United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 16, 2009 Decided January 12, 2010
No. 08-1365
CORE COMMUNICATIONS, INC.,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
EARTHLINK, INC., ET AL.,
INTERVENORS
Consolidated with 08-1393, 09-1044, 09-1046
On Petitions for Review of Orders
of the Federal Communications Commission
Michael B. Hazzard argued the cause for petitioner Core
Communications, Inc. and supporting intervenors. With him
on the briefs were Joseph P. Bowser, Adam D. Bowser,
Joshua M. Bobeck, and Ross A. Buntrock.
2
Jonathan D. Feinberg argued the cause for petitioners
People of the State of New York and Public Service
Commission of the State of New York, intervenors
Pennsylvania Public Utilities Commission and the National
Association of State Utility Consumer Advocates, and amicus
curiae Arizona Corporation Commission. On the briefs were
John C. Graham, James Bradford Ramsay, Robin K. Lunt,
David Cleveland Bergmann, Joseph Kevin Witmer, and
Maureen A. Scott.
Joshua M. Bobeck, Ross A. Buntrock, and Michael B.
Hazzard were on the brief for intervenors in support of
petitioners. Adam D. Bowser and Joseph P. Bowser entered
appearances.
Joseph R. Palmore, Deputy General Counsel, Federal
Communications Commission, argued the cause for
respondents. With him on the brief were Richard K. Welch,
Deputy Associate General Counsel, and Laurence N. Bourne,
Counsel. Nancy C. Garrison and Catherine G. O'Sullivan,
Attorneys, U.S. Department of Justice, and Daniel M.
Armstrong III, Associate General Counsel, Federal
Communications Commission, entered appearances.
Scott H. Angstreich argued the cause for intervenors in
support of respondents. With him on the brief were Michael
K. Kellogg, Kelly P. Dunbar, Michael E. Glover, Karen
Zacharia, Christopher M. Miller, Gary L. Phillips, John T.
Nakahata, Carl W. Northrop, Stephen B. Kinnaird, Timothy J.
Simeone, Joseph C. Cavender, and John E. Benedict. Robert
B. McKenna Jr. entered an appearance.
Before: SENTELLE, Chief Judge, WILLIAMS AND
RANDOLPH, Senior Circuit Judges.
3
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
WILLIAMS, Senior Circuit Judge: When a customer
accesses the internet via “dial-up,” his or her call goes to a
local exchange carrier (“LEC”), which commonly hands the
call off to another LEC, which in turn connects the customer
to an internet service provider (“ISP”).1 The ISP links the
customer to the web. At least as early as 1999 the Federal
Communications Commission was concerned that the
regulatory procedures under which the sending LEC
compensated the recipient LEC were leading to the imposition
of excessive rates, and that these rates in turn were distorting
the markets for internet and telephone services. The
Commission in due course responded with an alternative
regulatory regime, principally taking the form of rate caps set
well below the rates that had prevailed before.
In the order under review here, In the Matter of
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Developing a Unified
Intercarrier Compensation Regime, Intercarrier
Compensation for ISP-Bound Traffic (CC Docket Nos. 96-45,
96-98, 99-68, 99-200, 01-92), FCC 08-262, __ FCC Rcd __
(Nov. 5, 2008) (the “Order”), the Commission has set forth
the basis of its authority to institute the rate cap system,
namely, 47 U.S.C. § 201. That section (excerpted in an
appendix to this opinion) requires that the charges of “every
common carrier engaged in interstate or foreign
1
Data in the record suggest that dial-up, though being rapidly
replaced by various forms of higher-speed service, still accounts for
a non-trivial share of internet access: about 20.4% in 2007, 10.5%
in 2009, and (a prediction, obviously) 4.6% in 2014. Joint
Appendix 102.
4
communication by wire” for “such communication service” be
“just and reasonable,” and authorizes the Commission to
“prescribe such rules and regulations as may be necessary . . .
to carry out the provisions of this chapter.” Id. Petitioners
assail the Commission’s analysis on a variety of grounds,
most powerfully on the theory that §§ 251-252 of Title 47,
added by the Telecommunications Act of 1996, Pub.L. No.
104-104,110 Stat. 56, 47 U.S.C. §§ 151-714 (the “1996 Act”),
withdraw from the Commission whatever support § 201 might
have afforded its rate cap decision. Finding no legal error in
the Commission’s analysis, we affirm its order.
