7th Circuit Holds State Cannot Substitute Tariff Filing for Negotiations to Set Prices and Terms for Interconnection

August 12, 2003. The U.S. Court of Appeals (7thCir) issued its split opinion [18 pages in PDF] in Wisconsin Bell v. Bie, a case regarding the interconnection provisions of §§ 251 and 252 of the Communications Act. The Appeals Court that the Wisconsin's public utilities commission cannot order the regional Bell company to filed tariffs setting the prices and terms on which competitors can interconnect.

Avie Bie is a Commissioner of the Public Service Commission of Wisconsin (PSCW). Wisconsin Bell (Ameritech) is the incumbent local exchange carrier (ILEC) in the state of Wisconsin. The PSCW ordered Wisconsin Bell to file tariffs setting forth the price and other terms on which competitors can interconnect with its local telephone network.

The Telecom Act of 1996 provides that the competitors can require the local phone company to negotiate, in good faith, an agreement authorizing interconnection on mutually agreeable terms. And then, if negotiations fail, the competitor can seek arbitration by the state regulatory commission. Thus, the PSCW provided for a tariff, rather than a contract, route to obtaining inteconnection rights.

Also, the Court noted that the PSCW "ruled that the rates in the tariffs that it has required Wisconsin Bell to file must be based on the cost of the tariffed services as determined in accordance with cost-accounting procedures prescribed by the commission; specifically, the rates must be based on ``the sum of the Total Element Long Run Incremental Cost (TELRIC) and a reasonable allocation of forward-looking joint and common costs.´´"

Wisconsin Bell filed a complaint in U.S. District Court (WDWisc) against Avie Bie and the other PSCW Commissioners challenging the order. The District Court held that the order is barred by the Telecom Act of 1996. This appeal followed.

Judge Richard Posner wrote the opinion of the Appeals Court, affirming the District Court. Judge Easterbrook joined. Judge Cudahy wrote a lengthy dissent.

Judge Posner first summarized the rationale and the framework of the interconnection provisions of 47 U.S.C. §§ 251 and 252. "Local telephone companies such as Wisconsin Bell have a degree of monopoly power because of the cost to a competitor of duplicating the grid of telephone wires and switching equipment that constitutes a local telephone network. The competitor will find it difficult to compete unless it is interconnected with the local network. The Telecommunications Act of 1996 provides a machinery for encouraging interconnection. The competitor can require the local phone company to negotiate, in good faith, an agreement authorizing interconnection on mutually agreeable terms. If negotiations fail, the competitor can seek arbitration by the state regulatory commission, and the commission’s arbitral decision can be challenged in federal district court on the ground that the decision fails to comply with 47 U.S.C. §§ 251 or 252, sections that establish pricing and other standards for interconnection."

Posner wrote that the issue is "whether a state may create an alternative method by which a competitor can obtain interconnection rights."

He concluded that the PSCW's tariffing requirement is preempted by the Act. Nor is it saved by 47 U.S.C. § 261 (b), which provides that there is no preemption "if such regulations are not inconsistent" with the Act.

Judge Posner reasoned that "The requirement has to interfere with the procedures established by the federal act. 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. 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 appeal possible 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."

Judge Posner also commented on the legislative process and statutory interpretation. He wrote that "The commission and WorldCom argue that by providing an alternative means of obtaining interconnection, the state's tariff requirement promotes the procompetitive policy of the federal act. But to identify the policy underlying a statute and then run with it is a dangerous method of interpretation; it is likely to run roughshod over the compromise between interest groups that enabled the statute to be passed in the first place."

This is Wisconsin Bell, d/b/a Ameritech v. Avie Bie, et al. and WorldCom, Nos. 02-3854 and 02-3897, appeals from the U.S. District Court for the Western District of Wisconsin, D.C. No. 01-C-0690-C, Judge Barbara Crabb presiding.