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AT&T Corporation v. Federal Communications Commission

June 01, 2004

AT&T CORPORATION, PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS VERIZON TELEPHONE COMPANIES, ET AL., INTERVENORS



On Petition for Review of an Order of the Federal Communications Commission

Before: Edwards, Sentelle, and Tatel, Circuit Judges.

Per curiam.

Argued April 15, 2004

Under § 271 of the Telecommunications Act of 1996 (the "Act"), a Bell Operating Company ("BOC") or its affiliate may apply to the Federal Communications Commission ("FCC" or "Commission") for authorization to provide interLATA (long-distance) telephone service originating in any in-region State. 47 U.S.C. § 271(d)(1). The FCC may grant such authorization if: (1) the BOC demonstrates that it provides competitors access and interconnection to its local network pursuant to the "competitive checklist" under 47 U.S.C. § 271(c)(2)(B), (2) the Commission finds that the requested authorization is consistent with the public interest, and (3) the requested authorization "will be carried out in accordance with the requirements of section 272." 47 U.S.C. § 271(d)(3). Section 272 adopts regulatory "safeguards," including structural and transactional requirements, nondiscrimination provisions, and enforcement mechanisms to deter a BOC from leveraging its local market power into longdistance markets. 47 U.S.C. § 272. The Act makes it clear, however, that the § 272 safeguards "shall cease to apply ... 3 years after the date [when a BOC] is authorized to provide interLATA telecommunications services under section 271(d) ..., unless the Commission extends such 3-year period by rule or order." 47 U.S.C. § 272(f)(1). On December 22, 1999, Verizon in New York was the first BOC to obtain FCC approval to provide long-distance service under § 271.

On December 23, 2002, Verizon reached the automatic sunset date under § 272(f)(1) with respect to its long-distance operations in New York. The Commission issued a public notice on this date stating that "[t]he provisions of section 272 ... sunset for Verizon's operations in New York by operation of law." Public Notice, Section 272 Sunsets for Verizon in New York State by Operation of Law on December 23, 2002 Pursuant to Section 272(f)(1), 17 F.C.C.R. 26,864 (2002) (" Public Notice "). On this same date, the Commission issued a Memorandum Opinion and Order, holding that the § 272 safeguards sunset on a state-by-state (not on a BOC-by-BOC) basis. In the Matter of Section 272 (f)(1) Sunset of the BOC Separate Affiliate and Related Requirements, 17 F.C.C.R. 26,869, 26,871 (2002) (" Memorandum Opinion and Order "). The Commission also noted that, pursuant to prior Notice of Proposed Rulemaking, In the Matter of Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related Requirements, 17 F.C.C.R. 9916 (2002) (" NPRM "), the agency still had under consideration "possible alternative safeguards for BOC provision of in-region, interLATA services after sunset of the 272 structural and related requirements." Memorandum Opinion and Order, 17 F.C.C.R. at 26,869. "Moreover," the FCC stated, "we plan to issue a [further] Notice of Proposed Rulemaking in the coming months to seek comment on whether there is a continued need for dominant carrier regulation of BOC in-region, interLATA, domestic, interexchange telecommunications services provided outside of a section 272 affiliate. We will take further action to address these issues in the future as appropriate." Id. at 26,869-70.

In this action, petitioner AT&T Corporation contends that the FCC acted arbitrarily and violated its duty of reasoned decisionmaking when it issued a public notice stating that the § 272 safeguards sunset for Verizon's operations in New York "by operation of law." AT&T argues that the record here demonstrates that Verizon retains significant market power, justifying the need for continued application of the § 272 safeguards in New York. Thus, according to AT&T, the FCC was obligated to provide a reasoned explanation for its failure to extend the § 272 safeguards. We reject these claims.

As the Commission indicated in its public notice, the § 272 safeguards sunset "by operation of law," not by Commission action. The FCC's public notice did not purport to be an order or rule addressing the continued need for § 272 safeguards, and the Act does not require any decision from the Commission in order for the sunset provision under § 272(f)(1) to take effect. Therefore, the Commission was not obligated to engage in "reasoned decisionmaking" when it issued the public notice. Finally, AT&T's claims regarding the need for alternative safeguards, covering BOC provision of interLATA services after sunset of the § 272 structural and related requirements, remain under consideration by the FCC. Therefore, those claims are not ripe for review. Accordingly, we dismiss AT&T's petition for review.

