Court Opinion

ID: 3042683
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:09:31.007344+00
Date Added: 2024-06-11T09:12:36.657939
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 06-2401
                                   ___________

Alma Communications Company,         *
doing business as Alma Telephone     *
Company; Chariton Valley Telephone   *
Company; Mid-Missouri Telephone      *
Company; Northeast Missouri Rural    *
Telephone Company,                   *
                                     * Appeal from the United States
     Plaintiffs - Appellants,        * District Court for the Western
                                     * District of Missouri.
     v.                              *
                                     *
Missouri Public Service Commission; *
T-Mobile USA,                        *
                                     *
     Defendants - Appellees.         *
                                ___________

                             Submitted: December 14, 2006
                                Filed: June 11, 2007
                                 ___________

Before LOKEN, Chief Judge, JOHN R. GIBSON, and MURPHY, Circuit Judges.
                              ___________

JOHN R. GIBSON, Circuit Judge.

     This case presents the question of whether land-line telephone calls to cell
phones within the same locale are treated as local calls or long-distance calls by the
FCC. The district court,1 reviewing a decision of the Missouri Public Service
Commission, held that the plain language of the FCC's regulation required such calls
to be treated as local calls, even when such calls were routed through a long-distance
provider. The result of that conclusion is that the local telephone company and the
cell-phone provider must share "reciprocal compensation" for such calls, Alma
Communications Co. v. Missouri Pub. Serv. Co., No. 05-4358-CV-C-NKL, 2006 WL
1382348 (W.D. Mo. May 19, 2006). Alma Communications Company and several
other local telephone companies from rural Missouri,2 whom we will refer to
collectively as "Alma" for simplicity's sake, contend that such calls should be treated
as long-distance calls if they are routed through a long-distance carrier. We affirm the
judgment of the district court.

                                          I.

       Background.
       We borrow heavily from the background supplied by the district court, which
took the alphabet soup served up by the parties and rendered it into serviceable
English. The legal landscape of this case is the bifurcated local/long-distance system
for allocating costs between telephone service providers; this controversy, as others
we have entertained, arises because cell-phone providers do not fit neatly into the
bifurcated system. See Rural Iowa Indep. Tel. Ass’n v. Iowa Util. Bd., 476 F.3d 572,
574 (8th Cir. 2007); Iowa Network Servs., Inc. v. Qwest, 363 F.3d 683, 687 (8th Cir.
2004) (Iowa Network Services I).

      1
      The Honorable Nanette K. Laughrey, United States District Judge for the
Western District of Missouri.
      2
      Chariton Valley Telephone Corporation, Mid-Missouri Telephone Company,
and Northeast Missouri Rural Telephone Company.

                                          -2-
       Alma is a "local exchange carrier" or “LEC,” in other words, a local telephone
company providing traditional land-line phone services. Local exchange carriers
usually serve a small local service area covering a few local exchanges (exchanges
being designated by the first three numbers of a seven-digit phone number). More
specifically, Alma is a rural incumbent local exchange carrier. “Incumbent” means
that it was the telephone company in possession of its area at the time that the
Telecommunications Act of 1996 opened up local service to competition.

       Before the Telecommunications Act of 1996, all customers in a local exchange
carrier's geographical area would be serviced by one local exchange carrier, which
connected the caller and recipient of a local call. The 1996 Act opened local service
areas up to competition, so that different carriers might serve caller and recipient even
in the same exchange area. Iowa Network Services I, 363 F.3d at 685-86. Land-line
calls placed and received within a "local service area" are local calls, as opposed to
"toll" or "long-distance" calls. Id. at 686. Local exchange carriers serving the same
area may have a "direct" connection with each other, which means that there is an
actual physical point of interconnection between the carriers' networks,3 WWC
License, LLC v. Boyle, 459 F.3d 880, 884 (8th Cir. 2006) (distinguishing direct from
indirect connections). When two local exchange carriers are involved in a local call,
both incur costs for the call, since the caller's carrier has to originate the call, but the
receiver's carrier has to transport the call from the point of that carrier's connection
with the originating carrier's network and to terminate the call.4 The carrier for the
party originating the call is compensated by its customer, the caller. Atlas Tel. Co. v.
Oklahoma Corp. Comm'n, 400 F.3d 1256, 1260 (10th Cir. 2005).

