Acs of Anchorage, Inc. v. F.C.C.

Decision Date21 May 2002
Docket NumberNo. 01-1059.,01-1059.
Citation290 F.3d 403
PartiesACS OF ANCHORAGE, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. General Communication, Inc., Intervenor.
CourtU.S. Court of Appeals — District of Columbia Circuit

Richard P. Bress argued the cause for petitioner. With him on the briefs were Karen Brinkmann and Richard R. Cameron.

Jeffrey J. Peck and David W. Zesiger were on the brief for amicus curiae Independent Telephone and Telecommunications Alliance in support of petitioner. Lewis A. Tollin entered an appearance.

John E. Ingle, Deputy Associate General Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Laurel R. Bergold, Counsel, Federal Communications Commission, and Charles A. James, Assistant Attorney General, and Robert B. Nicholson and Robert Wiggers, Attorneys, U.S. Department of Justice. Laurence N. Bourne, Counsel, Federal Communications Commission, entered an appearance.

Joe D. Edge argued the cause and filed the brief for intervenor General Communication, Inc. With him on the brief were Tina M. Pidgeon and Kathleen S. O'Neill.

Before: EDWARDS and RANDOLPH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Senior Circuit Judge:

Petitioner ACS of Anchorage, Inc. challenges a Federal Communications Commission order finding that ACS exceeded its permissible rate of return for 1997-98. As a remedy, the Commission ordered ACS to pay damages plus prejudgment interest to a complaining customer, General Communications, Inc. ("GCI"). See In re General Communication, Inc. v. Alaska Communications Systems Holdings, Inc., Memorandum Opinion and Order, FCC 01-32, at 2, ¶ 1 (Jan. 24, 2001) ("Order"); id. at 31, ¶ 77. ACS poses three claims. First, it says that the Commission erroneously required it to allocate to its intrastate services the traffic-sensitive costs associated with calls to internet service providers ("ISPs"). Second, it argues that even if the Commission were right on that issue, ACS's filing of tariffs under 47 U.S.C. § 204(a)(3), a provision for "streamlined tariffs," barred any damages for overcharges for the period those tariffs were in effect, namely calendar year 1998. See In re Implementation of Section 402(b)(1)(A) of the Telecommunications Act of 1996, Report and Order, 12 FCC Rcd 2170 (1997) ("Streamlined Tariff Order"). Third, as to any damages that were due, ACS challenges the rate chosen by the FCC for calculating prejudgment interest. We deny ACS's petition on the first issue, grant its petition on the second, and remand for further proceedings on the third.

* * *

ACS is the incumbent local exchange carrier ("LEC") in Anchorage, Alaska. Order at 3, ¶ 4. As a "rate-of-return" carrier (i.e., one whose rates are limited in terms of the rate of return rather than via price caps, see 47 C.F.R. § 65.1(b)), ACS files tariff rates for a two-year period, 47 C.F.R. § 69.3(a); the rates must be chosen with a view to yielding a rate of return no greater than the Commission-prescribed maximum. See In re Amendment of Parts 65 and 69 of the Commission's Rules to Reform the Interstate Rate of Return Represcription and Enforcement Processes, 10 FCC Rcd 6788, 6791-94, ¶¶ 7-12, 6847-48, ¶ 135 (1995). In addition, such carriers periodically submit monitoring reports showing their actual rates of return. 47 C.F.R. § 65.600. These reports may lead carriers to file revised rates, see 47 C.F.R. § 69.3(b), or cause the Commission to start proceedings under 47 U.S.C. § 205 to prescribe new rates "to be thereafter followed."

Three tariff filings by ACS are pertinent. In April 1996 it filed tariff rates for the two-year period from July 1, 1996 to June 30, 1998 (the "1997 Tariff"), and in December 1997 a "mid-course correction" tariff covering the balance of that period (January 1, 1998 to June 30, 1998) (the "January 1998 Tariff"). See 47 C.F.R. § 69.3(b) (permitting mid-course corrections); Southwestern Bell Telephone Co. v. FCC, 10 F.3d 892, 893-94 & n. 1 (D.C.Cir. 1993) (describing use of mid-course corrections). ACS filed the January 1998 Tariff under the streamlined tariff provisions of 47 U.S.C. § 204(a)(3), which in this instance required a 15-day notice period. Order at 4, ¶ 8. During this notice period, apparently, the Commission took no action to suspend the tariffs and initiate a hearing on the rates, see 47 U.S.C. § 204(a)(3) (cross-referencing 47 U.S.C. § 204(a)(1)), and the tariffs went into effect without any hearing being ordered.

