United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 12, 2002 Decided May 3, 2002

No. 01-1218

WorldCom, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

Sprint Corporation, et al.,

Intervenors

Consolidated with

01-1229, 01-1243, 01-1255, 01-1256, 01-1257, 01-1267,

01-1274, 01-1310, 01-1311, 01-1313, 01-1319, 01-1321

On Petitions for Review of an Order of the

Federal Communications Commission

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

Darryl M. Bradford argued the cause for Carrier petitioners and
supporting intervenors. With him on the briefs were Thomas F. O\'Neil
III, William Single, IV, Brian J. Leske, John J. Hamill, Jodie L.
Kelley, Mark C. Rosenblum, H. Richard Juhnke, John T. Nakahata, Timothy
J. Simeone, Christopher W. Savage, David W. Carpenter, David L. Lawson,
Paul J. Zidlicky, Thomas Jones, Glenn B. Manishin, Genevieve Morelli,
Richard J. Metzger, Brad Mutschelknaus, Richard M. Rindler, Charles C.
Hunter, Catherine M. Hannan, Robert J. Aamoth, Deborah M. Royster and
Albert H. Kramer. James P. Young entered an appearance.

James B. Ramsay argued the cause for State Commission petitioners and
supporting intervenors. With him on the briefs were Gretchen Dumas,
Ellen S. LeVine, Lawrence G. Malone, Diane T. Dean, Susan Stevens
Miller, Tracey L. Stokes, Betty D. Montgomery, Attorney General, State
of Ohio, Duane W. Luckey and Steven T. Nourse, Assistant Attorneys
General. Carl F. Patka entered an appearance.

John A. Rogovin, Deputy General Counsel, Federal Com-munications
Commission, argued the cause for respondents. With him on the brief were
John E. Ingle, Deputy Associate General Counsel, and Laurence N. Bourne
and Rodger D. Citron, Counsel. Catherine G. O\'Sullivan and Nancy C.
Garrison, Attorneys, U.S. Department of Justice, entered appearances.

Mark L. Evans argued the cause for intervenors BellSouth Corporation, et
al. With him on the brief were Michael K. Kellogg, Sean A. Lev, Aaron M.
Panner, Scott H. Angstreich, Roger K. Toppins, Gary L. Phillips, James
D. Ellis, Michael E. Glover, Edward H. Shakin, John M. Goodman, Lawrence
E. Sarjeant, Linda L. Kent, John W. Hunter and Julie E. Rones.

Howard J. Symons, Sara F. Leibman and Douglas I. Brandon were on the
brief for intervenor AT&T Wireless Services, Inc. Michelle M. Mundt
entered an appearance.

Before: Sentelle and Tatel, Circuit Judges, and Williams, Senior Circuit
Judge.

Opinion for the Court filed by Senior Circuit Judge Williams.

Williams, Senior Circuit Judge: Section 251(b)(5) of the
Telecommunications Act of 1996, 47 U.S.C. §§ 151-714 (the \"1996 Act\"
or the \"Act\"), directs all local exchange carriers (\"LECs\") to
\"establish reciprocal compensation arrangements for the transport and
termination of telecommunications.\" 47 U.S.C. § 251(b)(5). In the order
before us the Federal Communications Commission held that under § 251(g)
of the Act it was authorized to \"carve out\" from § 251(b)(5) calls
made to internet service providers (\"ISPs\") located within the
caller\'s local calling area. It relied entirely on § 251(g). Because
that section is worded simply as a transitional device, preserving
various LEC duties that antedated the 1996 Act until such time as the
Commission should adopt new rules pursuant to the Act, we find the
Commission\'s reliance on § 251(g) precluded. Thus we remand the case.
Because there may well be other legal bases for adopting the rules
chosen by the Commission for compensation between the originating and
the terminating LECs in calls to ISPs, we neither vacate the order nor
address petitioners\' attacks on various interim provisions devised by
the Commission.

