MetroPCS California, LLC v. FCC, et al

Filing

OPINION filed [1308276] (Pages: 8) for the Court by Judge Griffith [10-1003]

USCA Case #10-1003

Document #1308276

Filed: 05/17/2011

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 14, 2010

Decided May 17, 2011

No. 10-1003
METROPCS CALIFORNIA, LLC,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES
OF AMERICA,
RESPONDENTS

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

Stephen B. Kinnaird argued the cause for petitioner.
With him on the briefs were Carl W. Northrop and Michael
Lazarus.
Laurence N. Bourne, Counsel, Federal Communications
Commission, argued the cause for respondent. With him on
the brief were Catherine G. O'Sullivan and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, Austin C. Schlick,
General Counsel, Federal Communications Commission,
Jacob M. Lewis, Acting Deputy General Counsel, and
Richard K. Welch, Deputy Associate Counsel. Robert B.
Nicholson, Attorney, U.S. Department of Justice, and Daniel

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M. Armstrong III, Associate General Counsel, Federal
Communications Commission, entered appearances.
Before: BROWN, GRIFFITH and KAVANAUGH, Circuit
Judges.
Opinion for the Court filed by Circuit Judge GRIFFITH.
GRIFFITH, Circuit Judge: Providers of commercial mobile
radio services must pay “reasonable compensation” to local
exchange carriers for traffic that starts with the provider and
ends in the carrier‟s network. 47 C.F.R. § 20.11(b)(2). The
question in this case is whether the Federal Communications
Commission erred in allowing a state agency to determine this
rate for traffic that is wholly intrastate. For the reasons set
forth below, we conclude that the FCC acted within its
discretion and deny the petition for review.
I
Petitioner MetroPCS California, LLC, is a provider of
commercial mobile radio services (CMRS) in California, and
North County Communications Corporation is a California
local exchange carrier (LEC) on whose network some of
MetroPCS‟s traffic ends. All of the traffic between these two
networks flows from MetroPCS to North County and takes
place wholly within California. LECs like North County
provide wired telephone service within a geographic region
known as the local access and transport area (LATA). Calls
travel over an LEC‟s network in a number of ways. Some
originate within the LATA. Others arrive from outside the
LATA via long-distance carrier, or, more recently, by radio
telecommunications or voice-over-IP. Regardless of its
source, the receiving LEC must ensure the call gets to the
intended recipient, a service referred to as “terminating the

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traffic.” The CMRS must pay the LEC “reasonable
compensation” for that service. See id.
The dispute in this case arose when, in the absence of an
agreement, North County unilaterally set a rate and began
billing MetroPCS for the cost of terminating its traffic.
MetroPCS refused to pay, and North County filed a complaint
with the FCC alleging a violation of Rule 20.11(b).
Citing its policy of leaving the setting of termination rates
for intrastate traffic to state authorities, the FCC ruled that it
would hold the complaint in abeyance while North County
petitioned the California Public Utilities Commission (CPUC)
to set a rate. MetroPCS challenges this approach, arguing that
the FCC must either set the rate itself or, at a minimum, issue
guidance to the CPUC on how to set a reasonable rate. We
have jurisdiction to review the FCC‟s Order pursuant to 28
U.S.C. § 2342(1).
Under the Administrative Procedure Act, we hold
unlawful and set aside agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). We review the
FCC‟s interpretation of the Communications Act under the
aegis of Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984), giving effect to clear
statutory text and deferring to an agency‟s reasonable
interpretation of any ambiguity. We afford the FCC deference
in interpreting its own regulations. MCI WorldCom Network
Servs., Inc. v. FCC, 274 F.3d 542, 547 (D.C. Cir. 2001).
II
MetroPCS argues that the FCC abused its discretion
when it declined to set the “reasonable compensation”
required by Rule 20.11(b)(2) and instead left that task to the

