United States Court of Appeals, District of Columbia Circuit
September 13, 2016
Petitions for Review of Orders of the Federal Communications
K. Shanmugam argued the cause for petitioner. With him on the
briefs were Marcie R. Ziegler, James E. Gillenwater, Amy E.
Murphy, Tyrone Brown, Andrew G. McBride, Thomas J. Navin, and
Brett A. Shumate.
M. Gossett, Deputy General Counsel, Federal Communications
Commission, argued the cause for respondents. With him on the
brief were William J. Baer, Assistant Attorney General,
Robert B. Nicholson and Scott A. Westrich, Attorneys,
Jonathan B. Sallet, General Counsel, Federal Communications
Commission, Jacob M. Lewis, Associate General Counsel, and
Lisa S. Gelb and C. Grey Pash Jr., Counsel. Richard K. Welch,
Deputy Associate General Counsel, Federal Communications
Commission, entered an appearance.
Karanjia argued the cause for Association Intervenors. With
him on the brief were Christopher J. Wright, John T.
Nakahata, Mark D. Davis, William B. Sullivan, John R. Grimm,
and James M. Smith. Timothy J. Simeone entered an appearance.
Before: Tatel, Circuit Judge, and Edwards and Sentelle,
Senior Circuit Judges.
SENTELLE, SENIOR CIRCUIT JUDGE
Inc. petitions for review of orders of the Federal
Communications Commission ("FCC" or the
"Commission") naming another company to replace
Neustar as the Local Number Portability Administrator
("LNPA" or "LNP Administrator").
Petitioner argues that the Commission erred in not properly
determining issues relating to the new Administrator's
corporate affiliations. Finding no error in the
Commission's decision, for the reasons set forth below,
we deny the petitions.
Telecommunications Act of 1996 ("Act") requires
telecommunications providers to provide
"portability" of telephone numbers, permitting
customers to retain their current numbers when switching
carriers. 47 U.S.C. § 251(b)(2); see also 47
U.S.C. § 153(37). To effectuate this requirement, the
FCC must "create or designate one or more impartial
entities to administer telecommunications numbering and to
make such numbers available on an equitable basis." 47
U.S.C. § 251(e)(1).
1996 First Report and Order and Further Notice of Proposed
Rulemaking, FCC 96-286, 11 FCC Rcd. 8352 (1996), the FCC
"conclude[d] that it is in the public interest for the
number portability databases to be administered by one or
more neutral third parties, " id. ¶ 92, 11
FCC Rcd. at 8400-01 ¶ 92. Consequently, the Commission
"direct[ed] the [North American Numbering Council
("NANC" or "Council")] to select as a
local number portability administrator(s) . . . one or more
independent, non-governmental entities that are not aligned
with any particular telecommunications industry segment . . .
." Id. ¶ 93, 11 FCC Rcd. 8401 ¶ 93.
This led to the creation of the LNP Administrator. The NANC
LNPA Selection Working Group issued its report ("Working
Group Report") on April 25, 1997. See generally
North American Numbering Council, Local Number
Portability Administration Selection Working Group (Apr.
25, 1997). In this report, the NANC recommended Lockheed
Martin IMS ("Lockheed"), predecessor of Neustar,
and Perot Systems, Inc. to serve as LNPAs. Id.
§ 6.2.4; see Second Report and Order, FCC
97-289 ¶ 25, 12 FCC Rcd. 12281, 12298 ¶ 25 (Aug.
18, 1997). The FCC generally adopted the recommendations of
the Working Group in its 1997 Second Report and Order.
Second Report and Order, FCC 97-289 ¶ 33, 12
FCC Rcd. 12281, 12303 (1997). In 1998, Perot Systems
experienced significant performance difficulties and Lockheed
became administrator for the entire country.
1999, upon finding that Lockheed did not meet the neutrality
criteria, the FCC issued an order allowing the LNPA contract
to be transferred to a new independent affiliate: Neustar,
Inc. Order, FCC 99-346 ¶ 1 (Nov. 17, 1999). It
found "that Neu[s]tar, as currently structured and with
the additional safeguards imposed herein, is in compliance
with our neutrality criteria." Id. As a result
of the transfer of the LNPA contract, Neustar is the
incumbent LNPA. See March 2015 Order, FCC 15-35
2009, Telcordia, a wholly owned subsidiary of Ericsson,
petitioned the FCC "to institute a competitive bid
process for the LNPA contract" and the FCC subsequently
began a collaborative public process to develop the
procedures to select the next LNPA. Id. ¶¶
8-10. After this interactive process and the release of the
bid documents, two companies submitted bids: Neustar and
Telcordia. Id. ¶¶ 8-11. Following the
review of these initial bids, the Commission issued a
solicitation for Best and Final Offers ("BAFO").
Each company submitted a BAFO. Id. Just over a month
later, Neustar submitted a second, unsolicited BAFO, which
the NANC refused to consider. Id. After reviewing
the bids, the NANC ultimately "recommended the selection
of Telcordia as the sole LNPA . . . ." Id.
¶ 12. Neustar objected to this recommendation on
procedural grounds concerning the selection process, see
id. ¶ 14, and on substantive grounds regarding
costs and the bidders' qualifications, see id.
¶¶ 65, 134, and "challeng[ed] Telcordia's
neutrality showing, " id. ¶ 167.
March 2015 Order approving recommendation of Telcordia as the
LNPA, the FCC specifically addressed these concerns. See
id. ¶¶ 14-198. First, contrary to
Neustar's procedural objections, the FCC determined that
selection of the LNPA does not require notice-and-comment
rulemaking and "this proceeding is properly viewed as an
informal adjudication." Id. ¶ 18; see
id. ¶¶ 15, 18. Neustar had argued that because
the prior selection of the LNPAs was incorporated into FCC
rules, the selection of a new LNPA must be accomplished by a
rulemaking to amend the existing rules. The FCC also
sustained the rejection of Neustar's second BAFO.
