United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 9, 2008 Decided November 7, 2008
No. 06-1364
NETWORKIP, LLC AND NETWORK ENHANCED TELECOM, LLP,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
APCC SERVICES, INC.,
INTERVENOR
Consolidated with 07-1092
On Petitions for Review of Orders
of the Federal Communications Commission
Michael H. Pryor argued the cause for petitioner.  With
him on the briefs was Kemal Hawa.
Nandan M. Joshi, Counsel, Federal Communications
Commission, argued the cause for respondents.  On the brief
were Thomas O. Barnett, Assistant Attorney General, Robert
B. Nicholson and Robert J. Wiggers, Attorneys, Matthew B.
2
Berry, Acting General Counsel, Federal Communications
Commission, Joseph R. Palmore, Deputy General Counsel,
Richard K. Welch, Acting Deputy Associate General Counsel,
and James M. Carr, Counsel.  Daniel M. Armstrong,
Associate General Counsel, and Joel Marcus, Counsel,
entered appearances.
Albert H. Kramer, Robert F. Aldrich, and Allan C.
Hubbard were on the brief for intervenor APCC Services, Inc.
in support of the respondents.  Ira R. Mitzner entered an
appearance.
Michael E. Glover, Karen Zacharia, and Aaron M.
Panner were on the brief for amicus curiae Verizon in
support of neither party.  Joshua E. Swift entered an
appearance.
Before: SENTELLE, Chief Judge, and BROWN and
KAVANAUGH, Circuit Judges.
Opinion for the court filed by Circuit Judge BROWN.
Concurring opinion filed by Chief Judge SENTELLE.
BROWN, Circuit Judge:  Petitioners NetworkIP, LLC, and
Network Enhanced Telecom, LLP, (collectively NET) seek
review of a pair of final orders of the Federal
Communications Commission (FCC)one finding
liability, APCC Servs. Inc., 21 F.C.C.R. 10488 (2006) (Order
on Review) (Liability Order), and the other imposing
damages,  APCC Servs., Inc., 22 F.C.C.R. 4286 (2007)
(Memorandum Opinion and Order) (Damages Order).
Because the FCC reasonably interpreted its own prior orders,
we deny the petition as to liability.  We grant in part NETs
3
petition as to damages, however, because the FCCs failure to
enforce its filing deadline was arbitrary and capricious.
I.
In a terabyte generation in which even three-year olds
carry GPS-equipped wireless phones,
1
 the payphone industry
may seem like a Technicolor afterthought.  Nonetheless
payphones still fill an important, though decreasing, role in
communications, and Congress has sought to keep them
around.
Two types of calls may be placed from a payphone.  The
first and most common type is the coin call, in which the
caller inserts a coin directly into the payphone before making
the call; the rates for coin calls are set by State commissions.
Sprint Corp. v. FCC, 315 F.3d 369, 371 (D.C. Cir. 2003).
Increasingly common, however, is the second type of call
coinless callswhich a caller places by using a service such
as directory assistance, operator service, an access code, or a
subscriber 800 number.  Id.  The rules governing this second
category of calls are at issue here.
To ensure payphone service providers (PSPs) are
compensated for these dial-around calls to 800 numbers or
10XXX numbers that the caller uses to reach the long-
distance carrier of his choice, and thus to encourage the
availability of payphones, Congress enacted  276 of the
Telecommunications Act of 1996. Ill. Pub. Telecomm. Assn
v. FCC, 117 F.3d 555, 559 (D.C. Cir. 1997) (citing 47 U.S.C.
 276).  The FCC must establish a per call compensation
1
 See, e.g., Jacque Wilson, What to Know Before Buying Your Kid a
Cell Phone, CNN.COM, Aug. 11, 2008, http://www.cnn.com/
2008/TECH/ptech/08/11/cellphones.kids/index.html.
4
plan to ensure that all payphone service providers are fairly
compensated for each and every completed intrastate and
interstate call using their payphone . . . . 47 U.S.C.
 276(b)(1)(A).
The concept is simple: Telecommunications carriers must
compensate PSPs for calls made from payphones with calling
cards.  Application, alas, is complicated, because long-
distance calls often involve multiple carriers.  For instance, a
local exchange carrier (LEC) initially might receive a call,
and then route it to a non-LECtypically an interexchange
carrier (IXC)[] . . . such as Sprint, AT&T, and
Worldcomthat then transmits the call to yet another
carrier.  Sprint Corp, 315 F.3d at 371.  If the recipient of the
call is a customer of the IXC, the IXC will simply transmit the
call to the LEC that serves the customer, but [i]f the call
recipient is not a customer of the IXC, . . . the IXC transfers
the call to a reseller of the IXCs services.  Id.
We have noted that [t]wo types of resellers exist.  The
first, known as switchless resellers, do not possess their own
switching facilities and must rely on an IXC to perform the
switching and transmission functions that are required to
complete a call.  Id.  By contrast, the second type, switch-
based resellers (SBRs), possess their own switching
capacities . . . .  Id.  [I]n some instances the SBR transfers
the call to another SBR, which in turn routes the call to yet
another SBR, and so on.  Id.
