Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01134/USCOURTS-caDC-99-01134-0/pdf.json

Parties Involved:
Bell Atlantic Telephone Companies
Petitioner
Federal Communications Commission
Respondent
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 22, 1999 Decided March 24, 2000

No. 99-1094

Bell Atlantic Telephone Companies,

Petitioner

v.

Federal Communications Commission and

United States of America,

Respondents

Telecommunications Resellers Association, et al.,

Intervenors

Consolidated with

99-1095, 99-1097, 99-1106, 99-1126,

99-1134, 99-1136, 99-1145,

On Petitions for Review of a Declaratory Ruling of the

Federal Communications Commission

---------

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Mark L. Evans and Darryl M. Bradford argued the causes

for petitioners. With them on the briefs were Thomas F.

O'Neil, III, Adam H. Charnes, Mark B. Ehrlich, Donald B.

Verrilli, Jr., Jodie L. Kelley, John J. Hamill, Emily M.

Williams, Theodore Case Whitehouse, Thomas Jones, Albert

H. Kramer, Andrew D. Lipman, Richard M. Rindler, Robert

M. McDowell, Robert D. Vandiver, Cynthia Brown Miller,

Charles C. Hunter, Catherine M. Hannan, Michael D. Hays,

Laura H. Phillips, J. G. Harrington, William P. Barr, M.

Edward Whelan, III, Michael K. Kellogg, Michael E. Glover,

Robert B. McKenna, William T. Lake, John H. Harwood, II,

Jonathan J. Frankel, Robert Sutherland, William B. Barfield, Theodore A. Livingston and John E. Muench. Maureen

F. Del Duca, Lynn R. Charytan, Gail L. Polivy, John F.

Raposa and Lawrence W. Katz entered appearances.

Christopher J. Wright, General Counsel, Federal Communications Commission, argued the cause for respondents.

With him on the brief were Daniel M. Armstrong, Associate

General Counsel, and John E. Ingle, Laurence N. Bourne and

Lisa S. Gelb, Counsel. Catherine G. O'Sullivan and Nancy

C. Garrison, Attorneys, U.S. Department of Justice, entered

appearances.

David L. Lawson argued the cause for intervenors in

opposition to the LEC petitioners. With him on the brief

were Mark C. Rosenblum, David W. Carpenter, James P.

Young, Emily M. Wiliams, Andrew D. Lipman, Richard M.

Rindler, Robert D. Vandiver, Cynthia Brown Miller, Theodore Case Whitehouse, Thomas Jones, John D. Seiver,

Charles C. Hunter, Catherine M. Hannan, Carol Ann Bischoff and Robert M. McDowell.

William P. Barr, M. Edward Whelan, Michael E. Glover,

Mark L. Evans, Michael K. Kellogg, Mark D. Roellig, Dan

Poole, Robert B. McKenna, William T. Lake, John H. Harwood, II, Jonathan J. Frankel, Robert Sutherland, William

B. Barfield, Theodore A. Livingston and John E. Muench

were on the brief for the Local Exchange Carrier intervenors.

Robert J. Aamoth, Ellen S. Levine, Charles D. Gray,

James B. Ramsay, Jonathan J. Nadler, David A. Gross,

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Curtis T. White, Edward Hayes, Jr., and David M. Janas

entered appearances for intervenors

Before: Williams, Sentelle and Randolph, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: The Telecommunications Act of

1996, Pub. L. No. 104-104, 110 Stat. 56, 47 U.S.C. ss 151-714,

requires local exchange carriers ("LECs") to "establish reciprocal compensation arrangements for the transport and termination of telecommunications." Id. s 251(b)(5). When

LECs collaborate to complete a call, this provision ensures

compensation both for the originating LEC, which receives

payment from the end-user, and for the recipient's LEC. By

regulation the Commission has limited the scope of the reciprocal compensation requirement to "local telecommunications

traffic." 47 CFR s 51.701(a). In the ruling under review, it

considered whether calls to internet service providers

("ISPs") within the caller's local calling area are themselves

"local." In doing so it applied its so-called "end-to-end"

analysis, noting that the communication characteristically will

ultimately (if indirectly) extend beyond the ISP to websites

out-of-state and around the world. Accordingly it found the

calls non-local. See In the Matter of Implementation of the

Local Competition Provisions in the Telecommunications

Act of 1996, Intercarrier Compensation for ISP-Bound Traffic, 14 FCC Rcd 3689, 3690 (p 1) (1999) ("FCC Ruling").

