United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 22, 1999 Decided March 24, 2000
No. 99-1094
Bell Atlantic Telephone Companies,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
Telecommunications Resellers Association, et al.,
Intervenors
Consolidated with
99-1095, 99-1097, 99-1106, 99-1126,
99-1134, 99-1136, 99-1145,
On Petitions for Review of a Declaratory Ruling of the
Federal Communications Commission
---------
Mark L. Evans and Darryl M. Bradford argued the causes
for petitioners. With them on the briefs were Thomas F.
O'Neil, III, Adam H. Charnes, Mark B. Ehrlich, Donald B.
Verrilli, Jr., Jodie L. Kelley, John J. Hamill, Emily M.
Williams, Theodore Case Whitehouse, Thomas Jones, Albert
H. Kramer, Andrew D. Lipman, Richard M. Rindler, Robert
M. McDowell, Robert D. Vandiver, Cynthia Brown Miller,
Charles C. Hunter, Catherine M. Hannan, Michael D. Hays,
Laura H. Phillips, J. G. Harrington, William P. Barr, M.
Edward Whelan, III, Michael K. Kellogg, Michael E. Glover,
Robert B. McKenna, William T. Lake, John H. Harwood, II,
Jonathan J. Frankel, Robert Sutherland, William B. Bar-
field, Theodore A. Livingston and John E. Muench. Maureen
F. Del Duca, Lynn R. Charytan, Gail L. Polivy, John F.
Raposa and Lawrence W. Katz entered appearances.
Christopher J. Wright, General Counsel, Federal Commu-
nications Commission, argued the cause for respondents.
With him on the brief were Daniel M. Armstrong, Associate
General Counsel, and John E. Ingle, Laurence N. Bourne and
Lisa S. Gelb, Counsel. Catherine G. O'Sullivan and Nancy
C. Garrison, Attorneys, U.S. Department of Justice, entered
appearances.
David L. Lawson argued the cause for intervenors in
opposition to the LEC petitioners. With him on the brief
were Mark C. Rosenblum, David W. Carpenter, James P.
Young, Emily M. Wiliams, Andrew D. Lipman, Richard M.
Rindler, Robert D. Vandiver, Cynthia Brown Miller, Theo-
dore Case Whitehouse, Thomas Jones, John D. Seiver,
Charles C. Hunter, Catherine M. Hannan, Carol Ann Bis-
choff and Robert M. McDowell.
William P. Barr, M. Edward Whelan, Michael E. Glover,
Mark L. Evans, Michael K. Kellogg, Mark D. Roellig, Dan
Poole, Robert B. McKenna, William T. Lake, John H. Har-
wood, II, Jonathan J. Frankel, Robert Sutherland, William
B. Barfield, Theodore A. Livingston and John E. Muench
were on the brief for the Local Exchange Carrier intervenors.
Robert J. Aamoth, Ellen S. Levine, Charles D. Gray,
James B. Ramsay, Jonathan J. Nadler, David A. Gross,
Curtis T. White, Edward Hayes, Jr., and David M. Janas
entered appearances for intervenors
Before: Williams, Sentelle and Randolph, Circuit
Judges.
Opinion for the Court filed by Circuit Judge Williams.
Williams, Circuit Judge: The Telecommunications Act of
1996, Pub. L. No. 104-104, 110 Stat. 56, 47 U.S.C. ss 151-714,
requires local exchange carriers ("LECs") to "establish recip-
rocal compensation arrangements for the transport and ter-
mination of telecommunications." Id. s 251(b)(5). When
LECs collaborate to complete a call, this provision ensures
compensation both for the originating LEC, which receives
payment from the end-user, and for the recipient's LEC. By
regulation the Commission has limited the scope of the recip-
rocal compensation requirement to "local telecommunications
traffic." 47 CFR s 51.701(a). In the ruling under review, it
considered whether calls to internet service providers
("ISPs") within the caller's local calling area are themselves
"local." In doing so it applied its so-called "end-to-end"
analysis, noting that the communication characteristically will
ultimately (if indirectly) extend beyond the ISP to websites
out-of-state and around the world. Accordingly it found the
calls non-local. See In the Matter of Implementation of the
Local Competition Provisions in the Telecommunications
Act of 1996, Intercarrier Compensation for ISP-Bound Traf-
fic, 14 FCC Rcd 3689, 3690 (p 1) (1999) ("FCC Ruling").
