United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 20, 2001 Decided April 27, 2001

No. 00-1136

Global NAPs, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

Verizon Delaware, Inc., et al.,

Intervenors

\-\-\-\-\-\-\-\--

On Petition for Review of Orders of the

Federal Communications Commission

\-\-\-\-\-\-\-\--

Christopher W. Savage argued the cause and filed the briefs for
petitioner. John D. Seiver entered an appearance.

Lisa E. Boehley, Counsel, Federal Communications Commission, argued the
cause for respondents. With her on the brief were Christopher J. Wright,
General Counsel, John E. Ingle, Deputy Associate General Counsel, A.
Douglas Melamed, Assistant Attorney General, U.S. Department of Justice,
Catherine G. O\'Sullivan and Robert J. Wiggers, Attorneys. Laurel R.
Bergold, Counsel, Federal Communications Commission, and Nancy C.
Garrison, Attorney, U.S. Department of Justice, entered appearances

Aaron M. Panner argued the cause for intervenors Verizon Telephone
Companies. With him on the brief were Mark L. Evans, Michael E. Glover,
Edward H. Shakin and Lawrence W. Katz.

Before: Williams, Sentelle and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: Petitioner Global NAPs, Inc. (\"GNAPs\") seeks
review of a Federal Communications Commission (\"FCC\") ruling that
GNAPs\' tariff for Internet-bound traffic was facially invalid under FCC
regulations. GNAPs raises both procedural and substantive challenges to
the FCC\'s order. Specifically, GNAPs contends that the FCC violated its
own rules and due process requirements in voiding the tariff,
misconstrued the tariff terms, and improperly invalidated the tariff
retroactively. We hold that the FCC did not deprive GNAPs of due
process, did not exceed its authority by invalidating the tariff, and
reasonably declared GNAPs\' tariff unlawful. Therefore we uphold the
FCC\'s order and deny the petition for review.

I. Background

A. Statutory & Regulatory Context

1\. Reciprocal Compensation

Under Section 251(b) of the Telecommunications Act of 1996, local
exchange carriers (\"LECs\") are required to \"establish reciprocal
compensation arrangements for the transport and termination of
telecommunications.\" 47 U.S.C. § 251(b)(5). This means that when a
customer of Carrier X calls a customer of Carrier Y who is within the
same local calling area, Carrier X pays Carrier Y for completing, or
\"terminating,\" the call. The FCC interprets this requirement to apply
only to local calls\--that is, calls that originate and terminate within
a local area. The reciprocal compensation requirement \"do\[es\] not
apply to the transport or termination of interstate or intrastate
interexchange traffic.\" In re Implementation of the Local Competition
Provisions in the Telecom. Act of 1996, 11 F.C.C.R. 15,499, 16,013 p
1034 (1996) (subsequent history omitted).

Under the Act, carriers are expected to negotiate the rate and terms of
reciprocal compensation. If the carriers are unable to reach agreement,
they may submit the contested issues to arbitration by the relevant
state public utility commission (\"PUC\"). 47 U.S.C. § 252(e)(1). Once
the PUC approves an interconnection agreement, it is charged with
interpreting and enforcing the agreement, but the PUC\'s determinations
are subject to review in federal court for consistency with the Act. See
47 U.S.C. § 252(e)(6).

In February 1999, the FCC published an order holding that Internet-bound
calls to Internet Service Providers (\"ISPs\") are not local on the
theory that such traffic does not originate and terminate in the same
local calling area, and is therefore not covered by the reciprocal
compensation obligation. See In re Implementation of the Local
Competition Provisions in the Telecom. Act of 1996, Inter-carrier
Compensation for ISP-Bound Traffic, 14 F.C.C.R. 3689 (1999)
(\"Reciprocal Compensation Ruling\"). While the call to the ISP may be
local, the FCC concluded that the terminating end of the call is
actually the site reached by the Internet connection. The FCC noted that
there was no federal rule governing inter-carrier compensation for
Internet-bound traffic, but held that carriers would be bound to provide
compensation as provided under their respective interconnection
agreements as interpreted by state PUCs. Id. at 3704 p 24. The FCC also
initiated a rulemaking on an appropriate federal inter-carrier
compensation mechanism. Id. at 3707 p 28. While this rulemaking was
underway, the affected LECs petitioned this court for review of the
FCC\'s decision. We vacated and remanded the order for the Commission\'s
failure to provide an adequate explanation as to why Internet-bound
calls were not treated as local calls. See Bell Atlantic Tel. Cos. v.
FCC, 206 F.3d 1 (D.C. Cir. 2000).

