Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-01110/USCOURTS-caDC-05-01110-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
New Jersey Division of the Ratepayer Advocate
Petitioner
United States of America
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 15, 2006 Decided June 16, 2006

No. 05-1095

COVAD COMMUNICATIONS COMPANY AND

DIECA COMMUNICATIONS, INC., D/B/A COVAD

COMMUNICATIONS COMPANY,

PETITIONERS

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

CIENA CORPORATION, ET AL.,

INTERVENORS

Consolidated with

05-1100, 05-1101, 05-1108, 05-1110, 05-1122, 05-1130,

05-1133, 05-1137, 05-1224

On Petitions for Review of an Order of the

Federal Communications Commission

Michael K. Kellogg argued the cause for the ILEC

Petitioners. With him on the briefs were Mark L. Evans, Sean

A. Lev, Colin S. Stretch, Scott H. Angstreich, William P. Barr,

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 1 of 41
2

Michael E. Glover, Edward Shakin, James D. Ellis, Gary L.

Phillips, Christopher Heimann, James P. Lamoureux, Robert B.

McKenna, Marc Gary, James G. Harralson, and Bennett L.

Ross. Jennifer M. Kashatus entered an appearance.

Bruce D. Sokler and Genevieve Morelli argued the cause for

the CLEC Petitioners and Intervenors in support. With them on

the briefs were Michael H. Pryor, Fernando R. Laguarda, Brad

E. Mutschelknaus, Steven A. Augustino, Jason Oxman, Andrew

D. Lipman, Russell M. Blau, Eric J. Branfman, Patrick J.

Donovan, Joshua M. Bobeck, David P. Murray, Randy J.

Branitsky, and Thomas Jones.

Christopher J. White argued the cause and filed the briefs

for petitioner New Jersey Division of the Ratepayer Advocate.

David C. Bergmann was on the brief for petitioner National

Association of State Utility Consumer Advocates.

John E. Ingle, Deputy Associate General Counsel, Federal

Communications Commission, argued the cause for respondents.

With him on the brief were Thomas O. Barnett, Acting Assistant

Attorney General, U.S. Department of Justice, Catherine G.

O'Sullivan and Nancy C. Garrison, Attorneys, Samuel L. Feder,

General Counsel, Federal Communications Commission, Jacob

M. Lewis, Associate General Counsel, and James M. Carr and

Christopher L. Killion, Counsel.

David P. Murray argued the cause for CLEC Intervenors in

support of respondents. With him on the brief were Randy J.

Branitsky, Thomas Jones, Bruce D. Sokler, Michael H. Pryor,

Fernando R. Laguarda, Jason Oxman, Andrew D. Lipman,

Russell M. Blau, Eric J. Branfman, Patrick J. Donovan, Joshua

M. Bobeck, Brad E. Mutschelknaus, Genevieve Morelli, and

Steven A. Augustino.

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 2 of 41
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1

 See Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 544-45 (2002)

(Breyer, J., concurring in part and dissenting in part) (describing the

history and structure of the 1996 Act and inferring that Congress

intended the 1996 Act to mitigate the incumbents’ natural-monopoly

advantages). 

Michael K. Kellogg argued the cause for ILEC Intervenors

and Ciena Corporation in support of respondents. With him on

the brief were Mark L. Evans, Sean A. Lev, Colin S. Stretch,

Scott H. Angstreich, William P. Barr, Michael E. Glover,

Edward Shakin, James D. Ellis, Gary L. Phillips, Christopher

Heimann, James P. Lamoureux, Robert B. McKenna, Stephen L.

Goodman, Marc Gary, James G. Harralson, and Bennett L.

Ross.

Before: GINSBURG, Chief Judge, and SENTELLE and

GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: The Federal Communications

Commission (“FCC” or “the Commission”) has thrice

attempted—unsuccessfully—to implement the “unbundling”

provisions of the Telecommunications Act of 1996, Pub. L. No.

104-104, 110 Stat. 56 (“the Act” or “the 1996 Act”). This case

involves a series of petitions for review of the FCC’s fourth

attempt. Because we conclude the Commission’s fourth try is

a charm, we deny all of the petitions for review.

I

The 1996 Act sought to foster a competitive market in

telecommunications. To minimize the characteristics of natural

monopoly in the market,1 the Act gave the FCC broad powers to

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require incumbent local exchange carriers (“ILECs”) to make

unbundled network elements (“UNEs”) available to competitive

local exchange carriers (“CLECs”), 47 U.S.C. § 251(c)(3), (d);

see also id. § 153(29) (defining a “network element” as “a

facility or equipment used in the provision of a

telecommunications service”). Thus, the Commission may

require the ILECs to offer pieces of their networks as unbundled

building blocks, which the CLECs can lease, repackage, and use

to compete against the ILECs in telecommunications markets

across the country. 

Congress left to the Commission the choice of elements to

be “unbundled,” specifying that it must “consider, at a

minimum, whether . . . 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. § 251(d)(2) (emphases

added). Relying upon the implicit breadth of its “at a minimum”

authority and its discretion to interpret the meaning of

“impair[ment],” the FCC in this case amended its unbundling

determinations for three types of UNEs: “switches” (devices

that direct calls to their destinations in the same way

switchboard operators once did), “transport trunks” (wires that

carry calls between switches), and “local loops” (wires that run

from switches over the “last mile” to consumers’ telephones).

The propriety vel non of those determinations is the crux of this

case. 

A

The basics of unbundling are relatively simple. Suppose a

CLEC (such as Covad) wants to serve customers in Washington,

D.C. One way of doing so is for Covad to purchase its own

switches, trunks, and loops, which it can then use to offer

service to its new customers. However, given that the local

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ILEC (e.g., Verizon) has already deployed switches, trunks, and

loops to serve the market, it might be economically impossible

for Covad to duplicate competitively Verizon’s infrastructure.

Through regulatory unbundling, however, Covad might be able

to lease Verizon’s switches, trunks, and loops as UNEs. Covad

could then use combinations of UNEs to cobble together a

network and compete against Verizon in Washington. 

Under the Act, Covad must pay Verizon for every “facility”

and every piece of “equipment” the former requests from the

latter on an unbundled basis. See id. § 153(29); id. § 252(d)(1).

After a hard-fought litigation battle, the Commission concluded

that UNE prices must be based on each element’s Total Element

Long-Run Incremental Cost (“TELRIC”). See 47 C.F.R. §

51.505(b); Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 523

(2002) (upholding the FCC’s TELRIC pricing methodology for

UNEs as “a reasonable policy” choice). TELRIC rates are akin

to wholesale prices because CLECs are supposed to be

economically able to rent UNEs and then use them to sell

telecom services to their retail customers. 

The ILECs unsurprisingly dislike seeing their own networks

wielded as competitive weapons by CLECs—especially when

the CLECs enjoy access to UNEs at TELRIC rates. The ILECs

therefore champion the use of substitute products that allow

CLECs to compete without demanding access to the ILECs’

individual network elements. For our purposes, the only

relevant substitute product is the tariffed special access service

(“TSAS”). Basically, Covad can purchase TSASs from Verizon

(at prices above the TELRIC rates associated with UNEs), and

the TSASs allow Covad to complete point-to-point calls over

dedicated lines. See, e.g., In the Matter of Implementation of the

Local Competition Provisions of the Telecommunications Act of

1996, Third Report and Order and Fourth Further Notice of

Proposed Rulemaking, 15 F.C.C.R. 3696, 3912 (1999) (“UNE

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Remand Order”). Thus, instead of purchasing or renting a loop,

switch, space in a central office, and a transport trunk to

complete a call, a CLEC might simply pay the higher TSAS rate

for a dedicated line (which does not require separate switching

or transport). 

Given the lower cost of UNEs, the CLECs favor widespread

unbundling, while ILECs favor fewer UNEs and the greater

availability of higher-priced TSASs. This tug-of-war—between

CLECs advocating more unbundling and ILECs advocating

less—has been the nub of an ongoing, decade-long dispute

between incumbents and their would-be competitors. To

explain today’s unbundling battle, we begin with the skirmishes

that preceded it.

B

The ILECs’ and CLECs’ power struggle over UNEs began

shortly after the passage of the 1996 Act. In its first attempt to

interpret the Act’s “impairment” standard, the Commission

concluded that a CLEC was entitled to a given UNE “if the

quality of the service the entrant can offer, absent access to the

requested element, declines and/or the cost of providing the

service rises.” In the Matter of Implementation of the Local

Competition Provisions in the Telecommunications Act of 1996,

First Report and Order, 11 F.C.C.R. 15499, 15643 (1996).

