Qwest Corporation v. Arizona ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
QWEST CORPORATION, 
Plaintiff-Appellee,
v.
ARIZONA CORPORATION COMMISSION;
JEFF HATCH-MILLER, in his official
capacity as Chairman of the
Arizona Corporation Commission;
MIKE GLEASON, in his official
capacity as a member of the
Arizona Corporation Commission; No. 07-17079
KRISTIN K. MAYES, in her official
capacity as a member of the  D.C. No.
CV-06-01030-ROS
Arizona Corporation Commission;
WILLIAM A. MUNDELL, in his OPINION
official capacity as a member of
the Arizona Corporation
Commission; MARC SPITZER, in his
official capacity as a member of
the Arizona Corporation
Commission; DIECA
COMMUNICATIONS, doing business
as Covad Communications
Company,
Defendants-Appellants.

6777
6778 QWEST v. ARIZONA CORPORATION COMMISSION
QWEST CORPORATION, 
Plaintiff-Appellee,
v.
ARIZONA CORPORATION COMMISSION;
JEFF HATCH-MILLER, in his official
capacity as Chairman of the
Arizona Corporation Commission;
MIKE GLEASON, in his official
capacity as a member of the
Arizona Corporation Commission;
KRISTIN K. MAYES, in her official No. 07-17080
capacity as a member of the  D.C. No.
Arizona Corporation Commission; CV-06-01030-ROS
WILLIAM A. MUNDELL, in his
official capacity as a member of
the Arizona Corporation
Commission; MARC SPITZER, in his
official capacity as a member of
the Arizona Corporation
Commission; DIECA
COMMUNICATIONS, doing business
as Covad Communications
Company,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Arizona
Roslyn O. Silver, District Judge, Presiding
Argued and Submitted
April 15, 2009—San Francisco, California
Filed June 8, 2009
QWEST v. ARIZONA CORPORATION COMMISSION 6779
Before: Dorothy W. Nelson and Richard R. Clifton,
Circuit Judges, and Samuel P. King,* District Judge.
Opinion by Judge Clifton
*The Honorable Samuel P. King, Senior United States District Judge
for the District of Hawaii, sitting by designation.
QWEST v. ARIZONA CORPORATION COMMISSION 6781
COUNSEL
Christopher C. Kempley and Maureen A. Scott (argued), Ari-
zona Corporation Commission Legal Division, Phoenix, Ari-
zona; John Matthew Derstine and Michael Patten, Roshka
DeWulf & Patten, Phoenix, Arizona; Gregory T. Diamond,
General Counsel for Covad Communications Company, Den-
ver, Colorado; Jason M. Wakefield (argued), San Jose, Cali-
fornia, for the defendants-appellants.
John Michael Devaney (argued), Perkins Coie, Washington,
D.C.; Steven J. Monde, Perkins Coie Brown & Bain, Phoenix,
Arizona, for the plaintiff-appellee.
Paul K. Mancini, San Antonio, Texas; Michael E. Glover,
Arlington, Virginia; Colin S. Stretch, Scott H. Angstreich, and
Kelly P. Dunbar (argued), Kellogg, Huber, Hansen, Todd,
Evans & Figel, Washington, D.C., for amici curiae AT&T,
Inc. and Verizon.
6782 QWEST v. ARIZONA CORPORATION COMMISSION
OPINION
CLIFTON, Circuit Judge:
The Telecommunications Act of 1996 (“Act” or “1996
Act”), Pub. L. 104-104, 110 Stat. 56 (codified in part at 47
U.S.C. §§ 251-261, 271), created a complex federal scheme to
encourage competition in local telephone service markets pre-
viously dominated by state-sanctioned local exchange carrier
monopolies. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366,
371-72, 377-80 (1999). Sections 251 and 252 of the Act
require former monopoly local carriers to enter into intercon-
nection agreements that provide the new competitors with
access to some of their telecommunications components on an
unbundled basis and on terms favorable to the competitors.
Meanwhile, Section 271 allows local phone companies that
used to be subsidiaries of AT&T, previously barred by an
antitrust decree from entering the long-distance market, to
supply long-distance services if their interconnection agree-
ments contain certain access provisions. The Act explicitly
authorizes state commissions to play a crucial, but restricted,
role in this process, while reserving the power to administer
various parts of the Act exclusively to the Federal Communi-
cations Commission.