2\. Tariff Requirements

Under Section 201(b) of the Telecommunications Act, all interstate
communications \"charges, practices, classifications, and regulations\"
must be \"just and reasonable.\" 47 U.S.C. § 201(b). Carriers must
publish rate tariffs before they go into effect. Published tariffs
\"must contain clear and explicit explanatory statements regarding the
rates and regulations.\" 47 C.F.R. § 61.2 (a). Tariffs may not \"make
reference to any other tariff publication or to any other document or
instrument.\" Id. at § 61.74(a). Tariffs filed by nondominant carriers,
such as GNAPs, take effect on only one day\'s notice. Such tariffs
receive streamlined review and are presumed lawful by the Commission.
Failure to comply with the relevant regulatory provisions \"may be
grounds for rejection\" of the tariff. Id. at § 61.1(b).

B. Relevant Facts

GNAPs is a competitive local exchange carrier (\"CLEC\") in several
states. GNAPs and Intervenor Verizon, an LEC formerly known as Bell
Atlantic, have interconnection agreements in several states. In April
1997, the two carriers entered into an interconnection agreement
including a provision that \"\[r\]eciprocal compensation only applies to
the transport and termination of Local Traffic\" defined as \"a call
which is originated and terminated within a given \[Local Access and
Transport Area or \"LATA\"\]\" in Massachusetts. The parties did not
agree as to whether the agreement\'s reciprocal compensation provisions
covered Internet-bound traffic, but agreed to abide by the
interpretation of the Massachusetts Department of Telecommunications and
Energy (\"DTE\")\--the Massachusetts PUC\--of either the GNAPs-Verizon
agreement or identical language in other agreements to which Verizon was
a party.

On October 21, 1998, DTE ruled that Verizon was required to pay
reciprocal compensation for the delivery of Internet-bound traffic by
MCI WorldCom. Complaint of MCI WorldCom, Inc., D.T.E. 97-116 (Mass.
D.T.E. Oct. 21, 1998). At the time, DTE directed Verizon to pay
reciprocal compensation to other LECs with which it had similar
agreements within the state. Shortly thereafter, however, the FCC
published the Reciprocal Compensation Ruling declaring that
Internet-bound traffic is interstate, not local. DTE responded on May
19, 1999 by vacating its October decision and declaring that Verizon was
not required to pay reciprocal compensation for Internet-bound traffic,
but may be required to pay compensation under the interconnection
agreement. Complaint of MCI WorldCom, Inc., D.T.E. 97-116-C (Mass.
D.T.E. May 19, 1999). On February 25, 2000, after this Court vacated the
FCC\'s order, DTE reaffirmed its May 1999 ruling, but this ruling is the
subject of ongoing litigation. Complaint of MCI WorldCom, Inc., D.T.E.
97-116-D (Mass. D.T.E. Feb. 25, 2000).

On April 14, 1999, while the DTE proceedings were under-way (and before
the DTE vacated its initial decision) GNAPs filed a tariff imposing an
\$0.008 per minute charge on the delivery of all Internet-bound calls
for which GNAPs \"does not receive compensation \... under the terms of
an interconnection agreement.\" The tariff further provided that a
carrier\'s \"\[f\]ailure \... to actually compensate \[GNAPs\] for
ISP-bound traffic as local traffic under the terms of an Interconnection
Agreement shall constitute an election to compensate \[GNAPs\] under the
terms of this Tariff.\" On May 27, 1999, GNAPs billed Verizon under this
tariff over \$1.7 million for fifteen days of service. Verizon refused
to pay.

