THE STATE OF NEW HAMPSHIRE SUPREME COURT

Transcription

1 THE STATE OF NEW HAMPSHIRE SUPREME COURT 2011 TERM DOCKET NO Bretton Woods Telephone Company, Inc. Dixvile Telephone Company Dunbarton Telephone Company, Inc. and Granite State Telephone, Inc. APPEAL BY PETITION PURSUANT TO RSA 541:6 AND SUPREME COURT RULE 10 BRIEF OF APPELLANT BRETTON WOODS TELEPHONE COMPANY, INC. DIXVILLE TELEPHONE COMPANY, DUNBARTON TELEPHONE COMPANY, INC. AND GRANITE STATE TELEPHONE, INC. Hary N. Malone NH Bar No Daniel E. Wil NH BarNo Kevin M. Baum NH Bar No DEVINE, MILLIMET & BRANCH PROFESSIONAL ASSOCIA non 111 Amherst Street Manchester, NH Telephone (603) hralone(ßdevinemilimet.com dwil(ßdevinemillimet.com kbaur(ßdevinemillimet.com Oral Argument: Harry N. Malone or Daniel E. Wil Counsel for Petitioners Bretton Woods Telephone Company, Inc. Dixvile Telephone Company Dunbaron Telephone Company, Inc. Granite State Telephone, Inc.

2 TABLE OF CONTENTS QUESTIONS PRESENTED...1 STATUTES AND REGULATIONS...2 STATEMENT OF THE CASE...3 BACKGROUND AND PROCEDURAL HISTORY...4 SUMMARY OF ARGUMENT...10 i. The RSA 374:22-g, II criteria are not preempted by Section 253(a) of the Communications Act because they do not materially limit competition II. The Commission erred by failing to find that it may impose competitively neutral conditions on market entry in the interest of the public good III. The Commission improperly found that each of the factors to be considered under RSA g act to prohibit the entry of a competitive provider...15 IV. The Commission erred by failing to limit the preemption of state law to the extent to which it actually conflcts with federal law V. The Commission's order was itself unlawfl and unreasonable for failing to impose requirements on a competitively neutral basis CONCLUSION AND REQUEST FOR RELIEF...23 REQUEST FOR ORAL ARGUMENT...23

3 TABLE OF AUTHORITIES Cases Appeal of Union Telephone Company d/b/a Union Communications, 160 N.H. 309 (2010)passim AT & T Corp. v. Iowa Utilites Bd., 525 U.S. 366,371 (1999)...4 Ayotte v. Planned Parenthood ofn. New England, 546 U.S. 320, (2005)...20 Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 502 (1985)...20 Champlin Refining Co. v. Corp. ofcomm 'n of Okla., 286 U.S. 210,234 (1932)...20 Chevron u.s.a. v. NRDC, 467 U.S. 837, (1984)...15 Free Enter. Fundv. Pub. Co. Accounting Oversight, Bd., 130 S.Ct. 3138, 3161 (2010)...21, 22 Hush-A-Phone v. United States, 228 F.2d 266 (D.C. Cir. 1956)...5 Puerto Rico v. Municipality ofguayanila, 450 F.3d 9,15 (1S! Cir. 2006)...10 United States v. AT&T, 552 F.Supp. 131, (D.D.C. 1982)...5 Statutes 47 C.F.R (a)(I)-(9) U.S.C. 214(e)(I) U.S.C. 253(a) U.S.C. 253(b)...21 RSA 363:17-b...9 RSA 374:22-f...6 RSA 374:22-g... passim RSA 374 :26... passim RSA 541:1...9 RSA 541:

4 Other Authorities Access Charge Reform, First Report and Order, 12 F.C.C.R. 15,982 (1997)...4, 6 Developing an Unifed Intercarrier Compensation Regime, 26 F.C.C.R. 17,633 (2011)...6 Federal-State Joint Board on Universal Service, Report and Order, 12 F.C.C.R. 8776(1997)..4, 6 Texas, Memorandum Opinion and Order, 13 FCC Rcd. 3460, iiiil (1997)...17 In Re: Public Utilty Commission of Petitons for Declaratory Ruling and/or Preemption, CCBPol 96-13, Memorandum Opinion and Order, 13 F.C.C.R.3460 ii 42 (1997)...15 Silver Star Telephone Company Petitonfor Preemption and Declaratory Ruling, CC Docket No. 97-1, Memorandum Opinion and Order, 12 F.C.C.R ii 37 (1997)...17, 22 Use of the Carterfone Device in Message Toll Telephone Services, Decision, 13 F.C.C.2d 420 (1968)...5 Regulations Rule Puc , 7, 23 11

5 QUESTIONS PRESENTED 1. Whether the Commission erred by finding that RSA 374:22-g is a complete prohibition to competitive entry under Section 253(a) of the Communications Act? (Commission Record at Tab 1 (RLEC Initial Brief at pp. 4-6)) 2. Whether the Commission erred by failing to find that it may impose competitively neutral conditions on market entry in the interest of the public good? (Commission Record at Tab 36 (Motion for Rehearing at p. 5)) 3. Whether the Commission improperly found that each of the factors to be considered under RSA g act to prohibit the entry of a competitive provider? (Commission Record at Tab 36 (Motion for Rehearing at pp. 7-11)) 4. Whether the Commission erred by failing to limit the preemption of state law to the extent to which it actually conflicts with federal law? (Commission Record at Tab 36 (Motion for Rehearing at p. 30)) 5. Whether the Commission's order was itself unlawful and unreasonable for failing to impose requirements on a competitively neutral basis? (Commission Record at Tab 36 (Motion for Rehearing at pp )) 1

