No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Transcription

1 No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT RONAN TELEPHONE COMPANY and HOT SPRINGS TELEPHONE COMPANY Petitioners, METROPCS COMMUNICATIONS, INC.; et al., Petitioners Intervenors, v. FEDERAL COMMUNICATIONS COMMISSION; et al., Respondents, NEXTEL COMMUNICATIONS, INC., Respondent Intervenor. On Petition for Review of an Order of the Federal Communications Commission (FCC No ) OPENING BRIEF OF PETITIONERS RONAN TELEPHONE COMPANY AND HOT SPRINGS TELEPHONE COMPANY Ivan C. Evilsizer EVILSIZER LAW OFFICE 2301 Colonial Drive, Suite 2B Helena, Montana (406) May 18, 2012 Counsel to Ronan Telephone Company and Hot Springs Telephone Company, Petitioners

2 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure, Counsel for Petitioners Ronan Telephone Company and Hot Springs Telephone Company certifies the following: Ronan Telephone Company and Hot Springs Telephone Company are privately owned corporations incorporated in the State of Montana and have their principal place of business in Ronan, Montana, and Hot Springs, Montana (respectively). Hot Springs Telephone Company has no parent corporation. Ronan Telephone Company is wholly owned by CommunityTel, Inc., a privately held Montana corporation. No publicly held company owns 10 percent or more of the stock of Ronan Telephone Company or Hot Springs Telephone Company. The general nature and purpose of Ronan Telephone Company and Hot Springs Telephone Company, relating to this litigation, are to provide local exchange telecommunications service and other telecommunications services in their respective local service areas. Both companies provide regulated local exchange services entirely within the boundaries of the Flathead Indian i

3 Reservation in Western Montana, and are subject to the jurisdiction of the Federal Communications Commission and the Montana Public Service Commission. Respectfully submitted, s/ivan C. Evilsizer EVILSIZER LAW OFFICE 2301 Colonial Drive, Suite 2B Helena, Montana (406) May 18, 2012 Counsel to Ronan Telephone Company and Hot Springs Telephone Company, Petitioners ii

4 TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT... i TABLE OF AUTHORITIES... v GLOSSARY OF ABBREVIATIONS... x INTRODUCTION... 1 STATEMENT OF JURISDICTION... 1 STATEMENT OF ISSUES... 1 STATUTES AND REGULATIONS... 2 STATEMENT OF THE CASE... 2 STATEMENT OF FACTS... 3 SUMMARY OF ARGUMENT... 5 ARGUMENT... 7 I. STANDARD OF REVIEW... 7 II. THE ORDER IS UNLAWFUL BECAUSE IT VIOLATES SPECIFIC PROVISIONS OF THE TELECOMMUNICATIONS ACT OF A. The Order is contrary to Congressional intent regarding the term arrangements B. The Order ignores the Congressional mandate that excludes rural ILECs from section 252 pricing requirements and gives all such exemption authority to state utility commissions III. THE ORDER VIOLATES THE APA S PROCEDURAL REQUIREMENTS AND FUNDAMENTAL PRINCIPLES OF DUE PROCESS iii

5 IV. THE ORDER IS ARBITRARY AND CAPRICIOUS V. THE ORDER IS AN UNLAWFUL TAKING BECAUSE IT REQUIRES CARRIERS TO TERMINATE TRAFFIC WITHOUT COMPENSATION VI. THE APPROPRIATE REMEDY IS TO VACATE THE ORDER CONCLUSION STATEMENT OF RELATED CASES CERTIFICATE OF COMPLIANCE WITH RULE 32(a)(7) CERTIFICATE OF SERVICE ADDENDUM (PERTINENT STATUTES AND REGULATIONS)... 1 iv

6 TABLE OF AUTHORITIES CASES Federal Cases Page Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm n, 988 F.2d 146 (D.C. Cir. 1993) AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999)... 5, 16 Auer v. Robbins, 519 U.S. 452 (1997)... 8 Beeman v. TDI Managed Care Svcs., 449 F.3d 1035 (9th Cir. 2006)... 7 Bowles v. Seminole Rock, 325 U.S. 410, 414 (1945) Brigham v. FCC, 276 F.2d 828 (5th Cir. 1960)... 8 Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)... 7, 10 City of Los Angeles v. United States Dep t of Commerce, 307 F.3d 859 (9th Cir. 2002) Competitive Telecommunications Ass n v. FCC, 87 F.3d 522 (D.C. Cir. 1996) Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989) FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) Frank Irey, Jr., Inc. v. OSHRC, 519 F.2d 1200 (3rd Cir. 1974), aff d, 430 U.S. 442 (1977) Hart v. McLucas, 535 F.2d 516 (9th Cir. 1976)... 8 Kisser v. Cisneros, 14 F.3d 615 (D.C. Cir. 1994)... 7 Lead Indus. Ass n v. EPA, 647 F.2d 1130 (D.C. Cir. 1980)... 8 v

7 Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S )... 7 National Ass n of Regulatory Utility Commissioners v. FCC, 533 F.2d 601 (D.C. Cir. 1996) NLRB v. Coca-Cola Bottling Co. of Louisville, 350 U.S. 264 (1956)... 8 Office of Communication of United Church of Christ v. FCC, 707 F.2d 1413 (D.C. Cir. 1983)... 8 Oklahoma-Arkansas Tel. Co. v. Southwestern Bell Tel. Co., 45 F.2d 995 (8th Cir. 1930) Sprint Communications v. Tex. PUC and Brazos Tel. Coop., 2006 U.S. Dist. LEXIS (U.S.D.C., W.D. Tex. Aug. 14, 2006) United States v. Clifford Matley Family Trust, 354 F.3d 1154 (9th Cir. 2004) United States Telecom Ass n v. FCC, 359 F.3d 554 (D.C. Cir. 2004), cert. denied 125 S. Ct. 313 (2004), 125 S. Ct. 316 (2004), and 125 S. Ct. 345 (2004) State Cases Tobacco River Power Co. v. Montana Pub. Svc. Comm n, 98 P.2d 886 (Mont. 1940) CONSTITUTION, STATUTES, AND RULES Constitution U.S. Const. amend. V Mont. Const. art. I, 17 and vi

