United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 5, 2001Decided June 15, 2001

No. 00-1055

National Exchange Carrier Association, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

National Telephone Cooperative Association,

Intervenor

On Petition for Review of an Order of the

Federal Communications Commission

Richard A. Askoff argued the cause for petitioner. With him on the
briefs were Kenneth A. Levy and Judith L. Harris.

L. Marie Guillory and Daniel Mitchell were on the brief for intervenor
National Telephone Cooperative Association.

Laurel R. Bergold, Counsel, Federal Communications Commission, argued
the cause for respondents. With her on the brief were Christopher J.
Wright, General Counsel, John E. Ingle, Deputy Associate General
Counsel, A. Douglas Melamed, Acting Assistant Attorney General at the
time the brief was filed, U.S. Department of Justice, Robert B.
Nicholson and Robert J. Wiggers, Attorneys.

Before: Edwards, Chief Judge, Ginsburg and Tatel, Circuit Judges.

Per curiam: The National Exchange Carrier Association challenges an
order of the Federal Communications Commission adopting a formula for
distributing money from the Universal Service Fund (USF) to subsidize
high-cost telephone service providers and thereby promote telephone
subscribership. The petitioner claims that the Commission\'s order
violates the Administrative Procedure Act because it arbitrarily and
capriciously undercompensates telephone service providers, and it was
adopted without adherence to the applicable procedures for public notice
and comment. The NECA, however, fails to articulate an intelligible
explanation of its substantive claim, and its procedural claim lacks
merit. Accordingly, we deny the petition for review.

I. Background

Telephone service in the United States is provided within each
geographical area by a single local exchange carrier (LEC). The LEC
connects long-distance calls originated by its subscribers to the
long-distance carriers of their choice and connects long distance calls
originated elsewhere to its subscribers. For providing this \"exchange
access\" the LEC may obtain compensation from the long distance carriers
either by filing its own access tariff with the Commission or by
accepting compensation under a generally applicable formula adopted by
the Commission. In order to effectuate the latter option, the Commission
established an independent organization, the NECA, \"to prepare and file
access charge tariffs on behalf of all telephone companies that do not
file separate tariffs.\" 47 C.F.R. § 69.601(a). Among those non-filers
(called average schedule companies), any company whose local loop costs
are 115% or more of the national average may receive additional
compensation from the Commission, paid out of the Universal Service Fund
pursuant to a set formula. 47 C.F.R. § 36.631.

In October 1998 the NECA proposed a formula for calculating the USF
payments to be made to average schedule companies in the coming year and
the Common Carrier Bureau invited public comments on the proposal. The
Bureau determined that using the proposed formula would substantially
increase the number of companies receiving payments and increase by 33%
the total amount paid to average schedule companies. The Bureau also
expressed concern that the proposed formula did not well approximate the
per loop costs of average schedule companies. In particular, the Bureau
found that the formula overstated costs for two thirds of the average
schedule companies sampled; indeed, more than half the companies that
would receive USF payments under the NECA\'s formula were below the 115%
threshhold of eligibility. Ultimately, the Bureau rejected the proposed
formula and issued an order retaining the 1998 formula, as adjusted to
reflect growth in the number of local loops served by the average
schedule companies. See Staff Order, 14 FCC Rcd 4049, 4053 p 9.

The NECA filed an application for Commission review of the order,
challenging it on both substantive and procedural grounds. The
Commission denied the application, and the NECA filed a petition for
review in this court.

II\. Analysis

The NECA argues that the Commission acted in an arbitrary and capricious
manner, in violation of the Administrative Procedure Act, 5 U.S.C. §
706(2)(A), by rejecting the NECA\'s proposed 1999 USF formula and
adhering to the 1998 formula with an upward adjustment. The NECA admits,
however, that its proposed formula does not accurately estimate the
LECs\' per loop costs. Its strategy is to confess and avoid, maintaining
that the \"cost per loop approach is problematic because it
systematically understates USF payments to average schedule companies.\"
Br. for Petitioner at 7. In a footnote, the NECA adds cryptically, \"The
reasons for this are complex, having to do with the fact that the USF
rules contain a sharp payment \'thresholds\' \[sic\] that limits USF
payments to companies with loop cost in excess of 115% of the national
average.\" Id. n.14.

