Connect Communications v. Southwestern Bell Telephone

• Decision Date: 27 October 2006
• Docket Number: No. 05-3698.,05-3698.
• Citation: 467 F.3d 703
• Parties: CONNECT COMMUNICATIONS CORPORATION, Appellant, v. SOUTHWESTERN BELL TELEPHONE, L.P., formerly known as Southwestern Bell Telephone Company; Arkansas Public Service Commission; Sandra L. Hochstetter, in her official capacity as Chairman of the Arkansas Public Service Commission; Daryl E. Bassett, in his official capacity as Commissioner of the Arkansas Public Service Commission; Randy Bynum, in his official capacity as Commissioner of the Arkansas Public Service Commission, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

467 F.3d 703

CONNECT COMMUNICATIONS CORPORATION, Appellant, v. SOUTHWESTERN BELL TELEPHONE, L.P., formerly known as Southwestern Bell Telephone Company; Arkansas Public Service Commission; Sandra L. Hochstetter, in her official capacity as Chairman of the Arkansas Public Service Commission; Daryl E. Bassett, in his official capacity as Commissioner of the Arkansas Public Service Commission; Randy Bynum, in his official capacity as Commissioner of the Arkansas Public Service Commission, Appellees.

No. 05-3698.

United States Court of Appeals, Eighth Circuit.

Submitted: May 17, 2006.

Filed: October 27, 2006.

Rehearing and Rehearing En Banc Denied December 7, 2006.^*

Mark Davis, argued, Little Rock, AR, for Appellant.

Scott H. Angstreich, argued, Washington, DC, for Appellee.

Before BYE, HANSEN, and BENTON, Circuit Judges.

HANSEN, Circuit Judge.

This case involves telephone calls placed from Southwestern Bell Telephone Company (SWBT) telephone customers to the individual customer's internet service provider (ISP), where the ISP is a telephone customer of a different telephone company, Connect Communications Corporation (Connect). All the involved telephone customers are located within the same local exchange area. After the Arkansas Public Service Commission (APSC) approved an Interconnection Agreement between Connect and SWBT, the parties disputed whether these ISPbound calls were local calls, which would subject them to reciprocal compensation under the Interconnection Agreement, or whether the calls were non-local. After years of litigation and several decisions at various administrative and judicial levels, the APSC determined that the ISP-bound calls were not local calls under the Interconnection Agreement. The district court¹ found that determination not to be arbitrary or capricious and upheld the APSC's decision. Connect appeals, and we affirm.

I. Background

This litigation began in 1998, shortly after SWBT and Connect had entered into an Interconnection Agreement on June 23, 1997. SWBT, as an incumbent local exchange carrier (ILEC), had a duty to negotiate and enter into an interconnection agreement with Connect, a competitive local exchange carrier (CLEC), under the Telecommunications Act of 1996 (the Act). See 47 U.S.C. § 251(c)(1), (2). Rather than negotiate an interconnection agreement of its own with SWBT, Connect chose to adopt the interconnection agreement previously negotiated by SWBT with Brooks Fiber Communications of Arkansas, Inc. (Brooks Fiber) in August 1996, a procedure allowed under the Act. See 47 U.S.C. § 252(I); 47 C.F.R. § 51.809. The APSC approved the SWBT-Connect Interconnection Agreement on October 24, 1997, and neither party sought review of the Interconnection Agreement in federal district court pursuant to 47 U.S.C. § 252(e)(6).

The Interconnection Agreement divides the telecommunications traffic between the two telephone companies into four categories: local traffic, through-put traffic, intraLATA interexchange traffic, and interLATA interexchange traffic. (Appellant's Add. at 48.) The Interconnection Agreement classifies "[c]alls originated by one Party's end users and terminated to the other Party's end users ... as local traffic ... if the call originates and terminates in the same SWBT exchange area" (id.) and provides for reciprocal compensation for the termination of local traffic (id. at 49). Although the Interconnection Agreement does not define "terminate," it does define "terminating traffic" as "a voice-grade switched telecommunications service which is delivered to an end-user(s) as a result of another end user's attempt to establish communications between the parties." (Id. at 57.)

At the time that SWBT and Connect were entering into the Interconnection Agreement, the FCC had not determined whether traffic transmitted to ISPs was subject to reciprocal compensation as local traffic under the Act or not. In an FCC Order issued on May 16, 1997, the FCC noted that since an earlier ruling in 1983, ISPs had not been required to pay interstate access charges and were allowed to purchase services from ILECs under the same intrastate tariffs available to end users. See In the Matter of Access Charge Reform Price Cap Performance Review for Local Exchange Carriers Transport Rate Structure and Pricing End User Common Line Charges, 12 F.C.C.R. 15982, 16132-33, 1997 WL 268841 (F.C.C. May 16, 1997) (hereinafter 1997 FCC Order). The FCC concluded in the 1997 FCC Order "that the existing pricing structure for ISPs should remain in place." Id. at 16133. Thus, for tariff purposes, calls placed to ISPs were treated as local calls. At that time, there was debate in the industry about whether ISPs acted more like end users, such that a call to an ISP is terminated at the ISP's server, or more like interexchange carriers, providing a connection to the Internet. See id. at 16275 (discussing AOL's and PacTel's opposing arguments).

