2005 D e c i sion s O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit

7-14-2005 

# S B C C omm I nc v

. F C C

P r e c e de n t i al or N on-P r e c e de n t i al : P r e c e de n t i al D ock e t N o . 03-4311

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Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. It h as be e n a c c e pt e d for inclusion in 2005 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a U niv e r sit y S choo l of L a

w Di g it al R e posit or y

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. C a rl s on@l a

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. R e c omme nde d C it a t ion

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. F C C " (2005). 2005 D e cisio n s . P ape r 770. h tt p://d i g it alc ommon s .l a

w . v i l l a no v a . e du/thir dc ir c uit_2005/770J udge C her t off he ar d or al ar gum ent i n t hi s cas e but *
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. T h e o p i n i o n i s f

i l e d b y a q u o ru m o f

th e p a n e l. 2 8 U .S .C . § § 4 6 (d ).
T he H on. R onal d L

. B uckw al t er , Seni or D i s t r i ct J udge ** of t he U ni t ed St at es D i s t r i ct C our t for t he Eastern D i s t r i ct of 1 P RE CE DE NT I AL
UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT
N o: 03- 4311
S B C IN C ., Pet i t i oner

v.
F E DE RA L CO M M UNI CA T I ONS CO M M I S S I ON; UNI T E D S T AT E S OF AM E RI CA , R e sp o n d e n ts
Pet i t i on for R evi ew of an O r der of t he Feder al C om m uni cat i ons C om m i s s i on A r gued: N ovember 16, 2004
Bef or e : M c K EE and CH ER TO FF, C i r cui tJudges , *
a n d B U C K W A L T E R , Seni or D i s t r i ct Judge **Penns y l vani a, s i t t i ng by des i gnat i on. 2 ( O pi ni on fi l ed: J ul y 14, 2005)
J AM E S D. E L L I S , E S Q. P AUL K. M ANC I NI , E S Q. SB C C om m uni cat i ons , I nc. 175 E as t H ous t on St r eet San A nt oni o, T exas 78205
GAR Y L

. P HI L L I P S , E S Q. J AM E S P

. L AM OUR E UX, E S Q. SB C C om m uni cat i ons , I nc. 1401 I St r eet , N

. W

. , 4t h Fl oor W as hi ngt on, D

. C

. 20005
M I CH AE L K. KE L L OGG, E S Q. C O L I N S. ST R E T C H , E SQ

. ( A r gued) Ke l l o g g , Hu b e r , Ha n s e n , To d d & Ev a n s , P

. L. L. C. 1615 M St r eet , N

. W

. Sui t e 400 W as hi ngt on, D

. C

. 20036 A t t or neys f

or P et i t i oner R. HE WI T T P AT E , E S Q. A s s i s t ant A t t or ney G ener al M AKAM DEL RA HI M , E S Q. D eput y A s s i s t ant A t t or ney G ener al RO BE RT B. NI CH OL S ON, E S Q. RO BE RT B. WI GGE RS , E S Q. A t t o r n e ys3 U ni t ed St at es D epar t m ent of J us t i ce W as hi ngt on, D

. C

. 20530
J OHN A. RO GOVI N, E S Q. G ener al C ouns el RI CH AR D K. WEL CH , E S Q. D A N IE L M

. A R M S T R O N G , E S Q

. (A rgu ed ) A s s oci at e G ener al C ouns el J OHN E

. I NGL E , E S Q. D eput y A s s oci at e G ener al C ouns el RO DGE R D

. CI T RO N, E S Q. C ouns el Feder al C om m uni cat i ons C om m i s s i on W as hi ngt on, D

. C

. 20554 A t t or neys f

or R es pondent

OP I NI ON
M c K E E , C i r cui tJudge

. SB C C om m uni cat i ons , I nc. , pet i t i ons for r eview of an or der of t he Feder al C om m uni cat i ons C om m i s s i on capt i oned,

“ C ost -Ba sed T

erm i na t i ng C om

pen sat i on f

or C M R S P rovi ders , 18 FC C R cd 18441, r el eas ed on Sept ember 3, 2003 ( t he “ O r der U nd er R evi ew ”)

. SB C cont ends t hat t he O r der U nder R evi ew v io late d th e A d m in istra tiv e P ro c e d u re A c t b y im p ro p e rly r evi s i ng an FC C r ul e w i t hout fi r s t aff or di n g n o ti ce a nd an op po rt un i t y for com m ent as requi red by t he A P A . S B C al so ar gues t hat t he O r der U nder R evi ew cann ot be u ph el d b ecause i t i s a r b i t r a r y a n d c a p r i c i o u s . F o r t h e r e a s o n s e x p l a i n e d b e l o w,T he j ar gon us ed i n t he t el ecomm uni cat i ons i ndus t r y can 1 b e c o n f u s in g b e c a u se e v e ry d a y w o rd s a re u se d in a h ig h ly tec h n ica l m a n n e r. F o r ex a m p le, alth o u g h th e in sta n t d isp u te i nv olves t he “sw i t ches” used i n t el ecom m un i cat i on s, th ose s wi t c h e s b e a r n o r e s e mb l a n c e t o t h e s i n g l e p o l e , s i n g l e t h r o w, t oggl e s w i t ch t hat m os t of us use t o t ur n l i ght s on and off i n our hom es . R at her , t hes e “s w i t ches ” ar e comput er s tha t di r ect t he fl ow of t el ephone t r aff

i c by cont r ol l i ng t he el ect r i c ci r cui t s t hat con du ct t he elect ro m agn et i c energy t hat t el eph on e cal l s consi st o f

. S e e In d ia n a B e ll v. Mc C a rty , 3 6 2 F

. 3 d 3 7 8 (7th C ir

. 2 0 0 4 ). 4 w e w ill d e n y th e p e titio n f o r r e v ie w . I . GENE RAL BA CKGROUND
T he t echnol ogi cal s ea c hange t hat has occur r ed i n t he tele c o m m u n ica tio n s in d u stry h a s re v o lu tio n ize d th e m a n n e r in w hi ch l ocal t el ephone s er vi ce i s pr ovi ded. I t has al s o r es ul t ed i n dr amat i c cha nges i n fede r al and state regul at i ons of t he in d u s tr y . Prior t o the pass age of the Telec omm un ic ations Act of 1996 ( the “ 1996 Ac t ” ) , Pub. L. 104- 104, 110 St a t

. 56, “[s]tate s ty

pica ll y grante d an exclusi ve franchise in ea ch loca l se rvic e area to a local exchange car ri er (“ LE C”). ” AT& T Cor

p. v
. I owa Ut i l i t i es B o a rd , 525 U. S. 36 6, 37 1 ( 19 99 )

. Th e LE C ty pica ll y ow ned, “am on g o th er th ings, t he loca l l oo ps (wir es c onne c t i ng t e l e phone s t o s wi t c he s ) , the s wi t c h es ( e qui pm e nt di r e c ti ng c a l l s t o the i r

de s t i na t i ons ) , and the tr ans port tr unks (wir es carr

yin g ca lls between swit ches ) that c on st it ute a loca l ex ch a n g e n etw o rk .” Id

. Th e 199 6 A ct re struct ured loca l 1 telep h o n e m ark ets b y

p reem p tin g state an dlo cal f

ran ch ise5 arr ange m en ts , 47 U. S. C. § 253, and by r e qui r i ng “ i nc um

be nt l oc a l e xc hange c arr i e r s ( I LECs ) t o s har e the i r ne tworks and se rvic es with com

peti tors se ekin g en try

into the l ocal se rvic e m ar ket. ” MC

I Telec om mu nica ti on Co rp. v . Bel l Atl an ti cP en n sylva n ia , 2 7 1 F .3 d4 9 1 , 4 9 8 (3 dC ir. 2 0 0 1 ). Co ng re ss re cogn iz ed that withou t a ll ow ing n ew e ntr ant s t o us e the in cum be nt s ’ l oc a l e xc hange ne tworks and othe r

te c hnol ogy

and s e rvi c e s , the i nc u m b e n t s w o u l dm a i n t a i n as tr an g l e h o l don lo cal telep h o n e serv ice: n o n ew e n t ran t co u ld r e a l i s t i c a l l y

a ffor d t o bui l d fr om th e gr ound up th e m assiv e co mm

u n icatio n s g ridth e in cu m b en ts h add ev elo p edth ro u g h y ears o f m o n o p o l i stic advantage.
In d ia n a B ell v. M

cC a rty , 362 F. 3d 378, 382 ( 7th Ci r . , 2004) (f o o tn o te o m itted ).
Am ong othe r thi ngs , the 1996 Ac t r e qui r e d tha t ILECs allo w co m

p etito rs to “in terco n n ect” to th e i r n etw o rk s. See 47 U .S .C

. § 2 5 1 (c)(2 ). In terco n n ectio n is critically im p o rtan t to a c om pe t i t i ve l oc a l e xc hange m arke t

. W i thout i t , c us t om e r s of on e c ar ri er – e.g., the I LE C, that

has his tori ca ll y

se rved that

ar ea

–w o u ldn o t b e ab le to call cu sto m ers o f an o th er carrier –e.g ., a c om peti ti ve LE C (“ CL EC ”) , that h as re ce ntly init iate d ser

vice in th at sam e area. W he n l oc a l carriers e s t abl i s h i nt e r c onne c t i on arr ange m e nt s , the 1996 Ac t r e qui r e s the m t o in clude c om pe ns a t i on t e rm s , known a s “ r e c i pr oc a l c om pe ns a t i on6 arrangem e nt s , ” for

de l i ve ry of the tr a ffi c the y

e xc hange . 47 U .S .C . § 2 5 1 ( b )(5 ). Wh en a cu sto m er o f carrier A m ak es a lo cal call to a c u s t o me ro f carrier B , an dcarrier B u ses its fa c i l i t i e s t o c on ne c t , or “ t e rm i nat e , ” that

c a l l t o i t s o wn cu sto m er, th e “o rig in atin g ” carrier A is o rd in arily re q u i r edto com pensat e the “t er

m inat ing” carr ie r B for the use of carr ie r B’s f acilities. Se e Gl obal

NAPS, In c. v
. FCC , 247 F. 3d 252, 254 ( D. C. Ci r . 2001) ( Re c ip ro cal co m p en sati on a

r r a nge m e nt “ m e a ns that wh en a c ustom er

of Carr ie r X ca ll s a cust om er of Carr ie r Y wh o is wit

hin t he sam e loca l ca ll ing are a, Carr ie r X pay s Car ri er Y f o r c o m p letin g o r ‘term in atin g ’ th e call.”). With resp ect to the c om pe nsation ac arr i e r

m ay r e c ove r for the tr ans port

and t e rm i natio n o f tr a ffi c tha t or i gi na t e s wi th anothe r

c arr i e r , the 1996 Ac t r e qui r e s jus t

and r e a s onabl e r a t e s tha t

pr ovi de for

“ the m u tu a l a n d recip ro cal reco v ery b y each carrier o f

co sts as soci at ed with the transpo rt and te rm inat ion on ea ch carr ie r’ s network f ac il it ie s of cal ls that originat e on the network f ac il it ie s of the othe r

c arr i e r . ” 47 U.S .C

. § 2 5 2( d) ( 2) ( A) ( I )

. The 1996 Act e ff ec ti vely defines a

reason able rate as on e that i s “ a r e a s onabl e appr oxi m a t i on of the a ddi t i ona l c os t of t e rm i na t i ng su ch calls,” an d p ro h ib its an y reg u lato ry p ro ceed in g to estab lish such cost s “ with part ic ular it y .” 47 U.S.C. §§ 25 2(d)(2)(A)( ii ), 25 2(d)(2)(B)( ii ).
T h e 1 9 9 6 A c td irects co m p etin g L E C s to ad d ress
“ r e c i pr oc a l c om

pe ns a t i on” t e rm s in the fi r s t i ns t anc e thr ough v o lu n tary n e g o tiatio n s. See 47 U.S.C. §§ 25 1(b)(5), 25 2(a) ; MCI Te l e c ommuni c at ions , 271 F.3d at 50 0. When they

ar e unabl e t o do s o, the 1996 Ac t pe rm i t s e i the r

party t o pe t i t i on the ap p ro p riate state u tilities co mm issio n to arb itrate th e d isp u te in ac cordance wit

h th e te rms of the 19 96 Act and the FCC ’sM a n y p a rties p e tit io n e d f o r re v iew o f

n u m e ro u s a sp e c ts 2 of t he LocalC om

pet i t i on O r der

. T h o se p eti ti o n s w ere cons ol i dat ed i n t he Ei ght h C i r cui t

. T he O r der ’ s s ubs equent his t ory i s as fol l ow s: Modi f i ed on r econ. , 11 FC C R cd 13042 (19 9 6 ), v ac a t e d

i n p a r t , I o wa Ut i l s
. Bd

. v
. FCC , 120 F. 3d 753 (8 th C ir . 1 9 9 7 ), aff ’d i n p art , rev’ d in part , AT

& T Co r p
. v
. I o wa Ut i l s
. B d. , 5 2 5 U

. S

. 3 6 6 (19 9 9 ), decis i on on rem an d, Iow a U t i l s. Bd

. v
. FCC , 2 1 9 F .3 d 7 4 4 (8 th C ir . 2 0 0 0 ), a ff’d in p a rt, re v ’din pa rt , Ve r iz o n Co mmu n i c a t i o n s I n c
. v
. FCC , 535 U

. S. 467 (20 0 2 ). H o w ev er, no p arty p eti ti o n ed fo r rev iew o f th e F C C ’s r ul e for det er m i ni ng t he ava i l abi l i t y of t he t andem i nt er connec t i on r at e for i nt er connec t i ng car r i er s . T hat r ul e i s t he su b ject of this pe ti ti o n fo r rev iew , an d w il l b e ex p lai n ed in m o re d e t a i l b e l o w.