The reasons may be complex, but if the NECA wanted to demonstrate that
retaining the incumbent formula was arbitrary and capricious, then it
needed to explain the reasons to the court. Instead, the petitioner
purports to show the superiority of its own proposed approach, as
follows:

> Instead of attempting to model cost per loop amounts, NECA \...
> calculates the actual USF payment that each sample company would
> receive if it were to conduct a cost study. These calculated USF
> expense adjustments (payments) are then compared to available demand
> variables, and a formula is developed that predicts USF payments for
> individual companies.
>
> This \"expense adjustment\" modeling approach not only avoids the
> systematic underpayment problem inherent in the cost per loop
> approach, it appears to conform more closely with the language of
> section 69.606 which requires that formulas simulate \"disbursements\"
> of representative cost companies (not \"cost per loop\" amounts or
> other intermediate steps in the process).

Without a grasp of what is wrong with the Commission\'s approach,
however, the court cannot deem it arbitrary and capricious, much less
appreciate the supposed superiority of the NECA\'s alternative.

Separately, the NECA argues, or at least observes, that \"average
schedule formulas are only intended to achieve a reasonable balance
between accuracy and ease of administration,\" and no schedule will fit
all companies perfectly. While no doubt true, that point falls well
short of establishing that the Commission acted in an arbitrary and
capricious manner in adjusting the prior year\'s formula.

Most likely there is more to the NECA\'s claim or it would not have
litigated it to this point, but we are unable to tell what that more
might be. Neither the petitioner nor the court gets any help from the
Commission in this regard either; the Commission responds to the
petitioner\'s brief more or less in kind, leaving the court with no
greater grasp of what the parties are arguing about than what little we
could glean from the petitioner\'s brief. The burden of persuasion being
with the petitioner, however, the Commission\'s failings will not succor
the NECA\'s case. Nor is it the court\'s duty to identify, articulate,
and substantiate a claim for the petitioner. As we have said before,
\"this court tries not to base its decisions on mind reading.\" Goos v.
Nat\'l Ass\'n of Realtors, 997 F.2d 1565, 1572 (1993).

In sum, the NECA has failed to make intelligible to the court any
coherent argument in support of its substantive claim. That may reflect
the court\'s own limitations as much as any failure on the petitioner\'s
part; but that is a limitation with which both bench and bar must live.
For the court\'s part, we take some comfort in thinking we have
previously understood cases a good deal more complicated than this one.

The NECA also raises a procedural argument, namely that the Commission
violated § 553 of the Administrative Procedure Act by failing to follow
notice and comment procedures in making the upward adjustment to the
prior year\'s USF formula. The Commission first suggests that the
petitioner lacks standing to challenge an adjustment in its favor, as
though it were not injured by getting less of an adjustment than it
sought. More seriously, the Commission argues that additional notice and
comment were not required before it issued the order adjusting the prior
year\'s formula because the adjustment was a \"logical outgrowth\" of
the rule it had put out for comment. See Fertilizer Institute v. EPA,
935 F.2d 1303, 1311 (D.C. Cir. 1991).

As this court has explained, \"the logical outgrowth test normally is
applied to consider whether a new round of notice and comment would
provide the first opportunity for interested parties to offer comments
that could persuade the agency to modify its rule.\" Arizona Public
Service Co. v. EPA, 211 F.3d 1280, 1299 (2000); see also Association of
Battery Recyclers, Inc. v. EPA, 208 F.3d 1047, 1059 (D.C. Cir. 2000);
First Am. Discount Corp. v. Commodity Futures Trading Comm\'n, 222 F.3d
1008, 1014 (D.C. Cir. 2000). In this case, the NECA has had ample
opportunity to argue to the Commission that the 1998 rule should be
modified so as to increase USF payments to average schedule companies;
indeed, that has been the NECA\'s purpose throughout. The NECA even
argued specifically that, should the Bureau reject the NECA\'s proposed
formula and retain the 1998 one instead, then it should not limit any
upward adjustment in the 1998 formula to the rate of loop growth.
Clearly, a new round of notice and comment would not provide the NECA
its \"first opportunity \... to offer comments\" upon the order.

For the foregoing reasons, the petition for review is

Denied.