Having thus taken the calls to ISPs out of s 251(b)(5)'s
provision for "reciprocal compensation" (as it interpreted it),
the Commission could nonetheless itself have set rates for
such calls, but it elected not to. In a Notice of Proposed
Rulemaking, CC Docket 99-68, the Commission tentatively
concluded that "a negotiation process, driven by market
forces, is more likely to lead to efficient outcomes than are
rates set by regulation," FCC Ruling, 14 FCC Rcd at 3707
(p 29), but for the nonce it left open the matter of implement-
ing a system of federal controls. It observed that in the
meantime parties may voluntarily include reciprocal compen-
sation provisions in their interconnection agreements, and
that state commissions, which have authority to arbitrate
disputes over such agreements, can construe the agreements
as requiring such compensation; indeed, even when the
agreements of interconnecting LECs include no linguistic
hook for such a requirement, the commissions can find that
reciprocal compensation is appropriate. FCC Ruling, 14
FCC Rcd at 3703-05 (p p 24-25); see s 251(b)(1) (establishing
such authority). "[A]ny such arbitration," it added, "must be
consistent with governing federal law." FCC Ruling, 14 FCC
Rcd at 3705 (p 25).
This outcome left at least two unhappy groups. One, led
by Bell Atlantic, consists of incumbent LECs (the "incum-
bents"). Quite content with the Commission's finding of
s 251(b)(5)'s inapplicability, the incumbents objected to its
conclusion that in the absence of federal regulation state
commissions have the authority to impose reciprocal compen-
sation. Although the Commission's new rulemaking on the
subject may eventuate in a rule that preempts the states'
authority, the incumbents object to being left at the mercy of
state commissions until that (hypothetical) time, arguing that
the commissions have mandated exorbitant compensation. In
particular, the incumbents, who are paid a flat monthly fee,
have generally been forced to provide compensation for inter-
net calls on a per-minute basis. Given the average length of
such calls the cost can be substantial, and since ISPs do not
make outgoing calls, this compensation is hardly "reciprocal."
Another group, led by MCI WorldCom, consists of firms
that are seeking to compete with the incumbent LECs and
which provide local exchange telecommunications services to
ISPs (the "competitors"). These firms, which stand to re-
ceive reciprocal compensation on ISP-bound calls, petitioned
for review with the complaint that the Commission erred in
finding that the calls weren't covered by s 251(b)(5).
The end-to-end analysis applied by the Commission here is
one that it has traditionally used to determine whether a call
is within its interstate jurisdiction. Here it used the analysis
for quite a different purpose, without explaining why such an
extension made sense in terms of the statute or the Commis-
sion's own regulations. Because of this gap, we vacate the
ruling and remand the case for want of reasoned decision-
making.
* * *
In February 1996 Congress passed the Telecommunications
Act of 1996 (the "1996 Act" or the "Act"), stating an intent to
open local telephone markets to competition. See H.R. Conf.
Rep. No. 104-458, at 113 (1996). Whereas before local ex-
change carriers generally had state-licensed monopolies in
each local service area, the 1996 Act set out to ensure that
"[s]tates may no longer enforce laws that impede[ ] competi-
tion," and subjected incumbent LECs "to a host of duties
intended to facilitate market entry." AT&T Corp. v. Iowa
Utils. Bd., 119 S. Ct. 721, 726 (1999).
Among the duties of incumbent LECs is to "provide, for
the facilities and equipment of any requesting telecommunica-
tions carrier, interconnection with the local exchange carrier's
network ... for the transmission and routing of telephone
exchange service and exchange access." 47 U.S.C.
s 251(c)(2). ("Telephone exchange service" and "exchange
access" are words of art to which we shall later return.)