7 im p lem en t in g reg u latio n s. See 47 U. S. C. § 252( b) ( 1)

. The 1 9 9 6 A ct also req u iredth e F C C to ad o p t r e g u l a tio n s to i m pl e m e nt the A ct , i nc l udi ng i t s r e c i pr oc a l c om pe ns a t i on p ro v isio n s. S

ee g en era lly Io w a U

tilities B o a rd , 525 U. S. a t

377- 78, 384. W i thi n s i x m onths of the a dopt i on of the 1996 Ac t , the FC C iss ued a com

prehensi ve rule m aking d ec is ion to sati sfy that req u irem en t. See F irst R ep o rt an dO rd er, I mpl e me ntat i on of

t he Lo cal Com

peti ti on Provis ions in the T el ec om mu nicati on s Act o f 1 996 , 11 F CC Rcd 1 54 99 (199 6) (the “ L o c a l Co m p e t i t i on Order ”)

. 2 In the Lo cal Com

peti ti on Order , the FCC e s t abl i s he d a pr e s um pt i onthat the r e c i pr ocal c om

pe ns a t i onr a t e s that

two in terco n n ectin g carriers m ay ch arg e each o th er are sy mm etrical.A s not ed above , a s w i t ch i s a comput er t hat di r ect s t he 3 pat h of a t el ephone c al l by openi ng and cl os i ng t he el ect r i cal p a th w a y (o r c ir c u it) o v e r w h ic h th e c a ll tr a v e ls

. Su pra at n. 1. 8 Ac c or di ngl y , the I LECs ’ r a t e s ge ne r a l l y s e rve a s the pr oxy

for other t el ec omm

un ic at ions carr ie rs ’ additi on al cost s of tr ansport an dterm in atio n . Lo ca l Com peti ti on Order , 11 F CC Rcd at 1 6 0 3 1 -4 4 (¶¶ 1 0 6 9 -1 0 9 3 ); s e e a l so 47 C.F.R. § 5 1.71 (a ) (s y mm etri ca l r ec iproca l c om pe ns at i on r ules ). Th e FCC adop te d sy mm etric rates b ecau se, am o n g o th er th in g s, th ey are easy to ad m in ister, can p rev en t IL E C s’ f ro m tak in g ad v an tag e o f

th eir “u n eq u al b arg ain in g p o sitio n ,” an d d o n o t d isco u rag e carriers’ i nc e nt i ve s t o r e duc e c os t s . 11 FCC r c d a t 16040- 41 ( ¶

¶ 1086, 1 0 8 7 , 1 0 8 8 ); s e e al

s o I d. a t 1 6 0 4 0 ( ¶

1 0 8 6 )

. T h e FCC ex pl a i ne d tha t

i t a dopt e d the I LECs ’ r a t e s a s apr oxy for the r a t e s of othe r c arr i e r s be c aus e “ [b]oth the i nc um be nt LEC and the i nt e r c onn ectin g c arr i e r s wi l l be pr ovi di ng s e rvi c e i n the sam e g e o g rap h ic area, so th e[ ir] f o rw ard -lo o k in g eco n o m ic cost s sho uld b e s im il ar

in m ost are as .” Loc al

Compe t i t i on Order , 11 FCC Rc d a t

16040 ( par a . 1 0 8 5 ). Thi s r a t e m a ki ng sc hem e thu s a ll ow s c ar

ri er s to re cover, throug h rec iproca l co m p en satio n , “a reaso n ab le ap p ro x im atio n ” o f th eir co sts. See 47 U.S.C. § 2 52 (d)( 2)(A)(i i)

. Th e o ld er , e st abli shed te le ph on e netwo rks that tr a di t i ona l l y

ha ve be e n bui l t

by I LECs ut i l i z e ahub- and- s poke desi gn . The o u ts id e of the network –the e nd s of the spok e – are sw itch es, kn o w n as “en d -o f f ice” sw itch es, th at d irectly 3 s e rve c us t om e r s i n apart i c ul ar lo ca l c a l l i ng ar e a . The s e e ndof fi c e s wi t c he s m ay

be c on ne c t e d d i r e c t l y , on e t o ano the r . In9 additi on (or a lt er

nati vely ), the e nd -of

f ice s witc hes are co n n ectedto a “tan d em ” sw itch –th e h ub o f th e w h eel. T h ese ta nd em s wi t c he s do no t

di r e c t l y s e rve c us t om e r s , bu t

i ns t e ad ro u te calls to th e ap p ro p riate en d -o f f ice sw itch (so m etim es v ia another t andem

swit ch) and , there fo re , s er ve a num ber o f local callin g areas. Se e MCI

Te l e c ommuni c at i ons , 271 F. 3d a t 502. W he n a c a l l go e s thr ou gh the I LE C’ s t and e m s wi t c h, the I LE C in cu rs ad d itio n al c o s ts b ecau se it th en h as to tran sp o rt th e call f ro m th e t an d em

sw itch to th e en d -o f

f ice sw itch

. Loc al C om peti ti on Order , 1 1 F C C R cdat 1 6 0 4 2 (¶ 1 0 9 0 ). S ee a lso In d ia n a B ell T

el. Co . In c. v. M

cC a rty , 362 F .3 d a t

384. Mo re ov er , i nter conn ec ti ng carr ie rs do no t a lway s have i dentic al networks and therefore m us t so me ti m es te rm inat e c al ls ov er d if f eren t ty p es o f f acilities.
T h e F C C reco g n izedth at “[ n ] ew en tran ts can n o t h o p e to rep licate th e in cu m

b en ts’ ne t wo rksw itch f

o r sw itch ” an dw o u ld in steadd ep lo y

“n e w tech n o lo g y ” to term in ate calls o n th eir n etw o rk

. Lo cal Com

peti ti on Order , 11 FC C Rcd at 16 04 2 (¶ 1 0 9 0 ). N e v erth eless, th e F C C ’s Lo cal Com peti ti on Order adop te d a gen er al re gim e of sy mm etri ca l r ec iproca l co m p en satio n rates an dd irectedth e states to estab lish “pre sum ptive s y mm etri ca l r at es base d o n the incum bent LE C’s cost s for tr ansport and te rm inat ion o f tra ff ic

. . . .” 11 FC C R cd a t 1604 2 ( ¶

1089)

. Gi ve n the a dvant a ge s i t pe r c e i ve d fr om u si n g sy mm etrical rates, th e F C C f o u n dth at th e IL E C s’ co sts

“ s e rve a s r e a s onab le p r oxi e s for othe r c arr i e r s ’ c os t s of tr ansportati on and te rm inat ion f or the purpo se of

re ci procal com pensat ion.” Id . at 160 41 (¶ 10 88 ). Th e FC C s epar at el y addres se d the spec ia l s it uati on that10 oc c ur s whe n ac om

pe t i ng c arr i e r ’ s ne we r

t e c hnol ogy

doe s not pr e c i s e l y r e pl i c a t e the tr a di t i ona l “ t ande m s wi t c h” r out i ng ty pi c a l l y e m pl oy e d by

the I LEC. The FCC offe r e d the f o llo w in g ex p lan atio n o f

its reso lu tio n o f

th at p ro b lem : W e f i n dth a t th e “ a d d i t i o n a l c o s t s ” i n c u rr e db y a LEC whe n tr ans port i ng and t e rm i na t i ng ac a l l on a c om peti ng carr ie r’ s netwo rk ar e l ikel y to vary d ep en d in g o n w h eth er tan d em s w itch in g is invo lved . W e, ther efore, c on cl ud ed that st at es m ay estab lish tran sp o rt an dterm in atio n rates in th e arb itratio n p ro cess t h at v ary acco rd in g to wh ether the tr af

f ic is routed throug h a tand em swit ch or dire ct ly

to the e nd -off

ic e s witc h. In such event, st at es shal l al so consider wh ether new tech n o lo g ies (e.g ., f

ib er rin g o r w ireless n etw o rk s) p e r f

o rm f u n ctio n s sim ilar to th o se perform ed by

an incum bent LE C’ s t a

nd em swit ch and thus , whe the r s om e or a l l c a l l s t e rm i na t i ng on the ne w e ntr ant ’ s ne twork s houl d be p ri c e d the sam e as th e su m o f

tran sp o rt an dterm in atio n v ia the i nc um be nt LEC’ s t ande m s wi t c h. W he r e the in t e r c o n n e c t i n g c a rr i e r ’ s s w itch serv es a ge ogr aphi c ar e ac om

par abl e t o tha t s e rve d by

the in cu m b en t L E C ’s tan d em sw itch , th e ap p ro p riate prox y fo r the inte rc on nect ing c ar ri er ’s additi on al cost s i s the LE C tandem

inte rc on nect ion rat e. 11 FC C R cd at

16 04 2 (¶ 109 0).
T h e F C C th u s m an d atedan in q u iry in to th e g eo g rap h ic11 area serv edin d eterm in in g th e ap p ro p riate co m p en satio n rate in som e c ir cu msta nces that

m ay invo lve t andem

swit ching even though the s t a t e of the c om pe t i ng c arr i e r ’ s t e c hnol ogy m i ght not u se tan d em

sw itch in g to co m

p lete a g iv en call. Th e s ub st ance of this rule is se t f orth in the final se ntence of ¶ 109 0 o f the L o ca l Co m p etitio n O rd

er. T h at tex t is n early i de nt i c a l t o the t e xt

of Rul e 51. 711 ( a ) ( 3)

. Pur s uant t o ¶ 1090 and Rule 5 1.71 1(a) (3), a n on -I LE C carr ie r is entit le d to rec ov er th e t ande m i nt e r c onne c t i on r at e for t e rm i na t i ng tr a ffi c on its netw ork u po n a show ing that i ts swit ch se rves a geographical ar e ac om par abl e to tha t

s e rve d by

the I LEC’ s t ande m

s wi t c h. A cco rd in g to th e F C C , th ere is n o n ee d f o r th e n o n -IL E C to a l s o s how tha t

i t s sw i t c h i s “ func t i ona l l y e qui va l e nt ” t o the IL E C ’s tan d em

sw itch

. The FCC c l a i m s tha t the i ni t i a l r e c i pr oc a l c om pe ns a t i on ru les in ad v erten tl y

en co u rag edso m e co m

p etitiv e carriers to “g am e th e sy stem ” b y

su ch p ractices as so licitin g b u sin ess o n ly f ro m in t e rn et serv ice p ro v id ers (“IS P s”). S ee g en era lly W or l dCom, I nc
. v . FCC , 2 8 8 F .3 d4 2 9 (D .C .C ir. 2 0 0 2 ), cert. de ni e d s ub nom. Cor e Communi c at i ons , I nc v
. FCC , 538 U. S. 1 0 1 2 (2 0 0 3 ). A n I S P ’ s d ial-up cu sto m ers call th e IS P to conn ec t t o the inte rnet

and t y pica ll y re m ai n o n the li ne fo r an e xt e nd e d pe r i od of t i m e . W he n the I SP s ub s c r i be s t o a CL EC fo r i ts loca l s er

vice and the ISP ’s dial -up custom er s are loca l t e l e phone c us t om e r s of an I LEC, the CLEC’ s tr ans port and t e rm i na t i on s e rvi c e s ar e us e d t o c onne c t the c a l l e r

t o the inte rnet . How ever , the exaggerat ed du rati on of the c on nect ed ca ll s m eant that

the CLE C r ec orded p rotr ac te d u se fo r purpo se s of r e c i pr oc a l c o mp en s a t i on c a l c ul a t i ons . As the Court of12 Ap peal s for the D.C. Cir cu it re ce ntly fo un d, the FCC ’s init ia l r e c i pr oc a l c om

pe ns a t i on r e gi m e wa s “ fl aw[e d]” be c aus e “ I SPs ty p ically g en erate larg e v o lu m es o f o n e-w ay traf f ic in th eir dire ct ion.” W

or l dCom, I nc . v. F CC , 288 F. 3d a t 431. A cco rd in g to th e F C C , so m e co m p etitiv e carriers were able to earn substantia l part s of thei r re venu es by deli veri ng tr affic that or i gi na t e d on the I LEC ne twork t o the I SPs on the c om pe t i t i ve c arr i e r s ’ own ne tworks

. CLECs woul d the r e for e r e c eive com pensat ion f

or com plet ing lengthy

ca ll s m ade b y

an ILEC ’s cu sto m ers y et n ev er h av e to p ay an IL E C f o r co m p letin g traf

f ic in the othe r

di r e c t i on. Thi s s y s t e m

a ttr a c t e d s om e c om

pe t i t i ve LECs “ tha t en tered the bus i ne s s s i m pl y t o s e rve I SPs , m a ki ng e nough m one y

fr om r e c i pr oc a l c om

pe ns a t i on t o pay

the i r I SP cust om er s for the pri vile ge of com plet ing the ca ll s. ” I

d. Ac c or di ng t o th e FCC, thi s pr a c t i c e by s om e CLECs w as p artly resp o n sib le f o r cau sin g so m e state u t i l ity c omm i s s i one r s t o try t o r e duc e wha t the y pe r c e i ve d a s e xc e s s i ve p ay m en ts to co m

p etitiv e carriers th at w ere so lely in th e b u sin ess o f term in atin g calls to IS P s. Se e I nt e r c arr i e r

Compe ns at i on Re gi me , 16 FCC Rc d a t

9649 n. 173. I n ar

bi tr a t i on pr oc e e di ngs befo re st at e uti li ty

comm is si on s a fter

the Loc al

Compe t i t i on Order becam e e ff

ec ti ve, s om e s tate comm is si on er s i nter pret ed ¶ 109 0 o f the L o ca l C o mp et it ion O rder a s i m pos i ng upon a n o n -IL E C carrier tw o sep arate co n d itio n s p reced en t to reco v erin g th e tan d em

in terco n n ectio n rate. I

d. Su ch a c ar

ri er woul d ha ve t o e s t abl i s h b o th th at its sw itch serv eda g eo g rap h ic area co m p arab le to th e IL E C ’s, and that its sw it ch fu ncti on ed in a m an n er eq u iv alen t to th e IL E C ’s tan d em sw itch

