Bellsouth Telecommunications, Incorporated v. JO ANNE SANFORD, Chairman

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 BELLSOUTH TELECOMMUNICATIONS,
INCORPORATED,
Plaintiff-Appellee,
v.
JO ANNE SANFORD, Chairman;
ROBERT V. OWENS, JR.; SAM J.
ERVIN, IV; LORINZO L. JOYNER;
HOWARD N. LEE; WILLIAM THOMAS
CULPEPPER, II; JAMES Y. KERR, II,
Commissioners, in their official
capacities as Commissioners of the No. 06-1678 North Carolina Utilities
Commission,
Defendants-Appellants,
and
NORTH CAROLINA UTILITIES
COMMISSION; ROBERT K. KROGER,
Commissioner,
Defendants,
IMAGE ACCESS, INCORPORATED,
Intervenor/Defendant. 
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, Senior District Judge.
(3:05-cv-00345)
Argued: March 14, 2007
Decided: July 25, 2007

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Before WILLIAMS, Chief Judge, NIEMEYER, Circuit Judge,
and T. S. ELLIS, III, Senior United States District Judge for the
Eastern District of Virginia, sitting by designation.
Reversed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Senior Judge Ellis joined. Chief Judge Williams
wrote a separate opinion concurring in part and in the judgment.
COUNSEL
ARGUED: Margaret A. Force, Assistant Attorney General, NORTH
CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North Caro-
lina, for Appellants. Matthew Patrick McGuire, NELSON, MUL-
LINS, RILEY & SCARBOROUGH, L.L.P., Raleigh, North Carolina,
for Appellee. ON BRIEF: Roy Cooper, North Carolina Attorney
General, Raleigh, North Carolina, for Appellants. Frank A. Hirsch,
Jr., NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P.,
Raleigh, North Carolina, for Appellee.
OPINION
NIEMEYER, Circuit Judge:
With the purpose of creating competition in the provision of local
telecommunications services, the Telecommunications Act of 1996
imposed new duties on incumbent providers, who had previously
enjoyed monopolies in local markets for those services. Among the
new duties was the duty to sell their services at wholesale to would-
be competitors for resale to consumers. See 47 U.S.C. § 251(c)(4).
The wholesale rate for such services was prescribed to be the incum-
bent provider’s retail rate less a wholesale discount determined by the
relevant state utility commission. Id. § 252(d)(3).
By two orders dated December 22, 2004, and June 3, 2005, the
North Carolina Utilities Commission ("NC Commission") deter-
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mined, under the authority of 47 U.S.C. § 252(d)(3), that the value of
an incumbent provider’s incentive offers to subscribers, such as gift
cards and cash rebates, when extended to subscribers for more than
90 days, created a promotional retail rate that must be offered to
would-be competitors, less a wholesale discount.
Challenging the NC Commission’s orders, BellSouth Telecommu-
nications, Inc., an incumbent provider of telecommunications ser-
vices, commenced this action in the district court under 47 U.S.C.
§ 252(e)(6). The district court declared the NC Commission’s orders
invalid, holding that an incumbent provider’s incentives to retail sub-
scribers, other than direct reductions in price, need not be taken into
account in calculating the wholesale rate to be charged would-be
competitors.
In this appeal, we conclude that the NC Commission correctly
ruled that "long-term promotional offerings offered to customers in
the marketplace for a period of time exceeding 90 days have the effect
of changing the actual retail rate to which a wholesale requirement or
discount must be applied." See 47 U.S.C. § 251(c)(4); 47 C.F.R.
§ 51.613(a), (b). Accordingly, we reverse the judgment of the district
court and remand with instructions to enter summary judgment in
favor of the Commissioners of the NC Commission.
I
In the spring of 2004, BellSouth Telecommunications, Inc., an
incumbent provider of telecommunications services to retail subscrib-
ers in North Carolina, made a filing with the NC Commission to
introduce an incentive for subscribers which offers "a coupon for a
check for $100 as an incentive to subscribe to one or more regular
residence lines and two or more features." This "1FR + 2 Cash Back"
offer, as it was called, required subscribers to return the coupon to
BellSouth within 90 days to receive their checks. The offer was to run
for nine months — from June 29, 2004, through March 31, 2005. In
its filing, BellSouth indicated that it would not provide the benefit of
this special offer to competing providers of telecommunications ser-
vices under 47 U.S.C. § 251(c)(4).
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Concerned that such incentive offers could be used to circumvent
the resale requirements of the Telecommunications Act, the Public
Staff of the NC Commission1 filed a motion with the NC Commission
for a ruling that gift offers, such as BellSouth’s "1FR + 2 Cash Back"
offer, are "special promotions of telecommunications services under
federal law which must be offered to resellers if the special offer runs
for more than 90 days."
After giving public notice and receiving comments, the NC Com-
mission issued an "Order Ruling on Motion Regarding Promotions,"
dated December 22, 2004.2 In its order, the Commission determined
that incentives such as those proposed by BellSouth decreased the
retail rate for the purpose of calculating the wholesale rate, because
retail customers effectively paid less for their telephone service in the
amount of the incentives. As a result, it concluded that BellSouth was
required to pass on the value of such incentives as a price reduction
when selling its services to resellers, unless it could show that such
restrictions on resale were "reasonable and nondiscriminatory." The
NC Commission explained:
While these promotional offerings are not discount service
offerings per se because they do not result in a reduction of
the tariffed retail price charged for the regulated service at
the heart of the offerings, they do result in a savings to the
customers who subscribe to the regulated service. . . . The
promotion reduces the subscriber’s cost for the service by
the value received in the form of a gift card or other give-
away. The tariffed retail rate would, in essence, no longer
exist, as the tariffed price minus the value of the gift card
1The Public Staff of the NC Commission is an independent arm of the
Commission responsible for representing consumers in matters before
the Commission. The Public Staff is not supervised by the Commission,
but rather by an executive director appointed by the Governor. See N.C.
Gen. Stat. § 62-15.
2In re Implementation of Session Law 2003-91, Senate Bill 814 Titled
"An Act to Clarify the Law Regarding Competitive and Deregulated
Offerings of Telecommunications Services," N.C. Utilities Comm’n,
Docket No. P-100, Sub 72b (Dec. 22, 2004) (Order Ruling on Motion
Regarding Promotions).
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received for subscribing to the regulated service, i.e. the pro-
motional rate, would become the "real" retail rate. Thus, the
[incumbent provider] could use the promotion as a de facto
rate change without changing its tariff pricing.
The Commission concluded that because the incentives reduced the
retail rate for consumers, BellSouth had to pass on the value of the
incentives to resellers.