Competitor LECs have sprung into being as a result, and
their customers call, and receive calls from, customers of the
incumbents.
We have already noted that s 251(b)(5) of the Act estab-
lishes the duty among local exchange carriers "to establish
reciprocal compensation arrangements for the transport and
termination of telecommunications." 47 U.S.C. s 251(b)(5).
Thus, when a customer of LEC A calls a customer of LEC B,
LEC A must pay LEC B for completing the call, a cost
usually paid on a per-minute basis. Although s 251(b)(5)
purports to extend reciprocal compensation to all "telecom-
munications," the Commission has construed the reciprocal
compensation requirement as limited to local traffic. See 47
CFR s 51.701(a) ("The provisions of this subpart apply to
reciprocal compensation for transport and termination of local
telecommunications traffic between LECs and other telecom-
munications carriers."). LECs that originate or terminate
long-distance calls continue to be compensated with "access
charges," as they were before the 1996 Act. Unlike recipro-
cal compensation, these access charges are not paid by the
originating LEC. Instead, the long-distance carrier itself
pays both the LEC that originates the call and links the caller
to the long distance network, and the LEC that terminates
the call. See In the Matter of Implementation of the Local
Competition Provisions in the Telecommunications Act of
1996, 11 FCC Rcd 15499, 16013 (p 1034) (1996) ("Local Com-
petition Order").
The present case took the Commission beyond these tradi-
tional telephone service boundaries. The internet is "an
international network of interconnected computers that en-
ables millions of people to communicate with one another in
'cyberspace' and to access vast amounts of information from
around the world." Reno v. ACLU, 521 U.S. 844, 844 (1997).
Unlike the conventional "circuit-switched network," which
uses a single end-to-end path for each transmission, the
internet is a "distributed packet-switched network, which
means that information is split up into small chunks or
'packets' that are individually routed through the most effi-
cient path to their destination." In the Matter of Federal-
State Joint Board on Universal Service, 13 FCC Rcd 11501,
11532 (p 64) (1998) ("Universal Service Report"). ISPs are
entities that allow their customers access to the internet.
Such a customer, an "end user" of the telephone system, will
use a computer and modem to place a call to the ISP server
in his local calling area. He will usually pay a flat monthly
fee to the ISP (above the flat fee already paid to his LEC for
use of the local exchange network). The ISP "typically
purchases business lines from a LEC, for which it pays a flat
monthly fee that allows unlimited incoming calls." FCC
Ruling, 14 FCC Rcd at 3691 (p 4).
In the ruling now under review, the Commission concluded
that s 251(b)(5) does not impose reciprocal compensation
requirements on incumbent LECs for ISP-bound traffic.
FCC Ruling, 14 FCC Rcd at 3690 (p 1). Faced with the
question whether such traffic is "local" for purposes of its
regulation limiting s 251(b)(5) reciprocal compensation to lo-
cal traffic, the Commission used the "end-to-end" analysis
that it has traditionally used for jurisdictional purposes to
determine whether particular traffic is interstate. Under this
method, it has focused on "the end points of the communica-
tion and consistently has rejected attempts to divide commu-
nications at any intermediate points of switching or exchanges
between carriers." FCC Ruling, 14 FCC Rcd at 3695 (p 10).
We save for later an analysis of the various FCC precedents
on which the Commission purported to rely in choosing this
mode of analysis.
Before actually applying that analysis, the Commission
brushed aside a statutory argument of the competitor LECs.
They argued that ISP-bound traffic must be either "telephone
exchange service," as defined in 47 U.S.C. s 153(47), or
"exchange access," as defined in s 153(16).1 It could not be
the latter, they reasoned, because ISPs do not assess toll
charges for the service (see id., "the offering of access ... for
the purpose of the origination or termination of telephone toll
services"), and therefore it must be the former, for which
reciprocal compensation is mandated. Here the Commis-
sion's answer was that it has consistently treated ISPs (and
ESPs generally) as "users of access service," while treating
them as end users merely for access charge purposes. FCC
Ruling, 14 FCC Rcd at 3701 (p 17).
