Verizon North Inc. v. John G. Strand

*The Hono rable Herman J. Weber, United States District Judge for
the Southern District of Ohio, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0123P (6th Cir.)
File Name: 04a0123p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
VERIZON NORTH INC. et al.,
Plaintiffs-Appellees,
v.
JOHN G. STRAND et al.,
Defendants-Appellants,
COAST TO COAST
TELECOMMUNICATIONS, INC.,
Defendant.
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No. 02-2322
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 00-71442—George E. Woods, District Judge.
Argued: January 30, 2004
Decided and Filed: April 28, 2004
Before: MARTIN and MOORE, Circuit Judges; WEBER,
District Judge.*
2 Verizon North et al. v. Strand et al. No. 02-2322
_________________
COUNSEL
ARGUED: Michael A. Nickerson, OFFICE OF THE
ATTORNEY GENERAL, Lansing, Michigan, for Appellants.
Gerald Masoudi, KIRKLAND & ELLIS, Washington, D.C.,
for Appellees. ON BRIEF: Michael A. Nickerson, OFFICE
OF THE ATTORNEY GENERAL, Lansing, Michigan, for
Appellants. Gerald Masoudi, KIRKLAND & ELLIS,
Washington, D.C., Seth D. Gould, WEINNER & GOULD,
Troy, Michigan, for Appellees.
_________________
OPINION
_________________
KAREN NELSON MOORE, Circuit Judge. The Federal
Telecommunications Act of 1996 (the “1996 Act” or the
“Act”), Pub. L. No. 104-104, 110 Stat. 56 (1996) (codified in
various sections of 47 U.S.C.) fundamentally restructured
local telephone markets by ending the era of state-granted
telecommunications monopolies and by encouraging
competition among providers of local telephone service.
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1996). To
reach this objective, the 1996 Act required incumbent
telecommunications carriers to share their networks with
competitors in various ways. Nestled within the Act’s local
competition provisions is a detailed scheme for the creation
of interconnection agreements that serve as the foundation for
increased competition between Incumbent Local Exchange
Carriers (“incumbents”) and Competitive Local Exchange
Carriers (“competitors”). See 47 U.S.C. §§ 251, 252. The
Act’s regulatory scheme explicitly foresees but also clearly
circumscribes the participation of state regulatory entities in
the commencement and enforcement of interconnection
agreements. It is within this context that we consider the
extent to which a state regulatory commission can encourage

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No. 02-2322 Verizon North et al. v. Strand et al. 3
competitors to enter the market independent of the Act’s
provisions governing interconnection agreements.
Defendants-Appellants John G. Strand, Robert B. Nelson,
and David A. Svanda, in their official capacities as
Commissioners of the Michigan Public Service Commission
(“MPSC” or “Commissioners”), appeal a judgment of the
United States District Court for the Eastern District of
Michigan vacating an MPSC order. The MPSC order, issued
in February 2000, forced the corporate precursors of
Plaintiffs-Appellees Verizon North Inc. and Verizon North
Systems (collectively, “Verizon”) to pay reciprocal
compensation to Defendant Coast To Coast
Telecommunications, Inc. (“Coast”) for the costs of
terminating telecommunications traffic bound for Internet
Service Providers (“ISP”) served by Coast. Verizon
contended in federal court that the MPSC’s order conflicted
with the negotiation and arbitration provisions of the Act and
thus was preempted. The district court vacated the MPSC
order, and we AFFIRM for the reasons explained below.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. FACTUAL HISTORY
The dispute between Verizon, an incumbent, and Coast, a
competitor, concerns telecommunications traffic connecting
end-user consumers to ISPs through equipment owned by
Verizon and Coast. One of the purposes of the Act was to
create a mechanism that forced incumbents to provide
interconnectivity with the facilities and equipment of
competitors. Otherwise, incumbents could halt efforts to
increase competition in any local market. To this end,
Congress provided a statutory mechanism to encourage the
development of interconnection agreements between
competitors and incumbents. Coast did not have any such
agreement with Verizon. However, Coast did have an
interconnection agreement with Ameritech, a different
4 Verizon North et al. v. Strand et al. No. 02-2322
incumbent, under which Coast provided telephony and other
services within the territory of Ameritech.
