Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-01061/USCOURTS-caDC-96-01061-0/pdf.json

Parties Involved:
Chadmoore Communications, Inc.
Appellant
Federal Communications Commission
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 5, 1996 Decided May 20, 1997

No. 96-1061

CHADMOORE COMMUNICATIONS, INC.,

APPELLANT

v.

FEDERAL COMMUNICATIONS COMMISSION,

APPELLEE

Appeal of an Order of the 

Federal Communications Commission

Marjorie K. Conner, with whom Walter E. Steimel, Jr.,

was on the briefs, argued the cause for appellant.

C. Grey Pash, Jr., Counsel, Federal Communications Commission ("FCC"), with whom William E. Kennard, General 

Counsel, and Daniel M. Armstrong, Associate General Counsel, FCC, were on the brief, argued the cause for appellee. 

John E. Ingle, Deputy Associate General Counsel, FCC, 

entered an appearance.

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Before SILBERMAN and HENDERSON, Circuit Judges, and 

BUCKLEY, Senior Circuit Judge.

Opinion for the court filed by Senior Judge BUCKLEY.

Separate concurring opinion filed by Circuit Judge

SILBERMAN.

BUCKLEY, Senior Judge: Chadmoore Communications, Inc. 

appeals the denial of its application for an "extended implementation period" of three years for the construction of a 

"wide-area specialized mobile radio" system. Because the 

Federal Communications Commission was entitled to take 

into account the adverse impact that the grant of the application would have had on a newly adopted policy governing the 

construction of such systems, we conclude that its denial of 

the application was neither arbitrary nor capricious.

I. BACKGROUND

Specialized mobile radio ("SMR") systems are commercially 

operated private communication systems that employ mobile 

transmitting and/or receiving stations. National Ass'n of 

Regulatory Util. Comm'rs v. FCC, 525 F.2d 630, 634 (D.C. 

Cir. 1976). In the beginning, these systems were used primarily to provide highly localized services, such as the radio 

dispatching of police cars and taxicabs. Id. In recent years, 

however, emerging SMR technologies have enabled licensees 

to offer their customers sophisticated voice and data transmission services over extensive areas (e.g., two-way acknowledgment paging, credit card authorization, automatic vehicle 

location, remote database access, and voice mail).

The Federal Communications Commission ("FCC" or 

"Commission") has allocated fourteen megahertz ("MHz") of 

spectrum in the 800 MHz band exclusively to SMR systems. 

This spectrum has been divided into 280 frequency channels, 

200 of which are contained in a contiguous ten MHz block 

("upper 200"). The remaining eighty channels are divided 

into eight non-contiguous blocks ("lower 80"). See Further 

Notice of Proposed Rule Making ("Further NPRM"), Docket 

93-144, 10 F.C.C.R. 7970, 7974 (1994).

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Originally, the FCC issued licenses by ascertaining whether an application satisfied certain criteria. See generally 47 

C.F.R. § 90.621 (1995). Licensees of the 280 SMR-only 

channels were assigned either one or five channels at a time 

on a station-by-station basis. Further NPRM, 10 F.C.C.R. at 

7975. As a general rule, stations operating on the same 

channel must be a minimum of seventy miles apart. 47 

C.F.R. § 90.621(b). With the advent of new technologies, 

however, SMR service operators became interested in packaging large numbers of stations for the purpose of creating 

systems that could serve vast geographic areas. Because of 

the expense and complexity associated with the creation of 

these systems, the FCC modified its regulations to make 

applicants eligible for "extended implementation authority," 

which would extend the periods within which the applicants' 

wide-area systems would have to be completed. In the 

Matter of Amendment of Part 90 of the Commission's Rules 

Governing Extended Implementation Periods, Report and 

Order, 8 F.C.C.R. 3975 (1993). Whereas an SMR licensee 

was normally expected to complete the construction of a 

station within eight or twelve months, 47 C.F.R. §§ 90.155(a) 

and 90.631(f), the Commission would now allow a qualified 

applicant up to five years to complete construction of a 

system. Id. § 90.629.