8 Statutes 5 U.S.C , 18, 21, U.S.C U.S.C U.S.C U.S.C. 151, et seq., as amended... x 47 U.S.C. 251(b)(5)... 4, 5, 9, 10, 13, 15, 18, 19, U.S.C. 251(f)... 5, 6, 9, U.S.C , 6, U.S.C. 252(a) U.S.C. 252(d) U.S.C. 252(d)(2) U.S.C. 252(d)(2)(A) U.S.C. 252(d)(2)(B)(i) U.S.C U.S.C. 259(b)(7)... 9, U.S.C. 402(a)... 1 Rules 47 CFR 20.11(b) CFR 20.11(e)... 5, 18 vii

9 47 CFR 20.11(f) CFR CFR (b)(2) CFR , 21 MISCELLANEOUS Federal Agency Orders T-Mobile et al., Petition for Declaratory Ruling Regarding Incumbent LEC Wireless Termination Tariffs, In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No , 20 FCC Rcd (rel. Feb. 24, 2005) , 8-19, Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket Nos and , ( First Report and Order ), 11 FCC Rcd (1996)... 4 Establishing Just and Reasonable Rates for Local Exchange Carriers; Call Blocking by Carriers, WC Docket No , 22 FCC Rcd (WCB 2007) State Agency Orders Application of the Southern New England Tel. Co. to Amend Its Rates and Rate Structure, Docket No , Conn. Dept. of Pub. Util. Control (July 7, 1993) In the Matter of the Protest of Gary Cellular Tel. Co. of Indiana Bell Tel. Co., Inc. s Filing for Cellular Mobile Carrier Service, Cause No , Ind. Util. Reg. Comm n (Mar. 30, 1989) In the Matter of Indiana Bell Tel. Co., Inc. to Treat Radio Common Carriers and Cellular Mobile Carriers under a Unified Tariff, Cause No , Ind. Util. Reg. Comm n (Feb. 1, 1989) viii

10 In re: Investigation Into the Inter-Connection of Mobile Carriers with Facilities in Local Exchange Companies, 89-8 FPSC 104, Docket No TL; Order No , Fla. Pub. Svc. Comm n (1989) Investigation on the Commission s own Motion into the Regulation of Cellular Radiotelephone Utilities; and Related Matter, 54 CPUC.2d 330, Decision No , I , Application No , Cal. Pub. Util. Comm n (Apr. 20, 1994) In the Matter of the Petition of Blackfoot Tel. Coop. and Montana Wireless, Inc. for Arbitration, Mont. PSC Order No. 6218a/6219a, Docket Nos. D and D (Jan. 26, 2000) ix

11 GLOSSARY OF ABBREVIATIONS 1996 Act The Communications Act of 1934, 47 U.S.C. 151, et seq., as amended by the Telecommunications Act of 1996, Pub. L. No (Feb. 6, 1996) CLEC CMRS HSTC ILEC LEC MTA Order RTC Competitive Local Exchange Carrier Commercial Mobile Radio Service (i.e., wireless/cellular carriers) Petitioner, Hot Springs Telephone Company Incumbent Local Exchange Carrier Local Exchange Carrier Major Trading Area T-Mobile at al. Petition for Declaratory Ruling Regarding Incumbent LEC Wireless Termination Tariffs, In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No , 20 FCC Rcd (adopted Feb. 17, 2005; released Feb. 24, 2005) Petitioner, Ronan Telephone Company x

12 INTRODUCTION Ronan Telephone Company (RTC) and Hot Springs Telephone Company (HSTC) (referred to collectively as Petitioners) seek review of the final order and related adopted regulations of the Federal Communications Commission (FCC) in T-Mobile et al,. Petition for Declaratory Ruling Regarding Incumbent LEC Wireless Termination Tariffs, In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No , 20 FCC Rcd (adopted Feb. 17, 2005; rel. Feb. 24, 2005) (Order). (A summary of the Order was published in the Federal Register on March 30, 2005 (70 Fed. Reg ).) STATEMENT OF JURISDICTION RTC and HSTC participated in the proceedings before the FCC and are parties aggrieved by the final Order of the FCC. This Court has jurisdiction under 47 U.S.C. 402(a) and 28 U.S.C. 2342, Venue is proper under 28 U.S.C Petitioners Petition for Review was timely filed on April 8, 2005, within the 60-day period under 28 U.S.C Petition for Review, Ronan Tel. Co., et al. v. FCC, No (9 th Cir., filed Apr. 8, 2005). STATEMENT OF ISSUES 1. Whether the Order, by prohibiting tariffs as a mechanism for incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs) to interconnect with and to receive compensation from commercial 1

13 mobile radio service (CMRS) providers for the termination of intramta (Major Trading Area) traffic, violates the Communications Act of 1934, as amended. 2. Whether the Order, issued after a Public Notice that failed to adequately inform non-ilec entities that would be significantly impacted by the Order, violated procedural requirements of the Administrative Procedure Act (APA) and fundamental principles of due process. 3. Whether the Order was arbitrary and capricious, by not allowing CLECs (while allowing ILECs) to request compensation agreements with other carriers; and by being directly inconsistent with a subsequent Order of the FCC (FCC Reform Order, 2011). 4. Whether a bill and keep compensation arrangement for the exchange of telecommunications traffic fails to provide adequate compensation, and, therefore, constitutes an unlawful taking. STATUTES AND REGULATIONS Pertinent statutes and regulations are contained in an Addendum to this brief. STATEMENT OF THE CASE This case is an appeal of an Order of the Federal Communications Commission, seeking judicial review of the Federal agency s decision (declaratory ruling). After receiving comments in its CC Docket No , the FCC, held that 2