The Supreme Court found this interpretation of “impair”

unreasonable in two respects. First, the Commission had

erroneously refused to consider whether a CLEC could selfprovision or acquire the requested element from a third party.

AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 389-92 (1999).

Second, the Commission had considered any increase in cost or

decrease in quality, no matter how small, sufficient to establish

impairment—a result the Court concluded could not be squared

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with the “ordinary and fair meaning” of the word “impair.” Id.

at 389-90 & n.11. The Court admonished the FCC that in

assessing which cost differentials would “impair” a new

entrant’s competition within the meaning of the statute, it must

“apply some limiting standard, rationally related to the goals of

the Act.” Id. at 388 (emphasis omitted).

On remand from Iowa Utilities, the Commission ruled that

a would-be entrant is “impaired” if, “taking into consideration

the availability of alternative elements outside the incumbent’s

network, including self-provisioning by a requesting carrier or

acquiring an alternative from a third-party supplier, lack of

access to that element materially diminishes a requesting

carrier’s ability to provide the services it seeks to offer.” UNE

Remand Order, 15 F.C.C.R. at 3725. We held the

Commission’s “impairment” standard was unlawful because it

did not differentiate between those cost disparities that a new

entrant in any market would be likely to face and those that arise

from market characteristics “linked (in some degree) to natural

monopoly . . . that would make genuinely competitive provision

of an element’s function wasteful.” U.S. Telecom Ass’n v. FCC,

290 F.3d 415, 427 (D.C. Cir. 2002) (“USTA I”), cert. denied sub

nom. WorldCom, Inc. v. U.S. Telecom Ass’n, 538 U.S. 940

(2003). USTA I concluded that the Commission’s broad concept

of impairment failed to “balance” the costs and benefits of

unbundling. See id. at 427-28.

USTA I also instructed the Commission to make nuanced

impairment determinations. Id. at 422. Though the Act does not

necessarily require the Commission to determine “on a localized

state-by-state or market-by-market basis which unbundled

elements are to be made available,” id. at 425, it does require “a

more nuanced concept of impairment than is reflected in

findings . . . detached from any specific markets or market

categories,” id. at 426. Thus, the Commission is obligated to

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establish unbundling criteria that are at least aimed at tracking

relevant market characteristics and capturing significant

variation.

On remand from USTA I, the Commission determined that

a CLEC would 

be impaired when lack of access to an incumbent LEC

network element poses a barrier or barriers to entry,

including operational and economic barriers, that are likely

to make entry into a market uneconomic. That is, we ask

whether all potential revenues from entering a market

exceed the costs of entry, taking into consideration any

countervailing advantages that a new entrant may have.

In the Matter of Review of the Section 251 Unbundling

Obligations of Incumbent Local Exchange Carriers, Report and

Order and Order on Remand and Further Notice of Proposed

Rulemaking, 18 F.C.C.R. 16978, 17035 (2003) (“Triennial

Review Order”). In response to USTA I’s demand for a more

“nuanced” impairment standard, the Commission made an

absolute national impairment finding, subject to specific

exclusions (i.e., findings of non-impairment) by state public

utility commissions. Id. at 17058-59.

We invalidated much of the Triennial Review Order in

United States Telecom Association v. FCC, 359 F.3d 554, 576

(D.C. Cir.) (“USTA II”), cert. denied sub nom., Nat’l Ass’n of

Regulatory Utility Comm’rs v. United States Telecom Ass’n, 543

U.S. 925 (2004). We concluded that the Commission’s

“touchstone” of impairment—“uneconomic” entry—was

excessively vague. See id. at 572 (“Uneconomic by whom? By

any CLEC, no matter how inefficient? By an ‘average’ or

‘representative’ CLEC? By the most efficient existing CLEC?

By a hypothetical CLEC that used the most efficient

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telecommunications technology currently available . . . ?”

(emphasis in original) (internal quotation marks omitted)).

Moreover, USTA II held the FCC could not lawfully implement

a more “nuanced” (or “granular”) impairment standard by

adopting a blanket finding of impairment and then delegating

power to state regulatory commissions to make non-impairment

exceptions to the FCC’s nationwide rule. Id. at 565-68. Instead,

the FCC must establish unbundling criteria that take into

account “relevant market characteristics,” which capture

“significant variation,” id. at 563, sensibly define the relevant

markets, id. at 563, 574-75, connect those markets to the FCC’s

impairment findings, id. at 574-75, and consider whether the

“element in question” is “significantly deployed on a

competitive basis,” id. at 574. The fact that CLECs can viably

compete without UNEs—for example, by utilizing the ILECs’

TSASs—“precludes a finding that the CLECs are ‘impaired’ by

lack of access to the element under § 251(c)(3).” Id. at 593; see

also id. at 577. 

C

On remand from USTA II, the Commission issued an

interim order and notice of proposed rulemaking. See 19

F.C.C.R. 16783 (2004) (“NPRM”). The NPRM noted that our

decision “called into question certain aspects of the

Commission’s unbundling framework, including the

‘open-endedness’ of the Commission’s ‘touchstone’ of

impairment—uneconomic entry . . . .” Id. at 16788.

Accordingly, the FCC sought “comment on how to respond to

the D.C. Circuit’s USTA II decision in establishing sustainable

new unbundling rules under sections 251(c) and 251(d)(2) of the

Act.” Id. 

After receiving and considering comments, the FCC issued

a four-part order, which is the subject of this case. See In the

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Matter of Unbundled Access to Network Elements, Order on

Remand, 20 F.C.C.R. 2533 (2005) (“Order”). We discuss each

part of the Order in turn.

1

First, the Commission altered its unbundling framework.

The FCC clarified that it would find “impairment” where it

would be “uneconomic” for a “reasonably efficient” CLEC to

compete without UNEs. See id. at 2547-49. The Commission

explained: 

In analyzing entry from the perspective of the reasonably

efficient competitor, we do not attach weight to the

individualized circumstances of the actual requesting

carrier. Thus, we do not presume that a hypothetical entrant

possesses any particular assets, legal entitlements or

opportunities, even if a specific competitive carrier in fact

enjoys such advantages as a result of its unique

circumstances. Similarly, under our approach, impairment

does not arise due to any errors of business judgment made

by an actual requesting carrier.

Id. at 2548 (footnotes omitted). 

While the FCC presumes that a reasonably efficient

competitor “will use reasonably efficient technologies and take

advantage of existing alternative facilities deployment,” id. at

2549, it need not utilize TSASs in the local exchange markets.

See id. at 2546 (ruling it would be “inappropriate” to limit

CLECs’ “access to UNEs whenever a requesting carrier is able

to compete using an” ILEC’s special access services). USTA II

held that the FCC “must consider” TSAS-based competition in

its impairment inquiry for mobile wireless and long-distance

UNEs, 359 F.3d at 577, because competition in those markets is

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“robust,” id. at 592. In contrast, “[t]he local services market

does not share the competitive conditions, observed in the

mobile wireless services market and long distance services

market, that would support a parallel finding that the costs of

unbundling outweigh the benefits.” Order, 20 F.C.C.R. at 2556.

Because the Commission concluded that UNEs are vital to the

continued development of competition in the local exchange

market, it retained its unbundling requirements, regardless of

whether CLECs are currently using TSASs to provide local

service.

2

Second, the Commission amended its impairment findings

for dedicated interoffice transport. “Dedicated transport

facilities” refer to facilities that are dedicated to a particular

carrier used for transmission between or among ILEC wire

centers. Id. at 2576. For purposes of this opinion, transport

comes in two varieties: “DS1” (which can carry 24 voice calls

simultaneously) and “DS3” (which has 28 times the capacity of

DS1 facilities and can therefore carry 672 voice calls

simultaneously). 

CLECs often use DS1 transport as part of an end-to-end

circuit, called an “enhanced extended link” (“EEL”), which can

be used to serve a single customer (typically a small- or

medium-sized business). See USTA II, 359 F.3d at 590. EELs

are often composed of a DS1 loop combined with a DS1

transport link. After noting that it will “measure impairment

with regard to dedicated transport on a route-by-route basis,”

Order, 20 F.C.C.R. at 2581-82, the Commission identified two

proxies for determining whether entry into a particular market

would be economic without unbundled DS1 or DS3 facilities: (i)

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2

 A fiber-based collocator is an arrangement that allows a CLEC to

interconnect its facilities with those owned and operated by an ILEC.

