Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-15568/USCOURTS-ca9-08-15568-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PACIFIC BELL TELEPHONE COMPANY, 

DBA AT&T California,

Plaintiff-Appellant,

v. No. 08-15568

CALIFORNIA PUBLIC UTILITIES  D.C. No.

COMMISSION; MICHAEL R. PEEVEY; 3:07-CV-01797-SI

DIAN M. GRUENEICH; JOHN BOHN;

RACHELLE CHONG; TIMOTHY ALAN

SIMON,

Defendants-Appellees. 

PACIFIC BELL TELEPHONE COMPANY, 

DBA AT&T California,

Plaintiff-Appellee,

v.

CALIFORNIA PUBLIC UTILITIES No. 08-15716

COMMISSION; MICHAEL R. PEEVEY;

D.C. No. DIAN M. GRUENEICH; JOHN BOHN;  07-CV-01797-SI RACHELLE CHONG; TIMOTHY ALAN

SIMON, OPINION

Defendants,

and

CBEYOND COMMUNICATIONS, LLC,

Defendant-intervenor-Appellant. 

Appeal from the United States District Court

for the Northern District of California

Susan Illston, District Judge, Presiding

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Argued and Submitted

October 6, 2009—San Francisco, California

Filed March 4, 2010

Before: Mary M. Schroeder, A. Wallace Tashima and

Carlos T. Bea, Circuit Judges.

Opinion by Judge Bea

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COUNSEL

Scott K. Attaway, Kellogg, Huber, Hansen, Todd, Evans &

Figel, P.L.L.C., Washington, DC, for the plaintiff-appellant.

Frank R. Lindh, California Public Utilities Commission, San

Francisco, California, for the defendants-appellees.

Clay Deanhardt, Law Office of Clay Deanhardt, Orinda, California, for the intervenor-appellant.

OPINION

BEA, Circuit Judge:

This case involves the balance the Telecommunications Act

of 1996 (“the Act”) strikes between providing newer competitors access to previously monopolistic telecommunications

markets, on the one hand, and encouraging and protecting

infrastructure investments of older, incumbent telecommunications providers on the other. We must interpret two provisions of the Act that impose requirements on older, incumbent

local exchange carriers (“incumbent LECs”)—like appellant

AT&T—to lease certain components of their existing infrastructure to rival newer, competitive carriers (“competitive

LECs”)—like intervenor Cbeyond.

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First, we must determine whether 47 U.S.C. § 251(c)(2)

requires an incumbent LEC to lease its “entrance facilities”

(wires that connect rival telephone systems) to a competitive

LEC at regulated rates when the competitor wishes to use the

“entrance facility” to permit its own customers to reach customers of the incumbent LEC.

Second, we must determine whether 47 C.F.R.

§ 51.319(e)(2)(ii)(B) (the “DS1 Cap Rule”), which limits to

ten the number of low-capacity DS1 telephone lines an

incumbent LEC must lease to a competitive LEC at regulated

(low) rates along certain routes, is a limitation which also

applies to any route, regardless whether the competitive LEC

is “impaired” as to the alternative to such low-capacity lines:

the competitive LEC’s own higher-capacity DS3 lines.

Properly to understand the terms used and the regulatory

area into which we are about, some background would help.

BACKGROUND

A. The Telecommunications Act of 1996

Prior to 1996, local telephone service generally was provided by a local monopolist who offered services at prices

regulated and imposed by a variety of governmental agencies.

Such monopolist providers are commonly referred to as “incumbent local exchange carriers” or “incumbent LECs.” Congress enacted the Act to deregulate the telecommunications

market. See generally Verizon Comms. Inc. v. FCC, 535 U.S.

467, 475-76 (2002). But, to facilitate the entry of new participants into these local markets, the Act imposes on incumbent

LECs two duties relevant in this case. 

Interconnection Duty at Regulated Rates.

First, the Act imposes a duty on incumbent LECs to permit

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“interconnection.” Pursuant to 47 U.S.C. § 251(c)(2),1

 incumbent LECs must allow the competitive LEC to link its network to that of the incumbent LEC, so that customers of the

competitive LEC may place calls to customers of the incumbent LEC. Without the ability to link its network to that of the

incumbent LEC, the competitive LEC would have little prospect of selling its telephone services, to say nothing of competing for the customers of the incumbent LEC. A local

telephone service is of little use if it cannot connect to other

local telephone users. 

