In re Adelphia Business Solutions of VT, Inc.

In re Adelphia Business Solutions of VT, Inc. (2003-397); 177 Vt. 136;
861 A.2d 1078

2004 VT 82

[Filed 20-Aug-2004]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.
  	

                                 2004 VT 82

                                No. 2003-397


  In re Petition of Adelphia Business	         Supreme Court
  Solutions of Vermont, Inc. (Verizon
  New England Inc., Appellant)	                 On Appeal from
      	                                         Public Service Board

                                                 April Term, 2004


  Michael H. Dworkin, Chair

  Peter H. Zamore of Sheehey Furlong & Behm P.C., Burlington, and Bruce P.
    Beausejour, Boston, Massachusetts, for Appellant Verizon New England Inc. 

  John H. Marshall and Robert A. Miller, Jr. of Downs Rachlin Martin PLLC,
    St. Johnsbury, for Appellee Adelphia Business Solutions, Inc.

  Aaron D. Adler, Montpelier, for Appellee Department of Public Service.


  PRESENT:  Amestoy, C.J. (FN1), Dooley, Johnson, Skoglund and Reiber, JJ.

        
       ¶  1.  SKOGLUND, J.   Verizon New England, Inc. d/b/a Verizon
  Vermont appeals from an order of the Public Service Board (PSB) in a
  dispute over the interpretation of two contracts.  The PSB concluded that
  the two contracts, known as interconnection agreements, required Verizon to
  pay a competing local exchange carrier (CLEC) for calls made by Verizon
  customers to the competing carrier's customers within the same local
  calling area, including calls to internet service providers.  Verizon
  challenges that interpretation of the parties' agreements, and we now
  affirm.

       ¶  2.  The simplicity of dialing a seven-digit telephone number to
  make a local call is belied by the complexity of wires and switches
  comprising the network that makes the call possible.  For our purposes, it
  is enough to break down a telephone call from the carrier's perspective
  into three basic steps: the calling party's carrier originates and
  transmits the call and the called party's carrier terminates the call. 
  Carrier interconnection agreements govern the compensation carriers pay
  each other for terminating local calls made between their customers. 
  Carriers may agree to charge their end users for the costs of call
  termination (bill and keep), or they may agree to recover their costs from
  each other (reciprocal compensation).  
   
       ¶  3.  Verizon and Telcove (FN2) entered into two interconnection
  agreements, one in 1996 and the other in 1999.  Among other things, the
  parties agreed to compensate one another on a per-minute basis for local
  calls made between their customers.  In contrast to the 1996 contract, the
  parties formed the 1999 agreement through Telcove's adoption of Verizon's
  agreement with another CLEC, an option made available to Telcove and other
  CLECs by the Telecommunications Act of 1996.   See 47 U.S.C.A. § 252(i)
  (West 2001) (allowing CLECs to adopt interconnection agreements entered
  into by incumbent carrier and other CLECs).  In the 1999 agreement, Verizon
  inserted an additional provision not present in the underlying agreement
  Telcove adopted.  The additional provision stated Verizon's disagreement
  that calls terminated to internet service providers (ISPs) are local when
  made to numbers within a designated local calling area.  In other respects,
  the two agreements contain identical provisions on reciprocal compensation
  for local traffic. (FN3)
         
       ¶  4.  The present dispute arose after Verizon withheld approximately
  $25 million in reciprocal compensation payments from Telcove.  Telcove has
  its own network facilities and serves approximately 900 customers in
  Vermont.  A small number of those customers are ISPs.  Carriers with ISP
  customers generally terminate a higher proportion of calls than carriers
  with few or no ISP customers because ISPs  receive more calls than they
  make.  See MCI Worldcom Communications, Inc. v. Dep't of Telecomm. &
  Energy, 810 N.E.2d 802, 805-06 (Mass. 2004).  That trend can result in
  asymmetrical compensation payments for terminating local traffic.  Id. 
  Until 1999, Verizon paid reciprocal compensation to Telcove for local
  ISP-bound calls made by Verizon customers.  In 1999, Verizon began
  objecting to the charges, claiming that the calls were not local because
  they terminated at some place on the internet beyond Telcove's network. 

       ¶  5.  In October 2001, Telcove sought PSB intervention into the
  parties' dispute.  Telcove asked the PSB to order Verizon to compensate
  Telcove for local calls made by Verizon customers to Telcove's ISP
  customers.  Telcove argued that the calls were local calls because they
  terminated on Telcove's facilities.  Verizon responded that calls made to
  ISPs were not local and therefore they were not subject to reciprocal
  compensation; that the agreements reveal an intent to track federal law,
  which considers calls to ISPs to be long-distance calls; and that the 1999
  agreement on reciprocal compensation was not enforceable because the
  parties disagreed on an essential term - whether ISP-bound traffic was
  local. 
   