See 47 C.F.R. § 51.5. A business line is a loop that runs from the wire

center to a business customer. See id. 3

 The definitions of DS1 and DS3 loops mirror those for DS1 and

DS3 transport. Thus, DS1 loops can carry 24 individual voice calls

the extent of fiber-based collocation and (ii) business line

density.2

The FCC found that CLECs are not impaired without DS1

transport links when both ends of the transport route terminate

in “Tier 1” wire centers (i.e., those with four or more fiber-based

collocators or 38,000 or more business lines). Similarly, CLECs

are not impaired without access to DS3 transport where both

ends of the route terminate in “Tier 2” wire centers (i.e., those

with at least three fiber-based collocators or at least 24,000

business lines). Id. at 2575-76. The higher impairment

threshold for DS1 transport reflects the fact that DS1 facilities

have less capacity and generate less revenue (thus making them

less likely to be deployed by CLECs). 

If a CLEC self-certifies that a transport trunk meets the

applicable test, the ILEC is obligated to offer immediate access

to the trunk on an unbundled basis. Id. at 2665-66. If the ILEC

seeks to challenge the propriety of unbundling the trunk, it must

first provide the UNE and then raise a challenge through the

dispute resolution procedures prescribed by the applicable

interconnection agreements (i.e., contracts between ILECs and

CLECs).

3

Third, the Commission amended its impairment findings for

DS1 and DS3 loops.3

 The Commission noted it is often not

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simultaneously, and DS3 loops are equivalent to 28 DS1 loops and can

carry 672 individual voice calls simultaneously.

economical for a CLEC to deploy its own DS1 loops, given their

capacity limitations. Id. at 2616. However, the FCC explained

that to offer DS1 or DS3 service, CLECs “install high-capacity

fiber-optic cables [including DS3 loops and “optical carrier level

n,” or “OCn,” facilities] and then use electronics to light the

fiber at specific capacity levels, often ‘channelizing’ these

higher-capacity offerings into multiple lower-capacity streams.”

Id. Thus, the FCC concluded, CLECs are not impaired without

DS1/DS3 UNEs in markets where CLECs have deployed—or

could economically deploy—higher-capacity facilities that can

be “channelized” to provide service at lower levels. Id. at 2625.

After noting that the relevant market for measuring

impairment in DS1 and DS3 loops is the area served by a wire

center, id. at 2619-20, the Commission again relied upon fiberbased collocators and business-line density as proxies for

predicting impairment in high-capacity loop markets, id. at

2625-26. Specifically, the Commission found that CLECs are

not impaired without DS1 loops within the service area of a wire

center that has at least four fiber-based collocators and at least

60,000 business lines. Similarly, CLECs are not impaired

without access to DS3 loops within the service area of a wire

center containing at least four fiber-based collocators and at

least 38,000 business lines. Id. at 2614. The higher impairment

threshold for DS1 loops reflects the fact that DS1 facilities have

less capacity and generate less revenue (thus making them less

prone to deployment by CLECs). Id. at 2628-29. Loops are

governed by the same implementation procedures that the

Commission employed for dedicated transport. See id. at 2665-

66 (if CLECs self-certify that a DS1/DS3 loop meets the

impairment thresholds, ILECs must offer immediate unbundled

access and then litigate the issue before the state commissions).

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4

 The Commission ordered that “unbundled access to local circuit

switching during the transition period [shall] be priced at the higher of

(1) the rate at which the requesting carrier leased [the unbundled

network element-platform (“UNE-P”)] on June 15, 2004 plus one

dollar, or (2) the rate the state public utility commission establishes,

if any, between June 16, 2004, and the effective date of this Order, for

UNE-P plus one dollar.” Order, 20 F.C.C.R. at 2660. UNE-P refers

to a group of unbundled elements, which the CLECs typically use as

a package to provide telecom services to their customers. The UNE-P

package includes unbundled switching, loops, and transport. See In

the Matter of Review of the Section 251 Unbundling Obligations of

Incumbent Local Exchange Carriers, Notice of Proposed Rulemaking,

16 F.C.C.R. 22781, 22802 n.102 (2001). 

4

Fourth and finally, the Commission concluded that ILECs

no longer need to provide CLECs with unbundled access to

mass market local circuit switching (“MMLS”). See id. at 2641-

42. The FCC adopted transitional rules to wean CLECs off the

local circuit switching UNEs that are currently in use.

Specifically, the Commission afforded CLECs 12 months to

eliminate their reliance on unbundled MMLS, id. at 2659-60,

and it increased the rates at which ILECs are compensated for

unbundled local switching during the transitional period,4 id. at

2660-61.

D

Numerous parties filed petitions for review. Our review is

governed by the classic two-step framework from Chevron USA

v. Natural Resources Defense Council, Inc., 467 U.S. 837

(1984): If Congress “has directly spoken to the precise question

at issue,” we “must give effect to [its] unambiguously expressed

intent”; on the other hand, “if the statute is silent or ambiguous,”

we must defer to the Commission’s interpretation so long as it

is “based on a permissible construction of the statute.” Id. at

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5 As explained further in Part III, two of the CLECs’ challenges are

echoed in parallel petitions for review filed by the New Jersey

Division of the Ratepayer Advocate and the National Association of

State Utility Consumer Advocates.

842-43. Ultimately, if the Commission’s reading of the statute

is reasonable, Chevron requires us “to accept the agency’s

construction of the statute, even if the agency’s reading differs

from what the court believes is the best statutory interpretation.”

 Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs.,

125 S. Ct. 2688, 2699 (2005). 

Both the Supreme Court and our Court have held that the

1996 Act’s use of the term “impair,” 47 U.S.C. § 251(d)(2)(B),

is ambiguous and should be reviewed under Chevron’s second

step. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 387-92

(1999); USTA I, 290 F.3d at 422. Similarly, the Commission’s

reasonable interpretations of § 251(c) are entitled to deference.

Cf. USTA II, 359 F.3d at 580. Under the Administrative

Procedure Act, we will uphold the Commission’s policy choices

unless they are arbitrary and capricious. See 5 U.S.C. §

706(2)(A). To survive review under this standard, the FCC

“must examine the relevant data and articulate a satisfactory

explanation for its action including a rational connection

between the facts found and the choice made.” Motor Vehicle

Mfrs. Ass’n, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,

43 (1983).

In Part II below, we address and reject the ILECs’ two

challenges to the Order. In Part III, we address and reject the

CLECs’ three challenges to the Order.

5

 In Part IV, we address

and reject one miscellaneous argument raised by the New Jersey

Division of the Ratepayer Advocate. 

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II

The ILECs raise two challenges to the Order. First, the

ILECs argue that the FCC unlawfully failed to consider the

relevance of TSASs in its unbundling analysis. Second, the

ILECs argue that the Commission imposed impossibly high

thresholds for assessing the state of competition in the market

for DS1/DS3 loops and transport. We reject both claims. 

A

The ILECs first argue that the Commission unjustifiably

concluded that it would be “inappropriate” to eliminate UNEs

where CLECs are “able to compete using an incumbent LEC’s

[TSASs].” Order, 20 F.C.C.R. at 2536. The ILECs argue that

to the extent TSASs allow viable competition, the Act’s

“impairment” requirement is not met, 47 U.S.C. § 251(d)(2), and

unbundling is not required. In the ILECs’ view, the

Commission’s conclusion to the contrary “violates this Court’s

mandate” from USTA II. Pet. Br. at 20. 

We disagree. In USTA II, we reversed the FCC’s decision

to make UNEs available to providers of wireless services where

CLECs’ use of TSASs had allowed “competition not only to

survive but to flourish.” USTA II, 359 F.3d at 576. Noting that

the use of special access had spawned similarly “robust

competition” in the long-distance market, we declared that “the

presence of robust competition” by users of special access

“precludes a finding” that CLECs are impaired without UNEs in

the wireless and long-distance markets. Id. at 592-93. We

therefore held

that the Commission’s impairment analysis must consider

the availability of tariffed ILEC special access services

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when determining whether would-be entrants are impaired

. . . . This of course still leaves the Commission free to

take into account such factors as administrability, risk of

ILEC abuse, and the like. What the Commission may not

do is compare unbundling only to self-provisioning or

third-party provisioning, arbitrarily excluding alternatives

offered by the ILECs.

Id. at 577.