14 local exchange carriers (LECs) are prohibited from imposing compensation obligations for local (non-access) CMRS wireless telecommunications traffic pursuant to tariffs approved by state commissions, requiring instead that such compensation arrangements be set by agreements only; and issuing related rulings. T-Mobile at al. Petition for Declaratory Ruling Regarding Incumbent LEC Wireless Termination Tariffs, In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No , FCC Order 05-42, 20 FCC Rcd (rel. Feb. 24, 2005). The Petitioners herein are challenging the lawfulness of the FCC s ruling before this Court, on a number of grounds. This case had been postponed by Orders granting abeyance of the Court s proceedings, but is now being briefed. STATEMENT OF FACTS On September 6, 2002, T-Mobile USA, Inc., Western Wireless Corporation, Nextel Communications and Nextel Partners jointly filed a petition for declaratory ruling (the Petition) asking the FCC to declare that wireless termination tariffs are not a proper mechanism for establishing reciprocal compensation arrangements for the transport and termination of [telecommunications] traffic. Order, 1; Exc. of Rec., p. 1. Prior to the 1996 Act, the FCC had established rules governing LEC interconnection with CMRS providers; and requiring mutual compensation for the exchange of traffic between LECs and CMRS providers. Id., 2, Exc. of Rec., p.2. 3

15 In particular, the FCC s rules prior to the 1996 Act required the originating carrier to pay reasonable compensation to the terminating carrier in connection with traffic terminating on the latter s network. Id. After the passage of the 1996 Act, the FCC determined that [47 U.S.C.] section 251(b)(5) of the 1996 Act obligates LECs to establish reciprocal compensation arrangements for the exchange of intramta (Major Trading Area) traffic between LECs and CMRS (wireless) providers. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket Nos and , (First Report and Order), 11 FCC Rcd , (1996). With the Order, the FCC denied the Petition in part and, prohibited, on a going-forward basis only, all LECs from imposing compensation obligations for non-access CMRS traffic pursuant to tariff. Order, 9, Exc. of Rec., p. 6. In addition, the FCC amended its rules to allow ILECs (but not CLECs) to request interconnection from a CMRS provider and to invoke the negotiation and arbitration procedures set forth in section 252 of the 1996 Act. 1 Id. Nowhere in 1 Rates established under section 252 of the 1996 Act are either total element long run incremental cost (TELRIC) rates or zero bill and keep rates. Bill and keep refers to a telecommunications compensation arrangement in which each party bills its customers for the calls those customers originate, keeps the revenues from billing those customers, but does not pay other carriers for the transport, switching, or termination of the calls. 4

16 the Order did the FCC address the rural exemption provided for in section 251(f)(1) of the 1996 Act. SUMMARY OF ARGUMENT In adopting the Order and related rules, the FCC unlawfully eliminated tariffs as a mechanism for LECs both ILECs and CLECs 2 to interconnect with and to receive compensation from CMRS (wireless/cellular) providers for the termination of intramta traffic. The FCC arbitrarily and capriciously determined that tariffs no longer qualify as arrangements under section 251(b)(5) of the 1996 Act. Furthermore, despite the fact that the request for declaratory ruling sought a determination as to ILECs only, the FCC created a broader rule that banned both ILECs and CLECs from imposing intramta traffic compensation obligations on CMRS providers pursuant to tariffs. See 47 CFR 20.11(e). Moreover, although the FCC adopted a rule allowing ILECs to request interconnection agreement negotiation and arbitration, the FCC did not create the same opportunities for CLECs. See 47 CFR 20.11(f). 2 As explained by the Supreme Court in AT&T Corp. v. Iowa Utils. Bd., until the 1990s, local phone service was thought to be a natural monopoly and [s]tates typically granted an exclusive franchise in each local service area to a local exchange carrier (LEC). 525 U.S. 366, 370 (1999). With the 1996 Act, Congress restructured local exchange markets by imposing a host of duties on the monopoly carriers (i.e., incumbent LECs or ILECs) to facilitate market entry by competitive LECs or CLECs. Id. 5

17 By tying intramta termination compensation to the pricing principles of section 252 of the 1996 Act, which is strictly limited to ILEC rates, the FCC s Order subjected rural LECs and CLECs termination rates to a pricing mechanism never intended by Congress. Finally, the FCC ignored the clear language of the 1996 Act and unlawfully usurped the authority of state public utility commissions by ignoring section 251(f)(1) of the 1996 Act, which exempts rural LECs from section 252 unless and until a state public utility commission lifts the rural exemption, after hearing, and based on substantial evidence. The FCC s action also violated the Administrative Procedure Act (APA) and due process, by failing to provide a proper notice that CLECs could be affected by its decision. The Order is also arbitrary and capricious. It creates a barrier to competitive entry in the industry by eliminating tariffs as a compensation arrangement. The Order also is directly inconsistent with the FCC s more recent FCC Reform Order, which specifically allows tariffs for telecommunications traffic. The Order is also an unlawful, unconstitutional taking, by requiring the termination of traffic without just compensation. 6

