SBC Communications Inc. v. F.C.C.

• Citation: 138 F.3d 410
• Decision Date: 20 March 1998
• Docket Number: No. 97-1425,97-1425
• Parties: , 1998-1 Trade Cases P 72,088, 10 Communications Reg. (P&F) 984 SBC COMMUNICATIONS INC., et al., Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee, AT&T Corporation, et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 410

138 F.3d 410

329 U.S.App.D.C. 133, 1998-1 Trade Cases P 72,088,

10 Communications Reg. (P&F) 984

SBC COMMUNICATIONS INC., et al., Appellant, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee AT&T Corporation, et al., Intervenors.

No. 97-1425.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 9, 1998.

Decided March 20, 1998.

Appeal of an Order of the Federal Communications Commission.

Michael K. Kellogg argued the cause for appellants, with whom James D. Ellis, Robert M. Lynch, San Antonio, TX, and Martin E. Grambow, Washington, DC, were on the briefs.

Christopher J. Wright, General Counsel, Federal Communications Commission, argued the cause for appellee, with whom William E. Kennard, General Counsel, John E. Ingle, Deputy Associate General Counsel, and James M. Carr, Counsel, Washington, DC, were on the brief.

David W. Carpenter argued the cause for intervenors AT&T Corporation, et al., with whom Mark E. Haddad, Peter D. Keisler, Washington, DC, Mark C. Rosenblum, Roy E. Hoffinger, Basking Ridge, NJ, Anthony C. Epstein, Sue D. Blumenfeld, Washington, DC, Michael Finn, Leon Kestenbaum, Jay Keithley, Washington, DC, Charles C. Hunter, Catherine M. Hannan, Bowie, MD, Glenn B. Manishin, Washington, DC, Christy C. Kunn, John D. Windhausen, Jr., Silver Spring, MD, Gary M. Cohen, Jeffrey Blumenfeld, Genevieve Morelli, Alexandria, VA, Danny E. Adams, Steven A. Augustino, Washington, DC, Richard J. Metzger, Arlington, VA, Emily M. Williams, Daniel L. Brenner, Neal M. Goldberg, David L. Nicoll, Werner K. Hartenberger, Laura H. Phillips, and J.G. Harrington Washington, DC, were on the brief. Donald B. Verrilli, Jr. Washington, DC, entered an appearance.

Mickey S. Moon, Assistant Attorney General, State of Oklahoma, Oklahoma City, OK, was on the brief for intervenor Office of the Oklahoma Attorney General

Jeffrey W. Sarles, Chicago, IL, was on the brief for amicus curiae Ameritech Corporation.

James R. Young and Michael E. Glover, Arlington, VA, were on the brief for intervenors Bell Atlantic Telephone Companies and Bell Atlantic Communications, Inc.

Before: SILBERMAN, WILLIAMS, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

Appellant SBC Communications contends that in denying its application to provide long-distance telephone service in the State of Oklahoma, the Federal Communications Commission has erroneously interpreted the provisions governing Bell operating company entry into the long-distance market in their home region states (to be codified at 47 U.S.C. § 271(c)(1)(A), (B)). We affirm. I.

SBC Communications provides local telephone exchange (intraLATA) ¹ service in the States of Arkansas, California, Kansas, Missouri, Nevada, Oklahoma, and Texas through its subsidiaries Nevada Bell, Pacific Bell, and Southwestern Bell. It is a combination of local telephone companies that AT&T was required to divest pursuant to the Modification of Final Judgment (MFJ), a consent decree between the government and the then-integrated AT&T, as modified by the district court, in settlement of the Justice Department's 1974 antitrust suit. See United States v. American Tel. & Tel. Co., 552 F.Supp. 131, 227 (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). ² Divestiture was called for, in large part, because it was thought "that a corporation that enjoyed a monopoly on local calls would ineluctably leverage that bottleneck control in the interexchange (long distance) market." United States v. Western Elec. Co., 969 F.2d 1231, 1238 (D.C.Cir.1992). The newly independent Bell operating companies (BOCs) were given AT&T's local network assets, and thus control of the "bottleneck" monopoly (so named because interexchange calls are routed to homes through the local network). See SBC Communications Inc., v. FCC, 56 F.3d 1484, 1491 (D.C.Cir.1995).

