for the states in regulating rates, § 271 gives states only a limited "advisory role at the application stage of the § 271 process." Id. at 682-83. "[T]he authority to impose substantive requirements [is] exclusively the prerogative of the FCC." Id. at 683.

In 1999, the FCC determined "it would be counterproductive" to require a BOC to provide § 271 elements at "forward-looking prices. Rather, the market price should prevail as opposed to a regulated rate." In re Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, 15 FCC Rcd. 3696, 3906 ¶ 473 (1999) (UNE Remand Order). In 2003, the FCC stated that, unlike § 251 UNEs, network elements unbundled under § 271 were not subject to TELRIC rates, but instead were subject to the "just, reasonable and not unreasonably discriminatory basis" standard set forth in 47 U.S.C. §§ 201 and 202. See In the Matter of Unbundled Access to Network Elements Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 18 FCC Rcd. 16978, 17386-89

¶¶ 656-64 (2003) (Triennial Review Order or TRO), vacated in part and remanded, U.S. Telecom Ass'n v. FCC, 359 F.3d 554, 594 (D.C. Cir. 2004). "In practical terms, that means BOCs like Qwest can charge higher rates for elements unbundled under Section 271 than they could if the cost-based approach to rates for elements unbundled under Section 251 applied." Qwest Corp. v. Ariz. Corp. Comm'n, 567 F.3d 1109, 1115 (9th Cir. 2009).

In Minnesota, Qwest provides to CLECs certain network elements referred to as high-capacity transport (circuits that carry signals from one router to another) and high-capacity loops (a wire from the customer to the phone company's router) at rates determined through tariffs on file with (1) the commission for intrastate service and (2) the FCC for interstate service.

In 2005, after several unsuccessful attempts to develop unbundling rules the courts would accept, the FCC issued the Triennial Review Remand Order (TRRO) in which the FCC identified the UNEs that ILECs like Qwest are required to lease to CLECs under § 251(c)(3). See In re Unbundled Access to Network Elements Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 20 FCC Rcd. 2533 (2005), aff'd, Covad Commc'ns Co. v. FCC, 450 F.3d 528 (D.C. Cir. 2006). In the TRRO, the FCC stated high-capacity transport and high-capacity loops were no longer subject to unbundling requirements in competitive markets. Id. at 2575-641.

One effect of the TRRO was that Qwest no longer had to provide those network elements under § 251(c)(3) in twenty-two major Minnesota markets. Qwest continues to provide them as required by § 271, but at rates as much as three times higher than those it charges interstate customers for the same facilities.

On January 9, 2006, the commission issued a show-cause order directing Qwest to show why the commission should not open contested-case proceedings to investigate whether Qwest's wholesale intrastate rates for § 271 network elements were "just and reasonable." Qwest responded the commission had no authority over the intrastate rates charged for § 271 elements because the Act gave the FCC exclusive jurisdiction over such rates and preempted the commission's authority.

Finding concurrent state and federal jurisdiction, the commission referred the question to the Office of Administrative Hearings for contested-case proceedings before two administrative law judges (ALJs). Following a two-day hearing beginning April 9, 2008, the ALJs found (1) the commission had authority to regulate intrastate rates for § 271 elements under Minnesota law, and (2) Qwest's rates were unjust and unreasonable. The ALJs recommended the commission "(1) require Qwest to file a wholesale tariff or price list for network elements that it is obligated to provide to local service competitors or that it voluntarily provides; [and] (2) cap the prices for those elements at Qwest's interstate access rates."

On April 23, 2010, the commission issued an order directing Qwest to "[s]ubmit for [c]ommission review and approval a list of prices for wholesale elements that Qwest is obligated to provide to local service competitors or that it provides voluntarily, other than elements subject to 47 U.S.C. ยง 251." The order also required Qwest to provide a "detailed rationale" explaining any proposed difference between any intrastate rate and its corresponding interstate rate and demonstrating the result ...

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