United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 5, 2002 Decided June 4, 2002

No. 01-1192

Global NAPS, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

Verizon Telephone Companies, 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.

Lisa E. Boehley, Counsel, Federal Communications Commission, argued the
cause for respondents. With her on the brief were John Rogovin, Deputy
General Counsel, Richard K. Welch, Associate General Counsel, John E.
Ingle, Deputy Associate General Counsel, Catherine G. O\'Sullivan, and
Robert J. Wiggers, Attorneys, U.S. Department of Justice. Nancy C.
Garrison, Attorney, entered an appearance.

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

Before: Edwards, Rogers, and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Edwards.

Edwards, Circuit Judge: The Telecommunications Act of 1996, Pub. L. No.
104-104 (Feb. 8, 1996), requires the Federal Communications Commission
(\"FCC\") to preempt the jurisdiction of any state regulatory commission
that \"fails to act to carry out its responsibility\" to approve or
reject interconnection agreements entered into by local exchange
carriers (\"LECs\"). 47 U.S.C. § 252(e)(5). In this case, Global NAPs,
Inc. (\"GNAPs\"), a LEC providing local exchange services in
Massachusetts and other Eastern states, has petitioned for review of the
FCC\'s refusal to preempt the regulatory authority of the Massachusetts
Department of Telecommunications and Energy (\"DTE\") over the
interpretation of an interconnection agreement between GNAPs and
Verizon.

The disputed GNAPs-Verizon agreement provides that the carriers shall
pay \"reciprocal compensation\" to one another for carrying and
completing local calls made by customers of one company to customers of
the other. Many of GNAPs\' customers are Internet Service Providers
(\"ISPs\"), who need telephone connections to provide their own
customers with dial-up Internet access. However, the agreement does not
specify whether calls made to ISPs are \"local\" calls for which
reciprocal compensation is due. Because this question has been the
source of much debate and confusion in the telecommunications field, and
because the financial stakes are high, GNAPs sought a declaratory ruling
from DTE that ISP-bound traffic is subject to reciprocal compensation
under the terms of its agreement with Verizon. After waiting for the
state agency to act on this request for nearly eight months, GNAPs filed
a petition with the FCC, asking the federal Commission to preempt DTE\'s
jurisdiction and resolve the issue itself.

Before the FCC responded to this request, DTE issued an order dismissing
GNAPs\' claim as moot in light of the state agency\'s decision that
ISP-bound calls were not local within the meaning of an identically
worded interconnection agreement between Verizon and MCI WorldCom. In
light of DTE\'s dismissal, the FCC concluded that the state commission
had not \"fail\[ed\] to act to carry out its responsibility\" under §
252 and, therefore, that preemption was not warranted. GNAPs now
petitions for review of the FCC decision, arguing that the FCC
misunderstood its obligations under § 252(e)(5), which, the company
insists, compels the Commission to adjudicate the issue that DTE found
to be moot. We reject the petition for want of merit.

We hold that the FCC\'s conclusion that § 252(e)(5) does not empower it
to look behind a state agency\'s dismissal of a carrier\'s claim to
evaluate the substantive validity of that dismissal is both a reasonable
interpretation of that provision and consistent with the Commission\'s
past practices and precedents. It is clear that DTE believed that it was
conclusively resolving the issue of whether GNAPs had a right to
compensation from Verizon for the costs associated with completing calls
made to ISPs. It does not matter whether the state agency\'s position is
correct on the merits. Rather, as the FCC found, what matters is that
DTE did not fail to act, so the federal Commission has no basis upon
which to preempt the regulatory authority of the state agency. GNAPs\'
remedy lies not in FCC preemption, but rather in judicial review of
DTE\'s order, whether in federal or in state court.

I. Background

GNAPs is a competitive LEC that provides local telephone service in
several eastern states, including Massachusetts. Among its customers are
a number of ISPs, who use connections supplied by GNAPs to allow their
own customers to establish dial-up access to the Internet. Verizon is
the incumbent LEC operating in Massachusetts. In April of 1997, as
directed by the Telecommunications Act of 1996, GNAPs and Verizon
entered into an interconnection agreement, which provided that each
carrier would receive \"reciprocal compensation\" for completing calls
made by one another\'s customers. See 47 U.S.C. § 251(b)(5) (requiring
LECs to establish reciprocal compensation agreements). Thus, Verizon
agreed to compensate GNAPs for the costs that the latter incurs when one
of Verizon\'s subscribers calls a GNAPs subscriber within the same local
calling area.