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CPUC. The FCC, MetroPCS contends, must set this rate
itself. Its argument begins with section 332 of the
Communications Act, which grants the FCC authority to
regulate commercial mobile services, 47 U.S.C. § 332(c), and
specifically provides that “[u]pon reasonable request” of a
CMRS provider, “the Commission shall order a common
carrier [such as an LEC] to establish physical connections
with such service pursuant to the provisions of section 201.”
Id. § 332(c)(1)(B). Section 201, in turn, requires that “[a]ll
charges . . . and regulations” relating to traffic that results
from such connections “be just and reasonable.” Id. § 201(b).
And Rule 20.11(b) specifically requires interconnected CMRS
providers and LECs to pay each other “reasonable
compensation” for terminating traffic. MetroPCS reads the
interplay of sections 332 and 201 and Rule 20.11(b) to require
the FCC, when asked, to set termination rates for traffic
between CMRS providers and LECs, even traffic that is
wholly intrastate. MetroPCS acknowledges a jurisdictional
divide that leaves to the states authority over “charges . . . or
regulations for or in connection with intrastate communication
service,” id. § 152(b). But it argues that Congress intended the
FCC alone to regulate mobile radio services, as evidenced by
the fact that section 152(b) applies “[e]xcept as provided
in . . . section 332.” Id.
While conceding the federal interest in the establishment
of reasonable rates for terminating the traffic of a CMRS
provider, the FCC argues that there is nothing in the
Communications Act or Rule 20.11(b) that requires the FCC
to be the instrumentality that actually sets the rates for wholly
intrastate communications. The FCC asserts that the
Communications Act and Rule 20.11(b) leave the agency free
to do what it did here: order North County to first seek a rate
from the CPUC. We agree. The provisions upon which
MetroPCS relies demonstrate at most that the FCC is charged

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with ensuring reasonable rates for mobile radio services, even
those that are wholly intrastate. But the authority to regulate
intrastate termination rates does not require the FCC to set
them in every instance. There are a number of ways the FCC
can ensure a rate is just and reasonable short of setting the rate
itself, not least of which is reviewing the rate after it is set by
state regulatory authorities. In fact, the Communications Act
gives the FCC broad discretion to determine when
“establish[ing] . . . charges” would be “necessary or desirable
in the public interest,” id. § 201(a), and it is well established
that we afford “substantial judicial deference” to the FCC‟s
judgments on the public interest, FCC v. WNCN Listeners
Guild, 450 U.S. 582, 596 (1981). This discretion includes
allowing the state agency to exercise its traditional authority
to set rates for wholly intrastate communication services.
In the absence of statutory text plainly requiring
otherwise, we have little trouble concluding under Chevron
step two that the FCC reasonably determined that the FCC
had no duty to set the rates for the wholly intrastate traffic at
issue here. The FCC‟s policy of allowing state agencies to set
such rates is consistent with the dual regulatory scheme
assumed in the Communications Act, which grants the FCC
authority over interstate communications but reserves wholly
intrastate matters for the states. See 47 U.S.C § 151 (providing
the FCC “shall execute and enforce the provisions of this
chapter”); id. § 152(a) (“The provisions of this chapter shall
apply to all interstate and foreign communication by wire or
radio . . . .”); id. § 152(b) (“[N]othing in this chapter shall be
construed to apply or to give the Commission jurisdiction
with respect to . . . charges, classifications, practices, services,
facilities, or regulations for or in connection with intrastate
communication service by wire or radio of any carrier”). Of
course, that divide is neither absolute nor always clear, and
the Supreme Court has recognized the FCC may regulate