In its First Payphone Order, the FCC said facilities-
based carriers [FBCs] should pay the per-call compensation
for the calls received by their reseller customers.
Implementation of the Pay Telephone Reclassification and
Compensation Provisions of the Telecommunications Act of
1996, 11 F.C.C.R. 20541, 20586,  86 (1996) (Report and
5
Order).  Later that year, in its First Payphone Reconsideration
Order, the FCC said an FBC maintains its own switching
capability, regardless if the switching equipment is owned or
leased by the carrier.  Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, 11 F.C.C.R. 21233, 21277,
 92 (1996) (Order on Reconsideration).  After two
unsuccessful attempts to set a per call dial-around rate, see Ill.
Pub. Telecomm. Assn, 117 F.3d 555, 564 (remanding $.35
rate); MCI Telecomms. Corp. v. FCC, 143 F.3d 606, 608
(D.C. Cir. 1998) (remanding $.284 rate), the FCC established
$.24 per call as the applicable rate, Implementation of the Pay
Telephone Reclassification and Compensation Provisions of
the Telecommunications Act of 1996, 14 F.C.C.R. 2545, 2632,
 191 (1999) (Third Report and Order), which we upheld on
review, Am. Pub. Commcns Council v. FCC, 215 F.3d 51, 58
(D.C. Cir. 2000).
NET, headquartered in Texas, is a telecommunications
carrier that owns switches.  Using an innovative web
interface, NET empowered various other carriers to develop
prepaid calling cards.  Traditionally, carriers were obligated to
purchase or lease their own switches in order to fully control
calling-card functions.  NET developed a new technology that
(it says) allowed its customers to control switches as if they
possessed them, thus severing the technologically out-dated
link between switching and physical possession of switches.
NETs customers could modify, in real time, the key
economic parameters vital to the prepaid business, such as
how to set up accounts, how much to charge, which domestic
or foreign destinations could be reached with the cards, and
by which methods.  Petrs Br. 6.  NET likewise instructed
its customers that they alone were responsible for
compensating PSPs, and often language to that effect was
included in its contracts.  Between October 1999 and
6
November 2001, the relevant period for our purposes,
upwards of eleven million calls were placed with calling cards
distributed by NETs customers, using NETs switches.
In 2002, a group of PSPs including APCC Services, Inc.
(APCC), a billing clearinghouse for PSPs, filed an informal
complaint with the FCC against NET; a formal complaint
followed in 2003.  There were two proceedings, one for
liability, and the other for damages.  Ultimately, the FCC
ordered NET to pay $2,789,505.84, plus interest at 11.25%.
NET has petitioned for review of both the Liability and
Damages Orders, and our review has been consolidated.
APCC intervened, filing a motion to dismiss because of an
alleged jurisdictional defect in NETs petition for review of
the Damages Order; this motion has since been withdrawn.
2
II.
2
 The question of APCCs standing has been resolved by Sprint
Communications Co. v. APCC Services, Inc., 128 S. Ct. 2531,
254546 (2008).  NET, however, also challenges APCCs sudden
reversal of its position that all of the funds from payphone litigation
flow through to its payphone owner clients, as APCC revealed
for the first time that in fact it does keep some, perhaps a substantial
portion, of funds awarded for payphone compensation.  Letter
from Michael H. Pryor, Counsel to NET, to Mark J. Langer, Clerk,
United States Court of Appeals for the District of Columbia Circuit
(Aug. 7, 2008) (on file with the United States Court of Appeals).
Though NET is frustrated by what it perceives as APPCs
chameleonic posturing, a remand is not in order, even if NETs
characterization is accurate.  APCC represents a group of PSPs;
how the damages due those PSPs are to be divvied up is not our
concern.  We see no indication in the record that any decision by
the FCC turned in any way on whether APCC is entirely a pass-
through entity.
7
We first consider jurisdiction, though it is no longer
contested.  It is axiomatic that subject matter jurisdiction
may not be waived, and that courts may raise the issue sua
sponte.  Athens Cmty. Hosp., Inc. v. Schweiker, 686 F.2d
989, 992 (D.C. Cir. 1982).  Indeed, we must raise it, because
while arguments in favor of subject matter jurisdiction can be
waived by inattention or deliberate choice, we are
forbiddenas a court of limited jurisdictionfrom acting
beyond our authority, and no action of the parties can confer
subject-matter jurisdiction upon a federal court.  Akinseye v.
District of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003); see
also Wilks v. U.S. Marshals Serv., No. 92-5287, 1993 WL
118285, at *1 (D.C. Cir. 1993) (per curiam).
