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From Antitrust Law Daily, May 1, 2013

Former Telecom Monopolist Required to Provide Transit “Traffic Service” at Regulated Rates

By Jeffrey May, J.D.

Southern New England Telephone Company (AT&T), the Incumbent Local Exchange Carrier (ILEC) serving Connecticut, is required under the Telecommunications Act of 1996 (TCA) to provide a connection service known as "transit traffic services" at regulated rates, rather than higher negotiated rates, to new entrants seeking to exchange traffic with each other through the ILEC’s facilities, the U.S. Court of Appeals in New York City ruled today (Southern New England Telephone Company v. Comcast, May 1, 2013, Parker, B.).

The provision of transit service falls under AT&T's obligation as an ILEC, and the service must be delivered at regulated rates. Allowing AT&T to impose additional costs and competitive disadvantages on new entrants would permit it "to further exploit its status as a former monopolist," the court reasoned. The court rejected AT&T’s contention that because transit service did not constitute interconnection under Section 251, it was subject to higher negotiated rates.

AT&T was obligated to provide transit service pursuant to the interconnection obligations of § 251(c) of the TCA, the court held. Section 251(a) requires all telecommunications carriers to "interconnect" or physically link their facilities for the mutual exchange of traffic. In addition, Sections 251(c)(2) and 252(d)(1) require ILECs, like AT&T, to physically connect all other carriers to their network facilities at regulated or Total Element Long-Run Incremental Cost (TELRIC) rates.

The court explained that interconnection may be direct, where a carrier attaches its equipment to the physical network infrastructure of another carrier, or indirect, where the attachment occurs through the facilities or equipment of an additional carrier. Typically, two new entrants use an ILEC’s network to interconnect indirectly. Transit service is essential to ensuring that indirectly interconnected entrants can exchange traffic. The new entrants must rely on and pay the interconnecting carrier to route the traffic between them. According to the court, the principal question was whether AT&T, an interconnecting carrier, was obligated under Section 251(c)(2) to provide this routing of traffic, or transit service, at lower TELRIC rates or whether AT&T was permitted to charge higher negotiated rates.

"[T]ransit service is an ILEC obligation under § 251(c) because it ensures that indirect interconnection facilitates the mutual exchange of traffic between new entrants in the market," the court decided. The court rejected AT&T’s argument that, even if it could be construed as essential to indirect interconnection, transit service obligations fall under Section 251(a), which addresses indirect interconnection, and consequently new entrants must bear the full cost of the service.

The dispute arose after Pocket Communications petitioned the Connecticut Department of Public Utility Control to review a commercial agreement it was negotiating with AT&T. Pocket is a commercial mobile radio service (CMRS), a new entrant offering wireless communication in competition with both ILECs and Competitive Local Exchange Carriers (CLECs), such as Comcast Phone of Connecticut, Inc. and Cox Connecticut Telecom, LLC, to provide telephone service. The main disagreement was over the rates that AT&T could charge Pocket for transit service. The appellate court upheld a federal district court's decision that AT&T was obligated to provide transit traffic services at regulated rates.

The case is 11-2332-cv.

Attorneys: Timothy P. Jensen (Hinckley, Allen & Snyder LLP) for Southern New England Telephone Co. Clare Kindall, Connecticut Assistant Attorney General.

Companies: Comcast Phone of Connecticut, Inc.; Cox Connecticut Telecom, LLC ; Pocket Communications; Southern New England Telephone Co.

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