In August 1993, Congress amended the Communications 

Act to create two categories of mobile servicecommercial 

mobile radio service ("CMRS") and private mobile radio 

service; and it directed the Commission to implement these 

categories in its regulations and provide for comparable regulation of substantially similar CMRS systems. See 47 U.S.C. 

§ 332. The FCC subsequently classified any wide-area SMR 

system offering interconnected service for profit, such as the 

one Chadmoore proposed, as a CMRS. Second Report and 

Order, GN Docket No. 93-252, 9 F.C.C.R. 1411, 1450-51 

WW 88-93 (1994).

The FCC then began to amend its existing regulations to 

treat SMR and CMRS systems alike; and in its Further 

NPRM, the FCC initiated a rulemaking to implement a 

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ment of wide-area, multi-channel SMR systems in competition 

with cellular and broadband personal communications services systems. The notice observed that the FCC was relying increasingly on competitive bidding for the licensing of 

new SMR services. Further NPRM, 10 F.C.C.R. at 8006-07. 

It also proposed two changes with respect to extended implementation authority: first, the Commission would "no longer 

permit extended implementation under § 90.629 on the "lower 

80' channels." Id. at 7996; second, it proposed to add the 

following as subsection (e) to section 90.629: "SMR Systems 

licensed after August 9, 1994 will not be eligible for extended 

implementation periods under this section." Id. at 8029. 

Finally, the notice asked

commenters to discuss whether existing licensees with 

extended implementation periods should be given that 

full period to construct their systems; or, in the alternative, if they should be given some shorter period unless 

they submit a detailed showing that construction to date 

is consistent with their original implementation plan.

Id. at 7997. No provision was made for the filing of reply 

comments.

On June 16, 1995, seven months after the issuance of the 

November 1994 notice, Chadmoore Communications, Inc. 

("CCI") filed an application, pursuant to section 90.629, for an 

extended implementation period of three years within which 

to complete the construction of a wide-area SMR system 

comprised of 2,312 stations throughout twenty-six states, 

extending from the southeastern U.S. through the upper 

Midwest. Fourteen of these were for stations in the "lower 

80." CCI asserted that its application met the requirements 

of section 90.629 and that the grant of its request would be 

consistent with the FCC's precedent, would promote competition for the entire SMR industry, and would not disturb the 

pool of facilities available for the Commission's proposed 

competitive bidding proposals.

The FCC staff sought comments on whether the request 

should be granted. See Public Notice, DA 95-1613 (July 19, 

1995) ("Public Notice"). The commenters uniformly opposed 

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the application, arguing that CCI had had sufficient time to 

construct its stations and that, in some instances, its construction deadlines had already been extended by more than a 

year. Although the Public Notice did not provide for the 

filing of a response by CCI, on September 12, 1995, CCI 

moved for the acceptance of "reply comments" that it submitted with its motion. The FCC did not rule on the motion, nor 

did it consider CCI's reply in its subsequent decision to deny 

its application.

On December 15, 1995, the FCC issued a final rule establishing new criteria for the grant of wide-area SMR licenses 

("final rule"). First Report and Order, Eighth Report and 

Order, and Second Further Notice of Proposed Rule Making 

("December 15, 1995 Order" ), 11 F.C.C.R. 1463 (1995). 

Among other things, it provided for the award of licenses, via 

competitive bidding, for blocks of channels within 175 geographic areas called "economic areas" ("EAs"). See id. at 

1468 n.3, 1483-84, 1489-90, 1540.

The final rule did not adopt either of the changes proposed 

in Further NPRM with respect to extended implementation 

authority. Instead, it added a revised subsection 90.629(e) 

which provides, in pertinent part, that "[a]s of [March 18, 

1996], Specialized Mobile Radio systems are not eligible for 

extended implementation periods under this section." December 15, 1995 Order, 11 F.C.C.R. at 1634, 1646 (emphasis 

added); see also The Future Development of SMR Systems 

in the 800 MHz Frequency Band, 61 Fed. Reg. 6138, 6157 

(1996) (to be codified at 47 C.F.R. pt. 90). The FCC explained that it had initially established extended implementation authority for SMR service providers in order to facilitate 