Id. ¶ 37.
further determined that both bidders were qualified to serve
as the LNPA, id. ¶ 81, and that the cost
analysis warranted recommending Telcordia as the next LNPA,
id. ¶ 153.
neutrality, Neustar argued that Telcordia could not be
neutral because its parent company, Ericsson, is an equipment
manufacturer and service provider. Id. ¶ 169.
Neustar maintained further that Ericsson, as Telcordia's
sole owner, must be evaluated for alignment, undue influence,
and whether it is a manufacturer of telecommunications
network equipment. Id. The FCC rejected this
did, however, order the imposition of further safeguards and
found "that, when considered together in light of the
safeguards and conditions . . . adopt[ed] in this Order,
Telcordia will not be subject to undue influence by Ericsson,
nor will Ericsson adversely affect Telcordia's ability to
serve as a neutral LNPA." Id. ¶ 168.
supported its neutrality determination with several points.
First, it emphasized that the challenged telecommunications
sector connections were with Ericsson, not Telcordia.
Id. ¶ 172. The FCC determined that "even
to the extent Ericsson is 'aligned with' the wireless
industry as that term is understood in our neutrality rules,
it does not follow that Telcordia is so aligned."
Id. n.593. It grounded this conclusion on a finding
that "Telcordia is a separate company with a separate
independent board of directors, each of whom owes fiduciary
duties to Telcordia." Id. ¶ 172. The
Commission further analyzed Telcordia's independence,
reasoning that this independence is sustainable,
"particularly when considered in conjunction with the
conditions that we impose in this Order." Id.
¶ 172. The FCC emphasized that it "has, and will
exercise ample authority to ensure that the contract includes
targeted conditions to ensure that the LNPA is neutral and
remains neutral throughout the term of the contract."
Id. ¶ 173. It further stressed that neutrality
is a key consideration and that regulations governing the
LNPA and conditions it adopted in the Order were crafted
"to ensure that such neutrality is preserved."
Id. ¶ 179. The Commission further noted that
Telcordia had implemented a number of safeguards described in
its neutrality showing that, taken together with the
conditions imposed in the Order, led the Commission to
conclude "that Telcordia meets our neutrality
detailing some of the conditions, including corporate
structure, a majority independent board of directors, a
biannual neutrality audit and a Code of Conduct, the FCC
addressed the specific concern that "Ericsson might be
tempted to prioritize those [other] contracts and sales over
the LNPA contract." Id. ¶¶ 179-81. It
recognized that Ericsson's role as Telcordia's sole
owner "could present opportunities for Ericsson to exert
undue influence over Telcordia." Id. ¶
181. The Commission described the concerns about Ericsson as
being "somewhat speculative" but did
"acknowledge that they reflect[ed] potential incentive
and ability" for Telcordia to benefit its parent
the Commission further concluded that its rules provided the
flexibility to deal with the potential for undue influence
that might impair neutrality. It noted that the FCC had
"historically addressed such concerns by imposing
conditions on the numbering administrators" and that it
was doing so in the Order. Id. In keeping with this
finding, the Commission "require[d] a condition that
will restrict Ericsson's ability to exert undue influence
on Telcordia by limiting Ericsson's direct influence on
Telcordia's board of directors": a voting trust.
Id. ¶ 182. It ordered that Telcordia adopt the
proposed Code of Conduct with additional FCC-imposed
conditions specifically targeted at this dynamic.
Id. ¶ 186. After considering the comments and
concerns in the record, it concluded that Telcordia was not
"per se precluded from serving as the
LNPA" by Commission rules, precedent, or any other
reason. Id. ¶ 188. It further concluded that,
given the safeguards and conditions set forth in the order,
"Telcordia has demonstrated its commitment to maintain
neutrality in its LNPA operations . . . ." Id.
The Commission therefore determined that Telcordia met the
neutrality requirements for appointment as the LNPA. The
Commission required that the Code of Conduct "be
finalized, " the voting trust be formed, and the
appointment of trustees and independent directors be "in
effect prior to Telcordia commencing to provide LNPA services
. . . ." Id.
the FCC ordered "that the North American Portability
Management LLC, with Commission oversight, is directed to
negotiate the proposed terms of the LNPA contract in
accordance with this Order, and submit the proposed contract
to the Commission for approval." Id. ¶
199. On July 25, 2016, following successful contract
negotiations and satisfaction of its conditions, the FCC
issued a final decision. In the Matters of Telcordia
Technologies, Inc. Petition to Reform Amendment 57
and to Order a Competitive Bidding Process for Number
Portability Administration, FCC 16-92 ¶ 1, 2016 WL
4006478, at *1 ¶ 1 (July 25, 2016) (July 2016
petitions this Court for review.
petition to this Court, Neustar reiterates the arguments it
made to the FCC regarding the LNPA selection process and
Telcordia's fitness to serve as the LNPA. Neustar argues
that (1) the FCC violated the Administrative Procedure Act
("APA") by failing to engage in notice-and-comment
rulemaking, (2) the FCC's selection of Telcordia was
contrary to law or arbitrary and capricious based on an
improper understanding and application of the neutrality
regulations and its approach to Ericsson as Telcordia's
sole corporate parent, and (3) the FCC's evaluation of
the parties' bid costs was arbitrary and capricious. The
FCC moved to dismiss the petition, arguing that this Court
does not have jurisdiction. For the reasons discussed below,
we conclude that this Court has jurisdiction, that the Order
does not qualify as a rule, and that there is no requirement
of notice-and-comment ...