       3
        The record suggests that there may be other, more complicated ways to connect
local land-line to land-line calls, but they are not at issue here.
       4
         "Termination" is the "switching of the telecommunications traffic at the
terminating carrier's end office switch, or equivalent facility, and delivery of such
traffic to the called party's premises." 47 C.F.R. § 51.701(d).

                                            -3-
       In the 1996 Act, Congress required the carriers to enter into "reciprocal
compensation arrangements," whereby the carrier for the caller would compensate the
recipient's carrier for its costs in transporting and terminating local calls. See 47
U.S.C. § 251(b) (enumerating duties of local exchange carriers, including "[t]he duty
to establish reciprocal compensation arrangements for the transport and termination
of telecommunications").

       When a land-line customer calls a land-line number outside of the local service
area, there may be no direct connection between the local exchange carriers involved.
In that case, the call does not go directly from one local exchange carrier to the other,
but is routed through an intermediary long-distance carrier (known as an
"interexchange carrier" or "IXC"). The customer chooses a long-distance carrier and
pays it for long-distance service. However, the long-distance carrier cannot complete
the calls by itself. A local exchange carrier has to originate the call and another one
has to terminate it. The long-distance provider pays the local exchange carriers
"access compensation" for their services in connecting the call.

        The distinction between local calls (funded by reciprocal compensation) and
long-distance (funded by access compensation) becomes less clear when one of the
parties to the call is using a cell phone instead of a land line. Cell-phone service is
provided by a "commercial mobile radio service," instead of a local exchange carrier.5
Rather than the "local service area" that defines the boundaries for local calls on land
lines, a "major trading area," which is a larger area, defines which cell-phone calls are
local. Iowa Network Servs. I, 363 F.3d at 687 (citing 47 C.F.R. § 51.701(b)(2)); Rural
Iowa Indep. Tel. Ass'n , 476 F.3d at 574.

      5
       The term "commercial mobile radio service" includes providers of many
services other than cell-phone service. See In the Matter of Implementation of the
Local Competition Provisions in the Telecommunications Act of 1996 and In the
Matter of Interconnection between Local Exchange Carriers and Commercial Mobile
Radio Service Providers,, 11 F.C.C.R . 15499, 15517 (1996).

                                          -4-
      When the local exchange carrier and the cell-phone provider’s networks are
connected directly, then the costs are handled by a reciprocal compensation agreement
between the local exchange company and the wireless company, just as if the call
were a traditional local call. On the other hand, if the land-line customer calls a cell-
phone customer situated outside the major trading area, the call will be routed through
a long-distance carrier and the costs will be covered by access compensation.

       However, when the cell-phone provider chooses not to connect directly with
the local exchange carrier’s network, even a call from the same major trading area–
and for that matter, even a call from the same local service area, has to go through an
intermediary. The cell-phone provider is thus "indirectly interconnected" with the
local exchange carrier's network. The intermediary carrier does not have to be a long-
distance carrier, however, since large local exchange carriers, such as Southwestern
Bell Telephone, can act as “transiting carriers.” In fact, cell-phone companies usually
do not choose to connect directly with rural local exchange carriers, because the
volume of business does not make it economically advantageous for the cell-phone
company to do so. The question in this case is whether the compensation model for
such calls should be governed by the fact that both parties to the call are situated
within the same major trading area or whether it should be governed by the fact that
the call was routed through a long-distance carrier.

       This litigation.
       T-Mobile is a cell-phone company which does not have a direct connection to
Alma's networks, having chosen instead to directly interconnect with Southwestern
Bell Telephone, a large incumbent local exchange carrier, in Kansas City.
Southwestern Bell is directly connected with Alma. When a call is placed from T-
Mobile’s cell phones to one of Alma’s land-line customers, T-Mobile connects the call
either through Southwestern Bell, which acts as a transiting carrier, or through a long-
distance carrier; in either case, T-Mobile pays the intermediary carrier. When the cell-
phone to land-line traffic is carried through a transiting carrier, T-Mobile pays Alma
                                           -5-
reciprocal compensation. When the cell-phone to land-line traffic goes through an
interexchange carrier, T-Mobile pays the interexchange carrier both for the
interexchange carrier’s services and for the fee the terminating local exchange carrier
charges to deliver the call.