. S

ee, e.g ., Arbitr at ion A ward

, Pr oc e e di ng to Ex ami ne Re cip roc al Compe ns at i on Pur

s ua nt to Se c t i on 252 of

t he Fe de ral13 T eleco m m u n ica tio n s A ct o

f 199 6 , Doc ke t No. 21982, 2000 Te x. P U C L ex is 9 5 (T ex . P U C Ju ly 1 3 , 2 0 0 3 ) at * 4 5 -4 7 ; see a lso Opin i on and Or de r

Conc e rni ng Re c i pr oc a l Com pe ns a t i on, Pr oc e e di ng on Mot i on of th e Commi

s s i one r to Re e x ami ne Re c i pr oc al Compe ns at i on , N. Y. PUC LEXI S 398 at *96- 97 (N .Y . P S C A u g . 2 6 1 9 9 9 ). Thi s two pr ong t e s t res ul t e d i n s om e CLECs r e c e i vi ng the l owe r non- t ande m

r a t e for r e c i pr oc a l c om

pe ns a t i on and thus r e c e i vi ng s m a l l e r

a m ount s of c om

pe ns a t i on. Ac c or di ng t o the F C C , so m e f

ed eral d istrict co u rts af

f irm ed so m e o f

th o se state co mm issio n d ecisio n s. F C C ’s B r. at 1 1 (citin g , e.g ., U . S. West Co mm un ic ations, I

nc. v . Pub li c Serv. Co mm ’n , 75 F .S u pp. 2d 12 84 , 128 9 (D.Utah 19 99 ))

. In additi on to thes e s peci fic r ules re garding the tand em inte rc on n ec ti on rate , the FC C als o ado pted two m ore genera l r ul e s r e l a t i ng t o r e c i pr oc a l c om pe ns a t i on r a t e s . Fi r s t , the FCC a dopt e d a r

ul e tha t m i rr or e d the “ a ddi t i ona l c os t s ” l angua ge of § 2 52 (d)( 2)(A)(i i) re qu ir ing that r ec iproca l c om pensat ion rat es be “ s tr uc t ur e d c ons i s t en tl y

wi th the m anne r

tha t c arr i e r s i nc ur th[e] c o st s” of

te rm inat ing local ca ll s. 47 C.F.R. § 5 1.70 9(a) ; see a lso i d

. § 5 1.50 7(a) (r equiri ng rate s t o b e “ struct ured c ons i s t e nt l y

wi thi n the m anne r i n whi c h the c os t s of pr ovi di ng the e le m ents ar e i ncurred”)

. S econ d, the FCC stre ss ed that recip ro cal co m

p en satio n rates m

u st b e craf

tedco n sisten tly

w ith

“ r a t e s tr uc t ur e r ul e s ” tha t r e qui r e di s t i nc t

r a t e s for di ffe r e nt fu ncti on s, incl ud in g (I) “t andem swit ching,” ( 2) “l ocal swit ching,” and (i ii ) the use o f “transm is si on faci li ti es betwee n tand em swit ches and end of

fice s. ” I d. § § 5 1 .5 0 9 , 5 1 .7 0 9 (a).14 I I . THE CURRENT DI SPUTE. On F eb ru ary

2, 2000, Spr i nt

PCS wr ot e al e tt e r

t o the chie fs of the FCC ’s Co mm on C ar ri er Bu re au (now kn ow n as th e “Wi r e l i n e C o mp e t i t i o n B u r e a u ” ) an d Wireless Tele commu n ic at ions Bu re au se eking g uidance on w hether a wire le ss te le ph on e s er

vice prov ider

m ay “r ec ov er in re ci procal c om pe ns a t i on a l l the a ddi t i ona l c os t s i t i nc ur s i n term i na t i ng loca l t ra ff ic originat ed on other netwo rks. ” See Le tt e r fr om J ona than M. Cham

be r s , Spr i nt

PCS, J anuary

26, 2000. The l e tter wa s pr om

pt e d by s t a t e c omm i s s i one r

de c i s i ons on re ci procal co mpensati on that Sp ri nt PC S cla im ed were i nc ons is t e nt

wi th the 1996 Ac t

and the Loc a l Com

pe t i t i on O rd er. I d. at 1 8 , 1 9 -2 0

. The FCC i s s ue d a publ i c not i c e r e que s t i ng c omm e nt s on th e S p ri n t l e tter, an dn u m ero u s p arties resp o n d ed

. At t wood Letter , 1 6 FC C Rcd at 95 98

. Many of the res po nses al so as ked the FCC to cl ar ify

the r ule g o v erning pay

m ent of the tand em inte rc on nect ion rat e for te rm inat ing tra ff ic to comm er ci al m ob il e r a di o s e rvi c e pr ovi de r s ( “ CMRS” or “ wi r e l e s s ” or “m o b ile carriers”). Se e, e
. g. , C o mmen ts o f Western Wireless C o rp o ratio n , Ju n e 1 , 2 0 0 0 ( A p p . 4 8 -4 9 ); s e e al s o R ep ly Co m m e nt s of US W e s t

Comm uni c a t i ons , I nc . , June 13, 2000 (A p p . 6 2 ). On Ap ri l 27, 20 01 , while Sp ri nt’s le tt er re qu es t was pend ing, the FCC re le as ed a Notice of Pr opos e d Rul e mak

i ng (“ NP RM ”) , i n w hich it

un dert oo k to ree x amin e the general s ub j ect o f in tercarrier co m

p en satio n . See I

ntercarr ie r Comp e ns at i on NP

RM , 1 6 F C C R c d9 6 1 0

. T h e N PRM15 addres se d many

subj ec ts , i ncluding the quest ion o f w hen an i nt e r c onne c t i ng c arr i e r

i s e nt i t l e d t o r e c ove r

the t ande m

r a t e for r e c i pr oc a l c om

pe ns a t i on. T h e F C C a c kn o w l e d g e dth a t th e r e h a db e e n s o me di s a gr e e m e n t

o v e r t h e av a i l a b i l i t y of the t ande m

i nt e r c onne c t i on rate –sp ecif

ically , w h eth e ra co m p etitiv e carrier must de m ons tr a t e func t i ona l e qui va l e nc y a s a s e par a t e r e qui r e m e nt independ ent of, and in additi on to, com para ble geographic ar ea c o v e r ag e in o rd er to reco v er th e tan d em rate. I nte r c arri er Co mp e ns at i on NP

RM , 16 FCC Rc d a t

9647, 9648 ( ¶

¶ 103, 10 5). The FC C n oted that “i n d ea li ng with prob le m s pre se nted by ISP- bo un d t

r a ff i c, som e s tate s have i ncorpo rate d a fu ncti on al e qui va l e nc y

t e s t i nt o the i r

i nt e r pr e t a t i ons of s e c t i on 51 .711 (a )( 3).” I

d. at 96 49 n.17 3. Fo r exam

ple, bo th “the Texas PUC andthe Ne w Y or

k P CS c on c l ud e d that

l ar ge i m ba l anc es in tr affic flows strong ly

sugg es t that a carr ie r i s s er ving a higher pr oport i on of c onve r ge nt c us t om e r s rath e r

than al ar ge di s tr i but i onof

c us t om e r s s i m i l ar

t o tho s e s e rve d b y

an I LE C tand em swit ch.” Id

. The FCC s t a t e d tha t the s t a t e c omm i s s i on d ecis i ons im p o sin g a sep arat e f

u n ctio n al eq u iv alen cy

req u irem en t in a ddi t i on t o the ge ogr aphi c ar e at e s t we r e “ i nc ons i s t e nt

wi th our rule .” I nte r c arr i e r Co mp e ns at i on NP RM , 16 FCC Rc d a t

9649 n. 1 7 3. The Comm i s s i on poi nt e d out tha t Rul e 51. 711( a ) ( 3) re qu ir es on ly that a carr ie r dem on strate that it s swit ch se rve “ a ge ogr aphi c ar e ac om

par abl e t o tha t

s e rve d b y the i nc um

be nt L E C ’s tan d em

sw itch ” in o rd er to receiv e th e tan d em rate. I d. a t 9 6 4 8 ( ¶ 1 0 5 )

. N e v e rth e l e s s , th e F C C a c kn o w l e d g e dthe p ro b lem s ad d ressedin th o se state d ecisio n s an dit u n d erto o ktoTh e i ss ues rai se d in the FC C’s NPR M h ave not y et 4 be e n r e s ol ve d.
T he FC C had conf

i r m ed t his i n t he Inte rc arri er 5 Co mp e ns at i on NP

RM

. 16 “c on si der w hether

to am end the rule to give st at es greate r fl e xi bi l i ty i n appl yi ng at ande m

i n t e r c o n ne c t i on r a t e t o ne tworks using n ewer , m ore e ff

ic ie nt te ch n o lo g ies. ” I

d. a t 9649 n. 173. It also in v itedco mm en t, in clu d i n g c o mm en t o n w h eth er it s h o u l da m e n di t s r

u l e t o i n c l u d e “ th e ‘ f

u n c t i o n a l e q u i v a l e n c y’ concept.

. . .” I

d. at 96 49 (¶ 10 7). 4
On May 9, 20 01 , the chie fs of the Co mm o n C ar rier Bur e a u a nd t he W ireless T eleco mm

u n icatio n s B u re a

u, a c t i ng on dele gate d autho ri ty , r el ea se d the Attwoo d L et te r a ddr e s s i ng the i s s ue s r a i s e d in S pr i nt ’ s l e tt e r a s we l l a s the r e s pons i ve comm en ts . 16 F CC Rcd 9 59 7. Th e Attwoo d L et te r was an op inion lette r of the FC C sta ff . Altho ug h i t pri m ar il y

addres se d Spr i nt ’ s i nqui ry

r e gar di ng wi r e l e s s c arr i e r s ’ i nc urr i ng a s y mm e tr i c a l , “ a ddi tio na l c os t s ” i n t e rm i na t i ng t e l e phone tr affic, it al so addres se d “ wh en a c ar ri er is enti tl ed to the t andem inte rc on nect ion rat e. ” I

d. at 95 99 . The Letter

not e d tha t

the FCC ha d r e c e nt l y

c onfi rm e d tha t , “ [w]i th resp ec t t o whe n a c arr i e r i s e nt i t l e d t o the t ande m i nt e r c onne c t i on r a t e , . . . s e c t i on 51 .711 (a )( 3) re qu ir es on ly a geograph ic ar ea

te st .” Id

. The

5 o pi ni on Letter

c onc l ude d: “ The r e for e , ac arr i e r de m ons tr a t i ng that it s s witc h ser

ves a ‘geogr ap h ic area c om

para ble t o that s e rve d by the i nc um

be nt LEC’ s t ande m s wi t c h’ i s e nt i t l e d t o the t a nd e m i nt e r c on ne c ti on ra te to te rm inat e l ocal17 te le comm un ic at ions tr affic on its network.” Id

. SB C t hen sou gh t r evie w o f the Attwoo d L et te r b y th e f u ll Co m m i s s i on . SB C ar gu e d that i n e l i m i nat i ng the “ fu nc t ional equivale nce” te st , the Attwoo d L et te r al lowed a CL E C that m eets th e g eo g rap h ic co m p arab ility test to ch arg e f

o r b o th t ande m s wi t c hi ng and tr ans m i s s i on t o the e nd- offi c e s wi t c h, even if it did no t p er fo rm those f

un ct ions. SB C was c on ce rned that , a bsent an inq uiry

into fu ncti on al equivale nce t o e nsure that the s wi t c hi ng i n que s t i on wa s t ant am ount t o t ande m

s wi t c hi ng, o r i g in atin g carriers may

p ay th e h ig h er tan d em

sw itch in g rate even th o u g h the te rm inat ing car ri er never had to prov ide that serv ice to term in ate calls o n its n etw o rk

. In applying f

or re view of

the At tw o o d

Letter , SBC al le ged that the FC C sta ff had eng aged in le gisl at ive rulem a ki ng wi thout

c om pl yi ng wi th the pr oc e du ral not i c e and c omm e nt r e qui r e m e nt s of the APA. SBC also ar gue d tha t the Attwoo d L et te r

was c on tr ar

y to the l angu age of the 19 96 Act and the Comm i s s i on’ s r

ul e s and or de r s . See Appl i c a t i on for Re vi e w of SBC Comm

uni c a t i ons , I nc . , June 8, 2001 ( App. 65, 7 4 -8 0 ). Th e Co mm is si on denied bo th cl ai m s i n the O r der U nder Re v i e w. T he O r der U

nder R evi ew aff

i r m ed t he r eas oni ng of t he FC C staff i n t he A t t w oo d L et t er. The ful l Comm i s s i on thus concluded t h at the c lari ficati on of the a pp li ca ble r ule – as anno un ce d in the I

nterc arr i e r

Co mp e ns at i on NP

RM and the Attwoo d L et te r

– wa s an i nt e r

pr e t i ve r ul i ng not s ubje c t t o the n o t ice an dco mm en t req u irem en ts o f th e A P A

. Or

de r Un de r Re v i e w at ¶¶ 2 2 -2 5 . T h e F C C a l s o co n clu d edth at th e p lainW e h av e jurisdicti o n p u rsua n t t o 2 8 U

. S

. C

. § 2 3 4 2 (1), 6
w hich provides”

