Alma Communications v. Missouri Public Service

• Decision Date: 11 June 2007
• Docket Number: No. 06-2401.,06-2401.
• Citation: 490 F.3d 619
• Parties: ALMA COMMUNICATIONS COMPANY, doing business as Alma Telephone Company; Chariton Valley Telephone Company; Mid-Missouri Telephone Company; Northeast Missouri Rural Telephone Company, Plaintiffs-Appellants, v. MISSOURI PUBLIC SERVICE COMMISSION; T-Mobile USA, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

490 F.3d 619

ALMA COMMUNICATIONS COMPANY, doing business as Alma Telephone Company; Chariton Valley Telephone Company; Mid-Missouri Telephone Company; Northeast Missouri Rural Telephone Company, Plaintiffs-Appellants, v. MISSOURI PUBLIC SERVICE COMMISSION; T-Mobile USA, Defendants-Appellees.

No. 06-2401.

United States Court of Appeals, Eighth Circuit.

Submitted: December 14, 2006.

Filed: June 11, 2007.

Counsel who presented argument on behalf of the appellant was Craig S. Johnson, Jefferson City, MO.

Counsel who presented argument on behalf of the appellee Missouri Public Service Commission was William K. Haas, Jefferson City, MO, Counsel who presented argument on behalf of the appellee T-Mobile USA was Thomas C. Walsh, St.

Louis, MO, also appearing on the brief for T-Mobile USA was Louis F. Bonarcorsi and Jennifer S. Kingston.

Before LOKEN, Chief Judge, JOHN R. GIBSON, and MURPHY, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

This case presents the question of whether land-line telephone calls to cell phones within the same locale are treated as local calls or long-distance calls by the FCC. The district court,¹ reviewing a decision of the Missouri Public Service Commission, held that the plain language of the FCC's regulation required such calls to be treated as local calls, even when such calls were routed through a long-distance provider. The result of that conclusion is that the local telephone company and the cell-phone provider must share "reciprocal compensation" for such calls, Alma Communications Co. v. Missouri Pub. Serv. Co., No. 05-4358-CV-C-NKL, 2006 WL 1382348 (W.D. Mo. May 19, 2006). Alma Communications Company and several other local telephone companies from rural Missouri,² whom we will refer to collectively as "Alma" for simplicity's sake, contend that such calls should be treated as long-distance calls if they are routed through a long-distance carrier. We affirm the judgment of the district court.

I.

Background.

We borrow heavily from the background supplied by the district court, which took the alphabet soup served up by the parties and rendered it into serviceable English. The legal landscape of this case is the bifurcated local/long-distance system for allocating costs between telephone service providers; this controversy, as others we have entertained, arises because cell-phone providers do not fit neatly into the bifurcated system. See Rural Iowa Indep. Tel. Ass'n v. Iowa Util. Bd., 476 F.3d 572, 574 (8th Cir. 2007); Iowa Network Servs., Inc. v. Qwest, 363 F.3d 683, 687 (8th Cir. 2004) (Iowa Network Services I).

Alma is a "local exchange carrier" or "LEC," in other words, a local telephone company providing traditional land-line phone services. Local exchange carriers usually serve a small local service area covering a few local exchanges (exchanges being designated by the first three numbers of a seven-digit phone number). More specifically, Alma is a rural incumbent local exchange carrier. "Incumbent" means that it was the telephone company in possession of its area at the time that the Telecommunications Act of 1996 opened up local service to competition.

Before the Telecommunications Act of 1996, all customers in a local exchange carrier's geographical area would be serviced by one local exchange carrier, which connected the caller and recipient of a local call. The 1996 Act opened local service areas up to competition, so that different carriers might serve caller and recipient even in the same exchange area. Iowa Network Services I, 363 F.3d at 685-86. Land-line calls placed and received within a "local service area" are local calls, as opposed to "toll" or "long-distance" calls. Id. at 686. Local exchange carriers serving the same area may have a "direct" connection with each other, which means that there is an actual physical point of interconnection between the carriers' networks,³ WWC License, LLC v. Boyle, 459 F.3d 880, 884 (8th Cir.2006) (distinguishing direct from indirect connections). When two local exchange carriers are involved in a local call, both incur costs for the call, since the caller's carrier has to originate the call, but the receiver's carrier has to transport the call from the point of that carrier's connection with the originating carrier's network and to terminate the call.⁴ The carrier for the party originating the call is compensated by its customer, the caller. Atlas Tel. Co. v. Oklahoma Corp. Comm'n, 400 F.3d 1256, 1260 (10th Cir.2005).