Having thus taken the calls to ISPs out of s 251(b)(5)'s

provision for "reciprocal compensation" (as it interpreted it),

the Commission could nonetheless itself have set rates for

such calls, but it elected not to. In a Notice of Proposed

Rulemaking, CC Docket 99-68, the Commission tentatively

concluded that "a negotiation process, driven by market

forces, is more likely to lead to efficient outcomes than are

rates set by regulation," FCC Ruling, 14 FCC Rcd at 3707

(p 29), but for the nonce it left open the matter of implementing a system of federal controls. It observed that in the

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meantime parties may voluntarily include reciprocal compensation provisions in their interconnection agreements, and

that state commissions, which have authority to arbitrate

disputes over such agreements, can construe the agreements

as requiring such compensation; indeed, even when the

agreements of interconnecting LECs include no linguistic

hook for such a requirement, the commissions can find that

reciprocal compensation is appropriate. FCC Ruling, 14

FCC Rcd at 3703-05 (p p 24-25); see s 251(b)(1) (establishing

such authority). "[A]ny such arbitration," it added, "must be

consistent with governing federal law." FCC Ruling, 14 FCC

Rcd at 3705 (p 25).

This outcome left at least two unhappy groups. One, led

by Bell Atlantic, consists of incumbent LECs (the "incumbents"). Quite content with the Commission's finding of

s 251(b)(5)'s inapplicability, the incumbents objected to its

conclusion that in the absence of federal regulation state

commissions have the authority to impose reciprocal compensation. Although the Commission's new rulemaking on the

subject may eventuate in a rule that preempts the states'

authority, the incumbents object to being left at the mercy of

state commissions until that (hypothetical) time, arguing that

the commissions have mandated exorbitant compensation. In

particular, the incumbents, who are paid a flat monthly fee,

have generally been forced to provide compensation for internet calls on a per-minute basis. Given the average length of

such calls the cost can be substantial, and since ISPs do not

make outgoing calls, this compensation is hardly "reciprocal."

Another group, led by MCI WorldCom, consists of firms

that are seeking to compete with the incumbent LECs and

which provide local exchange telecommunications services to

ISPs (the "competitors"). These firms, which stand to receive reciprocal compensation on ISP-bound calls, petitioned

for review with the complaint that the Commission erred in

finding that the calls weren't covered by s 251(b)(5).

The end-to-end analysis applied by the Commission here is

one that it has traditionally used to determine whether a call

is within its interstate jurisdiction. Here it used the analysis

for quite a different purpose, without explaining why such an

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sion's own regulations. Because of this gap, we vacate the

ruling and remand the case for want of reasoned decisionmaking.

* * *

In February 1996 Congress passed the Telecommunications

Act of 1996 (the "1996 Act" or the "Act"), stating an intent to

open local telephone markets to competition. See H.R. Conf.

Rep. No. 104-458, at 113 (1996). Whereas before local exchange carriers generally had state-licensed monopolies in

each local service area, the 1996 Act set out to ensure that

"[s]tates may no longer enforce laws that impede[ ] competition," and subjected incumbent LECs "to a host of duties

intended to facilitate market entry." AT&T Corp. v. Iowa

Utils. Bd., 119 S. Ct. 721, 726 (1999).

Among the duties of incumbent LECs is to "provide, for

the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier's

network ... for the transmission and routing of telephone

exchange service and exchange access." 47 U.S.C.

s 251(c)(2). ("Telephone exchange service" and "exchange

access" are words of art to which we shall later return.)

