SW Bell Telephone Co v. Public Util Cmsn TX, et al

United States Court of Appeals
Fifth Circuit
F I L E D
October 21, 2003
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 03-50107
Southwestern Bell Telephone Co.
Plaintiff-Counter-Defendant-Appellant,
VERSUS
Public Utilities Commission of Texas; Paul Hudson, Commissioner
of the Public Utility Commission of Texas; Rebecca Armendariz
Klein, Chairman of the Public Utility Commission of Texas; Julie
Parsley, Commissioner of the Public Utility Commission of Texas,
Defendants-Appellees,
and
AT&T Communications of Texas, LP, AT&T Communications of Texas,
Inc., also known as AT&T Communications; TCG Dallas; Teleport
Communications of Houston, Inc.,
Defendants-Counter-Claimants-Appellees.
Appeal from the United States District Court
For the Western District of Texas
Before BARKSDALE, DeMOSS, and BENAVIDES, Circuit Judges
DeMOSS, Circuit Judge:
Plaintiff-Appellant and Counter-Defendant, Southwestern Bell
Telephone Company ("Southwestern Bell") prevailed over AT&T

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1 A point of interconnection, or POI, is a point designated for
the exchange of traffic between two telephone carriers. It is also
the point where a carrier's financial responsibility for providing
facilities ends and reciprocal compensation for completing the
other carrier's traffic begins.
2
Communications of Texas, L.P., TCG Dallas, and Teleport
Communications Houston, Inc. (collectively "AT&T"), Defendants and
Counter-Plaintiffs and Cross-Appellees, in an arbitration conducted
by the Public Utility Commission of Texas ("PUC") and the
Commissioners of the PUC, Defendants and Cross-Appellees. The
arbitration ruling determined that AT&T, and not Southwestern Bell,
was responsible for paying the increased interconnection costs
resulting from Southwestern Bell having to carry traffic outside a
particular calling area to a distant point of interconnection
("POI") selected by AT&T.1 Both Southwestern Bell and AT&T
appealed the PUC order in district court under the Federal
Telecommunications Act. AT&T moved for summary judgment on the POI
issue. The district court granted final summary judgment for AT&T,
reversing the PUC order and remanding the case. Southwestern Bell
now appeals.
BACKGROUND AND PROCEDURAL HISTORY
Prior to the passage of the Federal Telecommunications Act
("the Act"), Southwestern Bell held a monopoly over the
telecommunications market in most of Texas and is considered an
incumbent local exchange carrier ("ILEC"). AT&T is a new entrant

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3
into the local telephone market in Texas and is termed a
competitive local exchange carrier ("CLEC"). The Act provides for
integration of competitive carriers with the existing networks of
incumbent carriers. The Act further provides for the voluntary
negotiation of interconnection agreements between ILECs and CLECs.
If the incumbents and competitive carriers cannot agree on terms
for interconnecting their networks, the Act provides for compulsory
arbitration of any disputed terms and conditions by the state
commission empowered to regulate intrastate telecommunications.
47 U.S.C. § 252(b) (2001). The relevant state commission in Texas
is the PUC. Tex. Util. Code § 52.002 (Vernon 1998).
On March 23, 2000, Southwestern Bell sought arbitration by the
PUC of all unresolved issues related to the negotiation of a
successor interconnection agreement with AT&T. After full
discovery, briefing, and a hearing conducted before PUC
arbitrators, an arbitration award was submitted to the PUC for
approval. In March 2001, the PUC issued its decision approving the
rulings of the arbitrators.
In its order, the PUC concluded that AT&T could select the
location of its POI on Southwestern Bell's network without cost
considerations, as long as the location was technically feasible.
However, the PUC decided that once technical feasibility was
established, costs could be taken into account in determining the
amount AT&T would have to pay Southwestern Bell for its proposed

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2 The PUC determined that an ILEC incurs transport costs as part
of providing interconnection within its network. In an effort to
identify a benchmark for computing appropriate reciprocal
compensation rates, the PUC established a de minimis traffic
threshold of 14 miles as a standard distance for local transport,
noting that an alternate compensation mechanism would need to be
established to address local traffic sent to a distant POI located
beyond the 14-mile limit.
4
interconnection plan.2 The PUC noted that § 252(c)(2)(D) of the
Act requires ILECs to provide interconnection "at rates, terms, and
conditions that are just, reasonable, and nondiscriminatory."
Therefore, the PUC held that pursuant to § 252(c)(2)(D), "the
interconnection rates to be paid by AT&T to recover the additional
costs incurred by [Southwestern Bell] in transporting the call to
the AT&T designated POI should be cost-based." Petition of
Southwestern Bell Tel. Co. for Arbitration with AT&T Comm. of Tex.,
L.P., TCG Dallas, and Teleport Comm., Inc. Pursuant to Section
252(b)(1) of the Federal Telecommunications Act of 1996, Pub. Util.
Comm'n of Texas Docket No. 22315, at 6. The PUC based its holding
on the rationale that "requiring the cost causer to absorb
additional costs incurred as a result of the siting of the POI . .
. is sound public policy," concluding that "[p]arties are therefore
encouraged to facilitate agreements that are also 'economically
feasible' once technical feasibility has been established." Id.
Southwestern Bell filed a complaint in the United States
District Court for the Western District of Texas, pursuant to
47 U.S.C. § 252(e)(6), appealing several of the PUC's decisions.
In response, AT&T filed counterclaims and cross-claims, including