T he cour t of appe al s ( ot her t han t he U ni t ed St at es C our t of A ppeal s for t he Feder al C i r cui t ) has excl us i ve j ur i s di ct i on t o enj oi n, s et asi de, su sp e n d (in w h o le o r in p a rt), o r to det er m i ne t he val i di t y of – ( 1) al l fi nal orde rs of t he Feder al C om m un i c a t i o n s C om m i s s i on m ade r evi ew abl e by s ect i on 402( a) of t i t l e 47; and 47 U

. S

. C

. § 4 02 (a) , w hich provides:

A ny pr ocee di ng t o enj oi n, s et as i de, annul , or s us pend anyor d er o f t he C om m i s s i on und er t hi s chapt er ( exce pt t hos e appe al abl e under su b se c tio n (b ) o f

th is s e c tio n ) sh a ll b e b r o u g h t as p ro v id e d b y a n d in t he m anner pr es cr i bed i n chapt er 158 of Ti t l e 28. 18 l angua ge of the r e l e vant s t atu to ry

pr ovi s i ons gove rni ng r e c i pr oc al com

pe ns a t i on onl y

r e qui r e d s a t i s fa c t i on of the g eo g rap h ic area test. I

d. a t ¶ ¶ 17- 21. The r e a ft e r , SBC fi l e d the inst ant pet it ion f

or re view

. 6
I I I . STANDARD OF REV I EW
He r e , a s be for e the Comm i s s i on, SBC ar gue s tha t the19 F C C ’s elim in atio n o f

th e f u n ctio n al eq u i v a l e n cy

test in dete rm ining ap p ro p ri at e c o m pensat ion b et

ween car ri er s viola te d the APA be c aus e i t wa s t ant a m ount t o l e gi s l a t i ve r

ul e - m a ki ng and theref

o re s ubje c t

t o the APA’ s r e qui r e m e nt of not i c e and c omm e nt

. I f we c onc l ude tha t the a ge nc y a c t e d “w ithout o b serv an ce o f

p ro cedu re as req u iredb y law ,” 5 U .S .C . § 7 0 6 (2 )( D ), w e mu stv ac at e the Orde r Unde r Re v i e w and r e m and the iss ues rai se d in the A ttw o o d L etter back to the FC C so that t he a g e n c y

c an c o m

p l y w i th th e n o t i c e an dc o mm e nt r e q u irem en ts o f

th e A P A

. Se e Spr i nt

Cor p. v
. FCC , 3 1 5 F. 3d 36 9, 37 7 ( D.C. Cir. 20 03 ). Ho wever, an ag ency ’s de t e rm i na t i on tha t

“ i t s or de r i s i nt e r pr e t a t i ve , ” and the r e for e not subj ec t t o n ot i c e and comm ent r equire m ents , “ in it se lf is enti tl ed to a s ignificant degree of

deference .” Viacom Inte rnationa l I nc. v
. FCC , 672 F. 3d 1034, 1042 ( 2d Ci r . 19 8 2 ) (ci t a t i on and inte rnal qu otat ions om itte d).
I n r e vi e wi ng the s ubs t anc e of S B C ’ s c l a i m tha t the Attwoo d L et te r

is i n co n sisten t w ith th e 1 9 9 6 A ct, w e m u st up ho ld the Orde r

Under Re v i e w u n l e s s i t i s “ ar b i tr ary, cap ricio u s, [ an ] ab u se o f d iscretio n , o r o th erw ise n o t in acco rd an ce w ith law .” 5 U .S .C . § 7 0 6 (2 )(A ). T h is is a “defere ntia l s tand ar d” that “pre sum e[s] the val idit

y of agency ac ti on .” Sout

hwes t e rn Be l l

Te l

. Co. v
. FCC , 168 F. 3d 1344, 1 3 5 2 (D .C .C ir. 1 9 9 9 ). T h e F C C is du e sub stan tial d ef eren ce in it s i m plem entati on of

the Comm

un ic at io n s A ct , and “e ven gr e a t e r d e f e r e n c e ” w h e n i n t e r

p r e t i n g i t s o w n r

u l e s and re g ulat ions.” Capi tal

Ne t wor k Sy s
. v
. FCC , 28 F. 3d 201, 206 (D .C .C ir. 1 9 9 4 ). Gl obal NAPs , I nc
. v
. FCC , 247 F. 3d 252, 257- 5 8 (D .C .C ir. 2 0 0 1 ).20 I V . DI SCUSSI ON Gi ve n the appar e nt

c om pl e xi ty of the s ubje c t

m a tt e r , and th e resu ltin g p o ten tial f

o r co n f u sio n , it w ill b e h elp f

u l to restate th e s ub st ance of

SB C’s c hall enge to the Or de r Un de r Re v i ew and pl a c e i t

i n co n tex t

be for e di s c us s i ng the m e r i t s of the p arties’ p o sitio n s. To re it er at e, wh en a c ustom er of carr ie r A m akes a l ocal call to a cu sto m er o f

carrier B , carrier B m

u st u se its f

acilities to co n n ect ( or

“ t e rm i na t e ” ) tha t

c a l l t o i t s c us t om e r . Unde r the A ct, carrier A (th e “o rig in atin g ” c a rr i er) is req u iredto c om pe ns a t e c arr i e r

B ( the “ t e rm i na t i ng” c arr i e r ) for us i ng carr ie r B’s faci li ti es to conn ec t t he ca ll to carr ie r B’s cust om er . SB C i s an I L E C

. A s w e al s o expl ai ned ea r l i er w hen d isc u ss in g th e h u b -a n d -sp o k e d e sig n th a t typ if ies “ tra d iti o n a l” t el ephone ne t w or ks , w hen a c al l goes thro u g h SB C ’ s t andem sw it ch , S B C incu rs ad d it ion al co sts be ca u se it h as to tr an sp o rt the c all fro m the tan d em sw it ch to the en d -of fice sw it ch

. M o re s p e c i f i c a l l y, SBC m

us t ( I ) s wi t c h the c a l l a t

the t ande m

s wi t c h, ( i i ) tran sport

the c a l l t o the e nd- offi c e s wi t c h tha t s e rve s the CL EC ’s cust om er , and then (i ii ) switc h the cal l at the end-of fice sw itch an dd eliv er it to th at cu sto m er. U n d er t h e 1 9 9 6 A ct, SBC c an r e c ove r the c os t s of e a c h of thos e func t i ons fr om the CL EC

. Th e c os t s ar e gr oupe d t og e the r i nt o a s i ng l e r at e kn ow n as the “ tand em

inte rc on nect ion rat e, ” or “ tand em rate ,” and that is the r at e t

hat th e C L E C m

ust pay SB C f or using S BC ’s network to com

plet e c al ls to the CLE C’s c ustom er . Howe ve r , the s a m e i s not tr ue whe n a l oc a l c us t om e r of21 S B C c a l l s a C L E C ’s cu sto m er b ecau se th e C L E C w ill fr e que nt l y

ha ve the a dvant a ge o f m or e e ffi c i e nt and so p h isticated tech n o lo g y th at w as n o t av ailab le w h en S B C b u ilt it s netwo rk. Acc ording ly , the CL EC m ay no t du plic at e SBC ’s e nd- o f f i c e s w i t c h an dt an d e m

s w i t c h n e tw o rki n t e rm i n a t i ng traf f ic. A cco r d i n g to S B C , th e C L E C ’s n ew tech n o lo g y w ill not i nvol ve the thr e e di s t i nc t func t i ons t o c onne c t

an i nc om i ng c a l l

. SBC c l a i m s tha t the CLEC’ s c om pe ns a t i on for

c om pl e t i ng th e call sh o u ldth eref

o re ref lect th e C L E C ’s r edu cedco sts. SB C sub m it s that the fu ncti on al equivale ncy te st bett er ca ptures tha t a c t ua l co st than the ge ogr aphi c ar e at e s t be c aus e the equivale ncy

inqu ir y al lows the gre at er

effici ency

of m ore m ode rn t e c hnol ogy t o be fa c t or e d i nt o the e qua t i on. Ac c or di ng to SB C, the geographic a re a t es t i gn ores any diff er ence s be twe e n i t s ne twork and the CLEC’ s ne twork by onl y foc us i ng o n th e area servedb y

co m p etin g carriers. As n o t e d a b o v e , S BC m akes t w o ar gum ent s t o s uppor t i t s pos i t i on, and w e consi der e a c h c l a i m s e p a r a t e l y. A. Th e Order Unde r Re v ie w V i ol at e s t he Not i c e and Co m m ent Require m ents of the A d mi nist rati ve Procedure Act. In the Attwoo d L et te r , the FCC’ s s t a ff s t a t e d: W i th r e s pe c t

t o whe n ac arr i e r

i s e nt itl e d t o the t ande m i nt e r c onne c t i on r a te , the Comm i s s i on st at ed that se ct ion 5 1.71 1(a) (3) of its rule s re qu ir es on ly

that the c om para ble ge og r aphic are a t e s t be m e t be for e ac arr i e r

i s e nt i t l e d to the tan d e m in terco n n ectio n rate f o r lo cal call te rm inat ion. It no te d that a lt ho ug h there has bee n22 som e c on fu si on st em

m ing f rom additi o nal lang ua g e in the te xt of

the Loc al

Compe t i t i on Or de r r e gar di ng func t i ona l e qui va l e nc y , s e c t i on 5 1 .7 1 1 (a)(3 ) req u ires o n ly a g eo g rap h ic area test. Th er efore, a

carr ie r dem on st

rati ng that

it s s witc h se rves “a g eo graphic are a c om

para ble t o that s e rve d b y the i nc um

be nt LEC’ s t ande m

s wi t c h” is en titledto th e tan d e m in terco n n ectio nrate to term in ate lo cal teleco mm u n icatio n s traf

f ic o n its network. Th e N

PR M d o e s s e e k c omm e nt on wh ether we s ho uld chang e this r ule. 16 FCC Rc d 9597. I n a ffi rm ing tha t i nt e r pr e t a t i on, the FCC e xpl a i ne d:
We find that

the [ Attwoo d L et te r ’ s ] i nt e r

pr e t a t i on o f our r ul e s i s c orr e c t

. Se c t i on 51. 711( a ) ( 3) of o u r ru les g o v ern s w h e n th e tan d em rate is a p p licab le, an d p lain ly req u ires o n ly a com para ble geograp h ic area t es t t o b e m et fo r a carr ie r t o rec ei ve the tandem inte rc on nect ion rat e: “W here the s witc h o f a car ri er othe r than an i nc um be nt LEC se rv es a g eograp hic a re a c omparabl e to t

he ar e a s e rv e d by t

he i nc umbe nt LE C’s tan dem switc h , the appr opr i a t e r a t e for the c a rr i e r o th e r th an an i n c u m b e n t L E C i s t he in cu m b en t L E C ’s tan d em

in terco n n ectio n rate.” Order Under

Revi ew , at 8 (quo ti ng 47 C.F.R. § 5 1.71 1(a) (3)) (em p h asis in o rig in al).23 SB C claim s that the FC C ann ou nced the fun ct ional eq u iv ale n c y t e st in its Lo cal Com peti ti on Order , and tha t

the O r der U nder R evi ew effectuat ed a s ub st anti ve change in the l aw wi thout a dhe r i ng t o the not i c e and c omm e nt r e qui r e m e nt s of the AP A. Th er efore, SBC con te nd s the O r der U nder R evi ew is unl awful and m

us t be va c a t e d.

“ I t i s am a xi m

of a dm i ni s tr a t i ve l aw tha t : ‘If a s e c ond rule re pu diat es or is ir

re concil able with a p ri or le gisl at ive r ule, the s e c ond r

ul e m us t be an a m e ndm e nt of the fi r s t r ul e ; and, of c our s e , an a m e ndm e nt to a legi s l a t i ve r ul e m us t i t s e l f be le gisl at ive. ’” Na ti on al Fa milyPlan ning an d R ep ro du ct iv e He al t h As s ’ n, I

nc
. v
. Sul l i v an , 979 F.2d 22 7, 23 5 (D.C. Cir. 19 92 ) ( citati on and inter

nal bra cket s om itte d). “ ‘Legis lati ve’ r ul e s tha t i m

pos e ne w dut i e s upon the r e gul a t e d party ha ve the fo rc e and effect of law and m ust be prom

ulgate d in acc ordance with the prop er procedures un der the Adm inis tr at ive Proce du re Ac t

. ” Ch a o v. Ro ther

mel , 327 F. 3d 223, 227 ( 3d Ci r . 2003) ( c i t a t i on om i tt e d)

. The appl i c abl e pr ovi s i on o f th e APA p ro v id es, in relev an t p art: (b ) G en eral n o tice o f

p ro p o sedru le m ak in g sh all b e p ub lish edin th e F ed eral R eg ister, u n less pers on s s ub

ject ther et o are nam ed and either pers on al ly se rved or otherwis e have ac tual no ti ce th ereo f in acco rd an ce w ith law

. . . . ( c ) Aft e r not i c e r e qui r e d b y thi s s e c t i on, the agency shal l give i nter es te d p er so ns an opport uni ty t o part i c i pa t e i n the rul e m a ki ng thr ough s ubm i s s i on of wr i tt en da t a , vi e ws , or24 ar gu m e nt s wi th o r

wi tho ut op po rt un i ty fo r oral pr e s e nt a t i on. 5 U .S .C . § 5 5 3 (b ), (c).
Le gi s l a t i ve r

ul e s ar e s ubje c t t o the not i c e and c omm e nt r e qui r e m e nt s of the APA be c aus e the y “ work s ubs t ant i ve changes i n p ri or re gu lati on s, ” S p rin t Co rp . , 315 F. 3d a t

374, or “c re at e new law, ri gh ts , or dutie s. ” Fe r t i l i z e r I ns t i tute v
. EP

