AT&T Corp. v. FCCAT&T Corp. v. FCC
James U. Troup argued the cause for petitioner Iowa Network Services, Inc. d/b/a Aureon Network Services. With him on the briefs was Tony S. Lee.
Benjamin H. Dickens Jr., Mary J. Sisak, and Salvatore Taillefer Jr. were on the briefs for intervenor South Dakota Network, LLC in support of petitioner Iowa Network Services, Inc. d/b/a Aureon Network Services.
Joseph R. Guerra argued the cause for
Timothy J. Simeone was on the briefs for intervenor Sprint Communications Company L.P. in support of petitioner AT&T Corp. Christopher J. Wright entered an appearance.
William J. Scher, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Michael F. Murray, Deputy Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Mary Helen Wimberly, Attorneys, Thomas M. Johnson, Jr., General Counsel, Federal Communications Commission, Ashley S. Boizelle, Deputy General Counsel, and Richard K. Welch, Deputy Associate General Counsel. Jacob M. Lewis, Associate General Counsel, entered an appearance.
Joseph R. Guerra, Michael J. Hunseder, Spencer D. Driscoll, Gary L. Phillips, David L. Lawson, and Timothy J. Simeone were on the brief for intervenors AT&T Corp. and Sprint Communications Company, L.P. in support of respondents. Christopher J. Wright entered an appearance.
James U. Troup and Tony S. Lee were on the brief for intervenor Iowa Network Services, Inc. d/b/a
Before: TATEL, GRIFFITH, and KATSAS, Circuit Judges.
Opinion for the Court filed PER CURIAM.*
Opinion concurring in part and dissenting in part filed by Circuit Judge KATSAS.
PER CURIAM:
** The
I
The protagonists in this case are AT&T and Iowa Network Services, also known as Aureon. AT&T is a long-distance or interexchange carrier—one that transmits calls between the networks of local carriers. For example, when an AT&T subscriber in New York calls someone in Chicago, AT&T connects the call between local networks in both cities. Historically, the calling party would pay AT&T, which in turn would pay the appropriate local carriers. See In re FCC 11-161, 753 F.3d 1015, 1110–12 (10th Cir. 2014).
In most parts of the country, each local carrier directly connects its network to that of each long-distance carrier. But in sparsely populated areas, this can be prohibitively expensive. In rural Iowa, local carriers solved the problem by forming Aureon as a joint venture. Aureon operates a set of switches connecting the networks of participating local carriers (known as subtending carriers) to those of long-distance carriers. So when an AT&T subscriber in New York calls someone in rural Iowa, AT&T connects the call from the local New York network to Aureon,
Aureon charges long-distance carriers for connecting calls from their networks to those of its subtending carriers. Different regulatory systems govern its charges for interstate calls and for intrastate calls involving different local networks within Iowa. For interstate calls, the
In recent years, the FCC has sought to transition away from inter-carrier access charges to a “bill-and-keep” approach. Recall the traditional arrangement for a long-distance call: the caller paid the long-distance carrier, which in turn paid access charges to local carriers at both ends. Under
In 2011, the FCC promulgated regulations to start the transition to a bill-and-keep system for both interstate and intrastate calls. See Connect America Fund; A National Broadband Plan for Our Future; Establishing Just and Reasonable Rates for Local Exchange Carriers; High-Cost Universal Service Support, 76 Fed. Reg. 81,562 (Dec. 28, 2011) (Transitional Pricing Rules). These regulations, which are called the “transitional access service pricing rules,” progressively reduce the access charges that carriers may charge one another. See
In the same rulemaking, the FCC also restricted a practice known as access stimulation. It involves enticing service providers that receive a high volume of calls, such as conference call services or adult hotlines, to locate in areas with high access charges, which are typically rural. The combination of high access charges and high call volumes generates significant revenue for the local carriers. To secure that revenue, local carriers sometimes pay service providers to lure them to the area. “It‘s a win-win for the [local carriers] and the conference call companies,” but a loss for the long distance carriers. N. Valley Commc‘ns, LLC v. FCC, 717 F.3d 1017, 1018–19 (D.C. Cir. 2013).
Over the last decade, Aureon‘s rate for intrastate access charges has remained the same, but the company has twice changed its interstate rate. In 2012, Aureon filed a tariff with the FCC lowering its interstate rate from $0.00819 to $0.00623 per minute. In 2013, Aureon filed another tariff raising the rate to $0.00896 per minute. Although the rate changes involve tenths of a penny, they add up to millions of dollars across the billions of calling minutes that Aureon services.