In June 1998, ACS filed its rates for the two-year period from July 1, 1998 to June 30, 2000 (the "July 1998 Tariff"), also pursuant to the streamlined tariff provisions. The July 1998 Tariff, however, allocated to ACS's interstate service the traffic-sensitive switching costs associated with ISP calls. Order at 5, ¶ 9. Previously, ACS had treated ISP calls as intrastate. See id. at 5, ¶ 8 & n. 18; see also ACS Br. at 15. This accounting change had the effect of increasing ACS's reported interstate costs, thereby making its expected rate of return lower than it otherwise would have been. See Order at 17, ¶ 39. Again, however, the Commission took no action during the notice period, and the tariffs went into effect without any hearing being ordered.

In September 1999, ACS filed its final monitoring report for the two-year period from January 1, 1997 to December 31, 1998.1 The report continued to classify ISP-related traffic as interstate. Anchorage Telephone Utility, Rate of Return Report (Sept. 30, 1999); Order at 6, ¶ 11. Had ISP costs been classified as intrastate, ACS's cumulative rate of return would have been 26.66% or 32.12% (depending on other accounting practices not challenged here), see Order at 6, ¶ 12; Responses of Alaska Communications Systems Holding, Inc. and ACS of Anchorage, Inc. to Interrogatories, In re General Communication, Inc. v. Alaska Communications Systems Holdings Inc., File No. EB-00-MD-016, at ex. 1 (Oct. 20, 2000), well in excess of the prescribed maximum rate of return of 11.65%, see In re Represcribing the Authorized Rate of Return for Interstate Services of Local Exchange Carriers, 5 FCC Rcd 7507, ¶ 1 (1990) (prescribing maximum rate of return of 11.25%); 47 C.F.R. § 65.700(a) (stating that maximum allowable rate of return for any access service category is the prescribed rate of return plus 0.4%).

In August 2000, GCI filed a complaint with the Commission alleging that ACS had improperly calculated its interstate costs by treating ISP calls as interstate, and had violated its prescribed rate of return during the 1997-98 monitoring period. Order at 6-7, ¶ 13. The Commission agreed with GCI, id. at 10, ¶ 22, 20, ¶ 48, and ordered ACS to pay damages of about $2.7 million plus prejudgment interest assessed at the Internal Revenue Service's corporate overpayment rate, id. at 31, ¶ 77.

Petitioning for review, ACS challenges the Commission's classification of ISP calls, its failure to treat the § 204(a)(3) tariff filings as a bar to damages for 1998, and the rate selected for prejudgment interest.

* * *

ISP calls classification. Because the same telecommunications equipment is often used for both intrastate and interstate communications, carriers must apportion their costs (for regulatory purposes) through what is called the "separations" process. See generally 47 C.F.R. §§ 36.1-36.3. ACS argues that because FCC has previously recognized ISP calls as interstate for jurisdictional purposes under its "end-to-end" analysis, e.g., In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 14 FCC Rcd 3689, 3695-3703, ¶¶ 10-20 ("Reciprocal Compensation Order"), ISP calls should be interstate for separations purposes as well.

Of course, generally speaking, separations will follow jurisdiction. This basic norm is inherent in the separations formulas found at 47 C.F.R. § 36.125(a)(3), (a)(5) & (b), the Supreme Court's decision in Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 150-51, 51 S.Ct. 65, 69-70, 75 L.Ed. 255 (1930), and our decision in MCI Telecommunications Corp. v. FCC, 750 F.2d 135, 137, 140-41 (D.C.Cir.1984). But practical considerations may justify divergent treatment — at least temporarily. See Smith, 282 U.S. at 150, 51 S.Ct. at 69 (recognizing the "practical difficulty of dividing the property between interstate and intrastate services" and requiring "only reasonable measures" for separation). Indeed, in MCI, we explicitly upheld a deviation from the jurisdictional norm where the Commission was implementing (a) an interim ratemaking solution (b) justified by a substantial policy objective. MCI, 750 F.2d at 140-41.

While the Order does not explicitly invoke the MCI exception, we can reasonably discern the path from its reasoning and citations. See Bowman Transportation, Inc. v. Arkansas-Best Freight System Inc., 419 U.S. 281, 285-86, 95 S.Ct. 438, 441-42, 42 L.Ed.2d 447 (1974); Syracuse Peace Council v. FCC, 867 F.2d 654, 665 (D.C.Cir.1989). The interim nature of the decision is quite explicit — and, of course, a natural concomitant of the novelty of the internet itself. Compare, e.g., WorldCom v. FCC, No. 01-1218, 2002 WL 832541 (D.C.Cir. May 3, 2002). As the Order explains, the Commission views its treatment of ISP calls as derivative of its policy exempting ISPs and other enhanced service providers ("ESPs") from paying interstate "access" charges — the charges normally paid by an interexchange carrier ("IXC") such as AT&T and MCI for access to the LECs originating and terminating an interexchange call. Order at 8, ¶ 17, 14, ¶ 32. Insofar as the ESP exemption is clearly temporary, it follows that the intrastate...

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