IA Telecommunications Services v. Iowa Utilities Board ( 2009 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 08-2140
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Iowa Telecommunications Services, *
Inc., doing business as Iowa Telecom, *
*
Plaintiff/Appellant, *
*
Citizens Mutual Telephone Cooperative; *
Clear Lake Independent Telephone *
Company; Farmers Mutual Cooperative *
Telephone Co. of Shelby; Farmers *
Telephone Company; Grand River * Appeal from the United States
Mutual Telephone Corporation; Heart * District Court for the
of Iowa Communications Cooperative; * Southern District of Iowa.
Huxley Communications; Kalona *
Cooperative Telephone; Lost Nation- *
Elwood Telephone Company; Mabel *
Cooperative Telephone Company; *
Minburn Telecommunications, Inc.; *
North English Cooperative Telephone *
Company; Sharon Telephone; Shell *
Rock Telephone Company, doing *
business as Bevcomm c/o Blue Earth *
Valley Telephone Company; South *
Central Communications, Inc.; South *
Slope Cooperative Telephone Company; *
Sully Telephone Association; Titonka *
Telephone Company; Ventura *
Telephone Company, Inc.; Webster *
Calhoun Cooperative Telephone *
Association; Wellman Cooperative *
Telephone Association; West Liberty *
Telephone Company, doing business as *
Liberty Communications; Winnebago *
Cooperative Telephone Association; *
Rockwell Cooperative Telephone *
Association, *
*
Plaintiffs, *
*
v. *
*
Iowa Utilities Board, Utilities Division, *
Department of Commerce; John Norris, *
In his official capacity as a member of *
the Iowa Utilities Board and not as an *
Individual; Diane Munns, In her Official *
Capacity as a member of the Iowa *
Utilities Board and not as an Individual; *
Curtis Stamp, In his Official Capacity as *
a member of the Iowa Utilities Board *
and not as an Individual; Sprint *
Communications LP, doing business as *
Sprint Communications Company, L.P., *
*
Defendants/Appellees. *
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Submitted: December 12, 2008
Filed: April 28, 2009
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Before WOLLMAN, BYE, and RILEY, Circuit Judges.
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WOLLMAN, Circuit Judge.
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Iowa Telecommunications Services, Inc. (Iowa Telecom) appeals from the
district court’s1 order affirming the Iowa Utilities Board’s ruling that Sprint
Communications LP (Sprint) is a telecommunications carrier under the
Telecommunications Act of 1996 (Act) and thus entitled to interconnect with the local
exchange carriers’ networks. We affirm.
I. Background
The issue on appeal is whether Sprint is a telecommunications carrier under the
Act, and we limit our background discussion accordingly. We borrow heavily from
the district court’s thorough presentation of the statutory, factual, and procedural
background. See Iowa Telecomm. Servs., Inc. v. Iowa Utils. Bd., 545 F. Supp. 2d 869
(S.D. Iowa 2008).
A. Statutory Background
The Telecommunications Act of 1996 was enacted to promote competition,
reduce regulation, and encourage the development of new technologies within the
telecommunications industry. Before the Act was passed, incumbent local exchange
carriers2 served as the exclusive providers of local telephone service, which was
considered a natural monopoly. To facilitate the market entry of competitors, the Act
imposed certain duties upon the incumbent carriers, including the duty to provide
interconnection with their networks to any requesting telecommunications carrier. 47
U.S.C. § 251(c)(2); see also id. § 251(b)(1)-(6) (obligations of all local exchange
1
The Honorable John A. Jarvey, United States District Judge for the Southern
District of Iowa.
2
“Incumbent” means that the local exchange carrier “was a telephone company
in possession of its area at the time that the Act opened up local service to
competition.” Alma Comm. Co. v. Mo. Pub. Serv. Comm’n, 490 F.3d 619, 620 (8th
Cir. 2007).
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carriers); id. § 251(c)(1)-(6) (additional obligations of incumbent local exchange
carriers). The Act also provided the procedures for negotiation, arbitration, and
approval of interconnection agreements between the telecommunications carrier and
the incumbent local exchange carrier. Id. § 252.
Interconnection allows multiple carriers to exchange telephone traffic. Without
it, a new-to-the-market carrier “would not be able to connect its customers to a
customer served by the ILEC [incumbent local exchange carrier] without building its
own infrastructure to serve both customers.” Iowa Network Servs., Inc.v. Qwest
Corp., 363 F.3d 683, 686 (8th Cir. 2004). Only telecommunications carriers have the
right to compel interconnection with a local exchange carrier. 47 U.S.C. § 251 (c)(2).
The Act defines “telecommunications carrier” as “any provider of telecommunications
services,” and defines “telecommunications service” as “the offering of
telecommunications for a fee directly to the public, or such classes of users as to be
effectively available directly to the public, regardless of the facilities used.” Id. § 153
(44), (46).