By the terms of the agreement, this reciprocal compensation obligation
applies only to the \"the transport and termination of Local Traffic,\"
that is, to calls both originated and terminated in Massachusetts. That
definition, however, leaves ambiguous whether \"local traffic\" includes
ISP-bound traffic. Such calls are difficult to classify, because, while
the ISP itself may be located within Massachusetts, the actual end-point
of a call made to that provider may be a remote Internet site well
outside the Commonwealth. Despite the substantial sums of money at
stake - millions of dollars, according to GNAPs, see Br. for the Pet\'r
5 n.9 - the carriers made no attempt to resolve this ambiguity. They
did, however, agree that whatever the proper interpretation, Verizon
would pay GNAPs for ISP-calls if it paid compensation for such calls
under the terms of identically worded interconnection agreements that it
had made with other LECs, including MCI WorldCom. And, following an
October 1998 decision in which DTE interpreted the Verizon/MCI WorldCom
to require compensation for the delivery of ISP-bound traffic, Verizon
began to pay such compensation to GNAPs as well. See Complaint of
WorldCom Technologies, Inc., D.T.E. 97-116 (Mass. DTE Oct. 21, 1998)
(\"October 1998 Order\") (Joint Appendix \[\"J.A.\"\] 84).

The issue appeared settled until February 1999, when the FCC issued an
order holding that calls made to ISPs would be considered as nonlocal
for purposes of the Commission\'s rules regulating reciprocal
compensation. See In re Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996, Intercarrier
Compensation for ISP-Bound Traffic, 14 F.C.C.R. 3689 (Feb. 26, 1999)
(\"Reciprocal Compensation Order\"), vacated, Bell Atlantic Tel. Cos. v.
FCC, 206 F.3d 1 (D.C. Cir. 2000). However, the FCC\'s Reciprocal
Compensation Order left open the possibility that state regulators (such
as DTE) could continue to treat ISP-bound traffic as local traffic, if
interconnection agreements between carriers so provided, whether
explicitly or implicitly. See Verizon Md. Inc. v. Public Serv. Comm\'n
of Md., 535 U.S. \_\_, 122 S. Ct. 1753, 1757 (2002).

In the wake of the Reciprocal Compensation Order, Verizon asked DTE to
reverse its October 1998 Order, and hold that Verizon was no longer
obligated to compensate other carriers for ISP-bound calls. The company
then stopped making such payments to GNAPs. GNAPs responded to this
development in two ways. First, it filed a new tariff with the FCC in
which it sought to impose a \$.008 per minute charge on the delivery of
all ISP-bound calls for which GNAPs did not receive compensation under
an existing interconnection agreement. Verizon refused to pay, and
challenged the validity of the tariff before the FCC. The Commission
declared the tariff unlawful and void ab initio, a decision eventually
affirmed by this court. See Global NAPs, Inc. v. FCC, 247 F.3d 252 (D.C.
Cir. 2001). Second, on April 16, 1999, GNAPs filed a complaint against
Verizon with DTE, seeking a declaration that, under the terms of the
carriers\' interconnection agreement, ISP-traffic was included in the
category of local traffic for which compensation was owed.

On May 19, 1999, DTE vacated its October 1998 Order. See Complaint of
MCI WorldCom, Inc., D.T.E. 97-116-C (Mass. DTE May 19, 1999) (\"May 1999
Order\") (J.A.136). The state agency declared that, in light of the
Reciprocal Compensation Order, nothing in either its own rules or those
of the FCC required Verizon to pay reciprocal compensation for
Internet-bound traffic. At the same time, however, DTE did not purport
to decide whether ISP-traffic might still be considered local under the
terms of any particular interconnection agreement. It merely held that
no then-viable DTE order mandated such a conclusion. Therefore, the
separate contractual interpretation question regarding the meaning of
\"Local Traffic\" in the GNAPs-Verizon agreement was \"a now-unresolved
dispute.\" Id. at 26 (J.A. 166). In other words, nothing in DTE\'s May
1999 Order purported to resolve the complaint that GNAPs had filed
against Verizon the previous month.