Lease of Network Parts at Regulated Rates.

Second, the Act imposes a duty that incumbent LECs “unbundle”2

 parts of their network. Each such part of the incumbent LEC’s network is a “network element”. Pursuant to 47

U.S.C. § 251(c)(3),3 incumbent LECs must permit competi1

47 U.S.C. § 251(c)(2) provides that each incumbent LEC has “the duty

to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier’s network.” 

2

“Unbundling” is the process of breaking apart something into smaller

parts. An example is taking a bundled computer system and unbundling

it into its individual pieces such as the PC unit, monitor, keyboard, and

mouse, and then selling each of these items individually. In the context of

this case, “unbundling” is the term used to describe the access provided

by incumbent LECs so that other service providers (i.e., competitive

LECs) can buy or lease portions of the incumbent LECs’ network elements, such as interconnection loops, to serve subscribers. 

3

47 U.S.C. § 251(c)(3) provides that incumbent LEC’s have: “The duty

to provide, to any requesting telecommunications carrier for the provision

of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates,

terms, and conditions that are just, reasonable, and nondiscriminatory in

accordance with the terms and conditions of the agreement [negotiated in

good faith by the incumbent LEC and competitive LEC pursuant to

§ 251(c)(1)] and the requirements of this section and section 252 of this

title. An incumbent local exchange carrier shall provide such unbundled

network elements in a manner that allows requesting carriers to combine

such elements in order to provide such telecommunications service.” 

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tive LECs to lease, at regulated cost-based rates, parts of the

incumbent’s network, such as telephone wires, call

exchanges, and routing systems. This provision promotes

competition by allowing a competitive LEC to enter the telephone service market without having first to overcome capital

barriers to entry, i.e., without having to construct, at high cost,

every component necessary to operate a network. See Ill. Bell

Tel. Co. v. Box, 548 F.3d 607, 609-10 (7th Cir. 2008) (“Box

II”). For example, a competitive LEC might enter a market by

providing residential telephone service in two far-flung neighborhoods. Rather than having to lay its own wire to connect

the two neighborhoods, the competitive LEC can, under

§ 251(c)(3), piggyback on the incumbent LEC’s pre-existing

network at regulated, cost-based rates. In this way, a competitive LEC may more easily and less expensively begin to

establish its market presence. 

However, before an incumbent LEC is obligated to lease

network elements on an unbundled basis, the Federal Communications Commission (“FCC”) must find that a refusal to

deal would “impair” competition. Section 251(d)(2) requires

the FCC to determine which network elements incumbent

LECs must offer to a competitive LEC on an unbundled basis.

47 U.S.C. § 251(d)(2). 

Once the FCC determines that a particular network element

must be offered on an unbundled basis, a competitive LEC

that wishes to lease the network element must negotiate with

the incumbent LEC to determine price and other terms. 47

U.S.C. § 251(c)(1). If the negotiations come to an impasse or

otherwise fail to produce and agreement, the parties must submit the dispute to binding arbitration.4

 The arbitrator’s decision is subject to approval by the relevant state regulatory

4As the Seventh Circuit has noted, the “arbitration” is really the first

stage in a regulatory proceeding, for it bears none of the traditional hallmarks of normal arbitration such as voluntary consent and finality. See Ill.

Bell Tel. Co. v. Box, 526 F.3d 1069, 1070 (7th Cir. 2008) (“Box I”). 

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commission, usually the state public utilities commission. Id.

If the parties have failed to agree on the lease price, the state

regulatory commission may set a price that is “just and reasonable.” Id. § 252(d)(1). 

These “just and reasonable” rates must be based upon the

Total Element Long Run Incremental Cost (“TELRIC”) methodology. 47 C.F.R. § 51.505. The TELRIC methodology is

based on what it cost the incumbent LEC to acquire the network elements; this historical cost method often results in

prices that, under certain circumstances, can be highly favorable to the competitive LECs. See Verizon Communications,

535 U.S. at 489, 496-97 (upholding 47 C.F.R. § 51.505); Box

II, 548 F.3d at 609.