With respect to the "1FR + 2 Cash Back" offer that prompted the
order, however, the Commission observed generally that some pro-
motions, even if they extended for more than 90 days, might be
proven to be reasonable and nondiscriminatory and therefore would
not have to be offered to resellers. As a result, it "would be inclined
to find that [the 1FR + 2 Cash Back promotion] is reasonable and
nondiscriminatory. . . . [T]he anti-competitive effects caused by a
nine-month promotion that is unavailable to resellers are outweighed
by the pro-competitive effects." The Commission was quick to point
out, however, that resellers had not complained to the Commission
nor asked it to find BellSouth’s refusal to resell the promotion unrea-
sonable or harmful to competition and that therefore it was not specif-
ically ruling on that matter.
On BellSouth’s motion for reconsideration, the NC Commission
issued an order dated June 3, 2005, clarifying its December 22 order.3
It noted that while the value of a promotion must be factored into the
retail rate for the purposes of determining a wholesale rate for would-
be competitors, the promotion itself need not be provided to would-be
competitors. The NC Commission stated:
The [December 22] Order does not require that non-
telecommunications services, such as gift cards, check cou-
pons, or merchandise, be resold. Such items do, however,
have economic value. In recognition of this fact, the Order
3In re Implementation of Session Law 2003-91, Senate Bill 814 Titled
"An Act to Clarify the Law Regarding Competitive and Deregulated
Offerings of Telecommunications Services," N.C. Utilities Comm’n,
Docket No. P-100, Sub 72b (June 5, 2005) (Order Clarifying Ruling on
Promotions and Denying Motions for Reconsideration and Stay).
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requires that telecommunications services subject to the
resale obligation of Section 251(c)(4) be resold at rates that
give resellers the benefit of the change in rate brought about
by offering one-time incentives for more than 90 days. The
Order does not require [incumbent providers] to provide
[would-be competitors] with toasters, phones, knife sets,
hotel accommodations, gift cards, etc. that they might pro-
vide to their customers as an incentive to purchase services.
The Order does require that the price lowering impact of
any such 90-day-plus promotions on the real tariff or retail
list price be determined and that the benefit of such a reduc-
tion be passed on to resellers by applying the wholesale dis-
count to the lower actual retail price.
The NC Commission thus clarified that incentives function as retail
price reductions which must be passed on to resellers. The June 3
order also clarified that even though incentives resulted in a reduced
retail rate for purposes of calculating the wholesale price, BellSouth
could still attempt, on a promotion-by-promotion basis, to justify any
given restriction on resale as reasonable and nondiscriminatory and
thereby avoid having to pass the incentive along to a would-be com-
petitor.
BellSouth commenced this action against the NC Commission and
the individual Commissioners (generally collectively, the "NC Com-
mission") under 47 U.S.C. § 252(e)(6), requesting the district court to
enter declaratory and injunctive relief against the NC Commission’s
orders.4 Specifically, BellSouth challenged, as violating federal law,
the NC Commission’s determination that the value of one-time mar-
keting incentives lasting more than 90 days must be accounted for as
a reduction of the retail rate.
On cross-motions for summary judgment, the district court
declared the NC Commission’s orders invalid and granted summary
judgment for BellSouth. It held that because incentives such as gift
4While BellSouth originally named the North Carolina Utilities Com-
mission as a defendant, along with the Commissioners, it subsequently
dismissed the Commission and elected to proceed only against the Com-
missioners under the theory of Ex parte Young, 209 U.S. 123 (1908).
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cards were not "telecommunications services" under 47 U.S.C.
§ 251(c)(4), they were not the subject of an incumbent provider’s
resale duty. It also concluded that the incentives were not "price dis-
counts" under the regulations requiring incumbent providers to pass
on discounts and promotions to competing providers. Thus, the court
concluded that BellSouth had no obligation to give the value of the
incentives to competing providers when selling them telecommunica-
tions services.
From the district court’s judgment, the NC Commission filed this
appeal.
II
In enacting the Telecommunications Act of 1996, Congress
intended to create competition in local telecommunications markets.
Specifically, the Telecommunications Act was intended to force
incumbent providers of local telecommunications services — "incum-
bent local exchange carriers" or "incumbent LECs" — which had
regional monopolies over the local telephone infrastructure, to open
their markets to competition. See Peter W. Huber et al., Federal Tele-
communications Law § 1.9, at 54 (2d ed. 1999). Because the local
telephone monopolies controlled the physical networks necessary to
provide telecommunications service, the Telecommunications Act
created a series of compulsory licenses from the incumbent LECs to
would-be competitors or "competitive LECs." Among other duties
imposed by the Telecommunications Act, the incumbent LEC must
"offer for resale at wholesale rates any telecommunications service
that the carrier provides at retail to subscribers who are not telecom-
munications carriers." 47 U.S.C. § 251(c)(4)(A). This provision
allows a competitive LEC to establish a market presence by reselling
the incumbent’s telecommunications services without building its
own physical infrastructure. In selling telecommunications services to
a competitive LEC, an incumbent LEC has a duty "not to prohibit,
and not to impose unreasonable or discriminatory conditions or limi-
tations on, the resale of such telecommunications service." Id.
§ 251(c)(4)(B). The incumbent LEC must charge the competitive
LEC a wholesale rate for the telecommunications service. "For pur-
poses of section 251(c)(4), a State commission shall determine whole-
sale rates on the basis of retail rates charged to subscribers for the
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telecommunications service requested, excluding the portion thereof
attributable to any marketing, billing, collection, and other costs that
will be avoided by the local exchange carrier."5 Id. § 252(d)(3)
(emphasis added). Thus, the wholesale rate consists of the retail rate,
less whatever costs the incumbent LEC will save by selling the ser-
vices in bulk to the competitive LEC. Because the wholesale rate is
calculated on the basis of the retail rate, a proper determination of the
retail rate is essential to creating competition through the Telecommu-
nication Act’s resale provisions.
The Federal Communications Commission ("FCC") has promul-
gated regulations refining the resale obligations imposed by the Tele-
communications Act. Thus, when an incumbent LEC offers
telecommunications services to a competitive LEC at a wholesale
rate, see 47 C.F.R. § 51.605(a), it does so subject to id. § 51.605(e),
which provides that the "incumbent LEC shall not impose restrictions
on the resale by [a competitive LEC] of telecommunication services
offered by the incumbent LEC" (emphasis added). Section 51.613,
however, provides three exceptions to the rule prohibiting restrictions.
First, the incumbent LEC can prohibit cross-class selling — i.e. it can
prevent the competitive LEC from buying business services and
reselling them to residential customers. 47 C.F.R. § 51.613(a)(1).
Second, the incumbent LEC can restrict the resale of services offered
at promotional rates, but only if those rates are in effect for less than
90 days. Id. § 51.613(a)(2)(i) ("An incumbent LEC shall apply the
wholesale discount to the ordinary rate for a retail service rather than
a special promotional rate only if such promotions involve rates that
will be in effect for no more than 90 days"). If promotions are offered
for longer than 90 days, the incumbent LEC must offer the promo-
tional rates to its competitors. Third, the incumbent LEC can impose
any restrictions that it can "prove[e] to the state commission" are "rea-
sonable and nondiscriminatory." Id. § 51.613(b).