DTE, however, did nothing in response to that complaint in the
subsequent months. Finally, on December 9, 1999, GNAPs petitioned the
FCC to preempt DTE\'s regulatory jurisdiction and decide for itself the
question of whether \"Local Traffic\" included ISP-bound calls. Such
preemption is authorized by the Telecommunications Act of 1996, but only
where the \"State commission fails to act to carry out its
responsibility under \[s 252\] in any proceeding or other matter under
\[s 252\].\" 47 U.S.C. § 252(e)(5). On February 25, 2000, before the FCC
had acted on the preemption request, DTE issued an order denying
reconsideration of its May 1999 Order. In so doing, the state agency
addressed GNAPs\' complaint:

In addition, we hereby dismiss as moot the Motion for Complaint of GNAPs
in D.T.E. 99-39. As noted above, in its Motion for Complaint, GNAPs
sought a declaratory ruling from the Department that, under the terms of
its interconnection agreement with \[Verizon\], GNAPs should be
compensated for terminating ISP-bound traffic from \[Verizon\]
customers. The operative provisions of GNAPs\' agreement (i.e. the
definition of local traffic and the payment of reciprocal compensation)
are in all material respects the same as the provision in the
MCI-WorldCom agreement, which were the subject of the dispute in this
proceeding (D.T.E. 97-116). In that we have affirmed, above, our Order
in D.T.E. 97-116-C concerning this very subject, we find that the GNAPs
Motion for Complaint is moot.

Complaint of MCI WorldCom, Inc., D.T.E. 97-116-D, at 20 (Mass. DTE Feb.
25, 2000) (\"February 2000 Order\") (J.A. 269). The May 1999 Order had
not decided whether Verizon\'s interconnection agreements included
Internet-bound calls within the definition of \"Local Traffic.\"
Nonetheless, DTE\'s February 2000 Order determined that reaffirming its
previous order resolved the theretofore undecided interpretive question,
and thus mooted GNAPs\' complaint.

Soon after DTE\'s decision was released, the FCC\'s Common Carrier
Bureau (\"CCB\") denied GNAPs\' petition for preemption. See In re
Global NAPs, Inc., 15 F.C.C.R. 4942 (CCB Mar. 7, 2000) (\"CCB Order\")
(J.A. 279). In doing so, CCB first noted that there was a reasonable
question about whether a dispute over the interpretation of an
interconnection agreement even constituted a \"proceeding or other
matter under \[s 252\]\" such that the FCC would have the power to
preempt under § 252(e)(5). Id. at p p 5-7 (J.A. 281-82); cf. Verizon
Md., 122 S. Ct. at 1758 (declining to decide whether a state
commission\'s decision interpreting an interconnection agreement is a
\"determination under § 252\").

In the end, however, the Bureau held that, because GNAPs\' complaint was
no longer pending before DTE, there was nothing for the FCC to preempt.
DTE had resolved the matter, rejecting GNAPs\' complaint. See id. at p 7
(J.A. 282). Moreover, CCB explained that the FCC\'s statutory preemption
authority did not empower the federal agency to examine the \"underlying
reasoning\" supplied by DTE for its conclusion. The Bureau thus declined
to look beyond DTE\'s decision to question the substantive validity of
the state agency\'s judgment. Id. at p 9 (J.A. 283). On review, the FCC
affirmed CCB\'s order, agreeing with the Bureau\'s analysis in all
respects. See In re Global NAPs, Inc., Order on Review, 16 F.C.C.R. 4976
(Feb. 21, 2001) (J.A. 388). GNAPs now challenges the Commission\'s
decision before this court.

II\. Discussion

The single issue presented in this case is whether the FCC reasonably
determined that DTE did not \"fail\[ \] to act to carry out its
responsibility\" to adjudicate the dispute between GNAPs and Verizon
over whether ISP-bound calls are \"local\" within the meaning of their
interconnection agreement. Only where there is such a failure does §
252(e)(5) obligate the Commission to step in. Otherwise - such as where
the state agency actually \"makes a determination\" under § 252 - there
is no statutory basis for FCC preemption. Under such circumstances, an
aggrieved party may bring an action for judicial review in federal court
under § 252(e)(6), or, if that provision is inapplicable and there is no
federal question at issue, in state court. Cf. Verizon Md., 122 S. Ct.
at 1758-60 (holding that federal courts have jurisdiction to review
decisions of state commissions interpreting interconnection agreements,
at least where review turns on issues of federal law, and that this
jurisdiction is not stripped by § 252(e)(6)).

