At&T Corp. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 8, 2016 Decided November 18, 2016

No. 15-1059

AT&T CORP.,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

BANDWIDTH.COM, INC., ET AL.,

INTERVENORS

On Petition for Review of an Order of the Federal

Communications Commission

Joseph Guerra, argued the cause for petitioner. With him

on the briefs were Peter D. Keisler, James P. Young, Kwaku

A. Akowuah, Gary L. Phillips, and David L. Lawson.

Sarah E. Citrin, Counsel, Federal Communications

Commission, argued the cause for respondents. On the brief

were William J. Baer, Assistant Attorney General, Robert B.

Nicholson and Robert J. Wiggers, Attorneys, Jonathan B.

Sallett, General Counsel, Federal Communications

Commission, David M. Gossett, Deputy General Counsel,

Jacob M. Lewis, Associate General Counsel, Richard K.

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Welch, Deputy Associate General Counsel, and Lisa S. Gelb,

Counsel. James M. Carr, Counsel, entered an appearance.

Christopher J. Wright, argued the cause for intervenors.

With him on the brief were John T. Nakahata, Timothy J.

Simeone, Stephen W. Miller, Joshua M. Bobeck, Charles A.

Zdebski, and Jeffrey P. Brundage. John R. Grimm entered an

appearance.

Before: ROGERS, Circuit Judge, and WILLIAMS and

RANDOLPH, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

WILLIAMS, Senior Circuit Judge: This case arises from

the ongoing transition of American telephony to the Internet.

The process creates challenges to a regulatory system

designed for the pre-Internet world, the familiar “public

switched telephone network” or “PSTN.” We deal here with

the fees that local exchange carriers (“LECs”) can charge

inter-exchange carriers (“IXCs”) for certain services they

provide, in coordination with providers of Voice over Internet

Protocol (“VoIP”), for the completion of “inter-exchange”

calls. Resolution of the dispute turns on how the disputed

services are to be classified. The Federal Communications

Commission says that they are end-office switching services.

Petitioner AT&T says that they are tandem switching services.

The prescribed rates for the latter have generally been lower;

AT&T has no objection to paying them.

Two decisions of the Commission are critical. First, in

2011 the Commission made a broad effort to update its system

for regulating intercarrier compensation. In re Connect

America Fund, 26 FCC Rcd. 17663 (2011) (the

“Transformation Order”). That order produced definitions of

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“End Office Access Service” and “Tandem-Switched

Transport Access Service,” stated in subsections (d) and (i),

respectively, of 47 C.F.R. § 51.903. The parties focus on

subsection (d), providing:

End Office Access Service means:

(1) The switching of access traffic at the carrier’s end

office switch and the delivery to or from of such traffic to

the called party’s premises;

(2) The routing of interexchange telecommunications

traffic to or from the called party’s premises, either

directly or via contractual or other arrangements with an

affiliated or unaffiliated entity, regardless of the specific

functions provided or facilities used; or

(3) Any functional equivalent of the incumbent local

exchange carrier access service provided by a non-

incumbent local exchange carrier.

§ 51.903(d). Subsection (i), governing tandem switching

access service, employs similar “functional equivalent”

language.

The Transformation Order recognized that LECs

partnered with VoIP providers to supply these services. It

therefore specified that a LEC could collect for provision of

access services “regardless of whether the [LEC] itself

delivers such traffic to the called party’s premises or delivers

the call . . . via contractual or other arrangements with an

affiliated or unaffiliated provider of interconnected VoIP

service.” § 51.913(b). In short, the Transformation Order

allowed a VoIP provider and its LEC partner (collectively,

“VoIP-LEC”) to charge for providing the “functional

equivalent” of end-office switching services, or tandem

switching services, as the case might be.

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In the second decision, In re Connect America Fund, 30

FCC Rcd. 1587, 1588, ¶ 2 (2015) (the “Declaratory Ruling”),

the Commission wrestled with the contention of AT&T, an

IXC, that the disputed services do not qualify as end-office

access. The Commission ruled that the disputed services are

indeed end-office access under subsection (3) of § 51.903(d).

Id. at 1588-89, ¶ 3. It presented its ruling as an interpretation

of the Transformation Order.