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intrastate matters “where it [is] not possible to separate the
interstate and the intrastate components of the asserted FCC
regulation.” See La. Pub. Serv. Comm’n v. FCC, 476 U.S.
355, 375 n.4 (1986) (emphasis omitted).
Accordingly, the FCC has determined that it was possible
to require reasonable compensation under Rule 20.11(b)
without preempting the states‟ traditional authority to set rates
for terminating intrastate traffic. See In re Implementation of
Sections 3(n) and 332 of the Communications Act; Regulatory
Treatment of Mobile Servs., Second Report and Order, 9 FCC
Rcd. 1411, ¶ 231 (1994) (“LEC costs associated with the
provision of interconnection for interstate and intrastate
cellular services are segregable.”). The FCC made clear,
however, that it would not hesitate to preempt any rates set by
the states that would undermine the federal policy that
encourages CMRS providers and LECs to interconnect. See
id. ¶ 228. This is consistent with what Congress intended.
The FCC has done no differently in subsequent orders.
See, e.g., In re Developing a Unified Intercarrier
Compensation Regime; T-Mobile et al. Pet. for Declaratory
Ruling Regarding Incumbent LEC Wireless Termination
Tariffs, Declaratory Ruling and Report and Order, 20 FCC
Rcd. 4855, ¶ 10 n.41 (2005) (declining “to preempt state
regulation of LEC intrastate interconnection rates applicable
to CMRS providers”); In re AirTouch Cellular v. Pac. Bell,
16 FCC Rcd. 13502, ¶ 14 (2001) (“[A]lthough LECs were
required to pay mutual compensation to CMRS carriers for
intrastate traffic pursuant to Commission rules, the
determination of the actual rates charged for intrastate
interconnection would be left to the states.”). Similarly, the
FCC here refused “to preempt state regulation of intrastate
rates that LECs charge CMRS providers for termination,”
instead determining that the CPUC “is the more appropriate

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forum for determining a reasonable [termination] rate” for
wholly intrastate traffic. North County Commc’ns Corp. v.
MetroPCS Cal., LLC, 24 FCC Rcd. 14036, ¶¶ 1, 14 (2009).
This result reflects how Rule 20.11(b) has worked from the
start, and accords with how the Communications Act operates
generally. That seems perfectly reasonable to us.
A different conclusion is not warranted by MetroPCS‟s
concern that allowing states to set intrastate rates will create a
patchwork of regulatory schemes throughout the states and
undermine Congress‟s understanding that “mobile
services . . . by their nature, operate without regard to state
lines as an integral part of the national telecommunications
infrastructure.” H.R. REP. NO. 103-111, at 490 (1993). The
FCC‟s policy allows state agencies to set intrastate
termination rates only insofar as the state regulations do not
interfere with federal policies. That is the case here, as
allowing state agencies to set intrastate termination rates
furthers the federal policy of encouraging and compensating
interconnection while retaining the dual regulatory structure
created by subsections 152(a) and (b) of the Communications
Act. That there are fifty states to deal with in the context of
intrastate services is a consequence of congressional respect
for federalism, not the FCC‟s approach. More fundamentally,
the FCC‟s reasonable reading of the Communications Act and
Rule 20.11(b) is not disturbed by MetroPCS‟s wish that the
FCC do it all, which finds no expression in the statute. See
Babbitt v. Sweet Home Chapter of Cmtys. for a Great Or.,
515 U.S. 687, 726 (1995) (Scalia, J., dissenting) (“„The Act
must do everything necessary to achieve its broad purpose‟ is
the slogan of the enthusiast, not the analytical tool of the
arbiter.”).

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III
MetroPCS‟s remaining arguments fare no better. It argues
that the FCC did not adequately explain why the CPUC was a
“more appropriate forum” for setting intrastate rates in
California. But the Commission‟s Order clearly states that its
position is, and always has been, that intrastate termination
rates are the business of states, and that Rule 20.11(b) does
not disturb this. See North County, 24 FCC Rcd. 14036. The
Order acknowledged the various policy arguments raised by
MetroPCS, particularly about avoiding a patchwork of state
regulations in the face of companies who generate only
inbound traffic, but concluded that “[w]hether to depart so
substantially from such long-standing and significant
Commission precedent [and to proceed to regulate intrastate
rates on this basis] is a complex question better suited to a
more general rulemaking proceeding.” Id. ¶ 16 (internal
quotation omitted).
Finally, MetroPCS argues that the FCC acted arbitrarily
when it refused to give guidance to the CPUC on how to
determine a reasonable rate. According to MetroPCS, such
guidance is critical and required by section 201. This is but a
different telling of the same argument that we have already
rejected. That the FCC can issue guidance does not mean it
must do so. And to do so here would hardly be consistent with
the longstanding policy of leaving wholly intrastate matters to
the states.
IV
For the foregoing reasons, the petition for review is
Denied.

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