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Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
AT&T Corporation, )
) File No. E-98-05
Bell Atlantic Corporation, )
In the Matter of )
MCI Telecommunications )
and MCImetro Access ) File No. E-98-12
Services, Inc. )
Bell Atlantic Corporation, )
MEMORANDUM OPINION AND ORDER
Adopted: August 15, 2000 Released: August 18,
By the Commission:
In this Memorandum Opinion and Order, we dismiss with prejudice
the formal complaints filed by AT&T Corporation (``AT&T'') and
MCI Telecommunications Corporation and MCImetro Access
Transmissions Services, Inc. (collectively, ``MCI'') against Bell
Atlantic Corporation (``Bell Atlantic''), alleging that Bell
Atlantic violated the pricing requirement set forth by the
Commission in its order approving the merger of Bell Atlantic and
NYNEX Corporation (``NYNEX'').1 The objectives that the
Commission sought to achieve in establishing the pricing
condition have now been met, both by the methodological decisions
of the relevant state public service commissions and by the U.S.
Supreme Court's reinstatement of our forward-looking cost
requirement for purposes of state arbitration proceedings under
47 U.S.C. §§ 251 and 252. For that reason, for reasons of
comity, and in light of the procedural framework established in
the Telecommunications Act of 1996 (``1996 Act''),2 we therefore
dismiss the complaints with prejudice.
On August 14, 1997, the Commission granted a number of
applications from Bell Atlantic and NYNEX seeking approval to
transfer control of certain licenses and authorizations from
NYNEX to Bell Atlantic in connection with their proposed merger.
We approved the license transfers subject to several conditions
that were proffered in the first instance by the merging
companies.3 The Commission incorporated these conditions into
the Merger Order and made them ``express conditions of our
approval of the transfer of licenses and certificates.''4
One of these conditions relates to Bell Atlantic's pricing of
unbundled network elements (``UNEs''), interconnection, and
transport and termination. This condition states that ``Bell
Atlantic-NYNEX must offer in negotiations, and in certain
instances in proposals to state commissions, rates for
interconnection, UNEs, and transport and termination that are
based upon the forward-looking cost of providing these items.''5
At the time, the U.S. Court of Appeals for the Eighth Circuit had
only recently vacated on jurisdictional grounds the pricing rules
the Commission had previously adopted for all incumbent local
exchange carriers; those rules employed a particular species of
forward-looking cost known as Total Element Long-Run Incremental
Cost (``TELRIC'').6 Through the pricing condition, the
Commission sought, with respect to Bell Atlantic, to alleviate
the uncertainty caused by the Eighth Circuit's decision and
mitigate any potential harm to competition. In particular, the
Commission was concerned that, freed from the Commission's
vacated pricing rules and in the absence of this merger
condition, Bell Atlantic might charge UNE rates based on
historical rather than forward-looking costs.
AT&T and MCI filed separate formal complaints against Bell
Atlantic alleging violations of the Merger Order's pricing
condition in seven jurisdictions: Delaware, the District of
Columbia, Maryland, New Jersey, Pennsylvania, Virginia, and West
Virginia.7 According to complainants, the Merger Order requires
Bell Atlantic to propose rates for UNEs and interconnection based
on the TELRIC standard. Complainants allege that, following the
effective date of the Merger Order, Bell Atlantic refused to make
new proposals that met the TELRIC standard, but instead pressed
on with the rates it had previously proposed in each
jurisdiction. AT&T and MCI contend that these proposals were
inconsistent with TELRIC both on general grounds and with respect
to numerous specific cost inputs. They maintain that, to varying
degrees, Bell Atlantic's proposed rates have been accepted in
each of the seven relevant jurisdictions and incorporated into
its interconnection agreements. According to complainants, the
resulting UNE prices have effectively prevented them from
competing in those jurisdictions.
