Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-02-01105/USCOURTS-caDC-02-01105-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
North Carolina Payphone Association
Petitioner
United States of America
Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 9, 2003 Decided July 11, 2003

No. 02-1055

NEW ENGLAND PUBLIC COMMUNICATIONS COUNCIL, INC.,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

AMERICAN PUBLIC COMMUNICATIONS COUNCIL, ET AL.,

INTERVENORS

Consolidated with

02–1091, 02–1092, 02–1105

On Petitions for Review of an Order of the

Federal Communications Commission

–————

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 1 of 17
2

Aaron M. Panner argued the cause for Bell Operating

Company petitioners. With him on the briefs were Michael

K. Kellogg, James G. Garralson, Michael E. Glover, Edward

Shakin, John M. Goodman, James D. Ellis and Gary L.

Phillips.

Marcus W. Trathen argued the cause for petitioners New

England Public Communications Council, Inc., et al. With

him on the briefs were Paul C. Besozzi and David Kushner.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondent. With him on the brief

were R. Hewitt Pate, Acting Assistant Attorney General, U.S.

Department of Justice, Robert B. Nicholson and Robert J.

Wiggers, Attorneys, John A. Rogovin, Acting General Counsel, Federal Communications Commission, and John E. Ingle,

Deputy Associate General Counsel. Lisa E. Boehley, Counsel, Federal Communications Commission, entered an appearance.

Robert F. Aldrich argued the cause for intervenor American Public Communications Council, Inc. With him on the

brief was Albert H. Kramer.

Aaron M. Panner argued the cause for LEC intervenors.

With him on the brief were Michael K. Kellogg, James G.

Harralson, Michael E. Glover, Edward Shakin, John M.

Goodman, James D. Ellis and Gary G. Phillips. Peter M.

Connolly entered an appearance.

Before: GINSBURG, Chief Judge, and ROGERS and TATEL,

Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Acting pursuant to a 1996 Telecommunications Act provision designed to promote competition in

the payphone service industry, the Federal Communications

Commission issued an order requiring the Bell operating

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 2 of 17
3

companies (BOCs) to price the service lines used by payphone

service providers at forward-looking cost-based rates. In

these consolidated cases, two groups of petitioners challenge

the order from opposing points of view. One group, composed of BOCs, challenges the Commission’s authority to

require a specific rate-setting methodology for intrastate

payphone lines. The other group, composed of payphone

service providers that use non-BOC local exchange carriers’

payphone lines, challenges the Commission’s decision to limit

the forward-looking cost-based methodology requirement to

BOCs. Concluding that the Telecommunications Act authorizes the Commission to regulate BOC intrastate payphone

line rates, but not those of non-BOC local exchange carriers,

we deny the petitions for review and affirm the Commission’s

order in all respects.

I.

Until the mid–1980s, because payphones could not be operated separately from local exchange service, only local exchange carriers (LECs) provided payphone service. See Illinois Pub. Telecomms. Ass’n v. FCC, 117 F.3d 555, 558 (D.C.

Cir. 1997) (per curiam). For that reason, the LECs––which,

thanks to the 1982 consent decree under which AT&T divested its local exchange carriers, were primarily BOCs, see

United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131

(D.D.C. 1982), aff’d sub nom. Maryland v. United States, 460

U.S. 1001 (1983)––generally subsidized the cost of payphone

equipment and service with revenues from their other services. In the mid–1980s, however, advances in payphone

technology enabled independent, non-LEC payphone service

providers (PSPs) to enter the payphone market. But because

the LECs owned the payphone lines used by all PSPs, they

were able to continue to subsidize and otherwise discriminate

in favor of their own payphone service. See generally In the

Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications

Act of 1996, 11 F.C.C.R. 6716, 6718–20 ¶ ¶ 2–6 (1996) (Notice

of Proposed Rulemaking).

