ip: 8th Circuit Court of Appeals Decision on Interconnection

[David Farber <farber () cis upenn edu>]

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