United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 10, 2002 Decided June 14, 2002

No. 01-1467

AT&T Corporation,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

Association of Communications Enterprises, et al.,

Intervenors

On Petition for Review of an Order of the

Federal Communications Commission

Peter D. Keisler argued the cause for petitioner. With him on the briefs
were David W. Carpenter, James F. Bendernagel Jr., Michael J. Hunseder,
Mark C. Rosenblum, and Peter

H. Jacoby.

Richard K. Welch, Counsel, Federal Communications Commission, argued the
cause for respondents. On the brief were Jane E. Mago, General Counsel,
John E. Ingle, Deputy Associate General Counsel, Rodger D. Citron,
Counsel, Robert B. Nicholson and Marion Jetton, Attorneys, U.S.
Department of Justice.

Andrew D. Lipman, Russell M. Blau, David Cosson, Glenn B. Manishin,
Jonathan E. Canis, Timothy J. Fitzgibbon, Charles C. Hunter and
Catherine M. Hannan were on the brief for intervenors Association of
Communications Enterprises, et al. Ronald J. Jarvis and Richard J.
Metzger entered appearances.

Before: Ginsburg, Chief Judge, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: In October 2001, the FCC issued a declaratory
ruling holding that long-distance carriers have an obligation to
purchase interstate switched access services provided by competitive
local exchange carriers. See In re AT&T & Sprint Petitions for
Declaratory Ruling on CLEC Access Charge Issues, 16 F.C.C.R. 19158
(2001) (\"Declaratory Ruling\"). We now grant AT&T\'s petition for
judicial review of this ruling.

I.

Long-distance telephone carriers (also called \"interexchange carriers\"
or \"IXCs\") generally do not directly connect to their telephone
customers. Rather, long-distance telephone traffic is ordinarily
transmitted by a local exchange carrier (also called a \"LEC\") from its
originating customer to an IXC. See generally United States Tel. Ass\'n
v. FCC, 188 F.3d 521, 523-24 (D.C. Cir. 1999). Then the \"IXC carries
the traffic to its region of destination and hands it off to the LEC
there.\" Id. at 524. For example, if a customer in Washington, D.C., who
subscribes to Verizon for local service and AT&T for long-distance
service, calls a relative in Florida, who subscribes to Bellsouth for
local service, the call initially will travel over Verizon\'s
facilities. Verizon will hand off the call to AT&T\'s facilities, which
will carry the call to Florida before handing it off to Bellsouth\'s
facilities for delivery to the caller\'s relative. AT&T will charge the
caller for the telephone call, and will pay \"originating\" access
charges to Verizon and \"terminating\" access charges to BellSouth.
These interstate access charges\--that is, the charges paid to LECs by
IXCs for local origination and termination of interstate long-distance
telephone calls\--are at the heart of this case.

Until recently a single, incumbent local exchange carrier or ILEC, whose
access rates were regulated by the FCC, provided all local exchange and
exchange access services in a particular region. See In re Access Charge
Reform, Sixth Report and Order, 15 F.C.C.R. 12962, 12965-67 (2000). The
Telecommunications Act of 1996 allowed a new class of competitive local
exchange carriers (\"CLECs\") into the local exchange market. See In re
Access Charge Reform, Seventh Report and Order and Further Notice of
Proposed Rulemaking, 16 F.C.C.R. 9923, 9931 (2001). At first, the FCC
left CLECs largely free of the kind of rate regulation applied to
monopoly LECs. The assumption was that CLECs\' small market share would
not allow them to charge unreasonable rates. See id. at 9926. This
assumption later proved to be incorrect with respect to access charges
because CLECs possess a \"series of bottleneck monopolies over access to
each individual end user.\" Id. at 9935. If an IXC wants to provide
long-distance service to customers of a CLEC\'s local service, the IXC
must utilize access services from that particular CLEC. Id. When \"an
end user decides to take service from a particular LEC, that LEC
controls an essential component of the system that provides
interexchange calls, and it becomes the bottleneck for IXCs wishing to
complete calls to, or carry calls from, that end user.\" Id. In
addition, the FCC requires IXCs to geographically average their rates so
as to spread the cost of both originating and terminating access over
all their end users, thereby precluding IXCs from shifting the burden of
high CLEC access rates to those customers who have chosen CLECs that
charge unreasonably high access rates. Id.

Taking advantage of their control over essential components of the
network, some CLECs began charging access rates that were well above the
rates ILECs charged for similar services. See id. at 9931. While the
access rates of some CLECs, for example, were in excess of nine cents
per minute, see id., the average interstate access rate the ILECs
charged in 2000 was around one cent per minute. See Brief of Petitioner
at 5.