Competitor LECs have sprung into being as a result, and

their customers call, and receive calls from, customers of the

incumbents.

We have already noted that s 251(b)(5) of the Act establishes the duty among local exchange carriers "to establish

reciprocal compensation arrangements for the transport and

termination of telecommunications." 47 U.S.C. s 251(b)(5).

Thus, when a customer of LEC A calls a customer of LEC B,

LEC A must pay LEC B for completing the call, a cost

usually paid on a per-minute basis. Although s 251(b)(5)

purports to extend reciprocal compensation to all "telecommunications," the Commission has construed the reciprocal

compensation requirement as limited to local traffic. See 47

CFR s 51.701(a) ("The provisions of this subpart apply to

reciprocal compensation for transport and termination of local

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munications carriers."). LECs that originate or terminate

long-distance calls continue to be compensated with "access

charges," as they were before the 1996 Act. Unlike reciprocal compensation, these access charges are not paid by the

originating LEC. Instead, the long-distance carrier itself

pays both the LEC that originates the call and links the caller

to the long distance network, and the LEC that terminates

the call. See In the Matter of Implementation of the Local

Competition Provisions in the Telecommunications Act of

1996, 11 FCC Rcd 15499, 16013 (p 1034) (1996) ("Local Competition Order").

The present case took the Commission beyond these traditional telephone service boundaries. The internet is "an

international network of interconnected computers that enables millions of people to communicate with one another in

'cyberspace' and to access vast amounts of information from

around the world." Reno v. ACLU, 521 U.S. 844, 844 (1997).

Unlike the conventional "circuit-switched network," which

uses a single end-to-end path for each transmission, the

internet is a "distributed packet-switched network, which

means that information is split up into small chunks or

'packets' that are individually routed through the most efficient path to their destination." In the Matter of FederalState Joint Board on Universal Service, 13 FCC Rcd 11501,

11532 (p 64) (1998) ("Universal Service Report"). ISPs are

entities that allow their customers access to the internet.

Such a customer, an "end user" of the telephone system, will

use a computer and modem to place a call to the ISP server

in his local calling area. He will usually pay a flat monthly

fee to the ISP (above the flat fee already paid to his LEC for

use of the local exchange network). The ISP "typically

purchases business lines from a LEC, for which it pays a flat

monthly fee that allows unlimited incoming calls." FCC

Ruling, 14 FCC Rcd at 3691 (p 4).

In the ruling now under review, the Commission concluded

that s 251(b)(5) does not impose reciprocal compensation

requirements on incumbent LECs for ISP-bound traffic.

FCC Ruling, 14 FCC Rcd at 3690 (p 1). Faced with the

question whether such traffic is "local" for purposes of its

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regulation limiting s 251(b)(5) reciprocal compensation to local traffic, the Commission used the "end-to-end" analysis

that it has traditionally used for jurisdictional purposes to

determine whether particular traffic is interstate. Under this

method, it has focused on "the end points of the communication and consistently has rejected attempts to divide communications at any intermediate points of switching or exchanges

between carriers." FCC Ruling, 14 FCC Rcd at 3695 (p 10).

We save for later an analysis of the various FCC precedents

on which the Commission purported to rely in choosing this

mode of analysis.

Before actually applying that analysis, the Commission

brushed aside a statutory argument of the competitor LECs.

They argued that ISP-bound traffic must be either "telephone

exchange service," as defined in 47 U.S.C. s 153(47), or

"exchange access," as defined in s 153(16).1 It could not be

the latter, they reasoned, because ISPs do not assess toll

charges for the service (see id., "the offering of access ... for

the purpose of the origination or termination of telephone toll

services"), and therefore it must be the former, for which

reciprocal compensation is mandated. Here the Commission's answer was that it has consistently treated ISPs (and

ESPs generally) as "users of access service," while treating

them as end users merely for access charge purposes. FCC

Ruling, 14 FCC Rcd at 3701 (p 17).

