Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-03-01442/USCOURTS-caDC-03-01442-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
National Association of State Utility Consumer Advocates
Petitioner
United States of America
Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 28, 2004 Decided March 2, 2004

No. 00-1012

UNITED STATES TELECOM ASSOCIATION,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

BELL ATLANTIC TELEPHONE COMPANIES, ET AL.,

INTERVENORS

Consolidated with

00–1015, 00–1025, 01–1075, 01–1102, 01–1103, 03–1310,

03–1311, 03–1312, 03–1313, 03–1314, 03–1315, 03–1316,

03–1317, 03–1318, 03–1319, 03–1320, 03–1324, 03–1325,

03–1326, 03–1327, 03–1328, 03–1329, 03–1330, 03–1331,

03–1338, 03–1339, 03–1342, 03–1347, 03–1348, 03–1360,

03–1372, 03–1373, 03–1385, 03–1391, 03–1393, 03–1394,

03–1395, 03–1400, 03–1401, 03–1424, 03–1442

–————

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 1 of 62
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On Petitions for Writ of Mandamus and for

Review of an Order of the

Federal Communications Commission

Michael K. Kellogg argued the cause for ILEC petitioners.

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

Colin S. Stretch, Michael T. McMenamin, James D. Ellis,

Paul K. Mancini, Joseph E. Cosgrove, Jr., Gary L. Phillips,

James P. Lamoureux, Robert B. McKenna, Charles R. Morgan, James G. Harralson, William P. Barr, Michael E.

Glover, and Edward Shakin. Donna M. Epps, Daniel L.

Poole, John H. Harwood II, William R. Richardson, Jr., and

Matthew R. Sutherland entered appearances.

Donald B. Verrilli, Jr. and Christopher J. Wright argued

the cause for CLEC petitioners. With them on the briefs

were Mark D. Schneider, Marc A. Goldman, Michael B.

DeSanctis, William Single IV, Jeffrey A. Rackow, David W.

Carpenter, David L. Lawson, C. Frederick Beckner III, Andrew D. Lipman, Russell M. Blau, Richard M. Rindler,

Patrick J. Donovan, Harisha J. Bastiampillai, Dennis D.

Ahlers, Steven A. Augustino, Albert H. Kramer, Jonathan E.

Canis, Robert J. Aamoth, Carl S. Nadler, Adelia S. Borrasca,

Jason D. Oxman, Timothy J. Simeone, Charles C. Hunter,

Catherine M. Hannan, Genevieve Morelli, Glenn B. Manishin, Jonathan E. Canis, Teresa K. Gaugler, Jonathan Jacob

Nadler, and Jonathan D. Lee. Jennifer M. Kashatus, Paul

J. Rebey, Eric J. Branfman, Joshua M. Bobeck, and Angela

M. Simpson entered appearances.

James Bradford Ramsay argued the cause for State petitioners. With him on the briefs were Grace Delos Reyes,

Jonathan Feinberg, John L. Favreau, John C. Graham,

Helen M. Mickiewicz, Gretchen T. Dumas, Maryanne Reynolds Martin, Christopher C. Kempley, Maureen A. Scott,

Michael A. Cox, Attorney General, Attorney General’s Office

of the State of Michigan, Thomas L. Casey, Solicitor General,

USCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 2 of 62
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and David A. Voges and Michael Nickerson, Assistant Attorney Generals.

David C. Bergmann, Irwin A. Popowsky, Philip F. McClelland, Patricia A. Smith, Billy Jack Gregg, and F. Anne Ross

were on the briefs for petitioner National Association of State

Utility Consumer Advocates.

John E. Ingle, Deputy Associate General Counsel, Federal

Communications Commission, and James M. Carr, Counsel,

argued the cause for respondents. With them on the brief

were R. Hewitt Pate, Assistant Attorney General, U.S. Department of Justice, Catherine G. O’Sullivan and Nancy C.

Garrison, Attorneys, John A. Rogovin, General Counsel,

Federal Communications Commission, and Laurence N.

Bourne, Joel Marcus and Christopher L. Killion, Counsel.

Andrea Limmer, Attorney, U.S. Department of Justice, and

Lisa S. Gelb, Counsel, Federal Communications Commission,

entered appearances.

Michael K. Kellogg argued the cause for ILEC intervenors

and Catena Networks, Inc. in support of respondents. With

him on the brief were Mark L. Evans, Aaron M. Panner,

Michael T. McMenamin, James D. Ellis, Paul K. Mancini,

Joseph E. Cosgrove, Jr., Gary L. Phillips, James P. Lamoureux, Robert B. McKenna, Charles R. Morgan, James G.

Harralson, William P. Barr, Michael E. Glover, Edward

Shakin, and Stephen L. Goodman. Alfred G. Richter, Hope

E. Thurrott, Lawrence E. Sarjeant, and Jonathan E. Canis

entered appearances.

David W. Carpenter argued the cause for CLEC intervenors in support of respondents. With him on the brief were

Donald B. Verilli, Jr., Mark D. Schneider, Marc A. Goldman, Michael B. DeSanctis, William Single IV, Jeffrey A.

Rackow, David L. Lawson, C. Frederick Beckner III, Teresa

K. Gaugler, Charles C. Hunter, Catherine M. Hannan, Andrew D. Lipman, Russell M. Blau, Richard M. Rindler,

Patrick J. Donovan, Harisha J. Bastiampillai, Albert H.

Kramer, Jonathan D. Lee, Carl S. Nadler, Adelia S. Borrasca, Janson D. Oxman, Robert J. Aamoth, Genevieve Morelli,

John T. Nakahata, Sara F. Leibman, John J. Heitmann,

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Jennifer M. Kashatus, Christopher J. Wright, and Timothy

J. Simeone. Roy E. Hoffinger, Charles J. Cooper, Hamish

P. Hume, and Richard J. Metzger entered appearances.

Jonathan Feinberg, John L. Favreau, John C. Graham,

Helen M. Mickiewicz, Gretchen T. Dumas, Maryanne Reynolds Martin, Christopher C. Kempley, Maureen A. Scott,

Michael A. Cox, Attorney General, Attorney General’s Office

of the State of Michigan, Thomas L. Casey, Solicitor General,

David A. Voges and Michael Nickerson, Assistant Attorney

Generals, James Bradford Ramsay, and Grace Delos Reyes

were on the brief for State intervenors in support of respondents.

Laura H. Philips, Douglas G. Bonner, Michael F.

McBride, Thomas J. Sugrue, Howard J. Symons, Sara F.

Leibman, and Douglas I. Brandon were on the brief of

Wireless intervenors in support of respondent. Brian A.

Coleman entered an appearance.

Before: EDWARDS and RANDOLPH, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

Table of Contents

I. Legal Background TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 6

II. ILEC ObjectionsTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 11

A. Unbundling of Mass Market SwitchesTTTTTTTTTT 11

1. Subdelegation of § 251(d)(2) impairment

determinations to state commissions TTTTTT 12

2. Impairment in provision of mass market

switchingTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 18

3. The Commission’s definition of ‘‘impairment’’TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 22

B. Unbundling of High–Capacity Dedicated

Transport FacilitiesTTTTTTTTTTTTTTTTTTTTTTTT 26

1. Unlawfulness of the delegation to the

states and the national impairment

findingTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 26

2. Remaining dedicated transport issues TTTTTT 28

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a. Route-specific analysis of dedicated

transport TTTTTTTTTTTTTTTTTTTTTTTTTT 28

b. Wireless providers’ access to unbundled dedicated transport TTTTTTTTTTTTT 29

C. Network Modification RequirementsTTTTTTTTTTT 33

III. CLEC Objections TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 34

A. Unbundling of Broadband Loops TTTTTTTTTTTTTT 34

1. Hybrid loops TTTTTTTTTTTTTTTTTTTTTTTTTTTT 35

2. Fiber-to-the-home (‘‘FTTH’’) loops TTTTTTTTT 42

3. Line sharing TTTTTTTTTTTTTTTTTTTTTTTTTTTT 44

B. Exclusion of ‘‘Entrance Facilities’’ TTTTTTTTTTTTT 46

C. Unbundling of Enterprise Switches TTTTTTTTTTTT 47

D. Unbundling of Call–Related Databases and

Signaling Systems TTTTTTTTTTTTTTTTTTTTTTTTT 49

E. Unbundling of Shared Transport Facilities TTTT 50

F. Section 271 Pricing and Combination RulesTTTT 51

IV. Unbundling of Enhanced Extended Links

(‘‘EELs’’)TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 54

A. The Qualifying Service/Non–Qualifying Service DistinctionTTTTTTTTTTTTTTTTTTTTTTTTTTTT 56

B. The EEL Eligibility Criteria TTTTTTTTTTTTTTTTT 58

V. Miscellaneous TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 59

A. NASUCA’s Standing TTTTTTTTTTTTTTTTTTTTTTTT 59

B. Ripeness of the State Preemption ClaimsTTTTTTT 60

VI. Conclusion TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT 61

WILLIAMS, Senior Circuit Judge: The Telecommunications

Act of 1996, Pub. L. 104–104, 110 Stat. 56, codified at 47

U.S.C. § 151 et seq. (the ‘‘Act’’), sought to foster a competitive market in telecommunications. To enable new firms to

enter the field despite the advantages of the incumbent local

exchange carriers (‘‘ILECs’’), the Act gave the Federal Communications Commission broad powers to require ILECs to

make ‘‘network elements’’ available to other telecommunications carriers, id. §§ 251(c)(3),(d), most importantly the competitive local exchange carriers (‘‘CLECs’’). The most obvious candidates for such obligatory provision were the copper

wire loops historically used to carry telephone service over

the ‘‘last mile’’ into users’ homes. But Congress left to the

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Commission the choice of elements to be ‘‘unbundled,’’ specifying that in doing so it was to

consider, at a minimum, whether TTT 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) (emphasis added).

The Act became effective on February 8, 1996, a little more

than eight years ago. Twice since then the courts have

faulted the Commission’s efforts to identify the elements to

be unbundled. The Supreme Court invalidated the first

effort in AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366,

389–90 (1999) (‘‘AT&T’’). We invalidated much of the second

effort (including separately adopted ‘‘line-sharing’’ rules) in

United States Telecom Association v. FCC, 290 F.3d 415

(D.C. Cir. 2002) (‘‘USTA I’’). The Commission consolidated

our remand in that case with its ‘‘triennial review’’ of the

scope of obligatory unbundling and issued the Order on

review here. See Report and Order and Order on Remand

and Further Notice of Proposed Rulemaking, Review of the

Section 251 Unbundling Obligations of Incumbent Local

Exchange Carriers, CC Docket Nos. 01–338 et al., FCC 03–

36, 18 FCC Rcd 16978 (Aug. 21, 2003) (‘‘Order’’); Errata,

Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, CC Docket Nos. 01–338 et al.,

FCC 03–227, 18 FCC Rcd 19020 (Sep. 17, 2003). Again,

regrettably, much of the resulting work is unlawful.

After a brief summary of the legal background, we address

first the ILECs’ claims, then the CLECs’ claims, then the

ILEC and CLEC claims relating to a special area, enhanced

extended links (‘‘EELs’’), and finally a couple of miscellaneous claims.

I. Legal Background

Section 251(c)(3) of the Act imposes on each ILEC the duty

to provide any requesting telecommunications carrier with

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access to network elements on an unbundled basis at any

technically feasible point on rates, terms, and conditions

that are just, reasonable, and nondiscriminatory in accordance with TTT the requirements of this section and

section 252 of this title.

47 U.S.C. § 251(c)(3).

The statute says that the ILECs may charge a ‘‘just and

reasonable rate’’ for these unbundled network elements

(‘‘UNEs’’), see id. § 252(d)(1), and the Commission adopted

as its standard ‘‘total element long-run incremental cost,’’ or

‘‘TELRIC.’’ Under this criterion UNE prices are to be

‘‘based on the use of the most efficient telecommunications

technology currently available and the lowest cost network

configuration, given the existing location of the incumbent

LEC’s wire centers.’’ 47 CFR § 51.505(b)(1). In litigation

over this pricing rule, which the Supreme Court upheld in

Verizon Communications v. FCC, 535 U.S. 467 (2002) (‘‘Verizon’’), it appears to have been common ground that, because

of ongoing technological improvement (among other things),

prices so determined would fall well below the costs the

ILECs had actually historically incurred in constructing the

elements. Id. at 503–04, 508–09. Certainly the ardent preferences of the parties as to the scope of the Act’s unbundling

requirements—the ILECs seeking a narrow reading, the

CLECs seeking a broad one—suggest such a relationship.

In its first effort to interpret the ‘‘impairment’’ standard of

§ 251(d)(2), the Commission held that lack of unbundled

access to an element would ‘‘impair’’ a CLEC’s ability to

provide telecommunications service ‘‘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.’’ Implementation of the Local Competition Provisions

in the Telecommunications Act of 1996, First Report and

Order, CC Docket No. 96–98, 11 FCC Rcd 15499, 15643

(1996) (‘‘First Report and Order’’), ¶ 285.

The Supreme Court found this reading of ‘‘impair’’ unreasonable in two respects. First, the Commission had irrationally refused to consider whether a CLEC could self-provision

USCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 7 of 62
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or acquire the requested element from a third party. AT&T,

525 U.S. at 389. 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 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.

Responding to the AT&T decision, the Commission adopted

a new interpretation under which 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.’’ Implementation of

the Local Competition Provisions of the Telecommunications

Act of 1996, Third Report and Order and Fourth Further

Notice of Proposed Rulemaking, 15 FCC Rcd 3696, 3725

(1999) (‘‘Third Report and Order’’), ¶ 51 (emphasis added).

But in USTA I we held that this new interpretation of

‘‘impairment,’’ while an improvement, was still unreasonable

in light of the Act’s underlying purposes.

The fundamental problem, we held, was that the Commission 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 TTT that would make genuinely

competitive provision of an element’s function wasteful.’’

USTA I, 290 F.3d at 427. This distinction between different

kinds of incumbent/entrant cost differentials is qualitative, not

merely quantitative, which is why the Commission’s addition

of a requirement that the cost disparity be ‘‘material’’ was

inadequate. Id. at 427–28.