The Federal Communications Commission (FCC) has held that the term
“telecommunications carrier” has essentially the same meaning as the term “common
carrier” under the Communications Act of 1934. AT&T Submarine Sys., Inc., 13
F.C.C.R. 21585, 21587-88 ¶ 6 (1998); Cable & Wireless, PLC, 12 F.C.C.R. 8516,
8522 ¶ 13 (1997); see also V.I. Tel. Corp. v. F.C.C., 198 F.3d 921, 925 (D.C. Cir.
1999). The Communications Act defines “common carrier” as “any person engaged
as a common carrier for hire, in interstate or foreign communication by wire” and
imposed upon local telephone companies certain common carrier obligations.3 47
U.S.C. § 153 (10); Time Warner Telecom, Inc. v. F.C.C., 507 F.3d 205, 210 (3d Cir.
3
The common carrier doctrine arose from common law rules which historically
“impose[d] a greater standard of care upon carriers who held themselves out as
offering to serve the public in general.” Nat’l Ass’n of Regulatory Util. Comm’rs v.
F.C.C., 525 F.2d 630, 640 (D.C. Cir. 1976) (NARUC I).
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2007). “The primary sine qua non of common carrier status is a quasi-public
character, which arises out of the undertaking to carry for all people indifferently.”
Nat’l Ass’n of Regulatory Util. Comm’rs v. F.C.C., 533 F.2d 601, 608 (D.C. Cir.
1976) (NARUC II) (internal quotations omitted).
A two-prong test has emerged to determine whether a carrier is a common
carrier under the Communications Act: “(1) whether the carrier holds himself out to
serve indifferently all potential users; and (2) whether the carrier allows customers to
transmit intelligence of their own design and choosing.” United States Telecom Ass’n
v. F.C.C., 295 F.3d 1326, 1329 (D.C. Cir. 2002) (internal quotations omitted); see also
Sw. Bell Tel. Co. v. F.C.C., 19 F.3d 1475, 1481 (D.C. Cir. 1994); NARUC II, 533
F.2d at 608-09; NARUC I, 525 F.2d at 641-42. The key factor in determining
common carriage is whether the carrier offers “indiscriminate services to whatever
public its service may legally and practically be of use.” United States Telecom
Ass’n, 295 F.3d at 1334 (quoting NARUC I, 525 F.2d at 642). Iowa Telecom
concedes on appeal that Sprint meets the second prong of the test and that Sprint holds
itself out to serve all potential users. It contends, however, that Sprint does not or will
not serve those users indifferently or indiscriminately because its contracts are
confidential and individually negotiated and its rates are not public.
B. Sprint’s Business Model
Sprint has developed a business model in which it partners with local cable
companies to provide local telephone services. Sprint provides the facility to
interconnect calls to and from other carriers, the switch that gathers and distributes the
telephone traffic, and various back-office functions. The local cable company provides
the system of wires and cables which takes a phone call from the user’s premises to
the connection point. This system is known as “last-mile” or “loop” services, and it
carries calls to and from the switch and the end user.
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In Iowa, Sprint has partnered with MCC Telephony of Iowa, L.L.C. (MCC), the
local cable company and an affiliate of Mediacom. Under their arrangement, Sprint
provides the wholesale telecommunications services described above, which MCC
retails. MCC provides last-mile facilities and is in charge of all sales, billing, and
customer service. Sprint has no direct relationship with the customers and does not
provide any retail services. Sprint believes this model is advantageous to both
companies, allowing them to enter the market quickly, efficiently, and without
duplicating resources. The terms, conditions, and prices of Sprint’s contract with
MCC are considered confidential, and its rates are not available to the public.
C. Procedural Background
In October 2004, Sprint sent a request for interconnection to various local
exchange carriers in Iowa, including Iowa Telecom.4 Sprint sought an interconnection
agreement to use for its business with MCC, as well as for potential business with
other similarly situated cable providers. Iowa Telecom refused to execute an
interconnection agreement directly with Sprint because it believed that Sprint was not
the proper party to the agreement. Instead, Iowa Telecom indicated its willingness to
negotiate with MCC or with Sprint acting as MCC’s agent. Sprint made clear that it
was not acting as MCC’s agent or legal partner; it sought interconnection in its own
right, albeit in connection with its relationship with MCC.
Sprint filed a petition for arbitration with the Iowa Utilities Board (Board) in
March 2005. See 47 U.S.C. § 252(b)(1). Iowa Telecom moved to dismiss, arguing
that Sprint did not meet the Act’s definition of “telecommunications carrier.” The
Board agreed and dismissed the petition because Sprint “[was] not, in this context,
holding itself out as a common carrier.” Sprint Comm. Co., L.P. v. Ace Comm.
