Qwest Services Corp. v. F.C.C.

• Decision Date: 04 December 2007
• Docket Number: No. 06-1298.,No. 06-1274.,No. 06-1309.,06-1274.,06-1298.,06-1309.
• Citation: 509 F.3d 531
• Parties: QWEST SERVICES CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Verizon Communications, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

509 F.3d 531

QWEST SERVICES CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Verizon Communications, et al., Intervenors.

No. 06-1274.

No. 06-1298.

No. 06-1309.

United States Court of Appeals, District of Columbia Circuit.

Argued October 2, 2007.

Decided December 4, 2007.

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

Steven J. Perfrement argued the cause for petitioner Qwest Services Corporation. With him on the briefs was Robert B. McKenna.

Bruce D. Sokler argued the cause for petitioner iBasis, Inc. On the briefs were Michael H. Pryor, Kemal Hawa, Robert G. Kidwell, and Helen Gerostathos Guyton.

Richard K. Welch, Associate General Counsel, Federal Communications Commission,

argued the cause for respondents. With him on the brief were Thomas O. Barnett, Assistant Attorney General, U.S. Department of Justice, Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, Samuel L. Feder, General Counsel, Federal Communications Commission, John E. Ingle, Deputy Associate General Counsel, and Laurel R. Bergold, Counsel. Eric D. Miller, Counsel, entered an appearance.

Helgi C. Walker argued the cause for intervenors AT & T Corporation and Verizon Communications Inc. With her on the brief were Michael E. Glover, Edward Shakin, Christopher M. Miller, Eve Klindera Reed, Gary L. Phillips, David W. Carpenter, and James P. Young. Christopher T. Shenk and David L. Lawson entered appearances.

Before: SENTELLE and TATEL, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge:

This case involves phone calls made with two kinds of prepaid calling cards. The first kind uses internet protocol ("IP") technology to transport part or all of a telephone call ("IP-transport cards"). The second offers a menu-driven interface through which users can either make a call or access several types of information ("menu-driven cards"). In the order under review the Federal Communications Commission determined that both types of cards offer "telecommunications services" and that providers of those cards are therefore subject to access charges, Universal Service Fund contributions, and other obligations under the Communications Act. In the Matter of Regulation of Prepaid Calling Card Services, 21 FCC Rcd 7290 (2006) ("Order").

These consolidated petitions for review do not challenge the substantive merits of that decision. Rather, they attack the Commission's decisions as to the retroactivity of its substantive interpretation of the statute. iBasis contests the decision to make the Order retroactive as to IP-transport cards, and Qwest contests the decision to make it prospective-only as to menu-driven cards.

We find no manifest injustice in applying the Order retroactively to IP-transport cards and thus deny iBasis's petition for review. But we can discern nothing in the record that justifies the Commission's decision to foreclose retroactive application of the Order's statutory interpretation to menu-driven cards in the calculation of a provider's liability for access charges. Accordingly, we grant Qwest's petition for review and vacate the Order insofar as it purports to bar such an application.

* * *

Under the Communications Act of 1934, as amended by the Telecommunications Act of 1996, providers of telecommunications services are regulated as common carriers, but providers of information services are not. 47 U.S.C. § 153(20), (44), (47); Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 975, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005); see also Brand X, 545 U.S. at 976-77, 125 S.Ct. 2688 (describing the historical basis for that distinction). In 2003, AT & T petitioned the Commission for a declaratory ruling that its "enhanced" prepaid calling cards—enhanced by the addition of an advertising message from the card's retailer—were "jurisdictionally interstate" and provided information services. See Am. Tel. & Tel. Co. v. FCC, 454 F.3d 329, 331 (D.C.Cir.2006) ("AT & T"). While that petition was still pending, AT & T alerted the Commission that it had developed menu-driven cards and was considering the transport of calls via prepaid calling cards using IP technology. Letter from Judy Sello, Senior Attorney, AT & T, to Marlene H. Dortch, Secretary, FCC (Nov. 22, 2004). AT & T amended its petition to add a request for a declaratory ruling that these new variations on its prepaid calling cards would be treated as interstate information services. Id.