AT&T challenges the Declaratory Ruling on two

grounds. First, it argues that the ruling cannot be upheld as an

interpretation of the Transformation Order. On this issue we

must uphold the Commission unless its proffered

interpretation is “plainly erroneous or inconsistent with the

regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997)

(quotation omitted). If the Declaratory Ruling fails that test,

then imposition of the fees would require a change in the

Commission’s rules, which could occur only through the usual

notice-and-comment rulemaking under the Administrative

Procedure Act, 5 U.S.C. § 553. In the end, we find that the

Declaratory Ruling does not disclose the Commission’s

reasoning with the requisite clarity to enable us to sustain its

conclusion. S.E.C. v. Chenery Corp., 318 U.S. 80, 94 (1943);

see Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 50 (1983). We therefore vacate

and remand the order to the Commission for further

explanation.

AT&T also contends that it was arbitrary and capricious

of the Commission to apply its “interpretation” retroactively,

thus requiring AT&T to pay end-office switching charges for

access services it received before the Declaratory Ruling. On

the view we take of the first claim, we need not reach this

issue here.

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* * *

We now double back to describe the disputed services.

We start with end-office and tandem switching in a pure

PSTN environment, and then move to the services’ respective

places in the mixed universe of Internet and PSTN.

The PSTN depends on time-division multiplexing

(“TDM”) technology, which allows multiple calls to travel

simultaneously over shared equipment before being separated

onto individual lines. When a subscriber “originates” a long-

distance call in the PSTN context, that call must travel from

the subscriber’s premises over the subscriber’s line (“loop” in

PSTN parlance) to an end-office switch, which will link the

call to trunk lines, where it will travel in TDM format along

with other conversations. For the called party, the process is

similar, with an end-office switch moving the call from a

trunk line to the subscriber’s line, thus enabling the call to be

terminated. (Termination doesn’t refer to the end of the phone

call, but to its reaching the called party.) The Commission has

long regulated the rates for this access because of a risk that

LECs would charge the IXCs monopolistic prices. See In re

Access Charge Reform, Seventh Report & Order, 13 FCC

Rcd. 9923, 9935-36, ¶¶ 30-34 (2001). A similar risk exists

along the network of trunk lines running between the end-

office switches for the calling and called parties. See In re

Access Charge Reform, Eighth Report & Order, 19 FCC Rcd.

9108, 9116-17, ¶ 17 (2004). “Just as the loop runs from

[customer premises] terminals to local switches, the trunks run

from the local switches to centralized, or tandem,

switches . . . , which operate much like railway switches,

directing traffic into other trunks.” Verizon Communications,

Inc. v. F.C.C., 535 U.S. 467, 490 (2002); see also In re Access

Charge Reform, First Report & Order, 12 FCC Rcd. 15982,

16051, ¶ 158 (1997). The Commission regulates switching

costs in this second context as well.

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The Commission has set the ceiling on rates chargeable

by a “competitive” LEC at the rates charged by the incumbent

LEC with which it competes. (The incumbent LECs are

mostly descendants of the “Baby BOCs”—the Bell Operating

Companies that were split off from the old AT&T on the

occasion of its break-up. The focus here is on competitive

LECs, or “CLECS”; except as necessary we refer to the two

interchangeably.) In the PSTN context, the chargeable

switching rate depends on the function of the switching

service. Thus, the Commission has said, the benchmark

switching rate “is [1] the end office switching rate when a

competitive LEC originates or terminates calls to end users

and [2] the tandem switching rate when a competitive LEC

passes calls between two other carriers.” In re Access Charge

Reform, PrairieWave Telecomms., Inc. Petition, 23 FCC Rcd.

2556, 2558, ¶ 6 (2008) (bracketed numbers added). In PSTN,

then, end-office switching occurs between a trunk line and the

subscriber’s line, while tandem switching occurs between

trunk lines.

Given their TDM heritage these access charges do not

map cleanly onto VoIP-PSTN traffic, which the Commission

defined in the Transformation Order as “traffic exchanged

over PSTN facilities that originates and/or terminates in IP

format.” 26 FCC Rcd. at 18006, ¶ 940. There the

Commission adopted the general principle that LECs could

“charge the relevant intercarrier compensation for functions

performed by it and/or by its retail VoIP partner, regardless of

whether the functions performed or the technology used

correspond precisely to those used under a traditional TDM

architecture.” Id. at 18026-27, ¶ 970. That focus on functions

of course undergirds the reliance on “functional equivalent[s]”

in § 51.903(d), (i).