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We also made clear that the Commission’s broad and

analytically insubstantial concept of impairment failed to pursue the ‘‘balance’’ between the advantages of unbundling (in

terms of fostering competition by different firms, even if they

use the very same facilities) and its costs (in terms both of

‘‘spreading the disincentive to invest in innovation and creating complex issues of managing shared facilities,’’ id. at 427),

a balance that we found implicit in the AT&T Court’s insistence on an unbundling standard ‘‘rationally related to the

goals of the Act,’’ id. at 428 (quoting AT&T).

We also objected to the Commission’s decision to issue,

with respect to most elements, broad unbundling requirements that would apply ‘‘in every geographic market and

customer class, without regard to the state of competitive

impairment in any particular market.’’ USTA I, 290 F.3d at

422. Though the Act does not necessarily require the Commission to determine ‘‘on a localized state-by-state or marketby-market basis which unbundled elements are to be made

available,’’ id. at 425 (quoting Third Report and Order, 15

FCC Rcd at 3753, ¶ 122), it does require ‘‘a more nuanced

concept of impairment than is reflected in findings TTT detached from any specific markets or market categories.’’

USTA I, 290 F.3d at 426. Thus, the Commission is obligated

to establish unbundling criteria that are at least aimed at

tracking relevant market characteristics and capturing significant variation.

Finally, we vacated the Commission’s decision to require

ILECs to unbundle the high-frequency portion of their copper loops to requesting CLECs—a practice known as ‘‘line

sharing’’ and used by CLECs to provide broadband DSL

service—because the Commission had failed to consider adequately whether intermodal competition from cable providers

tilted the balance against this form of unbundling in the

broadband market.

In response to USTA I the Commission again revised its

definition of impairment. This time around, the Commission

determined that a CLEC would ‘‘be impaired when lack of

access to an incumbent LEC network element poses a barrier

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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.’’

Order ¶ 84 (emphasis added). The Commission clarified that

the impairment assessment would take intermodal competition into account. Id. ¶ ¶ 97–98.

The Commission responded to our demand for a more

‘‘nuanced’’ application of the impairment standard by purporting to adopt a ‘‘granular’’ approach that would consider ‘‘such

factors as specific services, specific geographic locations, the

different types and capacities of facilities, and customer and

business considerations.’’ Id. ¶ 118. Where the Commission

believed that the record could not support an absolute national impairment finding but at the same time contained too

little information to make ‘‘granular’’ determinations, it

adopted a provisional nationwide rule, subject to the possibility of specific exclusions, to be created by state regulatory

commissions under a purported delegation of the Commission’s own authority.

The Commission also resolved to use the ‘‘at a minimum’’

language in § 251(d)(2) to ‘‘inform [its] consideration of unbundling in contexts where some level of impairment may

exist, but unbundling appeared likely to undermine important

goals of the 1996 Act.’’ Id. ¶ 173. Specifically, in connection

with two broadband elements, ‘‘fiber-to-the-home’’ (‘‘FTTH’’)

and hybrid loops (see below), it brought into the balance the

risk that an unbundling order might deter investment in such

facilities—contrary, as it saw the matter, to the statutory goal

of encouraging prompt deployment of ‘‘advanced telecommunications capability.’’ Id. ¶ ¶ 172–73 (quoting § 706 of the

Act). Additional issues also emerged in the rulemaking and

will be addressed below.

The ILECs filed two mandamus petitions with this Court,

arguing that the Order violated our decision in USTA I, and

in addition filed a petition for review here. Various CLECs,

state commissions, and an association of state utility consumUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 10 of 62
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er advocates filed petitions for review in several other circuits; these petitions were transferred to the Eighth Circuit

under the random lottery procedure established in 28 U.S.C.

§ 2112(a)(3), and then transferred to this court by the Eighth

Circuit under 28 U.S.C. § 2112(a)(5). We consolidated the

petitions for review with the mandamus petitions.

II. ILEC Objections

A. Unbundling of Mass Market Switches

The Commission made a nationwide finding that CLECs

are impaired without unbundled access to ILEC switches for

the ‘‘mass market,’’ consisting of residential and relatively

small business users. This finding was based primarily on

the costs associated with ‘‘hot cuts’’ (discussed below), which

must be performed when a CLEC provides its own switch.

Order ¶ ¶ 464–75. But the Commission, apparently concerned that a blanket nationwide impairment determination

might be unlawfully overbroad in light of the record evidence

of substantial market-by-market variation in hot cut costs,

delegated authority to state commissions to make more ‘‘nuanced’’ and ‘‘granular’’ impairment determinations.

First, the Commission directed the state commissions to

eliminate unbundling if a market contained at least three

competitors in addition to the ILEC, id. ¶ ¶ 498–503, or at

least two non-ILEC third parties that offered access to their

own switches on a wholesale basis, id. ¶ ¶ 504–05. For purposes of this exercise the Commission gave the states virtually unlimited discretion over the definition of the relevant

market. Id. ¶ ¶ 495–97. Second, where these ‘‘competitive

triggers’’ are not met, the Commission instructed the states

to consider whether, despite the many economic and operational entry barriers deemed relevant by the Commission,

competitive supply of mass market switching was nevertheless feasible. Id. ¶ ¶ 494, 506–20. The Commission also

instructed the states to explore specific mechanisms to ameliorate or eliminate the costs of the ‘‘hot cut’’ process. Id.

¶ ¶ 486–90. The Commission mentioned, for example, the

possible use of ‘‘rolling’’ hot cuts, a process in which CLECs

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could use ILEC switches for some time after a customer

selected the CLEC as its provider, and after an accumulation

of such customer changes, the ILEC would make all the

necessary hot cuts in one fell swoop. Id. ¶ ¶ 463, 521–24. If

a state failed to perform the requisite analysis within nine

months, the Commission would step into the position of the

state commission and do the analysis itself. Id. ¶ 190. Finally, the Order provided that a party ‘‘aggrieved’’ by a state

commission decision could seek a declaratory ruling from the

Commission, though with no assurance when, or even whether, the Commission might respond. Id. ¶ 426; see also 47

CFR § 1.2.

We consider first whether the Commission’s subdelegation

of authority to the state commissions is lawful. We conclude

that it is not. We then consider whether the Commission’s

nationwide impairment determination can nevertheless survive, even without the safety valve provided by subdelegation

to the states. We conclude that it cannot. We therefore

vacate the Commission’s decision to order unbundling of mass

market switches, subject to the stay discussed in Part VI.

1. Subdelegation of § 251(d)(2) impairment determinations to state commissions

The FCC acknowledges that § 251(d)(2) instructs ‘‘the

Commission’’ to ‘‘determine[ ]’’ which network elements shall

be made available to CLECs on an unbundled basis. But it

claims that agencies have the presumptive power to subdelegate to state commissions, so long as the statute authorizing

agency action refrains from foreclosing such a power. Given

the absence of any express foreclosure, the Commission argues that its interpretation of the statute on the matter of

subdelegation is entitled to deference under Chevron U.S.A.

v. Natural Resources Defense Council, 467 U.S. 837 (1984).

And it claims that its interpretation is reasonable given the

state commissions’ independent jurisdiction over the general

subject matter, the magnitude of the regulatory task, and the

need for close cooperation between state and federal regulators in this area.

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The Commission’s position is based on a fundamental misreading of the relevant case law. When a statute delegates

authority to a federal officer or agency, subdelegation to a

subordinate federal officer or agency is presumptively permissible absent affirmative evidence of a contrary congressional intent. See United States v. Giordano, 416 U.S. 505,

512–13 (1974); Fleming v. Mohawk Wrecking & Lumber Co.,

331 U.S. 111, 121–22 (1947); Halverson v. Slater, 129 F.3d

180, 185–86 (D.C. Cir. 1997); United States v. Mango, 199

F.3d 85, 90–91 (2d Cir. 1999); Inland Empire Pub. Lands

Council v. Glickman, 88 F.3d 697, 702 (9th Cir. 1996); United

States v. Widdowson, 916 F.2d 587, 592 (10th Cir. 1990),

vacated on other grounds, 502 U.S. 801 (1991). But the cases

recognize an important distinction between subdelegation to a

subordinate and subdelegation to an outside party. The

presumption that subdelegations are valid absent a showing

of contrary congressional intent applies only to the former.

There is no such presumption covering subdelegations to

outside parties. Indeed, if anything, the case law strongly

suggests that subdelegations to outside parties are assumed

to be improper absent an affirmative showing of congressional authorization. See Shook v. District of Columbia Fin.

Responsibility & Mgmt Assistance Auth., 132 F.3d 775, 783–

84 & n.6 (D.C. Cir. 1998). See also Nat’l Ass’n of Reg. Util.

Comm’rs (‘‘NARUC’’) v. FCC, 737 F.2d 1095, 1143–44 & n.41

(D.C. Cir. 1984); Nat’l Park and Conservation Ass’n v.

Stanton, 54 F. Supp. 2d 7, 18–20 (D.D.C. 1999). (We discuss

below some cases that might, mistakenly, be thought to

support a contrary view.)

This distinction is entirely sensible. When an agency

delegates authority to its subordinate, responsibility—and

thus accountability—clearly remain with the federal agency.

But when an agency delegates power to outside parties, lines

of accountability may blur, undermining an important democratic check on government decision-making. See NARUC,

737 F.2d at 1143 n.41; cf. Printz v. United States, 521 U.S.

898, 922–23 (1997). Also, delegation to outside entities increases the risk that these parties will not share the agency’s

‘‘national vision and perspective,’’ Stanton, 54 F. Supp. 2d at

USCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 13 of 62
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20, and thus may pursue goals inconsistent with those of the

agency and the underlying statutory scheme. In short, subdelegation to outside entities aggravates the risk of policy

drift inherent in any principal-agent relationship.

The fact that the subdelegation in this case is to state

commissions rather than private organizations does not alter

the analysis. Although United States v. Mazurie, 419 U.S.

544 (1975), noted that ‘‘limits on the authority of Congress to

delegate its legislative power TTT are [ ] less stringent in

cases where the entity exercising the delegated authority

itself possesses independent authority over the subject matter,’’ id. at 556–57 (emphasis added), that decision has no

application here: it involved a constitutional challenge to an

express congressional delegation, rather than an administrative subdelegation, and the point of the discussion was to

distinguish the still somewhat suspect case of congressional

delegation to purely private organizations.

Two Ninth Circuit cases have invoked Mazurie to suggest

that limitations on an administrative agency’s power to subdelegate might be less stringent if the delegee is a sovereign

entity rather than a private group. See Assiniboine & Sioux

Tribes v. Bd. of Oil and Gas, 792 F.2d 782, 795 (9th Cir.

1986); Southern Pacific Transp. Co. v. Watt, 700 F.2d 550,

556 (9th Cir. 1983). But in neither of these cases was this

principle necessary to the outcome, and in neither did the

court seek to justify the extension of Mazurie from its

context—the validity of an express delegation of Congress’s

powers.

We therefore hold that, while federal agency officials may

subdelegate their decision-making authority to subordinates

absent evidence of contrary congressional intent, they may

not subdelegate to outside entities—private or sovereign—

absent affirmative evidence of authority to do so.

The Commission’s plea for Chevron deference is unavailing.

A general delegation of decision-making authority to a federal

administrative agency does not, in the ordinary course of

things, include the power to subdelegate that authority beyond federal subordinates. It is clear here that Congress has

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not delegated to the FCC the authority to subdelegate to

outside parties. The statutory ‘‘silence’’ simply leaves that

lack of authority untouched. In other words, the failure of

Congress to use ‘‘Thou Shalt Not’’ language doesn’t create a

statutory ambiguity of the sort that triggers Chevron deference. See Ry. Labor Exec. Ass’n v. Nat. Mediation Bd., 29

F.3d 655, 671 (D.C. Cir. 1994) (‘‘Were courts to presume a

delegation of power absent an express withholding of such

power, agencies would enjoy virtually limitless hegemony, a

result plainly out of keeping with Chevron and quite likely

with the Constitution as well.’’); see also Aid Ass’n for

Lutherans v. U.S. Postal Service, 321 F.3d 1166, 1174–75

(D.C. Cir. 2003); Motion Picture Ass’n of Am. v. FCC, 309

F.3d 796, 801 (D.C. Cir. 2002); Ethyl Corp. v. EPA, 51 F.3d

1053, 1060 (D.C. Cir. 1995).

The FCC invokes a number of other cases in support of its

idea of a presumptive authority to subdelegate to entities

other than subordinates. These are inapposite because they

do not involve subdelegation of decision-making authority.

They merely recognize three specific types of legitimate

outside party input into agency decision-making processes:

(1) establishing a reasonable condition for granting federal

approval; (2) fact gathering; and (3) advice giving. The

scheme established in the Order fits none of these models.

First, a federal agency entrusted with broad discretion to

permit or forbid certain activities may condition its grant of

permission on the decision of another entity, such as a state,

local, or tribal government, so long as there is a reasonable

connection between the outside entity’s decision and the

federal agency’s determination. Thus in United States v.

Matherson, 367 F. Supp. 779, 782–83 (E.D.N.Y. 1973), aff’d

493 F.2d 1339 (2d Cir. 1974), the court upheld the decision of

the Fire Island National Seashore Superintendent to condition issuance of federal seashore motor vehicle permits on the

applicant’s acquisition of an analogous permit from an adjacent town. And Southern Pacific, 700 F.2d at 556, citing

Matherson, sustained the Secretary of Interior’s conditioning

of right-of-way permits across tribal lands on the tribal

government’s approval. In contrast to these cases, where an

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agency with broad permitting authority had adopted an obviously relevant local concern as an element of its decision

process, the Commission here has delegated to another actor

almost the entire determination of whether a specific statutory requirement—impairment—has been satisfied.

Second, there is some authority for the view that a federal

agency may use an outside entity, such as a state agency or a

private contractor, to provide the agency with factual information. While Assiniboine & Sioux Tribes found that a

delegation of decision-making power to a state board would

be unlawful, it left open whether reliance by the federal

agency on the state board for ‘‘nondiscretionary activities

such as compiling, hearing, and transmitting technical information might not be permissible and desirable.’’ 792 F.2d at

795. And National Association of Psychiatric Treatment v.

Mendez, 857 F. Supp. 85, 91 (D.D.C. 1994), upheld a federal

certifying agency’s decision to hire a private contractor to

conduct surveys of residential treatment centers and pass its

results on to the agency, which retained final certification

authority. While the FCC has sought to characterize the

state commissions’ role here as fact finding, see Order ¶ ¶ 186,

493, in fact the Order lets the states make crucial decisions

regarding market definition and application of the FCC’s

general impairment standard to the specific circumstances of

those markets, with FCC oversight neither timely nor assured. The Commission’s attempted punt does not remotely

resemble nondiscretionary information gathering.