6 STATUTES AND REGULATIONS RSA 374:22-g: i. To the extent consistent with federal law and notwithstanding any other provision of law to the contrary, all telephone franchise areas served by a telephone utility that provides local exchange service, subject to the jurisdiction of the commission, shall be nonexclusive. The commission, upon petition or on its own motion, shall have the authority to authorize the providing of telecommunications services, including local exchange services, and any other telecommunications services, by more than one provider, in any service territory, when the commission finds and determines that it is consistent with the public good unless prohibited by federal law. II. In determining the public good, the commission shall consider the interests of competition with other factors including, but not limited to, fairness; economic efficiency; universal service; carier of last resort obligations; the incumbent utility's opportunity to realize a reasonable retur on its investment; and the recovery from competitive providers of expenses incurred by the incumbent utility to benefit competitive providers, taking into account the proportionate benefit or savings, if any, derived by the incumbent as a result of incurrng such expenses. III. The commission shall adopt rules, pursuant to RSA 541-A, relative to the enforcement of this section. RSA 374:26: The commission shall grant such permission whenever it shall, after due hearing, find that such engaging in business, construction or exercise of right, privilege or franchise would be for the public good, and not otherwise; and may prescribe such terms and conditions for the exercise of the privilege granted under such permission as it shall consider for the public interest. Such permission may be granted without hearing when all interested paries are in agreement. 47 U.S.c (a) is reproduced in its entirety in the Appellant's Appendix at page U.S.c. 214 is reproduced in its entirety in the Appellant's Appendix at pages U.S.C. 253 is reproduced in its entirety in the Appellant's Appendix at pages N.H. Code of Admin Rules Part Puc is reproduced in its entirety in the Appellant's Appendix at page 77. 2

7 STATEMENT OF THE CASE This appeal arises from an order of the New Hampshire Public Utility Commission (the "Commission") issued on remand from this Court's decision in Appeal of Union Telephone Company d/b/a Union Communications, 160 N.H. 309 (2010), in which this Court held that the Commission's registration process for competitive local exchange cariers ("CLECs") was invalid. This Court held that New Hampshire law, specifically RSA 374:22-g and RSA 374:26 required the Commission to conduct a hearing and make a searching inquiry regarding the public good considerations prescribed in RSA 374:22, II, something the Commission had not done. This Court, however, acknowledged that federal law may preempt state law requirements and remanded the matter to the Commission, who ultimately found the RSA 374:22-g and RSA 374:26 requirements to be completely preempted by federal law. i In making this determination, the Commission overstates the restrictions Section 253(a) of the Communications Act imposes on state law. Section 253(a) only preempts state laws that materially limit competition and only to the extent that such laws actually conflct with federal law. The Commission also ignores the provisions of Section 253 that substantially mirror the public interest considerations to be reviewed under those state statutes, specifically, the obligation under both the federal and state statutes to protect universal service and support the ability of the incumbent carier continue to promote the public welfare as the carrier of last resort. The Commission also fails to recognize that these statutes allow the Commission to impose competitively neutral conditions on market entry in the interest of the public good. As a result, the Commission has improperly and unnecessarily relinquished its authority to preserve universal service by allowing unconditional entry into the marketplace of competitors in violation of the principles of competitive neutrality. i A detailed discussion ofthe procedural history ofthis appeal appears at pages 7-10 below. 3

8 The Commission's decision puts both the RLECs and consumers in affected markets at risk. Allowing unfettered market entry by the CLECs, while imposing conditions to protect universal service and carier of last resort obligations only on the RLECS, wil allow the CLECs to take the most profitable business away from the incumbent RLEC and jeopardize universal service. Not only is the Commission's decision unlawful, but it has broad unintended public policy implications. BACKGROUND AND PROCEDURAL HISTORY For much of the 20th century, local exchange telephone service was a monopoly service provided by a single local exchange carrier in a particular geographical area, as authorized by the state public utility commission. The Bell System companies of AT&T served as the local exchange carriers ("LECs") for most (but not all) of the country, and the AT&T parent company was the sole provider of interstate long distance service. In the interstitial spaces that the Bell System did not serve, there were hundreds of small to medium sized independent companies, like the appellants, that provided service in in primarily rural areas and interconnected with AT&T and the Bell System.2 As this Court has previously noted, "(ujntil the 1990's, local phone service was thought to be a natural monopoly,,3 and it is generally accepted that this arrangement was conducive to providing "universal service"; that is, affordable telephone service available to all customers in a franchise area at generally applicable rates, regardless of the remoteness of their location. The single local exchange carriers were able to meet this goal through a system of internal cross 2 See generally Federal-State Board on Universal Service, Report to Congress, 13 FCC Rcd Section I (1998) and Access Charge Reform, First Report and Order, 12 F.C.C.R. 15,982 Section LA. (1997). 3 Appeal of Union Telephone Company d/b/a Union Communications, 160 N.H. 309, 314 (2010) (citing AT&T v. Iowa Utilties Bd, 525 U.S. 366, 371 (1999)). 4 Corp.