Finally, the FCC adopted rules to implement the resale require-
ments of the Telecommunications Act and the regulations promul-
5For purposes of calculating the wholesale rate for BellSouth to
charge, the NC Commission has adopted a uniform discount rate of
21.5% from BellSouth’s retail price for residential services, and 17.6%
from its retail price for business services.
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gated under it, issuing a "First Report and Order" in August 1996. See
In re Implementation of the Local Competition Provisions in the Tele-
communications Act of 1996, 11 FCC Rcd. 15,499 (1996) (First
Report and Order) (hereinafter "Local Competition Order"). In its
Local Competition Order, the FCC stated that "[t]he rules that [it]
establishes in this Report and Order are minimum requirements upon
which the states may build." Id. ¶ 24.
Before adopting the Local Competition Order, the FCC considered
numerous comments from interested parties, including contentions by
incumbent LECs that "promotions and discounts are only devices for
marketing underlying ‘telecommunication services’" and that the pro-
motions were not themselves telecommunications services required to
be resold under 47 U.S.C. § 251(c)(4). See Local Competition Order
¶ 941. These incumbent providers argued also that promotions and
discounts were simply means "by which incumbent LECs differenti-
ate their services from resellers’ offerings." Id. ¶ 942. After consider-
ing these and other similar comments, the FCC concluded:
Section 251(c)(4) provides that incumbent LECs must offer
for resale at wholesale rates "any telecommunications ser-
vice" that the carrier provides at retail to noncarrier sub-
scribers. This language makes no exception for promotional
or discounted offerings, including contract and other
customer-specific offerings. We therefore conclude that no
basis exists for creating a general exemption from the
wholesale requirement for all promotional or discount ser-
vice offerings made by incumbent LECs. A contrary result
would permit incumbent LECs to avoid the statutory resale
obligation by shifting their customers to nonstandard offer-
ings, thereby eviscerating the resale provisions of the 1996
Act.
Id. ¶ 948. Nonetheless, the FCC observed that short term promotions
serve "pro-competitive ends through enhanced marketing." Thus, it
tempered its Order to exclude short-term promotions:
There remains, however, the question of whether all short-
term promotional prices are "retail rates" for purposes of
calculating wholesale rates pursuant to section 252(d)(3).
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The 1996 Act does not define "retail rate;" nor is there any
indication that Congress considered the issue. In view of this
ambiguity, we conclude that "retail rate" should be inter-
preted in light of the pro-competitive policies underlying the
1996 Act. We recognize that promotions that are limited in
length may serve pro-competitive ends through enhancing
marketing and sales-based competition and we do not wish
to unnecessarily restrict such offerings. We believe that, if
promotions are of limited duration, their pro-competitive
effects will outweigh any potential anti-competitive effects.
We therefore conclude that short-term promotional prices do
not constitute retail rates for the underlying services and are
thus not subject to the wholesale rate obligation.
Local Competition Order ¶ 949. In addition to its ruling that promo-
tional and discount prices generally were to be treated as "retail rates"
which incumbent LECs must offer to their would-be competitors, the
FCC observed that short-term promotions can be pro-competitive
marketing tools. It therefore "establish[ed] a presumption that promo-
tional prices offered for a period of 90 days or less need not be
offered at a discount to resellers. Promotional offerings greater than
90 days in duration must be offered for resale at wholesale rates pur-
suant to section 251(c)(4)(A)." Local Competition Order ¶ 950; see
also 47 C.F.R. § 51.613(a)(2).
Applying these provisions of the Telecommunications Act, the reg-
ulations under it, and the FCC’s Local Competition Order to the ques-
tion of whether gift card type promotions must be taken into account
in calculating the retail rate, the NC Commission concluded in its
order of December 22, 2004:
Despite the [incumbent LECs’] argument that gift card type
promotions are incentives and/or marketing tools used to
distinguish their services in the marketplace, these promo-
tions are in fact promotional offerings subject to the FCC’s
rules on promotions. While these promotional offerings are
not discount service offerings per se because they do not
result in a reduction of the tariffed retail price charged for
the regulated service at the heart of the offerings, they do
result in a savings to the customers who subscribe to the
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regulated service. The longer such promotion is offered, the
more likely the savings will undercut the tariffed retail rate
and the promotional rate becomes the "real" retail rate avail-
able in the marketplace.
The NC Commission therefore ruled that incumbent providers’ offers
of incentives to subscribers in the form of "gift cards, checks, coupons
for checks or similar types of benefits," offered for more than 90
days, must be made available to resellers in the form of a reduced
wholesale price.
In declaring the NC Commission’s orders invalid, the district court
advanced two reasons why the orders were inconsistent with the Tele-
communications Act. First, the district court relied on the following
syllogism: (1) 47 U.S.C. § 251(c)(4) requires an incumbent LEC to
resell "any telecommunications service" that it provides; (2) gift
cards, checks, coupons and similar types of incentives are not "tele-
communications services"; therefore (3) the incumbent LEC does not
have to provide the benefit of gift cards, checks, coupons and similar
types of incentives to competitive LECs. Second, the district court
recognized that the FCC "has determined [in its Local Competition
Order] that the Act’s resale obligations extend to promotional price
discounts offered in retail on retail communications services." Read-
ing a price discount not to include "marketing incentives," the court
held that marketing incentives "such as Walmart [sic] gift cards" are
therefore excluded from the FCC’s Local Competition Order requir-
ing that incumbent LECs pass on price discounts to competitive
LECs. The court explained:
A customer receiving a Walmart [sic] gift card in exchange
for signing up to receive certain services, for example, will
pay the same full tariff price for the service each month as
customers who subscribed to the service without the benefit
of the gift card. Moreover, a customer cannot use a Walmart
gift card or coupon to pay her bill.
The question presented on appeal, then, is whether the district court
erred as a matter of law in concluding that the NC Commission’s
Order was inconsistent with the Telecommunications Act, the regula-
tions promulgated under it, and the FCC’s Local Competition Order.
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III
Actions of state commissions taken under 47 U.S.C. §§ 251 and
252 are reviewed in federal court de novo to determine whether they
conform with the requirements of those sections. See GTE South, Inc.
v. Morrison, 199 F.3d 733, 745 (4th Cir. 1999); MCI Telecomm.
Corp. v. Bell Atlantic-Pennsylvania, 271 F.3d 491, 515-17 (3d Cir.
2001).
But even with our de novo standard of review, an order of a state
commission may deserve a measure of respect in view of the commis-
sion’s experience, expertise, and the role that Congress has given it
in the Telecommunications Act. See Skidmore v. Swift & Co., 323
U.S. 134, 139-40 (1944). To be sure, state commissions’ orders con-
struing the Telecommunications Act fall outside Chevron’s domain
and its mandate of deference to reasonable interpretations of ambigu-
ous statutes, because the Telecommunications Act, 47 U.S.C.
