SC03-235 – Sprint-Florida, Inc. Et Al. v. Lila A. Jaber, Et Al.

SUPREME COURT CASES

Laws-info.com » Cases » Florida » Supreme Court » 2004 » SC03-235 – Sprint-Florida, Inc. Et Al. v. Lila A. Jaber, Et Al.

State: Florida

Court: Supreme Court

Docket No: sc03-235

Case Date: 09/15/2004

Plaintiff: SC03-235 – Sprint-Florida, Inc. Et Al.

Defendant: Lila A. Jaber, Et Al.

Preview:Supreme Court of Florida
Nos. SC03-235 & SC03-236
SPRINT-FLORIDA, INC., et al.,
and VERIZON FLORIDA, INC, et al.,
Appellants/Cross-Appellees,
vs.
LILA A. JABER, et al.,
Appellees/Cross-Appellees;
AT&T COMMUNICATIONS OF THE SOUTHERN
STATES, LLC, and TCG SOUTH FLORIDA,
Appellees/Cross-Appellants;
and BELLSOUTH COMMUNICATIONS, INC.,
Cross-Appellee.
[September 15, 2004]
PER CURIAM.
We have on appeal and cross-appeal a decision of the Florida Public Service
Commission (Commission) relating to rates or service of a telephone utility.  We
have jurisdiction.   See art. V, § 3(b)(2), Fla. Const.  These consolidated appeals are

