Sprint Corp. v. F.C.C.

• Citation: 315 F.3d 369
• Decision Date: 21 January 2003
• Docket Number: No. 01-1521.,No. 02-1042.,No. 02-1041.,No. 01-1522.,No. 01-1266.,01-1266.,01-1521.,01-1522.,02-1041.,02-1042.
• Parties: SPRINT CORPORATION, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. American Public Communications Council, Inc., et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

315 F.3d 369

SPRINT CORPORATION, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents American Public Communications Council, Inc., et al., Intervenors.

No. 01-1266.

No. 01-1521.

No. 01-1522.

No. 02-1041.

No. 02-1042.

United States Court of Appeals, District of Columbia Circuit.

Argued December 5, 2002.

Decided January 21, 2003.

On Petitions for Review of Orders of the Federal Communications Commission.

David P. Murray argued the cause for petitioners. With him on the briefs were H. Richard Juhnke, John E. Benedict, Randy J. Branitsky, Thomas F. O'Neil III, William Single IV, Jodie L. Kelley, Mark C. Rosenblum and Daniel Meron. Kurt W. Hague, David L. Lawson and Peter D. Keisler entered appearances.

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

Albert H. Kramer argued the cause for intervenors American Public Communications Council, et al. With him on the brief were Robert F. Aldrich, Michael K. Kellogg, Aaron M. Panner, Roger K. Toppins, Gary L. Phillips, James D. Ellis, Michael E. Glover, Edward Shakin, and James G. Harralson. Edward G. Modell entered an appearance.

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

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Sprint Corp., AT&T Corp., and Worldcom, Inc. (collectively, "Sprint"), petition for review of a Federal Communications Commission rule governing the means by which payphone service providers are compensated for certain calls made from their payphones. Sprint contends that the rule was promulgated in violation of the notice and comment requirements of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553(b) (2000), and is also arbitrary and capricious. Because the Commission failed to provide adequate notice and opportunity to comment, we grant the petitions and remand the case to the Commission.

I.

Section 276(b)(1)(A) of the Telecommunications Act of 1996 ("1996 Act") directs the Federal Communications Commission to "establish a per call compensation plan to ensure that all payphone service providers ["PSPs"] are fairly compensated for each and every completed intrastate and interstate call using their payphone...." 47 U.S.C. § 276 (2000). Two types of calls may be placed from a payphone. The first and most common type is the "coin call," in which the caller inserts a coin directly into the payphone before making the call; the rates for coin calls are set by State commissions. At issue here is the second type of call — "coinless calls" — which a caller places by using a service such as directory assistance, operator service, an access code, or a subscriber 800 number.

The Commission explains in its brief that when a caller places a coinless payphone call, the call is initially received by the local exchange carrier ("LEC") that services the payphone. If the call is local, the LEC completes the call itself; if it is long distance, the LEC routes the call to a long-distance carrier, typically an interexchange carrier ("IXC"). The IXC, such as Sprint, AT&T, and Worldcom, is the first facilities-based carrier to receive the call. If the recipient of the call is a customer of the IXC, the IXC will simply transmit the call to the LEC that serves the customer; the IXC is thereby able, Sprint acknowledges, to "track" completion of the call. If the call recipient is not a customer of the IXC, however, the IXC transfers the call to a "reseller" of the IXC's services. Two types of resellers exist. The first, known as switchless resellers, do not possess their own switching facilities and must rely on an IXC to perform the switching and transmission functions that are required to complete a call. When the IXC transfers the call to a switchless reseller, the IXC handles the call as if it were transferring it to one of its own customers, and the IXC is again able to track the call to completion. By contrast, the second type, switch-based resellers ("SBRs"), possess their own switching capacities; hence, when an IXC routes a call to an SBR, the SBR assumes control of the call, and, Sprint asserts in its brief, the IXC can no longer track the call to completion. As the parties acknowledge, in some instances the SBR transfers the call to another SBR, which in turn routes the call to yet another SBR, and so on.

