          TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN



                                          NO. 03-02-00405-CV



GTE Southwest, Incorporated d/b/a Verizon Southwest/MCI Communications Corporation and
                    MCI WorldCom Communications, Inc., Appellants

                                                     v.

Public Utility Commission of Texas; MCI Communications Corporation; and MCI WorldCom
                  Communications, Inc./GTE Southwest, Incorporated d/b/a
                             Verizon Southwest, Inc., Appellees




        FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
           NO. GN1-00159, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING




                                              OPINION


                GTE Southwest Incorporated d/b/a Verizon Southwest (AVerizon@) sought judicial review

of a final order issued by the Public Utility Commission of Texas (the ACommission@) that interpreted and

enforced an interconnection agreement. MCI Communications Corporation and MCI WorldCom

Communications, Inc. (AWorldCom@) intervened in the suit to defend the order and to request the district

court to award interest accruing from the date of the order. The district court affirmed the order, but

awarded interest only from the date of its judgment. In two issues, Verizon asks this Court to reverse the

district court=s judgment because: (1) the Commission lacked jurisdiction to enter the order; and (2) even if
the Commission had jurisdiction, it erred as a matter of law in interpreting the agreement. WorldCom brings

a cross-appeal complaining of the district court=s refusal to award WorldCom interest from the date of the

Commission=s order. We will affirm the judgment of the district court in all respects.


                                           BACKGROUND

                This case concerns an interconnection agreement between Verizon, an incumbent local

telephone exchange company, and WorldCom, a new entrant in the local exchange telecommunications

market.1 The interconnection of networks between telecommunications carriers makes it possible for

customers of different carriers to call one another. Thus, interconnection agreements are crucial for new

entrants to compete in the local telephone market. Both federal and state laws have been enacted to

promote competition in local telephone markets and to require interconnection and procedures for

negotiating and enforcing such agreements. See Federal Telecommunications Act (FTA) of 1996, 47

U.S.C.A. '' 251-252 (West 2001); Public Utility Regulatory Act (PURA), Tex. Util. Code Ann. ''

60.121-.128 (West 1998).




        1
           When the interim interconnection agreement was negotiated and executed, and throughout the
parties= early disputes, the parties were called GTE and MFS. Prior to this appeal being filed, however,
both changed their names. GTE became Verizon and MFS became MCI WorldCom. In their briefing, the
parties refer to themselves by their current names; we will do the same.




                                                    2
                In September 1996, Verizon and WorldCom entered into an interim interconnection

agreement. The interim agreement contemplated a permanent agreement, which had not been completed by

the time this dispute arose. Although the parties failed to seek the Commission=s approval of their interim

agreement, and thereby did not comply with federal procedures set forth in section 252(e) of the FTA, they

operated under the agreement for three years. See 47 U.S.C.A. ' 252(e).2 But when a dispute over terms

of the agreement arose, this failure to seek Commission approval became problematic.

                In May 1999, WorldCom filed its first complaint with the Commission in Docket No.

20870, alleging that Verizon had breached the interim agreement by failing to comply with reciprocal

compensation provisions for terminating local traffic. Reciprocal compensation arrangements establish the

terms by which local exchange carriers (ALECs@) compensate each other for the use of the other=s

networks. See 47 U.S.C.A. ' 251(b)(5), (c)(1) (West 2001). When an LEC=s customer places a local

call to a customer of another LEC, the LEC whose customer initiated the call compensates the receiving

LEC for transporting and Aterminating@ the call through its network. Id. WorldCom complained that

Verizon refused to compensate for the termination of Verizon=s customers= calls to Internet Service

Providers (AISPs@) that are WorldCom customers. The Commission dismissed the complaint without


        2
           The FTA requires that A[a]ny interconnection agreement adopted by negotiation or arbitration
shall be submitted for approval to the State commission. A State commission to which an agreement is
submitted shall approve or reject the agreement, with written findings as to any deficiencies.@ 47 U.S.C.A.
' 252(e)(1) (West 2001).




                                                    3
prejudice, ruling that it lacked jurisdiction to consider a dispute arising under an agreement that it had not

approved. See Tex. Pub. Util. Comm=n, Arbitration Award (Dismissing Complaint), Docket No. 20870

(June 18, 1999).

                 In July 1999, WorldCom initiated a second proceeding in Docket No. 21088, seeking the

Commission=s approval of the interconnection agreement after the fact, presumably so the Commission

could then assert its jurisdiction to resolve the parties= contractual dispute. Verizon refused to join the

application for approval, taking the position that the agreement was no longer in the public interest. Verizon

asked the Commission to dismiss WorldCom=s application, insisting that Verizon=s joinder was necessary

before the Commission could approve the agreement. The administrative law judge certified the following

question to the Commission: Can the Commission approve an agreement, even if a signatory party does not

support its approval?

                 The Commission considered the unique circumstances of the dispute: an agreement that was

supported by both parties when it was signed; an agreement that was intended to govern the parties=

dealings for an interim period until a final agreement was reached, but that had in fact been in effect for three

years; and the parties= inadvertent failure to seek the Commission=s approval for the agreement because it

Afell between the proverbial cracks.@ Tex. Pub. Util. Comm=n, Order on Certified Issue, Docket No.

