Court: Court of Appeals for the Ninth Circuit; December 26, 1999; Federal Appellate Court
The case evaluates whether a paging company can engage in reciprocal compensation arrangements for telecommunications transport and termination under the Telecommunications Act of 1996. The FCC asserts that such arrangements are permissible. The court finds the relevant statutory provisions ambiguous and defers to the FCC's interpretation.
The Telecommunications Act aims to enhance competition in local telecommunications markets by dismantling monopolistic barriers. Key sections include 47 U.S.C. 251 and 252, which outline interconnection duties for telecommunications carriers. A "telecommunications carrier" is broadly defined as any provider of telecommunications services. Both Pacific Bell and Cook Telecom, Inc. qualify as telecommunications carriers.
Section 251(a) mandates all telecommunications carriers to interconnect with each other’s networks and comply with accessibility and interconnectivity standards. Although "interconnection" is not explicitly defined in the Act, the FCC interprets it as the linking of networks for traffic exchange. Section 251(b) imposes additional obligations on local exchange carriers (LECs), which includes establishing reciprocal compensation arrangements, particularly relevant to Pacific Bell and Cook, where Pacific Bell is classified as an LEC and Cook is not. The appeal focuses on the duty of LECs under 251(b)(5) concerning reciprocal compensation.
The Act does not define key terms such as "reciprocal compensation arrangements," "transport," or "termination." Section 251(c) establishes "additional obligations" for "incumbent local exchange carriers" (LECs), defined as dominant carriers providing telephone service when the Act was enacted. Pacific Bell qualifies as an incumbent LEC and is mandated under 251(c)(1) to negotiate in good faith with any requesting telecommunications carrier to establish interconnection agreements.
Section 252 outlines the negotiation, arbitration, and approval procedures for these agreements, detailing the roles of carriers, state commissions, and courts. If negotiations fail, either carrier can petition the state commission for arbitration of unresolved issues. Once an agreement is reached, it must be submitted to the state commission for approval, which can only reject it if it does not comply with the requirements of Section 251 or relevant FCC regulations. State courts lack jurisdiction to review state commission actions regarding these agreements, but federal courts may review them under Section 252(e)(6), allowing aggrieved parties to challenge state commission determinations.
In the factual background, it is established that Cook provides paging services in California and other Western states, while Pacific Bell offers local telecommunications services in California. Their networks are interconnected. When a Pacific Bell customer dials a Cook paging number, the call is routed through either a Type 1 or Type 2 interconnection to Cook's paging terminal. Cook's terminal verifies the validity of the dialing number and provides "answer supervision" to Pacific Bell, enabling the customer to receive paging options. Cook's terminal encodes messages sent by the paging party and routes them to the intended paging unit, but Cook does not initiate any calls to Pacific Bell's network.
In August 1996, following the enactment of relevant legislation and the FCC's implementing order, Cook sought to negotiate interconnection with Pacific Bell under section 252(a)(1). After unsuccessful negotiations, Cook petitioned the California Public Utilities Commission (CPUC) for arbitration under section 252(b), primarily questioning whether Pacific Bell was obligated to negotiate a reciprocal compensation arrangement under section 251(b)(5). The CPUC arbitrator ruled in favor of Pacific Bell, asserting that Cook, as a one-way paging provider that did not originate traffic for termination on Pacific Bell’s network, was not entitled to a reciprocal compensation arrangement, which the arbitrator defined as requiring mutual traffic exchange. Consequently, the arbitrator mandated the filing of an interconnection agreement that excluded termination compensation payments from Pacific Bell to Cook.
On May 21, 1997, the CPUC rejected the proposed agreement, stating it violated sections 251(b)(5) and 252(d)(2)(A) by failing to compensate Cook for costs incurred in terminating calls to its paging customers. The CPUC emphasized that section 251(b)(5) governs compensation for the termination of all telecommunications and that section 252(d)(2)(A) allows terminating carriers to recover costs from originating carriers. The CPUC found no public policy justifying the denial of compensation to one-way paging carriers, given Congress's intent for equitable interconnection and competition. It referenced the FCC's position that one-way paging providers are entitled to reciprocal compensation and highlighted that paging providers, classified as telecommunications carriers, should receive mutual compensation for the transport and termination of local traffic. The CPUC dismissed Pacific Bell's argument that Cook did not terminate traffic, clarifying that calls to paging customers are transported on the local exchange carrier's network before being handed off to the paging carrier for delivery, thus entitling Cook to compensation for termination.
The CPUC determined that Cook 'terminated' telecommunications, asserting this did not conflict with 47 C.F.R. 51.701(d), which defines termination as the switching of local telecommunications traffic. Pacific Bell contended that switching necessitates a two-way open circuit, arguing that Cook's paging service does not create such a connection. The CPUC rejected this view as overly restrictive, affirming that Cook provides a telecommunications service with a termination function, as evidenced by the successful delivery of paging calls to customers.
Following the CPUC's denial of rehearing, Pacific Bell initiated legal action against Cook and the CPUC Commissioners. The district court, focusing solely on the administrative record, granted summary judgment in favor of Cook and the Commissioners, reasoning that the Act requires reciprocal agreements where each carrier compensates the other for call terminations. The court affirmed that Cook 'terminated' telecommunications and upheld the CPUC's findings, stating that the CPUC's interpretation of Sections 251 and 252 of the Act was reasonable and aligned with both the Act and FCC interpretations.
