Sbc Communications Inc. v. F.C.C., 03-1147.

Citation407 F.3d 1223
Decision Date13 May 2005
Docket NumberNo. 03-1147.,03-1147.
PartiesSBC COMMUNICATIONS INC., Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Z-Tel Communications, Inc., et al., Intervenors
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Michael K. Kellogg argued the cause for petitioner. With him on the briefs were Colin S. Stretch, James D. Ellis, Gary L. Phillips, and Christopher Heimann.

Richard K. Welch, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were R. Hewitt Pate, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Steven J. Mintz, Attorneys, John A. Rogovin, General Counsel, Federal Communications Commission, John E. Ingle, Deputy Associate General Counsel, and Suzanne M. Tetreault, Counsel. Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, U.S. Department of Justice, and Rodger D. Citron, Counsel, Federal Communications Commission, entered appearances.

Before: SENTELLE and ROBERTS, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

STEPHEN F. WILLIAMS, Senior Circuit Judge.

SBC challenges a Federal Communications Commission order finding that SBC (through various affiliates) violated the terms of a requirement, imposed as a condition to the FCC's approval of a merger between SBC and Ameritech, that SBC "offer" intervenors Z-Tel and Core access to "shared transport" for intraLATA toll call traffic. Because the FCC failed to address the questions whether telecommunications carriers could waive their right to shared transport under the merger order and whether Z-Tel and Core had in fact waived that right, we vacate the Commission's order and remand to the Commission for further proceedings.

* * * * * *

Under the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C. § 151 et seq. (the "Act"), incumbent local exchange carriers ("ILECs") are required to allow new entrants, known as competitive local exchange carriers ("CLECs"), to lease "unbundled network elements" ("UNEs") for use by the CLECs in providing telephone service. See 47 U.S.C. § 251(c)(3). The terms and conditions of this obligation to "unbundle" are set forth in "interconnection agreements" ("ICAs") negotiated between the ILEC and CLEC or, if necessary, arbitrated by state commissions. Id. at §§ 252(a), (b). The parties must submit any interconnection agreement to the relevant state commission for approval. Id. at § 252(e). Where an ILEC provides a network element to one CLEC under a state-approved agreement it must make that element available to any other "requesting" CLEC. Id. at § 252(i). The Act also makes clear that ILECs and CLECs may enter ICAs that differ from the unbundling requirements of §§ 251(b) or (c). See id. at § 252(a)(1).

The FCC has determined that the network elements subject to the unbundling requirements include "shared transport" facilities. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 1996 WL 452885, 11 FCC Rcd 15,499, 15,718, ¶ 440 (1996). "Shared transport is defined as the transmission facilities shared by more than one carrier, including the incumbent LEC, between end office switches, between end office switches and tandem switches, and between tandem switches in the incumbent LEC network." 47 C.F.R. § 51.319(d)(4)(i)(C) (2004).

The SBC-Ameritech merger required FCC approval, to be granted only if the Commission found that the attendant license transfers would serve "the public interest, convenience, and necessity." 47 U.S.C. § 310(d). The Commission approved the merger subject to conditions aimed at mitigating certain potential anti-competitive effects. See In re Applications of Ameritech Corp. and SBC Communications Inc., 1999 WL 1337659, 14 FCC Rcd 14,712 (1999) ("Merger Order"), vacated in part on other grounds, Ass'n of Communications Entrs. v. FCC, 235 F.3d 662 (D.C.Cir.2001). Among these was the requirement that SBC and appropriate affiliates offer shared transport access to CLECs in the states formerly served by Ameritech, a condition imposed in response to Ameritech's prior reluctance to offer unbundled access to shared transport services. See Merger Order, 14 FCC Rcd at 14,888 ¶ 425. Specifically, that condition provided:

Within 12 months of the Merger Closing Date (but subject to state commission approval and the terms of any future Commission orders regarding the obligation to provide unbundled local switching and shared transport), SBC/Ameritech shall offer shared transport in the SBC/Ameritech Service Area within the Ameritech States under terms and conditions, other than rate structure and price, that are substantially similar to (or more favorable than) the most favorable terms SBC/Ameritech offers to telecommunications carriers in Texas as of August 27, 1999. Subject to state commission approval and the terms of any future Commission orders regarding the obligation to provide unbundled local switching and shared transport, SBC/Ameritech shall continue to make this offer, at a minimum, until the earlier of (i) the date the Commission issues a final order in its UNE remand proceeding ... finding that shared transport is not required to be provided by SBC/Ameritech in the relevant geographic area, or (ii) the date of a final, non-appealable judicial decision providing that shared transport is not required to be provided by SBC/Ameritech in the relevant geographic area.

