Citizens Telecomms. Co. of Minn., LLC v. Fed. Commc'ns Comm'n

901 F.3d 991

CITIZENS TELECOMMUNICATIONS COMPANY OF MINNESOTA, LLC, Petitioner

v.FEDERAL COMMUNICATIONS COMMISSION; United States of America, Respondents

Ad Hoc Telecommunications Users Committee; BT Americas, Inc.; Granite Telecommunications, LLC; INCOMPAS; Sprint Corporation; Windstream Services, LLC, Intervenors

Ad Hoc Telecommunications Users Committee; BT Americas, Inc.; Granite Telecommunications, LLC; INCOMPAS; Sprint Corporation; Windstream Services, LLC, Petitioners

v.Federal Communications Commission; United States of America, Respondents

NCTA-The Internet & Television Association; Comcast Corporation; AT&T Services, Inc.; USTelecom ; CenturyLink, Inc., Intervenors

Consumer Federation of America; New Networks Institute; Public Knowledge, Amici on Behalf of Petitioners

CenturyLink, Incorporated, Petitioner

v.Federal Communications Commission; United States of America, Respondents

Ad Hoc Telecommunications Users Committee; BT Americas, Inc.; Granite Telecommunications, LLC; INCOMPAS; Sprint Corporation; Windstream Services, LLC, Intervenors

Access Point, Inc.; Alpheus Communications, LLC; New Horizons Communications Corp.; XChange Telecom, LLC, Petitioners

v.Federal Communications Commission; United States of America, Respondents

NCTA-The Internet & Television Association; Comcast Corporation; AT&T Services, Inc.; USTelecom ; CenturyLink, Inc., Intervenors

Consumer Federation of America; New Networks Institute; Public Knowledge, Amici on Behalf of Petitioners

No. 17-2296

No. 17-2342

No. 17-2344

No. 17-2685

United States Court of Appeals, Eighth Circuit.

Submitted: May 15, 2018

Filed: August 28, 2018

Counsel who presented argument were: Russell Paul Hanser of Washington, DC for CenturyLink and Citizens Telecommunications Company of Minnesota, LLC; Christopher J. Wright of Washington, DC for Sprint Corporation and Windstream Services, LLC; Matthew J. Dunne of Washington, DC for FCC; Jonathan E. Nuechterlein of Washington, DC for AT&T.

Briefs were filed by the following parties: CENTURYLINK, INC. and CITIZENS TELECOMMUNICATIONS COMPANY OF MINNESOTA, LLC., Russell P. Hanser, Brian W. Murray, Ethan D. Jeans and Melissa L. Turcios of Washington, DC

GRANITE TELECOMMUNICATIONS, LLC; BT AMERICAS, INC.; and INCOMPAS, Markham Cho Erickson, Washington DC

WINDSTREAM SERVICES, LLC and SPRINT CORPORATION, Christopher J. Wright, John T. Nakahata, Timothy J. Simeone, H. Henry Shi, and V. Shiva Goel, Washington, DC

AD HOC TELECOMMUNICATIONS USERS COMMITTEE, Colleen Boothby and Sara Kuehnle, Washington, DC

ACCESS POINT, INC.; ALPHEUS COMMUNICATIONS, LLC; NEW HORIZONS COMMUNICATIONS CORP.; and XCHANGE TELECOM, LLC, Russesll Blau and Andrew D. Lipman, Washington, DC

FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Robert B. Nicholson and Robert J. Wiggers, U.S. Dept. Of Justice, Antitrust Division, Washington, DC, Sarah E. Citrin and Matthew J. Dunne, FCC, Washington, DC

AMICI PUBLIC KNOWLEDGE, CONSUMER FEDERATION OF AMERICA, and NEW NETWORKS INSTITUTE, Harold Feld, John Bergmayer, and Phillip Berenbroik, PUBLIC KNOWLEDGE, Washington, DC., Bruce Kushnick, NEW NETWORKS INSTITUTE, Brooklyn, NY, Mark Cooper, CONSUMER FEDERATION OF AMERICA, Washington, DC

INTERVENORS AD HOC ET AL. In support of Respondents, SPRINT COPORATION AND WINDSTREAM SERVICES, LLC, Christopher J. Wright, John T. Nakahata, Timothy J. Simeone, H. Henry Shi, V. Shiva Goel, Washington, DC, BT AMERICAS, INC.; GRANITE TELECOMMUNICATIONS, LLC; and INCOMPAS Markham Cho Erickson, Washington, DC

CABLE INTERVENORS in Support of the Federal Respondents, Matthew A. Brill, Matthew T. Murchison, Washington, DC, Ryan S. Baasch, New York, NY

ILEC INTERVENORS in Support of the Federal Respondents, CENTURYLINK, Craig J. Brown, Denver, CO, AT&T and USTELECOM, Jonathan E. Nuechterlein, James P. Young, C. Frederick Beckner, III, Christopher T. Shenk, and Kurt A. Johnson, Washington DC.

Before SHEPHERD, MELLOY, and GRASZ, Circuit Judges.

GRASZ, Circuit Judge.