At first blush, jurisdiction seems euclidean.  By statute,
federal appellate courts have exclusive jurisdiction to enjoin,
set aside, suspend (in whole or in part), or to determine the
validity of final FCC orders.  28 U.S.C.  2342(1).  We are
called upon to determine the validity of a pair of FCC final
orders, so we have jurisdiction.  QED.  But the existence of
parallel provisionsone to challenge final agency action and
the other to enforce compliancecomplicates this otherwise
straightforward equation, particularly in light of a Supreme
Court precedent attempting to harmonize a superficially
similar statutory scheme.  ICC v. Atlantic Coast Line R.R.,
383 U.S. 576, 586 (1966).
APCC initially complained that this courts jurisdiction to
hear NETs challenge to the orders should not trump APCCs
right to seek enforcement under 47 U.S.C.  407.  The
language of the enforcement statute at issue in Atlantic Coast,
49 U.S.C.  16(2) (1964), was for all relevant purposes
identical to  407.  Like  407 does,  16(2) allowed any
person for whose benefit [an agencys] order was made (an
adjudged-injured party) to file a suit against a party who
8
d[id] not comply with an order for the repayment of money
(an adjudged-injuring party).  In a situation somewhat
similar to that here, the Atlantic Coast Court construed this
language to mean that a[n adjudged-injuring party] may
obtain review of the Commissions order only in the court
where the [adjudged-injured party] commences its
enforcement actionor where the [adjudged-injured party]
seeks review of the Commissions order.  383 U.S. at 579.
The similarities between this case and Atlantic Coast are
obvious, but we decline to extend Atlantic Coast, even
assuming that case was jurisdictional and not merely venue-
related.  Unlike the review provision in Atlantic Coast,  49
U.S.C.  17(9) (1964),  2342(1) places jurisdiction
exclusive[ly] in the courts of appeal; in Atlantic Coast, both
were district courts.  There are institutional differences
between trial and appellate courts, and when Congress has
spoken so explicitly as to the particular type of court it wants
to review agency action, as it has in  2342(1), that explicit
statement should not be set aside lightly.  Likewise, the Court
in Atlantic Coast put weight on the possibility of a  17(9)
cross-proceeding in a  16(2) action.  383 U.S. at 60102.
But in the FCC context, a  2342(1) cross-proceeding in a
district court is impossible.
Although there is some potential for vitiating
congressional policy enhancing the injured partys ability to
choose its forum and encouraging prompt payment of
reparation awards, we think the FCC context is distinct
enough to justify the exercise of jurisdiction here.  What
finally tips the scale in favor of our having jurisdiction is a
statute enacted in 1988, 47 U.S.C.  208(b).  As happened
here, agencies can bifurcate a single grievance into separate
proceedings for liability and damages.  Under  208(b), an
adjudged-injuring party can in some instances seek federal
9
appellate review of an FCC liability order even before a
damages order has been issued.  See Verizon Tel. Co. v. FCC,
269 F.3d 1098, 110306 (D.C. Cir. 2001).  Thus, in our
harmonizing of competing statutes, we have a new input:
 208(b).  Consequently, an adjudged-injured party already
may have to forego its favorite forum; if it wants to defend a
liability order, it may have to intervene in the  2342(1)
action.  This scenario undercuts much of the reasoning in
Atlantic Coast.   We therefore conclude we have jurisdiction.
3
III.
We now address the Liability Order.  NET appears to
concede the FCCs interpretation of the First Payphone
Reconsideration Order, including its emphasis on some kind
of possessory interest, is reasonable.  Petrs Br. 28 (For
these reasons, NETs interpretation certainly is as reasonable
as the FCCs . . . .).  This is no act of charity.  Final agency
orders are upheld unless arbitrary, capricious, an abuse of
3
 To be clear,  2342(1) does not read  407 out of the federal code.
In construing a statute we are obliged to give effect, if possible, to
every word Congress used, Reiter v. Sonotone Corp., 442 U.S.
330, 339 (1979), and this rule applies a fortiori to entire statutory
provisions, as it is well settled that repeal by implication is
disfavored, Comm. for Nuclear Responsibility, Inc. v. Seaborg,
463 F.2d 783, 785 (D.C. Cir. 1971).  Under our reading,  407
primarily provides an enforcement remedy for a party injured by a
carriers non-compliance with an FCC damages order.  However, if
the legal reasoning of an FCC order is not in dispute (either because
we have reviewed it, or because no review is sought), but a party
believes as a purely factual matter the FCCs otherwise valid rule
should not apply, such a discrete factual issue may be presented to
the district court, though the findings and order of the Commission
shall be prima facie evidence of the facts therein stated . . . .  47
U.S.C.  407.
10
discretion, or otherwise not in accordance with law, or not
supported by substantial evidence.  5 U.S.C.  706(2).  The
FCCs interpretation of its own orders and rules is entitled to
substantial deference, AT&T Corp. v. FCC, 448 F.3d 426,
431 (D.C. Cir. 2006), just as an agencys interpretation of
one of its own regulations commands substantial judicial
deference. Drake v. FAA, 291 F.3d 59, 68 (D.C. Cir. 2002).
In this case, even without substantial deference, the
FCCs interpretation of its earlier payphone orders was
appropriate.
4
  Because a challenge to the appropriateness of
the Liability Order itself is unavailing, NETs stronger
argument does not go to the reasonableness of the FCCs
construction of the First Payphone Reconsideration Order,
but instead to whether NET was fairly warned and thus should
not have to pay damages.
Preliminarily, we confront the FCCs contention that the
fair notice issue was not presented to the agency.  We cannot
review questions of fact or law upon which the Commission,
or designated authority within the Commission, has been
afforded no opportunity to pass.  47 U.S.C.  405(a).  If a
petitioner could have called a question of law or fact to the
agencys attention, but did not, the issue is waived.  Freeman
Engg Assocs. v. FCC, 103 F.3d 169, 18283 (D.C. Cir.
