Global NAPs v. Fed. Commun. Comm'n

• Decision Date: 27 April 2001
• Docket Number: No. 00-1136,00-1136
• Parties: (D.C. Cir. 2001) Global NAPs, Inc., Petitioner v. Federal Communications Commission and United States of America, Respondents Verizon Delaware, Inc., et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 252

247 F.3d 252 (D.C. Cir. 2001)

Global NAPs, Inc., Petitioner v. Federal Communications Commission and United States of America, Respondents

Verizon Delaware, Inc., et al., Intervenors

No. 00-1136

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 20, 2001

Decided April 27, 2001

On Petition for Review of Orders of the Federal Communications Commission

Christopher W. Savage argued the cause and filed the briefs for petitioner. John D. Seiver entered an appearance.

Lisa E. Boehley, Counsel, Federal Communications Commission, argued the cause for respondents. With her on the brief were Christopher J. Wright, General Counsel, John E. Ingle, Deputy Associate General Counsel, A. Douglas Melamed, Assistant Attorney General, U.S. Department of Justice, Catherine G. O'Sullivan and Robert J. Wiggers, Attorneys. Laurel R. Bergold, Counsel, Federal Communications Commission, and Nancy C. Garrison, Attorney, U.S. Department of Justice, entered appearances

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

Before: Williams, Sentelle and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge:

Petitioner Global NAPs, Inc. ("GNAPs") seeks review of a Federal Communications Commission ("FCC") ruling that GNAPs' tariff for Internet-bound traffic was facially invalid under FCC regulations. GNAPs raises both procedural and substantive challenges to the FCC's order. Specifically, GNAPs contends that the FCC violated its own rules and due process requirements in voiding the tariff, misconstrued the tariff terms, and improperly invalidated the tariff retroactively. We hold that the FCC did not deprive GNAPs of due process, did not exceed its authority by invalidating the tariff, and reasonably declared GNAPs' tariff unlawful. Therefore we uphold the FCC's order and deny the petition for review.

I. Background

A. Statutory & Regulatory Context

1. Reciprocal Compensation

Under Section 251(b) of the Telecommunications Act of 1996, local exchange carriers ("LECs") are required to "establish reciprocal compensation arrangements for the transport and termination of telecommunications." 47 U.S.C. 251(b)(5). This means that when a customer of Carrier X calls a customer of Carrier Y who is within the same local calling area, Carrier X pays Carrier Y for completing, or "terminating," the call. The FCC interprets this requirement to apply only to local calls--that is, calls that originate and terminate within a local area. The reciprocal compensation requirement "do[es] not apply to the transport or termination of interstate or intrastate interexchange traffic." In re Implementation of the Local Competition Provisions in the Telecom. Act of 1996, 11 F.C.C.R. 15,499, 16,013 p 1034 (1996) (subsequent history omitted).

Under the Act, carriers are expected to negotiate the rate and terms of reciprocal compensation. If the carriers are unable to reach agreement, they may submit the contested issues to arbitration by the relevant state public utility commission ("PUC"). 47 U.S.C. 252(e)(1). Once the PUC approves an interconnection agreement, it is charged with interpreting and enforcing the agreement, but the PUC's determinations are subject to review in federal court for consistency with the Act. See 47 U.S.C. 252(e)(6).

In February 1999, the FCC published an order holding that Internet-bound calls to Internet Service Providers ("ISPs") are not local on the theory that such traffic does not originate and terminate in the same local calling area, and is therefore not covered by the reciprocal compensation obligation. See In re Implementation of the Local Competition Provisions in the Telecom. Act of 1996, Inter-carrier Compensation for ISP-Bound Traffic, 14 F.C.C.R. 3689 (1999) ("Reciprocal Compensation Ruling"). While the call to the ISP may be local, the FCC concluded that the terminating end of the call is actually the site reached by the Internet connection. The FCC noted that there was no federal rule governing intercarrier compensation for Internet-bound traffic, but held that carriers would be bound to provide compensation as provided under their respective interconnection agreements as interpreted by state PUCs. Id. at 3704 p 24. The FCC also initiated a rulemaking on an appropriate federal inter-carrier compensation mechanism. Id. at 3707 p 28. While this rulemaking was underway, the affected LECs petitioned this court for review of the FCC's decision. We vacated and remanded the order for the Commission's failure to provide an adequate explanation as to why Internet-bound calls were not treated as local calls. See Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000).