__________
1 "Telephone exchange service" is defined as:
(A) service within a telephone exchange, or within a connect-
ed system of telephone exchanges within the same exchange
area operated to furnish to subscribers intercommunicating
service of the character ordinarily furnished by a single
exchange, and which is covered by the exchange service
charge, or (B) comparable service provided through a system
of switches, transmission equipment, or other facilities (or
combination thereof) by which a subscriber can originate and
terminate a telecommunications service.
47 U.S.C. s 153(47). "Exchange access" is defined as:
the offering of access to telephone exchange services or
facilities for the purpose of the origination or termination of
telephone toll services.
Id. s 153(16).
Having decided to use the "end-to-end" method, the Com-
mission considered whether ISP-bound traffic is, under this
method, in fact interstate. In a conventional "circuit-switched
network," the jurisdictional analysis is straightforward: a call
is intrastate if, and only if, it originates and terminates in the
same state. In a "packet-switched network," the analysis is
not so simple, as "[a]n Internet communication does not
necessarily have a point of 'termination' in the traditional
sense." FCC Ruling, 14 FCC Rcd at 3701-02 (p 18). In a
single session an end user may communicate with multiple
destination points, either sequentially or simultaneously. Al-
though these destinations are sometimes intrastate, the Com-
mission concluded that "a substantial portion of Internet
traffic involves accessing interstate or foreign websites." Id.
Thus reciprocal compensation was not due, and the issue of
compensation between the two local LECs was left initially to
the LECs involved, subject to state commissions' power to
order compensation in the "arbitration" proceedings, and, of
course to whatever may follow from the Commission's new
rulemaking on its own possible ratesetting.
* * *
The issue at the heart of this case is whether a call to an
ISP is local or long-distance. Neither category fits clearly.
The Commission has described local calls, on the one hand, as
those in which LECs collaborate to complete a call and are
compensated for their respective roles in completing the call,
and long-distance calls, on the other, as those in which the
LECs collaborate with a long-distance carrier, which itself
charges the end-user and pays out compensation to the
LECs. See Local Competition Order, 11 FCC Rcd at 16013
(p 1034) (1996).
Calls to ISPs are not quite local, because there is some
communication taking place between the ISP and out-of-state
websites. But they are not quite long-distance, because the
subsequent communication is not really a continuation, in the
conventional sense, of the initial call to the ISP. The Com-
mission's ruling rests squarely on its decision to employ an
end-to-end analysis for purposes of determining whether ISP-
traffic is local. There is no dispute that the Commission has
historically been justified in relying on this method when
determining whether a particular communication is jurisdic-
tionally interstate. But it has yet to provide an explanation
why this inquiry is relevant to discerning whether a call to an
ISP should fit within the local call model of two collaborating
LECs or the long-distance model of a long-distance carrier
collaborating with two LECs.
In fact, the extension of "end-to-end" analysis from juris-
dictional purposes to the present context yields intuitively
backwards results. Calls that are jurisdictionally intrastate
will be subject to the federal reciprocal compensation require-
ment, while calls that are interstate are not subject to federal
regulation but instead are left to potential state regulation.
The inconsistency is not necessarily fatal, since under the
1996 Act the Commission has jurisdiction to implement such
provisions as s 251, even if they are within the traditional
domain of the states. See AT&T Corp., 119 S. Ct. at 730.
But it reveals that arguments supporting use of the end-to-
end analysis in the jurisdictional analysis are not obviously
transferable to this context.
In attacking the Commission's classification of ISP-bound
calls as non-local for purposes of reciprocal compensation,
MCI WorldCom notes that under 47 CFR s 51.701(b)(1)
"telecommunications traffic" is local if it "originates and
terminates within a local service area." But, observes MCI
WorldCom, the Commission failed to apply, or even to men-
tion, its definition of "termination," namely "the switching of
traffic that is subject to section 251(b)(5) at the terminating
carrier's end office switch (or equivalent facility) and delivery
of that traffic from that switch to the called party's premises."
