Sprintcom, Inc. v. Scott

SPRINTCOM, INC., WIRELESSCO, L.P., NPCR, INC., d/b/a NEXTEL PARTNERS,and NEXTEL WEST CORP., Plaintiffs, v. DOUG SCOTT, JOHN T. COLGAN, ANN McCABE, MIGUEL del VALLE,and SHERINA E. MAYE, in their official capacities as Commissioners of the Illinois Commerce Commission,and ILLINOIS BELL TELEPHONE COMPANY, Defendants.

No. 13 C 06565

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

December 1, 2014

Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Plaintiffs SprintCom, Inc. and affiliated entities (collectively referred to as Sprint) bring this action under the Telecommunications Act, 47 U.S.C. §§ 151 et seq.¹ Sprint appeals from a decision of the Illinois Commerce Commission (ICC) setting the terms of an agreement between Sprint and Illinois Bell Telephone Company (which is part of AT&T) over access to local telecommunications networks. Sprint requests that the Court declare some provisions in the agreement unlawful, enjoin their enforcement, and compel the ICC to reconsider its determinations about other terms that purportedly misapplied federal law. For the reasons discussedbelow, the ICC's orders are affirmed and Sprint's requests for declaratory and injunctive relief denied.

I. Background

A. Regulatory Framework and Procedural History

Congress passed the Telecommunications Act in 1996 in order to "promote competition in the previously monopoly-driven local telephone service market" by requiring existing local telephone service providers (sometimes called ILECs, for incumbent local exchange carriers) to allow new entrants (or CLECs, competitive local exchange carriers) to use the incumbents' existing infrastructure. Ind. Bell Tel. Co. v. McCarty, 362 F.3d 378, 382 (7th Cir. 2004) (citing Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 475-76 (2002)). Under the Act, incumbents must allow "interconnection" between competitors and the incumbents' networks, enabling "the transmission and routing of telephone exchange service and exchange access." 47 U.S.C. § 251(c)(2)(A). Congress recognized that without this obligation, "the incumbents would maintain a stranglehold on local telephone service: no new entrant could realistically afford to build from the ground up the massive communications grid the incumbents had developed through years of monopolistic advantage." McCarty, 362 F.3d at 382.

To that end, the Act provides that incumbents must negotiate with competitors to arrive at interconnection agreements that govern the details of this shared use, such as pricing and types of permissible network traffic. 47 U.S.C. § 252(a); see Ill. Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 566, 568-69 (7th Cir.1999). Issues that are not resolved by initial negotiation may be referred for arbitration to the relevant state commission, which must ensure that all final agreements (whether they involved arbitration or not) are consistent with the Act and with regulations issued by the Federal Communications Commission (FCC). 47 U.S.C. §§ 252(b)(1), (c). A party that believes that a state commission has failed to do so may seek review in federal district court. 47 U.S.C. § 252(e)(6).

Sprint is a FCC-authorized wireless service provider in Illinois, where it now competes with AT&T, the former monopolist-incumbent. R. 1, Compl. ¶¶ 5, 8; R. 26, AT&T Answer ¶ 7. In April 2012, Sprint and AT&T opened negotiations on an interconnection agreement but were unable to resolve a number of issues. Compl. ¶ 14. Sprint petitioned in October 2012 for a panel of ICC administrative law judges to arbitrate the matter. R. 1-1 ICC Arbitration Decision at 1-2. The ICC issued a final arbitration decision on June 26, 2013, id., and the parties produced an interconnection agreement consistent with the ICC's determinations, R. 36-1, Final Interconn. Agreement. The ICC approved this final agreement by order dated August 14, 2013. R. 1-3, ICC Approval Order.

Sprint then brought the present complaint seeking declaratory and injunctive relief on five counts where it believed the ICC erred as a matter of law, resulting in a legally flawed agreement. Compl., Prayer for Relief. Two of the counts having been since voluntarily dismissed, the three remaining at issue are summarized below. R. 54, 60, Stips. Dismissal (dismissing Counts IV and V with prejudice).

B. Challenged ICC Determinations

Count One of the complaint concerns whether AT&T, as an incumbent, was obligated to provide interconnection to Sprint at lower, cost-based rates known as TELRIC (or Total Element Long Run Incremental Cost) for calls that Sprint sought to route through AT&T's network but actually originated from an "end-user" on a third-party long-distance carrier, or interexchange carrier (also referred to as an IXC). Compl. ¶¶ 20, 22. Resolution of this issue affected Sprint's ability to use the interconnection facilities (comprised of call-routing hardware, such as switches) that enable the calls to be physically sent through AT&T's networks at cost-based rates, as well as Sprint's access to preferable "transit" rates for the calls overall. Id. ¶;; 22.

