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SBC Communications Inc. v. Federal Communications Commission

July 06, 2004

SBC COMMUNICATIONS INC., PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS CORECOMM COMMUNICATIONS, INC. AND Z-TEL COMMUNICATIONS, INC., INTERVENORS



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

Before: Sentelle, Rogers and Tatel, Circuit Judges.

The opinion of the court was delivered by: Sentelle, Circuit Judge

Argued March 29, 2004

Opinion for the Court filed by Circuit Judge SENTELLE.

SBC Communications, Inc. ("SBC") brings this petition for review challenging a $6 million forfeiture levied against it by the Federal Communications Commission ("FCC"). The FCC issued the fine because, it claims, SBC flagrantly violated the terms of an FCC-approved merger agreement to which SBC is a party. SBC's primary complaint is that the forfeiture order violates the Fifth Amendment's due process clause, because SBC was not on "fair notice" of the duties under the merger agreement that the FCC accuses it of shirking. SBC also argues that the order is arbitrary and capricious. Because both of these challenges are without merit, we deny the petition for review.

I. Background

A. Unbundling under the Telecommunications Act

SBC's petition concerns its obligations as an incumbent local exchange carrier ("ILEC") under the Telecommunications Act. ILECs are companies that own the local wires that connect telephone subscribers' phones to local phone company exchanges. ILECs also own the local exchanges. Those exchanges centrally route calls, using switches, among the local phone wires and the trunks that connect various exchanges, obviating the need for each phone to be connected to one other. To prevent ILECs from monopolizing these facilities, the Telecommunications Act ("the Act"), as amended in 1996, requires ILECs to allow competing carriers, known as competitive local exchange carriers ("CLECs"), to use their networks, a practice known as "unbundling." In particular, the Act requires ILECs to allow CLECs to lease "unbundled network elements" ("UNEs") so that CLECs can offer service in competition with ILECs. See 47 U.S.C. § 251(c)(3).

The task of determining those network elements that must be unbundled is delegated to the FCC. In determining whether a network element should be unbundled, the Act requires the FCC to consider "at a minimum" whether "access to such network elements as are proprietary in nature is necessary" and whether "the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer." Id. § 251(d)(2). The FCC has issued a series of orders addressing the scope of ILECs' obligation to unbundle their network elements.*fn1

"Network element[s]" that must be unbundled include the "functions[ ] and capabilities" provided by ILECs' network facilities. Id. § 153(29). One such capability is the service of transporting telephone calls on an ILEC's network; it seems fairly clear that this service is therefore a network element. See S.W. Bell Tel. Co. v. FCC, 199 F.3d 996, 997 (8th Cir. 1999) (per curiam). Such transportation is accomplished using transport lines that connect the exchanges and switches in the network. ILECs' networks transport calls either by dedicating those transport facilities to a single carrier, which are referred to as "dedicated transport" facilities, or by allowing several carriers to share the facilities, referred to as "shared transport" facilities. SBC's petition for review involves its obligation to provide CLECs with unbundled access to its shared transport facilities.

B. The Merger Order

For purposes of the present petition, the FCC does not claim that SBC's obligation to provide shared transport arises directly from the unbundling provisions of the Act. The FCC claims instead that the obligation arose from an order it issued that conditionally approved a merger between SBC and Ameritech, Inc., another ILEC. See In re Applications of Ameritech Corp. and SBC Communications, Inc., 14 FCC Rcd 14712 (1999), vacated in part on other grounds, Ass'n of Communications Entrs. v. FCC, 235 F.3d 662 (D.C. Cir. 2001) (" Merger Order "). As both Ameritech and SBC held FCC licenses, the FCC was authorized to approve the merger only if it found that "the public interest, convenience and necessity [would have been] served" by it. 47 U.S.C. § 310(d). On that question, the FCC took the position that the merger would have anticompetitive effects not outweighed by its benefits and therefore was not in the public interest. Accordingly, the parties engaged in extensive negotiations so that they could "explore the possibility of [SBC and Ameritech] strengthening their application by agreeing to certain voluntary public interest commitments." Merger Order ¶ 43.

Those negotiations resulted in a series of conditions on the merger of the two companies, issued by the FCC October 8, 1999. One of the conditions required the merged entity (which, for convenience, we simply call "SBC" unless the context shows otherwise) to provide shared transport to CLECs in the states formerly served by Ameritech. That condition specifically provided:

Within 12 months of the Merger Closing Date (but subject to state commission approval and the terms of any future Commission orders regarding the obligation to provide unbundled local switching and shared transport), SBC/Ameritech shall offer shared transport in the SBC/Ameritech Service Area within the Ameritech States under terms and conditions, other than rate structure and price, that are substantially similar to (or more favorable than) the most favorable terms SBC/Ameritech offers to telecommunications carriers in Texas as of August 27, 1999. Subject to state commission approval and the terms of any future Commission orders regarding the obligation to provide unbundled local switching and shared transport, SBC/Ameritech shall continue to make this offer, at a minimum, until the earlier of (i) the date the Commission issues a final order in its UNE remand proceeding ... finding that shared transport is not required to be provided by SBC/Ameritech in the relevant geographic area, or (ii) the date of a final, non-appealable judicial decision providing that shared transport is not required to be provided by SBC/Ameritech in the relevant geographical area.

Merger Order, App. C ¶ 56. The FCC explained that paragraph 56 "obligates Ameritech to provide shared transport until a final order of the Commission or a final and non-appealable judicial decision determines that SBC/Ameritech is not required to provide shared transport in all or a portion of its operating territory." Merger Order ¶ 396. "Shared transport," the conditions defined, meant "the function of shared transport" as defined in a previous FCC order. Id. App. C ¶ 55.

The apparent reason for imposing this obligation to provide shared transport in the former Ameritech states-Illinois, Indiana, Michigan, Ohio, and Wisconsin-was to address Ameritech's prior reluctance to offer unbundled access to shared transport services. SBC, in contrast, had previously provided CLECs with access to such service, for example, in Texas; hence, the merger agreement defined ...


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