A , 93 5 F .2d 1 30 3, 13 07 -08 (D.C. Cir. 19 91 ). “‘ Inte rpre tati v e’ r ul e s , on the othe r hand, s e e k onl y t o i nt e r pr e t l angua ge a l r e a dy in prop er ly

is sued re gu lati on s. ” Chao , 327 F. 3d a t 227 ( c i t a t i on o m itted ). “If th e ag en cy is n o t ad d in g o r am en d in g lan g u ag e to the r egulat ion, the r

ules ar e i nter

pret at ive. ” I

d. ( c i t a t i on om i tt e d)

. “ I nt e r

pr etati ve , or

‘ pr oc e dur a l , ’ r

ul e s do not them selv es s hi ft

the r i ght s or

i nt e r e s t s of the part i e s , a l though the y m ay c hange the way

i n w h ich the part i e s pr e s e nt them se lves to the a gency .” Id . (ci ta t i onom i tt e d)

. “ An inte rpre tati ve rule si m

ply st at es wh at

the a dm inis tr at ive a gency thi nks the s t a t

ut e m e ans , and onl y

r em in d s a ffe c t e d part i e s of exis ti ng du ti es .” F

ertilizer In stitu te , 935 F. 2d a t 1307 ( c i t a t i on and inte rnal qu otat ions om itte d). “ Inte rpre tati ve or procedural r ul e s and s t a t e m e nt s of pol i c y ar e e xe m pt e d fr om the not i c e and co mm en t r equire m ent of the AP A.” Chao , 327 F. 3d a t 227 (citin g 5 U .S .C . § 5 5 3 (b )(A )).
T h u s, o n e o f

th e q u estio n s th at m

u st b e an sw eredin de t e rm i ni ng whe the r

an a ge nc y

rul e i s l e gi s l a t i ve or i nt e r pr e t a tiv e is “ whe the r

the r ul e e ffe c t i ve l y

a m e nds apr i or le gisl at ive r

ule. ” Am er ic an Mining Co ng ress v. Mine Sa fe ty& He al t h Admi ni s trat i on , 995 F.2d 11 06 , 111 2 (D.C. Cir. 19 93 ).25 Fu rthe rm or e , i f an a ge nc y ’ s pr e s e nt i nt e r pr e t a t i onof

a r e gul a t i on i s afunda m e nt a l m odi fi c a t i o n o f apr e vi ous inte rpre tati on , the m od ific at ion can on ly be m ade i n acc ordance wi th the no t i c e andc om m e nt re qu i r e m e nt s of

the AP A. Pa ral y z e d V e t e ran s of Am e r i c a v
. D. C. Ar e na , L. P. , 117 F. 3d 57 9, 58 6 (D.C. Cir. 19 97 ). SB C insis ts that

the O r der U

nder R evi ew e l i m i na t e d the func t i ona l e qui va l e nc y t e s t , and tha t i t the r e for e c han g ed the FCC’ s p rio r i nt e r

pr e t a t i on of aCLEC’ s e nt i t l e m e nt t o the t an d e m r a t e . Ac c or di ngl y , ar gue s SBC, i t wa s t ant a m ount

t o a l e gi s l a t i ve a m e ndm e nt

and s ubje c t

t o the APA’ s r e qui r e m e nt of not i c e and c omm e nt

. Ac c or di ng t o SBC, the l e gi s l a t i ve am endm ent r es ults from

the focus of

the O r der U

nd er Revi ew o n th e lan g u ag e o f

Ru le 5 1 .7 1 1 (a)(3 ). As not e d, tha t

r ul e s t a t e s tha t

aCLEC i s e nt i t l e d t o the tand em rate wh er e the CL EC ’s swit ch “s er ves a geog ra

ph ic ar ea com para ble to the ar ea se rved by the i ncum bent LE C’s t andem swit ch.” According to S BC , the O r der U nder R evi ew ther efore had th e e ff

ec t of com

plet el y el im inat ing the fu ncti on al equivale ncy inqu ir

y m andate d by

the L o ca l Co m

p etitio n O rd

er. SBC c l a i m s that

wo rke d a

s ub s t ant i ve c hang e i n the FC C’ s pr i or pr onounc e m e nt s r e gar di ng aCLEC’ s e nt i t l e m e nt to the t ande m r a t e wi th o u t i nvoki ng the not i c e and c omm e nt pr ovi s i ons of the A P A

. Se e Paral y z e d Ve t e rans of

Ame r i c a, 11 7 F .3 d at 58 6 (“Once an agency gives i ts re gu lati on an in terp retatio n , it can o n ly ch an g e th at in terp retatio n as it w o u ld form a l l y m odi fy the r e gul a t i on i t s e l f: thr ough the pr oc e s s of n o tice an dco mm en t ru lem ak in g .”).26 S B C ’ s c laim

is n o t w ith o u t so m e f o rce as th ere is lang uage in the Lo cal Com peti ti on Order

th at a p p e a rs to supp ort SBC ’s cl ai m . The Lo cal Com peti ti on Order

p ro v id es, in relev an t p art: the “a dd it ional cost s” incurr ed by a L E C w hen tr ans port i n g and t e rm i na t i ng ac a l l on a com peti ng carr ie r’ s network are l ikel y to vary d ep en d in g o n w h eth er tan d em s w itch in g is in v o lv ed

. We, t

here fore, c on cluded that st

ates m a y esta b lish tra n sp o rt a n d term in a tio n ra tes in th e a rb itra tio n p ro cess t h a t va ry a cco rd in g to wh et her t he tra ff ic is routed throug h a tandem switch or dire ct lyto the e nd -off ic e s witc h. In such ev ent, st

ates shall als o con si der wh et her n ew tech n o lo g ies (

e.g ., fib er r i n g

o r w ireless n etw o rks) p e r

fo rm fu n ctio n s sim ila r to th o se perf ormed b y a n incumb ent L EC ’s tandem switch and t hus , whe t he r s ome or al l cal l s t e rmi nat i ng on the new entra n t’s net wo rk shou ld be pric ed t he s ame as t

he s um of trans

por t and t e rmi nat i on via th e in cu m b en t L E C ’s ta n d em sw itch

. Wher e th e in terco n n ectin g carrier’s sw itch se rv es a ge ogr aphi c ar e ac om

par abl e t o tha t s e rve d by

the in cu m b en t L E C ’s tan d em sw itch , th e ap p ro p riate prox y fo r the inte rc on nect ing c ar ri er ’s additi on al cost s i s the LE C tandem

inte rc on nect ion rat e. 1 1 F C C R cdat 1 6 0 4 2 (¶ 1 0 9 0 ) (em p h asis ad d ed ).
M o r eo v er, th e F C C co n ced es th at so m e state27 comm is si on s have i nter pret ed this po rt ion o f the Loc al Co mp et it ion O rder

a s e s t abl i s hi ng atwo- part t e s t for d eterm in in g a C L E C ’s en titlem en t to th e tan d e m rate. T h o se comm is si on s have c on cl ud ed that a C LE C se eking the ta nd em r a t e m us t e s t abl i s h b o th that it s swit ch se rved a geographic ar ea c om par ab l e t o the I LEC’ s t ande m s wi t c h and

that i t s ow n s wi t c h pe r form e d func t i ons e quiv al e nt t o the func t i ons pe r form e d by

the I LEC’ s t ande m

s wi t c h. Howe ve r , the FCC n o t e s th a t th e o n l y r e

gulat i on i t

a c t ua l l y a do pt e d f

or pu r po s es o f d ete rm in in g w h en a C L E C is en titledto th e tan d em rate (a fter disc ussi ng the i ss ue in the Lo cal Implementati on Order) w as Ru le 5 1 .7 1 1 (a)(3 ), w h ich p ro v id es: Wher e the swit ch of

a c ar ri er other tha n an incum bent LE C ser

ves a geog ra ph ic ar ea c om par abl e t o the ar e as e rve d b y the i nc um be nt LEC’ s t ande m

s wi t c h, the appr opr i a t e r a t e for the c arr i e r othe r than an in cu mbe nt

LEC i s the incum bent LE C’s t andem

inte rc on nect ion rat e. 47 C.F.R. § 5 1.71 1(a) (3). Th e FCC corr ec tl y em ph as iz es that that re gu lati on say s nothing abou t r equiri ng the “other carr ie r” (th e C L E C ) to also satisf y a f u n ctio n al eq u iv alen cy

test to qua l i fy for c om

pe ns a t i on a t the LEC’ s t ande m i nt e r c onne c t i on rate

. N ev erthe l e s s , SBC i ns i s t s tha t the r e gul a t i on c annot

be re ad in is olat ion f

rom the L o ca l Co m

p etitio n O rd

er, and there i s s upport for tha t pos i t i on. I n Veri

zon Com mu nicati on s I

nc. v
. FCC , 5 3 5 U .S . 4 6 7 , 5 3 7 -3 8 (2 0 0 2 ), th e S up rem e C o u rt up h eld a n FC C r u l e o nth e b a s i s o f

al i m i t a t i o n e x p r e s s e dn o t i n theT he Lo c a lComp e t i t i o n Order at i ssue here i s t he F i rs t 7 R epor t and O r der

. T he FC C has i s s ued s ubs equent R epor t s and O r der s al s o r efe r r ed t o as t he LocalC om pet i t i on O rd er . For e x a mp l e , t h e S e c o n d Re p o r t a n d Or d e r c a n b e f o u n d a t 1 1 F CC R cd 19392 ( 1966) and t he Thi r d R epor t and O r der can be found at 15 FC C R cd 3696 ( 1999)

. E ach Repor t and O r der w as m ent i oned by t he Supr eme C our t i n V er i z on C om m uni cat i ons ; how ever , t he C our t ’ s r ul i ng m ent i oned i n t he t ext of t hi s opi ni on w as bas ed on t he Fi r s t R ep o rt an d O r der , w hi ch i s t he Local C om peti t i on O rder in v o lv e d h e re . 28 rule it se lf, but rather

in the t ext of the L o ca l C o mpe t i t i on Order

. Mor e ove r , SBC c ont e nds tha t the r ul e ’ s om i ssio n of 7 afunc t i ona l e qui va l e nc y req ui r e m e nt doe s not

r e s ol ve the i nqui ry be c aus e the di s c us s i on of func t i ona l e qui va l e nc e i n the Lo cal Com

peti ti on Order

can n o t b e ig n o red

. As a ge ne r a l pr opos i t i on, we a gr e e tha t SBC’ s ar gum e nt that the r e gu l a t i on m

us t be r e a d i n c on

ju nc t i on wi th the Loc al Co mp et it ion O rder

ha s m e r i t

. W e c annot

a c c e pt SBC’ s p o s i t i on here , how ev er, witho ut igno ri ng FC C p rono un ce m ents befo re i t i s s ue d the O rd er U

nder R evi ew on Se pt e m

be r 3, 2003. For exam ple, in the I

nte r c arr i e r

Co mp e ns at i on NP

RM , r e l e a s e d on Ap ri l 27, 20 01 , the FC C d id no te that som e s tate s had applie d afunc t i ona l e qui va l e nc y t e s t t o de t e rm i ne the a va i l abi l i ty of the tan d em rate. I nte r c arr i e r

Co mp e ns at i on NP

RM , 16 F CC Rcd at 96 46 -49 (¶¶ 102-10 7 & n .1 7 3 ). Ho wever, the FCC then cl earl y st at ed in the NPR M that such st at e i nter pret at ions were “i ncon si st en t w ith o ur rule .” I d. a t n. 173. Si gni fi c ant l y , the FCC issu e d the NPRM part ly to “s ee k comm ent on w hether29 se ct ion 5 1.7 1 1 (a )( 3) shou ld be am ended t o i nc l ude the

‘ func t i o n al e qui va l e nc y ’ c onc e pt di s c us s e d i n the t e xt

of the Lo ca l Com

peti tio n O rd er .” I

d. at 9 6 4 9 (¶ 1 0 7 ) (em

p h asis a dde d)

. Obvi ous l y , i f the FCC be l i e ve d tha t § 51. 711( a ) ( 3) contained a fu ncti on al equivale ncy re qu ir em ent when p ro m u lg ated , n o am en d m en t w o u ldh av e b een n ecessary . Mo re ov er , the Or d e r Und e r Re v i ew sp ecif ically ad d ressedS B C ’s co n ten tio n th at th e reg u latio n m u st b e readin co n ju ncti on with the Lo cal Com peti ti on Order . The Or d er U nder R evi ew read s, in relev an t p art, as f o llo w s: SBC a l s o ar gue s tha t s e c t i on 51. 711( a ) ( 3) of our r ul e s m us t be i nt e r

pr e t e d t o r e qui r e both a f u n ctio n al eq u iv alen ce test an da co m p arab le g eo g rap h ic area test b asedo n th e d i s c u ssio n in the Lo cal Com

peti ti on Order ad d ressi n g th is is sue. As the [

Attwoo d L et te r ] c orr e c t l y not e d, h o w ev er, th e C o mm issio n h a s p rev io u sly a dd res s e d the i m

port of thi s l angua ge i n the [N PR M] and state d that “a lt ho ug h ther e has been som e c on fu si on st em

min g f rom additi on al lang uage in the text of the [ Loc al Compe t i t i on Order ] r e gar di ng func t i ona l e qui va l e nc y , s e c t i on 5 1

. 7 1 1 ( a ) ( 3 ) i s c l e ar

i n r e q u i r i n g o n l y a g eo g rap h ic area t est.” We reaf f irm th is i nt e r pr e t a t i on. Order , a t 9, ¶ 21 ( footnot e s om i tt e d)