       The dispute in this case concerns calls going in the other direction, from a land
line to a cell phone. For what Alma calls “historical and regulatory reasons,” Alma
does not send any of its calls to T-Mobile through a transiting carrier, but instead
sends all traffic bound for T-Mobile through a long-distance carrier. Even calls to a
T-Mobile phone that originate and terminate within Alma’s local service area are
routed through a long-distance carrier, with the result that Alma’s customers have to
dial 1+ to reach even a T-Mobile customer next door.

       Alma insists that it has no choice but to send T-Mobile’s calls through a long-
distance carrier and that those calls are therefore inherently long-distance in nature.
Alma introduced evidence before the arbitrator that it would be legally and technically
problematic and “a major change” from how such calls are currently handled in
Missouri for Alma to deliver such calls without going through an interexchange
carrier. T-Mobile introduced evidence before the arbitrator that it would be possible
for the local exchange carriers to route calls to T-Mobile without sending it to a long-
distance provider.6 Alma’s witnesses testified that the cell-phone companies ought

      6
        T-Mobile’s testimony before the state commission was that the local exchange
carriers made a business decision to hand land-line to cell-phone calls to an
interexchange carrier by requiring their customers to dial 1+. T-Mobile’s witness
Billy Pruitt testified:

      T-Mobile understands that the LECs [local exchange carriers] deliver
      one-plus traffic to IXCs [interexchange carriers] because they do not
      have CMRS [commercial mobile radio service] provider NPA/NXXs
      [codes identifying geographic area and central office] identified in their
      tariffs and loaded into their switches. However, this NPA/NXX [codes
      identifying geographic area and central office] information is contained
                                          -6-
to eliminate the problem by “negotiating an interconnection agreement with us and
getting local numbers.” T-Mobile answers that it would be economically wasteful for
each cell-phone carrier to connect directly to each rural exchange.7 Moreover, there
was testimony that even if T-Mobile were to establish a direct connection with the
respective local exchange carriers, the local exchange carriers would only be able to
connect calls directly to numbers assigned within their local service area, not
throughout the entire major trading area.

      in the LERG [local exchange rating guide] and could be loaded by the
      LECs [local exchange carriers] into their switches if they chose to do so.
      They have simply chosen not to do that, at least to date. There is nothing
      in the Act or the rules that mandate that the current legacy landline
      processes be applied to NPA/NXXs [codes identifying geographic area
      and central office] associated with CMRS [commercial mobile radio
      service] calls. The LECs [local exchange carriers] are consciously
      handing CMRS [commercial mobile radio service]-directed traffic to an
      IXC [interexchange carrier] and treating it as toll traffic under a
      traditional wireline view, resulting in 1) preservation of the LECs' [local
      exchange carriers'] access charge revenue stream and 2) avoidance of
      paying CMRS [commercial mobile radio service] providers the
      termination charges required under the reciprocal compensation rules.

(Emphasis in original) (our translations of Pruitt's acronyms in brackets). Later, he
said: “Could the RLECs [rural local exchange carriers] rewrite their switch
translations to prevent intraMTA [intra-major trading area] calls from being handed
off to IXCs [interexchange carriers]? The answer is certainly yes.” At the hearing
before the state commission, he said that the local exchange carriers could handle calls
to cell phones by contracting with an interexchange carrier to handle them under a
wholesale services arrangement or by handing them off to a transit carrier such as
Southwestern Bell.
      7
        Billy Pruitt further testified: “It would not be economically feasible for T-
Mobile to purchase direct connections to each of these RLECs [rural local exchange
carriers]. The cost of a trunk to each of these companies would likely far exceed the
revenue generated for either part of the facility . . . . The only economically rational
means of interconnecting with these RLECs [rural local exchange carriers] is
indirectly through a transit provider.”
                                            -7-
       In short, Alma would like land-line to cell-phone calls to be treated as long-
distance calls, so that Alma would not have to pay reciprocal compensation to T-
Mobile and so Alma can collect access compensation from the long-distance
providers. T-Mobile, on the other hand, pays Alma reciprocal compensation for cell-
phone to land-line calls and it wants to be paid symmetrical reciprocal compensation
by Alma for its role in terminating intra-major trading area calls placed by Alma’s
customers. T-Mobile would not benefit from such calls being called long-distance,
since it has not been able to get the long-distance carriers to pay it access
compensation.

