Puerto Rico Telephone Co. v. Telecommunications Regulatory, et al

Filing

OPINION issued by Juan R. Torruella, Appellate Judge; Kenneth F. Ripple and Kermit V. Lipez, Appellate Judge. Published. [10-1091]

Case: 10-1091 Document: 00116168044 Page: 1

Date Filed: 02/07/2011

Entry ID: 5524513

United States Court of Appeals
For the First Circuit
No. 10-1091
CENTENNIAL PUERTO RICO LICENSE CORP.,
Plaintiff, Appellee,
PUERTO RICO TELEPHONE COMPANY, INC.,
Plaintiff, Appellant,
v.
TELECOMMUNICATIONS REGULATORY BOARD OF PUERTO RICO,
Defendant, Appellee,
VICENTE AGUIRRE ITURRINO; SANDRA TORRES LÓPEZ;
NIXYVETTE SANTINI HERNÁNDEZ,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. José Antonio Fusté, U.S. District Judge]
Before
Torruella, Ripple,* and Lipez, Circuit Judges.

Eduardo R. Guzmán-Casas, with whom Joe D. Edge, Christopher C.
Sabis and Drinker Biddle & Reath LLP were on brief, for appellant.
Robert F. Reklaitis, with whom Leslie Paul Machado and LeClair
Ryan were on brief, for appellee Telecommunications Regulatory
Board of Puerto Rico.

*

Of the Seventh Circuit, sitting by designation.

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Entry ID: 5524513

Christopher W. Savage, with whom Davis Wright Tremaine LLP was
on brief, for appellee Centennial Puerto Rico License Corp.

February 7, 2011

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RIPPLE, Circuit Judge.

Date Filed: 02/07/2011

Entry ID: 5524513

The plaintiff telecommunications

companies brought these consolidated actions in the United States
District Court for the District of Puerto Rico against defendantsappellees Telecommunications Regulatory Board of Puerto Rico ("the
Board")

and

various

individual

commissioners.

They

alleged

violations of federal and commonwealth law in connection with the
arbitration

and

approval

of

the

companies'

interconnection

agreements.

On cross-motions for summary judgment, the district

court issued an opinion and order granting in part and denying in
part summary judgment for the Board, granting in part and denying
in part summary judgment for plaintiff-appellee Centennial Puerto
Rico License Corporation ("Centennial"), vacating in part the
Board’s order on reconsideration and denying in full summary
judgment for plaintiff-appellant Puerto Rico Telephone Company,
Inc. ("PRTC").
decision.

We believe that the Board was correct in all aspects of

its order.
judgment

PRTC now seeks review of the district court’s

of

Therefore, we affirm in part and reverse in part the
the

district

court

and

remand

for

proceedings

consistent with this opinion.

I
BACKGROUND
A.

The Statutory Scheme
Congress enacted the Telecommunications Act of 1996 ("the
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Act") to reduce regulation of the telecommunications industry and
to end the historical monopoly of incumbent local exchange carriers
("LECs") over local telecommunications services.1

In addition to

removing state regulatory barriers to new entry, see 47 U.S.C. §
253,2 Congress sought to encourage competition by mandating that
carriers interconnect with one another and by requiring incumbent
LECs

to

share

elements

of

their

infrastructure with competing LECs.

existing

telecommunications

See id. §§ 251-252.

To achieve these goals, the Act creates "a three-tier
system of obligations imposed on separate, statutorily defined
telecommunications entities."

Atlas Tel. Co. v. Oklahoma Corp.

Comm'n,

(10th

400

F.3d

1256,

1262

Cir.

2005).

First,

all

telecommunications carriers have a duty "to interconnect directly
or

indirectly

with

the

facilities

telecommunications carriers."

and

equipment

47 U.S.C. § 251(a)(1).

of

other

Second, the

1

Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56, 56 (1996) (codified as amended in scattered sections of
Title 47 of the United States Code). The stated purposes of the
Act are "[t]o 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." Id.
2

In particular, subsection 253(a) provides that "[n]o State
or local statute or regulation, or other State or local legal
requirement, may prohibit or have the effect of prohibiting the
ability of any entity to provide any interstate or intrastate
telecommunications service," and subsection 253(d) instructs the
FCC to preempt any state or local laws, regulations or enactments
the FCC determines to be inconsistent with the provisions of
section 253. 47 U.S.C. § 253(a),(d).
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Act imposes a number of duties upon all LECs (both incumbent and
competing), including the duty "not to prohibit, and not to impose
unreasonable or discriminatory conditions or limitations on, the
resale of its telecommunications services."

Id. § 251(b)(1).

Finally, the Act obliges incumbent LECs to lease to competitors
unbundled

elements

of

their

existing

local

networks,

id.

§

251(c)(3), to interconnect calls from customers of one LEC to
customers of another LEC, id. § 251(c)(2), to allow competitors to
purchase the incumbents' services at wholesale rates and resell
those services at retail, id. § 251(c)(4), and to negotiate in good
faith the terms of providing interconnection and services to other
carriers, id. § 251(c)(1).

The Act also directs the FCC to

promulgate regulations implementing these provisions and to set
standards of service and interconnection.
Although

the

incumbent

LECs'

See id. § 251(d).
obligations

to

furnish

network elements and allow interconnection are mandatory, Congress
intended that the parties negotiate, in the first instance without
government intervention, the terms of use and interconnection. See
id.

§

252(a).

telecommunications

Section

252

providers

sets
to

forth
follow

the
in

procedures
requesting

for
and

negotiating the terms of these agreements.
Upon a request for access from a telecommunications
provider, an incumbent LEC must enter into good-faith negotiations
to reach a voluntary interconnection agreement.

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Id. § 252(a)(1).

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At any time during the negotiations, a party may ask a state
commission to participate as a mediator.

Id. § 252(a)(2).

If

negotiations prove unsuccessful, subsection 252(b) establishes a
mechanism through which any party may petition the state commission
to compel arbitration of any unresolved terms.

In addition,

subsection 252(e) requires any interconnection agreement reached by
negotiation or arbitration to be submitted to the state commission
for approval; it also specifies the grounds on which the commission
may reject the agreement.

See § 252(e)(1)-(2).

Specifically, a state commission may reject an arbitrated
agreement only if it finds that "the agreement prescribed by the
arbitrator (1) does not hold the carriers to their obligations
under section 251 . . . or (2) fails to meet the pricing standards
of section 252(d)."

WorldNet Telecomms., Inc. v. Puerto Rico Tel.

Co.,

5-6

497

F.3d

252(e)(2)(B)).

1,

(1st

Cir.

2007)

(citing

47

U.S.C.

§

In reviewing agreements, the state commission is

also bound by any standards set by the FCC.

See AT&T Corp. v. Iowa

Utils. Bd., 525 U.S. 366, 384-85 (1999); Global NAPs, Inc. v.
Verizon New Eng., Inc. (Global NAPs I), 396 F.3d 16, 19 (1st Cir.
2005).

Despite these limitations, the Act provides that "nothing

in this section shall prohibit a State commission from establishing
or enforcing other requirements of State law in its review of an
agreement,

including

requiring

compliance

with

intrastate

telecommunications service quality standards or requirements."

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47

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U.S.C.

§

252(e)(3).

A

party

Date Filed: 02/07/2011

dissatisfied

with

Entry ID: 5524513

the

state

commission's determination can seek review in federal district
court.

See id. § 252(e)(6).
The

Act

thus

engages

in

a

process

of

"cooperative

federalism," Puerto Rico Tel. Co. v. Telecomms. Regulatory Bd. of
Puerto Rico, 189 F.3d 1, 8 (1st Cir. 1999):

It sets certain

minimum interconnection and service obligations and provides the
FCC with the power to set general standards.