1997).  However, an issue need not be raised explicitly; it is
sufficient if the issue was necessarily implicated in agency
proceedings.  Time Warner Entmt Co. v. FCC, 144 F.3d 75,
7980 (D.C. Cir. 1998).
4
 We thus do not reach the FCCs alternate basis for its Liability
Order, that even if a possessory interest is not required, NETs
customers still did not maintain a switching capability.
11
Here, NET adequately raised the fair notice issue.  Before
the FCC, NET argued the Enforcement Bureau disregarded
the plain language of the Commissions payphone
compensation rules, and ignored NETs business, which NET
structured in reliance on the rules.  Application for Review at
2, APCC Services Inc., et al. v. NetworkIP, LLC, et al. (FCC,
2006) (No. EB-03-MD-011).  NET also averred the
Enforcement Bureaus determination is in conflict with the
Commissions regulations, decisions, and established policy,
and that it brushed aside the FCCs prior statements.  Id. at
3, 11.  NET even quoted one of our cases for the proposition
that there is a need for a clear and definitive interpretation
of all agency rules so that the parties upon whom the rules
will have an impact will have adequate and proper notice
concerning the agency intentions.  Id. at 13 (quoting FTC v.
Atlantic Richfield Co., 567 F.2d 96, 103 (D.C. Cir. 1977)).
The Enforcement Bureau addressed NETs contention, APCC
Services Inc., 20 F.C.C.R. 2073, 2081,  19 n.43 (2005)
(Memorandum Opinion and Order) (Bureau Liability
Order), and the Commission affirm[ed] the Bureau
Liability Order . . . .  Liability Order, 21 F.C.C.R. at 10488
49,  1.  This is sufficient to preserve the issue.
Though agencies are entitled to deference, they may not
retroactively change the rules at will.  Indeed, that
[e]lementary considerations of fairness dictate that
individuals should have an opportunity to know what the law
is and to conform their conduct accordingly has been well-
established for centuries.   Landgraf v. USI Film Products,
Inc., 511 U.S 244, 265 (1994).  Anything less ought not to be
dignified with the title of law.
5
  These [t]raditional concepts
5
 The contrary notion of unknowable law is literally Orwellian.
See, e.g., GEORGE ORWELL, ANIMAL FARM 10203 (1946)
(describing Squealers ex post efforts to repaint the Seven
12
of due process incorporated into administrative law preclude
an agency from penalizing a private party for violating a rule
without first providing adequate notice of the substance of the
rule.  Satellite Broad. Co. v. FCC, 824 F.2d 1, 3 (D.C. Cir.
1987).
At the same time, however, agencies are authorized to
make policy choices through adjudication, and giving a
decision retroactive effect is not necessarily fatal to its
validity.  SEC v. Chenery Corp., 332 U.S. 194, 203 (1947).
After all, [e]very case of first impression has a retroactive
effect, whether the new principle is announced by a court or
by an administrative agency.  Id.  And, as is common with
comprehensive regulatory schemes, often every loss that
retroactive application . . . would inflict on [one party] is
matched by an equal and opposite loss that non-retroactivity
would inflict on [another].  Qwest Servs. Corp. v. FCC, 509
F.3d 531, 540 (D.C. Cir. 2007).  This case potentially stands
at the pivot point between these competing principles.
 There are two conflicting modes of judicial review to
agency interpretations, with [o]ne longstanding line of [our]
cases allow[ing] agencies to apply new interpretations of
regulations retroactively, while another requires revers[ing]
agency action where regulated parties do not have fair
warning of the agencys interpretation of its regulations.
Kieran Ringgenberg, Comment, United States v. Chrysler:
The Conflict Between Fair Warning and Adjudicative
Commandments to the pigs whisky-bibbing benefit); see also
Antonin Scalia, The Rule of Law as a Law of Rules, 56 U. CHI. L.
REV. 1175, 1179 (1989) (Rudimentary justice requires that those
subject to the law must have the means of knowing what it
prescribes.  It is said that one of emperor Neros nasty practices was
to post his edicts high on the columns so that they would be harder
to read and easier to transgress.).
13
Retroactivity in D.C. Circuit Administrative Law, 74 N.Y.U.
L. REV. 914, 916 (1999).  NET attacks with fair notice cases
like United States v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir.
1998); the FCC parries with retroactivity cases like Qwest.
When to apply which line of cases has not been resolved
definitively by our precedents.  We too leave for another day
the question of how these two lines interplay, because under
either one, NET loses.  That NET has an unwinnable case
under the retroactivity line is obvious; the correctness of
NETs interpretation was anything but settled, and many
PSPs will be harmed if NET escapes liability.  Qwest, 509
F.3d at 54041.  NET, however, also loses under the fair
notice line, because its interpretation of the First Payphone
Reconsideration Order is less plausible than the FCCs.  The
FCCs, in fact, is the most reasonable interpretation. We have
never applied the fair notice doctrine in a case where the
agencys interpretation is the most natural one.
