Dsci Corp. v. Dept. of Telecommunications

870 N.E.2d 1096

449 Mass. 597

DSCI CORPORATION v. DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY & another.¹

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 5, 2007.

Decided August 2, 2007.

Robert J. Munnelly, Jr., for the plaintiff.

Thomas A. Barnico, Assistant Attorney General, for the defendant.

Alexander W. Moore for the intervener.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, & CORDY, JJ.

IRELAND, J.

A single justice of this court reported, without decision, this case involving an appeal, pursuant to G.L. c. 25, § 5, from a decision of the Department of Telecommunications and Energy (department) that a local telephone company that purchases telephone services from another telephone company could be restricted from reselling those services at discounted prices to certain customers. Specifically, the appeal raises two issues: the validity of a restriction imposed by Verizon New England, Inc., doing business as Verizon Massachusetts (Verizon), an incumbent local exchange carrier (ILEC), on DSCI Corporation (DSCI), a competing local exchange carrier (CLEC), regarding to whom DSCI may resell certain telecommunications services provided by Verizon to the Commonwealth pursuant to Verizon's customer-specific pricing contract with the Commonwealth (Commonwealth CSP); and the availability of a corporate rewards discount that Verizon typically gives to its business customers, when DSCI resells the services provided under the Commonwealth CSP. The department concluded that Verizon's restriction on resale was not unreasonable or discriminatory, and that DSCI was not entitled to apply the corporate rewards discount. We affirm the department's decision so far as it concerns the resale of the services provided pursuant to the Commonwealth CSP and remand for clarification and further action the issue of the applicability of the corporate rewards discount.

1. Statutory and regulatory overview. "Until the 1990's, the provision of local telephone service was not competitive." MCI WorldCom Communications, Inc. v. Department of Telecommunications & Energy, 442 Mass. 103, 104, 810 N.E.2d 802 (2004). "Individual telephone companies, sometimes called `incumbent local exchange carriers' (ILECs), maintained monopolies over defined geographic areas." Id., citing Global Naps, Inc. v. New England Tel. & Tel. Co., 226 F.Supp.2d 279, 285 (D.Mass.2002). See 47 U.S.C. §§ 251(h), 252(j) (2000); AT & T Communications of the S. States, Inc. v. BellSouth Telecommunications, Inc., 7 F.Supp.2d 661, 664 (E.D.N.C.1998) ("a local exchange carrier is an entity that has the infrastructure, or access to the infrastructure, necessary to route telephone calls to individual subscribers"). "In an effort to dispense with these monopolies and introduce competition into the market, Congress passed the Telecommunications Act of 1996(Act), Pub.L. 104-104, 110 Stat. 56 (codified in part at 47 U.S.C. §§ 251-261 [2000])." MCI WorldCom Communications, Inc. v. Department of Telecommunications & Energy, supra at 104-105, 810 N.E.2d 802. CLECs are the competitors of ILECs. Id. at 105, 810 N.E.2d 802, citing 47 U.S.C. §§ 251(a), (c), & 252. The Federal Communications Commission (FCC) has promulgated regulations and issued orders relative to the Act. 47 U.S.C. § 251(d)(1).

The Act imposes a duty on all ILECs, such as Verizon, to offer CLECs "at wholesale rates any telecommunications service that the carrier provides [to its subscribers] at retail." 47 U.S.C. § 251(c)(4)(A).² The FCC has stated that this resale duty "makes no exception for . . . contract and other customer-specific offerings," unless a restriction in such an offering is determined to be reasonable. Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499, 15970-15971, pars. 948 & 952 (1996).³ (Local Competition Order)

In offering services for resale, an ILEC is not permitted to impose unreasonable or discriminatory conditions or limitations. 47 U.S.C. § 251(c)(4)(B). Moreover, "resale restrictions are presumptively unreasonable," and the ILEC that imposes a restriction bears the burden proving that it is reasonable and nondiscriminatory. Local Competition Order, supra at 15966, 15975, at pars. 939 & 964. See 47 C.F.R. § 51.613(b) (2006). The FCC regulations give State commissions, such as the department, authority to determine whether a condition imposed by an ILEC "is reasonable and nondiscriminatory." Id.⁴ The question of reasonableness may be fact sensitive and vary locally due to the practices of local ILEC's and local market conditions. Local Competition Order, supra at 15971, at par. 952.

