WrldCom Inc v. FCC ( 2002 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 12, 2002 Decided May 3, 2002
No. 01-1218
WorldCom, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
Sprint Corporation, et al.,
Intervenors
Consolidated with
01-1229, 01-1243, 01-1255, 01-1256, 01-1257, 01-1267,
01-1274, 01-1310, 01-1311, 01-1313, 01-1319, 01-1321
On Petitions for Review of an Order of the
Federal Communications Commission
---------
Darryl M. Bradford argued the cause for Carrier petition-
ers and supporting intervenors. With him on the briefs were
Thomas F. O'Neil III, William Single, IV, Brian J. Leske,
John J. Hamill, Jodie L. Kelley, Mark C. Rosenblum, H.
Richard Juhnke, John T. Nakahata, Timothy J. Simeone,
Christopher W. Savage, David W. Carpenter, David L. Law-
son, Paul J. Zidlicky, Thomas Jones, Glenn B. Manishin,
Genevieve Morelli, Richard J. Metzger, Brad Mutschelknaus,
Richard M. Rindler, Charles C. Hunter, Catherine M. Han-
nan, Robert J. Aamoth, Deborah M. Royster and Albert H.
Kramer. James P. Young entered an appearance.
James B. Ramsay argued the cause for State Commission
petitioners and supporting intervenors. With him on the
briefs were Gretchen Dumas, Ellen S. LeVine, Lawrence G.
Malone, Diane T. Dean, Susan Stevens Miller, Tracey L.
Stokes, Betty D. Montgomery, Attorney General, State of
Ohio, Duane W. Luckey and Steven T. Nourse, Assistant
Attorneys General. Carl F. Patka entered an appearance.
John A. Rogovin, Deputy General Counsel, Federal Com-
munications Commission, argued the cause for respondents.
With him on the brief were John E. Ingle, Deputy Associate
General Counsel, and Laurence N. Bourne and Rodger D.
Citron, Counsel. Catherine G. O'Sullivan and Nancy C.
Garrison, Attorneys, U.S. Department of Justice, entered
appearances.
Mark L. Evans argued the cause for intervenors BellSouth
Corporation, et al. With him on the brief were Michael K.
Kellogg, Sean A. Lev, Aaron M. Panner, Scott H. Angstreich,
Roger K. Toppins, Gary L. Phillips, James D. Ellis, Michael
E. Glover, Edward H. Shakin, John M. Goodman, Lawrence
E. Sarjeant, Linda L. Kent, John W. Hunter and Julie E.
Rones.
Howard J. Symons, Sara F. Leibman and Douglas I.
Brandon were on the brief for intervenor AT&T Wireless
Services, Inc. Michelle M. Mundt entered an appearance.
Before: Sentelle and Tatel, Circuit Judges, and
Williams, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
Williams.
Williams, Senior Circuit Judge: Section 251(b)(5) of the
Telecommunications Act of 1996, 47 U.S.C. ss 151-714 (the
"1996 Act" or the "Act"), directs all local exchange carriers
("LECs") to "establish reciprocal compensation arrangements
for the transport and termination of telecommunications." 47
U.S.C. s 251(b)(5). In the order before us the Federal
Communications Commission held that under s 251(g) of the
Act it was authorized to "carve out" from s 251(b)(5) calls
made to internet service providers ("ISPs") located within the
caller's local calling area. It relied entirely on s 251(g).
Because that section is worded simply as a transitional device,
preserving various LEC duties that antedated the 1996 Act
until such time as the Commission should adopt new rules
pursuant to the Act, we find the Commission's reliance on
s 251(g) precluded. Thus we remand the case. Because
there may well be other legal bases for adopting the rules
chosen by the Commission for compensation between the
originating and the terminating LECs in calls to ISPs, we
neither vacate the order nor address petitioners' attacks on
various interim provisions devised by the Commission.
