Supreme Court Decides Talk America, Inc. v. Michigan Bell Telephone Co.

On June 9, 2011, the Supreme Court decided Talk America, Inc. v. Michigan Bell Telephone Co., No. 10-313, holding that incumbent local-exchange carriers (LECs) must make their existing entrance facilities available to competitors at cost-based rates if the facilities are to be used for interconnection between the LECs' networks and their competitors. 

The Telecommunications Act of 1996 imposes various duties on incumbent providers of local telephone service (called "local exchange carriers" or "LECs," for short) to facilitate new competitors' entry into the market.  One of those duties is to share the LEC's existing network (the physical equipment necessary to receive, route, and deliver phone calls among customers) with competing LECs in two ways. The first is the requirement in 47 U.S.C. § 251(c)(3) that incumbent LECs lease "on an unbundled basis" (i.e., "à la carte") certain elements of the network that are specified by the FCC. This makes it easier for competitors to create their own networks without having to build the entire network from scratch. The second is the requirement in 47 U.S.C. § 251(c)(2) that incumbent LECs provide "interconnection" between their networks and the facilities of competing LECs. This makes it possible for the competing LEC's customers and the incumbent LEC's customers to call one another. The incumbent LECs are required to provide both the unbundled network elements and the interconnection at cost-based rates.

Connecting a competitive LEC's network with an incumbent LEC's network requires an "entrance facility," which basically consists of the wires or cables that make the connection. Before 2003, FCC orders required incumbent LECs to provide cost-based unbundled access to entrance facilities under § 251(c)(3)'s unbundling requirement. But in 2003, the FCC changed its position and issued a regulation providing that entrance facilities are not among the elements that an incumbent LEC must lease on an unbundled basis to competitors under § 251(c)(3), because they are not "network elements" under the statute. The FCC stated that its regulation did not, however, alter the right of competitive LECs to obtain interconnection facilities under § 251(c)(2).

After the FCC's change in position, AT&T notified competitive LECs that it would no longer provide entrance facilities at cost-based rates for interconnection, but would charge higher rates. Competitive LECs (including Talk America) complained to the Michigan Public Service Commission (PSC) that AT&T was violating their right to cost-based interconnection under Section 251(c)(2). The PSC agreed with Talk America, and ordered AT&T to continue providing entrance facilities for interconnection at cost-based rates. AT&T challenged the PSC's ruling in federal district court, and the court ruled in AT&T's favor, as did the Sixth Circuit on appeal. The Sixth Circuit affirmed the ruling in AT&T's favor despite the fact that the FCC filed an amicus brief arguing that incumbent LECs are required to lease entrance facilities at cost-based rates for interconnection.

The Supreme Court reversed and held in favor of the competitive LECs.  The question was whether incumbent LECs must lease existing entrance facilities to competing LECs at cost-based rates, even though (in the FCC's view) § 251(c)(3) does not require it, because it is necessary to comply with the interconnection mandate of § 251(c)(2). The Court began by observing that no statute or regulation squarely addressed the issue of an incumbent LEC's obligations with respect to entrance facilities, and that although § 251(c)(2) requires an incumbent LEC to "provide … interconnection," it says nothing about what an incumbent LEC must do to achieve that.

Thus, the Court turned to the FCC's interpretation of its regulations. The Court reaffirmed that it defers to an agency's interpretation of its regulations—even if that interpretation is expressed in a legal brief—unless the interpretation is plainly erroneous or inconsistent with the regulations, or there is some other reason to suspect that the interpretation "does not represent the agency's fair and considered judgment on the matter in question." The Court held that the FCC's interpretation of its regulations to require incumbent LECs to lease entrance facilities to competing LECs at cost-based rates to provide interconnection was not plainly erroneous or inconsistent with its regulations. And that is so even though the FCC's interpretation was explained in an amicus brief to the Court.

Justice Thomas delivered the opinion in which all Justices joined except Justice Kagan, who did not take part in the decision.  Justice Scalia filed a concurring opinion. 

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