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Indiana Bell Telephone Co. v. Stephan

United States District Court, S.D. Indiana, Indianapolis Division

March 27, 2017

CAROL STEPHAN, CAROLINE R. MAYS-MEDLEY, JIM HUSTON, ANGELA WEBER, and DAVID E. ZIEGNER, in their Official Capacities as Commissioners of the Indiana Utility Regulatory Commission and Not as Individuals, and SPRINT SPECTRUM, L.P., Defendants.



         This matter is before the Court on Plaintiff Indiana Bell Telephone Company, Inc., d/b/a AT&T Indiana's (“AT&T”) request for review of an Arbitration Order and resultant Interconnection Agreement issued by Defendants Carol Stephan, Caroline R. Mays-Medley, Jim Huston, Angela Weber, and David E. Ziegner, in their Official Capacities as Commissioners of the Indiana Utility Regulatory Commission and Not as Individuals the Indiana Utility Regulatory Commission (“IURC”). (Filing No. 1.) AT&T seeks a declaration that the IURC misapplied federal law in an Arbitration Decision issued on August 5, 2015. IURC and Defendant Sprint Spectrum, L.P. (“Sprint”) contend that the IURC properly applied federal law and that its findings should be upheld. For the reasons that follow, the Court REVERSES the challenged IURC findings and REMANDS the matter to the IURC for further proceedings.

         I. BACKGROUND

         This administrative appeal involves the highly technical framework of the Telecommunications Act of 1996, 47 U.S.C. §§ 151 et seq. (the “Telecommunications Act”). The Court incorporates some relevant statutory background in its recitation of the facts, as it will assist the reader in making sense of both the terminology and the administrative framework that this matter has developed within. See SprintCom, Inc. v. Comm'rs of Ill. Commerce Comm'n, 790 F.3d 751, 752-55 (7th Cir. 2015) (providing thorough description of statutory scheme and purpose).

         Congress passed the Telecommunications Act in order to “promote competition in the previously monopoly-driven local telephone service market.” Ind. Bell Tel. Co. v. McCarty, 362 F.3d 378, 382 (7th Cir. 2004) (citing Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 475-76 (2002)). It did so by requiring existing local telephone service providers (the former monopolists, or incumbent local exchange carriers, “ILECs”) to allow new entrants (or competitive local exchange carriers, “CLECs”), to use the ILECs' existing infrastructure. McCarty, 362 F.3d at 382; see also 47 U.S.C. § 251(c)(2). The ILECs must allow “interconnection” between the CLECs' and the incumbents' networks, enabling “the transmission and routing of telephone exchange service and exchange access.” 47 U.S.C. § 251(c)(2)(A). “This ensures that customers on a competitor's network can call customers on the incumbent's network, and vice versa.” Talk Am. Inc., v. Mich. Bell Tel. Co., 564 U.S. 50, 54 (2011).

         “Telephone exchange service” is telephone service within a local “exchange” (service) area. 47 U.S.C. § 153(54). “Exchange access” is the access to the local exchange that ILECs provide to long distance companies.[1] 47 U.S.C. § 153(20). By regulation, the Federal Communications Commission (“FCC”) has defined “interconnection” to mean “the linking of two networks for the mutual exchange of traffic.” 47 C.F.R. § 51.5. Such interconnection occurs at “entrance facilities, ” which are “the transmission facilities (typically wires or cables) that connect competitive [C]LECs' networks with [I]LECs' networks.” Talk Am., 564 U.S. at 54. In order to “make the interconnection requirement as inexpensive for new entrants as possible, ” the FCC requires that ILECs charge the CLECs certain cost-based rates, known as “TELRIC rates” for the use of certain of their facilities. SprintCom, 790 F.3d at 753-54 (citing 47 C.F.R. §§ 51.501, 51.503).