. In a f o o tnot e t o the s e c ond s e nt e nc e , the FCC furthe r c l ar i fi e d wha t i t wa s r e fe rr i ng to in the L o ca l Co m

p etitio n O rd

er wh en it disc usse d f

un ct ional equivale nce:30 I n r e a ffi r m i ng the Comm i s s i on’ s i nt e r pr e t a t i on of the t ande m

i nt e r c onne c t i on r a t e r

ul e , we fi nd no inconsis te ncy

betwee n t he disc ussi on in the Loc al Co mp et it ion O rder

. . . and the l anguag e i n the promulgate d rule . T he Lo cal Co mp et it ion O rder do es re fer to a f

un ct ional analy si s that s tate s shou ld apply , but then im

po se s a geog ra ph ic ar ea t e st as as uffi c i e nt

c ondi t i on for

r e c e i vi ng the t a n d em rate. Th e c om

pa rab l e ge ograp hi c ar ea t es t a c t s a s a s p e c i a l c a s e o f t h e f u n c t i onal a n a lysis, i.e, if th e g eo gra p h ic a rea test is sati sf ie d, then functi on al si milari tyis es tablis hed fo r p u rp o ses o

f d eterm in in g

th e a p p ro p r i a te recip ro ca l co m

p en sa tio n ra te

. The Comm i s s i on thus did n ot prec lude st at es from find ing that new te chno logies ar e fun ct ionall y si m il ar to tand em swit ches even thou gh they do no t s er

ve a ge ogr aphi c ar e a c om

par abl e t o tha t

s e rve d by

the in cu m b en t L E C ’s tan d em

sw i t c h

. S

ee, e.g ., Florida P SC

Order , 2 0 0 2 WL 1 5 7 6 9 1 2 (“it is appro p ri at e t o con si der the fu ncti on al it y of an CLEC’ s ne twork i n situ a t i ons whe r e i t doe s not se rve a geog ra ph ic ar ea com

para ble t o that s er

ved b y an IL E C tan d em

sw itch .”).
I d. at 9 n .6 3 (em

p h asis ad d ed ). Accordingly , the O r der U nder R evi ew cl earl y

explai ned tha t the FC C d e c i de d that

aCL EC ’ s ne we r

t e c hn ol og y

s wi tc h is consider ed the fu n ctional e qu ival ent of an ILE C’s t andem swit ch if the g eo g ra p h ic ar ea se rved by

the CLE C’s newerT hi s i s not a ca s e l i ke C a ru so v . B lo c k b u ste r-S o ny Mu sic 8 E nt er t ai nm ent

C ent er , 193 F. 3d 730 ( 3d C i r . 1999) w her e an agenc y ’ s s ubs equent i nt er pr et at i on of a r ul e w oul d r es ul t i n t he adopt i on of an en ti rel y new r egul at i on w i t hout t he not i ce a nd comm ent r equi r ed by t he A PA

. I n C aruso , t he age ncy ’ s i ni t i al ru le, w h ich a d d re ss e d th e p lac e m e n t o f w h e e lch a ir lo c a tio n s in fac i l i t i es l i ke t he B l o ck bus t er - Sony M us i c C ent er , di d not i ncl ude a r equi r ement t hat w heel chai r us er s be abl e t o s ee ove r s t andi ng patron s . A s ubs equent i nt er pr et at i on of t hat r ul e t hat in c lu d e d su c h a re q u ire m e n t w a s re lied o n b y a w h e e lc h a ir b o u n d p l a i n t i f

f a l l e g i n g a v i o l a t i o n o f t h e r u l e . Ho we v e r , we found t hat beca us e t he i ni t i al r ul e di d not addr es s t he i s s ue of 31 swit ch is com

para ble to the are a ser

ved by the ILE C’s t andem swit ch. How ever , a fu ncti on al equivale ncy te st is st il l r equire d wh en, and o n ly

wh en, the CL EC ’s newer t ec hn olog y swit ch doe s not s e rve a ge ogr aphi c ar e a c om par abl e t o tha t

s e rve d by the ILEC ’s tand em swit ch. Th er efore, re ading the Loc al Co m p etitio n O rd

er i n c onjunc t i on wi th the r e gul a t i on doe s not p ro du ce th e resu lt S B C ad v o cates. We conclude that

the O r der U

nder R evi ew is th o ro u g h ly c onsi st ent with the Lo cal Com peti ton O rder , the r e gul a t i on, and the I nte r c arr i e r

Co mp e ns at i on NP

RM

. The O r der U

nder R evi ew di d not

m odi fy or s ubs t ant i ve l y c hange the FCC’ s pr i or i nt e r pr e t a t i on of the r e gul a t i on or imp o se ne w dut i e s upon r e gul a t e d part i e s , and the r e for e the APA’ s not i c e and c omm e nt re qu ir em ents do no t ap p ly . T he O r der U nder R evi ew is , at m ost, inte rpre tati ve. I t s im pl y cl ar ifie d, and exp la ined, an exis ti ng rule

. Spr i nt

Cor p. , 3 1 5 F .3 dat 3 7 3

. 8s i ght l i nes over s t andi ng s pec t a t o r s , t h e s u b s e q u e n t i nt er pr et at i on of t hat r ul e t o i ncl ude s uch a r equi r ement w as r eal l y an adopt i on o f a n e w re g u la tio n w ith o u t n o tic e a n d c o m m e n t.

In m aking t his argum ent, S B C ci t es N at i onal M ining 9 A s s ’ n v. D epar t m ent

of Labor , 2 9 2 F

. 3 d 8 4 9 (D

. C

. C ir

. 2 0 0 2 ). S B C c o n ten d s th a t N

at i onalM i ni ng s t ands for t he prop o sit i on that w h ere an a g e n cy ’s de cisi o n su stai n s o n e c o u rt ’s interpr e ta tio n o f a reg u lat ion , b u t r ev erse s an o ther c o u rt ’s i nter pret at i on of the sam e regul at i on , t he ag ency ’s decis i on i s a new r ul e t hat m us t m eet t he A PA ’ s n o ti ce a nd comm ent re q u ir e m e n ts . H o w e v e r, N at i onalM i ni ng had not hing to do w ith th e A P A ’s n o tice a n d c o m m e n t re q u ir e m e n ts. In ste a d , it a d d re ss e d th e q u e stio n o f th e re tro a c tiv ity o f a n e w a g e n c y ru le 32 SB C als o con te nd s that the Order Un der Rev ie w r e pudi a t e d the de c i s i on i n U. S. W es t Co mm un i c at i on s v
. MF

S Inte le net, Inc. , 193 F.3d 11 12 (9th Cir. 19 99 ). Th er e, the c ou rt ci te d the Lo cal Com

peti ti on Order

a t ¶ 1090 i n s t a t i ng tha t

“ the C o m m i s s i on found tha t MFS’ s s wi t c h ‘ i s c om par abl e in g e o g r ap h i c s c o p e ’ t o U

. S

. W e s t ’ s t an d e m s w i t c h an d‘ p e r f o rms the func t i on of a ggr e ga t i ng the tr a ffi c . . . . ” 193 F. 3d 1112. SB C rel ie s upo n that s tate m ent i n argui ng that the c ou rt inte rpre te d FCC ruli ng s as re qu ir ing a fu ncti on al equivale nce t e s t as w ell as a g eo g rap h ic area test. S B C th e n a rg u e s th a t, s i n ce t he Or d e r Un d e r Re v i e w s ubs t ant i vel y al t er ed t he l egal l ands cape i n t he N i nt h C i r cui t , i t cons t i t ut ed a ne w r ul e and w as t her efor e s ubj ect t o t he A PA ’ s not i ce a nd comm ent requi rem ents

. 9t hat es s ent i al l y adopt s t he p os i t i on t aken on a n i s s ue by one co u rt o f a p p ea ls, b u t r ejec ts t h e p o sit ion take n b y an o ther c o u rt of appe al s on t he s am e issue

. N ever t hel es s , w e w i l l , for ar gum ent ’ s s ake, acc ept SB C ’ s cl ai m t hat w her e t her e has been a s ubs t ant i ve cha ng e in t he l aw , t he t es t for r et r oact i vi t y i s t he sam e a s a n in q u ir y into w h ethe r no ti ce an d co m m en t are re q u ir e d u n d e r t h e A P A . R e p ly B r. a t 1 2 n .5

. 33 T he di ffi cul t y w i t h t hi s ar gum ent i s t hat t he cour t i n M FS I nt el enet di d not hol d t hat funct i onal equi val enc y w as a fa ct or i n det er m i ni ng compensa t i on r at es . R at her , t her e, t he cour t w as onl y cons i der i ng w het her “[t ] he C om m i s s i on’ s cl as s i fi cat i on of M FS’s s w i t ch as a t andem s w i t ch w as . . . ar b it rary and capr i ci ous . ” 193 F. 3d at 1124. I n hol di ng t hat i t w as not , t he cour t not ed t hat t he C om m i s s i on “pr oper l y cons i der ed w het her M F S ’s sw i t ch p erform s sim i l ar functi on s and serves a geogr aphi c ar ea c om par abl e t o U

. S. W es t ’ s t andem sw i t ch. ” Id ., at 1124 ( ci t i ng L oca l C om peti t i on O rder at ¶ 1 0 9 0

. ). H o w ev er, t he court w as not conce r ned w i t h r eci pr ocal compensa t i on or cal cul at i ng t he appr opri ate rat e a CL E C can c har ge for co m p let ing a n IL E C ’s cu stom er’s ca ll s o v er the C L E C ’s n etw o rk. A cc o rdin g ly , the co u rt ’s in q u ir y into w h ethe r M F S ’s n e tw o r k re lied u p o n tan d e m sw itch e s h a s n o th in g to d o w ith w het her funct i onal equi val encyi s an e lem ent of t he compensa t i on r at e at i s s ue her e.
M or eover , i n a l at er ca se, th e C our t of A ppeal s for t he N i nt h C i r cui t cl ar i fi ed t hi s by adopt i ng t he s ame i nt er pr et at i on o f the t andem i nt er connec t i on r at e r ul e t hat t he FC C appr oved i n t he Or d e r Un d e r Re v i e w. In U

. S. W es tC om m uni cat i ons , I

nc.34 v. W as hi n gt on Ut i l i t i es and Trans por t at i on C om m i s s i on , 255 F

. 3 d 9 9 0 ( 9 t h C i r . 2 0 0 1 ) , t h e i s s u e wa s wh e t h e r AT & T W i r el es s ( t he C L E C ) w as ent i t l ed t o r eci pr ocal co m pens at i on bas ed on U

. S. W es t ’ s ( t he I L E C ) end- offi ce r at e or t andem r at e. U

. S. W es t ar gued t hat A T & T s houl d r ece i ve re ci pr ocal compensa t i on at t he l es s expens i ve end- offi ce r at e r at her t han t he hi gher t andem r at e bec aus e A T & T ’ s m obi l e s w i t ches “[di d] not pr ovi de t he ‘ s ame se r vi ces ’ ” as U

. S. W es t ’ s t andem sw i t ch. I d. at 996. “A T & T ar gue[d] t hat , acc or di ng t o § 51. 711( a) ( 3)

. . . i t i s ent i t l ed t o t he t andem r at e bec aus e i t s [m obi l e s w i t chi ng cent er s ] s er ve a geogr aphi c ar ea c om par abl e t o t he ar ea s er ved by U

. S. W es t ’ s t andem sw it ches. ” Id

. R el y i ng upon t he r e g u l a t i o n a n d t h e t e x t o f t he L o calC om

pet i t i on O r der , t he c o u rt c o n c lu d e d th a t, p u rsu a n t to § 5 1 .7 1 1 (a )(3 ), A T & T o n ly neede d t o es t abl i s h t hat i t s er ved a c om par abl e geogr aphi c ar ea to b e e n title d to th e h ig h e r t a n d e m c o m p e n s a tio n ra te

. I d. at 994- 98. T he cour t r ej ect ed U

. S. W es t ’ s ar gum ent t o t he c o n tr a ry. I

d. at 995- 96. A ccor di ngl y , w e can not agr ee t hat t he Or d e r Un d e r Re v i e w su b sta n tiv e ly a ltere d th e leg a l lan d sc a p e in th e N in th C ir c u it.
In its R e p ly B rie f

, S B C c h a n g e s it s tac tic s o m e w h a t. T her e, i t ar gues t hat t he O r der U nder R evi ew w as s ubj ect t o t he n o tice a n d c o m m e n t re q u ire m e n ts o f th e A P A b e c a u se it r emoved t he pr i or aut hor i t y s t at e comm i s s i ons had been gi ven t o cons i der funct i onal equi val ence i n ar bi t r at i ng compensa t i on agr eement s pur s uant t o t he Local C om pet i t i on O r der

. See R e p ly B r. at 1 0 to 1 2 . S B C c la im s th a t “th e F C C h a s n o ten a b le r es pons e t o t he undi s put ed fa ct t hat nu me r o u s s t at e comm i s s i ons and fe der al cour t s i nt er pr et ed t he L oca lC om peti t i on O rd er to aut hor i ze an i nqui r y i nt o funct i onal equi val ence . ” Id

. , at 10

. InA s r eci t ed i n t he ea r l i er di s cus s i on of t he s t andar d of 10
r e v i e w:

35 i t s openi ng br i ef, t he FC C had ar gued t hat “t o [i t s ] know l edge, no fede r al cour t of appe al s has embra ced t he I L E C s ’ ar gum ent t hat par agr aph 1090 of t he LocalC om pet i t i on O r deri m po ses a se p a ra te f

u n c tio n a lit y re q u ire m e n t in a d d iti o n to th e c o m p a ra b le geogr aphi c ar ea t es t for a co m p et i t i ve ca r r i er t o r ecove r t he t a n d e m i n t e r c o n n e c t i o n r a t e . ” Ap p e l l e e ’ s Br

. a t 1 2 n . 5

. S BC the n r el i es upon M

F S In tele n e t t o sup po rt i t s at t em pt t o re f u te th e F C C ’s c la im