Bell Atlantic denies these allegations.8 Bell Atlantic first
asserts that the complaints fail to state a claim because
complainants have not alleged that Bell Atlantic made any pricing
proposals subject to the Merger Order. Bell Atlantic also argues
that AT&T and MCI are simply attempting to re-litigate issues
already presented to, and resolved by, the state commissions.9
Finally, Bell Atlantic states that the Merger Order does not
require the use of TELRIC pricing in particular but rather
forward-looking cost generally. Bell Atlantic contends that its
proposals are consistent with such a methodology and that, in any
event, its rate proposals also conform to TELRIC on both a
general basis and with respect to the specific inputs identified
by AT&T and MCI.
Before reaching AT&T's and MCI's claims, we first must address
Bell Atlantic's motions to dismiss the complaints. Under our
rules, a formal complaint shall be dismissed if it does not state
a cause of action under the Communications Act of 1934, as
amended (the ``Act'').10 Bell Atlantic asserts four arguments in
favor of dismissal: (1) that complainants have failed to allege
that Bell Atlantic made any proposals subject to the Merger
Order; (2) that complainants' claims are moot because Bell
Atlantic's proposals have already been reviewed by the state
commissions; (3) that we should dismiss the complaints on the
basis of comity in light of the state commissions' ratemaking
proceedings; and (4) that the complaints are wrong on the merits.
We find that AT&T and MCI's complaints should be dismissed
because of the U.S. Supreme Court's reinstatement of our forward-
looking cost requirement and the state commissions' adoption of
their own mechanisms for determining UNE prices based on forward-
looking economic cost. As explained below, these events have
fulfilled the Merger Order's parallel pricing requirement. We
therefore grant Bell Atlantic's motions to dismiss the formal
complaints filed by AT&T and MCI.
In the 1996 Act, Congress authorized the state commissions,
subject to review in the federal district courts, to resolve
intercarrier disputes concerning the rates that incumbent LECs
may charge their competitors for interconnection and UNEs. When
resolving such disputes, the state commissions must set such
rates under the substantive standards of sections 251 and 252.11
In our Local Competition Order, we required the state commissions
to set interconnection and UNE prices based on TELRIC.12
Soon after we released the Local Competition Order, a number of
incumbent LECs and state commissions challenged our rules, both
on jurisdictional grounds and on the merits. The U.S. Court of
Appeals for the Eighth Circuit stayed and later vacated our
pricing rules on jurisdictional grounds, finding that the states
had exclusive authority over the pricing of interconnection and
UNEs and that the Commission therefore lacked authority to
establish a nationwide pricing regime.13
Less than a month after the Eighth Circuit vacated our pricing
rules, we issued the Merger Order.14 In that order, we observed
that, by vacating our rules requiring the states to adopt final
rates based on forward-looking economic cost, the Eighth
Circuit's decision had ``created even greater uncertainty as to
the pace of the development of competition.''15 This merger
condition was designed to reduce that uncertainty in order to
mitigate the negative impacts of the proposed merger on
competition. With Bell Atlantic's assent, and consistent with
the Eighth Circuit's decision, we required Bell Atlantic at least
to propose rates for UNEs and interconnection in accord with a
forward-looking methodology. Our object was to assure new
entrants that they would not have to pay rates inconsistent with
that methodology. Where a state adopted such a methodology in
setting rates for interconnection and UNEs, however, that
objective would be fulfilled and challenges to allegedly
deficient proposals by the merged company rendered academic.16
During or shortly after this same period, in the markets served
by the merged company, each of the state commissions in the
jurisdictions at issue here announced that it would follow
pricing standards consistent with the theory of forward-looking
economic cost.17 As a result, the gap that we designed the
merger condition to fill never emerged. Moreover, the Supreme
Court's reinstatement of our pricing rules in 1999 restored an
explicit federal legal requirement that the states employ a
forward-looking cost methodology and ensured that, under the
well-established procedures of section 252(e)(6) of the Act, the
federal courts would enforce that methodology on review.18
AT&T and MCI assert that the state commission decisions should
have no effect on this case because those decisions relied on
Bell Atlantic's allegedly improper proposals to reach -- in
complainants' view -- incorrect and conflicting results with
respect to numerous cost inputs.19 Complainants argue that
competition has been harmed because, they contend, the state
commissions have erroneously failed to ensure rates based on
forward-looking economic cost.20 According to complainants, the
Commission should order Bell Atlantic to revise its rates to
correct the alleged errors.