The Act contains an exception to the resale duty of ILECs: "a State Commission may, consistent with [FCC] regulations . . . prohibit a reseller that obtains at wholesale rates a telecommunications service that is available at retail only to a category of subscribers from offering such service to a different category of subscribers" (emphasis added.) 47 U.S.C. § 251(c)(4)(B).

2. Background. Some background information concerning Verizon's contract with the Commonwealth and the dispute that followed is helpful. The department states that customer specific pricing contracts, such as the one at issue here, are "customer-specific variations to a carrier's standard tariff offerings and are filed with the [d]epartment as part of CSP tariff filings."⁵ Pursuant to the Commonwealth CSP contract, Verizon provides telecommunications services to certain State and local government and nonprofit agencies, called "eligible entities."⁶ In addition, the Commonwealth CSP contract separately includes Verizon's "Customer 38" contract which grants, in essence, discounts on the monthly per-line charge or rate, with specific volume requirements. Verizon also offers a corporate rewards tariff to business customers, which provides an optional calling plan and various discounts such as usage on a per-line or per-minute basis, volume discounts, and loyalty discounts. The corporate rewards document expressly states that its usage rates are not available to any CSP.

The dispute that gave rise to DSCI's complaint occurred when DSCI wanted to resell the telecommunications services contained in the Commonwealth CSP to DSCI's commercial customers. Verizon maintained that DSCI only could resell the services to the eligible entities listed in the Commonwealth CSP, arguing, in essence, that the Commonwealth CSP was unique and thus fell under the Act's different "category of subscribers" exception. 47 U.S.C. § 251(c)(4)(B). DSCI also argued that, even if it were limited to reselling to eligible entities under the Commonwealth CSP, it could apply Verizon's corporate rewards usage rates instead of the Customer 38 contract rates that are part of the Commonwealth CSP.

The parties submitted prefiled testimony, documents, and responses to record requests to the department. The department then conducted a hearing where three witnesses testified, two from Verizon and one from DSCI.

In its written decision, the department concluded that Verizon met its burden of proving that the restriction on the resale of the Commonwealth CSP was reasonable and nondiscriminatory. It noted that Verizon did not seek to prevent DSCI from all resale of services under the Commonwealth CSP contract, but only precluded DSCI from reselling the services to any customer other than the hundreds of eligible entities listed in the Commonwealth contract. The department concluded that the "sheer size of an especially large customer," while not dispositive in the dispute, "can be a distinguishing factor in arriving at a judgment whether customers are `similarly situated.'" The department also determined that the restriction is not unreasonable because no other entities are similarly situated to the eligible entities as the Commonwealth "is a unique customer and . . . the legal framework under which contracts between Verizon and the Commonwealth are created" justify the restriction on resale. Citing G.L. c. 30B and 801 Code Mass. Regs. § 21.04 (2003), it explained:

"Pursuant to Massachusetts law and regulations, the Commonwealth is given the authority to delineate those entities that are eligible to use Commonwealth-negotiated contracts. This authority . . . imposes unique requirements on Verizon, as a successful bidder for the Commonwealth's custom, that justify the creation of a subclass of commercial customers that are eligible to take the service under the contract. For example, the Commonwealth's legal authority to enter into contracts is contained in procurement statutes and regulations that are non-negotiable. . . . In addition, the Commonwealth requires the agreement of all carriers that seek to enter into CSP contracts with [it] to provide service to hundreds of entities that supply some service to the Commonwealth, and the list can, and likely does fluctuate over the duration of the contract . . . thus imposing a significant and uncommon contract management burden on the successful bidder. . . . Furthermore, the Commonwealth's standard contract terms and conditions prohibit termination liability [for the Commonwealth], likely a rarity among contracts with business customers in the telecommunications industry, and a provision that substantially alters the fundamentals of the contracting process." (Citations omitted.)

The department also rejected DSCI's claim that it may combine Commonwealth CSP contract per-line rates with corporate rewards usage rates even for customers conceded by Verizon as eligible.⁷ The department determined that the restriction was reasonable and nondiscriminatory because the corporate rewards tariff specifically states that it is not available for use with CSP contracts.

3. Discussion.⁸ a. Standard of review. Where, as here, a party seeks judicial review of the department's decision pursuant to G.L. c. 25, § 5:

"Our standard of review . . . is...