9 subsidies. High profit long distance service subsidized local service; lower cost urban service subsidized high cost rural service; business service subsidized residential service. Around the middle of the centur, this monopoly model began to erode, gradually at first and then at an increasing pace and with greater impact. In the 1956 "Hush-A-Phone" decision,4 the District of Columbia Circuit Cour held that AT&T could not prevent users from attaching a sound-deadening cup (similar to that used by court reporters in dictating annotations) to their telephone handsets. In the 1968 Carterfone decision,s the Federal Communications Commission held that AT&T could not prevent its users from placing their telephone handsets in a microphone cradle in order to communicate with a wireless user. Later FCC decisions liberalized the market for customer-owned telephones. Beginning in the 1970s, the FCC opened up the long distance market to competition, initiating the first significant disruption to the cross subsidies that the old monopoly system allowed, as AT&T began to lose long distance revenues to competitive interexchange carriers ("IXCs") like MCI and Sprint. This led, in a convoluted fashion, to AT&T divesting its local exchange properties as part of a settlement with the United States Department of Justice.6 Among many other things, this settlement provided the divested companies with a replacement for the subsidies, in the form of "access charges" imposed on long distance companies who sought access to the local exchange companies' networks. Finally, in the Telecommunications Act of 1996, Congress opened up the local exchange market to competition as well from a new breed of "competitive" LECS ("CLECs"). At the same time, the 1996 Act inaugurated a new regime designed to eliminate the implicit subsidies inherent in telecommunications rates and either make them explicit or shift them to end users. In 4 Hush-A-Phone v. United States, 228 F.2d 266 (D.C. Cir. 1956). 5 Use of the Carterfone Device in Message Toll Telephone Services, Decision, I3 F.C.C.2d 420 (1968). 6 United States v. AT&T, 552 F.Supp. i 3 1, (D.D.C. i 982). 5

10 accordance with the 1996 Act, the FCC created an explicit Universal Service Fund to support high cost services 7 and has reformed, over the last fifteen years, the access charge regime to reduce and eventually eliminate its role in support of local exchange rates.8 As would be expected, competitors have been drawn to those services that have the highest margins, are priced most above their costs, and thus are most susceptible to underpricing by new carriers who do not have to serve all customers or recover the costs of a ubiquitous network. Recognizing that rural local exchange markets may have special issues regarding their ability to absorb a competitive carier, particularly in regard to universal service, the 1996 Act includes provisions that, while encouraging competition, place conditions on the entry of competition into the territories of rural cariers. These include exemptions for rural carriers from some of the market-opening provisions of the 1996 Act, as well as provisions that permit state commissions to impose market entry requirements that preserve and advance universal service, and others that condition market entry on a commitment to provide certain services associated with universal service. But the federal act did not provide the sole voice in the post-divestiture landscape. For a number of years until it was repealed in 2008, a New Hampshire statute, RSA 374:22-f, prohibited competitive entry into the territory of an incumbent LEC ("ILEC") with fewer than 25,000 lines, except upon invitation by that ILEC and then only upon a finding of public good by the Commission in accordance with RSA 374:22-g. Consistent with these statutes, the Commission had established a streamlined process, codified in its Rule Puc i, by which competitors could use a straightforward registration form to enter the market of a "non-exempt" ILEC, i.e. an ILEC with greater than 25,000 lines. Through the repeal ofrsa 374:22-fin 2008, 7 Federal-State Joint Board on Universal Service, Report and Order, 12 F.C.C.R (1997). 8 Access Charge Reform, First Report and Order, 12 F.C.C.R. 15,982 (1997); see also Developing an Unifed Intercarrier Compensation Regime, 26 F.C.C.R. 17,633 (201 I). 6

11 all telephone franchise areas became nonexclusive regardless of size and the Commission extended the Rule registration process to all markets, including those of exempt cariers. In late 2008, Union Telephone Co., a rural ILEC, became aware that a CLEC had been granted authorization to provide telephone services throughout the state, including within the terrtories of exempt LECs. The Commission denied Union's petition to rescind this authority, and on appeal of that decision, this Court determined that the authorizations obtained by CLECs to operate in the territories of exempt ILECs were not granted in accordance with state statutory requirements. Appeal of Union Telephone Company d/b/a Union Communications, 160 N.H. 309 (2010). This Court held that CLECs could not register to provide local exchange telephone service in the territories of exempt rural local exchange cariers ("RLECs") pursuant to the registration process set forth in Rule Puc because Rule Puc restricts this registration process to the territories of non-exempt local exchange carriers.9 This Court further held that the Commission's registration process was also directly contrary to the explicit terms ofrsa 374:26, which requires that the Commission shall grant permission for a CLEC to enter into the territory of an existing local exchange carrier only after finding that engaging in such business will be for the public good. io In the case of an exempt local exchange carrier, such a finding is to be made after "due hearing" by the Commission pursuant to RSA 374:26 and a "searching inquiry" of whether the CLEC meets the public good conditions ofrsa 374:22-g, II. In that regard, RSA 374:22-g, II requires the Commission to "consider the interests of competition with other factors including, but not limited to, fairness; economic efficiency; universal service; carrier of last resort obligations; (andj the incumbent utility's opportunity to realize a reasonable return on its investment..." 9 Rule PUC 43 i.oi(d). 10 Union Telephone, 160 N.H. at

