Am. Piblic Commun. Council v. Fed Commun Comm'n, s. 99-1114

• Decision Date: 16 June 2000
• Docket Number: 99-1122,99-1117,Nos. 99-1114,99-1115,s. 99-1114
• Citation: 215 F.3d 51
• Parties: (D.C. 2000) American Public Communications Council, et al.Petitioners v. Federal Communications Commission and United States of America, Respondents Telecommunications Resellers Association, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 51

215 F.3d 51 (D.C. 2000)

American Public Communications Council, et al.Petitioners v. Federal Communications Commission and United States of America, Respondents

Telecommunications Resellers Association, et al., Intervenors

Nos. 99-1114, 99-1115, 99-1117, 99-1122

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 2, 2000

Decided June 16, 2000

On Petitions for Review of an Order of the Federal Communications Commission

Michael K. Kellogg argued the cause for petitioner Payphone Service Providers. With him on the briefs were Albert

H. Kramer and Robert F. Aldrich. David M. Janas, Michael J. Zpevak and Robert M. Lynch entered appearances.

Jodie L. Kelley argued the cause for petitioners MCI WorldCom, Inc., et al. and supporting intervenors. With her on the briefs were Maria L. Woodbridge, Mark B. Ehrlich, Donald B. Verrilli, Jr., Leon M. Kestenbaum, Jay C. Keithley, H. Richard Juhnke, Robert Digges, Jr., Mark C. Rosenblum, James S. Blaszak, Janine F. Goodman, Carl W. Northrop, E. Ashton Johnston, Howard J. Symons, Sara F. Seidman, David Carpenter, Peter Keisler, Danny E. Adams, Steven A. Augustino, Robert J. Aamoth, Dana Frix, C. Joel Van Over, Teresa K. Gaugler, Michael J. Shortley, III, Thomas Gutierrez, J. Justin McClure, Charles C. Hunter and Catherine M. Hannan. John B. Morris, Jr., Michelle W. Cohen, James M. Smith and Genevieve Morelli entered appearances.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondents. Joel I. Klein, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys, Christopher J. Wright, General Counsel, Federal Communications Commission, John E. Ingle, Deputy Associate General Counsel, and Lisa A. Burns, Counsel, were on the brief.

Albert H. Kramer argued the cause for intervenors Payphone Service Providers. With him on the brief were Robert F. Aldrich and Michael K. Kellogg.

H. Richard Juhnke argued the cause for Long Distance, Paging and Consumer intervenors. With him on the brief were Leon M. Kestenbaum, Jay C. Keithley, Charles C. Hunter, Catherine M. Hannan, Carl W. Northrop, Robert Digges, Jr., Howard J. Symons, Sara F. Seidman, Mark C. Rosenblum, David W. Carpenter, Danny E. Adams, Steven A. Augustino, Robert J. Aamoth, Dana Frix, C. Joel Van Over, Michael J. Shortley, III, Teresa K. Gaugler, Thomas Gutierrez and J. Justin McClure.

Before: Edwards, Chief Judge, Sentelle and Randolph, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge:

Section 276 of the Telecommunications Act of 1996, that comprehensively amended the Communications Act of 1934, see Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 ("1996 Act"), concerns payphone services. It requires the Federal Communications Commission ("FCC" or "Commission") to promulgate regulations to "establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone." 47 U.S.C. 276(b)(1)(A) (Supp. III 1997).Petitioners representing various interests of the payphone industry seek review of the FCC's third attempt at a sustainable per-call fee plan to fulfill its 276 obligations. We hold that the FCC's order withstands scrutiny under the Administrative Procedure Act. See 5 U.S.C. 706 (1994).

I. Background

This case is before us for the third time. In two previous orders, the FCC has attempted to develop and justify a percall fee for coinless calls from payphones. See In re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541 (1996) ("First Order"); In re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 13 F.C.C.R. 1778 (1997) ("Second Order"). Acting on previous petitions for review, we have twice remanded the Commission's determinations for a lack of reasoned decision making. See Illinois Pub. Telecomms. Ass'n v. FCC, 117 F.3d 555, 558 (D.C. Cir. 1997) ("Payphones I"); MCI Telecomms. Corp. v. FCC, 143 F.3d 606, 607 (D.C. Cir. 1998) ("Payphones II").Today we consider petitions challenging the FCC's third order on the subject. See In re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 14 F.C.C.R. 2545 (1999) ("Third Order").