6
6
 See, e.g., Trinity Broad of Fla., Inc. v. FCC, 211 F.3d 618, 629
(D.C. Cir. 2000) (emphasizing the partys interpretation was
reasonable, and the Commission never clearly articulate[d] its
theory); Chrysler, 158 F.3d at 1355, 1356 (finding retroactive
liability inappropriate if [the party] had no reason to know, in
exercising reasonable care, that the vehicle did not comply with the
applicable safety standards, and an agency is hard pressed to
show fair notice when the agency itself has taken action in the past
that conflicts with its current interpretation of a regulation); Gen.
Elec. Co. v. EPA,  53 F.3d 1324, 133031 (D.C. Cir. 1995)
(observing the agencys interpretation [was] so far from a
reasonable persons understanding of the regulations that they could
not have fairly informed GE of the agencys perspective, and the
agency itself . . . recognized that its interpretation . . . [was] not
apparent); Satellite Broad. Co.,  824 F.2d at 2 (confronting
baffling and inconsistent FCC rules); Gates & Fox Co. v.
OSHRC, 790 F.2d 154, 15657 (D.C. Cir. 1986) (noting the
petitioners construction of the rule was the more apparent one).
14
Consider the language of the First Payphone
Reconsideration Order.  The operative phrase reads, We
clarify that a carrier is required to pay compensation and
provide per-call tracking for the calls originated by payphones
if the carrier maintains its own switching capability,
regardless if the switching equipment is owned or leased by
the carrier.  11 F.C.C.R. at 21277,  92.  NET focuses on the
words maintain and capability.  Quoting Websters
Dictionary, NET defines maintain as to provide for,  to
continue, to keep in existence: to sustain, and to preserve
or keep in a given existing condition, as of efficiency or good
repair, and capability is defined as the quality or state of
being capable, or the capacity to be used, treated or
developed for a particular purpose . . . .  Petrs Br. 17
(quoting WEBSTERS II NEW COLLEGE DICTIONARY 661, 164
(1999)).  NET argues these words are satisfied provided a
carrier has the ability to control switches, which its customers
did.  It then interprets the words regardless if the equipment
is owned or leased as it does not matter whether a switching
capability is maintained via an ownership or lease or some
other means.  Id.
NETs is not an impossible interpretation, but it is not the
most natural one.  When the words maintains its own
switching capability are read in light of the phrase
regardless if the switching equipment is owned or leased by
the carrier, then maintains its own switching capability is
best understood as shorthand for either owning or leasing, but
nothing else.  Indeed, even NETs proffered definitions
suggest the need for a physical connection or possession of
some sort; one usually keep[s] in existence or preserve[s]
something in good repair by means of physical access.
Thus, though the language can be read the way NET does, we
agree with the FCCs Enforcement Bureau that rather than
15
rejecting a possessory interest requirement, the sentence
simply clarifies the kinds of possessory interests that will
suffice.  Bureau Liability Order, 20 F.C.C.R. at 2081,  18.
NET also turns to other sources of potential ambiguity.
For instance, it points to additional language from the First
Order on Reconsideration that arguably permits a carrier to
maintain its own switching capability by contract.  From
this, NET asserts the FCCs insistence on a possessory
interest in switches is oceans apart from what NET reasonably
perceived as the earlier, more flexible rule.  Again, we are
unpersuaded.
The critical language reads:  If a carrier with a switching
capability has technical difficulty in tracking calls from
origination to termination, it may fulfill its tracking and
payment obligations by contracting out this duty to another
entity . . . .  First Order on Reconsideration, 11 F.C.C.R. at
21277,  92.  If tracking is synonymous with switching
capability, the sentence borders on incoherencea carrier
with the capability to track calls is technically unable to track
calls?  Thus, defining switching capability as the mere
technical ability to track calls is not the most reasonable
approach.  Instead switching capability and tracking
capability are separate, and a tracking and payment
obligation does not lodge until after a carrier is already an
FBC.  A carrier can have the ability to track without being an
FBC, and a carrier can be an FBC without having the ability
to track.  But if a carrier is an FBC, it has a legal duty to track,
either directly or by means of contract.
As NET suggests, the FCC has not always insisted a
possessory interest is a necessary attribute of the phrase
facilities based.  In the narrow context of unbundled
network elements, the FCC has taken a loosey-goosey
16
approach to ownership.  See Federal-State Joint Bd. on
Universal Serv., 12 F.C.C.R. 8776, 886270 (1997).  The
FCC reasonably responds, however, that facilities-based
as the plain words suggesttypically connotes some sort of
possessory interest, and the commonly understood meaning
of the term facilities-based among those regulated requires
a possessory interest of some sort.  Liability Order, 21
F.C.C.R. at 10490,  6.
7
  The interpretation of the phrase
facilities based in the unbundled network elements
context is noteworthy, but it was unreasonable for NET to
assume that an idiosyncratic exception should define the rule.
Because the FCCs interpretation of its First Order on
Reconsideration is the most natural, we hold the fair notice
doctrine has been satisfied.