12 In making its decision, however, this Court noted that federal law may preempt state law requirements and remanded the matter to the Commission to determine whether, in fact, federal law preempts state law. The preemption concern derives from Section 253(a) of the Communications Act, which states: (a) In General. No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. Upon remand, the Commission issued an Order of Notice setting a proceeding to address "inter alia, issues related to the requirements for registration of CLECs under state law and the degree to which that process is preempted by federal law."!! As par of this proceeding, the Commission scheduled a technical session at which the paries agreed to develop a stipulation describing the procedures to be followed in proceedings related to CLEC entry into RLEC territories should the Commission find RSA 374:26 and RSA 374:22-g not preempted. This stipulation was intended, in part, to provide a baseline for the Commission to determine whether these CLEC entry proceedings would be so unduly burdensome so as to "prohibit or have the effect of prohibiting" telecommunications services in violation of Section 253(a). Assuming that the state statutory scheme was not preempted, the stipulation to which the paries agreed would require the following limited CLEC registration process: a) Except as provided in Puc Rules Par 431, regarding registration in the service territory of a non-exempt ILEC, the CLEC will request entry into a telephone utility service territory via petition, application or other form of request. b) Public notice, commonly in the form of a Commission Order of Notice, will be published relative to the CLEC request and the nature of applicable Commission review. This Notice wil be served on the affected RLECs serving the service territories for which entry is requested. c) The affected RLEC wil be a mandatory party and other interested paries can petition to intervene in the proceeding. ii See Commission Record at Tab 5 (Order of Notice, dated August 5, 2010 at 3). 8

13 d) An initial Commission pre-hearing conference and technical session wil be held to decide interventions and determine a schedule for procedural steps. e) The RLEC and other parties wil be afforded an opportunity to fie testimony (initial and, in certain cases, rebuttal) on any relevant factor listed in RSA 374:22-g and other facts material to the CLEC request. f) The parties wil have the opportunity to propound discovery on testimony and other evidence offered prior to a public evidentiary hearing. g) The parties wil have the opportunity for a public evidentiar hearing to review and address evidence submitted for possible inclusion in the record. h) The paries can file briefs and/or requests for findings of fact or law. i) The Commission wil issue an Order pursuant to RSA 363: 17 -b. j) Paries can petition for reconsideration or appeal of an adverse Commission ruling 12 pursuant to RSA 541: 1, RSA 541:6 or other applicable appeal statutes. The Commission ultimately held that Section 253(a) completely preempted both the RSA 374:26 hearing requirements and the RSA 374:22-g, II public interest inquiry. 13 In making its decision, the Commission focused on the importance of competitive neutrality, finding that state statutes did not meet this standard, concerned as they were on the effect that competitive entry has on the incumbent service provider. The Commission noted that to impose requirements on a "competitively neutral" basis, such requirements must necessarily be of general applicability to all telecommunication service providers in the state, and thus would properly be imposed by administrative rule, rather than an adjudicated process on a case-by-case basis.14 Accordingly, the Commission resolved to commence a rulemaking "to address, in a competitively neutral manner, whether additional or modified requirements are necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of 12 Order No. 25,277, dated October 21, ("Order") at Id at Id 9

14 telecommunications services, and safeguard the rights of consumers in the context of competitive entry."is During the many months that it wil take to complete this rulemaking process, the Commission decided to resume acceptance of Form CLEC-I0 registrations, and has since validated the statewide certifications for two CLECs: segtel and Access Plus Communications. 16 The RLECs filed a timely Motion for Rehearing of the Commission's Order on November 3,2011, which the Commission denied pursuant to Order No. 25,291 ("Rehearing Order"). This appeal followed. SUMMARY OF ARGUMENT The Commission has misinterpreted the restrictions on state law under Section 253(a) of the Communications Act. As this Court has previously clarified, a state statute or regulation is preempted by the Communications Act only if it "materially inhibits or limits the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment.,,17 The Commission failed to make such a determination and instead improperly focused on the issue of financial harm to the incumbent RLECs. Moreover, in finding that Section 253(a) completely preempts the Commission's requirement to hold a hearing pursuant to RSA 374:26 and conduct a "searching inquiry" pursuant to RSA 374:22-g, the Commission ignores the subsections of Section 253 that substantially mirror the public interest considerations to be reviewed under those state statutes. Both the federal and state statutes reflect the obligation to protect universal service and support 15 Id at Id at Union Telephone, 160 N.H. at 321 (citing Puerto Rico v. Municipality ofguayanila, 450 F.3d 9, 15 (151 Cir. 2006). 10