Because of high access rates, AT&T decided that it did not want to
purchase access services from certain CLECs, and it began taking steps
to cut off its ties with these companies. AT&T sent letters to CLECs
informing them that it would not submit an Access Service Request to a
CLEC unless AT&T and the CLEC reached an agreement regarding the access
rates to be charged. Nevertheless, some CLECs continued to send
long-distance calls from their customers to AT&T and then billed AT&T
for that traffic. They were able to do so without AT&T\'s agreement
because the CLECs first routed their traffic to a tandem switch operated
by the ILEC in their area. By the time the call reached AT&T\'s network,
it was intermingled with the traffic of other carriers, and AT&T was
unable to identify and block the traffic on a CLEC-specific basis.[^1]

In response to the CLECs\' actions, AT&T filed a petition with the FCC
in October 1998 in which it complained that numerous CLECs were charging
excessive access rates and refusing to negotiate with AT&T regarding
those rates. AT&T requested a declaratory ruling that existing law,
policy and regulations do not require IXCs to purchase tariffed access
services from CLECs. On August 27, 1999, the FCC determined that a
declaratory ruling was not the proper vehicle to resolve the issue. See
In re Access Charge Reform, Fifth Report and Order, 14 F.C.C.R. 14221
(1999). Instead, it decided to invite comments and initiate a rulemaking
regarding the reasonableness of CLEC access charges and whether the FCC
might adopt rules to address, by the least intrusive means, any failure
of market forces to constrain CLEC access charges.[^2] Id.

Thereafter numerous CLECs initiated litigation in federal court seeking
to force IXCs, such as AT&T, to pay for access charges incurred. See
Seventh Rep. & Order, 16 F.C.C.R. at 9932 n.56. In one of the suits,
filed January 5, 2000, in the Eastern District of Virginia, the CLECs
alleged that they began providing originating and terminating access
services to AT&T in April 1997 and that AT&T paid for those services at
full tariffed rates until November 1998, when AT&T stopped payment. See
Advamtel, LLC v. AT&T Corp., No. 00-643-A (E.D. Va.). AT&T responded by
denying that it had ordered the services, and by asserting that in one
instance, it had canceled the service.

In January 2001, the district court in Advamtel referred two legal
issues to the FCC, invoking the doctrine of primary jurisdiction. See
Advamtel, LLC v. Sprint Communications Co., 125 F. Supp. 2d 800 (E.D.
Va. 2001). The two questions were: (1) whether any statutory or
regulatory constraints prevent an IXC from terminating or declining
access services ordered or constructively ordered; and (2) if not, what
steps IXCs must take to avoid ordering service or to cancel service
after it has been ordered. Id. at 807. The district court said that if
the FCC did not act within six months, the court would proceed to trial
and resolve the issues itself. Id.

When the FCC failed to act within the allotted time, the district court
decided to reach the issues itself and ordered the parties to submit
briefs on the issues. The court then held that the \"plain terms of §
201(a)\" of the Communications Act do not \"impose on AT&T any duty to
accept all access services.\" See Transcript of Motions Hearing Before
Judge Ellis in Advamtel, LLC v. AT&T Corp., No. 00-643-A, at 18,
reprinted in Joint Appendix at 342. Under § 201(a), the FCC may order,
on a prospective basis after opportunity for a hearing, an IXC to
provide service to end users and to establish connections with other
carriers. Id. Because the FCC had not held a hearing or issued a
prospective order, the district court entered partial summary judgment
for AT&T on the issue whether the FCC could compel AT&T to purchase the
access services in dispute, and it set the remaining issues for trial.
See Order in Advamtel, LLC v. AT&T Corp., No. 00-643-A (E.D. Va. Sept.
7, 2001), reprinted in Joint Appendix at 359-61.

Just weeks after the district court issued its order, the FCC finally
acted on the questions referred to it by the district court. See
Declaratory Ruling, 16 F.C.C.R. at 19158. The FCC\'s ruling declared
that \"an IXC cannot refuse to exchange originating or terminating
\[access\] traffic with the CLEC.\" Id. at 19163. The FCC based its
reasoning on the first clause in § 201(a) of the Federal Communications
Act, which requires common carriers to accept a \"reasonable request\"
for service. See 47 U.S.C. § 201(a). According to the FCC, during the
period at issue, CLECs were required to file tariffs and such filed
tariffs were considered presumptively lawful. See Declaratory Ruling, 16
F.C.C.R. at 19163. Therefore, IXCs must accept all requests \"to
complete a call using CLEC access service that is tariffed at
presumptively reasonable rates.\" Id. at 19163-64.

AT&T filed a timely petition for review of the FCC\'s declaratory
ruling, bringing the case before us. Because the FCC\'s interpretation
of a statutory provision it administers is at issue, we now review the
FCC\'s declaratory ruling in accordance with Chevron U.S.A., Inc. v.
Natural Res. Def. Council, 467 U.S. 837 (1984).

II\.