§ 251(d)(1), delegated interpretive authority to the FCC, not to the
state commissions.6 See United States v. Mead, 533 U.S. 218, 226-27
(2001); MCI Telecomm., 271 F.3d at 516. Yet the views of state com-
missions may nevertheless deserve respect under Skidmore — the
respect that flows from the long-standing principle that "the well-
reasoned views of the agencies implementing a statute ‘constitute a
body of experience and informed judgment to which courts and liti-
gants may properly resort for guidance.’" Mead, 533 U.S. at 227
(quoting Skidmore, 323 U.S. at 139-40). In any given case, the
amount of respect afforded to a state commission will vary in accor-
dance with "the degree of the agency’s care, its consistency, formal-
ity, and relative expertness," as well as "the persuasiveness of the
agency’s position." Mead, 533 U.S. at 228.
The NC Commission’s expertise and experience in applying com-
munications law are considerable and even predate the enactment of
the Telecommunications Act of 1996, as the Commission functioned
under the Communications Act of 1934, and the Telecommunications
Act of 1996 called upon this expertise and experience. See Local
6Of course, the Telecommunications Act did delegate other responsi-
bilities to the state commissions, such as, for example, certain rate-
setting authority. See 47 U.S.C. § 252(d).
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Competition Order ¶ 2 ("The 1996 Act forges a new partnership
between state and federal regulators. . . . As this Order demonstrates,
we have benefited enormously from the expertise and experience that
the state commissioners and their staffs have contributed to these dis-
cussions"). Given the NC Commission’s accumulation of knowledge
and experience in telecommunications law and policy, its orders
should not be taken lightly. See Philip J. Weiser, Chevron, Coopera-
tive Federalism, and Telecommunications Reform, 52 Vand. L. Rev.
1, 24-30 (1999) (arguing for considerable deference to state commis-
sion decisions under the Telecommunications Act).
Additionally, respect is due the orders of the NC Commission
because the NC Commission has applied its expertise and experience
in formulating them. The NC Commission’s orders resulted from a
deliberative notice and comment process; they demonstrate valid and
thorough reasoning, including careful reading and harmonizing of rel-
evant authorities and policies; and they align with the decisions of
other state commissions.7 See Skidmore, 323 U.S. at 139-40; Mead,
533 U.S. at 227-28.
Additionally, in a scheme involving cooperative federalism, federal
courts should recognize the considered role of state agencies that have
accepted Congress’ invitation to become crucial partners in adminis-
tering federal regulatory schemes. State commissions are granted
authority under the Telecommunications Act, and, to the extent they
voluntarily accept that authority, they become an important part of the
entire regulatory scheme. See Verizon Md., Inc. v. Global Naps, Inc.,
377 F.3d 355, 371 (4th Cir. 2004) (Niemeyer, J., concurring in part
and dissenting in part) ("even while pursuing these federal purposes,
Congress left in place many of the traditional functions of State public
utility commissions"); see, e.g., 47 U.S.C. § 252(d) (giving state com-
7In addition to the North Carolina Utilities Commission, other state
commissions have read the Telecommunications Act and regulations in
this fashion. See, e.g., In re Tariff Filing of U.S. West Communications,
Inc. to "Winback" Residential Customers Who Have Changed Their Tele-
phone Service to Another Provider, Wyo. Pub. Serv. Comm’n, No.
70,000-TT-98-379, Rcd. No. 3992, at 29-30 (Jan. 8, 1999); In re Peti-
tions by AT&T Communications of the Southern States, Inc., Fla. Pub.
Serv. Comm’n, No. PSC-96-1579-FOF-TP, at 69-71 (Dec. 31, 1996).
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missions rate-setting authority); id. § 252(e)(3) (leaving States author-
ity to establish and enforce state law relating to agreements between
carriers, so long as consistent with the Act); id. § 252(f)(2) (permit-
ting States to apply state law to incumbent LEC agreements); id.
§ 253(b) (preserving state authority to protect and advance universal
service); id. § 254(f) (similar); id. § 261(b) (preserving state regula-
tions not inconsistent with the Act); id. § 261(c) (residual authority
for States to pass regulations not inconsistent with the Act).
Thus, States’ continuing exercise of authority over telecommunica-
tions issues forms part of a deliberately constructed model of coopera-
tive federalism, under which the States, subject to the boundaries set
by Congress and federal regulators, are called upon to apply their
expertise and judgment and have the freedom to do so. See generally
Philip J. Weiser, Federal Common Law, Cooperative Federalism, and
the Enforcement of the Telecom Act, 76 N.Y.U. L. Rev. 1692, 1732
(2001) ("where the FCC does not mandate a national approach to
interpreting and applying the Telecom Act, state agencies are left with
considerable flexibility to do so, albeit subject to federal court
review").
Thus, even though we review the NC Commission’s orders for
compliance with 47 U.S.C. §§ 251 and 252 de novo, we nonetheless
approach the task with a respect for the Commission’s special role in
the regulatory scheme, its freedom to maneuver in that role, its exper-
tise and experience, and the care it has taken in the particular task of
forming its orders.
IV
Addressing the district court’s first reason for reversing the NC
Commission, we note that the district court assumed that the NC
Commission concluded that gift cards, checks, coupons for checks,
and similar types of incentives are themselves "telecommunications
services" that incumbent LECs were required to offer competitive
LECs for resale. It relied on that assumption to conclude that "there
can be no argument that [such incentives] are ‘telecommunication ser-
vices,’" and accordingly found the NC Commission in error.
We agree with the district court’s observations that promotions and
incentives in the form of gift cards, coupons, and even gifts are not
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themselves "telecommunications" as addressed in 47 U.S.C.
§ 251(c)(4). The term "telecommunications" means "the transmission,
between or among points specified by the user, of information of the
user’s choosing, without change in form or content of the information
as sent and received." Id. § 153(43). But this observation fails to
address accurately the scope of the resale duty imposed by
§ 251(c)(4). That section requires an incumbent LEC to resell its
"telecommunications service" at wholesale to competing LECs, and
"telecommunications service" is defined to be "the offering of tele-
communications for a fee directly to the public." 47 U.S.C. § 153(46).
"Telecommunications service" thus describes both sides of the service
contract between an incumbent LEC and a consumer: (1) the "tele-
communications" offered by the provider; and (2) the "fee" paid by
the consumer. While an incentive, such as a rebate or a gift card, is
obviously not "telecommunications," it does reduce the retail price or
"fee" for telecommunications. As such, an incentive is part of "the
offering of telecommunications" which incumbent LECs must make
to would-be competitors.