Section 252 of the Act invites carriers engaged in negotiat-
ing an interconnection agreement to petition a state commis-
sion to arbitrate unsettled issues. In this case, we address
whether a state commission overstepped its authority in arbi-
trating the terms of an interconnection agreement. The Act’s
language, history, and purpose, in addition to the overwhelm-
ing majority of judicial and administrative decisions on the
matter, persuade us that state commissions may not impose
Section 271 access or pricing requirements in the course of
arbitrating interconnection agreements. We further conclude
that state commissions are preempted from forcing carriers to
make parts of their networks available on a separately pur-
QWEST v. ARIZONA CORPORATION COMMISSION 6783
chasable basis when the FCC has determined that they are not
required to do so.
The Arizona Corporation Commission (“ACC”) and
DIECA Communications, Inc., d/b/a Covad Communications
Company, appeal the district court’s entry of summary judg-
ment in favor of Qwest Corporation in its action under the
1996 Act challenging the ACC’s arbitration order. We affirm
the district court’s decision and hold that the Act bars the
ACC from insisting Qwest’s interconnection agreement with
Covad include Section 271 access or pricing obligations or
provide for element unbundling that the FCC has lifted.
I. Background
A. The Statutory Framework
Congress rang in a new era of telecommunications regula-
tion with the passage of the Communications Act of 1934. At
the time, AT&T controlled the long-distance telephone ser-
vice market while its subsidiary Bell Operating Companies
(“BOCs”), of which Qwest is a descendant, enjoyed a “virtual
monopoly” over local telephone service.1 S. Rep. No. 104-23,
1
Telecommunications law embodies a host of acronyms. For ease of ref-
erence, we provide the following glossary of terms used in this opinion:
ACC Arizona Corporation Commission
Act or 1996 Act Telecommunications Act of 1996, Pub. L. 104-104,
110 Stat. 56 (codified in part at 47 U.S.C. §§ 251-
261, 271)
BOC Bell Operating Company (e.g., Qwest)
CLEC Competitive Local Exchange Carrier (e.g., Covad)
FCC United States Federal Communications Commis-
sion
ILEC Incumbent Local Exchange Carrier (e.g., Qwest)
InterLATA service Service between a defined Local Access Transport
Area and an outside area (we refer to this as long-
distance service, a rough approximation of the term)
TELRIC Total Element Long-Run Incremental Cost pricing
6784 QWEST v. ARIZONA CORPORATION COMMISSION
at 2 (1995). For the next 50 years, telephone service regula-
tory issues mainly revolved around rates, with the FCC setting
interstate rates and state commissions setting intrastate rates.
Verizon New England, Inc. v. Maine Public Utils. Comm’n,
509 F.3d 1, 4 (1st Cir. 2007).
In 1982, a federal antitrust consent decree was entered to
promote competition in long-distance services by disconnect-
ing AT&T from its subsidiary BOCs, which were in turn ini-
tially barred from dialing into the long-distance market. See
AT&T Corp., 525 U.S. at 413-15 (Breyer, J., concurring in
part and dissenting in part); United States v. Am. Tel. & Tel.
Co., 552 F. Supp. 131, 222-25 (D.D.C. 1982), aff’d sub nom.
Maryland v. United States, 460 U.S. 1001 (1983) (mem.); see
also SBC Commc’ns, Inc. v. FCC, 138 F.3d 410, 412 (D.C.
Cir. 1998) (“Divestiture was called for, in large part, because
it was thought that a corporation that enjoyed a monopoly on
local calls would ineluctably leverage that bottleneck control
in the interexchange (long distance) market.” (internal quota-
tion marks omitted)). The framers of the decree envisioned a
dual telephone service universe: AT&T was expected to com-
pete with new entrants in the long-distance market, and the
BOCs would continue as local service monopolies.2 Verizon
New England, 509 F.3d at 3-4.
“The retreat from this illusion of wholly separate spheres
methodology
UNEs Section 251(c)(3) Unbundled Network Elements
2
“Until the 1990’s, local phone service was thought to be a natural
monopoly. States typically granted an exclusive franchise in each local
service area to a local exchange carrier (LEC), which owned, among other
things, the local loops (wires connecting telephones to switches), the
switches (equipment directing calls to their destinations), and the transport
trunks (wires carrying calls between switches) that constitute a local
exchange network.” AT&T Corp., 525 U.S. at 371.
QWEST v. ARIZONA CORPORATION COMMISSION 6785
began in earnest with the 1996 Telecommunications Act.” Id.
at 4. The BOCs wanted to provide long-distance services,
while established and new long-distance carriers alike wanted
to gain “access to local BOC facilities to use for long distance
services, competing local services, or both.” Id. “The 1996
Act established a complex regulatory regime for both entry
and competition in both spheres.” Id. Under the Act, BOCs
and other incumbent local exchange carriers (“ILECs”)3 must
provide competitive local exchange carriers (“CLECs”)
access to certain elements of their local facilities. BOCs,
meanwhile, are permitted to enter the long-distance market if
certain prerequisites are met.
