New Edge Network, Inc. v. F.C.C.

Citation461 F.3d 1105
Decision Date29 August 2006
Docket NumberNo. 04-74410.,No. 04-73800.,No. 04-74408.,No. 04-76136.,No. 04-74724.,No. 04-74401.,No. 04-74720.,No. 04-75445.,04-73800.,04-74410.,04-75445.,04-74401.,04-74720.,04-76136.,04-74408.,04-74724.
PartiesNEW EDGE NETWORK, INC., dba New Edge Networks; Oneeighty Communications, Inc.; Pac-West Telecomm, Inc., Petitioners, Comptel/Ascent, Intervenor-Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION, Respondent, Bellsouth Corporation and Bellsouth Telecommunications, Inc., Qwest Communications International, Inc., SBC Communications Inc., United States Telecom Association, and Verizon Telephone Companies, Applicants-Intervenors. Xspedius Communications, LLC, Petitioner, v. Federal Communications Commission, Respondent. KMC Telecom Holdings, Inc., Petitioner, v. Federal Communications Commission, Respondent. Snip Link, LCC, Petitioner, v. Federal Communications Commission, Respondent. Cox Communications, Inc.; Comptel/Ascent, Petitioners, v. Federal Communications Commission, Respondent. XO Communications Inc., Petitioner-Appellant, v. Federal Communications Commission, Respondent-Appellee. Cox Communications, Inc., Petitioner, v. Federal Communications Commission, Respondent. Onfiber Communications Commission, Petitioner, v. Federal Communications Commission, Respondent.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Russell M. Blau, Swidler Berlin Shereff Friedman, LLP, Washington, D.C., for petitioner New Edge Network, Inc.

Stephanie Joyce, Kelley Drye & Warren LLP, Washington, D.C., for petitioners CompTel/ASCENT Alliance, KMC Telecom Holdings, Inc., Onfiber Communications, Inc., Snip Link, LLC, XO Communications, Inc., and Xspedius Communications, LLC.

David E. Mills, Dow, Lohnes & Albertson, PLLC, Washington, D.C., for petitioner Cox Communications, Inc.

James M. Carr, Counsel, and Austin C. Schlick, Acting General Counsel, Washington, D.C., for the respondents.

Colin S. Stretch, Kellogg, Huber, Hansen, Todd, Evans, & Figel, P.L.L.C., Washington, D.C., for the intervenors.

On Petition for Review of an Order of the Federal Communications Commission. FCC Nos. 04-164, 01-138.

Before RYMER, T.G. NELSON, and W. FLETCHER, Circuit Judges.

T.G. NELSON, Circuit Judge.

I. Introduction

These petitions arise from the Federal Communications Commission's ("FCC") report and order changing its interpretation of a provision of the Telecommunications Act of 1996, Pub.L. 104-104, 110 Stat. 56. In 2004, the FCC adopted a new rule replacing its so-called "pick-and-choose" interpretation of 47 U.S.C. § 252(i) with an "all-or-nothing" interpretation. Petitioners in various circuits challenged the new rule, and the Judicial Panel on Multidistrict Litigation consolidated the petitions in this court.1 We have jurisdiction pursuant to 28 U.S.C. § 2342(1) and 47 U.S.C. § 402(a). We conclude that § 252(i) is ambiguous and that the FCC's all-or-nothing interpretation is reasonable. We also conclude that the FCC did not abuse its discretion by adopting new rule. Accordingly, we deny the petitions for review.

II. Background

In passing the Telecommunications Act of 1996, Congress fundamentally restructured local telephone markets to promote competition.2 States can "no longer enforce laws that impede competition," and incumbent local exchange carriers ("ILECs"),3 which had been state-sanctioned monopolies, are "subject to a host of duties intended to facilitate market entry."4 ILECs must make their networks available to new entrants to the market, referred to as competitive local exchange carriers ("CLECs"). ILECs must also attempt in good faith to negotiate interconnection agreements with the CLECs.5

Title 47 U.S.C. § 252 provides procedures for negotiation, arbitration, and approval of interconnection agreements between ILECs and CLECs. Section 252(i) provides:

A local exchange carrier shall make available any interconnection, service, or network element6 provided under an agreement approved under this section to which it is a party to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement.

The meaning of this provision lies at the heart of this dispute.