The district court pursued a red herring in focusing on the fact that
a gift card, check, coupon for a check, or other similar type of incen-
tive is not a telecommunication. The salient question is whether the
incentive affects the "fee" for telecommunications. The NC Commis-
sion never held that the marketing incentives under discussion were
"telecommunications." It noted, to the contrary, that "gift cards,
checks, check coupons and similar benefits offered as an inducement
to purchase telecommunication services [were] not themselves ser-
vices (regulated or nonregulated) offered by a public utility." Its order
"does not require that non-telecommunications services, such as gift
cards, check coupons, or merchandise, be resold." Rather, the NC
Commission held that the incentives had "economic value" which
effectively reduced the relevant "fee," see 47 U.S.C. § 153(46) — the
retail rate charged for telecommunications. Accordingly, the NC
Commission concluded that telecommunications (the underlying tele-
phony) must be resold to competing LECs "at rates that give resellers
the benefit of the change in rate brought about by offering one-time
incentives for more than 90 days." (Emphasis added).
Even though we agree with the district court’s conclusion that such
incentives are not themselves "telecommunications" that must be
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resold under § 251(c)(4), we agree with the NC Commission that
incentives may nonetheless implicate the fee for telecommunications
— the retail rate or consideration given by the consumer in exchange
for telecommunications — and thereby affect the incumbent LECs’
resale duty.
V
This brings us to the core issue — whether the NC Commission
correctly determined that the value of incentives such as gift cards,
checks, coupons for checks, or similar types of marketing incentives
extending for more than 90 days must be reflected in the retail rate
used for computing the wholesale rate that is to be charged to compet-
itive LECs under 47 U.S.C. § 252(d)(3).
The NC Commission concluded that when such incentives are
offered, the nominal tariff (the charge that appears on the subscriber’s
bill) is not the "retail rate charged to subscribers" under § 252(d)(3)
because the nominal tariff does not reflect the value of the incentives.
Retail subscribers are, in fact, charged less than the tariff rate because
they receive the added value of the incentives. BellSouth insists, how-
ever, that "a give-away such as a gift card is not a price reduction,
promotional or otherwise," but rather a marketing expense incurred
by it to compete in the marketplace for subscribers.
The parties agree, as we also observe, that because the term "retail
rate" is not defined in the Telecommunications Act, nor in the regula-
tions promulgated under it, the question of whether incentives impli-
cate the retail rate must be resolved in light of the pro-competition
policies of the Act. See Local Competition Order ¶ 949. The follow-
ing hypothetical demonstrates how the NC Commission viewed the
question in light of these policies.
Suppose BellSouth offers its subscribers residential telephone ser-
vice for $20 per month. Assuming a 20% discount for avoided costs,
see Local Competition Order ¶¶ 931-33, BellSouth must resell this
service to competitive LECs for $16 per month, enabling the competi-
tive LEC to compete with BellSouth’s $20 retail fee. Now suppose
that BellSouth offers its subscribers telephone service for $120 per
month, but sends the customer a coupon for a monthly rebate check
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for $100. According to the NC Commission’s orders, the appropriate
wholesale rate is still $16, because that is the net price paid by the
retail customer ($20), less the wholesale discount (20%). According
to BellSouth’s position, however, the appropriate wholesale rate
would be $96 (the nominal retail rate of $120, less the 20% discount
for avoided costs). Because its position would not account for the pro-
motional rebate check, BellSouth’s position would obviously impede
competition. The competitive LEC would have to pay BellSouth a
wholesale rate of $96 for the telephone service for which BellSouth’s
retail customers would pay only $20. Thus, as the NC Commission
observed, by structuring its offerings with incentives, BellSouth
would be able to price its competitors out of the market. Indeed, com-
petitive LECs have alleged just such a price squeeze in proceedings
currently before the FCC. See In re Petition of Image Access, Inc.
d/b/a NewPhone for Declaratory Ruling Regarding Incumbent Local
Exchange Carrier Promotions Available for Resale, Joint Comments
of ABC Telecom, et al., FCC Docket No. 06-129 (filed July 31,
2006), at 5-10.
While the anticompetitive effect of a smaller incentive would not
be as severe as in the hypothetical — indeed at some point an incen-
tive undoubtedly promotes competition — the line between an incen-
tive that is anticompetitive and one that serves as a pro-competitive
marketing tool is just the type of line that the FCC is authorized and
qualified to draw. Incumbent LECs have strong, indeed natural,
incentives to win in the marketplace, and the FCC recognized in its
Local Competition Order the real possibility that promotional offer-
ings could be used to circumvent the pro-competitive resale require-
ments of the Telecommunications Act. Local Competition Order ¶
948 ("no basis exists for creating a general exemption from the
wholesale requirement for all promotional or discount service offer-
ings made by incumbent LECs"). As the FCC ruled in its Local Com-
petition Order, "We, as well as state commissions, are unable to
predict every potential restriction or limitation an incumbent LEC
may seek to impose on a reseller. Given the probability that restric-
tions and conditions may have anticompetitive results, we . . . pre-
sume resale restrictions and conditions to be . . . in violation of section
251(c)(4)." Local Competition Order ¶ 939 (emphasis added).
That the FCC may have drawn the line — between an anticompeti-
tive incentive and a pro-competitive promotion — at the right place
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is, to some degree, indicated by the fact that both incumbent and com-
petitive LECs have complained about its location. As one commenta-
tor has observed, "The [incumbent LECs] regard the pricing scheme
as confiscatory and the arguments made on the scheme’s behalf as an
elaborate procedural smokescreen. The [competitive LECs] regard the
question of price as settled, and treat noncooperation as a deviation
from the required legislative standard." Richard A. Epstein, Takings,
Commons, and Associations: Why the Telecommunications Act of
1996 Misfired, 22 Yale J. on Reg. 315, 339-40 (2005) (discussing
unbundling requirements).
BellSouth contends that the "core issue before this Court" is the
"meaning of the term ‘promotion’ in the context of the Act and the
FCC’s First Report and Order." It argues at some length that when the
FCC stated that it was "only referring to . . . temporary price dis-
counts," the FCC was referring to tariff rate discounts (discounts
appearing on the subscriber’s bill for services). BellSouth asserts that
the Local Competition Order does not address promotional offerings
that do not result in a change in the tariff rate.
The NC Commission, however, exercising its statutory authority
under 47 U.S.C. § 252(d)(3), determined what comprised a "retail
rate" within the general parameters given by the FCC in its Local
Competition Order. The NC Commission concluded in its December
22, 2004 order that while gift card type promotions were
not discount service offerings per se because they do not
result in a reduction of the tariffed retail price charged for
the regulated service at the heart of the offerings, they do
result in a savings to the customers who subscribe to the
regulated service. The longer such promotion is offered, the
more likely the savings will undercut the tariffed retail rate
and the promotional rate becomes the ‘real’ retail rate avail-
able in the marketplace.