15 the ability of the incumbent carrer to continue to promote the public welfare as the carrier of last resort. The Commission erred in several additional ways. First, the Commission failed to recognize that while it may not prohibit CLEC market entry outright, it may impose competitively neutral conditions on that market entry in the interest the of the public good. Second, the Commission erroneously concluded that each ofthe factors to be considered under RSA 374:22-g, II act to prohibit the entry of a competitive provider. Third, even if the Commission properly determined that Section 253 preempts one of these factors, the Commission erroneously determined that Section 253 preempts the entire state statute because one of its pars conflicts with federal law. Finally, by permitting unconditional market entry to the CLECs, the Commission's order itself establishes a regulatory scheme that is not competitively neutral. Just as Section 253 prohibits any state requirement that unduly favors the ILEC, it also prohibits against any requirement (or lack thereof) that favors the CLEC at the expense of the ILEC. Yet by inviting petitions for entry into RLEC markets under the same conditions as non-rlec markets, the Commission has consigned the RLECs to competing on an unlevel playing field. Under the Commission's interpretation, the RLECs wil continue to be subject to carrier of last resort obligations, universal service obligations, rate regulations, and other ILEC specific regulatory burdens, while competitors, unfettered by these obligations, wil be free to take the most profitable business away from the incumbent provider. 11

16 ARGUMENT I. The RSA 374:22-g, II criteria are not preempted by Section 253(a) of the Communications Act because they do not materially limit competition. Despite the focus of the Commission's proceeding, Section 253(a) of the Communications Act is not concerned with entry bariers per se, or even prohibitive entry bariers, but with state actions that prohibit competitive entry. To that end, the federal statute prohibits any state statute or regulation that "may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.,,18 However, this Court has previously clarified that it is not enough that the important public interest considerations embodied RSA 374:22-g, II be merely inconvenient to CLECs. Rather, in the context of Section 253 of the Telecommunications Act, the correct standard is whether a state law "materially inhibits or limits the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment." 19 Accordingly, before the Commission can even begin to find that state law is preempted, it must determine that the CLECs (some of whom are associated with the biggest communications companies in the country) are materially hampered by state law. The Commission made no such determination. To the contrary, it focused not on the CLECs but on the incumbent RLECs. This focus centered primarily on the issue of financial harm to the incumbent provider. Specifically, the Commission expressed its concern that a CLEC's entry into an incumbent's territory "could be denied because allowing entry would negatively affect the RLEC's opportunity to earn a return" and that the "threat of financial harm canot serve to deny entry to competitors.,,2o 1847 U.S.c. 253(a). 19 Union Telephone, 160 N.H. at 321 (emphasis supplied). 20 Order at

17 The Commission's decision ignores the subsections of Section 253 that substantially mirror the public interest considerations ofrsa 374:22-g, II. For example, Section 253(b) permits the Commission to impose requirements to protect universal service in general: (b) State Regulatory Authority.--Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with Section 254, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecom-munications services, and safeguard the rights of consumers. Section 253(f) also provides that the Commission can grant authority in RLEC territories on condition that the new entrant competes on a level playing field, providing all of the services, to all customers, that are supported by federal universal service support mechanisms: (f) Rural Markets.--It shall not be a violation of this section for a State to require a telecommunications carier that seeks to provide telephone exchange service or exchange access in a service area served by a rural telephone company to meet the requirements in Section 214(e)(I) for designation as an eligible telecommunications carrier for that area before being permitted to provide such service. Section 214( e)(1) requires that any common carrier designated as an eligible telecommunications carrier be eligible to receive universal service support in accordance with Section 254 of the Act and further mandates that such eligible telecommunications carrier offer universal service support using either its own facilities or a combination of its own facilities and resale of another.,. 21 carier s services. These considerations are also included in the criteria that the General Cour established for determining the public good under RSA 374:22-g, II. Specifically, that statute requires, among other things, that: 21 See 47 U.S.C. 214(e)(1). The FCC, pursuant to its authority under the Act, has dictated that universal service support includes: (1) voice grade access to the public switched network; (2) Local usage; (3) Dual tone multifrequency signaling or its functional equivalent; (4) Single-party service or its functional equivalent; (5) Access to emergency services; (6) Access to operator services; (7) Access to interexchange service; (8) Access to directory assistance; and (9) Toll limitation for qualifying low-income consumers. See 47 C.F.R (a)(1)-(9). 13

18 the commission shall consider the interests of competition with other factors including, but not limited to, fairness; economic efficiency; universal service; carrier of last resort obligations; (andj the incumbent utility's opportunity to realize a reasonable retur on its investment... Using identical or similar phrasing, both of these statutes are consistent in protecting universal service and supporting the ability of the incumbent carrier to remain economically viable so that it can continue to promote the public welfare as the carrier of last resort in providing quality service. On its face, RSA 374:22-g is entirely consistent with federal law and not in conflct. As Section 253 preempt only those state statutes inconsistent with federal law, the Commission erred in concluding that Section 253 preempts RSA 374. II. The Commission erred by failng to find that it may impose competitively neutral conditions on market entry in the interest of the public good. The Commission concluded that "the list of items to be considered by the Commission is not severable, either as a complete list, or as individual items, and consideration of all items must be preempted.... Thus, the Commission is required to consider all items enumerated by the legislature and the preemption of one would appear to impact all.',2 That conclusion, however, fails to account for the fact that Section 253 expressly permits States to impose conditions. Congress has expressly provided that the public good may favor conditions on the entry of competitors into the market. See Section 253(b) ("(njothing in this section shall affect the ability of a State to impose... requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers."); see also Section 253(f) ("(ijt shall not be a violation of this section for a State to require a telecommunications carrier that seeks to provide telephone exchange service or exchange access in a service area served by a rural telephone company to meet the requirements in Sect jon 214(e)(I) for designation as an eligible telecommunications 22 Order at