construction of wide-area systems, but that it now believed 

that extended implementation authority was no longer appropriate because its new licensing plan would accomplish the 

same result in a more uniform and expeditious fashion. In 

fact, the agency expressed concern that

both existing and future grants of extended implementation authority would be contrary to the underlying goals 

of [the new licensing plan]. Specifically, [the CommisUSCA Case #96-1061 Document #273482 Filed: 05/20/1997 Page 5 of 15
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sion] believe[d] that allowing licensees to retain extended 

implementation authority of up to five years after [its] 

adoption of the wide-area licensing approach detailed in 

[its] First Report and Order would impinge upon the 

construction requirements imposed on EA licensees. 

For example, within three years of license grant, EA 

licensees are required to fulfill their construction requirements, which are based on population coverage and 

channel usage, regardless of incumbent presence. If 

certain channels remain unconstructed but authorized to 

an [sic] another entity for this three-year period, the EA 

licensee is estopped not only from utilizing the channel(s) 

directly but also from acquiring it from the holder of the 

authorization due to [the FCC's] prohibition against the 

transfer of unconstructed facilities.

December 15, 1995 Order, 11 F.C.C.R. at 1524.

The FCC denied CCI's application in the same order. 

Rather than determining whether CCI satisfied section 

90.629's requirements, the FCC concluded that granting "requests for extended implementation authority currently pending ... would conflict with [the FCC's] goal of uniformly 

implementing wide-area licensing." Id. at 1526. CCI filed 

this appeal without petitioning the FCC for reconsideration.

II. DISCUSSION

A. Exhaustion of Administrative Remedies

As an initial matter, we must address the FCC's contention 

that we are barred from reviewing CCI's claims by section 

405 of the Communications Act, 47 U.S.C. § 405 (1994), which 

"codif[ies] the judicially-created doctrine of exhaustion of 

administrative remedies," City of Brookings Mun. Tel. Co. v. 

FCC, 822 F.2d 1153, 1163 (D.C. Cir. 1987) (internal quotation 

marks and citations omitted). This section provides, in relevant part:

The filing of a petition for reconsideration shall not be a 

condition precedent to judicial review of any such order, 

decision, report, or action, except where the party seekUSCA Case #96-1061 Document #273482 Filed: 05/20/1997 Page 6 of 15
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ing such review ... relies on questions of fact or law 

upon which the Commission ... has been afforded no 

opportunity to pass.

47 U.S.C. § 405(a). The purpose of section 405 is to require 

complainants to give the FCC a "fair opportunity" to pass on 

a legal or factual argument before coming to this court. 

Washington Ass'n for Television & Children v. FCC, 712 

F.2d 677, 681 ("WATCH") (D.C. Cir. 1983) (internal quotation 

marks and citations omitted).

The Commission characterizes CCI's arguments as

essentially variations on the same themethat because 

its request for extended implementation authority was 

filed before the FCC changed the applicable rule, and 

because it complied with the requirements of the rule 

when the request was filed, the Commission was bound 

to grant the request.

Brief for Appellee at 14. It then states that because these 

arguments were not presented to it, as required by section 

405, we may not hear them. That section, however, incorporates "traditionally recognized exceptions to the exhaustion 

doctrine, [which permit] a reviewing court [to] consider arguments ... [that] would have been futile [for the petitioner] to 

raise before the agency." Omnipoint Corp. v. FCC, 78 F.3d 

620, 635 (D.C. Cir. 1996) (internal quotation marks and citations omitted).

We agree with CCI that it would have been futile for it to 

have sought a reconsideration of the FCC's denial of its 

application. In its December 15, 1995 Order, the Commission 

explained:

We initially established extended implementation authority for SMRs to facilitate construction of wide-area systems. We believe that the wide-area licensing plan we 

adopt today will accomplish this result in a more uniform 

and expeditious fashion. Consequently, we conclude that 

the availability of extended implementation authority in 

the 800 MHz SMR service is no longer necessary. In 

fact, we are concerned that both existing and future 

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grants of extended implementation authority would be 

contrary to the underlying goals of this proceeding.... 