AT&T has long believed that Aureon‘s access charges violate the transitional pricing rules. AT&T thus has refused to pay Aureon‘s invoices in full since September 2013. In 2014, Aureon sued AT&T for the unpaid sums in the District of New Jersey. After AT&T made several counterclaims under the
AT&T then filed a complaint against Aureon under
In 2017, the FCC resolved the liability phase of the bifurcated proceeding. AT&T Corp. v. Iowa Network Servs., Inc., 32 FCC Rcd. 9677 (2017). The agency agreed with AT&T‘s first argument that
II
AT&T and Aureon each seek review of portions of the FCC‘s liability determination. We have jurisdiction under
The Administrative Procedure Act provides the familiar standard of review. As relevant here, we consider whether the FCC‘s liability order was arbitrary, capricious, or inconsistent with governing statutes and regulations.
III
We begin with Aureon‘s petition, which contests the FCC‘s determination that Aureon violated the transitional access service pricing rules. The FCC rested its determination on
The FCC found that Aureon violated Rule 51.911 in two respects: it violated subsection (b) by not lowering its intrastate rate on or after July 3, 2012; and it violated subsection (a) by increasing its interstate rate in 2013. AT&T Corp., 32 FCC Rcd. at 9689. In response, Aureon contends that Rule 51.911 does not apply to it at all, and so none of its charges violated that rule. More narrowly, Aureon contends that the cap in subsection (a) applies only to intrastate rates, and so its 2013 increase in interstate rates did not violate that subsection. We reject the broad argument but agree with the narrow one.
A
The transitional pricing rules cover Aureon‘s services. Those rules “apply to reciprocal compensation for telecommunications traffic exchanged between telecommunications providers that is interstate or intrastate exchange access, information access, or exchange services for such access, other than special access.”
The transitional pricing rules separately regulate three different categories of local carriers. Rule 51.907 applies to incumbent local exchange carriers operating under price-cap regulations; Rule 51.909 applies to incumbent local exchange carriers operating
In contending that Rule 51.911 does not apply, Aureon has little to say about the express regulatory definition of “competitive local exchange carriers.” Instead, Aureon attempts to exploit a separate regulatory distinction between dominant and nondominant carriers. Aureon invokes a cross reference in Rule 51.911(c), which caps the rates for competitive local exchange carriers at certain rates “charged by the competing incumbent local exchange carrier, in accordance with the same procedures specified in”
Because Rule 51.911 applies to Aureon, we affirm the FCC‘s conclusion that Aureon violated subsection (b) by not lowering its intrastate rate as required.2
B
Aureon next contends that the 2013 increase of its interstate rate did not violate Rule 51.911(a). We agree. That rule provides that a competitive local exchange carrier may not “increase the rate for any originating or terminating intrastate switched access service above the rate for such service in effect on December 29, 2011.”
The FCC contends that its explanatory statements, published in the Federal Register, should be treated as part of the binding regulation. It is mistaken. “Publication in the Federal Register does not suggest that the matter published was meant to be a regulation, since the APA requires general statements of policy to be published as well.” Brock v. Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 539 (D.C. Cir. 1986) (Scalia, J.) (citing
Alternatively, the FCC invokes a “note” to Rule 51.901 cross-referencing a “chart identifying steps in the transition.”
For these reasons, we set aside the FCC‘s determination that Aureon violated Rule 51.911(a) by increasing its rate for interstate access charges in 2013.5
IV
We next turn to AT&T‘s petitions, which address the FCC‘s rulings on access stimulation, unreasonable practices, and the scope of Aureon‘s tariffs.
A
AT&T contends that Aureon‘s charges were unlawful because Aureon was engaged in access stimulation, i.e., enticing high call volumes to generate increased access charges. The FCC has made various efforts to curb that practice, which it considers “wasteful arbitrage.” Updating the Intercarrier Compensation Regime to Eliminate Access Arbitrage, 84 Fed. Reg. 57,629, 57,630 (Oct. 28, 2019) (Updating Rule).
Rule 61.3(bbb) represents one of those efforts. Although the FCC has since amended the regulation to exclude carriers, like Aureon, that serve no end-users, see id. at 57,651, during the events at issue here, Rule 61.3(bbb) limited charges by any local exchange carrier “engaging in access stimulation,”
As relevant here, section 61.3(bbb) defines an “access revenue sharing agreement” as an agreement between a local exchange carrier and another party that
over the course of the agreement, would directly or indirectly result in a net payment to the other party (including affiliates) to the agreement, in which payment by the ... Competitive Local Exchange Carrier is based on the billing or collection of access charges from interexchange carriers or wireless carriers. When determining whether there is a net payment under this rule, all payments, discounts, credits, services, features, functions, and other items of value, regardless of form, provided by the ... Competitive Local Exchange Carrier to the other party to the agreement shall be taken into account.