But complainants are already pursuing (or have had the
opportunity to pursue) review of those rates in the federal
district courts pursuant to section 252(e)(6).21 The Merger
Order, moreover, does not require us to conduct such an
examination here. Rather, the Merger Order was designed to fill
the gap created by the Eighth Circuit's jurisdictional decision,
which has now been reversed. In accordance with the 1996 Act's
directives and our rules, the state commissions have affirmed
their commitment to forward-looking pricing, and, under the
Supreme Court's decision, the federal district courts are
available to enforce that methodology on review. Put another
way, the substance of the pricing methodology that the state
commissions have employed (and must continue to employ) in
section 252 proceedings wholly subsumes the substance of the
merger condition at issue here. Because that merger condition
imposes no cost methodology requirement that is not independently
applicable in section 252 proceedings, the only question is
whether, as a procedural matter, the merger condition compels us
to duplicate the rate inquiry that Congress entrusted to the
state commissions and the federal courts on review. The answer is
no: the merger condition was designed to ensure the use of a
forward-looking cost methodology as a substantive matter; it was
not independently designed to bypass the statutory procedural
framework for ensuring compliance with that methodology under
section 252. Complainants' contrary position misconstrues the
purpose of the Merger Order and could unnecessarily raise
substantial comity concerns.
Finally, the Eighth Circuit's decision on remand from the Supreme
Court22 (to the extent that it is relevant to the period covered
by these complaints) is fully consistent with our decision here.
In January 1999, the Supreme Court reaffirmed our general pricing
jurisdiction and then remanded to the Eighth Circuit for review
of our pricing rules on the merits. Oral argument was held in
September 1999, but the Eighth Circuit's decision was not issued
until July 18, 2000. Although the Eighth Circuit invalidated
some aspects of our pricing rules, it affirmed our requirement
that UNE rates be based on forward-looking rather than historical
costs.23 Even in the absence of further review of the Eighth
Circuit's decision, that requirement will therefore remain
binding on Bell Atlantic for purposes of sections 251 and 252 and
will continue to be enforced by the procedures set forth in
section 252. As noted above, we interpret the Merger Order to
require use of forward-looking costs in general rather than any
particular species of forward-looking cost methodology, such as
TELRIC.24 There is thus no inconsistency between the Eighth
Circuit's decision and our rationale for dismissing these
IV. ORDERING CLAUSES
Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 4(j),
201(b), and 208 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 151, 154(i), 154(j), 201(b), 208, and Section 1.728(a)
of the Commission's rules, 47 C.F.R. § 1.728(a), that the formal
complaints filed by AT&T Corporation, MCI Telecommunications
Corporation and MCImetro Access Transmissions Services, Inc., ARE
DISMISSED WITH PREJUDICE.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
1 Applications of NYNEX Corp., Transferor, and Bell Atlantic
Corp., Transferee, for Consent to Transfer Control of NYNEX
Corp. and its Subsidiaries, Memorandum Opinion and Order, 12 FCC
Rcd 19985 (1997) (``Merger Order'').
2 Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56, codified at 47 U.S.C. §§ 151 et seq.
3 Merger Order., 12 FCC Rcd at 19992, ¶ 12; id., 12 FCC at
20069, ¶ 178.
4 Id., 12 FCC Rcd at 20070, ¶ 180.
5 Id., 12 FCC Rcd at 20072-73, ¶ 185 (footnote omitted). See
also id., 12 FCC Rcd at 19992, ¶ 13 ("[Bell Atlantic] also
commit[s] to offer interconnection, unbundled network elements
and transport and termination at rates based on forward-looking
economic cost"); id., 12 FCC Rcd at 20111, Appendix C (Condition
6 See Implementation of the Local Competition Provisions in
the Telecommunications Act of 1996 and Interconnection between
Local Exchange Carriers and Commercial Mobile Radio Service
Providers, First Report and Order, 11 FCC Rcd 15499 (1996)
(``Local Competition Order''), vacated in part, Iowa Utilities
Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), aff'd in part, rev'd
in part sub. nom. AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366
(1999), vacated in part on remand sub. nom. Iowa Utilities Bd.
v. FCC, No. 96-3321, 2000 WL 979117 (8th Cir. July 18, 2000).