8
7
 See, e.g., 47 C.F.R.  63.09(a) (Facilities-based carrier means a
carrier that holds an ownership, indefeasible-right-of-user, or
leasehold interest . . . .); Verizon Commcns Inc. v. FCC, 535 U.S.
467, 491 (2002) (First, a competitor entering the market . . . may
decide to engage in pure facilities-based competition, that is, to
build its own network to replace or supplement the network of the
incumbent.).
8
 NET also argues the FCC impermissibly interpreted its rule as
imposing liability on the last FBC that physically routes a call, as
opposed to the first, and the FCCs order was not supported by
substantial evidence that NET was the last FBC; it likewise claims
the FCC has not been internally consistent on this issue.  NETs
arguments are waived.  The parties stipulated [the rule from the
First Payphone Reconsideration Orders  92] would govern,
Petrs Br. 13, but the rule is silent as to the first-versus-last
distinction.  Likewise, in imposing liability, the Enforcement
Bureau explicitly called NET the last FBC, Bureau Liability Order,
20 F.C.C.R. at 2079,  14 (For the following reasons, we conclude
that [NET], and not a Debit Card Provider, is the last facilities-
based carrier, and thus is the entity responsible for paying
payphone compensation to Complainants.), but NET never
challenged that characterization to the Commission, and, as we
17
IV.
 Congress has set a two-year statute of limitations for
[a]ll complaints against carriers for the recovery of damages
not based on overcharges . . . .  47 U.S.C.  415(b).  The
FCC recognizes both formal and informal complaints.  47
C.F.R.  1.711.  Informal complaints are forwarded to the
appropriate carrier for investigation, and the carrier must,
within such time as may be prescribed, advise the
Commission in writing, with a copy to the complainant, of its
satisfaction of the complaint or of its refusal or inability to do
so.  Id.  1.717.  If the informal-complaint process proves
ineffective, the complainant may file a formal complaint,
and [s]uch filing will be deemed to relate back to the filing
date of the informal complaint if, inter alia, it [i]s filed
within 6 months from the date of the carriers report; but
[i]f no formal complaint is filed within the 6-month period,
the complainant will be deemed to have abandoned the
unsatisfied informal complaint.  Id.  1.718.  However,
[a]ny provision of the [FCCs] rules may be waived by the
Commission on its own motion or on petition if good cause
therefor is shown.  Id.  1.3.
review the record, we cannot conclude it was raised by necessary
implication.  Unlike MCI Telecommunications Corp. v. FCC, 10
F.3d 842 (D.C. Cir. 1993), cited by NET, where the FCC relied on
an on-point but legally invalid rule in addressing the regulated
partys argument (thus throwing the validity of that inadequate rule
into question), id. at 845, NETs argument to the Commission did
not relate to the first-versus-last distinction.  Finally, [i]f a party to
an FCC proceeding believes that the Commission has failed to
address certain record evidence,  405 requires that the party bring
the matter to the attention of the agency before proceeding to
court. Freeman Engg, 103 F.3d at 182.
18
In the fall of 2002, APCC filed an informal complaint
with the FCC against NET.  On the absolutely last day it
could be timely, May 19, 2003, APCC unsuccessfully
attempted to file a formal complaint.  The filing was deficient
in two respects:  APCC submitted a single check (rather than
a check for each of the two defendants in the formal
complaint), and the filing fee proffered for each defendant
was $5.00 short.  APCC explained to the Enforcement Bureau
it submitted the wrong filing fee (and missed the six-month
deadline under rule 1.718) because its counsel consulted only
the hard-copy version of the Code of Federal Regulations
(CFR), dated October 1, 2002, which contained a filing fee
amount$165 per defendantthat had been superseded by
the time APCC filed its formal complaint in May 2003.
APCC Services Inc., 20 F.C.C.R. 16727, 16729,  6 (2005)
(Bureau Waiver Order).
About two weeks later, on June 3, 2003, APCC finally
filed its formal complaint.  The Enforcement Bureau accepted
it, pursuant to the good cause exception to its rules,
notwithstanding the errors by APCCs counsel [were]
difficult to excuse, given that they were easily avoidable, and
APCCs law firm is highly experienced, resourceful, and
knowledgeable in communications law . . . .  Id. at 16732, 
12.  If the FCC had enforced the deadline, much of the
Damages Order would be invalid.
9
In affirming the Enforcement Bureau, the Commission
considered it inappropriate to permit a $5.00 fee error by
APCCs counselas negligent as it may have been to
9
 See Bureau Waiver Order, 20 F.C.C.R. at 16730,  8 n.23 (With
the waiver, the relevant period for damages is April 1, 2000 to
November 23, 2001; without the waiver, it is January 3, 2001 to
November 23, 2001.).
19
stand in the way of fair compensation for PSPs, especially
when the formal complaint was otherwise submitted and
served on time and in good faith, with advance notice to
[NET].  Damages Order, 22 F.C.C.R. at 4297,  23.  Thus,
under these specific circumstances, strict enforcement of
[the] six-month relation-back deadline would unduly conflict
with the public interest in ensuring the payment of
compensation necessary to promote the widespread
deployment of payphone services to the benefit of the general
public . . . .  Id. (quoting 47 U.S.C.  276(b)(1)).