However, it also

leaves room for otherwise consistent state regulations, see 47
U.S.C. § 253(b),3 and it vests in the several state commissions the
authority to implement state policy and to impose additional,
individual

requirements

on

telecommunications

reviewing interconnection agreements.

providers

by

See Verizon New Eng., Inc.

v. Maine Pub. Utils. Comm'n, 509 F.3d 1, 7 (1st Cir. 2007)
(describing the "dual federal-state regime"); WorldNet, 497 F.3d at
9 (stating that "the Act sets a federally mandated floor of equal
service, and State commissions retain authority to ‘raise the

3

Subsection 253(b) provides:

Nothing in this section [prohibiting State and local
governments from creating barriers to entering the market
for telecommunications services] shall affect the ability
of a State to impose, on a competitively neutral basis
and consistent with section 254 of this title,
requirements necessary to preserve and advance universal
service, protect the public safety and welfare, ensure
the continued quality of telecommunications services, and
safeguard the rights of consumers.
47 U.S.C. § 253(b).
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bar'") (quoting Indiana Bell Tel. Co. v. McCarty, 362 F.3d 378,
391-93 (7th Cir. 2004)).
In order to strike a balance between federal and state
interests, the Act provides that the FCC "shall not preclude the
enforcement

of

any

regulation,

order,

or

policy

of

a

State

commission" that is "consistent with the requirements" of § 251 and
"does not substantially prevent implementation of the requirements
of [§ 251] and the purposes" of the Act.
(C).

47 U.S.C. § 251(d)(3)(B)-

The Act also disclaims--at least to a certain extent--

preemption of state law:
Nothing in this part precludes a State
from
imposing
requirements
on
a
telecommunications carrier for intrastate
services that are necessary to further
competition in the provision of telephone
exchange service or exchange access, as long
as
the
State's
requirements
are
not
inconsistent
with
this
part
or
the
Commission's regulations to implement this
part.
Id. § 261(c).

B.

Proceedings Before the Board
In 2005, PRTC, an incumbent LEC, and Centennial, a

competing LEC, completed two interconnection agreements, which they
renegotiated

in

2008.

During

the

renegotiation,

PRTC

and

Centennial failed to reach an agreement on eighteen issues, and
Centennial petitioned the Board, the commission responsible for
administering the Act in Puerto Rico, to compel arbitration.
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The

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Board-appointed arbitrator conducted a hearing, and then the Board
issued a decision resolving the outstanding issues.
Board modified its decision on reconsideration.4

Later, the

Three of those

issues are relevant here:

1.

Billing Dispute Fees

The 2005 agreements contained a term governing billing
disputes between the parties.

Under this term, if an invoiced

party disputed a service bill, that party was required to put the
invoiced amount in escrow. If the invoicing party prevailed in the
dispute, it was entitled to the escrowed funds plus interest and a
"late payment penalty."
2008, at 6).

R.1, Ex. 1 at 9 (Report and Order, Aug. 8,

The agreement did not provide, however, for a

reciprocal

erroneous

billing

penalty

if

the

invoiced

party

prevailed.

During renegotiation, Centennial (which, it seems, is

usually the invoiced party) wished to dispense with the late
payment

penalty,

and

PRTC

wished

to

retain

it.

The

Board

determined that the agreements would retain the late payment fee.
On

reconsideration,

determination.

the

Board

reversed

its

initial

In order to achieve symmetry, the Board decided

that the parties should either include both a "late payment fee"

4

See R.1, Ex. 1 (Report and Order, Aug. 8, 2008); R.1, Ex.
4 (Order on Reconsideration, Nov. 25, 2008). The Board’s order
addressed the twelve issues remaining after the parties reached a
settlement on six of the eighteen issues.
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and an "erroneous billing fee" or abjure both fees.

Entry ID: 5524513

R.1, Ex. 4 at

10 (Order on Reconsideration, Nov. 25, 2008) (quotation marks
omitted).

According to the Board, although it believed at first

that a late payment fee would compensate the party wrongly denied
use of the funds in a way that an erroneous billing fee would not,
upon

reconsideration

it

determined

that

the

party

billed

erroneously also was denied use of the funds while in escrow and
that an erroneous billing fee would encourage responsible billing
practices.

After the Board's order, the parties chose to include

both billing dispute fees.

2.

Direct Connection with Claro

PRTC operates a mobile telephone service carrier division
called Claro.5

When calls are made between customers of Claro and

customers of Centennial or its mobile service division, PRTC
facilitates an indirect connection (that is, a connection running
first from Centennial to PRTC's wired network and then to Claro
rather

than

Centennial

directly
a

from

transiting

Centennial

fee

for

the

to

Claro)

connection.

and

charges
Although

Centennial had reached direct connection agreements with most other

5

Our use of the term "mobile service carrier" refers to
providers
of
cellular
telephone
and
other
wireless
telecommunications services and is intended to capture what the FCC
and the Board call "commercial mobile radio service" providers or
"CMRS providers." See In re Interconnection & Resale Obligations
Pertaining to Commercial Mobile Radio Servs., 10 F.C.C.R. 10666,
10668 (1995); R.1, Ex. 1 at 35 (Report and Order at 32).
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mobile service providers in Puerto Rico, PRTC had refused to
facilitate negotiations between Claro and Centennial.
renegotiation,

Centennial

demanded

that

PRTC

During

either

use

commercially reasonable efforts to facilitate a direct connection
or cease charging the transiting fee.

The Board agreed in part,

giving PRTC three months to use "commercially reasonable efforts"
to facilitate a direct connection between Claro and Centennial.
R.1, Ex. 1 at 35 (Report and Order at 32) (quotation marks
omitted).

If a direct connection did not result, the Board would

require PRTC to explain why a direct connection was infeasible for
business, technical or efficiency reasons.

During that period of

explanation, Centennial could withhold transiting fees pending a
further

determination

by

the

Board.

The

Board

upheld

this

determination on reconsideration.

3.

Meet Points

The points at which Centennial's and PRTC's networks
physically interconnect (called "meet points," id. at 15 (Report
and Order at 12),) can be used to exchange many different types of
telecommunications traffic, but the 2005 agreements limited the
types of traffic permitted to be exchanged at the meet points to
certain,

specifically

enumerated

categories.

During

the

renegotiation, Centennial asserted that federal law provided it
with an absolute right to exchange any type of traffic it wished.

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As such, Centennial asked the Board to amend the agreements to
permit PRTC and Centennial to exchange "any lawful traffic."
(quotation marks omitted).

Id.

Centennial particularly was interested

in ensuring that the agreement permit voice-over internet protocol
("VOIP") traffic.

VOIP refers to calls routed in whole or in part

over the internet rather than over traditional telephone lines.
VOIP users can place telephone calls from their computers to, and
receive calls from, other computers or regular telephones, or can
place calls through VOIP-connected telephones.

Although the calls

are routed through the internet for the VOIP user, calls going to
or

originating

from

traditional

telephone

users

are

switched

through local exchange carriers, creating a substantial set of
interconnection issues.
The

Board

ruled

against

Centennial

on

this

point,

determining that federal law does not give Centennial a right to
exchange all types of traffic at meet points, that the FCC was
still wrestling with how to resolve issues posed by various types
of interconnection traffic, and that it would be more prudent to
limit

exchanged

traffic

to

categories

specifically

enumerated

absent a showing of anti-competitive efforts on the part of an LEC
to refuse reasonable interconnection requests.
On reconsideration, the Board retained its determinations
regarding the enumeration of permissible meet-point traffic.

In

addition, the Board refused Centennial's alternative request to

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enumerate specifically VOIP traffic in the agreements.

According

to the Board, Centennial had failed to demonstrate
that there is any need to specifically call
out
VoIP
traffic--which
can
encompass
different services--for special attention. We
understand that the Parties today exchange
VoIP traffic without difficulty. Obviously,
if the status of VoIP traffic changes in the
future, or if other circumstances warrant, the
Parties can renegotiate this provision.
R.1, Ex. 4 at 7.

C.

Proceedings Before the District Court
PRTC and Centennial filed separate petitions for review

in the district court under 47 U.S.C. § 252(e)(6), each alleging
that

the

Board

commonwealth
agreements.

law

violated
in

its

different

provisions

approval

and

of

federal

modification

of

and
the

After the petitions were consolidated, the companies

and the Board each moved separately for summary judgment.

The

district court held that the parties had stipulated that no genuine
issues of material fact existed and resolved which parties were
entitled to judgment as a matter of law on the various disputed
issues.

