The opinion
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 11a0064p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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CMC TELECOM, INC.,
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Plaintiff-Appellant,
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No. 09-2239
GRID 4 COMMUNICATIONS, INC.,
Plaintiff, ,>
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v.
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MICHIGAN BELL TELEPHONE COMPANY, dba
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AT&T Michigan; J. PETER LARK, Chairman;
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MONICA MARTINEZ, Commissioner; and
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LAURA CHAPPELLE, Commissioner (in their
official capacities as Commissioners of the -
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Defendants-Appellees. -
Michigan Public Service Commission),
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Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 07-00319—Paul Lewis Maloney, Chief District Judge.
Argued: October 14, 2010
Decided and Filed: March 8, 2011
Before: KEITH, ROGERS, and COOK, Circuit Judges.
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COUNSEL
ARGUED: Norman C. Witte, WITTE LAW OFFICES, Lansing, Michigan, for
Appellant. Stephen S. Sanders, MAYER BROWN LLP, Chicago, Illinois, Anne M.
Uitvlugt, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan,
for Appellees. ON BRIEF: Norman C. Witte, WITTE LAW OFFICES, Lansing,
Michigan, Gary L. Field, FIELD LAW GROUP, Lansing, Michigan, for Appellant.
Stephen S. Sanders, MAYER BROWN LLP, Chicago, Illinois, Anne M. Uitvlugt,
OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan, Jeffery
V. Stuckey, DICKINSON WRIGHT PLLC, Lansing, Michigan, for Appellees.
1
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OPINION
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ROGERS, Circuit Judge. For purposes of interpreting the Federal
Telecommunications Act, local telephone service providers can be divided into two
categories: incumbents, the established carriers who long held regional monopolies, and
competitors, who have entered local markets through channels provided for in the Act.
One of these channels is resale, which requires incumbents, like AT&T in this case, to
offer all of their retail services to competitors at wholesale prices so that competitors
may resell those services to customers. 47 U.S.C. § 251(c)(4). AT&T’s retail offerings
fall into two groups: published offerings and individualized contracts. Individualized
contracts are designed for certain commercial customers based on a variety of customer-
specific factors. The manner in which AT&T offers its individualized contracts to
competitors for resale is at issue in this case.
Plaintiff CMC, a competitor carrier, claims that with regard to AT&T’s use of
individualized contracts, the Michigan Public Service Commission has failed to enforce
compliance with the Act by (1) allowing AT&T to withhold the terms of these contracts
from competitors; (2) upholding AT&T’s requirement that competitors resell the
contracts only to customers that are similarly situated to existing customers;
(3) upholding AT&T’s prohibition on competitors’ aggregation of end-user volume for
individualized-contract pricing; and (4) allowing AT&T to treat competitors’ end users,
rather than the competitors themselves, as customers in the context of reselling
individualized contracts.
The terms of the Act indeed require that AT&T sufficiently disclose terms of its
individualized contracts to competitor carriers so that competitors can determine the
nature of these retail offerings. Such disclosure does not violate AT&T’s statutory duty
to protect customer proprietary network information and is not a violation of the Act;
therefore, the district court’s holding to the contrary must be reversed. On the other
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hand, as recognized by the commission and the district court, AT&T’s requirement of
similarity of customer situation—the “similarly situated requirement”—is not a
condition on resale, and therefore does not implicate the Act’s presumption of the
invalidity of such conditions. However, the process by which AT&T determines
whether two customers are similarly situated may be an invalid condition on resale.
CMC has yet to present properly its concerns about this process to the state commission,
so it was premature for the district court to identify particular factors that AT&T could
use in determining customer similarity before the commission has made any
determination regarding the process. Finally, CMC’s aggregation and end-user claims
are also without merit.
In August 2006, CMC, along with other parties no longer involved in the suit,
first brought its complaint to the commission. An ALJ held hearings on the complaint
and issued a proposal for decision in which he recommended that the commission
require AT&T to disclose the terms of its individualized contracts while redacting
subscribers’ identifying information. The ALJ rejected CMC’s claims regarding the
“similarly situated” requirement, aggregation, and end-user determination.
The commission’s order rejected the ALJ’s recommendation that AT&T be
required to disclose redacted versions of its individualized contracts. The commission
also determined that the “similarly situated” requirement was reasonable on its face.
Although the commission emphasized that AT&T’s determination of whether two
customers were similarly situated must be reasonable, the commission did not make any
determination as to whether AT&T’s current practices fulfilled that requirement. The
commission also held that AT&T’s refusal to allow aggregation of individualized
contracts was not a violation of the Act and that AT&T could appropriately treat CMC’s
customers as end users for the resale of individualized contracts.
CMC next brought a declaratory judgment action in federal district court against
AT&T and the state commissioners, alleging that each of these rulings violated the Act.