Notwithstanding the ILECs’ arguments to the contrary, the

above-quoted holding does not apply with equal force to the

local exchange markets. Unlike the “robust competition” that

special access services have spawned in the wireless and longdistance markets, the FCC found that TSAS-based competition

in the local exchange markets is much more “limited.” Order,

20 F.C.C.R. at 2572. Nothing in USTA II specified how the

Commission should analyze the impact of special access

services in markets where competition is less than “robust.”

Instead, we entrusted that task to the agency’s discretion and

emphasized that the FCC was “free to take into account such

factors as administrability, risk of ILEC abuse, and the like.”

USTA II, 359 F.3d at 577.

On remand, the Commission considered the viability of

TSAS-based competition and concluded that “even in cases

where [CLECs] currently compete using special access,” a caseby-case TSAS-based impairment inquiry “would raise

insurmountable hurdles regarding administrability . . . .” Order,

20 F.C.C.R. at 2575. The FCC found that such an inquiry

“would require the Commission to examine all revenues [a

CLEC] might hope to capture using the UNE or special access

service at issue in a given market . . . and to compare those

potential revenues against every relevant state and federal tariff

and every [ILEC] retail and wholesale service offered in every

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18

market at issue for every element or service,” taking into

account all “available term and volume discounts.” Id. at 2566.

Adding to the complexity of this endeavor, the prices and terms

governing special access vary greatly from market to market.

Id. at 2564. Given the apples-to-oranges nature of comparing

TSASs nationwide, the Commission decided that evaluating the

effect of special access on impairment in individual local

markets “would be excessively complicated” and “utterly

impracticable,” “requiring resources far beyond those available

to this Commission.” Id. at 2566.

Moreover, the FCC found that a rule denying access to

UNEs whenever tariffed alternatives are available would create

an “unacceptable risk of significant abuse by [ILECs].” Id. at

2567; see also USTA II, 359 F.3d at 577 (suggesting that “on an

appropriate record the Commission might find impairment”

where the elimination of UNEs would pose a “risk of ILEC

abuse” in the TSAS market). The Commission found record

evidence that the availability of UNEs serves to discipline

special access rates by exercising “a constraining influence” on

the ILECs’ ability to increase their TSAS rates. Order, 20

F.C.C.R. at 2574. Indeed, in an unrelated proceeding, the ILECs

acknowledged this was the case. See Merger of SBC

Communications Inc. and AT&T Corp., Description of the

Transaction, Public Interest Showing and Related

Demonstrations, Feb. 21, 2005, at 105 & n.348. The

Commission therefore found that the “elimination of UNEs

would significantly risk increased special access pricing,

undermining or destroying the ability to compete using tariffed

alternatives.” Id. at 2574-75; see also Pub. Citizen. Inc. v.

NHTSA, 374 F.3d 1251, 1260-61 (D.C. Cir. 2004) (“Predictions

regarding the actions of regulated entities are precisely the

[types] of policy judgments that courts routinely and quite

correctly leave to administrative agencies.” (internal quotation

marks and citation omitted)). 

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 18 of 41
19

6

 The ILECs also challenge the Commission’s adherence to its

policy of allowing CLECs to convert TSASs to UNEs in markets

where other CLECs have access to UNEs. See Order, 20 F.C.C.R. at

2661-64. As the Commission explained, “[t]he [ILECs’] arguments

against conversions are essentially the same as their arguments for

finding non-impairment wherever special access facilities are

available,” id. at 2663, and the Commission rejected both sets of

arguments for essentially the same reasons. Given that an agency’s

policy decisions are entitled to deference so long as they are

reasonably explained, see Nat’l Ass’n of State Util. Consumer

Advocates v. FCC, 372 F.3d 454, 460 (D.C. Cir. 2004), and given the

FCC’s reasoned explanation of the administrability problems that a bar

on conversions would cause, e.g., Order, 20 F.C.C.R. at 2664, we

deny the petition for review as to this issue as well. 

The Commission’s analysis is reasonable. In contrast to the

wireless and long-distance markets, “carriers generally make

only limited use of special access offerings to provide service in

the local exchange services market.” Order, 20 F.C.C.R. at

2572. Moreover, in accordance with our instructions from

USTA II, the FCC tempered its consideration of TSAS-based

competition by “tak[ing] into account such factors as

administrability, risk of ILEC abuse, and the like.” USTA II,

359 F.3d at 577. Thus, the Commission “consider[ed]” the

import of TSASs in its impairment inquiry, and it provided a

reasoned explanation for its decision not to eliminate unbundling

solely on the basis of limited TSAS-based competition.

Chevron’s second step requires nothing more.6

 See, e.g., Time

Warner Entm’t Co. v. FCC, 56 F.3d 151, 175 (D.C. Cir. 1995)

(holding that when the Commission is obligated to consider

certain factors, “[t]hat means only that [the FCC] must ‘reach an

express and considered conclusion’ about the bearing of a factor,

but is not required ‘to give any specific weight’ to it.” (citation

omitted)). 

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20

B

The ILECs’ second argument is that competition is viable

(and hence unbundling is both unnecessary and unlawful) in

wire centers that have far fewer business lines and fiber-based

collocators than required by the Commission’s unbundling

thresholds. See Order, 20 F.C.C.R. at 2575-76; id. at 2614-15.

The ILECs argue that USTA I and USTA II require the FCC to

“deny unbundling not only in markets that are already extremely

competitive, but also in markets where the evidence shows that

[CLECs] can compete without UNEs.” Pet. Br. at 32 (emphasis

in original); see also USTA II, 359 F.3d at 575 (noting the FCC

must determine whether “competition is possible” without

unbundling). However, in the ILECs’ view, the Commission

denied unbundling only in those markets that are experiencing

“extraordinary levels of competition,” without considering “the

class of markets in which competition is possible without UNEs

. . . .” Pet. Br. at 33 (emphasis in original). 

Again, we disagree. Notwithstanding the ILECs’ arguments

to the contrary, the Commission repeatedly justifies its

unbundling determinations on the basis of both actual and

potential competition. See, e.g., Order, 20 F.C.C.R. at 2586

(The Commission “evaluate[s] impairment through a focus on

wire centers, the end-points of routes, in a manner that accounts

for both actual and potential competition.”); id. (“The tests we

adopt today are designed to capture both actual and potential

competition, based on indicia of significant revenue

opportunities at wire centers.”); id. at 2587 (“Our approach here,

though route-specific, is also consistent with [USTA II’s]

instruction to make inferences about potential economic

deployment on similarly situated routes. . . . For example, even

if a particular [Tier 1] wire center exhibits few or no competitive

fiber facilities, the fact that other wire centers displaying similar

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 20 of 41
21

economic characteristics tend to be the site of more significant

competitive facilities deployment will serve as the basis for a

reasonable inference that the wire center in question could

potentially support such deployment.”); id. at 2588 (“We have

weighed carefully a variety of actual competitive indicia for

determining impairment and determine that the best and most

readily administered indicator of the potential for competitive

deployment is the presence of fiber-based collocators in a wire

center.”); id. (“[W]e conclude that applying [the high-capacity

transport thresholds] will better capture actual and potential

deployment than any single measure.”); id. at 2589 (Fiber-based

collocation and business line density “measure the potential

revenues available from a wire center. Wire centers that are rich

in potential revenues will be counted similarly, capturing areas

in which intermodal and intramodal competitors alike have

incentives to deploy transmission facilities.”); id. at 2591 (“[W]e

reject MCI’s proposal” for measuring impairment because “we

find that it fails to account for areas of potential deployment, or

to make any significant inferences” of potential competition.);

id. at 2593 (“[O]ur test will capture . . . relatively smaller [wire

centers] that, through fiber-based collocation, display signs of

significant potential revenues.”); id. at 2597 (defining Tier 1,

Tier 2, and Tier 3 wire centers “based on indicia of the potential

revenues and suitability for competitive transport deployment”);

id. at 2605 (“Tier 1 wire centers are those characterized by very

significant competitive facilities presence or potential, as

measured by fiber-based collocation and business lines.”); id. at

2606 (The Commission eliminates unbundling requirements in

Tier 1 and Tier 2 wire centers for DS3 transport because, “due

to the potential revenues available at the DS3 level, we find that

scale economies sometimes are sufficient to recover the fixed

and sunk costs of deploying transport facilities.”); id. at 2620

(“Our choice of the wire center service area as the appropriate

level of geographic granularity at which to assess requesting

carriers’ impairment without access to high-capacity loops is

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 21 of 41
22

grounded on [USTA II’s mandate that] the Commission . . .

consider not only actual competition within a given market, but

also potential competition within that market.” (emphases in

original)); id. at 2622 (The Commission rejects a buildingspecific impairment inquiry because that approach is “flawed by

its failure to draw reasonable inferences from actual deployment

regarding potential deployment.” (emphasis in original)); id. at

2626 (“[H]igh business line counts and the presence of fiberbased collocators, when evaluated in conjunction with one

another, are likely to correspond with actual self-deployment of

[CLECs’] loops or to indicate where deployment would be

economic and potential deployment likely.”); id. at 2627

(“While the evidence does not (and could not) reveal a precise,

immutable relationship between actual and potential deployment

of high-capacity loops on the one hand, and the numbers of

business lines and fiber-based collocators on the other hand, we

adopt these proxies because they best minimize and balance any

under-inclusiveness and over-inclusiveness.”).