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1 "Telephone exchange service" is defined as:

(A) service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange

area operated to furnish to subscribers intercommunicating

service of the character ordinarily furnished by a single

exchange, and which is covered by the exchange service

charge, or (B) comparable service provided through a system

of switches, transmission equipment, or other facilities (or

combination thereof) by which a subscriber can originate and

terminate a telecommunications service.

47 U.S.C. s 153(47). "Exchange access" is defined as:

the offering of access to telephone exchange services or

facilities for the purpose of the origination or termination of

telephone toll services.

Id. s 153(16).

Having decided to use the "end-to-end" method, the Commission considered whether ISP-bound traffic is, under this

method, in fact interstate. In a conventional "circuit-switched

network," the jurisdictional analysis is straightforward: a call

is intrastate if, and only if, it originates and terminates in the

same state. In a "packet-switched network," the analysis is

not so simple, as "[a]n Internet communication does not

necessarily have a point of 'termination' in the traditional

sense." FCC Ruling, 14 FCC Rcd at 3701-02 (p 18). In a

single session an end user may communicate with multiple

destination points, either sequentially or simultaneously. Although these destinations are sometimes intrastate, the Commission concluded that "a substantial portion of Internet

traffic involves accessing interstate or foreign websites." Id.

Thus reciprocal compensation was not due, and the issue of

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compensation between the two local LECs was left initially to

the LECs involved, subject to state commissions' power to

order compensation in the "arbitration" proceedings, and, of

course to whatever may follow from the Commission's new

rulemaking on its own possible ratesetting.

* * *

The issue at the heart of this case is whether a call to an

ISP is local or long-distance. Neither category fits clearly.

The Commission has described local calls, on the one hand, as

those in which LECs collaborate to complete a call and are

compensated for their respective roles in completing the call,

and long-distance calls, on the other, as those in which the

LECs collaborate with a long-distance carrier, which itself

charges the end-user and pays out compensation to the

LECs. See Local Competition Order, 11 FCC Rcd at 16013

(p 1034) (1996).

Calls to ISPs are not quite local, because there is some

communication taking place between the ISP and out-of-state

websites. But they are not quite long-distance, because the

subsequent communication is not really a continuation, in the

conventional sense, of the initial call to the ISP. The Commission's ruling rests squarely on its decision to employ an

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end-to-end analysis for purposes of determining whether ISPtraffic is local. There is no dispute that the Commission has

historically been justified in relying on this method when

determining whether a particular communication is jurisdictionally interstate. But it has yet to provide an explanation

why this inquiry is relevant to discerning whether a call to an

ISP should fit within the local call model of two collaborating

LECs or the long-distance model of a long-distance carrier

collaborating with two LECs.

In fact, the extension of "end-to-end" analysis from jurisdictional purposes to the present context yields intuitively

backwards results. Calls that are jurisdictionally intrastate

will be subject to the federal reciprocal compensation requirement, while calls that are interstate are not subject to federal

regulation but instead are left to potential state regulation.

The inconsistency is not necessarily fatal, since under the

1996 Act the Commission has jurisdiction to implement such

provisions as s 251, even if they are within the traditional

domain of the states. See AT&T Corp., 119 S. Ct. at 730.

But it reveals that arguments supporting use of the end-toend analysis in the jurisdictional analysis are not obviously

transferable to this context.

In attacking the Commission's classification of ISP-bound

calls as non-local for purposes of reciprocal compensation,

MCI WorldCom notes that under 47 CFR s 51.701(b)(1)

"telecommunications traffic" is local if it "originates and

terminates within a local service area." But, observes MCI

WorldCom, the Commission failed to apply, or even to mention, its definition of "termination," namely "the switching of

traffic that is subject to section 251(b)(5) at the terminating

carrier's end office switch (or equivalent facility) and delivery

of that traffic from that switch to the called party's premises."

