New Edge Network, Inc., Dba New Edge Networks Oneeighty Communications, Inc. Pac-West Telecomm, Inc., Comptel/ascent, Intervenor-Petitioner v. Federal Communications Commission, Bellsouth Corporation and Bellsouth Telecommunications, Inc., Qwest Communications International, Inc., Sbc Communications Inc., United States Telecom Association, and Verizon Telephone Companies, Applicants-Intervenors. Xspedius Communications, LLC v. Federal Communications Commission, Kmc Telecom Holdings, Inc. v. Federal Communications Commission, Snip Link, Lcc v. Federal Communications Commission, Cox Communications, Inc. Comptel/ascent v. Federal Communications Commission, Xo Communications Inc. v. Federal Communications Commission, Cox Communications, Inc. v. Federal Communications Commission, Onfiber Communications Commission v. Federal Communications Commission

Citations: 461 F.3d 1105; 39 Communications Reg. (P&F) 349; 2006 U.S. App. LEXIS 22091Docket: 04-74401

Court: Court of Appeals for the Ninth Circuit; August 29, 2006; Federal Appellate Court

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Petitioners, including New Edge Network, Inc., Oneeighty Communications, Inc., and others, challenged the Federal Communications Commission's (FCC) new interpretation of 47 U.S.C. § 252(i). In 2004, the FCC replaced its "pick-and-choose" approach with an "all-or-nothing" rule regarding interconnection agreements under the Telecommunications Act of 1996. The Judicial Panel on Multidistrict Litigation consolidated these challenges in the Ninth Circuit Court of Appeals. The court concluded that § 252(i) is ambiguous and found the FCC's interpretation reasonable, ruling that the agency did not abuse its discretion in adopting the new rule. Consequently, the court denied the petitions for review. The background reveals that the Telecommunications Act of 1996 restructured local telephone markets to enhance competition, requiring incumbent local exchange carriers (ILECs) to make their networks accessible to competitive local exchange carriers (CLECs) and to negotiate interconnection agreements in good faith.

In August 1996, the FCC established the pick-and-choose rule under section 252(i), allowing competitive local exchange carriers (CLECs) to select individual provisions from existing interconnection agreements involving incumbent local exchange carriers (ILECs). However, this ability was limited; ILECs had to provide these provisions for a reasonable time and could impose conditions related to the services requested. Subsequently, ILECs and state utility commissions challenged this rule, leading to a consolidation of cases in the Eighth Circuit, which deemed the interpretation of 252(i) ambiguous and the pick-and-choose rule unreasonable. The Supreme Court reversed this decision, affirming the FCC's interpretation as reasonable and within its expertise.

In 2003, the FCC reconsidered this rule, soliciting comments on potential changes to encourage more effective negotiations. While many CLECs and state commissions supported retaining pick-and-choose, ILECs and others favored its elimination. On July 13, 2004, the FCC implemented the all-or-nothing rule, requiring CLECs to adopt entire agreements when interested in a service or network element provided by an ILEC. The FCC justified this reinterpretation of 252(i) by noting the inherent ambiguity in the statute and its previous lack of practical experience with interconnection agreements. It concluded that the pick-and-choose rule had hindered negotiations, leading to standardized agreements and minimal creative bargaining. The FCC noted that concerns about concessions being freely available to third parties without reciprocal benefits had stifled ILEC negotiations, and that the "legitimately related" provision had become counterproductive to collaborative negotiations.

The FCC determined that an all-or-nothing rule, as codified in 47 C.F.R. 51.809, better aligns with the objectives of sections 251 and 252 than the pick-and-choose rule, as it encourages ILECs to negotiate trade-offs they might otherwise avoid. The court reviews the FCC's adoption of this rule using the Chevron framework. 

In the first step, the court assesses whether section 252(i) is ambiguous regarding the obligation of ILECs to provide individual provisions of interconnection agreements to CLECs. The court concludes that section 252(i) does not unambiguously require such a provision; it only permits it. The text of 252(i) suggests that while ILECs must make interconnection services available, it does not explicitly mandate the unbundling of individual agreement provisions. 

The phrases in 252(i) indicate that ILECs should provide services nondiscriminatorily but do not clarify that individual provisions must be made available. The petitioners’ interpretation, which asserts that 252(i) requires ILECs to allow CLECs to select individual services, lacks necessity as the statute does not specify the terms under which ILECs must provide these services. The court interprets the phrase "same terms and conditions" as potentially referring to either specific terms related to the requested service or the terms of the entire agreement, favoring the latter interpretation that underpins the all-or-nothing rule.