Our own decision in Tabor v. Joint Board for Enrollment of

Actuaries, 566 F.2d 705, 708 n.5 (D.C. Cir. 1977), seems to

straddle the two above variants of permissible relationships.

There the federal Joint Board for Enrollment of Actuaries,

exercising its broad discretion to set conditions for certifying

actuaries to administer ERISA pension plans, required applicants either to pass a Board exam or to pass an exam

administered by one of the recognized private national actuarial societies. 566 F.2d at 708 n.5. The court found that the

process was ‘‘superintended by the Board in every respect,’’

and that the Board had not abdicated its decision-making

authority but merely created a reasonable ‘‘short-cut,’’ continUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 16 of 62
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gent on the approval of certain private organizations, to

satisfy one of the Board’s own regulatory requirements. Id.

The opinions in both Southern Pacific (from our first category) and Mendez (from our second) invoke Tabor.

Neither Tabor nor its progeny relied on any principle that

subdelegations to outside parties were presumptively valid,

since the result in each of these cases was supportable on the

theory that no subdelegation of decision-making authority had

actually taken place. To the extent that Tabor’s citation of

United States v. Giordano, 416 U.S. 505, 512–13 (1974), might

be thought to suggest that external delegations enjoy the

same favorable presumption as internal ones, that suggestion

was clearly rejected by our decision in Shook, 132 F.3d at

783–84 & n.6.

Third, a federal agency may turn to an outside entity for

advice and policy recommendations, provided the agency

makes the final decisions itself. Thus in Shook, 132 F.3d at

784, we disapproved the D.C. Control Board’s delegation of

governance powers over D.C. schools to a private Board of

Trustees, but we suggested that the Control Board could use

an entity of that sort ‘‘as an advisory board charged with

recommending certain actions and policies to the Control

Board.’’ See also Stanton, 54 F. Supp. 2d at 19–20 & n.6;

Mendez, 857 F. Supp. at 91. An agency may not, however,

merely ‘‘rubber-stamp’’ decisions made by others under the

guise of seeking their ‘‘advice,’’ see Assiniboine & Sioux

Tribes, 792 F.2d at 795, nor will vague or inadequate assertions of final reviewing authority save an unlawful subdelegation, see Stanton, 54 F. Supp. 2d at 19, 20–21.

Finally, the Commission’s claim that Diamond International Corp. v. FCC, 627 F.2d 489, 492–93 (D.C. Cir. 1980), and

New York Telephone Co. v. FCC, 631 F.2d 1059, 1065 (2d Cir.

1980), uphold ‘‘virtually indistinguishable’’ FCC subdelegations to state commissions, FCC Br. at 25, is (or should

be) embarrassing. These cases involved a wholly unrelated

issue: whether the FCC properly interpreted the Communications Act when it decided to permit carriers to file state

tariffs for local services used in connection with interstate

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services. The issue was not delegation of federal authority

but rather the scope of federal authority to preempt state

authority.

We note that the ILEC petitioners invoke standard expressio unius reasoning to attack the delegation. They point out

that other provisions of the Act—e.g., the procedures for

arbitration and approval of agreements under § 252—expressly specify a state role, and urge us to infer congressional

preclusion of such a role under § 251(d)(2). We do not rely

on this theory. Our conclusion would be unchanged if no

provision of the Act mentioned any role for the state commissions, because the general conferral of regulatory authority

does not empower an agency to subdelegate to outside parties. That said, the fact that other provisions of the statute

carefully delineate a particular role for the state commissions,

but § 251(d)(2) does not, reassures us that the our result is

consistent with congressional intent.

We therefore vacate, as an unlawful subdelegation of the

Commission’s § 251(d)(2) responsibilities, those portions of

the Order that delegate to state commissions the authority to

determine whether CLECs are impaired without access to

network elements, and in particular we vacate the Commission’s scheme for subdelegating mass market switching determinations. (This holding also requires that we vacate the

Commission’s subdelegation scheme with respect to dedicated

transport elements, discussed below.) We now turn to

whether, without that safety valve, the FCC’s national impairment findings for mass market switches can be reconciled

with USTA I.

2. Impairment in provision of mass market switching

Without the (unlawful) innovation of transforming a national impairment finding into a provisional national impairment

finding from which state commissions could deviate if they

found no impairment under local market conditions, the

FCC’s Order on mass market switches must stand or fall as a

nationwide determination that CLECs are impaired in the

mass market without unbundled access to ILEC switches.

After reviewing the record, we conclude that we must vacate

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the (no longer provisional) national impairment finding as

inconsistent with our conclusion in USTA I that the Commission may not ‘‘loftily abstract[ ] away from all specific markets,’’ 290 F.3d at 423, but must instead implement a ‘‘more

nuanced concept of impairment,’’ id. at 426.

The Commission’s national finding of impairment for mass

market switches is based on entry barriers related to the

need for ILECs to perform ‘‘hot cuts’’ (manual connections)

for CLECs if the latter choose to self-provision mass market

switches. See Order ¶ ¶ 459, 464–76. A ‘‘hot cut’’ requires an

ILEC technician to physically disconnect a customer loop

from the ILEC switch (to which the loop was hard-wired) and

re-wire the loop to the CLEC switch, while simultaneously

reassigning the customer’s phone number from the ILEC

switch to the CLEC switch. Order ¶ 465 n.1409. A hot cut

must be performed every time a CLEC seeks to connect a

new customer. In contrast, ILEC connection of a customer

generally only requires a software change (unless the customer had already switched to a CLEC switch, in which case the

hot cut must be undone via the same physical re-connection).

Order ¶ 465. The Commission explains that, according to

evidence in the record, the need to perform hot cuts can delay

a CLEC in providing service with its own switch and can

cause service disruptions, and that these delays and disruptions, even if minor, can damage customer perceptions of

CLEC service and impede the CLECs’ ability to compete.

Order ¶ ¶ 466–67.

Though the Commission in its brief alludes to ‘‘other operational and economic factors’’ that might create barriers to

competition in mass market switching, FCC Br. at 36, the

Order makes clear that the national impairment finding was

based solely on hot cuts. Order ¶ ¶ 459 n.1405 & 476. (The

other factors were to be considered by state commissions in

the exercise of the unlawfully delegated authority.) There

appears to be no suggestion that mass market switches

exhibit declining average costs in the relevant markets, or

even that switches entail large sunk costs. The Commission

nonetheless concluded that hot cut costs are not the sort of

cost disparity that a new entrant into any market might face,

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since they arise due to the fact that ‘‘incumbent LECs’

networks were designed for use in a single carrier, noncompetitive environment,’’ which means that CLECs face

operational costs that the ILECs do not. Order ¶ 465.

Though certain sections of the Order suggest that impairment due to hot cut costs might be sufficiently widespread to

support a general national impairment finding even in the

absence of more ‘‘nuanced’’ determinations to be made by the

state commissions, Order ¶ ¶ 459, 470, 473, the Commission at

other points concludes that a national finding, without the

possibility of market-specific exceptions authorized by state

commissions, would be inconsistent with USTA I. See Order

¶ ¶ 186–88, 196, 425, 485, 493. At the very least, these latter

passages demonstrate that the Commission’s own conclusions

do not clearly support a non-provisional national impairment

finding for mass market switches, and thus require us to

vacate and remand.

Moreover, we doubt that the record supports a national

impairment finding for mass market switches. In another

context the Commission has already addressed a kindred

issue. Under § 271 of the Act, the subset of ILECs that

used to be operating companies of AT&T before its break-up

(the Bell Operating Companies, or ‘‘BOCs’’) can enter the

interLATA market (the market for calls between different

local access and transport areas) only by showing, among

other things, that they are providing CLECs adequate unbundled access to various network elements, including local

loops. See Act § 271(c)(2)(B)(iv). The Commission acknowledges that in that context it has in fact found that the BOCs

were doing so ‘‘in the quantities that competitors demand and

at an acceptable level of quality,’’ see, e.g., Memorandum

Opinion and Order, Application by SBC Communications,

Inc., et al., Pursuant to Section 271 of the Telecommunications Act of 1996 To Provide In–Region, InterLATA Services

in Texas, 15 FCC Rcd 18354, 18480 (2000), ¶ 247; Memorandum Opinion and Order, Application of Ameritech Michigan

Pursuant to Section 271 of the Communications Act of 1934,

as Amended, To Provide In–Region, InterLATA Services in

Michigan, 12 FCC Rcd 20543, 20601–02 (1997), ¶ 110. In

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none of those proceedings did the Commission find the hot

cut process inadequate to meet this standard. See Separate

Statement of Chairman Michael K. Powell Approving in Part

and Dissenting in Part, FCC 03–36 (‘‘Powell Statement’’) at 4.

But it distinguished those cases on the ground of uncertainty

about whether ILECs would be able to handle the increases

in hot cut demand that would flow from denying CLECs

access to switches as UNEs. Order ¶ 469 & n.1435. The

ILECs contend that in fact hot cut processes are ‘‘scalable,’’

so that existing sufficiency can be projected onto larger-scale

usage. See ILEC Br. at 16 (citing Powell Statement at 5;

Memorandum Opinion and Order, Application by Bell Atlantic New York for Authorization Under Section 271 of the

Communications Act to Provide In–Region, InterLATA Service in the State of New York, 15 FCC Rcd 3953, 4114 (1999),

¶ 308).

The record on the matter is mixed, perhaps sufficiently so

that the Commission’s ‘‘provisional’’ assumption to the contrary might be sustainable as an absolute finding, given the

deference we would owe the Commission’s predictive judgment and the inevitability of some over- and underinclusiveness in the Commission’s unbundling rules. But the

Commission implicitly conceded that hot cut difficulties could

not support an undifferentiated nationwide impairment finding. Order ¶ ¶ 425, 485, 493. Moreover, we made clear in

USTA I that the Commission cannot proceed by very broad

national categories where there is evidence that markets vary

decisively (by reference to its impairment criteria), at least

not without exploring the possibility of more nuanced alternatives and reasonably rejecting them. 290 F.3d at 425–26.

One can imagine the Commission successfully identifying

criteria based, for example, on an ILEC’s track record for

speed and volume in a market, integrated with some projection of the demand increase that would result from withholding of switches as UNEs. The Commission, however, has

made no visible effort to explore such possibilities.

Additionally, the ILEC petitioners suggested several more

narrowly-tailored alternatives to a blanket requirement that

mass market switches be made available as UNEs. Considering such narrower alternatives is essential in light of our

admonition in USTA I that the Commission must balance the

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costs and benefits of unbundling. 290 F.3d at 429. ‘‘Rolling’’

hot cuts are one such proffered alternative. Under that

concept the Commission could require unbundled access to

ILEC switching on new lines for 90 days (or some other

period of time) in order to give the ILEC time to perform the

accumulated backlog of hot cuts simultaneously, Order

¶ ¶ 463, 521–24, or the Commission could require the ILEC to

provide unbundled access to its switch only until it was able

to perform the hot cut. The FCC’s only real answer to these

proposed alternatives, at least the only answer that appears

in the Order or the FCC’s brief, is that the Commission

directed the state commissions to consider these alternatives

and to implement them if they would remedy impairment.

See FCC Br. at 38–39; Order ¶ ¶ 463, 521–24. But since we

have held such subdelegation unlawful, that response is unavailable.

Moreover, even if the FCC had adopted some lawful mechanism for making exemptions from its general national rule, it

could not necessarily rely on the existence of that mechanism

as the sole justification for not adopting a more narrowly

tailored rule. While a rational rule that would otherwise be

impermissibly broad can be saved by ‘‘safety valve’’ waiver or

exception procedures, the mere existence of a safety valve

does not cure an irrational rule. See ICORE, Inc. v. FCC,

985 F.2d 1075, 1080 (D.C. Cir. 1993); Alltel Corp. v. FCC, 838

F.2d 551, 561–62 (D.C. Cir. 1988). And a rule is irrational in

this context if a party has presented to the agency a narrower

alternative that has all the same advantages and fewer disadvantages, and the agency has not articulated any reasonable

explanation for rejecting the proposed alternative.

We therefore vacate the FCC’s determination that ILECs

must make mass market switches available to CLECs as

UNEs, subject to the stay discussed in Part VI below, and

remand to the Commission for a re-examination of the issue.

3. The Commission’s definition of ‘‘impairment’’

The Commission claims that no party in this litigation has

challenged the concept embodied in its new interpretation of

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‘‘impairment.’’ All the disputes, it says, are about the proper

implementation of that standard. FCC Br. at 18. Not

exactly. For example, although the ILEC petitioners’ objections to the Commission’s mass market switching provisions

are all within the framework of the Commission’s subdelegation scheme, a number of them clearly go to the character of

the impairment standard embodied in that scheme.

As a general matter the ILECs argue the Commission’s

impairment standard is so open-ended that it imposes no

meaningful constraints on unbundling, and would be unlawful

even if applied by the FCC itself. ILEC Br. at 28; see also

Separate Statement of Commissioner Kathleen Q. Abernathy

Approving in Part and Dissenting in Part, FCC 03–36 at 6–7

& n. 16 (claiming that the Commission’s multifactor test is no

different from the totality-of-the-circumstances approach

struck down in USTA I). More specifically, the ILECs claim

that the Commission’s unbundling test unlawfully permits

states to consider as a potential source of impairment retail

rates that are held below cost by state regulation against the

ILECs’ will, and unlawfully precludes consideration of intermodal competition when determining whether a market is

suitable for competitive supply.

On the general point about the open-endedness of the

Commission’s standard, we observe that the Order’s interpretation of impairment is an improvement over the Commission’s past efforts in that, for the most part, the Commission

explicitly and plausibly connects factors to consider in the

impairment inquiry to natural monopoly characteristics (declining average costs throughout the range of the relevant

market), see Order ¶ ¶ 75–76 & nn.245, 256, 258–59, ¶ 87 &

n.283, or at least connects them (in logic that the ILECs do

not seem to contest) to other structural impediments to

competitive supply. These barriers include sunk costs (Order

¶ 75 & n.244, ¶ ¶ 76, 80, 86, 88), ILEC absolute cost advantages (Order ¶ 75 & n.247, ¶ 90 & n.302), first-mover advantages (Order ¶ 75 & n.249, ¶ 89), and operational barriers to

entry within the sole or primary control of the ILEC (Order

¶ 91). In contrast to the First Report and Order and the

Third Report and Order, the Commission has clarified that

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only costs related to structural impediments to competition

are relevant to the impairment analysis.