Out of concern that the BOCs might similarly leverage that local monopoly to their competitive advantage, the MFJ forbad them from offering long-distance service. See United States v. American Tel. & Tel. Co., 552 F.Supp. at 188 ("there are many ways in which the company controlling the local exchange monopoly could discriminate against competitors in the interexchange market"). The MFJ provided that the ban might be lifted if the BOCs lost their monopoly over local service, either by "technological developments" or "changes in the structures of competitive markets"; the Department of Justice was to report to the district court on whether the restriction continued to be necessary. See id. at 194-95. But subscriber plant equipment (also known as the "local loop")--inside wiring and equipment, and the wireline connecting each household to a local switching office, see MCI Telecommunications Corp. v. FCC, 750 F.2d 135, 137 (D.C.Cir.1984)--is very costly to install. And, state regulators helped sustain the BOCs' bottleneck control, arguably because they preferred the "subsidies and price-averages" the local monopoly allowed. See M. KELLOGG, ET AL., FEDERAL COMMUNICATIONS LAW 68 (1992). The Department of Justice, indeed, came to believe that "the BOCs' bottleneck monopolies persist[ed] primarily because of local regulation." United States v. Western Elec. Co., 900 F.2d 283, 292 (D.C.Cir.1990) (per curiam). Nevertheless, the BOCs, with the FCC's support, moved in 1987 to have the interLATA restriction removed. We agreed with the government in opposition that "the BOCs failed to show that there was no substantial possibility that they could use their monopoly power to impede competition in the interexchange market." Id. at 301. The restriction remained in force for the duration of the MFJ.

The Congress--responding, in part, to the argument that competition in the huge telecommunications industry should no longer be governed by an antitrust consent decree administered by a single federal district judge, see S.REP. NO.104-23, at 5, 9 (1995)--set forth a new legislative framework, the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (1996). Section 601 of the Act provided that the "restrictions and obligations imposed" by the MFJ were to give way (the district judge terminated the MFJ as of February 8, 1996, see United States v. Western Elec. Co., 1996 WL 255904 (D.D.C. Apr.11, 1996)). Congress hoped the Act would "provide for a pro-competitive, deregulatory national policy framework ... by opening all telecommunications markets to competition." H.R. CONF. REP . No. 104-458, at 1 (1996). The question of how best to achieve that goal, however, was the subject of great debate. Some thought that the local and long-distance markets should be open to all competitors immediately. Others believed that the BOCs should have to wait until actual competition was introduced in their local markets before providing interLATA service, since it was claimed that the long-distance market is already competitive. As might be expected for an issue of this economic significance, an extended lobbying struggle ensued. The end product was a compromise between the competing factions.

States and localities were no longer to sanction local monopolies; they are now barred from "prohibiting the ability of any entity to provide ... intrastate telecommunications service." 47 U.S.C.A. § 253(a) (West Supp.1997). The BOCs are obliged to provide any requesting carrier with nondiscriminatory interconnection to their networks and nondiscriminatory access to unbundled network elements at reasonable rates, terms, and conditions; they must also offer telecommunications services at wholesale rates for resale to end users. 47 U.S.C.A. § 251(c). ³

Interexchange carriers may immediately begin providing local telephone service, and the BOCs may provide longdistance service originating from out-of-region ⁴ states without the FCC's approval. See id. at § 271(b)(2). A BOC must apply to the Commission, however, for authorization to provide interLATA services in any of its in-region states under section 271(d)(1). In evaluating any such application, the FCC must consult with the United States Attorney General and the relevant State commission, see id. at § 271(d)(2), and must approve or deny the application within 90 days of receipt. See id. at § 271(d)(3). The FCC may not approve a BOC's request unless it finds that the criteria set forth at 47 U.S.C.A. § 271(d)(3) are satisfied.

As the first step in meeting the section 271(d)(3) criteria, the BOCs must satisfy either 47 U.S.C.A. § 271(c)(1)(A) or 47 U.S.C.A. § 271(c)(1)(B), which the parties refer to as "Track A" and "Track B," respectively. ⁵ Track A provides:

A [BOC] meets the requirements of this subparagraph if it has entered into one or more [approved] binding agreements ... specifying the terms and conditions under which the [BOC] is providing access and interconnection to its network facilities for the network facilities of one or more unaffiliated competing providers of telephone exchange service ... to residential and business subscribers. For the purpose of this subparagraph, such telephone exchange service may be offered by such competing providers either exclusively over their own telephone exchange service facilities or predominantly over their own telephone exchange service facilities in combination with the resale of the telecommunications services of another carrier.

47 U.S.C.A. § 271(c)(1)(A) (emphasis added). Put simply then, Track A visualizes a demonstration of a competitor in the local exchange market. Track B, which first became available 10 months after the date of enactment (i.e., on Dec. 8, 1996), is satisfied, on the other hand, if "3 months before ... the [BOC] makes its application" to the FCC, "no such provider has requested the access and interconnection described" in Track A, so long as "a statement of the terms and conditions that the [BOC] generally offers to provide such...