. H o w e v e r, a s w e h a v e a lre a d y e x p lain e d , th e h o ld in g in M F S In tele n e t does not s uppor t SB C ’ s pos i t i on i n t hi s di s put e. M or eover , t he fa ct t hat s ever al s t at e ut i l i t i es comm i s s i ons adopt ed a f

u n c t i o n a l e q u i v a l e n c e t es t i n ar bi t r at i ng compensa ti o n agr eement s can not change t he t ext of t he r egul at i on t hat sh o u ld ha ve gover ned t hos e ar bi t r at i ons . T hat r egul at i on onl y al l ow s an i nquir y into t he equi val ence of t he I L E C ’ s and C L E C ’ s net w or ks w hen t he compet i ng car r i er s do n o t se rv e c o m p a ra b le g e o g ra p h ic a re a s. T h e f a c t th a t sta te comm i s s i ons m ay have s t r ay ed bey ond t hos e par amet er s dur i ng t he r egul at or y pr oces s does not m ean t hat t he FC C had t o fol l ow the n o ti ce an d co m m en t r eq u ir e m e n ts of the A P A b ef

o re cl ar i fy i ng w hat had al r eadybeen pr onou nced i n t he Local C om pet i t i on O r der

. B. Th e O r der U

nder R evi ew Is N

o t A rb itra ry o r C

a p ricio u s. 10U n d er the A P A , a re v iew ing co u rt m u st u p h o ld a n F C C o rd e r u n les s it i s f o u n d to b e “ a rb i t r a r y, capr i ci ous , and abus e of di s cr et i on, o r o th e rw ise n o t in a c c o rd a n c e w ith law .” 5 U .S .C . § 7 0 6 (2 )(A ). T h is i s a “de fer ent i al s t andar d” t hat “pr es um e[s ] t he val i di t y of ag ency act i on. ” Sout hw es t er n B el l Tel

. C o. v
. FCC , 168 F. 3d 1 3 44, 1352 ( D

. C

. C i r . 1999)

. T he FC C i s due su b sta n tial d e f e re n c e in its i m p l e m e n t a t i o n o f t h e C om m uni cat i ons A ct , and “even g r eat e r d e f e r ence ” w hen i nt er pr et i ng i t s ow n rul es and r egul at i ons . ” C ap i t al N et w ork Sys. v
. FCC , 2 8 F

. 3 d 2 0 1 , 2 0 6 (D

. C

. C ir

. 1 9 9 4 ).
Gl o b a lNAP s , I

n c
. v
. FCC , 2 4 7 F

. 3 d 2 5 2 , 2 5 7 -5 8 (D

. C

. C ir

. 2 0 0 1 ). 36 SB C al so ar gu es that

even if the O r der U

nder R evi ew d id no t vi ol a t e the no t i c e andc om m e nt re qu ir e m e nt s of

the AP A, it is arb itrary

an d cap ricio u s b ecau se it en su res th at a C L E C w ill re ce ive the high er

tand em inte rc on nect ion rate fo r a ll the l ocal tr affi c ter

m inat ed ov er

it s netwo rks, wh ether or not it has i nc ur r e d the c os t s r e l a t e d t o t ande m s wi t c he s . I n S BC ’ s vi e w,37 tha t r e s ul t i s c ontr ary

t o the l angua ge of the 1996 Ac t and the F C C ’s o w n reg u latio n s; it is th eref o re arb itrary

an dcap ricio u s. As explai ned b el o w , we need no t r ea ch the m er it s of that ar gum e nt be c aus e i t

i s t i m e - barr e d. H o w ev e r , e ve n i f SBC we r e not for e c l os e d fr om

r a i s i ng tha t ar gum e nt , we woul d fi nd th at it is w ith o u t m erit.

(1). Th e Tim e- Ba r. In ar gu ing that t

he O r der U

nder R evi ew i s ar

bi tr ary and c apr i c i ous i n not

i nc l udi ng func t i ona l e qui va l e nc e i n the c om pe ns a t i on e qua t i on, the SBC i s a c t ua l l y a tt ack i ng the r e a s onabl e ne s s of Rul e 51. 711( a ) ( 3) i t s e l f. How ev er , 28 U. S. C. § 2344, pr ovi de s tha t judi c i a l r e vi e w of afi na l or de r of th e F C C m

u st b e f iledw ith in 6 0 d ay s af

ter its e n t ry . Ru le 51. 711( a ) ( 3) wa s pr om

ul ga t e d and a dopt e d i n Augus t 1996. Ra the r than s e e ki ng judi cia l r e vi e w wi thi n tha t 60 day pe r i od, SBC a tt a c ke d the s ubs t anc e of the Rul e i n its appl i c a t i on for re view of the Attwoo d L et te r in Ju n e of 2001. Howe ve r , the p erio d w ith in w h ich it co u ld seek th e j u d icial rev iew o f R u le 51 .711 (a )( 3) has l on g since pass ed and i t c anno t be c hall enged i n thi s pe t i t i onfo r

r e vi e w. Not une xpe c t e dl y , S B C c o n t e n d s th a t i t s s ubs t a nt i ve chal le ng e t o the Ru le is no t forec lose d b y 28 U.S.C. § 2 34 4. It ar gue s tha t

i t ha d no r e a s on t o s e e k r e vi e w of the Rul e i n 1996 beca use the Lo cal Com

peti ti on Order

allo w edan in q u i ry

in to the func t i ona l e qui va l e nc y of aCLEC’ s s wi t c hi ng t e c hnol ogy in dete rm ining the com

pensat ion r at e. SB C con te nd s that i t was o n ly afte r the Attwoo d L et te r and the Or d e r Und e r Re v i ew af f irm in g th at Letter , th at it h adreaso nto kn o w o f th e d em ise38 of the fu ncti on al equivale ncy te st . SBC beli eves , there fo re , that i t m ay c ha l l e nge the s ubs t ant i ve va l i di ty of the r ul e i n ape t i t i on f o r rev iew o u tsid e o f

th e 6 0 -d ay

f ilin g d ead lin e. S B C cites RCA Gl obal

Commu n icat i ons , I

nc
. v
. FCC , 7 5 8 F .2 d7 2 2 (D .C . C ir. 1 9 8 5 ) in sup p o rt o f its claim th at its peti ti on fo r r evie w is t im el y . There , the court wrote: Al th ou gh st at

utory ti m e l im it at ions on ju dici al r e vi ew of a ge nc y

a c t i on s ar e ju r i s di c t i on a l , s e l fe vi de nt l y the c a l e nde r

doe s not

r un unt i l the agency has dec ided a quest ion in a m anner that r e a s onabl y

put s a ggr i e ve d part i e s on not i c e of the ru le’s co n ten t. I d. a t 730. S i m i l ar l y , i n N

o rth w est T

issu e C tr. v. S

h a la la , 1 F .3 d5 2 2 , 5 3 0 n .8 (7 th C ir. 1 9 9 3 ), th e co u rt ex p lain ed : B ef o re an y litig an t reaso n ab ly

can b e ex p ectedto pr e s e nt ape t i t i on for r e vi e w of an a ge nc y r ul e , he f irst m u st b e p u t o n f

a i r n o tice th at th e ru le in q ue s t i on i s appl i c abl e t o hi m . Othe rwi s e the a ge nc y c oul d pr om

ul ga t e ac onfus i ng r e gul a t i on and, afte r e xp ir at ion o f the ti m e for any ju dicial c ont e s t , c l ar i fy

i t t o the s ur

pr i s e and pr e

judi c e of a party wh ose opp o rt

un it y fo r jud ic ia l r evie w m e anwhi l e ha s be e n e xt i ngui s he d.
Howe ve r , we can not

a c c e pt SBC’ s pos i t i on wi thout igno ri ng the f

ac t that the te xt of

Ru le 51 .711 (a )( 3) on ly

re qu ir ed func t i ona l e qui va l e nc y

i n de t e rm i ni ng i f aCLEC i s a l l owe d the39 tand em rate wh en the CLE C and ILEC do no t s er ve a co m p arab le g eo g rap h ic area. A b sen t th at lim itatio n , th e ru le si m ply do es no t con ta in an additi on al re qu ir em ent of f un ct ional equivale ncy . Acc ording ly , SBC was on notic e abou t t he prop er ap p licatio n o f

th e ru le w h en it w as in itially p ro m u lg ated . Y et, it soug ht re view long afte r the 60 day period fo r doing so had e xpi r e d. The r e for e , SBC’ s be l a t e d a tt e m pt t o now c ha l l e nge the r e a s onabl e ne s s of the Rul e i s bar r e d by 28 U. S. C. § 2344. ( 2 ) . S B C ’ s C l a i m I s M e r i t l e s s E v e n I f I t I s T i m e l y. We w o u ld find SB C’s c la im that the O r der U

nder R evi ew is ar

bitr ar y and capri ci ou s m er it le ss even if it s cl ai m was no t t im e- barr ed. SBC m ai ntai ns that th e “tand em i nt e r c onne c t i on r a t e ” c ons i s t s of thr e e di s c r e t e r a t e e l e m e nt s for e a ch of thr e e di s t i nc t func t i ons – t ande m

s wi t c hi ng, tr ansm is si on betwee n the tand em swit ch and the en d -o ff ic e swit ch, and end-of

fice swit ching. SB C cit es the Loc al Co mp et it ion O rder

t o s upport i t s c ont e nt i on tha t , unde r the 1996 Ac t , aCLEC i s onl y e nt i t l e d t o th e tande m

r a t e t o the ex ten t th at th e C L E C p erf o rm s th e th ree f

u n ctio n s th at co m

p rise that rate

. Th e statute authoriz es re ci procal com pensat ion rat es tha t c om p ens a t e c arr i e r s for

the “ c os t s a s s oc i a t e d wi th the tr ans port and t e rm i na t i on . . . of c a l l s tha t or i gi nate o n the n etw o rkf

acil i ties o f

th e o th er carrier.” 4 7 U .S .C . § 2 5 5 2 (d )(2 )(A )(I). It also states th at th e o n ly co m p en sab le co sts ar e tho se that

a c ar ri er ac tual ly incurs in perfo rmin g such “transpo rt and ter

m inatio n .” Finall y , und er the s tatute , r e c i pr oc a l compens a t i onr a t e s ar e t o b e s e t “ onthe ba s i s of

a r e a s onabl e appr oxi m a t i on of the a ddi t i ona l c os t s of t e rm i na t i ng s u c h c a l l s . ” 4 7 U

. S

. C

. § 2 5 2 ( d ) ( 2 ) ( A ) ( i i )

. S B C r e m i n d s us40 th at th e F CC has e xp la ined that the s tatute thus contem

plat es that re ci procal com

pensat ion rat es be cost -bas ed, and that they “tre at tr anspo rt an d ter

m inat ion as s epar at e fun ct ions – eac h with it s own cost .” Lo cal Com peti ti on Order , 11 FC C Rc d at 1 6 1 0 6 (¶ 1 0 4 0 ). In SB C’ s v ie w, ho wever, the t andem rate rule , a s inte rpre te d in the Or

de r Un de r Re v i ew , i s not

c os t

- ba s e d. R ath er, th at in terp retatio n o f th e tan d em

rate ru le en t i tles a CL EC to re ce ive the enti re tand em rate fo r a ll tr affic deli vere d to its sw itch b ased o n ly up o n a sh o w in g th at its sw itch serv es a geog rap h ic ar ea

com para ble t o that s er

ved b y the I LE C’s swit ch. I n S BC ’s view, that a pp roac h is over- incl usive for a n u m b er o f reaso n s. Fi r s t , S B C c l a i m s th a t

th e F C C ’ s s t a f

f h a s h e l dth a t

the ge ogr ap h ic area t e s t

r e fe r s not

t o the a c t ua l ar e as e rve d by

the CLEC’ s s wi t c h, but

r a the r t o the ar e atha t

c oul d be s e rve d by that swit ch. SB C’s B r. at 27 & n .7 (c it ing autorit ie s) . I n S BC ’s v iew , th at is n o test at all b ecau se mo d e rn sw itch es, i.e., s wi t c he s us e d b y C L ECs , ar e c apabl e of s e rvi ng wi de ge og r aph i c ar e a s e qu i va l e nt t o 1 0 t o 1 5 t i m e s the ar e aI LE C t ande m s wi t c he s c an c ove r . SBC ar gue s th at w e c an not up ho ld the O r der U

nder R evi ew b e c a u s e i tallo w s a C L E C to rec e i ve the t ande m

r a t e for a l l the tr a ffi c i t

r e c e i ve s so lely beca use i t c ou ld in theory te rm inat e som e of that tr affic over a broad area , divorce d from any re as on able concepti on of ac tual co st. S eco n d , S B C co n ten d s th at ev en if th e test is co n f in edto circu m stan ces in w h ich th e C L E C actu ally serv es a co m p arab leSee O pi ni on and O r der C oncer ni ng R eci pr ocal 11 C o m p e n s a tio n , P ro c e e d in g o n M o tio n o f th e C o m m m iss io n to R eexam i ne Reci

pr ocal C om pens at i on , Ca s e 9 9

- C- 0 5 2 9 , N. Y. P U C L E X IS 3 9 8 (N .Y . P S C A u g . 2 6 , 1 9 9 9 ). 41 g eo g rap h ic area, it still rem ain s o v er-in clu siv e b ecau se it w o u ld n ev erth eless p erm it a C L E C to receiv e th e tan d em ra t e o n all th e lo cal tr a f

f i c it receiv es at its sw itch , ev en w h ere th e traf f ic is sw itch edo n ly

o n ce an d w h ere th e C L E C n eed n o t tran sm it it t o adi s t ant

e nd

- of fi c e s wi t c h. Ac c or di ng t o S BC , thi s a l l ow s th e C L E C t o receiv e th e tan d em rate o n all th e traf

f ic it re ce ives , e ven tho ug h i t never perform s two of the three fu ncti on s ( tand em

swit ching and transm is si on to the e nd -off ic e swit ch) e ncom

pass ed by the t andem

rate

. M o reo v er, S B C claim s t h at th is is n o id le-p o ssib ility b ecau se , p r i o r to th e F C C ’s rev isio n o f its ru les, sev eral state co mm issio n s h adru ledth at a C L E C co u ld n o t, co n sisten t w ith the s tatute , rec ei ve the tandem rate on al l o f the tr affic deli vere d t o i t s s wi t c h whe n the bul k of tha t tr a ffi c wa s s wi t c he d onc e and deli vere d to so-ca ll ed conv er gent cust om er s – i.e , c ustom er s locate d right next do or to the CL EC ’s swit ch. SB C cit es New York a s an e xa m

pl e of a s t a t e c omm i s s i on r e a l i z i ng tha t m any n ew C L E C s h adtarg etedsp ecif ic ty p es o f cu sto m ers p rim arily for the pur pos e of ge ne r a t i ng l ar ge r ecip ro c a l c om pe ns a t i on p ay m en ts f ro m th e IL E C an dref

u sin g to p erm it th e C L E C s to receiv e th e tan d em

co m p en satio n r a te in all circu m stan ces. 11 The s t a t e c omm i s s i one r

e xpl a i ne d tha t

th e c os t s of s e rvi ng a s m a l l n u m

b e r o f l ar g e , c o n v e r g e n t c u s t o m e r s w i l l l i k e l y be l owe r than the cos t s of s e rvi ng am a s s m arke t

