                             In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 03-1976
INDIANA BELL TELEPHONE COMPANY, INC.,
                                               Plaintiff-Appellee,
                                v.


INDIANA UTILITY REGULATORY COMMISSION,
WILLIAM D. MCCARTY, DAVID E. ZIEGNER, in their
capacity as Commissioners of the Indiana Utility
Regulatory Commission and not as individuals,
                                         Defendants-Appellants,
                               and


AT&T COMMUNICATIONS, INC. and WORLDCOM, INC.,
                          Intervening Defendants-Appellants,
                               and


INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR,
                                          Intervening Appellant.
                         ____________
           Appeal from the United States District Court
    for the Southern District of Indiana, Indianapolis Division.
         No. 02 C 1772—Larry J. McKinney, Chief Judge.
                         ____________
 ARGUED OCTOBER 23, 2003—DECIDED FEBRUARY 26, 2004
                    ____________
2                                                No. 03-1976

    Before MANION, KANNE, and EVANS, Circuit Judges.
  EVANS, Circuit Judge. Through the Telecommunications
Act of 1996, Congress has had notable success in meeting
its goal of fostering competition in the telecommunications
industry. But that success has not come without furrowing
more than a few brows as lawyers and judges puzzle over
the Act’s unusual—and unequal—blending of federal and
state authority. So it is not surprising to have before us
again a preemption issue, this time revolving around the
application of a local telephone service provider to enter the
long-distance market. The issue is whether, during the
long-distance application process, a state regulatory com-
mission has the power to enter an order designed to ensure
the applicant will continue to meet its obligations in the
local service market.
  In the Act, Congress entered what was primarily a state
system of regulation of local telephone service and created
a comprehensive federal scheme of telecommunications
regulation administered by the Federal Communications
Commission (FCC). While the state utility commissions
were given a role in carrying out the Act, Congress “unques-
tionably” took “regulation of local telecommunications
competition away from the State” on all “matters addressed
by the 1996 Act”; it required that the participation of the
state commissions in the new federal regime be guided by
federal-agency regulations. AT&T Corp. v. Iowa Utils. Bd.,
525 U.S. 366, 378 n.6 (1999). And we recently learned for
certain that federal courts can review what the state
regulatory agencies do. Verizon Md., Inc. v. Pub. Serv.
Comm’n, 535 U.S. 635 (2002). It is not surprising that
questions regarding the degree to which the Act preempts
state regulation have inevitably grown out of such a
scheme.
  The issue before us arises as a result of the request of
Indiana Bell Telephone Company, Inc. (now SBC Indiana)
No. 03-1976                                                 3

to be allowed to enter the long-distance market. SBC is
what is known as an “incumbent local exchange carrier,” as
defined in 47 U.S.C. § 251(h); it is also a “Bell operat-
ing company,” (BOC) as defined in 47 U.S.C. § 153(4)
and used in section 271 of the Act, 47 U.S.C. § 271. It is one
of the Baby Bells—the descendants of the old monopolist
American Telephone & Telegraph Company (AT&T).
The defendant is a state agency—the Indiana Utility
Regulatory Commission (IURC). The intervener defendants
are other competing “local exchange carriers,” as defined in
47 U.S.C. § 153(44), including AT&T. As we have previously
pointed out, “[o]ne of history’s ironies is that AT&T itself,
reduced to a long-distance carrier . . . has become one of the
principal new entrants into local phone service.” AT&T
Communications of IL v. Illinois Bell Tel. Co., 349 F.3d 402,
404 (7th Cir. 2003). At the same time, the Baby
Bells—incumbent local exchange carriers, or Bell operating
companies—are attempting to enter the long-distance
market.
  The Act sets out procedures by which companies enter
both the local and long-distance markets. Sections 251 and
252 set out procedures to facilitate entry into local service
markets. Section 271 sets forth the process a Bell operating
company must go through in applying to the FCC for
authority to provide long-distance service.
  The Baby Bells have telephone lines and other infra-
structure in place. In order to facilitate the entry of com-
peting carriers into the market for local service, the Act
requires that incumbent carriers provide “interconnection”
and other wholesale services to the competing carriers
on a nondiscriminatory basis. Sections 251 and 252 of the
Act lay out a process for reaching “interconnection agree-
ments” by which competing carriers can gain intercon-
nection with the incumbent carrier’s networks, facilities,
and services. The state commissions have a role in helping
to negotiate and arbitrate interconnection agreements if
4                                                No. 03-1976

