Atlantic Tele-Network, Inc. v. F.C.C., TELE-NETWOR

• Decision Date: 25 July 1995
• Docket Number: No. 93-1616,INC,TELE-NETWOR,93-1616
• Citation: 59 F.3d 1384
• Parties: ATLANTIC, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, American Telephone and Telegraph Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1384

59 F.3d 1384

313 U.S.App.D.C. 396

ATLANTIC TELE-NETWORK, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents American Telephone and Telegraph Company, Intervenor.

No. 93-1616.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 6, 1995.

Decided July 25, 1995.

Petition for Review of an Order of the Federal Communications Commission.

Robert J. Aamoth, Washington, DC, argued the cause and filed the briefs for petitioner. Gertrude Jollek White, Washington, DC, entered an appearance for petitioner.

Michael F. Finn, Counsel, F.C.C. ("FCC"), with whom William E. Kennard, General Counsel, Daniel M. Armstrong, Associate General Counsel, and John E. Ingle, Deputy Associate General Counsel, FCC, and Anne K. Bingaman, Asst. Atty. Gen., and Robert B. Nicholson and Robert J. Wiggers, Attys., U.S. Dept. of Justice, Washington, DC, were on the brief, argued the cause for respondents. James M. Carr and Renee Licht, Attys., FCC, Washington, DC, entered appearances for respondents.

Judith A. Maynes, Basking Ridge, NJ, and Peter D. Keisler, Washington, DC, were on the brief for intervenor. Daniel Stark, Basking Ridge, NJ, entered an appearance for intervenor.

Before BUCKLEY, RANDOLPH, and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

Atlantic Tele-Network, Inc. ("ATN") petitions for review of an order of the Federal Communications Commission conditionally authorizing ATN to provide international telephone service between the United States and Guyana. In re Atlantic Tele-Network, Inc., 8 F.C.C.R. 4776 (1993) ("Commission Order "). Finding the Commission's conditional authorization proper, we deny the petition.

I. BACKGROUND

A. Legal Framework

Section 214 of the Communications Act of 1934 requires telephone operating carriers to secure FCC certification before constructing or operating interstate or international communications lines. That provision specifically provides that

[n]o carrier shall ... acquire or operate any line, or extension thereof, or shall engage in transmission over or by means of such additional or extended line, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the ... operation[ ] of such additional or extended line....

47 U.S.C. Sec. 214(a) (1988). If the Commission approves such an application, it

may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may require.

47 U.S.C. Sec. 214(c).

This case involves such a condition. An understanding of its nature and purpose requires an overview of how international telephone carriers operate. While several domestic carriers compete to provide telephone service from the United States to foreign countries, typically only one government-controlled carrier provides telephone service in any particular foreign country. When a U.S. customer dials an overseas telephone number, a domestic "originating" carrier charges a "collection rate" for placing the international call through to the appropriate foreign "terminating" carrier, which connects the caller to his destination. The domestic originating carrier and the foreign terminating carrier negotiate an operating agreement that sets forth the "accounting rate" that is divided between the two carriers. For example, if the domestic carrier charges $2.00 per minute as its collection rate, and the two carriers negotiate a $1.00 per minute accounting rate to be divided equally between them, the foreign carrier will receive $.50 per minute as its share of the accounting rate for terminating the call, while the domestic originating carrier will receive $.50 per minute as its share of the accounting rate plus the additional $1.00 per minute differential.

As it is far too cumbersome to make payments every time a call is placed, the operating agreement will provide for payments on a net aggregate basis determined by the flow of originating and terminating traffic. Continuing with our hypothetical, if a domestic carrier originates 500 minutes of calls terminated by the foreign carrier, the domestic carrier would owe the foreign carrier $250 (500 minutes X $.50). Assuming the foreign carrier originates 100 minutes of calls destined for the United States that are terminated by the domestic carrier, the foreign carrier would owe the domestic carrier $50 (100 minutes X $.50). As domestic carriers typically originate more traffic than they terminate, they usually make "net settlement" payments to foreign carriers. In our hypothetical, the domestic carrier would make a net settlement payment of $200 to the foreign carrier.

