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 March 29, 2004 Decided July 6, 2004

No. 03-1118

SBC COMMUNICATIONS INC.,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

CORECOMM COMMUNICATIONS, INC. AND

Z–TEL COMMUNICATIONS, INC.,

INTERVENORS

On Petition for Review of an Order of the

Federal Communications Commission

Michael K. Kellogg argued the cause for petitioner. With

him on the briefs were Colin S. Stretch, James D. Ellis, and

Gary L. Phillips.

 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.
2

Richard K. Welch, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the

brief were Robert H. Pate III, Assistant Attorney General,

U.S. Department of Justice, Catherine G. O’Sullivan and

Steven J. Mintz, Attorneys, John A. Rogovin, General Counsel, Federal Communications Commission, John E. Ingle,

Deputy Associate General Counsel, and Rodger D. Citron and

Suzanne M. Tetreault, Counsel. Nancy C. Garrison, Attorney, U.S. Department of Justice, entered an appearance.

Glenn B. Manishin argued the cause for intervenors.

With him on the brief was Stephanie A. Joyce.

Before: SENTELLE, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: SBC Communications, Inc.

(‘‘SBC’’) brings this petition for review challenging a $6

million forfeiture levied against it by the Federal Communications Commission (‘‘FCC’’). The FCC issued the fine because, it claims, SBC flagrantly violated the terms of an FCCapproved merger agreement to which SBC is a party. SBC’s

primary complaint is that the forfeiture order violates the

Fifth Amendment’s due process clause, because SBC was not

on ‘‘fair notice’’ of the duties under the merger agreement

that the FCC accuses it of shirking. SBC also argues that

the order is arbitrary and capricious. Because both of these

challenges are without merit, we deny the petition for review.

I. Background

A. Unbundling under the Telecommunications Act

SBC’s petition concerns its obligations as an incumbent

local exchange carrier (‘‘ILEC’’) under the Telecommunications Act. ILECs are companies that own the local wires

that connect telephone subscribers’ phones to local phone

company exchanges. ILECs also own the local exchanges.

Those exchanges centrally route calls, using switches, among

the local phone wires and the trunks that connect various

exchanges, obviating the need for each phone to be connected

to one other. To prevent ILECs from monopolizing these

facilities, the Telecommunications Act (‘‘the Act’’), as amend-
3

ed in 1996, requires ILECs to allow competing carriers,

known as competitive local exchange carriers (‘‘CLECs’’), to

use their networks, a practice known as ‘‘unbundling.’’ In

particular, the Act requires ILECs to allow CLECs to lease

‘‘unbundled network elements’’ (‘‘UNEs’’) so that CLECs can

offer service in competition with ILECs. See 47 U.S.C.

§ 251(c)(3).

The task of determining those network elements that must

be unbundled is delegated to the FCC. In determining

whether a network element should be unbundled, the Act

requires the FCC to consider ‘‘at a minimum’’ whether ‘‘access to such network elements as are proprietary in nature is

necessary’’ and whether ‘‘the failure to provide access to such

network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it

seeks to offer.’’ Id. § 251(d)(2). The FCC has issued a

series of orders addressing the scope of ILECs’ obligation to

unbundle their network elements.1

‘‘Network element[s]’’ that must be unbundled include the

‘‘functions[ ] and capabilities’’ provided by ILECs’ network

facilities. Id. § 153(29). One such capability is the service of

transporting telephone calls on an ILEC’s network; it seems

fairly clear that this service is therefore a network element.

See S.W. Bell Tel. Co. v. FCC, 199 F.3d 996, 997 (8th Cir.

1999) (per curiam). Such transportation is accomplished

using transport lines that connect the exchanges and switches

in the network. ILECs’ networks transport calls either by

dedicating those transport facilities to a single carrier, which

are referred to as ‘‘dedicated transport’’ facilities, or by

allowing several carriers to share the facilities, referred to as

‘‘shared transport’’ facilities. SBC’s petition for review in1 Triennial Review Order, 18 FCC Rcd 16978 (2003), vacated

in part, U.S. Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004);

UNE Remand Order, 15 FCC Rcd 3696 (1999), clarified, 15 FCC

Rcd 9587 (2000), petitions for review denied, Competitive Telecomms. Ass’n. v. FCC, 309 F.3d 8 (D.C. Cir. 2002); Shared Transport Order, 12 FCC Rcd 12460 (1997), vacated in part, S.W. Bell

Tel. Co. v. FCC, 199 F.3d 996 (8th Cir. 1999) (per curiam); Local

Competition Order, 11 FCC Rcd 15499 (1996) (subsequent history

omitted).
4

volves its obligation to provide CLECs with unbundled access

to its shared transport facilities.