In the 1996 Act, Congress required the carriers to enter into "reciprocal compensation arrangements," whereby the carrier for the caller would compensate the recipient's carrier for its costs in transporting and terminating local calls. See 47 U.S.C. § 251(b) (enumerating duties of local exchange carriers, including "[t]he duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications").

When a land-line customer calls a land-line number outside of the local service area, there may be no direct connection between the local exchange carriers involved. In that case, the call does not go directly from one local exchange carrier to the other, but is routed through an intermediary long-distance carrier (known as an "interexchange carrier" or "IXC"). The customer chooses a long-distance carrier and pays it for long-distance service. However, the long-distance carrier cannot complete the calls by itself. A local exchange carrier has to originate the call and another one has to terminate it. The long-distance provider pays the local exchange carriers "access compensation" for their services in connecting the call.

The distinction between local calls (funded by reciprocal compensation) and long-distance (funded by access compensation) becomes less clear when one of the parties to the call is using a cell phone instead of a land line. Cell-phone service is provided by a "commercial mobile radio service," instead of a local exchange carrier.⁵ Rather than the "local service area" that defines the boundaries for local calls on land lines, a "major trading area," which is a larger area, defines which cell-phone calls are local. Iowa Network Servs. I, 363 F.3d at 687 (citing 47 C.F.R. § 51.701(b)(2)); Rural Iowa Indep. Tel. Ass'n, 476 F.3d at 574.

When the local exchange carrier and the cell-phone provider's networks are connected directly, then the costs are handled by a reciprocal compensation agreement between the local exchange company and the wireless company, just as if the call were a traditional local call. On the other hand, if the land-line customer calls a cell-phone customer situated outside the major trading area, the call will be routed through a long-distance carrier and the costs will be covered by access compensation.

However, when the cell-phone provider chooses not to connect directly with the local exchange carrier's network, even a call from the same major trading area— and for that matter, even a call from the same local service area, has to go through an intermediary. The cell-phone provider is thus "indirectly interconnected" with the local exchange carrier's network. The intermediary carrier does not have to be a long-distance carrier, however, since large local exchange carriers, such as Southwestern Bell Telephone, can act as "transiting carriers." In fact, cell-phone companies usually do not choose to connect directly with rural local exchange carriers, because the volume of business does not make it economically advantageous for the cell-phone company to do so. The question in this case is whether the compensation model for such calls should be governed by the fact that both parties to the call are situated within the same major trading area or whether it should be governed by the fact that the call was routed through a long-distance carrier.

This litigation.

T-Mobile is a cell-phone company which does not have a direct connection to Alma's networks, having chosen instead to directly interconnect with Southwestern Bell Telephone, a large incumbent local exchange carrier, in Kansas City. Southwestern Bell is directly connected with Alma. When a call is placed from T-Mobile's cell phones to one of Alma's land-line customers, T-Mobile connects the call either through Southwestern Bell, which acts as a transiting carrier, or through a long-distance carrier; in either case, T-Mobile pays the intermediary carrier. When the cell-phone to land-line traffic is carried through a transiting carrier, T-Mobile pays Alma reciprocal compensation. When the cell-phone to land-line traffic goes through an interexchange carrier, T-Mobile pays the interexchange carrier both for the interexchange carrier's services and for the fee the terminating local exchange carrier charges to deliver the call.

The dispute in this case concerns calls going in the other direction, from a land line to a cell phone. For what Alma calls "historical and regulatory reasons," Alma does not send any of its calls to T-Mobile through a transiting carrier, but instead sends all traffic bound for T-Mobile through a long-distance carrier. Even calls to a T-Mobile phone that originate and terminate within Alma's local service area are routed through a long-distance carrier, with the result that Alma's customers have to dial 1 + to reach even a T-Mobile customer next door.

Alma insists that it has no choice but to send T-Mobile's calls through a long-distance carrier and that those calls are therefore inherently long-distance in nature. Alma introduced evidence before the arbitrator that it would be legally and technically problematic and "a major change" from how such calls are currently handled in Missouri for Alma to deliver such calls without going through an interexchange carrier. T-Mobile introduced evidence before the arbitrator that it would be possible for the local exchange carriers to route calls to T-Mobile without sending it to a long-distance provider.⁶ Alma's...