Section 252(e)(6), entitled \"Review of State commission actions,\"
reads as follows:

In a case in which a State fails to act as described in paragraph (5),
the proceeding by the Commission under such paragraph and any judicial
review of the Commission\'s actions shall be the exclusive remedies for
a State commission\'s failure to act. In any case in which a State
commission makes a determination under this section, any party aggrieved
by such determination may bring an action in an appropriate Federal
district court to determine whether the agreement or statement meets the
requirements of section 251 of this title and this section.

Both the plain language and structure of this provision suggest that the
remedies it authorizes are distinct and mutually exclusive. If a state
commission fails to act, preemption is a viable option; however, if the
state agency takes final action disposing of the pending claim, that
action can be undone only by direct judicial review in the appropriate
forum. And, in the present case, it does not matter whether DTE\'s
decision to dismiss GNAPs\' complaint as moot was reasonable. What
matters is that the FCC did not err in concluding that DTE\'s February
2000 Order did not constitute a \"failure to act.\" Therefore, the FCC
correctly held that DTE is not subject to preemption.

When DTE issued its February 2000 Order, the state agency believed that
it was acting on, and disposing of, the issues raised in GNAPs\' Motion
for Complaint. For whatever reason, the state commission thought that
upholding its May 1999 Order decided (or reconfirmed) that ISP-bound
traffic was not local traffic under the Verizon-MCI WorldCom agreement,
and that this determination effectively resolved the dispute between the
parties to the Verizon-GNAPs agreement. Even if the state agency\'s
dismissal was premised on faulty or incomprehensible legal reasoning, it
nonetheless constituted final action disposing of GNAPs\' complaint.

In the Orders now on review, the FCC decided that it would not preempt
an already completed state proceeding, at least where doing so would
require the Commission to examine the underlying reasoning given by the
state agency for terminating that proceeding. See CCB Order, at p p 7-9
(J.A. 282-83); Br. for Respondents 18-19. In so holding, the FCC has
effectively construed § 252(e)(5) as not covering situations where a
state agency affirmatively acts to dispose of a case, and in so doing at
least purports to resolve the issues presented to it. See also In re
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, First Report and Order, 11 F.C.C.R.
15499, p 1285 (Aug. 8, 1996), aff\'d in part, vacated in part, Iowa
Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), aff\'d in part, rev\'d
in part, sub nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999)
(\"The Commission will not take an expansive view of what constitutes a
state\'s \'failure to act.\' Instead, the Commission interprets
\'failure to act\' to mean a state\'s failure to complete its duties in
a timely manner.\").

The FCC\'s interpretation thus suggests that only if the state
commission either does not respond to a request, or refuses to resolve a
particular matter raised in a request, does preemption become a viable
option. Under this reading, the purpose of § 252(e)(5) is to hold out
the FCC as an alternative forum for the adjudication of certain disputes
related to interconnection agreements; the statute does not authorize
the Commission to sit as an appellate tribunal to review the correctness
of state resolution of such disputes. We believe that this understanding
of the preemption provision is neither incompatible with congressional
intent nor unreasonable. Instead, it seems quite faithful to the key
statutory language: in this context, \"fails to act\" suggests
incomplete action or no action, not misguided action. See Webster\'s
Third New International Dictionary 814 (1993) (defining \"fail\" when
used with the infinitive as \"to neglect to do something; leave
something undone; be found wanting in not doing something\").

Indeed, GNAPs\' objection here seems less to DTE\'s supposed inaction
than to the quality of its action. Petitioner thus focuses our attention
on the \"carry out its responsibility\" language in § 252(e)(5),
suggesting that these words require the FCC to take a more substantive
look at what a state commission has done before absolving itself of its
duty to preempt. See Br. for Pet\'r 20. While this phrase may be
ambiguous, the FCC\'s preferred interpretation is entirely plausible,
and therefore commands deference under Step Two of Chevron. See Chevron
U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843
(1984).

In essence, the Commission reasonably concluded that the
\"responsibility\" invoked by the statute is the state agency\'s
responsibility to make a determination - that is, to mediate, to
arbitrate, to approve, and (possibly) to interpret and enforce an
interconnection agreement - rather than the responsibility to make a
determination that is satisfactory to all parties, or to the FCC itself.
This construction, which focuses on whether the state agency has acted,
rather than on the quality of its action, is consistent with the text
and structure of the statute. This approach also allows parties
frustrated by the results from a state commission to know immediately
whether to seek preemption or judicial review, thereby saving the time
and expense of simultaneous litigation on multiple fronts.

