## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-3389

___________ Southwestern Bell Telephone Company, *
* Petitioner, *
* Ameritech Corporation; Time Warner * Communications Holdings; US * Telephone Association; GTE Service * Corporation; GTE Alaska, * Incorporated; GTE Arkansas, * Incorporated; GTE California, * Incorporated; GTE Florida, * Incorporated; GTE Midwest, * Incorporated; GTE South, Incorporated; * GTE Southwest, Incorporated; GTE * Petitions for Review of an Order North, Incorporated; GTE Northwest, * of the Federal Communications Incorporated; GTE Hawaiian Telephone * Commission Company, Incorporated; GTE West * Coast, Incorporated; Contel of * Minnesota, Inc.; Contel of the South, * Inc.; Association for Local * Telecommunications Services; Bell * Atlantic-Maryland, Inc.; Bell Atlantic- * Washington, D.C., Inc.; Bell Atlantic- * West Virginia, Inc.; Bell Atlantic- * New Jersey, Inc.; Bell Atlantic-Delaware,* Inc.; Bell Atlantic-Pennsylvania, Inc.; * Bell Atlantic-Virginia, Inc.; New York * Telephone Company; New England * Telephone and Telegraph Company; * Independent Telephone and * Telecommunications Alliance, *-2- * Intervenors on Appeal, *
*
v. *
* Federal Communications Commission; * United States of America, *
* Respondents, *
* American Telephone and Telegraph * Company; Telecommunications * Resellers Association; MCI * Telecommunications Corporation; LBC * Communications, Inc.; Worldcom, Inc.; * Competitive Telecommunications * Association, *
* Intervenors on Appeal. *

___________ No. 97-3576

___________ US West, Inc., *
* Petitioner, *
* Southwestern Bell Telephone Company, *
* Intervenor on Appeal, *
* Ameritech Corporation; Time Warner * Communications Holdings, Inc.; US * Telephone Association; Ameritech *-3-

Corporation; Time Warner * Communications Holdings, Inc.; * Association for Local Tele- * communications Services; GTE Service * Corporation; GTE Alaska, Incorporated; * GTE Arkansas, Incorporated; GTE * California, Incorporated; GTE Florida, * Incorporated; GTE Midwest, * Incorporated; GTE Southwest, * Incorporated; GTE South, Incorporated; * GTE North, Incorporated; GTE * Northwest, Incorporated; GTE Hawaiian * Telephone Company, Incorporated; * GTE West Coast, Incorporated; Contel * of Minnesota, Inc.; Contel of the South, * Inc.; Bell Atlantic-Washington, D.C., * Inc.; Bell Atlantic-West Virginia, Inc.; * Bell Atlantic-New Jersey, Inc.; Bell * Atlantic-Maryland, Inc.; Bell Atlantic- * Delaware, Inc.; Bell Atlantic- * Pennsylvania, Inc.; Bell Atlantic- * Virginia, Inc.; New York Telephone * Company; New England Telephone and * Telegraph Company; Independent * Telephone and Telecommunications * Alliance, *
* Intervenors on Appeal, *
*
v. *
* Federal Communications Commission; * United States of America, *
* Respondents, *
* American Telephone and Telegraph *-4-

Company; Telecommunications * Resellers Association; MCI * Telecommunications Corporation; * LBC Communications, Inc.; Worldcom, * Inc.; Competitive Telecommunications * Association, *
* Intervenors on Appeal. *

___________ No. 97-3663

___________ Ameritech Corporation, *
* Petitioner, *
* Time Warner Communications Holdings, * Inc.; US Telephone Association; * Association for Local Telecommun- * ications Services; Southwestern Bell * Telephone Company; GTE Service * Corporation; GTE Alaska, Incorporated; * GTE Arkansas, Incorporated; GTE * California, Incorporated; GTE Florida, * Incorporated; GTE Midwest, * Incorporated; GTE South, Incorporated; * GTE Southwest, Incorporated; GTE * North, Incorporated; GTE Northwest, * Incorporated; GTE Hawaiian Telephone * Company, Incorporated; GTE West * Coast, Incorporated; Contel of * Minnesota, Inc.; Contel of the South, * Inc.; Bell Atlantic-Washington, D.C., * Inc.; Bell Atlantic-West Virginia, Inc.; * Bell Atlantic-New Jersey, Inc.; Bell *-5-