The FCC’s attempts to implement the incumbent LEC’s

unbundling obligations have a long history. The first three

published rules were invalidated by the courts, in part,5 and it

was not until the FCC issued the Triennial Review Remand

Order in 2005 (the “TRRO”), Order on Remand, In the Matter

of Unbundled Access to Network Elements: Review of the Section 251 Unbundling Obligations of Incumbent Local

Exchange Carriers, 20 F.C.C.R. 2533 (Feb. 4, 2005), that the

FCC’s rules survived judicial review, see Covad Comms. Co.

v. FCC, 450 F.3d 528 (D.C. Cir. 2006). Two predecessor

orders, the relevant parts of which were not invalidated by

courts, are relevant to our analysis and are discussed in

greater detail below: the 2003 Triennial Review Order (the

“TRO”),6 and the 1996 Local Competition Order (the “LCO”).7

5

See Covad Comms. Co. v. FCC, 450 F.3d 528, 533-534 (D.C. Cir.

2006) (describing history of invalidated FCC unbundling orders). 

6Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, Review of the Section 251 Obligations of Incumbent

Local Exchange Carriers, 18 F.C.C.R. 16978 (2003), vacated in part by

United States Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004). 

7First Report and Order, Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499 (1996)

(subsequent history omitted). 

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B. Procedural History

After the FCC issued the TRRO, AT&T—the incumbent

LEC in California—sought to negotiate changes to its agreements with competitive LECs to bring their contracts into

conformity with AT&T’s now-changed obligations. After

negotiations broke down, AT&T brought a consolidated arbitration proceeding before the California Public Utilities Commission (“CPUC”). CPUC issued a decision favoring the

competitive LECs on several disputed issues, and AT&T filed

an action in federal district court seeking to set aside four of

CPUC’s orders related to unbundling. Two of these orders are

at issue on appeal:

1. Entrance Facilities—CPUC ordered AT&T to lease

entrance facilities to competitor LECs at TELRIC rates for the

purpose of interconnection. An entrance facility is a “dedicated transport” (a wire) that connects one LEC’s “switch” (a

computer that routes calls) to another LEC’s switch. In other

words, an entrance facility is the high capacity wire that links

telephone networks. Entrance facilities may be used for two

distinct purposes. First, a competitive LEC can use an

entrance facility for interconnection—that is, to link the competitive LEC’s network with that of the incumbent LEC so

that the competitive LEC’s customers may reach the incumbent LEC’s customers. See TRRO ¶ 138-40; TRO ¶ 366-67.

Second, a competitive LEC can use an entrance facility for

what the industry calls “backhauling.” In the case of backhauling, the competitive LEC uses the entrance facility to permit its own customers to reach one another over the

incumbent LECs network. See id.

8

 The following diagram

illustrates the difference between interconnection and backhauling:

8

Incumbent LECs are capable of screening out calls that would be used

for backhauling. A computer identifies the destination of the call, and, if

the call is bound for a customer of the competitive LEC, the computer can

screen out the call. 

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Under the TRRO, incumbent LECs are not obligated to

offer entrance facilities on an unbundled basis under 47

U.S.C. § 251(c)(3). AT&T and the competitive LECs disputed, however, whether § 251(c)(2) obligates incumbent

LECs to lease their entrance facilities to competitive LECs at

TELRIC rates for the purposes of “interconnection” (i.e., for

the purpose of allowing competitive LEC customers to place

calls to incumbent LEC customers). CPUC concluded that

§ 251(c)(2) requires incumbent LECs to lease entrance facilities to competitive LECs at TELRIC rates for interconnection.

On cross motions for summary judgment, the district court

confirmed CPUC’s arbitral order on this point, and AT&T

timely appealed.