See Centennial Puerto Rico License Corp. v. Telecomms.

Regulatory Bd. of Puerto Rico, Nos. 08-2436, 09-1002, 2009 WL
4407214, at *1 (D.P.R. Nov. 25, 2009).6

6

The district court addressed five issues, only three of
which PRTC contests on appeal. Centennial and the Board do not
appeal the issues decided adversely to them.
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1.

Date Filed: 02/07/2011

Entry ID: 5524513

Billing Dispute Fees

With respect to the billing dispute fees, the district
court rejected PRTC's contention that Puerto Rico Law 213,7 which
Puerto Rico courts have held does not provide the Board with
jurisdiction to award damages in suits between telecommunications
providers,

prohibits

interconnection

the

agreement

Board
that

from

including

require

terms

in

an

one

telecommunications

provider to pay a penalty fee to another.

According to the

district court, PRTC's position was foreclosed by our holding in
WorldNet Telecommunications, Inc. v. Puerto Rico Telephone Co., 497
F.3d 1, 8 (1st Cir. 2007), that "neither the Act nor Puerto Rico
precedent forbids [the imposition of] incentive-based liquidated
damages" in an arbitrated interconnection agreement.

2.

Direct Connection with Claro

With respect to the transiting fees between Centennial
and Claro, the district court rejected PRTC's claim that the FCC's
decision not to promulgate regulations imposing interconnection
obligations on mobile service carriers preempts state authority to
require PRTC to make commercially reasonable efforts to facilitate
a direct connection between Claro and Centennial.

The district

court held, however, that the Board did not impose a direct
connection

7

requirement

as

such,

but

only

P.R. Laws Ann. tit. 27, §§ 265-272.
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a

requirement

to

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facilitate negotiations.

Date Filed: 02/07/2011

Entry ID: 5524513

The arbitration and approval of an

interconnection agreement did not constitute state regulation of
mobile service carriers. Further, the court noted that the Board's
decision was consistent with the FCC's fears that "'LEC-affiliated
[mobile service] carriers,' like Claro, might unreasonably deny
efficient connection" and with the FCC's suggestion that such a
"denial would justify regulatory intervention."
Rico

License

Corp.,

Interconnection

&

2009

Resale

WL

4407214,

Obligations

at

*5

Centennial Puerto
(quoting

Pertaining

to

In

re

Commercial

Mobile Radio Servs., 10 F.C.C.R. 10666, 10687-88 (1995)).

3.
With

Meet Points
respect

to

VOIP

traffic,

the

district

court

disagreed with Centennial's claim that federal law entitles it to
exchange all lawful traffic at meet points.

It agreed with

Centennial, however, that the Board's decision not to enumerate
VOIP traffic separately was arbitrary and capricious. According to
the court:
The parties agree that VoIP traffic does not
fall into any of the categories already
enumerated, yet Centennial and PRTC are
allowed to exchange VoIP traffic. Since the
Board decided that Centennial and PRTC must
maintain a list of allowed traffic, thereby
excluding all other traffic, its decision to
allow VoIP traffic without including it on the
enumerated list is arbitrary and capricious.
Thus, the Board erred in excluding VoIP
traffic from the enumerated list, to the
extent that VoIP traffic does not already fall
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under an enumerated category.
Id. at *9.

This appeal followed.

II
DISCUSSION
A.

Standard of Review
"Where as here judicial review is based on the agency

record, we apply to the agency ordinary review standards, accepting
the district court decision merely as it may be persuasive."
WorldNet, 497 F.3d at 5.

We review the Board's interpretations of

federal and state law de novo, see id. at 5, 11; Global NAPs I, 396
F.3d at 23, but we note that "it is customary where any doubt
exists

to

give

some

deference

to

the

agency

charged

with

administering the statute," WorldNet, 497 F.3d at 11.
We have not yet had occasion to determine the correct
standard for reviewing other determinations by the Board, such as
its findings of facts and applications of the law in resolving
disputes over the terms of an agreement; however, we have noted
that other circuits have applied an arbitrary and capricious
standard.

See Global NAPs I, 396 F.3d at 24 n.8 (citing MCI

Telecomms. Corp. v. Ohio Bell Tel. Co., 376 F.3d 539, 548 (6th Cir.
2004); U.S. West Commc'ns, Inc. v. Sprint Commc'ns Co., 275 F.3d
1241, 1248 (10th Cir. 2002); Sw. Bell Tel. Co. v. Waller Creek
Commc'ns,

Inc.,

221

F.3d

812,

816

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(5th

Cir.

2000);

US

West

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Entry ID: 5524513

Commc'ns, Inc. v. MFS Intelenet, Inc., 193 F.3d 1112, 1117 (9th
Cir. 1999)); cf. WorldNet, 497 F.3d at 5 (stating that "[t]he
ordinary standards for reviewing agency decisions are deferential
(in varying degrees) as to matters of fact, policy and application
of general standards, but de novo as to questions of law").
Because we must evaluate the Board's decision regarding VOIP
traffic,8

a

decision

based

on

findings

of

fact

and

policy

determinations, we now must determine the appropriate standard of
review. The parties all agree that arbitrary and capricious review
applies.

Our earlier decisions have implied that this standard of

review is the correct one, and we see no reason that "ordinary
standards for reviewing agency decisions," WorldNet, 497 F.3d at 5,
should not apply.

We therefore adopt the position taken by our

sister circuits and explicitly hold that, "where no error of law
exists, the state agency's other determinations are reviewed under
the arbitrary and capricious standard," Global NAPs I, 396 F.3d at
24 n.8.

B.

Billing Dispute Fees
We begin with PRTC's contention that, because the Board

lacks jurisdiction under Puerto Rico law to adjudicate claims for
damages between telecommunications carriers, it similarly lacks the
ability, when reviewing an interconnection agreement, to order or

8

See text ante p. 41.
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approve the insertion of monetary penalty provisions that are "akin
to an award of damages."

PRTC Br. 27.

As support, PRTC invites

our attention to two cases from Commonwealth courts that limited
the

ability

of

the

Board

to

act

as

a

traditional

court

in

adjudicating actions for damages or for fines that would result
effectively in the payment of damages to a third party (rather than
to the Board itself).

See Caribe Commc'ns, Inc. v. Puerto Rico

Tel. Co., 157 P.R. Dec. 203, 228 (2002); Pan Am. Tel. Co. v. Junta
Reglamentadora de Telecomunicaciones de Puerto Rico, Nos. KLRA
0300394, KLRA 0300400, KLRA 0300402, 2004 P.R. App. LEXIS 704 (P.R.
Cir. May 25, 2004).

These precedents, PRTC believes, apply with

equal force to the Board's authority to impose terms in arbitrated
interconnection agreements providing for liquidated damages or
penalties without the consent of all of the parties.
This is not the first time we have considered the Board's
authority

to

adopt

liquidated

interconnection agreement.

damages

provisions

in

an

In WorldNet, we reviewed the Board's

decision to reject an arbitrator's order including a liquidated
damages provision in an interconnection agreement between PRTC and
WorldNet, another LEC, because the amount of liquidated damages did
not correspond to predicted actual damages, and thus was "intended
to punish [PRTC], not to compensate WorldNet."

497 F.3d at 4.

We

took this statement to mean that the Board "assumed that liquidated
damages exceeding a reasonable estimate of damages to WorldNet were

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Entry ID: 5524513

forbidden either by Puerto Rico law or by something inherent in the
concept of liquidated damages."

Id. at 6.

We held that this assumption was erroneous. Not only are
Puerto Rico courts "more solicitous of liquidated damages clauses
than

their

Anglo-American

counterparts,"

id.

at

7,9

but

the

interconnection agreements are also a special breed of contract,
one that mixes the commercial interests of the parties with the
policy interests of the federal and state governments.