       ¶  6.  A hearing officer took evidence on Telcove's petition and
  issued a proposed decision, which the PSB ultimately adopted.  The PSB
  concluded that calls to Telcove's ISP customers were local and were subject
  to the compensation obligations in the interconnection agreements before
  it.  The PSB found that Verizon's network facilities cannot distinguish
  between telephone calls made to Telcove's ISP customers within the same
  local calling area and similar calls to its non-ISP customers.   The PSB
  explained:

    A call to an ISP is virtually the same as other calls completed to
    a customer located in the same exchange.  The telecommunications
    network and underlying function used to transport and terminate
    the ISP-bound and other calls are the same.  They use the same
    facilities as well.  The only difference is that, in the case of
    calls to ISPs, the ISP then transmits a digital signal to the
    Internet.  Moreover, the telecommunications network itself treats
    the call as terminated at the time it reaches the ISP.  A call
    record is generated at that point and answer supervision (which
    indicates the successful completion of a call) is returned.  At
    this point, the network treats the call as completed, even though
    the ISP directs the electronic transmission to the Internet. 


  The PSB found that Verizon's network limitation required the company to
  bill its retail customers for all local calls - whether bound for an ISP or
  not - in accordance with Verizon's tariff for local service.   The PSB
  rejected Verizon's arguments that the parties intended to track federal law
  on the compensability of ISP-bound local traffic.  With approximately $25
  million at stake, Verizon appealed the PSB's decision here. 
   
       ¶  7.  This Court reviews PSB orders with deference to its informed
  judgment and expertise in telecommunications regulation.  In re Verizon New
  England, Inc., 173 Vt. 327, 334-35, 795 A.2d 1196, 1202 (2002); In re Three
  Special Contracts Filed by New England Tel. & Tel. Co., 172 Vt. 405, 408,
  779 A.2d 693, 696 (2001).  The Court applies a "strong presumption of
  validity to board orders and will accept its conclusions and findings
  unless they are clearly erroneous."  Verizon New England, 173 Vt. at
  334-35, 795 A.2d  at 1202; see also 30 V.S.A. § 11(b) (on appeal to Supreme
  Court, PSB findings "shall be accepted unless clearly erroneous").  The
  burden of demonstrating clear error is the appellant's, and that burden is
  not a light one.  See In re East Georgia Cogeneration Ltd. P'ship, 158 Vt.
  525, 532, 614 A.2d 799, 803 (1992).  We must have "the definite and firm
  conviction that a mistake has been committed [before we] will [] hold a
  finding to be clearly erroneous."  In re Vt. Elec. Power Co., 131 Vt. 427,
  432, 306 A.2d 687, 690 (1973).  Finally, we interpret contracts to give
  effect to the parties' intent, which we presume is reflected in the
  contract's language when that language is clear.  In re Verderber, 173 Vt.
  612, 615, 795 A.2d 1157, 1161 (2002).

       ¶  8.  Verizon makes several arguments on appeal, but none of them
  demonstrates reversible error.  The company first raises two complaints
  with the PSB's consideration of Verizon's retail practices when
  ascertaining the parties' intent on reciprocal compensation.  Verizon
  contends that the PSB should not have admitted or relied upon extrinsic
  evidence of Verizon's retail practices.  Telcove claims that Verizon waived
  the question of admissibility by not raising it before the PSB.  We agree. 
  Verizon did not object to the admission of any extrinsic evidence although
  it was required to do so before trial under the PSB's procedural rules.
  (FN4)  See PSB Rule 2.216(C), 8 Code of Vermont Rules 30 000 001-25 (1999)
  ("Objections to the admissibility of prefiled testimony or exhibits shall
  be filed in writing not more than thirty days after such evidence has been
  prefiled or five days before the date on which such evidence is to be
  offered, whichever is earlier.").  Nor did the company otherwise raise the
  argument before the PSB so that it could consider the alleged error and
  rule on it.  Verizon's previous silence on this matter therefore forecloses
  review of this claim on appeal.  See In re Proposed Sale of Vt. Yankee
  Nuclear Power Station, 2003 VT 53, ¶ 13, 175 Vt. 368, 829 A.2d 1284.