C. The FCC Proceedings

On July 8, 1999 Verizon filed a complaint against GNAPs\' tariff under
Section 208 of the Communications Act. Verizon alleged that 1) the
tariff was inconsistent with FCC rules insofar as the FCC exempted ISPs
from access charges and provided for joint provision of access service
to interexchange carriers, 2) the tariff preempted state determination
of inter-carrier compensation for interstate Internet-bound traffic, 3)
the tariff made Verizon an involuntary GNAPs customer, and 4) the tariff
imposed excessive rates. Specifically, Verizon alleged \"GNAPs has no
right to circumvent the negotiation and arbitration process that the DTE
and this Commission have directed it to follow by unilaterally filing a
federal tariff.\" After a status conference, the FCC directed briefing
on ten issues concerning the legality of the tariff and the
applicability of specific FCC rules, including \"why Global NAPs filed a
federal tariff and whether that was reasonable.\" In re Bell
Atlantic-Delaware, Inc., E-99-22 (Aug. 19, 1999).

On December 2, 1999, the FCC declared GNAPs\' tariff unlawful under
section 201(b) and void ab initio. In re Bell Atlantic-Delaware, Inc.,
et al. v. Global NAPs, Inc., Memorandum Opinion and Order, 15 F.C.C.R.
12,946 (1999) (\"Order\"). The FCC found that the challenged tariff
provisions violated the requirement of 47 C.F.R. § 61.2 that tariffs be
\"clear and explicit\" because \"those tariff provisions condition the
imposition of charges on circumstances that were indeterminate when the
tariff took effect and remain indeterminate today.\" Id. p 2.
Additionally, the FCC found that the tariff impermissibly
cross-referenced another document\--in this case the interconnection
agreement between GNAPs and Verizon\--in violation of 47 C.F.R. §
61.74(a). The Commission noted that at the time the tariff was filed,
the parties did not know whether GNAPs would receive reciprocal
compensation from Verizon for Internet-bound traffic because the DTE
proceedings were still underway.

On January 3, 2000, GNAPs petitioned for reconsideration of the FCC\'s
order. GNAPs raised several arguments. First, GNAPs argued that in
basing its decision on grounds not raised by Verizon or briefed by
either party, the FCC denied GNAPs its right to notice and due process
and illegally relieved Verizon of its burden of proof. GNAPs further
argued that the FCC, by voiding the tariff retroactively, illegally
denied GNAPs just compensation for the interstate services it provided
to Verizon. Finally, GNAPs claimed that the FCC\'s order was wrong on
the merits and the tariff was legal under the Act and applicable FCC
regulations.

The FCC denied GNAPs\' petition on March 22. In re Bell
Atlantic-Delaware, Inc., et al. v. Global NAPs, Inc., Order on
Reconsideration, 15 F.C.C.R. 5,997 (2000) (\"Reconsideration Order\").
The FCC rejected GNAPs procedural claims, explaining that its initial
Order was based on issues that were antecedent to those raised by
Verizon\'s complaint, and therefore could be considered. The FCC further
rejected GNAPs\' contentions that the tariff was lawful and that GNAPs
was due compensation for services rendered to Verizon.

On March 24, 2000, GNAPs petitioned for review of both orders.

II\. Notice

Petitioner GNAPs contends the FCC violated both its own rules and
GNAPs\' due process rights by basing its ruling on legal arguments that
were not presented by either party nor raised by the FCC in its August
1999 briefing order. According to GNAPs, only those issues pled to the
Commission are properly before it. Therefore, GNAPs claims, the
Commission was precluded from basing its decision on any other grounds.
By doing otherwise, GNAPs claims the FCC violated its due process rights
and the Order must be set aside.

