Tds Metrocom, LLC v. Bridge

387 F.Supp.2d 935

TDS METROCOM, LLC, Plaintiff, v. Burneatta BRIDGE, Robert M. Garvin and Mark Meyer, in Their Capacity as Commissioners of the Public Service Commission of Wisconsin and Not as Individuals, and Wisconsin Bell, Inc., d/b/a SBC Wisconsin, Defendants.

No. 05-C-101-C.

United States District Court, W.D. Wisconsin.

September 19, 2005.

COPYRIGHT MATERIAL OMITTED

Peter Gardon, Reinhart Boerner VanDeuren S.C., Madison, WI, for Plaintiff.

Michael Varda, Public Service Commission Assistant General Counsel, Jordan J. Hemaidan, Michael Best & Friedrich, LLP, Madison, WI, for Defendants.

OPINION AND ORDER

CRABB, District Judge.

This is a civil action for declaratory and injunctive relief under the Telecommunications Act of 1996. Plaintiff TDS Metrocom, LLC seeks judicial review of a decision by defendant commissioners of the Public Service Commission of Wisconsin concerning rates that defendant Wisconsin Bell, Inc., d/b/a SBC Wisconsin, may charge plaintiff and other competitors for use of certain portions of defendant SBC's local telephone network. Plaintiff contends that the rates set by the commission do not comply with the Act or its implementing regulations, that the commission acted arbitrarily and capriciously by not explaining its reasons for choosing certain rate components and that the commission erred by declining to address the anti-competitive effects of its decision. Subject matter jurisdiction is present. 47 U.S.C. § 252(e)(6); 28 U.S.C. § 1331.

The origin of this case dates back to December 1999, when the Public Service Commission initiated an investigation to determine the rates defendant SBC could charge for elements of its network. On March 22, 2002, the commission issued an opinion in which it adopted cost study methods for determining the appropriate rates and ordered defendant SBC and its competitors to conduct cost studies in accordance with the method set out in the opinion. Final Decision, Docket No. 6720-TI-161, 2002 WL 31127500 (Mar. 22, 2002) (hereafter UNE I Final Decision). On July 9, 2003, the commission issued a second opinion in which it set rates with respect to a number of defendant SBC's network elements. UNE Compliance Order, Docket No. 6720-TI-161, 2003 WL 21659235 (July 9, 2003).¹ In early 2004 the Wisconsin legislature enacted Wis. Stat. § 196.197, which imposes deadlines on the commission for ruling on petitions filed by telecommunications providers to determinate rates for unbundled network elements. The commission must rule within 180 or 270 days of certifying a petition as complete, depending on the number of rates at issue. On March 12, 2004, shortly after § 196.197 went into effect, defendant SBC filed a petition to determine new rates for nine types of unbundled loops. (Loops are the wires that connect a customer's premises to a carrier's central office, where switches route calls to their destinations. Competitive Telecommunications Ass'n v. FCC, 309 F.3d 8, 10 (D.C.Cir.2002); see also Michigan Bell Telephone Co. v. Strand, 305 F.3d 580, 583 (6th Cir.2002)). Following a hearing and a round of briefing, the commission issued a decision on October 13, 2004 in which it set 27 rates that defendant SBC may charge competitors for access to its unbundled loops. Final Decision, Docket No. 6720-TI-187, 2004 WL 2590632 (Oct. 13, 2004) (hereafter UNE II Final Decision). As a general matter, the rates promulgated in the UNE II Final Decision are higher than those set in the UNE I Final Decision. Plaintiff seeks judicial review of the rates established in the UNE II Final Decision.

For the reasons stated below, I conclude that the commission's decisions with respect to each of the rate components challenged by plaintiff are consistent with federal law and supported by substantial evidence. Because rate-making is an exercise that requires a high level of technical expertise, only egregious errors by an agency will justify judicial intervention. Plaintiff has not shown that the Public Service Commission erred, much less that its errors resulted in rates that are arbitrary and capricious. As the text of the UNE II Final Decision indicates, the commission considered the arguments and proposals put forth by the parties and offered reasoned explanations for its decisions with respect to each of the challenged rate components. Each of its decisions is supported by substantial evidence in the record. In addition, the commission acted reasonably in declining to address the issue whether the rates adopted in the UNE II Final Decision would result in an unlawful price squeeze. Therefore, the UNE II Final Decision will be affirmed in its entirety.