The question before us is whether § 201(a) permitted AT&T to refuse to
purchase access services from a CLEC when an end user has requested that
AT&T provide long-distance service through the CLEC. Section 201(a)
provides:

It shall be the duty of every common carrier engaged in interstate or
foreign communication by wire or radio to furnish such communication
service upon reasonable request therefor; and, in accordance with the
orders of the Commission, in cases where the Commission, after
opportunity for hearing, finds such action necessary or desirable in the
public interest, to establish physical connections with other carriers,
to establish through routes and charges applicable thereto and the
divisions of such charges, and to establish and provide facilities and
regulations for operating such through routes.

47 U.S.C. § 201(a). The first clause of § 201(a)\--the clause preceding
the semicolon\--establishes the duty of every common carrier to furnish
communication service upon \"reasonable request.\" The second
clause\--after the semicolon\--provides that the FCC may order a carrier
to establish a through route only after opportunity for a hearing.

AT&T argues that when both clauses of § 201(a) are considered together,
it is clear that the first clause of § 201(a) concerns a carrier\'s
obligations to its own customers\' reasonable requests and that the
second clause concerns a carrier\'s obligation to provide service in
conjunction with other carriers. See Brief of Petitioner at 16. This,
according to AT&T, means that it must provide service to customers upon
\"reasonable request\" only when doing so would not compel AT&T to act
jointly with other carriers. See id. When providing service would
require AT&T to establish a physical connection or through route with
another carrier, then AT&T asserts that its duty to purchase access
services from a CLEC is limited to obeying any FCC order entered after
the hearing provided in the second clause of § 201(a). See id. As
against this, the FCC argues that when a customer makes a \"reasonable
request\" for service, IXCs are required by the first clause of § 201(a)
to provide the service\--whether or not providing that service would
force the IXC to act in conjunction with other carriers without the
hearing called for in the second clause of § 201(a).

We reject the FCC\'s interpretation. The language of § 201(a) is clear:
if the FCC wants to compel AT&T to establish a through route with
another carrier, then the FCC must follow the procedures specified in
the second clause of § 201(a). In ruling that AT&T was obligated to
purchase access services from CLECs, the FCC sought\--without first
having followed the procedures specified in the second clause of §
201(a)\--to compel AT&T to establish a through route.

It cannot be that a CLEC\'s demand to an IXC for a physical connection
or a through route is a request by the CLEC\'s customer for such service
under the first clause of § 201(a). This would allow the first clause in
§ 201(a) to render the second clause meaningless. Yet all parts of a
statute are to be given effect, see Weinberger v. Hynson, Wescott &
Dunning, 412 U.S. 609, 633 (1973), as the FCC recognized long ago in
regard to § 201(a). See American Tel. & Tel. Co. & the Western Union
Tel. Co., 5 Rad. Reg. (P & F) 639, 659 (1949) (explaining that if a
customer could effect the establishment of a through route, this \"would
permit the customer to do at will what this Commission cannot do without
a finding, after opportunity for a hearing, that such action is
\'necessary or desirable in the public interest,\' and would result in a
clear circumvention of the Congressional intent expressed in § 201(a) of
the Act.\").

The FCC gave the second clause of § 201(a) no more than one cursory
paragraph\'s worth of attention in its declaratory ruling. See
Declaratory Ruling, 16 F.C.C.R. at 19164-65. On appeal the FCC offers
three newly-discovered reasons why the second clause does not change its
analysis. First, the FCC argues that AT&T voluntarily connected with the
CLECs and thus there was no need for the FCC to decide whether AT&T had
a duty to connect under the second clause of § 201(a). See Brief for
Respondents at 27. Second, the FCC asserts that the Specialized Common
Carrier rulemaking proceeding requires LECs and IXCs to interconnect
their networks. See id. at 28 (citing Specialized Common Carrier, 29
F.C.C.2d 870 (1971)). Third, the FCC claims that § 251(a)(1) of the Act,
which requires telecommunications carriers to interconnect with the
facilities and equipment of other carriers, imposes an interconnection
duty on AT&T. See Brief for Respondents at 31 (citing 47 U.S.C. §
251(a)(1)). None of these three assertions were relied upon\--or for
that matter even discussed\--in the FCC\'s declaratory ruling, and we
therefore will not consider them. See SEC v. Chenery, 318 U.S. 80, 88
(1943).

The petition for review is granted. The declaratory ruling of the FCC is
vacated.

So ordered.

[^1]: At oral argument, AT&T\'s counsel stated that AT&T could have
    developed technology to sort out unwanted CLEC traffic but that this
    technology would have cost \$35 to \$40 million. See Transcript of
    Proceedings at 6.

[^2]: The FCC eventually issued a rulemaking order requiring
    IXCs\--strictly on a prospective basis after April 2001\--to
    purchase CLEC access services if the rates are set at or below a
    benchmark

    rate of 2.5 cents per minute, or the rate charged by the competing
    ILEC, whichever is higher. See Seventh Rep. & Order, 16 F.C.C.R. at
    9925, 9941. The benchmark rate, the FCC declared, will decline
    gradually over a three-year period. Id. at 9941. This order is the
    subject of a separate petition for review in this court. See AT&T
    Corp. v. FCC, No. 01-1244.