The Transformation Order also explicitly asserted the

application of its rules across technologies, saying that LECs

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are entitled to compensation for performing functions “using,

in whole or in part, technology other than TDM transmission

in a manner that is comparable to a service offered by a local

exchange carrier.” 47 C.F.R. § 51.913(b).

To understand the application of that principle, and the

present claims, we now must examine VoIP-PSTN services

provided by a VoIP-LEC. The universe of these provider

partnerships is divided into two—“facilities-based” and “over-

the-top.” Declaratory Ruling, 30 FCC Rcd. at 1588, ¶ 2.

Facilities-based service occurs when a VoIP provider such as

a cable company owns or leases the physical infrastructure

connecting directly to subscribers’ homes and offices and thus

completes the “last mile” of the call. Id. at 1592, ¶ 11 n.35.

This is closely parallel to the equivalent PSTN process; the

charges levied by these providers are not at issue here.

Over-the-top VoIP providers do not connect directly to

the last mile transmission network. Id. at 1588, ¶ 2. They

“require the end user to obtain broadband transmission from a

third-party provider.” Id. at 1592, ¶ 11 n.35 (citation

omitted). Thus, suppose a call from a PSTN calling party to

an over-the-top VoIP subscriber. The call will make its way

via the calling party’s IXC to some intermediate point, at

which the VoIP-LEC provider will “convert[] the call from

TDM to IP format.” AT&T Corp. v. YMax Communications

Corp. 26 FCC Rcd. 5742, 5746, ¶ 7 (2011) (“YMax I”). Now

taking the form of data packets, the call will then proceed over

the Internet until it reaches the network of the called party’s

Internet service provider (“ISP”). Id. That ISP will then

direct the data packets to the called party’s customer premises

equipment—which in YMax I were (perhaps typically) a VoIP

device and a landline handset. See id. at 5744, 5746, ¶¶ 4, 7.

The Commission issued the Declaratory Ruling to

resolve petitioner AT&T’s contention that the Transformation

8

Order did not require it to pay over-the-top VoIP-LECs the

end-office switching rate. 30 FCC Rcd. at 1594-95, ¶ 16.

AT&T argued there, and argues here, that the Transformation

Order authorizes LECs to obtain end-office switching charges

only if they actually interconnect with the last-mile network

leading into a customer’s home, a condition satisfied in the

PSTN world and by facilities-based providers in the IP world.

Id.

AT&T bolstered the argument by reference to RAO Letter

21, 7 FCC Rcd. 5205 (1992), a staff document that identified

eight “basic switching functions,” id. at 5205 & n.1. One of

these eight functions is “[i]nterconnection [which] connects

subscriber line to subscriber line or subscriber line to trunk,”

while the remaining seven cover activities such as,

“[a]ttending [which] monitors for off-hook signals,”

“[i]nformation receiving,” and “[i]nformation transmitting.”

Id. at n.1. In 1997, the Commission clarified the letter by

stating that out of the eight functions, “interconnection, i.e.,

the actual connection of lines and trunks, is the characteristic

that distinguishes [end-office] switches from other central

office equipment.” In re Petition for Reconsideration, RAO

21, 12 FCC Rcd. 10061, 10067, ¶ 11 (1997).

The Declaratory Ruling “recognize[d] that elements” of

the RAO “decisions emphasize, among other things, the

function of connecting lines and trunks in end-office

switching,” but dismissed arguments based on these decisions

as “necessarily tied to TDM-based technologies.”

Declaratory Ruling, 30 FCC Rcd. at 1606, ¶ 38. It treated

interconnection, formerly the sine qua non of end-office

switching, as a mere technical exigency of TDM networks and

not an inherent function of end-office switching. Id. at 1602,

¶ 30.

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Instead the Commission selected from RAO Letter 21

what it called an “aggregation of functions,” specifically “call

control, i.e., the functions necessary to ensure call set-up,

conduct and take-down,” and pronounced this the functional

equivalent of end-office switching. 30 FCC Rcd. at 1601,

¶ 28 (emphasis omitted). Finding that over-the-top VoIP

services “undoubtedly provide the call intelligence associated

with call set-up, supervision and management” because these

services “determine call destination and directly code the call

for receipt and decoding by the called party,” it concluded that

over-the-top VoIP providers supply “the functional equivalent

of end-office switching.” Id. at 1602, ¶ 29 & n.105.