18 ARGUMENT I. STANDARD OF REVIEW A challenge to an FCC declaratory ruling must examine whether such ruling is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. See 5 U.S.C. 706(2)(A). The arbitrary and capricious standard presumes the validity of agency action, requiring the court to determine whether the agency has considered the relevant factors and articulate[d] a rational connection between the facts found and the choice made. Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). The court may reverse the agency s action if the agency s decision is not supported by substantial evidence, or the agency has made a clear error in judgment. Kisser v. Cisneros, 14 F.3d 615, 619 (D.C. Cir. 1994). The court reviews FCC implementation of the 1996 Act in accordance with Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), under which, [i]f the intent of Congress is clear, the court must give effect to the unambiguously expressed intent of Congress. Chevron, 467 U.S. at Questions of law (e.g., statutory interpretation and interpretation of federal statutes and rules) are reviewed de novo by the court. Beeman v. TDI Managed Care Svcs., 449 F.3d 1035, 1038 (9th Cir. 2006); United States v. Clifford Matley 7

19 Family Trust, 354 F.3d 1154, 1159 n.4 (9th Cir. 2004). [A] reviewing court does not serve as a mere rubber stamp for agency decisions. Lead Indus. Ass n v. EPA, 647 F.2d 1130, 1145 (D.C. Cir. 1980). Matters of statutory construction are not finally entrusted to administrative agencies, but are determinable ultimately by the courts. Brigham v. FCC, 276 F.2d 828 (5th Cir. 1960). Courts accord only limited deference to an administrative agency s interpretation of its governing statutes. Office of Communication of United Church of Christ v. FCC, 707 F.2d 1413 (D.C. Cir. 1983). II. THE ORDER IS UNLAWFUL BECAUSE IT VIOLATES SPECIFIC PROVISIONS OF THE TELECOMMUNICATIONS ACT OF 1996 A. The Order is contrary to Congressional intent regarding the term arrangements. Generally, courts defer to an agency s interpretation of the statute that such agency is empowered to enforce; however, no deference is given to an agency s interpretation of a regulation that is clearly contrary to the plain and sensible meaning of that regulation. Hart v. McLucas, 535 F.2d 516, 520 (9th Cir. 1976). Furthermore, words of familiar usage are to be used in their ordinary sense. NLRB v. Coca-Cola Bottling Co. of Louisville, 350 U.S. 264 (1956). Moreover, deference to an agency interpretation applies only in the case of an agency interpretation of its own regulations, not its interpretation of Congressional statute. Auer v. Robbins, 519 U.S. 452, 461 (1997). 8

20 In this case, the FCC s decision to exclude tariffs from the list of acceptable arrangements (i) is not based on the FCC s expertise and definition of a technical term, (ii) contradicts Congressional intent as evidenced by the inclusion elsewhere of tariffs in the overarching term arrangement, (iii) removes the rural exemption without state action, contrary to the clear language of section 251(f)(1) of the 1996 Act, and (iv) is entitled to no deference. Here, Congress used the term arrangements in section 251(b)(5) of the 1996 Act to describe the formal mechanisms that would trigger compensation obligations for the transport and termination of telecommunications. 47 U.S.C. 251(b)(5). Even if the term arrangements is not found to have a plain and sensible meaning, there is no indication that Congress intended the term to be so narrowly defined as to prohibit tariffs from satisfying the arrangement obligation. Indeed, based on other sections of the 1996 Act, it is clear that Congress intended the term arrangements to be interpreted more broadly than the FCC did in the Order. Section 259(b)(7) of the 1996 Act illustrates the fact that Congress considered tariffs to be compensation arrangements under the 1996 Act. Section 259(b)(7), which addresses infrastructure sharing, states that the FCC shall require that such local exchange carrier file with the Commission or State for public inspection, any tariffs, contracts, or other arrangements showing the rates, 9

21 terms, and conditions under which such carrier is making available public switched network infrastructure and functions under this section. 47 U.S.C. 259(b)(7) (emphasis added). Accordingly, Congress recognized that the term arrangement was to be interpreted broadly to include the illustrative examples of tariffs and contracts. By not limiting 251(b)(5) to negotiated contracts, Congress did not intend to exclude tariffs from the list of acceptable compensation arrangements. Congress could have used the term agreements instead of arrangements if it had intended a more narrow scope. Thus, the FCC s interpretation in the Order is plainly inconsistent with the 1996 Act and is entitled to no deference. Bowles v. Seminole Rock, 325 U.S. 410, 414 (1945). Even under the deferential Chevron standard of review, an agency cannot, absent strong structural or contextual evidence, exclude from coverage certain items that clearly fall within the plain meaning of a statutory term. United States Telecom Ass n v. FCC, 359 F.3d 554 (D.C. Cir. 2004), cert. denied 125 S. Ct. 313 (2004), 125 S. Ct. 316 (2004), and 125 S. Ct. 345 (2004). In the Order, the FCC acknowledged that tariffs were appropriate arrangements prior to the effective date of the Order. Order, 9, Exc. of Rec., p. 6. Indeed, tariffs are valid and efficient arrangements utilized by carriers to avoid the burdensome and unnecessary expense of negotiating hundreds of individual agreements. In addition, a carrier s tariff filing is not a simple unilateral 10

22 imposition of obligations on another carrier. The FCC itself recognized that tariffs are publicly-filed arrangements that are not accepted wholesale by state commissions, and that state agencies and other carriers may suspend, investigate, and challenge a carrier s tariff filing. Order, n.31, Exc. of Rec., p. 5. In addition, a CMRS provider could request arbitration to receive the same compensation contained in a LEC s tariff, and effectively argue that the LEC s tariffed rate is just and reasonable and should be provided reciprocally to the CMRS provider. By eliminating termination tariffs for CMRS traffic, the FCC greatly increased the ILECs costs by requiring the ILECs to engage in lengthy, widespread, and costly individual negotiations (and potential arbitrations) with each and every CMRS provider. In the case of CLECs, the FCC s action was more egregious in that it eliminated tariffs and the possibility that CLECs could compel CMRS providers to negotiate for termination compensation. [T]he allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer... Commission authority. National Ass n of Regulatory Utility Commissioners v. FCC, 533 F.2d 601, 618 (D.C. Cir. 1996). In this case, the statute specifically prohibited the FCC from taking the action it took, and the FCC s determination to preclude tariff arrangements for CMRS traffic compensation should be vacated. 11