Historically, only local phone service providers (local exchange carriers or "LECs") provided payphone services. The development of so-called "smart" payphones in the mid1980s allowed independent payphone service providers ("PSPs") to compete with the LECs. PSPs obtained their revenues from either coin calls or from contracts with interexchange carriers ("IXCs" or operations services providers, "OSPs") for collect calls and calling card calls. See Payphones I, 117 F.3d at 558-59.

Before the 1996 Act was passed, PSPs were largely uncompensated for a third type of payphone call: "dial around" coinless calls, where the caller uses a long distance carrier other than the payphone's presubscribed carrier. "Dial around" coinless calls include toll-free calls to long distance providers (such as 1-800-CALL-ATT), and the 10-10-XXX type of calls. See id. at 559. PSPs are prohibited from blocking these dial around calls. See Telephone Operator Consumer Services Improvement Act of 1990, Pub. L. No. 101-435, 104 Stat. 986 (codified at 47 U.S.C. 226 (1994)).In 276 of the 1996 Act Congress addressed the problem of uncompensated calls by requiring the FCC to "establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone." 47 U.S.C. 276(b)(1)(A) (Supp. III 1997). The statute directs the Commission to prescribe regulations "[i]n order to promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general public" to meet this end. Id. 276(b)(1).

The FCC decided that the best way to ensure fair competition was to allow the market to set the price for each call.See First Order, 11 F.C.C.R. 20541 p 70. But because no market has previously existed for dial around coinless calls, the Commission first adopted a market-based surrogate--the price of a local coin call at a typical deregulated payphone of $.35. In imposing this rate, the FCC simply said that the "cost[s] of originating the various types of payphone calls are similar." Id.

Various parties sought review of this part of the Commission's decision, as well as several other portions of the First Order. See Payphones I, 117 F.3d at 563-64. We remanded the coinless call rate determination because the Commission had ignored record evidence that the costs of coin calls and coinless calls are not similar. See id.; see also Illinois Pub. Telecomms. Ass'n v. FCC, 123 F.3d 693, 694 (D.C. Cir. 1997).For example, numerous IXCs had noted that coin calls cost more than coinless calls because of the typical costs of using coin mechanisms in payphones. We concluded that "[t]he FCC's ipse dixit conclusion, coupled with its failure to respond to contrary arguments resting on solid data, epitomizes arbitrary and capricious decision making." Payphones I, 117 F.3d at 564 (citing Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 46-57 (1983)).

On remand, the FCC attempted to develop an actual market-based rate for coinless calls. See Second Order, 13 F.C.C.R. 1778 p 29. The Commission used the deregulated coin market rate as a starting point ($.35), and subtracted $.066 per call as representing the difference between coin and coinless calls, resulting in a per call rate of $.284. See id. p 41-42. On appeal, we again found error in the agency's decision making. See Payphones II, 143 F.3d at 608-09. We faulted the Commission's failure to explain why the coinless market rate could be found by simply subtracting costs from coin call rates: "If costs and rates depend on different factors, as they sometimes do, then this procedure would resemble subtracting apples from oranges." Id. at 608. We noted that although the Commission "may have depended on the premise that the market rate for coin calls generally reflects the costs of those calls," it had failed to articulate its assumptions and connect them to its reasoning. Id. We remanded for further proceedings. See id. at 609.

The Commission went back to the drawing board one more time. On February 9, 1999, the FCC issued its Third Order, which we now review. The FCC switched from the "topdown methodology" of the Second Order to a "bottom-up" method, meaning that it started from zero and added up the costs of coinless calls to develop a coinless call rate. See Third Order, 14 F.C.C.R. 2545 p 13. The resulting new rate is $.24.

Briefly put, the Commission first determined the "joint and common" costs of a payphone; that is, the monthly capital expense of a payphone, using the cost of a typical payphone and accout rements. The FCC did not include the cost of a coin mechanism in this figure because it determined that that cost is only necessary for coin calls, but did include amounts as joint and common costs for monthly line charge costs, maintenance costs, overhead costs (known as Sales, General, and Administrative Costs or "SG&A"), and coding digit costs.Total monthly costs per payphone came to $101.29.

To translate total monthly costs into a per call rate, the FCC divided that figure by the average number of calls received by a marginal payphone. A marginal payphone is one that gathers revenue to meet its costs (including an assumption that the payphone does not pay location rent to the owner of the premises because of its marginal status) but is not otherwise profitable. Relying on data...