7 See Complaint of AT&T Corp. (``AT&T Complaint''), AT&T
Corp. v. Bell Atlantic Corp., File No. E-98-05 (filed Nov. 10,
1997); Complaint of MCI Telecommunications Corp. and MCImetro
Access Transmissions Services, Inc., MCI Telecommunications
Corp., et al. v. Bell Atlantic Corp., File No. E-98-12 (filed
Dec. 19, 1997).
8 See Answer of Bell Atlantic Corp., AT&T Corp. v. Bell
Atlantic Corp., File No. E-98-05 (filed Dec. 15, 1997); Motion
to Dismiss by Bell Atlantic Corp., AT&T Corp. v. Bell Atlantic
Corp., File No. E-98-05 (filed Dec. 15, 1997); Answer of Bell
Atlantic Corp., MCI Telecommunications Corp., et al. v. Bell
Atlantic Corp., File No. E-98-12 (filed Jan. 23, 1998); Motion
to Dismiss by Bell Atlantic, MCI Telecommunications Corp., et
al. v. Bell Atlantic Corp., File No. E-98-12 (filed Jan. 23,
9 We will refer to the public utility commissions for the
seven relevant jurisdictions collectively as ``the state
10 47 C.F.R. § 1.728(a).
11 47 U.S.C. §§ 251, 252; see also AT&T Corp. v. Iowa
Utilities Bd., 525 U.S. at 384-85.
12 Local Competition Order, 11 FCC Rcd at 15844, ¶ 672.
13 Iowa Utilities Bd., 120 F.3d at 800.
14 The Eighth Circuit vacated our pricing rules on July 18,
1997. Id., 120 F.3d at 784. We adopted and released the Merger
Order on August 14, 1997. Merger Order, 12 FCC Rcd at 19985.
15 Id., 12 FCC Rcd at 19988, ¶ 4.
16 The Merger Order explicitly requires Bell Atlantic to
propose rates based on ``forward-looking economic cost''
generally, rather than TELRIC in particular. See id., 12 FCC
Rcd at 19992, ¶ 13; id., 12 FCC Rcd at 20072-73, ¶ 185.
Complainants nonetheless argue that the merger conditions in
fact impose a requirement to follow TELRIC; they rely on an
accompanying footnote in which, citing several passages from our
prior orders, we noted that ``[t]he Commission has outlined the
theory of `forward-looking economic cost' in its Local
Competition and Universal Service orders.'' Id., 12 FCC Rcd at
20073, ¶ 185 n.345. In citing past examples of approaches to
forward-looking cost, we did not somehow confine the term
``forward-looking economic cost'' to those examples, nor did we
convert the requirement in the text of the Merger Order -- that
Bell Atlantic employ forward-looking costs as a general matter -
- into a more rigorous requirement that Bell Atlantic employ a
particular variant of forward-looking economic cost, such as
TELRIC. If we had intended to impose the latter kind of
requirement, we would have put Bell Atlantic on notice of that
fact by saying so.
17 As demonstrated below, each of the state commissions
adopted the theory of forward-looking economic cost as its
· Delaware: See, e.g., Bell Atlantic-Delaware, Inc. v.
McMahon, 80 F. Supp.2d 218, 235 (D. Del. 2000) (noting
that, following Eighth Circuit's decision, the Delaware
public service commission ``voluntarily adopted the Local
Competition Order's TELRIC methodology even though that
portion of the Local Competition Order had never gone into
· District of Columbia: See Consolidated Issues Raised in
Petitions for Arbitration Pending Before the Public Service
Commission, Telecommunications Arbitration Case, Order No.