Sections 251 and 252 of the 1996 Act define the required
access to ILEC facilities, while Section 271 speaks to long-
distance entry conditions for BOCs. The overlap between
these two parts of the Act sends a mixed message as to what
regulatory authority state commissions retain.
Specifically, Section 251(a)(1) compels every telecommu-
nications carrier “to interconnect directly or indirectly with
the facilities and equipment of other telecommunications car-
riers.” Section 251(c)(1) requires an ILEC like Qwest to
engage in good faith negotiations with a CLEC like Covad to
form an interconnection agreement to fulfill the various duties
imposed on all local exchange carriers under Section 251(b).4
3
BOCs are a subset of ILECs. That is, all BOCs are ILECs, but not all
ILECs are BOCs. Thus, Qwest — a BOC — is also an ILEC.
4
Section 251(b) imposes the following five competition-fostering
duties: “(1) Resale[:] The duty not to prohibit, and not to impose unrea-
sonable or discriminatory conditions or limitations on, the resale of its
telecommunications services[;] (2) Number portability[:] The duty to pro-
vide, to the extent technically feasible, number portability in accordance
with requirements prescribed by the Commission[;] (3) Dialing parity[:]
The duty to provide dialing parity to competing providers of telephone
exchange service and telephone toll service, and the duty to permit all
such providers to have nondiscriminatory access to telephone numbers,
operator services, directory assistance, and directory listing, with no
6786 QWEST v. ARIZONA CORPORATION COMMISSION
Section 251(c)(3) also requires ILECs to offer CLECs cer-
tain “network elements”5 on an unbundled basis at cost-based,
regulated rates. These unbundled network elements are com-
monly referred to as “UNEs.” The FCC designates UNEs by
determining if access to a given UNE is “necessary” and if the
failure to provide such access would “impair” CLECs in pro-
viding services. 47 U.S.C. § 251(d)(2); Covad Commc’ns Co.
v. FCC, 450 F.3d 528, 531-32 (D.C. Cir. 2006); see also U.S.
Telecom Ass’n v. FCC, 359 F.3d 554, 568 (D.C. Cir. 2004)
(concluding the FCC cannot delegate the authority to classify
UNEs to state commissions). The FCC shortened its list of
mandatory UNEs in 2005 following a series of D.C. Circuit
cases holding that the FCC’s impairment standard was overly
broad. See Covad Commc’ns Co., 450 F.3d at 533-37. State
commissions set UNE rates by applying the FCC’s Total Ele-
ment Long-Run Incremental Cost (TELRIC) pricing method-
ology. 47 U.S.C. § 252(d)(1); see Verizon Commc’ns, Inc. v.
FCC, 535 U.S. 467, 523 (2002) (upholding the FCC’s TEL-
RIC rate regulations); 47 C.F.R. §§ 51.503, 51.505; Local
Competition Order ¶ 672, 11 F.C.C.R. 15499, 15844 (1996).
These below-market TELRIC prices are highly favorable to
CLECs.6
unreasonable dialing delays[;] (4) Access to rights-of-way[:] The duty to
afford access to the poles, ducts, conduits, and rights-of-way of such car-
rier to competing providers of telecommunications services on rates,
terms, and conditions that are consistent with section 224 of this title[;]
[and] (5) Reciprocal compensation[:] The duty to establish reciprocal
compensation arrangements for the transport and termination of telecom-
munications.” 47 U.S.C. § 251(b).
5
A “network element” refers to “a facility or equipment used in the pro-
vision of a telecommunications service.” 47 U.S.C. § 153(29).
6
The FCC defines TELRIC pricing of an element as “the forward-
looking cost over the long run of the total quantity of the facilities and
functions that are directly attributable to, or reasonably identifiable as
incremental to, such element, calculated taking as a given the incumbent
LEC’s provision of other elements.” 47 C.F.R. § 51.505(b).
QWEST v. ARIZONA CORPORATION COMMISSION 6787
Section 252(a) permits carriers to negotiate an interconnec-
tion agreement voluntarily without regard to the duties other-
wise imposed under Section 251(b) or (c). If, like here,
negotiations fail, pursuant to Section 252(b)(1) either party
“may petition a State commission to arbitrate any open
issues.” The state commission may only consider issues iden-
tified in the arbitration petition and must ensure Section 251
requirements are met. 47 U.S.C. § 252(b)(4)(A), (c). All inter-
connection agreements, whether adopted through negotiation
or arbitration, must be submitted to the appropriate state com-
mission for approval.7 47 U.S.C. § 252(e)(1).