In light of our remand, this is not the occasion for any

review of the Commission’s impairment standard as a general

matter; it finds concrete meaning only in its application, and

only in that context is it readily justiciable. A few general

observations are pertinent, however.

Relation of ‘‘impairment’’ to the ‘‘at a minimum’’ clause.

We note that there are at least two ways in which the

Commission could have accommodated our ruling in USTA I

that its impairment rule take into account not only the

benefits but also the costs of unbundling (such as discouragement of investment in innovation), in order that its standard

be ‘‘rationally related to the goals of the Act.’’ See USTA I,

290 F.3d at 428. One way would be to craft a standard of

impairment that built in such a balance, as for example by

hewing rather closely to natural monopoly features. The

other is to use a looser concept of impairment, with the costs

of unbundling brought into the analysis under § 251(d)(2)’s

‘‘at a minimum’’ language. The Commission has chosen the

latter, and we cannot fault it for doing so. This is especially

true as the statutory structure suggests that ‘‘impair’’ must

reach a bit beyond natural monopoly. While for ‘‘proprietary’’ network elements the statute mandates a decision

whether they are ‘‘necessary,’’ § 251(d)(1)(A), for nonproprietary ones it requires a decision whether their absence

would ‘‘impair’’ the requester’s provision of telecommunications service, § 251(d)(1)(B). Thus, in principle, there is no

statutory offense in the Commission’s decision to adopt a

standard that treats impairment as a continuous rather than

as a dichotomous variable, and potentially reaches beyond

natural monopoly, but then to examine the full context before

ordering unbundling.

That said, we do note that in at least one important respect

the Commission’s definition of impairment is vague almost to

the point of being empty. The touchstone of the Commission’s impairment analysis is whether the enumerated operational and entry barriers ‘‘make entry into a market unecoUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 24 of 62
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nomic.’’ Order ¶ 84. 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,’’ the standard that is

built into TELRIC? Compare 47 CFR § 51.505(b)(1). We

need not resolve the significance of this uncertainty, but we

highlight it because we suspect that the issue of whether the

standard is too open-ended is likely to arise again.

Intermodal alternatives. As for the ILECs’ claim that the

Commission’s impairment standard unlawfully excludes consideration of intermodal alternatives, we observe that the

Commission expressly stated that such alternatives are to be

considered when evaluating impairment. Order ¶ ¶ 97–98,

443. Whether the weight the FCC assigns to this factor is

reasonable in a given context is an question that we need not

decide, except insofar as we reaffirm USTA I’s holding that

the Commission cannot ignore intermodal alternatives. 290

F.3d at 429.

Impairment in markets where state regulation holds rates

below historic costs. In the name of ‘‘universal service,’’ state

regulators have commonly employed cross-subsidies, tilting

rate ceilings so that revenues from business and urban customers subsidize residential and rural ones. USTA I, 290

F.3d at 422. On remand from our decision in USTA I, the

Commission decided to consider regulated below-cost retail

rates as a factor that may ‘‘impair’’ CLECs in competing for

mass market customers. See Order ¶ 518. The ILECs

object strenuously, and it appears virtually certain that the

issue will recur on remand.

The Commission’s brief treatment of the issue makes no

attempt to connect this ‘‘barrier’’ to entry either with structural features that would make competitive supply wasteful or

with any other purposes of the Act (other than, implicitly, the

purpose of generating ‘‘competition,’’ no matter how synthetic). The Commission rightly says that if prevailing rates are

too low to elicit CLEC entry even with the benefit of UNEs,

the unbundling mandate will have no consequences. True

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enough. But it is no defense of a rule to say that it is

harmless in those cases where it has no effect at all; that

presumably is true even of the most absurd rule.

The interesting case is the one where TELRIC rates are so

low that unbundling does elicit CLEC entry, enabling CLECs

to cut further into ILEC revenues in areas where the ILECs’

service is mandated by state law—and mandated to be offered at artificially low rates funded by ILECs’ supracompetitive profits in other areas. If the scheme of the Act is

successful, of course, the very premise of these below-cost

rate ceilings will be undermined, as those supracompetitive

profits will be eroded by Act-induced competition. In competitive markets, an ILEC can’t be used as a pinata. The  ̃

Commission has said nothing to address these obvious implications, or otherwise to locate its treatment of the issue in

any purposeful reading of the Act.

We recognize, of course, that the historic accounting costs

relied upon by state regulators are, like TELRIC itself, an

artificial construct that may not closely track true economic

cost. But that is no justification for the Commission’s refusal

to evaluate the probable consequences of its approach, and to

adopt, in the light of those estimations, a policy that it can

reasonably say advances the goals of the Act.

B. Unbundling of High–Capacity Dedicated Transport Facilities

1. Unlawfulness of the delegation to the states and the

national impairment finding

The Commission has made multiple impairment findings

with respect to dedicated transport elements (transmission

facilities dedicated to a single customer or carrier), varying

the findings by capacity level. First, it found that competing

providers are not impaired without unbundled access to

‘‘OCn’’ transport facilities (very high-capacity transport facilities or bandwiths within such facilities), Order ¶ ¶ 359, 372,

and all petitioners appear to accept that finding. Second, the

Commission found that competitors are impaired without

unbundled access to DS1 transport, DS3 transport, and dark

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fiber transport, but made this nationwide impairment finding

subject to variation by state commissions applying specific

‘‘competitive triggers.’’ Id. ¶ 359; see also id. ¶ ¶ 381–93.

Explaining this latter decision, the Commission observed that

its nationwide impairment findings for DS1, DS3, and dark

fiber were based on ‘‘aggregated data’’ and frankly acknowledged that competitive alternatives are available ‘‘in some

locations.’’ Id. ¶ 398. The Commission declared that it did

not need to resolve ‘‘the factual identification of where alternative facilities existTTTT [B]ecause we recognize that the

record is insufficiently detailed to make more precise findings

regarding impairment, we delegate to the states, subject to

appeal back to this Commission if a state fails to act, a factfinding role to determine on a route-specific basis where

alternatives to the incumbent LECs’ networks exist such that

competing carriers are no longer impaired.’’ Id. ¶ 398.

Specifically, the Commission instructed states to apply two

competitive triggers on a route-by-route basis. Id. ¶ ¶ 399–

401. First, the ‘‘self-provisioning’’ trigger required states to

find no impairment if three or more competitors had deployed

non-ILEC transport facilities along a specific route. Id.

¶ ¶ 400, 405–09. Second, the ‘‘wholesale facilities’’ trigger

required states to find no impairment if two or more competing carriers were immediately able and willing to sell transport along a given route at wholesale rates. Id. ¶ ¶ 400, 412–

16. Even where the triggers were not satisfied, the FCC

allowed a finding of non-impairment if a state, applying seven

criteria (all quite fluid and none quantified), determined that

the route was suitable for multiple competitive supply. Id.

¶ 410. If a state believed that there was impairment on a

specific route despite facial satisfaction of the selfprovisioning trigger, it could petition the Commission for a

waiver. Id. ¶ 411.

As we explained in the mass market switching context, the

Commission may not subdelegate its § 251(d) authority to

state commissions. Although the Commission characterizes

the states’ role as ‘‘fact-finding,’’ Order ¶ 394, the characterization is fictitious. It is the states, not the FCC, that

determine whether the competitive triggers, or the CommisUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 27 of 62
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sion’s numerous and largely unquantified alternative criteria,

are satisfied; it is the states that issue binding orders, subject

only to the Commission’s discretionary review. And, as with

mass market switching, the Order itself suggests that the

Commission doubts a national impairment finding is justified

on this record. Id. ¶ ¶ 360, 394, 398. We therefore vacate

the national impairment findings with respect to DS1, DS3,

and dark fiber and remand to the Commission to implement a

lawful scheme.

2. Remaining dedicated transport issues

The ILECs have raised two additional issues about the

Commission’s treatment of dedicated transport, and the

CLECs yet another. We address the ILECs’ objections

here, and that of the CLECs (which relates to so-called

‘‘entrance facilities’’) below in the portion of the opinion

devoted to their claims.

 a. Route-specific analysis of dedicated transport

In USTA I we expressed skepticism regarding whether

there could be impairment in markets ‘‘where the element in

question—though not literally ubiquitous—is significantly deployed on a competitive basis,’’ giving as a specific example

interoffice dedicated transport. 290 F.3d at 422. We also

instructed the Commission, as noted above, to apply a ‘‘nuanced’’ concept of impairment connected to ‘‘specific markets

or market categories.’’ Id. at 426. Any process of inferring

impairment (or its absence) from levels of deployment depends on a sensible definition of the markets in which deployment is counted.

For dedicated transport elements the Commission decided

that the appropriate market was not a geographic market

(e.g., a Metropolitan Statistical Area (‘‘MSA’’), as the ILECs

urged, or general customer class), but rather a specific pointto-point route. Thus, for example, the fact that dedicated

transport facilities are widely deployed within one MSA does

not, in the Commission’s view, necessarily preclude a finding

of impairment between two specific points within that MSA, if

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deployment has not satisfied the Commission’s competitive

‘‘triggers’’ on that route.

We do not see how the Commission can simply ignore

facilities deployment along similar routes when assessing

impairment. Suppose points A, B, and C are all in the same

geographic market and are similarly situated with regard to

the ‘‘barriers to entry’’ that the Commission says are controlling. See Order ¶ ¶ 84 et seq. Suppose further that multiple

competitors supply DS1 transport between points A and B,

but only the ILEC and one other CLEC have deployed DS1

transport between A and C. The Commission cannot ignore

the A–B facilities deployment when deciding whether CLECs

are impaired with respect to A–C deployment without a good

reason. The Commission does explain why competition on

the A–B route should not be sufficient to establish competition is possible on the A–C route, Order ¶ 401, but this cannot

explain the Commission’s implicit decision to treat competition on one route as irrelevant to the existence of impairment

on the other. Nor does the Commission explain whether, and

why, the error costs (both false positives and false negatives)

associated with a route-by-route market definition are likely

to be lower than the error costs associated with alternative

market definitions. While it may be infeasible to define the

barriers to entry in a manageable form, i.e., in such a way

that they may usefully be applied to MSAs (or other plausible

markets) as a whole, the Commission nowhere suggests that

it explored such alternatives, much less found them defective.

 b. Wireless providers’ access to unbundled dedicated

transport

In addition to their general challenge to the FCC’s provisional national finding that competitors are impaired without

access to dedicated transport facilities, the ILEC petitioners

also attack the Commission’s conclusion that providers of

wireless service (also known as commercial mobile radio

services, or ‘‘CMRS’’) qualify for unbundled access to these

facilities. According to the ILECs, the Commission not only

failed to conduct the requisite impairment analysis for wireless providers, but in fact found that wireless growth has

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been ‘‘remarkable’’: 90% of the U.S. population lives in areas

served by at least three wireless providers, 40% of Americans

and 61% of American households own a wireless phone,

wireless prices have been steadily declining, and 3–5% of

wireless customers use wireless as their only phone, treating

it as a full substitute for traditional land line service. Order

¶ 53. Although the ILECs implicitly concede that wireless

providers would be impaired if they were denied any access

to ILEC dedicated interoffice transport facilities, they point

out that wireless providers have traditionally purchased such

access from ILECs at wholesale rates (a transaction classified, since adoption of the Act, under § 251(c)(4)). And the

data above clearly show that wireless carriers’ reliance on

special access has not posed a barrier that makes entry

uneconomic. Indeed, the multi-million dollar sums that the

Commission regularly collects in its auctions of such spectrum, see, e.g., Annual Report and Analysis of Competitive

Market Conditions With Respect to Commercial Mobile Services, Seventh Report, FCC 02–179 (July 3, 2002), Table 1B,

and that firms pay to buy already-issued licenses, see, e.g.,

Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, Eighth

Report, FCC 03–150 (July 14, 2003), ¶ ¶ 42–44, seem to

indicate that wireless firms currently expect that net revenues will, by a large margin, more than recover all their nonspectrum costs (including return on capital).

The FCC and the wireless intervenors do not challenge the

assertion that the current regime has witnessed a rapidly

expanding and prosperous market for wireless service. Rather, they rely on the principle that ‘‘evidence that requesting

carriers are using incumbent LEC tariffed services’’ is not

‘‘relevant to [the] unbundling determination.’’ Order ¶ 102.

The Commission offers several justifications for its decision

to treat special access availability as irrelevant to the impairment analysis. None withstands scrutiny. First, the Commission suggests that it would be

inconsistent with the Act if we permitted the incumbent

LEC to avoid all unbundling merely by providing resold

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or tariffed services as an alternative. Such an approach

would give the incumbent LECs unilateral power to

avoid unbundling at TELRIC rates simply by voluntarily

making elements available at some higher price.

Order ¶ 102 (footnote omitted). While the possibility to which

the Commission points is undeniable, its implications for the

Act’s implementation aren’t as horrifying as the Commission

seems to think. After all, the purpose of the Act is not to

provide the widest possible unbundling, or to guarantee competitors access to ILEC network elements at the lowest price

that government may lawfully mandate. Rather, its purpose

is to stimulate competition—preferably genuine, facilitiesbased competition. Where competitors have access to necessary inputs at rates that allow competition not only to survive

but to flourish, it is hard to see any need for the Commission

to impose the costs of mandatory unbundling.

We recognize that, given the ILECs’ incentive to set the

tariff price as high as possible and the vagaries of determining when that price gets so high that the ‘‘impairment’’

threshold has been crossed, a rule that allowed ILECs to

avoid unbundling requirements simply by offering a function

at lower-than-TELRIC rates might raise real administrability

issues. Those complications might in principle support a

blanket rule treating the availability of ILEC tariffed service

as irrelevant to impairment. But the FCC hasn’t defended

its decision in those terms or even tried to explicate these

complications. Moreover, where (as here) market evidence

already demonstrates that existing rates outside the compulsion of § 251(c)(3) don’t impede competition, and where (as

here) there is no claim that ILECs would be able drastically

to hike those rates, those possible complications recede even

farther in the background.