The question is not, as BellSouth seems to suggest, whether the NC
Commission’s determination was compelled by the Local Competi-
tion Order, but rather whether it was authorized by it. Given the lati-
tude afforded state commissions on this issue, we conclude that the
NC Commission properly read the FCC’s Local Competition Order
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to require incumbent LECs to do more than pass on to resellers only
monetary discounts from the tariff rate. This is based on the Local
Competition Order’s contextual language; on the comments that the
FCC had received in the course of crafting the order — comments
which addressed not only discounts from the tariff rate, but also
incentive-based promotions; and above all, on the Telecommunica-
tions Act’s overarching pro-competition purpose.
It is true that the FCC did not state explicitly what it was referring
to when it discussed "promotions and discounts" in its 1996 Local
Competition Order. But it made amply clear that it was referring to
any promotion or discount by which incumbent LECs could "avoid
the statutory resale obligation by shifting their customers to nonstan-
dard offerings, thereby eviscerating the resale provisions of the 1996
Act." Local Competition Order ¶ 948. Recognizing that promotions
and discounts could amount to "retail rates" and noting that Congress
did not define "retail rate," the FCC concluded that "‘retail rate’
should be interpreted in light of the pro-competitive policies underly-
ing the 1996 Act." Id. ¶ 949. Thus, it presumed that a promotion or
discount offered a subscriber for 90 days or less was pro-competitive,
whereas a promotion or discount offered for more than 90 days
became part of a retail rate that had to be offered to competing LECs.
Id. ¶ 950; see also 47 C.F.R. § 51.613(a)(2).
Both the FCC and the NC Commission thus understood that incen-
tives can sometimes be more than "marketing expenses"; they can be
devices used to create an uneven playing field. The NC Commission’s
orders addressed that concern well within the parameters set out by
the FCC in its Local Competition Order.
BellSouth argues that the NC Commission’s orders stack the deck
against it, denying it the opportunity to compete by using marketing
incentives unless it pays for those incentives twice — once in paying
for the incentives and again in reducing its retail rate for its competi-
tors. The competing LECs would respond in a like manner that, with-
out the orders, they would have to pay for the incentives twice in
order to compete — once when they pay for the service at a wholesale
rate that was not adjusted for the incentives and again when they pay
for similar marketing incentives to offer their own customers.
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The NC Commission reached a sensible middle ground, in har-
mony with the FCC’s judgment. The NC Commission observed, "[i]f
a promotion is offered for an indefinite extended period of time, at
some point it starts to become or look more like a standard retail
offering that should be subject to the duty to resell at the wholesale
rate." (Emphasis added). The NC Commission then concluded that
that point would be 90 days, the same period specified by the FCC
in its regulations and in its Local Competition Order. See 47 C.F.R.
§ 51.613(a)(2); Local Competition Order ¶ 950 ("We therefore estab-
lish a presumption that promotional prices offered for a period of 90
days or less need not be offered at a discount to resellers. Promotional
offerings greater than 90 days in duration must be offered for resale
at wholesale rates pursuant to § 251(c)(4)(A)"). In so ruling, the NC
Commission did not decide how to treat any particular incentive or
promotion. Rather, it established guidelines similar to those given by
the FCC in its Local Competition Order. Indeed, with respect to the
only specific promotion discussed, the "1FR + 2 Cash Back" offer,
the NC Commission indicated that it was inclined to allow the incen-
tive, even though it amounted to a restriction on resale and lasted
more than 90 days, because it was pro-competitive. See 47 C.F.R.
§ 51.613(b) (the incumbent LEC can impose any restrictions that it
can "prove[ ] to the State commission" are "reasonable and nondis-
criminatory").
We therefore conclude that the district court erred in concluding
that the NC Commission’s orders violated the Telecommunications
Act, the regulations promulgated under it, and the FCC’s Local Com-
petition Order. In reversing the district court and restoring the NC
Commission’s orders, we emphasize that the NC Commission has
invited BellSouth to show that any particular restriction on resale is
pro-competitive, reasonable, and not discriminatory.8
BellSouth argues further that as an accounting matter, the NC
Commission’s orders would unreasonably double-count its costs of
incentives. It claims that it accounts for incentives as "marketing
expenses" under the mandatory government accounting scheme. Such
8The tenor of the NC Commission’s orders suggests, for instance, that
the benefit of de minimus incentives such as merchandise or low-value
gift cards need not be passed on to resellers.
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marketing expenses are presumptively subtracted from the retail rate
as "avoided costs." See 47 U.S.C. § 252(d)(3) ("excluding . . . costs
that will be avoided by the local exchange carrier"); 47 C.F.R.
§ 51.609. And with the NC Commission’s order, BellSouth must
again account for the expense as a discount to the retail rate when
selling its services to competing LECs.
BellSouth’s argument, however, suggests a greater problem than
actually exists. If the costs of incentives were accounted as avoided
costs at the time the uniform wholesale discount was set, BellSouth
could seek approval to reduce the wholesale discount by an appropri-
ate amount. See 47 C.F.R. §§ 51.609 - 51.611. Moreover, the fact that
BellSouth currently chooses to put the cost of incentives in the mar-
keting account does not necessarily mean that it will do so in the
future. Conceivably, BellSouth could account for its incentive costs
as reductions in revenue in its revenue accounts, as the placement of
items in accounts is more art than science. See 47 C.F.R. § 32.5000
et seq. Indeed, BellSouth demonstrates its own understanding of this
flexibility by adopting a litigating position that appears to be inconsis-
tent with its tax position on these expenses. BellSouth has stated in
public filings that "marketing incentives, including cash coupons,
packaging discounts and free service are recognized as revenue
reduction and are accrued in the period the service is provided." Bell-
South Corp., Annual Report (Form 10-K), at 61 (Feb. 24, 2004)
(emphasis added). This flexibility that BellSouth has shown regarding
these expenses will surely help it find the optimal accounting treat-
ment in light of the NC Commission’s orders.
BellSouth also argues that it would not be able to establish a value
for some of the incentives for purposes of determining an effective
retail rate. It points out that the value to a customer of a rebate check
is less than the face value of the check because of the effort required
to redeem it. Similarly, a $100 gift card is also worth less than $100
cash, because a customer can only use the gift card for certain pur-
poses and must exert time and effort in spending it. Moreover, when
a promotion is given on a one-time basis in connection with an initial
offering of service, its value must be distributed over the customer’s
expected future tenure with the carrier and discounted to present
value. The degree of difficulty in valuing incentives might, in some
circumstances, support a claim that resale restrictions are reasonable
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and nondiscriminatory. But such issues can be negotiated between
BellSouth and competitive LECs or, failing success in negotiations,
resolved by the NC Commission.
BellSouth’s arguments are essentially arguments of impracticality
or difficulty, not arguments about what the law commands. Such
impracticalities and difficulties cannot, at least at the level identified
by BellSouth, determine its obligations under the Telecommunica-
tions Act, which often requires Herculean efforts on the part of
incumbent LECs to accommodate their competitors. We conclude that
the NC Commission’s ruling on BellSouth’s obligations under the
Telecommunications Act is supported by applicable law.