21088 (Oct. 28, 1999) (citing Affidavit of Joseph A. Lazzara, the Verizon consultant responsible for

negotiating the interim agreement in the summer of 1996). The Commission declined to answer the certified

question but reversed its earlier decision that it lacked jurisdiction to settle this dispute. Referring to the

unique facts outlined above, the Commission found that although the parties had failed to comply with the


                                                       4
FTA=s requirement that the Commission approve the interim agreement, the Commission nevertheless had

jurisdiction to resolve the dispute under state law because PURA does not require the Commission=s prior

approval of an agreement to vest the Commission with authority to review it. See Tex. Pub. Util. Comm=n,

Order on Certified Issue, Docket No. 21088 (Oct. 28, 1999). Having determined that it could assert its

jurisdiction under state law without first approving the agreement, the Commission then dismissed as moot

WorldCom=s application for approval of the interim agreement. See Tex. Pub. Util. Comm=n, Order,

Docket No. 21088 (Jan. 13, 2000).

                Verizon sought judicial review of the Commission=s action, and the trial court affirmed its

order. This Court reviewed that judgment in GTE Southwest, Inc. v. Public Utility Commission, 37

S.W.3d 546 (Tex. App.CAustin 2001, no pet.). The contractual dispute, including the issue of the

Commission=s authority to hear the dispute under state law, was not before us in that cause. Rather, we

limited our review to the dismissal of WorldCom=s application for approval of the interim agreement. Id. at

548. We held that because the Commission granted the relief that Verizon sought by dismissing

WorldCom=s application, Verizon was not an aggrieved party and was therefore not entitled to seek judicial

review of the Commission=s final order in Docket No. 21088. Id.

                Meanwhile, WorldCom filed its third complaint, again seeking reciprocal compensation for

termination of ISP calls under the interim agreement. Asserting its authority under state law,3 the


        3
          Because of the conclusions previously reached in the order on certified issues in Docket No.
21088, the Commission specifically directed that the administrative law judge not address Awhether the
Interim Agreement is a valid agreement or is an agreement in the public interest@ nor Awhether the
Commission has jurisdiction over the Interim Agreement or has jurisdiction over this dispute resolution.@
See Tex. Pub. Util. Comm=n, Preliminary Order, Docket No. 21706 (April 12, 2000).

                                                    5
Commission referred the dispute to the State Office of Administrative Hearings (SOAH), see Tex. Gov=t

Code Ann. ' 2003.049(e) (West 2000), and identified three issues to be addressed: (1) whether the terms

of the interim agreement make any distinction regarding traffic destined for ISP customers; (2) whether ISP

traffic otherwise conforms to the term Alocal traffic@ in the interim agreement; and (3) what amount of

compensation WorldCom is due, if any, for the termination of ISP traffic.4 See Tex. Pub. Util. Comm=n,

Preliminary Order, Docket No. 21706 (April 12, 2000).

                The Commission affirmed the proposal for decision (PFD), including the findings of fact and

conclusions of law, issued by the ALJ. The Commission=s final order concluded that ISP-bound traffic is

compensable under the reciprocal compensation provisions of the interim agreement, and ordered Verizon

to compensate WorldCom approximately ten million dollars for the termination of traffic which originated on

Verizon=s network destined for WorldCom=s ISP customers during the period from October 1996 to

October 14, 1999. See Tex. Pub. Util. Comm=n, Order, Docket No. 21706 (Oct. 4, 2000). Verizon filed

suit in the district court for judicial review. WorldCom intervened and counterclaimed, requesting the

district court to enforce the order and award interest accruing from the date of the order. The district court

affirmed and enforced the order, and awarded WorldCom interest from the date of its judgment but not

from the date of the Commission=s order. This appeal and cross-appeal followed.


                                         VERIZON=S APPEAL


        4
           In addressing this issue, the administrative law judge was to determine the appropriate means for
identifying ISP-bound traffic subject to such compensation.




                                                      6
The Commission=s Jurisdiction to Interpret and Enforce the Interim Agreement

                In its first issue, Verizon contends that the district court erred by affirming the Commission=s

assertion of jurisdiction over Aissues related to the interconnection of telecommunications providers@

contained in Subchapter G of PURA. See Tex. Util. Code Ann. '' 60.121-.128 (West 1998). According

to Verizon, the Commission=s dispute resolution power under PURA does not give the Commission

jurisdiction over post-agreement disputes, and therefore does not allow the Commission to interpret and

enforce the interim agreement because here the dispute arose Aafter an agreement has been negotiated and

implemented by the parties.@ And even if PURA does give the Commission the power to interpret and

enforce interconnection agreements, Verizon argues, it would not apply here because it pertains only to

resolution of disputes under approved agreements and it is undisputed that the interim agreement has never

been approved. Appellees respond that various provisions of PURA, especially sections 60.122 and

60.126, expressly authorize the Commission to exercise jurisdiction over this matter and Ato enforce

interconnection agreements regardless of whether or not they have been submitted to the Commission for

review and approval.@ See id. '' 60.122, .126. We will hold that the Commission had jurisdiction to

interpret and enforce the unapproved interim agreement in this case pursuant to its dispute resolution

authority under section 60.126 of PURA specifically because the Commission resolved a dispute filed by a

party to an interconnection negotiation that was ongoing and not yet successful. See id. ' 60.126.