\* \* \*

Due in part to the 1996 Act, local telephone service areas are now
typically (perhaps universally) served by more than one LEC. The
reciprocal compensation requirement of § 251(b)(5), quoted above, is
aimed at assuring compensation for the LEC that completes a call
originating within the same area. Although its literal language purports
to extend reciprocal compensation to all \"telecommunications,\" the
Commission has construed it as limited to \"local\" traffic only. In the
Matter of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, 11 FCC Rcd 15499, 16012-13, p p 1033-34,
16015-16, p 1040 (1996) (\"Local Competition Order\"); 47 C.F.R. §
51.701(a). For long distance calls, by contrast, the long-distance
carrier collects from the user and pays both LECs\--the one originating
and the one terminating the call. Local Competition Order, 11 FCC Rcd at
16013, p 1034.

In an earlier order, the Commission excluded ISP calls from the reach of
§ 251(b)(5) on the theory that they were indeed not \"local.\" In the
Matter of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-Bound
Traffic, 14 FCC Rcd 3689 (1999) (\"Initial Order\"). It reached this
conclusion by applying its \"end-to-end\" analysis, traditionally
employed in determining whether a call was jurisdictionally interstate
or not, stressing that ISP-bound traffic ultimately reaches websites
that are typically located out-of state. See id. at 3689-90, p 1,
3695-98, p p 10-12, 3703, p 23 (1999). On review, we held that the order
had failed to adequately explain why the traditional \"end-to-end\"
jurisdictional analysis was relevant to deciding whether ISP calls
fitted the local call or the long-distance call model, and vacated and
remanded the order. Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1, 5, 8
(D.C. Cir. 2000).

On remand, the FCC again reached the conclusion that the compensation
between two LECs involved in delivering inter-net-bound traffic to an
ISP should not be governed by the reciprocal compensation provision of §
251(b)(5). In the Matter of Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996, Intercarrier
Compensation for ISP-Bound Traffic, 16 FCC Rcd 9151, 9152-53, p 1 (2001)
(\"Remand Order\"). This decision rested, as we said, on § 251(g).
Having thus taken ISP calls out of § 251(b)(5)\'s reciprocal
compensation obligation, the FCC proceeded to establish what it believed
was an appropriate cost recovery mechanism. Remand Order, 16 FCC Rcd at
9154, p 4. The system adopted was \"bill-and-keep,\" whereby each
carrier recovers its costs from its own end-users. Id.

In reaching the bill-and-keep solution, the Commission pointed to a
number of flaws in the prevailing intercarrier compensation mechanism
for ISP calls, under which the originating LEC paid the LEC that served
the ISP. Because ISPs typically generate large volumes of one-way
traffic in their direction, the old system attracted LECs that entered
the business simply to serve ISPs, making enough money from reciprocal
compensation to pay their ISP customers for the privilege of completing
the calls. The Commission saw this as leading, at least potentially, to
ISPs\' charging their customers below cost. Remand Order, 16 FCC Rcd at
9153, p 2, 9154-55, p p 4-6, 9162, p p 19-21.

To smooth the transition to bill-and-keep (but without fully committing
itself to it), the FCC adopted several interim cost-recovery rules that
sought to limit arbitrage opportunities by lowering the amounts and
capping the growth of ISP-related intercarrier payments. These tend to
force ISP-serving LECs to recover an increasing portion of their costs
from their own subscribers rather than from other LECs. Remand Order, 16
FCC Rcd at 9155-57, p p 7-8. The transitional rules take effect on the
expiration of existing interconnection agreements. Id. at 9189, p 82.
Finally, the Commission specified that, having carved ISP-bound calls
out of § 251(b)(5) under § 251(g), it was establishing the interim
compensation regime under its general authority to regulate the rates
and terms of interstate telecommunications services and interconnections
between carriers under § 201 of the Act; as a result, the state
regulatory commissions would no longer have jurisdiction over ISP-bound
traffic as part of their power to resolve LEC interconnection issues
under § 252(e)(1) of the Act. Id.

