Because the Federal Communications Commission (“Commission”) failed to explain adequately its derivation of a rate for coin-less payphone calls, we grant the petition for review in part and remand this case to the Commission for further proceedings.
I. Background
The Telecommunications Act of 1996 (“the Act”) required the Commission to promulgate regulations ensuring that payphone service providers would be “fairly compensated” for calls made on their payphones.
See
47 U.S.C.A. § 276(b)(1)(A) (West Supp.1998). In
Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996,
Report and Order, CC Docket No. 96-128, FCC 96-388 (September 20, 1996),
reprinted in
Joint Appendix (“J.A.”) 219 (“First Order”), the Commission decided to set the charge for coinless payphone calls at the same $.35 rate that it found was prevalent for coin calls in several states that had deregulated their payphone markets. In
Illinois Public Telecom. Ass’n v. FCC,
On remand, in Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, Second Report and Order, CC Docket No. 96-128, FCC 97-371 (October 9, 1997), reprinted in J.A. 1418 (“Second Order”), the Commission purported to derive a market-based rate for coinless calls. No discernible “market rate” for coinless payphone calls actually existed, because, prior to passage of the Act, payphone service providers never had been fully compensated for coin-less calls. Nonetheless, the Commission constructed a market rate for coinless payphone calls by, first, starting with the $.35 rate, which it called the “market rate” for coin calls, and then subtracting costs of $.066 per call, which it found to be the difference between the costs of coinless and coin ealls. See Second Order ¶ 42, J.A. 1436. This led the Commission to adopt a compensation rate of $.284 per coinless call from October 7, 1997, to October 6, 1999, after which the default rate would be determined by subtracting $.066 from the coin call rate in a given locale. Petitioners challenge the reasoning of the Commission’s general approach as well as its specific computation of the $.066 cost differential.
*608 II. Analysis
A. Ripeness
All parties agree that the Second Order is a final order definitively establishing the disputed compensation rate. There is therefore no doubt that the court has jurisdiction to resolve the petitions for review. Although some parties other than Petitioners here have filed pending petitions for reconsideration before the Commission challenging the computation of the $.066 cost differential, neither the Commission nor the parties in the instant case contend that the matter before us is unripe for judicial disposition. Indeed, during oral argument, most counsel seemed to agree that prudential considerations militate in favor of a prompt judicial decision. We agree.
There is no reason for the court to delay deciding the issues now before us. This case presents a concrete legal issue regarding the reasonableness of the methodology used to derive the $.284 rate. This is a question that is ripe for judicial review.
See Better Government Ass’n v. Department of State,
B. Merits
Having examined the record thoroughly, we find the Commission’s explanation of its derivation of the $.284 rate plainly inadequate. ■ The Commission never explained why a market-based rate for coinless calls could be derived by subtracting costs from a rate charged for coin calls. If costs and rates depend on different factors, as they sometimes do, then this procedure would resemble subtracting apples from oranges. If the Commission simply subtracted one quantity from another, logically independent quantity, its action was unreasoned.
During oral argument, it was suggested that paragraph 42 of the Second Order suffices to justify the Commission’s position in this ease. See Second Order ¶ 42, J.A. 1436. But in this paragraph the Commission merely says that “[t]he majority of the costs associated with a payphone are joint and common costs that are shared by the different types of calls made by means of the payphone.... By making no adjustment to the coin rate for these costs, we conclude that each call placed at a payphone should bear an equal share of joint and common costs.” This reasoning is utterly unhelpful in explaining why the Commission is correct in assuming that the “market rate” for coinless calls, from which costs are deducted, should be the same as the rate for coin calls.
The Commission’s reasoning may have depended on the premise that the market rate for coin calls generally reflects the costs of those calls. This assumption would hold true in a competitive market in which costs and rate converge. Unfortunately, the Commission never went through the steps of connecting this premise with its reasoning in the Second Order. Nor did the Commission expressly claim that costs and rate do in fact converge in the coin call market: it merely rested on the assertion that “our approach continues to rely on market-based rate (the local coin rate).” Second Order ¶25, J.A. 1430. Some articulation of this crucial assumption was required, especially because the Commission itself has suggested that the assumption may not be accurate. The Commission acknowledged in the First Order that, because of locational monopolies and incomplete information endemic to the payphone market, the coin call rate may potentially diverge from coin call costs. See First Order ¶¶ 13-16, J.A. 226-28. In the Second Order, without explanation, the Commission merely declared itself “confident that market forces will keep payphone prices at competitive levels.” Second Order ¶ 118, J.A. 1469.
In principle, a market-based rate — as opposed to a cost-based rate — could satisfy the
*609
statutory fair compensation requirement.
See Illinois Public Telecom. Ass’n,
C. Remedy
Although we conclude that the Commission did not adequately explain the action at issue here, we exercise our discretion to remand the rule for further explanation without vacating it.
See A.L. Pharma, Inc. v. Shalala,
We choose not to vacate the $.284 rate on the clear understanding that if and when on remand the Commission establishes some different rate of fair compensation for coinless payphone calls, the Commission may order payphone service providers to refund to them customers any excess charges for coinless calls collected pursuant to the current rate. The Commission itself has acknowledged that it has the authority to adjust the compensation rate retroactively “should the equities so dictate.”
See Pleading Cycle Established for Comment on Remand Issues in the Payphone Proceeding,
CC Docket No. 96-128, FCC 97-1673 (Aug. 5, 1997),
reprinted in
J.A. 572;
see also In the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996,
Memorandum Opinion and Order, CC Docket No. 98-128, FCC 98-642,
It is clear that the Commission has the authority to order refunds where overcompensation has occurred, on the basis of the statutory provision permitting the Commission to take such actions “as may be necessary in the execution of its functions.” 47 U.S.C. § 154(i) (1994). In addition, the Telecommunications Act of 1996 requires the Commission to “take all actions necessary (including any reconsideration)” to promulgate regulations to ensure fair compensation to payphone service providers. See 47 U.S.C. § 276(b)(1). This language authorizes the Commission to order refunds where doing so is necessary to ensure fair compensation.
III. Conclusion
The Commission’s order is remanded for further proceedings consistent with the decision of the court.
*610 Petition for review granted in part; case remanded for further proceedings.