New England Public Communications v. F.C.C.

• Decision Date: 11 July 2003
• Docket Number: No. 02-1105.,No. 02-1091.,No. 02-1055.,No. 02-1092.,02-1055.,02-1091.,02-1092.,02-1105.
• Citation: 334 F.3d 69
• Parties: NEW ENGLAND PUBLIC COMMUNICATIONS COUNCIL, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. American Public Communications Council, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

334 F.3d 69

NEW ENGLAND PUBLIC COMMUNICATIONS COUNCIL, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents.

American Public Communications Council, et al., Intervenors.

No. 02-1055.

No. 02-1091.

No. 02-1092.

No. 02-1105.

United States Court of Appeals, District of Columbia Circuit.

Argued May 9, 2003.

Decided July 11, 2003.

On Petitions for Review of an Order of the Federal Communications Commission.

Aaron M. Panner argued the cause for Bell Operating Company petitioners. With him on the briefs were Michael K. Kellogg, James G. Garralson, Michael E. Glover, Edward Shakin, John M. Goodman, James D. Ellis and Gary L. Phillips.

Marcus W. Trathen argued the cause for petitioners New England Public Communications Council, Inc., et al. With him on the briefs were Paul C. Besozzi and David Kushner.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondent. With him on the brief were R. Hewitt Pate, Acting Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys, John A. Rogovin, Acting General Counsel, Federal Communications Commission, and John E. Ingle, Deputy Associate General Counsel. Lisa E. Boehley, Counsel, Federal Communications Commission, entered an appearance.

Robert F. Aldrich argued the cause for intervenor American Public Communications Council, Inc. With him on the brief was Albert H. Kramer.

Aaron M. Panner argued the cause for LEC intervenors. With him on the brief were Michael K. Kellogg, James G. Harralson, Michael E. Glover, Edward Shakin, John M. Goodman, James D. Ellis and Gary G. Phillips. Peter M. Connolly entered an appearance.

Before: GINSBURG, Chief Judge, and ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Acting pursuant to a 1996 Telecommunications Act provision designed to promote competition in the payphone service industry, the Federal Communications Commission issued an order requiring the Bell operating companies (BOCs) to price the service lines used by payphone service providers at forward-looking cost-based rates. In these consolidated cases, two groups of petitioners challenge the order from opposing points of view. One group, composed of BOCs, challenges the Commission's authority to require a specific rate-setting methodology for intrastate payphone lines. The other group, composed of payphone service providers that use non-BOC local exchange carriers' payphone lines, challenges the Commission's decision to limit the forward-looking cost-based methodology requirement to BOCs. Concluding that the Telecommunications Act authorizes the Commission to regulate BOC intrastate payphone line rates, but not those of non-BOC local exchange carriers, we deny the petitions for review and affirm the Commission's order in all respects.

I.

Until the mid-1980s, because payphones could not be operated separately from local exchange service, only local exchange carriers (LECs) provided payphone service. See Illinois Pub. Telecomms. Ass'n v. FCC, 117 F.3d 555, 558 (D.C.Cir.1997) (per curiam). For that reason, the LECs — which, thanks to the 1982 consent decree under which AT&T divested its local exchange carriers, were primarily BOCs, see United States v. Am. Tel. & Tel. Co., 552 F.Supp. 131 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983) — generally subsidized the cost of payphone equipment and service with revenues from their other services. In the mid-1980s, however, advances in payphone technology enabled independent, non-LEC payphone service providers (PSPs) to enter the payphone market. But because the LECs owned the payphone lines used by all PSPs, they were able to continue to subsidize and otherwise discriminate in favor of their own payphone service. See generally In the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 6716, 6718-20 ¶ ¶ 2-6, 1996 WL 436930 (1996) (Notice of Proposed Rulemaking).

In the Telecommunications Act of 1996, Congress fundamentally restructured the local telephone industry. Section 276 of the Act, which is specifically aimed at promoting competition in the payphone service industry, prohibits "any Bell operating company that provides payphone service" from subsidizing or discriminating in favor of its own payphone service. 47 U.S.C. § 276(a). It also authorizes the Commission to prescribe regulations consistent with the goal of promoting competition, requiring that the Commission take five specific steps toward that goal. One of these steps is "prescrib[ing] a set of nonstructural safeguards for Bell operating company payphone service" that "shall, at a minimum, include the nonstructural safeguards equal" to those governing BOCs' provision of enhanced services — the so-called Computer III safeguards. Id. § 276(b)(1)(C). Finally, recognizing that the prescribed regulations would trench on state authority, Congress provided that section 276 preempts state law "[t]o the extent that any State requirements are inconsistent with the Commission's regulations." Id. § 276(c).