Two sets of petitioners now challenge the Remand Order. One, headed by
WorldCom (collectively \"WorldCom\"), con-sists of competitive LECs that
deliver calls to ISPs, and thus stand to lose reciprocal compensation
payments. These companies contend that the Commission erred in finding
that § 251(g) authorized Commission exclusion of such calls from §
251(b)(5), and that, in any event, the interim compensation rules that
the FCC adopted were not a product of reasoned decisionmaking and are
contrary to the Act\'s terms. The other group, composed of several
states and state regulatory commissions, complains that the order
unlawfully preempts their authority to determine the compensation of
ISP-serving LECs.

\* \* \*

Section 251(g) reads as follows:

\(g\) Continued enforcement of exchange access and interconnection
requirements.

On and after \[the date of enactment of the Telecommunications Act of
1996,\] each local exchange carrier, to the extent that it provides
wireline services, shall provide exchange access, information access,
and exchange services for such access to interexchange carriers and
information service providers in accordance with the same equal access
and nondiscriminatory interconnection restrictions and obligations
(including receipt of compensation) that apply to such carrier on the
date immediately preceding \[the date of enactment of the
Telecommunications Act of 1996\] under any court order, consent decree,
or regulation, order, or policy of the Commission, until such
restrictions and obligations are explicitly superseded by regulations
prescribed by the Commission after \[such date of enactment\]. During
the period beginning on \[such date of enactment\] and until such
restrictions and obligations are so superseded, such restrictions and
obligations shall be enforceable in the same manner as regulations of
the Commission.

47 U.S.C. § 251(g) (emphasis added). Both sides assume that Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), is applicable, so that we must defer to any reasonable
Commission interpretation not precluded by the language of the statute,
read with the ordinary tools of statutory construction. We agree with
petitioners that § 251(g) is not susceptible to the Commission\'s
reading.

On its face, § 251(g) appears to provide simply for the \"continued
enforcement\" of certain pre-Act regulatory \"interconnection
restrictions and obligations,\" including the ones contained in the
consent decree that broke up the Bell System, until they are explicitly
superceded by Commission action implementing the Act. As the Conference
Report explained, \"\[b\]ecause the \[Act\] completely eliminates the
prospective effect of the AT&T Consent Decree, some provision is
necessary to keep these requirements in place\.... Accordingly, the
conference agreement includes a new section 251(g).\" H.R. Rep. 104-458,
at 122-23 (1996).

On a prior occasion, the Commission also framed the scope of § 251(g) in
similarly narrow terms:

The term \"information access\" first appears \[in the Act\] in sections
\[sic\] 251(g). That provision is a transitional enforcement mechanism
that obligates the incumbent LECs to continue to abide by equal access
and nondiscriminatory interconnection requirements of the \[AT&T Consent
Decree\] when such carriers \"provide exchange access, information
access and exchange services for such access to interexchange carriers
and information service providers\....\" Because the provision
incorporates into the Act, on a transitional basis, these \[AT&T Consent
Decree\] requirements, the Act uses \[AT&T Consent Decree\] terminology
in this section. However, this provision is merely a continuation of the
equal access and nondiscrimination provisions of the Consent Decree
until superseded by subsequent regulations of the Commission.

In the Matter of Deployment of Wireline Services Offering Advanced
Telecommunications Capability, 15 FCC Rcd 385, 407, p 47 (1999)
(footnote omitted) (emphasis added).

Of course such explanatory language can\'t be assumed to be exclusive;
legislative or agency explanations of a provision may naturally tend to
focus on its most salient features. Thus, despite legislative history
speaking only in terms of the Consent Decree, plainly the preexisting
\"restrictions and obligations\" covered by § 251(g) are not limited to
Consent Decree obligations; the statute itself explicitly embraces
pre-existing obligations under a \"regulation, order, or policy of the
Commission.\" See also Noland v. Shalala, 12 F.3d 258, 262 (D.C. Cir.
1994) (\"Although the legislative history \... suggests an exclusive
focus \[of the statutory provision in question\], the statutory language
is broader and may permit \[an alternative\] construction.\"). But
nothing in § 251(g) seems to invite the Commission\'s reading, under
which (it seems) it could override virtually any provision of the 1996
Act so long as the rule it adopted were in some way, however remote,
linked to LECs\' pre-Act obligations.