B. The Merger Order

For purposes of the present petition, the FCC does not

claim that SBC’s obligation to provide shared transport arises

directly from the unbundling provisions of the Act. The FCC

claims instead that the obligation arose from an order it

issued that conditionally approved a merger between SBC

and Ameritech, Inc., another ILEC. See In re Applications

of Ameritech Corp. and SBC Communications, Inc., 14 FCC

Rcd 14712 (1999), vacated in part on other grounds, Ass’n of

Communications Entrs. v. FCC, 235 F.3d 662 (D.C. Cir. 2001)

(‘‘Merger Order’’). As both Ameritech and SBC held FCC

licenses, the FCC was authorized to approve the merger only

if it found that ‘‘the public interest, convenience and necessity

[would have been] served’’ by it. 47 U.S.C. § 310(d). On

that question, the FCC took the position that the merger

would have anticompetitive effects not outweighed by its

benefits and therefore was not in the public interest. Accordingly, the parties engaged in extensive negotiations so that

they could ‘‘explore the possibility of [SBC and Ameritech]

strengthening their application by agreeing to certain voluntary public interest commitments.’’ Merger Order ¶ 43.

Those negotiations resulted in a series of conditions on the

merger of the two companies, issued by the FCC October 8,

1999. One of the conditions required the merged entity

(which, for convenience, we simply call ‘‘SBC’’ unless the

context shows otherwise) to provide shared transport to

CLECs in the states formerly served by Ameritech. That

condition specifically provided:

Within 12 months of the Merger Closing Date (but

subject to state commission approval and the terms of

any future Commission orders regarding the obligation

to provide unbundled local switching and shared transport), SBC/Ameritech shall offer shared transport in the

SBC/Ameritech Service Area within the Ameritech

States under terms and conditions, other than rate struc-
5

ture and price, that are substantially similar to (or more

favorable than) the most favorable terms SBC/Ameritech

offers to telecommunications carriers in Texas as of

August 27, 1999. Subject to state commission approval

and the terms of any future Commission orders regarding the obligation to provide unbundled local switching

and shared transport, SBC/Ameritech shall continue to

make this offer, at a minimum, until the earlier of (i) the

date the Commission issues a final order in its UNE

remand proceeding TTT finding that shared transport is

not required to be provided by SBC/Ameritech in the

relevant geographic area, or (ii) the date of a final, nonappealable judicial decision providing that shared transport is not required to be provided by SBC/Ameritech in

the relevant geographical area.

Merger Order, App. C ¶ 56. The FCC explained that paragraph 56 ‘‘obligates Ameritech to provide shared transport

until a final order of the Commission or a final and nonappealable judicial decision determines that SBC/Ameritech is

not required to provide shared transport in all or a portion of

its operating territory.’’ Merger Order ¶ 396. ‘‘Shared transport,’’ the conditions defined, meant ‘‘the function of shared

transport’’ as defined in a previous FCC order. Id. App. C

¶ 55.

The apparent reason for imposing this obligation to provide

shared transport in the former Ameritech states–Illinois,

Indiana, Michigan, Ohio, and Wisconsin–was to address Ameritech’s prior reluctance to offer unbundled access to shared

transport services. SBC, in contrast, had previously provided

CLECs with access to such service, for example, in Texas;

hence, the merger agreement defined the merged entity’s

obligation to provide such service by reference to a state SBC

already had served.

C. The UNE Remand Proceeding and the Clarification

Order

Two references in paragraph 56 of the merger conditions

warrant further explanation. First, paragraph 56 refers to

the UNE remand proceeding, which was an ongoing FCC
6

proceeding that was reconsidering, among other things, its

unbundling rules. The FCC commenced that proceeding in

response to the Supreme Court’s January 1999 decision that

had held unlawful in substantial part those initial rules. See

AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 387–92 (1999).

The initial rules had broadly ordered ILECs to provide

CLECs with unbundled access to network elements, including

shared transport. E.g., Local Competition Order, 11 FCC

Rcd 15499 ¶ 440. But the rules, the Court had held, rested

on an unreasonable and overly broad construction of when not

having access to network elements would ‘‘impair’’ CLECs.

Iowa Utils. Bd., 525 U.S. at 387.