brought by Sprint-Florida, Inc., and Sprint Communications Company
(collectively, Sprint) and Verizon Florida, Inc., ALLTEL Florida, Inc., and
Frontier Communications of the South, Inc. (collectively, Verizon), and raise a
single issue (herein referred to as the local calling area issue), determined by the
Commission in order number PSC-02-1248-FOF-TP (order on reciprocal
compensation), issued on September 10, 2002.  AT&T, LLC, and TCG South
Florida (collectively, AT&T) join the Commission in defending the order with
regard to that issue but have filed a cross-appeal raising a second issue (herein
referred to as the tandem interconnection rate issue), determined by the
Commission in the same order.
GENERAL BACKGROUND
Until the mid -1990s, local telephone service within each of Florida’s local
calling areas was provided by a single company, which operated under an
exclusive franchise granted by the State in exchange for the construction of
extensive networks ensuring universal provision of service.  Such companies are
now known as incumbent local exchange carriers (ILECs).  Meanwhile, service
between local calling areas has been subject to competition for decades.
Generally, when a call is placed between local calling areas, it is passed via a long-
distance or interexchange carrier (IXC), and the IXC must pay access charges to
the ILECs at each end of the call.  The Federal Communications Commission
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(FCC), which has authority over interstate calls, sets those access fees high to
compensate local carriers for the use of their local facilities and to maintain low
local rates.
In 1995, the Florida Legislature introduced competition into local telephone
service by establishing procedures for the certification of alternative local
exchange carriers (ALECs) to provide local service.  See ch. 95-403, Laws of Fla.
Likewise, in 1996, Congress passed the Telecommunications Act of 1996 (Act),
which was designed in part to foster competition in local markets.  As a result, an
ILEC’s customer could call an ALEC’s customer, or vice versa, within the same
local exchange.  Under such circumstances, section 251 of the Act requires the
carrier serving the calling party to pay a reciprocal compensation fee to the other
carrier for the cost of delivering and terminating the call.
PROCEEDINGS BELOW
On January 21, 2000, the Commission, on its own motion, established
docket number 000075-TP, to investigate the appropriate method to compensate
telecommunications carriers for the exchange of telecommunications traffic subject
to section 251 of the Act.1  ILECs, such as Sprint, Verizon, and BellSouth, and new
ALECs, such as AT&T, were permitted to intervene in the Commission’s
1.  Section 251(b)(5) requires interconnecting LECs “to establish reciprocal
compensation arrangements for the transport and termination of
telecommunications.”
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investigatory proceedings.  Commission staff and interested parties submitted issue
identification lists, and on November 22, 2000, the Commission issued an order
establishing the procedure for the docket and a tentative issue list of nine issues.
Those nine issues related to compensation for internet service provider (ISP) traffic
and became known as Phase I of the docket.  On December 7, 2000, the
Commission issued a supplemental order modifying the previously established
procedure and including a supplemental issues list of eight additional issues.
Those eight issues related to general compensation and become known as Phase II
of the docket.  At a later point, Phase I was stayed as a result of federal law
developments,2 and the Commission went forward with Phase II, which is the
subject of this appeal.
On July 5 and 6, 2001, the Commission held an evidentiary hearing
regarding the Phase II issues.  On December 5, 2001, it held a special agenda
conference, at which it announced decisions on issues 10, 12,3 14-16, 18, and 19 of
2.  On March 7 and 8, 2001, the Commission conducted an administrative
hearing, at which Phase I issues were addressed.  Thereafter, the FCC released a
decision addressing ISP-bound telecommunication traffic.  As a result, the parties
below stipulated with the Commission to stay Phase I proceedings.
3.   Issue 12 of Phase II addressed the tandem interconnection rate, which is
the subject of the AT&T cross-appeal before this Court.
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Phase II but deferred decisions on issues 134 and 17.  On May 8, 2002, the
Commission held another evidentiary hearing, solely regarding issues 13 and 17.
Thereafter, on September 10, 2002, by order number PSC-02-1248-FOF-TP, the
Commission rendered its decision on all Phase II issues.
Within the order, the Commission determined that it had the authority to
provide a definition of a local calling area for purposes of determining whether a
particular call was local and subject to reciprocal compensation fees or
interexchange and subject to access charges.  Having determined it had that
authority, the Commission then reviewed three alternative definitions and held that
a local calling area should be defined in the course of negotiations for
interconnection agreements, but in the event the parties could not agree, the default
definition would be the originating carrier’s retail local calling area.  Following
issuance of the order, Verizon and Sprint filed motions for reconsideration,
contesting this default definition.  By order number PSC-03-0059-FOF-TP (order
denying motions for reconsideration), issued January 8, 2003, the Commission
denied those motions.
Also within the order under review, the Commission determined the
circumstances under which an ALEC was entitled to be compensated at the higher
tandem interconnection rate for delivery of calls originating from another carrier.
4.  Issue 13 of Phase II addressed the definition of “local calling area,”
which is the subject of Verizon and Sprint’s appeal before this Court.
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The Commission found that an ALEC may be so entitled under (1) 47 C.F.R.
51.711, when its switch serves a geographic area comparable to the area served by
the ILEC’s tandem switch; or (2) paragraph 1090 of In the Matter of
Implementation of the Local Competition Provisions in the Telecommunications
Act of 1996, 11 FCC Rcd 15499, CC Docket No. 96-98, First Report and Order
(1996) (local competition order), when its switch performs functions similar to
those performed by an ILEC tandem switch.  Regarding the former, the
Commission found an ALEC serves a comparable geographic area when it has
deployed a switch to serve this area, has obtained NPA and NXXs5 to serve the
exchanges within this area, and can show that it is serving this area either through
its own facilities or a combination of its own facilities and leased facilities
connected to its collocation arrangements in ILEC central offices.  Following
issuance of the order, AT&T filed a motion for reconsideration of the requirements
for compensation at the tandem interconnection rate.  The Commission denied that
motion as well.
STANDARD OF REVIEW
We note preliminarily that “orders of the Commission come before this
Court clothed with the statutory presumption that they have been made within the
5.  Telephone numbers are in ten-digit format, consisting of a three-digit
numbering plan area (NPA) code, a three-digit central office code (NXX code),
and a four-digit station address code.
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Commission’s jurisdiction and powers, and that they are reasonable and just and
such as ought to have been made.”  General Telephone Co. v. Carter, 115 So. 2d
554, 556 (Fla. 1959).  Such deference, however, cannot be accorded when the
Commission exceeds its authority.  At the threshold, we must establish the grant of
legislative authority to act since the Commission derives its power solely from the
Legislature.  See Florida Bridge Co. v. Bevis , 363 So. 2d 799, 802 (Fla. 1978).
Additionally, this Court “will not reweigh or re-evaluate the evidence presented to
the commission, but should only examine the record to determine whether the
order complained of complies with essential requirements of law and whether the
agency had available competent, substantial evidence to support its findings.”  Polk
County v. Florida Public Service Commission, 460 So. 2d 370, 373 (Fla. 1984).
Where the findings and conclusions comport with the essential requirements of law
and are based on competent, substantial evidence, this Court will approve them.
Fort Pierce Utils. Auth. v. Beard, 626 So. 2d 1356 (Fla. 1993).
THE LOCAL CALLING AREA ISSUE
In its order, the Commission noted that there was no significant
disagreement among the parties that it had jurisdiction to implement the rates,
terms, and conditions of intercarrier compensation mechanisms for intrastate traffic
so long as they are not inconsistent with the FCC’s rules and orders governing
intercarrier compensation.  Additionally, the Commission adopted the consensus
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view among the parties that the policies established in the docket would stand as
default mechanisms, effectively serving as regulatory standards to which a carrier
may defer in the event negotiations between carriers regarding agreements on
interconnections, services, or network elements are unsuccessful.  One such default
policy addresses the definition of “local calling area,” which affects whether a call
is subject to access charges or reciprocal compensation.6  In this appeal, Verizon
and Sprint argue that the Commission lacked the authority to define a local calling
area.  Additionally, they argue that the Commission’s establishment of the
originating carrier’s retail local calling area as the default definition is not
supported by competent, substantial evidence.  The following sections address the
specific arguments raised by Verizon and Sprint.
6.                                                                                      “[T]ransport and termination of local traffic are different services than
                                                                                        access service for long distance telecommunications.”  Local competition order ?
1033.
Access charges were developed to address a situation in which three
carriers-typically, the originating LEC, the IXC, and the terminating
LEC-collaborate to complete a long-distance call.  As a general
matter, in the access charge regime, the long-distance caller pays
long-distance charges to the IXC, and the IXC must pay both LECs
for originating and terminating access service.  By contrast, reciprocal
compensation for transport and termination of calls is intended for a
situation in which two carriers collaborate to complete a local call.  In
this case, the local caller pays charges for the originating carrier, and
the originating carrier must compensate the terminating carrier for
completing the call.
Id. ?1034 (footnote omitted).
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A.  Authority Under Florida Law
In the order below, the Commission stated that its authority to provide a
definition of a local calling area derives from section 364.01(4)(b), (g), and (i),
Florida Statutes (2002), which provides:
The commission shall exercise its exclusive jurisdiction[7] in
order to:
(b) Encourage competition through flexible regulatory
treatment among providers of telecommunications services in order to
ensure the availability of the widest possible range of consumer
choice in the provision of all telecommunications services.
(g) Ensure that all providers of telecommunications services are
treated fairly, by preventing anticompetitive behavior and eliminating
unnecessary regulatory restraint.
(i) Continue its historical role as a surrogate for competition for
monopoly services provided by local exchange telecommunications
companies.
The Commission also cited Florida Interexchange Carriers Ass’n v. Beard, 624 So.
2d 248, 251 (Fla. 1993), wherein this Court stated:
By giving the Commission exclusive jurisdiction over
telecommunications services, the Legislature has provided the
Commission with broad authority to regulate telephone
companies. . .                                                                        .  The exclusive jurisdiction in section 364.01 to
regulate telecommunications gives the Commission the authority to
determine local routes.
7.  Section 364.01(2) states, “It is the legislative intent to give exclusive
jurisdiction in all matters set forth in this chapter to the Florida Public Service
Commission in regulating telecommunications companies . . .                           .”
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On the basis of these authorities, the Commission concluded that it had the
authority to define a local calling area where necessary to ensure the widest range
of consumer choice and to eliminate barriers to competition.  Because the
Commission further found that the issue of defining a local calling area had
become too commonplace in arbitration cases between carriers and some finality
was necessary to avoid the issue being litigated multiple times, it decided to
establish a default definition that was as competitively neutral as possible.
Sprint and Verizon, however, argue that section 364.01(4) provides only a
general pronouncement of legislative intent and that sections 364.16(3)(a) and
364.163, Florida Statutes (2002), 8 more specifically prohibit the Commission’s
action.  They assert that the decision to set the default definition as the originating
carrier’s local calling area allows ALECs to limit the charge to be paid to ILECs
for terminating ALEC-originating calls by enlarging the ALECs’ local calling
areas.  This practice, they argue, would run counter to the purposes behind the
Legislature’s 1995 enactment of sections 364.16(3)(a) and 364.163, which were to
8.  Section 364.16(3)(a), Florida Statutes (2002), provides:
No local exchange telecommunications company or alternative
local exchange telecommunications company shall knowingly deliver
traffic, for which terminating access service charges would otherwise
apply, through a local interconnection arrangement without paying the
appropriate charges for such terminating access service.
Section 364.163, Florida Statutes (2002), provides caps and adjustments to access
charges for network service access.
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take away from the Commission the authority to adjust access charges and to
prevent a diminution of access revenues to which ILECs are entitled.  Sprint and
Verizon argue that the specific provisions within sections 364.16(3)(a) and
364.163, therefore, must control over the general provisions of section 364.01(4).
In response, the Commission acknowledges that sections 364.16(3)(a) and
364.163 restrict its authority in the area of access charges but also asserts that those
provisions relate to access charges once the local calling scope has been defined.
The Commission points out that those sections contain no language expressly
prohibiting it from defining a default local calling area.   The Commission also
acknowledges that the Legislature has reserved for itself the authority to determine
access charge rates but asserts that revenues and rates are distinct entities in
intercarrier compensation schemes and under the law.
Sprint and Verizon do not argue that sections 364.16(3) and 364.163
expressly and directly prohibit the Commission from establishing a definition of
local calling area.  Rather, Sprint and Verizon argue that the Commission’s choice
for the default, i.e., the originating carrier’s local calling areas, will create a
situation in which ALECs may circumvent access charges in violation of sections
364.16(3) and 364.163.  However, what future actions ALECs may or may not take
as a result of the Commission’s order does not affect the Commission’s jurisdiction
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to enter the order.9  We agree with the Commission that the Commission’s broad
authority to regulate telephone companies under section 364.01 provides the
Commission with jurisdiction to enter an order that sets out the default provision.
B.   1999 Amendments to APA
Next, Verizon argues that the Legislature’s 1999 amendments to the
Administrative Procedure Act (APA), providing that agencies may adopt those
rules that implement or interpret the specific powers and duties granted by the
Legislature, overrules this Court’s holding in Beard that section 364.01 provides
broad authority to the Commission to adopt rules regulating telecommunications.
However, we find this argument procedurally barred as it was not raised below.
C.  The FCC’s Local Competition Order
In addition to relying upon section 364.01 for authority, the Commission
stated in its order:
9.  Sprint and Verizon also assert that the Commission’s findings run counter
to its order in In re Petition for Arbitration of Dispute With BellSouth
Telecommunications, Inc. re Call Forwarding, by Telenet of South Florida, Inc., 97
F.P.S.C. 4:519 (1997), which arose out of a dispute between BellSouth and Telenet
over the manner in which Telenet was using BellSouth’s call-forwarding services.
Specifically, Telenet was using those services to route calls in such a way that the
calls would always be local and access charges would not apply.  The Commission
found Telenet was knowingly avoiding the payment of applicable access charges,
in violation of section 364.16(3)(a).  Id. at 4:527.  We find that rather than
establishing that the Commission acted without authority in the present case, the
Telenet order demonstrates that ALECs that are tempted to circumvent access
charges in the manner suggested by Sprint and Verizon may likewise be found in
violation of section 364.16(3)(a).
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Furthermore, [paragraph 1035 of the local competition order]
appears unequivocal in granting authority to state commissions to
determine what geographic areas should be considered “local areas”
for the purpose of applying reciprocal compensation obligations under
Section 251(b)(5) of the Act.  ILEC parties offer nothing to dispute
what appears to be a clear delegation of authority from the FCC to
state commissions to make determinations as to the geographic
parameters of a local calling area.
Sprint and Verizon contest this point and argue that reliance upon the local
competition order is misplaced because that order did not delegate authority but,
rather, simply expressed that the Act does not modify a state commission’s existing
authority over reciprocal compensation provisions.
Specifically, in a section primarily addressing the distinction between