         A. Statutory Framework

         Section 252 describes the procedure by which a competing carrier enters into an interconnection agreement with an ILEC. 47 U.S.C. § 252. First, the requesting party sends a request to negotiate. 47 U.S.C. § 252(a)(1). If the parties cannot arrive at an interconnection agreement through negotiation, either party may petition the state utility commission to arbitrate any open issues. 47 U.S.C. § 252(b)(1). The non-petitioning party is allowed to respond, 47 U.S.C. § 252(b)(3), after which the state commission then rules on the open issues by applying federal law and FCC regulations. 47 U.S.C. § 252(c)(1), (d). After the state commission resolves the arbitration, the parties submit an interconnection agreement for the commission to review. 47 U.S.C. § 252(e)(1). The state commission may then approve or reject the interconnection agreement after applying the criteria outlined in Section 252(e)(2). If the state commission does not approve or reject the interconnection agreement within 30 days, the agreement is deemed approved. 47 U.S.C. § 252(e)(6). Any aggrieved party may then bring an action in federal district court to determine whether the agreement meets the requirements of Section 251. 47 U.S.C. § 252(e)(6).

         B. Procedural History

         AT&T is an ILEC under the Telecommunications Act. (Filing No. 1 at 2.) Sprint is a provider of Commercial Mobile Radio Service in Indiana and other states, and now competes with AT&T, the former monopolist incumbent. (Filing No. 1 at 2.) Sprint requested negotiations with AT&T for an interconnection agreement to succeed the parties' then-existing agreement. (Filing No. 1 at 5.) Negotiations did not result in an agreement, and Sprint filed a Petition for Arbitration with the IURC. (Filing No. 1 at 5.) The parties filed written testimony in support of their positions on the remaining issues. (Filing No. 1 at 5.) On August 5, 2015, the IURC issued its arbitration order (the “Arbitration Order”) that resolved all open issues. (Filing No. 1 at 6.)

         In order to implement the requirement of Section 251(c)(2) in its negotiations with Sprint, AT&T proposed language in the interconnection agreement making clear that “Sprint was entitled to use TELRIC-priced entrance facilities only for traffic mutually exchanged between the parties' end user customers.” (Filing No. 28 at 6.) Importantly, this excluded “traffic between Sprint's end user customers and a long distance carrier … where Sprint sought merely to use AT&T Indiana's network as an intermediary.” (Filing No. 28 at 6.) Sprint raised two arguments in opposition to AT&T's proposed language. First, Sprint argued that Section 251(c)(2) encompasses any traffic that Sprint may deliver through an AT&T Indiana switch, regardless of whether it is between end-user customers. The IURC rejected this interpretation, but held instead, per Sprint's alternative argument, that as long as Sprint is using a TELRIC-priced entrance facility for some permissible traffic, then it would be entitled to use the facility to exchange other types of traffic as well. (Filing No. 24-8 at 28.) The IURC also determined that AT&T would be required to bear 50% of the cost of the entrance facilities used by Sprint. (Filing No. 24-8 at 33.)

         On October 5, 2015, the parties filed the conforming interconnection agreement for review by the IURC. (Filing No. 28 at 4.) The IURC did not act to approve or reject the interconnection agreement, so it was deemed approved. (Filing No. 28 at 4.) AT&T now challenges certain findings made by the IURC as contrary to federal law. (Filing No. 1.)


         This Court reviews de novo the state commission's interpretations of the Telecommunications Act and the FCC's regulations. Ind. Bell Tel. Co. v. McCarty, 362 F.3d 378, 385 (7th Cir. 2004). The Court reviews questions of fact under the arbitrary and capricious standard. Id. Under this standard, the Court may not substitute its judgment for the arbitrator's. Id. But while the Court's review is highly deferential, “it is not a rubber stamp, ” and the Court will not uphold the arbitrator's decision if “there is an absence of reasoning in the record to support it.” Cerentano v. UMWA Health & Ret. Funds, 735 F.3d 976, 981 (7th Cir. 2013) (internal quotations and citations omitted).


         On appeal, AT&T challenges two of the IURC's decisions: (1) that Sprint is permitted to exchange traffic at TELRIC-based rates for traffic other than that between the parties' end-user customers; and (2) that AT&T is required to pay 50% of the cost of use of ...

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