Merger Order, 14 FCC Rcd at 15,023-24, App. C ¶ 56 (emphasis added).

SBC interpreted the Merger Order to require that it provide shared transport in the former Ameritech states — Illinois, Indiana, Michigan, Ohio and Wisconsin — only for local exchange service, not for "intraLATA toll service." LATAs (Local Access and Transport Areas) are service areas within which the Bell Operating companies were permitted to operate and provide telephone service. See United States v. Western Elec. Co., 569 F.Supp. 990, 993-94 (D.D.C.1983). IntraLATA service is what consumers generally know as local service; intraLATA "toll" calls, however, encompass those long-distance calls that do not travel beyond the borders of a single LATA. See SBC Communications Inc. v. FCC, 138 F.3d 410, 412 n. 1 (D.C.Cir.1998).

The Commission initiated a proceeding with a notice of apparent liability, and went on to find that SBC had "failed to offer shared transport" for intraLATA toll service in the five former Ameritech states, and that this failure violated ¶ 56 of the merger conditions. In the Matter of SBC Communications, Inc., 1998 WL 121492, 17 FCC Rcd 19,923, 19,923-24, ¶¶ 1-2 (2002) ("Forfeiture Order"). As authorized by 47 U.S.C. § 503(b)(2)(B) and 47 C.F.R. § 1.80(b)(2), (b)(5) (2002), the Commission imposed on SBC the statutory maximum fine of $1.2 million for each of the five states, for a total of $6 million. See Forfeiture Order, 17 FCC Rcd at 19,934-37, ¶¶ 22-27. SBC petitioned for review, and we upheld the Commission. SBC Communications, Inc. v. FCC, 373 F.3d 140, 151-52 (D.C.Cir.2004) ("SBC I").

In August 2001 two CLECs, Z-Tel Communications and CoreComm Communications, Inc., filed a joint complaint with the FCC under 47 U.S.C. § 208, alleging that nine SBC affiliates had improperly refused to allow them to use shared transport to complete intraLATA toll calls in violation of the Act, the FCC's implementing rules, and the Merger Order.

With regard to eight states outside the former Ameritech region the FCC denied the complaint. In the Matter of Core Communications, Inc. et al. v. SBC Communications Inc. et al., 2003 WL 1884294, 18 FCC Rcd 7568, 7578-82, ¶¶ 26-35 (2003) ("Liability Order"). For seven states the matter turned on circumstances of no great relevance here. As to California, the Commission found no violation because Z-Tel (Core was irrelevant because it had no agreement with Pacific Bell and never attempted to negotiate one) had voluntarily exercised its right under § 252(i) to opt-in to an existing ICA that did not permit the use of shared transport for intraLATA toll traffic. Id. at 7579-81, ¶ 29. Notwithstanding SBC's obligation to make shared transport access available for intraLATA toll traffic under § 251(c)(3) and the Commission's rules, see id. at 7581, ¶ 30, the Commission found no violation because "the obligations created by section 251 and our rules are effectuated through the process established in section 252 — that is, by reaching agreement through negotiation, arbitration, or opt-in," id., and in California Z-Tel had sought to negotiate an amendment to the (in this respect) narrower pre-existing ICA without, as required, "comply[ing] with [the] modification or change of law provisions" in the ICA, id.

The FCC granted the complaint, however, with respect to the five states in the former Ameritech region. Paragraph 56 of the Merger Order obligated SBC to "offer" shared transport for intraLATA toll. The Commission appeared to assume (incorrectly) that SBC's conduct in relation to Core and Z-Tel rested on ICAs antedating the Merger Order:

To the extent that [SBC's] existing agreements with the Complainants did not make available shared transport for intraLATA toll, the Merger Order required [SBC] to agree to the necessary amendments to do so. When Core and Z-Tel asked for this functionality, however, [SBC] just said "no."

Id. at 7577, ¶ 21 (emphasis added). Although "under section 252(a)(1), parties are free to negotiate terms that do not meet the requirements of sections 251(b) and (c)," id. at 7577, ¶ 23, the Commission held that "[e]ven if sections 251 and 252 did not obligate Defendants to amend their agreements with Core and Z-Tel to provide for shared transport for intraLATA toll...

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