In re Core Communications, Inc.

• Decision Date: 08 July 2008
• Docket Number: No. 07-1446.,07-1446.
• Citation: 531 F.3d 849
• Parties: In re CORE COMMUNICATIONS, INC., Petitioner.
• Court: U.S. Court of Appeals — District of Columbia Circuit

531 F.3d 849

In re CORE COMMUNICATIONS, INC., Petitioner.

No. 07-1446.

United States Court of Appeals, District of Columbia Circuit.

Argued May 5, 2008.

Decided July 8, 2008.

On Petition for Writ of Mandamus to the Federal Communications Commission.

Michael B. Hazzard argued the cause for petitioner. With him on the briefs was Joseph P. Bowser.

Joseph R. Palmore, Deputy General Counsel, argued the cause for respondent. With him on the brief were Matthew B. Berry, General Counsel, Richard K. Welch, Acting Deputy Associate General Counsel, and Nandan M. Joshi, Counsel.

Before: TATEL, GARLAND, and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GARLAND.

Concurring opinion filed by Circuit Judge GRIFFITH.

GARLAND, Circuit Judge:

The Federal Communications Commission (FCC) has twice failed to articulate a valid legal justification for its rules governing intercarrier compensation for telecommunications traffic bound for Internet service providers (ISPs). In March 2000, this court vacated and remanded the Commission's first attempt at a justification. In May 2002, we rejected its second attempt, in that case remanding without vacating because we thought there was a "non-trivial likelihood" the Commission would be able to state a valid legal basis for its rule.

No such justification has been forthcoming. Core Communications, Inc., which is injured by the FCC's rules, has filed a petition for a writ of mandamus, seeking an order compelling the Commission to explain the legal authority upon which the rules are based, on pain of vacatur if it fails to do so within a fixed time. This is Core's second petition seeking such relief. We dismissed its first in 2005, "without prejudice to refiling in the event of significant additional delay." That delay has now come to pass. It has been three years since we dismissed Core's first petition and six years since we remanded the case to the FCC to do nothing more than state the legal justification for its rules. At this point, the FCC's delay in responding to our remand is egregious.

We therefore grant the writ of mandamus sought by Core and direct the FCC to explain the legal basis for its ISP-bound compensation rules within six months of the date of the oral argument in this case. There will be no extensions of that deadline. The rules will be vacated on the day after the deadline, unless the court is notified that the Commission has complied with our direction.

I

Our opinion in In re Core Communications, Inc., 455 F.3d 267 (D.C.Cir.2006), sets forth much of the background necessary to understand how this case arrived at its current juncture, and we therefore borrow liberally from that exposition. As we explained in Core, before high-speed broadband connections (such as cable modem and digital subscriber line (DSL) service) became widely available, consumers generally gained access to the Internet through "dial—up" connections provided by local telephone companies. Under the dial—up method, a consumer uses a line provided by a local exchange carrier (LEC)—usually an incumbent local exchange carrier (ILEC)—to dial the local telephone number of an Internet service provider (ISP), which then connects the call to the Internet. Typically, the ISP does not subscribe to the ILEC, but instead subscribes to another LEC—a competitive local exchange carrier (CLEC)— that interconnects with the incumbent. Accordingly, a consumer who dials up to the Internet usually obligates an originating ILEC to transfer the call to a CLEC, which then delivers the call to the ISP. Core is a CLEC. See id. at 270.

How this call is paid for is at the center of Core's dispute with the FCC. Section 251(b)(5) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, requires LECs to "establish reciprocal compensation arrangements for the transport and termination of telecommunications." 47 U.S.C. § 251(b)(5). Under a reciprocal compensation arrangement, "[w]hen a customer of carrier A makes a local call to a customer of carrier B, and carrier B uses its facilities to connect, or `terminate,' that call to its own customer, the `originating' carrier A is ordinarily required to compensate the `terminating' carrier B for the use of carrier B's facilities." SBC Inc. v. FCC, 414 F.3d 486, 490 (3d Cir.2005) (citing Global NAPs, Inc. v. FCC, 247 F.3d 252, 254 (D.C.Cir.2001)); see In re Core, 455 F.3d at 270.