Notwithstanding the foregoing mountain of references, the

ILECs argue that the FCC paid mere lip service to the potential

for competition in the markets for both transport and loops. We

reject both claims. 

1

The ILECs complain that the Commission granted

“exceedingly narrow transport relief.” Pet. Br. at 33. Ironically,

however, the Commission eliminated unbundling for highcapacity transport in more wire centers than the ILECs

proposed. Specifically, the ILECs suggested—and the FCC

rejected—a proposal to eliminate transport unbundling between

wire centers that contain one or more fiber-based collocators.

See Order, 20 F.C.C.R. at 2603. The Commission concluded

that the ILECs’ proposal would underestimate the potential for

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 22 of 41
23

competitive deployment and that unbundling was warranted for

transport between wire centers that contained zero fiber-based

collocators. See id. (eliminating unbundling in wire centers with

zero fiber-based collocators if those wire centers have “a

significant number of business lines [, which indicate] the

presence of significant potential revenues”). 

To be sure, the Commission’s chosen business-line

thresholds (38,000 for DS1s and 24,000 for DS3s) are higher

than the ILECs would have liked. However, as the Commission

explained, the alternative thresholds proffered by the ILECs

were too low—as an empirical matter—to support consistent

competitive deployment. See id. at 2602-03. Given the fact that

the Commission has “wide discretion to determine where to

draw administrative lines,” AT&T Corp. v. FCC, 220 F.3d 607,

627 (D.C. Cir. 2000), and given “the inevitability of some overand under-inclusiveness in the Commission’s unbundling rules,”

USTA II, 359 F.3d at 570 (emphasis in original), we have been

“generally unwilling to review line-drawing performed by the

Commission unless a petitioner can demonstrate that lines drawn

. . . are patently unreasonable, having no relationship to the

underlying regulatory problem.” Cassell v. FCC, 154 F.3d 478,

485 (D.C. Cir. 1998) (internal quotation marks and citation

omitted).

Here, the Commission applied its transport thresholds in a

“disjunctive tandem” (that is, there is no impairment if the wire

centers meet either the business line or the collocation metrics).

Order, 20 F.C.C.R. at 2588. Because “complementary tests will

capture markets [with] significant potential revenues and thus,

the potential for further competitive build-out,” the Commission

concluded that a disjunctive test “will better capture actual and

potential deployment than any single measure.” Id. This

analysis clearly bears some “relationship to the underlying

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 23 of 41
24

regulatory problem.” As a result, we deny the ILECs’ petition

for review of the Commission’s transport thresholds. 

2

The ILECs’ challenge to the Commission’s unbundling of

high-capacity loops is equally unavailing. Again, the FCC

chose to assess loop impairment at the wire-center level because

wire centers provide the best evidence of “not only actual

competition within a given market, but also potential

competition within that market.” Id. at 2620 (emphases in

original). Again, the ILECs complain that the FCC “removed

high-capacity loop unbundling obligations only in a tiny subset

of wire centers where there is evidence of extreme competition.”

Pet. Br. at 32. And again, we disagree. 

After surveying the economic realities surrounding loop

deployment, the Commission decided to apply its loop

thresholds “in conjunction with one another” (that is, there is no

impairment if a wire center meets both the business line and the

collocation metrics). Order, 20 F.C.C.R. at 2626. The FCC

concluded that a conjunctive application of the loop-impairment

thresholds would “best minimize and balance any

under-inclusiveness and over-inclusiveness” in its unbundling

inquiry. Id. at 2627. Similarly, after surveying the economic

differences between DS1 and DS3 loops, the FCC unbundled

fewer of the latter than the former because “economic conditions

surrounding competitive deployment of DS3-capacity loops

permit [more optimistic] inferences regarding potential

deployment in the context of DS3 loops that would not be

appropriate in the context of DS1 loops.” Id. Moreover,

because it is generally economic to self-deploy a DS3 loop

“when demand nears two DS3s of capacity to a particular

location,” the FCC imposed a one-loop limit on DS3s. Id. at

2631. 

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 24 of 41
25

7 The ILECs attempt to shift the blame for this failure by arguing

that the CLECs should suffer an “adverse inference” for their failure

to disclose evidence within their control regarding deployment vel non

By contrast, the Commission ordered wider unbundling of

DS1 loops because “[t]he record before us indicates that

[CLECs] typically do not provision stand-alone DS1 loops . . . .”

Id. at 2627. In light of evidence that CLECs generally provide

DS1 service by “channelizing” a bigger DS3 loop, the

Commission “denie[d] unbundled access to DS1 loops only in

the areas served by wire centers where . . . [CLECs] actually

have deployed, or will deploy, competitive facilities at the DS3

capacity level or higher, creating the potential for [CLECs] to

channelize those facilities to offer service at the DS1 capacity

level.” Id. at 2628. Because it is generally more efficient for a

CLEC to self-deploy a DS3 (and channelize it, if necessary)

rather than use ten or more DS1-UNEs, the Commission

imposed a ten-loop limit on DS1s. Id. at 2633. 

Instead of attacking the FCC’s thresholds or loop caps, the

ILECs simply lament that the Commission eliminated

unbundling only in those markets that are experiencing

“extraordinary levels of competition.” Pet. Br. at 33. Of course,

the levels of competition in non-impaired areas (where

competition is thriving at “extraordinary levels”) are irrelevant

for purposes of the ILECs’ petition for review. The real

question is whether the Commission ignored evidence of

competition (either actual or potential) in impaired areas. After

conducting a thorough analysis of the economic realities

surrounding high-capacity loop deployment, the FCC concluded

that some of the wire centers identified by the ILECs’ alternative

unbundling thresholds exhibit indicia of impairment because

they “do not generally exhibit extensive competitive fiber

deployment, and do not offer sufficient revenue opportunities to

incent such deployment.” Order, 20 F.C.C.R. at 2637.

Tellingly, the ILECs never claim (much less show7

) that

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 25 of 41
26

of high-capacity loops. Again, however, the ILECs’ arguments are

misguided. Agreeing with comments filed by the ILECs themselves,

the Commission adopted an objective wire-center test, which is based

on publicly available data that neither party controls. See Order, 20

F.C.C.R. at 2619-22; id. at 2636-37. Because only non-proprietary

data were relevant to the Commission’s unbundling inquiry, there is

no basis upon which to draw an adverse inference against the CLECs.

Compare Tendler v. Jaffe, 203 F.2d 14, 19 (D.C. Cir. 1953) (“[T]he

omission by a party to produce relevant and important evidence of

which he has knowledge, and which is peculiarly within his control,

raises the presumption that if produced the evidence would be

unfavorable to his cause.” (emphases added)). 

competition exists below the Commission’s loop thresholds. Cf.

Pet. Br. at 33 (claiming competition exists below the

Commission’s transport thresholds). 

Congress gave the Commission—not the petitioners or this

Court—discretion in regulatory line-drawing. The mere fact

that the Commission’s exercise of its discretion resulted in a line

that the ILECs would have drawn differently is not sufficient to

make it unlawful. The FCC’s loop-impairment

thresholds—combined with the loop caps—suggest that the

Commission “confront[ed] . . . the issue” of the costs and

benefits of unbundling and “ma[d]e reasonable trade-offs”

between allowing unbundling where it is necessary and

eliminating unbundling where it is not. USTA I, 290 F.3d at

425. We have never required anything more. Nor do we today.

III

While the ILECs want less unbundling of high-capacity

loops and transport trunks, the CLECs want more. To that end,

the CLECs raise three arguments. First, the CLECs argue that

they are universally impaired without unbundled access to DS1

loops, DS3 loops, and DS1 transport. Second, the CLECs argue

that they are universally impaired without unbundled access to

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 26 of 41
27

mass market local switching. Third, the CLECs argue that the

Commission’s transitional rules for implementing the Order are

arbitrary and capricious. We reject all three claims. 