As a result, we believe that it is necessary not only to 

cease acceptance of requests for extended implementation authority but also to accelerate the termination date 

of existing implementation periods....

11 F.C.C.R. at 1524-25. It then stated that it was denying 

the pending requests for extended implementation authority 

because the "grant of these requests would conflict with our 

goal of uniformly implementing wide-area licensing." Id. at 

1526. At oral argument, the FCC's counsel explained that 

CCI's request was incompatible with the new licensing framework because of the sheer size of its proposed 2,312-station, 

twenty-six-state system. Because the Commission had concluded that the grant of CCI's application would have frustrated its ability to implement a new system of licensing that 

it believed would best serve the public interest, we are 

satisfied that it would have been futile for CCI to seek 

reconsideration. Its arguments are therefore properly before 

us.

B. The Merits

In challenging the FCC's denial of its application, CCI 

argues (1) that the FCC's denial constituted an impermissible 

retroactive application of subsection 90.629(e); (2) that because CCI met all the requirements of section 90.629 in force 

at the time, the Commission's denial was arbitrary and capricious; (3) that the denial was inconsistent with the treatment 

accorded other applicants for extended implementation authority; and (4) that the FCC erred in failing to consider its 

reply comments. We address these arguments in turn.

1. Retroactivity

CCI contends that the FCC's denial of its application 

constituted an impermissible retroactive application of subsection 90.629(e), which was not to take effect until March 18, 

1996. CCI asserts that, in order to give the revised subsection retroactive effect, it was incumbent on the FCC to 

"explain how it determined that the balancing of the harms 

and benefits favor[ed] giving [its] change in policy retroactive 

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application," Brief for Appellant at 26 (quoting Yakima Valley Cablevision, Inc. v. FCC, 794 F.2d 737, 746 (D.C. Cir. 

1986)).

CCI has confused the law governing the retroactive application of administrative rules developed, as in Yakima, in the 

course of an agency adjudication with those, such as subsection 90.629(e), that an agency has adopted as the result of a 

rulemaking under the Administrative Procedure Act ("APA"). 

As we pointed out in Georgetown Univ. Hosp. v. Bowen, 821 

F.2d 750, 757 (D.C. Cir. 1987), aff'd on other grounds, Bowen 

v. Georgetown Univ. Hosp., 488 U.S. 204 (1988),

the APA requires that legislative rules [i.e., rules 

adopted pursuant to the notice and comment procedures 

of the APA, 5 U.S.C. § 553] be given future effect only. 

[Therefore], equitable considerations are irrelevant to the 

determination of whether the [agency's] rule may be 

applied retroactively; such retroactive application is foreclosed by the express terms of the APA.

See also Bowen, 488 U.S. at 216 (Scalia, J., concurring). By 

contrast, an agency may give retroactive effect to a new 

policy or rule adopted in the course of an adjudication so long 

as the resulting inequities are "counterbalanced by sufficiently significant statutory interests." Georgetown Univ. Hosp., 

821 F.2d at 756 (citing Retail, Wholesale and Dep't Store 

Union v. NLRB, 466 F.2d 380, 390 (D.C. Cir. 1972)); Yakima, 794 F.2d at 745-46.

It follows from the above that if the FCC had applied 

subsection 90.629(e) retroactively in this case, that would be 

the end of the matter because a legislative rule may only be 

applied prospectively. We are not persuaded, however, that 

the subsection has been applied retroactively. In the first 

place, in explaining why it dismissed CCI's application, the 

Commission made no mention of the subsection. Rather, it 

stated that to grant the requested extended implementation 

authority "would be contrary to the underlying goals of this 

proceeding," December 15, 1995 Order, 11 F.C.C.R. at 1524, 

which were to put into effect a new system of competitive 

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bidding that would both improve efficiency and expedite the 

construction of new wide-area SMR systems.