The district court rejected all of CMC’s claims. The district court held that the Act’s
requirement that carriers protect customer proprietary network information prohibited
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AT&T from disclosing individualized contracts without customer consent, and endorsed
the commission’s reasoning on CMC’s other claims. CMC Telecom, Inc. v Mich. Bell
Tel. Co., 654 F. Supp. 2d 677 (W.D. Mich. 2009). Additionally, the district court
identified certain factors that AT&T could apply in determining customer similarity
without first seeking approval from the commission. Id. at 692.
Disclosure of Individualized Contracts
The Act requires incumbents “to offer for resale at wholesale rates any
telecommunications service that the carrier provides at retail to subscribers who are not
telecommunications carriers.” 47 U.S.C. § 251(c)(4)(A). AT&T acknowledges that its
resale duty extends to individualized contracts, but the parties disagree on what
constitutes an “offer” for purposes of the Act. CMC’s primary argument on appeal is
that AT&T is not truly offering its individualized contracts for resale because AT&T
will not disclose any information about the contracts unless a competitor first obtains
customer consent. Because an offer can exist only if the offeree has enough information
to understand what is being offered, AT&T must disclose sufficient terms of its
individualized contracts such that competitors can discern the nature of those contracts
and offer them to new customers.
AT&T maintains, and the district court agreed, that unconsented disclosure of
individualized contracts would constitute a violation of another of AT&T’s duties under
the Act: the duty to protect customer proprietary network information (“CPNI”).
Section 222(c)(1) of the Act provides that:
[e]xcept as required by law or with the approval of the customer, a
telecommunications carrier that receives or obtains customer proprietary
network information by virtue of its provision of a telecommunications
service shall only use, disclose, or permit access to individually
identifiable customer proprietary network information in its provision of
(A) the telecommunications service from which such information is
derived, or (B) services necessary to, or used in, the provision of such
telecommunications service, including the publishing of directories.
The Act defines CPNI as:
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information that relates to the quantity, technical configuration, type,
destination, location, and amount of use of a telecommunications service
subscribed to by any customer of a telecommunications carrier, and that
is made available to the carrier by the customer solely by virtue of the
carrier-customer relationship.
47 U.S.C. § 222(h)(1)(A).
Because multiple customer-specific factors are considered in designing
individualized contracts, AT&T contends that disclosing the terms of these contracts
would amount to disclosing CPNI in violation of § 222. The factors AT&T uses in
writing individualized contracts include services ordered, customer location, and
quantity.1 Although this information (at least when identified by customer name) clearly
constitutes CPNI, AT&T’s claim that it would be violating § 222 by disclosing details
of these contracts is without merit, because the Act allows for disclosure “as required by
law.” 47 U.S.C. § 222(c)(1). Section 251 requires incumbents to offer all of their retail
services for resale, and thereby constitutes a legal requirement that the terms of
individualized contracts be sufficiently disclosed so as to be understood. Because
§ 251’s resale duty constitutes a legal disclosure requirement, § 222 does not prevent
AT&T from disclosing terms of its individualized contracts to competitors.
AT&T argues that the exceptions to § 222(a)’s disclosure prohibition are limited
to those listed in § 222(d).2 This argument is inconsistent with case law and the Federal
Communication Commission’s own interpretation of the Act. In ICG Communications
Inc. v. Allegiance Telecom, 211 F.R.D. 610, 614 (N.D. Cal. 2002), the court identified
the Federal Rules of Civil Procedure as law within the meaning of § 222, and held that
1
AT&T has identified the factors considered in designing an individualized contract as including,
but not limited to: services included in the offer, revenue commitment, competitive price in the
marketplace and cumulative price differential, pricing proposed or offered for similar product/bundled
solutions, location, loop length, cable complement, availability of facilities, wire center, timing and current
competitive environment, general state of the economy, network architecture or service configuration, term
commitment, quantity commitment, and other risk factors (limitations of liability, warranty, other terms
and conditions).
2
These exceptions include the use and disclosure of CPNI for purposes of billing, protecting
carriers’ rights, providing customer sales services, and providing customer location information in
emergency situations.
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a party could therefore be compelled to provide information in discovery that would
otherwise be protected CPNI. More recently, the FCC considered the reach of § 222’s
“except as required by law” language in making a declaratory ruling on the potential
conflict between § 222 and 42 U.S.C. § 13032. In the Matter of Implementation of the
Telecomms. Act of 1996: Telecomms. Carriers’ Use of Customer Proprietary Network
Info. and Other Customer Info., 21 FCC Rcd. 9990 (2006). Section 13032, since
repealed,3 required providers of an “‘electronic communication service or remote
computing service’ to report apparent violations of certain federal statutes involving
child pornography.” The information reported by service providers pursuant to this
statute, such as e-mail and ISP addresses, constitutes individually identifiable CPNI, but
the FCC has found that reporting is permissible because § 222(c)(1)’s “except as
required by law” exception applies. 21 FCC Rcd. at 9991-92. Given that the FCC, the
body ultimately responsible for implementing the Act, has itself found that § 222(a)’s
exceptions extend beyond those listed in § 222(d) of the Act, AT&T’s argument to the
contrary is unavailing. See 47 U.S.C. § 151 (creating FCC to “execute and enforce the
provisions” of the Act).