“transport and termination,” which is subject to reciprocal compensation, and
access services for long distance telecommunications, which are subject to access
charges, the local competition order states:
With the exception of traffic to or from a CMRS network, state
commissions have the authority to determine what geographic areas
should be considered “local areas” for the purpose of applying
reciprocal compensation obligations under section 251(b)(5),
consistent with the state commissions’ historical practice of defining
local service areas for wireline LECs.
Local competition order ¶ 1035 (emphasis added).  We conclude from the
emphasized portion of this text that in implementing the local competition
provisions of the Act, the FCC has not preempted state law regarding the issue of
defining local service areas.  While we do not agree with the Commission that the
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local competition order is a grant of authority to define a local calling area, we do
find that it indicates that the Commission is not precluded by federal law from
providing such a definition.  Furthermore, because Sprint and Verizon have failed
to show the Commission’s action with regard to the local calling area issue is
preempted by federal law and have failed to overcome the statutory presumption
that the Commission’s order does not exceed its powers under state law, we
conclude that the Commission has complied with the essential requirements of law.
D.  Competent, Substantial Evidence
Finally, Sprint and Verizon argue that there is insufficient evidence in the
record to support the Commission’s choice of the originating carrier’s retail local
calling area as the default definition.  They assert that the record does not support
the determination that this method is the most competitively neutral.
In the order below, the Commission extensively reviewed the evidence
supporting and opposing numerous default options.  The Commission then reached
the following conclusions:
We agree that using either the ILEC’s retail local calling area or
the LATA as a wholesale local calling area seems to suffer from a
lack of competitive neutrality.
Using the ILEC’s retail local calling area appears to effectively
preclude an ALEC from offering more expansive calling scopes. . .
A LATA-wide wholesale calling regime appears to discriminate
against IXCs. . .
We believe it is important that the default be as competitively
neutral as possible.  A default which is defined in accordance with the
ILECs’ preference for their existing retail local calling areas or the
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ALECs’ preference for LATA-wide local calling may create a
disincentive to negotiate.  Adopting either of these two options would
seem counterproductive, as it could chill negotiations and lead to one-
sided outcomes.
One approach to defining the wholesale local calling area which
receives less attention from the parties is to use the originating
carrier’s retail local calling area.  BellSouth witness Shiroishi actually
supports this approach and believes that such a plan is
“administratively manageable,” while acknowledging that there may
be some concerns.  In addition, she testifies that “BellSouth currently
has the arrangement . . . in many of its interconnection agreements.”
Of the options presented, we believe this approach is more
competitively neutral than the others.
Verizon witness Trimble and Sprint witness Ward believe that
BellSouth’s proposal is administratively complex . . .                          .  We note,
however, that BellSouth witness Shiroishi explains that her company
has implemented this approach through the use of billing factors. . .
The second complaint, that wholesale compensation should not
vary depending on the direction of the call, is more thought-provoking
since directional differences in compensation appear to be anomalous
and inequitable.  While we believe that such a plan may result in
directional differences initially, we question whether these differences
will be sustainable over time.  As carriers experiment with different
retail local calling areas, market forces will eventually determine
which plans are most viable, and more uniformity will emerge as a
result.  In the short run, it is important to encourage experimentation,
and this plan accomplishes that objective.
Order on reciprocal compensation at 53-54.  Later, in addressing the parties’
motions for reconsideration, the Commission responded to arguments similar to
those raised in this appeal:
Verizon argues that the originating carrier ruling provides the
same disincentive to negotiate as the LATA-wide reciprocal
compensation alternative.  We clearly disagreed.  Order at 53.
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Verizon hypothesizes that the originating carrier ruling, because
it will result in more uniform retail local calling areas, will eventually
lead to uniform LATA-wide calling areas.  However, Sprint reasons
that because of the ILECs’ statutory and regulatory constraints, the
local calling areas would not even out over time.  This divergence in
opinions indicates that it is pure speculation that consumers’ range of
choice will diminish.  We unmistakably considered the originating
carrier local calling area to be the most competitively neutral and
pointed out that market forces would eventually determine the most
viable plans.  Order at 53-54.
Further, we have only stated that the originating carrier local
calling area is the most competitively neutral of the alternatives
offered.  Again, no error has been identified on this point.
Order denying motions for reconsideration at 14.
A review of the transcript of the Commission’s May 8, 2002, hearing on the
local calling area issue reflects that the ILEC parties, Verizon, Sprint, BellSouth,
and ALLTEL, primarily argued for the ILEC’s local calling area to be the default
definition while the ALEC parties, AT&T, WorldCom, and FDN, primarily argued
for a LATA-wide local calling area to be the default.  The first witness to testify on
this issue was BellSouth witness Elizabeth Shiroishi, who stated:
BellSouth’s position is that, for purposes of determining the
applicability of reciprocal compensation, a “local calling area” can be
defined as mutually agreed to by the parties and pursuant to the terms
and conditions contained in the parties’ negotiated interconnection
agreement, with the originating Party’s local calling area determining
the intercarrier compensation between the Parties.  BellSouth
currently has the arrangement described above in many of its
interconnection agreements, and is able to implement such
arrangement through the use of billing factors. . .
Although BellSouth believes that its plan is administratively
manageable, BellSouth does understand the concerns raised as to the
implementation of different calling areas.  If the Commission
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ultimately determines that BellSouth’s plan is not administratively
feasible, BellSouth is in support of setting the default as the local
calling scope . . . as set forth in the ILEC’s tariff . . .
Later in her testimony, Shiroishi agreed with the statement that defining the local
calling area as anything other than the ILEC’s or the originating carrier’s local
calling area would create arbitrage opportunities.  Specifically, she testified that a
LATA-wide calling area would create arbitrage opportunities10 for IXCs and
ALECs and that BellSouth had some interconnection agreements providing that the
ILEC’s local calling area would govern and some providing that the originating
carrier’s local calling area would govern.  The second witness was Verizon witness
Dennis Trimble, who testified that he recommended that the Commission
“maintain the status quo—that is, approve the [ILECs’] local calling area for
purposes of applying intercarrier compensation.”  He also extensively testified
regarding why a LATA-wide local calling area for reciprocal compensation
purposes would put both the IXCs and the ILECs at a competitive disadvantage
and enhance the ALECs’ opportunities to arbitrage the ILEC’s existing rate
structures.  His testimony only touched briefly on the use of the originating
carrier’s retail local calling area as the default:
10.  Shiroishi explained that the use of a LATA-wide calling area would blur
the line between local and switched access calls and allow an IXC that is also an
ALEC to use its IXC as their local prescribed carrier, thereby avoiding the
payment of access charges on calls that would normally be subject to access
charges.
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Basing intercarrier compensation on the originating carrier’s retail
local calling area would be even worse than LATA-wide reciprocal
compensation.  This approach is administratively infeasible and
fraught with irrational outcomes.  It could enable ALECs to pay lower
reciprocal compensation rates for outbound traffic, to receive higher
access rates for inbound traffic, or even a combination of the two . . .
. . . [A]n ALEC may set up shop to market outbound calling
services.  In that case, it may establish a large “local” calling area for
its retail customers, and would, under this misguided proposal, pay the
lower reciprocal compensation rate for calls that would otherwise be
subject to terminating access charges.  But the same ALEC may
instead choose to market inbound calling services.  In that case, it
would charge higher terminating access rates for its inbound traffic —
for calls between the same local exchange carriers and the same
geographic points to which it pays the lower reciprocal compensation
rate.
. . .  This approach will prompt ALECs to formulate business
plans based on avoiding access charges and receiving maximum
reciprocal compensation—rather than focusing on the end user.
The third witness was Sprint witness Julie Ward, who asserted Sprint’s preference
for the default definition to be based upon the ILEC’s local calling scope and
argued that a LATA-wide local calling scope would put IXCs at a severe
competitive disadvantage.  When asked about the use of the originating carrier’s
local calling area, Ward stated:
It is critical to recognize the inequitable competitive
environment that is created when the originating carrier’s local calling
area determines the intercarrier compensation between carriers.  The
result of this approach would allow ALECs to pay lower reciprocal
compensation rates for their traffic terminated within the LATA by
ILECs (assuming the ALEC defines the LATA as the local calling
area for retail purposes) while ILECs are forced to change their LCAs
or to pay ALECs higher access rates for terminating ILEC-originated
traffic.  Spring agrees with Verizon witness Trimble in that the
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“direction of the call should play no part in the determining how
intercarrier compensation should be assessed” (page 17).
Furthermore, it would be administratively burdensome for all carriers,
not just ILECs, to change their billing systems to maintain the varying
local calling areas of each ALEC.  BellSouth also recognizes and
appreciates the concerns raised as to the implementation of different
calling areas, as indicated on page 5 of Beth Shiroishi’s testimony.
The fourth witness to address this issue was ALLTEL witness Alfred Busbee, who
testified that defining the local calling area as something other than the ILEC’s
local calling area likely would have a financial impact on ILECs and require rate
rebalancing.
Following the above ILEC witnesses, the next witness to testify was AT&T
witness Paul Cain.  Cain testified that the Commission should adopt a LATA-wide
local calling area default, arguing that all calls would then be rated local,
simplifying the process of reciprocal compensation, and benefitting consumers by
making it possible for ALECs to offer more flexible retail calling plans.  Cain
extensively testified to the practical effects and benefits of this default.  He also
testified that the ILECs advocated use of the ILEC’s local calling area in order to
limit competitive opportunities, with a cost structure that forces other carriers to
limit the options available to their customers.  In response to criticisms of the use
of a LATA-wide calling area default, Cain asserted that the effect on ILECs and
ALECs would be the same but conceded that IXCs might face erosion in their
competitive position.  Additionally, FDN witness John McCluskey testified that
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FDN proposed that the default definition be the LATA-wide calling area when the
originating carrier hands off LATA-wide calls at the ILEC tandem serving the
geographical location of the end user where the call terminates or, if the originator
chooses, at the end office serving the geographical location of the end user where
the call terminates.  He argued that intercarrier compensation schemes that rely on
the ILEC’s retail local calling area foreclose price competition for retail intra-
LATA services.  Significantly, however, neither of these ALEC witnesses was
asked about the option of establishing the originating carrier’s retail local calling
area as the default.
We find that this record provides competent, substantial evidence in support
of the Commission’s conclusion that use of either the ILEC’s retail local calling
area or a LATA-wide calling area as the default lacks competitive neutrality.  The
ILEC and ALEC parties are consistently divided in their preferences, with the
ILECs supporting use of the ILEC’s retail local calling area and the ALECs
supporting use of a LATA-wide calling area.  This supports the Commission’s
conclusion that adoption of either could chill negotiations and lead to one-sided
outcomes in the establishment of interconnection agreements.
However, the Commission expressly acknowledged in its order that use of
the originating carrier’s retail local calling area received less attention from the
parties in the proceedings below.  As the above summary of the evidence indicates,
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little testimony was given regarding that option.  While competent, substantial
evidence—in the form of Shiroishi’s testimony that BellSouth had many
interconnection agreements that defined the local calling area as the originating
carrier’s retail local calling area and that BellSouth had been able to implement
such agreements through the use of billing factors—supports the Commission’s
conclusion that such a default is administratively feasible, there is insufficient
competent record evidence regarding the competitive neutrality of this option.  The
Commission appears to rely primarily on the fact that no party advocated for it as
evidence of its competitive neutrality.  But no witness testified that use of the
originating carrier’s retail local calling area as the default would be more
competitively neutral.  In fact, the only testimony addressing the effect on
competition of this option came from Trimble and Ward, both of whom argued
against it.
It appears the Commission chose the originating carrier’s retail local calling
area as the default definition primarily because no party advocated for it.
However, we do not find that the record contains competent, substantial evidence
that it is the most competitively neutral option.  Because the record does not
support the Commission’s finding on that point, we remand the case for further
proceedings addressing the effect on competition of using the originating carrier’s
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retail local calling plan as the default definition of “local calling plan” for purposes
of reciprocal compensation.
THE TANDEM INTERCONNECTION RATE ISSUE
Cross-appellant AT&T argues that the Commission acted outside the scope
of its powers in reaching certain findings regarding the tandem interconnection
rate.  Specifically, AT&T alleges that the Commission’s order places requirements
on ALECs, in order to be compensated at the tandem interconnection rate, that
exceed those required by the FCC.  AT&T argues that the FCC, in In re Petition of
WorldCom, Inc. Pursuant to Section 252(r)(5) of the Comms. Act for Preemption
of the Jurisdiction of the Virginia State Corp. Comm’n re Interconnection Disputes
with Verizon Virginia, Inc., and for Expedited Arbitration, 17 FCC Rcd. 27039,
CC Docket No. 00-218 et al., Memorandum Op. and Order (2002) (Virginia
arbitration order), delineated the only requirement and thereby preempted any state
commission action to the contrary.  Additionally, AT&T asserts that the
Commission’s requirements impose an unlawful barrier to entry on ALECs, in
violation of 47 U.S.C. § 253.
Following the enactment of the Act, the FCC adopted rules to implement the
new, market-opening measures therein.  However, “[u]nder the 1996 Act’s design,
it has been largely the job of the state commissions to interpret and apply those
rules.”  Virginia arbitration order ¶ 1.  The FCC’s rulemaking “sets minimum,
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uniform, national rules, but also relies heavily on states to apply these rules and to
exercise their own discretion in implementing a pro-competitive regime in their
local telephone markets.”  Local competition order ¶ 22.
Prior to the Act, ILECs served virtually all subscribers in their local serving
areas.  Therefore, ILECs had little economic incentive to assist ALECs in entering
the market by establishing interconnection agreements.  An ALEC that constructs
its own network will not necessarily need the services or facilities of an ILEC to
enable its own subscribers to communicate with each other but will need an
interconnection agreement with the ILEC to enable its customers to place calls to
and receive calls from the ILEC’s subscribers.  Thus, the Act and subsequent FCC
rules are designed to encourage interconnection agreements.  One such rule is 47
C.F.R. § 51.711 (“rule 51.711”), which states in part:
(a) Rates for transport and termination of telecommunications
traffic shall be symmetrical, except as provided in paragraphs (b) and
(c) of this section.
(1) For purposes of this subpart, symmetrical rates are rates that
a carrier other than an incumbent LEC assesses upon an incumbent
LEC for transport and termination of telecommunications traffic equal
to those that the incumbent LEC assesses upon the other carrier for the
same services.
(3) Where the switch of a carrier other than an incumbent LEC
serves a geographic area comparable to the area served by the
incumbent LEC’s tandem switch, the appropriate rate for the carrier
other than an incumbent LEC is the incumbent LEC’s tandem
interconnection rate.
- 23 -

