Citizens Telecommunications Company of Minnesota, LLC Petitioner
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
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
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
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
Submitted: May 15, 2018
Petitions for Review of an Order of the Federal
SHEPHERD, MELLOY, AND GRASZ, CIRCUIT JUDGES.
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, " challenges new price cap rates in the
order. The second group, the "CLEC Petitioners,
" 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.
Business Data Services
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,  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.
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.
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. Access Charge Reform, 15 FCC Rcd. 12962, 13025
¶ 149 (2000). However, the FCC never revisited the issue
until the 2017 Order.
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&T 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.
The 2016 Notice and the 2017 Order
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.
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,  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
competitive marketplace" and that "[w]e intend to
apply ex ante regulation only where competition is expected
to materially fail to ensure just and reasonable rates."
Id. at ¶¶ 4, 86.
took three actions in light of these conclusions regarding
competition. First, it continued forbearance from ex
ante regulation of higher bandwidth TDM services and of
all Ethernet services, emphasizing that packet-based
telecommunications services remain subject to Title
II regulations. Id. at ¶¶ 87-89. Second,
it extended its forbearance from ex ante regulation
to include TDM transport services. Id. at
¶¶ 90-93. Third, it established a Competitive
Market Test for lower bandwidth TDM channel termination
services. Id. at ¶¶ 94-171.
creating the Competitive Market Test, the FCC assessed what
it believed would be the (1) relevant geographic area, (2)
the relevant data, and (3) the appropriate level of
competition. See id. On the first issue, it narrowed
the relevant geographic area from MSAs to counties. See
id. at ¶¶ 108-16. On the second issue, it used
its "Form 477" broadband service availability
along with data collected in the rulemaking proceeding for
the initial assessment of competitiveness, and it required
reliance on the Form 477 data for later reassessments.
See id. at ¶¶ 103-07. On the third issue,
it concluded that a single competitor, even if merely within
a half mile of a set of customers rather than directly
servicing those customers, significantly affected prices such
that the costs of price caps would exceed the benefits in
that market. See id. at ¶¶ 117-29.
Relatedly, the FCC also concluded in its competition analysis
that a residential cable network could substitute for
low-bandwidth BDS for some customers. See id. at
on these conclusions, the FCC established two criteria for
competitiveness. First, a business location is competitive if
a competitive provider's facilities are within half a
mile. Id. at ¶ 132. Second, a business location
is competitive if a cable provider's facilities are
within the same census block. Id. at ¶ 133.
deciding on its Competitive Market Test, the FCC engaged in
data analysis to determine the thresholds for each of the
criteria. Id. at ¶¶ 135-44. It examined
what thresholds for the two criteria have the least risk of
both overregulation on one hand and underregulation on the
other. See id. The FCC then selected thresholds that
were higher than any of its analytics demanded "out of
an abundance of caution" and so "that counties [it]
deregulate[s] will be predominantly competitive."
Id. at ¶¶ 141-42. Thus, it determined that
a county is competitive if 50% of the BDS customer locations
within that county have a facilities-based competitor within
half a mile (as opposed to a competitor who relies on ILECs
in the area and lacks its own facilities nearby) or if 75% of
the census blocks within that county have cable broadband
service. See id. The FCC also directed the FCC's
Wireline Competition Bureau to retest non-competitive
counties every three years to determine competitiveness.
See id. at ¶¶ 145-52.
counties deemed non-competitive under the Competitive Market
Test, the FCC left price cap regulation in place with some
modifications. First, it declined to re-impose price caps in
any counties where it had previously granted related relief
under the Pricing Flexibility Order. Id. at
¶¶ 178-82. Second, it extended some limited pricing
flexibility to all non-competitive counties. Id. at
¶¶ 183-86. Third, the FCC prohibited non-disclosure
agreements ("NDAs") in specified BDS contracts in
non-competitive counties, to the extent the NDAs forbade or
prevented disclosure of information to the FCC. Id.
at ¶¶ 187-96. Finally, it set the X-factor for
annual price cap adjustments to DS1 and DS3 end user channel
terminations at 2%. Id. at ¶¶ 197-99.
addition to creating a Competitive Market Test, the FCC also
removed the tariff (filing) requirement from a few services.
It expanded its removal of the tariff requirement for BDS
with higher bandwidth, extending that relief to all companies
rather than just those companies that had successfully
petitioned for such relief about a decade ago. Id.
at ¶¶ 155-59. It also newly removed the tariff
requirement for transport services and for any BDS within
counties previously granted certain relief under the Pricing
Flexibility Order. Id. at ¶¶ 160-65.
the FCC published the 2017 Order in the Federal Register, the
respective petitioners sought review in different circuits.
The FCC notified the Judicial Panel on Multidistrict
Litigation of the multiple petitions for review, and the
panel consolidated proceedings in this Court for review. The
nature of the ILEC Petitioners' and CLEC Petitioners'
challenges to the 2017 order were very different, leading
several petitioners in each group to intervene in opposition
to the relief sought by the other group.