Two groups of petitioners ask this Court to review a 2017 order of the Federal Communications Commission ("FCC") that alters the FCC’s regulations for business data services ("BDS"). One group, the "ILEC Petitioners,"¹ challenges new price cap rates in the order. The second group, the "CLEC Petitioners,"² challenges most of the other changes in the order, both on the adequacy of notice and on the merits. For the reasons discussed below, we grant the CLEC Petitioners’ petition in part, regarding notice. We deny the petitions in all other respects.

I. Background

A. Business Data Services

The term BDS generally refers to communications lines for businesses, which offer dedicated service with guaranteed performance and speed. BDS is currently transitioning from being provided through phone line-based "TDM" services,³ which are heavily regulated, to being provided through packet-based "Ethernet" services, which are lightly regulated. Regulations limit prices on BDS in several ways, including imposing caps on aggregate prices ("price caps"). See WorldCom, Inc. v. F.C.C. , 238 F.3d 449, 454 (D.C. Cir. 2001). Regulations also require certain providers to tariff these services, which essentially means to publish any changes in the prices they charge before the changes take effect. See id.

The services at issue in this case are two different subsets of BDS: (1) end user channel terminations (or "channel termination services"), which connect the main provider’s office to a customer’s building; and (2) dedicated "transport services," which connect a provider’s offices to other network locations. Currently, some of the CLEC Petitioners compete for customers by purchasing BDS from the main providers in order to reach specific customers. A competitor uses one or both services depending on whether it has equipment in a particular office or connects its network to the main provider’s network at a different point.

Prior to issuance of the order under review in this case ( Business Data Services in an Internet Protocol Environment , 32 FCC Rcd. 3459 (2017) (the " 2017 Order") ), the FCC had relied on a "temporary" formula for calculating the price caps on BDS. These price caps are generally subject to two adjustments: an annual increase to account for inflation; and an annual decrease to account for productivity in telecommunications that exceeds productivity in the general economy. The FCC refers to the annual decrease as the "X-factor." In 2000, the FCC adopted a proposal that set temporary X-rates of 3.0% for 2000, 6.5% for 2001 through 2003, and a rate equivalent to the inflation rate pending the FCC revisiting the issue by 2005. AccessCharge Reform , 15 FCC Rcd. 12962, 13025 ¶ 149 (2000). However, the FCC never revisited the issue until the 2017 Order.

The FCC also avoided permanent rules for applying BDS price caps before the 2017 Order. 2017 Order at ¶ 1. In 1999, the FCC sought to remove price caps on channel termination services and transport services in areas of the country with more competitive markets through what is known as the "Pricing Flexibility Order." See generally Access Charge Reform , 14 FCC Rcd. 14221 (1999) ("Pricing Flexibility Order"). The Pricing Flexibility Order provided some immediate changes and also established two forms of broader relief available in metropolitan statistical areas ("MSAs") for service providers that could prove a particular MSA met certain designated competitive thresholds. See WorldCom, Inc. , 238 F.3d at 454–55. In 2002, AT&T⁴ petitioned the FCC to reconsider its Pricing Flexibility Order, alleging that the order was not fostering competitive entry and seeking a moratorium on further grants of pricing flexibility. See Special Access Rates for Price Cap Local Exchange Carriers , 20 FCC Rcd. 1994, ¶¶ 1–6 (2005). In 2005, the FCC rejected AT&T’s requests but sought comment on the BDS price cap regulations and on any appropriate interim relief. See id. That 2005 Notice of Proposed Rulemaking started a proceeding that continued from January 2005 until the 2017 Order at issue in this case. 2017 Order at ¶ 1.

B. The 2016 Notice and the 2017 Order

In 2016, the FCC issued the most recent Further Notice of Proposed Rulemaking regarding BDS price caps. See Business Data Services in an Internet Protocol Environment , 31 FCC Rcd. 4723 (2016) (the " 2016 Notice"). The 2016 Notice "propos[ed] to end the traditional use of tariffs for BDS services and discard[ ] the traditional classification of ‘dominant’ and ‘nondominant’ carriers," pairing this deregulation "with the use of tailored rules where competition does not exist." Id. at ¶ 4. The 2016 Notice articulated "four fundamental principles" for the new proposed regulations. Id. "First, competition is best." Id. at ¶ 5. "Second, the new regulatory framework should be technology-neutral." Id. at ¶ 6. "Third, Commission actions should remove barriers that may be inhibiting the technology transitions." Id. at ¶ 7. "Fourth, the Commission should construct regulation to meet not only today’s marketplace, but tomorrow’s as well." Id. at ¶ 8.

In the 2017 Order, the FCC began by analyzing competition in the market. It stated that its competition analysis was "informed by, but not limited to, traditional antitrust principles" and addressed "technological and market changes as well as trends within the communications industry, including the nature and rate of change." 2017 Order at ¶ 12. Based on data collected in the proceeding, it concluded there was reasonable competition, now or at least over the medium term, in TDM services with bandwidth above 45 Mbps,⁵ all transport services, and all Ethernet services. See id. at ¶¶ 16, 73–76. It also concluded that a competitor with nearby BDS facilities restrained prices for lower bandwidth TDM services in the short term and provided reasonable competition in three to five years. See id. at ¶¶ 13–15. The FCC further stated that "ex ante pricing regulation is of limited use—and often harmful—in a dynamic and increasingly...