A. Pick-and-Choose

In August 1996, the FCC first interpreted § 252(i), adopting the pick-and-choose rule.7 Under pick-and-choose, a requesting CLEC could adopt individual provisions from any approved interconnection agreement to which the ILEC was already a party.8

CLECs' ability to pick and choose individual provisions from existing interconnection agreements was not unrestricted. ILECs were only required to make individual provisions of an agreement available to CLECs "for a reasonable period of time," and ILECs could avoid the rule where hardship would result.9 In addition, ILECs could require a requesting CLEC to agree to terms and conditions that were "legitimately related" to the service or element requested.10

Soon after the FCC released the Local Competition Order, many ILECs and some state utility commissions filed petitions challenging various aspects of the order; these cases were consolidated in the Eighth Circuit.11 The petitioners argued, among other things, that the pick-and-choose rule was an unreasonable interpretation of § 252(i).12 The Eighth Circuit agreed with the petitioners, held that the text of § 252(i) was ambiguous,13 and concluded that pick-and-choose was an unreasonable interpretation.14

The Supreme Court reversed. The Court held that the FCC's interpretation was not only "reasonable" but "the most readily apparent." It also observed that whether pick-and-choose would in practice impede or promote voluntary negotiations between ILECs and CLECs was a matter eminently within the FCC's expertise.15

B. All-or-Nothing

After using pick-and-choose for seven years, the FCC decided to revisit the rule. In 2003, it sought "comment on whether the Commission should alter its interpretation of section 252(i) to promote more meaningful commercial negotiations."16 In response, many CLECs, some state utility commissions, and a consumer advocacy association submitted statements in favor of pick-and-choose. ILECs, other state utility commissions, and two CLECs submitted statements in favor of eliminating pick-and-choose.

On July 13, 2004, the FCC adopted the new all-or-nothing rule.17 Under all-or-nothing, if a requesting CLEC is interested in a service or network element provided by an ILEC, it may adopt in its entirety any approved agreement that includes that service or element to which the ILEC is already a party.18

As a threshold matter, the FCC determined that it had the authority to reinterpret § 252(i) "because the plain meaning of the section's text gives rise to two different, reasonable interpretations, and because the Supreme Court expressly recognized that the Commission has leeway to reinterpret section 252(i)."19 In particular, Congress's use of the phrase "upon the same terms and conditions" created ambiguity regarding whether CLECs could adopt individual provisions of existing approved agreements, or whether they had to adopt the entire agreement.20 An agency has discretion to change its interpretation of an ambiguous statute and is not subject to estoppel for changing its view, the FCC noted.21

As to why it believed reinterpretation of § 252(i) was necessary, the FCC observed that, when it first adopted the pick-and-choose rule, it "had no practical experience with the actual mechanics of interconnection agreements" and had "made inaccurate presumptions."22 However, after "[e]ight years of experience" with the pick-and-choose rule, it was clear to the FCC that the rule impeded negotiations and resulted in "the adoption of largely standardized agreements with little creative bargaining to meet the needs of both the [I]LEC[s] and the [CLECs]."23 ILECs seldom made significant concessions in negotiations "for fear that third parties [would] obtain equivalent benefits without making any trade off at all," the FCC explained.24 Furthermore, CLECs often chose to adopt existing approved agreements in their entirety, in contrast to the FCC's initial prediction.25 Finally, the FCC found that the provision under pick-and-choose allowing an ILEC to require inclusion of "legitimately related" agreement terms "ha[d] become an obstacle to give-and-take negotiations rather than an incentive."26

The FCC concluded that, unlike the pick-and-choose rule, "an all-or-nothing rule would better serve the goals of sections 251 and 252 . . . because it would encourage [I]LECs to make trade-offs in negotiations that they [we]re reluctant to accept under the [pick-and-choose] rule."27 The FCC codified the all-or-nothing rule at 47 C.F.R. § 51.809.28

III. Discussion

We review the FCC's adoption of the all-or-nothing rule under the two-step framework established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.29 First, we must determine "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear," then we "must give effect to the unambiguously expressed intent of Congress."30 Second, "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute."31

We also review the FCC's adoption of the all-or-nothing rule for an abuse of discretion under the Administrative Procedure Act ("APA").32

A. Chevron Step One: Section 252(i) is Ambiguous

In the first step of the Chevron analysis, we determine whether § 252(i) is ambiguous;33 that is, "whether Congress has directly spoken to the precise question at issue."34 The issue in this case is whether § 252(i) requires the pick-and-choose rule; that is whether it requires ILECs to make individual provisions of their existing, approved interconnection agreements available to CLECs. We conclude that the statute does not require the rule, it only permits it. Congress simply has not...

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