                Section 60.126 provides that the Commission Amay resolve a dispute filed by a party to a

negotiation under Section 60.125(a).@ Id. Section 60.125(a) requires that A[t]elecommunications providers

shall negotiate network interconnectivity, charges, and terms.@ Id. ' 60.125(a). According to Verizon, the


                                                      7
Commission improperly took jurisdiction pursuant to these provisions because the only reading of section

60.126 that is consistent with its text is that the provision gives the Commission authority to facilitate the

negotiation of interconnection agreements by allowing it to resolve disputes that arise during the

negotiation process. Verizon contends that because the interim interconnection agreement was a fully

executed contract constituting successfully negotiated interconnection terms, the Commission improperly

relied on section 60.126 to resolve a dispute that arose after Verizon and WorldCom had negotiated the

interim interconnection agreement. We disagree that the interim agreement represented the successful

culmination of the parties= interconnection negotiations. Rather, we favor the appellee=s position that Athe

interconnection between Verizon and WorldCom was a matter of ongoing negotiation when the

Commission took jurisdiction.@

                In reviewing the Commission=s interpretation of its dispute resolution authority pursuant to

PURA, we must emphasize that the Commission exercises the jurisdiction and powers conferred by PURA,

see Tex. Util. Code Ann. ' 12.001, and is the agency charged with the enforcement of that statute. In

cases involving agency decision-making, we apply a deferential standard of review. See Southwestern Bell

Tel. Co. v. Pub. Util. Comm=n, 79 S.W.3d 226, 228 (Tex. App.CAustin 2002, no pet.). When an

agency is charged with enforcement of a statute, we give serious consideration to the agency=s construction,

as long as the interpretation is reasonable and does not contradict the statute=s plain language. Id. at 228;

see also Nabisco v. Rylander, 992 S.W.2d 678, 681 (Tex. App.CAustin 1999, pet. denied); Texas

Citrus Exch. v. Sharp, 955 S.W.2d 164, 168 (Tex. App.CAustin 1997, no pet.).




                                                      8
                The Commission=s explanation for its jurisdiction in Docket No. 21088 is instructive. The

Commission reviewed the interim agreement and found that Ait is unclear whether the parties intended it to

serve as a negotiated interconnection agreement within the meaning of the FTA.@ Tex. Pub. Util. Comm=n,

Order on Certified Issue, Docket No. 21088 (Oct. 28, 1999). The Commission then referred to Chapter

60, Subchapter G of PURA, specifically sections 60.125(a) and 60.126. See Tex. Util. Code Ann. ''

60.125(a), .126. In light of these provisions, the Commission concluded:


        Viewing the Interim Agreement as a step in the negotiation of a final interconnection
        agreement between [WorldCom] and [Verizon], the Commission . . . can resolve any
        dispute arising under the Interim Agreement. The Commission further concludes that the
        period for any such dispute is limited to the period commencing September 30, 1996 and
        ending October 14, 1999.


Tex. Pub. Util. Comm=n, Order on Certified Issue, Docket No. 21088 (Oct. 28, 1999).

                Several factors convince us that the Commission correctly labeled the interim agreement as

merely a Astep@ towards an interconnection agreement between Verizon and WorldCom. First, the

agreement itself is entitled the AMFS/GTE Interim Texas Co-Carrier Agreement.@ The word Ainterim@ has

been defined as Adone, made, or occurring for an intervening time.@ Black=s Law Dictionary 819 (7th ed.

1999). AInterim@ is also synonymous with Atemporary@ or Aprovisional.@ Id. The language of the agreement

itself strongly suggests that interconnection arrangements between Verizon and WorldCom remained in

negotiations. The temporary nature of the agreement is made explicit in the opening paragraphs of its first

section (entitled ARecitals & Principles@). The first paragraph establishes that Athe Parties intend to



                                                    9
negotiate a permanent agreement pursuant to Section 251 of the Telecommunications Act of 1996, but

desire to enter into an interim interconnection agreement pending completion of the permanent agreement

under federal law.@ (Emphasis added.) The second paragraph states that the interim agreement Ais not

intended by either Party to constitute compliance with the requirements of Section 251(c), of the

Telecommunications Act of 1996.@ The third paragraph states that the parties Ahave agreed on interim

interconnection terms and conditions.@ (Emphasis added.)

                Verizon argues that, notwithstanding this language, section 60.126 gives the Commission

jurisdiction to resolve a dispute concerning the interim interconnection agreement only if the dispute arises

during that agreement=s negotiation. According to Verizon, because the interim agreement has been

Asuccessfully negotiated@ and a dispute arisen over the meaning of its terms, any authority the PUC may

have to resolve the dispute Acan arise only from the rules governing dispute resolution of agreements

approved under Section 60.125(b) or the FTA.@ Verizon reads section 60.126 too narrowly. That

provision makes no mention of a negotiated agreement; it merely refers to a Anegotiation.@ See Tex. Util.

Code Ann. ' 60.126. Section 60.125(a) also makes no mention of agreements, but merely says that

parties Ashall negotiate network interconnectivity, charges, and terms.@ Id. ' 60.125(a). Verizon has

presented us with no authority for the proposition that parties cease to be engaged in a negotiation when

they have executed an interim agreement. Verizon=s reliance on section 60.125(b) of PURA is therefore

also misplaced. That section states: AIf interconnectivity, charges, and terms are successfully negotiated,

the commission shall approve the interconnection rates.@ Id. ' 60.125(b) (West 1998) (emphasis added).



                                                     10
Here, only an interim agreement had been Asuccessfully negotiated,@ and in it the parties explicitly only

agreed on Ainterim interconnection terms and conditions@ pending the completion of a permanent

interconnection agreement. (Emphasis added.) The language of the interim agreement therefore belies

Verizon=s suggestion that interconnectivity arrangements had been Asuccessfully negotiated@ at the time of its

adoption.

