THE STATE OF NEW HAMPSHIRE

SUPREME COURT

2011 TERM

DOCKET NO. 2011-0892

Bretton Woods Telephone Company, Inc.Dixvile Telephone Company

Dunbarton Telephone Company, Inc.and

Granite State Telephone, Inc.

APPEAL BY PETITION PURSUANT TO RSA 541:6AND SUPREME COURT RULE 10

BRIEF OF APPELLANTBRETTON WOODS TELEPHONE COMPANY, INC.

DIXVILLE TELEPHONE COMPANY, DUNBARTON TELEPHONE COMPANY, INC.AND GRANITE STATE TELEPHONE, INC.

Hary N. Malone

NH Bar No. 19379Daniel E. WilNH BarNo. 12176

Kevin M. BaumNH Bar No. 17652DEVINE, MILLIMET & BRANCHPROFESSIONAL ASSOCIA nON111 Amherst StreetManchester, NH 03101Telephone (603) 669-1000E-mail: hralone(ßdevinemilimet.com

dwil(ßdevinemillimet.comkbaur(ßdevinemillimet.com

Oral Argument: Harry N. Malone orDaniel E. Wil

Counsel for PetitionersBretton Woods Telephone Company, Inc.Dixvile Telephone CompanyDunbaron Telephone Company, Inc.Granite State Telephone, Inc.

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 theCommunications Act because they do not materially limit competition.... ...... .............. ...........12

II. The Commission erred by failing to find that it may impose competitively neutralconditions on market entry in the interest of the public good. ................................................ ..14

III. The Commission improperly found that each of the factors to be considered under RSA374-22-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 towhich it actually conflcts with federal law. ..............................................................................19

V. The Commission's order was itself unlawfl and unreasonable for failing to imposerequirements on a competitively neutral basis..... ..... .................................. ...................... ...... ...22

CONCLUSION AND REQUEST FOR RELIEF..........................................................................23

REQUEST FOR ORAL ARGUMENT .........................................................................................23

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. 320,328-29 (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, 842-843 (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. 131,226-234 (D.D.C. 1982) .................................................5

Statutes

47 C.F.R. § 54.101(a)(I)-(9)..........................................................................................................13

47 U.S.C. § 214(e)(I) ....................................................................................................................13

47 U.S.C. § 253(a) .........................................................................................................................12

47 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 541:6 .......................................................................................................................................9

11

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

In Re: Public Utilty Commission of Texas, Memorandum Opinion and Order, 13 FCC Rcd.3460, iiiil06-107 (1997).............................................................................................................17

Petitons for Declaratory Ruling and/or Preemption, CCBPol 96-13, Memorandum Opinion andOrder, 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.15639 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 431.01.....................................................................................................................6, 7, 23

11

QUESTIONS PRESENTED

1. Whether the Commission erred by finding that RSA 374:22-g is a complete prohibition tocompetitive entry under Section 253(a) of the Communications Act? (Commission Record atTab 1 (RLEC Initial Brief at pp. 4-6))

2. Whether the Commission erred by failing to find that it may impose competitively neutralconditions 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 underRSA 374-22-g act to prohibit the entry of a competitive provider? (Commission Record atTab 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 towhich it actually conflicts with federal law? (Commission Record at Tab 36 (Motion forRehearing at p. 30))

5. Whether the Commission's order was itself unlawful and unreasonable for failing to imposerequirements on a competitively neutral basis? (Commission Record at Tab 36 (Motion forRehearing at pp. 11-12))

1

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 thatprovides local exchange service, subject to the jurisdiction of the commission, shallbe nonexclusive. The commission, upon petition or on its own motion, shall have theauthority to authorize the providing of telecommunications services, including localexchange services, and any other telecommunications services, by more than oneprovider, in any service territory, when the commission finds and determines that it isconsistent 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; economicefficiency; universal service; carier of last resort obligations; the incumbent utility'sopportunity to realize a reasonable retur on its investment; and the recovery fromcompetitive providers of expenses incurred by the incumbent utility to benefitcompetitive 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 theenforcement 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 franchisewould be for the public good, and not otherwise; and may prescribe such terms and conditionsfor the exercise of the privilege granted under such permission as it shall consider for the publicinterest. Such permission may be granted without hearing when all interested paries are inagreement.

47 U.S.c. § 54.101(a) is reproduced in its entirety in the Appellant's Appendix at page 52.

47 U.S.c. § 214 is reproduced in its entirety in the Appellant's Appendix at pages 53-74.

47 U.S.C. § 253 is reproduced in its entirety in the Appellant's Appendix at pages 75-76.

N.H. Code of Admin Rules Part Puc 431.01 is reproduced in its entirety in the Appellant'sAppendix at page 77.

2

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

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 11501 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 Corp.v. Iowa Utilties Bd, 525 U.S. 366, 371 (1999)).

4

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 1,226-234 (D.D.C. i 982).

5

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 431.0 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. 8776 (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

all telephone franchise areas became nonexclusive regardless of size and the Commission

extended the Rule 431.01 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 431.01 because Rule Puc 431.01 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 319.

7

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 legalrequirement, may prohibit or have the effect of prohibiting the ability of anyentity 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 serviceterritory of a non-exempt ILEC, the CLEC will request entry into a telephone utilityservice territory via petition, application or other form of request.

b) Public notice, commonly in the form of a Commission Order of Notice, will bepublished relative to the CLEC request and the nature of applicable Commissionreview. This Notice wil be served on the affected RLECs serving the serviceterritories for which entry is requested.

c) The affected RLEC wil be a mandatory party and other interested paries can petitionto intervene in the proceeding.

ii See Commission Record at Tab 5 (Order of Notice, dated August 5, 2010 at 3).