* * *
Before the FCC imposed a rate cap system, rates for the
transfer of calls from an originating LEC to the ISP’s LEC
were governed, in practice, by the “reciprocal compensation”
provisions of the 1996 Act. That act, in the interest of
opening the telephone market to competition, had imposed a
number of obligations on all local exchange carriers, including
a duty to “establish reciprocal compensation arrangements for
the transport and termination of telecommunications.” 47
U.S.C. § 251(b)(5). Reciprocal compensation arrangements
require that when a customer of one carrier makes a local call
to a customer of another carrier (which uses its facilities to
connect, or “terminate,” that call), the originating carrier must
compensate the terminating carrier for the use of its facilities.
See In re Core Communications, Inc., 455 F.3d 267, 270
(D.C. Cir. 2006) (“Core 2006”). Subsection 251(c) imposes
extra duties on “incumbent local exchange carriers”
(“ILECs”). (ILECs are a subset of LECs, comprising mainly
the Bell Operating Companies that succeeded to the local
operations of AT&T on the occasion of the latter’s dissolution
as a result of an antitrust settlement. See United States v.
AT&T, 552 F.Supp. 131 (D.D.C. 1982). “Competitive local
5
exchange carriers” (“CLECs”) constitute the remainder of the
LEC universe.) Among the § 251(c) obligations is a “duty to
negotiate in good faith in accordance with [§ 252] the
particular terms and conditions of agreements to fulfill the
duties described in” § 251(b), including the reciprocal
compensation obligations, and to provide interconnection with
its own “network” for requesting telecommunications carriers.
47 U.S.C. § 251(c). Section 252 allows ILECs to satisfy their
§ 251 obligations by privately negotiating terms with CLECs,
but also grants parties the right to refer the negotiations to
state commissions for mediation or arbitration.
The Order arises out of the Commission’s concern with
the results of applying the reciprocal compensation system to
ISP-bound traffic, a concern perhaps most clearly expressed in
an order responding to our initial remand of the matter:
Because traffic to ISPs flows one way, so does money in
a reciprocal compensation regime . . . . It was not long
before some LECs saw the opportunity to sign up ISPs as
customers and collect, rather than pay, compensation
because ISP modems do not generally call anyone. . . . In
some instances, this led to classic regulatory arbitrage
that had two troubling effects: (1) it created incentives for
inefficient entry of LECs intent on serving ISPs
exclusively and not offering viable local telephone
competition, as Congress had intended to facilitate with
the 1996 Act; (2) the large one-way flows of cash made it
possible for LECs serving ISPs to afford to pay their own
customers to use their services, potentially driving ISP
rates to consumers to uneconomical levels.
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Intercarrier Compensation
for ISP-Bound Traffic, 16 FCC Rcd 9151 (2001) (the “ISP
Remand Order”) ¶ 21.
6
The Commission’s first step into this arena was its
issuance of In the Matter of Implementation of the Local
Competition Provisions in the Telecommunications Act of
1996, Inter-carrier Compensation for ISP-Bound Traffic, 14
FCC Rcd 3689 (1999) (“Declaratory Ruling”). There it
applied its so-called “end-to-end” analysis (as it does in the
order under review), under which the classification of a
communication as local or interstate turns on whether its
origin and destination are in the same state. Because a
customer’s venture into the web characteristically reaches
servers out of state (and often out of the country), the
Commission concluded that under the end-to-end principle
dial-up internet traffic was interstate. Id. ¶ 18. As such traffic
was “jurisdictionally mixed,” id. ¶ 19, however, the
Commission chose not to disturb state commissions’
application of interconnection agreements to that traffic
“pending adoption of a rule establishing an appropriate
interstate compensation mechanism,” id. at ¶ 21. In review of
the order in Bell Atlantic Tel[]. Cos. v. FCC, 206 F.3d 1 (D.C.
Cir. 2000), we found the Commission’s conclusions in
apparent conflict with various prior statements, and possibly
with the statute; we vacated the order and remanded the
matter for its further analysis. Id. at 9.
On remand the Commission instituted substantially the
same rate cap system that it defends here. See ISP Remand
Order ¶ 8. But it claimed as supporting authority 47 U.S.C.
§ 251(g), which required LECs to comply with certain FCC
regulations promulgated prior to the enactment of the 1996
Act. In WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C. Cir.
