INDIANA BELL TELEPHONE COMPANY, INCORPORATED v. STEPHAN, et al
ENTRY ON PLAINTIFF'S COMPLAINT FOR DECLARATORY AND OTHER RELIEF - For the reasons stated above, the Court concludes that the IURC applied an erroneous interpretation of federal law, and its decision on the issue of use of exchange facilities is REVERSED. In addition, the Court concludes that the IURC erred when it imposed the cost-sharing arrangement, and the IURC's findings on this issue is REVERSED. This matter is REMANDED to the IURC with instruction that the interconnection agreement ("IAC") be reformed consistent with this Entry. In addition, the Court enjoins enforcement of the erroneous terms until the ICA has been reformed. (See Entry.) Signed by Judge Tanya Walton Pratt on 3/27/2017.(JLS)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANA BELL TELEPHONE COMPANY,
INCORPORATED doing business as AT&T
CAROL STEPHAN, CAROLINE R. MAYSMEDLEY, 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,
Case No. 1:15-cv-01832-TWP-DKL
ENTRY ON PLAINTIFF’S COMPLAINT
FOR DECLARATORY AND OTHER RELIEF
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.
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
Carriers that provide long-distance services are called “interexchange carriers,” or “IXCs”.
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,
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.
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.)
II. STANDARD OF REVIEW
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 the Section 251(c)(2)
interconnection facilities. (Filing No. 28.)
Use of Exchange Facilities
AT&T argues that the IURC erroneously concluded that “Sprint could use TELRIC-priced
entrance facilities to exchange all types of traffic, as long as Sprint exchange[s] at least some
telephone exchange service and/or exchange access service over a given interconnection facility.”
(Filing No. 28 at 8-9.) AT&T contends that the IURC’s decision misapplies federal law, because
the Seventh Circuit has already conclusively determined this issue, and the IURC’s decision fails
to follow the Seventh Circuit’s mandate. (Filing No. 28 at 8-10.) AT&T also argues that, even
absent the Seventh Circuit precedent, the IURC’s determination nonetheless misapplies federal
law. (Filing No. 28 at 11-14.) The Defendants respond that the precedent cited by AT&T does
not apply here, and that the IURC’s determination does not conflict with federal law or regulation.
(Filing No. 30.) The Court reviews this issue de novo, as it is a question of whether the IURC
properly applied federal law.
Generally, AT&T challenges the IURC’s finding regarding whether Sprint would be
permitted to exchange traffic other than telephone exchange service and exchange access traffic
between the parties’ end-user customers at TELRIC-priced entrance facilities. AT&T contends
that the Seventh Circuit directly addressed this issue in SprintCom, an opinion that was issued
prior to the IURC’s determination in this case. (Filing No. 28 at 9-11.) The Defendants contend
that SprintCom is not determinative here. (Filing No. 31 at 8-9; Filing No. 30 at 15-17.)
This case and the SprintCom case have proceeded along parallel tracks. As this matter was
being arbitrated in Indiana, a similar matter involving AT&T and Sprint was being arbitrated in
Illinois. SprintCom, Inc. v. Scott, 2014 WL 6759714, at *2 (N.D. Ill. Dec. 1, 2014), aff'd
SprintCom, 790 F.3d. 2 There, as here, Sprint sought a determination that it could use TELRICpriced interconnection facilities to exchange multiple types of traffic—not merely traffic between
the parties’ end users. Sprint specifically argued that it should be permitted to exchange traffic
that passed between an interexchange carrier (a long-distance carrier) and a Sprint end-user over
AT&T’s interconnection facilities at TELRIC rates.
The district court decision is short-cited here for clarity under the party-name “Scott”.