We noted

that
interconnection agreements are not ordinary
commercial contracts: the Act dictates their
creation; they are imposed by involuntary
arbitration and agency review if the parties
cannot agree; and their aim is to secure the
public benefit of competition.
Incentive
payments not limited to actual damages (e.g.,
civil penalties and criminal fines) are
familiar devices to achieve public ends. So
courts, as a matter of federal law, have
allowed states to approve interconnection

9

This difference can be explained by the fact that courts
grounded in the traditions of the civil law of continental Europe,
such as the courts of Puerto Rico, see Borschow Hosp. & Med.
Supplies, Inc. v. Cesar Castillo Inc., 96 F.3d 10, 15 (1st Cir.
1996), take a more forgiving view of penalty clauses than courts
grounded in the traditions of the English common law.
See
Aristides N. Hatzis, Having the Cake and Eating It Too: Efficient
Penalty Clauses in Common and Civil Contract Law, 22 Int'l Rev. L.
& Econ. 381, 383 (2002) (noting that in most civil law European
countries, "liquidated damages are readily enforced, as are penalty
clauses when they are not extravagant (sometimes even then) and
pure[] gambling"); cf. Richard A. Posner, Let Us Never Blame a
Contract Breaker, 107 Mich. L. Rev. 1349, 1352 n.12 (2009) ("[B]y
not distinguishing between liquidated damages clauses and penalty
clauses, the civil law expands freedom of contract, although civil
law judges do refuse to enforce clearly unreasonable damages
clauses." (internal quotation marks omitted)).
- 19 -

Case: 10-1091 Document: 00116168044 Page: 20

Date Filed: 02/07/2011

Entry ID: 5524513

agreements imposing liquidated damages that
include incentive elements exceeding actual
compensation.
Id. at 7.

Although we acknowledged that the Board may wish to

prohibit such provisions as an independent policy choice, we held
that, in making that determination, "the Board must recognize that
neither the Act nor Puerto Rico precedent forbids incentive-based
liquidated damages . . . and that the Board should not assume an
inability to use cost-based liquidated damages."

Id. at 8.

Recognizing the difficulty that WorldNet poses to its
position, PRTC attempts to explain why the doctrine of issue
preclusion should not prevent it from relitigating this issue even
though it failed to raise its theory about the Board's authority
during the WorldNet litigation.

We do not think that the issue

before us is best regarded as one of issue preclusion, but simply
as

one

of

binding

precedent.

Regardless

of

whether

WorldNet considered the particular theory now offered by PRTC, the
fundamental

holding

of

WorldNet

is

that

an

arbitrated

interconnection agreement may contain liquidated damages provisions
that are designed to create incentives or to approximate costs and
are inserted over the objection of one of the parties.
Nevertheless, PRTC invites us to overrule (or at least to
distinguish) WorldNet based on PRTC's assertion that, despite the
general appropriateness of penalty clauses under commonwealth law,
Puerto Rico courts have denied the Board itself the power to

- 20 -

Case: 10-1091 Document: 00116168044 Page: 21

require

the

addition

of

Date Filed: 02/07/2011

liquidated

damages

arbitrated interconnection agreements.

Entry ID: 5524513

provisions

into

WorldNet addressed the

Board's perception that Puerto Rico law forbids penalty clauses as
a general matter.

However, PRTC now has devised a new theory that

Puerto Rico law does not grant the Board specific jurisdiction to
impose liquidated damages provisions on unconsenting parties.

In

other words, the old theory targeted the content of the provision,
and the new theory targets the scope of the Board's authority to
require the provision.
At the outset, we note that the Board did not actually
mandate the inclusion of the erroneous billing fee.

Instead, it

declined to order the imposition of any fee related to billing
disputes and left to the parties the option to include--if they so
desired--reciprocal fee provisions.
that

reciprocal

fees

would

be

PRTC, apparently believing

better

than

no

fees

at

all,

voluntarily agreed to include both the late payment fee and the
erroneous billing fee.10

Thus, PRTC's challenge is not directed at

10

PRTC asserts that it did not agree voluntarily to the
erroneous billing fee. Instead, PRTC was "coerced" into accepting
the lesser of two evils: "either losing something to which it is
lawfully entitled (i.e., the opportunity to recover the costs
associated with not being paid for services rendered) or accepting
a proposal in which PRTC still could recover its costs but at the
expense of being exposed to the risk of an unlawful penalty." PRTC
Br.29 n.6.
This contention takes an overly narrow view of
voluntariness. PRTC may be entitled to be paid for its services,
but just as the prevailing party in a breach of contract action
usually is not entitled to its attorney's fees, PRTC is not
entitled to be compensated for the difficulty of collecting debts
owed to it. The standard measure of the lost use of funds is the
- 21 -

Case: 10-1091 Document: 00116168044 Page: 22

the

Board's

authority

to

mandate

Date Filed: 02/07/2011

terms,

but

Entry ID: 5524513

instead

at

the

possibility of including such terms in an interconnection agreement
at all.
Rico

That question actually is foreclosed by WorldNet:

law

does

not

prohibit

liquidated

damages

Puerto

provisions

in

arbitrated interconnection agreements.
More fundamentally, PRTC's theory regarding the Board's
jurisdiction
apply

to

is unpersuasive.
the

Board's

None of the cases that it relies on

function

interconnection agreements.

in

reviewing

arbitrated

Instead, those cases address the

Board's role in adjudicating lawsuits between carriers.

In Caribe

Communications, Inc. v. Puerto Rico Telephone Co., 157 P.R. Dec.
203, 208 (2002), a competing LEC sued PRTC before the Board for
breach of contract.

The Board asserted jurisdiction to adjudicate

the matter on the rationale that Law 213 provided it with the power
to adjudicate suits between carriers.

Id. at 209.

The Supreme

Court of Puerto Rico disagreed, holding that Law 213 does not
permit

the

Board

to

hear

a

suit

for

damages.

Id.

at

228.

According to the court, Law 213 does not confer expressly such a
jurisdiction.

Id. at 227-28.

Moreover, the Board's assertion of

interest those funds would have earned, and the invoicing party
already receives the interest generated by the escrowed funds if it
prevails. The presence or absence of an additional late payment
fee is a matter of contractual agreement dictated in part by
external factors, such as federal and commonwealth policy. The
Commonwealth's policy in this instance is that reciprocal fees will
deter both parties from engaging in petty and meritless billing
disputes and are more equitable than a one-sided late payment fee.
- 22 -

Case: 10-1091 Document: 00116168044 Page: 23

Date Filed: 02/07/2011

Entry ID: 5524513

implicit authority contradicted the purposes of Law 213 by removing
the ability of litigants to utilize judicial procedures designed to
guarantee

due

process

of

law

and

by

attempting

to

usurp

a

quintessential aspect of the judicial power traditionally vested in
courts.

Id.11
In Pan American Telephone Co. v. Junta Reglamentadora de

Telecomunicaciones de Puerto Rico, Nos. KLRA 0300394, KLRA 0300400,
KLRA 0300402, 2004 P.R. App. LEXIS 704, at *41 (P.R. Cir. May 25,
2004),

the

Puerto

Rico

Court

of

Appeals

built

upon

Caribe's

rationale, holding that Law 213 also does not permit the Board to
impose administrative fines if those fines would be paid by one
telecommunications carrier to a third party, such as another
telecommunications carrier.

The Board had promulgated regulations

providing for the imposition of fines upon telecommunications
providers to encourage compliance with the Act, Law 213 and Board
regulations.

Some of these fines were payable to the Board, but

others

payable

were

violation.

directly

to

another

party

harmed

by

a

See id. at *34-37.
The court determined that this latter arrangement was

11

Subsequently, the Puerto Rico legislature amended Law 213
to provide the Board with "primary and exclusive jurisdiction for
adjudicating any damages and losses claim caused by any natural or
juridical person to a user [of telecommunications services], except
for claims between telecommunications and cable companies," under
$5,000 and arising out of violations of Law 213, Board regulations
or service contracts.
P.R. Laws Ann. tit. 27, § 269j-1.
This
amendment by its terms excludes suits for damages, of whatever
amount, between telecommunications carriers.
- 23 -

Case: 10-1091 Document: 00116168044 Page: 24

improper.

Date Filed: 02/07/2011

Entry ID: 5524513

According to the court, because the Board could not

adjudicate

actions

for

damages

between

telecommunications

providers, it similarly was barred from imposing fines payable to
another provider harmed by a violation, which as a practical matter
was no different than awarding the provider damages.

