Global Naps, Inc. v. F.C.C., 01-1192.

• Decision Date: 04 June 2002
• Docket Number: No. 01-1192.,01-1192.
• Citation: 291 F.3d 832
• Parties: GLOBAL NAPS, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. Verizon Telephone Companies, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 832

291 F.3d 832

GLOBAL NAPS, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Verizon Telephone Companies, et al., Intervenors.

No. 01-1192.

United States Court of Appeals, District of Columbia Circuit.

Argued April 5, 2002.

Decided June 4, 2002.

On Petition for Review of Orders of the Federal Communications Commission.

Christopher W. Savage argued the cause and filed the briefs for petitioner.

Lisa E. Boehley, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the brief were John Rogovin, Deputy General Counsel, Richard K. Welch, Associate General Counsel, John E. Ingle, Deputy Associate General Counsel, Catherine G. O'Sullivan and Robert J. Wiggers, Attorneys, U.S. Department of Justice. Nancy C. Garrison, Attorney, entered an appearance.

Aaron M. Panner argued the cause for intervenors. With him on the brief were Mark L. Evans, Michael E. Glover, Edward H. Shakin, and Lawrence W. Katz.

Before: EDWARDS, ROGERS, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

HARRY T. EDWARDS, Circuit Judge:

The Telecommunications Act of 1996, Pub.L. No. 104-104 (Feb. 8, 1996), requires the Federal Communications Commission ("FCC") to preempt the jurisdiction of any state regulatory commission that "fails to act to carry out its responsibility" to approve or reject interconnection agreements entered into by local exchange carriers ("LECs"). 47 U.S.C. § 252(e)(5). In this case, Global NAPs, Inc. ("GNAPs"), a LEC providing local exchange services in Massachusetts and other Eastern states, has petitioned for review of the FCC's refusal to preempt the regulatory authority of the Massachusetts Department of Telecommunications and Energy ("DTE") over the interpretation of an interconnection agreement between GNAPs and Verizon.

The disputed GNAPs-Verizon agreement provides that the carriers shall pay "reciprocal compensation" to one another for carrying and completing local calls made by customers of one company to customers of the other. Many of GNAPs' customers are Internet Service Providers ("ISPs"), who need telephone connections to provide their own customers with dial-up Internet access. However, the agreement does not specify whether calls made to ISPs are "local" calls for which reciprocal compensation is due. Because this question has been the source of much debate and confusion in the telecommunications field, and because the financial stakes are high, GNAPs sought a declaratory ruling from DTE that ISP-bound traffic is subject to reciprocal compensation under the terms of its agreement with Verizon. After waiting for the state agency to act on this request for nearly eight months, GNAPs filed a petition with the FCC, asking the federal Commission to preempt DTE's jurisdiction and resolve the issue itself.

Before the FCC responded to this request, DTE issued an order dismissing GNAPs' claim as moot in light of the state agency's decision that ISP-bound calls were not local within the meaning of an identically worded interconnection agreement between Verizon and MCI WorldCom. In light of DTE's dismissal, the FCC concluded that the state commission had not "fail[ed] to act to carry out its responsibility" under § 252 and, therefore, that preemption was not warranted. GNAPs now petitions for review of the FCC decision, arguing that the FCC misunderstood its obligations under § 252(e)(5), which, the company insists, compels the Commission to adjudicate the issue that DTE found to be moot. We reject the petition for want of merit.

We hold that the FCC's conclusion that § 252(e)(5) does not empower it to look behind a state agency's dismissal of a carrier's claim to evaluate the substantive validity of that dismissal is both a reasonable interpretation of that provision and consistent with the Commission's past practices and precedents. It is clear that DTE believed that it was conclusively resolving the issue of whether GNAPs had a right to compensation from Verizon for the costs associated with completing calls made to ISPs. It does not matter whether the state agency's position is correct on the merits. Rather, as the FCC found, what matters is that DTE did not fail to act, so the federal Commission has no basis upon which to preempt the regulatory authority of the state agency. GNAPs' remedy lies not in FCC preemption, but rather in judicial review of DTE's order, whether in federal or in state court.

I. BACKGROUND

GNAPs is a competitive LEC that provides local telephone service in several eastern states, including Massachusetts. Among its customers are a number of ISPs, who use connections supplied by GNAPs to allow their own customers to establish dial-up access to the Internet. Verizon is the incumbent LEC operating in Massachusetts. In April of 1997, as directed by the Telecommunications Act of 1996, GNAPs and Verizon entered into an interconnection agreement, which provided that each carrier would receive "reciprocal compensation" for completing calls made by one another's customers. See 47 U.S.C. § 251(b)(5) (requiring LECs to establish reciprocal compensation agreements). Thus, Verizon agreed to compensate GNAPs for the costs that the latter incurs when one of Verizon's subscribers calls a GNAPs subscriber within the same local calling area.

