MCI Worldcom Network Services, Inc. and MCImetro Access Transmission Services LLC, Petitioners
v.
Federal Communications Commission and United States of America, Respondents
Verizon Communications, Intervenor
No. 00-1406
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 1, 2001
Decided December 28, 2001
Petition for Review of an Order of the Federal Communications Commission
Jodie L. Kelley argued the cause for petitioners. With her on the briefs were Donald B. Verrilli Jr., Lara M. Flint, Thomas F. O'Neil III and William Single IV.
Rodger D. Citron, Counsel, Federal Communications Commission, argued the cause for respondent. On the brief were John Rogovin, Deputy General Counsel, John E. Ingle, Deputy Associate General Counsel, and Laurel R. Bergold, Counsel. Laurence N. Bourne, Counsel, Andrea Limmer and Catherine G. O'Sullivan, Attorneys, U.S. Department of Justice, entered appearances.
J.C. Rozendaal argued the cause for intervenor. With him on the brief were Mark L. Evans and Michael E. Glover.
Before: Ginsburg, Chief Judge, Sentelle and Randolph, Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge:
MCI Worldcom Network Services, Inc., and MCImetro Access Transmissions Services, LLC (collectively "MCI") petition this Court for review of the Federal Communications Commission's ("FCC" or "Commission") order dismissing its complaint against Bell Atlantic Corporation (now Verizon Communications, Inc.1), in which MCI alleged that Bell Atlantic violated the pricing requirement set forth by the FCC in its order approving the merger of Bell Atlantic and NYNEX Corporation. See Memorandum Opinion and Order, AT&T Corp. v. Bell Atlantic Corp., and MCI Telecommunications Corp., et al. v. Bell Atlantic Corp.,
I. Background
A. Statutory and Regulatory Framework
The Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C. §§ 151-276 ("the Act"), was enacted to bring about market competition in the local telephone service market. As part of its comprehensive scheme, it requires incumbent local telephone service providers to interconnect with new market entrants, and to allow these new entrants to lease elements that make up the local network to provide local telecommunications service. See 47 U.S.C. § 251 (2000). The Act mandates that the rates for interconnection and access to unbundled network elements be "just and reasonable" and "based ... on cost." Id. at § 252(d)(1). The Act further expressly provides that a "State [public utility] commission" must, in arbitration proceedings, "establish ... rates for interconnection, services, or network elements." Id. at § 252(c)(2). However, Congress empowered the FCC to prescribe the general methodology to be used by the state commissions in setting these rates. See id. at § 252(d)(1); AT&T Corp. v. Iowa Utils. Bd.,
Pursuant to section 252(d)(1), the FCC issued its Implementation of the Local Competition Provisions in the Telecommunications Act of 1996,
The Local Competition Order and the division of labor between the state commission and the FCC have been the subject of much litigation, with cases being consolidated in the U.S. Court of Appeals for the Eighth Circuit. See Iowa Utils. Bd. v. FCC,
B. The Bell Atlantic/NYNEX Merger
Bell Atlantic (which became Verizon as part of a subsequent merger with GTE Corporation) and NYNEX announced their intent to merge on April 23, 1996, and sought FCC approval of the transfer of licenses. On August 14, 1997, the FCC approved the merger, but with nine conditions that would remain in effect for a four-year period. See Memorandum Opinion and Order, Applications of NYNEX Corp., Transferor, and Bell Atlantic Corp., Transferee, For Consent to Transfer Control of NYNEX Corp. and Its Subsidiaries,
To the extent Bell Atlantic/NYNEX proposes rates, including in interconnection negotiations and arbitrations, for interconnection, transport and termination, or unbundled network elements, including both recurring and nonrecurring charges, any such proposal shall be based upon the forward-looking, economic cost to provide those items. Id. at 20111, p 6. The Merger Order was issued less than a month after the Eighth Circuit originally ruled that the FCC lacked authority to issue pricing methodology regulations binding on the states and vacated the FCC's pricing rules. See Dismissal Order,
C. Proceedings Below
A few months after the release of the Merger Order, AT&T Corporation and MCI filed formal complaints with the FCC pursuant to 47 U.S.C. § 208, alleging Bell Atlantic had committed various violations of Paragraph 6 of the Merger Order in seven different jurisdictions. See Dismissal Order, 15 FCC Rcd at 17067, p 4. AT&T and MCI argued that Bell Atlantic had not used TELRIC or a forward-looking cost methodology in setting rates. See id. at 17067-68, p 4. The complainants sought FCC enforcement of the Paragraph 6 pricing condition of the Merger Order against Bell Atlantic. Bell Atlantic moved for the FCC to dismiss or deny the complaints and pointed out that the complainants already had litigated whether Bell Atlantic's proposed rates were based on forward-looking costs in state arbitration proceedings pursuant to 47 U.S.C. 251 and 252. See Dismissal Order, 15 FCC Rcd at 17068, p 6. Specifically, Bell Atlantic argued that the complainants' claims were either moot, as state commissions had already set rates, or should be dismissed "on the basis of comity," out of respect for the dominant role the 1996 Act assigns the states in setting rates. See id. Bell Atlantic also contended that MCI's complaint was wrong on the merits in two respects: The Merger Order only required that rates be based "upon the forward-looking, economic cost" and not necessarily TELRIC; and Bell Atlantic's rate proposals were in fact based on forward-looking costs as well as the specific requirements of TELRIC. See id. at 17068, p p 5-6.