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 3 of 17
4

In the Telecommunications Act of 1996, Congress fundamentally restructured the local telephone industry. Section

276 of the Act, which is specifically aimed at promoting

competition in the payphone service industry, prohibits ‘‘any

Bell operating company that provides payphone service’’ from

subsidizing or discriminating in favor of its own payphone

service. 47 U.S.C. § 276(a). It also authorizes the Commission to prescribe regulations consistent with the goal of

promoting competition, requiring that the Commission take

five specific steps toward that goal. One of these steps is

‘‘prescrib[ing] a set of nonstructural safeguards for Bell operating company payphone service’’ that ‘‘shall, at a minimum,

include the nonstructural safeguards equal’’ to those governing BOCs’ provision of enhanced services––the so-called Computer III safeguards. Id. § 276(b)(1)(C). Finally, recognizing that the prescribed regulations would trench on state

authority, Congress provided that section 276 preempts state

law ‘‘[t]o the extent that any State requirements are inconsistent with the Commission’s regulations.’’ Id. § 276(c).

The Commission implemented section 276 in a series of

orders, beginning with the so-called Payphone Orders. In

the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541 (1996) (Report and

Order) (‘‘First Payphone Order’’); Order on Reconsideration,

11 F.C.C.R. 21233 (1996) (‘‘Payphone Reconsideration Order’’). Among other things, these orders require that incumbent LECs provide ‘‘individual central office coin transmission services to PSPs’’ at rates that satisfy the flexible, costbased ‘‘new services test’’ that developed as an outgrowth of

the Computer III proceeding. First Payphone Order, 11

F.C.C.R at 20614 ¶ 146. Specifically, in an order following

the initial Computer III order, the Commission directed that

service element rates be set at the direct costs of providing

the service element, plus ‘‘an appropriate level of overhead

costs.’’ In the Matter of Amendments of Part 69 of the

Commission’s Rules Relating to the Creation of Access

Charge Subelements for Open Network Architecture Policy

and Rules Concerning Rates for Dominant Carriers, 6

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 4 of 17
5

F.C.C.R. 4524, 4531 ¶ ¶ 38–41, 44 (1991) (Report and Order

and Order on Further Reconsideration and Supplemental

Notice of Proposed Rulemaking) (‘‘Access Charge Subelements Order’’). In the Payphone Reconsideration Order, the

Commission clarified that while the states, not the Commission, would review the LECs’ intrastate payphone line tariffs,

the states must ensure that the tariffs are ‘‘(1) cost-based; (2)

consistent with the requirements of Section 276 with regard,

for example, to the removal of subsidies TTT; and (3) nondiscriminatory,’’ and that the states ‘‘must apply TTT the Computer III guidelines for tariffing such intrastate services.’’ 11

F.C.C.R. at 21308 ¶ 163.

In 1997, a group of independent PSPs petitioned the Wisconsin Public Service Commission to determine whether Wisconsin LECs’ payphone line service tariffs complied with the

new services test. The Wisconsin Commission denied the

request, finding its jurisdiction under state law limited to

‘‘enforcing a prohibition on cross subsidy TTT and prohibitions

on discriminatory practices.’’ Letter from Public Service

Commission of Wisconsin to Andrew J. Phillips, Yakes,

Bauer, Kindt & Phillips (Nov. 6, 1997). The FCC’s Common

Carrier Bureau, concluding that ‘‘[t]he Wisconsin Commission’s stated lack of authority to review these payphone

service offerings invokes this Commission’s obligations under

section 276 and the Commission’s Payphone Orders,’’ directed

the four largest Wisconsin LECs to file with the Commission

‘‘tariffs for intrastate payphone service offerings TTT together

with the supporting documentation TTT necessary to demonstrate compliance with the requirements of section 276 and

the Commission’s implementing rules.’’ In the Matter of

Wisconsin Public Service Commission, 15 F.C.C.R. 9978, 9980

¶ 5 (2000) (Order) (‘‘Bureau Order’’) (footnotes omitted); see

also Letter of October 28, 1998, from Kathryn C. Brown,

Chief, Common Carrier Bureau, to Hon. Joseph P. Mettner,

Chairman, Public Service Commission of Wisconsin, 13

F.C.C.R. 20865, 20865 (1998). The Bureau also notified the

LECs that it would examine their tariffs using ‘‘an appropriate forward-looking, economic cost methodology’’ consistent

with principles the Commission set forth in its 1996 Local

Competition Order, in which the Commission implemented

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 5 of 17
6

the Telecommunications Act’s local telephone market deregulation provisions, 47 U.S.C. §§ 251, 252. Bureau Order, 15