23 B. The Order ignores the Congressional mandate that excludes rural ILECs from section 252 pricing requirements and gives all such exemption authority to state utility commissions. Nowhere in the Order did the FCC address section 251(f)(1) of the 1996 Act, which provision exempts unless terminated by a state utility commission rural LECs from the duty under section 251(c)(1) of the 1996 Act to establish terms and conditions of service through negotiating and arbitrating interconnection agreements under section 252 of the 1996 Act. 3 The Order declared that all LECs will be eligible for compensation for terminating CMRS provider traffic only if they enter into individually negotiated agreements with the CMRS providers, either voluntary agreements or agreements compelled through the negotiation and arbitration process in section 252 of the 1996 Act. Thus, the FCC unilaterally terminated, without cause or legal or evidentiary basis, the section 251(f)(1) rural exemption for carriers like Petitioners and subjected all rural LECs to section 252. That determination by the FCC exceeded the clear and unambiguous statutory of the 1996 Act, and usurped a power given by Congress to state utility commissions. 3 See, In the Matter of the Petition of Blackfoot Tel. Coop. and Montana Wireless, Inc. for Arbitration, Mont. PSC Order No. 6218a/6219a, Docket Nos. D and D , Jan. 26, 2000 (dismissing petition for arbitration based on rural exemption, which exempts ILECs from negotiating, 47 U.S.C. 251(f)(1) and 251(c)); see also, Sprint Communications v. Tex. PUC and Brazos Tel. Coop., 2006 U.S. Dist. LEXIS (U.S.D.C., W.D. Tex. Aug. 14, 2006) (affirming Tex. PUC decision dismissing arbitration petition, based on rural exemption from negotiating). 12

24 Neither total element long run incremental cost (TELRIC) rates, see fn. 1, p. 4, supra, which are designed to cover only the incremental cost of terminating calls, nor bill and keep rates, which are necessarily zero, are reasonable rates as required under sections 251(b)(5) and 252(d)(2) of the 1996 Act. In particular, bill and keep violates the language of the 1996 Act, which requires transport and termination charges for local traffic to compensate for the costs of terminating traffic on another carrier s network, and to be based on a reasonable approximation of the additional costs of terminating such calls. 47 U.S.C. 252(d)(2)(A). Although the 1996 Act goes on to state that it is not intended to preclude offsetting reciprocal obligations such as bill and keep (see 47 U.S.C. 252(d)(2)(B)(i)), any application of that provision must not conflict with the constitutional taking prohibition (see the constitutional taking discussion below at Section V), must be cost compensatory, must be based upon specific evidence in the applicable record, and must be consistent with the other implementing rules of the FCC. III. THE ORDER VIOLATES THE APA S PROCEDURAL REQUIREMENTS AND FUNDAMENTAL PRINCIPLES OF DUE PROCESS. On September 30, 2002, the FCC released its Public Notice requesting comments on the petition captioned T-Mobile et al. Petition for Declaratory Ruling Regarding Incumbent LEC Wireless Termination Tariffs (Petition), 17 13

25 FCC Rcd As noted by its caption, the Petition sought to obtain a declaratory ruling limited to the practices of ILECs, not non-ilec entities such as CLECs. The limited nature of the inquiry was further reinforced by the Public Notice, which referred to potential questions about the compensation tariffs of ILECs and rural ILECs. Despite the clear limitation of the Public Notice, the FCC s resulting rule imposed regulations on CLECs. 4 As such, the FCC did not provide adequate notice to non-ilecs that it would be creating a rule impacting their business operations. Inadequate notice and opportunity to be heard is a clear violation of the due process protections afforded by the APA. Indeed, as Appendix C of the Order (Exc. of Rec., p. 18) demonstrates, CLECs did not participate, file comments, or submit replies in the proceeding. Despite the absence of the opportunity to participate by an entire segment of the telecommunications industry, the FCC created rules applicable to the segment. The FCC s rules in the Order disparately impact CLECs by providing CLECs with no possibility for receiving compensation from CMRS providers, while, at the same time, allowing ILECs a mechanism for 4 The Petitioners herein are rural ILECs in Western Montana, but RTC also has business plans to expand and compete in other areas of Montana as a CLEC. RTC is the recipient of a Federal BTOP Stimulus Grant for a middle mile fiber optic transmission project, which will facilitate its entry into CLEC operations. RTC is also a partner with the Blackfeet Tribe, providing high-speed Internet service on the Blackfeet Indian Reservation via 700 MHz wireless spectrum, and owns a number of small cable television franchises in Western Montana. There are plans to expand these operations into voice/clec services. 14

26 compensation. In reviewing agency actions, the courts have a greater role to play to prevent or correct disparate treatment of those subjected to regulations. See, e.g., Frank Irey, Jr., Inc. v. OSHRC, 519 F.2d 1200 (3rd Cir. 1974), aff d, 430 U.S. 442 (1977). As the FCC noted in the Order, prior to passage of the 1996 Act the FCC s rules required the originating carrier to pay reasonable compensation to the terminating carrier in connection with traffic terminating on the latter s network. 47 CFR 20.11(b). The 1996 Act opened the telecommunications industry to competition, imposing certain obligations on the ILECs and placing certain requirements on all LECs, including the nascent CLECs. See, e.g., 47 U.S.C 251(c) (obligations specific to ILECs) and 47 U.S.C 251(b) (obligations applying to all LECs, including CLECs). For purposes of this proceeding, section 251(b)(5) of the 1996 Act applies to all LECs, and that provision states that all LECs have a duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications. 47 U.S.C 251(b)(5). Prior to the Petition, the FCC determined that CMRS traffic transmitted to and terminated by LECs is telecommunications under Section 251(b)(5). 47 CFR (b)(2). Contrary to section 251(b) of the 1996 Act, the FCC incorrectly and unlawfully overruled the validity of tariff arrangements without providing CLECs with an alternative mechanism for receiving compensation from CMRS providers. 15