By the terms of the agreement, this reciprocal compensation obligation applies only to the "the transport and termination of Local Traffic," that is, to calls both originated and terminated in Massachusetts. That definition, however, leaves ambiguous whether "local traffic" includes ISP-bound traffic. Such calls are difficult to classify, because, while the ISP itself may be located within Massachusetts, the actual end-point of a call made to that provider may be a remote Internet site well outside the Commonwealth. Despite the substantial sums of money at stake - millions of dollars, according to GNAPs, see Br. for the Pet'r 5 n.9 - the carriers made no attempt to resolve this ambiguity. They did, however, agree that whatever the proper interpretation, Verizon would pay GNAPs for ISP-calls if it paid compensation for such calls under the terms of identically worded interconnection agreements that it had made with other LECs, including MCI WorldCom. And, following an October 1998 decision in which DTE interpreted the Verizon/MCI WorldCom to require compensation for the delivery of ISP-bound traffic, Verizon began to pay such compensation to GNAPs as well. See Complaint of WorldCom Technologies, Inc., D.T.E.97-116 (Mass. DTE Oct. 21, 1998) ("October 1998 Order") (Joint Appendix ["J.A."] 84).

The issue appeared settled until February 1999, when the FCC issued an order holding that calls made to ISPs would be considered as nonlocal for purposes of the Commission's rules regulating reciprocal compensation. See In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound Traffic, 14 F.C.C.R. 3689, 1999 WL 98037 (Feb. 26, 1999) ("Reciprocal Compensation Order"), vacated, Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1 (D.C.Cir.2000). However, the FCC's Reciprocal Compensation Order left open the possibility that state regulators (such as DTE) could continue to treat ISP-bound traffic as local traffic, if interconnection agreements between carriers so provided, whether explicitly or implicitly. See Verizon Md. Inc. v. Public Serv. Comm'n of Md., 535 U.S. ___, ___, 122 S.Ct. 1753, 1757, 152 L.Ed.2d 871 (2002).

In the wake of the Reciprocal Compensation Order, Verizon asked DTE to reverse its October 1998 Order, and hold that Verizon was no longer obligated to compensate other carriers for ISP-bound calls. The company then stopped making such payments to GNAPs. GNAPs responded to this development in two ways. First, it filed a new tariff with the FCC in which it sought to impose a $.008 per minute charge on the delivery of all ISP-bound calls for which GNAPs did not receive compensation under an existing interconnection agreement. Verizon refused to pay, and challenged the validity of the tariff before the FCC. The Commission declared the tariff unlawful and void ab initio, a decision eventually affirmed by this court. See Global NAPs, Inc. v. FCC, 247 F.3d 252 (D.C.Cir.2001). Second, on April 16, 1999, GNAPs filed a complaint against Verizon with DTE, seeking a declaration that, under the terms of the carriers' interconnection agreement, ISP-traffic was included in the category of local traffic for which compensation was owed.

On May 19, 1999, DTE vacated its October 1998 Order. See Complaint of MCI WorldCom, Inc., D.T.E. 97-116-C (Mass. DTE May 19, 1999) ("May 1999 Order") (J.A.136). The state agency declared that, in light of the Reciprocal Compensation Order, nothing in either its own rules or those of the FCC required Verizon to pay reciprocal compensation for Internet-bound traffic. At the same time, however, DTE did not purport to decide whether ISP-traffic might still be considered local under the terms of any particular interconnection agreement. It merely held that no then-viable DTE order mandated such a conclusion. Therefore, the separate contractual interpretation question regarding the meaning of "Local Traffic" in the GNAPs-Verizon agreement was "a now-unresolved dispute." Id. at 26 (J.A. 166). In other words, nothing in DTE's May 1999 Order purported to resolve the complaint that GNAPs had filed against Verizon the previous month.

DTE, however, did nothing in response to that complaint in the subsequent months. Finally, on December 9, 1999, GNAPs petitioned the FCC to preempt DTE's regulatory jurisdiction and decide for itself the question of whether "Local Traffic" included ISP-bound calls. Such preemption is authorized by the Telecommunications Act of 1996, but only where the "State commission fails to act to carry out its responsibility under [§ 252]...