Sprint Communications Co. v. Sprint Communications Co.

• Decision Date: 28 December 2001
• Docket Number: 01-1084,01-1083,01-1081,01-1082,No. 01-1076,01-1076
• Citation: 274 F.3d 549
• Parties: (D.C. Cir. 2001) Sprint Communications Company L.P., Appellant v. Federal Communications Commission, Appellee SBC Communications Inc., et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 549

274 F.3d 549 (D.C. Cir. 2001)

Sprint Communications Company L.P., Appellant v. Federal Communications Commission, Appellee

SBC Communications Inc., et al., Intervenors

No. 01-1076, 01-1081, 01-1082, 01-1083, 01-1084

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 17, 2001

Decided December 28, 2001

Appeals from an Order of the Federal Communications Commission

David W. Carpenter argued the cause for appellants. With him on the briefs were Mark C. Rosenblum, Mark E. Haddad, David L. Lawson, Jay T. Jorgensen, Theodore C. Whitehouse, Randy J. Branitsky, Thomas F. O'Neil III, William Single IV, Mark D. Schneider, Robert J. Aamoth, Brad E. Mutschelknaus and Jonathan E. Canis. Peter D. Keisler entered an appearance.

James M. Carr, Counsel, Federal Communications Commission, argued the cause for appellee. With him on the brief were Daniel M. Armstrong, Associate General Counsel, and John E. Ingle, Deputy Associate General Counsel.

Geoffrey M. Klineberg argued the cause for intervenors SBC Communications Inc., Southwestern Bell Telephone Company and Southwestern Bell Communications Services, Inc. With him on the brief were Michael K. Kellogg, Scott K. Attaway, Alfred G. Richter, Jr., James D. Ellis, Martin E. Grambow and Mary W. Marks.

Eva Powers, Elisabeth H. Ross and Douglas S. Burdin were on the brief for intervenor Kansas Corporation Commission.

William R. Burkett was on the brief for amicus curiae Oklahoma Corporation Commission in support of appellee.

Before: Tatel, Circuit Judge, Silberman and Williams^*, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge Stephen F. Williams.

Stephen F. Williams, Senior Circuit Judge:

The regional Bell operating companies ("BOCs"), split off from AT&T in the 1982 antitrust settlement, provide most local telephone service. Section 271 of the Telecommunications Act of 1996 (the "Act"), 47 U.S.C. § 271, offers the BOCs a deal: such a company can enter the long distance business in a state within its service area if it takes specified steps to open the local-service market to competition. SBC Communications, a provider of local service in Kansas and Oklahoma, applied to the Federal Communications Commission for authorization to enter the long distance market in those states. Various long distance providers, including the five appellants before us, objected. The FCC granted the authorization, see Joint Application by SBC Communications, Inc. et al. for Provision of In-Region InterLATA Services in Kansas and Oklahoma, 16 F.C.C.R. 6237 (2001) (the "Order"), and this appeal followed. See 47 U.S.C. § 402(b)(6) & (9) (giving this court exclusive jurisdiction over challenges to the Commission's § 271 orders).

The full regulatory context of a § 271 application is set forth comprehensively in our decision affirming the FCC's approval of Bell Atlantic's § 271 application for New York. AT&T v. FCC, 220 F.3d 607, 610-15 (D.C. Cir. 2000), affirming Bell Atlantic New York Order, 15 F.C.C.R. 3953 (1999) ("New York Order"). Here we state only the bare bones. The Act entitles each of the BOCs to begin offering long distance service originating outside their local-service areas immediately. See 47 U.S.C. § 271(b)(2). But for authority to offer "in region" long distance service (i.e., service originating in a state where it provided local service), the Act requires a BOC to apply for Commission approval. Id. § 271(b)(1). The Commission then has 90 days to decide whether the BOC has shown that it is in compliance with the statutory prerequisites. Id. § 271(d)(3).

First, the BOC must satisfy either "Track A" or "Track B"--names derived from subparagraphs of § 271(c)(1). For Track A it must show that it provides network access to "one or more unaffiliated competing providers of telephone exchange service ... to residential and business subscribers." Id. § 271(c)(1)(A). If no competing provider has requested such access, the BOC may invoke Track B, showing that it is ready and willing to provide its competitors with network access and interconnectivity under terms "approved ... by the State commission." Id. § 271(c)(1)(B).