A

The CLECs first argue that it is economically impossible

(and wasteful) for non-incumbents to supply high-capacity loops

and transport trunks where the ILECs have already deployed

them. Because “these fundamental economic facts” do not vary

across markets, the CLECs argue that the Commission’s

unbundling thresholds are unlawfully high. Pet. Br. at 9. The

CLECs mount separate challenges to the Commission’s analysis

for DS1 loops, DS3 loops, and DS1 transport. We address each

in turn. 

1

In the CLECs’ view, the Commission erred by restricting

the unbundling of DS1 loops. Given the FCC’s finding that

CLECs “cannot deploy stand-alone DS1-capacity loops on an

economic basis,” Order, 20 F.C.C.R. at 2628, the CLECs

conclude that they must be impaired in (and thus entitled to

unbundling of) DS1 loops nationwide. 

We disagree. USTA I and USTA II require a nuanced

application of a “granular” impairment standard, which

incorporates competitive variations within and across markets.

The CLECs appear to recognize this fact. See, e.g., Pet. Br. at

14. Nonetheless, the CLECs advocate the most un-nuanced and

un-granular impairment finding imaginable—namely, a

nationwide unbundling decree—notwithstanding the fact that we

vacated the CLECs’ proffered alternative in USTA II. See 359

F.3d at 574; see also Iowa Utils., 525 U.S. at 388 (holding the

Commission cannot order blanket unbundling because “the Act

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 27 of 41
28

8

 See Part II.B.2, supra (discussing the particulars of the FCC’s

thresholds and loop caps). 

requires the FCC to apply some limiting standard, rationally

related to the goals of the Act” (emphasis in original)); USTA I,

290 F.3d at 422 (criticizing the FCC’s decision “to adopt a

uniform national rule, mandating [an] element’s unbundling in

every geographic market”). 

In the order before us, the FCC rejected a nationwide

unbundling rule—and reasonably so. Instead of a blanket

impairment finding, the FCC adopted a nuanced standard, which

assesses impairment vel non at the wire center level and imposes

“caps” on unbundling in markets in which the prevalence of

UNEs suggests that facilities-based competition is viable.8

 The

Commission’s standard uses market data to predict when and

where the CLECs will be economically able to deploy their own

high-speed facilities, thus obviating the need for UNEs. We

think this balancing act is reasonable.

As a fallback position, the CLECs argue that impairment

should be assessed on a building-by-building (as opposed to a

wire center-by-wire center) basis. However, after chronicling

extensive record evidence, the Commission concluded that a

building-by-building approach would be an administrative

nightmare, a font of endless litigation, and an ineffective metric

of impairment. See Order, 20 F.C.C.R. at 2620-25.

Even if the CLECs’ building-by-building approach were not

riddled with empirical flaws and administrability problems, “the

fact that there are other solutions to a problem is irrelevant

provided that the option selected [by the FCC] is not irrational.”

Ass’n of Pub.-Safety Commc’ns Officials-Int’l, Inc. v. FCC, 76

F.3d 395, 400 (D.C. Cir. 1996) (internal quotation marks and

citation omitted). “The FCC need not demonstrate that it has

made the only acceptable decision, but rather that it has based its

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 28 of 41
29

decision on a reasoned analysis supported by the evidence

before the Commission.” Id. at 398 (emphasis in original). “[I]f

the [Commission] has offered a reasoned explanation for its

choice between competing approaches supported by the record,

the court is not free to substitute its judgment for that of the

agency.” Id.

Here, “the Commission has offered a reasoned

explanation.” The FCC explained that it chose to focus on wire

centers, fiber-based collocation, and business line density

because those variables are objective, easily verifiable, and

highly correlated with both extant and potential levels of

facilities-based competition. See Order, 20 F.C.C.R. at 2588-

97. This explanation easily qualifies as “rational,” “reasonable,”

and “non-arbitrary.”

Even if the FCC explained its standard, the CLECs argue,

that standard is nonetheless divorced from economic reality. In

the CLECs’ view, “[t]here is absolutely no evidence” to

substantiate the purported correlation between competition and

the level of fiber collocation and business line density within a

wire center. Pet. Br. at 18. Moreover, the CLECs argue that

even if fiber-based collocation can reasonably predict

competition in enterprise markets, it is still insufficiently

“granular” to predict competition for mass-market consumers.

Id. at 19-20.

Again, the CLECs’ argument is wide of the mark. As we

have previously held, “collocation can reasonably serve as a

measure of competition in a given market,” particularly where

it is “superior to the various alternatives proposed by

petitioners.” WorldCom, Inc. v. FCC, 238 F.3d 449, 459 (D.C.

Cir. 2001). Here, the CLECs “offer no alternative save a

painstaking analysis of market conditions.” Id. (emphasis

added). For example, the CLECs argue that the FCC’s

USCA Case #05-1110 Document #974548 Filed: 06/16/2006 Page 29 of 41
30

impairment analysis should incorporate “operational or

structural impediments,” Pet. Br. at 10, which are “specific to

the customer’s location within a building,” Order, 20 F.C.C.R.

at 2623 (emphasis added). Such a suggestion takes the concept

of granularity to an unrealistic extreme: It defies common

sense—and USTA II’s mandate—to require the Commission to

conduct individualized inquiries into the economic

particularities of each floor within each building served by the

millions of DS1 loops nationwide. See USTA II, 359 F.3d at 577

(holding the FCC is “free to take into account such factors as

administrability” in its impairment inquiry). Under these

circumstances, the Commission is justified in its reliance upon

what is “an admittedly imperfect measure of competition.”

WorldCom, 238 F.3d at 459. 

Finally, even if the Order properly accounts for economic

reality, the CLECs claim that the Commission arbitrarily

“turn[ed] around and ignore[d]” its own “reasonably efficient

competitor” standard in its refusal to unbundle DS1 loops. In

the CLECs’ view, the Order “relies on a [CLEC] holding . . . a

fiber transmission network,” Pet. Br. at 21, notwithstanding the

fact that the Commission’s “reasonably efficient competitor”

standard “do[es] not presume that a hypothetical entrant

possesses any particular assets.” Order, 20 F.C.C.R. at 2548.

 

The CLECs either misunderstand or misconstrue the FCC’s

ruling. The Order does not presume that a particular CLEC

possesses a fiber transmission network. Rather, the FCC

presumes that under certain economic conditions, it would be

financially possible and attractive for a “reasonably efficient”

CLEC to deploy high-speed facilities. And where a “reasonably

efficient” CLEC can economically deploy its own facilities, the

FCC concludes, all CLECs are not “impaired.” 

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At first blush, it might seem a little harsh to eliminate

unbundling for all CLECs where one or more has demonstrated

the economic feasibility of competing without UNEs. However,

as the Commission explained, CLECs can use TSASs and other

wholesale facilities “as a gap-filler” to enter or expand into new

markets. Id. at 2623-24. And the CLECs’ assertion that the

wholesale supply of DS1 loops is “extremely limited,” Pet. Br.

at 22, is belied by the CLECs’ own evidence confirming that

they are “able to purchase wholesale capacity to serve a DS1

customer.” Order, 20 F.C.C.R. at 2628. The ILECs

corroborated the CLECs’ concessions with respect to the

availability of DS1 loops at wholesale prices. See Ex parte

Letter from Evan T. Leo to Marlene H. Dortch, tbl. 9 (Oct. 4,

2004), Joint Appendix (“J.A.”) 2067-68; Declaration of Claire

Beth Nogay on behalf of Verizon, exh. 6 (Oct. 4, 2004), J.A.

1683-85. In the face of evidence that CLECs can—and

do—offer DS1 services without UNEs, there is nothing unlawful

about the FCC’s well-reasoned refusal to order unbundling. 

2

The CLECs next argue that the Commission erred by

restricting the unbundling of DS3 loops. In a single footnote,

the CLECs attempt to incorporate by reference all of their DS1-

related arguments “to apply equally to single DS3 loops.” Pet.

Br. at 14 n.8. This reference is insufficient to raise the issue.

See Sugar Cane Growers Co-op. of Florida v. Veneman, 289

F.3d 89, 93 n.3 (D.C. Cir. 2002) (“On appeal, appellants failed

to raise their . . . claim—a footnote at the end of their opening

brief does not suffice.”); Hutchins v. Dist. of Columbia, 188

F.3d 531, 539 n.3 (D.C. Cir. 1999) (en banc) (“We need not

consider cursory arguments made only in a footnote.”). 