But more significantly, the subsection does not meet the 

test we commonly use to determine whether a rule has 

retroactive effect: it does not " "impair[ ] rights a party 

possessed when [it] acted, increase[ ] a party's liability for 

past conduct, or impose[ ] new duties with respect to transactions already completed.' " DIRECTV, Inc. v. FCC,

110 F.3d 816, 825-26 (D.C. Cir. 1997) (quoting Landgraf v. 

USI Film Prods., 114 S. Ct. 1483, 1505 (1994)). In this case, 

the Commission's action did not increase CCI's liability for 

past conduct or impose new duties with respect to completed 

transactions. Nor could it have impaired a right possessed 

by CCI because none vested on the filing of its application. 

Cf. Hispanic Info. & Telecomms. Network v. FCC, 865 F.2d 

1289, 1294-95 (D.C. Cir. 1989) ("The filing of an application 

creates no vested right to a hearing; if the substantive 

standards change so that the applicant is no longer qualified, 

the application may be dismissed."); Schraier v. Hickel, 419 

F.2d 663, 667 (D.C. Cir. 1969) (filing of application that has 

not been accepted does not create a legal interest that 

restricts discretion vested in agency). Accordingly, we conclude that section 90.629(e) did not have retroactive effect.

The proper question, then, is whether the FCC acted 

arbitrarily or capriciously or otherwise contrary to law when 

it invoked the prospective change in policy as a sufficient 

reason for denying an application under a regulation that was 

at the time still in effect and whose conditions CCI had at 

least facially met.

2. Was the denial arbitrary and capricious?

The scope of review under APA's "arbitrary and capricious" standard

is narrow and a court is not to substitute its judgment for 

that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory 

explanation for its action including a rational connection 

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between the facts found and the choice made. In reviewing that explanation, [a court] must consider whether the 

decision was based on a consideration of the relevant 

factors and whether there has been a clear error of 

judgment.... [A court] will, however, uphold a decision 

of less than ideal clarity if the agency's path may reasonably be discerned.

Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State 

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal 

quotation marks and citations omitted).

CCI maintains that we must find the Commission's denial 

of its application to be arbitrary and capricious because the 

agency neither determined whether the company had satisfied section 90.629's requirements for extended implementation nor explained why it was not required to do so. In 

addressing the equities, CCI stresses that in reliance on that 

section (which was still in effect when the FCC denied its 

application), the company had invested significant time, effort, 

and capital in designing a unique SMR system comprised of 

thousands of stations and in securing the cooperation of the 

licensees of stations participating in the system. Finally, 

CCI contends that it was not on notice that its application 

would be incompatible with the new rule because, when the 

FCC proposed changes in its licensing scheme in November 

1994, it spoke of eliminating extended implementation authority only on the lower 80 channels and on SMR systems 

licensed after August 9, 1994. Further NPRM, 10 F.C.C.R. 

at 7996, 8029. Because none of the licenses involved in its 

application were issued after that date, CCI states that it was 

only on notice that the fourteen channels located in the lower 

80 might be affected by the new rule.

CCI's reading of Further NPRM is far too narrow. When 

the notice is viewed in its entirety, it becomes clear that the 

central purpose of the proposed rulemaking was to create a 

new framework for wide-area SMR licensing that was likely 

to affect the FCC's policy with respect to existing and pending authorizations for extended implementation. Furthermore, CCI was placed on specific notice that in furtherance of 

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tions relating to licenses in the lower 80 and those awarded 

after August 9, 1994, but that it had under consideration the 

curtailment of existing grants of authority. See id. at 7997 

("[W]e request comment on how existing licensees with extended implementation periods should be treated.... We 

ask commenters to discuss whether existing licensees with 

extended implementation periods should be given that full 

period to construct their systems ....") (emphasis added). 

Thus, when CCI filed its application seven months after the 

issuance of Further NPRM, it should have been aware that 

the FCC was embarking on a fundamental restructuring of 

wide-area SMR licensing procedures that made it imprudent 

to assume that the agency would continue to grant extensions 

under section 90.629. Cf. Adelphia Communications Corp. v. 

FCC, 88 F.3d 1250, 1257-58 (D.C. Cir. 1996) (because petitioner had notice that the Commission might change its rules, the 

new rule "d[id] not impair any substantive right upon which 

Adelphia was entitled to rely.")