F.C.C.R. at 9981 ¶ 9; see also In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499 (1996) (Report and

Order) (‘‘Local Competition Order’’). In that proceeding, the

Commission prescribed a method for setting rates at which

incumbent LECs would provide network elements to their

competitors based not on the original, historical cost of the

equipment used to provide service, but rather on the current

cost of providing service using existing equipment. See Verizon Communications, Inc. v. FCC, 535 U.S. 467, 495–97

(2002) (upholding the forward-looking cost methodology

against the incumbents’ challenge).

A coalition of LECs applied for review of the Bureau’s

order, primarily challenging the Bureau’s decision to use

forward-looking methodologies in applying the new services

test. Citing 47 U.S.C. section 152(b), which provides that

‘‘nothing in th[e] Act shall be construed to apply or to give

the Commission jurisdiction with respect to (1) charges, classifications, practices, services, facilities, or regulations for or

in connection with intrastate communication service,’’ the

coalition also contested the Commission’s jurisdiction to regulate intrastate payphone line rates.

In the order under review in this case, the Commission

determined that sections 276(a)(2) and 276(b)(1)(C) establish

its jurisdiction to regulate intrastate payphone line rates and

thus override section 152(b). It also concluded, however, that

its jurisdiction is limited to regulating BOCs’ payphone line

rates, since those provisions, by their terms, apply only to

BOCs, and Congress had not ‘‘expressed with the requisite

clarity its intention that the Commission exercise jurisdiction

over the intrastate payphone prices of non-BOC LECs.’’ In

the Matter of Wisconsin Public Service Commission, 17

F.C.C.R. 2051, 2064 ¶ 42 (2002) (Order Directing Filings)

(‘‘Wisconsin Order’’). Finally, the Commission upheld the

Bureau’s decision to use a forward-looking cost-based methodology in applying the new services test. Id. at 2065 ¶ 43 &

n.100.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 6 of 17
7

A group of BOCs now petitions for review, principally

contending that the Commission lacks jurisdiction to enter

the field of intrastate telephone service rate-making. Another set of petitioners, PSP trade associations New England

Public Communications Council, Inc. and North Carolina

Payphone Association, Inc., by contrast, not only endorses the

Commission’s decision to impose a forward-looking cost methodology on states setting intrastate payphone line rates, but

also faults the Commission for failing to apply the same

standard to the non-BOC LECs from which their members,

all independent PSPs, purchase their payphone line service.

II.

Before considering the merits, we must address the Commission’s threshold argument that petitioners lack Article III

standing to challenge its Wisconsin Order. Specifically, the

Commission contends that because it has done no more than

establish a standard for the Wisconsin Public Services Commission to apply in evaluating the Wisconsin BOCs’ tariffs,

and because it has ‘‘made no determination as to the actual

payphone line rate to be charged in Wisconsin or anywhere

else,’’ neither the BOC petitioners nor the PSP petitioners

have suffered an ‘‘actual or imminent’’ injury that is both

‘‘fairly traceable’’ to the Wisconsin Order and ‘‘likely’’ to be

‘‘redressed by a favorable decision,’’ as Article III requires,

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992)

(internal quotation marks omitted). Respondents’ Br. at 18.

According to the Commission, in order to satisfy Article III,

petitioners must show that they have already suffered financial injury: that is, the BOCs must show that they must

charge less for payphone line service than they otherwise

would have, and the PSPs must show that they will be

required to pay more for payphone line service than they

would if the Commission had asserted jurisdiction over nonBOC LECs’ line rates. Respondents’ Br. at 18–19. For that

reason, the Commission argues, petitioners’ challenge is premature: We cannot know whether the Commission’s order

directing the states to apply a particular rate-setting methodology will injure the petitioners until the states act.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 7 of 17
8