private negotiations fail to produce a complete agreement
within a specific period of time. Section 252(a),(b). Before
any interconnection agreement may be implemented, the
state commission must approve it. Section 252(e)(1).
  Going in the other direction, section 271 sets out the fac-
tors the FCC evaluates in deciding whether to grant the
application of an incumbent local exchange carrier to enter
the long-distance market. Part of the process is directed
at ensuring that the applicant is facilitating competition
in the market for local services before it is allowed to
enter the long-distance market. To that end, under section
271(d)(2)(B), the FCC consults with the state commission to
verify that the BOC has (1) one or more state-approved
interconnection agreements with a competitor, pursuant
to sections 251 and 252, or a Statement of Generally
Available Terms and Conditions (SGAT) under which it will
offer local service, and (2) that the interconnection agree-
ments or the SGAT satisfies the 14-point competitive
checklist set out in section 271(c)(2)(B). The state commis-
sion makes a recommendation, which is merely advisory, as
to whether the BOC has satisfied the requirements. The Act
reserves to the FCC the authority to decide whether to
grant a section 271 application. See MCI Telecomms. Corp.
v. Illinois Bell Tel. Co., 222 F.3d 323 (7th Cir. 2000).
  In this case, SBC initiated a proceeding before the IURC
to have the agency evaluate its compliance with section 271
so that the IURC could then consult with the FCC on SBC’s
proposed application to provide long-distance service. In
evaluating SBC’s compliance with section 271, IURC set up
a collaborative process to allow for the participation of other
interested parties, namely, competing local exchange
carriers. Several of the competing carriers presented the
IURC with proposed “performance assurance” or “remedy”
plans to ensure SBC’s performance toward the competing
carriers and to provide for enforcement of the plan through
liquidated damages payable to the competing carriers and
No. 03-1976                                                 5

assessments payable to the state of Indiana. But no agree-
ment on such a plan was reached.
  “Performance assurance” plans are not creatures of
the Act. However, the FCC has said that the “existence of
a satisfactory performance monitoring and enforcement
mechanism is probative evidence that the BOC will contin-
ue to meet its section 271 obligations after a grant of [long-
distance] authority.” In re Joint Application by BellSouth
Corp. et al. for Provision of In-Region, InterLATA Servs. in
Ga. And La., 17 F.C.C.R. 9018, ¶ 291 (May 15, 2002). It is
easy to see why SBC might want to present a plan to the
FCC to bolster its application. And, in fact, SBC presented
a plan of its own in seeking the IURC’s favorable recom-
mendation to the FCC. It was a plan SBC had negotiated
with Time-Warner Telcom of Indiana as an amendment
to its interconnection agreement with that company. It
would be a performance assurance plan that, if the IURC
approved, would be available to all other competing local
exchange carriers pursuant to section 252(I).
  It was not approved, however, and instead the IURC en-
tered an order adopting a remedy plan of its own. It
asserted that Indiana state law gave it the authority to
adopt the plan and to issue orders regarding the quality of
service SBC provided. The IURC said that SBC was “subject
to the jurisdiction and oversight” of the IURC and is
obligated under Indiana law to “furnish adequate service
and facilities.” The order it entered was a “stand-alone”
document, which the IURC said was available to new en-
trants into the local service market, “independent of the
Sections 251/252 interconnection agreement process.”
  With this state of affairs, SBC moved to federal court with
a complaint, alleging that the IURC order conflicted with
and was preempted by sections 251, 252, and 271 of the Act
and that the order exceed the IURC’s authority under
Indiana law. SBC filed a motion for a preliminary injunc-
6                                                No. 03-1976