2. DS1 Transport—CPUC also ruled that the DS1 Cap

Rule applies only on routes where competitive LECs are not

“impaired”

9

 as to DS3 transport circuits. A “transport circuit”

9According to FCC regulations, a competitive LEC’s ability to provide

service is “ ‘impaired’ if, taking into consideration the availability of alter3396 PACIFIC BELL v. CALIFORNIA PUC

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is a wire that carries telecommunications signals along

“routes” between switching centers (computers that direct

calls to other locations). TRRO ¶ 67. Transport circuits come

in two grades relevant here: DS1 (low capacity) and DS3

(high capacity). A DS3 line can carry twenty-four times as

many calls as a DS1 line but is more expensive to buy and

install than DS1 lines. TRRO ¶ 129 n. 361. All parties agree

that the FCC’s rules cap the number of DS1 circuits competitive LECs may lease from incumbent LECs on an unbundled

basis along routes where competitive LECs are not “impaired” as to higher capacity DS3 lines. Once a competitive

LEC has sufficient traffic to justify leasing ten or more DS1

lines, it is economical for the competitive LEC to build,

deploy, and install its own DS3 line. TRRO ¶¶ 71-73. 

However, AT&T and the competitive LECs disputed

whether this cap also applies to routes where the FCC had

concluded that competitive LECs were “impaired” as to

higher capacity DS3 lines. CPUC ruled in favor of the competitive LECs, and held that the cap did not apply along such

“DS3-impaired” routes. The district court disagreed, concluding that, under the plain language of the FCC’s rule, the DS1

Cap applies along all routes, and vacated the arbitral order on

this point. Cbeyond filed a motion in the district court to join

the action as an intervenor for the purpose of appeal.

ANALYSIS

This court reviews de novo claims of error in a district

court’s order determining whether an arbitrator’s decision

complies with FCC regulations. Verizon Cal., Inc. v. Peevey,

native elements outside the incumbent LEC’s network, including elements

self-provisioned by the requesting carrier or acquired as an alternative

from a third-party supplier, lack of access to that element poses a barrier

or barriers to entry, including operational and economic barriers, that are

likely to make entry into a market by a reasonably efficient competitor

uneconomic.” 47 C.F.R. § 51.317(b). 

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462 F.3d 1142, 1150 (9th Cir. 2006). This court owes no deference to the arbitrator’s decision. Id. The parties may not

challenge the validity of any final order of the FCC, including

FCC regulations, in this action. 28 U.S.C. § 2342.10

A. Access to Entrance Facilities Under 47 U.S.C.

§ 251(c)(2).

[1] AT&T contends the district court erred by affirming

the CPUC’s arbitral order permitting competitive LECs to

lease entrance facilities from incumbent LECs under 47

U.S.C. § 251(c)(2), the interconnection provision. Both the

Seventh and the Eighth circuits recently rejected AT&T’s

position, and have concluded that FCC regulations authorize

state public utilities commissions to order incumbent LECs to

lease entrance facilities to competitive LECs at regulated rates

for the purpose of interconnection. See Sw. Bell Tel., LP v.

Mo. Pub. Serv. Comm’n, 530 F.3d 676 (8th Cir. 2008)

(“SWBT“); Ill. Bell Tel. Co. v. Box, 526 F.3d 1069 (7th Cir.

2008) (“Box I”).11 We agree with our sister circuits. 

10Under the Hobbs Act, this court lacks jurisdiction to rule on a collateral attack of an FCC order. 28 U.S.C. § 2342; see also US West Comms,

Inc. v. Jennings, 304 F.3d 950, 958 n.2 (9th Cir. 2002) (“Properly promulgated FCC regulations currently in effect must be presumed valid for the

purposes of this appeal. The Hobbs Act, 28 U.S.C. § 2342, requires that

all challenges to the validity of final orders of the FCC be brought by original petition in a court of appeals. The district court thus lacked jurisdiction to pass on the validity of the FCC regulations, and no question as to

their validity can be before us in this appeal.”); see also GTE S., Inc. v.

Morrison, 199 F.3d 733, 742-43 (4th Cir. 1999) (holding the court lacked

jurisdiction to rule on the validity of FCC rules “including those relating

to rulemaking” on review of district court order affirming state public utility’s arbitral decision relating to provisions of the Act). 

11In Box I, the Seventh Circuit held that because entrance facilities were

a “technologically feasible” means of handing off traffic between a competitive LEC and an incumbent LEC, an obligation to lease such facilities

at TELRIC rates was within the scope of § 251(c)(2) and the implementing regulations. 526 F.3d at 1071-72. The Eighth Circuit reached the same

conclusion in SWBT, 530 F.3d at 683-84. In SWBT, the Eighth Circuit

stated: “If a [competitive] LEC needs entrance facilities to interconnect

with an [incumbent] LEC’s network, it has the right to obtain such facilities from the [incumbent] LEC.” Id. at 684. 