When a Verizon customer attempts to contact an ISP that
is a Coast customer, the Verizon customer uses a computer
modem to place a “local” call to an ISP with an NPA/NXX
number assigned to Coast (NPA represents the area code,
NXX represents the first three digits of a seven-digit local
number). The call is first transferred to Ameritech’s facilities
before it is routed to Coast via Coast’s Pontiac Exchange
switch. Coast eventually connects the call to the ISP. The
presence of Ameritech as a carrier is necessary because Coast
neither provides local exchange service within Verizon’s
territory nor connects its facilities directly with those
belonging to Verizon. ISP-bound calls are considered to be
“local,” and end-users are charged for a local call only by
virtue of prior pronouncements of the Federal
Communications Commission (“FCC”) on the issue. In
reality, ISP-bound calls often travel beyond the local
exchange area, and the websites accessed via the ISP are often
located in different states or even different countries.
The chief dispute between Verizon and Coast revolves
around the costs of terminating telecommunications traffic.
Local carriers often reciprocally compensate each other for
the transportation and termination of local telephone calls
according to rates established in their interconnection
agreements. There has been considerable debate over
whether incumbents must broach the issue of reciprocal
compensation for the termination of ISP-bound “local calls”
when forming interconnection agreements, see infra pps. 14-
19, but in any event, Coast and Verizon had no
interconnection agreement.
Coast claimed that Verizon was responsible for the costs of
terminating ISP-bound traffic originating from Verizon
customers. Coast had filed a tariff with the MPSC pursuant
to which Coast established a rate of 1.5 cents per minute in
reciprocal compensation charges. Coast informed Verizon

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No. 02-2322 Verizon North et al. v. Strand et al. 5
that based upon 7.9 million minutes of ISP-bound traffic
between March 9 and July 31, 1999, Verizon owed Coast
almost $120,000. Verizon refused to pay. Consequently, on
August 18, 1999, Coast filed an application with the MPSC,
requesting that the MPSC resolve the dispute. Verizon
argued in response that the MPSC did not possess subject
matter jurisdiction over ISP-bound calls because they are
interstate in nature. Verizon also contended that it was not
required to pay reciprocal compensation for the termination
of calls in the absence of an interconnection agreement
negotiated or arbitrated pursuant to 47 U.S.C. §§ 251, 252.
The MPSC denied Verizon’s motion to dismiss on September
30, 1999, and held a full evidentiary hearing on November 4,
1999.
The MPSC made its ruling on February 22, 2000. It
exercised jurisdiction over the dispute even though Coast
relied “on its tariff, and not an interconnection agreement, as
the basis for imposing termination charges on [Verizon].”
Joint Appendix (“J.A.”) at 11. In so holding, the MPSC
relied on a past decision, Bierman v. CenturyTel of Mich.,
Inc., Case No. U-11821 (Mich. Pub. Serv. Comm’n Apr. 12,
1999), in which it ruled that interconnection between two
local exchange carriers can be accomplished by
interconnection agreement or by tariff. The MPSC rejected
Verizon’s argument that ISP-bound traffic was subject to the
exclusive jurisdiction of the federal government because it
was inherently interstate. In rejecting this contention, the
MPSC noted that even if the FCC did construe such traffic as
being interstate in nature, the FCC did not disrupt preexisting
state-commission decisions to the contrary. To further
support its holding that a state tariff can supplant an
interconnection agreement, the MPSC stated, “Although the
FCC may have assumed that an interconnection agreement
will be the typical setting in which reciprocal compensation
disputes over ISP traffic are resolved, it did not dictate that a
state act only in that context.” J.A. at 12. The MPSC
concluded that Verizon was responsible for the termination
charges.
6 Verizon North et al. v. Strand et al. No. 02-2322
1The original plaintiffs in this case were captioned as GTE North Inc.
and Contel of the South, Inc. However, by order of August 22, 200 0, the
district court granted the plaintiffs’ unopposed motion to change the
captioning to reflect the renaming of the plaintiffs as Verizon North Inc.
and Verizon North System s, respectively, in the w ake o f a corp orate
merger.
2Defendant Coast is not a party to this ap peal. At oral argum ent,
neither Verizon nor the Commissioners could explain Coast’s absence.
Coast is still operating, although it was purchased by Allegiance Telecom,
Inc. in September 2001.
