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Midcontinent Communications v. MCI Communications Services, Inc.

United States District Court, D. South Dakota, Southern Division

March 16, 2018




         Plaintiff, Midcontinent Communications (Midco), initiated this action naming MCI Communications Services, Inc., d/b/a Verizon Business (Verizon) as the defendant. Midco alleges that Verizon breached its contract and that Midco is entitled to a declaratory judgment under SDCL § 21-24-2. Docket 40. Verizon filed counterclaims for breach of contract and declaratory judgment against Midco. Docket 41. Both parties move for summary judgment on all claims and counterclaims.


         The undisputed facts are:

         Midco is a cable company that provides local telephone service to residential and business customers and is classified as a local exchange carrier (LEC). Docket 46 ¶¶ 1, 3. Midco operates in South Dakota, North Dakota, Minnesota, and Kansas, but only its operations in South Dakota, North Dakota, and Minnesota are relevant to this dispute. Id. Midco operates under certificates granted by the South Dakota Public Utilities Commission, North Dakota Public Utilities Commission, and Minnesota Public Utilities Commission. Id. ¶ 2. An LEC's network connects directly to the LEC's end-user customers - the people who answer or dial the phone. Id. ¶ 3. When an LEC's end-user customer receives a phone call, the call travels across the LEC's local network and is delivered directly from the LEC's network customer. Id. When an LEC's end-user customer places a telephone call, the call is delivered directly from the customer to the LEC's local network. Id. ¶ 3.

         There are two types of LECs. In general, the LECs that existed before the effective date of the Telecommunications Act of 1996 (February 8, 1996) are known as incumbent LECs (ILECs). See 47 U.S.C. § 251(h)(1). LECs that entered the marketplace after the 1996 Act took effect and compete with ILECs and each other are known as competitive LECs (CLECs). See 47 C.F.R. § 61.26(a)(1). Midco is classified as a CLEC. Docket 46 ¶ 5. A carrier that offers long-distance telephone service to end-user customers and transmits longdistance calls between the networks of two LECs is known as an “interexchange carrier” or “IXC.” Id. ¶ 6. As an LEC, Midco provides switched access service when it permits an IXC, like Verizon, to access its network to terminate and originate long-distance calls to and from the LEC's end-user customers. Id. ¶ 7. Thus, Midco allows Verizon to access Midco's local exchange network to originate or terminate long-distance telephone calls involving Midco's end-user customers. Id. ¶ 8. Verizon is classified as an IXC operating throughout the United States. Id. ¶ 9. Since 2006, Verizon has delivered long distance calls to, and received them from, Midco's network. Id. ¶ 10. On those calls, Midco charges Verizon for switched access service. Id.

         Since 2006, Midco has operated a single switch located in Sioux Falls, South Dakota (Sioux Falls Switch). Id. ¶ 11. All of the long-distance calls that Verizon has exchanged with Midco have travelled through the Sioux Falls Switch on their way to or from Midco's end-user customers in South Dakota, Minnesota, and North Dakota. Id. The only way that Verizon's long-distance traffic can reach Midco's local customers or for Midco's local customer traffic to reach Verizon's long-distance network, is for the traffic to travel through the Sioux Falls Switch. Id.

         Midco also operates equipment called “gateways.” Id. ¶ 12. Gateways are spread throughout Midco's three-state footprint and permit other carriers to connect and deliver calls to Midco's network. Id. Their function is to receive calls from other carriers and carry them to the Sioux Falls Switch. Id. All of Midco's gateways are connected to the Sioux Falls Switch. Id. The Sioux Falls Switch then decides where to route the calls, also referred to as “switching, ” and sends the calls out over Midco's network to the appropriate Midco end-user customer for termination. Id.

         IXCs can establish calls with Midco's network in one of two ways. First, IXCs can establish a “direct trunk” that connects their network directly to Midco's network by either connecting with the Sioux Falls Switch itself or into a Midco-owned gateway that is connected to the Sioux Falls Switch. Id. ¶ 13. This allows long-distance carriers to send calls directly to, or receive calls directly from, the Sioux Falls Switch. Id. Second, long-distance carriers can send calls to Midco's network via another LEC's tandem switch. Id. A tandem switch is a switch that routes calls between other switches. Id. A tandem switch is sometimes called a class 4 switch. Id. In contrast, an end-office switch routes calls directly to and from end users. Id. An end-office switch is sometimes called a class 5 switch. Id. Switches that are capable of performing both as a tandem switch and as an end-office switch are commonly referred to as class 4/5 switches. Id. The Sioux Falls Switch is a class 4/5 switch, so it has the physical capability of performing both tandem and end-office switching functions. Id. ¶ 14.