The FCC also suggests that the ILECs’ view would effectively read unbundled access out of the Act. Both the

Commission and the wireless intervenors argue that this

conclusion finds support in Iowa Utilities I, which held that

ILECs could not avoid unbundling requirements by classifying certain features as ‘‘services’’ rather than ‘‘network eleUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 31 of 62
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ments.’’ 120 F.3d at 809. There the ILECs had argued that

the legislative history of the Act suggested that functions

offered as services were meant to be governed by the resale

provisions of § 251(c)(4) rather than the unbundling provisions of § 251(c)(3). In rejecting this argument, the Eighth

Circuit said that the provision ‘‘for the resale of telecommunications services TTT does not establish resale as the exclusive

means through which a competing carrier may gain access to

such services. We agree with the FCC that such an interpretation would allow the incumbent LECs to evade a substantial

portion of their unbundling obligation under subsection

251(c)(3).’’ 120 F.3d at 809. Thus the court found that an

ILEC offer of functions for sale as services did not preclude

classifying these functions as network elements to be unbundled under § 251(c)(3). But that decision in no way supports

a claim that the availability of services for sale under

§ 251(c)(4) is irrelevant to whether there is impairment of the

sort that would require unbundling.

The Commission next argues that considering special access availability in the impairment analysis would ‘‘be contrary to the Act’s requirement that unbundled facilities TTT

should be priced at cost-based rates and our determination

that TELRIC is the appropriate methodology for determining

those ratesTTTT’’ Order ¶ 102. This is circular. The question is which facilities must be unbundled, or, more specifically, what the relevant benchmark is for assessing whether

entry is ‘‘impaired’’ if non-ILECs don’t have access to UNEs

(at whatever rate the Commission might choose to prescribe).

Finally, the FCC suggests that tariffed services ‘‘present

different opportunities and risks for the requesting carrier

than the use of UNEs or non-incumbent LEC alternatives.’’

Order ¶ 102. This may well be true in certain cases, and on

an appropriate record the Commission might find impairment

even when services were available from ILECs outside

§ 251(c)(3). But this possibility doesn’t give the Commission

carte blanche to omit consideration of such alternatives in its

impairment analysis. And it clearly cannot justify a finding

of impairment with respect to wireless, where these different

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‘‘opportunities and risks’’ have obviously not made competitive entry uneconomic.

We therefore hold that the Commission’s impairment analysis must consider the availability of tariffed ILEC special

access services when determining whether would-be entrants

are impaired, and vacate ¶ ¶ 102–03 of the Order. 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.

C. Network Modification Requirements

In Iowa Utilities I, the Eighth Circuit struck down an FCC

rule that required ILECs to provide interconnection and

UNEs superior in quality to those that the ILEC provided

for itself. 120 F.3d at 812–13. But the court nonetheless

‘‘endorse[d] the Commission’s statement that ‘the obligations

imposed by sections 251(c)(2) and 251(c)(3) include modifications to incumbent LEC facilities to the extent necessary to

accommodate interconnection or access to network elements.’ ’’ Id. at 813 n.33. The line between impermissible

‘‘superior quality’’ requirements and permissible ‘‘modification’’ requirements is not always clear.

In the Order under review, the Commission ‘‘require[d]

incumbent LECs to make routine network modifications to

unbundled transmission facilities used by requesting carriers

where the requested transmission facility has already been

constructed.’’ Order ¶ 632. The Commission elaborated that

‘‘routine network modifications’’ include ‘‘those activities that

incumbent LECs regularly undertake for their own customers,’’ but do not include ‘‘construction of new wires TTT for a

requesting carrier.’’ Id. Applying this standard, the Commission determined that when ILECs supply high-capacity

loops as unbundled elements, they must ‘‘engage in activities

necessary to activate loops that are not currently activated in

the network.’’ Id. ¶ 633. The FCC gave as examples of such

necessary loop modifications: ‘‘rearrangement or splicing of

cable; adding a doubler or repeater; adding an equipment

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case; adding a smart jack; installing a repeater shelf; adding

a line card; and deploying a new multiplexer or reconfiguring

an existing multiplexer.’’ Id. ¶ 634.

The ILECs claim that these passages manifest a resurrection of the unlawful superior quality rules. We disagree.

The FCC has established a clear and reasonable limiting

principle: the distinction between a ‘‘routine modification’’

and a ‘‘superior quality’’ alteration turns on whether the

modification is of the sort that the ILEC routinely performs,

on demand, for its own customers. While there may be

disputes about the application, the principle itself seems

sensible and consistent with the Act as interpreted by the

Eighth Circuit. Indeed, the FCC makes a plausible argument that requiring ILECs to provide CLECs with whatever

modifications the ILECs would routinely perform for their

own customers is not only allowed by the Act, but is affirmatively demanded by § 251(c)(3)’s requirement that access be

‘‘nondiscriminatory.’’ We needn’t reach that claim, however,

since the FCC’s principle is at the very least reasonable and

consistent with Iowa Utilities I.

The ILECs further object that the Order unlawfully permits states to find that ILECs are not entitled to compensation for making the requested modifications. We agree with

the FCC that this challenge will not be ripe for judicial

review until a state actually decides how much an ILEC may

charge for a specific network modification.

III. CLEC Objections

A. Unbundling of Broadband Loops

The Commission declined to require ILECs to provide

unbundled access to most of the broadband capabilities of

mass market loops. In particular, it decided (subject to

certain qualifications) not to require unbundling of the broadband capabilities of hybrid copper-fiber loops, Order ¶ ¶ 288–

89, or fiber-to-the-home (‘‘FTTH’’) loops, id. ¶ ¶ 273–77, and it

also decided not to require ILECs to unbundle the highfrequency portion of copper loops, a practice known as ‘‘line

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sharing,’’ id. ¶ ¶ 255–63. The Commission did require ILECs

to unbundle the narrowband portion of hybrid loops, Order

¶ 296, but it permitted ILECs to use a different type of

technology to connect the fiber feeder loop to the copper

distribution portion of the loop than the ILEC itself used, in

light of technological and engineering considerations, Order

¶ 297.

The CLEC petitioners attack these decisions as inconsistent with the Act. They argue, first, that CLECs are impaired without access to the broadband capabilities of loops

and, second, that the Commission is obligated to unbundle

any elements for which impairment has been shown. We

consider these claims with respect to each broadband element

in question. We then consider the CLECs’ claim that their

access to the narrowband portion of hybrid loops is impaired

by the FCC’s decision permitting ILECs to substitute an

allegedly inferior connection technology.

1. Hybrid loops

The Commission found some degree of impairment from

competitors’ lack of unbundled access to hybrid loops, Order

¶ 286, but also found that such impairment ‘‘at least partially

diminishes with the increasing deployment of fiber,’’ id., and

that unbundled access to copper subloops ‘‘adequately addresses’’ that impairment, id. § 291. Nonetheless, evidently

assuming some degree of impairment, it proceeded to invoke

the ‘‘at a minimum’’ language of § 251(d)(2) to weigh other

statutory goals against that effect. Noting the directive in

§ 706(a) of the Act that the Commission should pursue

‘‘methods that remove barriers to infrastructure investment,’’

it found that the costs of unbundling hybrid loops—stifling

investment by both ILECs and CLECs in advanced telecommunications infrastructure—outweighed the benefits of removing this barrier to competition. Id. ¶ ¶ 286, 288, 290.

The CLECs object to this interpretation of the ‘‘at a

minimum’’ clause, arguing that the Act prohibits ‘‘ad hoc’’

balancing of the statute’s pro-competition goals with an allegedly conflicting goal derived from the uncodified § 706. They

interpret the ‘‘at a minimum’’ clause to mean that the FCC

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may order unbundling even in the absence of an impairment

finding if it finds concrete benefits to unbundling that cannot

otherwise be achieved, and that it may refuse to order

unbundling in the face of impairment findings if unbundling

would conflict with some other unambiguous requirement of

the Act, such as funding universal service.

The CLECs offer two main arguments to support their

interpretation of the ‘‘at a minimum’’ clause. First, they

claim that the Commission’s interpretation contravenes the

Act’s ‘‘stated purpose’’ of promoting competition, CLEC Br.

at 18, a goal that is an ‘‘end in itself.’’ Id. (quoting Verizon,

535 U.S. at 476). But in fact the passage from Verizon on

which the CLECs rely says that eliminating traditional ILEC

monopolies ‘‘was considered both an end in itself and an

important step toward the Act’s other goals,’’ including

‘‘boosting competition in broader markets.’’ 535 U.S. at 476

(emphasis added). Section 706(a) identifies one of the Act’s

goals beyond fostering competition piggy-backed on ILEC

facilities, namely, removing barriers to infrastructure investment. The Commission thus acted reasonably in its interpretation of the ‘‘at a minimum’’ clause.

Second, the CLECs contend that failing to impose unbundling in the face of an impairment finding amounts to an

unlawful decision to ‘‘forbear’’ from applying the requirements of § 251(c). See §§ 160(a),(d). Here they rely on

Association of Communications Enterprises (‘‘ASCENT’’) v.

FCC, 235 F.3d 662, 665–68 (D.C. Cir. 2001), in which, rejecting the Commission’s argument that the exclusion of ILEC

subsidiaries was a reasonable interpretation of the statutory

phrase ‘‘successor or assign’’ in § 251(h)(2)(B)(ii), we held

that the FCC couldn’t exempt an ILEC subsidiary from

§ 251(c)(3) obligations unless it complied with the statutory

forbearance requirements of § 160.

But § 160, prescribing when the Commission may forbear

from applying statutory requirements, obviously comes into

play only for requirements that exist; it says nothing as to

what the statutory requirements are. Thus ASCENT turned

on our finding that, even under Chevron’s forgiving standard,

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the Commission’s exemption of subsidiaries was inconsistent

with the statute. 235 F.3d at 668.

As we noted above in Part II.A.3, there are at least two

ways in which the Commission could take into account the

frustration of some of the Act’s goals—such as encouraging

facilities-based competition—that would flow from giving

§ 251(c)(3) unbundling too broad a scope. It could have built

those offsets into its concept of ‘‘impairment’’ by reading that

term narrowly, or it could have embraced a relatively broad

reading of impairment and then considered, element by element, how an unbundling order might adversely affect the

Act’s other goals. The CLECs rightly point to USTA I’s

observation that ‘‘impairment’’ was the ‘‘touchstone,’’ 290 F.3d

at 425, but that opinion, far from barring consideration of

factors such as an unbundling order’s impact on investment,

clearly read the Act, as interpreted by the Supreme Court in

AT&T, to mandate exactly such consideration, id. at 427–28.

We therefore hold that the Commission reasonably interpreted § 251(c)(3) to allow it to withhold unbundling orders,

even in the face of some impairment, where such unbundling

would pose excessive impediments to infrastructure investment.

But was the Commission’s decision on hybrid loops, on this

record, a legitimate application of that principle? The Commission explained that its decision would stimulate the infrastructure investment contemplated by § 706 in two ways.

First, limiting access to the fiber portion of the hybrid loops

would give ILECs incentives to deploy fiber (both feeder

fiber and, eventually, FTTH), along with associated nextgeneration networking equipment, and to develop new broadband offerings for mass market consumers. Because unbundling orders reduce return on investment, such orders would

inhibit ILECs from making risky investments in nextgeneration technology. Second, denying CLECs access to

ILEC broadband capabilities will stimulate them to seek

innovative access options for broadband, including selfdeployment of new facilities; unbundling, by contrast, would

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be likely to blunt innovation by locking the CLECs into

technological choices made by the ILECs. Order ¶ ¶ 290,

295.

The Commission also identified two additional considerations that would mitigate any negative impact on local

competition in broadband. First, CLECs still have unbundled access to other loop alternatives in the ILEC network,

including copper subloops, which allow CLECs to compete in

the broadband market. Order ¶ 291. Second, intermodal

competition in broadband, particularly from cable companies,

means that, even if CLECs proved unable to compete with

ILECs in the broadband market, there would still be vigorous

competition from other sources. Id. ¶ 292.

The CLEC petitioners reject all these justifications, and

pose a series of objections. First, they argue, the FCC

should redress any investment disincentives for ILEC broadband loop investment not by withholding unbundling, but by

modifying the UNE pricing rules. But as we have already

held, § 251(d)(2)’s ‘‘at a minimum’’ clause allows the Commission to consider the effect on infrastructure investment when

determining what elements must be unbundled. And the fact

that the Commission and the Court have deemed TELRIC a

reasonable methodology for pricing UNEs doesn’t require the

Commission to blind itself to the fact that TELRIC may itself

be imperfect and may be implemented still more imperfectly.

While the Commission might modify its UNE pricing rules to

adequately reduce the negative impacts that it fears, until it

has done so it may reasonably consider real-world risks in

deciding what elements to unbundle.

Second, the CLECs insist that the record demonstrates

that there is no need for additional incentives for investment

in broadband infrastructure. With respect to broadband

customers served by hybrid loops, ILECs have already extensively deployed fiber feeder loops, and, the CLECs claim,

they would continue to do so even without any incentive from

expected broadband revenues, since the narrowband cost

savings from fiber feeder deployment alone justify ILEC

investment in fiber feeder. Provision of broadband involves

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additional electronic equipment, but the CLECs assert that

the costs involved are negligible compared to the fiber upgrade, and that in fact most of these additional investments

have already been made. As for alternative means of providing broadband service, the CLECs characterize the FCC’s

assertion that eliminating unbundled access to hybrid loops

would stimulate ILEC investment in FTTH loops as pure

speculation, inconsistent with record evidence that there is no

consumer demand for services requiring such loops. And

they say that the Commission may not tolerate an impairment

of competition that would benefit consumers of today in order

to create incentives for investment in systems for which there

is no evidence of demand by consumers of tomorrow.

The Commission says little in the Order or in its brief to

respond the assertion that ILECs would invest in fiber feeder

even without revenue from broadband. Indeed, the Commission appears to concede that ILECs are already investing

heavily in fiber feeder loops, Order ¶ ¶ 224, 290, and offers no

specific evidence suggesting that unbundling the broadband

capabilities of these loops would have a substantial negative

impact on this investment. (Nor, to be sure, do the CLECs

offer any sort of sophisticated econometric analysis demonstrating the likely marginal impact on investment.)

But there are at least three other aspects of the Commission’s investment incentives argument to which the CLEC

response is either inadequate or non-existent. First, the

Commission suggested that greater incentives may be needed

for ILECs to deploy the additional electronic equipment

needed to provide broadband access over a hybrid loop.