During 1998, the parties conducted discovery and filed merits briefs. In early 1999, after the Supreme Court issued its ruling in AT&T Corp. v. Iowa Utilities Board, the FCC requested supplemental briefing. In March 2000, AT&T petitioned this Court for a writ of mandamus, seeking an order directing the FCC to decide the complaints. In re AT&T Corp., No. 00-1133 (filed March 23, 2000), dismissed as moot, (D.C. Cir. Sept. 19, 2000). That petition was rendered moot when the FCC issued its order dismissing AT&T and MCI's complaints. See id.
In its Dismissal Order, the FCC observed that it had adopted Paragraph 6 of the Merger Order in light of the uncertainty created by the Eighth Circuit's vacatur of the generally applicable forward-looking pricing rules of the Local Competition Order in Iowa Utilities Board v. FCC, 120 F.3d 753 (8th Cir. 1997). See Dismissal Order, 15 FCC Rcd at 17069, p 9. It explained that Paragraph 6 was a gap-filling measure to replace the Local Competition Order, and that it was no longer necessary given the Supreme Court's reversal of the Eighth Circuit. See id. at 17071, p 12.
The FCC stated that the regulatory objective underlying Paragraph 6 had been satisfied both by the state commissions' adoption of forward-looking pricing standards and the Supreme Court's reversal. See id. at 17069-70, p 10. It rejected the argument that Paragraph 6 required the use of TELRIC. Rather, the Merger Order only required the use of a forward-looking cost methodology, without specifying any particular version. See id. at 17071-72, p 13. The FCC observed that Paragraph 6 imposes "no cost methodology requirement that is not independently applicable in section 252 proceedings," and therefore "the substance of the pricing methodology that the state commissions have employed (and must continue to employ) in section 252 proceedings wholly subsumes the substance of the merger condition [in Paragraph 6.]" Id. at 17071, p 12 (emphasis added). The only question remaining was "whether, as a procedural matter, the merger condition compels [the FCC] to duplicate the rate inquiry that Congress entrusted to the state commissions and the federal courts on review." Id. The Commission concluded that duplication of the rate inquiry entrusted to the state commissions by statute "could unnecessarily raise substantial comity concerns," and rejected the argument that the Merger Order required it to adjudicate Bell Atlantic's compliance with Paragraph 6 through a section 208 proceeding. Id. Instead, it ruled that a section 208 proceeding was inappropriate because the "merger condition was designed to ensure the use of a forward-looking cost methodology as a substantive matter; it was not independently designed to bypass the statutory procedural framework for ensuring compliance with that methodology under section 252." Id. (emphasis added). The Commission dismissed MCI's and AT&T's complaints with prejudice. Id. at 17072, p 14.
MCI sought review of the Dismissal Order in this Court. AT&T did not.
II. Analysis
MCI contends that the Dismissal Order "represents a fundamental departure from prior policy, effectively eliminating a critical requirement imposed on Bell Atlantic as a condition of the Commission's approval of the Bell AtlanticNYNEX merger." Thus, at the heart of the dispute, MCI argues that the FCC failed to provide an adequate explanation for this alleged departure, and therefore the Dismissal Order is arbitrary and capricious.