       ¶  9.  Admissibility of extrinsic evidence aside, Verizon argues that
  the PSB should not have looked to its retail billing practices to determine
  whether an ISP-bound call is local because the contract does not define
  "local traffic" by reference to retail practices.  The 1996 agreement
  defines "local traffic" as "a call which is originated and terminated
  within a local calling area, as defined in P.S.B. VT No. 20 Tariff, (FN5) 
  effective at the time this agreement is signed." (FN6)  That definition is
  consistent with the company's retail practice of rating calls as local if
  they originate and terminate within a defined local calling area.  As the
  PSB noted, the parties would have understood that "a call is considered to
  be terminated when it is handed off at the terminating carrier's switch and
  delivered to the called party's premises, establishing a connection with
  the called party, with answer supervision returned and a call record
  generated."  Absent some manifest intent to apply a different meaning to
  the technical term "termination," the technical meaning must be given
  effect.  Restatement (Second) of Contracts § 202(3)(b) (1981).  Therefore,
  even assuming the PSB erred by considering Verizon's retail practices, the
  error was harmless and does not warrant reversal of the PSB's order.  See
  PSB Rule 2.220, 8 Code of Vermont Rules 30 000 001-26 (adopting V.R.C.P. 
  61); V.R.C.P. 61 (harmless errors are not grounds for reversal).  
                                                          
       ¶  10.  To the extent Verizon's argument assumes a termination point
  outside of Telcove's network facilities, the argument is unavailing.  The
  dispositive factual question before the PSB was whether calls to Telcove's
  ISPs terminate on Telcove facilities or somewhere outside Telcove's
  network.  The PSB found that ISP-bound calls terminate on Telcove's
  facilities and not on the world-wide web at some unknown far away location. 
  Therefore, any calls to an ISP made from a number within the same local
  calling area is a local and compensable call under the parties' 1996 and
  1999 interconnection agreements.

       ¶  11.  Verizon challenges the PSB's finding on the termination point
  of ISP-bound calls by recounting certain evidence it offered to prove its
  position.  The PSB considered and rejected that evidence, however, which is
  its prerogative as trier of fact.  In re Consolidated Rate Appeals of Green
  Mountain Power Corp., 142 Vt. 373, 381, 455 A.2d 823, 826 (1983). 
  Moreover, we do not second guess the PSB's determinations on evidentiary
  weight and credibility.  Id.  Verizon's recitation of evidence does not
  demonstrate clear error in the PSB's fact findings, which have support in
  the evidentiary record.  See In re Green Mountain Power Co., 131 Vt. 284,
  305, 305 A.2d 571, 584 (1973).  
          
       ¶  12.  Verizon claims that the parties intended their agreements to
  track federal law on reciprocal compensation for calls to ISPs, and that
  federal law excludes ISP-bound calls from the reciprocal compensation
  obligation.  Verizon cites the agreements' definition of  "reciprocal
  compensation," which references federal law: "Reciprocal compensation" is
  "as described in or required by the Act and as from time to time
  interpreted in the duly authorized rules and regulations of the FCC or the
  Board."  Like the PSB, we do not find that provision controlling.  The
  sections setting forth the parties' agreement to pay reciprocal
  compensation do not themselves refer to federal law.  Rather, those
  provisions require reciprocal compensation for all "local traffic":

    5.7.1 Reciprocal Compensation only applies to the transport and
    termination of Local Traffic billable by [Verizon] or [Telcove]
    which a Telephone Exchange Service Customer originates on
    [Verizon]'s or [Telcove]'s network for termination on the other
    Party's network except as provided in Section 5.7.6 below. 

    5.7.2 The Parties shall compensate each other for transport and
    termination of Local Traffic in an equal and symmetrical manner at
    the rate provided in the Pricing Schedule.

  As we explained above, "local traffic" is defined as "a call which is
  originated and terminated within a local calling area, as defined in P.S.B.
  VT No. 20 Tariff, effective at the time this agreement is signed."  The
  contract language plainly shows an intent to require reciprocal
  compensation payments for calls with originating and terminating points
  within the same local calling area.  Nothing in the above language suggests
  the parties meant that evolving federal standards could alter the specifics
  of the agreement they reached. 
   
       ¶  13.  The company also cites other examples of contractual
  provisions defined by reference to federal law.  Those other terms  -
  "interconnection," "interim telecommunications number portability," and
  "technically feasible point" - are not specifically related to reciprocal
  compensation, however, and Verizon has not explained why those terms are
  indicative of the parties' contractual intent on reciprocal compensation. 
  The PSB has expertise in this area, and it did not find those terms
  relevant to its determination.  And, as a matter of contract law, those
  references offer little assistance.  Alone, a statutory reference is not
  enough to demonstrate a contractual intent to incorporate the statutory
  regimen and related decisional law into the contract.  See Milton Bd. of
  Sch. Dirs. v. Milton Staff Ass'n, 163 Vt. 240, 243-44, 656 A.2d 993, 995
  (1995) (reference to governing statute not enough to demonstrate an intent
  to "contractualize" statute and interpretative authority). The definitions
  Verizon cites therefore do not cast doubt on the PSB's interpretation of
  the parties' agreement on reciprocal compensation for local traffic. 