On the question of pricing for use of the facilities, the ICC found that cost-based rates could only be available to Sprint under the Act for interconnected calls made uniquely for non-interexchange-carrier traffic. Arbitration Decision at 16. The ICC concluded that AT&T was not obligated under the Act to provide transit rates for calls involving such third-party carriers, but found that the applicable rates AT&T had in place for these calls had been, in any event, originally cost-based. Id. at 45. Because those rates were already a decade old at that point, however, the ICC ordered that AT&T conduct an investigation into whether these rates required updating, and allowed AT&T to charge its current (cost-based, though possibly outdated) rates in the interim.² Id.

As its second count, Sprint raises a related issue about interconnection facilities, namely whether Sprint must route only interconnection traffic through AT&T's network switches in order to preserve cost-based rates. Compl. ¶ 27. Sprint argued that it may use the facilities to carry some non-interconnection traffic, that is, interexchange carrier traffic, and yet still pay the cost-based rates; the ICC disagreed and sided with AT&T to find that the use of any non-interconnection traffic alongside the interconnection-related calls results in Sprint's loss of the preferable rates. Arbitration Decision at 19. As a result, Sprint believes that the ICC incorrectly resolved several provisions in the agreement, resulting in less favorable language on pricing, and forcing Sprint to unnecessarily establish separate facilities for certain calls. Compl. ¶ 29. Sprint seeks an order compelling the ICC to reconsider its resolution of these provisions. Id. ¶;;33.

The third and final issue centers on whether AT&T may levy "access charges" against Sprint for certain calls identified by the FCC as "exchange access" traffic.³ Compl. ¶¶ 36-38. The ICC rejected Sprint's argument that federal law only authorized access charges on calls that were subject to a separate toll charge, which was not the case for the traffic Sprint sought to protect in this case. Arbitration Decision at 62. Instead, the ICC determined that the sole, controlling factor waswhere the call originated and ended, meaning that any interregional calls made between so-called Major Trading Areas could be made subject to access charges. Id.

II. Standard of Review

Under the unusual regulatory framework set up by the Act, the Court here reviews the actions of a state agency in implementing a federal statute. See Ill. Bell Tel. Co. v. Worldcom Techs., Inc., 179 F.3d 566, 571 (7th Cir. 1999), as amended (Aug. 19, 1999); see also AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 378 n.6, 385 n.10 (1999) (acknowledging that federal government has taken over telecommunications regulation but calling discretionary role left to 50 state commissions a "decidedly novel" scheme). "[T]he district court's sole responsibility is to determine whether the interconnection agreement meets the requirements of sections 251 and 252 of the Act." McCarty, 362 F.3d at 383. In this regard, review of the state commission's interpretations of federal law is de novo. Id. at 385. Review of the commission's determinations of fact and mixed questions of law and fact, by contrast, proceeds under a more deferential "arbitrary and capricious" standard. Ill. Bell Tel. Co. v. Box, No. 06 C 3550, 2007 WL 2815924, at *4 (N.D. Ill. Sept. 21, 2007) (citation omitted), aff'd, 526 F.3d 1069 (7th Cir. 2008).

III. Discussion

A. Count One: Lease Rates for Interconnection Facilities

Sprint objects to the ICC's determination that cost-based TELRIC rates can only be applied to interconnected calls between an end-user of Sprint (on one end) and an end-user of AT&T (on the other), contending that § 251 of the Act does notsupport such a limitation. R. 36, Sprint Br. at 6-7. There is no doubt that direct interconnection between Sprint and AT&T (calls that begin with a user of one and end with one of the other) is subject to cost-based rates. 47 U.S.C. § 251(c)(2); Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2264-65 (2011) (deferring to FCC view that incumbents must make transmission facilities available to competitors at cost-based rates). But Sprint argues that, in addition, the language of the Act allows cost-based pricing for indirect interconnection traffic that uses AT&T's network but features a Sprint user only on one end and a third-party interexchange carrier on the other. Sprint Br. at 6.

To begin, the ICC's determination about what overall rates should apply to the interconnection traffic in question (that is, the price paid for transporting and completing the call) does not appear to raise an actual question of law requiring resolution. Based on its review of the record, the ICC found that the rates AT&T was charging for transit calls (those...