The FCC reasoned that Aureon‘s agreements were not covered because neither the agreements themselves, nor the “net
What‘s more, the FCC failed to acknowledge its own prior statement on what counts as an access revenue sharing agreement. In 2012, the FCC “clarif[ied]” that the “based on” language of section 61.3(bbb) is to be construed broadly, explaining that “‘any arrangement between a LEC and another party ... that results in the generation of switched access traffic to the LEC and provides for the net payment of consideration of any kind ... to the other party, ... is considered to be “based upon the billing or collection of access charges.“‘” Connect America Fund; A National Broadband Plan for Our Future; Establishing Just and Reasonable Rates for Local Exchange Carriers; High-Cost Universal Service Support, 77 Fed. Reg. 14,297, 14,301 (Mar. 9, 2012) (Clarification Rule). But in rejecting AT&T‘s access-stimulation claim, the FCC nowhere acknowledged this prior interpretation, a particularly glaring omission given that the agency‘s newfound intent requirement appears inconsistent with the clarification‘s expansive construction of section 61.3(bbb)‘s regulatory language. Because “the process by which [the FCC] reache[d] [its final] result” was neither “logical [nor] rational,” we vacate its decision. Fox v. Clinton, 684 F.3d 67, 75 (D.C. Cir. 2012) (quoting Tripoli Rocketry Association, Inc. v. Bureau of Alcohol, Tobacco, Firearms, & Explosives, 437 F.3d 75, 77 (D.C. Cir. 2006)).
The dissent likewise finds the FCC‘s reasoning inadequate but would nevertheless uphold the agency‘s decision on the ground that the regulation left the FCC no discretion to reject AT&T‘s claim. United Video, Inc. v. FCC, 890 F.2d 1173, 1190 (D.C. Cir. 1989) (acknowledging that vacatur and remand “is not necessary” if “the agency has come to a conclusion to which it was bound to come as a matter of law, albeit for the wrong reason“). As the dissent sees it, the regulatory language unambiguously excludes Aureon‘s contracts with its subtending carriers because [REDACTED] Dissent Op. at 4. According to the dissent, it would therefore be unreasonable to characterize the “net payment” from Aureon to its subtending carriers as “based on the billing or collection of access charges.”
To be sure, the dissent offers one plausible reading of section 61.3(bbb), but it is hardly the only reasonable interpretation. As the FCC‘s 2012 clarification indicates, the definition of an “access revenue sharing agreement” could also cover an agreement that merely “results in the generation” of access-stimulation traffic and “provides for the net payment of consideration.” Clarification Rule, 77 Fed. Reg. at 14,301. Under that reading, Aureon‘s agreements with its subtending carriers would be “based on the billing or collection of access charges” because the agreements “result[] in the generation” of access-stimulation traffic to the subtending carriers and “provide[] for the net payment of consideration” to those carriers. Contrary to the dissent, then, the language of section 61.3(bbb) does not unambiguously answer the question of whether Aureon‘s subtending agreements qualify as access revenue sharing agreements. We must therefore remand to the FCC so that it may address the question in the first instance. Cf. United Video, Inc., 890 F.2d at 1190.
The
AT&T lodged its complaint under section 208 of the
In AT&T Co. v. FCC, 978 F.2d 727 (D.C. Cir. 1992), we held that this scheme requires the FCC to adjudicate section 208 complaints properly presented to it. There, the FCC declined to adjudicate a complaint that it thought “would be better considered in a rulemaking.” Id. at 731. We held that this refusal was unlawful because section 208 imposes on the FCC, in its capacity “as an adjudicator of private rights,” “an obligation to decide the complaint under the law currently applicable.” Id. at 732. The same obligation governs here, despite the FCC‘s desire to forgo a decision and resolve related issues in another case.
We stress that our holding is narrow. Section 208 gives the FCC discretion over the “manner” and “means” of investigating a complaint,
Finally, AT&T challenges the FCC‘s determination that Aureon‘s existing interstate tariff covers traffic involving subtending carriers engaged in access stimulation. We defer to the FCC‘s interpretation of a tariff if it is “reasonable and based upon factors within the Commission‘s expertise.” Am. Message Ctrs. v. FCC, 50 F.3d 35, 39 (D.C. Cir. 1995) (cleaned up). Here, the scope of Aureon‘s tariff presents highly technical questions that the FCC reasonably resolved.