Local Competition Order, 11 FCC Rcd at 16015 (p 1040); 47

CFR s 51.701(d). Calls to ISPs appear to fit this definition:

the traffic is switched by the LEC whose customer is the ISP

and then delivered to the ISP, which is clearly the "called

party."

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In its ruling the Commission avoided this result by analyzing the communication on an end-to-end basis: "[T]he communications at issue here do not terminate at the ISP's local

server ..., but continue to the ultimate destination or destinations." FCC Ruling, 14 FCC Rcd at 3697 (p 12). But the

cases it relied on for using this analysis are not on point.

Both involved a single continuous communication, originated

by an end-user, switched by a long-distance communications

carrier, and eventually delivered to its destination. One,

Teleconnect Co. v. Bell Telephone Co., 10 FCC Rcd 1626

(1995), aff'd sub nom. Southwestern Bell Tel. Co. v. FCC, 116

F.3d 593 (D.C. Cir. 1997) ("Teleconnect"), involved an 800 call

to a long-distance carrier, which then routed the call to its

intended recipient. The other, In the Matter of Petition for

Emergency Relief and Declaratory Ruling Filed by the BellSouth Corporation, 7 FCC Rcd 1619 (1992), considered a

voice mail service. Part of the service, the forwarding of the

call from the intended recipient's location to the voice mail

apparatus and service, occurred entirely within the subscriber's state, and thus looked local. Looking "end-to-end,"

however, the Commission refused to focus on this portion of

the call but rather considered the service in its entirety (i.e.,

originating with the out-of-state caller leaving a message, or

the subscriber calling from out-of-state to retrieve messages).

Id. at 1621 (p 12).

ISPs, in contrast, are "information service providers," Universal Service Report, 13 FCC Rcd at 11532-33 (p 66), which

upon receiving a call originate further communications to

deliver and retrieve information to and from distant websites.

The Commission acknowledged in a footnote that the cases it

relied upon were distinguishable, but dismissed the problem

out-of-hand: "Although the cited cases involve interexchange

carriers rather than ISPs, and the Commission has observed

that 'it is not clear that [information service providers] use

the public switched network in a manner analogous to IXCs,'

Access Charge Reform Order, 12 FCC Rcd at 16133, the

Commission's observation does not affect the jurisdictional

analysis." FCC Ruling, 14 FCC Rcd at 3697 n.36 (p 12). It

is not clear how this helps the Commission. Even if the

difference between ISPs and traditional long-distance carriers

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is irrelevant for jurisdictional purposes, it appears relevant

for purposes of reciprocal compensation. Although ISPs use

telecommunications to provide information service, they are

not themselves telecommunications providers (as are longdistance carriers).

In this regard an ISP appears, as MCI WorldCom argued,

no different from many businesses, such as "pizza delivery

firms, travel reservation agencies, credit card verification

firms, or taxicab companies," which use a variety of communication services to provide their goods or services to their

customers. Comments of WorldCom, Inc. at 7 (July 17,

1997). Of course, the ISP's origination of telecommunications

as a result of the user's call is instantaneous (although

perhaps no more so than a credit card verification system or

a bank account information service). But this does not imply

that the original communication does not "terminate" at the

ISP. The Commission has not satisfactorily explained why

an ISP is not, for purposes of reciprocal compensation, "simply a communications-intensive business end user selling a

product to other consumer and business end-users." Id.

The Commission nevertheless argues that although the call

from the ISP to an out-of-state website is information service

for the end-user, it is telecommunications for the ISP, and

thus the telecommunications cannot be said to "terminate" at

the ISP. As the Commission states: "Even if, from the

perspective of the end user as customer, the telecommunications portion of an Internet call 'terminates' at the ISP's

server (and information service begins), the remaining portion

of the call would continue to constitute telecommunications

from the perspective of the ISP as customer." Commission's

Br. at 41. Once again, however, the mere fact that the ISP

originates further telecommunications does not imply that the

original telecommunication does not "terminate" at the ISP.