That issue reached arbitration, and the Illinois Commerce Commission (“ICC”) concluded
that calls between Sprint customers and interexchange carriers did not qualify as Section 251(c)(2)
traffic. Scott, 2014 WL 6759714, at *2. Sprint appealed the decision of the arbitrator to the
Northern District of Illinois. The district court presented the issue as follows:
whether AT&T, as an incumbent, was obligated to provide interconnection to
Sprint at lower, cost-based rates known as TELRIC … for calls that Sprint sought
to route through AT&T's network but actually originated from an “end-user” on a
third-party long-distance carrier, or interexchange carrier (also referred to as an
IXC). Resolution of this issue affected Sprint's ability to use the interconnection
facilities (comprised of call-routing hardware, such as switches) that enable the
calls to be physically sent through AT&T's networks at cost-based rates…
Id. The district court upheld the decision of the ICC, finding that:
‘[t]elephone exchange service’ is defined as ‘service within a telephone exchange,
or within a connected system of telephone exchanges within the same exchange
area,’ and exchange access as the ‘offering of access’ thereto. … Thus, the
interconnection duty as articulated by the Act applies only in the context of local
traffic within exchange areas, as distinct from interexchange traffic.
Id. at *4 (emphasis in original). The court reasoned that “while § 251(c)(2) outlines incumbents’
interconnection obligations vis-à-vis local-exchange competitors, a separate provision, § 251(g),
specifically addresses interconnection requirements to allow access by interexchange carriers.” Id.
And that provision, in contrast to the competitive-local-exchange-related obligations, “provides
that each incumbent ‘shall provide exchange access, information access, and exchange services
for such access to interexchange carriers with the same ... restrictions and obligations [as in effect
prior to the Act].’” Id. (citing 47 U.S.C. § 251(g)). In other words, the statute itself provides
separately for the treatment of interexchange carriers, distinct from local exchange obligations.
Sprint appealed the district court’s determination, again arguing that the statute allows them
to transmit non-local exchange traffic at TELRIC rates. The Seventh Circuit’s discussion of the
issue is reproduced in its entirety:
The second argument that Sprint presses on us is that as long as some of its traffic
carried by Illinois Bell qualifies for TELRIC pricing (that is, traffic from Sprint
customers to subscribers to Illinois Bell or other local exchange carriers in the same
exchange area as Sprint—i.e., Illinois), Sprint can piggyback nonqualifying traffic
on that qualifying traffic, thereby, it argues, making the nonqualifying traffic
qualifying. In support Sprint unguardedly cites a regulation which states that “a
carrier that requests interconnection [with a local exchange carrier such as Illinois
Bell] solely for the purpose of originating or terminating its interexchange traffic
[to the customers of such a carrier] ... is not entitled to” interconnection at TELRIC
rates, 47 C.F.R. § 51.305(b) (emphasis added), unless it demonstrates that such free
riding is necessary to enable it to compete. Sprint, which has not so demonstrated,
interprets the provision to mean that the converse must be true—that as long as it's
not using the interconnection solely for interexchange traffic it's entitled to TELRIC
rates for all traffic. There's no basis for that interpretation.
SprintCom, 790 F.3d at 757 (emphasis in original). The Seventh Circuit affirmed the district
court’s determination as to the interconnection facilities.
The issue disputed by the parties here is whether the Seventh Circuit’s resolution of the
issue in SprintCom determines the outcome here.
The Defendants argue, and the IURC
determined, that as long as Sprint is not using the interconnection solely for interexchange traffic
(or other traffic that is not exchange service or exchange access), then it is entitled to TELRIC
rates for all traffic passed through that interconnection. They cite 47 C.F.R. § 51.305(b) in support
of that proposition, and the IURC relied on that regulation in making its determination. But the
Seventh Circuit explicitly rejected the Defendants’ proposed interpretation of the Act in SprintCom
(including Regulation 51.305(b)), stating that such an interpretation was baseless. The Court
concludes that the same is true here, and the Seventh Circuit’s prior ruling on the issue is
The Defendants argue that SprintCom is distinguishable, framing the issue here as whether
federal law prohibits interconnection facilities from hosting interexchange traffic at TELRIC rates,
and the issue in SprintCom as whether federal law required AT&T to provide Sprint cost-based
interconnection facilities for interexchange traffic. That proposed framing obscures what was at
issue in both cases: whether AT&T can be compelled to provide TELRIC rates for the “mixedpurpose” use of its interconnection facilities. The Seventh Circuit directly addressed this question
in SprintCom, and found that such compulsion is not permitted by the statute.
Thus, the IURC applied an erroneous interpretation of federal law, and its decision on this
issue is REVERSED.