Petitioners' claims regarding CLECs' ability to select provisions from interconnection agreements are flawed, as ILECs can implement hardship exemptions and impose terms legitimately related to the requested service. The unambiguous language of 252(i) does not preclude such requirements; therefore, once the petitioners acknowledge this limitation, their argument about the statute's clarity weakens. Under Chevron Step Two, the agency's interpretation of 252(i) as allowing an all-or-nothing approach is permissible, as the statute can be reasonably construed to refer to the entirety of the agreement's terms and conditions. The FCC’s rationale for adopting this rule, which it argues reflects a more comprehensive view of 252(i) and addresses negotiation impediments caused by the previous pick-and-choose rule, aligns with Chevron's standards for agency interpretations. Additionally, despite the petitioners' opposition, their policy arguments are seen as attempts to rehash a lost battle in a judicial context, which is more appropriately directed at legislative or administrative channels. The FCC's shift from its initial interpretation of the rule was not deemed an abuse of discretion, as supported by record evidence from ILECs and state utility commissions indicating that the pick-and-choose framework was inefficient and hindered negotiations. Various comments and affidavits confirmed the inefficacy of the old rule, demonstrating that CLECs were indeed willing to accept complete agreements negotiated by others.

Petitioners argue that the FCC did not exercise its discretion reasonably, with Cox claiming the agency relied on speculative statements from ILECs. However, the evidence presented by petitioners is also self-serving, and support for ILECs' positions comes from several state utility commissions and two CLECs, indicating the FCC's rule does not favor ILECs exclusively. CompTel contends that the FCC's all-or-nothing approach constitutes improper forbearance under 47 U.S.C. § 160(a), but this interpretation fails as the FCC is not evading a statute; it is redefining the statute's application, meaning the prior "pick-and-choose" requirement is no longer applicable. Additionally, Cox's argument for judicial estoppel fails because the FCC's change in position regarding the ambiguity of § 252(i) does not risk inconsistent court outcomes, especially since the Supreme Court did not endorse the FCC's previous interpretation. Public policy considerations allow the FCC to adapt its stance without the constraints of judicial estoppel. Ultimately, the FCC's reinterpretation of § 252(i) is deemed permissible and justified based on its experiences, leading to the denial of the petitions for review.

The excerpt addresses the implementation of local competition provisions under the Telecommunications Act of 1996, specifically focusing on the rules concerning the availability of interconnection and service elements by incumbent Local Exchange Carriers (LECs). It highlights that incumbent LECs are required to provide these elements to requesting telecommunications carriers at the same rates, terms, and conditions as those established in state-approved agreements. However, Section 252(i) does not guarantee that third parties can access identical rates or terms for different agreements or contract lengths. Incumbent LECs must substantiate that any terms imposed on third parties are appropriately related to the requested services. Legal interpretations of Section 252(i) suggest it could imply a "pick-and-choose" approach, but it also indicates that an entrant's selection of an individual provision may necessitate acceptance of the entire contract. The court underscored Congress's intention for negotiated rather than arbitrated agreements, arguing that allowing selective access would undermine negotiation processes. The FCC has also issued various reports and orders reaffirming these principles regarding unbundling obligations for incumbent LECs.

ILECs are hesitant to enter negotiations concerning agreements due to concerns about defending against unreasonable requests for selective terms, resulting in requesting carriers being unable to secure personalized agreements that satisfy their specific business needs. Under 47 C.F.R. 51.809(a), ILECs are required to provide any approved agreement to requesting telecommunications carriers without unreasonable delay, maintaining the same rates, terms, and conditions. The judiciary is the ultimate authority on statutory interpretation, rejecting administrative interpretations that contradict clear congressional intent, as outlined in Chevron and related case law. The Supreme Court has not definitively ruled on the unambiguity of section 252(i) regarding the "pick-and-choose" approach to agreements, indicating that while it may appear readily apparent, it is not the only interpretation. Additionally, section 251(c)(3) mandates ILECs to provide access to network elements on an unbundled and nondiscriminatory basis. The interpretation of "same terms and conditions" in section 252(i) is understood to apply to all terms within an agreement, not just discrete terms.

Agency inconsistency does not preclude the evaluation of an agency's interpretation under the Chevron framework, as established in various Supreme Court cases, including Chevron itself (467 U.S. at 863-864) and Smiley v. Citibank (517 U.S. at 742). The principle of Chevron allows agencies the discretion to interpret ambiguous statutes, acknowledging that changes in interpretation are not invalidating. Regulatory agencies are granted flexibility to adapt their rules and policies to evolving circumstances, as illustrated by 47 U.S.C. 160(a), which permits the FCC to forbear from applying certain regulations when it deems enforcement unnecessary for consumer protection or public interest. This was upheld in U.S. Telecom Ass'n v. FCC (359 F.3d at 579), where the court rejected arguments from Competitive Local Exchange Carriers (CLECs) regarding FCC forbearance. The document also references relevant cases such as New Hampshire v. Maine (532 U.S. at 749, 751, and 755) and AT&T Corp. (525 U.S. at 396) to reinforce these points.