See id. at

*40-41.
At

most,

Caribe

and

Pan

American

stand

for

the

proposition that the Board may not adjudicate a claim for a billing
penalty filed by Centennial or PRTC against the other company or
decide to award the fee in a suit for breach of the agreement.
That limitation, however, bears no relation to the Board's review
of disputed terms in an arbitrated agreement, a function akin not
to awarding damages but to imposing regulatory requirements.

See

Illinois Bell Tel. Co. v. Global NAPs Illinois, Inc., 551 F.3d 587,
591 (7th Cir. 2008) (noting that the "arbitration" specified by the
Act

"is

really

the

first

stage

in

a

regulatory

proceeding"

conducted by the state commission in reviewing and approving the
agreement (quotation marks omitted)).
Although, as PRTC observes, Law 213 applies to the Board
in the exercise of all of its powers, including adjudications,
rulemaking and reviewing interconnection agreements, Caribe and Pan
American reach only the first of those functions.

See WorldNet,

497 F.3d at 11 (holding that Caribe does not "establish any general
rule that the Board's powers are to be narrowly construed" in

- 24 -

Case: 10-1091 Document: 00116168044 Page: 25

Date Filed: 02/07/2011

Entry ID: 5524513

setting standards in interconnection agreements, a function which
is not "historically associated with judicial authority").

The

Board has not assumed the power to adjudicate claims between
Centennial and PRTC.

It did not decide that in a particular

instance a bill was justified or unjustified, nor has it awarded
judgment to Centennial or PRTC for an erroneous billing fee.

The

Board simply has employed its review authority to determine that
creating a duty and a corresponding remedy in the contract would
further the goals of the Act.

If, down the road, Centennial

believes that it is entitled to a fee and PRTC refuses to pay it,
Centennial still must bring an action against PRTC to recover.
Virtually every contract contains terms that contemplate
a future remedy of monetary damages.12

Thus, whenever the Board

imposes a term in an interconnection agreement, it creates the
framework for a potential award of damages.

See, e.g., Global

NAPs, Inc. v. Verizon New Eng., Inc. (Global NAPs IV), 603 F.3d 71
(1st Cir. 2010) (appeal of an award of damages for payments owed

12

See 24 Richard A. Lord, Williston on Contracts § 64:1 (4th
ed. 2002) (explaining that "[t]he primary if not the only remedy
for injuries caused by nonperformance of most contracts is an
action for damages for the breach" and that, usually, "a judgment
for damages will be given for any breach of any contract, unless
the right has been suspended or discharged" (footnote omitted));
Oliver Wendell Holmes, The Path of the Law, 10 Harv. L. Rev. 457,
462 (1897) ("The duty to keep a contract at common law means a
prediction that you must pay damages if you do not keep it,--and
nothing else.").
- 25 -

Case: 10-1091 Document: 00116168044 Page: 26

Date Filed: 02/07/2011

under an arbitrated interconnection agreement).13

Entry ID: 5524513

The billing

dispute fees are no different; they create future remedies that the
parties may invoke upon the other party's erroneous billing or
unjustified refusal to pay a bill, and they are designed both to
incentivize

attentive

billing

and

payment

practices

and

to

compensate the parties for the lost use of funds.
Although the contract itself specifies the proper amount
of liquidated damages (the "fee"), there is nothing exceptionable
about that arrangement.
or

cost-based

As WorldNet makes clear, incentive-based

liquidated

damages--at

least

as

far

as

interconnection agreements go--are permissible under Puerto Rico
law.

Accordingly, we reaffirm our holding in WorldNet that Puerto

Rico

law

does

not

prevent

the

inclusion--whether

voluntarily

negotiated, imposed by an arbitrator, or imposed by the Board--of
incentive- or cost-based liquidated damages in interconnection
agreements between telecommunications carriers.

13

See also, e.g., Illinois Bell Tel. Co. v. Global NAPs
Illinois, Inc., 551 F.3d 587, 591 (7th Cir. 2008) (holding that a
suit to collect charges provided for by an interconnection
agreement is based on state contract law); Core Commc'ns, Inc. v.
Verizon Pennsylvania, Inc., 493 F.3d 333 (3d Cir. 2007)
(determining the proper forum for a suit for damages predicated
upon breach of an interconnection agreement); ICG Telecom Grp.,
Inc. v. Qwest Corp., 375 F. Supp. 2d 1084 (D. Colo. 2005) (action
to compel arbitration over the payment of disputed bills as
provided for in an interconnection agreement); New Access Commc’ns,
L.L.C. v. Qwest Corp., 368 F. Supp. 2d 952 (D. Minn. 2005)
(examining an arbitration award of money damages for overcharges
made in violation of an interconnection agreement).
- 26 -

Case: 10-1091 Document: 00116168044 Page: 27

C.

Date Filed: 02/07/2011

Entry ID: 5524513

Direct Connection with Claro
We turn next to PRTC's claim that federal law preempts

the

Board's

reasonable

decision

efforts

to

to

Centennial and Claro.

require

facilitate

PRTC
a

to

direct

make

commercially

connection

between

PRTC's view is that by requiring PRTC to

facilitate the negotiation of a direct connection or lose its
transiting fees, the Board is using the threat of a penalty
obliquely to require Claro to agree to a direct interconnection
with Centennial, although the Act does not place an obligation on
mobile

service

carriers.

carriers

to

interconnect

directly

with

other

According to PRTC, this arrangement treads on an area

that Congress and the FCC intended to leave free from state
regulation.
Under

the

Supremacy

Clause

of

Article

VI

of

the

Constitution,14 Acts of Congress or pronouncements of "'a federal
agency acting within the scope of its congressionally delegated
authority'" may preempt inconsistent state laws or state regulatory
authority.

Global NAPs, Inc. v. Verizon New Eng., Inc. (Global

NAPs III), 444 F.3d 59, 71 (1st Cir. 2006) (quoting Louisiana Pub.
Serv.

Comm'n

v.

FCC,

476

U.S.

355,

14

369

(1986)).

Sometimes

"This Constitution, and the Laws of the United States which
shall be made in Pursuance thereof; and all Treaties made, or which
shall be made, under the Authority of the United States, shall be
the supreme Law of the Land; and the Judges in every State shall be
bound thereby, any Thing in the Constitution or Laws of any State
to the Contrary notwithstanding." U.S. Const. art. VI, § 2.
- 27 -

Case: 10-1091 Document: 00116168044 Page: 28

Date Filed: 02/07/2011

Entry ID: 5524513

preemption occurs through a clear statement of intent to preempt
state law.

Other times preemption occurs when state law directly

conflicts with the dictates or purposes of federal law or when
Congress

or

an

agency

has

created

a

regulatory

framework

so

comprehensive that it is intended to occupy the field to the
exclusion of state supplementation.

See Weaver's Cove Energy, LLC

v. Rhode Island Coastal Res. Mgmt. Council, 589 F.3d 458, 472-73
(1st Cir. 2009); see also Verizon New Eng., Inc., 509 F.3d at 9
("State regulation, even when authorized by local law, must give
way not only ‘where Congress has legislated comprehensively' in a
field with an aim to occupy it, but also ‘where the state law
stands as an obstacle to the accomplishment and execution of the
full

objectives

of

Congress.'"

(quoting

Louisiana

Pub.

Serv.

Comm'n, 476 U.S. at 368-69)).15

15

As we explained in Weaver’s Cove Energy, LLC,

To simplify a complex area of law, preemption
arguments are generally divided into three categories.
The first, express preemption, results from language in
a statute revealing an explicit congressional intent to
preempt state law. The second, field preemption, is that
Congress may implicitly preempt a state law by creating
a pervasive scheme of regulation. The third category is
conflict preemption. In this category, state law is preempted to the extent it actually conflicts with federal
law, that is, when compliance with both state and federal
law is impossible, or when the state law stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.
Weaver's Cove Energy, LLC v. Rhode Island Coastal Res. Mgmt.
Council, 589 F.3d 458, 472-73 (1st Cir. 2009) (internal citations
and quotation marks omitted).
- 28 -

Case: 10-1091 Document: 00116168044 Page: 29

Date Filed: 02/07/2011

Entry ID: 5524513

Certain state laws touching telecommunications, such as
those preventing competing LECs from entering the market, are
preempted by the terms of the Act.
Congress

took

pains,

however,

to

See 47 U.S.C. § 253(a).
preserve

traditional

state

authority over telecommunications services and to maintain a role
for states within the dual regulatory regime.