Local Competition Order, 11 FCC Rcd at 16015 (p 1040); 47
CFR s 51.701(d). Calls to ISPs appear to fit this definition:
the traffic is switched by the LEC whose customer is the ISP
and then delivered to the ISP, which is clearly the "called
party."
In its ruling the Commission avoided this result by analyz-
ing the communication on an end-to-end basis: "[T]he com-
munications at issue here do not terminate at the ISP's local
server ..., but continue to the ultimate destination or desti-
nations." FCC Ruling, 14 FCC Rcd at 3697 (p 12). But the
cases it relied on for using this analysis are not on point.
Both involved a single continuous communication, originated
by an end-user, switched by a long-distance communications
carrier, and eventually delivered to its destination. One,
Teleconnect Co. v. Bell Telephone Co., 10 FCC Rcd 1626
(1995), aff'd sub nom. Southwestern Bell Tel. Co. v. FCC, 116
F.3d 593 (D.C. Cir. 1997) ("Teleconnect"), involved an 800 call
to a long-distance carrier, which then routed the call to its
intended recipient. The other, In the Matter of Petition for
Emergency Relief and Declaratory Ruling Filed by the Bell-
South Corporation, 7 FCC Rcd 1619 (1992), considered a
voice mail service. Part of the service, the forwarding of the
call from the intended recipient's location to the voice mail
apparatus and service, occurred entirely within the subscrib-
er's state, and thus looked local. Looking "end-to-end,"
however, the Commission refused to focus on this portion of
the call but rather considered the service in its entirety (i.e.,
originating with the out-of-state caller leaving a message, or
the subscriber calling from out-of-state to retrieve messages).
Id. at 1621 (p 12).
ISPs, in contrast, are "information service providers," Uni-
versal Service Report, 13 FCC Rcd at 11532-33 (p 66), which
upon receiving a call originate further communications to
deliver and retrieve information to and from distant websites.
The Commission acknowledged in a footnote that the cases it
relied upon were distinguishable, but dismissed the problem
out-of-hand: "Although the cited cases involve interexchange
carriers rather than ISPs, and the Commission has observed
that 'it is not clear that [information service providers] use
the public switched network in a manner analogous to IXCs,'
Access Charge Reform Order, 12 FCC Rcd at 16133, the
Commission's observation does not affect the jurisdictional
analysis." FCC Ruling, 14 FCC Rcd at 3697 n.36 (p 12). It
is not clear how this helps the Commission. Even if the
difference between ISPs and traditional long-distance carriers
is irrelevant for jurisdictional purposes, it appears relevant
for purposes of reciprocal compensation. Although ISPs use
telecommunications to provide information service, they are
not themselves telecommunications providers (as are long-
distance carriers).
In this regard an ISP appears, as MCI WorldCom argued,
no different from many businesses, such as "pizza delivery
firms, travel reservation agencies, credit card verification
firms, or taxicab companies," which use a variety of communi-
cation services to provide their goods or services to their
customers. Comments of WorldCom, Inc. at 7 (July 17,
1997). Of course, the ISP's origination of telecommunications
as a result of the user's call is instantaneous (although
perhaps no more so than a credit card verification system or
a bank account information service). But this does not imply
that the original communication does not "terminate" at the
ISP. The Commission has not satisfactorily explained why
an ISP is not, for purposes of reciprocal compensation, "sim-
ply a communications-intensive business end user selling a
product to other consumer and business end-users." Id.
The Commission nevertheless argues that although the call
from the ISP to an out-of-state website is information service
for the end-user, it is telecommunications for the ISP, and
thus the telecommunications cannot be said to "terminate" at
the ISP. As the Commission states: "Even if, from the
perspective of the end user as customer, the telecommunica-
tions portion of an Internet call 'terminates' at the ISP's
server (and information service begins), the remaining portion
of the call would continue to constitute telecommunications
from the perspective of the ISP as customer." Commission's
Br. at 41. Once again, however, the mere fact that the ISP
originates further telecommunications does not imply that the
original telecommunication does not "terminate" at the ISP.
