United States: Ninth Circuit Holds That State Commissions Have No Authority To Implement Section 271 Of The Telecommunications Act In Interconnection Agreements

In an opinion issued on June 8, 2009 the Ninth Circuit affirmed an Arizona district court ruling that state commissions may not impose access or pricing requirements under Section 271 of the Telecommunications Act of 1996 (the "Act"), 47 U.S.C. §§ 151, et. seq., in the course of arbitrating interconnection agreements.  Qwest Corp. v. Arizona Corp. Comm'n, Nos. 07-17079, 07-17080, 2009 WL 1578528, at *1 (9th Cir. June 8, 2009).  The court further held that state commissions are preempted from forcing carriers to make parts of their networks available on a separately purchasable basis when the Federal Communications Commission ("FCC") has determined that they are not required to do so.  Id. 

Statutory Background

Section 251(c)(3) of the Act requires incumbent local exchange carriers ("ILECs"), like Qwest, to offer competitive local exchange carriers ("CLECs"), like Covad, certain "network elements" on an unbundled basis at cost-based, regulated rates.  These unbundled network elements are commonly 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 competitively "impair" CLECs in providing services.  Id. at *2.

Section 252(a) of the Act permits carriers to negotiate an interconnection agreement voluntarily without regard to the duties otherwise imposed under Section 251(b) or (c).  If 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 identified in the arbitration petition and must ensure that Section 251 requirements are met.  Id. at *3.

Section 271 only applies to those ILECs like Qwest that are, or incorporate, former Bell Operating Companies ("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 agreement 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).  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."

In contrast to Section 251 UNEs, the FCC has decided that network elements that are unbundled by BOCs solely because of the requirements set forth in Section 271 do not have to be offered at cost-based rates.  In practical terms, that means BOCs like Qwest can charge higher rates for elements that are unbundled under Section 271 than they could if the cost-based approach to rates for elements that are unbundled under Section 251 applied.  Id. at *3.

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 Arizona Corporation Commission ("ACC") to arbitrate several disputed interconnection agreement issues.  Adopting the recommendations of an administrative law judge, the ACC issued an arbitration order resolving the disputed interconnection agreement issues.  Id. at *3.

The ACC's order interpreted the Section 252 approval process as authorizing it to require that Section 271 elements be placed in the arbitrated interconnection agreement.  The ACC also held that it had jurisdiction to impose unbundling requirements under Arizona law that the FCC had eliminated.  Id. at *3.

Qwest appealed to the 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, holding that the ACC has no power to enforce Section 271 obligations, cannot set prices for those elements and may not use the cost-based pricing scheme that the FCC had rejected regardless.  The court also held that conflict preemption prohibits the ACC from imposing unbundling requirements under Arizona law that the FCC explicitly withdrew.  Id. at *4.

Ninth Circuit's Ruling

Covad and the ACC appealed to the Ninth Circuit, which affirmed the district court and joined the First, Seventh, Eighth and 11th Circuits in holding that the Act does not authorize state commissions to implement Section 271 terms and rates in interconnection agreements.  Id. at *4.

In so holding, the court noted that "[t]he structure of Section 271 confirms that the FCC possesses sole authority to determine the access and pricing pre-conditions BOCs must satisfy to enter the long-distance services market."  Id. at *5.

Additionally, the court "conclude[d] that, due to conflict preemption, state law cannot empower state commissions to prescribe or fix rates for Section 271 terms or institute unbundling requirements previously abolished by the FCC."  Id. at *6.

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