Finally, GNAPs contends that the FCC\'s holding in this case was
inconsistent with the agency\'s previous decisions under § 252(e)(5).
According to GNAPs, the Commission has \"consistently held that it is
not bound by the mere fact that a state regulator has issued an order,
or by the mere words of such an order, in assessing whether the state
regulator has acted to carry out its responsibility with regard to a
dispute.\" Br. for Pet\'r 23 (internal quotation marks omitted). GNAPs
points to two FCC decisions, neither one of which supports GNAPs\'
position in this case.

The first decision involved a request for preemption brought by MCI. In
that case, the Commission rejected the argument that preemption was
inappropriate merely because a state agency had issued a final
arbitration order. See In re Petition of MCI for Preemption Pursuant to
Section 252(e)(5) of the Telecommunications Act of 1996, 12 F.C.C.R.
15594, at p 32 (Sept. 26, 1997). However, the point of the FCC\'s
statement was merely that a state agency can fail to act under §
252(e)(5) where it issues a general dismissal order that does not
resolve all issues \"clearly and specifically\" presented to it. See id.
at p 27. Indeed, in MCI, the FCC ultimately declined to preempt, because
the Missouri Public Service Commission had acted on all such issues;
other claims that the carrier argued should have been decided had not
been advanced with sufficient clarity and specificity to make the
state\'s agency\'s inaction a \"failure to act\" within the meaning of §
252(e)(5). See id. at p 36.

In the instant case, the claim over which GNAPs seeks preemption - the
definition of \"Local Traffic\" in its agreement with Verizon - was
properly presented to DTE and the state agency explicitly addressed that
claim, finding it to be moot. Accordingly, there is no inconsistency
between the FCC\'s refusal to preempt here and its refusal to do so in
MCI.

The second decision to which GNAPs points involved a situation in which
the FCC actually did decide to preempt a state commission\'s
jurisdiction. See In re Starpower Communications, LLC, Pet. for
Preemption of Jurisdiction of the Vir. State Corp. Comm\'n Pursuant to
Section 252(e)(5) of the Telecommunications Act of 1996, 15 F.C.C.R.
11277 (June 14, 2000). While it is true that the FCC concluded that
\"the mere issuance of the \[state\] Commission\'s final order in each
proceeding\" was insufficient to fulfill the state agency\'s
responsibilities under § 252(e)(5), id. at p 8, the Starpower decision
actually supports the FCC\'s position in the present case.

Starpower concerned a preemption request brought by a LEC that had
sought - and failed to receive - a declaration from a state agency (the
Virginia State Corporation Commission) that ISP-bound traffic was local
under an interconnection agreement. The Virginia commission expressly
declined even to consider Starpower\'s petition and, instead, encouraged
the parties to seek relief from the FCC. See id. at p 4. Thus, when
Starpower petitioned the FCC for preemption, the federal agency
accepted, explaining that \"\[b\]ecause the \[state agency\] decisions
explicitly declined to take any action with respect to Starpower\'s
petitions \... we are compelled to conclude that the Virginia Commission
\'failed to act to carry out its responsibility\' under section 252.\"
Id. at p 7 (emphasis added).

The FCC went on to note that, under Commission precedent, a state agency
fulfills its responsibilities under § 252(e)(5) \"when it resolves the
merits of a section 252 proceeding or dismisses such a proceeding on
jurisdictional or procedural grounds.\" Id. at p 8. This is just what
DTE did here. In doing so, DTE - in stark contrast to the Virginia
commission - did not recommend that the parties turn to the FCC for
resolution of their dispute. Instead, DTE acted as if it was
adjudicating (or at least confirming its earlier adjudica-tion) of
GNAPs\' complaint. This decision may have produced a questionable
result, but it was hardly inaction.

In sum, MCI and Starpower support the Commission\'s decision in this
case. In neither of those prior cases did the FCC so much as suggest
that a state agency\'s dismissal of an issue on the merits constitutes a
failure to act. Quite the opposite. And because DTE acted here, the
FCC\'s determination that it lacked the authority under § 252(e)(5) to
second guess the validity of the state agency\'s decision under the
guise of preemption was neither contrary to the statute nor to the
Commission\'s past practices. Accordingly, GNAPs\' challenge must fail.

III\. Conclusion

For the reasons given above, we hold that the FCC\'s decision not to
preempt DTE\'s jurisdiction over GNAPs\' complaint represented a
reasonable interpretation of § 252(e)(5). We therefore deny the petition
for review.

It is so ordered.