Contrary to the Commission’s argument, neither set of

petitioners need wait for the states to review the LECs’

tariffs before challenging the Wisconsin Order. Cf. Verizon,

535 U.S. at 476 (reviewing a challenge to the Commission’s

prescription of a forward-looking cost-based rate-setting

methodology to be applied by state commissions). The BOCs’

injury is both clear and immediate: The Order’s forwardlooking cost-based methodology means that the BOCs cannot

recover certain expenses beyond the current costs of providing service––namely, expenses owing to inefficiencies such as

poor management or inflated capital and depreciation––that

they could recover under a historical-cost method. See id. at

511–12. To comply with the Wisconsin Order, the BOCs will

almost certainly have to modify their tariffs to lower their

existing rates––or at the very least, refrain from raising their

rates––before submitting the tariffs for state review. This

injury, moreover, is both directly traceable to the Wisconsin

Order and redressable by a decision in the BOCs’ favor.

The PSP petitioners also suffer immediate injury. The

Wisconsin Order, by departing from the Payphone Orders

regime under which the new services test applied to both

BOCs and non-BOC LECs, leaves the latter group free to set

rates that discriminate against competitor PSPs. We have

repeatedly held that ‘‘parties suffer constitutional injury in

fact when agencies lift regulatory restrictions on their competitors or otherwise allow increased competition.’’ Louisiana Energy & Power Auth. v. FERC, 141 F.3d 364, 367 (D.C.

Cir. 1998). While it is true, as the Commission points out,

that the states may decide on their own to apply the new

services test to non-BOC LECs, the PSP petitioners need not

wait for the states to set the LECs’ payphone line rates

before bringing their challenge. It suffices for the PSP

petitioners to show that the Wisconsin Order has ‘‘the clear

and immediate potential TTT to hurt them competitively.’’

Associated Gas Distribs. v. FERC, 899 F.2d 1250, 1259 (D.C.

Cir. 1990). This court ‘‘ha[s] not required litigants to wait

until increased competition actually occurs.’’ Louisiana Energy & Power Auth., 141 F.3d at 367.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 8 of 17
9

Mounting a second challenge to the PSP petitioners’ standing, the Commission pointed out in its brief that both petitioners are out-of-state trade groups that failed to allege in their

opening brief that they have any members that would be

directly affected by the Wisconsin rate-setting proceedings.

In response, the PSP petitioners moved for leave to file

supplemental affidavits indicating that NCPA does have at

least one member that operates in Wisconsin and whose

payphones connect to the network via non-BOC LECs.

Though the Commission does not oppose the motion, it draws

our attention to this court’s recent statement in Sierra Club

v. EPA, 292 F.3d 895 (D.C. Cir. 2002), that ‘‘a petitioner

whose standing is not self-evident should establish its standing by the submission of its arguments and any affidavits or

other evidence appurtenant thereto at the first appropriate

point in the review proceeding,’’ and that litigants ‘‘should not

expect’’ this court to depart from that rule ‘‘[a]bsent good

cause shown.’’ Id. at 900. We have no need to consider the

application of Sierra Club in this case, however, since the

PSP petitioners’ standing in no way turns on their members’

connections to Wisconsin. Contrary to the Commission’s

argument, the order on review is more than just ‘‘an adjudicatory-type proceeding TTT pertaining to rates in Wisconsin.’’

Respondents’ Br. at 18. Instead, it establishes a rule that

affects payphone line rates in every state. Indeed, the

Commission itself acknowledged as much, noting that ‘‘this

Order will assist states in applying the new services test to

BOCs’ intrastate payphone line rates in order to ensure

compliance with the Payphone Orders and Congress’ directives in section 276.’’ Wisconsin Order, 17 F.C.C.R. at

2052 ¶ 2; see also id. at 2072 ¶ 68 (‘‘[W]e issue this Order to

assist states in determining whether BOCs’ intrastate payphone line rates comply with section 276 and our Payphone

Orders.’’).

III.