In 1999, the FCC determined that ISP-bound traffic was "largely interstate," but that this conclusion "does not in itself determine whether reciprocal compensation is due in any particular instance." See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 14 F.C.C.R. 3689, 3690, 1999 WL 98037 (F.C.C. Feb.26, 1999) (ISP Declaratory Ruling). The FCC recognized that prior to this time, it had consistently treated enhanced service provider (ESP) traffic as local for purposes of interstate access charges despite its interstate character, and that parties may have agreed, or state commissions may have mandated, that reciprocal compensation applied to ISP-bound traffic. Thus, the FCC "conclude[d] that parties should be bound by their existing interconnection agreements, as interpreted by state commissions." Id. The FCC noted that in interpreting prior interconnection agreements, state commissions should consider all of the relevant facts, including the parties' negotiations in light of the FCC's "longstanding policy of treating this traffic as local, and the conduct of the parties pursuant to those agreements." Id. at 3704.

The D.C. Circuit vacated portions of the FCC's ISP Declaratory Ruling, concluding that the FCC did not adequately explain its reliance on an "end to end" jurisdictional analysis to support its conclusion that ISP-bound traffic was not local and thus not subject to reciprocal compensation. See Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1, 6-7 (D.C.Cir.2000). On remand from the D.C. Circuit, the FCC again concluded that ISP-bound calls were not subject to reciprocal compensation, though under a different rationale. This time, the FCC concluded that Congress excluded traffic listed in 47 U.S.C. § 251(g) from telecommunications traffic subject to reciprocal compensation. One of the items included in § 251(g) is "information access," which the FCC determined included ISPbound traffic. See In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 16 F.C.C.R. 9151, 9153 (F.C.C. Apr.27, 2001) (Remand Order). Again, the FCC reiterated that its order applied prospectively only to renegotiated or expiring interconnection agreements; "[i]t does not alter existing contractual obligations." Id. at 9189.

Once again, on appeal the D.C. Circuit remanded the case back to the FCC. See WorldCom, Inc. v. FCC, 288 F.3d 429, 430 (D.C.Cir.2002). The court found the FCC's reliance on § 251(g) misplaced, as that section was merely a transitional device to preserve the status quo until the FCC could adopt rules to implement the Act. Id. The court did not vacate the FCC order, however, noting that there could be other legal bases to support the FCC's rule; it "simply remand[ed] the case to the [FCC] for further proceedings." Id. at 434.

Turning back to the case at hand, SWBT informed Connect in March 1998 that it would not compensate Connect for suspected ISP-bound traffic as a local call under the Interconnection Agreement's reciprocal compensation arrangement. On June 5, 1998, Connect filed a complaint with the APSC seeking a declaration that the ISPbound traffic was subject to the reciprocal compensation provisions for local traffic under the Interconnection Agreement. The APSC issued its order on December 31, 1998, and, relying heavily on FCC decisions and the district court's analysis in Sw. Bell Tel. Co. v. Pub. Util. Comm'n of Tex., No. MO 98 CA043 (W.D. Tex. June 16, 1998), aff'd, 208 F.3d 475 (5th Cir.2000), determined that a call from a SWBT customer to an ISP served by Connect within the same local calling area is a local call subject to reciprocal compensation. (J.A. at 90, 95-96, APSC Order # 6.) The APSC also noted that twenty-three state commissions had found similar ISP-bound traffic to be local. (Id. at 90.) SWBT challenged that decision by filing suit in federal district court, naming Connect and the APSC as defendants and seeking injunctive relief to prohibit enforcement of the APSC Order # 6. The district court determined that it lacked jurisdiction to review a state commission's order interpreting and enforcing an interconnection agreement because the Telecommunications Act grants federal district courts jurisdiction only to determine whether interconnection agreements meet the requirements of federal law. Sw. Bell Tel. Co. v. Connect Commc'ns Corp., 72 F.Supp.2d 1043, (E.D.Ark.1999) (SWBT I). On appeal, a panel of this court reversed the district court, holding that the claim raised substantial federal law questions. Sw. Bell Tel. Co. v. Connect Commc'ns Corp., 225 F.3d 942, 948 (8th Cir.2000) (SWBT II). The panel did not reach the merits of the federal law claim, but remanded to the district court to address these issues. Id. at 949.

On remand, the district court discussed the FCC orders that had been issued since the case at bar was originally before the district court, namely the FCC's 1999 ISP Declaratory Order and the FCC's 2001...