                 The parties= conduct as reflected in the record also suggests that interconnection

negotiations were ongoing when WorldCom brought its dispute with Verizon before the Commission.

WorldCom and Verizon began negotiating interconnection terms and conditions in 1996. Those

negotiations stalled, and WorldCom petitioned the Commission to arbitrate certain issues. See 47 U.S.C.A.

' 252(b) (West 2001). WorldCom withdrew its petition on August 12, 1996, when the parties executed

the interim agreement that purportedly resolved the open issues until the parties could finalize a permanent

agreement. After executing the interim agreement, the parties continued to attempt to negotiate a

permanent agreement. The parties had operated under the interim agreement for nearly three years when

negotiations broke down and WorldCom filed this complaint with the Commission. Since then, the parties

have resumed their attempt to successfully negotiate a permanent interconnection agreement. Overall, the

parties= actions indicate that the interim agreement was essentially a stage in the negotiation process meant to

address certain issues while the parties continued negotiating interconnection terms and conditions. Thus,

we conclude that at the time WorldCom filed its complaint, the parties= interconnection negotiations were

ongoing for the purposes of the Commission=s dispute resolution power under section 60.126.



                                                      11
                 Furthermore, there is no merit to Verizon=s position that applying section 60.126 of PURA

to resolve this dispute circumvents the state and federal requirements that the Commission review and

approve interconnection agreements before enforcing them. Verizon seems principally concerned that

carriers will now A>successfully negotiate= the terms of an >interim= interconnection agreement, fail to request

review or approval of that agreement, and simply have the [Commission] enforce it by calling it a >step= in

the negotiation of some future contract.@ Verizon does not have a valid concern because when WorldCom

filed its complaint with the Commission, the parties could not demonstrate Asuccessfully negotiated@

interconnection terms and conditions. We read section 60.126 to apply only to disputes where negotiations

are ongoing; a permanent agreement with Asuccessfully negotiated@ interconnection rates must be approved

before being interpreted and enforced by the Commission. See Tex. Util. Code Ann. ' 60.125(b).

Therefore, we reject the Commission=s position that PURA generally allows the enforcement of all

interconnection agreements regardless of whether they have been submitted to the Commission for review

and approval. 5 Only Ainterim@ interconnection agreements in which interconnection has not yet been


        5
            The Commission contends that its authority under the FTA is irrelevant to whether it has
jurisdiction to interpret and enforce interconnection agreements pursuant to its authority under PURA. The
Commission relies on section 60.122 of PURA to argue that its Ajurisdiction under PURA is unfettered bya




                                                      12
Asuccessfully negotiated@ can be interpreted and enforced pursuant to the Commission=s dispute resolution

power under PURA section 60.126 when it has not yet been approved.




requirement that the [Commission] first approve an agreement before interpreting it.@ Section 60.122 states:
AThe commission has exclusive jurisdiction to determine rates and terms for interconnection for a holder of a
certificate of convenience and necessity, a certificate of operating authority, or a service provider certificate
of operating authority.@ Tex. Util. Code Ann. ' 60.122 (West 1998). Because we hold that the
Commission=s power to interpret and enforce the interim interconnection agreement in this case is based on
its dispute resolution authority in section 60.126, we decline to consider whether the language of section
60.122 encompasses the broad adjudicative power necessary to interpret and enforce interconnection
agreements as a general matter.




                                                      13
                When the Commission first asserted jurisdiction over WorldCom=s complaint, it emphasized

that its authority over the dispute was specific to the Aunique circumstances involved here@ because

previously Adisputes related to interconnection agreements have arisen in the context of agreements

executed and approved pursuant to federal law@ and therefore Ahave been resolved pursuant to the FTA

and Commission rules implementing the FTA.@ Tex. Pub. Util. Comm=n, Order on Certified Issue, Docket

No. 21088 (Oct. 28, 1999). Although we conclude that the Commission acted within its jurisdiction when

it took the unusual step of interpreting and enforcing an unapproved interconnection agreement, we are

confident that our holding will be limited to the unique circumstances where the parties fail to submit an

Ainterim@ agreement for approval and delay in executing a permanent interconnection agreement.6 As the

Commission points out, AVerizon=s alleged concern about hordes of unfiled agreements is simply groundless.

Seven years have elapsed since Verizon forgot to file the instant agreement. In that time, not a single other

telecom provider has come to the Commission with a similar issue.@ We agree with the appellees that the

Commission=s decision to interpret and enforce it in this particular case does not threaten the normal process

by which interconnection agreements are reviewed and approved.


        6
          Here, it is undisputed that Verizon had the responsibility to submit the interim agreement to the
Commission for approval. Furthermore, it is not likely that a telecommunication provider will in the future
do what Verizon did in the instant case: operate from an interim agreement which it failed to submit for
approval, and then later oppose approval when that agreement is submitted to the Commission for its
review.




                                                     14
                To summarize, Verizon and WorldCom are telecommunication providers that, as required

by section 60.125(a), had entered into negotiations over Ainterconnectivity, charges, and terms.@ Tex. Util.

Code Ann. ' 60.125(a). While the broader interconnection negotiation was still ongoing, WorldComCa

party to that negotiationChad a dispute with Verizon which was filed with the Commission. See id. '

60.126. The Commission chose to resolve the dispute pursuant to its PURA authority, even though it had

not approved the interim agreement. However, as evidenced by the language of the interim agreement and

the parties= conduct, Ainterconnectivity, charges, and terms@ had not been Asuccessfully negotiated@ so as to

implicate the approval requirement of section 60.125(b). See id. ' 60.125(b). Thus, based on the plain

language of the applicable provisions, and giving serious consideration to the Commission=s construction of

sections 60.125(a) and 60.126, we hold that on these facts the Commission=s decision to resolve the

dispute pursuant to PURA was not improper or beyond the Commission=s statutory authority. See

Southwestern Bell, 79 S.W.3d at 228. Accordingly, we overrule Verizon=s first issue.