Its justification for the shift from interconnection rested in

large part on a claim that the Transformation Order had

ushered in a “new functional equivalence approach” that was

not bound by “preexisting, technology-specific, TDM-based

guidance for determining functional equivalency.” 30 FCC

Rcd. at 1600, ¶ 26 & n.98. This “new” approach, the

Declaratory Ruling explained, requires a “holistic look at how

calls are delivered to the end user” rather than a comparison of

“key physical switching functions.” Id. at 1600-1601, ¶¶ 26-

27 (explaining that a test based on “physical functions” is too

“narrow” an interpretation of the Transformation Order). The

Commission rooted this new standard in a passage from the

Transformation Order saying that the functions or

technologies used “do not need to correspond precisely to

those used under a traditional TDM architecture.” 30 FCC

Rcd. at 1600, ¶ 26 n.98 (quoting Transformation Order, 26

FCC Rcd. at 18026-27, ¶ 970) (internal quotation marks

omitted). The Commission also found support for this

approach in certain general statements the agency had

previously made about functional equivalence, a concept with

a long history in telecommunications regulation, which we

need not recount here. See 30 FCC Rcd. at 1148, ¶ 27 n.100

(citing precedents); see also id. at 1150, ¶ 31 & n.114.

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AT&T argues that the Commission misapplied this

functional equivalence concept. As we saw, the Declaratory

Ruling proclaimed the standard to be “new,” to require a

“holistic look at how calls are delivered to the end user,” and

not to require precise physical identity. But those

propositions don’t tell us much about what functional

equivalence does mean. This seems to turn on a comparison

of the functions performed by PSTN end-office switches and

by over-the-top VoIP-LECs. The Declaratory Ruling said

that those entities’ provision of “call control” and call

intelligence did the job. Declaratory Ruling at 1601, ¶ 28.

This poses a key question: if those are the critical functions,

what distinguishes end-office switching from tandem

switching?

AT&T assails the Commission’s failure to explain why

the activities of over-the-top VoIP-LECs should be classified

as end-office rather than tandem switching. “They [the VoIP-

LEC partners] perform only some limited subset of the call

control functions performed traditionally by all types of

switches.” Pet’r Br. at 10 (emphasis added). Indeed, AT&T

had posed that problem in the proceedings leading to the

Declaratory Ruling, clearly enough so that the Commission

noted that it had argued that the services of the VoIP-LECs

“‘more closely resemble tandem switching’ than end office

switching.” Declaratory Ruling, 30 FCC Rcd. at 1604, ¶ 33.

Having explicitly noted AT&T’s position, the Declaratory

Ruling never again mentioned tandem switching. And at oral

argument counsel for the agency was unable to point to any

Commission language, in the Declaratory Ruling or

elsewhere, indicating that call intelligence is not performed by

tandem switches. Oral Argument at 32:06.

When the Commission applies the functional equivalence

test, it necessarily draws a line around “the essential

function[s]” of a service. See In re Investigation of Special

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Access Tariffs of Local Exchange Carriers, 12 FCC Rcd.

7026, 7041, 7052, ¶¶ 27, 48 (1997) (explaining that under

“functional equivalence test,” services were not “like” when

they failed to share an “essential function”); see In re Cellexis

Internat’l, Inc. v. Bell Atlantic NYNEX Mobile Sys., Inc., 16

FCC Rcd. 22887, 22894, ¶ 19 (2001) (“[I]t is the purpose of a

technical configuration, not the configuration itself, that is

relevant in determining functional equivalence.”). The

Declaratory Ruling held that “call control” was the essential,

defining purpose of end-office switching while

“interconnection” was not. 30 FCC Rcd. at 1601-1602, ¶¶ 28-

30 (defining call control as “the intelligence associated with

call set-up, supervision and management”). AT&T contends

that this defining function is not defining at all. As we

mentioned above, AT&T asserts that over-the-top VoIP-LECs

“perform only some limited subset of the call control

functions performed traditionally by all types of switches.”

Pet’r Br. at 10.

Indeed, the Declaratory Ruling never explained its

references to call set-up and the intelligence associated with it.