19 carrier for that area before being permitted to provide such service."). Moreover, RSA 374:22-g itself permits the Commission to make any determinations about competition in telephone exchanges to "the extent consistent with federal law and notwithstanding any other provision of law to the contrary.',23 The Commission's conclusion that the RSA 374:22-g, II conditions are not severable altogether overlooks the plain statutory language to the contrary. The FCC has explained that if "the challenged law, regulation or requirement satisfies subsection (b), we may not preempt it under section 253, even ifit otherwise would violate subsection (a) considered in isolation." The FCC has also observed that "irrespective of subsection (a), states retain authority to impose on cariers the types of requirements specified in subsection (b) provided that such measures satisfy the criteria set forth in that subsection.',24 The federal authority construing Section 253 confirms that, although the Commission may not prohibit market entry outright, it may impose competitively neutral conditions on market entry in the interest of the public good.2s The Commission, therefore, should have conducted a hearing on whether a potential entrant meets these conditions. The Commission's conclusion to the contrary violated plain statutory language as construed by the FCC. III. The Commission improperly found that each of the factors to be considered under RSA g act to prohibit the entry of a competitive provider. In its Order, the Commission determined that the central question was whether the state system, "erects a barrier that materially limits or inhibits the ability of any competitor or potential competitor to operate in a fair and balanced regulatory environment.',26 In conducting 23 RSA 374:22-g, I (emphasis supplied). 24 Petitions for Declaratory Ruling and/or Preemption, CCBPol 96-13, Memorandum Opinion and Order, 13 F.C.C.R.3460 ~ 42 (1997) (citing Silver Star Telephone, 12 F.C.C.R.at ~ 37). 25 The FCC is accorded considerable deference regarding the interpretation ofa statute that it administers. "(I)fthe statute is silent or ambiguous with respect to the specific question, the issue for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron u.s.a. v. NRDC, 467 U.S. 837, (1984). 26 Order at

20 this inquiry, the Commission examined the factors set forth in RSA g, II and erroneously concluded that each and everyone of them acts to prohibit the entry of a competitor. The Commission's overly broad brush analysis resulted in legal error. With respect to competition, the Commission failed to recognize that RSA 374:22-g manifests a public policy that competition is a public good, under certain conditions that include preservation of universal service and carrier of last resort obligations in a fair and balanced legal and regulatory environment. The proper standard to make this determination, as this Court has previously stated, is whether a state law "materially inhibits or limits the ability of any competitor or potential competitor to compete in afair and balanced legal and regulatory environment.',27 The process established in the Order, which allows lightly regulated CLECs to compete with a fully regulated RLEC without regard to the principles of universal service, is not "fair and balanced." To the contrary, the process to which the parties have stipulated, while not uniform among all states, is also not out of the ordinary. The evidence compiled in the proceeding below shows that state CLEC entry requirements range from simple registration procedures,28 to fullblown application proceedings which can take many months.29 There are no cases in the record in which a market entry proceeding like that described in the stipulation has been preempted by the FCC. On the infrequent occasions when the FCC has exercised its preemption authority under Section 253(b), it has done so in the context of state requirements that imposed either an express 27 Union TeL. Co., 160 N.H. at 321 (emphasis supplied). 28 See Commission Record at Tab 23 (Rebuttal Testimony of Michael D. Pelcovits on Behalf of New England Cable and Telecommunications Association, Inc., at 5 (Dec. 9,2010)). 29 See Commission Record at Tab 17 (Direct Testimony of Douglas Meredith on Behalf of Granite State Telephone, Inc., Dunbarton Telephone Company, Inc., Bretton Woods Telephone Company, Inc., and Dixvile Telephone Company at 10:20-23 (Oct. 22, 2010)). 16

21 ban on CLEC entry, or vested veto power in the hands of the ILEC. For example, in In Re: Silver Star Telephone Company, Inc., the FCC preempted a provision of the Wyoming Telecommunications Act of 1995 that allowed incumbent LECs serving 30,000 or fewer access lines to preclude anyone from providing competing local exchange service in their territories until at least Januar 1, Similarly, the FCC preempted a section of the Texas Public Utility Act of 1995 that prohibited certain competitive LECs from offering service in exchange areas of incumbent LECs serving fewer than 31,000 access lines.31 Finally, the FCC preempted a Tennessee statute that protected ILECs serving fewer than 100,000 access lines from competition until the LEC either "voluntarily" entered into an interconnection agreement with a CLEC or the ILEC applied for authority to provide telecommunications services in an area outside its service area.32 As demonstrated, FCC preemption is far from the norm. Unlike RSA 374:22-g, all of the preempted statutes to date served as outright prohibitions against CLEC entry. The preempted statutes did not involve statutes or regulations directing the applicant to demonstrate how competitive entry served the public good in the situation involving the particular parties. RSA 374:22-g does not establish a ban; it simply creates a process that ensures consideration of the public good, consistent with the federal act. The Commission also misinterpreted the direction in RSA 374:22-g, II to consider "the incumbent utility's opportunity to realize a reasonable return on its investment." The Commission interpreted this factor as a prohibition against "financial har" to the ILECs.33 This 30 Silver Star, 12 FCC Rcd. at irir In Re: Public Utility Commission of (1997). 32 Hyperion of 14 F.C.C.R ir 12 (1999). 33 Order at 29. Texas, Memorandum Opinion and Order, 13 F.C.C.R , iriri Tennessee, L.P. Petition for Preemption, FCC Docket No , Memorandum Opinion and Order, 17