In response to Iowa Utilities Board, the FCC issued its

order in the UNE remand proceeding on November 5, 1999,

about a month after the merger order issued. That proceeding concluded that an ILEC should, as a general matter,

provide a CLEC with shared-transport services if the ILEC

provides the CLEC with unbundled switching. UNE Remand Order ¶¶ 369–79. The order also concluded that ‘‘as a

general matter’’ ILECs were required to unbundle ‘‘local

circuit switching.’’ Id. ¶ 253. Several ILECs and CLECs

petitioned for clarification of the UNE Remand Order. The

FCC issued a clarification in response. Clarification Order,

15 FCC Rcd 9587 (2000), petitions for review denied, Competitive Telecomms. Ass’n v. FCC, 309 F.3d 8 (D.C. Cir. 2002).

As relevant to the present case, the clarification addressed

the proper methodology for analyzing whether an ILEC must

unbundle exchange-access service, assuming it was also required to unbundle local-exchange service. Id. ¶¶ 13–14.

‘‘Exchange access service’’ is the process of originating and

terminating calls on the ILEC’s network, i.e., providing ‘‘access’’ to the users physically connected to the ILEC’s local

loops and switches, so that they may send and receive calls to

and from other networks. ‘‘Local exchange service,’’ in contrast, is simply the practice of providing local telephone

service to customers using the ILEC’s local network.

The core of the methodology the FCC outlined was that

each of these services, even though they both employ the
7

same physical facilities owned by the ILEC, needed to be

analyzed separately, service by service, for purposes of determining whether the ILEC had to unbundle each of them.

The FCC noted that the Act explicitly distinguishes the

markets for the two services. Id. ¶ 14. (Again, under the

Act, whether a given network element must be unbundled

depends, in part, on whether the CLEC would be ‘‘impair[ed]’’ absent access to the network element. 47 U.S.C.

§ 251(d)(2).) Therefore, the Commission reasoned, a finding

that CLECs would be ‘‘impaired’’ absent access to one of

these markets did not mean ‘‘for that reason alone, and

without further inquiry’’ that the CLEC would be ‘‘impaired’’

absent access to another of these markets, even though both

exchange-access service and local-exchange service use the

same physical facilities. Clarification ¶ 14. In other words,

unbundling local-exchange service did not necessarily mean

that exchange-access service should also be unbundled. The

Commission’s task, it explained, instead should be to resolve

‘‘whether the markets for local exchange service and special

access are so closely interrelated from an economic and

technological perspective that a showing of impairment with

respect to the former market would by itself tend to suggest,

as a practical matter, that the ‘impair’ standard is satisfied

with respect to the latter market.’’ Id. ¶ 16. The Commission did not in the clarification, however, resolve whether

local-exchange-service unbundling should be tied to exchangeaccess-service unbundling; it merely stated its intention to do

so in a future rulemaking using the methodology it had

described.

The Commission also noted, more generally, that this market-specific ‘‘impairment’’ analysis outlined in the clarification

was a departure from the analysis it had employed in its

initial set of unbundling rules. ‘‘Before the Supreme Court

issued its decision in Iowa Utility Board,’’ the Commission

explained, ‘‘we sometimes approached an incumbent’s obligation to unbundle network elements as though it were an allor-nothing proposition, suggesting that, if a competitor were

entitled to obtain access to an element for one purpose, it was

generally also entitled to obtain access to that element for
8

wholly different purposes as well.’’ Id. ¶ 12. ‘‘Now that the

Supreme Court has rejected our previous interpretation of

that provision as insufficiently rigorous,’’ it continued, ‘‘it is

appropriate for us to revisit the issue.’’ Id. The new methodology described by the Commission was the result of that

revisiting. On petition for review, this Court held that the

Commission’s new methodology was a reasonable interpretation of the Act. Competitive Telecomms. Ass’n v. FCC, 309

F.3d 8, 12–13 (D.C. Cir. 2002).

D. SBC/Ameritech’s Service in Texas as of August 27,

1999

The second reference in paragraph 56 that requires additional explanation is its allusion to the service that SBC/Ameritech was ‘‘offer[ing]’’ in Texas as of August 27, 1999.

Again, that paragraph required SBC to ‘‘offer shared transport in the SBC/Ameritech Service Area within the Ameritech States under terms and conditions TTT that are substantially similar to (or more favorable than) the most favorable

terms SBC/Ameritech offers to telecommunications carriers

in Texas as of August 27, 1999.’’ Merger Order, App. C ¶ 56.