The Commission implemented section 276 in a series of orders, beginning with the so-called Payphone Orders. In the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541, 1996 WL 547458 (1996) (Report and Order) ("First Payphone Order"); Order on Reconsideration, 11 F.C.C.R. 21233, 1996 WL 658824 (1996) ("Payphone Reconsideration Order"). Among other things, these orders require that incumbent LECs provide "individual central office coin transmission services to PSPs" at rates that satisfy the flexible, cost-based "new services test" that developed as an outgrowth of the Computer III proceeding. First Payphone Order, 11 F.C.C.R at 20614 ¶ 146. Specifically, in an order following the initial Computer III order, the Commission directed that service element rates be set at the direct costs of providing the service element, plus "an appropriate level of overhead costs." In the Matter of Amendments of Part 69 of the Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture Policy and Rules Concerning Rates for Dominant Carriers, 6 F.C.C.R. 4524, 4531 ¶ ¶ 38-41, 44, 1991 WL 638513 (1991) (Report and Order and Order on Further Reconsideration and Supplemental Notice of Proposed Rulemaking) ("Access Charge Subelements Order"). In the Payphone Reconsideration Order, the Commission clarified that while the states, not the Commission, would review the LECs' intrastate payphone line tariffs, the states must ensure that the tariffs are "(1) cost-based; (2) consistent with the requirements of Section 276 with regard, for example, to the removal of subsidies ...; and (3) nondiscriminatory," and that the states "must apply ... the Computer III guidelines for tariffing such intrastate services." 11 F.C.C.R. at 21308 ¶ 163.

In 1997, a group of independent PSPs petitioned the Wisconsin Public Service Commission to determine whether Wisconsin LECs' payphone line service tariffs complied with the new services test. The Wisconsin Commission denied the request, finding its jurisdiction under state law limited to "enforcing a prohibition on cross subsidy ... and prohibitions on discriminatory practices." Letter from Public Service Commission of Wisconsin to Andrew J. Phillips, Yakes, Bauer, Kindt & Phillips (Nov. 6, 1997). The FCC's Common Carrier Bureau, concluding that "[t]he Wisconsin Commission's stated lack of authority to review these payphone service offerings invokes this Commission's obligations under section 276 and the Commission's Payphone Orders," directed the four largest Wisconsin LECs to file with the Commission "tariffs for intrastate payphone service offerings ... together with the supporting documentation ... necessary to demonstrate compliance with the requirements of section 276 and the Commission's implementing rules." In the Matter of Wisconsin Public Service Commission, 15 F.C.C.R. 9978, 9980 ¶ 5, 2000 WL 232182 (2000) (Order) ("Bureau Order") (footnotes omitted); see also Letter of October 28, 1998, from Kathryn C. Brown, Chief, Common Carrier Bureau, to Hon. Joseph P. Mettner, Chairman, Public Service Commission of Wisconsin, 13 F.C.C.R. 20865, 20865, 1998 WL 751151 (1998). The Bureau also notified the LECs that it would examine their tariffs using "an appropriate forward-looking, economic cost methodology" consistent with principles the Commission set forth in its 1996 Local Competition Order, in which the Commission implemented the Telecommunications Act's local telephone market deregulation provisions, 47 U.S.C. §§ 251, 252. Bureau Order, 15 F.C.C.R. at 9981 ¶ 9; see also In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499, 1996 WL 452885 (1996) (Report and Order) ("Local Competition Order"). In that proceeding, the Commission prescribed a method for setting rates at which incumbent LECs would provide network elements to their competitors based not on the original, historical cost of the equipment used to provide service, but rather on the current cost of providing service using existing equipment. See Verizon Communications, Inc. v. FCC, 535 U.S. 467, 495-97, 122 S.Ct. 1646, 1664-65, 152 L.Ed.2d 701 (2002) (upholding the forward-looking cost methodology against the incumbents' challenge).

A coalition of LECs applied for review of the Bureau's order, primarily challenging the Bureau's decision to use forward-looking methodologies in applying the new services test. Citing 47 U.S.C. section 152(b), which provides that "nothing in th[e] Act shall be construed to apply or to give the Commission jurisdiction with respect to (1)...