8

d) An initial Commission pre-hearing conference and technical session wil be held todecide interventions and determine a schedule for procedural steps.

e) The RLEC and other parties wil be afforded an opportunity to fie testimony (initialand, in certain cases, rebuttal) on any relevant factor listed in RSA 374:22-g and otherfacts 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

pursuant to RSA 541: 1, RSA 541:6 or other applicable appeal statutes. 12

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, 201 1 ("Order") at 6.13 Id at 35.

14 Id

9

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 36.

16 Id at 37-38.

17 Union Telephone, 160 N.H. at 321 (citing Puerto Rico v. Municipality ofGuayanila, 450 F.3d 9, 15 (151 Cir.

2006).

10

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

ARGUMENT

I. The RSA 374:22-g, II criteria are not preempted by Section 253(a) of theCommunications 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 29.

12

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 ofa State to impose, on a competitively neutral basis and consistent with Section254, requirements necessary to preserve and advance universal service, protect thepublic safety and welfare, ensure the continued quality of telecom-municationsservices, 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 requirea telecommunications carier that seeks to provide telephone exchange service orexchange access in a service area served by a rural telephone company to meet therequirements in Section 214(e)(I) for designation as an eligibletelecommunications carrier for that area before being permitted to provide suchservice.

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

., . 21carier 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 multi-frequency signaling or its functional equivalent; (4) Single-party service or its functional equivalent; (5) Access toemergency services; (6) Access to operator services; (7) Access to interexchange service; (8) Access to directoryassistance; and (9) Toll limitation for qualifying low-income consumers. See 47 C.F.R. § 54. 101 (a)(1)-(9).

13

the commission shall consider the interests of competition with otherfactors including, but not limited to, fairness; economic efficiency; universalservice; carrier of last resort obligations; (andJ the incumbent utility's opportunityto 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 neutralconditions 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 30.

14

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 underRSA 374-22-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, 13F.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'sanswer is based on a permissible construction of the statute." Chevron u.s.A. v. NRDC, 467 U.S. 837, 842-843(1984).26 Order at 27-28.

15

this inquiry, the Commission examined the factors set forth in RSA 374-22-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 full-

blown 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 TelephoneCompany at 10:20-23 (Oct. 22, 2010)).

16

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 1,2005.30 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 irir38-39.31 In Re: Public Utility Commission of Texas, Memorandum Opinion and Order, 13 F.C.C.R.. 3460, iriri 06- 107

(1997).32 Hyperion of Tennessee, L.P. Petition for Preemption, FCC Docket No. 98-92, Memorandum Opinion and Order,14 F.C.C.R.1 1064 ir 12 (1999).33 Order at 29.

17

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 30.

36 Union Tel. Co., 160 N.H. at 321 (emphasis ~uppiied).

18

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 towhich it actually conflcts with federal law.

Even if the Commission properly found that Section 253 preempts one of the RSA 374-

22-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

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 ofAct). "(T)he unconstitutionality of part of an Act does not necessarily defeat or affect the validity of its remainingprovisions." ¡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, 328-29 (2005) (noting Court's practice of partialnullification of statutes). "Generally speaking, when confronting a constitutional flaw in a statute, we try to limit thesolution to the problem. We prefer. . . to sever its problematic portions while leaving the remainder intact." ¡d. at328 (internal citations omitted). "(T)he 'normal rule' is that 'partial, rather than facial, invalidation is the requiredcourse,' 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 30.

43 Id. at 35.

20

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

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 imposerequirements 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 10.47 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 generalmatter be 'competitively neutral' ifit favors incumbent LECs over new entrants (or vice-versa)." Hyperion ofTennessee, L.P. Petitionfor Preemption, Memorandum Opinion and Order, 14 F.C.C.R.l 1064 ir 16 (1999)(emphasis supplied).

22

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 431.01 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

Respectfully submitted,

BRETTON WOODS TELEPHONE COMPANY, INC.DIXVILLE TELEPHONE COMPANYDUNBARTON TELEPHONE COMPANY, INC.GRANITE STATE TELEPHONE, INC.

By their Attorneys,

DEVINE, l)ILLIMET & BRANCHPROFESsioNAL ASSOCIA nON

,.

April 17,2012Har N. M one (NH Bar No. 19379)Daniel E. 11 (NH Bar No. 12176)

Kevin M. Baum (NH Bar No. 17652)111 Amherst StreetManchester, NH 0310 1

Phone: (603) 669-1000E-mail: hralone(ßdevinemillimet.com

dwil(ßdevinemilimet.comkbaum(ßdevinemillimet.com

CERTIFICATION OF COMPLIANCE

I hereby certify that I have this 1 ih day of April, 2012 forwarded a copy of the foregoingBriefby first class mail, postage prepaid, to/the paries of record, and the Attorney General of theState of New Hampshire. /

, f

Harry N. M one

24

ORDERS APPEALED

A copy of the Order on the Merits, No. 25,277 is included in the Appendix to Appeal by Petitionat page 1.

A copy of the Order Denying Motion for Rehearing, No. 25,291 is included in the Appendix toAppeal by Petition at page 39.

25