The FCC\'s rules require that a petitioner plead \"\[a\]ll matters
concerning a claim \... fully and with specificity.\" 47 C.F.R. §
1.720(a). As interpreted by the FCC, these rules bar a complainant from
amending or otherwise \"introducing new issues late in the development
of the case.\" In re Implementation of the Telecom. Act of 1996, 12
F.C.C.R. 22,497, 22,597 p 241 (1997). GNAPs claims that any departure
from those rules violates GNAPs\' due process rights. Specifically,
GNAPs alleges that the FCC\'s conduct contradicts the Administrative
Procedure Act\'s (\"APA\") requirement that a party \"shall be timely
informed of \... the matters of fact and law asserted.\" 5 U.S.C. §
554(b). See Amoco Prod. Co. v. Fry, 118 F.3d 812, 819 (D.C. Cir. 1997)
(\"Notice and a meaningful opportunity to challenge the agency\'s
decision are the essential elements of due process.\"). The lack of
notice, GNAPs claims, made it impossible for it to respond to the
arguments upon which the FCC ultimately made its decision. Proper
notice, GNAPs claims, would have enabled it \"to cut its losses early on
by amending its tariff.\" Brief for Petitioner at 27.

The FCC responds to GNAPs\' procedural claims by arguing that it voided
GNAPs\' tariff based on legal theories that were \"antecedent\" to those
raised by Verizon. The FCC could not determine the reasonableness of the
tariff without determining what it covered, and that question was
indeterminate given the ongoing DTE proceedings. We agree. Though the
precise legal theories relied upon by the Commission were different than
those raised by Verizon, GNAPs cannot credibly argue that the effect of
the ongoing state proceeding on GNAPs\' tariff and Verizon\'s payment
obligations was not squarely before the agency. GNAPs cites Virginia
State Corp. Comm\'n v. MCI, 14 F.C.C.R. 4744 (1999), for the proposition
that in a Section 208 proceeding, the FCC may only consider those issues
briefed by the complainant. While the FCC declined to consider issues
raised sua sponte by Commission staff in Virginia State Corp., it was
not because the Commission lacked the authority to do so. Rather, the
FCC concluded that \"\[i\]n the particular circumstances\" of that case
the unbriefed issues \"raised difficult and important issues warranting
extensive analysis by the parties and the Commission.\" Id. at 4753 p 24
n.65. It was these \"particular circumstances,\" and not the
complainant\'s failure to raise particular issues standing alone, that
would have deprived the parties \"a full and fair opportunity\" to
address the issues. Id.

There is no dispute that the FCC declared GNAPs\' tariff unlawful \"for
reasons other than those asserted\" by Verizon. Order at p 14. This does
not, however, mean that GNAPs was deprived due process. Even assuming
that the FCC violated its own rules, GNAPs had adequate opportunity to
meet the charges on reconsideration. GNAPs addressed the substance of
the FCC\'s findings in its petition for reconsideration (while claiming
not to), and identified no significant evidence that might have changed
the FCC\'s conclusions. Unless we are given concrete reason to believe
otherwise, we will trust that an agency properly discharged its
obligation to reconsider those issues presented in a petition for
reconsideration; \"we cannot consider the reconsideration to have been a
sham.\" U.S. Satellite Broad. Co. v. FCC, 740 F.2d 1177, 1186 (D.C. Cir.
1984). We therefore proceed to review the merits of the FCC\'s decision.

III\. Merits

A. Standard of Review

Under the APA, a reviewing court must uphold an FCC order unless it is
found to be \"arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.\" 5 U.S.C. § 706(2)(A). This is a
\"deferential standard\" that \"presume\[s\] the validity of agency
action.\" Southwestern Bell Tel. Co. v. FCC, 168 F.3d 1344, 1352 (D.C.
Cir. 1999). The FCC is due substantial deference in its implementation
of the Communications Act, and \"even greater deference\" when
interpreting its own rules and regulations. Capital Network Sys. v. FCC,
28 F.3d 201, 206 (D.C. Cir. 1994). A similar standard applies to the
FCC\'s interpretation of tariffs. Such interpretations should be upheld
where they are \"reasonable \[and\] based upon factors within the
Commission\'s expertise.\" American Message Centers v. FCC, 50 F.3d 35,
39 (D.C. Cir. 1995) (citation omitted). Reversing an FCC tariff
interpretation should only occur where it \"is not supported by
substantial evidence, or the \[Commission\] has made a clear error in
judgment.\" Id. (citation omitted).