(Emphasis added.)  As subsection (a)(1) indicates, the purpose of this rule is to
require ILECs to pay rates to ALECs for use of the ALECs’ services at the same
level as the rates ILECs charge ALECs for use of the ILECs’ services.  While this
sort of rate symmetry is the standard, subsection (a)(3) is designed to address the
additional costs incurred by a carrier when routing a call through a tandem switch
as opposed to an end-office switch.  As the FCC explained in the local competition
order at paragraph 1090:
We find that the “additional costs ” incurred by a LEC when
transporting and terminating a call that originated on a competing
carrier’s network are likely to vary depending on whether tandem
switching is involved.   We, therefore, conclude that states may
establish transport and termination rates in the arbitration process that
vary according to whether the traffic is routed through a tandem
switch or directly to the end-office switch.  In such event, states shall
also consider whether new technologies (e.g., fiber ring or wireless
networks) perform functions similar to those performed by an
incumbent LEC’s tandem switch and thus, whether some or all calls
terminating on the new entrant’s network should be priced the same as
the sum of transport and termination via the incumbent LEC’s tandem
switch.  Where the interconnecting carrier’s switch serves a
geographic area comparable to that served by the incumbent LEC’s
tandem switch, the appropriate proxy for the interconnecting carrier’s
additional costs is the LEC tandem interconnection rate.
(Emphasis added.)
After the enactment of rule 51.711 and the issuance of the local competition
order, some confusion arose regarding functional equivalency.  Thus, in In re
Developing a Unified Intercarrier Compensation Regime, 16 FCC Rcd. 9610, CC
Docket No. 01-92, Notice of Proposed Rulemaking (2001) (“Intercarrier
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Compensation NPRM”), the FCC clarified that rule 51.711(a)(3) requires only a
geographic area test and confirmed that a carrier demonstrating that its switch
serves “a geographic area comparable to that served by the incumbent LEC’s
tandem switch” is entitled to the tandem interconnection rate.   Id. ¶ 105.
In the proceedings below, the Commission addressed many issues regarding
when an ALEC is entitled to be compensated at the ILEC’s tandem interconnection
rate.  In its first finding, the Commission rejected the ILECs’ argument of a two-
pronged eligibility test requiring both geographic comparability and similar
functionality.  Relying on the local competition order, the Commission instead held
that an ALEC is entitled to be compensated at the tandem interconnection rate
when it establishes either geographic comparability or similar functionality.  The
Commission then defined the two tests of “similar functionality” and “comparable
geographic area.”  AT&T’s sole point of appeal relates to the Commission’s
definition of the latter.  Regarding that test, the Commission framed the following
question:
[I]n this issue we are to determine what qualifies an ALEC’s network
as serving a comparable geographic area to that served by an ILEC
tandem switch. . .
. . . [W]e believe there are several sticking points that must be
addressed . . .                                                                       .  The first is the interpretation of the word ‘serves’
contained in FCC Rule 51.711(a)(3). . .                                               .  The debate revolves around
whether this word means that an ALEC is actually providing service
to a particular number of geographically dispersed customers in that
area, or simply capable of providing service to customers throughout
the area.
- 25 -