Verizon brought an action against the Commissioners and
Coast in the U.S. District Court for the Eastern District of
Michigan on March 24, 2000, seeking declaratory and
injunctive relief.1 Both parties agreed to have the district
court decide the case without any additional discovery, and
both parties contended that they were entitled to summary
judgment. The district court initially rejected Verizon’s
contention that ISP-bound traffic was exempted from the
Act’s reciprocal compensation requirements because the
FCC’s regulations reaching such a conclusion had been
vacated by the D.C. Circuit. See WorldCom, Inc. v. FCC, 288
F.3d 429, 433 (D.C. Cir. 2002). The district court agreed
with Verizon that the MPSC erred when it required Verizon
to pay Coast in the absence of an interconnection agreement
between the parties. The court reasoned that using a state
tariff as a substitute for an interconnection agreement
sidestepped the negotiation and arbitration provisions of the
Act. See 47 U.S.C. § 252. Accordingly, the district court
held, “Because the MPSC approved [Coast]’s tariff without
the parties satisfying the clear dictates of § 252’s
negotiation/arbitration process, the MPSC acted contrary to
the [Act].” J.A. at 32. The district court vacated the MPSC
decision and remanded the case, and the Commissioners
timely appealed.2
On appeal, the Commissioners renew the argument they
presented at the district court, i.e., that state enforcement of

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No. 02-2322 Verizon North et al. v. Strand et al. 7
Coast’s tariff is not preempted by the Act. They aver that
interconnection agreements negotiated pursuant to § 252 are
not the exclusive manner by which incumbents can be made
responsible for reciprocal compensation. Verizon responds
by asserting that the MPSC is collaterally estopped from
challenging the district court’s ruling because of the MPSC’s
defeat in Verizon North, Inc. v. Strand, 309 F.3d 935 (6th Cir.
2002). Verizon also alternatively contends that the district
court was correct in its holding that the MPSC cannot order
a local exchange carrier to pay termination costs under a state
tariff in the absence of an interconnection agreement.
B. JURISDICTION
Verizon originally sought injunctive and declaratory relief
against the enforcement of the MPSC order. Based upon the
Supreme Court’s ruling in Verizon Md. Inc. v. Pub. Serv.
Comm’n of Md., 535 U.S. 635, 643-44 (2002), the district
court had subject matter jurisdiction pursuant to 28 U.S.C.
§ 1331. In Verizon Md., the Court explained that the Eleventh
Amendment does not bar a suit against the commissioners of
a state regulatory body under the doctrine of Ex Parte Young,
209 U.S. 123 (1908), when the suit is brought against the
individual commissioners in their official capacities and the
remedy sought is declaratory and/or injunctive relief. Verizon
Md., 535 U.S. at 648; see also Mich. Bell Tel. Co. v. MFS
Intelenet of Mich., Inc., 339 F.3d 428, 432-33 (6th Cir. 2003)
(applying the holding in Verizon Md.). We have proper
jurisdiction over the Commissioners’ appeal of a final
judgment of the district court, pursuant to 28 U.S.C. § 1291.
II. ANALYSIS
A. Standard of Review
The standard of review is multi-tiered because the district
court granted summary judgment in a review of a decision of
a state administrative body. We review de novo a district
court order granting summary judgment. MFS Intelenet, 339
8 Verizon North et al. v. Strand et al. No. 02-2322
F.3d at 433. Summary judgment is appropriate when “there
is no genuine issue as to any material fact and [] the moving
party is entitled to a judgment as matter of law.” Fed. R. Civ.
P. 56(c). The moving party has the burden of showing that
there is an absence of evidence “to establish the existence of
an element [that is] essential to” the nonmoving party’s
action. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). Verizon and the MPSC do not dispute any of the
facts in the state administrative record that the district court
adopted. Therefore, we must simply decide whether the
MPSC order was violative of the Act and thus was
preempted. See United States v. Cinemark USA, Inc., 348
F.3d 569, 575 (6th Cir. 2003).
The de novo summary judgment review must also “employ
the proper standard or standards of review for review of the
underlying state administrative ruling.” MFS Intelenet, 339
F.3d at 433. We “first review de novo whether a state public
service commission’s orders comply with the requirements of
the Telecommunications Act.” Id. We hold that the MPSC’s
order does not comply with the requirements of the Act, and
thus we do not reach the point of reviewing the state
commission’s interpretation of Coast’s tariff “under the more
deferential arbitrary-and-capricious standard of review
usually accorded state administrative bodies’ assessments of
state law principles.” Id.