These operating agreements are subject to anticompetitive abuse. In particular, foreign monopoly carriers have an incentive to allocate "return traffic" to domestic carriers with whom they have favorable operating agreements. The practice of a foreign carrier using its monopoly leverage to play one domestic carrier off the other in order to gain favorable terms and conditions from domestic carriers is known in the industry as "whipsawing." See In re Implementation and Scope of the Uniform Settlements Policy for Parallel International Communications Routes, 59 Rad.Reg.2d (P & F) 982, 985 (1986); In re American Tel. & Tel. Co. v. MCI Telecommunications Corp., 9 F.C.C.R. 2688, 2689-90 (1994). Further, a domestic carrier holding a controlling interest in a foreign carrier has an incentive to have the foreign carrier route calls bound for the United States to it, thereby discriminating against its competitors. See, e.g., In re Regulation of Int'l Common Carrier Services, 7 F.C.C.R. 577, 581 (1992).

To prevent these practices, the Commission has sought to provide domestic carriers with a unified bargaining position vis-a-vis foreign monopolist carriers. Under its "international settlements policy," the FCC has required, as a condition of certification, that operating agreements between domestic and foreign carriers be uniform in all material terms, including accounting rates, settlements, and division of tolls. See In re Implementation and Scope of the Int'l Settlements Policy for Parallel Int'l Communication Routes, 2 F.C.C.R. 1118, 1118 (1987).

Imbedded in this policy is a principle known as "proportionate return," In re Regulation of Int'l Accounting Rates, 7 F.C.C.R. 8040, 8045-46 (1992), "under which an entity carrying traffic into a country receives outbound traffic from that country in the same proportion as it handled the inbound traffic." International Record Carriers' Scope of Operations in the Continental United States, 57 F.C.C.2d 190, 203 (1976). The Commission has not rigidly applied its uniformity requirements, however, in recognition of the fact that competing concerns such as new entry by competitors, lower prices, or greater innovation in service may sometimes militate against such a requirement. See In re American Tel. & Tel. Co., 4 F.C.C.R. 1195, 1196 (1989).

B. ATN's Application

On July 5, 1990, ATN filed a section 214 application with the Commission requesting authority to provide international service between the United States and Guyana. On January 28, 1991, ATN purchased an 80 percent interest in Guyana Telephone & Telegraph Company, Ltd. ("GT & T"), the monopoly telephone carrier in Guyana. The following month, ATN filed a letter with the FCC in which it urged that because it would be making over $100 million of improvements in the Guyanese telecommunications infrastructure, it should be permitted to benefit from the increased return traffic from Guyana that would be generated by its capital improvements. Accordingly, ATN proposed that the Commission allocate the existing level of return traffic to American Telephone & Telegraph--the only domestic carrier then serving the U.S.-Guyana route--and, for a period of at least five years, permit the allocation to ATN of all the return "growth" traffic to the United States above the existing level without regard to the requirement of a proportionate return. ATN argued that because it was not an established carrier, it would not qualify for any of the return traffic from Guyana under a proportionate return provision and that only those domestic carriers with significant market shares in the United States would have any prospect of doing so.

On October 31, 1991, acting under delegated authority from the Commission, the Common Carrier Bureau found that ATN, through its affiliation with GT & T, had exclusive control over Guyana's facilities and therefore had the ability to discriminate against competing U.S. carriers. In re Atlantic Tele-Network, Inc., 6 F.C.C.R. 6529, 6531 (1991) ("Bureau Order"). Therefore, the Bureau conditioned ATN's section 214 authorization on its acceptance of the requirement of proportionate return in order to protect the public interest from any potential anticompetitive consequences that might flow from a misallocation of return traffic. See id. at 6532.

In July 1993, the Commission denied ATN's application for review of the Bureau's Order. Commission Order, 8 F.C.C.R. 4776 (1993). The Commission held that "ATN's majority interest in GT & T ... gives ATN both the ability and incentive to engage in the very anticompetitive conduct that gave rise to our proportionate return policy." Id. at 4778. Although expressing support for privatization initiatives such as that in Guyana, the Commission believed that ATN's investment in Guyana's telephone system did not warrant special treatment, given the potential for anticompetitive conduct. Id. at 4780.

II. DISCUSSION

A. Jurisdiction

As an initial matter, the Commission alleges that we lack jurisdiction to consider ATN's petition because one of its regulations, 47 C.F.R. Sec. 1.110 (1994), requires ATN to exhaust its administrative remedies before...