4
Several rural local exchange carriers were party to the action below, but only
Iowa Telecom appeals from the district court’s judgment.
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Group, et al., Docket No. ARB-05-2, at 12, Order Granting Motions To Dismiss, 2005
WL 1415230 (Iowa Utils. Bd. May 26, 2005). Sprint had not asserted that it would
make its proposed services available on a common carrier basis, and the Board
determined that Sprint did not intend to offer its proposed services “to any party other
than its private business partners, pursuant to individually-negotiated contracts.” Id.
at 13. Without status as a telecommunications carrier, Sprint was not entitled to
interconnect with the local exchange carriers’ networks.
Sprint appealed the Board’s decision to the district court. During the course of
those proceedings, it became apparent that there were unresolved evidentiary and legal
issues relevant to the Board’s order of dismissal. Accordingly, Sprint and the Board
sought a limited stay of proceedings and a remand to the Board for further
consideration, which the district court granted.
Following a hearing, the Board rescinded its order of dismissal and issued its
order on rehearing, holding that Sprint met the definition of “telecommunications
carrier” under the Act because it “indiscriminately offer[ed] its services to a class of
users so as to be effectively available to the public.” Sprint Comm. Co., L.P. v. Ace
Comm. Group, et al., Docket No. ARB-05-2, at 14, Order on Rehearing, 2005 WL
3624405 (Iowa Utils. Bd. Nov. 28, 2005). The Board defined the class of users as
“entities capable of offering their own last-mile facilities.” Id. The Board also found
it immaterial that Sprint tailored its contracts to each individual customer. In
addressing the local exchange carriers’ concern that Sprint’s business model might
result in a denial of their rights or some unidentified advantage, the Board noted that
it would “not reject Sprint’s preferred business model on the basis of unspecified
concerns, but the Board emphasize[d] that if any anti-competitive problems develop
as a result of this approach, the RLECs [rural local exchange carriers] may file an
appropriate complaint with the Board.” Id. at 17. As a telecommunications carrier,
Sprint was then able to demand interconnection negotiations and compel arbitration
of any open issues.
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After the order on rehearing was filed with the district court, general
jurisdiction was returned to the Board. The Board later issued its arbitration order and
approved the parties’ interconnection agreements.
Iowa Telecom filed suit in district court in June 2006, seeking declaratory and
injunctive relief and raising many of the same arguments it had raised before the
Board. Iowa Telecom alleged, among other things, that the Board’s order on
rehearing violated federal law because Sprint did not meet the definition of
“telecommunications carrier” and was not engaged in providing “telecommunications
services.” Affirming the Board’s order, the district court concluded that Sprint
qualified as a telecommunications carrier because “Sprint offers service
indiscriminately to MCC and other cable companies with last-mile capabilities.” Iowa
Telecomm. Servs., Inc., 545 F. Supp. 2d at 878. The district court also found that
individually negotiated, confidential contracts did not violate the Act.
Iowa Telecom appeals, contending that Sprint does not hold itself out
indifferently to all potential users because its contracts are confidential and
individually negotiated and its rates are not publicly available. Accordingly, the
argument goes, Sprint is not a telecommunications carrier and not entitled to
interconnection with Iowa Telecom’s network.
II. Analysis
We apply the same standard of review to the Board’s decision as did the district
court. WWC License, L.L.C. v. Boyle, 459 F.3d 880, 889 (8th Cir. 2006). We review
the Board’s interpretation and application of federal law de novo and will set aside its
findings of fact only if they are arbitrary and capricious. Sw. Bell Tel., L.P. v. Mo.
Publ. Serv. Comm’n., 530 F.3d 676, 682 (8th Cir. 2008); WWC License, L.L.C., 459
F.3d at 889. We owe deference to the FCC’s interpretation of the Act because the
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FCC is charged with the duty to promulgate regulations to interpret and carry out the
Act. WWC License, L.L.C., 459 F.3d at 890.
The question, then, is whether Sprint must make publicly available its contracts
and rates for it to “hold itself out to serve indifferently all potential users.” United
States Telecom Ass’n, 295 F.3d at 1332 (internal quotations omitted); see also
NARUC I, 525 F.2d at 640-42. Iowa Telecom has directed us to no case that holds
that a carrier must publicize its rates and contracts in order to be deemed a
telecommunications carrier, and thus a common carrier. We do not read the
Telecommunications Act and related case law to be so restrictive. As a matter of law,
a carrier’s confidential contracts and rates do not automatically result in the carrier
being classified as a private or non-common carrier. See Sw. Bell Tel. Co., 19 F.3d
at 1481 (recognizing that “a carrier cannot vitiate its common carrier status merely by
entering into private contractual relationships with its customers”).