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[2] Section 251(c)(2) provides that “each incumbent local

exchange carrier has the . . . duty to provide, for the facilities

and equipment of any requesting telecommunications carrier,

interconnection with the local exchange carrier’s network.” 47

U.S.C. § 251(c)(2). The FCC defines interconnection as “the

linking of two networks for the mutual exchange of traffic.”

47 C.F.R. § 51.5. In other words, interconnection provides a

way for a competitive LEC’s customers to reach AT&T’s customers and vice versa. Section 251(c)(2)(B) specifies that

incumbent LECs must offer competitive LECs such interconnection “at any technically feasible point within the [incumbent] carrier’s network.” 47 U.S.C. § 251(c)(2)(B). The FCC

regulation also states that incumbent LECs must provide competitive LECs with “any technically feasible method of

obtaining interconnection.” 47 C.F.R. § 51.321(a). 

[3] The FCC calls entrance facilities “the transmission

facilities that connect competitive LEC networks with incumbent LEC networks.” TRRO ¶ 136. As the term “entrance”

implies, entrance facilities provide a way for a competitive

LEC’s calls to enter AT&T’s network and reach AT&T customers, a fact that AT&T concedes. For the competitive LECs

to use the entrance facilities this way is interconnection.12

[4] That AT&T’s entrance facilities can be used for a purpose besides interconnection (i.e., backhauling) does not

change the result that 47 U.S.C. § 251(c)(2) mandates AT&T

12AT&T seeks to distinguish the historical use of entrance facilities for

interconnection by long distance service providers, which did not compete

with AT&T, and the current use by competitive LECs, which do compete

with AT&T. AT&T states that “entrance facilities in this case provides the

same function” as entrance facilities did historically (i.e., connecting networks), but competitive LECs can feasibly interconnect with AT&T at a

different point in AT&T’s network, whereas the long distance providers

could not. This contention does not survive the plain language of

§ 251(c)(2)(B), which requires an incumbent LEC to provide interconnection “at any technically feasible point within [its] network.” (Emphasis

added.) 

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to provide competitive LECs access at regulated rates to its

entrance facilities for interconnection. The parties disagree

about the effect on this result of the FCC’s finding in its

TRRO that under a different subsection of the Act, § 251(c)(3),

13

competitive LECs are not impaired14 in building entrance

facilities and therefore that entrance facilities are not “unbundled network elements” that incumbent LECs like AT&T

have a duty to provide competitive LECs for any purpose,

including backhauling. TRRO ¶¶ 136-141. 

As an initial matter, under general principles of statutory

interpretation, the specific duty found in 47 U.S.C.

§ 251(c)(2) of providing interconnection facilities prevails

over the general duty of providing network elements at

unbundled rates, found in § 251(c)(3) (regardless whether that

general unbundling duty exists as to entrance facilities). See

NLRB v. A-Plus Roofing, Inc., 39 F.3d 1410, 1415 (9th Cir.

13Section 251(c)(3) provides that incumbent LECs have “[t]he duty to

provide, to any requesting telecommunications carrier for the provision of

a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates,

terms, and conditions that are just, reasonable, and nondiscriminatory in

accordance with the terms and conditions of the agreement and the

requirements of this section and section 252 of this title. An incumbent

local exchange carrier shall provide such unbundled network elements in

a manner that allows requesting carriers to combine such elements in order

to provide such telecommunications service.” 

14The Act tasks the FCC with deciding whether a particular network

element, i.e., “a facility or equipment used in the provision of a telecommunications service,” 47 U.S.C. § 153(29), is one that incumbent LECs

must lease to competitive LECs at regulated rates, i.e., the element is “unbundled” under 47 U.S.C. § 251(c)(3). 47 U.S.C. § 251(d). To make that

determination, the FCC must consider, at a minimum, two factors:

“whether — (A) access to such network elements as are proprietary in

nature is necessary; and (B) the failure to provide access to such network

elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.” Id. The FCC thus

makes an “impairment finding” as to that network element. See Covad

Comms., 450 F.3d at 534-45. 