* * *
Due in part to the 1996 Act, local telephone service areas
are now typically (perhaps universally) served by more than
one LEC. The reciprocal compensation requirement of
s 251(b)(5), quoted above, is aimed at assuring compensation
for the LEC that completes a call originating within the same
area. Although its literal language purports to extend recip-
rocal compensation to all "telecommunications," the Commis-
sion has construed it as limited to "local" traffic only. In the
Matter of Implementation of the Local Competition Provi-
sions in the Telecommunications Act of 1996, 11 FCC Rcd
15499, 16012-13, p p 1033-34, 16015-16, p 1040 (1996) ("Local
Competition Order"); 47 C.F.R. s 51.701(a). For long dis-
tance calls, by contrast, the long-distance carrier collects from
the user and pays both LECs--the one originating and the
one terminating the call. Local Competition Order, 11 FCC
Rcd at 16013, p 1034.
In an earlier order, the Commission excluded ISP calls
from the reach of s 251(b)(5) on the theory that they were
indeed not "local." In the Matter of Implementation of the
Local Competition Provisions in the Telecommunications
Act of 1996, Inter-Carrier Compensation for ISP-Bound
Traffic, 14 FCC Rcd 3689 (1999) ("Initial Order"). It reached
this conclusion by applying its "end-to-end" analysis, tradi-
tionally employed in determining whether a call was jurisdic-
tionally interstate or not, stressing that ISP-bound traffic
ultimately reaches websites that are typically located out-of
state. See id. at 3689-90, p 1, 3695-98, p p 10-12, 3703, p 23
(1999). On review, we held that the order had failed to
adequately explain why the traditional "end-to-end" jurisdic-
tional analysis was relevant to deciding whether ISP calls
fitted the local call or the long-distance call model, and
vacated and remanded the order. Bell Atlantic Tel. Cos. v.
FCC, 206 F.3d 1, 5, 8 (D.C. Cir. 2000).
On remand, the FCC again reached the conclusion that the
compensation between two LECs involved in delivering inter-
net-bound traffic to an ISP should not be governed by the
reciprocal compensation provision of s 251(b)(5). In the Mat-
ter of Implementation of the Local Competition Provisions in
the Telecommunications Act of 1996, Intercarrier Compensa-
tion for ISP-Bound Traffic, 16 FCC Rcd 9151, 9152-53, p 1
(2001) ("Remand Order"). This decision rested, as we said,
on s 251(g). Having thus taken ISP calls out of s 251(b)(5)'s
reciprocal compensation obligation, the FCC proceeded to
establish what it believed was an appropriate cost recovery
mechanism. Remand Order, 16 FCC Rcd at 9154, p 4. The
system adopted was "bill-and-keep," whereby each carrier
recovers its costs from its own end-users. Id.
In reaching the bill-and-keep solution, the Commission
pointed to a number of flaws in the prevailing intercarrier
compensation mechanism for ISP calls, under which the
originating LEC paid the LEC that served the ISP. Because
ISPs typically generate large volumes of one-way traffic in
their direction, the old system attracted LECs that entered
the business simply to serve ISPs, making enough money
from reciprocal compensation to pay their ISP customers for
the privilege of completing the calls. The Commission saw
this as leading, at least potentially, to ISPs' charging their
customers below cost. Remand Order, 16 FCC Rcd at 9153,
p 2, 9154-55, p p 4-6, 9162, p p 19-21.
To smooth the transition to bill-and-keep (but without fully
committing itself to it), the FCC adopted several interim
cost-recovery rules that sought to limit arbitrage opportuni-
ties by lowering the amounts and capping the growth of ISP-
related intercarrier payments. These tend to force ISP-
serving LECs to recover an increasing portion of their costs
from their own subscribers rather than from other LECs.
Remand Order, 16 FCC Rcd at 9155-57, p p 7-8. The transi-
tional rules take effect on the expiration of existing intercon-
nection agreements. Id. at 9189, p 82. Finally, the Commis-
sion specified that, having carved ISP-bound calls out of
s 251(b)(5) under s 251(g), it was establishing the interim
compensation regime under its general authority to regulate
the rates and terms of interstate telecommunications services
and interconnections between carriers under s 201 of the
Act; as a result, the state regulatory commissions would no
longer have jurisdiction over ISP-bound traffic as part of
their power to resolve LEC interconnection issues under
s 252(e)(1) of the Act. Id.