On February 23, 2005, the Commission released an Order and Notice of Proposed Rulemaking in response to AT & T's petition. AT & T Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid Calling Card Services, 20 FCC Rcd 4826 (2005) ("Prepaid Card Order" or "NPRM"). As to the enhanced prepaid cards described in AT & T's original petition, the Commission determined that those cards offered telecommunications services—not information services—and that the calls made with them are intrastate when they originate and end in the same state, regardless of a call's actual route. Id. at 4830 ¶ 14, 4833 ¶ 22; see also AT & T, 454 F.3d at 331. The Commission declined, however, to extend its declaratory ruling to menu-driven and IP-transport cards; it stated that "[r]ather than try to address each possible type of calling card offering through a declaratory ruling," the Commission was initiating a rulemaking "to consider the classification and jurisdiction of new forms of prepaid calling cards." Id. at 4826 ¶ 2. Opening a new docket for that proceeding, the Commission requested comment on the proper classification of menu-driven and IP-transport cards. Id. at 4839-41 ¶¶ 38-43.

The Commission released the Order at issue here on June 30, 2006. In a part of that Order that it labeled a declaratory ruling, the Commission announced that IP-transport and menu-driven cards "are telecommunications services and that their providers are subject to regulation as telecommunications carriers," 21 FCC Rcd at 7293 ¶ 10, and thus subject to the obligation to pay access charges to local exchange carriers, id. at 7300 ¶ 27. It also indicated that jurisdiction over calls would be governed by the traditional end-to-end analysis, meaning that calls made with prepaid cards that originate and end in the same state are intrastate, regardless of a call's actual route. Id. at 7290 ¶ 1, 7300 ¶ 27; see also Prepaid Card Order, 20 FCC Rcd at 4827 ¶ 5. Both aspects of the substantive decision—the requirements that IP-transport and menu-driven card providers pay access charges and that they pay the (generally higher) intrastate access charges for those calls when appropriate—were thus against iBasis's interests as a provider of IP-transport cards and in favor of Qwest's interests as a local exchange carrier of calls made by both types of cards.

Turning to the issue of remedy, the Commission said that a declaratory ruling was, notwithstanding the proceedings' launch as a rulemaking, "a form of adjudication" and recognized that "[g]enerally, adjudicatory decisions are applied retroactively." Id. at 7304-05 ¶ 41. The Commission decided that it would apply that "general rule" to IP-transport cards but would "decline to give retroactive effect to our ruling on menu-driven cards to avoid a manifest injustice." Id. at 7305 ¶ 41. iBasis and Qwest both take issue with the retroactivity rulings, which in each case are adverse to their respective interests. They filed petitions for review; AT & T and Verizon intervened in opposition to Qwest. We consolidated the petitions.

* * *

iBasis argues that the Order announces a rule rather than an adjudicatory order, and thus that it cannot apply retroactively citing Bowen v. Georgetown University Hospital, 488 U.S. 204, 208-09, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988). In the alternative, iBasis argues that even if the Order was an adjudication, its retroactive application to IP-transport cards used before the Commission announced its decision works a manifest injustice. We reject both contentions.

The section of the Order that classifies IP-transport and menu-driven cards as telecommunications services is labeled a declaratory ruling. The Commission is authorized to issue a declaratory ruling "to terminate a controversy or remove uncertainty," 5 U.S.C. § 554(e); see also 47 C.F.R. § 1.2, and there is no question that a declaratory ruling can be a form of adjudication, see, e.g., AT & T, 454 F.3d at 332. iBasis argues that—despite the Commission's characterization of its action—the Order did not qualify as an adjudication because the Commission's initial pronouncement purporting to start a rulemaking, the process it employed, and the result it reached all bespeak a rulemaking. iBasis's argument, then, is that if it walks like a rule and talks like a rule, it must be a rule.

iBasis is clearly correct that the process started out as a rulemaking and in part preserved that form. But the Commission indisputably split the proceeding into a dual one, half rulemaking and half adjudication, or at least purported to do so. iBasis appears to assume that such a split is inherently improper. But it points to no case and to nothing in the Administrative Procedure Act or Communications Act that bars such a bifurcation. Obviously if a party adversely affected by the adjudication argued that the switch deprived it of any right to which it would be entitled in an adjudication, we would have to assess that deprivation under conventional principles governing adjudications. But iBasis's opening brief, except for the circular argument that the switch triggered a traditional characteristic of adjudication (the possibility of retroactive application), pointed to no such deprivation.

In its reply brief iBasis finally identified a possible deprivation: the NPRM's failure to provide interested parties with notice...