The scope of SBC’s ‘‘offer[ings]’’ as of that date is complicated by a dispute in which it was embroiled at the time with

the Texas Public Utility Commission. The dispute was over

the scope of its contractual obligation to provide shared

transport to two CLECs, Sage Telecom and Birch Telecom of

Texas, Ltd. See Notice of Apparent Liability for Forfeiture,

17 FCC Rcd 1397 ¶ 9 (2002) (‘‘NAL’’). In particular, the

disagreement concerned SBC’s contractual duty to provide

the two CLECs shared-transport service for intra-Local Access and Transport Area (‘‘LATA’’) toll calls. LATAs are

service areas within which, but not beyond, the Bell operating

companies–one of the operating companies divested from

AT&T in the early 1980s as a result of antitrust litigation–

were authorized to provide telephone service under the decree that the litigation produced. At the beginning of 1999,

SBC had been providing such service to Sage and Birch

under agreements with those companies. Id. However, SBC

interpreted its agreement with Sage and Birch to authorize
9

SBC to stop providing such service (for reasons not relevant

here), and announced that it intended to do so.

Sage and Birch disagreed with SBC and in April complained to the Texas Public Utility Commission. That same

month, a panel of Texas PUC arbiters temporarily enjoined

SBC from carrying out its plan to stop providing sharedtransport service for intraLATA toll calls to Sage and Birch,

pending its resolution of the dispute. This injunction was

upheld in November 1999 (about a month after the issuance

of the merger order) when the arbitration panel ruled that

SBC’s agreements with Sage and Birch required SBC to

provide them with shared-transport service for intraLATA

toll calls. NAL ¶ 11. The full Texas PUC affirmed the

arbitration panel’s decision the next month. Id.

E. The Administrative Proceedings Below

After the October 1999 merger order issued, SBC decided

to offer shared transport in the states that Ameritech had

formerly served–Illinois, Indiana, Michigan, Ohio, and Wisconsin–only for local-exchange service, not for intraLATA toll

service. SBC, both in its submissions below and in its briefs,

sees a significant difference between providing intraLATA

shared-transport toll service and providing local sharedtransport service. The market for intraLATA toll service,

unlike the market for local phone service, SBC claims, is

‘‘competitive,’’ though it does not state precisely how competitive it believes that market is, much less whether that degree

of competition is in the public interest. As ILECs generally

lack significant market power (i.e., the ability to price above

cost) in that market, the argument goes, there is no warrant

for a regulatory requirement for them to provide sharedtransport service in such markets to CLECs.

The FCC, however, took the position that paragraph 56 of

the merger conditions required SBC to offer such service in

the five former Ameritech states. Because SBC had been

providing, pursuant to the interim order of the Texas PUC

arbitration panel, intraLATA shared-transport service in Texas as of August 27, 1999, the FCC concluded that SBC’s

failure to provide such service in the former Ameritech states
10

violated paragraph 56 of the merger conditions and issued a

Notice of Apparent Liability for Forfeiture to that effect in

January 2002. See NAL ¶¶ 12–19. The Commission is authorized to impose such forfeitures under 47 U.S.C. § 503(b)

for willful or repeated failures to comply substantially with

the terms and conditions of any license or other instrument

issued by the Commission. The Notice proposed a forfeiture

amount of $6 million. Id. ¶ 22. For substantially the same

reasons outlined in the Notice of Apparent Liability, the

Commission in October 2002 issued an order assessing a $6

million forfeiture on SBC, the statutory maximum $1.2 million

fine per each continuing violation of paragraph 56, see 47

U.S.C. § 503(b)(2)(B), one for each former Ameritech state.

Forfeiture Order, 17 FCC Rcd 19923 ¶¶ 22–27 (2002).

In April 2003, SBC paid the $6 million forfeiture and

petitioned this Court for review of the FCC’s forfeiture order.

We have jurisdiction over the petition pursuant to 47 U.S.C.

§ 402(a). See AT&T Corp. v. FCC, 323 F.3d 1081, 1083–85

(D.C. Cir. 2003).

II. Analysis

SBC raises two challenges to the forfeiture order. SBC

first argues that it was not on ‘‘fair notice’’ that paragraph 56

of the merger conditions obligated it to provide sharedtransport service for intraLATA toll calls in the former

Ameritech states, and therefore that the forfeiture infringed

its due process rights. SBC’s second argument is that the

FCC imposed the fine in arbitrary-and-capricious fashion.

Both arguments fail.

A. Fair–Notice Claim

The first issue we address is whether the merger conditions

allowed SBC ‘‘to identify, with ascertainable certainty, the

standards with which the agency expect[ed] [SBC] to conform,’’ Trinity Broad. v. FCC, 211 F.3d 618, 628 (D.C. Cir.