Order on reciprocal compensation at 14 (emphasis added).  The ILEC parties
argued for the Commission to adopt the former meaning.  However, the
Commission concluded:
We believe that the appropriate application of the term “serves” . . . is
that an ALEC should be found to serve a geographic area if it has
prepared and offered a product throughout that area.  Absent any
direction from the FCC regarding what they meant by the word
“serves” . . ., we believe this more liberal interpretation is appropriate.
Order on reciprocal compensation at 17.  The Commission then considered how an
ALEC is to demonstrate that it is capable and prepared to serve a particular area.  It
concluded that “an ALEC ‘serves’ a comparable geographic area when it has
deployed a switch to serve this area, and has obtained NPA/NXXs to serve the
exchanges within this area.”  Id. at 20.  Additionally, the Commission found “that
the ALEC must show that it is serving this area either through its own facilities, or
a combination of its own facilities and leased facilities connected to its collocation
arrangements in ILEC central offices.”  Id.
As already stated, AT&T, an ALEC, asserts in this appeal that the
Commission’s findings regarding how an ALEC is to demonstrate that it is capable
and prepared to serve a particular area do not conform with FCC findings
regarding the same in the Virginia arbitration order.  In response, the Commission
argues its order is entirely consistent with the Virginia arbitration order.
- 26 -