Section 271 only applies to those ILECs like Qwest that
are, or incorporate, former BOCs. Section 271(c) allows
BOCs to provide “interLATA services” (roughly meaning
long-distance services) only if two conditions are met: First,
the BOC must either have in place an interconnection agree-
ment approved under Section 252 or, if no CLEC has
requested such an agreement, it must have filed a statement
of generally available terms approved by the state commission
under Section 252(f). See 47 U.S.C. § 271(c)(2)(A). Second,
independent of Section 251(c)(3) UNE duties, the BOC must
make a statutorily-specified list of elements available on an
unbundled basis in addition to complying with Section 251
and other requirements set forth in the “competitive checklist.”8
7
If a state commission chooses not to carry out its assigned role under
the Act, the FCC assumes the responsibility. 47 U.S.C. § 252(e)(5); see
also Jennifer L. Greenblatt, What’s Dignity Got to Do with It?: Using
Anti-Commandeering Principles to Preserve State Sovereign Immunity, 45
Cal. W. L. Rev. 1, 14-15 (2008) (discussing Supreme Court precedent bar-
ring Congress from forcing state executive officers to administer federal
law).
8
The 14-point competitive checklist requires interconnection agree-
ments or a statement of generally available terms to include, in relevant
part:
(i) Interconnection in accordance with the requirements of sec-
tions 251(c)(2) and 252(d)(1) of this title.
6788 QWEST v. ARIZONA CORPORATION COMMISSION
See 47 U.S.C. § 271(c)(2)(B). In contrast to Section 251
UNEs, the FCC decided “network elements that are unbun-
dled by BOCs solely because of the requirements set forth in
section 271” do not have to be offered at cost-based rates. Tri-
ennial Review Order (“TRO”) ¶¶ 656-64, 18 F.C.C.R. 16978,
17386-89 (2003) (concluding “the basic just, reasonable, and
nondiscriminatory rate standard of sections 201 and 202” and
not “the section 252(d)(1) pricing standard” applies to Section
271 checklist network elements); see U.S. Telecom Ass’n, 359
F.3d at 588-90. In practical terms, that means BOCs like
Qwest can charge higher rates for elements unbundled under
Section 271 than they could if the cost-based approach to
rates for elements unbundled under Section 251 applied.
B. Procedural History
Pursuant to Sections 251 and 252 of the Act, Covad entered
into negotiations with Qwest to secure an interconnection
agreement. A complete agreement was not reached, so in
accordance with Section 252, Covad petitioned the ACC to
(ii) Nondiscriminatory access to network elements in accordance
with the requirements of sections 251(c)(3) and 252(d)(1) of this
title.
...
(iv) Local loop transmission from the central office to the cus-
tomer’s premises, unbundled from local switching or other ser-
vices.
(v) Local transport from the trunk side of a wireline local
exchange carrier switch unbundled from switching or other ser-
vices.
[and]
(vi) Local switching unbundled from transport, local loop trans-
mission, or other services.
...
47 U.S.C. § 271(c)(2)(B).
QWEST v. ARIZONA CORPORATION COMMISSION 6789
arbitrate several disputed interconnection agreement issues.
Adopting the recommendations of an administrative law
judge, the ACC issued an arbitration order resolving the dis-
puted interconnection agreement issues.
The ACC’s order interpreted the Section 252 approval pro-
cess as authorizing it to require that Section 271 elements be
placed in arbitrated interconnection agreements. The ACC
also held it had “jurisdiction to impose unbundling require-
ments under Arizona law that the [FCC’s] TRO or [the D.C.
Circuit’s] USTA II decisions struck down.” Finally, the ACC
ruled that the previous ACC-approved cost-based rates would
remain in effect for Section 271 elements pending a further
proceeding within 30 days to set “just and reasonable rates
consistent with state and federal law.”
Qwest and Covad filed their arbitrated interconnection
agreement implementing the terms of the arbitration decision
with the ACC, which was approved by operation of law under
Section 252(e)(4). One of the arbitrated interconnection
agreement provisions stated “Qwest will continue providing
access to certain network elements as required by Section 271
or state law, regardless of whether access to such UNEs is
required by Section 251 of the Act.” The ACC deferred hold-
ing the Section 271 rate proceeding at Qwest’s and Covad’s
request after they reached an interim agreement regarding the
pricing issue.