27 Because that decision was made without hearing and comments (indeed, without adequate notice as demonstrated by the complete lack of CLEC participation in the proceeding), the FCC violated the basic tenets of due process when it adopted new rules impacting CLECs. IV. THE ORDER IS ARBITRARY AND CAPRICIOUS The 1996 Act was designed to eliminate barriers to competition in the telecommunications industry. See, AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 370 (1999); see also 47 U.S.C. 253 (addressing removal of barriers to entry). Despite that clear directive, the Order created a new barrier for all carriers by eliminating tariffs as an option for the imposition of termination rates for CMRS provider traffic. Undoubtedly, the receipt of compensation for the termination of traffic from competitors is key to a successful competitive business plan in the CLEC and telecommunications market. See, Order, n.61, Exc. of Rec., p. 10, (acknowledging the pre-existing obligation of CMRS providers to compensate LECs for the termination of wireless traffic under the then-effective rule at 47 CFR 20.11(b)(2)). Furthermore, although the FCC allowed ILECs to request interconnection arbitrations with CMRS providers, the Order added a hurdle for CLECs by excluding them from such compensation mechanisms. See 47 CFR In short, at a time that the FCC was instructed by Congress to place ILECs and 16

28 CLECs on equal footing, the FCC intentionally stymied the CLECs rights to receive compensation for terminating CMRS calls on their networks. More broadly, as explained above, the FCC issued a determination and new regulations that were contrary to Congressional intent and the 1996 Act. The FCC claimed in the Order to leave ultimate rate decision-making power to the state public utility commissions. Order, 16, Exc. of Rec., p. 11. Indeed, the FCC acknowledged that the states had long exercised power to govern intrastate termination rates. Id., nn. 40, 41, Exc. of Rec., p Further, the FCC noted the logic of requiring CMRS providers to pay termination fees pursuant to state-filed tariffs. Id., 9, Exc. of Rec. p. 6. Despite the long history of state power, the FCC, without any justification and contrary to its own reasoning, issued rules prohibiting states from allowing LECs to file termination rate tariffs for CMRS traffic. That prohibition was arbitrary and capricious. 5 U.S.C. 5 For many years before the Order, state public utility commissions approved tariffs to govern the exchange of traffic between LECs and CMRS providers. See, Application of the Southern New England Tel. Co. to Amend Its Rates and Rate Structure, Docket No , Conn. Dept. of Pub. Util. Control (Jul. 7, 1993); see also, In the Matter of the Protest of Gary Cellular Tel. Co. of Indiana Bell Tel. Co., Inc. s Filing for Cellular Mobile Carrier Service, Cause No , Ind. Util. Reg. Comm n (Mar. 30, 1989); In the Matter of Indiana Bell Tel. Co., Inc. to Treat Radio Common Carriers and Cellular Mobile Carriers under a Unified Tariff, Cause No , Ind. Util. Reg. Comm n (Feb. 1, 1989); In re: Investigation Into the Inter-Connection of Mobile Carriers with Facilities in Local Exchange Companies, 89-8 FPSC 104, Docket No TL; Order No , Fla. Pub. Svc. Comm n (1989); Investigation on the Commission s Own Motion into the Regulation of Cellular Radiotelephone Utilities; and Related Matter, 54 CPUC.2d 330, Decision No , I , Application No , Cal. Pub. Util. Comm n (Apr. 20, 1994). 17

29 706(2)(A); see also, City of Los Angeles v. United States Dep t of Commerce, 307 F.3d 859, 874 (9th Cir. 2002). Moreover, the FCC, in adopting a rule that allowed ILECs to request interconnection negotiations and arbitrations, took a position completely contrary to the plain and unambiguous language of 47 U.S.C. 252(a), which states unequivocally that, [u]pon receiving a request for interconnection an incumbent local exchange carrier may negotiate and enter into a binding agreement with the requesting telecommunications carrier. The 1996 Act never anticipated allowing ILECs to request interconnection negotiations and arbitrations with other telecommunications carriers. The Order specifically holds that tariffs are impermissible compensation arrangements for traffic exchanged pursuant to 47 U.S.C. 251(b)(5): we amend our rules... prohibiting LECs from imposing compensation obligations for nonaccess CMRS traffic pursuant to tariff 6. Order, 9, Exc. of Rcd. p. 6 (emphasis added, See also, 47 C.F.R (e)). However, in its recent USF/ICC Reform Order (Reform Order), the FCC reaches a directly contrary result. The FCC determined that all telecommunications traffic would now be considered Section 251(b)(5) traffic and goes on to specifically hold that tariffs are permitted for this traffic. FCC Order , and 812 (November 29, 2011): we permit 6 Note, that non-access CMRS traffic is subject to Section 251(b)(5), Order 3, Exc. of Rec., p

