Judges hearing oral argument in a challenge to the FCC’s 2019 access arbitrage order today questioned how the FCC determined that a six-to-one interstate terminating-to-originating access ratio should be the test for deeming a competitive local exchange carrier (CLEC) to be engaging in access stimulation, as well as how the FCC could penalize carriers for charging rates the FCC has said are just and reasonable.
However, questions from the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit also suggested that the FCC has authority to try to address the access stimulation problem.
In Great Lakes Communications Corp. et al. v. FCC (case 19-1233), CLECs are challenging the FCC’s 2019 report and order in WC docket 18-155, which shifted responsibility for paying for terminating tandem switching and transport rates from interexchange carriers to "access-stimulating" local exchange carriers (LECs), thus giving them an incentive to choose the most efficient access route (TR Daily, Sept. 26, 2019).
Among other things, the order established two new tests under which a provider could be deemed to be engaging in access stimulation: (1) CLECs with at least a six-to-one interstate terminating-to-originating access ratio in a calendar month with no revenue-sharing agreement would be defined as engaging in access stimulation; and (2) a rate-of-return LEC with an interstate terminating-to-originating traffic ratio of at least 10-to-one in a three-month period with a threshold of 500,000 minutes of interstate terminating minutes of use per month in an end office, averaged over the same three-month period, would be defined as engaging in access stimulation.
The petitioners are Great Lakes, Northern Valley Communications LLC, No Cost Conference, Inc., SIPmeeting LLC, Total Bridge, Inc., Wide Voice LLC, CarrierX LLC, and HDPSTN LLC d/b/a HD Tandem. AT&T Corp., AT&T Services, Inc., and Sprint Communications Company L.P. have intervened in support of the FCC, but they did not seek time during the oral argument.
Lauren Coppola, attorney for the joint petitioners, began by arguing that the Zoom call being used for the oral argument to accommodate public health concerns during the COVID-19 pandemic "demonstrates" the problem with the order.
"Zoom is a high-volume conferencing application that generates enormous amount of terminating traffic … [that was] recently lauded by the Commission as an essential service to the public," and it is a free service, she noted. "The urban carrier that connects this call is paid access charges by other carriers to do so," she continued, but "if this very same call were connected by a small, rural, competitive carrier such as petitioner Northern Valley here, this call would be slapped with an access stimulation label and, worse, under the Commission’s 2019 order, petitioners would have to pay the costs to connect this call. The economics are entirely reversed."
She added that "the Commission and long distance carriers would have you believe that access stimulation traffic is synonymous with sexually explicit chat lines, and the record and the order is filled with overheated and misleading inflammatory statements." She said such discussions are "a smokescreen to mask the Commission’s disparate treatment of carriers," which she said amounts to "picking winners and losers in the marketplace."
"The Commission’s 2019 order is tantamount to adjudication against a small group of carriers that’s disguised as rulemaking," Ms. Coppola said.
Circuit Judge Robert L. Wilkins, who presided over the argument, asked, "Are you saying, counsel, there is something improper about the FCC regulating access stimulation?"
"It has to do so in a lawful manner," Ms. Coppola said. "Here, the Commission used a lawful rule in an unlawful manner," she added, saying that the rule calls for reciprocal compensation and the 2019 order "does away" with reciprocal compensation, because "one carrier has to pay to receive and make calls, and the long distance carrier does not."
She also said that the FCC’s requirement that the CLECs bear the costs of both originating and terminating access was benefiting long distance carriers’ shareholders, not consumers, and that the FCC pointed to benefits to shareholders.
Senior Circuit Judge Laurence H. Silberman said, "Since the interexchange carrier market is competitive, … isn’t it almost certainly true that part of the benefits of that will be passed on to consumers?"
Ms. Coppola said that there was no data to that effect in the record.
"I learned that in college," Judge Silberman observed.
Circuit Judge Neomi Rao noted that FCC must treat similarly situated entities the same, but she asked, "Haven’t they given adequate reasons for the different treatment?"