5, at 5-6, 1996 WL 694995 (D.C. Pub. Serv. Comm'n Nov. 8,
1996) (adopting FCC's TELRIC ``proxy rates'' as interim
rates based on the unanimous agreement of ``all the parties
to this proceeding'').
· Maryland: See Approval of Agreements and Arbitration of
Unresolved Issues Arising Under Section 252 of the
Telecommunications Act of 1996, Case No. 8731, Phase II,
Order No. 73707, 180 P.U.R. 4th 521 (Md. Pub. Serv. Comm'n
Sept. 27, 1997) (adopting forward-looking cost pricing
· New Jersey: See In the Matter of the Investigation
Regarding Local Exchange Competition for Telecommunications
Services, Telecommunications Decision and Order, Docket No.
TX95120631, at 9, 1997 WL 795071 (N.J. Bd. Pub. Utils. Dec.
2, 1997) (``[T]he Board hereby adopts the principles upon
which the FCC's TELRIC model is based. Adopting a
methodology based on forward-looking, economic costs . . .
will best replicate to the extent possible the conditions
of a competitive market'').
· Pennsylvania: See Application of MFS Intelenet of
Pennsylvania, Inc., MFS Phase III, Interim Order, Docket
Nos. A-310203F0002, et al., at 13 (Pa. Pub. Util. Comm'n
April 10, 1997) (``we will continue to use TELRIC as a tool
to evaluate the proposals before us and view the [Local
Competition Order] as instructive in the proper application
of a long-run incremental cost methodology''; final order
adopted Interim Order conclusion).
· Virginia: See, e.g., GTE South, Inc. v. Morrison, 199 F.3d
733, 739, 747 (4th Cir. 1999) (finding that, following the
Eighth Circuit's decision, the Virginia state commission
nevertheless adopted forward-looking economic cost
methodology that complied with TELRIC).
· West Virginia: See Petition to Establish a Proceeding to
Review the Statement of Generally Available Terms and
Conditions Offered by Bell Atlantic in Accordance with
Sections 251, 252, and 271 of the Telecommunications Act of
1996, Order on Arbitration, Case Nos. 96-1516-T-PC, et al.,
at 34 (W.Va. Pub. Serv. Comm'n April 21, 1997) (``[T]he
Commission will adopt rates and prices for interconnection,
UNEs and collocation based on a TELRIC methodology.'').
18 See 47 U.S.C. § 252(e)(6) (``In any case in which a State
commission makes a determination under this section, any party
aggrieved by such determination may bring an action in an
appropriate Federal district court to determine whether the
agreement or statement meets the requirements of section 251 and
19 See Supplemental Brief of AT&T Corp. in Support of
Complaint (``AT&T Supplemental Brief''), AT&T Corp. v. Bell
Atlantic Corp., File No. E-98-05, at 5, 23-25 (filed Feb. 26,
1999); Reply Brief of MCI Telecommunications Corp. et al. in
Support of Complaint, MCI Telecommunications Corp. et al. v.
Bell Atlantic Corp., File No. 98-12, at 8 (filed April 1, 1998);
Supplemental Reply Brief of MCI Telecommunications Corp. et al.
In Support of Complaint, MCI Telecommunications Corp. et al. v.
Bell Atlantic Corp., File No. E-98-12, at 5 (filed March 19,
20 See, e.g., AT&T Complaint at ¶¶ 79-82.
21 See Status Report of AT&T Corp. and MCI Telecommunications
Corp., AT&T Corp. v. Bell Atlantic Corp., MCI Telecommunications
Corp. et al. v. Bell Atlantic Corp., File Nos. E-98-05, E-98-12
(filed July 29, 1999) (listing appeals to district courts).
See, e.g., McMahon, 80 F. Supp.2d at 249-51 (granting AT&T
challenge to certain decisions by the Delaware commission in its
review of Bell Atlantic's pricing proposals).
22 Iowa Utilities Bd. v. FCC, No. 96-3321, 2000 WL 979117 (8th
Cir. July 18, 2000).
23 See id., 2000 WL 979117, at *5-6 (approving forward-looking
24 See note 16, supra.