2002), we rejected that claim, finding that § 251(g) was
“worded simply as a transitional device” and thus could not be
relied on for authority to promulgate new regulations. Id. at
430. Recognizing that the Commission’s rules might well
have other legal bases, however, we did not vacate the order.
Id. at 430, 434.
7
Between the ISP Remand Order and the present Order
there have been several additional visits to our court. In July
2003 Core Communications, Inc. (“Core”) petitioned the FCC
to forbear from enforcing its rate caps and associated
provisions, a petition that the FCC partly granted. Petition of
Core Communications, Inc. for Forbearance Under 47 U.S.C.
§ 160(c) from Application of the ISP Remand Order, 19 FCC
Rcd 20179, ¶¶ 23-24, ¶ 27 (2004). We upheld the order
against challenges by both CLECs and ILECs. Core 2006,
455 F.3d 267.
In June 2004 Core filed a petition seeking mandamus
requiring the FCC to respond to the WorldCom remand.
Based on the FCC’s representations about its efforts to meet
the remand, we denied Core’s petition “without prejudice to
refiling in the event of significant additional delay.” In re:
Core Communications, Inc., No. 04-1179 (D.C. Cir. May 24,
2005). In October 2007 Core filed a second petition, which
we granted, “direct[ing] the FCC to explain the legal basis for
its ISP-bound compensation rules within six months of” May
5, 2008. In re Core Communications, Inc., 531 F.3d 849, 850
(D.C. Cir. 2008) (“Core 2008”).
On the last permissible day, November 5, 2008, the FCC
released the current Order. Petitions for review followed,
filed by Core and by Public Service Commission of the State
of New York and National Association of Regulatory Utility
Commissioners (the “state petitioners”); we consolidated the
petitions.
* * *
As we noted at the outset, the Commission relies
primarily on § 201 for its authority to regulate ISP-bound
traffic. See Order ¶ 21. That section prohibits carriers
8
engaged in the delivery of interstate communications from
charging rates that are not “just and reasonable,” and grants
the FCC authority to prescribe regulations to implement the
1934 Act, which include all provisions of the 1996 Act. See
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 377-78 (1999)
(observing that “Congress expressly directed that the 1996
Act . . . be inserted into the Communications Act of 1934” and
holding that “the grant in § 201(b) means . . . [that] [t]he FCC
has rulemaking authority to carry out the ‘provisions of this
Act,’ which include §§ 251 and 252”). A savings clause
attached to § 251, namely § 251(i), fortifies the Commission’s
position, providing: “Nothing in this section shall be
construed to limit or otherwise affect the Commission’s
authority under section 201.” Further, all parties agree that
the familiar principles of Chevron USA v. Natural Resources
Defense Council, 467 U.S. 837 (1984), apply to the FCC’s
construction of the Communications Act. State Pet’rs Br. 8;
Core Pet’r Br. 27-28; Resp. Br. 19-20. Finally, except as
discussed below, the petitioners accept the end-to-end analysis
and its application to ISP-bound calls, as announced by the
Commission in the Declaratory Ruling in 1999 (described
above) and restated in the Order, ¶ 21 & n.69.
Against the Commission’s reliance on § 201, petitioners
claim that “Congress’s specific choice” on the matter of inter-
LEC compensation, manifested in §§ 251-252, must trump the
FCC’s “general rulemaking authority under section 201.”
Core Interv. Br. 18. They cite Norwest Bank Minnesota
National Association v. FDIC, 312 F.3d 447, 451 (D.C. Cir.
2002), for the “cardinal rule of statutory construction . . . that
where both a specific and a general provision cover the same
subject, the specific provision controls.” State Pet’r Br. 27.
But it is inaccurate to characterize § 201 as a general
grant of authority and §§ 251-252 as a specific one. “When
. . . two statutes apply to intersecting sets . . . , neither is more
9
specific.” Hemenway v. Peabody Coal Co., 159 F.3d 255,
264 (7th Cir. 1998). That is the case here. Not all inter-LEC
connections are used to deliver interstate communications,
just as not all interstate communications involve an inter-LEC
connection. A local call to chat with a schoolmate about the
evening’s homework would not—at least under conditions
typical today—involve interstate communications; and a
conventional interstate long distance call, while it will usually
involve interconnection between the long distance provider
and a LEC, will often not involve two LECs connecting
directly with each other. And, as to a LEC’s provision of
access for completion of a long-distance call, the parties agree
that the link between the LEC and the interexchange carrier is
not governed by the reciprocal compensation regime of
§ 251(b)(5). See State Pet’rs Br. 25-26 (citing Global NAPS,
Inc. v. Verizon New England, 444 F.3d 59, 62-63 (1st Cir.
