Argument preview: Isiogu/Talk America v. Michigan Bell

By Kevin Russell
on Mar 30, 2011 at 6:38 am

On Wednesday, the Court will hear argument in the consolidated cases of Isiogu v. Michigan Bell, No. 10-329, and Talk America, Inc. v. Michigan Bell, No. 10-313.  Both cases involve a technical question regarding the prices the successors to the old AT&T monopoly can charge their competitors for access to their networks under the 1996 Telecommunications Act.

Under the 1996 Act, Congress required AT&T to open up its network to competition.  Among other things, it required AT&T (which, in Michigan, is now called Michigan Bell), “to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with” AT&T’s network.  The statute further provided that AT&T could charge only cost-based rates for this interconnection (i.e., low rates with no profit component).  Another provision says that AT&T has to lease “network elements” to its competitors – for example, actual telephone wires running from switches to the competitor’s customers – but that AT&T can charge market rates for those leases unless the FCC determines that doing so would impair the competitor’s ability to offer its services to its customers.

Thus, companies that want to offer telephone service in competition with AT&T can lease all the necessary equipment from AT&T, build their own physical network and connect it to AT&T’s (thereby allowing their customers to talk to AT&T’s customers, and vice-versa), or some combination of the two.

This case involves prices for what are called “entrance facilities” – in simplified form, the wire that connects a competitor’s physical network to AT&T’s.  When AT&T runs a line from its network to the competitor’s, is that line part of the “interconnection” that AT&T must provide at cost, or is it a “network element” for which it can charge market rates absent a finding from the FCC (which it has refused to make) that market rates would impair competition?

The Federal Communications Commission (FCC), which has broad regulatory power in this area, has issued a series of regulations and orders over the year, trying to set the rules governing the interconnection obligation.  Not surprisingly, this effort has led to a lot of litigation, with the AT&T successor companies challenging rules favorable to the competitors and the competitors challenging rules favorable to AT&T.  In the process, the D.C. Circuit has forced the FCC back to the drawing board a number of times, which as resulted in a debate about the meaning of its present rules governing interconnection obligations.

In this case – which arose when Michigan Bell told competitors that it was going to start charging market rates for its entrance facilities after a recent change in the FCC’s relevant orders – the FCC filed a brief in the Sixth Circuit explaining that its orders allowed Michigan Bell to charge market rates when the entrance facility was being used to allow the competitor to complete calls from one of its customers to another of its customers (called “backhauling”), but that cost-based rates applied when the facility was being used to complete calls between Michigan Bell’s customers and the competitor’s customers.  The Sixth Circuit thought that reading could not be squared with the text of the relevant orders and held that Michigan Bell could charge market rates in all instances because providing the wire between its network and the competitor’s was not part of its obligation to provide “interconnection.”

In the Supreme Court, the parties have debated the level of deference that should be given to the FCC’s briefs explaining the meaning of its orders, as well as whether the question is resolved by the text of the statute itself.  The FCC and the competitors argue that the obligation to provide interconnection necessarily requires Michigan Bell to provide access to physical equipment and that providing an entrance facility should be considered part of that obligation when the facility is being used for interconnecting the two networks’ customers.  Michigan Bell, in turn, argues that its obligation is simply to provide access to its network; it is the competitor’s obligation to make the necessary arrangements to get its network extended to the point where it can interconnect with Michigan Bell’s equipment.