Two sets of petitioners now challenge the Remand Order.
One, headed by WorldCom (collectively "WorldCom"), con-
sists of competitive LECs that deliver calls to ISPs, and thus
stand to lose reciprocal compensation payments. These com-
panies contend that the Commission erred in finding that
s 251(g) authorized Commission exclusion of such calls from
s 251(b)(5), and that, in any event, the interim compensation
rules that the FCC adopted were not a product of reasoned
decisionmaking and are contrary to the Act's terms. The
other group, composed of several states and state regulatory
commissions, complains that the order unlawfully preempts
their authority to determine the compensation of ISP-serving
LECs.
* * *
Section 251(g) reads as follows:
(g) Continued enforcement of exchange access and inter-
connection requirements.
On and after [the date of enactment of the Telecom-
munications Act of 1996,] each local exchange carrier, to
the extent that it provides wireline services, shall pro-
vide exchange access, information access, and exchange
services for such access to interexchange carriers and
information service providers in accordance with the
same equal access and nondiscriminatory interconnec-
tion restrictions and obligations (including receipt of
compensation) that apply to such carrier on the date
immediately preceding [the date of enactment of the
Telecommunications Act of 1996] under any court order,
consent decree, or regulation, order, or policy of the
Commission, until such restrictions and obligations are
explicitly superseded by regulations prescribed by the
Commission after [such date of enactment]. During the
period beginning on [such date of enactment] and until
such restrictions and obligations are so superseded, such
restrictions and obligations shall be enforceable in the
same manner as regulations of the Commission.
47 U.S.C. s 251(g) (emphasis added). Both sides assume that
Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984), is applicable, so that we must defer
to any reasonable Commission interpretation not precluded
by the language of the statute, read with the ordinary tools of
statutory construction. We agree with petitioners that
s 251(g) is not susceptible to the Commission's reading.
On its face, s 251(g) appears to provide simply for the
"continued enforcement" of certain pre-Act regulatory "inter-
connection restrictions and obligations," including the ones
contained in the consent decree that broke up the Bell
System, until they are explicitly superceded by Commission
action implementing the Act. As the Conference Report
explained, "[b]ecause the [Act] completely eliminates the pro-
spective effect of the AT&T Consent Decree, some provision
is necessary to keep these requirements in place.... Ac-
cordingly, the conference agreement includes a new section
251(g)." H.R. Rep. 104-458, at 122-23 (1996).
On a prior occasion, the Commission also framed the scope
of s 251(g) in similarly narrow terms:
The term "information access" first appears [in the Act]
in sections [sic] 251(g). That provision is a transitional
enforcement mechanism that obligates the incumbent
LECs to continue to abide by equal access and nondis-
criminatory interconnection requirements of the [AT&T
Consent Decree] when such carriers "provide exchange
access, information access and exchange services for such
access to interexchange carriers and information service
providers...." Because the provision incorporates into
the Act, on a transitional basis, these [AT&T Consent
Decree] requirements, the Act uses [AT&T Consent De-
cree] terminology in this section. However, this provi-
sion is merely a continuation of the equal access and
nondiscrimination provisions of the Consent Decree un-
til superseded by subsequent regulations of the Commis-
sion.
In the Matter of Deployment of Wireline Services Offering
Advanced Telecommunications Capability, 15 FCC Rcd 385,
407, p 47 (1999) (footnote omitted) (emphasis added).
Of course such explanatory language can't be assumed to
be exclusive; legislative or agency explanations of a provision
may naturally tend to focus on its most salient features.