The Commission=s Interpretation of the Agreement

                The Commission found that ISP-bound traffic is Alocal traffic@ under the interim agreement

(hereinafter Athe Agreement@) and therefore that AISP-bound traffic is compensable under the reciprocal

compensation provisions of the Interim Agreement.@ The Commission considered several factors, including

the language of the Agreement; the manner in which Verizon=s customers accessed ISPs; the technical

nature of ISP-bound calls; the billing rates and billing techniques utilized by Verizon; and the common

industry practice and understanding towards ISP-bound calls and billing. In its second issue, Verizon

contends that the district court erred in affirming the Commission=s interpretation of the Agreement because

                                                     15
that interpretation (1) violates established rules of Texas contract law and (2) conflicts with the requirements

of federal law.


                                           Texas Contract Law

                  We will first consider whether the Commission properly interpreted the Agreement as

requiring reciprocal compensation for calls to ISPs. The Agreement itself provides that Texas law governs

its interpretation; in addition, it has been held that state contract law principles govern the questions of

interpretation of interconnection agreements and enforcement of their provisions. See Southwestern Bell

Tel. Co. v. Pub. Util. Comm=n, 208 F.3d 475, 485 (5th Cir. 2000); see also Southwestern Bell Tel. Co.

v. Brooks Fiber Communications of Okla., Inc., 235 F.3d 493, 499 (10th Cir. 2000). Thus, the

Commission required reciprocal compensation for calls to ISPs not because federal law requires such

compensation, but because the Agreement, as interpreted under Texas state law, requires it.

                  Under Texas law, the primary concern in construing a written contract is to ascertain the

true intent of the parties as expressed in the instrument. National Union Fire Ins. Co. of Pittsburgh,

Pennsylvania v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). If a written contract is so worded

that it can be given a definite or certain legal meaning, then it is not ambiguous. Id.; Coker v. Coker, 650

S.W.2d 391, 393 (Tex. 1983). Although parol evidence relating to the parties= intent is not admissible for

the purpose of creating an ambiguity, the contract may be read in light of the surrounding circumstances to

determine whether an ambiguity exists. Cardwell v. Sicola-Cardwell, 978 S.W.2d 722, 727 (Tex.

App.CAustin 1998, pet. denied). A contract is ambiguous only if, after applying appropriate rules of

construction, it is subject to two or more reasonable interpretations. Id. Whether a contract is ambiguous is

                                                      16
a question of law for a court to decide by looking at the contract as a whole, in light of the circumstances

present when the parties entered into the contract. National Union, 907 S.W.2d at 520; Coker, 650

S.W.2d at 394.

                 Verizon contends that several provisions contained in the Agreement, in combination with

other relevant circumstances, create an ambiguity as to the parties= intent concerning whether ISP-bound

calls are Alocal traffic@ subject to reciprocal compensation. The Agreement requires the payment of

reciprocal compensation for Alocal traffic,@ but does not specifically define that term. It simply requires

the parties to Areciprocally terminate POTS calls originating on each others = networks@ and to

compensate, A[f]or the termination of local traffic,@ in an Aequal, identical and reciprocal rate of

$.009 per minute.@ POTS (Plain Old Telephone Service) traffic is defined in the Agreement to

include Alocal traffic (including mandatory EAS) as defined in [Verizon]=s tariff . . . .@ (Emphasis

added.) In fact, the specific term Alocal traffic@ is nowhere defined in the tariff. However, the

tariff does define the term Alocal service,@ which is Aexchange service available in a particular

exchange for communication throughout the exchange area and to establish toll conne ctions.@ 7

After reviewing this language, we agree with the Commission that


        nothing in the Interim Agreement . . . requires the parties and the Commission to
        treat ISP-bound traffic differently from any other traffic designated as local in
        terms of reciprocal compensation between [WorldCom] and [Verizon]. While ISP-

        7
          The tariff defines Aexchange@ as a Atelephone service consisting of one or more central office areas
which provides for service within a specified area known as the AExchange Area.@ The tariff defines
Aexchange area@ as the Aarea within which the Telephone Company will furnish complete telephone service
at the exchange rates applicable within that area.@


                                                     17
        bound traffic is not mentioned in the Interim Agreement, reciprocal compensation
        under the Interim Agreement . . . applies to local traffic.


Although the Agreement does not require reciprocal compensation for calls to ISPs, it does not

expressly exclude calls to ISPs from Alocal traffic@ so that the parties would be required to treat

ISP-bound traffic differently from any other traffic designated as local.

                We are thus satisfied that the relevant portion of the Agreement, considering the

contract as a whole and the surrounding circumstances at the time it was executed, can only be

reasonably interpreted to include ISP-bound traffic within Alocal traffic.@ See National Union,

907 S.W.2d at 520; Cardwell, 978 S.W.2d at 727 (ATo determine whether a contract is ambiguous,

we must look at the contract as a whole in light of the circumstances present when the parties

made the agreement.@) (citing Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280, 282

(Tex. 1996)). In this case, the Commission properly relied on its expertise and prior experience in

interpreting the relevant terms of interconnection agre ements to determine the standard industry

meaning of the terms Alocal traffic@ and APOTS@ at the time the Agreement was entered into.