But in prior rulings the Commission had repeatedly referred to

“call set-up” in terms that seem to encompass the services of

tandem switches, e.g., speaking of it as the process of

“establish[ing] transmission paths over which telephone calls

are carried.” In re Ameritech Operating Cos., 11 FCC Rcd.

3839, 3841, ¶ 4 (1996). Call set-up determines the route

necessary to get from the calling party’s phone to the called

party’s phone. In a TDM phone call, this route is determined

by a signaling network, such as the SS7 network. In re High-

Cost Universal Serv. Support, 24 FCC Rcd. 6475, 6642, ¶ 327

n.848 (2008) (“SS7 is an out-of-band signaling system that is

separate from, but runs parallel to, the public switched

telephone network (PSTN) and is used to set up call paths

between calling and called parties.”); In re Access Charge

Reform, First Report & Order, 12 FCC Rcd. 15982, 16087,

12

¶ 244 (1997) (“[S]ignaling networks like SS7 establish and

close transmission paths over which telephone calls are

carried.”); see generally Transformation Order, 26 FCC Rcd.

at 17892-96, ¶¶ 708, 715-17 (discussing different types of

signaling networks, including SS7, Multi-Frequency

signaling, and IP signaling).

In the most common type of signaling network, the call

set-up process relies on databases: “[S]witch[es] [] send

queries . . . to call-related databases, which return customer

information or instructions for call routing to the switch.” In

re Application of GTE Corp., 15 FCC Rcd. 14032, 14121,

¶ 189 n.431 (2000). Thus the “intelligence associated with

call set-up” exists not in end-office switches, but in these

“call-related databases.” To the extent that end-office

switches possess any of the “intelligence associated with call

set-up,” that intelligence appears to be shared with tandem

switches. Both end-office and tandem switches are, for

signaling purposes, “service switching points . . . capable of

originating, transmitting, and receiving SS7 messages for call

set-up and database transactions.” Ameritech, 11 FCC Rcd. at

3840-41, ¶ 3; see In re Access Charge Reform, First Report &

Order, 12 FCC Rcd. at 16045, ¶ 145 (indicating that both

end-office and tandem switches “process or formulate signal

information”).

Because both tandem and end-office switches process

“intelligence associated with call-setup,” the Declaratory

Order’s functional equivalence analysis fails to distinguish

between them. If end-office switches traditionally perform

functions A (call set-up) and B (interconnection between

trunks and loops), while tandem switches perform functions A

(call set-up) and C (interconnection between trunks), it is

wholly arbitrary to say (without more) that the call set-up

activity of VoIP-LECs is the functional equivalent of end-

office switching but (implicitly) not the equivalent of tandem

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switching. Which is it—one, the other, or both? And what

language in the Transformation Order gives the answer?

The Transformation Order prescribed entirely different

consequences for services that are the functional equivalent of

end-office switching and of tandem switching. Besides

assigning them separate definitions, see 47 C.F.R.

§ 51.903(d), (i), it provided for different rate ceilings.

Compare 47 C.F.R. § 51.907(g)(1) (end-office access service)

with id. § 51.907(g)(2) (tandem switch service). In case the

Transformation Order’s rules did not insist on the distinction

between them clearly enough, the Commission drew a picture,

illustrating the two types of switching as occurring separately

at different stages of a call’s path. Figure 13, 26 FCC Rcd. at

18112, ¶ 1306. So far the Commission has not pointed to

anything in the Transformation Order from which a reader

would understand that it meant for specific services provided

by over-the-top VoIP-LEC providers to qualify as the

functional equivalent of end-office switching and not tandem

switching.

The Commission’s muddled treatment of functional

equivalence requires vacatur and remand. But judicial

economy suggests that we address some of AT&T’s other

arguments to avoid re-litigation of identical issues in a

subsequent petition. AT&T claims that language in the

Transformation Order itself, and in Commission decisions

before and after the ruling, illustrate that references to end-

office switching services cannot be read as broadly as

necessary to sustain the Declaratory Ruling.