Aside from the statutory arguments, AT&T’s brief reveals that its concerns about
disclosing CPNI are largely driven by its desire to avoid sharing its customers’ names
with competitors.4 AT&T may be able to avoid this disclosure by providing CMC with
redacted versions of the individualized contracts, so long as those contracts contain
enough information to constitute an offer. That is, AT&T may be able to anonymize the
contracts so that CMC can learn the terms on which AT&T provides individual offers
without learning the identities of AT&T’s customers.
3
Although that statute has been repealed, the reporting requirement remains and is now found at
18 U.S.C. § 2258A(a).
4
Both AT&T and the commission indicate that CMC may obtain individualized contract
information, including CPNI, by obtaining affirmative customer authorization to release the information
after the fact. Indeed, AT&T “placed a form authorization letter on its [competitive local exchange carrier]
online website” for CMC’s use. However, such a limited process would not be sufficient to meet the
requirements of 47 U.S.C § 251(c)(4)(a), in part because it would not serve to provide CMC with a full
understanding of the nature of all AT&T’s individualized contracts.
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With redacted contracts, it is possible that § 222 would not even be called into
question, as that section only prohibits disclosure of “individually identifiable” CPNI.
However, as AT&T argued below and CMC conceded at oral argument, there may be
customers for which even a redacted contract would contain sufficiently distinctive
customer-linked data so that competitors could easily recognize the underlying customer.
Nonetheless, AT&T is required by law to offer all of its retail services for resale, and this
disclosure duty applies even when redaction cannot fully mask customer identity.
Therefore, the commission erred in permitting AT&T to withhold completely the terms
of its individualized contracts from competitors.
“Similarly Situated” Requirement
CMC argues that AT&T further violates the Act by allowing resale of
individualized contracts only to customers that are “similarly situated” to the customer
for which the contract was designed. As recognized by the district court, there are
actually two components to CMC’s objection to AT&T’s “similarly situated”
requirement: the first objection is to the requirement itself, and the second objection is
to the opacity of the process by which AT&T determines whether one of CMC’s
proposed resale customers is similarly situated to an existing individualized-contract
customer. The answer to CMC’s argument is that although the Act significantly limits
incumbents’ ability to impose “restrictions on resale,” AT&T’s “similarly situated”
requirement is not in itself such a restriction. However, the process by which AT&T
determines whether two customers are similarly situated is independent of the
requirement itself and may constitute a limitation or restriction on resale that must be
approved by the state commission. CMC has not challenged this process before the state
commission, and therefore any objection to the process is not properly before this court.
The Act prohibits incumbents from imposing “unreasonable or discriminatory
conditions or limitations” on the resale of their retail services. Id. § 251(c)(4). The
regulations identify two restrictions on resale that incumbents may impose without prior
approval: cross-class selling and short term promotions, neither of which is involved in
this case. 47 C.F.R. § 51.613(a). Beyond these, incumbents may impose other
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restrictions on resale only after proving “to the state commission that the restriction is
reasonable and nondiscriminatory.” Id. § 51.613(b). CMC argues that AT&T
disregarded this regulation by imposing its “similarly situated” requirement without first
seeking approval from the commission.
However, the “similarly situated” requirement is not a restriction on resale.
Rather, it is a way for AT&T to ensure that CMC is reselling the same product that
AT&T offers at retail, which is all the Act requires of incumbents. Sw. Bell Tel. Co. v.
Apple, 309 F.3d 713, 718 (10th Cir. 2002). Individualized contracts derive pricing from
a variety of customer-specific factors. Therefore, allowing competitors to sell those
specially priced contracts to any customer—regardless of the customer’s call volume,
location, or other pertinent factors—would distort the nature of the offering and force
incumbents to provide discount services to customers who would not qualify for special
rates under the incumbent’s own pricing scheme.