       Alma was required by law to negotiate an interconnection agreement with T-
Mobile, pursuant to 47 U.S.C. § 251(c)(1). The parties could not agree on how to
characterize all the calls on which they cooperated, and in particular, the parties could
not agree on whether land-line to cell calls within a major trading area should be
covered by reciprocal compensation. Alma filed a petition for arbitration with the
Missouri Public Service Commission in accordance with 47 U.S.C. § 252(b), which
provides that the parties in interconnection negotiations may submit unresolved issues
to arbitration by the state commission. The dispute was arbitrated, and the arbitrator
interpreted the FCC regulation, 47 C.F.R. § 51.701, to require Alma to compensate
T-Mobile for costs incurred in transporting and terminating land-line to cell-phone
calls placed to cell phones within the same major trading area, even if those calls were
routed through a long-distance carrier.

       The Commission affirmed the Arbitrator's decision. In the Matter of the
Petition of Alma Telephone Co., No. IO-2005-0468, slip op. at 15-17 (Mo. Pub. Serv.
Comm. Oct. 12, 2005). Alma filed suit in the district court for declaratory relief
against T-Mobile and the Missouri Public Service Commission. The district court
granted summary judgment in favor of T-Mobile. Alma Communications Co., 2006
WL at *9.

                                          -8-
                                           II.

       The district court reviews the state commission's decision pursuant to 47 U.S.C.
§ 252(e)(6), reviewing its interpretations of federal law de novo, but upholding its
factual conclusions unless they are arbitrary and capricious. ACE Tel. Ass'n v.
Koppendrayer, 432 F.3d 876, 878 (8th Cir. 2005). We review the district court's
decision de novo, applying the same standards the district court is required to employ.
Id. In our interpretation of the Telecommunications Act, we defer to existing
interpretations by the FCC, which Congress authorized to interpret and administer the
Act. WWC License, LLC v. Boyle, 459 F.3d 880, 890 (8th Cir. 2006).

      The arbitrator considered the issue before him to be strictly a legal issue and did
not resolve any factual questions in deciding the issue. Our review of the state
commission’s decision in this case thus involves a legal issue, which we review de
novo.

                                          III.

       In its brief on appeal, Alma argues that FCC rules governing reciprocal
compensation do not include calls made from a local exchange carrier's customer to
a cell phone that are routed through a long-distance provider. Alma argues that 47
C.F.R. § 51.701, the regulation that mandates the use of transport and termination
(reciprocal) pricing, does not include traffic involving a long-distance carrier.8 This

      8
        Section 51.701 defines "telecommunications traffic" as including (1) traffic
exchanged between a local exchange provider and a telecommunications provider
other than a commercial mobile radio service provider, except for traffic that is
interstate or intrastate exchange access, information access, or exchange services for
such access; and (2) traffic "exchanged between" a local exchange provider and a
Commercial Mobile Radio Service provider that, at the beginning of the call,
originates and terminates within the same major trading area. See 47 C.F.R. §
51.701(b). The second paragraph, 47 C.F.R. § 51.701(b)(2), announces flatly that
                                           -9-
argument was squarely rejected by the Tenth Circuit in Atlas Telephone Co. v.
Oklahoma Corp. Commission, 400 F.3d 1256, 1264-68 (10th Cir. 2005). The Tenth
Circuit held that the language in section 701 making the geographic major trading area
the determining factor in deciding whether a call would be local or long-distance is
"clear, unambiguous, and on its face admits of no exceptions." Id. at 1264. "Nothing
in the text of these provisions provides support for RTC's contention that reciprocal
compensation requirements do not apply when traffic is transported on an IXC
[interexchange carrier] network." Id. Alma contends that Atlas was wrongly decided.
We need not rehearse Alma's arguments attacking the Atlas decision, for our circuit
has now adopted its reasoning in three different cases.