However sound the end-to-end analysis may be for jurisdic-
tional purposes, the Commission has not explained why view-
ing these linked telecommunications as continuous works for
purposes of reciprocal compensation.
Adding further confusion is a series of Commission rulings
dealing with a class, enhanced service providers ("ESPs"), of
which ISPs are a subclass. See FCC Ruling, 14 FCC Rcd at
3689 n.1 (p 1). ESPs, the precursors to the 1996 Act's
information service providers, offer data processing services,
linking customers and computers via the telephone network.
See MCI Telecommunications Corp. v. FCC, 57 F.3d 1136,
1138 (D.C. Cir. 1995).2 In its establishment of the access
charge system for long-distance calls, the Commission in 1983
exempted ESPs from the access charge system, thus in effect
treating them like end users rather than long-distance carri-
ers. See In the Matter of MTS & WATS Market Structure,
97 F.C.C.2d 682, 711-15 (p 77-83) (1983). It reaffirmed this
decision in 1991, explaining that it had "refrained from apply-
ing full access charges to ESPs out of concern that the
industry has continued to be affected by a number of signifi-
cant, potentially disruptive, and rapidly changing circum-
stances." In the Matter of Part 69 of the Commission's
Rules Relating to the Creation of Access Charge Subelements
for Open Network Architecture, 6 FCC Rcd 4524, 4534 (p 54)
(1991). In 1997 it again preserved the status quo. In the
Matter of Access Charge Reform, 12 FCC Rcd 15982 (1997)
("Access Charge Reform Order"). It justified the exemption
in terms of the goals of the 1996 Act, saying that its purpose
was to "preserve the vibrant and competitive free market that
presently exists for the Internet and other interactive com-
puter services." Id. at 16133 (p 344) (quoting 47 U.S.C.
s 230(b)(2)).
This classification of ESPs is something of an embarrass-
ment to the Commission's present ruling. As MCI World-
Com notes, the Commission acknowledged in the Access
Charge Reform Order that "given the evolution in [informa-
tion service provider] technologies and markets since we first
__________
2 The regulatory definition states that ESPs offer "services ...
which employ computer processing applications that act on the
format, content, code, protocol or similar aspects of the subscriber's
transmitted information; provide the subscriber additional, differ-
ent, or restructured information; or involve subscriber interaction
with stored information." 47 CFR s 64.702(a).
established access charges in the early 1980s, it is not clear
that [information service providers] use the public switched
network in a manner analogous to IXCs [inter-exchange
carriers]." 12 FCC Rcd at 16133 (p 345). It also referred to
calls to information service providers as "local." Id. at 16132
(p 342 n.502). And when this aspect of the Access Charge
Reform Order was challenged in the 8th Circuit, the Commis-
sion's briefwriters responded with a sharp differentiation
between such calls and ordinary long-distance calls covered
by the "end-to-end" analysis, and even used the analogy
employed by MCI WorldCom here--that a call to an informa-
tion service provider is really like a call to a local business
that then uses the telephone to order wares to meet the need.
Brief of FCC at 76, Southwestern Bell v. FCC, 153 F.3d 523
(8th Cir. 1998) (No. 97-2618). When accused of inconsistency
in the present matter, the Commission flipped the argument
on its head, arguing that its exemption of ESPs from access
charges actually confirms "its understanding that ESPs in
fact use interstate access service; otherwise, the exemption
would not be necessary." FCC Ruling, 14 FCC Rcd at 3700
(p 16). This is not very compelling. Although, to be sure, the
Commission used policy arguments to justify the "exemp-
tion," it also rested it on an acknowledgment of the real
differences between long-distance calls and calls to informa-
tion service providers. It is obscure why those have now
dropped out of the picture.
Because the Commission has not supplied a real explana-
tion for its decision to treat end-to-end analysis as controlling,
Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983); 5 U.S.C. s 706(2)(A),
we must vacate the ruling and remand the case.