Qwest brought this action in federal district court under the
Act seeking declaratory and injunctive relief from the ACC’s
arbitration resolution. Treating the parties’ briefs as cross-
motions for summary judgment, the district court ruled in
favor of Qwest. The court held that the ACC has no power to
enforce Section 271 obligations. The court concluded that
because the ACC lacks authority to arbitrate Section 271
terms, it cannot set prices for those elements and may not use
the cost-based pricing scheme the FCC rejected regardless.
The court decided that conflict preemption prohibits the ACC
6790 QWEST v. ARIZONA CORPORATION COMMISSION
from imposing unbundling requirements under Arizona law
that the FCC explicitly withdrew. The ACC and Covad both
timely appealed.
II. Discussion
“We review the district court’s grant of summary judgment
de novo.” US West Commc’ns v. MFS Intelenet, Inc., 193
F.3d 1112, 1117 (9th Cir. 1999). Like the district court, we
review de novo whether the ACC’s arbitration orders are con-
sistent with the 1996 Act and its implementing regulations.
See Pacific Bell v. Pac-West Telecomm, Inc., 325 F.3d 1114,
1123 n.8 (9th Cir. 2003).
A. State Authority Under Section 271
[1] We join the First, Seventh, Eighth, and Eleventh Cir-
cuits in holding that the Act does not authorize state commis-
sions to implement Section 271 terms and rates in
interconnection agreements.9 See Verizon New England, 509
F.3d at 7 (concluding the authority to determine which ele-
ments BOCs are required to provide under Section 271 and
the rates for those elements “is granted exclusively to the
FCC”); Illinois Bell Tel. Co., Inc. v. Box, 548 F.3d 607, 613
(7th Cir. 2008) (“[T]he state commission’s power over [an
interconnection] agreement is limited to the terms in the
agreement relating to access under section 251.”); Southwest-
9
Numerous federal district courts in other circuits have similarly
decided that state commissions do not possess power to determine or
enforce Section 271 requirements. See, e.g., Michigan Bell Tel. Co. v.
Lark, No. 06-11982, 2007 WL 2868633, at *6 (E.D. Mich. Sept. 26,
2007); BellSouth Telecomms., Inc. v. Kentucky Public Serv. Comm’n, No.
06-65-KKC, 2007 WL 2736544, at *6-*7 (E.D. Ky. Sept. 18, 2007); Bell-
South Telecomms., Inc. v. Mississippi Public Serv. Comm’n, 368 F. Supp.
2d 557, 565-66 (S.D. Miss. 2005). In fact, the only federal court to reach
a contrary conclusion was promptly reversed. Verizon New England, Inc.
v. Maine Public Utils. Comm’n, 441 F. Supp. 2d 147, 156-58 (D. Me.
2006), vacated, 509 F.3d 1 (1st Cir. 2007).
QWEST v. ARIZONA CORPORATION COMMISSION 6791
ern Bell Tel., L.P. v. Missouri Public Serv. Comm’n, 530 F.3d
676, 682-83 (8th Cir. 2008) (rejecting the claim that “states
have implied authority to ensure ILECs comply with § 271”
in interconnection agreement arbitration proceedings); Bell-
South Telecomms., Inc. v. Georgia Public Serv. Comm’n, ___
F.3d ___, 2009 WL 368527 (11th Cir. Jan. 26, 2009) (per
curiam) (deciding state commissions are not authorized to
implement Section 271). As the First Circuit explained in
addressing an analogous claim, the contrary position the ACC
and Covad have taken “is at odds with the statutory language,
history and policy of section 271 and most relevant precedent.”10
Verizon New England, 509 F.3d at 7.
[2] The structure of Section 271 confirms that the FCC pos-
sesses sole authority to determine the access and pricing pre-
conditions BOCs must satisfy to enter the long-distance
services market. BOCs submit their application to provide
interLATA services directly to the FCC. 47 U.S.C.
§ 271(d)(1). The FCC then consults with the Attorney Gen-
eral, whose evaluation of the application must be given “sub-
stantial weight.” 47 U.S.C. § 271(d)(2)(A). The FCC must
also “consult” with the state commission “to verify” that the
BOC has complied with the requirements of Section 271(c).
47 U.S.C. § 271(d)(2)(B); see also SBC Commc’ns, 138 F.3d
at 416 (“Although the Commission must consult with the
State commissions, the statute does not require the FCC to
give the State commissions’ views any particular weight.”).
Finally, the FCC decides whether the BOC meets Section
271(c)’s terms and issues a written determination approving
10
Our decision coincides with the FCC’s own articulation of its absolute
power under Section 271 as well as the stance taken by a majority of state
commissions. See InterLATA Boundary Order ¶ 18, 14 F.C.C.R. 14392,
14401 (1999) (alluding to “the exclusive authority that Congress intended
that the [FCC] exercise over the section 271 process” (emphasis added)).