B. The Tariff

The FCC found GNAPs\' tariff to be ambiguous and to contain an
impermissible cross-reference. Either is a sufficient ground to declare
the tariff illegal. GNAPs maintains that a proper reading of its tariff
shows that it is not ambiguous and does not contain an impermissible
cross-reference. Whereas the FCC and Verizon contend that the tariff is
conditional on another document\--the referenced interconnection
agreement\--GNAPs maintains that the tariff is conditional on whether
GNAPs was actually paid for carrying the traffic, irrespective of the
reason. GNAPs claims the tariff is not unclear or ambiguous, as carriers
will know whether they paid GNAPs and therefore will know whether the
tariff applies. For the same reason, GNAPs claims, the tariff should not
be read to contain an impermissible cross-reference in violation of 47
C.F.R. § 61.74(a).

The FCC clearly has the better of this argument. 47 C.F.R. § 61.74(a)
provides that \"no tariff publication filed with the Commission may make
reference to any other tariff publication or to any other document or
instrument.\" The relevant portion of the tariff reads: \"This tariff
applies to all ISP-bound traffic for which \[GNAPs\] does not receive
compensation from the Delivering LEC under the terms of an
interconnection agreement.\" (Emphasis added.) From these words it is
unmistakable that the application of the tariff is contingent upon
whether GNAPs is paid \"under the terms of an interconnection
agreement.\" If GNAPs receives payment for some other reason, this would
not satisfy the condition, and payment would still be due under the
tariff. The tariff, on its face, violates the FCC\'s rule. Any
reasonable construction of the tariff\'s language would require a
customer to consult the interconnection agreement to determine whether
the tariff applied.

The FCC also reasonably concluded that the tariff violates 47 C.F.R. §
61.2(a) which provides that tariffs must be clear and explicit \"\[i\]n
order to remove all doubt as to their proper application.\" When GNAPs
filed the tariff, the DTE proceedings were still underway. As a result,
it remained unclear whether the GNAPs-Verizon interconnection agreement
required compensation for Internet-bound traffic. If a party could not
know whether compensation was due under the agreement, it could not know
whether any payment to GNAPs was \"under the terms of an interconnection
agreement.\" If a party could not reasonably ascertain the \"proper
application\" of the tariff at the time it was filed, the tariff was
unclear and therefore was invalid.

DTE\'s subsequent dismissal of GNAPs\' claim for compensation under the
agreement did not \"cure\" its ambiguity for several reasons. First, the
FCC\'s Order focused on whether the tariff was valid at the time it was
filed. GNAPs revised its tariff on February 14, 2000, eliminating the
provisions found unlawful by the FCC. DTE\'s subsequent ruling could not
retroactively cure the deficiency of the tariff in effect prior to
February 14 or affect the validity of charges GNAPs sought to assess
Verizon prior to that point. In addition, because GNAPs appealed the DTE
finding, that matter was not resolved when the FCC made its
determination. Finally, even had the DTE ruling cured the tariff\'s
indeterminacy, it did not eliminate the impermissible cross-reference.

C. Statutory Structure

In a final effort to avoid the inevitable, GNAPs argues that the FCC
does not have the authority to invalidate tariffs under Section 208, but
only acts as an \"adjudicator of private rights.\" AT&T v. FCC, 978 F.2d
727, 732 (D.C. Cir. 1992). In GNAPs\' view, it would be proper for the
FCC to award damages to one party or another, but not to declare a
tariff unlawful on its face. Challenges to tariffs themselves, GNAPs
claims, must proceed under Sections 204 and 205, which relate to
modifying or invalidating tariffs.