B. Background of the Statutory Scheme
A brief foray into the mechanics of the Act’s
interconnection provisions is helpful. To further the goal of
deregulating the local telephony market, the Act places
certain duties and obligations on various classes of
telecommunication providers. All telecommunication
carriers, regardless of incumbent status, have “the duty [] to
interconnect directly or indirectly with the facilities and
equipment of other telecommunications carriers.” 47 U.S.C.
§ 251(a)(1). The Act creates obligations for local exchange
carriers generally, including a duty not to prohibit the resale

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No. 02-2322 Verizon North et al. v. Strand et al. 9
of their telecommunications services, 47 U.S.C. § 251(b)(1),
a duty to provide number portability, id. at § 251(b)(2), and
most pertinent to this appeal, a “duty to establish reciprocal
compensation arrangements for the transport and termination
of telecommunications” when competitors interconnect with
the incumbent’s network. Id. at § 251(b)(5); see also 47
C.F.R. § 51.701(a) (“The provisions of this subpart apply to
reciprocal compensation for transport and termination of
telecommunications traffic between [local exchange carriers]
and other telecommunications carriers.”). The Act also
prescribes a more specific mandate for incumbents by
requiring them to share their networks with competitors
through three mechanisms: 1) permit competitors to purchase
local services at wholesale rates for resale to end users, see 47
U.S.C. § 251(c)(4); 2) permit competitors to lease unbundled
elements of the incumbent’s network, see id. at § 251(c)(3);
and 3) permit competitors to interconnect their facilities to the
incumbent’s network, see id. at § 251(c)(2). See U.S. West
Communications, Inc. v. Sprint Communications Co., 275
F.3d 1241, 1244 (10th Cir. 2002) (describing the Act’s
structure). As part of these additional obligations for
incumbents, the Act imposes a “duty to negotiate in good
faith in accordance with section 252 of this title the particular
terms and conditions of agreements to fulfill the duties
described in [section 251(b)(1)-(5) and (c)].” 47 U.S.C.
§ 251(c)(1).
Section 252 describes the procedures for the negotiation,
arbitration, and approval of interconnection agreements. It
establishes an intricate regulatory scheme with various
burdens and responsibilities placed upon incumbents,
competitors, and state regulatory commissions. After a
competitor requests interconnection from an incumbent, “an
[incumbent] may negotiate and enter into a binding agreement
with the requesting telecommunications carrier or carriers
without regard to the standards set forth in [§ 251(b)-(c)].”
47 U.S.C. § 252(a)(1). During the course of these voluntary
negotiations, any party may request the state commission to
mediate. Id. at § 252(a)(2). However, if no agreement is
10 Verizon North et al. v. Strand et al. No. 02-2322
reached or if no negotiations commence within 135 days after
the competitor makes its initial request to enter into voluntary
negotiations, the competitor can petition the state commission
to arbitrate “any open issues” so long as the petition is made
within 160 days of the initial request. Id. at § 252(b)(1). The
Act provides detailed instructions and standards for the
arbitration process and the establishment of rates, which the
parties and the state commission must follow and implement
during the compulsory arbitration process. Id. at § 252(b)(2),
(c)-(d).
All interconnection agreements “adopted by negotiation or
arbitration shall be submitted for approval to the State
commission.” Id. at § 252(e)(1). The state commission can
reject an agreement only under limited circumstances, such as
when the agreement discriminates against another
telecommunications carrier not a party to the agreement, id.
at § 252(e)(2)(A)(i), or when the agreement “is not consistent
with the public interest, convenience, and necessity.” Id. at
§ 252(e)(2)(A)(ii). If the state commission fails to carry out
its responsibilities under § 252, the FCC can preempt the state
commission’s jurisdiction and assume responsibility for
carrying out the requirements of § 252. Id. at § 252(e)(5).
State courts do not have jurisdiction “to review the action of
a State commission in approving or rejecting an agreement”
under § 252, id. at § 252(e)(4), as all parties aggrieved by a
state commission determination regarding an interconnection
agreement must bring an action in federal district court. Id.
at § 252(e)(6).