This brings us to the merits of petitioners’ challenges to the

Commission’s authority under section 276 to regulate the

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 9 of 17
10

BOCs’ intrastate payphone line rates. The Communications

Act of 1934 establishes ‘‘a system of dual state and federal

regulation over telephone service,’’ under which the Commission has the power to regulate ‘‘interstate and foreign commerce in wire and radio communication,’’ 47 U.S.C. § 151, but

is generally forbidden from entering the field of intrastate

communication service, which remains the province of the

states, id. § 152(b). Louisiana Pub. Serv. Comm’n v. FCC,

476 U.S. 355, 360 (1986); see Illinois Pub. Telecomms. Ass’n,

117 F.3d at 561; see also City of Brookings Mun. Tel. Co. v.

FCC, 822 F.2d 1153, 1155 (D.C. Cir. 1987) (‘‘[T]he FCC enjoys

jurisdiction over interstate rates, whereas the several States

reign supreme over intrastate rates.’’).

While the apportionment of regulatory power in this dual

system is, of course, subject to revision, whether the Commission may preempt state regulation of intrastate telephone

service depends, as in ‘‘any pre-emption analysis,’’ on ‘‘whether Congress intended that federal regulation supersede state

law.’’ Louisiana Pub. Serv. Comm’n, 476 U.S. at 369. The

‘‘best way’’ to answer that question, the Supreme Court has

instructed, ‘‘is to examine the nature and scope of the authority granted by Congress to the agency.’’ Id. at 374. In cases

involving the Communications Act, that inquiry is guided by

the language of section 152(b), which the Supreme Court has

interpreted as ‘‘not only a substantive jurisdictional limitation

on the FCC’s power, but also a rule of statutory construction.’’ Id. at 373. Applying this test in a challenge to the

Commission’s authority under section 276 of the 1996 Act, we

have held that ‘‘§ 276 should not be read to confer upon the

FCC jurisdiction TTT unless § 276 is so unambiguous or

straightforward so as to override the command of § 152(b).’’

Illinois Pub. Telecomms. Ass’n, 117 F.3d at 561 (internal

quotation marks omitted) (citing Louisiana Pub. Serv.

Comm’n, 476 U.S. at 377).

Here we find that section 276 unambiguously and straightforwardly authorizes the Commission to regulate the BOCs’

intrastate payphone line rates. Section 276(b) directs the

Commission to implement section 276(a)’s anti-subsidy and

anti-discrimination mandates by undertaking five specific

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 10 of 17
11

measures to promote ‘‘competition among payphone service

providers and TTT the widespread deployment of payphone

services to the benefit of the general public.’’ 47 U.S.C.

§ 276(b)(1). Recognizing that the Commission’s regulations

implementing these commands would tread on ground traditionally occupied by the states, Congress included a preemption clause providing that ‘‘[t]o the extent that any State

requirements are inconsistent with the Commission’s regulations,’’ the Commission’s regulations would preempt state law.

Id. § 276(c); see also S. REP. NO. 104–230, at 158 (1996) (‘‘In

crafting implementing rules, the commission is not bound to

adhere to existing mechanisms or procedures established for

general regulatory purposes in other provisions of the Communications Act [of 1934].’’).

Two of the five measures prescribed in section 276(b),

moreover, expressly apply to intrastate service: subsection

(b)(1)(A) directs the Commission to adopt regulations guaranteeing fair compensation for ‘‘intrastate and interstate

call[s],’’ 47 U.S.C. § 276(b)(1)(A) (emphasis added), and

(b)(1)(B) requires the Commission to ‘‘discontinue the intrastate and interstate carrier access charge payphone service

elements TTT and all intrastate and interstate payphone

subsidies,’’ id. § 276(b)(1)(B) (emphasis added). In fact, we

have interpreted subsection (b)(1)(A) to permit Commission

regulation of local coin rates, which was long the exclusive

domain of the states. Illinois Pub. Telecomms. Ass’n, 117

F.3d at 561–63. And although subsections (b)(1)(D) and

(b)(1)(E) do not use the word ‘‘intrastate,’’ the two provisions

authorize the Commission to promulgate regulations concerning PSPs’ selection of carriers for long-distance intraLATA

and interLATA calls, both of which are often intrastate calls.