Verizon New England, 509 F.3d at 8 (“Most of the state commissions that
have spoken appear to disclaim power to determine section 271 elements
or fix pricing principles.”).
6792 QWEST v. ARIZONA CORPORATION COMMISSION
or rejecting the interLATA application. 47 U.S.C.
§ 271(d)(3).
Once an interLATA application is approved, enforcement
responsibilities rest exclusively with the FCC. It is the FCC
that determines whether a BOC “has ceased to meet any of
the conditions required for [interLATA service] approval,”
and it “may” issue orders, impose penalties, or retract its
approval in response. 47 U.S.C. § 271(d)(6)(A). The FCC also
“establish[es] procedures for the review of complaints” of
BOC noncompliance with Section 271(c)’s approval condi-
tions. 47 U.S.C. § 271(d)(6)(B). And the FCC is the one obli-
gated to “act on such complaint within 90 days.” Id.[3] The ACC’s limited Section 271 consultation role cuts
against holding that it may impose Section 271 terms based
on its authority under Section 252. See Russello v. United
States, 464 U.S. 16, 23 (1983) (“Where Congress includes
particular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that
Congress acts intentionally and purposely in the disparate
inclusion or exclusion.” (internal quotation marks and alter-
ations omitted)); Verizon New England, 509 F.3d at 7 (“That
the states have an explicit consultative role under section 271
works against, rather than for, their claim of other powers.”).
The fact that the FCC is expressly prohibited from extending
or limiting Section 271’s competitive checklist terms “by rule
or otherwise” likewise presupposes the FCC alone has the
power to administer Section 271. 47 U.S.C. § 271(d)(4).
[4] Section 252’s framework also undermines the ACC’s
claim of power to impose Section 271 requirements. A state
commission may only arbitrate issues after an ILEC receives
a request for negotiation “pursuant to section 251.” See 47
U.S.C. § 252(a)(1), (b)(1); see also Qwest Corp. v. Public
Utils. Comm’n of Colorado, 479 F.3d 1184, 1197 (10th Cir.
2007) (“[A] CLEC may only compel arbitration of issues that
the ILEC is under a duty to negotiate pursuant to
QWEST v. ARIZONA CORPORATION COMMISSION 6793
§ 251(c)(1).”); MCI Telecomms. Corp. v. BellSouth Tele-
comms., Inc., 298 F.3d 1269, 1274 (11th Cir. 2002) (per
curiam) (concluding that a state commission’s arbitration
authority is coextensive with the ILEC’s duty to negotiate the
terms and conditions necessary to fulfill Section 251 duties).
Section 252(c), defining the “standards for arbitration,”
explicitly requires state commissions to ensure Section 251
requirements are met, without mentioning Section 271. The
state commission must also “establish any rates for intercon-
nection, services, or network elements according to [Section
252](d) . . . .” 47 U.S.C. § 252(c)(2). Section 252(d), mean-
while, only authorizes the setting of “just and reasonable rate-
[s]” for facilities and services offered pursuant to Section 251.
Section 252(e)(2)(B) allows a state commission to reject an
arbitrated agreement only if the agreement does not meet the
requirements of Section 251. In short, all state commission
arbitration authority under Section 252 is inextricably tied to
the duties imposed under Section 251.
[5] Implementing other federal law requirements is beyond
the scope of Section 252’s authority savings clause, which
states that “nothing in this section shall prohibit a State com-
mission from establishing or enforcing other requirements of
State law in its review of an agreement, including requiring
compliance with intrastate telecommunications service qual-
ity standards or requirements.” 47 U.S.C. § 252(e)(3) (empha-
sis added); see also 47 U.S.C. § 252(f)(2) (providing a nearly
identical savings clause for state commissions reviewing
statements of generally available terms); accord SBC
Commc’ns, 138 F.3d at 417 (“[I]nterLATA service is typi-
cally interstate.”). Perhaps most tellingly, Section 271 con-
tains no similar state commission authority savings clause.
See Verizon New England, 509 F.3d at 7 (“Section 271 has no
such clause reserving state power, again underscoring
intended federal supremacy and the absence of state power
under section 271.”).