 NET insists the FCCs decision to allow the formal
complaint to relate back was erroneous for two reasons.  First,
it claims the FCC unlawfully extended the two-year statute of
limitations under Section 415(b) of the Act.  In response, the
FCC avers that it reasonably found that an informal complaint
constitutes a complaint within the meaning of section 415
. . . .  Id. at 4294,  16.  We need not resolve this specific
issue because, as discussed below, we find NETs alternate
argument persuasive.
NET also argues that even if the FCC did not violate
 415(b), it nonetheless acted arbitrarily and capriciously in
excusing APCCs sloppiness, because under the adamantine
standard set forth in the FCCs Meredith/New Heritage
Strategic Partners, L.P., 9 F.C.C.R. 6841, 684243,  69
(1994), deadlines can only be waived under unusual or
compelling circumstances involving a calamity of a
widespread nature that even the best of planning could not
have avoided, such as an earthquake or a city-wide power
outage which brings transportation to a halt, id. at 6842,  6.
APCC cannot even begin to meet that standard.  The FCC
rejoins that Meredith only applies to filing deadlines for
pleadings that initiate adjudicatory proceedings, which
does not include formal complaints when an informal
20
complaint has already been filed, and Meredith likewise only
applies to late filings, not to pleadings that are timely offered
but technically defective.  Damages Order, 22 F.C.C.R. at
429899,  2627 (quoting Meredith, 9 F.C.C.R. at 6843, 
10).
Whether Meredith applies is not essential to our analysis;
in any event, the Commission has implied that the Meredith
standard might not materially differ from the [FCCs] general
waiver standard.  Id. at 4299,  26 n.84.  We have repeatedly
discourage[d] the Commission from entertaining late-filed
pleadings in the absence of extremely unusual
circumstances.  BDPCS, Inc. v. FCC, 351 F.3d 1177, 1184
(D.C. Cir. 2003) (quoting 21st Century Telesis Joint Venture
v. FCC, 318 F.3d 192, 200 (D.C. Cir. 2003)).  Consistent with
this warningwhich applies to any FCC decision to accept
late pleadings, even in non-Meredith contextswe hold the
FCCs failure to apply its six-month filing deadline was
arbitrary and capricious.  We do so reluctantly; given the
deference we afford to an agencys decision whether to waive
one of its own procedural rules.  See AT&T Corp. v. FCC, 448
F.3d 426, 431 (D.C. Cir. 2006).  But even deference has
limits.
As we explained in Northeast Cellular Telephone Co. v.
FCC, 897 F.2d 1164 (D.C. Cir. 1990), before the FCC can
invoke its good cause exception, it both must explain why
deviation better serves the public interest, and articulate the
nature of the special circumstances to prevent discriminatory
application and to put future parties on notice as to its
operation, id. at 1166.  The reason for this two-part test flows
from the principle that an agency must adhere to its own
rules and regulations,  and [a]d hoc departures from those
rules, even to achieve laudable aims, cannot be sanctioned, for
therein lie the seeds of destruction of the orderliness and
21
predictability which are the hallmarks of lawful
administrative action.  Reuters Ltd. v. FCC, 781 F.2d 946,
95051 (D.C. Cir. 1986).  This basic tenet is especially
appropriate in the context of filings.  When an agency
imposes a strict deadline for filings, as the FCC has done,
many meritorious claims are not considered; that is the nature
of a strict deadline.  The power to waive that strict deadline is
substantial, because it allows an agency to decide which
meritorious claims get considered.  The inverse is true too
the power to waive allows an agency to decide which
otherwise liable parties are off the hook.
The criteria used to make waiver determinations are
essential.  If they are opaque, the danger of arbitrariness (or
worse) is increased.  Complainants the agency likes can be
excused, while difficult defendants can find themselves
drawing the short straw.  If discretion is not restrained by a
test more stringent than whatever is consistent with the
public interest (by the way, as best determined by the
agency), then how to effectively ensure power is not abused?
The special circumstances requirement is that additional
restraint.  Otherwise, we are left with nothing more than a
we-know-it-when-we-see-it standard, and future
[parties]and this courthave no ability to evaluate the
applicability and reasonableness of the Commissions waiver
policy.  Northeast Cellular, 897 F.2d at 1167.
We accept that the public interest is well-served by
NETs compensating PSPs, but that is not enough.  There
must also be a sufficiently unique . . . situation.  Id. at 1166.
In Keller Communications, Inc. v. FCC, 130 F.3d 1073 (D.C.
Cir. 1997), waiver was permissible because there was a threat
to public safety and the regulated party expend[ed]
thousands of dollars of public funds in reliance on the
agencys mistaken grant of its license, id. at 107677.  We
22
appreciate why that is a special circumstance.  But
procrastination plus the universal tendency for things to go
wrong (Murphys Law)at the worst possible moment
(Finagles Corollary)is not a special circumstance, as any
junior high teacher can attest.
We likewise are not convinced waiver was appropriate
because NET received notice of the formal complaint prior to
the deadline.  After the informal complaint process has broken
down, many defendantsprobably mostare aware of the
specific substance of a complainants grievance and whether a
formal complaint will follow.  Very few are that prejudiced
when a filing occurs a day after a deadline (or a week, or a
month, or maybe even a year), as opposed to the day of.
