People of State of Cal. v. F.C.C.
| Decision Date | 18 October 1994 |
| Docket Number | Nos. 92-70083,92-70186,92-70217 and 92-70261,s. 92-70083 |
| Citation | 39 F.3d 919 |
| Parties | The PEOPLE OF the STATE OF CALIFORNIA, et al., Petitioners, Public Service Commission of the District of Columbia, et al., Petitioners-Intervenors, v. FEDERAL COMMUNICATIONS COMMISSION, et al., Respondents, BellSouth Corporation, et al., Respondents-Intervenors. MCI TELECOMMUNICATIONS CORPORATION, Petitioner, Maryland People's Counsel, et al., Petitioners-Intervenors, v. FEDERAL COMMUNICATIONS COMMISSION, et al., Respondents, Voice-Tel Enterprises, Inc., et al., Respondents-Intervenors. STATE OF NEW YORK, et al., Petitioners, Maryland People's Counsel, et al., Petitioners-Intervenors, v. FEDERAL COMMUNICATIONS COMMISSION, et al., Respondents, Voice-Tel Enterprises, Inc., et al., Respondents-Intervenors. AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION ("ANPA"), et al., Petitioners, BellSouth Corporation, et al., Intervenors, v. FEDERAL COMMUNICATIONS COMMISSION, et al., Respondents. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard E. Wiley, Michael Yourshaw and William B. Baker, Wiley, Rein & Fielding, John F. Sturm, Washington, DC, for petitioners Newspaper Ass'n of America.
Frank W. Krogh, and Donald J. Elardo, Washington, DC, for petitioners MCI Telecommunications Corp.
Ellen S. LeVine, Peter Arth, Jr. and Edward W. O'Neill, San Francisco, CA, for petitioners People of State of Cal. and Public Utilities Com'n of State of Cal.
William J. Cowan, Albany, NY, Gen. Counsel to petitioner Public Service Com'n of State of N.Y.
Renee Licht, Daniel M. Armstrong, John E. Ingle, Laurence N. Bourne and James M. Carr, Washington, DC, for respondent F.C.C.
Anne K. Bingaman, Asst. Atty. Gen., Catherine G. O'Sullivan and Nancy C. Garrison, U.S. Dept. of Justice, for respondent U.S.
JoAnne G. Bloom, Hoffman Estates, IL, for Ill., Ind., Mich., Ohio, and Wis. Bell Telephone Companies.
Robert J. Butler and Angela Burnett, Washington, DC, for Information Industry Ass'n.
Joseph P. Markoski, Squire, Sanders & Dempsey, Washington, DC, for Information Technology Ass'n of America.
Martin T. McCue, Alfred W. Whittaker, Kirkland & Ellis, Washington, DC, for U.S. Telephone Assoc.
Mary McDermott and Shelley E. Harms, White Plains, NY, for New York and New England Telephone Companies.
Robert B. McKenna, Denver, CO, and Washington, DC, for U.S. West Communications, Inc.
M. Robert Sutherland, Atlanta, GA, for BellSouth Corp. and BellSouth Telecommunications, Inc.
John Thorne, Washington, DC, for Bell Atlantic Telephone Company.
James P. Tuthill, San Francisco, CA, James L. Wurtz, Washington, DC, for Pacific Bell and Nevada Bell.
Alfred W. Whittaker, Kirkland & Ellis, Washington, DC, for Bell Operating Companies.
Robert M. Lynch, Richard C. Hartgrove, Michael J. Zpevak, St. Louis, MO, for Southwestern Bell Telephone Co.
J. Roger Wollenberg, William T. Lake and Jonathan Jacob Nadler, Wilmer, Cutler & Pickering, Washington, DC, and Sheila J. McCartney, Stamford, CT, for Intern. Business Mach. Corp.
David W. Carpenter, Peter D. Keisler, Sidley & Austin, Chicago, IL, and Francine J. Berry, John J. Langhauser, Basking Ridge, NJ, for American Tel. & Tel. Co.
Robert L. Duston, Schmeltzer, Aptaker & Shepard, PC, Washington, DC, and John Glynn, Baltimore, MD, for Maryland People's Counsel.
Philip McClelland, Harrisburg, PA, for Pa. Office of Consumer Advocate.
Randolph J. May, Sutherland, Asbill & Brennan, Washington, DC, for Compuserve, Inc.
Paul Rodgers, Washington, DC, for Nat. Ass'n of Regulatory Utility Com'rs.
Veronica A. Smith, Harrisburg, PA, Pa. Public Utility Com'n.
Robert D. Vandiver, Tallahassee, FL, for Fla. Public Service Com'n Appeal from an Order of the Federal Communications Commission.