The IURC also concluded that AT&T would be required to bear 50% of the cost of entrance
facilities that Sprint obtains from AT&T. (Filing No. 24-8 at 33.) AT&T argues that this
determination is contrary to federal law, because, under the Telecommunications Act, Sprint is
required to pay the full TELRIC rate for use of interconnection facilities. (Filing No. 28 at 7.) The
Defendants argue that federal law does not prohibit the imposition of a cost-sharing agreement,
and that such an agreement does not impact that rate that Sprint is charged; rather, it only impacts
the final amount that Sprint pays. (Filing No. 30 at 22-23; Filing No. 31 at 13-14.) The Court
reviews this issue de novo, because again, it is a question of whether the IURC properly applied
In support of the IURC’s decision, the Defendants argue that (1) the Supreme Court has
left open the question of whether cost-sharing may be imposed on interconnection facilities; and
(2) FCC regulations have contemplated cost-sharing. The Defendants argue that cost-sharing was
codified in FCC Rule 51.703(b), which prohibits a LEC from assessing charges on interconnecting
carriers for calls originating on the LEC’s network (Filing No. 31 at 12); see also In re
Implementation of the Local Competition Provisions of the Telecomms. Act of 1996, First Report
& Order, 11 FCC Rcd. 15499, ¶ 1062 (1996). They also point to TSR Wireless, LLC v. US West
Commc’ns, Inc., 15 FCC Rcd. 11166, ¶ 31 (2000), as establishing that AT&T is required to absorb
some of the cost of interconnection facilities leased to competitors.
AT&T responds that all of the authorities cited by the Defendants involve the rules
regarding “transport and termination” of communications traffic, governed by 47 U.S.C.
§ 251(b)—not the use of entrance facilities as governed by 47 U.S.C. § 251(c). AT&T, citing Talk
America, contends that the Supreme Court has conclusively determined that “transport and
termination of traffic” is subject to different regulatory treatment than interconnection, and that
any cost-sharing that may be applicable in that context is inapplicable in the interconnection
context. (Filing No. 28 at 15, citing Talk America, 564 U.S. at 63.)
The Court agrees with AT&T that the Supreme Court has concluded that “transport and
termination of traffic” is subject to different regulatory treatment than interconnection. See Talk
America, 564 U.S. at 63 (“…‘transport and termination of traffic’ is subject to different regulatory
treatment than interconnection. Compensation for transport and termination—that is, for
delivering local telephone calls placed by another carrier’s customer—is governed by separate
statutory provisions and regulations.”). The Court therefore looks first to the statutory text to
determine whether the cost-sharing measures approved in the context of transport and termination
of traffic may be properly applied in the interconnection context.
The provisions regarding the transport and termination of traffic specifically provide for
reciprocal compensation. Section 251(b)(5), regarding the “obligations of all local exchange
carriers,” imposes upon them the “duty to establish reciprocal compensation arrangements for the
transport and termination of telecommunications.” 47 U.S.C. § 251(b)(5). Section 252(d)(2) also
describes the elements that must be considered by a state commission when determining whether
the terms and conditions for reciprocal compensation are “just and reasonable.” 47 U.S.C.
The provisions pertaining to interconnection, however, do not explicitly refer to reciprocal
compensation. Section 251(c)(2)(D) specifies that ILECs have a duty to provide interconnection
with the local exchange network “on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory, in accordance with the terms and conditions of the agreement and the
requirements of this section and section 252 of this title.” 47 U.S.C. § 251(c)(2)(D). Section
252(d)(1) establishes the pricing standards for “interconnection and network element charges,” 3
and the FCC ultimately promulgated regulations to implement these pricing standards—the
TELRIC rates. Verizon Communications, Inc. v. F.C.C., 535 U.S. 467 (2002). The statute, on its
face, does not provide for the imposition of cost-sharing in determining the compensation to be
paid for use of interconnection facilities.
