Wide Voice, LLC v. Federal Communications Commission, No. 20-70042 (9th Cir. 2021)
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The Ninth Circuit granted in part and denied in part a petition for review challenging the FCC's order finding that a competitive local exchange carrier's tariffed rate was void ab initio because it violated the FCC's benchmarking rule by exceeding the established step-down rates.
The panel held that the FCC did not err in concluding that Wide Voice's tariff violated the benchmarking rule by deviating from the established stepdown rates. In this case, the FCC's conclusion that Wide Voice's tariff was unlawful because it violated the benchmarking rule was neither arbitrary nor capricious However, the panel held that the FCC's determination that the tariff was void ab initio after being "deemed lawful" in accordance with the governing statute was arbitrary and capricious. The panel followed the lead of the D.C. Circuit in concluding that
the FCC impermissibly disregarded the "deemed lawful" status of Wide Voice's tariffs in contravention of Congress' unambiguously expressed intent to provide a mechanism to achieve that "deemed lawful" status. Furthermore, the FCC elided its own prior ruling, as well as prior court rulings precluding retrospective remedies for "deemed lawful" rates later determined to be unreasonable.
Court Description: Federal Communications Commission. The panel granted in part and denied in part a petition for review of the Federal Communications Commission (“FCC”)’s order finding that a competitive local exchange carrier’s tariffed rate was void ab initio because it violated the FCC’s benchmarking rule by exceeding the established step-down rates. This appeal involves tariffed charges that local exchange carriers impose on long-distance carriers for access to services that complete long-distance telephone calls. When customers, known as end users, purchase telephone service, they generally contract with two different entities: a local exchange carrier (LEC) and a long-distance carrier. The LEC owns the phone lines that connect directly to end users, and it is through the LEC’s lines that users make local calls. In turn, the long-distance carrier connects end users’ LEC * The Honorable Stephen J. Murphy III, United States District Judge for the Eastern District of Michigan, sitting by designation. WIDE VOICE V. FCC 3 networks to other LEC networks around the country, thus giving end users the ability to make long-distance calls. The Telecommunications Act of 1996 amended the Communication Act of 1934, 47 U.S.C. § 204(a), by providing “that a carrier “may file with the [FCC] a new or revised charge . . . on a streamlined basis—[and]—[a]ny such charge . . . shall be deemed lawful” if the FCC does not suspend or investigate it within seven days (if the rate decreases) or 15 days (if the rate increases).” 47 U.S.C. § 204(a)(3). The 1996 Act further divided local exchange carriers into incumbent LECs (ILECs) and new entrants called competitive LECs (CLECs). The FCC initially left CLECs’ access rates unregulated. However, after discovering that CLECs’ rates generally exceeded that of ILECs, the FCC changed course to ensure that CLECs’ access charges were just and reasonable as compared to the access charges of ILECs. To achieve this goal, the FCC implemented the “benchmarking rule,” which prohibited a CLEC from pricing its services above the rate charged for such services by the competing ILEC. The FCC also promulgated corollary rules providing for price cap carriers, essentially ILECs, to reduce—or “step down”—their “Tandem-Switched Transport Access Service” rates. Tandem Switched Transport Service is the function of establishing a communications path to complete end users’ long-distance calls. In 2019, Verizon Business Services filed a complaint with the FCC alleging that Wide Voice’s tariff was unlawful because it charged rates exceeding the step-down rates set forth in 47 CFR § 51.907(g)(2) and (h). Specifically, Verizon sought a declaration that § 51.907 applied to Wide Voice, as a CLEC, and that Wide Voice’s tariff purporting to authorize it to charge rates prohibited by §§ 51.907 and 61.26 4 WIDE VOICE V. FCC was void ab initio. The FCC agreed with Verizon, concluding that Wide Voice’s tariffed rate violated the benchmarking rule by exceeding the step-down rates charged by a competing ILEC for the same service. It reasoned that “when a benchmarking [CLEC] terminates traffic traversing a tandem owned by it or an affiliate (i.e., the service described in [§§] 51.907(g)(2) and (h)), it too must step down its rate as required by the benchmark.” The panel held that the FCC’s conclusion that Wide Voice’s tariff was unlawful because it violated the benchmarking rule was neither arbitrary nor capricious. However, the FCC’s determination that the tariff was void ab initio after being “deemed lawful” in accordance with the governing statute was arbitrary and capricious. Applying § 204(a)(3) to the facts of this case, the panel held that once Wide Voice’s tariff took effect without prior suspension or investigation it was “deemed lawful.” As a result, only prospective remedies were available to the FCC after its finding that Wide Voice’s tariff was unlawful. The panel concluded that the FCC impermissibly disregarded the “deemed lawful” status of Wide Voice’s tariffs in contravention of Congress’ unambiguously expressed intent to provide a mechanism to achieve that “deemed lawful” status. In addition, the FCC elided its own prior ruling, as well as prior court rulings precluding retrospective remedies for “deemed lawful” rates later determined to be unreasonable. For these reasons, the FCC’s characterization of Wide Voice’s tariff as void ab initio was arbitrary and capricious. WIDE VOICE V. FCC 5
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