See 47 U.S.C. § 276(b)(1)(D), (b)(1)(E). As the BOCs affirm,

‘‘the FCC could not carry out this mandate without addressing intrastate matters.’’ BOC Petitioners’ Br. at 12–13. All

of these provisions, which authorize the Commission to regulate both intrastate and interstate service in implementing

section 276(a)’s anti-subsidy and anti-discrimination commands, indicate that those commands, too, apply to both

intrastate and interstate matters.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 11 of 17
12

To be sure, as the BOC petitioners emphasize, the two

provisions on which the Commission relied in the Wisconsin

Order––section 276(a)(2)’s anti-discrimination command and

section 276(b)(1)(C)’s requirement that the Commission prescribe Computer III-like nonstructural safeguards for BOC

payphone service—do not use the word ‘‘intrastate.’’ According to the BOCs, the omission of references to intrastate

services in these provisions, set against the inclusion of

explicit references to intrastate services in subsections

(b)(1)(A) and (b)(1)(B), demonstrates that Congress did not

intend for the Commission’s regulations implementing sections 276(a)(2) and 276(b)(1)(C) to cover intrastate services.

For support, they cite Russello v. United States, 464 U.S. 16

(1983), in which the Supreme Court held that ‘‘where Congress includes particular language in one section of a statute

but omits it in another section of the same Act, it is generally

presumed that Congress acts intentionally and purposely in

the disparate inclusion or exclusion.’’ Id. at 23 (internal

quotation marks and citation omitted). As Russello itself

makes clear, however, it announces a presumption, not a

hard-and-fast rule. Indeed, in AT&T Corp. v. Iowa Utilities

Board, 525 U.S. 366 (1999), the Supreme Court rejected a

similar argument regarding the Commission’s jurisdiction to

create a pricing methodology for the states, holding that a

‘‘mere lack of parallelism is surely not enough to displace [the

Commission’s] explicit authority.’’ Id. at 385. The presumption that Congress deliberately omitted the word ‘‘intrastate’’

from section 276(a) seems particularly inappropriate here

because the references to intrastate services appear in a

portion of the statute specifying measures to implement

section 276(a)’s general prohibitions on BOC subsidies and

discrimination. Cf. Clay v. United States, 537 U.S. 522, 123

S. Ct. 1072, 1078 (2003) (‘‘An unqualified term[,] TTT Russello

indicates, calls for a reading surely no less broad than a

pinpointed oneTTTT’’). If Congress had meant to prohibit

only interstate subsidies and discrimination, it is difficult to

understand why it would have directed the Commission to

regulate intrastate call compensation and intrastate payphone subsidies.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 12 of 17
13

The statute’s structure and purpose also support the Commission’s assertion of jurisdiction. Much like the 1996 Telecommunications Act’s local competition provisions, section

276(a)’s command that BOCs shall neither subsidize nor

discriminate in favor of their own payphone service, 47 U.S.C.

§ 276(a), is designed to replace a state-regulated monopoly

system with a federally facilitated, competitive market. Observing that limiting Commission jurisdiction to interstate

matters ‘‘would utterly nullify the 1996 amendments,’’ the

Supreme Court in Iowa Utilities Board affirmed the Commission’s authority to ‘‘design a pricing methodology’’ to bind

state rate-making commissions in implementing the Act’s

local competition provisions. 525 U.S. at 380, 385. Rejecting

a section 152(b) challenge to the Commission’s jurisdiction,

the Court noted that ‘‘[a]fter the 1996 Act, § 152(b) may have

less practical effectTTTT because Congress, by extending the

Communications Act into local competition, has removed a

significant area from the States’ exclusive control.’’ Id. at 382

n.8.

Of course, unlike Iowa Utilities Board, which involved

purely local, intrastate facilities and services, both intrastate

and interstate facilities and services are at issue here. But in

passing the 1996 Act’s payphone competition provision and

the local competition provisions, Congress had exactly the

same objective: to authorize the Commission to eliminate

barriers to competition. And much as the Supreme Court

concluded it would be impossible to implement the local

competition provisions while limiting the Commission’s authority to interstate services, so would it make little sense for

Congress to command the Commission to promulgate rules

opening the payphone market to competition while leaving it

powerless to address intrastate subsidies and discrimination,

which are, after all, no less an obstacle to fair competition

than interstate subsidies and discrimination.