In the preamble to the Transformation Order (the

“concise general statement of [the rules’] basis and purpose”

required by 5 U.S.C. § 553(c)), the Commission explained

that it was adopting rules to make clear that a carrier may

impose origination and termination charges when it “uses

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Internet Protocol facilities to transmit . . . traffic to or from the

called party’s premises.” 26 FCC Rcd. at 18025, ¶ 969

(emphasis added) (brackets omitted). It went on to say,

“[O]ur rules do not permit a LEC to charge for functions

performed neither by itself or its [VoIP] partner.” Id. at

18027, ¶ 970. On their face these passages seem to deny an

over-the-top provider authority to charge end-office switching

rates. As we’ve pointed out, the Commission acknowledged

that VoIP providers do not supply a last-mile connection and

their end-users must obtain broadband transmission from

others.

The Commission replies that the passage is “not itself a

rule,” so that the Commission is free to deviate from its

apparent meaning. Resp. Br. at 21-22. But at the very least,

an agency’s “expla[nation] in the Federal Register” provides

evidence of the agency’s “intent at the time of the regulation’s

promulgation.” Consolidation Coal Co. v. Fed. Mine Safety

& Health Review Comm’n, 136 F.3d 819, 821-22 (D.C. Cir.

1998) (quoting Thomas Jefferson Univ. v. Shalala, 512 U.S.

504, 512 (1994)). An interpretation at odds with the agency’s

expressed intent at the time of adoption enjoys no judicial

deference. Comcast Cable Communications, LLC v. F.C.C.,

717 F.3d 982, 1003 (D.C. Cir. 2013).

The Commission also contends that the preamble

language is ambiguous; its theory for ambiguity is that most

IXCs other than AT&T mutely paid the charges when billed

by the VoIP-LECs. Parties’ silent decisions not to incur the

cost of litigation seem a relatively remote basis for claiming

ambiguity, which in common parlance is a matter of language.

Nonetheless, the Transformation Order might conceivably

have been using “transmit” in the sense of helping to cause

another party to make the ultimate transmission.

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AT&T also cites two decisions relating to YMax

Communications Corp., an over-the-top VoIP provider. In the

first, AT&T Corp. v. YMax Communications Corp. 26 FCC

Rcd. 5742 (2011) (“YMax I”), which we’ve already

mentioned, AT&T successfully resisted YMax’s claim to end-

office switching fees. The pure holding of YMax I was

narrow: that an over-the-top VoIP provider could not levy

end-office switching charges based on a tariff that described

end-office switching purely in TDM terms. “The fundamental

problem [with YMax’s position] appears to be that YMax

chose to model its Tariff on common language in LEC access

tariffs, even though the functions YMax performs are very

different from the access services typically provided by

LECs.” YMax I, 26 FCC Rcd. at 5748, ¶ 14. Relying on the

tariff’s references to “End User station loops” and “end user

lines”—language drawn from the TDM world—the

Commission found that the tariff contemplated charges only

for TDM services. Id. at 5755-59, ¶¶ 36-45. And under the

filed rate doctrine YMax could charge only for services

specified in the tariff. Id. at 5748, ¶ 12 (quoting 47 U.S.C.

§ 203(a), (c)).

In addition to its holding on YMax’s tariff language, the

Commission hinted that YMax’s access charges might have

failed to satisfy the functional equivalence standard but

stopped short of addressing that issue. 26 FCC Rcd. at 5743,

¶ 1 n.7 (“[W]e emphasize that this Order addresses only the

particular language in YMax’s Tariff and the specific

configuration of YMax’s network architecture . . . .”).

The Commission also refused to “address issues

regarding the intercarrier compensation obligations, if any,

associated with [VoIP] traffic in this Order.” Id.

The Commission cited YMax I with a “cf.” signal in the

Transformation Order, 26 FCC Rcd. at 18027, ¶ 970 n.2028,

16

and AT&T reads the citation as intended to illustrate that the

services of an over-the-top VoIP do not qualify for end-office

switching fees. The Commission insists here, as it did in the

Declaratory Ruling, that the citation served merely as “part of

a discussion of measures taken to prevent double billing.” 30

FCC Rcd. at 1604, ¶ 34 n.126. The evidence is mixed, but we

find the Commission’s interpretation reasonable.