30 LECs to tariff the default charges for intrastate toll traffic at the state level, and for interstate toll traffic with the Commission [FCC],... Id. at 812. The FCC attempts to defend its distinction between CMRS (wireless) termination tariffs and tariffs for all other traffic in Paragraph 964 of the Reform Order. However, the fact remains that all traffic is deemed Section 251(b)(5) traffic (for which tariffs are allowed) in the Reform Order; while tariffs are prohibited for the CMRS/251(b)(5) traffic addressed in the [T-Mobile] Order. There is no reasonable, articulated rationale for this distinction, and the FCC is acting arbitrarily. This alone justifies vacating the Order. V. THE ORDER IS AN UNLAWFUL TAKING BECAUSE IT REQUIRES CARRIERS TO TERMINATE TRAFFIC WITHOUT COMPENSATION Due to the ubiquity of the telecommunications network, LECs are generally required to terminate all traffic sent to their networks. See, e.g., Establishing Just and Reasonable Rates for Local Exchange Carriers; Call Blocking by Carriers, WC Docket No , 22 FCC Rcd , 1, 6 (WCB 2007). Thus, carriers like RTC and HSTC have been required to terminate CMRS traffic, and those carriers incur costs associated with such termination services. The imposition of a bill and keep mechanism contradicts Congressional intent. See, e.g., 47 U.S.C. 252(d). Had Congress intended for carriers to exchange and terminate traffic 19

31 without compensation to each other, it would not have called for reciprocal compensation arrangements under section 251(b)(5) of the 1996 Act. Bill and keep is not a reciprocal compensation arrangement. Bill and keep refers to a telecommunications compensation arrangement in which each party bills its customers for the calls those customers originate and keeps the revenues from billing its own customer, but does not pay other carriers for the transport, switching, or termination of the calls. Bill and keep would effectively result in RTC and HSTC providing free access, transport, switching, and termination; because they would receive no compensation for those services. The arrangement would constitute a taking of RTC s and HSTC s facilities and property without just compensation, in violation of federal and state constitutional rights. 7 Any requirement to interconnect with another carrier implicates the taking clauses of the Federal and state Constitutions, and requires adequate and just compensation for use of private property. Just compensation cannot be confiscatory. See, e.g., Competitive Telecommunications Ass n v. FCC, 87 F.3d 522 (D.C. Cir. 1996); see also Oklahoma-Arkansas Tel. Co. v. Southwestern Bell Tel. Co., 45 F.2d 995, 999 (8th Cir. 1930). Because bill and keep has a rate of zero, it is obviously confiscatory, below costs, and violative of constitutional protections. 7 U.S. Const. amend. V; Mont. Const. art. I, 17 and

32 Similarly, with regard to CLECs, the Order leaves those carriers with no ability to obtain any compensation for terminating calls transmitted to their networks by CMRS providers. Because CLECs are excluded from the rule allowing ILECs to request interconnection arbitrations with CMRS providers, CLECs are unable to obtain any compensation. 8 The effect of the termination rate resulting from the Order is zero, which is obviously unreasonable compensation for termination services. See, FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944); see also, Duquesne Light Co. v. Barasch, 488 U.S. 299, 307 (1989); Tobacco River Power Co. v. Montana Pub. Svc. Comm n, 98 P.2d 886 (Mont. 1940). Accordingly, the Order, which requires carriers to terminate CMRS traffic without compensation, is constitutionally confiscatory and should be vacated. VI. THE APPROPRIATE REMEDY IS TO VACATE THE ORDER Under the APA, this Court shall... hold unlawful and set aside agency action that, among other things, is in excess of statutory jurisdiction, is arbitrary and capricious, or is taken without observance of procedure required by law. 5 U.S.C. 706(2). The decision whether to vacate an unlawful agency 8 On the other hand, the Order provides that ILECs are not entitled to any compensation prior to the date a bona fide request for negotiations is sent by the ILEC. After a bona fide request is sent, the ILEC is only entitled to a very low interim rate; and thereafter, the rate determined in a negotiated or arbitrated agreement. See, Order, 14, n. 57, and 17, Exc. Rcd. pp. 9-11; see also, 47 CFR By requiring an agreement before any compensation is received (and prohibiting tariffs) the Order emasculates the rural companies exemption from negotiations/arbitrations. The ruling thereby imposes a Hobson s choice on the rural carriers of either giving away their services or waiving their rural exemption rights under the 1996 Act. 21

33 order depends on the seriousness of the order s deficiencies (and thus the extent of doubt whether the agency chose correctly) and the disruptive consequences of an interim change that may itself be changed. Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm n, 988 F.2d 146, (D.C. Cir. 1993). Here, vacating the Order is amply warranted. As shown above, the FCC committed a serious legal error by implementing regulations in a manner that contravenes elementary administrative law principles. See supra, Section III. The Order also exceeds the FCC s statutory authority. See supra, Section II. Either the implementation of the regulations at issue or the invalid exercise of its authority standing alone support vacating the Order. But when the errors are considered together with the lack of fair notice and the arbitrary and capricious nature of the Order, there can be no doubt that the Order as a whole is premised on serious legal error, rendering vacating the Order all the more appropriate. The FCC s errors cannot be corrected on remand. The FCC could not, of course, retroactively render the new rules enforceable. There is similarly no reason to believe that the FCC could justify the exercise of its authority at issue on remand. Finally, there is no risk of disruption because carriers complied with the Order. Indeed, CMRS providers dug in their heels, refused to negotiate with 22

34 CLECs, and attempted to force rural LECs to relinquish their rural exemption as the price to be paid to receive any compensation. CONCLUSION For the foregoing reasons, Petitioners Ronan Telephone Company and Hot Springs Telephone Company respectfully request that the Court grant their Petition for Review and vacate the Order. STATEMENT OF RELATED CASES This case and the cases T-Mobile USA, Inc. v. FCC (Case No ) and Nextel Communications, Inc. v FCC (Case No ) were consolidated. On April 24, 2012, T-Mobile voluntarily dismissed its petition (Case No , Dkt. No. 73). Nextel dismissed its petition on April 26, 2012 (Case No , Dkt. No. 71). T-Mobile and Nextel indicated in their respective motions to dismiss their intentions to participate as intervenors in this case. Respectfully submitted, s/ivan C. Evilsizer EVILSIZER LAW OFFICE 2301 Colonial Drive, Suite 2B Helena, Montana (406) i.c.evilsizer@gmail.com May 18, 2012 Counsel to Ronan Telephone Company and Hot Springs Telephone Company, Petitioners 23