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1994) (“It is a well-settled canon of statutory interpretation

that specific provisions prevail over general provisions.”).

Moreover, as the district court found, the TRRO reinforces

that the duties of incumbent LECs under 47 U.S.C.

§ 251(c)(2) and § 251(c)(3) are independent. The TRRO

states that the FCC’s finding that incumbent LECs need not

lease entrance facilities as unbundled network elements under

(c)(3) “does not alter the right of competitive LECs to obtain

interconnection facilities pursuant to section 251(c)(2).”

TRRO ¶ 140.

[5] AT&T contends TRRO Paragraph 140 does not require

incumbent LECs to offer entrance facilities at TELRIC rates

because the TRRO uses the term “interconnection facilities”

instead of “entrance facilities” when it refers to the right

under 47 U.S.C. § 251(c)(2) that is not altered by the TRRO’s

determination that “entrance facilities” need not be unbundled

under § 251(c)(3). First, although the FCC did not use the

term “entrance facilities” in Paragraph 140, the paragraph

appears in a section of the TRRO entitled “Entrance Facilities,” which solely discusses the effect of the FCC’s finding

as to entrance facilities. Moreover, prior FCC rulings make

clear that the interconnection obligation contained in

§ 251(c)(2) includes a duty to lease entrance facilities at TELRIC rates when such facilities will be used for the purposes

of interconnection. The 1996 Local Competition Order

(“LCO”) broadly defined the interconnection obligation to

include a duty to offer unbundled network elements at TELRIC rates:

We conclude that, under sections 251(c)(2) and

251(c)(3), any requesting carrier may choose any

method of technically feasible interconnection or

access to unbundled elements at a particular point.

Section 251(c)(2) imposes an interconnection duty at

any technically feasible point; it does not limit that

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duty to a specific method of interconnection or

access to unbundled elements.

LCO ¶ 549 (emphasis added); see also 47 C.F.R. § 51.321(a)

(stating that incumbent LECs are required to offer “any technically feasible method of obtaining interconnection”).

[6] Though the LCO did not expressly state that entrance

facilities were one of the “network elements” incumbent

LECs were required to make available under 47 U.S.C.

§ 251(c)(2), the later Triennial Review Order (“TRO”)

expressly interpreted the LCO to impose this obligation. The

TRO stated:

In reaching [the determination that entrance facilities

are not “network elements” subject to the unbundling obligation in § 251(c)(3)] we note that, to the

extent that requesting carriers need facilities in order

to ‘interconnect with the incumbent LEC’s network,’

section 251(c)(2) of the Act expressly provides for

this and we do not alter the Commission’s interpretation of this obligation.

TRO ¶ 365. The TRO elaborated: 

[C]ompetitive LECs often use transmission links

including unbundled transport connecting incumbent

LEC switches or wire centers in order to carry traffic

to and from its end users. These links constitute the

incumbent LEC’s own transport network. However,

in order to access UNEs [unbundled network elements], including transmission between incumbent

LEC switches or wire centers, while providing their

own switching and other equipment, competitive

LECs require a transmission link from the UNEs on

the incumbent LEC network to their own equipment

located elsewhere. Competitive LECs use these

transmission connections between incumbent LEC

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networks and their own networks both for interconnection and to backhaul traffic. Unlike the facilities

that incumbent LECs explicitly must make available

for section 251(c)(2) interconnection, we find that

the Act does not require incumbent LECs to

unbundle transmission facilities connecting incumbent LEC networks to competitive LEC networks for

the purpose of backhauling traffic. 

TRO ¶ 366. The TRO thus expressly interpreted the LCO to

allow competitive LECs to lease entrance facilities or “transmission links” at TELRIC rates for the purpose of achieving

interconnection. This interpretation of the LCO is reasonable

and entitled to deference.15 Auer v. Robbins, 519 U.S. 452,

461 (1997) (An agency’s interpretation of its own regulation

is “controlling unless plainly erroneous or inconsistent with

the regulation.”).16 Moreover, AT&T’s contention that the

TRO’s interpretation of the LCO conflicts with the terms of

47 U.S.C. § 251(c)(2) is foreclosed because AT&T cannot

15Contrary to AT&T’s assertion, this portion of the TRO was not

vacated in USTA II, 359 F.3d 554. USTA II vacated only the TRO’s conclusion that entrance facilities are categorically excluded from the definition of “network elements” under § 251(c)(3). Id. at 585. The court did not

rule on the validity of the FCC’s conclusion that, under § 251(c)(2),

incumbent LECs are obligated to offer entrance facilities at TELRIC rates.