Although the “similarly situated” requirement is not a restriction or limitation
on resale, the requirement is distinct from the process by which AT&T determines
whether two customers are similarly situated. This is because the requirement itself is
simply a way of ensuring that competitors are only reselling products that AT&T sells,
whereas the determination of which customers are similarly situated to others, if not
transparent, could be used unlawfully to prevent resale of existing products to virtually
identical customers. As currently structured, AT&T alone determines whether a
competitor’s proposed customer is similarly situated to an existing individualized-
contract customer. Therefore, competitors prepared to offer individualized contracts to
similarly situated customers must successfully clear AT&T’s undisclosed determination
process, and that process could be a limitation or restriction on resale that must be
approved by the commission. However, CMC’s complaint to the commission focused
on the requirement itself, and any concerns about the process have not been properly
presented to the commission. In fact, the commission emphasized that the process must
be reasonable and nondiscriminatory. Without a ruling from the state commission, CMC
is not positioned to argue to this court that the commission has violated federal law with
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respect to this issue. As suggested by the commission, CMC and AT&T may devise a
scheme for determining similarity of situation in negotiating their interconnection
agreement. Or, as it did with its initial claims in this case, CMC may file a complaint
with the commission addressing this issue.
Because it is initially for the commission to determine whether the process by
which AT&T makes its “similarly situated” determination is reasonable, the district
court was premature in articulating a set of appropriate factors to be considered in the
process before the commission has properly considered the matter. The district court
below held that particular factors articulated in the Bell Atlantic-Delaware v. McMahon,
80 F. Supp. 2d 218 (D. Del. 2000), decision were reasonable and non-discriminatory.
CMC Telecom, 654 F. Supp. 2d at 692. Neither this court nor the district court is in a
position to prescribe beforehand what factors the commission could or should apply. On
subsequent review, we can determine whether the analysis applied by the commission
is consistent with the Act.
Aggregation of End-User Volume
CMC also contends that the state commission violated the Act by refusing to
require AT&T to allow competitors to aggregate end-user volumes in order to qualify
for individualized-contract pricing. This argument is without merit because it disregards
the nature of individualized contracts.
CMC argues that if AT&T sells 10,000 units of service to one customer as part
of a multi-factor individualized contract, AT&T must allow CMC to buy 10,000 units
of service at the relatively low individualized-contract rate, identify and aggregate
10,000 distinct customers who each demand only one unit of service, and then parcel out
the service among those customers at the resale rate for individualized contracts. CMC
cites the FCC Local Competition Order for the proposition that restrictions on resale of
volume discounts “should be considered presumptively unreasonable.” In the Matter of
Implementation of the Local Competition Provisions in the Telecomms. Act of 1996,
11 FCC Rcd. 15499, 15971 (1996). However, that presumption would apply here only
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if volume were the sole factor AT&T considered when pricing its individualized
contracts. Because the contracts CMC seeks to resell are based on several factors in
addition to call volume, requiring AT&T to allow aggregation of end-user volume to
qualify for individualized contract rates would change the nature of AT&T’s retail
offering and exceed AT&T’s resale requirement. Where eliminating a restriction from
an incumbent’s retail offering would transform the offering into a different service, the
incumbent is not required to offer that revised service for resale. Sw. Bell, 309 F.3d at
719-20. Were AT&T required to resell multi-factor individualized contracts based on
volume requirements alone, the resold product would not be what AT&T offers its own
customers.5 Therefore, the commission did not legally have to require AT&T to permit
aggregation to qualify for individualized-contract pricing.
End-User Determination
CMC also argues that AT&T should be required to treat CMC, rather than
CMC’s resale customers, as the end user for purposes of reselling an individualized
contract. This claim is not independently developed at any length in CMC’s brief, but
is instead nested within CMC’s argument that AT&T should be required to allow volume
aggregation for purposes of purchasing individualized contracts at wholesale rates.
CMC’s end-user argument is indistinct from its aggregation argument, and likewise fails.
Conclusion
In conclusion, AT&T must disclose the terms of its individualized contracts to
the extent necessary for CMC to understand the nature of what is being offered. The
district court’s holding is reversed in this respect, and the case must be remanded for the
commission to modify its order. The district court’s affirmance of the commission is
otherwise upheld. The commission did not violate the Act by determining that AT&T’s
“similarly situated” requirement was not a restriction on resale. However, the process
5
Because the terms of AT&T’s individualized contracts are currently unknown, it is possible that
some of these contracts are simply volume discounts packaged as “individualized” offerings. As explained
above, AT&T will be required to disclose critical terms of its individualized contracts going forward. If
this disclosure reveals special contract rates that are driven solely by volume, CMC could renew its
aggregation argument before the commission.
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by which AT&T determines whether two customers are similarly situated is independent
from the retail offering and may be a condition on resale in the context of this case.
Because CMC has yet to properly present complaints about the determination process
to the commission, there is no decision on the reasonableness of particular factors before
us on review. Our holding in this regard supersedes the district court’s adoption of
particular factors that AT&T may reasonably consider in determining whether two
customers are similarly situated. Finally, we uphold the district court’s determinations
that the commission could permit AT&T to refuse to aggregate individual-contract
volumes and to refuse to treat competitors as end users for resale purposes.