However sound the end-to-end analysis may be for jurisdictional purposes, the Commission has not explained why viewing these linked telecommunications as continuous works for

purposes of reciprocal compensation.

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Adding further confusion is a series of Commission rulings

dealing with a class, enhanced service providers ("ESPs"), of

which ISPs are a subclass. See FCC Ruling, 14 FCC Rcd at

3689 n.1 (p 1). ESPs, the precursors to the 1996 Act's

information service providers, offer data processing services,

linking customers and computers via the telephone network.

See MCI Telecommunications Corp. v. FCC, 57 F.3d 1136,

1138 (D.C. Cir. 1995).2 In its establishment of the access

charge system for long-distance calls, the Commission in 1983

exempted ESPs from the access charge system, thus in effect

treating them like end users rather than long-distance carriers. See In the Matter of MTS & WATS Market Structure,

97 F.C.C.2d 682, 711-15 (p 77-83) (1983). It reaffirmed this

decision in 1991, explaining that it had "refrained from applying full access charges to ESPs out of concern that the

industry has continued to be affected by a number of significant, potentially disruptive, and rapidly changing circumstances." In the Matter of Part 69 of the Commission's

Rules Relating to the Creation of Access Charge Subelements

for Open Network Architecture, 6 FCC Rcd 4524, 4534 (p 54)

(1991). In 1997 it again preserved the status quo. In the

Matter of Access Charge Reform, 12 FCC Rcd 15982 (1997)

("Access Charge Reform Order"). It justified the exemption

in terms of the goals of the 1996 Act, saying that its purpose

was to "preserve the vibrant and competitive free market that

presently exists for the Internet and other interactive computer services." Id. at 16133 (p 344) (quoting 47 U.S.C.

s 230(b)(2)).

This classification of ESPs is something of an embarrassment to the Commission's present ruling. As MCI WorldCom notes, the Commission acknowledged in the Access

Charge Reform Order that "given the evolution in [information service provider] technologies and markets since we first

__________

2 The regulatory definition states that ESPs offer "services ...

which employ computer processing applications that act on the

format, content, code, protocol or similar aspects of the subscriber's

transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction

with stored information." 47 CFR s 64.702(a).

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established access charges in the early 1980s, it is not clear

that [information service providers] use the public switched

network in a manner analogous to IXCs [inter-exchange

carriers]." 12 FCC Rcd at 16133 (p 345). It also referred to

calls to information service providers as "local." Id. at 16132

(p 342 n.502). And when this aspect of the Access Charge

Reform Order was challenged in the 8th Circuit, the Commission's briefwriters responded with a sharp differentiation

between such calls and ordinary long-distance calls covered

by the "end-to-end" analysis, and even used the analogy

employed by MCI WorldCom here--that a call to an information service provider is really like a call to a local business

that then uses the telephone to order wares to meet the need.

Brief of FCC at 76, Southwestern Bell v. FCC, 153 F.3d 523

(8th Cir. 1998) (No. 97-2618). When accused of inconsistency

in the present matter, the Commission flipped the argument

on its head, arguing that its exemption of ESPs from access

charges actually confirms "its understanding that ESPs in

fact use interstate access service; otherwise, the exemption

would not be necessary." FCC Ruling, 14 FCC Rcd at 3700

(p 16). This is not very compelling. Although, to be sure, the

Commission used policy arguments to justify the "exemption," it also rested it on an acknowledgment of the real

differences between long-distance calls and calls to information service providers. It is obscure why those have now

dropped out of the picture.

Because the Commission has not supplied a real explanation for its decision to treat end-to-end analysis as controlling,

Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983); 5 U.S.C. s 706(2)(A),

we must vacate the ruling and remand the case.