Nonetheless, there is no indication the FCCs practice is to
accept those complaints; indeed, if it were, the six-month
requirement would devolve into mere suggestion.  The
analytic difference between that common situation and this
case is insufficient to satisfy the special circumstance
requirement.
In so ruling, we of course do not cast doubt on the FCCs
ability to craft and apply exceptions to its procedural rules and
filing deadlines; we merely hold that, under the applicable
precedents and facts and circumstances of this case, the
FCCs decision to waive its filing deadline was arbitrary and
capricious.
V.
We last address whether the FCC improperly ordered
NET to pay interest at an annual rate of 11.25%.  The FCC
has previously determined that 11.25% is the appropriate
cost of capital for payphone providers because most
payphones are owned by large [LECs] and the authorized
23
interstate rate of return for LECs11.25%appropriately
reflects a weighted average of debt and equity costs,
Implementation of the Pay Telephone Reclassification and
Compensation Provisions of the Telecommunications Act of
1996, 13 F.C.C.R. 1778, 1806  60 (1997) (Second Report
and Order), even if a particular PSP is not an LEC.
NET contends, however, it only should have to pay the
lower IRS rate, as the FCC recognized in a pair of 2002
payphone reconsideration orders.  See Implementation of the
Pay Telephone Reclassification and Compensation Provisions
of the Telecommunications Act of 1996, 17 F.C.C.R. 2020,
2032,  33 (2002) (Fourth Order on Reconsideration),
(Fourth Payphone Reconsideration Order); Implementation
of the Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, 17
F.C.C.R. 21274, 2130708,  99101 (2002) (Fifth Order on
Reconsideration).  The FCC counters that the use of the IRS
rate in those orders was justified by unusual circumstances.
Because the FCCs early attempts at setting a dial-around rate
had been vacated by this court, the Commission determined
that PSPs had been under-compensated during one time
period and over-compensated during another.  Respts Br.
41.  Thus, the higher rate of 11.25% was deemed
inappropriate in that narrow context, because it would not
have accounted for the periods when PSPs were
overcompensated.
Under the deferential arbitrary-and-capricious standard,
the FCC adequately explained why it imposed the 11.25%
interest rate instead of the IRS rate.  There is a marked
difference between one-time . . . true up[] payments,
Fourth Payphone Reconsideration Order, 17 F.C.C.R. at
24
2033,  33, where obligations were owed both ways, and the
situation here with a financial duty owed only to the PSPs.
10
VI.
 The FCC permissibly found liability and ordered interest
at the rate of 11.25%.  But its decision to waive for good
cause APCCs late filing was arbitrary and capricious.  We
therefore deny the petition as to the Liability Order, but grant
in part the petition as to the Damages Order.
So ordered.
10
 By failing to argue them in its opening briefs, NET has waived
any other argument as to the 11.25% rate, such as why the cost of
capital for (likely large) LECs should be used for (possibly small)
PSPs.  See, e.g., Corson & Gruman Co. v. NLRB, 899 F.2d 47, 50
n.4 (D.C. Cir. 1990) (arguments not raised in opening brief are
waived); see also FED. R. APP. P. 28(a)(9).
SENTELLE, Chief Judge, concurring: I fully join in the
resolution and reasoning of the opinion of the court.  I write
separately only to express my dismay at the events referenced in
footnote 2 of that opinion.  As NET has brought to the attention
of the court, APCC, at the current stage of this litigation, has
taken a sudden reversal of its position that all of the funds from
payphone litigation flow through to its payphone owner clients.
As the record in this litigation will sustain, NET is absolutely
correct.  APCC adhered to that position sufficiently strongly to
occasion the considerable allocation of resources of this court to
a divided opinion in APCC Servs., Inc. v. Sprint Commcns Co.,
L.P., 418 F.3d 1238 (D.C. Cir. 2005).  While the court divided
on other questions as well, my entire dissent was devoted to the
basic question: whether an aggregator has standing to sue when
the assignment for purposes of collection results in complete
remititur to its principles with no retention by the aggregator.
Id. at 1250-53.  This was the position taken by APCC before us
in that litigation and one which occasioned considerable
devotion of the resources and time of the court.
More shockingly still, APCC defended that position through
the rare grant of a petition for certiorari to its opponent on that
very issue in Sprint Commcns Co., L.P. v. APCC Servs., Inc.,
128 S. Ct. 2531 (2008).  It is difficult to imagine the cost in
terms of the Supreme Courts scarce resources occasioned by
litigating what apparently was a false position on behalf of the
winning litigant.  What makes APCCs bizarre conduct even
more difficult to understand is that their litigation position in
that case would have been stronger had they not taken the now-
renounced position that they had no retainage in the assigned
recovery.  Their standing then would have been clear, and they
not only would have prevailed anyway, they would have
prevailed more quickly.  Whether this strange litigation strategy
constituted an apparently successful attempt to gain an advisory
opinion for some other cause, I cannot know.  However, I share
2
the dismay of the litigant NET, mixed with a bewilderment as to
why this came about.