After the Transformation Order another matter involving

YMax led the Commission’s Wireline Competition Bureau to

amend one of the order’s rules. Shortly after the order was

published, YMax sought “confirmation of its interpretation”

that it need only provide “some portion of the interconnection

with the PSTN” to qualify for the “full benchmark rate” of

access charges, “even if [the rate] includes functions that

neither [the LEC] nor its VoIP retail partner are actually

providing.” In re Connect America Fund, 27 FCC Rcd. 2142,

2144, ¶ 4 (2012) (“YMax II”). The Bureau noted that YMax’s

request “highlight[ed]” a potential conflict between two of the

Transformation Order’s rules. See id. at 2144, ¶ 5. While 47

C.F.R. § 51.913(b) prevents VoIP-LECs from “charg[ing] for

functions not performed by the [LEC] itself or the . . . VoIP”

provider, the Transformation Order amended 47 C.F.R.

§ 61.26(f) to provide an apparently much laxer standard:

If a CLEC provides some portion of the switched

exchange access services . . . [and] if the CLEC is listed

in the database of the Number Portability Administration

Center as providing the calling party or dialed number,

the CLEC may assess a rate equal to the rate that would

be charged by the competing ILEC for all exchange

access services required to deliver interstate traffic to the

called number.

Transformation Order, 26 FCC Rcd. at 18226 (emphasis

added) (amending § 61.26(f)). Thus, as YMax argued,

17

§ 61.26(f) seemed to allow carriers to bill for services not

provided, as long as they performed “some portion” of the

total services required to deliver a call. The Bureau rejected

YMax’s interpretation of § 61.26(f) on the grounds that it

could lead to “double billing”; it amended the rule to make

clear that § 61.26(f) “is limited by section 51.913(b).” YMax

II, 27 FCC Rcd. at 2144, ¶¶ 4-5; see id. at 2149 (amending

§ 61.26(f) with the qualifier “to the extent permitted by

§ 51.913(b)”).

AT&T asks us to read YMax II in light of both YMax’s

letter to the Bureau and its filings in YMax I, which the

Bureau did not cite. AT&T assumes that the Bureau read the

“some portion” phrase in YMax’s letter as a specific reference

to all the capabilities, including call control, that YMax had

detailed in prior filings to the Commission. From this AT&T

claims that “it is inconceivable that the Bureau would have

denied” YMax’s request if the Transformation Order allowed

a charge for end-office switching services merely on the basis

of a VoIP-LEC’s providing call control. Pet’r Br. at 33-34.

We find the argument a stretch. It is just as likely that the

Bureau interpreted “some portion” to mean unspecified

functions falling short of “call control.”

While neither YMax decision is a holding in favor of

AT&T’s view, YMax I represents the Commission’s apparent

understanding of the “commonly understood meaning[]” of

end-office switching around the time of the Transformation

Order. See YMax I, 26 FCC Rcd. at 5758, ¶ 43. The

Commission was remarkably clear, even emphatic, in its

statement about end-office switching. Charges for such

switching, it said, “are authorized by law to allow local

exchange carriers to recover the substantial investment

required to construct the tangible connections between

themselves and their customers throughout their service

territory.” Id. at 5757, ¶ 40 & n.117. It therefore presents an

18

additional problem with the Commission’s attempted

application of the Transformation Order’s functional

equivalence standard, besides the ones already discussed.

Here we note that the Declaratory Ruling also falls down

in its effort to explain why VoIP-LECs’ failure to provide

interconnection is not fatal to the claim that they provide the

functional equivalent of end-office switching. As we saw, the

RAO guidance and YMax I both appear to identify end-office

switching as supplying actual or physical interconnection.

See id. Indeed, the Declaratory Ruling acknowledged that

interconnection is “critical” to end-office switching in a TDM

call, but found that it was “not require[d]” in VoIP-PSTN

calls. 30 FCC Rcd. at 1602, ¶ 30. The ruling’s only

explanation for why interconnection is “not require[d]” is that,

in VoIP-PSTN calls, “the customer is separately paying for

[the] broadband connection, which interconnects” the call. Id.

That the customer is paying for the broadband interconnection

doesn’t support the conclusion that interconnection is

unnecessary for end-office switching—it merely indicates that

it is provided by a party other than a VoIP-LEC. Even

assuming that the Transformation Order cast off

interconnection as a remnant of “preexisting, technology-

specific, TDM-based guidance for determining functional

equivalency,” Declaratory Ruling, 30 FCC Rcd. at 1600, ¶ 26

n.98, that reading would still require the Commission to

provide some distinctive “functional equivalence” criterion in

its place. On the record before us, the Commission has not

done so.

The Declaratory Ruling is accordingly

Vacated and remanded.