Atlantic-Maryland, Inc.; Bell Atlantic- * Delaware, Inc.; Bell Atlantic- * Pennsylvania, Inc.; Bell Atlantic- * Virginia, Inc.; New York Telephone * Company; New England Telephone and * Telegraph Company; Independent * Telephone and Telecommunications * Alliance, *
* Intervenors on Appeal, *
*
v. *
* Federal Communications Commission; * United States of America, *
* Respondents, *
* American Telephone and Telegraph * Company; Telecommunications * Resellers Association; MCI Tele- * communications Corporation; LBC * Communications, Inc.; Worldcom, Inc.; * Competitive Telecommunications * Association, *
* Intervenors on Appeal, *

___________ No. 97-4106

___________ Southern New England Telephone * Company, *
* Petitioner, *-6- * Independent Telephone and Tele- * communications Alliance; Ameritech * Corporation; Time Warner * Communications Holdings, Inc.; US * Telephone Association; Association for * Local Telecommunications Services; * Southwestern Bell Telephone Company; * GTE Service Corporation; GTE Alaska, * Incorporated; GTE Arkansas, * Incorporated; GTE California, * Incorporated; GTE Florida, * Incorporated; GTE Midwest, * Incorporated; GTE South, Incorporated; * GTE Southwest, Incorporated; GTE * North, Incorporated; GTE Northwest, * Incorporated; GTE Hawaiian Telephone * Company, Incorporated; GTE West * Coast, Incorporated; Contel of * Minnesota, Inc.; Contel of the South, * Inc.; Bell Atlantic-Washington, D.C., * Inc.; Bell Atlantic-West Virginia, Inc.; * Bell Atlantic-New Jersey, Inc.; Bell * Atlantic-Maryland, Inc.; Bell Atlantic- * Delaware, Inc.; Bell Atlantic- * Pennsylvania, Inc.; Bell Atlantic- * Virginia, Inc.; New York Telephone * Company; New England Telephone and * Telegraph Company, *
* Intervenors on Appeal, *
*
v. *
* Federal Communications Commission; * United States of America, *
*The Hon. Pasco M. Bowman became Chief Judge of the United States Court 1 of Appeals for the Eighth Circuit on April 18, 1998. Ameritech Corp., Southern New England Telephone Co., Southwestern Bell 2 Telephone Company, and U.S. West, Inc . all filed petitions for review. These petitions have been consolidated, and Bell Atlantic Telephone Companies, GTE Entities, and United States Telephone Association have all intervened in support of the consolidated petitions. We refer to this group collectively as "petitioners" throughout.

-7- Respondents, *
* American Telephone and Telegraph * Company; Telecommunications * Resellers Association; MCI Tele- * communications Corporation; LBC * Communications, Inc.; Worldcom, Inc.; * Competitive Telecommunications * Association, *
* Intervenors on Appeal. *

________________ Submitted: January 15, 1998 Filed: August 10, 1998

________________ Before BOWMAN, WOLLMAN, and HANSEN, Circuit Judges. 1

________________ HANSEN, Circuit Judge.
Pursuant to 47 U.S.C. § 402(a) (1994) and 28 U.S.C. § 2342(1) (1994), various incumbent local exchange carriers (incumbent LECs ) petition for review of the Federal 2 CommunicationCommission's (FCC's) Third Order on Reconsideration and Furthe r Notice of P

roposed Rulemaking, Implementation of the Local Competition ProvisionsAll citations to sections and subsections of the Act are to the 1998 3 Supplement to West's United States Code Annotated.
-8- in the Telecommunications Act of 1996, CC Docket No. 96-98, 12 FCC Rcd. 1246 0 (Aug. 18, 1997) (Third Order on Reconsideration)

. The consolidated petition s chall enge both the FCC's determination that shared transport constitutes a network elementa s defined by 47 U.S.C.A. § 153(29) (West Supp. 1998), and the FCC' s determ inationthat incumbent LECs must make shared transport available to ne w entrants on an unbundled basis pursuant to 47 U.S.C.A. § 251(c)(3), (d)(2). We affirm the FCC's order and deny the consolidated petitions for review.

