D.C. Circuit Court Grants Motion for Writ of Mandamus and Orders FCC to Explain Legal Basis for ISP-Bound Compensation Rules

On July 8, 2008, a clearly annoyed U.S. Court of Appeals for the D.C. Circuit ordered the Federal Communications Commission (FCC) to provide a valid legal justification for its interim rules governing intercarrier compensation for telecommunications traffic bound for internet service providers (ISPs) by November 5, 2008 or suffer vacatur of its ISP Remand Order. In re Core Communications, Inc., No. 07-1446, 2008 WL 2649636, at *1, *11 (D.C. Cir. July 8, 2008).

The FCC adopted the ISP Remand Order in response to the D.C. Circuit’s vacation and remand of the FCC’s 1999 Declaratory Ruling. Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 9 (D.C. Cir. 2000). In the 1999 Declaratory Ruling, the FCC had made an initial determination that the reciprocal compensation requirements of § 251(b)(5) of the Communications Act of 1934, as amended by the the Telecommunications Act of 1996 ("the Act"), did not apply because dial-up calls to ISPs are non-local. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Inter-Carrier Compensation of ISP-Bound Traffic, 14 FCC Rcd 3689, CC Docket No. 96-98, 1999 WL 98037 (Feb. 26, 1999) (“Declaratory Ruling”). The D.C. Circuit vacated that determination for lack of a sufficient legal explanation and remanded the 1999 Declaratory Ruling to the FCC to justify its determination. Bell Atl. Tel. Cos., 206 F.3d at 9.

Within a year, the FCC adopted the ISP Remand Order. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound Traffic, 16 FCC Rcd 9151, CC Docket No. 96-98, 2001 WL 455869 (Apr. 27, 2001) (“ISP Remand Order”). Among other things, the ISP Remand Order established that ISP-bound traffic constituted “information access” under § 251(g) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, which lists specific kinds of traffic exempted from the reciprocal compensation obligations of § 251(b)(5) of the Act. Id. at 16 FCC Rcd at 9171, ¶ 42, 9152-53, ¶ 1. The FCC instead asserted that ISP-bound traffic could be regulated under its general rate-setting authority under § 201 and issued a notice of proposed rulemaking to consider whether it should implement a bill-and-keep system in place of the existing inter-carrier compensation system. This effort was aimed at eliminating the regulatory arbitrage opportunities made possible by the existing inter-carrier compensation mechanism connected with § 251(b)(5), as well as increasing incentives for investment in competitive facilities. Id. at 9153, ¶ 2. In advance of the outcome of the notice of proposed rulemaking, the FCC issued an interim inter-carrier compensation system for ISP-bound traffic that would limit regulatory arbitrage but not completely “upset the legitimate business expectations of carriers and their customers.” Id. at 9186, ¶ 77. The FCC stated the interim rules would last for three years. Id. at 9199, ¶ 98.

However, in WorldCom, Inc. v. FCC, the D.C. Circuit again rejected the FCC’s exemption of ISP-bound calls from the requirements of § 251(b)(5). 288 F.3d 429, 430, 434 (D.C. Cir. 2002). This time, the D.C. Circuit held that the FCC could not rely on the exemptions in § 251(g). Id. at 430. Because that section was “worded simply as a transitional device” designed to preserve pre-existing regulations until the FCC could adopt new rules pursuant to the Act, the court held the FCC could not rely on § 251(g) to establish a new rule exempting ISP-bound traffic from the requirements of § 251(b)(5). Id. However, the court did not vacate the ISP Remand Order. Instead it left the order, with its interim inter-carrier compensations mechanism, in place and remanded it to the FCC for further proceedings. The court did so because it believed that there might “well be other legal bases for adopting the rules chosen by the Commission for compensation between the originating and the terminating LECs in calls to ISPs,” and “a non-trivial likelihood that the Commission has authority to elect such a system (perhaps under §§ 251(b)(5) and 252(d)(B)(i)).” Id. at 430, 434.
This time, however, the FCC did not act. In June 2004, more than two years after the WorldCom decision, Core Communications, Inc., a competitive local exchange carrier, petitioned the D.C. Circuit Court for a writ of mandamus seeking to compel the FCC to enter an order complying with the decision in WorldCom. The FCC argued in opposition that mandamus was premature in light of the fact that Commission staff had “recently completed and forwarded to the Chairman of the FCC a draft order addressing the WorldCom remand,” and that the mandamus remedy was deemed appropriate when confronted of a delay of at least three years.” In re: Core Communications, Slip Op. at 9. Based on those representations, the D.C. Circuit deferred consideration of the petition and requested 90-day status reports from the FCC. On March 5, 2005, the FCC issued a further notice of proposed rulemaking regarding inter-carrier compensation, which the FCC represented in a status report would “adopt permanent rules to succeed the interim intercarrier compensation regime from Internet-bound traffic that [the] Court reviewed in WorldCom . . . .” Id.

However, in October 2007, there was still “no word from the FCC on the fate of the draft WorldCom order and no release of permanent rules in response to” the further notice of proposed rulemaking. Slip Op. at 10. Core Communications again filed a mandamus petition seeking to compel the FCC to enter an order responding to the WorldCom decision within 60 days. The FCC again urged the court to deny mandamus and wait until the FCC finished its inter-carrier compensation rulemaking, which counsel for the FCC stated would be within six months. Id. at 17, 18-19.

This time, however, the court rejected the FCC’s efforts to avoid mandamus. The court expressed frustration that it was “faced with the agency’s failure – for six years – to respond to [the Court’s] remand.” Slip Op. at 13. The court deemed this failure to be an attempt at nullification of its order because the remand left the interim rules in place pending follow-up action by the FCC. Moreover, the court was concerned with the rights of Core Communications. The court noted that “until the FCC states its explanation for its interim rules in a final order, Core cannot mount a challenge to those rules.” Id. Thus “the FCC insulates its nullification of [the Court’s] decision from further review." Id. Noting that the relief requested by Core Communications “does not ask the FCC to promulgate any particular rule or policy; it asks only that the Commission state the legal authority for the current rule that refuses Core the right to reciprocal compensation,” the court concluded that “[e]ither the FCC has such authority or it does not” and that “[i]f the FCC believes it has authority, it should not take six years to put its rationale in writing.” Id. at *9.

After stating that the court had heard the FCC’s refrain before about being on the brink of responding to the WorldCom remand, the court described the FCC’s conduct as “six years of promises and further delay.” Id. at 17, 23. The court then rebuked the FCC: “Having repeatedly, and mistakenly, put our faith in the Commission, we will not do so again. If the FCC cannot, within six months, explain its legal authority for the interim rules, we can only presume that this is because there is in fact no such authority.” Id. at 24. The court set the deadline for an order from the FCC at November 5, 2008, six months from the date of oral argument, stated it will not grant an extension and warned that if an appropriate order is not timely issued, it will vacate the interim inter-carrier compensation rules. Id.

In his concurring opinion, Judge Griffith questioned the wisdom of the open-ended remand without vacatur. Acknowledging that remand without vacatur is common in the D.C. Circuit, Judge Griffith urged future panels to consider the alternatives to the open-ended remand without vacatur in order to avoid situations like this one where six years passed after the Court's remand to the FCC. If other panels heed Judge Griffith's advice, we may see fewer instances in the future where the Court rejects the reasoning underlying an agency rule and remands to the agency for further proceedings but allows the rule to remain in place during the remand.