Having found no error of law, we turn to the question whether the Board’s
finding of common carriage was arbitrary and capricious. The key factor in finding
common carriage is the offering of “indiscriminate service to whatever public [the
carrier’s] service may legally and practically be of use.” NARUC I, 525 F.2d at 642.
In reviewing the Board’s decision, we find instructive Verizon California, Inc. v.
F.C.C., 555 F.3d 270, 275-76 (D.C. Cir. 2009).
In Verizon California, Inc., the District of Columbia Circuit upheld the FCC’s
finding of common carriage in light of the fact that: (1) the carriers self-certified that
they operated as common carriers, (2) the carriers gave public notice of their intent to
act as common carriers, and (3) the carriers entered into publicly available
interconnection agreements with the local exchange carrier. Id. at 275. The FCC gave
significant weight to the carriers’ self-certification “because being deemed a ‘common
carrier’ (i.e., being deemed to be providing ‘telecommunication services’) confers
substantial responsibilities as well as privilege.” Bright House Networks, LLC v.
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Verizon Cal., Inc., 23 F.C.C.R. 10704, 10718 ¶ 39. The District of Columbia Circuit
concluded that “[w]hile none of the three facts by itself seems compelling, in the
aggregate they appear enough to render the Commission’s conclusion reasonable.”
Verizon Cal., Inc., 555 F.3d at 275.
The record in this case supports the Board’s finding of common carriage
because it reflects that Sprint has self-certified that it is a common carrier, that Sprint
is making public its intent to act as a common carrier, and that Sprint has entered into
a public interconnection agreement. First, Sprint is holding itself out to be a common
carrier, willing to provide wholesale services to any last-mile retail service provider
in Iowa. James Burt, Director of Regulatory Policy for Sprint, testified repeatedly that
Sprint will offer its services to any last-mile provider similarly situated to MCC:
“Sprint intends to provide the interconnection services to all entities who desire to
take them and who have comparable ‘last mile’ facilities to the cable companies.”
Moreover, Sprint markets its telecommunications services to cable companies with
last-mile facilities, giving notice to the relevant public of its intent to provide services.
Burt described Sprint’s marketing efforts, including a marketing brochure that
introduces cable companies (or other similarly situated providers) to the breadth of
services that Sprint can provide. Burt also testified that Sprint sends company
representatives to trade shows to “convey to as many cable companies as possible that
Sprint [is] interested in forming relationships to provide competitive voice services.”
Finally, Sprint entered into a publicly available interconnection agreement with Iowa
Telecom.5
5
This fact is arguably less compelling here than it was in Verizon California,
Inc. There, the incumbent local exchange carrier had entered into a publicly available
interconnection agreement before challenging the carrier’s status as a common carrier
and its right to interconnect. Verizon Cal., Inc., 555 F.3d at 275. Here, Iowa Telecom
did not enter into an interconnection agreement with Sprint until ordered to do so.
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Iowa Telecom has directed us to several cases in which individually negotiated,
private contracts have supported a finding of non-common, or private, carriage. E.g.
V.I. Tel. Corp. v. F.C.C., 198 F.3d at 925; Sw. Bell Tel. Co. v. F.C.C., 19 F.3d at
1481; NARUC I, 525 F.2d at 643; Norlight, 2 F.C.C.R. 5167, 5168 ¶ 12 (1993). In
each of those cases, however, the carrier was trying to maintain its private status over
objections from its opponents. As evidence of private carriage, the courts and the
FCC found persuasive that the carriers entered into individually negotiated, customer-
specific contracts with limited, long-term clientele. With private or non-common
status, the carriers were thus entitled to choose their clients on an individual basis,
were not compelled to serve indifferently all potential users, and were able to avoid
common carrier regulation.
Unlike the cases Iowa Telecom cites, Sprint seeks common carrier status by
holding itself out to be a common carrier and representing that it will serve all
potential users. Its individually negotiated, private contracts do not outweigh the
evidence of common carriage recited above. There is no evidence in the record that
Sprint discriminates or will discriminate in providing telecommunication services.
Instead, Iowa Telecom has asked us to assume that Sprint does not offer its services
indiscriminately because the terms and rates of Sprint’s contract with MCC are
individually negotiated and confidential.6 We recognize that Sprint’s contracts with
last-mile providers will vary depending on the services the last-mile provider chooses
and that the terms and rates included in those contracts will be confidential. Those
facts alone, however, do not overcome the evidence that Sprint is acting as a common
carrier and certainly do not render the Board’s decision arbitrary and capricious.
6
We are not troubled by the fact that Sprint currently serves only MCC. If a
similarly situated last-mile provider were looking for the wholesale services Sprint
provides, Sprint would be an obvious choice. See Verizon Cal., Inc. v. F.C.C., 555
F.3d at 276 (upholding FCC’s finding of common carriage even though the carriers
served only their affiliates).
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Conclusion
The district court’s order is affirmed.
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