The tariff provides rates for “switched access service,” which it defines to include
a two-point electrical communications path between a point of interconnection with the transmission facilities of an Exchange Telephone Company … and [Aureon‘s] central access tandem where the Customer‘s traffic is switched to originate or terminate its communications.
J.A. 196. The parties agree that Aureon provides “switched access service” by routing calls from long-distance carriers to the local exchange carriers that subtend its network.
AT&T highlights other tariff language repeatedly describing Aureon‘s service as “Centralized Equal Access Service.” In AT&T‘s view, Aureon does not provide such a service when it transmits calls involving access-stimulating carriers. But in its own complaint, AT&T described “equal access service” as simply the local carrier providing all long-distance carriers with equivalent connections. The FCC adopted
Alternatively, AT&T contends that equal access service involves only outgoing calls. But the tariff describes Aureon‘s service to occur when a customer‘s “traffic is switched to originate or terminate its communications.” J.A. 196. Moreover, before the agency, AT&T stipulated that Aureon‘s authorized service covered both originating and terminating traffic. That makes good sense, as AT&T provides no reason why Aureon would seek to provide, or the FCC would approve, a service to enable the connection of calls flowing in one direction but not the other.
We affirm the FCC‘s determination that Aureon‘s interstate tariffs apply to traffic involving any local carriers engaged in access stimulation.
V
The petitions for review are granted in part and denied in part. We remand this case to the FCC for further proceedings consistent with this opinion.
So ordered.
KATSAS, Circuit Judge, concurring in part and dissenting in part: I join the per curiam opinion except for Part IV.A, which remands for further consideration of whether Aureon engaged in access stimulation. In my view, the governing regulation unambiguously establishes that Aureon did not. Thus, even though
As my colleagues explain, the question about access stimulation turns on whether Aureon provided its subtending carriers with a “net payment” that was “based on the billing or collection of access charges.”
Of course, we cannot affirm a discretionary agency decision based on reasoning not given by the agency. SEC v. Chenery Corp., 318 U.S. 80, 88, 94 (1943). But ”Chenery only applies to agency actions that involve policymaking or other acts of agency discretion.” Canonsburg Gen. Hosp. v. Burwell, 807 F.3d 295, 305 (D.C. Cir. 2015) (cleaned up). A Chenery remand “is not necessary” if “the agency has come to a conclusion to which it was bound to come as a matter of law.” United Video, Inc. v. FCC, 890 F.2d 1173, 1190 (D.C. Cir. 1989). In that circumstance, “[t]o remand would be an idle and useless formality,” and ”Chenery does not require that we convert judicial review of agency action into a ping-pong game.” Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 544–45 (2008) (cleaned up). Finally, while an ambiguous regulation permits the agency to choose from among textually reasonable interpretations based on policy considerations, an unambiguous regulation leaves it with no such
In my view, the regulation on access stimulation unambiguously excludes Aureon‘s contracts with its subtending carriers. [REDACTED] which is plainly a “net payment.” But this payment is not “based on the billing or collection of access charges.” To the contrary, [REDACTED] Under these circumstances, characterizing the benefit that Aureon provides to subtending carriers as one “based on the billing or collection of access charges” would be unreasonable.
In concluding otherwise, my colleagues point to a different rule—not published in the Code of Federal Regulations—that purports to clarify
In my judgment, this Interpretive Rule does not reasonably construe the governing regulation, at least as applied to inter-carrier connection agreements. By its terms, the access stimulation regulation does not apply unless a local exchange carrier forms an “access revenue sharing agreement” with another party that satisfies two distinct requirements: (1) the agreement must “result in a net payment” to the other party, and (2) this payment
The FCC understands its Interpretive Rule differently. The agency highlights the statement that an access revenue sharing agreement must “provid[e] for” a net payment from the local carrier to a third party. According to the FCC, this language means that the agreement must be intended to induce access stimulation, rather than that the agreement simply must result in a net payment to the third party. Even assuming that this reflects a permissible reading of the Interpretive Rule, which I doubt, an inducement requirement finds no basis in the access
In fairness, I should note that the FCC‘s analysis was at least on the right track. For the agency did correctly recognize the fatal defect in AT&T‘s claim of access stimulation—[REDACTED] But instead of conjuring up an intent-based inducement requirement, the agency simply should have concluded that the “net payment” from Aureon to its subtending carriers is not “based on the billing or collection of access charges.” For that reason, I would affirm the FCC‘s conclusion that Aureon did not engage in access stimulation.