If ISP-bound traffic were governed by § 251(b)(5), reciprocal compensation arrangements would be required for the ILEC-to-CLEC hand-off just described, and ILECs would be required to compensate CLECs—like Core—for completing their customers' calls to ISPs. In 1996, however, the FCC construed the "reciprocal compensation arrangements" provision of § 251(b)(5) to "apply only to traffic that originates and terminates within a local area." Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 15,499, 16,013, ¶ 1034, 1996 WL 452885 (1996). And in its 1999 Declaratory Ruling, the Commission concluded that dial-up calls to an ISP for connection to the Internet are non-local, and thus that § 251(b)(5) is inapplicable. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound Traffic, 14 FCC Rcd 3689, 1999 WL 98037 (1999) ("Declaratory Ruling"). Instead, the FCC concluded that ISP-bound calls constitute interstate traffic, subject to FCC jurisdiction under § 201 of the Act.¹ See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound Trafic, 16 FCC Rcd 9151, 9152, ¶ 1, 2001 WL 455869 (2001) ("ISP Remand Order") (construing the Declaratory Ruling).

In March 2000, this court held that the Commission had inadequately explained its determination that ISP-bound traffic is non-local. See Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 7-8 (D.C.Cir.2000). The FCC, we said, had failed to "provide an explanation why th[e] [end-to-end] inquiry is relevant to discerning whether a call to an ISP should fit within the local call model ... or the long-distance model." Id. at 5. We vacated and remanded the Declaratory Ruling, directing the FCC to justify its determination. Id. at 9.

In 2001, the FCC responded to our decision in Bell Atlantic with the ISP Remand Order. Once again, the Commission concluded that calls delivered to ISPs are not subject to the reciprocal compensation obligations of § 251(b)(5). See ISP Remand Order, 16 FCC Rcd at 9154, ¶ 3. But this time, rather than base its conclusion on a determination that ISP-bound calls are non-local and hence not subject to § 251(b)(5), the Commission relied on a different statutory section, 47 U.S.C. § 251(g).² See id. at 9153, ¶ 1. According to the FCC, § 251(g) was intended to exclude the kinds of traffic enumerated in that subsection, specifically "exchange access, information access, and exchange services for such access," from the reciprocal compensation requirement of § 251(b)(5). Id. at 9166-67, ¶ 34 (quoting § 251(g)). And it found that calls made to ISPs located within the caller's local calling area fall within those enumerated categories—specifically, that they constitute "information access." Id. at 9171, ¶ 42. Those calls, the FCC concluded, are thus not subject to § 251(b)(5), but are instead subject to the FCC's regulatory authority under § 201. See id. at 9152-53, ¶ 1; id. at 9165, ¶ 30; id. at 9175-81, ¶¶ 52-65.

The FCC next sought "to establish an appropriate cost recovery mechanism for delivery of this [ISP-bound] traffic." Id. at 9154, ¶ 4. The Commission concluded that "the existing intercarrier compensation mechanism ..., in which the originating carrier pays the carrier that serves the ISP, has created opportunities for regulatory arbitrage and distorted the economic incentives related to competitive entry into the local exchange and exchange access markets." Id. at 9153, ¶ 2. And it announced that it was issuing—in tandem with its ISP Remand Order—a notice of proposed rulemaking to consider whether the Commission should replace existing intercarrier compensation schemes with a "bill-and-keep" regime. Id.; see Notice of Proposed Rulemaking, Developing a Unified Intercarrier Compensation Regime, 16 FCC Rcd 9610, 2001 WL 455872 (2001) ("NPRM"). Under such a regime, "neither of two interconnecting networks charges the other for terminating traffic that originates on the other network. Instead, each network recovers [its costs] from its own end-users." ISP Remand Order, 16 FCC Rcd at 9153 n. 6. Thus, in the typical scenario discussed above, the originating ILEC would recover its costs from the customer who initiated the call, while the CLEC would recover its costs from the ISP customer to which it delivered the call.

Although the FCC issued the NPRM looking toward a bill-and-keep regime, the Commission nonetheless deemed it "prudent" not to switch immediately "to a new compensation regime that would upset the legitimate business expectations of carriers and their customers." Id. at 9186, ¶ 77. It therefore adopted "an interim intercarrier compensation regime for ISP-bound traffic that serves to limit, if not end, the opportunity for regulatory arbitrage, while avoiding a market-disruptive `flash cut' to a pure bill and keep regime." Id. at 9186-87, ¶ 77. The interim regime, the FCC said, "will govern intercarrier compensation for ISP-bound traffic until we have resolved the issues raised in the intercarrier compensation NPRM." Id. at 9187, ¶ 77. According to the FCC, this would be "a three-year interim intercarrier compensation mechanism for the exchange of ISP-bound traffic." Id. at 9199, ¶ 98 (emphasis added).

The FCC's interim regime has four provisions particularly relevant to Core. Of these, the most important are the "rate caps," which establish a gradually declining maximum rate that a carrier ...