The Virginia arbitration order was rendered by the Wireline Competition
Bureau, “acting through authority expressly delegated from the [FCC], stand[ing]
in the stead of the Virginia State Corporation Commission,” Virginia arbitration
order at 1, which is the equivalent of the Florida Public Service Commission.  The
Wireline Competition Bureau summarized the arguments in the Virginia arbitration
order, ¶ 304, as follows:
AT&T, WorldCom, and Verizon disagree about the standard for
establishing geographic comparability under section 51.711(a)(3).
AT&T and WorldCom argue that they are entitled to Verizon’s
tandem rate when any of their switches is capable of serving a
geographic area comparable to the area served by Verizon’s tandem
switch.  Verizon argues that the tandem rate is only available when
the competitive LEC’s switch actually serves a comparable
geographic area.
The Wireline Competition Bureau held:
We agree, however, with AT&T and WorldCom that the
determination whether a competitive LEC’s switch “serves” a certain
geographic area does not require an examination of the competitor’s
customer base. . .                                                                   .  We agree with AT&T and WorldCom, therefore,
that the requisite comparison under the tandem rate rule is whether the
competitive LEC’s switch is capable of serving a geographic area that
is comparable to the architecture served by the incumbent LEC’s
tandem switch.
Virginia arbitration order ¶ 309 (emphasis added).  Thus, regarding the issue of
whether rule 51.711 requires an ALEC to be actually serving an area, the
Commission’s order below is in agreement with the Wireline Competition
Bureau’s determination in the Virginia Arbitration Order.
- 27 -