The state’s role in assisting the process of interconnection
agreement formation is clearly bounded by the plain language
of § 252 of the Act. However, the Act does not completely
eliminate the role of the state commissions in regulating
interconnection between LECs. Section 251(d)(3) provides,
In prescribing and enforcing regulations to implement the
requirements of this section, the [FCC] shall not preclude

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No. 02-2322 Verizon North et al. v. Strand et al. 11
the enforcement of any regulation, order, or policy of a
State commission that —
(A) establishes access and interconnection obligations
of local exchange carriers;
(B) is consistent with the requirements of this section;
and
(C) does not substantially prevent implementation of
the requirements of this section and the purposes
of this part.
Id. at § 251(d)(3). Thus, the MPSC’s order may stand if it is
consistent with the requirements of § 252, but to the extent
the order is inconsistent with the Act or prevents its
implementation, the order is preempted.
C. Collateral Estoppel
As a threshold issue, Verizon contends that the
Commissioners are collaterally estopped from challenging the
district court’s ruling because of this court’s holding in
Verizon North, Inc. v. Strand, 309 F.3d 935 (6th Cir. 2002).
The MPSC had issued an order that required Verizon to file
a general tariff offering its network elements and services on
fixed terms to all potential competitors. Such a fixed-term
tariff allowed competitors to purchase services “directly off
of the tariff menu” from Verizon without first negotiating (or
even requesting negotiations) for an interconnection
agreement. Id. at 939. We held that the MPSC’s tariff
requirement was preempted because it was inconsistent with
the negotiation and arbitration system created by Congress.
Id. at 940-41.
While the issues presented in Verizon North are analogous,
the MPSC is not collaterally estopped from bringing this
appeal by our prior ruling. Collateral estoppel applies,
[W]hen (1) the issue in the subsequent litigation is
identical to that resolved in the earlier litigation, (2) the
issue was actually litigated and decided in the prior
12 Verizon North et al. v. Strand et al. No. 02-2322
action, (3) the resolution of the issue was necessary and
essential to a judgment on the merits in the prior
litigation, (4) the party to be estopped was a party to the
prior litigation (or in privity with such a party), and (5)
the party to be estopped had a full and fair opportunity to
litigate the issue.
Hammer v. INS, 195 F.3d 836, 840 (6th Cir. 1999). Collateral
estoppel is not proper here because the issue presented on
appeal is not “identical to that resolved in the earlier
litigation.” Id. In Verizon North, we determined that a state
commission order requiring Verizon to file a tariff in lieu of
a negotiated or arbitrated interconnection agreement was
preempted by the Act. Dissimilarly, we analyze whether a
state commission order requiring Verizon to pay termination
costs based upon a tariff unilaterally filed by Coast is
preempted by the Act. The issues are undoubtedly close, but
they are not identical because they involve separate MPSC
orders that differ in substance. Collateral estoppel does not
apply, but, as we explain below, the reasoning of Verizon
North establishes a principle that is equally, if not more
certainly, applicable here.
D. The MPSC’s Order Is Inconsistent With the 1996 Act
and Is Thus Preempted
We affirm the district court’s judgment vacating the MPSC
order because the MPSC order is inconsistent with the
negotiation and arbitration provisions of § 252 and thus is
preempted by the Act. As described above, our holding in
Verizon North is closely analogous and carries much
persuasive force. In that case, we agreed with the district
court, which had stated,
By requiring Verizon to file public tariffs offering its
network elements at wholesale services for sale to any
party, the MPSC's Order improperly permits an entrant
to purchase Verizon’s network elements and finished
services from a set menu without ever entering into the

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No. 02-2322 Verizon North et al. v. Strand et al. 13
process to negotiate and arbitrate an interconnection
agreement. It thus evades the exclusive process required
by the 1996 Act, and effectively eliminates any incentive
to engage in private negotiation, which is the centerpiece
of the Act.