Thus, despite legislative history speaking only in terms of the
Consent Decree, plainly the preexisting "restrictions and
obligations" covered by s 251(g) are not limited to Consent
Decree obligations; the statute itself explicitly embraces pre-
existing obligations under a "regulation, order, or policy of
the Commission." See also Noland v. Shalala, 12 F.3d 258,
262 (D.C. Cir. 1994) ("Although the legislative history ...
suggests an exclusive focus [of the statutory provision in
question], the statutory language is broader and may permit
[an alternative] construction."). But nothing in s 251(g)
seems to invite the Commission's reading, under which (it
seems) it could override virtually any provision of the 1996
Act so long as the rule it adopted were in some way, however
remote, linked to LECs' pre-Act obligations.
We will assume without deciding that under s 251(g) the
Commission might modify LECs' pre-Act "restrictions" or
"obligations," pending full implementation of relevant sections
of the Act. The Fifth Circuit appeared to make that assump-
tion in Texas Office of Public Utility Counsel v. FCC, 265
F.3d 313 (5th Cir. 2001), where it implicitly relied on s 251(g)
(by quoting language from an Eighth Circuit case, Competi-
tive Telecom. Ass'n v. FCC, 117 F.3d 1068, 1072 (8th Cir.
1997)), in sustaining modifications of pre-Act regulations gov-
erning the access charges paid to LECs by inter-exchange
carriers ("IXCs"). Id. at 324-25. But this assumption is not
enough to justify the Commission's action here, as it seems
uncontested--and the Commission declared in the Initial
Order--that there had been no pre-Act obligation relating to
intercarrier compensation for ISP-bound traffic. See Initial
Order, 14 FCC Rcd at 3695, p 9; see also id. at 3690, p 1,
3707-3710, p p 28-36. The best the Commission can do on
this score is to point to pre-existing LEC obligations to
provide interstate access for ISPs. See, e.g., Remand Order,
16 FCC Rcd at 9164, p 27; In the Matter of MTS & WATS
Market Structure, 97 F.C.C.2d 682, 711-15, p p 77-83 (1983).
Indeed, the Commission does not even point to any pre-Act,
federally created obligation for LECs to interconnect to each
other for ISP-bound calls. And even if this hurdle were
overcome, there would remain the fact that s 251(g) speaks
only of services provided "to interexchange carriers and
information service providers"; LECs' services to other
LECs, even if en route to an ISP, are not "to" either an IXC
or to an ISP.
Having found that s 251(g) does not provide a basis for the
Commission's action, we make no further determinations.
For example, as in Bell Atlantic, we do not decide whether
handling calls to ISPs constitutes "telephone exchange ser-
vice" or "exchange access" (as those terms are defined in the
Act, 47 U.S.C. ss 153(16), 153(47)) or neither, or whether
those terms cover the universe to which such calls might
belong. Nor do we decide the scope of the "telecommunica-
tions" covered by s 251(b)(5). Nor do we decide whether the
Commission may adopt bill-and-keep for ISP-bound calls
pursuant to s 251(b)(5); see s 252(d)(B)(i) (referring to bill-
and-keep). Indeed these are only samples of the issues we do
not decide, which are in fact all issues other than whether
s 251(g) provided the authority claimed by the Commission
for not applying s 251(b)(5).
Moreover, we do not decide petitioners' claims that the
interim pricing limits imposed by the Commission are inade-
quately reasoned. Because we can't yet know the legal basis
for the Commission's ultimate rules, or even what those rules
may prove to be, we have no meaningful context in which to
assess these explicitly transitional measures.
Finally, we do not vacate the order. Many of the petition-
ers themselves favor bill-and-keep, and there is plainly a non-
trivial likelihood that the Commission has authority to elect
such a system (perhaps under ss 251(b)(5) and 252(d)(B)(i)).
See, e.g., Allied-Signal, Inc. v. U.S. Nuclear Regulatory
Comm., 988 F.2d 146, 150-51 (D.C. Cir. 1993) ("The decision
whether to vacate depends on 'the seriousness of the order's
deficiencies (and thus the extent of doubt whether the agency
chose correctly) and the disruptive consequences of an inter-
im change that may itself be changed.' "). Thus, we simply
remand the case to the Commission for further proceedings.
So ordered.