While the CLECs are correct that the Commission concluded

that the deployment of this equipment was far less ‘‘costly,

complex, and risky’’ than deployment of the fiber feeder,

Order ¶ 244, the Commission also noted that this equipment

had not been widely deployed, and suggested that ILECs had

been deterred by the ‘‘regulatory environment.’’ Order ¶ 290

& n.838.

Second, the Commission noted that deployment of feeder

fiber is the first step toward FTTH, and that limiting access

to ILEC fiber facilities increases incumbents’ incentives to

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develop and deploy FTTH. Order ¶ ¶ 272, 290. Though the

CLECs dismissed this as ‘‘pure speculation,’’ the Commission

relied on submissions in the record that the CLECs have not

directly impeached. Order ¶ 290 n.837. While the CLECs

may be right that the Commission’s judgment entails increasing consumer costs today in order to stimulate technological

innovations for which there is not yet sufficient consumer

demand, there is nothing in the Act barring such trade-offs.

Cf. Consumer Electronics Ass’n v. FCC, 347 F.3d 291, 300–03

(D.C. Cir. 2003) (upholding Commission rule that increased

television prices in order to stimulate transition to digital TV,

for which there is little present demand).

Third, the Commission rested its judgment not only on the

perceived negative effect of unbundling on ILEC investment

incentives but also on a conclusion that unbundling hybrid

loops would deter CLECs themselves from investing in deploying their own facilities, possibly using different technology. Order ¶ ¶ 288, 290. Although the CLECs argue that this

is inconsistent with the Commission’s finding that for fiber

loops, as for copper loops, ‘‘the costs are both fixed and sunk,

and TTT deployment is characterized by scale economies,’’ id.

¶ 240, that very paragraph, after weighing the various advantages of both ILECs and other entrants, concludes that ‘‘the

barriers faced in deploying fiber loops, as opposed to existing

copper loops, may be similar for both incumbent LECs and

competitive LECs.’’ Thus, while declining to unbundle hybrid loops might reduce broadband competition, the Commission reasonably concluded that such a decision might be

effective in stimulating investment in all-fiber loops.

We thus believe that, even if the CLECs are correct that

unbundling would have no impact on ILEC investment in the

fiber feeder portion of hybrid loops, the other investment

disincentives the Commission identified are sufficient for us

to uphold the reasonableness of the Commission’s determination. Reading the Order as a whole, we see little sign that

the Commission would have come out otherwise if it had

given the CLEC arguments as much credit as they deserve.

See Indiana Muni. Power Agency v. FERC, 56 F.3d 247, 256

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(D.C. Cir. 1995); Carnegie Natural Gas Co. v. FERC, 968

F.2d 1291, 1294 (D.C. Cir. 1992).

Nor can we say that the Commission was arbitrary or

capricious in thinking that any damage to broadband competition from denying unbundled access to the broadband capacities of hybrid loops is likely to be mitigated by the availability

of loop alternatives or intermodal competition. With regard

to loop alternatives, we agree with the CLECs that these

alternatives are not a perfect substitute for the ILECs’

hybrid loops, but we understand the Commission to say only

that they are a partial substitute; they will mitigate, not

eliminate, CLEC impairment. More important, we agree

with the Commission that robust intermodal competition from

cable providers—the existence of which is supported by very

strong record evidence, including cable’s maintenance of a

broadband market share on the order of 60%, see Order

¶ 292—means that even if all CLECs were driven from the

broadband market, mass market consumers will still have the

benefits of competition between cable providers and ILECs.

Although the CLECs point to evidence that CLEC broadband competition has played a role in constraining ILEC

pricing, see Declaration of Robert D. Willig, ¶ ¶ 206–08, Joint

Appendix (‘‘J.A.’’) 885–87, the evidence itself is hardly rigorous and is offset by conflicting material, see Letter of Susanne Guyer, Vice President, Verizon, at 2 (J.A. 2146), itself

not rigorous. Thus the Commission’s consideration of past

pricing effects was not arbitrary, and in any event, as the

discussion above shows, its overall judgment turned on a

range of factors.

We therefore hold that the Commission’s decision not to

order unbundling of the broadband capacity of hybrid loops

was based on permissible statutory considerations and supported by substantial evidence.

Although the Commission refused to unbundle the broadband portion of hybrid loops, it required ILECs to unbundle

the narrowband portion, Order ¶ 296, and the CLECs raise

an issue relating to the details of this unbundling. The

Commission said for various technical reasons this would be

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more difficult for hybrid loops that used integrated digital

loop carrier (‘‘IDLC’’) equipment to connect the fiber feeder

portion of the loop to the copper distribution portion than it

would for those that used universal digital loop carrier equipment (‘‘UDLC’’). Order ¶ 297 & n.855.

The CLECs protest that the record ‘‘unambiguously established that UDLC substantially degrades the speed and quality of dial-up Internet access,’’ CLEC Br. at 30, though they

fail to point us to the portions of the record that supposedly

establish this. The Commission acknowledges that ‘‘UDLC

can, in some circumstances, negatively affect data transmission speed,’’ FCC Br. 84 n.37, but it disputes the severity of

the impact. Moreover, the Order requires that ILECs ‘‘present requesting carriers a technically feasible method of unbundled access.’’ Order ¶ 297. Given the CLEC petitioners’

failure to present or highlight evidence that the impact is

severe, or to refute the Commission’s technical analysis, we

have no basis for finding the Commission decision on this

issue arbitrary or capricious.

2. Fiber-to-the-home (‘‘FTTH’’) loops

For FTTH loops, the Commission found relatively little

impairment except in a specific, limited domain. Although

FTTH deployment showed some characteristics in common

with copper loops (the costs being ‘‘both fixed and sunk, and

deployment [being] expensive,’’ Order ¶ 274), the Commission

believed that the revenue opportunities of FTTH deployment

were great enough to ‘‘ameliorate many of the entry barriers.’’ Id.; see also id. ¶ 276 (same, with respect to FTTH

parallel to or in replacement of existing copper plant). With

respect to new or so-called ‘‘greenfield’’ FTTH deployments

(as for a new subdivision), it denied unbundling without

qualification. Id. ¶ 275. For the ‘‘largely theoretical’’ scenario in which an ILEC constructed FTTH parallel to or in

replacement of its existing copper plant (‘‘overbuild’’), it declined to find impairment as to broadband services, id. ¶ 276,

but agreed with the CLECs’ concern that an ILEC might

replace and ultimately deny access to the copper loops that

CLECs were using to serve mass market customers, id.

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¶ 277. In the overbuild situations, then, it ruled that the

ILEC must either keep the existing copper loop connected

after deploying FTTH, or else provide CLECs with unbundled access to the narrowband capabilities of the replacement

FTTH loop. Id. ¶ ¶ 277, 281–84.

Although not contesting the concept that large expected

revenue can offset scale economies, the CLECs do object to

the Commission’s decision that CLECs are not impaired by

lack of unbundled access to FTTH. They argue that the

Commission ignored two critical considerations. First, they

point out that the FCC made a national finding that CLECs

are impaired without unbundled access to enterprise market

high-capacity DS3 loops (which are made from the same fiber

as mass market FTTH loops), finding that ‘‘a single DS3 loop,

generally, can not provide a sufficient revenue opportunity’’ to

overcome the entry barriers to deployment. Order ¶ 320.

This, the CLECs say, contradicts the Commission’s conclusion that ‘‘the substantial revenue opportunities posed by

FTTH deployment help ameliorate many of the entry barriers presented by the costs and scale economies.’’ Id. ¶ 274.

Second, they argue that ILECs enjoy significant ‘‘first mover’’ advantages due to their existing customer base, rights-ofway, and their existing networks’ substantial excess fiber

capacity (‘‘dark fiber’’) that ILECs can readily use for network extensions.

While the CLECs’ objections are convincing in many respects, they are ultimately unavailing. Even if the CLECs

are impaired with respect to FTTH deployment (a point we

do not decide), the § 706 considerations that we upheld as

legitimate in the hybrid loop case are enough to justify the

Commission’s decision not to unbundle FTTH. Although the

Commission based its refusal to unbundle on a finding of no

impairment, it made clear that its decision was ‘‘inform[ed]’’

by § 706. Order ¶ 278. In particular, it noted that ‘‘removing incumbent LEC unbundling obligations on FTTH loops

will promote their deployment of the network infrastructure

necessary to provide broadband services to the mass market.’’

Id. ¶ 278; see also id. ¶ ¶ 272, 290 & n.837.

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We find that these considerations are sufficient to justify

the Commission’s decision not to require FTTH unbundling,

even if CLECs are to some extent ‘‘impaired’’ in their ability

to enter certain segments of the FTTH broadband market.

This conclusion is buttressed by the evidence in the record

that FTTH deployment is still very limited, Order ¶ 274, that

both the costs and potential benefits of deployment are high,

id., and, at least in some contexts, ILECs and CLECs face

similar entry barriers, Order ¶ ¶ 240, 275 & n.808, ¶ 276. An

unbundling requirement under these circumstances seems

likely to delay infrastructure investment, with CLECs tempted to wait for ILECs to deploy FTTH and ILECs fearful that

CLEC access would undermine the investments’ potential

return. Absence of unbundling, by contrast, will give all

parties an incentive to take a shot at this potentially lucrative

market.

3. Line sharing

In USTA I, 290 F.3d at 428–29, we vacated the Commission’s decision to provide CLECs with unbundled access to

the high frequency portion of copper loops to provide broadband DSL services, primarily because the Commission had

failed to consider the relevance of intermodal competition in

the broadband market. On remand, the Commission decided

to reverse its earlier position and eliminated this unbundling

mandate. The Commission explained its change of heart as

follows.

First, the FCC rejected its prior finding that lack of

separate access to the high frequency portion would cause

impairment. The earlier impairment finding had been based

on a notion that broadband revenues would not justify the

cost of the whole loop. But now, applying its new decision to

focus on all the potential revenues from the full functionality

of a loop (voice, data, video, and other services), the Commission believes that these revenues would offset the costs

associated with purchasing the entire loop. Order ¶ 258.

Additionally, the Commission reasons that CLECs interested

only in broadband could obtain broadband frequencies from

other CLECs through line-splitting, in which one CLEC

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provides voice service on the low frequency portion of the

loop and the other provides DSL on the high frequency

portion. Thus, after taking both costs and revenues into

account, the FCC decided that eliminating mandatory line

sharing would not impair CLECs’ ability to provide broadband service. Id. ¶ 259.

The Commission also observed that the difficulties of cost

allocation for different portions of a single loop had led most

states to price the high frequency portion of the loop at

approximately zero. This distorted competitive incentives

since CLECs that purchased only the high frequency portion

had an irrational cost advantage over both ILECs and

CLECs that purchased the whole loop to offer a range of

services. Order ¶ 260. The anomalous price differential also

skewed CLECs’ incentives toward providing only broadband

service instead of bundled voice and DSL, discouraged innovative arrangements between voice CLECs and data CLECs,

and discouraged product differentiation between ILEC and

CLEC offerings. Id. ¶ 261. Thus the FCC found the results

of mandatory line sharing to be contrary to the Act’s goal of

encouraging vigorous competition in all local telecommunications markets. Id.

Finally, following our mandate in USTA I, the Commission

noted the substantial intermodal competition from cable companies, which provide nearly 60% of all high-speed lines.

Order ¶ 262 & nn.777–78. Although noting that intermodal

competition was not ‘‘dispositive’’ in the impairment analysis,

the Commission found that it lessened any competitive benefits associated with line sharing. Id. ¶ 263. Taking this into

account, along with the negative impact of unbundling on

competitive incentives, it found that ‘‘the costs of unbundling

the [high frequency portion of the loop] outweigh the benefitsTTTT’’ Id.

As with FTTH, we find that even if the CLECs are right

that there is some impairment with respect to the elimination

of mandatory line sharing, the Commission reasonably found

that other considerations outweighed any impairment. And

again we note the ambiguous state of the record on the priceconstraining effect of CLEC DSL service. We read the

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Commission as concluding that, at least in the future, line

sharing is not essential to maintain robust competition in this

market, a conclusion based on permissible considerations and

supported by evidence in the record. With respect to the

skewed incentives from zero pricing of the high frequency

portion, it is of course true that alternative cost allocations

could have reduced the skew, but any alternative allocation of

costs would itself have had some inescapable degree of arbitrariness.

Summary. We therefore uphold the Commission’s rules

concerning hybrid loops, FTTH, and line sharing on the

grounds that the decision not to unbundle these elements was

reasonable, even in the face of some CLEC impairment, in

light of evidence that unbundling would skew investment

incentives in undesirable ways and that intermodal competition from cable ensures the persistence of substantial competition in broadband.

B. Exclusion of ‘‘Entrance Facilities’’

Entrance facilities are dedicated transmission facilities that

connect ILEC and CLEC locations. Before the Order, the

Commission had defined ‘‘dedicated transport facilities’’ as

including entrance facilities. But in the Order it concluded

that this definition was ‘‘overly broad,’’ Order ¶ 365, and

found that ‘‘a more reasonable and narrowly-tailored definition of the dedicated transport network element includes only

those transmission facilities within an incumbent LEC’s

transport network, that is, the transmission facilities between

incumbent LEC switches,’’ id. ¶ 366. Thus it held, as a

matter of statutory interpretation, that entrance facilities

were not ‘‘network elements’’ subject to the statutory unbundling requirements of § 251(c)(3), id., and accordingly required no impairment analysis, id. ¶ 367 n.1119. As this is an

issue of statutory construction, we review under the Chevron

standard.

The CLEC petitioners object that the Commission’s interpretation is flatly inconsistent with the text of the Act. In

particular, the CLECs point out that § 153(29) of the Act

defines ‘‘network element’’ as ‘‘a facility of equipment used in

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the provision of a telecommunications service,’’ and that entrance facilities clearly fall within that definition. Also, the

CLEC petitioners continue, the Commission itself, in this

Order, addressed the question whether ‘‘network element’’

included only facilities ‘‘actually used by the incumbent LEC

in the provision of a telecommunications service’’ or also

included facilities ‘‘capable of being used by a requesting

carrier in the provision of a telecommunications service regardless of whether the incumbent LEC is actually using the

network element to provide a telecommunications service,’’

and expressly adopted the latter definition. Order ¶ 59.