The Wireline Competition Bureau went on to state in the Virginia arbitration
order:
We find, moreover, that Verizon appears to concede that the AT&T
and WorldCom switches satisfy this standard.  In its brief, Verizon
states, ‘At best, [AT&T] has shown that its switches may be capable
of serving customers in areas geographically comparable to the areas
served by Verizon’s tandems,’ and, ‘[a]s with AT&T, [WorldCom]
offered only evidence relating to the capability of its switches.’  As
we explain above, such evidence is sufficient under the tandem rate
rule and Verizon fails to offer any evidence rebutting the evidence
provided by the petitioners.  Should there be any future dispute
regarding the capability of the petitioners’ switches to serve a
geographical area comparable to Verizon’s switches, we expect the
parties to use their agreements’ dispute resolution procedures to
resolve them.
Id.  This language indicates that, because Verizon conceded that the relevant
ALECs in that case were capable of serving the particular area, the FCC never
reached the issue of how an ALEC is to demonstrate that it is capable and prepared
to serve a particular area.  Therefore, the Commission’s order below cannot
conflict with the Virginia arbitration order on the question of how an ALEC is to
demonstrate that it is capable and prepared to serve a particular area.  In the
absence of a conflict of legal holdings, we conclude that AT&T’s argument that
the FCC has preempted the Commission on the issue of proof of capability to serve
must fail.
As for AT&T’s argument that the Commission’s ruling imposes an unlawful
barrier to entry in violation of 47 U.S.C. § 253, we first note that this argument was
- 28 -