       After briefing in this case, our court rendered its second decision in Iowa
Network Services, Inc. v. Qwest Corp., 466 F.3d 1091 (8th Cir. 2006) (Iowa Network
Sevices II), cert. denied, No. 06-1217, 2007 WL 698901 (U.S. May 14, 2007), in
which we held that an intermediary carrier was not required to pay access charges for
cell-phone to land-line calls originating and terminating within a major trading area.
See Iowa Network Servs. v. Qwest Corp., 363 F.3d 683, 687 (8th Cir. 2004) (Iowa
Network Services I) (facts involve "traffic which occurs when a cell-phone user
located within the Des Moines MTA [major trading area] initiates a call to a land-line
customer of one of the Iowa independent LEC's [local exchange carriers], and the cell-
phone user's CMRS [commercial mobile radio service] provider uses Qwest's network
to transport the call to [the local exchange carrier's] network for final termination on
the LEC's [local exchange carrier's] infrastructure to the called party."). We relied on
the FCC’s Local Competition Order, In the Matter of Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996 and In the Matter of
Interconnection between Local Exchange Carriers and Commercial Mobile Radio
Service Providers, 11 F.C.C.R. 15499 (1996), to conclude that cell-phone calls within

calls involving a cell phone in which the caller and receiver are in the same major
trading area when the call is placed are covered by the transport and termination
pricing regulations.
                                        -10-
a major trading area are "local" calls subject to reciprocal compensation arrangements,
not “long-distance” calls subject to access compensation. 466 F.3d at 1096-97. We
further upheld the state commission’s order requiring the local exchange carriers and
the intermediary to enter into reciprocal compensation negotiations. Id. at 1097-98.
Iowa Network Services II thus explodes the idea that a cell-phone call made and
received within a major trading area is transformed into a long-distance call simply
by being routed through a long-distance carrier.

        In Rural Iowa Independent Telephone Association v. Iowa Utilities Board, 476
F.3d 572, 576-77 (8th Cir. 2007), we further reinforced the principle that cell-phone
calls made and received within the major trading area are subject to reciprocal
compensation, rather than access compensation. We relied on Iowa Network Services
II to uphold a state commission’s order that rural local exchange carriers were not
entitled to access compensation from a transiting carrier that connected calls from a
cell-phone to a land-line. The state commission had also ordered “requiring
terminating carriers [i.e., local exchange carriers] to negotiate interconnection
agreements [for reciprocal compensation] directly with originating wireless carriers.”
Id. at 577; see id. at 575 (order was specifically to negotiate reciprocal compensation
arrangement). We held this order was within the state commission’s authority. Id. at
577. Finally, the state commission had ruled that the local exchange carriers were not
entitled to route land-line to cell-phone traffic through a long-distance carrier because
allowing them to do so would discourage land-line customers from calling cell phones
and thus interfere with the symmetry of the cell-phone/land-line traffic; we upheld this
aspect of the order as well. Id. at 577-78.