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3 Specifically, AT&T argued that the FCC's "reciprocal
compensation" regulation, 47 C.F.R. § 51.703(b), required each LEC
to carry the traffic that originates within its network to the POI,
without receiving any compensation from the other LEC for that
portion of the traffic's travel. After handing off the traffic to
the other carrier at the POI, the originating LEC must, under the
reciprocal compensation rules, pay the other carrier for the
transport and termination (i.e., call completion) of the traffic
picked up at the POI.
4 A Local Access and Transport Area ("LATA") is a contiguous
geographic area for the provision and administration of
communications service, created by federal consent decrees opening
long-distance to competition in the 1980s. 47 U.S.C. § 153(25); 16
5
a motion for summary judgment on the POI issue. Among AT&T's
claims was its contention that the PUC violated the Federal
Communications Commission's ("FCC") "reciprocal compensation"
regulation by allowing Southwestern Bell to charge AT&T when
Southwestern Bell customers call AT&T customers (but not vice
versa) if the POI selected by AT&T is outside Southwestern Bell's
local calling area.3
On July 17, 2002, approximately four months prior to the
hearing in the district court presenting AT&T's motion for summary
judgment, the FCC published an arbitration decision in Petition of
WorldCom, Inc., et al., Pursuant to § 252(e)(5) of the
Communications Act for Preemption of the Jurisdiction of the
Virginia State Corporation Comm'n, 2002 WL 1576912 (2002),
("WorldCom") in which the FCC, on similar facts and under its
current regulations, confirmed that: 1) a CLEC is permitted to
choose to interconnect with ILECs at any technically feasible
point, including a single-LATA-POI;4 and, 2) an ILEC is prohibited

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Tex. Admin. Code § 26.5(116). Most states have more than one LATA,
and Texas has more than a dozen. In Texas, each LATA is named for
its most prominent city, e.g., the Austin LATA, the Houston LATA,
etc. Therefore, a LATA is larger than, but not synonymous with, an
"exchange area." The latter is a geographic area, usually
comprising of a city and its environs, in which calls therein are
treated as "local." 16 Tex. Admin. Code § 26.5(79),(117). An
ILEC's "local calling area" can include more than one exchange
area, such as in major metropolitan areas with "expanded local-
calling scopes." Id. § 26.5(117),(118).
6
from imposing charges for delivering its local traffic to a POI
outside the ILEC's local calling area. After the release of the
WorldCom decision, the PUC confessed that it erred on the issue of
POI cost calculation and requested that the district court remand
the issue back to the PUC for reconsideration in light of the FCC's
decision. The district court subsequently granted AT&T's motion
for summary judgment, declaring that the Act gives AT&T the right
to select any technically feasible location for a POI.
Furthermore, the district court concluded that the PUC's order
allowing Southwestern Bell to charge AT&T for delivering
Southwestern Bell-originated traffic to the POI when the POI is
outside Southwestern Bell's local calling area violates FCC
regulations.
On appeal, Southwestern Bell argues that the district court
erred in declaring unlawful the PUC's decision. Although
Southwestern Bell does not dispute the Act's requirement that an
ILEC must provide interconnection within its network at any
technically feasible point, it insists that the Act requires that
an ILEC recover "just and reasonable" rates for interconnecting

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CLECs to its network. Specifically, Southwestern Bell contends
that the PUC ruling properly approved the transport costs as
"interconnection terms" under 47 U.S.C. §§ 251(c)(2) and 252(d)(1),
rather than as "reciprocal compensation" under §§ 251(b)(5) and
252(d)(2). Southwestern Bell argues that the PUC has discretion
under §§ 251(c)(2)(D) and 252(d)(1) of the Act to set rates, terms,
and conditions of interconnection that are just, reasonable, and
non-discriminatory. Otherwise, according to Southwestern Bell, the
effect of the district court's order allows AT&T to make free and
beneficial use of Southwestern Bell's physical network by having a
single, remote POI whereas Southwestern Bell bears the burden of
transporting its own traffic out to the POI selected by AT&T.
AT&T argues that an ILEC, such as Southwestern Bell, without
consideration of economics, must allow a CLEC, like AT&T, to
interconnect at any technically feasible point pursuant to
47 C.F.R. § 51.305(a). Moreover, AT&T contends that allowing
Southwestern Bell to impose charges for hauling its originating
traffic to the POI selected by AT&T simply because the POI is
outside Southwestern Bell's local calling area is expressly
precluded by the FCC's "reciprocal compensation rules" pursuant to
47 C.F.R. § 51.703. Specifically, § 51.703(b) prohibits one LEC
from charging another carrier for transporting telecommunications
traffic that originates on the LEC's network. AT&T contends that
the PUC erred in considering the rates associated with transport
costs as "interconnection terms" rather than as "reciprocal