We will assume without deciding that under § 251(g) the Commission might
modify LECs\' pre-Act \"restrictions\" or \"obligations,\" pending full
implementation of relevant sections of the Act. The Fifth Circuit
appeared to make that assumption in Texas Office of Public Utility
Counsel v. FCC, 265 F.3d 313 (5th Cir. 2001), where it implicitly relied
on § 251(g) (by quoting language from an Eighth Circuit case,
Competitive Telecom. Ass\'n v. FCC, 117 F.3d 1068, 1072 (8th Cir.
1997)), in sustaining modifications of pre-Act regulations governing the
access charges paid to LECs by inter-exchange carriers (\"IXCs\"). Id.
at 324-25. But this assumption is not enough to justify the
Commission\'s action here, as it seems uncontested\--and the Commission
declared in the Initial Order\--that there had been no pre-Act
obligation relating to intercarrier compensation for ISP-bound traffic.
See Initial Order, 14 FCC Rcd at 3695, p 9; see also id. at 3690, p 1,
3707-3710, p p 28-36. The best the Commission can do on this score is to
point to pre-existing LEC obligations to provide interstate access for
ISPs. See, e.g., Remand Order, 16 FCC Rcd at 9164, p 27; In the Matter
of MTS & WATS Market Structure, 97 F.C.C.2d 682, 711-15, p p 77-83
(1983). Indeed, the Commission does not even point to any pre-Act,
federally created obligation for LECs to interconnect to each other for
ISP-bound calls. And even if this hurdle were overcome, there would
remain the fact that § 251(g) speaks only of services provided \"to
interexchange carriers and information service providers\"; LECs\'
services to other LECs, even if en route to an ISP, are not \"to\"
either an IXC or to an ISP.

Having found that § 251(g) does not provide a basis for the
Commission\'s action, we make no further determinations. For example, as
in Bell Atlantic, we do not decide whether handling calls to ISPs
constitutes \"telephone exchange service\" or \"exchange access\" (as
those terms are defined in the Act, 47 U.S.C. §§ 153(16), 153(47)) or
neither, or whether those terms cover the universe to which such calls
might belong. Nor do we decide the scope of the \"telecommunications\"
covered by § 251(b)(5). Nor do we decide whether the Commission may
adopt bill-and-keep for ISP-bound calls pursuant to § 251(b)(5); see §
252(d)(B)(i) (referring to bill-and-keep). Indeed these are only samples
of the issues we do not decide, which are in fact all issues other than
whether § 251(g) provided the authority claimed by the Commission for
not applying § 251(b)(5).

Moreover, we do not decide petitioners\' claims that the interim pricing
limits imposed by the Commission are inadequately reasoned. Because we
can\'t yet know the legal basis for the Commission\'s ultimate rules, or
even what those rules may prove to be, we have no meaningful context in
which to assess these explicitly transitional measures.

Finally, we do not vacate the order. Many of the petitioners themselves
favor bill-and-keep, and there is plainly a non-trivial likelihood that
the Commission has authority to elect such a system (perhaps under §§
251(b)(5) and 252(d)(B)(i)). See, e.g., Allied-Signal, Inc. v. U.S.
Nuclear Regulatory Comm., 988 F.2d 146, 150-51 (D.C. Cir. 1993) (\"The
decision whether to vacate depends on \'the seriousness of the order\'s
deficiencies (and thus the extent of doubt whether the agency chose
correctly) and the disruptive consequences of an interim change that may
itself be changed.\' \"). Thus, we simply remand the case to the
Commission for further proceedings.

So ordered.