       ¶  14.  We observe that the PSB was also mindful of the regulatory
  landscape at the time the parties entered the 1996 interconnection
  agreement.  At that time, the Federal Communications Commission (FCC) had
  not yet established a clear position on whether calls originating within
  the same local calling area as the ISP to which the call is directed were
  local or long-distance calls.  See  MCI WorldCom, 810 N.E.2d  at 807.  The
  PSB noted the FCC's 1999 decision acknowledging its longstanding policy of
  treating these calls as local.  See In re Implementation of the Local
  Competition Provisions in the Telecomm. Act of 1996, 14 F.C.C.R. 3689,
  3703-04, ¶ 24 (1999).  In addition, the PSB found that the industry would
  have understood that "termination" of a local call would occur once the
  terminating carrier's switch received the call and delivered it to the
  called party's premises. 
   
       ¶  15.  We also reject Verizon's suggestion that we adopt the
  reasoning of other jurisdictions that have interpreted similar
  interconnection agreements in a manner consistent with Verizon's position. 
  For example, the Massachusetts Supreme Judicial Court recently upheld a
  decision by the Massachusetts Department of Telecommunications and Energy
  (DTE) that interpreted an interconnection agreement similar to those at
  issue here.  See MCI WorldCom, 810 N.E.2d  at 806.  The court affirmed DTE's
  conclusion that the contracting parties intended to incorporate federal
  reciprocal compensation requirements into their agreement, deferring to
  DTE's reliance on references to federal law that are similar to those here. 
  Id. at 810-11.  We are not persuaded by the court's reasoning, however,
  because it placed more emphasis on the general references to federal law
  than on the specific provisions in the contracts setting forth the
  reciprocal payment obligation.  It is a basic tenet of contract
  interpretation that specific terms are given greater weight than are
  general terms.  Restatement (Second) of  Contracts § 203(c).  The
  Massachusetts court's decision does not consider that principle.  On the
  other hand, the PSB's order gives full effect to the more specific contract
  provisions defining "local traffic" and detailing the parties' mutual
  compensation for such traffic.  The PSB's order is well reasoned and well
  supported.  

       ¶  16.  Verizon raises a separate challenge to the 1999 agreement in
  light of the provision setting forth the company's disagreement that
  ISP-bound calls within a local calling area are compensable as local calls. 
  Verizon asserts that the statement reflected a failure of the parties to
  agree to compensate each other for local calls made to ISPs.  We do not
  agree.  As a matter of federal law, Verizon had to offer Telcove the same
  terms and conditions for interconnection and reciprocal compensation that
  the company offered to other carriers.  See 47 U.S.C.A. § 252(i).  The
  parties could agree to modify those terms, but Verizon could not do so
  unilaterally as the PSB pointed out.  The statement of disagreement was, at
  most, an acknowledgment that Verizon was unhappy with the applicability of
  the reciprocal compensation agreement to internet traffic.  Verizon entered
  into the agreement under the terms as herein discussed.  The statement in
  the 1999 agreement was ineffective, therefore, to change the material terms
  of the underlying contract Telcove adopted in accordance with § 252(i).
   
       ¶  17.  Finally, Verizon asks us to remand this matter to the PSB so
  that it can consider the compensability of telephone calls known in the
  industry as "VNXX" calls.  Calls to a VNXX number allow a consumer to dial
  a local telephone number and pay the local rate even though the call may be
  transmitted to and terminated in a physical location outside of the local
  calling area.  At oral argument, Telcove explained that some portion of the
  $25 million in reciprocal compensation payments Verizon withheld represent
  charges for VNXX calls.  The PSB did not rule on Verizon's argument
  concerning VNXX traffic because it believed that the company had not fairly
  raised it before the hearing officer.  The hearing officer did not address
  it, and the PSB determined that it did not have an adequate record to do
  so.  Because the issue was not properly presented to the PSB, there is no
  issue outstanding for us to remand and for the PSB to decide.  Accordingly,
  Verizon's request for remand is denied, and the PSB's order is affirmed.

       Affirmed.



                                       FOR THE COURT:



                                       _______________________________________
                                       Associate Justice


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                                  Footnotes


FN1.  Chief Justice Amestoy was present for oral argument but did not
  participate in the decision.

FN2.  Telcove is the name under which petitioners Adelphia Business
  Solutions of Vermont, Inc. and Adelphia Business Solutions, Inc. operate.

FN3.  Both agreements provide in relevant part: "The Parties shall
  compensate each other for transport and termination of Local Traffic in an
  equal and symmetrical manner at the rate provided in the Pricing Schedule."

FN4.  The only written objections to the parties' prefiled testimony and
  exhibits came from the Department of Public Service.

FN5.  Verizon's Tariff No. 20 governs the terms, conditions, and rates for
  local exchange service in Vermont.

FN6.  The wording of the same provision in the 1999 agreement varies from
  the wording in the 1996 agreement, but no party has claimed that the
  provisions differ in any material respect.