This argument is no more successful than GNAPs\' creative reading of its
own tariff. As we noted just last year, Section 204 grants the FCC
\"quasi-legislative authority to evaluate a carrier\'s proposals for new
or revised rates.\" Hi-Tech Furnace Sys., Inc. v. FCC, 224 F.3d 781, 786
(D.C. Cir. 2000). Section 208, on the other hand, grants \"authority,
upon complaint by an injured party, to adjudicate the lawfulness of a
carrier\'s past and present rates and practices.\" Id. It is difficult
to conceive of this case as other than an adjudication of \"the
lawfulness of a carrier\'s \... present rates and practices.\"

D. Relief

GNAPs argues, in the alternative, that even if the FCC was correct to
declare the tariff unlawful, the FCC erred by \"retroactively
invalidating\" the tariff. Whatever the deficiencies of the tariff in
this case, GNAPs argues, it is not so deficient as to justify
retroactive invalidation under the standards set forth in ICC v.
American Trucking Assn\'s, 467 U.S. 354 (1984). The retroactive
invalidation is not, in GNAPs\' view, \"legitimate, reasonable, and
direct\[ly\] adjunct to the Commission\'s explicit statutory power.\"
Id. at 365 (internal quotation omitted). While acknowledging that the
FCC has the authority to order a complete refund of tariff overcharges,
GNAPs argues that the Commission must consider the equities before
ordering such a result. See Virgin Islands Tel. Co. v. FCC, 989 F.2d
1231, 1240 (D.C. Cir. 1993); Las Cruces TV Cable v. FCC, 645 F.2d 1041,
1047-48 (D.C. Cir. 1981). Not only did the FCC not award GNAPs any
compensation, but it did not even bother to consider whether to exercise
its discretion. Thus, even if the Court sides with the FCC on the
merits, GNAPs argues that a remand is necessary for the FCC to consider
whether payment to GNAPs for services rendered is due.

GNAPs\' argument that relief under Section 208 of the Act cannot be
retroactive in effect is clearly wrong. Section 208 is designed to
enable parties to obtain redress for a carrier\'s violation of the Act
or the FCC\'s regulations. Yet insofar as Section 208 authorizes the
award of damages or other remedies, it is always \"retroactive\" in its
application in that it will always be changing the economic consequences
of a carrier\'s prior conduct. The remedy here\--complete invalidation
of GNAPs\' tariff\--may be more severe than consequential damages, but
it is no more backward-looking.

The FCC notes that it may be inappropriate for GNAPs to have filed its
tariff in the first place. The FCC has not authorized, let alone
required, carriers to file tariffs for local Internet-bound traffic.
Instead, the Commission expected carriers to enter into interconnnection
agreements that would set compensation subject to state commission
approval. Merely because a tariff is presumed lawful upon filing does
not mean that it is lawful. Such tariffs still must comply with the
applicable statutory and regulatory requirements. Those that do not may
be declared invalid. Indeed, GNAPs acknowledges that \"\[a\] tariff that
is so plainly defective as to be a legal nullity may be declared
retroactively invalid\--void ab initio\--in order to ensure that an
injustice is not worked on the affected customers.\" Brief for
Petitioner at 36. That was the case here. The FCC found that the tariff,
on its face, violated the plain meaning of the FCC\'s tariff regulations
and therefore was unlawful from the date of issuance. This is sufficient
to satisfy the test laid out in American Trucking Ass\'ns as the FCC
voided a tariff in furtherance of a \"specific statutory mandate\" to
which the action was \"directly and closely tied.\" 467 U.S. at 367. The
other cases cited by GNAPs\--Virgin Islands Tel. Co. and Las Cruces TV
Cable\-- are distinguishable, as they involved refunds for unreasonable
rates, and not a patently unlawful tariff.

While we uphold the FCC\'s conclusion that the tariff was void ab initio
and invalid from the date it was published, we have not left GNAPs
without opportunity to seek redress. Our holding today does not
foreclose GNAPs\' ability to seek compensation under the interconnection
agreement before the DTE as well as to seek a negotiated compensation
settlement with Verizon. If this route is unsuccessful or impractical,
and the FCC\'s rules make it difficult for GNAPs and other carriers to
obtain compensation for Internet-bound traffic, they may petition the
FCC for a change in the Commission\'s rules. That GNAPs sought to game
the existing rules, and lost, does not mean the FCC was arbitrary and
capricious in its application of its own rules.

IV\. Conclusion

For the foregoing reasons, the petition for review is

Denied.