For instance, § 252

provides that "nothing in this section shall prohibit a State
commission from establishing or enforcing other requirements of
State law in its review of an agreement, including requiring
compliance
standards

with
or

intrastate

telecommunications

requirements."

Id.

§

service

252(e)(3).

quality

Section

261

similarly states that the Act does not prevent a state "from
imposing

requirements

intrastate

services

on

a

that

telecommunications
are

necessary

carrier
to

for

further

competition . . . , as long as the State's requirements are not
inconsistent with" the Act or the FCC's implementing regulations.
Id. § 261(c).
Whether

the

Act

or

the

FCC

have

preempted

state

telecommunications regulation thus depends on a determination that
a specific requirement is "inconsistent" with federal law; that is,
that the state directly has violated a clear statement in the Act
or FCC rules, or that the state's chosen means of regulation
clearly interfere with a federal policy goal or a method of
achieving that goal.

See Verizon New Eng., Inc., 509 F.3d at 9;

- 29 -

Case: 10-1091 Document: 00116168044 Page: 30

Global NAPs III, 444 F.3d at 72-75.

Date Filed: 02/07/2011

Entry ID: 5524513

Making this determination

requires us to examine carefully the specific language in the
congressional and FCC pronouncements that PRTC claims foreclose the
Board's decision.
PRTC locates explicit congressional intent to preempt
state regulation of mobile service interconnection in § 6002 of the
Omnibus Budget Reconciliation Act of 1993.16 Specifically, that act
provides

that

"no

state

or

local

government

shall

have

any

authority to regulate the entry of or the rates charged by any
commercial mobile service . . . , except that this paragraph shall
not prohibit a State from regulating the other terms and conditions
of commercial mobile services."

47 U.S.C. § 332(c)(3)(A).

reliance on this section is misplaced.

PRTC's

On its face, § 332(c)

preempts only state attempts to prevent new mobile service carriers
from entering the market or to regulate the rates charged for
wireless services, neither of which situation is at issue here.
Any other state regulation of mobile service providers remains
unaffected.
PRTC also contends that direct connection is not required
by law, by which it means that the Act does not specify whether
mobile service carriers must connect directly or indirectly with
other telecommunications carriers.

16

The Act places a general

Omnibus
Budget
Reconciliation
Act
of
1993
§
6002(b)(2)(A)(iii), Pub. L. No. 103-66, 107 Stat. 312, 394 (1993)
(codified in relevant part in 47 U.S.C. § 332).
- 30 -

Case: 10-1091 Document: 00116168044 Page: 31

interconnection

obligation

Date Filed: 02/07/2011

(direct

or

Entry ID: 5524513

indirect)

on

all

telecommunications providers, including mobile service providers,
but imposes the stricter duty of direct connection and state
arbitration only on incumbent LECs.

See id. § 251(a)-(c).

As PRTC

contends, the FCC has declined to treat mobile service providers as
LECs subject to the more strenuous obligations in the three-tier
framework.17 See Atlas Tel. Co., 400 F.3d at 1262 & n.3 (explaining
that "[t]he FCC has determined that [mobile service] providers
qualify as telecommunications carriers, and thus are subject to the
provisions of § 251(a)" but distinguishing these provisions from
the obligations imposed on LECs in § 251(b)-(c) (internal quotation
marks omitted)); In re Implementation of the Local Competition
Provisions in the Telecomms. Act of 1996, 11 F.C.C.R. 15499, 1599596 (1996) (order from the FCC "declin[ing] at this time to treat
CMRS providers as LECs" and determining that "states are preempted
from requiring CMRS providers to classify themselves as 'local
exchange carriers'").

On this view, the Board lacks the authority

to require PRTC to facilitate negotiations because federal law does
not require Claro to connect directly or to engage in mandatory
interconnection arbitration.
Although sections 253 and 332 do not interfere with the
Commonwealth's power to establish regulations for the provision of

17

For an explanation of the three-tiers of obligations
imposed by the Act on various telecommunications entities, see the
discussion in section I.A., supra.
- 31 -

Case: 10-1091 Document: 00116168044 Page: 32

Date Filed: 02/07/2011

Entry ID: 5524513

mobile services additional to the requirements of the Act, see 47
U.S.C. §§ 253(b), 332(c)(3)(A), we note, without deciding, that it
is not at all clear that the Act itself gives the Board the
authority to use the interconnection arbitration and review process
to

impose

interconnection

requirements

affiliated mobile service carrier.

on

an

incumbent

LEC-

See Qwest Corp. v. Arizona

Corp. Comm'n, 567 F.3d 1109, 1117 (9th Cir. 2009) (holding that
"all state commission arbitration authority under Section 252 is
inextricably tied to the duties imposed under Section 251" and
cannot be extended to duties created by other sections of the Act);
Qwest Corp. v. Pub. Utils. Comm'n of Colorado, 479 F.3d 1184, 1197
(10th Cir. 2007) (stating that the commission "may only compel an
[incumbent LEC] to arbitrate with respect to services that it is
under a duty to provide").
Here, however, the Board has set its sights not on Claro,
but on PRTC's transiting fee, a matter subject to arbitration under
the Act.

Because of PRTC's refusal to articulate any sort of

justification

for

why

it

has

impeded

negotiations

between

Centennial and Claro, the Board concluded that PRTC very likely was
motivated by a desire to raise Centennial's costs.

As we have

noted, most mobile service providers in Puerto Rico have agreed to
establish direct connections with Centennial.

The reason for this

is simple. By connecting directly where technically feasible, both
companies

are

able

to

lower

their

- 32 -

costs

by

cutting

out

the

Case: 10-1091 Document: 00116168044 Page: 33

middleman's transiting fee.

Date Filed: 02/07/2011

Entry ID: 5524513

The only person who would object to

such an arrangement would be the middleman himself.

In this case,

however, the middleman controls Claro, giving it an obvious motive
to prevent direct connection and to impose a transiting fee that
raises Centennial's costs but has less of an effect on its own
(because Claro will not have to pay itself).

Therefore, as a

condition of continuing to charge a transiting fee, the Board
included

a

requirement

in

the

agreement

that

PRTC

would

use

commercially reasonable efforts to facilitate a direct connection.
WorldNet again provides important guidance.

A second

issue in WorldNet was whether the Board could require PRTC to
provide
"superior

a

competing
to

customers."

the

LEC

service

with

service

[PRTC]

.

.

performance
.

provided

standards

to

its

WorldNet, 497 F.3d at 8 (emphasis omitted).

own
PRTC

contended that because the Act required incumbent LECs only to
provide service "at least equal in quality to that provided by the
local exchange carrier" to others, 47 U.S.C. § 251(c)(2)(C), the
Board had no authority to oblige incumbent LECs to provide any
greater amount of service.

We disagreed.

Although the Act does

not establish a right to superior service, we explained, the Act
does not forbid states from imposing requirements above those
mandated by Congress or the FCC.

WorldNet, 497 F.3d at 9.

We also

determined that Commonwealth law permitted the Board to impose such
requirements:

"[T]he Board is endowed with general regulatory

- 33 -

Case: 10-1091 Document: 00116168044 Page: 34

Date Filed: 02/07/2011

Entry ID: 5524513

powers and is entitled to read its grant of authority broadly."
Id. at 12.
To be sure, the Act itself also does not require PRTC to
facilitate negotiations as part of its obligation to interconnect
telecommunications carriers. Yet, it certainly does not forbid it,
nor does it forbid state commissions from exercising their own
authority in order to effectuate state policy.
("[L]ocal

agencies

make

policy

on

their

See id. at 7

own[,]

and

section

252(e)(3) reserves the Board's authority to 'establish[] . . .
requirements of State law in its review of an agreement' (emphasis
added).