Ms. Coppola said, "There are no reasons really. They aren’t tied to logic."
Judge Silberman asked for clarification that the discussion of reciprocity referred to the relationship between CLECs and long-distance carriers. "You have a separate argument about relationship between competitive carriers and rate-of-return carriers?" he asked.
Ms. Coppola said yes, pointing to "the last-minute rule just for rate-of-return carriers."
"That’s your lack of notice argument," Judge Silberman said.
"Yes," she responded.
Judge Silberman posed a hypothetical in which "the FCC had done nothing about rate-of-return carriers."
Ms. Coppola said, "That would have fixed one of the problems."
Judge Silberman said that if the FCC had not adopted the separate 10:1 ratio for rate-of-return carriers and instead "ignored" them, "that would certainly have been consistent with the notice [of proposed rulemaking that preceded the order]." He acknowledged that petitioners "might still have an arbitrary-and-capricious argument."
"I’m only focused on the notice," he continued. "That hypothetical seems to undermine your position."
He asked about "the government’s argument that the rate-of-return carriers are in a different position structurally" because of their larger footprints and inability to "move quickly with ‘gimmicks.’"
"The Commission is arbitrarily picking good terminating traffic versus bad terminating traffic" by declaring that call centers are "good" and conference centers are "bad," Ms. Coppola said.
Judge Silberman asked whether the FCC had justified its different treatment of CLECs and rate-of-return carriers by stating "the percentage of rate-of-return carriers that are access stimulators."
Ms. Coppola says that this statement shows that the rule adopted in the 2019 order "is a tautology: an access stimulator is an access stimulator is an access stimulator."
Judge Silberman said, "I had a devil of a time understanding the network edge problem."
Ms. Coppola said that the FCC "has been all over the place in saying where the network edge is."
Judge Silberman suggested that so far as the FCC has determined, "the network edge is still up in the air."
Ms. Coppola responded that for the purpose of the 2019 order, the FCC made "a special interim ruling" on where the network edge is, without committing to taking that same approach in other circumstances.
FCC attorney James Carr said that the rules adopted in the 2019 order don’t single out the plaintiffs, as they have suggested, and that the rules are applied "whenever they are triggered, regardless of the type of traffic."
Judge Silberman asked him whether the 6:1 ratio of terminating-to-originating traffic is the "definition" of an access stimulator or "the remedy" to deal with access stimulators.
Mr. Carr said that "an access stimulator is engaged in an arrangement with high-volume calling providers to stimulate traffic" in order to "artificially" increase access charges.
The petitioners says "you decided 21 carriers were the bad guys" and adopted the 6:1 ratio "to get at them," Judge Silberman said.
Judge Rao said that "presumably" the practices of the petitioners are "just action that is rational and revenue-generating given the FCC’s regulations."
"These carriers are attempting to stimulate access to increase access charge revenues," Mr. Carr said.
"But that activity is lawful," Judge Rao responded.
"But the Commission has made a decision … to get rid of these access charges," Mr. Carr said, referring to the FCC’s path to bill-and-keep mechanisms. "We have found that they are unjust and unreasonable practices," he added.
Judge Rao noted that the practices in question involve "rates that the FCC has said are just and reasonable."
"The FCC has moved to get rid of these charges," Mr. Carr said, noting that the plan is eventually to move access charges to zero, and thus the agency "felt the need to make [access-stimulating] arrangements illegal.
"The idea is—and the Commission discusses this [in the proceeding] ... that this particular rule is part of an overarching approach to this problem" by moving toward bill and keep," he added.
In her rebuttal, Ms. Coppola said that instead of completing the move to a bill-and-keep regime, "where there is uniformity," the FCC has imposed the 6:1 ratio test, which is "asymmetrical."
She returned to her opening observations about Zoom calls such as are used by the court for remote oral arguments, added that high-volume services are "here to stay," particularly in the wake of the pandemic.
Judge Silberman said, "I don’t think that’s properly before us," noting that the pandemic occurred after the FCC adopted the order in question. —Lynn Stanton, [email protected]
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