Verizon North, 309 F.3d at 940 (quoting Verizon North, Inc.
v. Strand, 140 F. Supp. 2d 803, 810 (W.D. Mich. 2000)). We
noted that Congress “clearly stated its intent to supersede
state laws that are inconsistent with the provisions of the
[Act].” Id. We accordingly held that the MPSC order
bypasse[d] and ignore[d] the detailed process for
interconnection set out by Congress in the [Act], under
which competing telecommunications providers can gain
access to incumbents’ services and network elements by
entering into private negotiation and arbitration aimed at
creating interconnection agreements that are then subject
to state commission approval, FCC oversight, and federal
judicial review. This is “inconsistent with the provisions
of [the Act],” and therefore preempted.
Id. at 941.
In Verizon North, the MPSC contended that § 252 presents
local exchange carriers with one but not the sole option for
achieving interconnection. Under the MPSC’s logic, the Act
did not expressly provide that the negotiation and arbitration
mechanisms were the only methods for gaining
interconnection, and therefore other methods of achieving
interconnection, such as the enforcement of state tariffs, could
be used to create interconnection. Id. The MPSC analogized
to the Supreme Court’s holding in Verizon Communications,
Inc. v. FCC, 535 U.S. 467 (2002), when the Court “refused to
read the Act’s silence on any obligation or lack thereof on the
part of incumbents to bundle elements as an affirmative
statement that the imposition of any such obligation would be
inconsistent with the Act.” Verizon North, 309 F.3d at 941
(citing Verizon Communications, 535 U.S. at 534). We
14 Verizon North et al. v. Strand et al. No. 02-2322
3Additionally, future cha llenges to the specific terms of the Coast
tariff would have to be settled in state court, short-circuiting the statutory
grant of federal jurisdiction over negotiated/arbitrated interconnection
agreements. 47 U.S.C. § 252(e)(4), (6).
rejected the MPSC’s analogy because the “detailed procedural
scheme — including negotiation, arbitration, state
commission approval, FCC oversight, and federal judicial
review — set out in § 252 is central to the Act in a way that
the bundling requirement is not.” Verizon North, 309 F.3d at
941; see also Wisconsin Bell, Inc. v. Bie, 340 F.3d 441, 444
(7th Cir. 2003) (rejecting an identical tariff on similar grounds
and relying on our decision in Verizon North).
Our previous decision guides our outcome here. This
MPSC order required Verizon to pay termination costs to
Coast for ISP-bound calls on the basis of a state tariff filed by
Coast. There was no interconnection agreement, no request
for negotiations by Coast, and no state-administered
arbitration between Verizon and Coast in the event of
commenced, but stalled negotiations. Similar to the order in
Verizon North, the MPSC’s order here permits the MPSC to
bypass the federal statutory process for reaching an
interconnection agreement and to create a competitive
relationship via the filing of a unilateral tariff. Instead of
achieving a reciprocal compensation arrangement via the
negotiation and arbitration mechanism provided in the Act,
the MPSC permitted the institution of an interconnection
agreement by fiat.3 Such a result is inconsistent with the
elaborate statutory framework of § 252.
In one sense, we are presented with an easier case than
Verizon North because this order is even more inconsistent
with and more deleterious to the Act. The MPSC order in
Verizon North, and the state order at issue in the Seventh
Circuit Bie decision, required an incumbent to file a tariff
setting forth the rates for competitor interconnection,
including reciprocal compensation rates for termination of

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No. 02-2322 Verizon North et al. v. Strand et al. 15
4The Seventh Circuit opinion continued,
And it allows the other party to challenge the reservation price,
and try to get it lowered, by challenging the tariff before the state
regulatory commission, with further ap peal possib le to a state
court — even though Congress, in setting up the negotiation
procedure, explicitly excluded the state courts from getting
involved in it. At the very least, the tariff requirement
complicates the contractual route by authorizing a parallel
proceeding.
Wis. B ell, Inc. v. Bie, 340 F.3d 44 1, 444 (7th Cir. 2003).
calls. Competitors could then accept the terms if they wanted
to interconnect, reject them if they disliked the rates, or
employ the published rates as a starting point in negotiations.
As stated by the Seventh Circuit, such an order disrupts the
statutorily mandated interconnection process; “It places a
thumb on the negotiating scales by requiring one of the
parties to the negotiation, the local phone company, but not
the other, the would-be entrant, to state its reservation price,
so that bargaining begins from there.” Bie, 340 F.3d at 444.4
If the orders in Verizon North and Bie placed a thumb on
the negotiating scales, tipping them in favor of the
competitors, then this MPSC order was a fist slamming down
on the scales. The order does not just slightly unbalance the
negotiations by forcing the incumbent to show its hand. It
instead completely forestalls the need for negotiations.