not made below.  We further note that the Commission expressly adopted the more
liberal interpretation of rule 51.711, as advocated by the ALEC parties, in finding
that an ALEC need not actually be serving a particular area to receive the tandem
interconnection rate.  Given the Commission’s balanced decision that “a more
liberal application of the term ‘serves’ should be accompanied with a more detailed
demonstration of network ability,” order on reciprocal compensation at 18, we
conclude that the Commission’s findings do not “have the effect of prohibiting the
ability of [an] entity to provide any interstate or intrastate telecommunications
service.”                                                                                47 U.S.C. § 253.
CONCLUSION
For the foregoing reasons, we affirm the Commission’s decision below with
regard to all issues except the Commission’s determination that the originating
carrier’s local calling area is the most competitively neutral definition of the local
calling area.  With regard to that issue, we remand this case for further proceedings
addressing the effect on competition of that default definition.
It is so ordered.
PARIENTE, C.J., and ANSTEAD, LEWIS, QUINCE and BELL,  JJ., concur.
WELLS, J., dissents with an opinion.
CANTERO, J., recused.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
- 29 -

WELLS, J., dissenting.
I dissent because I believe that the appellants and cross-appellants lack
standing to challenge the Public Service Commission's action.  Therefore, I would
grant the Commission's motions to dismiss these appeals and the cross appeal.
Section 120.68(1), Florida Statutes (2003), sets forth the standard for judicial
review of administrative action and states that "[a] party who is adversely affected
by final agency action is entitled to judicial review."  Thus, there are four
requirements for standing to seek judicial review:   (1) the action is final; (2) the
agency is subject to the provisions of the Administrative Procedure Act; (3) the
person seeking review was a party to the action; and (4) the party was adversely
affected by the action.  See Daniels v. Florida Parole & Probation Comm'n, 401
So. 2d 1351 (Fla. 1st DCA 1981).  In this case, the Commission does not contest
that the first three requirements are met.  The order under review constitutes final
agency action, the Commission is subject to the provisions of the Administrative
Procedure Act, and the appellants and cross-appellants were allowed to intervene
as parties in the proceedings below.  However, I agree with the Commission that
the appellants and cross-appellants are not shown to be adversely affected by the
complained-of action.
- 30 -

In Legal Environmental Assistance Foundation, Inc. v. Clark, 668 So. 2d
982, 987 (Fla. 1996), this Court agreed with the following statement by the First
District in Daniels , 401 So. 2d at 1354:
The APA's definition of party recognizes the need for a much broader
zone of party representation at the administrative level than at the
appellate level.   For example, in rulemaking, a large number of
persons may be invited or permitted by the agency to participate as
parties in the proceeding, so as to provide information to the agency
concerning a broad spectrum of policy considerations affecting
proposed rules.  See Balino v. Dept. of Health and Rehab., etc., 362
So. 2d 21 (Fla. 1st DCA 1978).  Yet, a person who participates in such
a proceeding by authorization of a statute or rule, or by permission of
an agency, may not necessarily possess any interests which are
adversely, or even substantially, affected by the proposed action.
Thus, the fact that the appellants and cross-appellants were allowed to intervene in
the Commission's investigatory proceedings below does not conclusively establish
that they have standing to appeal the Commission's final agency action.  In fact, the
Commission's order under review specifically states:
The parties appear to agree that the policies in this docket
should serve as a default mechanism.  Therefore, the policies and
procedures established in this docket shall be on a going forward
basis, allowing carriers, at their discretion, to incorporate provisions
into new and existing agreements.
This indicates that the appellants and cross-appellants may not be adversely
affected by the order unless and until they (1) attempt to negotiate the local calling
area or tandem interconnection rate terms of an interconnection agreement; (2)
experience failed negotiations; (3) bring the matter to the Commission for
- 31 -

arbitration; and (4) are forced against their interest to implement the policies and
procedures established by the Commission.  The negotiations involve many other
issues, not just the issue here under review.  The parties to negotiations give, take,
and compromise on all issues, and this is only one of the issues forming their final
agreements.  To date we have not reviewed an actual case in controversy in which
a party is complaining about the Commission imposing a default provision.
Therefore, I conclude these appeals and the cross appeal are premature and that the
arguments made therein should not be considered until this or another court is
presented with an appeal from an arbitration proceeding in which the Commission
imposes the policies set forth below to the detriment of an appealing party with
proper standing.  In sum, this Court is called upon to decide a hypothetical
agreement.  I would refrain from doing that.
Two Cases Consolidated :
An Appeal and Cross-Appeal from the Florida Public Service Commission
John P. Fons of Ausley and McMullen, Tallahassee, Florida, and Susan S.
Masterton with Sprint, Tallahassee, Florida on behalf of Sprint-Florida, Inc., et al.;
Marvin E. Barkin and Marie Tomassi of Trenam, Kemker, Scharf, Barkin, Frye,
O’Neill and Mullis, St. Petersburg, Florida; Kimberly Caswell, Tampa, Florida,
Aaron M. Panner of Kellogg, Huber, Hansen, Todd and Evans, P.L.L.C.,
Washington, D.C. on behalf of Verizon Florida, Inc., et al.; David B. Erwin,
Crawfordville, Florida on behalf of Frontier Communications of the South, Inc.,
for Appellants/Cross-Appellees
- 32 -

Harold McLean, General Counsel, Samantha M. Cibula and David E. Smith,
Tallahassee, Florida on behalf of the Florida Public Service Commission,
for Appellees/Cross-Appellees
Kenneth A. Hoffman and Martin P. McDonnell of Rutledge, Ecenia, Purnell and
Hoffman, P.A., Tallahassee, Florida on behalf of AT&T Communications of the
Southern States, LLC and TCG South Florida,
for Appellees/Cross-Appellants
Jack R. Reiter and Effie D. Silva of Adorno and Yoss, P.A., Miami, Florida on
behalf of BellSouth Telecommunications, Inc.,
Cross-Appellee
- 33 -

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