The CLECs’ only viable DS3 challenge is their argument

that “the FCC’s proxies are an insufficient indicator of

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32

competitive deployment.” Pet. Br. at 19. However, the CLECs

base their attack entirely on the alleged paucity of extant

competition. See id. at 23 (“[T]he record plainly shows that the

number of buildings where [CLECs] have deployed [DS3]

facilities . . . is minuscule.”). Because we have held that

unbundling may be appropriate only after the Commission

considers the potential for future competition, see USTA II, 359

F.3d at 575, the CLECs’ complaints that current DS3

deployment is “minuscule” are wide of the mark. We therefore

deny the petition for review with respect to DS3 loops. 

3

The CLECs next argue that the Commission erred by

restricting the unbundling of DS1 transport. In light of the same

record evidence that informed the Commission’s impairment

analysis for DS1 loops, the FCC found that CLECs are not

impaired without unbundled access to DS1 transport on routes

between “Tier 1” wire centers. See Order, 20 F.C.C.R. at 2598;

id. at 2605. The CLECs’ challenge to this conclusion is feeble:

They do not dispute that wire centers provide a perfectly

reasonable metric to gauge transport impairment, Pet. Br. at 16,

nor do they dispute that competitive transport is or can be selfprovisioned between Tier 1 wire centers, Order, 20 F.C.C.R. at

2605. Nor do the CLECs dispute that those competitive

transport facilities can be channelized to provide transport at the

DS1 level. See id. at 2585-86. Instead, the CLECs argue that

the Commission’s impairment inquiry was based “solely on the

unfounded prediction” that a wholesale market for DS1 transport

might develop. Pet. Br. at 27. 

The CLECs’ characterization of the Commission’s inquiry

is inaccurate. After finding empirical proof that more than twothirds of wire centers above the business-line threshold can

attract four or more fiber-based collocators, see Order, 20

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9

 Because NASUCA presses the point at length in its briefs, we

note that the association has standing. In USTA II, we held that “it is

not at all self-evident from the record that NASUCA meets the

associational standing criteria established in Hunt v. Washington State

Apple Advertising Commission, 432 U.S. 333, 344-45 (1977).” 359

F.3d at 593-94 (parallel citations omitted). Here, by contrast,

NASUCA has submitted an affidavit that demonstrates “(a) its

members would otherwise have standing to sue in their own right; (b)

the interests it seeks to protect are germane to the organization’s

purpose; and (c) neither the claim asserted nor the relief requested

requires the participation of individual members in the lawsuit.” Hunt,

432 U.S. at 343. Accordingly, NASUCA has associational standing

to press its claims. 

F.C.C.R. at 2598-99 & nn.322-23, the Commission inferred that

it was “possible that competitors can deploy transport facilities

to the remainder of the wire centers above this business line

threshold,” id. at 2599 (emphasis added). Thus, the Commission

did not focus “solely” on the availability of wholesale

transport—in fact, the FCC’s impairment inquiry centered on

the potential for CLECs to self-deploy DS1 transport. We

therefore deny the petition for review with respect to DS1

transport.

B

The CLECs’ second challenge pertains to the Commission’s

decision not to require unbundled access to mass-market local

switching. See Order, 20 F.C.C.R. at 2641-61. “Local

switching” is the modern-day equivalent of a switchboard

operator: Computerized switches route a signal from a caller to

a receiver. “Mass market” switching refers to phone calls made

by or to residential consumers (as opposed to “enterprise”

switching, which refers to calls made by or to business

customers). In the Order, the Commission declined to order

unbundling in MMLS. The CLECs—joined by National

Association of State Utility Consumer Advocates (“NASUCA”)9

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and the New Jersey Division of the Ratepayer Advocate

(“NJDRA”)—petition for review. We discuss and reject each

petitioner’s claims separately. 

1

First, we reject the CLECs’ challenge to the Commission’s

ruling on MMLS. The CLEC petitioners argue that a nationwide

non-impairment finding must be vacated because it is

insufficiently “granular.” However, the mere fact that the

Commission eliminated unbundling across the board does not

make it unlawful: The “granularity” criterion does not require

the FCC to manufacture regulatory variation where the record

does not support it. See USTA II, 359 F.3d at 570 (holding the

Commission need only adopt a granular rule if “there is

evidence that markets vary decisively (by reference to [the

FCC’s] impairment criteria) . . .”). 

On the record before it, the Commission reasonably

concluded that CLECs are not “impaired” without unbundled

access to MMLS. In light of the fact that CLECs have deployed

their own switches in 86% of the ILECs’ wire centers across the

country, J.A. 2047, and in light of the fact that CLECs are

deploying high-tech switches that have “higher capacity and

wider geographic reach” than the old switches employed by the

ILECs, Order, 20 F.C.C.R. at 2646, the record suggests that it is

neither “uneconomic” nor “wasteful” for CLECs to deploy their

own switches, USTA II, 359 F.3d at 572-73. While other parts

of the ILECs’ networks might remain “bottleneck facilities,” the

CLECs’ widespread deployment of switching technology

suggests “competition is possible” without unbundled switches.

Id. at 575; see also Order, 20 F.C.C.R. at 2646 (noting that

CLECs are currently combining their own switching and the

ILECs’ unbundled loops to serve mass market customers in 137

of the nation’s largest 150 metropolitan statistical areas).

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35

Moreover, the Commission’s prior impairment finding was

based solely on the technical difficulties associated with

connecting CLECs’ switches with the ILECs’ networks (a

process termed “hot cutting”). See Triennial Review Order, 18

F.C.C.R. at 17277. Here, however, the Commission found (and

the CLECs do not dispute) that the ILECs have made vast

improvements in their hot cut procedures, thus making it easier

and more financially attractive than ever for CLECs to deploy

their own switches. Order, 20 F.C.C.R. at 2647-49.

Confronted with this record of competitive switch

deployment, the CLECs failed to offer any explanations or

contrary evidence. The CLECs insist that the Commission

unduly focused on improvements in hot cuts while ignoring

other “impairments faced by CLECs attempting to serve the

mass market with their own switches.” Pet. Br. at 36-37.

However, the CLECs do not offer an explanation for what these

other “impairments” might be. The CLECs also failed to offer

evidence that it is “uneconomic” to serve mass market

customers with switches that were originally deployed to serve

enterprise customers. See Order, 20 F.C.C.R. at 2656-57.

Moreover, the CLECs did “not rebut[] the evidence of

commenters showing that [CLECs] in many markets have

recognized that facilities-based carriers could not compete with

TELRIC-based UNE-P, and therefore have made UNE-P their

long-term business strategy.” Id. at 2654. Given that UNE-P is

a “completely synthetic” form of competition, USTA I, 290 F.3d

at 424, the Commission reasonably eliminated switch

unbundling. See USTA II, 359 F.3d at 572, 581-82 (noting that

the FCC may reasonably use its “at a minimum” authority under

§ 251(d)(2) to encourage CLECs to invest in—and compete

through—their own facilities). Therefore, we deny the CLECs’

petition for review.

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2

Second, we reject NASUCA’s challenge to the

Commission’s ruling on MMLS. The Association argues that

the ILECs have “conceded impairment” in some MMLS markets

by submitting evidence of non-impairment in others. Pet. Br. at

15. That is, NASUCA argues that the ILECs should suffer a

negative inference for each of the markets for which the

incumbents did not submit data. 

NASUCA’s argument is without support in the relevant

caselaw. USTA I and USTA II make clear that the burden of

persuasion rests on the shoulders of the party that urges the

Commission to find impairment. See USTA I, 290 F.3d at 425;

USTA II, 359 F.3d at 570-71. And the rationale for our

conclusion is simple: The plain text of § 251(d)(2) permits

unbundling only where the Commission receives evidence that

UNEs are “necessary” to prevent “impair[ment]” of the CLECs’

competitive aspirations. Thus, the 1996 Act does not obligate

the ILECs to prove non-impairment—it forces the CLECs to

prove impairment. 

In this case, there was no evidence of impairment in MMLS

markets. The only evidence before the FCC (provided by the

ILECs) suggested switches are “significantly deployed on a

competitive basis.” USTA I, 290 F.3d at 422; see Order, 20

F.C.C.R. at 2644-45 & n.545. NASUCA offers nothing to

suggest otherwise. Nor does it dispute that the sole basis for the

FCC’s prior impairment finding (namely, the costliness of hot

cuts) is no longer an issue. Given the lopsided record, the

Commission reasonably declined to find impairment. Therefore,

we deny NASUCA’s petition for review.