I.

In 1996, Congress amended the Communications Act of 1934 with the purpose of fostering competition in both the interexchange and local exchange markets. Se e Telecommunications Act of 1996, Pub . L. No. 104-104, 110 Stat. 56 (to be codified as

am ended in scattered sections of Title 47, United States Code ) (the Act). The issues 3 presented in this case relate to the Act's l ocal competition provisions. The Act requires incumbent LECs to allow new entrants access to t heir networks in three different ways. Spe cifically, a LEC must (1) permit requesting competitors to interconnect with th e LEC's local

network, (2) provide competitors with access to individual elements of its

ne twork on an unbundled basis, and (3) allow competitors to purchase it s telecommunications services for resale. 47 U.S.C.A. § 251(c)(2)-(4). Together, these duties regarding interconnection, unbundled access, and resale are intended to provide would-be competitors with realistic opportunities to e nter the market for local exchange service.

The i ssues presented in the consolidated petitions for review pertain to th e incumben t

LECs' duties regarding unbundled access. Section 251(c)(3) require s incumbent LECs to provide new entrants with "nondiscriminatory access to network-9-

elements on an unbundled basis at any technically feasible point on rates, terms, an d

con ditions that are just, reasonable, and nondiscriminatory." (emphasis added). Th e Act defines "network element" as follows:

The term " network element" means a facility or equipment used in th e provis ionof a telecommunications service. Such term also include s fe atures, functions, and capabilities that are provided by means of suc h facilit y or equipment, including subscriber numbers, databases, signaling systems, and information sufficient for billi ng and collection or used in the transmission, routing, or other provision of a telecommunications service. 47 U.S.C.A. § 153(29).
Although Congress defined the term "network element" in the Act, it invested the FCC with the authority to determine whi ch network elements should be made available to new entrants on an unbundled basis. See 47 U.S.C.A. § 251(d)(2). Sectio n 251(d)(2) limits the FCC's authority in thi s regard only insofar as it requires the FCC to consider two factors "at a minimum" as it makes this decision. These factors ar e whether "access to such network elements as are proprietary in nature is ne cessary," and whether "the failure to provide access to such network elements would i mpair the ability of the telecommunications carrier seeking acc ess to provide the services that it seeks to offer." Id.
On August 8, 1996, the FCC is sued its First Report & Order, Implementation of the Local Competition P

rovisions in the Telecommunications Act of 1996, CC Docket No. 96- 98, 11 FCC Rcd. 15499 (Aug. 8, 1996) (First Report & Order)
, in which i t established rules to implement the local competition provisions of the Act. In this order, the FCC identified various network elements and determined, pursuant to its authority under secti on 251(d)(2), that an incumbent LEC must make each of the elements th e FCC had identified available to the LEC's competitors on an unbundledBecause the version of 47 C.F.R. § 51.319 attached to the First Report & 4 Order differs in relevant respects from the current version, we refer to appendix B of the First Report & Order when speaking of the regulation as originally adopted in that order.
-10- basis. SeeFirst Report & Order ¶ 262; id. at A.P. B (47 C.F.R. § 51.319)

. Salient for 4

our p urposes is the FCC's treatment of interoffice transmission facilities, specificall y shared interoffice transmission facilities. Interoffice transmission facilities are th e highways of the local exchange. They connect the end offices and tandem switche s within the local exchange to one another and carry telephone tr affic between and among the se offices and switches. See First Report & Order, A.P.. B (47 C.F.R. § 51.319(d)(1)). Intero ffice transmission facilities are distinct from both the local loops, which connect end users to the local excha nge, see id. (47 C.F.R. § 51.319(a)), and the various switches (local and tandem), which determine which interoffice transmissio n facilities are used to transport the traffic from switch to switch, see id. (47 C.F.R. § 51.319(c))

. In its First Report & Order, the FCC emphasized that switching an d tr ansport are distinct network elements, each of which must separately be mad e
av ailable to entrants on an unbundled basis. See id. ¶¶ 410, 440; accord 47 U.S.C.A. § 271(c)(2) (B)(v, vi) (requiring LECs to offer "[l]ocal transport . . . unbundled fro m switching or other services" and "[l]ocal switching un bundled from transport, local loop transmission, or other services" ).