The term 'termination' is not defined by the Act but is clarified by the FCC, which states it involves switching local telecommunications traffic at the terminating carrier's facilities and delivering that traffic to the intended recipient. The FCC recognizes that paging providers fulfill a termination role under the Act, mandating that local exchange carriers (LECs) engage in reciprocal compensation arrangements with commercial mobile radio service (CMRS) providers, including paging services. Due to insufficient data on the costs incurred by paging providers for local traffic termination, further regulatory proceedings are planned, with state commissions directed to establish appropriate compensation rates for such terminations. The case is noted as deserving of deference under the Chevron standard.
The term 'termination' is utilized in the statute without a specific definition, applicable to a wide range of technologies. Congress instructed the FCC to create regulations for implementing this term, which led to the FCC's determination that paging companies fall under its purview. Pacific Bell challenges this interpretation, arguing that 'termination' should only refer to functions by local exchange carriers (LECs) and that the FCC’s use of the term 'switch' implies a need for a continuous two-way communication path. The FCC disagrees, noting that various forms of switching do not require an open circuit. The court emphasizes deference to the FCC's expertise in this complex regulatory area and rejects Pacific Bell's contention that the FCC's statements lack sufficient reasoning. Although brief, the FCC's communications explicitly include paging companies and reflect careful judgment. The court asserts that it will not intervene in the agency's interpretation of technical matters and recognizes Congress's intent for the FCC to resolve ambiguities within the statute.
A one-way paging provider can establish a reciprocal compensation arrangement with a local exchange carrier (LEC) despite the provider generating no traffic for the LEC. Pacific Bell argues that such an arrangement cannot be reciprocal since compensation flows only one way, a position the FCC rejects. The key regulatory framework includes 47 U.S.C. § 251(b)(5) and § 252(d)(2)(A), which outline that state commissions must ensure terms for reciprocal compensation allow mutual recovery of transport and termination costs for calls originating on each carrier’s network. The FCC defines reciprocal compensation under 47 C.F.R. § 50.701(e) as arrangements where both carriers receive compensation for local telecommunications traffic transport and termination. Additionally, 47 C.F.R. § 51.703(a) mandates that LECs establish these arrangements with any requesting telecommunications carrier, and 47 C.F.R. § 51.711(c) empowers state commissions to set rates for paging services. The FCC acknowledges that paging providers, while originating less traffic, are still entitled to enter into such arrangements, exempting them from symmetrical pricing requirements. The central issue for appeal is whether the FCC's interpretation warrants deference, evaluated through Chevron's framework, which involves assessing if Congressional intent is clear within the statute.
Congress's clear intent dictates that courts and agencies must adhere to the unambiguous language of the statute. The dispute centers on the interpretation of Sections 251(b)(5) and 252(d)(2)(A) regarding reciprocal compensation arrangements between carriers. Pacific Bell argues that these provisions require mutual traffic and compensation between carriers, supported by a dictionary definition of "reciprocal" as mutual. Pacific Bell contends that a one-way paging provider, such as Cook, does not fulfill this definition since no compensation flows toward the other carrier. It also cites the principle of avoiding surplusage in statutory construction, arguing that Congress could have explicitly required mutual payments had that been intended.
Conversely, Cook and the CPUC assert that "reciprocal" means that compensation obligations exist even if traffic flows one way, emphasizing that the arrangement must allow for mutual recovery of termination costs regardless of whether actual compensation is exchanged. They interpret the statute to allow for one-way arrangements in terms of obligation, yet still necessitate provisions for potential mutual recovery.
Both interpretations are plausible, leading to a need for judicial deference to the agency’s interpretation if it represents a permissible construction of the statute. The court references the Chevron deference doctrine, stating that agency interpretations should not be disregarded unless they are arbitrary or contrary to the statute. Pacific Bell claims that the FCC's inconsistent interpretations undermine its authority for deference, but the court disagrees, affirming that such inconsistencies do not warrant denying deference to the agency's interpretation.
The regulation on reciprocal compensation, 47 C.F.R. 51.701(e), aligns with the interpretation outlined in 47 U.S.C. 252(d)(2)(A), indicating that the terminating carrier must receive compensation for traffic it terminates from another carrier. The FCC emphasizes that reciprocal compensation entails mutual payment between interconnecting networks, and arrangements where the terminating carrier receives no compensation are not considered reciprocal. The Act prohibits originating carriers from denying payment to terminating carriers. The FCC's interpretation of "reciprocal" is deemed plausible and permissible, warranting judicial deference under the Chevron standard. Based on this interpretation, Cook, which terminates traffic from Pacific Bell, is entitled to compensation for its services under 47 U.S.C. 251(b)(5) and 252(d)(2)(A). The interconnection agreement between Cook and Pacific Bell complies with statutory requirements, and thus the district court's judgment is affirmed. Additionally, a negotiated agreement can only be rejected for discrimination against non-participating carriers or inconsistency with public interests. The CPUC Commissioners do not argue for sovereign immunity, and the court may disregard it if not raised. The Telecommunications Act of 1996 is acknowledged as ambiguous in various respects.