16The specific statements in the TRO and the LCO that the obligation

to provide facilities and equipment under § 251(c)(2) includes a duty to

provide entrance facilities foreclose AT&T’s interpretation of the term

“interconnection facilities.” AT&T relies on 47 C.F.R. § 51.5, which

defines “interconnection” to exclude the “transport and termination of traffic.” AT&T construes this language to exclude any duty under § 251(c)(2)

to carry a competitive LEC’s traffic. This conflicts with TRRO ¶ 140

itself, which explains that “interconnection facilities” are “for transmission

and routing” of telephone calls. If the duty to provide “interconnection”

did not include any duty to provide any transport of calls, then § 251(c)(2)

would be meaningless because incumbents could physically link networks

with the competitive LEC, but refuse to carry calls to the incumbent

LEC’s terminal customers, thus effectively locking the competitive LEC

out of the market. 

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challenge the validity of FCC orders in this proceeding. See

Jennings, 304 F.3d at 958 n.2. 

AT&T also contends CPUC’s interpretation conflicts with

the FCC’s express findings that competitive LECs are not

“impaired” as to entrance facilities. See TRRO ¶¶ 138, 139.

But those FCC findings also expressly distinguished entrance

facilities used for the purpose of interconnection and for backhauling. TRRO ¶¶ 138-140. In light of the different economic

considerations associated with the use of entrance facilities

for interconnection, on the one hand, and for backhaul, on the

other, the FCC could reasonably conclude that different regulations were appropriate. Where a competitive LEC uses an

interconnection facility for backhaul, only the competitive

LEC benefits—both the originator and the recipient of the call

are competitive LEC customers. But when the competitive

LEC uses the entrance facility for interconnection, both competitor and incumbent benefit: the incumbent’s customers can

reach customers of the competitor, and vice versa. See generally LCO ¶ 162 (“In this situation . . . each gains value from

the interconnection arrangement.”); TRO ¶ 367 (“Our conclusion in this respect is buttressed by the fact that the economics

of dedicated facilities used for backhaul between networks are

sufficiently different from transport within an incumbent

LEC’s network that our analysis must adequately reflect this

distinction.”); see also Box I, 526 F.3d at 1071 (“What’s the

point of specifying that [competitive] LECs cannot demand

access to entrance facilities as unbundled network elements,

AT&T inquires, if state commissions can turn around and

require the same access at the same price anyway? The

answer . . . is that [competitive] LECs do not enjoy the

“same” access to entrance facilities under the state commission’s decision as they did before the FCC’s order. Until then,

[competitive] LECs could use entrance facilities for both

interconnection and backhauling.”). 

[7] Accordingly, we agree with the district court and hold

that, under 47 U.S.C. § 251(c)(2), incumbent LECs must lease

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entrance facilities at TELRIC rates to competitive LECs for

the purpose of interconnection. 

B. Unbundled Access to DS1 Circuits Under 47 U.S.C.

§ 251(c)(3). 

[8] In its cross-appeal, Cbeyond contends the district court

erred in vacating the CPUC’s order that required incumbent

LECs to grant unbundled access to an unlimited number of

DS1 transport circuits along routes on which competitive

LECs are impaired as to DS3 transport circuits.17 The district

court concluded that the plain language of the governing regulation, 47 C.F.R. § 51.319(e)(2)(ii)(B) (the “DS1 Cap Rule”),18

limits a competitive LEC to a maximum of ten DS1 circuits

along any route regardless whether the competitive LEC is

impaired as to DS3 lines. We agree. Under the plain language

of the regulation, the DS1 Cap Rule applies to all routes

where DS1 circuits are available on an unbundled basis. 