In th e First Report & Order, the FCC distinguished dedicated transmissio n facilities from shared

transmission facilities, and treated each separately for purposes of unbundled access. Id. (47 C.F.R. § 51.319(d)(1) ) . Dedicated transmission facilities, which do not here concern us, are those transmission facilities used by a single customer or carrier. Id. Shared transmission facilities, on th e other hand, carry traffic of multiple

cu stomers or carriers. Id. Regarding shared transmission facilities, the FCC initiall y determin ed only that incumbent LECs must provide "unbundled access to share d transmission facilities between end offices and the tandem switch." Id. ¶ 440.-11-

The FCC did not explain its meaning in detail, but some of its comments suggested that the FCC perhaps anticipated that each individual shared transmis sion facility—i.e., each link—must be made available as a separate unbundled network element. See id. ¶ 442 ("Wefind that it is technically feasible for LECs to unbundle the foregoing interoffice facilities as individual network elements."); id. ¶ 441 ("By un bundling various dedicated and s hared interoffice facilities, a new entrant can purchase all interoffice facilities on an unbundled basis as part of a competing network, or it can combine i ts own interoffice faci lities with those of the incumbent LEC."); but see id. at App. B (47 C.F.R. § 51. 319(d)(2)) (referring to the "use of the features, functions, and capabilities o f interoffi ce transmission facilities shared by more than one customer or carrier.") . The exact nature of the incumbent LECs' unbundling duties regarding shared transmission fa cilities remained subject to dispute until the FCC issued its Third Order o n Reconsideration, discussed below.
On July 1 8, 1997, this court issued an opinion in which we affirmed in part and vacated in part the FCC's First Report & Order. See Iowa Utils. Bd. v. FCC , 120 F.3d 753, 819-20 (8th Cir. 1997), cert. granted sub n om. , AT&T Co. v. Iowa Utils. Bd. , 118 S. Ct. 8 79 (1998). In particular, we affirmed the FCC's determination that variou s features, fu nctions and capabilities of the local exchange network, such as operational support services, operator services, and signaling syste ms, were "network elements" for purposes of the Act. Iowa U tils. Bd. , 120 at 808-10. We similarly affirmed the FCC's determination that various facilities, such as interoffice transmission facilities, fell within the statutory definit

ion of network element. See id. at 818 n.38 (implying by omission that thi s regulation was upheld). Finally, we upheld the FCC's section 251(d)(2 ) determination that the netw ork elements it had recognized should be made available to competitors on an unbundled basis. Id. at 808, 809-10.

Afterth e FCC issued its First Report & Order, various interested parties file d petitions f

or reconsideration and clarification with the FCC. Two of these petition s requested clarification regarding what incumbent LECs must do to make shared-12-

transmiss ion facilities available to new entrants on an unbundled basis, pursuant to 47 U.S.C. A. § 251(c)(3). On August 18, 1997, the FCC issued its Third Order o n Reconsideration, in which it addressed the issues presented in these two petitions. The FCC acknowledged that, in its First Report & Order, it had only required incumben t LECs to "provide 'shared transport' between the end office and tandem." Third Order

on Reconsideration ¶ 2. Upon reconsideration, the FCC eliminated this limitation , concluding that incumbent LECs "should be required to provide requesting carriers with access to shared transport for all transmission facilities connecting LECs ' switches—that is, between end office switches, between an end office sw itch and a tandem switch, and between tandem switches." Id. ¶ 2; see also id. ¶¶ 25, 26; id. at App. A (47 C.F.R. § 51.319 )(d)(1)(ii)). Additionally, the FCC clarified that the function of "share d transport" constitutes a single network element, and directed incumbent LECs to make this function available on an unbundled basis. See id. ¶¶ 25-26, 33, 42-43, 47.