                Verizon=s contention that the Commission erroneously found the Agreement to

unambiguously include ISP-bound calls within the meaning of Alocal traffic@ essentially constitutes a

substantial evidence attack on the Commission=s fact findings. In a substantial evidence review, we first

determine whether the evidence as a whole is such that reasonable minds could have reached the conclusion

the agency must have reached in order to take the disputed action. See Nucor Steel v. Public Util.

Comm=n of Tex., 26 S.W.3d 742, 748 (Tex. App.CAustin 2000, pet. denied). The test is not whether the


                                                   18
agency made the correct conclusion but whether some reasonable basis exists in the record to support the

agency=s action. Id. We may not substitute our judgment for that of the agency, and we are prohibited

from substituting our judgment as to the weight of the evidence on questions committed to agency discretion.

Id. Here, the Commission considered the following evidence:


        $    Verizon=s customers (end-users) access their ISP by dialing a 7- or 10-digit local
             number, which is generally stored in the customer=s computer.

        $    ISP-bound calls act like any other local call from the customer=s perspective, from the
             standpoint of the switching functions performed by Verizon, and from the standpoint
             of the switching functions that are performed by any other carrier involved in handling
             the call.

        $    Verizon provides exchange services to its end-user customers within what its tariff
             describes as the Aexchange area@ typically at flat-rate charges. From the standpoint of
             this local service, there is no difference between a typical local exchange call and a
             typical dial access connection to an Internet information destination; both are provided
             at a flat rate.

        $    Local calls are billed at the Interim Agreement rate of $.009 per minute of use.

        $    The NPA-NXX summaries also contain Verizon=s Originated Customer Numbers
             (OCNs). From this information, Verizon is able to compare the local calling scope of
             each NXX (which is determined by Verizon=s own local tariffs) with the physical
             location of WorldCom=s switches. Thus, Verizon is able to ascertain from the NPA-
             NXX level data that the calls are local calls.

        $    It is common industry practice to use records in the billing process that have been
             summarized to the NPA-NXX level. WorldCom followed the industry practice of
             providing data by NPA-NXX summary.


See Tex. Pub. Util. Comm=n, Order, Docket No. 21706 (Oct. 4, 2000). Applying the appropriate

deferential standard of review, we conclude that the evidence in the record reasonably supports the


                                                    19
Commission=s decision that at the time they executed the Agreement, Verizon and WorldCom treated

ISP-bound calls as local traffic.

               In addition, we are convinced that the Commission considered ample evidence that

in 1996, when this interim agreement and similar interconnection agreements were being

negotiated, the telecommunications industry as a whole treated ISP-bound calls as terminating

locally. For example, a 1996 report by the Federal Communications Commission (FCC) defined

Atermination,@ for purposes of section 251(b)(5), as Athe switching of traffic that is subject to

section 251(b)(5) at the terminating carrier=s end office switch (or equivalent facility) and delivery

of that traffic from that switch to the called party=s premises.@ Implementation of the Local

Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 FCC

Rcd 15 (1996), aff=d in part, vacated in part on other grounds, Iowa Utils. Bd. v. FCC, 120 F.3d

753 (8th Cir. 1997). Here, the ISPs are WorldCom=s customers, making WorldCom the

terminating carrier. ATermination@ therefore occurs when WorldCom switches the call at its

facility and delivers the call to Athe called party=s premises,@ which is the ISP=s local facility. The

call can therefore be said to Aterminate@ locally at the ISP=s premises. See Southwestern Bell,

208 F.3d at 486. Also, the United States Court of Appeals for the Fifth Circuit recognized that the

FCC has Aheretofore embraced a custom of treating calls to ISPs as though they were local,

terminating within the same local exchange network@ and that agreements like the one at issue

here Ahad been negotiated in the >context of this Commission=s longstanding policy of treating this

traffic as local.=@   Id. (citing Implementation of the Local Competition Provisions in the


                                                          20
Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, 14 FCC

Rcd 3689 (1999)).8

                Verizon objects that the above evidence is not Amere >surrounding circumstances=

evidence,@ but is Ainstead extrinsic evidence that may not be admitted unless the contract is first

determined to be ambiguous.@ Although extrinsic evidence is commonly used to show the intent

of parties, or custom and usage in the industry, when contracts are deemed ambiguous, see, e.g.,

Monesson v. Champion Int=l Corp., 546 S.W.2d 631, 637 (Tex. App.CTyler 1976, writ ref=d

n.r.e.), it is also clear that even with unambiguous contracts courts may Aconsider the commercial

context of the transaction.@ Intratex Gas Co. v. Puckett, 886 S.W.2d 274, 278 (Tex. App.CEl

Paso 1994, no writ). To elaborate on the point: A[Contracts] should be construed and given effect

in terms of their environment at the time of execution. By environment, we mean the ordinary

terms, customs and usages then in effect as these are evidence of the intent of the parties.@ Id.

(citing Atwood v. Rodman, 355 S.W.2d 206, 216 (Tex. Civ. App.CEl Paso 1962, writ ref=d n.r.e.));

see also Southwestern Bell, 208 F.3d at 486 (AThe parties obviously agreed that Aterminate@




        8
          As further evidence that the industry commonly considered ISP-bound traffic to be Alocal traffic,@
we note that, by the end of 1996, five State commissions had already ruled that modem calls to ISPs are
subject to reciprocal compensation. See Southwestern Bell Tel. Co. v. Public Util. Comm=n, 208 F.3d
475, 487 (5th Cir. 2000).