A. Background

Congress passed the Telecommunications Act of 1996 in part to promote competition in local telephone service markets. Verizon Maryland, Inc. v. Public Service Commission of Maryland, 535 U.S. 635, 638, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002). The Act fosters competition by requiring an incumbent local exchange carrier to provide access to its network and facilities to new entrants to the market, known as competitive local exchange carriers. (The "local exchange" consists of the facilities and equipment needed to connect "terminals like telephones, faxes, and modems to other terminals within a geographical area like a city." Verizon Communications Inc. v. FCC, 535 U.S. 467, 489, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002).) One of the ways an incumbent must provide access to its network is by leasing elements of the network on an unbundled basis to competitors at "rates, terms, and conditions that are just, reasonable and nondiscriminatory." 47 U.S.C. § 251(c)(3); SBC Communications Inc. v. FCC, 407 F.3d 1223, 1225 (D.C.Cir.2005). The rates an incumbent may charge for access to unbundled network elements (UNEs) may be set by private agreement, 47 U.S.C. § 252(a), or if the incumbent and competitors cannot agree, by state commissions, 47 U.S.C. § 252(b).

In determining the rate for a specific element, carriers and state commissions must abide by federal law and applicable regulations and orders issued by the Federal Communications Commission. The FCC has chosen to define the "cost" of an element (and thus the rate an incumbent may charge for access to that element) in terms of the element's "forward-looking economic cost." 47 C.F.R. § 51.505. Accordingly, the rates for unbundled network elements are determined "pursuant to the forward-looking economic cost-based pricing methodology set forth in [47 C.F.R.] §§ 51.505 and 51.511." 47 C.F.R. § 51.503(1). This method is known as the total element long run incremental cost method. 47 C.F.R. § 51.505(b). (Although this method is known in the industry by the acronym TELRIC, use of acronyms is difficult for ordinary readers to keep straight; I will refer to this method in some instances as the "total element" method for brevity.) The total element method is "based upon the cost of operating a hypothetical network built with the most efficient technology available." AT & T Corp. v. Iowa Utilities Board, 525 U.S. 366, 375 n. 3, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). It is designed to produce rates for unbundled network elements that reflect what an incumbent would be able to charge in a competitive market. In re Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 2003 WL 22175730, 18 F.C.C.R. 16,978, at ¶ 669 (2003) ("Triennial Review Order"). In accordance with these principles, the cost of an unbundled network element is measured on the basis of "the use of the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the incumbent [local exchange carrier's] wire centers." 47 C.F.R. § 51.505(b)(1). An incumbent carrier's embedded costs, retail costs, opportunity costs and revenues used to subsidize other services may not be considered in determining an element's forward looking economic cost. § 51.505(d)(1)-(4).

Application of the total element method is not meant to produce uniform rates for unbundled network elements across the country. State commissions "retain flexibility to consider `local technological, environmental, regulatory, and economic conditions.'" AT&T Corp. v. FCC, 220 F.3d 607, 615 (D.C.Cir.2000) (citations omitted). As one court has noted, "TELRIC is not a single rate but a ratemaking methodology that may yield a rather broad range of rates." WorldCom, Inc. v. FCC, 308 F.3d 1, 7 (D.C.Cir.2002).

B. Standard of Review

When reviewing the decision of a state commission, a district court's inquiry is limited to determining whether the rates set by the commission comply with the requirements of 47 U.S.C. §§ 251-252. Indiana Bell Telephone Co., Inc. v. McCarty, 362 F.3d 378, 383 (7th Cir.2004). The court reviews de novo a state commission's interpretation of the Telecommunications Act and the FCC's implementing regulations and orders. Id. at 385; Southwestern Bell Telephone Co. v. Apple, 309 F.3d 713, 717 (10th Cir.2002). However, because the commission has a substantial body of expertise in the area of rate-setting and because of the flexibility built into the total element method, the commission's factual findings and other conclusions are reviewed under an arbitrary and capricious standard. Indiana Bell, 362 F.3d at 385; Southwestern Bell, 309 F.3d at 717-18; MCI Telecommunications Corp. v. BellSouth Telecommunications, Inc., 112 F.Supp.2d 1286, 1290-91 (N.D.Fla.2000). Under this standard, the commission's decision is presumed valid and must be upheld if "it is the result of a deliberate principled reasoning process, and if it is supported by substantial evidence." Michigan Bell Telephone Co. v. Strand, 305 F.3d 580, 587 (6th Cir.2002); see also Illinois Bell Telephone Co. v. Wright, 245 F.Supp.2d 900, 905 (N.D.Ill.2003). This deferential standard of review prevents the court from re-weighing the evidence that was presented to the...