The BOC petitioners next contend that even if section

276(a) bars intrastate discrimination, it does not authorize the

Commission to prescribe any particular rate-making methodology. According to the BOCs, discrimination consists only of

charging unlike prices for like services, and section 276’s antiUSCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 13 of 17
14

discrimination command therefore requires only pricing parity. The BOCs argue that the Commission itself took this

position in Computer III when it declined to mandate any

particular pricing standard for enhanced services, choosing

instead to require BOCs to allow competitors to use basic

network services on the same terms as the BOCs themselves

used those services. See In the Matters of Amendment of

Sections 64.702 of the Commission’s Rules and Regulations

(Third Computer Inquiry), 104 F.C.C.2d 958, 1052 ¶ ¶ 183–184

(1986) (Report and Order). But the Commission has revised

this position. Indeed, the new services test was an outgrowth

of the Commission’s recognition that pricing parity alone

would still permit BOCs to discriminate by ‘‘set[ting] relatively low rates for the [basic service elements] that they use,

while pricing those that they do not need at relatively high

rates.’’ In the Matter of Amendments of Part 69 of the

Commission’s Rules Relating to the Creation of Access

Charge Subelements for Open Network Architecture, 4

F.C.C.R. 3983, 3985 ¶ 18 (1989) (Notice of Proposed Rulemaking); see also Access Charge Subelements Order, 6 F.C.C.R.

at 4531 ¶ ¶ 38–44. Nothing in the statute indicates that

Congress understood the word ‘‘discrimination’’ to carry the

narrow meaning the BOCs urge, as opposed to the more

expansive view the Commission adopted in its refinements to

the Computer III regime.

Approaching the Wisconsin Order from the opposite angle,

the PSP petitioners contend that section 276 confers on the

Commission not only the authority to regulate BOCs’ intrastate payphone line rates, but also the authority to extend its

regulations to non-BOC LECs. For support, the PSPs rely

primarily on the statute’s purposes, contending that non-BOC

LEC discrimination against competitors represents no less an

obstacle to fair competition in the payphone industry than

BOC discrimination. Though the PSPs may be correct as a

matter of policy, the fact remains that sections 276(a) and

276(b)(1)(C), the sources of the Commission’s authority to

regulate intrastate payphone rates, expressly apply only to

the BOCs. We must presume that when Congress referred

to ‘‘Bell operating companies’’ rather than ‘‘local exchange

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 14 of 17
15

carriers,’’ it acted deliberately. Indeed, the Act defines the

terms differently. 47 U.S.C. § 153(4), (26). The PSPs have,

moreover, fallen short of demonstrating that this is one of the

‘‘ ‘rare cases’ ’’ in which we may look beyond clear statutory

text to discern the statute’s meaning because ‘‘ ‘literal application of [the] statute will produce a result demonstrably at

odds with the intentions of its drafters.’ ’’ Nat’l Pub. Radio,

Inc. v. FCC, 254 F.3d 226, 230 (D.C. Cir. 2001) (quoting

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242

(1989)); see also id. (a party seeking to ‘‘rebut[ ] the presumption created by clear language TTT must show either

that, as a matter of historical fact, Congress did not mean

what it appears to have said, or that, as a matter of logic and

statutory structure, it almost surely could not have meant it’’)

(internal quotation marks and citation omitted).

The PSPs argue that even if section 276 does not confer on

the Commission the requisite authority, the Commission may

invoke other statutory provisions––specifically, section 201(b),

the Communications Act’s general rulemaking provision, section 202(a), the Act’s antidiscrimination provision, and section

205(a), which authorizes the Commission to prescribe just and

reasonable charges. 47 U.S.C. §§ 201(b), 202(a), 205(a).