2006), in turn quoting the FCC’s Local Competition
Provisions in the Telecommunications Act of 1996, 11 FCC
Rcd 15499 (1996).
Dial-up internet traffic is special because it involves
interstate communications that are delivered through local
calls; it thus simultaneously implicates the regimes of both
§ 201 and of §§ 251-252. Neither regime is a subset of the
other. They intersect, and dial-up internet traffic falls within
that intersection. Given this overlap, § 251(i)’s specific
saving of the Commission’s authority under § 201 against any
negative implications from § 251 renders the Commission’s
reading of the provisions at least reasonable.
Petitioners next argue that because the call to the ISP
terminates locally, the FCC’s authority over interstate
communications is inapplicable. State Pet’r Br. 30-33.
Section 251(b)(5) applies to “reciprocal compensation
arrangements for the transport and termination of
telecommunications.” Petitioners point to the FCC’s
10
definition (in the Order) of “terminat[ion]” as “the switching
of traffic that is subject to Section 251(b)(5) at the terminating
carrier’s end office switch . . . and delivery of that traffic to
the called party’s premises.” See Order ¶ 13; see also 47
C.F.R. § 51.701(d). State Pet’rs Br. 31-32. Because the
“called party” in the case of dial-up Internet traffic is the ISP,
petitioners say, the § 251(b)(5) telecommunications
“terminat[e]” locally and thus the FCC cannot apply its § 201
authority over these communications.
This argument fails because it implicitly assumes
inapplicability of the end-to-end analysis, which petitioners
have not challenged. And the FCC has consistently applied
that analysis to determine whether communications are
interstate for purposes of § 201. Petitioners do not dispute
that dial-up internet traffic extends from the ISP subscriber to
the internet, or that the communications, viewed in that light,
are interstate. Given that ISP-bound traffic lies at the
intersection of the § 201 and §§ 251-252 regime, it has no
significance for the FCC’s § 201 jurisdiction over interstate
communications that these telecommunications might be
deemed to “terminat[e]” at a LEC for purposes of § 251(b)(5).
Petitioners also appear indirectly to invoke the 8th
Circuit’s conclusion that while the FCC has authority to
impose a methodology on state commissions’ exercise of
power under § 252 (they specifically note “total element long-
run incremental cost” (“TELRIC”)), it has (for certain
purposes) no power to set actual prices. See State Pet’rs Br.
33, citing Iowa Utils. Bd. v. FCC, 219 F.3d 744, 757 (8th Cir.
2000). We take no position on the issue before the 8th
Circuit. It reached its finding for purposes quite different
from the present subject (FCC ratesetting authority for a leg of
an interstate communication), and it did not address the FCC’s
power to implement “just and reasonable” rates under § 201
or how that power was affected by §§ 251-252.
11
Petitioners further argue that it was “arbitrary and
capricious” for the FCC to “discriminate” against dial-up
internet traffic by requiring that LECs be compensated
pursuant to the rate cap regime when terminating such traffic,
but otherwise in accordance with state commissions’
application of the FCC’s TELRIC methodology. Core Pet’r
Br. 43-47; Core Interv. Br. 22-23. See 5 U.S.C. § 706(2)(A).
Our review under the arbitrary and capricious standard is
narrow. See Core 2006, 455 F.3d at 277. Here the agency
action passes handily.
The Commission has provided a solid grounding for the
differences between the treatment of inter-LEC compensation
for delivery of dial-up internet traffic and the regime generally
applicable to inter-LEC compensation under § 251(b)(5). (We
assume arguendo that the concept of discrimination is
relevant to regimes created under entirely different statutory
provisions.) In the context to which reciprocal compensation
is ordinarily applied, it noted, outgoing calls are generally
balanced by incoming ones, so that it matters relatively little
how accurately rates reflect costs. ISP Remand Order ¶ 69.
Such balance is utterly absent from ISP-bound traffic.