                                                    21
would mean whatever the telecommunications industry took it to mean at the time they signed the

agreements, i.e., in 1996 and 1997.@) (citing Intratex Gas, 886 S.W.2d at 278).

                The Commission=s consideration of evidence regarding the actual physical nature

of ISP-bound calls and the state of the industry at the time the Agreement was executed are

circumstances that serve mere ly as Aan aid in the construction of the contract=s language.@ KMI

Cont=l Offshore Prod. Co. v. ACF Petroleum Co., 746 S.W.2d 238, 241 (Tex. App.CHouston [1st

Dist.] 1987, writ denied). This differs from a consideration of Athe parties= stateme nts of what

they intended the contract to mean,@ which is prohibited when construing unambiguous contracts.

Id. Therefore, the Commission properly excluded Verizon=s self-serving testimony regarding

Verizon=s intent when entering into the Agreement.9 If it had been the intent of the parties to

exclude ISP-bound traffic from the Agreement=s reciprocal compensation provisions, it would

have been simple to provide as much. The Agreement=s failure to make a distinction between

calls to ISPs and other local traffic, coupled with the technical and industry-norm circumstances

existing at the time the Agreement was executed, leads us to conclude that the parties, including

Verizon, viewed ISP-bound traffic to be local and intended that traffic to be covered by the

reciprocal compensation provision of the Agreement. We hold that the Commission correctly

interpreted the Agreement according to Texas law.


        9
           According to Verizon, if Athis Court finds the Interim Agreement to be ambiguous . . . the
[Commission] erred by excluding relevant extrinsic evidence offered by VerizonCspecifically, testimony by
Howard Lee Jones . . . concerning Verizon=s intent when entering the contract.@ Because we find the
relevant portions of the Agreement to unambiguously provide reciprocal compensation for Alocal traffic,@
including calls to ISPs, we need not further consider this argument.

                                                   22
                                           Federal Law

               We must now consider whether the Commission=s interpretation of the Agreement

contravenes federal law. Verizon cites the FCC=s recent decision, In the Matter of Starpower

Communications, 17 F.C.C. Rcd 6873 (April 8, 2002) (AStarpower@), to argue that the

Commission=s rationale to support its interpretation Acannot survive as a matter of binding

federal law.@ Verizon contends that the FCC=s analysis of two interconnection agreements

between Starpower and Verizon Virginia (AVerizon Virginia agreements@) undermines the

Commission=s reliance on its prior determinations Cas well as decisions by other state

commissions Cas a basis for finding that the parties= reciprocal compensation obligations include

ISP-bound traffic. According to Verizon, Athe FCC has directly held that the very cases upon

which the Commission relied below are incorrect.@ We disagree.

               Although the FCC concluded that the Verizon Virginia agreements did not obligate

Verizon Virginia to pay reciprocal compensation for ISP-bound traffic, it was specifically because

those agreements expressly referenced and incorporated the FCC=s Ahistoric reliance on an >end-

to-end= analysis of traffic for determining the traffic=s jurisdictional nature.@ Id. at 6891, & 41.

Here, it is undisputed that the Aend-to-end@ jurisdictional language appearing in the Verizon

Virginia agreements does not appear in the Agreement at issue. The FCC did not Afind

dispositive the many state regulatory commission decisions . . . holding that ISP-bound traffic is

subject to reciprocal compensation@ merely because Anone of these decisions specifically

construes the contractual language at issue in this case, which . . . makes the jurisdictional nature

                                                 23
of traffic determinative of whether it constitutes compensable >Local Traffic.=@ Id. at 6890, & 39.

The FCC=s interpretation of the Verizon Virginia agreements has no bearing on this case.

                 Furthermore, the FCC=s interpretation in Starpower of a third interconnection

agreementCthe Starpower-Verizon South agreement (AVerizon South agreement@)Csupports the

Commission=s decision in this case. The FCC found that the Verizon South agreement obligated

reciprocal compensation for the delivery of ISP-bound traffic because the definition of

compensable Alocal traffic@ is derived from Verizon=s Virginia tariff. Id. at 6892, & 44.

Therefore, Awhatever calls Verizon South bills to its customers as local calls under the Tariff must

be compensable local calls under the Starpower-Verizon South Agreement.@ Id. at 6894, & 49.

Similarly, here the Commission made a factual finding that Verizon rates and bills its customers

for a local call pursuant to the tariff when the customers call ISPs using telephone numbers

associated with the customers = local calling area. This finding is supported by evidence contained

in the record. See Nucor Steel, 26 S.W.3d at 748-49. Verizon argues that its Texas tariff does not

establish the scope of the parties= reciprocal compensation obligations because, unlike the Virginia tariff in

Starpower, the Texas tariff defines Alocal service@ to include traditional long-distance voice calls that are not

subject to reciprocal compensation under the Agreement. However, because the crucial inquiry under both

the Virginia and Texas tariffs is whether customers= calls to ISPs are treated as local, we disregard this

distinction and conclude that the FCC=s interpretation of the Verizon South agreement does not undermine

the Commission=s interpretation of the Agreement.




