Procedures for implementing the local competition provisions

The text of the 1996 Act is notoriously unclear on the respective roles of the FCC and the states in giving practical effect to the local competition

provisions. In October 1996, the Eighth Circuit, sitting in St. Louis, stayed many of the FCC’s implementing rules, including the TELRIC pricing methodology, on the ground that the Commission had no statutory author-ity to adopt such rules. The court believed that, in designing the 1996 Act, Congress had largely meant to follow the traditional “dual jurisdiction”

framework of the Communications Act of 1934. As discussed in chapter 2, this framework, where applicable, divides the subject matter of telecommu-nications law into separate “interstate” and “intrastate” spheres and, under section 2(b), fences off the FCC from the latter. The Eighth Circuit conclud-ed that matters relating to local exchange competition are essentially intrastate in character and that Congress meant to give individual state public utility commissions, not the FCC, authority to resolve most of those issues. In the Eighth Circuit’s words, section 2(b) “is hog tight, horse high, and bull strong, preventing the FCC from intruding on the states’ intrastate turf.”³³

This barnyard metaphor remained the law until January 1999, when the Supreme Court reversed the Eighth Circuit in AT&T Corp. v. Iowa Utilities Board.³⁴ By a 5-3 margin, the Court ruled that Congress had implicitly given the FCC general jurisdiction to adopt preemptive regula-tions fleshing out the local competition provisions. The Court relied for this conclusion on section 201(b) of the original Communications Act, which provides that “[t]he Commission may prescribe such rules and reg-ulations as may be necessary in the public interest to carry out the provi-sions of this [Act].” Writing for the majority, the Court held that this provision “means what it says: The FCC has rulemaking authority to carry out the ‘provisions of this Act,’ which include §§ 251 and 252, added by the Telecommunications Act of 1996.”³⁵In the sphere of local competition, the Court thus replaced the dual jurisdiction framework with a new model of cooperative federalism, which erases the distinction between “interstate”

and “intrastate” matters and directs the FCC and state commissions to work together in complementary capacities to implement the local compe-tition provisions. In particular, the FCC establishes the basic rules govern-ing local competition matters, and state public utility commissions apply those rules in resolving specific carrier-to-carrier disputes.³⁶

The resolution of such disputes is governed by the procedural provi-sions of section 252. The process begins when a competitor asks an incum-bent to enter into an “interconnection agreement” containing the key terms that will govern the relationship between the two carriers for a period of

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years (typically about three). One of two things might happen. First, the two carriers might resolve all relevant issues without regulatory interven-tion. In that event, they simply file their completed agreement with the rel-evant state commission, which in turn must approve it so long as it does not harm third parties or otherwise threaten the public interest. The state commission may not conduct a more searching inquiry into whether one side or the other might have gotten a better deal if it had pressed its section 251 rights to the mat.³⁷

Alternatively, the negotiations might break down, either because the parties disagree about what each side owes under the governing law or sim-ply because one side or the other believes that it can achieve a more favor-able outcome by taking the matter to litigation. In that event, the state commission arbitrates the disputed issues under procedures spelled out in section 252, applying the rules of the 1996 Act, the FCC’s implementing regulations, and any supplemental (and consistent) rules of state law.³⁸ Either side may appeal the state commission’s order by filing suit in the rel-evant federal district court.³⁹The court then reviews the order for compli-ance with federal law and (under its pendent jurisdiction) with state law too, if necessary. If it finds problems, it remands the matter to the state commission for further proceedings. In appendix B, we address the com-plex jurisdictional and procedural issues presented by a party’s subsequent efforts to enforce the terms of such interconnection agreements.

Section 252(i) requires a carrier to “make available any interconnec-tion, service, or network element provided under an agreement approved under this section to which it is a party to any other requesting telecommu-nications carrier upon the same terms and conditions as those provided in the agreement.” The FCC interpreted this provision in 1996 to allow com-petitors, with minor limitations, to mix and match provisions from any of the incumbent’s existing interconnection agreements, choose the provisions most favorable to them (and least favorable to the incumbent), and reject other provisions in the same agreements. This pick-and-choose rule was controversial because many in the industry believed that it discouraged pri-vate negotiations as an alternative to arbitration. Incumbents were con-cerned that, if they made special concessions to competitor X on one issue to win corresponding concessions on another, competitor Y could come along and demand the same special concessions on that first issue while spurning competitor X’s concessions on the second.⁴⁰ In 2004, the FCC eliminated the pick-and-choose rule in favor of a new all-or-nothing rule,

which requires a competitor “seeking to avail itself of terms in an intercon-nection agreement to adopt the agreement in its entirety.”⁴¹ The Commission reasoned that the new approach “will promote more ‘give and take’ negotiations, which will produce creative agreements that are better tailored to meet carriers’ individual needs.”⁴²