And

the

Act,

although

imposing

certain

federal

requirements, is intended to defer to state agencies on matters
that do not compromise the achievement of federal aims." (third
alteration and ellipsis in original)).
the

power

service

to

and

practices.

adopt
consumer

policies
welfare

Law 213 grants the Board

promoting
and

competition,

penalizing

efficient

anti-competitive

See P.R. Laws Ann. tit. 27, §§ 265, 267(a), 267f.

It

was well within the scope of that power to target perceived anticompetitive

behavior

and

to

adopt

a

policy--the

denial

of

transiting fees if PRTC's failure to facilitate negotiations cannot
be justified on business, technical or efficiency grounds--designed
to address that behavior and to promote competition, efficiency and
consumer welfare.
Finally, PRTC points to two orders issued by the FCC,

- 34 -

Case: 10-1091 Document: 00116168044 Page: 35

Date Filed: 02/07/2011

Entry ID: 5524513

which declined to promulgate regulations that would establish
interconnection standards for mobile service carriers.

In those

orders, the FCC stated that, because most mobile service providers
do not possess the same sort of market power in the provision of
local telecommunications services as does an incumbent LEC, the FCC
preferred to rely primarily on voluntary private agreements to
achieve interconnection.

See In re Interconnection & Resale

Obligations

Commercial

Pertaining

to

Mobile

Radio

Servs.,

15

F.C.C.R. 13523, 13528 (2008); In re Interconnection & Resale
Obligations

Pertaining

F.C.C.R. at 10684-86.

to

Commercial

Mobile

Radio

Servs.,

10

The FCC also stated that it stood ready to

intervene should later developments--such as attempts by LECaffiliated

mobile

service

providers

to

impede

efficient

interconnection--demonstrate a need for general standards.
Interconnection

&

Resale

Obligations

Pertaining

Mobile Radio Servs., 10 F.C.C.R. at 10687-88.

to

In re

Commercial

PRTC interprets

these decisions as establishing a clear intent on the part of the
FCC

both

to

assert

exclusive

authority

over

mobile

service

interconnection and to prevent states from interfering with its
scheme

of

voluntarily

negotiated,

private

interconnection

agreements involving mobile service carriers.
We have stated previously that the structure created by
the Act demands that the FCC make its intent to foreclose state
regulation especially plain:

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Date Filed: 02/07/2011

Entry ID: 5524513

The requirement of a clear indication of
the agency's intent to preempt is especially
important in the context of the TCA, which
"divide[d] authority among the FCC and the
state commissions in an unusual regime of
'cooperative federalism,' with the intended
effect of leaving state commissions free,
where warranted, to reflect the policy choices
made by their states."
Global NAPs III, 444 F.3d at 72 (quoting Global NAPs, Inc. v.
Massachusetts Dep't of Telecomms. & Energy (Global NAPs II), 427
F.3d 34, 46 (1st Cir. 2005)) (alteration in original).
For example, in Global NAPs III, 444 F.3d 59, 75 (1st
Cir. 2006), we refused to find preemption of all state regulation
of intercarrier compensation for internet service provider traffic
where the FCC had issued a preemption order addressing only one
aspect of such compensation while "deferr[ing] fuller consideration
of a unified system of intercarrier compensation to a future
rulemaking."

The order at issue in Global NAPs III provides an

example of the clarity the FCC employs when it intends to preempt
state regulatory authority:
The
interim
compensation
regime
we
establish here applies as carriers renegotiate
expired
or
expiring
interconnection
agreements.
It does not alter existing
contractual obligations, except to the extent
that
parties
are
entitled
to
invoke
contractual change-of-law provisions.
This
Order does not preempt any state commission
decision regarding compensation for ISP-bound
traffic for the period prior to the effective
date of the interim regime we adopt here.
Because we now exercise our authority under
section 201 to determine the appropriate
intercarrier
compensation
for
ISP-bound
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Entry ID: 5524513

traffic, however, state commissions will no
longer have authority to address this issue.
In re Implementation of the Local Competition Provisions in the
Telecomms. Act of 1996, 16 F.C.C.R. 9151, 9189 (2001) (emphasis
added).
Nothing even approaching such a clear statement exists in
either order at issue in this case.

The FCC's orders declined only

to

applicability.

promulgate

Interconnection

rules
&

of

Resale

general

Obligations

Pertaining

See
to

In

re

Commercial

Mobile Radio Servs., 15 F.C.C.R. at 13532 ("We do not think there
is an adequate record to support regulations addressing such issues
. . . ."); In re Interconnection & Resale Obligations Pertaining to
Commercial Mobile Radio Servs., 10 F.C.C.R. at 10668 (concluding
that "at present it would be premature for the Commission to
propose or adopt rules of general applicability requiring direct
interconnection

arrangements

between

CMRS

providers").

A

determination that it would be imprudent to adopt a rule imposing
interconnection standards and obligations on every mobile service
provider at the national level is a far cry from a determination
that state commissions should be barred from imposing requirements
on individual LECs in the context of an arbitrated interconnection
agreement because they might affect wireless interconnection.

Cf.

WorldNet, 497 F.3d at 9, 12 (explaining that the FCC's inability to
promulgate

general

commission's

power

regulations
to

does

effectuate
- 37 -

not

state

circumscribe
policy

when

a

state

reviewing

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Date Filed: 02/07/2011

Entry ID: 5524513

interconnection agreements); Indiana Bell Tel. Co., 362 F.3d at 393
("[W]e do not agree with the premise . . . that because the FCC may
not implement a blanket regulation requiring superior quality, the
[state commission] may not require acceptance testing when, after
individualized review, it finds it to be in the public interest and
a means of promoting competition in [the state].").
The Board did not adopt a regulation requiring all mobile
service providers in Puerto Rico to agree to direct connections
from all suitors.

Indeed, it did not even require Claro to

interconnect directly.

Instead, it offered PRTC an opportunity

either to facilitate negotiations or to explain why its failure to
do so was justified on any business, technology or efficiency
ground other than to raise its rival's costs.

This obligation

extends only to "commercially reasonable efforts."
14.

R.1, Ex. 4 at

If PRTC can offer a reason for not connecting Claro directly

with Centennial other than anti-competitive animus, the Board will
decline to take action, thereby preserving Claro's ability "to
provide interconnection . . . either directly or indirectly, based
upon [its] most efficient technical and economic choices."
Implementation

of

the

Local

Competition

Provisions

in

In re
the

Telecomms. Act of 1996, 11 F.C.C.R. at 15991.
The Board's requirement also does not interfere with the
FCC's policy goal of fostering voluntary interconnection agreements

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Case: 10-1091 Document: 00116168044 Page: 39

with mobile service providers.18
to

promulgate

service

general

carriers,

the

Date Filed: 02/07/2011

Entry ID: 5524513

In declining for the time being

interconnection

obligations

for

mobile

FCC

possibility

that

"LEC-

noted

the

affiliated CMRS carriers may have a unique incentive to deny
interconnection so as to keep CMRS-to-CMRS traffic interconnected
through the local exchange landline network, and to continue to
collect

CMRS

providers

interconnection

through

Interconnection

&

their
Resale

charges

access

from

charge

Obligations

both

sets

structures."

Pertaining

Mobile Radio Servs., 10 F.C.C.R. at 10688.

to

of
In

CMRS
re

Commercial

The FCC also stated

that "some potential might exist for CMRS providers to raise their
rivals' costs by denying direct interconnection, or increasing the
price of direct interconnection to the price charged by the LEC for
indirect interconnection."

Id. at 10682-83.

Given that the FCC's statements focus on the behavior
that the Board is attempting to address here, we cannot find a
clear indication on the part of the FCC to preempt attempts by
state commissions to address the fee structure charged by incumbent
LECs in order to remove an incentive for anti-competitive and

18

Cf. Verizon New Eng., Inc. v. Maine Pub Utils. Comm'n, 509
F.3d 1, 9 (1st Cir. 2007) (finding a state commission's ability to
impose
interconnection
requirements
preempted
where
the
requirements were "in direct conflict with specific FCC policies"
designed to "free the carriers from such compulsion"); Wisconsin
Bell, Inc. v. Bie, 340 F.3d 441 (7th Cir. 2003) (holding that a
state requirement that incumbent LECs file a tariff directly
frustrated the Act's system of negotiated agreements because it
damaged the bargaining position of the incumbent LECs).
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Date Filed: 02/07/2011

inefficient interconnection arrangements.

