At&T Corp. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 10, 2002 Decided June 14, 2002

No. 01-1467

AT&T Corporation,
Petitioner

v.

Federal Communications Commission and
United States of America,
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. Benderna-
gel Jr., Michael J. Hunseder, Mark C. Rosenblum, and Peter
H. Jacoby.

 Richard K. Welch, Counsel, Federal Communications Com-
mission, 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, Rob-
ert B. Nicholson and Marion Jetton, Attorneys, U.S. Depart-
ment of Justice.

Andrew D. Lipman, Russell M. Blau, David Cosson,
Glenn B. Manishin, Jonathan E. Canis, Timothy J. Fitzgib-
bon, Charles C. Hunter and Catherine M. Hannan were on
the brief for intervenors Association of Communications En-
terprises, 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 "interex-
change carriers" or "IXCs") generally do not directly connect
to their telephone customers. Rather, long-distance tele-
phone 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." Id. at 524. For example, if a customer in Washing-
ton, D.C., who subscribes to Verizon for local service and
AT&T for long-distance service, calls a relative in Florida,
who subscribes to Bellsouth for local service, the call initially

will travel over Verizon's facilities. Verizon will hand off the
call to AT&T's facilities, which will carry the call to Florida
before handing it off to Bellsouth's facilities for delivery to
the caller's relative. AT&T will charge the caller for the
telephone call, and will pay "originating" access charges to
Verizon and "terminating" access charges to BellSouth.
These interstate access charges--that is, the charges paid to
LECs by IXCs for local origination and termination of inter-
state long-distance telephone calls--are at the heart of this
case.

Until recently a single, incumbent local exchange carrier or
ILEC, whose access rates were regulated by the FCC, pro-
vided 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 com-
petitive local exchange carriers ("CLECs") into the local
exchange market. See In re Access Charge Reform, Seventh
Report and Order and Further Notice of Proposed Rulemak-
ing, 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." Id. at 9935. If an IXC wants to
provide long-distance service to customers of a CLEC's local
service, the IXC must utilize access services from that partic-
ular CLEC. Id. When "an end user decides to take service
from a particular LEC, that LEC controls an essential com-
ponent of the system that provides interexchange calls, and it
becomes the bottleneck for IXCs wishing to complete calls to,
or carry calls from, that end user." Id. In addition, the FCC
requires IXCs to geographically average their rates so as to
spread the cost of both originating and terminating access
over all their end users, thereby precluding IXCs from shift-
ing the burden of high CLEC access rates to those customers

who have chosen CLECs that charge unreasonably high
access rates. Id.

Taking advantage of their control over essential compo-
nents 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 August 27, 1999, the FCC
determined that a declaratory ruling was not the proper
vehicle to resolve the issue. See In re Access Charge Reform,

__________
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.

Fifth Report and Order, 14 F.C.C.R. 14221 (1999). Instead,
it decided to invite comments and initiate a rulemaking
regarding the reasonableness of CLEC access charges and
whether the FCC might adopt rules to address, by the least
intrusive means, any failure of market forces to constrain
CLEC access charges.2 Id.

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 January 5, 2000, in the
Eastern District of Virginia, the CLECs alleged that they
began providing originating and terminating access services
to AT&T in April 1997 and that AT&T paid for those services
at full tariffed rates until November 1998, when AT&T
stopped payment. See Advamtel, LLC v. AT&T Corp., No.
00-643-A (E.D. Va.). AT&T responded by denying that it
had ordered the services, and by asserting that in one in-
stance, it had canceled the service.

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. Id. at 807. The district court said
that if the FCC did not act within six months, the court would
proceed to trial and resolve the issues itself. Id.

__________
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. Id. at 9941. This order is the
subject of a separate petition for review in this court. See AT&T
Corp. v. FCC, No. 01-1244.

 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 s 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 s 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. Id. Because the
FCC had not held a hearing or issued a prospective order, the
district court entered partial summary judgment for AT&T
on the issue whether the FCC could compel AT&T to pur-
chase the access services in dispute, and it set the remaining
issues for trial. See Order in Advamtel, LLC v. AT&T Corp.,
No. 00-643-A (E.D. Va. Sept. 7, 2001), reprinted in Joint
Appendix at 359-61.

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." Id. at 19163. The FCC based its reasoning on the
first clause in s 201(a) of the Federal Communications Act,
which requires common carriers to accept a "reasonable
request" for service. See 47 U.S.C. s 201(a). According to
the FCC, during the period at issue, CLECs were required to
file tariffs and such filed tariffs were considered presumptive-
ly lawful. See Declaratory Ruling, 16 F.C.C.R. at 19163.
Therefore, IXCs must accept all requests "to complete a call
using CLEC access service that is tariffed at presumptively
reasonable rates." Id. at 19163-64.

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 U.S.A., Inc. v. Natural Res. Def.
Council, 467 U.S. 837 (1984).

 II.

The question before us is whether s 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 re-
quest therefor; and, in accordance with the orders of the
Commission, in cases where the Commission, after op-
portunity 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. s 201(a). The first clause of s 201(a)--the clause
preceding the semicolon--establishes the duty of every com-
mon carrier to furnish communication service upon "reason-
able 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 s 201(a) are
considered together, it is clear that the first clause of s 201(a)
concerns a carrier's obligations to its own customers' reason-
able requests and that the second clause concerns a carrier's
obligation to provide service in conjunction with other carri-
ers. See Brief of Petitioner at 16. This, according to AT&T,
means that it must provide service to customers upon "rea-
sonable 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 connec-
tion or through route with another carrier, then AT&T as-
serts that its duty to purchase access services from a CLEC
is limited to obeying any FCC order entered after the hear-
ing provided in the second clause of s 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 s 201(a) to provide the service--whether or not
providing that service would force the IXC to act in conjunc-
tion with other carriers without the hearing called for in the
second clause of s 201(a).

We reject the FCC's interpretation. The language of
s 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
s 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 s 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
s 201(a). This would allow the first clause in s 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 s 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 s 201(a) of the Act.").

The FCC gave the second clause of s 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 s 201(a). See Brief for Respondents at 27. Second, the
FCC asserts that the Specialized Common Carrier rulemak-

ing 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
s 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. s 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 U.S. 80, 88 (1943).

The petition for review is granted. The declaratory ruling
of the FCC is vacated.

So ordered.