[6] Nor is there any historical support for the ACC’s inter-
pretation of its power to implement Section 271. Suits chal-
6794 QWEST v. ARIZONA CORPORATION COMMISSION
lenging the authority of state commissions to impose Section
271 access and pricing terms did not arise until 2005 because
the FCC’s previous expansive interpretation of Section
251(c)(3)’s UNE requirements coincided with Section
271(c)’s requirements. See Southwestern Bell Tel., 530 F.3d
at 681. Moreover, the 1996 Act was passed, in part, to address
the concern that “the huge telecommunications industry
should no longer be governed by an antitrust consent decree
administered by a single federal district judge.” SBC
Commc’ns, 138 F.3d at 412-13. “When the 1996 Act replaced
the decree, Congress aimed to transfer this authority to the
FCC — not the states[.]” Verizon New England, 509 F.3d at
8.
B. State Law Authority
While Arizona law grants the ACC broad powers to make
unbundling and pricing determinations, federal preemption
restricts that power here. We conclude that, due to conflict
preemption, state law cannot empower state commissions to
prescribe or fix rates for Section 271 terms or institute unbun-
dling requirements previously abolished by the FCC. See
AT&T Corp., 525 U.S. at 378 n.6 (“[I]f the federal courts
believe a state commission is not regulating in accordance
with federal policy they may bring it to heel.”).
[7] Even though the Act does not contain an express pre-
emption command, “a federal statute implicitly overrides state
law . . . when state law is in actual conflict with federal law.”
Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995). This
so-called conflict preemption is found “where state law stands
as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.” Id. (internal quotation
marks omitted). In deciding whether the ACC’s order
“ ‘stands as an obstacle’ to the full implementation of the
[Act], it is not enough to say that the ultimate goal of both
federal and state law is [the same].” See Int’l Paper Co. v.
Ouellette, 479 U.S. 481, 494 (1987). Rather, “[a] state law
QWEST v. ARIZONA CORPORATION COMMISSION 6795
also is pre-empted if it interferes with the methods by which
the federal statute was designed to reach this goal.” Id.“[B]ecause of the long history of federal presence in regulat-
ing long-distance telecommunications[,]” the ordinary pre-
sumption against finding preemption does not apply. Ting v.
AT&T, 319 F.3d 1126, 1136 (9th Cir. 2003).
[8] The imposition of Section 271 requirements by the
ACC under state law is preempted as it “interferes with Con-
gress’ chosen method in effectuating the purposes of the
[Act].” See Ting, 319 F.3d at 1146; accord Pacific Bell, 325
F.3d at 1126 (“It is clear from the structure of the Act . . . that
the authority granted to state regulatory commissions is con-
fined to the role described in § 252 — that of arbitrating,
approving, and enforcing interconnection agreements.”). Con-
gress “unquestionably” took “regulation of local telecommu-
nications competition away from the States . . . [w]ith regard
to the matters addressed by the 1996 Act[.]” AT&T Corp., 525
U.S. at 378 n.6. The Act restricts the ACC to serving a limited
consultation role while granting the FCC exclusive power to
determine and enforce Section 271 compliance. 47 U.S.C.
§ 271(d); see also BellSouth Telecomms., Inc. v. Georgia
Public Serv. Comm’n, 587 F. Supp. 2d 1258, 1264 (N.D. Ga.
2008), aff’d, ___ F.3d ___, 2009 WL 368527 (11th Cir. Jan.
26, 2009) (“[Although] Congress reserved some state author-
ity to impose unbundling requirements that parallel the obli-
gations of § 251, see 47 U.S.C. § 251(d)(3), that provision is
expressly limited to implementation of § 251, and § 271 con-
tains no similar savings clause, strongly signaling Congress’s
expectation that state commissions would not exercise inde-
pendent state-law authority with respect to § 271 checklist
items.”); MCI Telecomm. Corp. v. Bell Atlantic-Pennsylvania,
271 F.3d 491, 510 (3d Cir. 2001) (“Regulating local telecom-
munications competition under the 1996 Act . . . is an activity
in which states and state commissions are not entitled to
engage except by the express leave of Congress.”).
[9] We agree with the First, Seventh, and Eleventh Circuits
that the Act preempts state commissions from imposing TEL-
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RIC rates for Section 271 elements. See Verizon New
England, 509 F.3d at 9 (deciding preemption principles force
such state orders to give way since “[t]o allow the states to
require the lower TELRIC rates directly conflicts with, and
undercuts, the FCC’s orders”); Illinois Bell Tel. Co., 548 F.3d
at 612-13 (finding “a real conflict between the federal and
state regulatory schemes” when the state commission required
the BOC to charge rates no higher than cost for Section 271
unbundled services); BellSouth Telecomms., 587 F. Supp. 2d
at 1264, aff’d, ___ F.3d ___, 2009 WL 368527 (11th Cir. Jan.