                                                      24
                We also reject Verizon=s assertion that FCC precedent makes clear that AInternet-

bound calls are, and always have been, interstate, interexchange calls that terminate on the World

Wide Web,@ and that there is thus a Afederal presumption@ against reciprocal compensation for

calls to ISPs. (Emphasis added.) The FCC has applied its so-called Aend-to-end@ analysis to find

that calls to ISPs are non-local and not within the scope of section 251(b)(5)=s provision for

reciprocal compensation. See In the Matter of Implementation of the Local Competition

Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound

Traffic, 14 FCC Rcd 3689, 3690, & 1 (1999) (ADeclaratory Order@) (citing 47 U.S.C.A. '

251(b)(5)).10 But the FCC also held that telecommunications providers are controlled by

interconnection agreements that include ISP-bound traffic in their reciprocal compensation

provisions. Id.; see also Southwestern Bell, 208 F.3d at 478. ATaking a hands-off approach, the

FCC announced that it will not interfere with state commission determinations of whether

reciprocal compensation provisions of interconnection agreements apply to ISP-bound traffic.@

Southwestern Bell, 208 F.3d at 478.


        10
           In Bell Atlantic Telephone Co. v. FCC, 206 F.3d 1, 8 (D.C. Cir. 2000), the Declaratory
Order was vacated and remanded because it failed to supply a real explanation for its decision to treat end-
to-end analysis as controlling. According to the D.C. Circuit court, A[h]owever sound the end-to-end
analysis may be for jurisdictional purposes, the Commission has not explained why viewing these linked
telecommunications as continuous works for purposes of reciprocal compensation.@ Id. at 7.




                                                    25
               Although the FCC has now definitively ruled that ISP-bound traffic is not subject to

reciprocal compensation arrangements, it ordered that its ruling be prospective in application, to

be applied only Aas carriers renegotiate expired or expiring interconnection agreements.@ See

Implementation of the Local Competition Provisions in the Telecommunications Act of 1996,

Intercarrier Compensation for ISP-Bound Traffic, 16 FCC Rcd 9151, & 82 (2001) (ARemand

Order@). These FCC rulings have no effect on this Agreement, which covers the period from

October 1996 through October 1999.11 Thus, having held that the Commission correctly

interpreted the Agreement under principles of Texas law to require reciprocal compensation for

ISP-bound traffic, we further hold that the Commission=s interpretation and enforcement of the

Agreement does not in any way conflict with the FTA or recent FCC rulings dealing with

reciprocal compensation for ISP-bound traffic. We overrule Verizon=s second issue.


                              WORLDCOM=S CROSS-APPEAL


       11
           To illustrate the purely prospective application of the FCC=s rulings on ISP-bound
traffic, we note that in Starpower, decided after the Remand Order, the FCC interpreted an
interconnection agreement to require reciprocal compensation for ISP-bound traffic and
reaffirmed that the Remand Order did not apply to existing agreements like the one at issue here.
 In the Matter of Starpower Communications, 17 F.C.C. Rcd 6873, 6882, & 23 (April 8, 2002); see
also Verizon Md. v. RCN Telecom Services, No. S-99-2061, 2003 U.S. Dist. LEXIS 3579, at *43-
47 (D. Md. March 5, 2003).




                                                26
                In its final order, the Commission ruled that the Agreement requires the parties to

pay each other Areciprocal compensation@ for the exchange of calls to ISPs. See Tex. Pub. Util.

Comm=n, Order, Docket No. 21706 (Oct. 4, 2000). In a Compliance proceeding, the Commission

confirmed that Verizon owed WorldCom reciprocal compensation payments in the amount of

$9,898,113.28. See Notice of Approval of Compliance Calculations, Docket No. 23072 (April 13,

2001). Verizon challenged the Commission=s order in the district court. WorldCom counterclaimed,

including a request that the district court award interest accruing from the date of the order, October 4,

2000. The district court affirmed the Commission=s order and awarded WorldCom interest from the date

of its judgment, see Tex. Fin. Code Ann. '' 304.001, .003-.006 (West Supp. 2003), but denied the

request for interest from the date of the Commission=s order.

                According to WorldCom, the judgment awarding damages for breach of contract was the

Commission=s October 4, 2000 order, and thus it is entitled to interest from the date of the Commission=s

order, not just from the district court=s judgment. We disagree. WorldCom relies on provisions of the

finance code which expressly limit the award of postjudgment interest to a Amoney judgment of a court of

this state.@ Id.12 (Emphasis added.) WorldCom cites language from this Court in Robertson County v.

Wymola, where we stated that Aevery valid judgment bears post-judgment interest under the law.@ 17

S.W.3d 334, 344 (Tex. App.CAustin 2000, pet. denied). However, that case concerned a valid court


        12
           For example, section 304.001 states: AA money judgment of a court in this state must specify the
postjudgment interest rate applicable to that judgment.@ Tex. Fin. Code Ann. ' 304.001 (West Supp.
2003). Section 304.005 states in part that Apostjudgment interest on a money judgment of a court in this
state accrues during the period beginning on the date the judgment is rendered and ending on the date the
judgment is satisfied.@ Id. ' 304.005(a) (West Supp. 2003).

                                                    27
judgment, not an administrative order. Id. Because WorldCom provides us with no authority for the

proposition that an administrative award of compensation bears interest from the date of the order, we

overrule its issue on cross-appeal.


                                           CONCLUSION

                For the reasons set forth above, we overrule Verizon=s issues on appeal. We also overrule

WorldCom=s issue on cross-appeal. We affirm the judgment of the district court in all respects.




                                                W. Kenneth Law, Chief Justice

Before Chief Justice Law, Justices B. A. Smith and Puryear

Affirmed

Filed: March 20, 2003




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