Th e consolidated petitions seek review of the FCC's Third Order o n Reconsideration, arguing that it is contrary to both the Telec ommunications Act of 1996 and this co urt's decision in Iowa Utilities Board . We affirm the FCC's order and deny the petitions for review.

II.

We h ave jurisdiction to review final orders of the FCC pursuant to 28 U.S.C. § 2342(1) (1994) and

47 U.S.C. § 402(a) (1994). As we noted in Iowa Utilities Board , 120 F .3d at 793, we defer to administrative interpretations of statutes unless the y conflict with the plain meaning of a statute, unreasonably construe an amb iguous statute,

or are arbitrarily or capriciously adopted. See Chevron U.S.A. Inc. v. Natura l Reso urces Defense Council, Inc. , 467 U.S. 837, 842-45 (1984). We emphasize here, as we did in Iowa Utilities Board , that we in no way purport to evaluate the wisdom or prudence of the policy decisions underlying the Act. 120 F.3d at 793. Rather, if we-13-

find that the agency's reading of a statute is a permissible one, "we give that readin g controlling we ight, even if it is not the answer 'the court would have reached if th e question initially had arisen in a judicial proceeding.'" Regions Hosp. v. Shalala , 118 S. Ct. 909, 915 (1998) (quoting Chevron , 467 U.S. at 843 n.11).

A. The Designation of "Shared Transport" as a Network Element is Consistent with the Act and Our Decision in Iowa Utilities Board
.
Petitioner s argue that the FCC misinterpreted the Act when it determined tha t shared tran sport constitutes a network element as defined in section 153(29). The y
ar gue that, because the First Report & Order (arguably) defined each share d transmission facility between a n end office and a tandem switch as a separate network elemen t, the FCC has no power to aggregate all of an incumbent LEC's share d transmissionfacilities and designate the function which these facilities serve—shared transport—as a single network element. They further argue that because the function of "shared transport" constitutes so significant a portion of the local exchange, it cannot be considered a mere "network element." We disagree.
The term "network element" is defined by the Act. This definition states t hat both the individual "facilit[ies] or equipment" of the local exchange and the " features , func tions, and capabilities which are provided by means of such facilit[ies] o r equipment" constitute "net work elements" for purposes of the Act. See 47 U.S.C.A. § 153(29); see also Iowa Utils. Bd. , 120 F.3d at 809. For this reason, we held in Iow a Utilities Board

that operational support services, operator services, directory assistance, call waiting, caller I.D., call forwarding, and signaling—all features or function s supp orted by a variety of different facilities or equipment—fell within the statutory definition of "network element." See 120 F.3d at 809. There we wrote as follows:
Simply because these capabilities can be labeled as "services" does no t convince us that they were not intended to be unbundled as networkIn Iowa Utilities Board , we were careful not to rule on the issue of whether 5 operator services, directory assistance, caller I.D., call forwarding, and call waiting could be classified as "services" subject to the resale provisions of the Act, because that question was not properly before us. See 120 F.3d at 810 n.29 ("Even though the parties seem to agree that operator services, directory assistance, caller I.D., call forwarding, and call waiting can also be classified as 'services,' we make no ruling on this particular issue."). We held simply that these functions, features, and capabilities constituted network elements and were subject to the unbundling requirements of subsection 251(c)(3), regardless of whether they additionally could be considered services. Id. at 809-10.

-14- elem ents. While subsection 251(c)(4) does provide for the resale o f telecommunications services, it does not establish resale as the exclusive
mean s through which a competing carrier may gain access to suc h services. We agree with the FCC that such an interpretation would allow th e incumbent LECs to evade a substantial portion of their unbundlin g obligationunder subsection 251(c)(3). We believe that in som e circumstance s a competing carrier may have the option of gaining access to features of an incumbent LEC's network through either unbundling or resale. [The features then at issue] satisfy the definition of "networ k element;" consequently, they are subject to the unbundling requirements of subsection 251(c)(3).

Id. at 809-10 (footnote omitted).