2000) (quoting General Electric Co. v. EPA, 53 F.3d 1324,

1329 (D.C. Cir. 1995)) (internal quotation marks omitted), and

therefore gave SBC the process it was due under the Fifth

Amendment. More specifically, the question is whether para-
11

graph 56 of the merger conditions clearly placed SBC on

notice that it was required to provide shared-transport service for intraLATA toll calls in the five former Ameritech

states. The answer is yes.

Paragraph 56 plainly says that SBC was required to provide such service. Paragraph 56 required SBC to

offer shared transport in the SBC/Ameritech Service

Area within the Ameritech States under terms and conditions, other than rate structure and price, that are substantially similar to (or more favorable than) the most

favorable terms SBC/Ameritech offers to telecommunications carriers in Texas as of August 27, 1999.

Merger Order, App. C ¶ 56. The parties agree that as of

August 27, 1999, SBC was providing shared-transport service

to two CLECs for intraLATA toll calls. From this fact, one

might think it fairly straightforward to conclude that SBC

was required to provide that same service throughout the

Ameritech states. The condition directs the parties to look at

the terms SBC was ‘‘offer[ing]’’ in Texas on a date certain.

On that date, SBC was providing shared transport service for

intraLATA toll calls. It seems to follow that SBC would be

required to provide that same service in the former Ameritech states. Indeed, it is difficult to imagine how the parties

could have more clearly specified the precise terms of providing shared-transport service: the same, or more favorable,

terms that were in effect on a date certain between a company and its customers in a single state.

SBC’s vigorous attempts to create ambiguity in these

words are not persuasive. SBC argues that it was not clear

that it was ‘‘offer[ing]’’ such service to those CLECs, because

it was providing such service involuntarily, pursuant to an

injunction entered by an arbitration panel of the Texas PUC.

This argument is a non-starter. SBC concedes that the

‘‘term ‘offer’ means ‘[t]o present for acceptance or rejection,’

or ‘[t]o put forward for consideration.’ ’’ SBC Reply Br. at 20

(quoting American Heritage Dictionary 863 (2d ed. 1991)).

SBC did exactly that by providing two CLECs with sharedtransport service for intraLATA toll calls. It does not matter
12

whether SBC was providing the service involuntarily. Even

involuntary offers to contract are still ‘‘offers’’ in the ordinary

sense of that word. They are ‘‘offers’’ because the offerees–in

this case, the CLECs–have the option of voluntarily either

accepting or rejecting it. This core feature of an offer does

not depend on why the offeror ‘‘present[s]’’ it.

Another condition confirms this plain meaning of the word

‘‘offer.’’ Paragraph 53 of the conditions is headed ‘‘Offering

of UNEs.’’ That condition provides that ‘‘SBC/Ameritech

shall continue to make available TTT such UNEs TTT that

were made available in the state under SBC’s’’ current interconnection agreements. Merger Order, App. C. ¶ 53. The

merger conditions call this an ‘‘offering’’ even though the

conditions require SBC ‘‘to make available TTT such UNEs.’’

If SBC’s reading of the term ‘‘offer’’ were correct, that

heading would make no sense.

SBC’s argument that the term ‘‘shared transport’’ in the

conditions was defined to include shared-transport service

only for local calls is also unpersuasive. SBC correctly points

out that paragraph 55 of the conditions defined ‘‘the function

of shared transport’’ as defined in the Shared Transport

Order, 12 FCC Rcd 12460 (1997) (subsequent history omitted), and argues that this definition only encompassed sharedtransport service for local calls. The definition of ‘‘shared

transport’’ in that order, however, did not exclude toll service.

The order dealt with ‘‘shared transport’’ as ‘‘defined by the

Commission.’’ Id. ¶ 10. At the time of the Shared Transport

Order, the Commission defined ‘‘shared transport’’ as ‘‘the

transmission facilities shared by more than one carrier, including the incumbent LEC, between end office switches,

between end office switches and tandem switches, and between tandem switches, in the incumbent LEC’s network.’’

47 C.F.R. § 51.319(d)(1)(ii) (1997); see also Merger Order

¶ 396 n.741 (defining ‘‘shared transport’’ the same way). That

definition includes intraLATA toll shared-transport service,

as intraLATA toll service uses ILECs’ end office switches,

tandem switches, etc. It is irrelevant that scattered passages

in the Shared Transport Order referred to shared transport

in the context of discussing the provision of local telephone
13

service. See 12 FCC Rcd 12460 ¶ 10. Regardless, it remains

true that the definition of shared transport in that order

included intraLATA toll service. For the same reason, it is

also irrelevant that the Commission stated in that order that

shared transport ‘‘is particularly important for stimulating

initial competitive entry into the local exchange market.’’ Id.