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8
compensation." AT&T also argues that the PUC's ruling is an
impediment to the pro-competitive purposes of the Act. Finally,
AT&T asserts that by granting AT&T's motion for summary judgment
and remanding the case to the PUC, the district court properly
invalidated the PUC's order as being contrary to binding FCC
precedent, and thus an erroneous application of federal law.
DISCUSSION
We review a district court's grant of summary judgment de
novo, applying the same standards as the district court. Tango
Transp. v. Healthcare Fin. Servs. LLC, 322 F.3d 888, 890 (5th Cir.
2003). Summary judgment is appropriate if no genuine issue of
material fact exists and the moving party is entitled to judgment
as a matter of law. Fed. R. Civ. P. 56(c).
To satisfy its pro-competitive purpose, the Act imposes on an
ILEC and CLEC a duty to negotiate the terms and conditions of
interconnection agreements in good faith. 47 U.S.C. § 251(c)(1).
In furtherance of this objective, an ILEC must provide a CLEC
interconnection within its network at "any technically feasible
point." Id. § 251(c)(2); see also AT&T v. Iowa Utils. Bd., 525 U.S.
366, 371-72 (1999). The FCC has determined that "technical
feasibility" does not include consideration of economic,
accounting, or billing concerns. 47 C.F.R. §§ 51.5, 51.305(a),
51.321. Further, the FCC has stated that § 251(c)(2) "allows

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9
competing carriers to choose the most efficient points at which to
exchange traffic with incumbent LECs, thereby lowering the
competing carriers' costs of, among other things, transport and
termination of traffic." First Report and Order, Implementation of
the Local Competition Provisions in the Telecommunications Act of
1996, 1996 WL 452885 (1996), modified, 1996 WL 557116 (1996),
partially vacated, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir.
1997), rev'd in part, AT&T v. Iowa Utils. Bd., 525 U.S. 366 (1999).
Recognizing that ILEC networks were not designed to accommodate
third-party interconnection, the FCC notes that ILECs are
nevertheless required "to adapt their facilities to interconnection
or use by other carriers," and "must accept the novel use of, and
modification to, its network facilities to accommodate the
interconnector.” Id. ¶ 202.
Section 251 of the Act, entitled "Interconnection," imposes on
ILECs "[t]he duty to provide, for the facilities and equipment of
any requesting telecommunications carrier, interconnection with the
local exchange carrier's network . . . at any technically feasible
point within the carrier's network . . . on rates, terms, and
conditions that are just, reasonable, and nondiscriminatory." Id.
§ 251(c)(2). Meanwhile, § 51.703 of the FCC regulations, entitled
"Reciprocal Compensation for Transport and Termination of
Telecommunications Traffic," prohibits an ILEC from assessing
"charges on any other telecommunications carrier for
telecommunications traffic that originates on the [ILEC]'s

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network."
Section 252(b)(1) of the Act expressly provides that a state
commission (i.e., the PUC) is empowered to arbitrate any "open
issues" concerning an interconnection agreement between
telecommunications carriers. The district court found that the
PUC, acting pursuant to this authority, issued an arbitration award
it later determined was inconsistent with FCC rules. The district
court determined that the transport costs imposed on AT&T by the
PUC were charges related to reciprocal compensation under
§ 51.703(b), rather than interconnection terms under § 251(c)(2),
and therefore, in violation of FCC regulations. The district court
noted that the FCC reciprocal compensation regulations are quite
specific in prohibiting Southwestern Bell from charging AT&T for
"local" traffic originating on Southwestern Bell's network, despite
the fact that the PUC had previously authorized Southwestern Bell
to do so. The district court also found it was not an
insignificant factor that the PUC, in light of the FCC's decision
in WorldCom, urged the district court to ignore the Commission's
original order as being erroneous and remand the case back to the
PUC. The district court concluded that the PUC order did not
comply with the current FCC rules and remanded the PUC's order back
to the PUC.
In light of the recent FCC decision in WorldCom, the PUC's
subsequent confession of error, and its own factual findings, the
district court properly determined that the transport costs imposed

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on AT&T by Southwestern Bell are governed by the FCC's "reciprocal
compensation" rules pursuant to § 51.703, rather than by
"interconnection terms" under §§ 251(c)(2)(D) and 252(d)(1) of the
Act. Therefore, the district court correctly remanded the case
back to the PUC to reform the interconnection agreement between
Southwestern Bell and AT&T in accordance with this determination.
CONCLUSION
Having carefully reviewed the record of this case, the
parties' respective briefing and arguments, and for the reasons set
forth above, we affirm the district court's grant of summary
judgment and remand of the case to the PUC to approve an
interconnection agreement consistent with the opinion of the
district court.
AFFIRMED.

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