Accordingly, we reverse the judgment of the district court and
remand this case to that court with instructions to enter summary
judgment in favor of the Commissioners of the NC Commission.
REVERSED AND REMANDED
WILLIAMS, Chief Judge, concurring in part and in the judgment:
The majority interprets the Telecommunications Act of 1996, Pub.
L. No. 104-104, 110 Stat. 56 (1996) (the "Telecommunications
Act")’s definition of "telecommunications service" to mean that spe-
cial offers featuring gift incentives form part of the "offering of tele-
communications" that incumbent local exchange carriers (LECs) must
make available for resale to would-be competitors. I agree. For the
reasons that follow, however, I respectfully disagree with the portion
of the majority opinion suggesting that the NCUC did not resolve
whether the special offers at issue in this case are "promotions" within
the meaning of 47 C.F.R. § 51.613(a)(2) (2006) but rather indepen-
dently "established guidelines similar to those given by the FCC in its
Local Competition Order," ante at 20.
I.
A.
Like the majority, I believe that although we review de novo the
NCUC’s interpretations of the Telecommunications Act and the regu-
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lations and rulings of the FCC, the orders of the state commissions
nevertheless reflect "a body of experience and informed judgment to
which courts . . . may properly resort for guidance." Skidmore v. Swift
& Co., 323 U.S. 134, 140 (1944). It is important to note, however,
that this is an area in which the FCC has previously disagreed with
the state commissions, including the NCUC. See In the Matter of Am.
Commc’ns Servs., Inc., 14 F.C.C.R. 21579, 21605 n. 124 (1999) (cit-
ing favorably to MCI Telecomm. Corp. v. BellSouth Telecomm., Inc.,
7 F. Supp. 2d 674 (E.D.N.C. 1998), which invalidated a section of an
NCUC order setting out the terms of an interconnection agreement
providing that "[s]hort-term promotions shall not be available for
resale"); MCI Telecomm. Corp. v. BellSouth Telecomm., Inc., 40 F.
Supp. 2d 416, 426 n.9 (E.D. Ky. 1999) (noting that BellSouth had
withdrawn its argument that it was not required to resell contract ser-
vice arrangements (CSAs) at the wholesale rate after "the FCC made
clear that it disagreed with the PSC and other state commissions on
th[e] issue" and "informed BellSouth that it would not grant Bell-
South the authority to provide long distance service originating in any
state in which it provides local service if such CSA restrictions exist
in that state"); In the Matter of Application of BellSouth Corp., 13
F.C.C.R. 539 (1997) (FCC order requiring BellSouth to offer CSAs
for resale at the wholesale rate).
B.
FCC regulations require incumbent LECs to offer their telecommu-
nications services for resale to competing local providers (CLPs)
"subject to the same conditions" on which retail subscribers receive
them. 47 C.F.R. § 51.603 (2006). An incumbent LEC seeking to
impose a restriction on resale ordinarily must prove to the state com-
mission that the restriction is reasonable and nondiscriminatory. 47
C.F.R. § 51.613(b) (2003). There exist two exceptions, however, to
this requirement. Pursuant to 47 C.F.R. § 51.613(a), incumbent LECs
may prohibit resellers from engaging in "cross-class selling" and may
offer "short-term promotions" without applying the wholesale dis-
count to the promotional rate. 47 C.F.R. § 51.613(a)(1), (2). This case
requires us to resolve whether the NCUC correctly concluded that
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special offers featuring gift benefits are "promotions" within the
meaning of 47 C.F.R. § 51.613(a)(2).1
I agree with the district court that the FCC’s Local Competition Order2
limits the scope of the term "promotions" and therefore forecloses the
interpretation adopted by NCUC. In its Local Competition Order, the
FCC stated that, in discussing promotions, it was "only referring to
price discounts from standard offerings that will remain available for
1I agree with the majority that the NCUC’s orders did not conclusively
determine how to treat BellSouth’s "1FR + 2Cashback" offer or any
other specific offer. Rather, the NCUC sought to provide guidance on
how these types of special offers should be treated under the Telecom-
munications Act and its implementing regulations. I do not believe, how-
ever, that the NCUC sought to independently establish guidelines similar
to the FCC’s. The NCUC’s orders sought to provide guidance on
whether gift offers are subject to the resale requirements set forth in the
Telecommunications Act and the FCC regulations by determining
whether such offers (1) form part of an offering of telecommunications,
and (2) constitute "promotions" within the meaning of 47 C.F.R.
§ 51.613(a)(2). In its initial order, the NCUC agreed with commenters
and the Public Staff that "gift cards, checks, check coupons and similar
benefits offered as an inducement to purchase telecommunication ser-
vices . . .are promotional discounts." (J.A. at 25.) The NCUC’s Clarify-
ing Order emphasizes that the initial order "should not be read as a
change of law or policy," and that "[i]f the Commission is called upon
to determine whether a promotion offered for more than 90 days must be
offered to resellers at the promotional rate minus the wholesale discount,
the Commission will follow the law as stated in 47 U.S.C. 251(c)(4) and
47 C.F.R. 51.613(a)(2) and (b)." (J.A. at 43.) Thus, this case requires us
to resolve whether the NCUC’s interpretation of "the law as stated in . . .
47 C.F.R. 51.613(a)(2)," (J.A. at 43), — that special offers featuring gift
benefits are "promotions" within the meaning of 47 C.F.R.
§ 51.613(a)(2) — was correct. I therefore disagree with the majority
opinion to the extent that it suggests that the NCUC’s orders sought to
independently "establish[ ] guidelines similar to those given by the FCC
in its Local Competition Order." Ante at 20.
2In re Implementation of the Local Competition Provisions in the Tele-
comms. Act of 1996, Report and Order, 11 F.C.C.R. 15499 (1996), aff’d
in relevant part and remanded on other grounds, Iowa Utils. Bd. v. FCC,
120 F.3d 753, 819 (8th Cir. 1997), aff’d in part and remanded on other
grounds, AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999).
24 BELLSOUTH TELECOMMUNICATIONS v. SANFORD

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resale at wholesale rates, i.e., temporary price discounts." Local Com-
petition Order, para. 948. This statement makes clear that the FCC
intended the term "promotion" to refer only to temporary price dis-
counts. This interpretation is bolstered by the language of the regula-
tion itself, which provides that,
An incumbent LEC shall apply the wholesale discount to the
ordinary rate for a retail service rather than a special promo-
tional rate only if:
(I) Such promotions involve rates that will be in
effect for no more than 90 days; and
(ii) The incumbent LEC does not use such promo-
tional offerings to evade the wholesale rate obliga-
tion, for example by making available a sequential
series of 90-day promotional rates.