¶ 35. Paragraph 55 of the conditions establishes that the

definition of ‘‘shared transport’’ in the order is what matters,

not the purpose for which the Commission believed shared

transport ‘‘particularly important.’’

SBC also points to paragraph 56’s reference to ‘‘unbundled

local switching,’’ and claims that because the switching at

issue in paragraph 56 was limited to local switching ‘‘SBC

reasonably understood that the shared transport necessarily

connected to that switching was likewise limited to ‘local.’ ’’

SBC Br. at 30. To the contrary, this understanding is not

reasonable. Paragraph 56 did not tie SBC’s obligation to

provide shared transport, as SBC’s brief suggests, to that

shared transport that was ‘‘necessarily connected’’ to local

switching. It tied that obligation to SBC’s ‘‘sharedtransport’’ (again, as defined in the Shared Transport Order)

offerings in Texas as of August 27, 1999. As discussed,

shared-transport service for intraLATA toll service was one

such offering.

Equally unavailing are SBC’s attempts to overcome the

clear meaning of paragraph 56 by citing affidavits from

several SBC employees and a former employee of the law

firm of Kellogg, Huber, Hansen, Todd, and Evans, the firm

representing SBC in this matter, who were all involved in

negotiating the merger conditions. SBC claims that these

affidavits show that the ‘‘intent’’ of the parties in drafting

paragraph 56 was to obligate SBC only to provide sharedtransport service for local, not toll, service. As it is impossible for the individuals involved in multilateral negotiations to

speak to the collective intent of all parties involved in those

negotiations, however, such statements throw little light on

the meaning of the actual document to which those parties

collectively agreed. The best objective evidence of the collective intent of the parties in such circumstances is the ordinary
14

meaning of that document, and that meaning, as we have

stated, is plain. The affidavits therefore fall far short of

creating the ambiguity SBC seeks.

SBC further argues that subsequent FCC orders have

altered its obligation in paragraph 56 to provide sharedtransport for intraLATA toll service, but this argument too is

incorrect. SBC’s claim relies on paragraph 56’s statement

that SBC’s obligations under the merger conditions were

‘‘[s]ubject to TTT the terms of any future Commission orders

regarding the obligation to provide unbundled local switching

and shared transport.’’ Merger Order, App. C ¶ 56. The

major premise of SBC’s argument is that this language

means that subsequent Commission decisions regarding

ILECs’ unbundling duties under the Act govern SBC’s obligations under paragraph 56 of the merger conditions. The

minor premise is that two subsequent Commission decisions–

the UNE Remand Order and a Commission clarification of

that order–have implicitly found that ILECs are not generally obligated to unbundle shared-transport service to complete

intraLATA toll calls. As those orders govern the merger

conditions, SBC contends, SBC is not obligated to provide

shared-transport service for intraLATA toll calls, regardless

of whether the merger conditions originally imposed that

obligation on it.

The major premise of this argument is incorrect. The

dictionary definition of ‘‘subject to,’’ in the sense apparently

meant here, is ‘‘contingent on or under the influence of some

later action.’’ Merriam Webster’s Collegiate Dictionary 1172

(10th ed. 1995). As the ‘‘subject to’’ phrase does not specify

in what particular sense paragraph 56 is ‘‘contingent on’’

those future orders, it is natural to read the ‘‘subject to’’

phrase simply to adopt anything in those future orders that,

by the terms of such orders, contravened or altered anything

in paragraph 56. For example, if the FCC issued a future

order stating that ‘‘shared transport, as we defined in the

Merger Order, excludes shared-transport service for intraLATA toll service,’’ then the definition of shared transport

would be so modified. The future orders ‘‘condition’’ the

merger conditions in exactly the sense any future order would
15

‘‘condition’’ an old order: anything in the old order that is

contradicted or modified by the new order is void.

SBC, nevertheless, reads into the ‘‘subject to’’ language the

notion that future Commission orders concerning ILECs’

general unbundling obligations ‘‘govern the scope of [its]

shared-transport obligation.’’ SBC Reply Br. at 11. Although SBC’s reply brief denies it, this inference hinges on

the assumption that ‘‘subject to’’ means ‘‘superseded by’’ or

‘‘governed by,’’ that is, that those subsequent orders–in particular, the UNE remand order and the resulting clarification–fully specified SBC’s duties under paragraph 56 of the

merger conditions, regardless of what that paragraph originally required. This way of speaking defies linguistic convention. ‘‘Superseded by’’ means ‘‘to displace in favor of another,’’ Merriam Webster’s Collegiate Dictionary 1183 (10th ed.