Rather than just forcing the incumbent to reveal the rates it
wants to charge, which clearly disrupts the negotiations, this
MPSC order completely obviates the need for negotiations by
allowing the competitor to establish its own rate without any
interaction between the incumbent and the competitor.
Section 252 requires the competitor to initiate the bidding.
The Verizon North MPSC order was faulty because it forced
the incumbent to commence the negotiation process. From
the perspective of maintaining the viability of the § 252
interconnection agreement process, this MPSC order is much
more damaging — it completely removes the incumbent from
the negotiation process. This MPSC order eliminates the
16 Verizon North et al. v. Strand et al. No. 02-2322
virtues of negotiated competition ensconced in § 252, and it
eliminates all incentive to adhere to the federal statutory
process. Under the MPSC’s order, competitors in the future
would have the incentive to file a state tariff rather than
request a reciprocal compensation agreement under
§§ 251(b)(5) and 252.
One of the primary purposes of the Act is to increase
competition in the telephony marketplace. The Act is labeled
as “An Act To promote competition and reduce regulation in
order to secure lower prices and higher quality services for
American telecommunications consumers and encourage the
rapid deployment of new telecommunications technologies.”
Pub. L. No. 104-104, 110 Stat. 56, 56 (1996) (emphasis
added). Part of this statutory imperative is manifested in the
§ 252 process, which encourages private and voluntary
negotiation, backed by the threat of state-commission
intervention, to achieve interconnection. See H.R. Conf. Rep.
No. 104-458, at 124, 1996 U.S.C.C.A.N. at 135. The
MPSC’s order frustrates Congress’s intent by eviscerating its
chosen mechanism for increasing competition in the local
telephony market and by upsetting the intricate balance
between competitors and incumbents.
The MPSC unavailingly offers several counterarguments.
First, the MPSC suggests that two vacated FCC orders, which
attempted to resolve the question of whether ISP-bound calls
must be covered by interconnection agreements, confirm the
MPSC’s authority to regulate reciprocal compensation for
ISP-bound call termination in a manner not discussed by
§ 252. The MPSC’s contention fails because the FCC orders
it cites are not only inapplicable but are also inoperable, as
they have been struck down twice by the D.C. Circuit. See In
re Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996: Inter-Carrier
Compensation for ISP-Bound Traffic, Nos. 96-98/99-68, 14
F.C.C.R. 3,689 (Feb. 26, 1999) (“ISP Order”), vacated and
remanded by Bell Atl. Tel. Co. v. FCC, 206 F.3d 1 (D.C. Cir.
2000); In re Implementation of the Local Competition

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No. 02-2322 Verizon North et al. v. Strand et al. 17
5Our m ost recent holdings on the impact of the FCC ’s now-vacated
orders bolster the conc lusion tha t the FCC orders only refrained from
preempting state co mm issions’ inter preta tions o f pree xisting
Provisions in the Telecommunications Act of 1996:
Intercarrier Compensation for ISP-Bound Traffic, Nos. 96-
98/99-68, 16 F.C.C.R. 9,151 (Apr. 27, 2001) (“Remand
Order), vacated and remanded by WorldCom, Inc. v. FCC,
288 F.3d 429, 434 (D.C. Cir. 2002). Our opinion in Michigan
Bell Telephone Co. v. MFS Intelenet of Michigan, Inc., 339
F.3d 428, 435-36 (6th Cir. 2003), describes the tangled
history of the FCC’s decisionmaking in this area, and we see
no need to replicate it here.