2. Tariff Requirements

Under Section 201(b) of the Telecommunications Act, all interstate communications "charges, practices, classifications, and regulations" must be "just and reasonable." 47 U.S.C. 201(b). Carriers must publish rate tariffs before they go into effect. Published tariffs "must contain clear and explicit explanatory statements regarding the rates and regulations." 47 C.F.R. 61.2 (a). Tariffs may not "make reference to any other tariff publication or to any other document or instrument." Id. at 61.74(a). Tariffs filed by nondominant carriers, such as GNAPs, take effect on only one day's notice. Such tariffs receive streamlined review and are presumed lawful by the Commission. Failure to comply with the relevant regulatory provisions "may be grounds for rejection" of the tariff. Id. at 61.1(b).

B. Relevant Facts

GNAPs is a competitive local exchange carrier ("CLEC") in several states. GNAPs and Intervenor Verizon, an LEC formerly known as Bell Atlantic, have interconnection agreements in several states. In April 1997, the two carriers entered into an interconnection agreement including a provision that "[r]eciprocal compensation only applies to the transport and termination of Local Traffic" defined as "a call which is originated and terminated within a given [Local Access and Transport Area or "LATA"]" in Massachusetts. The parties did not agree as to whether the agreement's reciprocal compensation provisions covered Internet-bound traffic, but agreed to abide by the interpretation of the Massachusetts Department of Telecommunications and Energy ("DTE")-the Massachusetts PUC--of either the GNAPs-Verizon agreement or identical language in other agreements to which Verizon was a party.

On October 21, 1998, DTE ruled that Verizon was required to pay reciprocal compensation for the delivery of Internetbound traffic by MCI WorldCom. Complaint of MCI WorldCom, Inc., D.T.E. 97-116 (Mass. D.T.E. Oct. 21, 1998). At the time, DTE directed Verizon to pay reciprocal compensation to other LECs with which it had similar agreements within the state. Shortly thereafter, however, the FCC published the Reciprocal Compensation Ruling declaring that Internet-bound traffic is interstate, not local. DTE responded on May 19, 1999 by vacating its October decision and declaring that Verizon was not required to pay reciprocal compensation for Internet-bound traffic, but may be required to pay compensation under the interconnection agreement. Complaint of MCI WorldCom, Inc., D.T.E. 97-116-C (Mass. D.T.E. May 19, 1999). On February 25, 2000, after this Court vacated the FCC's order, DTE reaffirmed its May 1999 ruling, but this ruling is the subject of ongoing litigation. Complaint of MCI WorldCom, Inc., D.T.E. 97-116-D (Mass. D.T.E. Feb. 25, 2000).

On April 14, 1999, while the DTE proceedings were underway (and before the DTE vacated its initial decision) GNAPs filed a tariff imposing an $0.008 per minute charge on the delivery of all Internet-bound calls for which GNAPs "does not receive compensation ... under the terms of an interconnection agreement." The tariff further provided that a carrier's "[f]ailure ... to actually compensate [GNAPs] for ISPbound traffic as local traffic under the terms of an Interconnection Agreement shall constitute an election to compensate [GNAPs] under the terms of this Tariff." On May 27, 1999, GNAPs billed Verizon under this tariff over $1.7 million for fifteen days of service. Verizon refused to pay.

C. The FCC Proceedings

On July 8, 1999 Verizon filed a complaint against GNAPs' tariff under Section 208 of the Communications Act. Verizon alleged that 1) the tariff was inconsistent with FCC rules insofar as the FCC exempted ISPs from access charges and provided for joint provision of access service to interexchange carriers, 2) the tariff preempted state determination of intercarrier compensation for interstate Internet-bound traffic, 3) the tariff made Verizon an involuntary GNAPs customer, and 4) the tariff imposed excessive rates. Specifically, Verizon alleged "GNAPs has no right to circumvent the negotiation and arbitration process that the DTE and this Commission have directed it to follow by unilaterally filing a federal tariff." After a status conference, the FCC directed briefing on ten issues concerning the legality of the tariff and the applicability of specific FCC rules, including "why Global NAPs filed a federal tariff and whether that was reasonable." In re Bell Atlantic-Delaware, Inc., E-99-22 (Aug. 19, 1999).

On December 2, 1999, the FCC declared GNAPs' tariff unlawful under section 201(b) and void ab initio. In re Bell Atlantic-Delaware, Inc., et al. v. Global NAPs, Inc., Memorandum Opinion and Order, 15 F.C.C.R. 12,946 (1999) ("Order"). The FCC found that the challenged tariff provisions violated the requirement of 47 C.F.R. 61.2 that tariffs be "clear and explicit" because "those tariff provisions condition the imposition of charges on circumstances that were indeterminate when the tariff took effect and remain indeterminate today." Id. p 2. Additionally, the FCC found that the tariff...