Entry ID: 5524513

Moreover, the FCC's

promise to remain "particularly vigilant in policing, where they
exist, any efforts by CMRS providers to deny interconnection in
order to gain an unfair competitive advantage," id. at 10687, was
not, as PRTC asserts, a statement of an intent to occupy the field,
but instead a promise to keep an eye out in case it needed to
"revisit the need for adopting interconnection rules of general
applicability."

Id. (emphasis added).

On an intent to occupy the

field, "it is, at best, ambiguous . . . , and ambiguity is not
enough to preempt state regulation here."

Global NAPs III, 444

F.3d at 72.
To summarize, we hold that because Law 213 authorizes the
Board to foster competition in the market for telecommunications
services and because federal law does not preempt the Board's
decision to require PRTC to use commercially reasonable efforts to
facilitate a direct connection between Centennial and Claro, the
Board's order was proper.

First, neither the Act nor the FCC

orders contain a clear statement of "an explicit . . . intent to
preempt state law."
Second,

the

Act

Weaver's Cove Energy, LLC, 589 F.3d at 472.

has

not

"creat[ed]

a

pervasive

scheme

of

regulation," id., that implicitly preempts state authority to
regulate anti-competitive practices by incumbent LECs.

Quite the

contrary, the Act's scheme of coordinate federalism explicitly
preserves a role for states to implement policy in their review of

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Case: 10-1091 Document: 00116168044 Page: 41

interconnection agreements.

Date Filed: 02/07/2011

Entry ID: 5524513

Finally, the Board's order does not

stand "in direct conflict with specific FCC policies" or "as an
obstacle to the accomplishment and execution of the full objectives
of Congress."

Verizon New Eng., Inc., 509 F.3d at 9 (quotation

marks omitted).

D.

VOIP Traffic
We turn, then, to PRTC's final contention, which is that

we should reverse the district court's holding that the Board's
decision not to enumerate VOIP separately as a permissible traffic
activity was arbitrary and capricious.

According to PRTC, VOIP is

a kind of technology, not a kind of traffic, and thus at least some
of the calls placed through VOIP technology can be covered by
enumerated traffic types.

Given this distinction, PRTC asserts,

the Board's decision not to enumerate VOIP was rational and avoided
the possibility of creating new, unforeseen problems.

Centennial

asserts, however, that the Board committed a clear, irrational
error of logic by acknowledging that the parties already exchange
VOIP traffic and limiting the meet points to specified classes of
traffic, yet refusing to include VOIP among the permissible types
of traffic.

The Board does not defend its decision at all.19

19

The Board does not contest the district court's
determination, nor does it explain how it reached the decision it
did. Instead, its only comment on the matter is:
The Board does not join [PRTC's] argument.
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The district

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Date Filed: 02/07/2011

Entry ID: 5524513

Under the arbitrary and capricious standard of review, an
agency's

decision

will

be

upheld

unless

"the

agency

lacks

a

rational basis for making the determination or if the decision was
not based on consideration of the relevant factors."

River St.

Donuts, LLC v. Napolitano, 558 F.3d 111, 114 (1st Cir. 2009)
(quotation marks omitted).
If the district court is correct that VOIP is a kind of
traffic, then one might conclude from reviewing the record that the
Board "commit[ted] a clear error of judgment," Town of Winthrop v.
Fed. Aviation Admin., 535 F.3d 1, 8 (1st Cir. 2008), justifying
reversal.

On the other hand, if VOIP is merely a technology

already covered in part by other categories, then that would
explain how the Board could say simultaneously that only enumerated
traffic types could be exchanged at meet points and that the
parties already were exchanging VOIP calls.

That decision would,

moreover, be based on a consideration of the relevant factors, such
as a lack of history of disputes over VOIP calls, uncertainty about
future FCC action and the potential that enumerating VOIP traffic

court's opinion held that VOIP traffic should be included
in the enumerated categories to the extent they are not
already covered by those categories. If, as PRTC argues,
VOIP is covered by the existing enumerated categories of
traffic to be exchanged, then there is no issue. If not,
then, given that the parties are already exchanging such
traffic, the Board does not object [to] confirming this
practice by including VOIP traffic in the interconnection
agreement.
Board Br. 36-37 (internal citation omitted).
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Entry ID: 5524513

separately could create new problems.
Unfortunately, whether VOIP already is covered by the
parties' interconnection agreement is an unresolved question. PRTC
asserts that VOIP is a technology, but that does little to resolve
the central question:
traffic

enumerated

whether VOIP calls are subsumed by types of

in

the

agreement.

On

that

point,

PRTC

equivocates, saying only that "VOIP technology may very well be."
PRTC Br. 54.

Nor does the Board do much to clarify its decision,

telling us only that if VOIP is already covered, then there is no
issue.
We

are

hesitant

to

insert

ourselves

into

the

classification and regulation of VOIP traffic on such a muddled
record.

VOIP presents a number of sensitive technical and policy

considerations better left to the FCC and state commissions.

Some

VOIP calls originate on a computer and terminate at a telephone, or
vice

versa.

Other

VOIP

calls,

however,

both

originate

and

terminate on an actual telephone; for this type of call, the
internet provides the medium of transmission on at least one end of
the conversation.
types of calls.

There are obvious differences between these

The FCC may choose to treat each configuration in

a different way; conversely, it may choose to treat them in the
same way, or not to regulate them at all.
In addition, at argument, counsel for the Board explained
that a key consideration in refusing to enumerate VOIP separately

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Entry ID: 5524513

was its fear that Centennial would use a general VOIP category as
a Trojan horse to give it access to the meet points for types of
calls for which it would otherwise owe PRTC separate compensation.
Given

the

possibility

for

abuse,

the

lack

of

past

disputes and the uncertain regulatory environment, we believe the
Board was wise to keep its powder dry and save final resolution of
the VOIP question for a later day.

Cf. Town of Winthrop, 535 F.3d

at 13 (holding that, when an agency is faced with an "area of
research

.

.

.

still

developing,"

it

is

not

arbitrary

and

capricious to decline to take action while "evaluat[ing] the issue
more fully").
Although we agree with the district court that the
Board's language is confusing, we believe that the Board's order
meant to convey that some, if not all, VOIP traffic has been and
will continue to be exchanged at the meet points under other,
specifically enumerated headings.

See FCC v. Fox Television

Stations, Inc., 129 S. Ct. 1800, 1810 (2009) (stating that a court
"should 'uphold a decision of less than ideal clarity if the
agency's

path

may

reasonably

be

discerned'"

(quoting

Bowman

Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281,
286 (1974))).

Nothing in the Act mandates that the Board permit

all types of VOIP traffic to be exchanged, so the exclusion of
certain types of calls not covered by enumerated traffic categories
is permissible.

If later disputes create a need for specific

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Entry ID: 5524513

intervention, then the Board can tailor a remedy to the specific
problems presented before it.

Moreover, the Board can certainly

take into account PRTC's representations during this litigation in
assessing a proper response to any future problems.

Conclusion
We hold that neither Puerto Rico nor federal law cabin
the Board's authority as narrowly as PRTC contends.

The Board

possesses the power under Puerto Rico law to impose liquidated
damages clauses in telecommunications interconnection agreements.
Moreover, federal law does not prevent the Board from regulating
potentially anti-competitive behavior associated with transiting
fees charged by incumbent local exchange carriers.

We also hold

that the Board's reluctance to enumerate VOIP calls separately was
supported by a consideration of relevant factors and possessed a
rational basis. Accordingly, the judgment of the district court is
affirmed in part and reversed in part, and we remand to allow the
district court to enter summary judgment for the Board.
parties shall bear their own costs in this appeal.
AFFIRMED in PART and REVERSED in PART.

- 45 -

The