These now-vacated FCC orders are ultimately irrelevant to
this action. The FCC’s ISP Order assured the lasting validity
of state-commission interpretations of preexisting reciprocal
compensation arrangements in light of the FCC’s decision to
classify ISP-bound traffic as exempt from § 251(b)(5). Under
the ISP Order, if two local exchange carriers had agreed to
reciprocal compensation in an interconnection agreement, but
did not explicitly discuss the issue of ISP-bound traffic, a
state commission’s judgment that the agreement included
ISP-bound traffic would stand. Because there was no
interconnection agreement between Coast and Verizon for the
MPSC to interpret, the ISP Order has no impact on this
appeal. The FCC’s Remand Order provided that if Verizon
were hypothetically negotiating an interconnection agreement
with Coast for the future, Verizon would be under no duty to
include a provision concerning reciprocal compensation for
the termination of ISP-bound traffic. Again, because no
interconnection agreement existed between Coast and
Verizon, the Remand Order is not relevant. Both FCC orders
presume the existence of an interconnection agreement with
reciprocal compensation provisions, and neither FCC order
explicitly or even implicitly suggests that state commissions
can employ tariffs to sidestep the negotiation and arbitration
process under § 252.5 Far from giving an alternative to § 252,
18 Verizon North et al. v. Strand et al. No. 02-2322
interconnection agreements. In Michigan B ell Telephone Co. v. MFS
Intelenet of Michigan, Inc., 339 F.3d 428 (6th Cir. 2003), we upheld an
MPSC order that reciprocal compensation was due to a competitor for its
costs of terminating ISP-bound traffic based upon the FC C’s O rders. W e
held that there was no reason to interfere with a state com mission’s
determination that reciprocal compensation is appropriate under the terms
of a specific contract. Id. at 435-36. The MFS Intelenet holding
presumed the existence o f an interconne ction agreem ent. Id.; see also
Mich. Bell Tel. Co. v. MCIMetro Access Transm ission Servs., Inc., 323
F.3d 348 (6th Cir. 2003 ) (upholding the M PSC’s interp retation of a
preexisting interconnection agreement).
6The MT A was to be repealed effective January 1, 2001, but it was
amended by 2000 P.A. 295 , which altered the repeal date to December 31,
2005.
the FCC orders confirm the importance and strength of the
§ 252 process, because the ISP Order refrained from upsetting
existing interconnection agreements that had been arrived at
through the negotiation process.
As a second counterargument, the Commissioners point to
several provisions of the Michigan Telecommunications Act
(“MTA”) and prior rulings of the MPSC to show that “[t]he
absence of an interconnection agreement between Verizon
and [Coast] does not preclude an MPSC order requiring the
payment of reciprocal compensation based upon the [Coast]
tariff . . . .” Strand Br. at 16. The MTA provides for the
establishment of interconnection agreements, the rates to be
paid for interconnection, and oversight by the commission.
See Mich. Comp. Laws §§ 484.2203, 484.2303(2), 484.2310,
484.2359.6 The MPSC, for its part, has ruled previously “that
interconnection can be accomplished by agreement or tariff.”
Bierman v. CenturyTel of Mich., Inc., No. U-11821, at 11
(Mich. Pub. Serv. Comm’n Apr. 12, 1999); see also In re
GTE North, Inc., No. U-11580, at 5 (Mich. Pub. Serv.
Comm’n Jul. 13, 1998). Yet, no matter the durability or the
consistency of the MTA’s provisions and the MPSC’s prior
rulings, this MPSC order cannot stand if it is inconsistent with
or prevents the implementation of the interconnection

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No. 02-2322 Verizon North et al. v. Strand et al. 19
agreement provisions of the 1996 Act. See 47 U.S.C.
§§ 251(d)(3), 261(b)-(c). As previously explained, the
MPSC’s order enforcing Coast’s tariff is inconsistent with the
Act and thus is preempted despite any state statutes or
regulatory findings to the contrary.
Third, the Commissioners direct our attention to several
district court cases as support for their views. In particular,
the Commissioners note an opinion of the United States
District Court for the Western District of Michigan that
allegedly explains how Verizon North is distinguishable from
this case. See Mich. Bell Tel. Co. v. Baraga Tel. Co., No.
2:00-CV-136 (W.D. Mich. Aug. 8, 2001). No matter how one
could interpret the holding in Baraga, to the extent that the
district court opinion there reaches a contrary conclusion to
our ruling in Verizon North, it is overruled.
III. CONCLUSION
The MPSC order is inconsistent with the negotiation and
arbitration provisions of the Act because it permits the state
commission to bypass the procedures established by
Congress. In doing so, the order distorts the negotiation
mechanism that Congress believed would best achieve the
intended goal of increased competition in the local telephony
market. Accordingly, the MPSC order is preempted.
Therefore, we AFFIRM the district court’s judgment
vacating the MPSC order.

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