1995); ‘‘governed by’’ means ‘‘to exert a determining or

guiding influence in or over,’’ id. at 504. These phrases

propose a particular way in which those future orders could

condition paragraph 56–by replacing it wholesale. That, however, is not what the paragraph says. It says that it is

‘‘subject to’’ future Commission orders, without specifying in

what sense the future orders would condition or qualify

paragraph 56. As we have discussed, that means that those

particular future orders would specify the sense in which they

‘‘condition’’ paragraph 56. A future order, for example, could

specify that ‘‘this order supersedes any and all of SBC’s

obligations under paragraph 56 of the merger conditions.’’

No future order to which SBC points, however, did any

such thing. SBC points to the UNE remand order and the

resulting clarification of that order, both of which we described more fully above. But those orders had nothing to do

with SBC’s paragraph 56 obligations under the Merger Order.

They concerned instead SBC’s unbundling obligations under

the Act. They were silent on SBC’s independent obligations

under the Merger Order. Although paragraph 56 is ‘‘subject

to’’ those orders, no command in them modified or contravened SBC’s paragraph 56 obligations.
16

When pressed at oral argument on this natural reading of

the ‘‘subject to’’ clause, SBC’s only answer was that if this

were the correct interpretation of the ‘‘subject to’’ language,

then certain portions of paragraph 56 would be surplusage.

In particular, SBC pointed to the statement that SBC

shall continue to make [the shared-transport] offer, at a

minimum, until the earlier of (i) the date the Commission

issues a final order in its UNE remand proceeding TTT

finding that shared transport is not required to be provided by SBC/Ameritech in the relevant geographical

area, or (ii) the date of a final, non-appealable judicial

decision providing that shared transport is not required

to be provided by SBC/Ameritech in the relevant geographical area.

Merger Order, App. C ¶ 56. This argument, too, is incorrect.

To the contrary, this passage imposes an independent qualification on SBC’s shared-transport obligations under paragraph 56. It simply says that, if in the UNE remand

proceedings, the FCC ‘‘find[s]’’ that, under the Act, SBC is

not required to unbundle shared-transport in those states,

then it is not required to do so under paragraph 56 either.

That condition is independent of the ‘‘subject to’’ condition,

because FCC unbundling orders are, again, independent of

merger-condition obligations. This passage, then, made the

FCC’s future unbundling orders relevant to SBC’s obligations

under paragraph 56 in one, and only one, circumstance: if the

Commission in the UNE remand order issued a ‘‘finding that

shared transport is not required to be provided by SBC/Ameritech in the relevant geographical area.’’

Despite SBC’s vigorous protestations, the UNE remand

order contained no such finding. SBC’s best argument to the

contrary is that the UNE remand order and the subsequent

clarification made clear that ILECs are not required to

provide shared-transport service for intraLATA toll calls.

SBC points out that the UNE remand order, as we described

above, tied the obligation to unbundle shared-transport service to the obligation to unbundle switching, i.e., that ILECs

must provide shared-transport service if they provide switch-
17

ing service. SBC then argues that because the unbundling

switching obligation in the UNE remand order was limited to

switching service to complete local, rather than toll, calls, the

UNE remand order did not require ILECs to provide sharedtransport service to complete intraLATA toll calls. The FCC

interprets the UNE remand order exactly the opposite. Far

from limiting ILECs’ obligations to provide shared-transport

service only to local service, the FCC argues that the order

affirmatively required ILECs to provide such transport so

CLECs may complete intraLATA toll calls.

We need not resolve which party has the better of this

debate, because the UNE remand order and the clarification

lack the required finding even if SBC is correct. SBC’s

reading of the UNE remand order shows, at most, that the

obligation to provide shared transport in the UNE remand

order was directed to local service. The rest of the UNE

remand order, on this understanding, is silent on whether this

obligation extends as well to intraLATA toll service. The

same is true of the clarification order, which simply set forth

a new analytical framework for analyzing ILECs’ unbundling

obligations generally, rather than making specific unbundling

findings. These orders were therefore, we assume, both

silent on whether ILECs generally are exempt from unbundling intraLATA shared-transport service for toll calls under

the Act. That silence is simply not a ‘‘finding that shared

transport is not required to be provided by SBC/Ameritech in

the relevant geographical area.’’ It is the absence of such a

finding.