47 C.F.R. § 51.613(a)(2) (emphasis added). Thus, the regulation spe-
cifically contemplates a "special promotional rate" brought about by
the "temporary price discount" referenced in the Local Competition
Order.
The NCUC conceded that special offers featuring gift benefits are
not "discount service offerings per se because they do not result in a
reduction of the tariffed retail price charged for the regulated service
at the heart of the offerings," but reasoned that they "do provide a sav-
ings and therefore a type of discount to subscribers for the regulated
services provided." (J.A. at 33, 34.)3 The NCUC thus reasoned that
because anything of economic value given to a customer represents
a benefit to the customer that may offset the cost of service, "anything
of economic value paid, given, or offered to a customer to promote
or induce purchase of a . . . service offering . . . is a promotional dis-
count." (J.A. at 25.) Section 51.613(a)(2) and the Local Competition
Order, however, do not broadly encompass "anything of economic
value," (J.A. at 25), but instead contemplate only "temporary price
discounts" giving rise to "special promotional rates," 47 C.F.R.
3Citations to the "J.A." refer to the contents of the joint appendix filed
by the parties to this appeal.
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§ 51.613(a)(2); Local Competition Order, para. 948. Both legal and
non-legal dictionaries define a "discount" as "[a] reduction from the
full amount or value of something, esp[ecially] a price." Black’s Law
Dictionary 498 (8th ed. 2004); see also Merriam-Webster’s Colle-
giate Dictionary 357 (11th ed. 2004) (defining "discount" as "a reduc-
tion made from the gross amount or value of something: as a(1): a
reduction made from a regular or list price . . . .").
In addition to recognizing that gift offers are not discount service
offerings per se, the NCUC recognized that gift offers have different
anti-competitive effects than do direct price discounts. It determined
that gift offers "do not have the same degree of anti-competitive effect
that a direct discounting of the retail price would have on a reseller
market." (J.A. at 34.) The conclusion that gift offers do not have the
same degree of anti-competitive effect as price discounts undermines
the NCUC’s finding that gift offers are "promotional discounts."
The FCC’s determination that promotional rates "cease to be
‘short-term’ and must therefore be treated as a retail rate for an under-
lying service" if they are greater than 90 days in duration was the
result of a careful balancing of the pro- and anti-competitive effects
promotional prices. Local Competition Order, paras. 946-50; see also
47 C.F.R. § 51.613(a)(2). Accordingly, I believe we should not
expand 47 C.F.R. § 51.613(a)(2)’s exemption for short-term promo-
tions to one-time gift offers, which have a lesser anti-competitive
effect than do direct price discounts and to which the FCC did not
anticipate that the exemption would apply.4
C.
The majority opinion does not address the NCUC’s belief that gift
offers have lesser anti-competitive effects than price discounts.
Instead, it emphasizes that incentives to subscription may be "used to
create an uneven playing field," ante at 19, and seeks to demonstrate
potential anti-competitive effects by way of a hypothetical. The hypo-
4Notably, in arguing for a broad construction of the term "promotions,"
the NCUC commissioners stress that "[t]he statement in ¶ 948 was writ-
ten in 1996, long before the type of promotional offering at issue in this
case began to appear." (J.A. at 30.)
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thetical involves an incumbent LEC that sends its customers a
monthly rebate check. See Ante at 16-17. The NCUC’s orders, how-
ever, focused on one-time gifts offered as an inducement to subscrip-
tion. The NCUC issued its first order in response to the Public Staff’s
request for guidance on the applicability of the Telecommunications
Act’s resale obligations to such offers. The Public Staff argued that
"bill credits, gift cards, checks or coupons offered to customers by a
company’s regulated business . . . to encourage subscription to a regu-
lated service are promotions featuring price discounts." (J.A. at 24.)
In its first order, the NCUC agreed with the Public Staff that "gift
cards, checks, check coupons and similar benefits offered as an
inducement to purchase telecommunications services . . . are promo-
tional discounts." (J.A. at 25.) In its Clarifying Order, the NCUC
described its initial order as an "Order regarding resale obligations
applicable to one-time gift promotions." (J.A. at 47 (emphasis
added).) The Clarifying Order explains that the NCUC’s Order of
December 22, 2004 "requires that telecommunications services sub-
ject to the resale obligation of Section 251(c)(4) be resold at rates that
give resellers the benefit of the change in rate brought about by offer-
ing one-time incentives for more than 90 days." (J.A. at 46 (emphasis
added).)
Consideration of the one-time gift offers addressed by the NCUC’s
orders reveals an important distinction between such offers and price
discounts. A customer must continue to subscribe to an incumbent
LEC’s services to receive a discounted rate for those services. Cus-
tomers receiving one-time gifts with no corresponding obligation to
commit to a particular term of service, in contrast, may attempt to
take advantage of the special offer by signing up for the gift benefit
and cancelling their service soon or shortly thereafter. Moreover, the
time period during which the incumbent LEC makes a one-time gift
offer available does not affect the value of the gift. With a direct price
discount (or a recurring gift benefit), the longer the discount is
offered, the more savings a customer receives. With a one-time gift
offer, in contrast, the customer receives the same gift regardless of the
duration of the offer. Thus, whether the offer extends for more than
90 days would have a minimal impact on the anti-competitive effects
of the special offer.
Concluding that the gift offers at issue are not "promotions" within
the meaning of 47 C.F.R. § 51.613(a)(2) would not prevent the
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NCUC from exercising oversight over gift offers or allow incumbent
LECs to use this type of special offer to create an uneven playing
field. To the contrary, it would impose a greater burden on incumbent
LECs. Section 51.613(a)(2) allows restrictions on the resale of short-
term promotions as a narrow exemption to the general rule that
incumbent LECs "may impose a restriction [on resale] only if it
proves to the state commission that the restriction is reasonable and
non-discriminatory." 47 C.F.R. § 51.613(b). Accordingly, concluding
that gift-offers are not "promotions" would require incumbent LECs
to prove to the state commission that restrictions on the resale of all
offers including gift incentives (and not merely those lasting for more
than 90 days) were reasonable and nondiscriminatory. Such a case-
by-case analysis would allow the NCUC to apply its expertise in
assessing the pro- and anti-competitive effects of this particular type
of special offer. This assessment by the NCUC would better serve the
goals of the statute and the FCC regulations than applying an ill-
fitting exemption designed to address a different type of special offer
with admittedly different anti-competitive effects.
II.
In sum, I concur in the majority’s interpretation of the Telecommu-
nications Act and ultimate conclusion that special offers featuring gift
benefits offered for more than 90 days must be made available to
resellers in the form of a reduced wholesale price. I believe, however,
that one-time gift offers are not price discounts within the meaning of
the FCC’s Local Competition Order and therefore do not constitute
"promotions" within the meaning of 47 C.F.R. § 51.613(a)(2).
28 BELLSOUTH TELECOMMUNICATIONS v. SANFORD

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