Moreover, it found that in fact the rates for such traffic were
so distorted that CLECs were in effect paying ISPs to become
their customers. Id. ¶ 70 & n.134; see also id. ¶ 21. To the
extent that ILECs simply passed the costs on to their
customers generally (rather than having a separate charge for
those making ISP-bound calls), they would force their non-
internet customers to subsidize those making ISP-bound calls,
and the system would send inaccurate price signals to those
using their facilities for internet access (in effect the ISPs and
their customers) and to those not doing so. Id. ¶¶ 68, 87. On
the other hand, the Commission believed that its “failure to act
. . . would lead to higher rates for Internet access, as ILECs
seek to recover their reciprocal compensation liability . . .
from their customers to call ISPs,” id. ¶ 87, presumably
12
meaning rates “higher” than cost, correctly computed. Thus
the continued application of the reciprocal compensation
regime to ISP-bound traffic would “undermine[] the operation
of competitive markets.” Id. ¶ 71.
Core purports to find a discrepancy between our
mandamus order and the Commission’s response. Our order
required the FCC to “explain[] the legal authority for the
Commission's interim intercarrier compensation rules that
exclude ISP-bound traffic from the reciprocal compensation
requirement of § 251(b)(5).” Core 2008, 531 F.3d at 862.
The Order, en route to finding that § 201 authorized the
Commission to impose its rate cap system on the
communications in question, also expressed its view that they
were “subject to the reciprocal compensation regime in
sections 251(b)(5) and 252(d)(2).” Order ¶15; see also id.
¶ 16. Core claims that in so finding the Commission violated
our mandate.
In context it is perfectly plain that our order sought
simply to have the FCC explain the reasoning underlying its
exercise of authority, not to preempt its analytical route. The
sort of argument made by Core here gives pettifoggery a bad
name.
Finally, we note the presence of a number of arguments
introduced outside of the petitioners’ opening briefs. Core
intervened in the appeal filed by the state petitioners before
we consolidated its separate appeal with the latter. Together
with other intervenors, Core filed a brief raising a number of
arguments that it did not raise as petitioner. As we explained
in Illinois Bell Telephone Company v. FCC, 911 F.2d 776
(D.C. Cir. 1990), “An intervening party may join issue only
on a matter that has been brought before the court by another
party.” Id. at 786 (emphasis added). While we acknowledged
in Synovus Financial Corporation v. Board of Governors, 952
13
F.2d 426 (D.C. Cir. 1991), that this rule is prudential and
“should not be applied categorically,” the grounds that
Synovus mentioned for making exceptions are absent here. Id.
at 434. Synovus allowed an intervenor who lacked incentive
to petition for review of the administrative action to present an
additional issue that was “an essential predicate to [a]
question” raised by petitioners. Id. at 434 (internal quotes
omitted). But Core not only had an incentive to petition for
review itself but did so. See United States Telephone
Association v. FCC, 188 F.3d 521, 531 (D.C. Cir. 1999)
(noting that intervenors not only failed to qualify for the
Synovus exception but “present[ed] no reason why it could not
have petitioned in its own right”). And the issues Core raises
as intervenor bear “no substantive connection” to the
challenges petitioners raise in their initial briefs. Synovus, 952
F.2d at 434; Cir. Rule 28(d)(2). Accordingly, we do not
consider the new arguments Core raises as intervenor.
Similarly, we do not consider arguments that first appear in
petitioners’ reply briefs. See, e.g., Bd. of Regents of the Univ.
of Washington v. EPA, 86 F.3d 1214, 1221 (D.C. Cir. 1996)
(“By failing to make any specific objection until their reply
brief, petitioners deprived the [respondents] of the opportunity
to respond. To prevent this . . . , we have generally held that
issues not raised until the reply brief are waived.”).
* * *
The petitions for review are
Denied.
14
Appendix: Text of 47 U.S.C. § 201
§ 201. Services and Charges.
(a) 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 therefore; 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.
(b) All charges, practices, classifications, and
regulations for and in connection with such
communication service, shall be just and reasonable, and
any such charge, practice, classification, or regulation that
is unjust or unreasonable is declared to be unlawful:
Provided, That communications by wire or radio subject
to this chapter may be classified into day, night, repeated,
unrepeated, letter, commercial, press, Government, and
such other classes as the Commission may decide to be
just and reasonable, and different charges may be made
for the different classes of communications . . . . The
Commission may prescribe such rules and regulations as
may be necessary in the public interest to carry out the
provisions of this chapter.
47 U.S.C. § 201 (emphasis added).