tion, which by agreement was consolidated with a final
hearing on the merits of the preemption claims. The parties
filed cross-motions for summary judgment, and the district
court granted SBC’s request for injunctive relief. The IURC
and a number of intervener-competing local exchange
carriers now appeal that decision.
  As a preliminary matter, we note that at first glance it
may seem disingenuous for SBC to submit its own perfor-
mance assurance plan and, when that plan fails to gain
approval, to say the IURC has no authority to issue its own
plan, a plan to which SBC did not agree. A closer look,
however, reveals the logic in SBC’s position. The company
was seeking approval of its application to provide long-
distance service. A performance assurance plan of its own
making would be its promise to meet its obligations as to
local service if its application to provide long-distance ser-
vice were granted. If its plan were inadequate, SBC would
presumably bear the consequences in the form of the re-
jection of its application. To have a plan imposed from the
outside takes the application process out of SBC’s hands
and imposes on it unnegotiated obligations in its provision
of local service.
  We come, then, to the issue: is the IURC order preempted
by the Act? Congressional intent “ ‘is the ultimate touch-
stone’ of pre-emption analysis.” Cipollone v. Liggett Group,
Inc., 505 U.S. 504, 516 (1992) (quoting Malone v. White
Motor Corp., 435 U.S. 497, 504 (1978)). Congress’s intent
may be explicit or it may be implicit in the statute’s struc-
ture and purpose. Gade v. National Solid Wastes Mgmt.
Ass’n, 505 U.S. 88 (1992). The Telecommunications Act, as
we have said, specifically reserves some power to the states.
The issue is how much. What the IURC has done is pre-
empted if Congress has occupied the field so thoroughly “as
to make reasonable the inference that Congress left no room
for the States to supplement it.” Cipollone, 505 U.S. at 516.
It is also preempted where what the state has done is an
No. 03-1976                                                 7

obstacle to the execution of Congress’s purpose or frustrates
that purpose by interfering with the methods Congress
selected to achieve a federal goal even when the state goal
is identical to the federal goal:
    In determining whether state law stands as an obstacle
    to the full implementation of federal law, it is not
    enough to say that the ultimate goal of both federal and
    state law is the same. A state law also is pre-empted if
    it interferes with the methods by which the federal
    statute was designed to reach the goal.
Gade, 505 U.S. at 103 (citations omitted); see also Crosby v.
National Foreign Trade Council, 530 U.S. 363 (2000).
  It is uncontroverted that in the Act, Congress transferred
broad authority from state regulators to federal regulators,
even while it left corners in which the states had a role.
This role is illustrated by section 271, under which, as we
have been discussing, the state commission evaluates an
application and makes a recommendation to the FCC. But
what the IURC has done is to parlay its limited role in
issuing a recommendation under section 271, involving
long-distance service, into an opportunity to issue an order,
ostensibly under state law, dictating conditions on the
provision of local service. The problem is that the procedure
for entry into the local-service market is spelled out in some
detail in sections 251 and 252. The IURC order bumps up
against those procedures and thus interferes with the
method the Act sets out for the application process for long-
distance service in section 271 and, more dramatically, with
the process for interconnection agreements for local service
under sections 251 and 252.
  In Wisconsin Bell, Inc. v. Bie, 340 F.3d 441 (7th Cir.
2003), we recently considered a similar foray by the Wiscon-
sin Public Service Commission into the sections 251-252
process. The commission ordered Wisconsin Bell to file
tariffs setting out the price and other terms on which
8                                                No. 03-1976

competitors would be allowed to interconnect with Wiscon-
sin Bell’s local telephone network. We found that the
requirement was preempted. In fact, we said:
    The tariff procedure short-circuits negotiations, making
    hash of the statutory requirement that forbids requests
    for arbitration until 135 days after the local phone
    company is asked to negotiate an interconnection
    agreement. 47 U.S.C. § 253(b)(1).
At 445. We recognized that by providing an alternative
means of obtaining interconnection, the tariff promoted the
“procompetitive policy of the federal act.” Nevertheless, we
found that to “identify the policy underlying a statute and
then run with it is a dangerous method of interpreta-
tion . . . .” Id.
  Although the IURC and the interveners argue that Bie
does not apply here, we are hard-pressed to see why not.
Perhaps they are, too, for their alternative argument is that
we should overrule Bie. We decline the opportunity, not just
because the case is a recent statement from us, but because
we think it is rightly decided. The situation currently before
us is similar and requires the same result, which we would
reach with or without the helpful guidance of Bie. What the
IURC has done is to make an end run around the Act. By
issuing its freestanding order, the IURC set up baselines for
interconnection agreements. The order interferes with the
procedures set out in the Act, which require that the
agreements be negotiated between private parties, and only
when that fails are they subject to mediation by state
agencies. We find that the order of the IURC is preempted
by sections 251 and 252 of the Act. The judgment of the
district court is therefore AFFIRMED.
No. 03-1976                                          9

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit




               USCA-02-C-0072—2-26-04