        At oral argument, Alma distinguished Iowa Network Services II on the ground
that it involved cell-phone to land-line traffic, rather than land-line to cell-phone
traffic. Alma has thus retreated from its original argument that any involvement by
an interexchange carrier would make a call long-distance and now advances a
modified argument that origination by the long-distance carrier or 1+ dialing makes
a call long-distance. According to Alma, the reason this makes a difference is that in
                                         -11-
the case of land-line to cell-phone calls placed by Alma's customers, the caller has to
dial 1+ to initiate the call, which means that the long-distance provider of the
consumer’s choice, rather than the local exchange carrier, bills the consumer. Alma
contends that if the long-distance provider bills the consumer, the consumer is the
customer of the long-distance provider, not the local exchange company, and the local
exchange company has no obligation to pay reciprocal compensation. Alma argues
that calls going from cell phones to land lines are different because T-Mobile is not
obliged to let its customers choose their long-distance carrier or to hand off long-
distance calls to the customer’s chosen carrier. Therefore, even though T-Mobile pays
Alma reciprocal compensation for cell-phone to land-line calls, Alma contends that
it should not pay T-Mobile such compensation for traffic going in the opposite
direction. This argument depends on the factual proposition that calls to a cell phone
from a local exchange carrier’s network have to be initiated by dialing 1+, a
proposition which has been rejected by the state commission order we recently upheld
in Rural Iowa Independent Telephone Association, 476 F.3d at 578 (“[W]e conclude
the IUB acted within its authority when it directed the rural carriers to allow their
customers to dial intraMTA [major trading area] calls as local calls.”).

       At any rate, we cannot accept Alma’s argument that intra-major trading area
land-line to cell-phone calls are not subject to reciprocal compensation, for we relied
on Atlas to reject an analogous argument in WWC License. There, a cell-phone
provider sought a ruling that the incumbent local exchange carrier was obliged to
provide local dialing parity for land-line to cell-phone calls. Local dialing parity
means that customers can make local calls dialing the same number of digits, no
matter who is the recipient’s service provider. 47 C.F.R. § 51.207. Local dialing
parity, like reciprocal compensation, is one of the obligations imposed on local
exchange carriers by Title 47 U.S.C. § 251(b). The local exchange carrier in WWC
License, like Alma in this case, argued that because the cell-phone provider had not
directly connected to the local exchange carrier’s network, it was necessary for land-
line to cell-phone calls to be routed through an interexchange carrier. In WWC

                                         -12-
License, the indirect connection meant that the only way to connect land-line
customers to cell customers using the local exchange carrier’s existing equipment was
to require customers to dial 1+ the ten-digit number. The state commission had held
that because the cell-phone provider had chosen not to connect directly with the local
exchange carrier, thereby necessitating the involvement of an intermediary carrier to
complete local calls, the local exchange carrier was not obliged to provide local
dialing parity. Id. at 889. We held that the state commission had erred in a question
of federal law, for the duty to provide local dialing parity was not conditioned on
whether the caller's local exchange carrier would have to route the call through an
interexchange service. Id. at 889-93. We rejected fact-bound arguments about the
technical feasibility of complying with the duties imposed on local exchange carriers
by 47 U.S.C. § 251(b), even though we acknowledged that the effect of the holding
was to impose costs on the local exchange carrier as a result of the cell-phone carrier’s
decision not to connect directly with the local exchange carrier, see id. at 889. We
said, “The statutory duties under examination are not limited with reference to
technical feasibility or expense.” Id. at 893.

       Our holding in WWC License is particularly relevant here because we reasoned
that the duty of dialing parity was analogous to the duty of reciprocal compensation.9
We therefore relied on Atlas’s holding that the FCC had made the major trading area
the "local area for the purpose of reciprocal compensation,” rather than making direct
connection the criterion for deciding what calls would be treated as local. Id. at 891-
92.

      9
       In fact, the issue of whether such calls triggered the reciprocal compensation
obligation was at issue in the district court in WWC License. The district court held
that calls within the major trading area were subject to reciprocal compensation,
regardless of whether they had to be routed through the interexchange carrier. Neither
party appealed that ruling. See Boyle, 459 F.3d at 888 n.6.

                                          -13-
       Our reliance on Atlas in WWC License compels us to reject Alma’s argument
that the involvement of an interexchange carrier at the originating end of the call
means that the call cannot be subject to reciprocal compensation.

       Accordingly, we are bound by circuit precedent to hold that calls from a land
line to a cell phone placed and received within the same major trading area are local
calls, subject to the reciprocal compensation arrangements ordained by the 1996
Telecommunications Act, 47 U.S.C. § 251(b)(5). We affirm the judgment of the
district court.
                           _________________________

                                        -14-