On the other hand, the grant of CCI's application would 

have significantly frustrated the interests that were to be 

advanced by the new rule, especially in view of the size of its 

proposed system. As the FCC explained, the purpose of the 

rule was to create a new, flexible scheme for SMR service 

"that [would] allow for more efficient licensing, eliminate 

unnecessary regulatory burdens on both existing and future 

licensees, and thereby enhance the competitive potential of 

SMR services in the mobile services marketplace." Further 

NPRM, 10 F.C.C.R. at 7973. Having concluded that both 

existing and future grants of extended implementation authority would be "contrary to the underlying goals" of this 

rulemaking, December 15, 1995 Order, 11 F.C.C.R. at 1524, it 

was entirely reasonable for the Commission to deny CCI's 

application.

3. Disparate treatment

We have long held that an agency must provide an adequate explanation before it treats similarly situated parties 

differently. Petroleum Communications, Inc. v. FCC, 22 

F.3d 1164, 1172 (D.C. Cir. 1994) (and cases cited therein). 

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This rule was developed to prevent an agency from, inter 

alia, "vacillat[ing] without reason in its application of a statute or the implementing regulations." New Orleans Channel 

20, Inc. v. FCC, 830 F.2d 361, 366 (D.C. Cir. 1987).

CCI contends that the FCC acted arbitrarily and capriciously because the agency's treatment of its application was 

inconsistent with that accorded other similarly situated applicants. According to the company, the Commission granted 

hundreds of requests for extended implementation periods 

between May 13, 1993, when it issued Further NPRM, and 

December 15, 1995, when the FCC denied its request. In 

particular, CCI points to two applications that the FCC 

received on May 8, 1995 (just five weeks prior to CCI's 

application) and granted twenty-three days later, on May 31. 

The first of these was filed by Spectrum Resources, Inc., 

which requested five years to construct eleven SMR stations 

in four states. The second, filed by Spectrum Resources of 

the Northeast, Inc., sought five years to build four stations in 

two states. CCI failed to mention, however, that the letters 

granting these applications contained the following caveat:

"The five year extended implementation period ... is granted 

conditionally on the outcome of the Further Notice of Proposed Rule Making, PR Docket No. 93-144." Letters dated 

May 31, 1995, from Terry L. Fishel, Chief, Land Mobile 

Branch, Federal Communications Commission, reprinted in

Supplement to Deferred Joint Appendix at 486 and 492 

(emphasis in original).

On the record before us, it is not possible to determine 

whether those conditional authorizations were withdrawn following the issuance of the December 15, 1995 Order. But 

even if the Commission did not revoke the extensions, we find 

CCI's contention without merit because the applicants were 

not "similarly situated." CCI's application covered 2,312 

stations in twenty-six states while the others' were limited, 

respectively, to eleven stations in four states and four stations 

in two states. Furthermore, the FCC granted the relatively 

modest Spectrum requests at a time when it was still reexamining its position regarding the grant of extended implementation authority. Therefore, it cannot be said that the ComUSCA Case #96-1061 Document #273482 Filed: 05/20/1997 Page 13 of 15
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mission acted inconsistently when, six months later and after 

the new policy had been adopted, the Commission took it into 

account in deciding to deny CCI's application.

4. Reply comments

CCI's final contention is that once the FCC requested 

comments on its application, see Public Notice, DA 95-1613 

(July 19, 1995), it was entitled to an opportunity to reply to 

them even though the notice made no provision for a response. CCI provides no support for that proposition and 

has not shown that it was prejudiced by the agency's failure 

to consider its response. Accordingly, we find this contention 

without merit.

III. CONCLUSION

For the reasons set forth above, the FCC's order denying 

CCI's application for extended implementation authority is

Affirmed.

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SILBERMAN, Circuit Judge, concurring: I concur in the 

majority's disposition of the merits. As to the exhaustion 

issue, I agree that Chadmoore's argument is not barred by its 

failure to raise it in a petition for reconsideration before the 

Commission. In so concluding, however, I would prefer to 

rely on MCI Telecomm. Corp. v. FCC, 10 F.3d 842 (D.C. Cir. 

1993), rather than on the futility exception, which is a stretch 

here.

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