Before: SCHROEDER, NELSON, and CANBY, Jr., Circuit Judges.
I. INTRODUCTION
We review the order that the Federal Communications Commission entered as a result of our decision in California v. FCC, 905 F.2d 1217 (9th Cir.1990) (California I ). In that case, we remanded for reconsideration certain FCC orders, known as Computer III, 1 that specified the conditions under which the Regional Bell Operating Companies (BOCs) could provide enhanced computerized data services to their customers in addition to providing basic telephone service. Computer III eliminated earlier requirements that the BOCs maintain separate corporate structures for the provision of enhanced services. Because state regulations had also required structural separation, Computer III also ordered that such state requirements be preempted by the federal directive.
In California I we remanded for the FCC to reconsider certain aspects of the cost benefit analysis underlying the elimination of structural separation. We also directed the FCC to reconsider its preemption order in light of the Federal Communications Act requirement that preemption be narrowly tailored to promote dual, state and federal, regulatory goals.
In the order issued on remand, Computer III Remand Proceedings Order, 2 the FCC once again eliminated structural separation requirements, but imposed strengthened nonstructural safeguards intended to address the concerns we expressed in California I. The FCC also modified its preemption order so that it no longer purported to preempt all state structural separation requirements, but only those affecting services that include both interstate and intrastate communications.
After California I, but before the entry of the Computer III Remand Proceedings Order, (hereafter Order on Remand ), petitioners in this proceeding also attacked a related series of FCC orders. 3 We reviewed those orders in California v. FCC, 4 F.3d 1505 (9th Cir.1993) (California II ). We agreed with petitioners in that case that the orders under consideration amounted to a retreat from the policy announced in Computer III of achieving the concept known as open network architecture (ONA) as a precondition to structural separation. Id. at 1512. We held that ONA as envisioned in Computer III would have provided all enhanced service providers equal access to the components of the BOCs' telephonic network. We held, however, that the change in policy itself did not violate the Administrative Procedures Act, because it was adequately explained by the technological inability to achieve complete ONA. Id. at 1513.
At the time we were considering California II, the Commission had already entered the Order on Remand, but petitions for review of that decision had not yet been briefed. We therefore declined to decide whether the ONA policy change had an effect on the validity of the FCC's decision to eliminate structural separation. We held that all such issues should await our consideration of this order. Id.
Petitioners in this case are the same as petitioners in California I and California II, and are divided into two sets. The first, described collectively as MCI, 4 are competitors of the BOCs in providing enhanced services to telephone customers. They once again challenge the FCC's cost benefit analysis in eliminating structural separation, contending that the nonstructural safeguards are inadequate to prevent anticompetitive behavior by the BOCs. The second set of petitioners, represented by the States of California and New York, 5 challenge the modified preemption aspects of the Order on Remand.
We first consider MCI's petition challenging the elimination of structural separation. We hold that the FCC adequately responded to the concerns we expressed in California I by increasing the nonstructural safeguards designed to prevent the BOCs from passing on the costs of their enhanced services to their telephone customers paying regulated rates. We further hold, however, that the FCC's overall cost benefit analysis remains flawed. In Computer III, the FCC concluded that full ONA would be necessary to ensure fair competition between the BOCs and MCI in the absence of structural separation. We held in California II that the FCC had retreated from its position that full ONA was a prerequisite for eliminating structural separation to ensure access to the BOCs' networks. The Order on Remand does not take this change into account. Therefore, once again we remand for reconsideration of the cost benefit analysis with respect to structural separation.
In the California and New York petitions, we hold that the FCC has adequately addressed the concerns we raised in California I. We therefore affirm the preemption aspects of the FCC's Order on Remand.
II. STRUCTURAL SEPARATION
In this case we deal with the "enhanced services industry" that in three decades has transformed the telephone lines into an information super highway. Enhanced services use computerized data processing to bring an ever expanding variety of information to users over the telephone communications network. That network is controlled by the Regional Bell Operating Companies that maintain monopolies over local telephone service that are regulated by the Federal Communications Commission.
From the inception of the enhanced services industry, the FCC has declined to regulate it in the interest of promoting competition among providers of enhanced services. 6 The FCC was concerned, however, that the telephone industry could use its monopoly of the lines to prevent competition from developing in the enhanced services industry. It sought to prevent the telephone carriers, which were eager to enter the enhanced services industry, from exploiting their monopoly over the telephone lines to obtain an unfair advantage. Therefore, in its Second Computer Inquiry, 7 the FCC in 1980 ordered that AT & T and its local exchange affiliates at that time, the Bell operating companies, form separate companies to provide enhanced services, companies that would have complete structural separation from the companies that provided basic telephone service. After the breakup of AT &...
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