22 factor, however, does not concern only "financial harm" to the RLECs, a phrase that conjures an image of mere lost profits. Rate of return considerations relate directly to the RLECs' ability to meet their carrier of last resort and universal service obligations. Section 253(b), which allows the Commission to impose entry requirements "necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers," expressly addresses this concern. In addition, Section 253(f) provides that the Commission can condition market entry on "meet(ing) the requirements in Section 214(e)(1) for designation as an eligible telecommunications carier for that area before being permitted to provide such service." Although the Commission may maintain that "(tjhe threat of financial harm cannot serve to deny entry to competitors,,,34 the threat to universal service most definitely serves to condition competitive entry in conformance with Section 253. The Commission compounded the error in its analysis of the fairness factor, explaining that "it is not clear whether we are to make that assessment from the perspective of the RLEC, the potential competitor, the consuming public, or some combination ofthem,,,3s despite clear guidance from this Cour. As mentioned, this Court stated in Union Telephone that the question is whether a state law "materially inhibits or limits the ability of any competitor or potential competitor to compete in afair and balanced legal and regulatory environment.',36 The issue of fairness relates directly to the principles of competitive neutrality that form the foundation of the Order. Rather than examining the issue in depth, the Commission established a regulatory scheme that burdens incumbent local exchange providers much more than CLECs. This is 34!d. 35 Id. at Union Tel. Co., 160 N.H. at 321 (emphasis ~uppiied). 18

23 neither fair nor balanced and, in fact, undermines the principles of universal service and carrier of last resort. Nothing in RSA 374:22-g requires that universal service obligations attach solely to any paricular carrier or carriers, nor does that provision prescribe how this function should be accomplished. RSA 374:22-g merely requires that the Commission consider the issue in light of its overall mission to determine the public good. In a fair and balanced competitive environment, universal service should be preserved in a manner that does not disadvantage one competitor over another. The Order, however, unfairly imposes these obligations on only one carier. The Commission attempted to justify that result by explaining that Section 253 does not allow the states to prohibit competitive entry out of concern over universal service or carrier of last resort obligations.37 Again, the Commission erred. Nothing in Section 253 prevents the Commission from addressing these concerns by imposing conditions on market entry. While Section 253 provides that states may impose requirements necessary to preserve universal service, the New Hampshire legislature, under the authority granted to it by Section 253, has determined that the Commission must impose such requirements.38 The Commission has not done so in this instance, leaving the RLECs at a competitive disadvantage. iv. The Commission erred by failng to limit the preemption of state law to the extent to which it actually conflcts with federal law. Even if the Commission properly found that Section 253 preempts one of the RSA g, II factors, the Commission improperly determined that Section 253 preempts the entire state statute because one of its pars conflicts with federal law. The United States Supreme Court has unequivocally observed that "(i)n a preemption case..., state law is displaced only to the 37 d. at 3i. 38 RSA 374:22-g, ii. 19

24 extent that it actually conflcts with federal law....',39 "The rule is that a federal court should nòt extend its invalidation of a statute further than necessary to dispose of the case before it."40 The Supreme Court has also stated that it is an "elementary principle that the same statute may be in part constitutional and in par unconstitutional, and that if the parts are wholly independent of each other, that which is constitutional may stand while that which is unconstitutional wil be rej ected.,,41 Rather than preserve what it could of the state statute, the Commission concluded that "the list of items to be considered by the Commission is not severable, either as a complete list, or as individual items, and consideration of all items must be preempted.... Thus, the Commission is required to consider all items enumerated by the legislature and the preemption of one would appear to impact aii.',42 On that logic, the Commission determined that Section 253 of the Act preempted RSA 374:22-g, because of the latter statute's requirement that the Commission take into consideration the impact and ability of new market entrants was not "competitively neutral,,,43 and therefore, it conflcted with Section 253 Even if for the purposes of argument, the Commission correctly construed that on consideration conflicts with Section 253, the remaining public interest considerations ofrsa 374:22-g, II remain entirely consistent with the goals outlined in section 253 of the Act and need 39 Dalton, 516 U.S. at 476 (quoting Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 502 (1985)). 40 Id 41 Brockett, 472 U.S. at 502; see also Free Enter. Fund v. Pub. Co. Accounting Oversight, Bd, 130 S.Ct. 3138, 3161 (2010) (holding unconstitutionality of portion ofsarbimes-oxley Act does not invalidate constitutional aspects of Act). "(T)he unconstitutionality of part of an Act does not necessarily defeat or affect the validity of its remaining provisions." d. (quoting Champlin Refining Co. v. Corp. ofcomm'n of Okla., 286 U.S. 210, 234 (1932)); Ayotte v. Planned Parenthood ofn. New England, 546 U.S. 320, (2005) (noting Court's practice of partial nullification of statutes). "Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem. We prefer... to sever its problematic portions while leaving the remainder intact." d. at 328 (internal citations omitted). "(T)he 'normal rule' is that 'partial, rather than facial, invalidation is the required course,' such that a 'statute may... be declared invalid to the extent that it reaches too far, but otherwise left intact. Id. at 329 (quoting Brockett, 472 U.S. at 491,504). 42 Order at Id. at