In 1996, the Commission issued a Notice of Proposed Rulemaking ("NPRM") proposing a method for compensating PSPs for coinless calls. Notice of Proposed Rulemaking, 11 F.C.C.R. 6716, 1996 WL 436930 (1996). A summary of this NPRM was also published in the Federal Register. 61 Fed.Reg. 31,481. After a period of notice and comment, the Commission determined that "the primary economic beneficiary" should bear the burden of both tracking coinless payphone calls to completion and compensating PSPs for those calls. Payphone Docket, Report and Order, 11 F.C.C.R. 20,541, 20,584 ¶ 83, 1996 WL 547458 (1996) ("First Payphone Order"). The Commission therefore concluded that the IXC, or the "underlying, facilities-based carrier," should, as the primary economic beneficiary, compensate the PSP "in lieu of a non-facilities-based carrier that resells services." Id. at 20,586 ¶ 86. The Commission did not define the terms "facilities-based carrier" or "reseller." The Commission determined, in response to petitions for reconsideration or clarification, that SBRs possess the switching capabilities necessary to track payphone calls and accordingly clarified that SBRs are "facilities-based carriers" within the meaning of the initial rule. Payphone Docket, Order on Reconsideration, 11 F.C.C.R. 21,233, 21,277 ¶ 92, 1996 WL 658824 (1996) ("First Reconsideration Order").

As facilities-based carriers, then, SBRs were obligated under the First Reconsideration Order to compensate PSPs for all completed coinless payphone calls they handled. Id. IXCs, in turn, were required to compensate PSPs only for those calls that the IXCs terminated on their own behalf or on behalf of a switchless reseller, and not for those calls the IXCs transferred to an SBR. Id. The Commission's Common Carrier Bureau ("Bureau"), in granting, two years later, a waiver to IXCs that had not complied with the First Payphone Order within the required one-year period, further clarified that IXCs must provide requesting PSPs with information about the SBRs to which the IXCs route their calls so that the PSPs could identify precisely which SBRs owed them compensation. Payphone Docket, Mem. Opinion and Order, 13 F.C.C.R. 10,893, 10,915-16 ¶ 38, 1998 WL 153171 (1998). On review, the court upheld the portions of the Commission's 1996 rules that are pertinent here. Illinois Pub. Telecomms. Ass'n v. FCC, 117 F.3d 555, 566-67 (D.C.Cir.1997).

In 1999, a coalition of the largest PSPs ("Coalition") submitted to the Commission a petition for clarification of the payphone compensation orders ("Coalition Petition"). The Coalition requested that the Commission "clarify, on a going-forward basis, which interexchange carrier is the party responsible for payment of per-call compensation when a dial-around or subscriber call is made from a payphone." The Coalition explained that "[t]he Commission's effort to assign this obligation" jointly to IXCs and SBRs "has led to disagreements among PSPs and IXCs, and has encouraged some IXCs to shirk their payment responsibilities. This has in turn contributed to a serious shortfall in payments of per-call compensation." The Coalition suggested that "the best way to reduce the shortfall would be to place the obligation for payment of per-call compensation on the entity identified by the Carrier Identification Code (`CIC') used to route the compensable call from the Local Exchange Carrier's network."

In April 1999, the Common Carrier Bureau issued a "Public Notice" seeking "comment on the issues raised in [the Coalition Petition's] request for clarification for payment responsibility of per-call compensation when a dial-around or subscriber call[] [is] made from a payphone." Common Carrier Bureau Seeks Comment on the RBOC/GTE/SNET Payphone Coalition Petition for Clarification, 14 F.C.C.R. 6476, 1999 WL 218807 (1999). The Bureau's Notice summarized the Coalition Petition's general request for clarification and its suggested method of using CICs to identify the entity responsible for compensating the PSP. Id. The Notice included filing dates for comments and reply comments, id., but the Bureau did not publish the Notice in the Federal Register or issue a notice of proposed rulemaking. Sprint and others filed comments that focused mainly on the Coalition's proposal to rely on CICs, with little discussion of the general method of requiring both IXCs and SBRs to compensate PSPs for coinless payphone calls. Sprint also registered a procedural objection, in a letter to the Bureau, noting that the Commission could substantively alter the existing compensation rules only after providing notice and an opportunity for comment.

Two years after the Bureau issued its Notice, however, the Commission largely jettisoned the approach adopted in the First Reconsideration Order. In the Second Order on Reconsideration, 16 F.C.C.R. 8098, 2001 WL 332794 (2001) ("Second Reconsideration Order"), the Commission stated that it was "revis[ing]" and "modify[ing]" its "rules to address the difficulty which PSPs face in obtaining compensation for coinless calls placed from payphones which involve a switch-based telecommunications reseller in the call path." Id. at 8098 ¶ 1. Declining to adopt the Coalition's proposed method of using CICs to identify the carrier responsible for...