While the Commission’s reasoning appears to have little or

no footing in the statutory definition, we find the record too

obscure to make any final ruling. The CLECs helpfully

provide a diagram of various telecommunications network

facilities, in which entrance facilities appear as completely

stand-alone items linking a CLEC switch with an ILEC

office. CLEC Reply Br. at 3. But no party offers an

explanation as to why ILECs rather than CLECs construct

these facilities. If (as appears) they exist exclusively for the

convenience of the CLECs, it seems anomalous that CLECs

do not themselves provide them, presumably doing so at the

costs associated with ‘‘the most efficient telecommunications

technology currently available,’’ 47 CFR § 51.505(b)(1), i.e.,

the TELRIC standard. The Commission hints at this consideration in observing that its ruling encourages CLECs to

‘‘incorporate those costs within their control into their network deployment strategies.’’ Order ¶ 367. Thus, although

the Commission’s ruling superficially violates the statutory

language, we simply remand the matter for further consideration. If entrance facilities are correctly classified as ‘‘network elements,’’ an analysis of impairment would presumably

follow.

C. Unbundling of Enterprise Switches

The Commission determined, on a nationwide basis, that

CLECs are not impaired by lack of unbundled access to

switching for the enterprise market at DS1 capacity and

above. Order ¶ ¶ 451–53. Though observing that the record

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showed no impairment on a national basis in the absence of

unbundling, id. ¶ 454, and indeed did ‘‘not contain evidence

identifying any particular markets where competitive carriers

would be impaired,’’ id. ¶ 455, the Commission went on to

note that ‘‘a geographically specific analysis could possibly

demonstrate that competitive carriers are impaired without

access to unbundled incumbent LEC local circuit switching

for DS1 enterprise customers in a particular market,’’ id.

¶ 454. It therefore permitted state commissions to petition

the Commission to waive the ‘‘no impairment’’ finding in

particular markets. Id. ¶ ¶ 455–58. The operative passages

direct the state commissions to ‘‘examine’’ certain issues, and

‘‘consider [certain] evidence,’’ and to make ‘‘finding[s].’’ It is

obscure what weight the Commission intended to give these

findings.

CLEC petitioners argue that the 90–day time limit on this

petition procedure is arbitrary and capricious, given that in

the mass market switching context the Order gave states nine

months to collect and analyze market data. In what appears

to be a throwaway sentence, the CLECs say the harm

inflicted by this supposed error is ‘‘compounded’’ by the fact

that the 90–day state proceedings are voluntary rather than

mandatory (i.e., at the option of the state commissions), and

that the impairment issue cannot be revisited absent changed

circumstances. Order ¶ 455.

Since we have invalidated the FCC’s subdelegation scheme

with respect to mass market switches, a challenge based on

the inconsistency between the nine-month period for mass

market determinations and the 90–day period for enterprise

market determinations is moot as a practical matter (though

not in the strict jurisdictional sense). Cf. Belton v. Washington Metro. Area Transit Auth., 20 F.3d 1197, 1203 (D.C. Cir.

1994). And in any event, we agree with the FCC that the

market data states are to analyze under the enterprise

switching provisions are significantly different from the data

they were supposed to evaluate in the mass market switching

context.

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Apart from the argument regarding the inconsistency of

time limits, the CLECs’ argument boils down to a claim that

the no impairment finding for enterprise switches (1) is

overbroad; and (2) lacks sufficient ‘‘safety valve’’ procedures

to cure this overbreadth. But the CLECs do not contradict

the Commission’s observation about the absence of evidence

of impairment either nationwide or in specific markets.

Thus, in contrast to the mass market switching context,

where the evidence indicated the presence of many markets

where CLECs suffered no impairment in the absence of

unbundling, here there is no showing of any need for a safety

valve, except insofar as one may infer a need from the

Commission’s creation of one (which may in fact have been

only an excess of caution).

The CLECs make a rather underdeveloped argument that

the vice of the alleged time-limit anomaly is ‘‘compounded’’ by

the state proceedings being ‘‘voluntary rather than mandatory,’’ and that enterprise switching cannot be re-instated after

the 90–day period without changed circumstances. CLEC

Br. at 40 (citing Order ¶ 455). But these claims seem ancillary to the now-irrelevant time-limit theory, and without a

showing of a need for a safety valve, we see no occasion to

reach them.

Finally, we note that our holding regarding unlawful subdelegation of FCC authority to state commissions does not

control the limited state commission role contemplated in the

portion of the Order dealing with enterprise switching. In

this context, state commissions are allowed merely to petition

the FCC for a waiver of the unbundling order; the FCC has

not granted the states authority to make final decisions on

such matters as the existence of impairment. Because no

party has challenged the limited state role in the enterprise

switching context we have no occasion to rule on whether the

role contemplated for the states here is legally problematic.

D. Unbundling of Call–Related Databases and Signaling

Systems

Call-related databases are used in signaling networks for

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tions services. These databases include, for example, ones

that provide name identification for caller ID service and ones

that contain information on calling cards. Order ¶ 549.

When CLECs have unbundled access to ILEC mass market

switches, they also have access to the databases that the

signaling network permits carriers to access. Id. ¶ 551.

Where CLECs provide their own switches, however, they

don’t automatically have access to the needed databases, and

they must either self-provision or purchase databases from

the ILEC or a third party. Id.

The Commission determined that CLECs are not impaired

without unbundled access to ILEC databases (other than the

911 database) because of the abundance of alternative providers. Order ¶ ¶ 551–57. The CLECs object, arguing that the

only reason alternatives to ILEC databases exist is that the

Commission had previously required ILECs to provide unbundled access to their databases (removing any competitive

incentive for the ILECs to withhold the databases from third

parties). But the CLECs point to nothing in the record

demonstrating that this is so. Even if they did, we doubt that

this alone would support a finding of impairment. As it

stands, CLECs evidently have adequate access to call-related

databases. If subsequent developments alter this situation,

affected parties may petition the Commission to amend its

rule.

E. Unbundling of Shared Transport Facilities

The FCC found CLECs that lease ILEC mass market

switches are impaired without unbundled access to so-called

‘‘shared transport’’—transmission facilities shared by more

than one carrier, including the ILEC, running between end

office switches, between end office switches and tandem

switches, and between tandem switches within the ILEC’s

network. Order ¶ ¶ 533–34. But the FCC also concluded

that, ‘‘because switching and shared transport are inextricably linked, if incumbent LECs are no longer obligated to

unbundle switching, they should no longer be obligated to

unbundle shared transport.’’ Id. ¶ 534. In effect, it found

that CLECs are entitled to unbundled shared transport only

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in cases where mass market switching has also been unbundled. Id. The CLECs object to this condition for unbundled

shared transport, saying that they are ‘‘impaired’’ without

access to shared transport between local tandem switches

when they ‘‘transit’’ traffic—that is, when they transport

traffic that originates on their network to other carriers’

networks. The Commission in fact recognized the claim,

saying that it proposed to address the issue in a pending

rulemaking on intercarrier compensation. Id. ¶ 534 n.1640.

Although the FCC failed to resolve an impairment question

pressed by the CLECs in this Order, the Commission ‘‘need

not address all problems ‘in one fell swoop.’ ’’ U.S. Cellular

Corp. v. FCC, 254 F.3d 78, 86 (D.C. Cir. 2001) (quoting Nat’l

Ass’n of Broadcasters v. FCC, 740 F.2d 1190, 1207 (D.C. Cir.

1984)). The FCC generally has broad discretion to control

the disposition of its caseload, and to defer consideration of

particular issues to future proceedings when it thinks that

doing so would be conducive to the efficient dispatch of

business and the ends of justice. See GTE Service Corp. v.

FCC, 782 F.2d 263, 273–74 (D.C. Cir. 1986) (citing Nader v.

FCC, 520 F.2d 182, 195 (D.C. Cir. 1975) and Cellular Mobile

Sys. of Penn., Inc. v. FCC, 782 F.2d 182, 197 (D.C. Cir. 1985)).

So long as the FCC’s decision to postpone consideration of

the transiting issue doesn’t result in unreasonable delay or

impose substantial hardship on the CLECs—which hasn’t

been shown here—the Commission’s choice to organize its

rulemaking docket in this way is lawful.

F. Section 271 Pricing and Combination Rules

Section 271 of the Act sets conditions for Bell operating

companies (the ‘‘BOCs’’) to enter the interLATA long distance market. These conditions include a ‘‘competitive checklist,’’ § 271(c)(2)(B), specifying fourteen conditions that a

requesting BOC must satisfy before it may provide interLATA service. Checklist item two requires BOCs to provide

‘‘[n]ondiscriminatory access to network elements in accordance with the requirements of sections 251(c)(3) and

251(d)(1),’’ § 271(c)(2)(B)(ii), while checklist items four, five,

six, and ten require the BOC to provide unbundled access to,

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respectively, local loops, local transport, local switching, and

call-related databases, §§ 271(c)(2)(B)(iv)-(vi),(x). The FCC

reasonably concluded that checklist items four, five, six and

ten imposed unbundling requirements for those elements

independent of the unbundling requirements imposed by

§§ 251–52. In other words, even in the absence of impairment, BOCs must unbundle local loops, local transport, local

switching, and call-related databases in order to enter the

interLATA market. Order ¶ ¶ 653–55.

But the FCC also found that the BOCs’ unbundling obligations under the independent checklist items differed in

some important respects from those under §§ 251–52. Two

such differences are salient here. First, the Commission

determined that TELRIC pricing was not appropriate in the

absence of impairment; for elements for which unbundling

was required only under § 271, the ruling criterion is the

§§ 201–02 standard that rates must not be unjust, unreasonable, or unreasonably discriminatory. Order ¶ ¶ 656–64.

Second, the Commission decided that, in contrast to ILEC

obligations under § 251, the independent § 271 unbundling

obligations didn’t include a duty to combine network elements.

The CLEC petitioners object to both of these differences,

arguing that the independent § 271 unbundling provisions

incorporate all the requirements imposed by §§ 251–52, including pricing and combination. Because this is an issue of

statutory construction, we review under Chevron and defer to

the Commission unless Congress has spoken to the precise

question at issue (Chevron step one) or the Commission’s

interpretation is unreasonable (Chevron step two).

With regard to pricing, the CLECs have no serious argument that the text of the statute clearly demonstrates that

the § 251 pricing rules apply to unbundling pursuant to § 271

checklist items four, five, six, and ten. The CLECs contend

that checklist item two specifies that the § 252(d)(1) pricing

rules apply to all unbundled ‘‘network elements,’’ but checklist item two says no such thing. Rather, checklist item two

by its terms requires only ‘‘[n]ondiscriminatory access to

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network elements in accordance with the requirements of

sections 251(c)(3) and 252(d)(1)’’—it says nothing suggesting

that the requirements of those sections also apply to the

independent unbundling requirements imposed by the other

items on the § 271 checklist. The CLECs also claim that it

was unreasonable for the Commission to apply a different

pricing standard under § 271, but we see nothing unreasonable in the Commission’s decision to confine TELRIC pricing

to instances where it has found impairment. See generally

Order ¶ ¶ 657–64.

As to combinations, the CLECs argue that the Supreme

Court decisions in AT&T and Verizon establish that the

nondiscrimination provision in § 251(n)(3), not its reference to

‘‘combin[ation],’’ provides the basis for the rules that ILECs

may not separate already-combined network elements before

turning them over to competitors, and that ILECs must

combine unbundled network elements when requested to do

so by CLECs. See CLEC Br. at 42 (citing AT&T, 525 U.S.

at 394, and Verizon, 535 U.S. at 537).

CLEC reliance on AT&T and Verizon is misplaced for two

reasons. First, as we’ve already held with regard to pricing,

§ 271 checklist items four, five, six, and ten do not incorporate any of the specific requirements of § 251(c)(3), including

the nondiscrimination prohibition specific to that section.

Second, neither AT&T nor Verizon holds that the § 251(c)(3)

nondiscrimination requirement mandates the combination

rules the FCC promulgated under that section; rather, those

cases found the nondiscrimination language in § 251(c)(3)

ambiguous and deferred to the agency’s reading of it. AT&T,

525 U.S. at 394–95; Verizon, 535 U.S. at 531–38. These

holdings don’t necessarily establish that a different rule would

be unreasonable. Cf. Rust v. Sullivan, 500 U.S. 173, 186–87

(1991).

We agree with the Commission that none of the requirements of § 251(c)(3) applies to items four, five, six and ten on

the § 271 competitive checklist. Of course, the independent

unbundling under § 271 is presumably governed by the general nondiscrimination requirement of § 202. But as the only

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challenge the CLECs have presented to the FCC’s § 271

combination rules is grounded in an erroneous claim of a

cross-application of § 251, we do not pass on whether the

§ 271 combination rules satisfy the § 202 nondiscrimination

requirement.

IV. Unbundling of Enhanced Extended Links (‘‘EELs’’)

Enhanced extended links (‘‘EELs’’) are high-capacity

loop/transport combinations that run directly between an end

user (usually a large business customer) and an IXC/CLEC

office. Supplemental Order Clarification, 15 FCC Rcd 9587,

9593 (2000), ¶ 10 n.36. EELs can be used to provide local

exchange services, but they can also be used to originate and

terminate long-distance calls. IXC providers have traditionally purchased these services from ILECs for long distance

purposes as a special access service, i.e., under the ILEC’s

tariff rather than at TELRIC rates.

In its first Order implementing the 1996 Act, the FCC did

not impose any limits on the telecommunications services that

a CLEC could provide with the UNEs to which it was

entitled access. Order ¶ 134 & n.446 (citing Third Report and

Order, 15 FCC Rcd at 3911–12 ¶ 484 and First Report and

Order, 11 FCC Rcd at 15671–72 ¶ 356). But in 1999 the FCC

modified this principle with respect to EELs, and issued (as

an interim measure) a supplemental order that limited access

to EELs as UNEs to those CLECs that would use unbundled

EELs to provide ‘‘a significant amount of local exchange

service.’’ Supplemental Order, 15 FCC Rcd 1760, 1760 ¶ 2.

The FCC subsequently clarified and refined this principle,

adopting three ‘‘safe harbors’’ that required CLECs to certify

sufficient local traffic percentages in order to qualify for

unbundled access to EELs, Supplemental Order Clarification, 15 FCC Rcd 9587, 9598–60 ¶ 22, and restricting ‘‘commingling’’ by CLECs of EELs and tariffed special access

services used for interoffice transmission, id. at 9602 ¶ 28.