I. BACKGROUND

The regional Bell Operating Companies are incumbent local exchange carriers ("LECs"). They control the local telephone networks in several regions throughout the country. The BOCs came into existence pursuant to the consent decree resolving the United States' antitrust suit against AT&T. See United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 165 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983). The consent decree found that AT&T had engaged in anti-competitive behavior by using its control of local networks to impede long-distance competitors' access to the local networks. Id. at 162. Long-distance carriers need such access in order to connect calls from different regions. The consent decree not only required AT&T to divest from the BOCs, but also barred BOCs from providing long-distance telephone services. See id. at 165. See also United States v. Western Elec. Co., 569 F. Supp. 990, 993-94 (D.D.C. 1983) (stating that a "LATA" marks boundaries beyond which a BOC may not carry telephone calls).

The Telecommunications Act of 1996 changed this landscape by permitting a BOC to apply to the Commission for authorization to provide interLATA services originating in any in-region state. 47 U.S.C. § 271(d)(1). As noted above, the FCC may grant such authorization if: (1) the BOC demonstrates that it provides competitors access and interconnection to its local network pursuant to the "competitive checklist" under 47 U.S.C. § 271(c)(2)(B), (2) the Commission finds that the requested authorization is consistent with the public interest, and (3) the requested authorization "will be carried out in accordance with the requirements of section 272." 47 U.S.C. § 271(d)(3). Section 272 adopts regulatory "safeguards" to deter a BOC from leveraging its local market power into long-distance markets. See 47 U.S.C. § 272. Any BOC authorized to offer interLATA services must do so only through a separate affiliate that is subject to certain structural, transactional, and audit requirements. See 47 U.S.C. § 272(a)-(e).

More specifically, the separate affiliate is required to "operate independently" from the BOC, maintain separate books, records, and accounts, have separate officers and directors, have separate credit arrangements, and conduct all transactions with the BOC on an arm's length basis with any such transactions reduced to writing and available for public inspection. 47 U.S.C. § 272(b). The BOC is prohibited from discriminating in favor of its separate affiliate in the procurement of goods, services, facilities, and information, or in the establishment of standards. 47 U.S.C. § 272(c)(1). The BOC must account for all transactions with an affiliate "in accordance with accounting principles designated or approved by the Commission." 47 U.S.C. § 272(c)(2). In addition, the separate affiliate is required to obtain an independent audit every two years to determine compliance with the requirements, the results of which are to be submitted to the Commission. 47 U.S.C. § 272(d). Section 272(e) prohibits the BOC from discriminating in favor of an affiliate in the fulfillment of requests for exchange service or access, the provision of facilities, services, or information concerning exchange access, or charges for exchange service. 47 U.S.C. § 272(e).

The Act provides for the sunset of most of these § 272 safeguards, however. Section 272(f)(1) reads:

The provisions of this section (other than subsection (e) of this section) shall cease to apply with respect to the manufacturing activities or the interLATA telecommunications services of any Bell operating company 3 years after the date such Bell operating company or any Bell operating company affiliate is authorized to provide interLATA telecommunications services under 271(d) of this title, unless the Commission extends such 3-year period by rule or order.

47 U.S.C. § 272(f)(1). Only the prohibition of discrimination under § 272(e) is not subject to sunset pursuant to § 272(f)(1).

On December 22, 1999, the Commission granted Verizon's application under § 271 to provide interLATA services in New York. See In the Matter of Application by Bell Atlantic New York for Authorization Under Section 271 of the Communications Act To Provide In-Region, InterLATA Service in the State of New York, 15 F.C.C.R. 3953 (1999), aff'd sub nom. AT&T Corp. v. FCC, 220 F.3d 607 (D.C. Cir. 2000). In June 2000, the Commission approved SBC's application for Texas. See In the Matter of Application by SBC Communications, Inc., Southwestern Bell Telephone Co., and Southwestern Bell Communications Services, Inc., d/b/a/ Southwestern Bell Long Distance, 15 F.C.C.R. 18,354 (2000). Thereafter, the Commission granted BOCs' § 271 applications in Kansas, Oklahoma, Massachusetts, Connecticut, Pennsylvania, Arkansas, Missouri, Rhode Island, Vermont, Georgia, and Louisiana.

As the ยง 272(f)(1) sunset date approached for Verizon's New York long-distance operations, the Commission initiated a rulemaking regarding the separate affiliate and related requirements. See NPRM, 17 F.C.C.R. at 9916. The ...


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