The Dismissal Order is subject to reversal if the agency's action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A) (2000). This is a " 'deferential standard' that 'presume[s] the validity of agency action.' " Global NAPs, Inc. v. FCC, 247 F.3d 252, 257 (D.C. Cir. 2001) (quoting Southwestern Bell Tel. Co. v. FCC,
In this case, the FCC contends that the purpose of its Merger Order was to ensure, insofar as possible in light of the uncertainty created by the Eighth Circuit's (now-overruled) jurisdictional ruling in Iowa Utilities Board v. FCC, 120 F.3d 753 (8th Cir. 1997), that "Bell Atlantic-NYNEX's rates would be based upon a forward-looking cost methodology." Thus the purpose was a substantive one, not intended to create a procedural bypass of the section 252 procedure specified by Congress. However, the FCC submits that those objectives were achieved, both by the voluntary actions of all of the relevant state commissions and by the reinstatement of the general forward-looking cost requirement of the pricing rules by the Supreme Court. See Dismissal Order,
Therefore, the FCC submits that this case "is not about whether the Commission should or will continue to require Bell Atlantic-NYNEX to base it rates upon forward-looking costs." There has been no change in its policy, as the Local Competition Order affirmatively obligates all Local Exchange Carriers ("LECs"), including Bell Atlantic, to base their interconnection and element rates upon a forward-looking cost methodology. In short, the FCC reasons that it did not decide that Bell Atlantic-NYNEX should be free of the substantive requirement that it base its rates upon forwardlooking costs; instead, it dismissed MCI's complaint because MCI can obtain (and, in the relevant states, either has obtained or is in the process of obtaining) redress for any violations of the forward-looking cost requirement by Bell Atlantic-NYNEX through the section 252 process.
In the Merger Order, the Commission did suggest that MCI could seek enforcement of the order through a proceeding other than that specified in § 252. Specifically, the Commission observed that MCI could object to a violation through, for example, a complaint pursuant to § 208, opposition to an application by Bell Atlantic for a radio license under § 309, or opposition to an application for a certificate of convenience and necessity under § 214. See Merger Order,
We have recognized that the Commission is "entitled to reconsider and revise its views as to the public interest and the means to protect that interest," so long as it gives a reasoned explanation for the revision. DirecTV, Inc. v. FCC,
The Commission noted that MCI took the opportunity to litigate in each of the seven relevant state jurisdictions on whether Bell Atlantic-NYNEX's rates are based upon forward-looking costs, and presented the same substantive arguments that it now asks the FCC to adjudicate in its section 208 complaint. See Dismissal Order,
Given the presumption of validity and the high level of deference due to an agency in interpreting its own orders and regulations, see Southwest Gas Corp.,
Moreover, all parties fully recognize Bell AtlanticNYNEX's legal obligation to base its rate upon forwardlooking costs. Although some uncertainty lingers as to the future of TELRIC, all the Merger Order requires is the use of a forward-looking methodology. See Dismissal Order, 15 FCC Rcd at 17071-72, p 13. Therefore, as noted by the FCC, the dispute between MCI and Bell Atlantic "centers upon factual issues," and will center upon those factual issues whether the case is litigated before the FCC as a section 208 proceeding or state commissions through the section 252 process. At issue are prices for complex network elements and inputs--and each category would have to be calculated for each of the seven jurisdictions, taking into account the unique circumstances in each location. The Commission's task in adjudicating the merits of MCI's complaint thus would be larger than the task confronting any individual state commission. Contrary to MCI's assertion, there is no great streamlining to be gained should the FCC adjudicate the issue, as it would have to consider the relevant facts on a state-by-state basis too. The FCC is reasonable in its conclusion that these disputes are as readily resolved in the section 252 process as in a section 208 complaint. See Dismissal Order,
III. Conclusion
The FCC's Dismissal Order does not work a change in the Commission's substantive policy of requiring incumbent carriers to use a forward-looking methodology in determining interconnection rates for new market entrants. The FCC's determination that the conditions imposed in Paragraph 6 of the Merger Order were "wholly subsume[d]" by the Supreme Court's reinstatement of the Local Competition Order is not unreasonable. See Dismissal Order,