II. Standard of Review
review of an agency order, we must "hold unlawful and
set aside agency action, findings, and conclusions found to
be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law." 5 U.S.C. §
706(2). An agency rule is arbitrary and capricious "if
the agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explanation for
its decision that runs counter to the evidence before the
agency, or is so implausible that it could not be ascribed to
a difference in view or the product of agency
expertise." Motor Vehicle Mfrs. Ass'n of U.S.,
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
court is not to ask whether a regulatory decision is the best
one possible or even whether it is better than the
alternatives." FERC v. Elec. Power Supply
Ass'n, 136 S.Ct. 760, 782 (2016). Instead, we ask
whether the agency "examine[d] the relevant data and
articulate[d] a satisfactory explanation for its action
including a 'rational connection between the facts found
and the choice made.'" Motor Vehicle Mfrs.
Ass'n, 463 U.S. at 43 (quoting Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)).
We cannot "supply a reasoned basis for the agency's
action that the agency itself has not given" but may
"uphold a decision of less than ideal clarity if the
agency's path may reasonably be discerned."
Id. (citations omitted).
the resolution of the dispute involves primarily issues of
fact and analysis of the relevant information requires a high
level of technical expertise, we must defer to the informed
discretion of the responsible federal agencies."
Minnesota Pub. Utils. Comm'n. v. F.C.C., 483
F.3d 570, 577 (8th Cir. 2007) (alteration in original)
(quoting Cent. S. Dakota Co-op. Grazing Dist. v.
Sec'y of U.S. Dep't of Agric., 266 F.3d 889,
894-95 (8th Cir. 2001)). Our review is narrow in scope and we
will not "substitute our judgment for that of the
agency." Id. (quoting same).
petitioner challenges the agency's compliance with the
Administrative Procedure Act's ("APA's")
procedural requirements, then de novo review is
required "because compliance 'is not a matter that
Congress has committed to the agency's
discretion.'" United States v. Brewer, 766
F.3d 884, 887-88 (8th Cir. 2014) (quoting Iowa League of
Cities v. E.P.A., 711 F.3d 844, 872 (8th Cir. 2013)).
CLEC Petitioners' arguments fit into five categories: (1)
the adequacy of notice, (2) the ending of ex ante
regulations for transport services, (3) the Competitive
Market test, (4) the rules regarding Ethernet services, and
(5) the Interim Wholesale Access Rule. The ILEC
Petitioners' arguments solely concern the X-factor. We
address each of these issue categories in turn.
CLEC Petitioners advance three specific arguments as to lack
of sufficient notice: (1) the 2017 Order was broadly
deregulatory while the 2016 Notice requested comment on a
heightened regulatory scheme; (2) they had no meaningful
opportunity to analyze the specific criteria adopted in the
2017 Order; and (3) at minimum, they had no notice of the
complete deregulation of transport services.
The APA provides the following requirements for notice:
(b) General notice of proposed rule making shall be published
in the Federal Register, unless persons subject thereto are
named and either personally served or otherwise have actual
notice thereof in accordance with law. The notice shall
(1) a statement of the time, place, and nature of public rule
(2) reference to the legal authority under which the rule is
(3) either the terms or substance of the proposed rule or a
description of the subjects and issues involved.
5 U.S.C. § 553. "[A]n agency's notice is
sufficient if it allows interested parties to offer
'informed criticism and comments.'" Missouri
Limestone Producers Ass'n, Inc. v. Browner, 165 F.3d
619, 622 (8th Cir. 1999) (quoting Northwest Airlines,
Inc. v. Goldschmidt, 645 F.2d 1309, 1319 (8th Cir.
Notice of a broadly deregulatory order
CLEC Petitioners complain that the 2016 Notice requested
comment on a heightened regulatory scheme while the
2017 Order was broadly deregulatory. A somewhat
Orwellian approach to proposing rules in the 2016 Notice
creates much of the dispute here. One of the FCC's stated
goals was "large scale de-regulation," but it
requested comment on several suggestions that would have
increased regulation. 2016 Notice at ¶ 4;
e.g., id. at ¶ 354. The FCC, whose
composition changed in 2017, emphasized the stated goal in
the 2017 Order and followed only the proposals in the 2016
Notice that adhered to that stated goal. The CLEC Petitioners
argue that we should vacate the 2017 Order because the 2016
Notice requested comment on a heightened regulatory scheme
and that it was impossible for them to anticipate
deregulation. We find it significant that the CLEC
Petitioners base their argument here on their expectation
that the FCC in 2017 would not follow through on its 2016
specifically, the 2016 Notice proposed "large scale
de-regulation" that "goes hand in hand with the use
of tailored rules where competition does not exist."
2016 Notice at ¶ 4. It observed that "the data and
our analysis suggests that competition is lacking in BDS at
or below 50 Mbps in many circumstances" and requested
comment on the issue. Id. at ¶ 271 & n.690.
It stated that the Pricing Flexibility Order's
"collocation test," which assessed competitive
equipment collocated with an ILEC's equipment, (1) failed
because it was "a poor proxy for predicting the entry of
facilities-based competition," (2) "retained
unnecessary regulation in areas that were very likely to be
competitive," and (3) "deregulated over large areas
where competition was unlikely to occur." Id.
at ¶ 275. The 2016 Notice requested comment on whether
census blocks were an appropriate geographic area for a
Competitive Market Test or whether a larger or more granular
area was appropriate, strongly implying that MSAs were too
broad by stating that "[o]ur goal is to learn from past