There is an independent ground requiring remand--the fit
of the present rule within the governing statute. MCI
WorldCom says that ISP-traffic is "telephone exchange ser-
vice[ ]" as defined in 47 U.S.C. s 153(16), which it claims "is
synonymous under the Act with the service used to make
local phone calls," and emphatically not "exchange access" as
defined in 47 U.S.C. s 153(47). Petitioner MCI WorldCom's
Initial Br. at 22. In the only paragraph of the ruling in which
the Commission addressed this issue, it merely stated that it
"consistently has characterized ESPs as 'users of access
service' but has treated them as end users for pricing pur-
poses." FCC Ruling, 14 FCC Rcd at 3701 (p 17). In a
statutory world of "telephone exchange service" and "ex-
change access," which the Commission here says constitute
the only possibilities, the reference to "access service," com-
bining the different key words from the two terms before us,
sheds no light. "Access service" is in fact a pre-Act term,
defined as "services and facilities provided for the origination
or termination of any interstate or foreign telecommunica-
tion." 47 CFR s 69.2(b).
If the Commission meant to place ISP-traffic within a third
category, not "telephone exchange service" and not "exchange
access," that would conflict with its concession on appeal that
"exchange access" and "telephone exchange service" occupy
the field. But if it meant that just as ESPs were "users of
access service" but treated as end users for pricing purposes,
so too ISPs are users of exchange access, the Commission has
not provided a satisfactory explanation why this is the case.
In fact, in In the Matter of Implementation of the Non-
Accounting Safeguards of Sections 271 and 272 of the Com-
munications Act of 1934, as amended, 11 FCC Rcd 21905,
22023 (p 248) (1996), the Commission clearly stated that "ISPs
do not use exchange access." After oral argument in this
case the Commission overruled this determination, saying
that "non-carriers may be purchasers of those services." In
the Matter of Deployment of Wireline Services Offering
Advanced Telecommunications Capability, FCC 99-413, at
21 (p 43) (Dec. 23, 1999). The Commission relied on its pre-
Act orders in which it had determined that non-carriers can
use "access services," and concluded that there is no evidence
that Congress, in codifying "exchange access," intended to
depart from this understanding. See id. at 21-22 (p 44). The
Commission, however, did not make this argument in the
ruling under review.
Nor did the Commission even consider how regarding non-
carriers as purchasers of "exchange access" fits with the
statutory definition of that term. A call is "exchange access"
if offered "for the purpose of the origination or termination of
telephone toll services." 47 U.S.C. s 153(16). As MCI
WorldCom argued, ISPs provide information service rather
than telecommunications; as such, "ISPs connect to the local
network 'for the purpose of' providing information services,
not originating or terminating telephone toll services." Peti-
tioner MCI WorldCom's Reply Br. at 6.
The statute appears ambiguous as to whether calls to ISPs
fit within "exchange access" or "telephone exchange service,"
and on that view any agency interpretation would be subject
to judicial deference. See Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).
But, even though we review the agency's interpretation only
for reasonableness where Congress has not resolved the
issue, where a decision "is valid only as a determination of
policy or judgment which the agency alone is authorized to
make and which it has not made, a judicial judgment cannot
be made to do service." SEC v. Chenery Corp., 318 U.S. 80,
88 (1943). See also Acme Die Casting v. NLRB, 26 F.3d 162,
166 (D.C. Cir. 1994); Leeco, Inc. v. Hays, 965 F.2d 1081, 1085
(D.C. Cir. 1992); City of Kansas City v. Department of
Housing and Urban Development, 923 F.2d 188, 191-92 (D.C.
Cir. 1991).
* * *
Because the Commission has not provided a satisfactory
explanation why LECs that terminate calls to ISPs are not
properly seen as "terminat[ing] ... local telecommunications
traffic," and why such traffic is "exchange access" rather than
"telephone exchange service," we vacate the ruling and re-
mand the case to the Commission. We do not reach the
objections of the incumbent LECs--that s 251(b)(5)
preempts state commission authority to compel payments to
the competitor LECs; at present we have no adequately
explained classification of these communications, and in the
interim our vacatur of the Commission's ruling leaves the
incumbents free to seek relief from state-authorized compen-
sation that they believe to be wrongfully imposed.
So ordered.