There is an independent ground requiring remand--the fit

of the present rule within the governing statute. MCI

WorldCom says that ISP-traffic is "telephone exchange service[ ]" as defined in 47 U.S.C. s 153(16), which it claims "is

synonymous under the Act with the service used to make

local phone calls," and emphatically not "exchange access" as

defined in 47 U.S.C. s 153(47). Petitioner MCI WorldCom's

Initial Br. at 22. In the only paragraph of the ruling in which

the Commission addressed this issue, it merely stated that it

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"consistently has characterized ESPs as 'users of access

service' but has treated them as end users for pricing purposes." FCC Ruling, 14 FCC Rcd at 3701 (p 17). In a

statutory world of "telephone exchange service" and "exchange access," which the Commission here says constitute

the only possibilities, the reference to "access service," combining the different key words from the two terms before us,

sheds no light. "Access service" is in fact a pre-Act term,

defined as "services and facilities provided for the origination

or termination of any interstate or foreign telecommunication." 47 CFR s 69.2(b).

If the Commission meant to place ISP-traffic within a third

category, not "telephone exchange service" and not "exchange

access," that would conflict with its concession on appeal that

"exchange access" and "telephone exchange service" occupy

the field. But if it meant that just as ESPs were "users of

access service" but treated as end users for pricing purposes,

so too ISPs are users of exchange access, the Commission has

not provided a satisfactory explanation why this is the case.

In fact, in In the Matter of Implementation of the NonAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended, 11 FCC Rcd 21905,

22023 (p 248) (1996), the Commission clearly stated that "ISPs

do not use exchange access." After oral argument in this

case the Commission overruled this determination, saying

that "non-carriers may be purchasers of those services." In

the Matter of Deployment of Wireline Services Offering

Advanced Telecommunications Capability, FCC 99-413, at

21 (p 43) (Dec. 23, 1999). The Commission relied on its preAct orders in which it had determined that non-carriers can

use "access services," and concluded that there is no evidence

that Congress, in codifying "exchange access," intended to

depart from this understanding. See id. at 21-22 (p 44). The

Commission, however, did not make this argument in the

ruling under review.

Nor did the Commission even consider how regarding noncarriers as purchasers of "exchange access" fits with the

statutory definition of that term. A call is "exchange access"

if offered "for the purpose of the origination or termination of

telephone toll services." 47 U.S.C. s 153(16). As MCI

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WorldCom argued, ISPs provide information service rather

than telecommunications; as such, "ISPs connect to the local

network 'for the purpose of' providing information services,

not originating or terminating telephone toll services." Petitioner MCI WorldCom's Reply Br. at 6.

The statute appears ambiguous as to whether calls to ISPs

fit within "exchange access" or "telephone exchange service,"

and on that view any agency interpretation would be subject

to judicial deference. See Chevron U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).

But, even though we review the agency's interpretation only

for reasonableness where Congress has not resolved the

issue, where a decision "is valid only as a determination of

policy or judgment which the agency alone is authorized to

make and which it has not made, a judicial judgment cannot

be made to do service." SEC v. Chenery Corp., 318 U.S. 80,

88 (1943). See also Acme Die Casting v. NLRB, 26 F.3d 162,

166 (D.C. Cir. 1994); Leeco, Inc. v. Hays, 965 F.2d 1081, 1085

(D.C. Cir. 1992); City of Kansas City v. Department of

Housing and Urban Development, 923 F.2d 188, 191-92 (D.C.

Cir. 1991).

* * *

Because the Commission has not provided a satisfactory

explanation why LECs that terminate calls to ISPs are not

properly seen as "terminat[ing] ... local telecommunications

traffic," and why such traffic is "exchange access" rather than

"telephone exchange service," we vacate the ruling and remand the case to the Commission. We do not reach the

objections of the incumbent LECs--that s 251(b)(5)

preempts state commission authority to compel payments to

the competitor LECs; at present we have no adequately

explained classification of these communications, and in the

interim our vacatur of the Commission's ruling leaves the

incumbents free to seek relief from state-authorized compensation that they believe to be wrongfully imposed.

So ordered.

USCA Case #99-1134 Document #505574 Filed: 03/24/2000 Page 15 of 15