Such general provisions cannot, however, trump section

152(b)’s specific command that no Commission regulations

shall preempt state regulations unless Congress expressly so

indicates. See Iowa Utils. Bd., 525 U.S. at 382 n.8 (‘‘Insofar

as Congress has remained silent TTT § 152(b) continues to

function.’’). Absent authorization to apply its section 276

regulations to non-BOC LECs, the Commission may not

regulate their intrastate payphone line rates.

IV.

Finally, the BOCs argue that the Commission acted arbitrarily and capriciously by imposing a forward-looking costbased methodology for basic transmission rates. Specifically,

the BOCs claim that (1) pricing under the new services test is

not rationally related to the statute’s goal of preventing

discrimination; (2) the Order is inconsistent with Computer

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 15 of 17
16

III, in which the Commission did not alter the basic line rate;

and (3) the Commission has not applied a forward-looking

cost-based methodology to federal subscriber line charges,

which, according to the BOCs, are analogous to payphone line

rates.

The Commission objects to our consideration of these arguments on the ground that it ‘‘has been afforded no opportunity to pass’’ on them. 47 U.S.C. § 405(a)(2). The BOCs point

out that they did in fact raise all of these arguments before

the Commission, but they neglect to mention that they made

each argument in the course of challenging the Commission’s

authority to set intrastate payphone line rates and never

presented the type of substantive challenge they make here.

Because the BOCs failed explicitly to make a substantive

challenge, ‘‘we must determine whether ‘a reasonable Commission necessarily would have seen the question raised

before [the Court] as part of the case presented to it.’ ’’

AT&T Corp. v. FCC, 317 F.3d 227, 235 (D.C. Cir. 2003)

(citation omitted) (emphasis in original). In considering this

question, we ‘‘bear[ ] in mind that TTT a litigant before the

Commission TTT ha[s] ‘at least a modicum of responsibility for

flagging the relevant issues.’ ’’ Id. (citation omitted). Claiming at oral argument that the BOCs did ‘‘flag’’ the issue,

counsel pointed to a single sentence in a letter to the Commission regarding its jurisdiction, which stated that imposing

a rule different from the rules that apply to federal subscriber line charges ‘‘would not only be beyond the Commission’s

jurisdiction, it would be arbitrary and capricious.’’ Letter

from Aaron M. Panner, Kellogg, Huber, Hansen, Todd &

Evans, P.L.L.C., to Magalie Salas, Secretary, Federal Communications Commission (Jan. 22, 2002). This was insufficient. Given that the BOCs’ three arguments were focused

on the Commission’s jurisdiction, and given that the phrase

‘‘arbitrary and capricious’’ appears just once in the middle of

a letter otherwise wholly dedicated to the BOCs’ jurisdictional

argument, ‘‘we cannot say that a reasonable Commission

‘necessarily would have seen’ ’’ that the BOCs were questioning not only the Commission’s authority to promulgate rules

regulating intrastate payphone line rates, but also the reasonUSCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 16 of 17
17

ableness of those rules. AT&T, 317 F.3d at 236 (citation

omitted). Nor did any statement in an ex parte filing entitled

‘‘An Analysis of the Scope of Commission Jurisdiction Over

Intrastate Payphone Line Rates’’ (filed Oct. 15, 2001), which

counsel also identified as ‘‘flagging’’ the issue, necessarily put

the Commission on notice of the BOCs’ substantive challenge.

As we have repeatedly held, ‘‘[t]he Commission ‘need not sift

pleadings and documents to identify’ arguments that are not

‘stated with clarity’ by a petitioner.’’ Bartholdi Cable Co.,

Inc. v. FCC, 114 F.3d 274, 279 (D.C. Cir. 1997) (citation

omitted). The BOCs should have filed a petition for reconsideration to afford the Commission an opportunity to pass on

their arguments before they turned to this court for review.

See 47 U.S.C. § 405(a)(2) (requiring a litigant first to present

an argument to the Commission on reconsideration if it

‘‘relies on questions of fact or law upon which the Commission

TTT has been afforded no opportunity to pass’’).

V.

We deny the petitions for review and affirm the Wisconsin

Order in all respects.

So ordered.

USCA Case #02-1105 Document #759612 Filed: 07/11/2003 Page 17 of 17