We upheld these rules—which the FCC characterized as

‘‘interim restrictions’’—in Competitive Telecommunications

Ass’n v. FCC, 309 F.3d 8 (D.C. Cir. 2002) (‘‘CompTel’’).

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In the Order under review, the Commission revised its

approach to EELs. First, the Commission generalized the

principle underlying its earlier EELs rulings by interpreting

the unbundling obligations of § 251(d)(3) to apply only to

‘‘qualifying services,’’ defined as ‘‘those telecommunications

services that competitors provide in direct competition with

the incumbent LECs’ core services.’’ Order ¶ 139. The FCC

also decided that, once a CLEC obtained access to a UNE for

a qualifying service, the CLEC could use that UNE to

provide additional non-qualifying services. Order ¶ 143. Under these principles, CLECs are entitled to unbundled EELs

only if they use these facilities for local exchange service

(which counts as a qualifying service), but not for use exclusively for non-qualifying long distance service. Order ¶ ¶ 591,

595.

The Commission also changed its strategy for enforcing

this basic principle and for preventing ‘‘gaming’’ by carriers

that, while not bona fide providers of local service, might seek

to take advantage of the low (TELRIC) price of unbundled

EELs. It abandoned the ‘‘safe harbor’’ approach, agreeing

with the CLECs that this regime had proved intrusive,

unworkable, and susceptible to abuse by ILECs. Order ¶ 596

& n.1831, ¶ 614. It also lifted the prohibition on ‘‘commingling.’’ Id. ¶ ¶ 579–84. In place of the old restrictions, the

Commission established new ‘‘eligibility criteria’’ as prerequisites for a competitor to enjoy the access entitlement of a

bona fide provider of a qualifying service. Id. ¶ ¶ 591–611.

Each applicant would have to show, first, that it had a state

certification to provide local voice service and, second, that at

least one local number was assigned to each circuit to be

acquired as a UNE. Id. ¶ ¶ 597, 601–02. In addition, the

Commission imposed a variety of technical requirements

aimed at preventing firms from gaming the system. Id.

¶ ¶ 597, 603–11.

While the Commission admitted that none of the antigaming requirements by itself would prevent gaming, it concluded that they were ‘‘collectively sufficient to restrict the

availability of these UNE combinations to legitimate providers of local voice service.’’ Order ¶ 600 (emphasis in original).

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It justified this conclusion on the logic that ‘‘the burdens and

inefficiencies for a provider to meet these criteria for nonqualifying service would deter a carrier of non-qualifying

service from re-designing its operations to subvert our rules.’’

Id. The Commission also allowed CLECs that met the

eligibility criteria, but that currently purchased EELs from

ILECs as special access services at wholesale rates (i.e., not

TELRIC), to ‘‘convert’’ these wholesale services to UNEs.

Order ¶ 586. The CLECs object both to the concept of

distinguishing between qualifying and non-qualifying service,

and to the eligibility criteria used to implement the distinction.

A. The Qualifying Service/Non–Qualifying Service Distinction

The CLECs object to the FCC’s decision that long distance

is not a ‘‘qualifying service,’’ claiming that this conclusion is

foreclosed by §§ 251(c)(3) and 251(d)(2)(B) of the Act. Long

distance services, including the origination and termination

functions performed by EELs, are clearly ‘‘telecommunications services,’’ and § 251(d)(2) directs the Commission to

provide unbundled access to elements where the lack of such

an element ‘‘would impair the ability of the telecommunications carrier seeking access to provide the services it seeks to

offer.’’ (The Commission assumes, as we believe it must, that

the reference to ‘‘services’’ in § 251(d)(2) is meant to refer to

the ‘‘telecommunications services’’ covered by § 251(c)(3).

Order ¶ 138). The CLECs therefore argue that the FCC

cannot arbitrarily exclude them from this impairment analysis.

The Commission asserts that ‘‘section 251(d)(2)’s reference

to the ‘services that [the carrier] seeks to offer’ is ambiguous

as to the question of which services we should analyze in the

context of our impairment analysis.’’ Order ¶ 137 (alteration

in original). Having thus ‘‘conclude[d] that the language of

section 251(d)(2) is ambiguous concerning the scope of the

impairment inquiry,’’ Order ¶ 138, the FCC looked to the

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ment inquiry to those services offered in direct competition

with ILEC core services such as local voice and data services,

id. ¶ 139.

In CompTel we agreed with the Commission that

§ 251(d)(2) was ambiguous on the question whether the FCC

could make impairment decisions on a service-by-service basis. 309 F.3d at 12. That is, we considered a situation where

an element could be used to provide services A and B, and a

carrier requested unbundling for both. We held that the

Commission acted reasonably in disaggregating the impairment issue, and in ordering unbundling only with respect to

the service for which it found impairment. 309 F.3d at 12–13

(service-by-service impairment analysis permissible); 14 (impairment finding made by FCC as to local service but not as

to long distance).

Here the Commission asserts an entirely different sort of

statutory ambiguity, namely, whether long distance services

are ‘‘services’’ at all and therefore require the Commission, on

request, to perform an impairment analysis. We are not

persuaded by the Commission’s claim that the ambiguity

regarding the permissibility of service-by-service impairment

determinations extends to whether long distance services (or

other telecommunications services that do not compete directly with ‘‘core’’ ILEC services) are ‘‘services’’ within the

meaning of § 251(d)(2) in the first place. Even under the

deferential Chevron standard of review, an agency cannot,

absent strong structural or contextual evidence, exclude from

coverage certain items that clearly fall within the plain meaning of a statutory term. The argument that long distance

services are not ‘‘telecommunications services’’ has no support.

The Commission does suggest that the ‘‘impairment’’ requirement is closely linked to natural monopoly conditions

that prevail only with respect to the core ILEC services that

the Commission defined as ‘‘qualifying services.’’ FCC Br. at

77 (citing USTA I, 290 F.3d at 427). But that argument

addresses impairment, not the definition of ‘‘services.’’ We

therefore remand those sections of the Order (¶ ¶ 132–53)

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resting the exclusion of ‘‘non-qualifying’’ services on the Commission’s reading of the phrase ‘‘telecommunications services’’

in § 251(d)(2)(B).

This does not, of course, necessarily invalidate the Commission’s effort to prevent the use of EELs for long distance

service. The CLECs have pointed to no evidence suggesting

that they are impaired with respect to the provision of long

distance services, and in CompTel we emphatically held that

the Act did not bar a service-by-service analysis of impairment. 309 F.3d at 12–14. The CLECs do not deny that they

have been able to purchase use of EELs as ‘‘special access.’’

As we noted with respect to wireless carriers’ UNE demands,

competitors cannot generally be said to be impaired by

having to purchase special access services from ILECs, rather than leasing the necessary facilities at UNE rates, where

robust competition in the relevant markets belies any suggestion that the lack of unbundling makes entry uneconomic.

On remand, therefore, the Commission will presumably

turn to the issue of impairment. Because it may well find

none with reference to long distance service, we now turn to

the eligibility criteria.

B. The EEL Eligibility Criteria

Both the CLECs and the ILECs object to the FCC’s

eligibility criteria. The CLECs say they are too stringent

and are over-inclusive insofar as they preclude access to

EELs used to provide services for which CLECs are impaired. The ILECs claim they are too lax and are underinclusive insofar as they fail to prevent CLECs from using

unbundled EELs exclusively for long distance services.

We think that the Commission’s eligibility criteria, though

imperfect, reflect a reasonable effort to establish an administrable system that balances two legitimate but conflicting

goals: the prevention of ‘‘gaming’’ by CLECs seeking to offer

services for which they are not impaired, and the preservation of unbundled access for CLECs seeking to offer services

for which they are impaired. We accord considerable deference to such administrative determinations, see WorldCom,

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Inc. v. FCC, 238 F.3d 449, 459 (D.C. Cir. 2001); Home Box

Office, Inc. v. FCC, 567 F.2d 9, 60 (D.C. Cir. 1977), and find

that the proxies the FCC used, though imperfect (as the

Commission itself candidly admits, Order ¶ 600), are neither

inconsistent with the Act nor arbitrary and capricious. The

Commission also satisfactorily explained both the problems

with the regime previously in place (which the ILECs

thought should be retained), Order ¶ 614, and with the

CLECs’ proposed alternatives, id. ¶ ¶ 615–19.

The ILECs make an independent attack on the Commission’s decision to allow ‘‘conversions’’ of wholesale special

access purchases to UNEs. As we discussed in the section

on wireless carriers, the presence of robust competition in a

market where CLECs use critical ILEC facilities by purchasing special access at wholesale rates, i.e., under § 251(c)(4),

precludes a finding that the CLECs are ‘‘impaired’’ by lack of

access to the element under § 251(c)(3). We realize that this

might create anomalies, as CLECs hitherto relying on special

access might be barred from access to EELs as unbundled

elements, while a similarly situated CLEC that had just

entered the market would not be barred. On the other hand,

if history showed that lack of access to EELs had not

impaired CLECs in the past, that would be evidence that

similarly situated firms would be equally unimpaired going

forward. Because we have already determined that we must

remand to the Commission, given the invalidity of the line it

drew between qualifying and non-qualifying services, the

Commission can consider and resolve any potential anomaly

on remand.

V. Miscellaneous

There remain two loose ends, attacks on the Order by the

National Association of State Utility Consumers Advocates

(‘‘NASUCA’’) and by a group of state petitioners. We find

that NASUCA lacks standing and that the state petitioners’

claim is unripe.

A. NASUCA’s Standing

NASUCA is a non-profit association of offices, each of

which has been designated by its respective state governUSCA Case #03-1442 Document #807133 Filed: 03/02/2004 Page 59 of 62
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ments to represent the interests of utility consumers in

regulatory and judicial proceedings. We agree with the

Commission that NASUCA has failed to establish standing

pursuant to the requirements of Sierra Club v. EPA, 292

F.3d 895, 899–901 (D.C. Cir. 2002), though for different

reasons than those advanced by the Commission.

Under Sierra Club, ‘‘a petitioner whose standing is not selfevident should establish its standing by the submission of its

arguments and any affidavits or other evidence appurtenant

thereto at the first appropriate point in the review proceeding.’’ 292 F.3d at 900. A petitioner’s standing is self-evident

only if ‘‘no evidence outside the administrative record is

necessary for the court to be sure of it.’’ Id. at 900. Contrary to the Commission’s assertions, we believe that no

evidence outside the administrative record is necessary to

explain how (on NASUCA’s view of the merits) the Order

injures the consumers that NASUCA claims to represent.

See NASUCA ex parte letter (Feb. 13, 2002) at 2–3. On the

theories advanced by NASUCA, consumers would enjoy a

superior price/quality trade-off in telephone service if the

Commission accepted its analysis. But it is not at all selfevident 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),

for entities that are not voluntary membership organizations.

See also Fund Democracy, LLC v. SEC, 278 F.3d 21, 25–26

(D.C. Cir. 2002); Am. Legal Found. v. FCC, 808 F.2d 84, 89–

90 (D.C. Cir. 1987). Although utility consumer interests are

clearly affected by the Order, nothing in the administrative

record or NASUCA’s opening brief establishes that NASUCA

is qualified to represent those interests in federal court. We

therefore conclude that NASUCA lacks standing and do not

reach the merits of its claims.

B. Ripeness of the State Preemption Claims

The state petitioners argue that the Order improperly

preempts state unbundling regulations that exist independent

of the Commission’s federal unbundling regulations enacted

pursuant to § 251. Specifically, the state petitioners point to

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¶ 195 of the Order, which allows ‘‘[p]arties that believe that a

particular state unbundling obligation is inconsistent with the

limits of section 251(d)(3)(B) and (C)’’ to seek a declaratory

ruling from the Commission, and further predicts that state

unbundling requirements for elements that the FCC has

determined need not be unbundled under § 251(d)(2) are

‘‘unlikely’’ to be found consistent with the Act.

The state petitioners’ challenge to the preemptive scope of

the Order is not ripe. The general prediction voiced in ¶ 195

does not constitute final agency action, as the Commission has

not taken any view on any attempted state unbundling order.

Nor does the states’ claim present a purely legal question, as

they acknowledge that Commission regulations will lawfully

preempt in some circumstances. See Alascom, Inc. v. FCC,

727 F.2d 1212, 1218–20 (D.C. Cir. 1984); see also Time

Warner Entertainment Co. v. FCC, 56 F.3d 151, 193–96 (D.C.

Cir. 1995). Besides, the state petitioners have not—and

probably could not—identify any substantial hardship that

they would suffer by deferring judicial review of the preemption issues until the FCC actually issues a ruling that a

specific state unbundling requirement is preempted. We

therefore hold the challenge unripe.

VI. Conclusion

To summarize: We vacate the Commission’s subdelegation

to state commissions of decision-making authority over impairment determinations, which in the context of this Order

applies to the subdelegation scheme established for mass

market switching and certain dedicated transport elements

(DS1, DS3, and dark fiber). We also vacate and remand the

Commission’s nationwide impairment determinations with respect to these elements.

We vacate the Commission’s decision not to take into

account availability of tariffed special access services when

conducting the impairment analysis, and we therefore vacate

and remand the decision that wireless carriers are impaired

without unbundled access to ILEC dedicated transport.

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We vacate the Commission’s distinction between qualifying

and non-qualifying services, and remand (but do not vacate)

the decision that competing carriers are not entitled to unbundled EELs for provision of long distance exchange service.

We remand the Commission’s decision to exclude entrance

facilities from the definition of ‘‘network element’’ for further

development of the record to allow proper judicial review.

The petitions for review are otherwise denied, except for

NASUCA’s petition, which is dismissed for want of standing,

and the state commissions’ (and that part of the ILEC

petitions relating to compensation for modification of elements), which are dismissed as unripe. The ILECs’ mandamus petitions are dismissed as moot.

As to the portions of the Order that we vacate, we temporarily stay the vacatur (i.e., delay issue of the mandate) until

no later than the later of (1) the denial of any petition for

rehearing or rehearing en banc or (2) 60 days from today’s

date. This deadline is appropriate in light of the Commission’s failure, after eight years, to develop lawful unbundling

rules, and its apparent unwillingness to adhere to prior

judicial rulings.

So ordered.

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