We express no view on the adequacy of the forfeiture

order’s interpretation of ILECs’ unbundling obligations under

the Act. At times, SBC’s arguments read as if this is indeed

the issue before us. For example, SBC suggests that the

FCC in the forfeiture order interpreted its unbundling rules

in arbitrary-and-capricious fashion because those interpretations are contrary to the analysis in the UNE remand order

and the resulting clarification. But the rationality of the

forfeiture order’s unbundling analysis is not before us. The

only issue is whether paragraph 56 of the merger conditions

clearly put SBC on notice that it was required to provide
18

intraLATA toll service in the former Ameritech states. For

the reasons we have stated, it did.

B. Arbitrary-and-Capricious Claim

We can much more easily dispose of SBC’s second challenge–that the scale of the fine imposed by the Commission is

arbitrary and capricious. As discussed, the Act makes it

unlawful ‘‘willfully or repeatedly [to] fail[ ] to comply substantially with the terms and conditions of any TTT instrument or

authorization issued by the Commission.’’ 47 U.S.C.

§ 503(b)(1)(A). FCC regulations authorize the Commission

to assess a fine of up to $120,000 for each such individual

violation or each day of a continuing violation, up to a

maximum fine of $1.2 million ‘‘for any single act or failure to

act.’’ 47 C.F.R. § 1.80(b)(2). Factors the Commission shall

‘‘take into account’’ in determining the size of the fine include

‘‘the nature, circumstances, extent, and gravity of the violation,’’ as well as ‘‘ability to pay.’’ 47 U.S.C. § 503(b)(2)(D).

The FCC imposed a fine of $6 million in this case because it

considered SBC’s refusal to provide shared-transport service

to complete intraLATA toll calls five separate acts, one in

each of the former Ameritech states. Forfeiture Order ¶ 23.

It imposed the maximum $1.2 million for each such violation

because SBC had failed to provide such service in each of

these states beginning October 8, 2000, 12 months after the

close of the merger, and continuing at least until May 14,

2001, and therefore constituted five individual continuing

violations. Id. ¶ 26; NAL ¶ 21.

We hold that the FCC’s application of these statutory

factors to impose a fine of $6 million was reasonable. SBC

argues it was not because SBC undertook to offer sharedtransport service (short of offering such service to complete

intraLATA toll calls) ‘‘expeditiously and in good faith consistent with its understanding of the merger conditions.’’ SBC

Br. at 36. Still, it remains true, as discussed above and as

the FCC found, that SBC’s failure to offer shared-transport

service in five separate states violated the clear terms of the

merger condition and that this noncompliance continued for
19

some time. The FCC was well within its discretion in finding

that this recalcitrant behavior was substantial and widespread.

Similarly unavailing is SBC’s complaint that the Commission’s finding below that its failure to provide such service

had an adverse impact on competition. Apart from competitive impact, other independent factors the FCC considered

more than justify the extent of the fine. The FCC’s primary

reason for imposing such a large fine was the need to deter

SBC, a sophisticated, profit-maximizing business whose 2001

operating revenues were nearly $46 billion, from violating the

clear terms of merger conditions for which it had specifically

bargained, conditions that themselves arose from the need to

protect the public interest against the adverse competitive

effects from the merger of SBC and Ameritech. Forfeiture

Order ¶ 24. As discussed, a company’s ability to pay is a

statutory factor the FCC may consider, and it is reasonable

to expect that a larger fine might be necessary to deter a

large company like SBC.

The FCC also linked the amount of the forfeiture necessary

to deter SBC from violating paragraph 56 of the conditions

not simply to SBC’s overall revenues, but also to the amount

SBC stood to gain from taking that particular action. The

FCC noted, specifically, that SBC benefitted by causing its

competitors the inconvenience of litigating over the extent of

SBC’s shared-transport obligations in the five Ameritech

states. Id. That reasoning was eminently sensible. When

its competitors suffer, SBC benefits, and therefore it privately benefitted from inflicting harm on its competitors. Because the amount of deterrence necessary to prevent an

action from occurring depends on both a company’s revenues

and the private benefit to the company of taking the action,

there is a rational relationship between this factor and the

seriousness of the fine the FCC imposed. The FCC may

have not considered other factors relevant to that calculus,

but that does not change the fact that there is a rational
20

relationship between these two factors and the extent of the

fine.

III. Conclusion

For the reasons expressed above, we deny the petition for

review.