FOR THE
Argued
No. 01-1467
AT&T Corporation,
Petitioner
v.
Federal
Communications Commission and
Respondents
Association of Communications
Enterprises, et al.,
Intervenors
On Petition for
Review of an Order of the
Federal
Communications Commission
Peter D. Keisler
argued the cause for petitioner. With
him on the briefs were David W. Carpenter, James F. Bendernagel Jr., Michael J.
Hunseder, Mark C. Rosenblum, and Peter
H. Jacoby.
Richard K. Welch,
Counsel, Federal Communications Commission, argued the cause for
respondents. On the brief were Jane E.
Mago, General Counsel, John E. Ingle, Deputy Associate General Counsel, Rodger
D. Citron, Counsel, Robert B. Nicholson and Marion Jetton, Attorneys, U.S.
Department of Justice.
Andrew D. Lipman,
Russell M. Blau, David Cosson, Glenn B. Manishin, Jonathan E. Canis, Timothy J.
Fitzgibbon, Charles C. Hunter and Catherine M. Hannan were on the brief for
intervenors Association of Communications Enterprises, et al. Ronald J. Jarvis and Richard J. Metzger
entered appearances.
Before: Ginsburg, Chief Judge, Randolph and Tatel,
Circuit Judges.
Opinion for the Court
filed by Circuit Judge Randolph.
Randolph, Circuit
Judge: In October 2001, the FCC issued a
declaratory ruling holding that long-distance carriers have an obligation to
purchase interstate switched access services provided by competitive local
exchange carriers. See In re AT&T
& Sprint Petitions for Declaratory Ruling on CLEC Access Charge Issues, 16
F.C.C.R. 19158 (2001) ("Declaratory Ruling"). We now grant AT&T's petition for judicial
review of this ruling.
I.
Long-distance
telephone carriers (also called "interexchange carriers" or
"IXCs") generally do not directly connect to their telephone customers. Rather, long-distance telephone traffic is
ordinarily transmitted by a local exchange carrier (also called a
"LEC") from its originating customer to an IXC. See generally United States Tel. Ass'n v.
FCC, 188 F.3d 521, 523-24 (D.C. Cir. 1999).
Then the "IXC carries the traffic to its region of destination and
hands it off to the LEC there."
Until recently a
single, incumbent local exchange carrier or ILEC, whose access rates were
regulated by the FCC, provided all local exchange and exchange access services
in a particular region. See In re Access
Charge Reform, Sixth Report and Order, 15 F.C.C.R. 12962, 12965-67 (2000). The Telecommunications Act of 1996 allowed a
new class of competitive local exchange carriers ("CLECs") into the
local exchange market. See In re Access
Charge Reform, Seventh Report and Order and Further Notice of Proposed Rulemaking,
16 F.C.C.R. 9923, 9931 (2001). At first,
the FCC left CLECs largely free of the kind of rate regulation applied to
monopoly LECs. The assumption was that
CLECs' small market share would not allow them to charge unreasonable
rates. See id. at 9926. This assumption later proved to be incorrect
with respect to access charges because CLECs possess a "series of
bottleneck monopolies over access to each individual end user."
Taking advantage
of their control over essential components of the network, some CLECs began
charging access rates that were well above the rates ILECs charged for similar
services. See id. at 9931. While the access rates of some CLECs, for
example, were in excess of nine cents per minute, see id., the average
interstate access rate the ILECs charged in 2000 was around one cent per
minute. See Brief of Petitioner at 5.
Because of high
access rates, AT&T decided that it did not want to purchase access services
from certain CLECs, and it began taking steps to cut off its ties with these
companies. AT&T sent letters to
CLECs informing them that it would not submit an Access Service Request to a
CLEC unless AT&T and the CLEC reached an agreement regarding the access
rates to be charged. Nevertheless, some
CLECs continued to send long-distance calls from their customers to AT&T
and then billed AT&T for that traffic.
They were able to do so without AT&T's agreement because the CLECs
first routed their traffic to a tandem switch operated by the ILEC in their
area. By the time the call reached
AT&T's network, it was intermingled with the traffic of other carriers, and
AT&T was unable to identify and block the traffic on a CLEC-specific basis.[1]
In response to
the CLECs' actions, AT&T filed a petition with the FCC in October 1998 in
which it complained that numerous CLECs were charging excessive access rates
and refusing to negotiate with AT&T regarding those rates. AT&T requested a declaratory ruling that
existing law, policy and regulations do not require IXCs to purchase tariffed
access services from CLECs. On
Thereafter numerous CLECs initiated litigation
in federal court seeking to force IXCs, such as AT&T, to pay for access
charges incurred. See Seventh Rep. &
Order, 16 F.C.C.R. at 9932 n.56. In one
of the suits, filed
In January 2001,
the district court in Advamtel referred two legal issues to the FCC, invoking
the doctrine of primary jurisdiction.
See Advamtel, LLC v. Sprint Communications Co., 125 F. Supp. 2d 800
(E.D. Va. 2001). The two questions were: (1) whether any statutory or regulatory
constraints prevent an IXC from terminating or declining access services
ordered or constructively ordered; and
(2) if not, what steps IXCs must take to avoid ordering service or to cancel
service after it has been ordered.
When the FCC
failed to act within the allotted time, the district court decided to reach the
issues itself and ordered the parties to submit briefs on the issues. The court then held that the "plain
terms of § 201(a)" of the Communications Act do not "impose on
AT&T any duty to accept all access services." See Transcript of Motions Hearing Before
Judge Ellis in Advamtel, LLC v. AT&T Corp., No. 00-643-A, at 18, reprinted
in Joint Appendix at 342. Under § 201(a),
the FCC may order, on a prospective basis after opportunity for a hearing, an
IXC to provide service to end users and to establish connections with other
carriers.