         The Local Exchange Routing Guide (LERG) is an industry-standard database that LECs and IXCs use to route long-distance and local calls. Id. ¶ 15. Carriers are responsible for populating the LERG with information about their own switches and other equipment. Id. Both Midco and Verizon rely on the LERG to make call-routing decisions and to make assessments of other carriers' equipment. Id. Midco maintains that there are no requirements or standards as to how or with what information a carrier must populate the LERG. Id.

         Since 2011, Midco has registered the Sioux Falls Switch as an end-office switch in the LERG. Id. ¶ 16. According to the LERG, Midco's Sioux Falls Switch subtends a tandem switch that is owned by CenturyLink and is located in Sioux Falls, South Dakota. Id. Thus, calls sent to the CenturyLink Tandem can be routed to the Sioux Falls Switch for termination, and calls originating from the Sioux Falls Switch can be routed to the CenturyLink Tandem. Id. The LERG describes the CenturyLink Tandem as the tandem switch associated with the Sioux Falls Switch. Id. The LERG also associates the Sioux Falls Switch with Midco's various gateways. Id. ¶ 17. Since 2011, Midco has not registered any end-office switch that subtends the Sioux Falls Switch. Id. Midco maintains that it is not required to do so. Id.

         Embedded Multimedia Terminal Adaptors (EMTAs) are boxes that reside inside the premises of Midco's end-user customers. Id. ¶ 18. EMTAs convert incoming voice signals traveling across Midco's network into analog form capable of being interpreted by a customer's traditional telephone. Id. Midco does not offer long-distance companies the ability to connect directly into its end-users' EMTAs. Id. An EMTA is not capable of routing in-bound calls to any destination other than the particular telephones within the premises to which it is connected, and it is not capable of routing out-bound calls to a destination other than Midco's Sioux Falls Switch. Id. Similar to other LECs, Midco does not register its EMTAs in the LERG. Id. Midco contends that its EMTAs functioned as end-office switches on long-distance calls exchanged with Verizon's network. Id. ¶ 19.

         Before 2007, Verizon exchanged long-distance calls with Midco's network by sending them to and receiving them from the CenturyLink Tandem. Id. ¶ 20. Since 2007, Midco has billed Verizon for switched access service under its tariffs filed with the Federal Communication Commission (FCC) and relevant state Public Utility Commissions (PUCs). Id. ¶ 21. Midco's provision of switched access service on interstate long-distance calls was governed by Midco's FCC Tariff No. 1, and Midco's provision of switched access service on intrastate long-distance calls was governed by the tariff filed with the corresponding state PUC. Id.

         In October 2006, Verizon and Midco began negotiations to establish an agreement between the two carriers to establish direct trunks connecting Verizon's long-distance network to Midco's Sioux Falls Switch. Id. ¶ 24. Verizon wanted to establish direct trunks with Midco to avoid overflow problems with the CenturyLink Tandem and to avoid the tandem-switching charges that Verizon was paying to CenturyLink. Id. Midco knew about the two reasons Verizon wanted to establish direct trunking. Id. The parties executed the final Switched Access Service Agreement (Agreement) on March 7, 2007. Id. ¶ 33. The initial term of the Agreement was three years. Id. The Agreement was later renewed for another four years, after which the Agreement would renew on an annual basis. Id. ¶ 38.

         Section 4 of the Agreement states:

4.1 Switched Access Charge Rates. The charges for minutes of use for Switched Access Service provided by Midco to MCI under this Agreement are as follows:
4.1.1 MCI will pay Midco to terminate interstate traffic according to FCC tariff rates and intrastate traffic pursuant to rates under Midco tariff in South Dakota.
4.1.2 MCI will pay Midco $250 per month per T1 and $500 installation charge per T1 for direct end office trunks for connectivity to the switching facilities listed in Attachment 1.

Id. ¶ 34.

         Section 8.1 of the Agreement provides in part:

Subject to the audit rights below, MCI may initiate good faith disputes regarding billing and withhold payment up to six (6) months of its receipt of an invoice. Resolution of billing disputes will be handled according to the procedures in the dispute resolution section of this Agreement.

Id. ¶ 35.

         Section 8.2 of the Agreement provides in part:

A Party shall have the right, at its own expense, upon reasonable notice and at reasonable times, to examine the books and records of the other Party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Agreement if made within two (2) years after the month of Service delivery. Any disputes resulting from such audit shall be resolved in accordance with Section 9, Dispute Resolution below. All retroactive adjustments under this ...

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