Besides prevailing on Track A or B, the BOC must establish that its offering of interconnection and access to competitive local exchange companies ("CLECs") meets the fourteen requirements of a "competitive checklist" contained in § 271(c)(2)(B). Many of these requirements are simply incorporations by reference of obligations independently imposed on the BOCs by §§ 251-52 of the Act, id. § 271(c)(2)(B)(i) & (ii), and enforced by state regulatory commissions pursuant to § 252. The required interconnection and access must be available on non-discriminatory terms and at cost-based rates. See, e.g., id. §§ 251(c)(2) & (3), 252(d)(1). Finally, the BOC must convince the FCC that "the requested authorization is consistent with the public interest, convenience, and necessity." Id. § 271(d)(3)(C).

SBC filed an application for long distance service authorization in both Kansas and Oklahoma on October 26, 2000. Its petition relied on the network element rates that were set by the Kansas Corporation Commission and the Oklahoma Corporation Commission in § 252 proceedings implementing SBC's duties under § 251. See Order at p p 12-16, 22-23. Numerous parties--including the Department of Justice, the Kansas Commission and the Oklahoma Commission, and the five appellants--filed comments. The state commissions weighed in on the side of SBC. DOJ's recommendations endorsed neither denial nor approval of the applications, but instead urged the FCC to scrutinize particular aspects of the petition, including SBC's prices for network elements.

On January 22, 2001--ninety days after the application was filed, and for the first time in a situation involving predominantly rural states--the FCC released its order granting SBC the authorizations. See Order p 1.

The Commission found first that SBC had satisfied Track A in both Kansas and Oklahoma because the company was supplying network access to one or more unaffiliated competitors providing residential and business customers with "facilities-based service." Order p p 40-44; see also § 271(c)(1)(A).

Next the Commission concluded that SBC had fully met the requirements of the competitive checklist in both states. Evidence in the record was virtually uncontested with respect to eleven of the fourteen checklist items. Order p p 39, 24155. As for the remaining three items, the Commission considered and rejected commenters' contentions that SBC failed to provide network elements and interconnection to CLECs at cost-based rates. See Order p p 45-240.

Appellants raised two rate-related arguments that are novel in § 271 litigation. Pointing to the rather low level of residential service by CLECs, they argued that the unbundled network element ("UNE") rates could not have genuinely conformed to the cost requirement, or else competition would have flourished, or at least not proven so modest. Further, pointing to submissions of evidence that SBC's UNE rates were too high to provide profitable residential service, they argued that SBC was engaged in a "price squeeze" (charging prices for inputs that precluded competition from firms relying on those inputs), and that accordingly the Commission could not find that authorization of its entry into the long distance market was "consistent with the public interest," as required by § 271(d)(3)(C). The Commission rather summarily rejected both claims. Order p p 92, 268.

Appellants here pursue three basic arguments. First, they make the arguments summarized above about the relation between UNE rates and low volumes of residential service. Second, they make a series of detailed attacks on the Commission's findings that the UNE rates were cost-based. Finally, they say that the FCC improperly relied on ex parte communications in its Kansas Track A determination, which was, in any event, independently erroneous. We consider the arguments in that order. We conclude that appellants have made out a case for a remand to the Commission only on the "public interest" aspect of the first issue.

1. Low-volume local competition, possible price squeeze and the public interest.

In contrast to the situation in the other two states where the FCC has previously granted long distance authority to a requesting BOC (New York and Texas), Oklahoma and Kansas have local telephone markets characterized by relatively low volumes of residential competition from non-BOC firms. Order p p 34, 92, 268. Appellants also point to evidence they submitted, evidently uncontradicted in the record, that competition in the residential market that was dependent on UNEs at SBC's prices could not succeed. They argue that the low volumes and the evidence of the impossibility of profitable competition both contradict the Commission's finding of cost-based rates and undermine its conclusion that granting SBC's applications was consistent with the public interest.

The Commission's standard for cost--"TELRIC" (or total long-run incremental cost)--is one that might normally be expected to generate competition. In principle, there is no reason to think the BOC's real costs could be lower. In an otherwise undistorted market, firms capable of efficiently supplying the non-BOC elements should be able to compete. Appellants' proposal that the Commission consider the volume of competition as a cross-check for its cost finding is therefore understandable.

But we can hardly find the Commission's rejection of appellants' proposal unreasonable. The statute imposes no volume requirements for satisfaction of Track A, so that it would be odd for the Commission to use low volume to defeat a finding of TELRIC-compliant rates. And it would be reasonable for the Commission to treat any questions raised by the low volumes, or by the appellants' evidence showing the difficulty of making a profit under...