Just weeks after
the district court issued its order, the FCC finally acted on the questions
referred to it by the district court.
See Declaratory Ruling, 16 F.C.C.R. at 19158. The FCC's ruling declared that "an IXC
cannot refuse to exchange originating or terminating [access] traffic with the
CLEC."
AT&T filed a
timely petition for review of the FCC's declaratory ruling, bringing the case
before us. Because the FCC's
interpretation of a statutory provision it administers is at issue, we now
review the FCC's declaratory ruling in accordance with Chevron
II.
The question
before us is whether § 201(a) permitted AT&T to refuse to purchase access
services from a CLEC when an end user has requested that AT&T provide
long-distance service through the CLEC.
Section 201(a) provides:
It shall be the duty of every common carrier engaged in
interstate or foreign communication by wire or radio to furnish such
communication service upon reasonable request therefor; and, in accordance with the orders of the
Commission, in cases where the Commission, after opportunity for hearing, finds
such action necessary or desirable in the public interest, to establish
physical connections with other carriers, to establish through routes and
charges applicable thereto and the divisions of such charges, and to establish and
provide facilities and regulations for operating such through routes.
47 U.S.C. § 201(a).
The first clause of § 201(a)--the clause preceding the semicolon--establishes
the duty of every common carrier to furnish communication service upon
"reasonable request." The
second clause--after the semicolon--provides that the FCC may order a carrier
to establish a through route only after opportunity for a hearing.
AT&T argues
that when both clauses of § 201(a) are considered together, it is clear that the
first clause of § 201(a) concerns a carrier's obligations to its own customers'
reasonable requests and that the second clause concerns a carrier's obligation
to provide service in conjunction with other carriers. See Brief of Petitioner at 16. This, according to AT&T, means that it
must provide service to customers upon "reasonable request" only when
doing so would not compel AT&T to act jointly with other carriers. See id.
When providing service would require AT&T to establish a physical
connection or through route with another carrier, then AT&T asserts that
its duty to purchase access services from a CLEC is limited to obeying any FCC
order entered after the hearing provided in the second clause of § 201(a). See id.
As against this, the FCC argues that when a customer makes a
"reasonable request" for service, IXCs are required by the first
clause of § 201(a) to provide the service--whether or not providing that
service would force the IXC to act in conjunction with other carriers without
the hearing called for in the second clause of § 201(a).
We reject the
FCC's interpretation. The language of § 201(a)
is clear: if the FCC wants to compel
AT&T to establish a through route with another carrier, then the FCC must
follow the procedures specified in the second clause of § 201(a). In ruling that AT&T was obligated to
purchase access services from CLECs, the FCC sought--without first having
followed the procedures specified in the second clause of § 201(a)--to compel
AT&T to establish a through route.
It cannot be that
a CLEC's demand to an IXC for a physical connection or a through route is a
request by the CLEC's customer for such service under the first clause of § 201(a). This would allow the first clause in § 201(a)
to render the second clause meaningless.
Yet all parts of a statute are to be given effect, see Weinberger v.
Hynson, Wescott & Dunning, 412 U.S. 609, 633 (1973), as the FCC recognized
long ago in regard to § 201(a). See
American Tel. & Tel. Co. & the Western Union Tel. Co., 5 Rad. Reg. (P
& F) 639, 659 (1949) (explaining that if a customer could effect the
establishment of a through route, this "would permit the customer to do at
will what this Commission cannot do without a finding, after opportunity for a
hearing, that such action is 'necessary or desirable in the public interest,'
and would result in a clear circumvention of the Congressional intent expressed
in § 201(a) of the Act.").
The FCC gave the
second clause of § 201(a) no more than one cursory paragraph's worth of
attention in its declaratory ruling. See
Declaratory Ruling, 16 F.C.C.R. at 19164-65.
On appeal the FCC offers three newly-discovered reasons why the second
clause does not change its analysis.
First, the FCC argues that AT&T voluntarily connected with the CLECs
and thus there was no need for the FCC to decide whether AT&T had a duty to
connect under the second clause of § 201(a).
See Brief for Respondents at 27.
Second, the FCC asserts that the Specialized Common Carrier rulemaking
proceeding requires LECs and IXCs to interconnect their networks. See id. at 28 (citing Specialized Common
Carrier, 29 F.C.C.2d 870 (1971)). Third,
the FCC claims that § 251(a)(1) of the Act, which requires telecommunications
carriers to interconnect with the facilities and equipment of other carriers,
imposes an interconnection duty on AT&T. See Brief for Respondents at 31
(citing 47 U.S.C. § 251(a)(1)). None of
these three assertions were relied upon--or for that matter even discussed--in
the FCC's declaratory ruling, and we therefore will not consider them. See SEC v. Chenery, 318
The petition for
review is granted. The declaratory
ruling of the FCC is vacated.
So ordered.
[1] At oral argument, AT&T's counsel stated that AT&T could have developed technology to sort out unwanted CLEC traffic but that this technology would have cost $35 to $40 million. See Transcript of Proceedings at 6.
[2] The
FCC eventually issued a rulemaking order requiring IXCs--strictly on a
prospective basis after April 2001--to purchase CLEC access services if the
rates are set at or below a benchmark
rate of 2.5 cents per minute, or the rate charged by
the competing ILEC, whichever is higher.
See Seventh Rep. & Order, 16 F.C.C.R. at 9925, 9941. The benchmark rate, the FCC declared, will
decline gradually over a three-year period.