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3

Finally, we reject NJDRA’s challenge to the Commission’s

ruling on MMLS. The Ratepayer Advocate argues that the

Commission’s “analytical construct for assessing mass market

impairment”—namely, the “reasonably efficient competitor”

standard—was not a “logical outgrowth” of the NPRM. Pet. Br.

at 6. Without explaining how, NJDRA simply asserts that the

Order “is a substantial and significant departure from the

NPRM.” Id. 

NJDRA’s argument is meritless. An agency’s final rule

need only be a “logical outgrowth” of its notice. See Shell Oil

Co. v. EPA, 950 F.2d 741, 750-51 (D.C. Cir. 1991); see also

Env’l Integrity Proj. v. EPA, 425 F.3d 992, 996 (D.C. Cir. 2005)

(“[A]gencies [may not] use the rulemaking process to pull a

surprise switcheroo on regulated entities.”). Whether the

“logical outgrowth” test is satisfied depends on whether the

affected party “should have anticipated” the agency’s final

course in light of the initial notice. Small Refiner Lead PhaseDown Task Force v. EPA, 705 F.2d 506, 548-49 (D.C. Cir.

1983). 

NJDRA should have anticipated the FCC’s “reasonably

efficient competitor” standard. In the NPRM, the FCC sought

comment on how to respond to USTA II’s vacatur of the

Commission’s “open-ended[]” impairment inquiry into

“uneconomic entry.” See NPRM, 19 F.C.C.R. at 16788 (citing

USTA II, 359 F.3d at 571-73); see also USTA II, 359 F.3d at 572

(“Uneconomic by whom? By any CLEC, no matter how

inefficient? By an ‘average’ or ‘representative’ CLEC? By the

most efficient existing CLEC? By a hypothetical CLEC that

used ‘the most efficient telecommunications technology

currently available’ . . . ?” (emphasis in original)). In response

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10 NJDRA also echoes the CLECs’ challenge to the Commission’s

finding of nationwide non-impairment for MMLS. NJDRA argues

that the FCC failed to provide a reasoned explanation for its decision:

“Unexplained reliance upon inference upon inference, rather than

actual granular analysis and evidence is not reasoned decision making.

One can infer an elephant is a mouse . . . with a glandular problem.”

Reply Br. at 14 (ellipsis in original). While NJDRA’s argument is

somewhat less than clear, we reject it for the same reasons we rejected

the CLECs’. See Part III.B.1, supra. 

to comments, the Commission answered USTA II’s questions by

promulgating the “reasonably efficient competitor” standard.

See Order, 20 F.C.C.R. at 2547. Given that the NPRM put

interested parties on notice that the FCC wanted to answer our

questions, and given that the Order answered our questions, the

latter was easily a “logical outgrowth” of the former. Therefore,

we deny NJDRA’s petition for review.10

C

The CLECs’ third challenge—echoed in NJDRA’s

petition—pertains to the FCC’s transitional efforts to wean

CLECs off unbundled access to ILECs’ local switching. In the

Order, the Commission authorized the ILECs to increase local

switching prices over the next twelve months by $1 above the

highest unbundled network element-platform rate approved by

the relevant state commission. See Order, 20 F.C.C.R. at 2660-

61. We reject the challenges filed by both the CLECs and

NJDRA.

1

We first reject the CLECs’ challenge to the Commission’s

transitional rules. The CLECs argue that the $1 rate increase

violates the ILECs’ unbundling obligations under § 271 of the

Act. Under § 271, ILECs are obligated to offer unbundled local

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39

switching at “just and reasonable” prices, as a precondition to

the incumbents’ right to compete in nationwide long-distance

markets. However, the CLECs argue that the Commission in

this case unlawfully approved the ILECs’ rate increase without

analyzing whether a $1 hike would be “just and reasonable.”

We need not reach the merits of the CLECs’ claim because

they waived it. “It is well established that issues not raised in

comments before the agency are waived and this Court will not

consider them.” Nat’l Wildlife Fed’n v. EPA, 286 F.3d 554, 562

(D.C. Cir. 2002); see also Nat’l Min. Ass’n v. DOL, 292 F.3d

849, 874 (D.C. Cir. 2002). Here, the Commission put the public

on notice of its proposed $1 rate hike. See NPRM, 20 F.C.C.R.

at 16798. However, the CLECs cannot point to a single place in

the record—and we could not find one—in which anyone

objected to the rate hike as “unjust” or “unreasonable” under §

271. Cf. Pet. Br. at 41 (pointing to challenges to the transitional

rules, but pointing to no comments that challenged the rate hike

as “unjust,” “unreasonable,” or in any way objectionable under

§ 271); NJDRA Reply Br. at 10 (same). Accordingly, the claim

is waived. 

2

We next reject NJDRA’s challenge to the Commission’s

transitional rules. NJDRA argues that the $1 increase was

arbitrary because the FCC never disclosed any empirical

justification for its calculation, and it ignored proffered

alternatives, such as tinkering with the federal subscriber line

charge. In NJDRA’s view, “[t]his failure to address a material

issue alone justifies setting aside the FCC’s mass market

decision.” Pet. Br. at 13. 

NJDRA’s argument is meritless. The FCC “need not

address every comment, but it must respond in a reasoned

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40

manner to those that raise significant problems.” Reytblatt v.

Nuclear Regulatory Comm’n, 105 F.3d 715, 722 (D.C. Cir.

1997) (citing Action on Smoking & Health v. CAB, 699 F.2d

1209, 1216 (D.C. Cir. 1983)). “The failure to respond to

comments is significant only insofar as it demonstrates that the

agency’s decision was not based on a consideration of the

relevant factors.” Thompson v. Clark, 741 F.2d 401, 409 (D.C.

Cir. 1984) (internal quotation marks and citation omitted); see

also City of Waukesha v. EPA, 320 F.3d 228, 257-58 (D.C. Cir.

2003) (per curiam). 

Here, the Commission placed all interested parties on notice

that it was considering an increase in local switching rates equal

to $1 over the UNE-P rate as a means of easing the transition to

a world without unbundled switching. See NPRM, 19 F.C.C.R.

at 16798. In its comments, NJDRA challenged the

appropriateness of any rate increase, but it did not challenge the

empirical justification for the specific rate increase proposed in

the NPRM. See, e.g., Comments of the NJDRA at 20-21, J.A.

953-54; Reply Comments of the NJDRA at 3-6, J.A. 2310-13.

In response, the FCC explained its decision to adopt a rate

increase, see Order, 20 F.C.C.R. at 2660-61, and “[t]his

response demonstrates that the [FCC] considered and rejected

petitioners’ arguments . . . . This is all that the [Administrative

Procedure Act] requires.” City of Waukesha, 320 F.3d at 258.

IV

Finally, we address a miscellaneous claim, raised only in

NJDRA’s petition, that the FCC cannot preempt state public

utility commissions from regulating telecommunications

carriers. In NJDRA’s view, the Commission “failed to

acknowledge, let alone respond and address” the Ratepayer

Advocate’s question of whether the 1996 Act “violates the U.S.

Constitution with respect to Article 1 [sic] (separation of power

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41

[sic]), Article [sic] V (equal protection of the law), Articles [sic]

X and XI.” Pet. Br. at 16. NJDRA further argues that the Act

violates the nondelegation doctrine because the FCC’s power to

grant forbearance petitions, see 47 U.S.C. § 160, constitutes a

legislative power to “eliminate, modify, or repeal substantive

provisions of the Act.” Pet. Br. at 18. 

Again, the Ratepayer Advocate’s argument is meritless.

NJDRA’s claim boils down to the proposition that the Act’s

preemptive force is unconstitutional as applied, notwithstanding

the fact that the Act has not been applied. Given that we have

already held that any preemption challenge must be raised (if at

all) only after the FCC attempts to preempt a state commission’s

unbundling authority, see USTA II, 359 F.3d at 594, and given

that the Order under review does not contain any reference to

the Commission’s preemptive authority (much less does it

actually preempt anything), NJDRA’s legal arguments are

unripe at best. NJDRA’s forbearance claim suffers from similar

shortcomings: Because the Order did not forbear from

enforcing a statutory requirement any more than it preempted a

particular state action, NJDRA’s petition for review is not ripe.

V

For the reasons stated above, each of the petitions for

review is

Denied.

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