25 not be invalidated. Many of the factors for the Commission to consider when evaluating the impact on the "public good" of the introduction of a particular service provider are completely consistent with federal law. For example, considerations outlined in RSA 374:22-g, II, including, but not limited to, fairness, economic efficiency, universal service, and carier of last resort obligations, are all consistent with, and actually further the goals outlined in section 253(b) of the Act, which include the advancement of universal service, protection of public safety and welfare, quality of telecommunications services, and safe guarding the rights of consumers.44 Thus, section 253 ofthe Act does not pre-empt the majority of considerations in RSA 374:22-g because the state provisions are consistent with federal law. In Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct 3138 (2010), the U.S. Supreme Court held that tenure provisions within the Sarbanes-Oxley Act that infringed on the President's removal power violated the constitutional separation of power, but that the constitutional violations we severable for the remainder of the statute. The Court reasoned that the Sarbanes-Oxley Act would remain a fully operative law, notwithstanding the elimination of restrictions on the President's removal power. The Court further stated that it was not necessary to strike down the whole Act, because the remaining provisions were capable of functioning independently. Similar to the provisions of Sarbanes-Oxley that the Court held viable in Free Enterprise Fund, the majority of provisions in RSA 374:22-g are independent of each other, and could remain viable as individual provisions. Nothing in the statute suggests that the existence of any one statutory provision depends at all upon the provisions that the Commission determined violated competitive neutrality. The Commission's determination that federal law preempts the entirety ofrsa 374:22-g was erroneous because the majority of the considerations within the 44See Dalton, 516 U.S. at 476; see also RSA 374:22-g, II; 47 U.S.C. 253(b). 21

26 statute are wholly independent of each other. Moreover, 253(b) of the Communications Act federal law allows the State the essential regulatory authority to maintain and viable and functional telecommunications market. v. The Commission's order was itself unlawful and unreasonable for failng to impose requirements on a competitively neutral basis. The Commission has already acknowledged that "Section 253(b) permits a state to 'impose, on a competitively neutral basis and consistent with section 254 of this title, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers. ",4S This comports with Section 253(f), which also addresses carrier oflast resort obligations and universal service by conditioning market entry on ETC status. This position also finds support in the FCC holding that "the term competitively neutral require ( s J competitive neutrality among the entire universe of participants and potential participants in a market".46 The Commission itself concluded that "(ijn order for the Commission to impose requirements on a 'competitively neutral basis'... such requirements would necessarily be of general applicability to all telecommunication service providers in the state....',47 In short, even the Commission agrees that, just as Section 253 prohibits any state requirement that unduly favors the ILEC, it also prohibits against any requirement (or lack thereof) that favors the CLEC at the expense of the ILEC. Yet the Commission contradicts these requirements and the underlying basis for its own Order by establishing a regulatory scheme that is not competitively neutral among the universe 45 Order at 34 (emphasis supplied). 46 Id. at 35, citing Silver Star, 13 F.C.C.R. at ir Idat 35. This is also in accord with the FCC, which has also emphasized that the requirements of competitive neutrality cut both ways. In the Hyperion Order, it clarified that "a state legal requirement would not as a general matter be 'competitively neutral' ifit favors incumbent LECs over new entrants (or vice-versa)." Hyperion of Tennessee, L.P. Petitionfor Preemption, Memorandum Opinion and Order, 14 F.C.C.R.l 1064 ir 16 (1999) (emphasis supplied). 22

27 of players. By inviting petitions for entry into RLEC markets under the same conditions as non- RLEC markets, the Commission consigned the RLECs to competing on an unlevel playing field. The RLECs wil continue to be subject to carrier oflast resort obligations, universal service obligations, rate regulations, and other ILEC specific regulatory burdens, while any competitor is free to cherry pick high performing customers in the territory. This discriminatory scheme will have devastating effects on the statutory factors of universal service and carrier of last resort obligations. By allowing unconditional market entry before any rulemaking, the Commission violates the principle of competitive neutrality on which the Order is based. CONCLUSION AND REQUEST FOR RELIEF For the reasons set forth above, this Court should reverse the decision of the Commission and declare find that RSA 374:22-g is not preempted by any federal statute, and to declare null and void, or rescind, any CLEC authorization, granted pursuant to a Rule Puc Form 10 registration, to engage in business as a telephone utility within the service territories of the RLECs. REQUEST FOR ORAL ARGUMENT Undersigned counsel, Harry N. Malone or Daniel E. Wil, on behalf of the RLECs, requests fifteen (15) minutes for oral argument. 23