Telecom Monopoly In Arizona

US West and its predecessor have had a monopoly in the Arizona market for local telecommunications service since 1912. But in 1995, the Arizona Corporation Commission adopted Arizona Administrative Code ("A.A.C.") rules R14-2-1101 through R14-2-1115 (the "Rules"). These Rules permit telecommunications providers to apply for a certificate of convenience and necessity ("CC&N"), 1 which would grant them the right to provide competitive local and intraLATA 2 telecommunications service in what formerly was US West's exclusive market. See A.A.C. R14-2-1103. All public service corporations other than railroads must have a CC&N from the Commission to operate in Arizona. See Ariz. Rev. Stat. Ann. 40-281 (1996). "LATA" means one of the geographic "local access and transport areas" established as a result of the AT&T divestiture. See United States v. Western Elec. Co., 569 F. Supp. 1057, 1062 n.6 (D.D.C. 1983), aff'd sub nom. California v. United States, 464 U.S. 1013, 78 L. Ed. 2d 719, 104 S. Ct. 542 (mem.); United States v. Western Elec. Co., 569 F. Supp. 990, 993-94 nn. 4, 9 (D.D.C. 1983). "'IntraLATA long-distance service' means all long-distance service originating and terminating in the same LATA, as defined by the F.C.C." A.A.C. R14-2-1001(12); see id. R14-2-1001(13). In 1996, Congress opened local telephone service markets nationwide to competition by enacting the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified in scattered sections of 47 U.S.C.) (the "Federal Act"). Under the Federal Act, no state law "may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." 47 U.S.C. 253(a) (Supp. II 1996). Eleven competitive telecommunications companies (the "Competitors") applied to the Commission for competitive CC&Ns in order to enter the Arizona local exchange and intraLATA markets. US West intervened in each application. See U.S. WEST Communications, Inc. v. Arizona Corp. Comm'n, Ariz, (1999). The Commission granted competitive CC&Ns to each of the Competitors without inquiring into the value of their investments in property held within the state ("fair value rate base") and determining a reasonable rate of return on those investments, or imposing a carrier-of-last-resort obligation on them. The Commission approved proposed tariffs for the Competitors establishing "rates and charges which are not less than the Applicant's total service long-run incremental costs of providing the competitive services approved herein." This language mirrored the text of the Commission's rules for competitive telecommunications service. See A.A.C. R14-2-1109(A). In contrast, the rates and charges for identical services provided by US West were determined by applications and public hearings directed at ascertaining US West's fair value rate base. Rates and charges were then fixed at a level intended to provide a reasonable rate of return on US West's investment.