That Congress provided for reciprocal compensation in another provision of the same
statute supports the conclusion that it did not intend to authorize cost-sharing where it did not
explicitly mandate it. See, e.g., Owner-Operator Indep. Drivers Ass’n, Inc. v. United States Dep’t
of Transp., 840 F.3d 879, 891 (“Congress knows how to require rule-makers to follow cost-benefit
analyses when it wants…”); N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513, 522-23 (1984)
(“Congress knew how to draft an exclusion for collective-bargaining agreements when it wanted
(1) Interconnection and network element charges
Determinations by a State commission of the just and reasonable rate for the interconnection of facilities and
equipment for purposes of subsection (c)(2) of section 251 of this title, and the just and reasonable rate for network
elements for purposes of subsection (c)(3) of such section-(A) shall be-(i) based on the cost (determined without reference to a rate-of-return or other rate-based proceeding) of
providing the interconnection or network element (whichever is applicable), and
(ii) nondiscriminatory, and
(B) may include a reasonable profit.
to; its failure to do so in this instance indicates that Congress intended that § 365(a) apply to all
collective-bargaining agreements covered by the NLRA.”).
In addition, the regulations regarding the development and application of TELRIC rates
are particularly comprehensive, and do not include any contemplation of the imposition of costsharing in addition to the already-discounted rates. 4 When the FCC initially developed and
mandated the TELRIC pricing methodology, a number of state commissions and ILECs challenged
its order, on the basis that the FCC was usurping the state commissions’ ability to adopt the pricing
methodologies they deemed appropriate. See Iowa Utils. Bd. v. FCC, 109 F.3d 418 (8th Cir. 1996).
Ultimately, the Supreme Court determined that the FCC had the authority to mandate the
comprehensive TELRIC regime, with the states limited to “apply[ing] those standards and
implement[ing] that methodology, determining the concrete result in particular circumstances.”
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 384 (1999). The comprehensive nature of the
regulatory regime, and the Supreme Court’s treatment of it, counsel against a finding that Section
251(c)(2) and related provisions contemplate or permit cost-sharing.
Finally, the Court is not persuaded by the Defendants’ argument that cost-sharing does not
impact that rate that Sprint is charged—only the final amount that Sprint pays. The Defendants
have not suggested that the cost-sharing would involve parties other than Sprint and AT&T—i.e.
the two parties contemplated by the TELRIC computation. Nothing in the statute or regulations
suggests that Congress or the FCC considered that the rate charged might not correspond to the
amount paid. It is difficult to see cost-sharing in this context as anything other than an attempted
end-run around the TELRIC rates. The Court is likewise not convinced by the Defendants’
argument that it is only natural for AT&T to bear some of the cost of the interconnection facilities,
The Court notes that the TELRIC rates have been referred to as “just above the confiscatory level.” SprintCom, 790
F.3d at 754, citing Verizon, 535 U.S. at 489.
given that AT&T’s traffic also passes through them. Interconnection, by regulatory definition, is
the “the linking of two networks for the mutual exchange of traffic.” 47 C.F.R. § 51.5 (emphasis
added). Therefore, the statute and regulations already account for the fact that AT&T will use the
For these reasons, the Court concludes that the IURC erred when it imposed a cost-sharing
arrangement, and the IURC’s finding is REVERSED.
For the reasons stated above, the Court concludes that the IURC applied an
erroneous interpretation of federal law, and its decision on the issue of use of exchange facilities
is REVERSED. In addition, the Court concludes that the IURC erred when it imposed the costsharing arrangement, and the IURC’s findings on this issue is REVERSED. This matter is
REMANDED to the IURC with instruction that the interconnection agreement (“IAC”) be
reformed consistent with this Entry. In addition, the Court enjoins enforcement of the erroneous
terms until the ICA has been reformed.
Brian D. Robinson
AT & T INDIANA
Alan S. Townsend
BOSE MCKINNEY & EVANS, LLP
Briana Lynn Clark
BINGHAM GREENEBAUM DOLL LLP
Nikki Gray Shoultz
BOSE MCKINNEY & EVANS, LLP
Philip R Schenkenberg
BRIGGS AND MORGAN, P.A.
Beth Krogel Roads
INDIANA UTILITY REGULATORY
Patricia Caress McMath
INDIANA ATTORNEY GENERAL
Dennis G. Friedman
MAYER BROWN LLP
Jeremy R. Comeau
INDIANA UTILITY REGULATORY
Hans J. Germann
MAYER BROWN LLP
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