On appeal, Cbeyond contends the district court’s interpretation of the DS1 Cap Rule is contrary to the FCC’s findings in

the earlier TRRO. Cbeyond concedes, however, that the language of the DS1 Cap Rule—47 C.F.R. § 51.319(e)(2)(ii)(B)

—unambiguously limits to ten the number of DS1 circuits an

incumbent LEC must offer at TELRIC rates on any route. 

17AT&T incorrectly contends Cbeyond waived this issue by failing to

raise it in the district court. This issue is (1) a pure question of law; and

(2) was fully briefed in the district court by the CPUC. Accordingly, the

issue has not been raised for the first time on appeal and this court can

reach the issue. Even if the issue was presented for the first time on

appeal, the court could reach the question. See K&N Eng., Inc. v. Bulat,

510 F.3d 1079, 1081 n.2 (9th Cir. 2007) (the court may, in its discretion,

reach issues raised for the first time on appeal if the record is fully developed, the question is a pure question of law, and no prejudice will result).

18The DS1 Cap Rule provides: “Cap on unbundled DS1 transport circuits. A requesting telecommunications carrier may obtain a maximum of

ten unbundled DS1 dedicated transport circuits on each route where DS1

dedicated transport is available on an unbundled basis.” 

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In general, the plain meaning of an administrative regulation controls. Webb v. Smart Document Solutions, LLC, 499

F.3d 1078, 1084 (9th Cir. 2007). Plain meaning, however, is

“not the end of the inquiry.” Id. at 1086; see also Safe Air for

Everyone v. EPA, 488 F.3d 1088, 1097 (9th Cir. 2007). The

plain language of a regulation does not control if “clearly

expressed administrative intent is to the contrary or if such

plain meaning would lead to absurd results.” Id. (internal quotation marks and alterations omitted). “[T]he regulatory intent

that overcomes plain language must be referenced in the published notices that accompanied the rulemaking process.” Id.

A rule leads to absurd results only if it would be “patently

inconceivable” that the agency intended the result. Id. at 1098.

[9] Here, there is no “clearly expressed administrative

intent” in the published notices that accompanied the DS1

Cap Rule rulemaking process. Further, the DS1 Cap Rule as

we read its plain text would not lead to absurd results. It is

perfectly conceivable the FCC meant what it said when it limited the number of DS1 circuits that a competitive LEC can

lease on routes where the competitive LEC is impaired as to

a higher capacity DS3 circuit. Where a competitive LEC is so

impaired, it will have access to an incumbent’s DS3 circuits

on an unbundled basis. Hence, it would be more economical

for the competitive LEC to lease a single DS3 line from the

incumbent LEC, rather than eleven or more DS1 lines at

greater cost. TRRO ¶ 128 (“This is consistent with the pricing efficiencies of aggregating traffic. While a DS3 circuit is

capable of carrying 28 uncompressed DS1 channels, the

record reveals that it is efficient for a carrier to aggregate traffic at approximately 10 DS1s.”). The FCC expressly found

that once a competitive LEC could aggregate sufficient traffic, the DS3 rules should apply: “When a carrier aggregates

sufficient traffic on DS1 facilities such that it effectively

could use a DS3 facility, we find that our DS3 impairment

conclusions should apply.” Id.

[10] It is hardly “patently inconceivable” that the FCC

intended the DS1 cap to apply on all routes, even those where

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competitive LECs are impaired as to DS3 circuits. In such circumstance, the competitive LEC can obtain more economical

DS3 circuits, and there is no reason why the FCC would have

intended to permit competitive LECs to impose greater costs

on incumbent LECs by allowing unlimited leases of DS1 circuits. 

Cbeyond’s contention that the DS1 Cap Rule conflicts with

the terms of 47 U.S.C. § 251(c)(3) is foreclosed because

Cbeyond cannot challenge the validity of the FCC orders in

this proceeding. See Jennings, 304 F.3d at 958 n.2. 

[11] Accordingly, we agree with the district court and hold

that, under the plain language of the regulation, the DS1 Cap

Rule limits to ten the number of DS1 lines an incumbent LEC

must lease to a competitive LEC at TELRIC rates on all

routes.

CONCLUSION

For the all of the foregoing reasons, we affirm the district

court’s order confirming in part and vacating in part the

CPUC’s arbitral order. 

AFFIRMED.

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