. The42 c omm i s s i one r c onc l ude d tha t c om pe ns a t i ng CLECs tha t

s e rve such cust om er s at the tand em rate wo uld o verc om pensat e them an den co u rag e th em

to targ et co n v e rg en t cu sto m ers n o t as a s us t a i nabl e bus i ne s s s tr a t e gy , but r a the r a s a m e ans of dr awi ng ab o v e-co st rev en u es f

ro m IL E C s. SBC c ont e nds tha t

the “ c onve r ge nt

c us t om e r s i t ua t i on” hi ghl i ght s the anom a l i e s i nhe r e nt in alway s c om

pe ns a t i ng a CL EC as th o ug h it i s s er ving a geographical ly

disper se d c us t o m e r b a s e th r o u g h a n e tw o rk ar c h i t e c t u r e s i m i l ar t o t he I LE C ’s whe n i t

i s i n fa c t

us i ng a s i ngl e s wi t c h and no tr ans m i s s i on fa c i l i t i e s to term i na t e tr a ffi c . Howe ve r , SBC cl ai m s that the O r der U nder R evi ew m an d ates th at resu lt. SB C al so cl ai m s the re sult re ac hed in the O r der U nder R evi ew is no t just contrary to the c ost- base d app roac h m andate d by the s t a t ut e , bu t c on tr ary t o o the r FC C r e gu l a t i on s a s we l l

. As an ex am p le, S B C cites to th e ru le req u irin g t h a t , “[ i] n state pr oc e e di ngs , as t a te c omm i s s i one r s ha l l e s t abl i s h r a t e s for

the tr ansport and te rm inat ion o f te le comm un ic at ions tr affic that ar e s tr uc tur e d c ons i

s t e nt l ywi t h t he manne r

t hat c arr i e r s i nc ur th o se co sts. ” 47 C.F.R. 51 .709 (a ) (e m ph as is S BC ’s ). A cco rd in g to S B C , w h ere a C L E C u ses o n ly a sin g le sw itch to term in ate traf

f ic to its cu st o me r s , i t d o es n o t in cu r th e co sts asso ciated w ith th e tw o lev els o f sw itch in g , m

u ch less th e co sts of tr ansm itti ng the tra ff

ic from on e switc h to ano ther

. Th er efore, i n S BC ’s view, p aying rate s d es igned to cover s uch cost s i s s im

ply a windf al l t o the CL EC that cann ot be ju st ifie d un der the FC C’s “ cost -c ausati ve” a pp ro ac h to rec iproca l co m p en satio n . Lo cal

Co mp et it ion O rder , 11 FCC Rc d a t 16029 (¶ 10 63 ). We ar e a ls o told that the windf

al l violate s FCC rule s43 re qu ir ing that rate s f

or tr ansport and te rm inat ion b e “ struct ured

. . . c ons i s t e nt l y

wi th the pr i nc i pl e s i n . . . [s e c t i on] 51. 509. ” 47 C.F.R. § 5 1. 10 9( a )

. Ru l e 51

. 50 9 e s t abl i s he d “ r a t e s tr uc t ur e rule s” contem

plat ing d iffer e nt

a nd disc re te rate s for (1) “t andem swit ching,” ( 2) “l ocal swit ch in g,” and (3) the use of “share d tr ans m i ssio n fa c i l i t i e s be twe e n t ande m s wi t c he s and e nd offi c e s . ” 47 C. F. R. § 51. 509. Howe ve r , a c c or di ng t o SBC, the O r der U nder R evi ew a l l ows the CLEC t o b e co mp e ns a t e d for al l of the s e fu nc t i on s i n a l l c a s e s wi tho ut r e gar d fo r wh et her th ey w e r e a l l p erf

o rm ed , sim

p ly b ecau se th e C L E C serv es a ge ogr aphi c ar e ac om

par abl e t o the ar e as e rve d by the I LEC. Finall y , SBC no te s that the FC C’s rules general ly re qu ir e sy mm etri ca l r ec iproca l c om pensat ion r at es . A s we e xp la ined earl ie r, the “ incum

bent LE C’s transpo rt

and ter m inat ion p ri ce s [ser ve] a s a pres um ptive proxy

fo r other

. . . c ar ri er ’s additi on al cost s of tr ansport and te rm inat ion.” Lo cal Com peti ti on Order , 1 1 F C C R cdat 1 6 0 4 0 (¶ 1 0 8 5 ); see a lso 47 C.F.R. § 5 1.71 1(a)

. Yet, SB C cla im s that the O r der U nder R evi ew is as y

mm etri ca l beca use i t a ll ow s an ILEC to re cover the tand em rate on ly wh en the CLEC e l e c t s t o de l i ve r tr a ffi c a t the I LEC’ s t ande m

s wi t c h, and thus onl y

whe n the I LEC a c t

ua l l y pe r form s e a c h of the di s c r e t e func t i ons ( t ande m s wi t c hi ng, tr ans m i s s i on t o the e ndof f ice s wi t c h, and e nd- offi c e s wi t c hi ng) i nt e nde d t o be reco v eredin th e tan d em rate. Y et, C L E C s are e n t i t ledto rec o v e r t h e en tire rate, ev en w h en th ey d o n o t p erf

o rm th o se d iscrete f u n ctio n s. Fo r a ll of thes e r ea sons, SBC contends that th e O r der U nder R evi ew is arb itrary

an dcap ricio u s. We can n o t ag ree.44 SBC’ s arg um e nt s ar e ba s e d upon i t s i nt e r pr e t a t i on of “co sts” in § 2 5 2 (d )(2 )(A ) i s o l a t edf ro m th e rest o f

th e tex t. Sect ion 2 52 (d)( 2)(A), authoriz es re ci procal com pensat ion rat es base d u po n a “ r e as onabl e appr ox i mat i on ” of c os t s . 47 U. S. C. § 2 5 2 (d )(2 )(A )(ii) (em

p h asis ad d ed ). S B C ’s read in g o f th e ru le and r egulat ion i gn ores the a cr ucia l po rt ion of the te xt . M o re im p o rtan tly , in § 2 5 2 ( d ) ( 2 )(B )(ii), C o n g ress sp ecif ically p r o h i b i t e d “ an y r a t e r e g u l a t i o n p r o c e e d i n g t o esta b lish w ith p a rticu la ritya ddi t i ona l c os t s of tr ans port i ng and t e rm in at i ng ca ll s. ” See 47 U.S.C. § 255 2(d)(2)(B)( ii ) (e m ph as is added). I t is th eref o re clear that C o n g ress d idn o t co n tem p late, an dclearly di d no t requi r e , ac a l c ul a t i on of the “ a c t ua l ” c os t s of tr ansporti ng and te rm inat ing ca ll s. In fact , Con gres s pre cl ud ed tak in g th at ap p ro ach to co m p en satio n b etw een carriers. The issu e is th eref

o re w h eth er th e F C C ’s ru les g o v ern ing re ci procal com

p ensati on es ta

blis h rat es that

re cover a “reaso n ab le ap p ro x im atio n ” o f th e C L E C ’s co sts. It is a b asic pr i nc i pl e of s t a t

ut ory c ons tr uc t i on tha t

“ awor d i s known by the co m p an y it k eep s,” an dth is ru le o f co n stru ctio n is “w isely applie d wh er e a wo rd is ca pable of m any

m eaning s. ” Jare ck

i v

. G. D. Se ar l e & Co. , 3 6 7 U .S

. 3 0 3 , 3 0 7 (1 9 6 1 ); see a lso Deal v. Un ited States , 50 8 U

. S. 12 9, 13 2 ( 19 93 ) (“ the m e ani ng of a wor d c annot

be de t e rm i ne d i n i s ol a t i on, but m us t be dr awn fr om th e co n tex t in w h ich it is u sed ”); Sekula v. FDIC , 39 F. 3d 448, 454 ( 3d Ci r . 1994) ( “ [o]ne m ust lo o k a t

the e nt i r e pr ovi s i on, rath er th an seize o n o n e p art in iso latio n ”). With th ese can o n s as o u r co m p ass, w e n o t e th at § 252( d) ( 2) ( A) doe s not de fi ne “ c os t s ” a s “ a c t ua l c os t s .” Y et, S B C ’s sub m issio n is p r ecisely th at. It is arg u in g th at “co sts”45 m e ans “ a ctu a l c os t s , ” e ve n though pr oc e e di ngs t o de t e rm i ne
“ a c t ua l c os t s ” ar e pr ohi bi t e d by Congr e s s . Congr e s s ’ s us e of the te rm “c osts ” in the r ec iproca l c om pensat ion con te xt indicate s tha t i t i nt e nde d t o a voi d r e c i pr oc a l c om pe ns a t i on r a t e s ba s e d on actu al co sts an dco m

p lex co st stu d ies. 4 7 U .S .C . § 252( d) (2 )(B )(i i )

. I ns t e a d, Congr e s s r e qui r e d tha t the r a t e s for recip ro c al co m

p en satio n b e b asedup o n a “reaso n ab le approx im at ion o f the additi on al cost s o f te rm inat ing” ca ll s that o rig in ate o n an o th er carrier’s n etw o rk . 4 7 U .S .C . § 2 5 2 (d )(2 )(A )(I), (ii). When al l i s s ai d and do ne, SBC ’s un ders tand able desi re to se e com

pensat ion i t pay s to CL EC s be base d upo n a more p recise calcu lu s th an th e g eo g rap h ic area test can p erh ap s b est b e an sw eredb y

a p ro n o u n cem en t th e S up r e me C o u rt m ad e in an o th e r c o n t e x ti n Ve r iz o n Co mmu n i c a t i o n s I n c
. v
. FCC , 535 U

. S

. 4 6 7 , 5 3 9 (20 0 2 ). Th er e, in re ject ing a cl ai m

that the pri ce o f leasin g a co m

p etito r’s n etw o rkm

u st b e b asedo n a p recise eval uati on of

vari ou s e cono mic f

ac tors and costs , the Co urt s a i d:
T h e 1 9 9 6 A c t so u g h t to b rin g c o m p e tit io n to l ocal

- excha nge mar ket s , i n par t by r equi r i ng i ncu m ben t l ocal- exch ang e carr i ers to l ease e lem e n ts o f

th e ir n e tw o rk s a t ra te s th a t w o u ld att rac t new en tr an ts w h en it w o u ld b e m o re eff i ci ent t o l eas e t han t o bui l d or r es el l

. W het her th e F C C p ick e d th e b e st w a y to se t th e se ra tes is the s tuf f of d eb ate f o r ec o n o m ist s an d reg u lat o rs ver s ed i n t he t echnol ogy of t el ecomm uni cat i ons a n d mi c r o e c o n o mi c p r i c i n g t h e o r y . Th e j o b ofA s an as i de, and w i t hout s ugges t i ng any t hi ng about t he 12 me r i t s o f SBC ’ s c o n c e r n s , we a g r e e wi t h t h e F CC t h a t S BC s houl d pr es ent t he ar gum ent i t i s m aki ng i n t h is p eti ti on for r evi ew t o t he FC C i n pr ocee di ngs under t he N PR M

. T her e, t he FC C has i nvi t ed comm ent o n w het her t o r evi s e § 51. 711( a) ( 3) to in c lu d e a f

u n c tio n a l e q u iv a le n c y te s t.

46 j udges i s t o as k w het her t he C o m m i s s i on m ade ch o ices rea so n ab ly w ithin the p ale o f statuto ry po ssi bil i t y i n d eci ding w hat and h ow i t em s m ust be l eas ed and the w ay t o s et r at es for l eas i ng t hem. T he F C C ' s pr i ci ng and addi t i onal c o m b i n a t i o n r u l e s s u r v i v e t h a t s c r u t i n y. Th e FCC ’ s c om

pe ns a t i ons c he m e fo r

r e c i pr oc a l r a t es al so survives that sc ruti ny . The O r der U nder R evi ew is t ho r ou gh l y

c on si st ent with the L o ca l Co m p etitio n O rd

er an dt he Rule 5 1. 711( a ) ( 3) , and we wi l l the r e for e de ny SBC’ s pe t i t i on fo r r e vi e w. 12
I V . CONCLUSI ON
For a l l of the above r e a s ons , we wi l l de ny SBC’ s pe t i t i on f o r rev iew o f

th e F C C ’s Order Under

Revi ew date d S epte m

ber 3, 2003.