35 CERTIFICATE OF COMPLIANCE WITH RULE 32(a)(7) I hereby certify that my word processing program, Microsoft Word, counted 5,349 words in the foregoing brief, exclusive of the certificates and tables. May 18, 2012 s/ivan C. Evilsizer 24

36 CERTIFICATE OF SERVICE WHEN NOT ALL CASE PARTICIPANTS ARE REGISTERED FOR THE APPELLATE CM/ECF SYSTEM I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on May 18, Participants in the case who are registered CM/ECF users will be served by the appellate CM/ECF system, to the following: James M. Carr Laurel R. Bergold Robert B. Nicholson Robert J. Wiggers Alan J. Lazarus Cheryl A. Tritt Craig Edward Gilmore Frank Whitney Krogh Lewis A. Tollin Anthony Veach David W. Carpenter I further certify that some of the participants in the case are not registered CM/ECF users. I have mailed the foregoing document by First- Class Mail, postage prepaid, or have dispatched it to a third party commercial carrier for delivery within three calendar days, on May 18, 2012, to the following non-cm/ecf participants: Laura H. Phillips Drinker, Biddle & Reath, LLP 1500 K Street, N.W. Suite 1100 Washington, D.C Seamus C. Duffy Drinker, Biddle & Reath, LLP One Logan Square 18th & Cherry Streets Philadelphia, PA

37 Carl W. Northrop Ray Rutngamlug Paul Hastings, LLP th Street, N.W. Washington, DC Caressa D. Bennet Daryl Zakov Bennet & Bennet, PLLC 4350 East-West Highway, Suite 201 Bethesda, MD James P. Young Sidley Austin, LLP 1501 K Street, N.W. Washington, DC Robert McKenna Craig Brown CenturyLink th St., N.W., Suite 950 Washington, DC Respectfully submitted, s/ivan C. Evilsizer EVILSIZER LAW OFFICE 2301 Colonial Drive, Suite 2B Helena, Montana (406) i.c.evilsizer@gmail.com May 18, 2012 Counsel to Ronan Telephone Company and Hot Springs Telephone Company, Petitioner 26

38 ADDENDUM OF PERTINENT STATUTES AND REGULATIONS TABLE OF CONTENTS Page 47 U.S.C U.S.C U.S.C U.S.C CFR (before the Order) CFR (after the Order) CFR CFR

39 47 U.S.C. 251 (Part of the Communications Act of 1934, as amended by the Telecommunications Act of 1996 ( 1996 Act )) SEC [47 U.S.C. 251] INTERCONNECTION. (a) GENERAL DUTY OF TELECOMMUNICATIONS CARRIERS. Each telecommunications carrier has the duty-- (1) to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers; and (2) not to install network features, functions, or capabilities that do not comply with the guidelines and standards established pursuant to section 255 or 256. (b) OBLIGATIONS OF ALL LOCAL EXCHANGE CARRIERS.-Each local exchange carrier has the following duties: (1) RESALE.--The duty not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of its telecommunications services. (2) NUMBER PORTABILITY.--The duty to provide, to the extent technically feasible, number portability in accordance with requirements prescribed by the Commission. (3) DIALING PARITY.--The duty to provide dialing parity to competing providers of telephone exchange service and telephone toll service, and the duty to permit all such providers to have nondiscriminatory access to telephone numbers, operator services, directory assistance, and directory listing, with no unreasonable dialing delays. (4) ACCESS TO RIGHTS-OF-WAY.--The duty to afford access to the poles, ducts, conduits, and rights-of-way of such carrier to competing providers of telecommunications services on rates, terms, and conditions that are consistent with section 224. (5) RECIPROCAL COMPENSATION.--The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications. (c) ADDITIONAL OBLIGATIONS OF INCUMBENT LOCAL EXCHANGE CARRIERS.--In addition to the duties contained in subsection (b), each incumbent local exchange carrier has the following duties: (1) DUTY TO NEGOTIATE.--The duty to negotiate in good faith in accordance with section 252 the particular terms and conditions of agreements to fulfill the duties described in paragraphs (1) through (5) of subsection (b) and this subsection. The requesting telecommunications carrier also has the duty to negotiate in good faith the terms and conditions of such agreements. 2

40 (2) INTERCONNECTION.--The duty to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier's network-- (A) for the transmission and routing of telephone exchange service and exchange access; (B) at any technically feasible point within the carrier's network; (C) that is at least equal in quality to that provided by the local exchange carrier to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection; and (D) on rates, terms, and conditions that are just, reasonable, and nondiscriminatory, in accordance with the terms and conditions of the agreement and the requirements of this section and section 252. (3) UNBUNDLED ACCESS.--The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service. (4) RESALE.--The duty-- (A) to offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers; and (B) not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of such telecommunications service, except that a State commission may, consistent with regulations prescribed by the Commission under this section, prohibit a reseller that obtains at wholesale rates a telecommunications service that is available at retail only to a category of subscribers from offering such service to a different category of subscribers. (5) NOTICE OF CHANGES.--The duty to provide reasonable public notice of changes in the information necessary for the transmission and routing of services using that local exchange carrier's facilities or networks, as well as of any other changes that would affect the interoperability of those facilities and networks. (6) COLLOCATION.--The duty to provide, on rates, terms, and 3