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In re Petition of MCI Telecommunications Corp.

Decided: February 1, 1993; March 18, 1993, Decided.

IN THE MATTER OF THE PETITION OF MCI TELECOMMUNICATIONS CORPORATION FOR AUTHORIZATION OF INTRALATA COMPETITION AND APPROVAL OF CERTAIN TARIFFS


Argued November 17, 1992; Decided February 1, 1993. Reconsidered March 10, 1993.

Antell, Dreier and Villanueva. The opinion of the court was delivered by Antell, P.J.A.D.

Antell

On May 1, 1990, MCI Telecommunications Corporation (hereinafter "MCI") petitioned the Board of Regulatory Commissioners, then known as the Board of Public Utilities (hereinafter "Board"), to authorize intraLATA competition*fn1 in New Jersey, and in connection therewith to approve the addition of certain services to MCI's intrastate tariff. In the alternative, MCI requested Board authorization to provide the services in question on an intrastate basis, both interLATA and intraLATA, without being required to pay any compensation to New Jersey Bell Telephone Company (hereinafter "N.J. Bell") above and beyond the access charges that MCI pays to N.J. Bell for origination and termination of all such traffic. AT & T Communications of New Jersey, Inc. (hereinafter "AT & T") and U.S. Sprint Communications Company, Ltd. Partnership (hereinafter "Sprint"), both petitioned for leave to intervene in support of MCI's petition to allow intraLATA competition.

MCI's petition to authorize intraLATA competition was denied on May 16, 1990, without any discovery by MCI and without any form of hearing. The Board's action was formalized by an order dated May 22, 1990. However, the Board granted a hearing as to MCI's compensation request, and that application was resolved by order dated May 13, 1991, by which the Board fixed the level of compensation to be paid by MCI to N.J. Bell at 8.22 cents per minute with no offset for access charges.

MCI now appeals from the order of May 22, 1990, and the order of May 13, 1991. The primary issue which we consider is whether the Board abused its discretion in denying MCI's

petition to allow intraLATA competition without a hearing. MCI also challenges the Board's action in fixing the level of compensation MCI must pay to N.J. Bell. Our presentation of the regulatory background and the facts of this proceeding follows.

Pursuant to the antitrust divestiture decree entered in United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.D.C.1982), aff'd sub nom., Maryland v. United States, 460 U.S. 1001, 103 S. Ct. 1240, 75 L. Ed. 2d 472 (1983), the old AT & T telephone system was dismantled and then restructured effective January 1, 1984. Under the decree, the entire country was divided into a series of geographic regions known as Local Access and Transport Areas, or LATAs. New Jersey is divided into three LATAs, one consisting of the 201 and 908 area codes, and two consisting of the eastern and western halves of the 609 area code. The decree allows local exchange carriers of the Bell Operating Companies, including N.J. Bell, to carry telephone calls which both originate and terminate in a single LATA ("intraLATA calls"), but not calls which originate and terminate in different LATAs ("interLATA calls"). The decree provides that interLATA calls are to be handled by long distance or interexchange carriers such as AT & T, Sprint and MCI. These interexchange carriers are subject to the jurisdiction of the Board for intrastate services which they provide. See N.J.S.A. 48:2-13; United States v. American Tel. and Tel. Co., 552 F. Supp. at 196, n. 271.

Pursuant to the decree, N.J. Bell is prohibited from completing a call between Newark and Trenton, for example, even though both of these cities are in its service territory. The reason for this is that because the call has its origin and termination points in different LATAs, it may only be handled by the interexchange carriers. Although each local exchange carrier has a monopoly to provide local service within each LATA, if a call is to be made between LATAs (interLATA), the local exchange carrier passes the call off to the customer's primary or presubscribed interexchange carrier, which then

delivers the call to the LATA where the call is to terminate. The customer is charged for the call by the interexchange carrier which must then pay access charges to the local exchange carrier for the use of its facilities in completing the call.

Generally speaking, interexchange carriers do not connect directly to the premises of telephone subscribers. Instead, these carriers rely on local access connections provided by local exchange carriers such as N.J. Bell. Local access is essentially a monopoly service provided by local exchange carriers.

The divestiture decree authorized individual state regulatory commissions to regulate the local exchange carriers, as well as the long distance carriers doing business intrastate. The decree also provided that the state regulatory commissions have individual discretion as to whether or not the long distance carriers should be permitted to compete with the local exchange carriers for the provision of intrastate intraLATA service. See id. at 159, n. 117.

From the record, it appears that interexchange carriers have the necessary technology to carry not only interLATA calls but intraLATA calls as well in competition with the local telephone companies. According to MCI, forty-five states have either authorized intraLATA competition or are in the process of deciding whether or not to do so. After a hearing in 1984 in a generic type proceeding, the Board decided that it would allow only local exchange carriers, such as N.J. Bell, to handle intraLATA calls, and that long distance carriers could not compete with local exchange carriers for that traffic. The Board's decision focused on its concern at the time about "the possible ...


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