AT & T Communications of California Inc. v. Pacific Bell Telephone Co.

In these appeals, we consider whether the California Public Utilities Commission (“CPUC”) correctly determined the price that Pacific Bell Telephone Company (“Pacific”) may charge its competitors for access to its local telephone network, pursuant to the Telecommunications Act of 1996 (“Act” or “1996 Act”) arid the implementing regulations of the Federal Communications Commission (“FCC”). We conclude that, although the general methodology chosen by the CPUC to calculate a common cost markup was appropriate, the CPUC improperly implemented the methodology by attributing some common costs to wholesale operations that should have been attributed to retail operations. We therefore reverse the decision of the district court with respect to the amount of common costs that Pacific’s competitors must pay for access to Pacific’s network. We- affirm the decision of the district court in all other respects.

I. Background

Because of the expense and difficulty of installing the lines and hardware necessary for local telephone service, the provision of local telephone service was thought for many years to be.a “natural monopoly.” See AT & T Corp. v. Iowa Util. Bd. (Iowa I), 525 U.S. 366, 371,…