26, 2009) (holding the state commission’s decision forcing a
BOC to charge regulated rates for Section 271 “checklist
items cannot be reconciled with the FCC’s statements”); see
also supra note 6 and accompanying text (discussing TELRIC
below-market pricing).
[10] The FCC has determined that the market rate, rather
than “the section 252(d)(1) pricing standard” (i.e., TELRIC
pricing), applies to Section 271 elements. TRO ¶¶ 656-64, 18
F.C.C.R. 16978, 17386-89; UNE Remand Order ¶ 473, 15
F.C.C.R. 3696, 3906 (1999) (“In circumstances where a
checklist network element is no longer unbundled [under Sec-
tion 251(c)(3)] . . . it would be counterproductive to mandate
that the incumbent offers the element at forward-looking
prices. Rather, the market price should prevail, as opposed to
a regulated rate . . . .”); see also Illinois Bell Tel. Co., 548
F.3d at 612 (proclaiming “the FCC allows the market rate to
be charged” under Section 271); Nuvox Commc’ns, Inc. v.
BellSouth Comm’ns, Inc., 530 F.3d 1330, 1335 (11th Cir.
2008) (per curiam) (“[I]LECs are permitted to charge market
rates for section-271 elements . . . .”). Moreover, the FCC has
explained that “[w]hether a particular [Section 271] checklist
element’s rate satisfies the just and reasonable pricing stan-
dard of section 201 and 202 is a fact-specific inquiry that the
[FCC] will undertake in the context of a BOC’s application
for section 271 authority or in an enforcement proceeding
brought pursuant to section 271(d)(6).” TRO ¶ 664, 18
F.C.C.R. 16978, 17389 (emphasis added).
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[11] We further hold that the ACC’s claim of “jurisdiction
to impose unbundling requirements under Arizona law that
the TRO or USTA II decisions struck down” is also subject to
conflict preemption. In accordance with the decisions of the
First and Seventh Circuits, we conclude that the ACC’s order
stands “in direct conflict with specific FCC policies adopted
pursuant to its authority under the 1996 Act.” Verizon New
England, 509 F.3d at 9 (“The problem for the states is the
FCC’s delisting was intended to free the carriers from such
compulsion.”); Illinois Bell Tel. Co., 548 F.3d at 611 (opining
that state commissions cannot “in effect . . . overrule the
FCC’s decision not to require additional unbundling at the
[ILEC’s] cost”); see also id. (“The FCC has been charged by
Congress with determining the optimal amount of unbundling
— enough to enable [CLECs] to compete with [ILECs] but
not so much as to enable them to take an almost free ride on
services that [ILECs] ha[ve] spent a lot of money to create.
That judgment . . . is without force if a state can require more
unbundling at cost than the FCC requires.”); TRO ¶ 658, 18
F.C.C.R. 16978, 17387 (2003) (“We . . . decline to use section
271 . . . to broaden the unbundling obligations of section
251.”).
The ACC points to Section 251(d)(3)’s savings clause,
which states the FCC cannot “preclude the enforcement of
any regulation, order, or policy of a State commission that —
(A) establishes access and interconnection obligations of local
exchange carriers; (B) is consistent with the requirements of
this section; and (C) does not substantially prevent implemen-
tation of the requirements of this section and the purposes of
this part.” Holding that preemption bars the ACC from impos-
ing FCC-revoked requirements comports with this savings
clause as “the access requirements imposed by the [ACC] are
inconsistent with the requirements of section 251 and do pre-
vent their implementation.” See Illinois Bell Tel. Co., 548
F.3d at 611; see also 47 U.S.C. § 251(d)(2) (directing the
FCC to determine which network elements must be unbun-
dled); Geier v. Am. Honda Motor Co., 529 U.S. 861, 870
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(2000) (“[The Supreme] Court has repeatedly declined to give
broad effect to saving clauses where doing so would upset the
careful regulatory scheme established by federal law.” (inter-
nal quotation marks and alterations omitted)); Verizon New
England, 509 F.3d at 9 (“For a state to require such sharing
where the FCC thinks compulsion is detrimental is no differ-
ent than insistence on TELRIC pricing in contravention of the
FCC’s mandate for a different pricing scheme.”).
III. Conclusion
[12] In sum, we hold that the Act does not authorize the
ACC to impose Section 271 access or pricing terms and that
conflict preemption bars the ACC from doing so under state
law. Preemption further restricts the ACC from using state
law to order the unbundling of elements the FCC expressly
declined to unbundle under Section 251. Accordingly, we
affirm the district court’s decision.
AFFIRMED.