Us ing the same logic, we conclude that shared transport is similarly a networ k element. It is a "feature, function, [or] capability," and it is provided by facilities and equipm ent

used in the provision of a telecommunications service. The statutory definition requires no more. See47 U.S.C.A. § 153(29). In fact, the question presented in the case at ha

nd is easier than the one we dealt with in the above-quoted passage of Io waUtilities Board . There, we dealt with "finished services" such as director y 5 assis tance and operations support services, while here, we deal with shared transport, whichpetitioners acknowledge is of no use whatsoever unless a new entran t additionally purchases switching. ( See Br. for Pet'rs Ameritech , et al., at 29.)We upheld the FCC's interpretation of section 251(d)(2) in Iowa Utilities 6 Board

. See 120 F.3d at 810-12.
-15- Accordingly , we conclude that the plain meaning of the statute supports the FCC' s determination that shared tran sport is a network element as defined in section 153(29). See Chevron , 467 U.S. at 842-43.

B. The FCC's Determination that Incumbent LECs Must Make "Share d Transport" Available to Entrants on an Unbundled Basis Comports With the Act.
Logical ly separate from the FCC's designation of shared transport as a network element is the FCC's determination that incumbent LECs must make shared transport available to entrants on an unbundled basis pursuant to section 251(c)(3). As discussed above , section 251(d)(2) provides the FCC with the authority to make suc h determinations and does not limit this authority except to direct the F CC to consider two factors as it does so. First, the FCC must consider whether "access to such network elements as are proprietary in nature is necessary." 47 U.S.C.A. § 251(d)(2)(A)

. Second, itmust consider whether "the failure to provide access to such network el ements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer." Id. § 251(d)(2)(B). 6

Where, as it has herein § 251(d)(2), Congress expressly delegates to an agency the power to formulate policy and fill gaps in a statutory scheme, we defer to agenc y regu lations promulgated pursuant to such delegation "unless they are arbitrary , capr icious, or manifestly contrary to the statute." Chevron , 467 U.S. at 843. Here , Congress limited the FCC's authority only by directing it to con sider "at a minimum" the two above-described factors, and petitioners do not argue that the FCC failed to giv e adequate considera

tion to either one. 47 U.S.C.A. § 251(d)(2). In fact, petitioners do not assert that the FCC violated the express language of section 251(d)(2) or any-16-

other provision of the Act. Rather, petitioners argue that the FCC's decision tha t incumbent

LECs must provide shared transport on an unbundled basis is inconsisten t with Congress's over arching intention of maintaining a meaningful distinction between unbundled access to network elements and resale.

The dis tinction between unbundled access and resale is important, petitioner s argue, be cause sections 251(c)(3) and 252(d)(1) require incumbent LECs to provid e unbundled access at cost-based rates, while sections 251(c)(4) and 252(d)(3) allo w incumbent LECs to provide retail services for resale at a higher price, equ al to the LEC's retail subscr iber rates less avoided costs. Petitioners argue that, if use of all of a n incumbent LEC's shared transport facilities may be collectively purchased on a per

mi nute-of-use basis, entrants will effectively be able to purchase preassemble d platf orms for resale at the lower cost-based price reserved for unbundled access t o network elements. Petitioners argue that if this is allowed to occur, the distinctio n between resale and unbundled access will be obliterated.

This argument is predicated on petitioners' speculative assumption that share d tr ansport will be priced on a usage-sensitive basis. Because the pricing scheme fo r shared tra nsport (and all other unbundled elements) will be determined by the stat e commis sions, see 47 U.S.C.A. § 252(c)(2); Iowa Utils. Bd. , 120 F.3d at 818, it i s impossible f

or this court to determine at this time whether shared transport will b e priced i n such a way as to erode the distinction between resale and unbundled access. Since, as in Iowa Utilitie s Board , "we do not know what the state-determined rates [or

ev en what the rate structure] will be," it follows that petitioners' arguments regardin g the actual costs that entrants will incur are "speculative at best." 120 F.3d at 816. Until th e state commissions exercise their authority to determine how shared transport wil l be priced (i.e., whether on a flat, use-sensitive, or other basis, and at what price), w e could do no more than co njecture as to whether the unbundled sale of shared transport will erode the careful distinction between resale and unbundled access. Accordingly, we decline at this time to consider petitioners' argument to this effect.-17-

The re will be time enough to do so once a state commission has compiled a record , applied its e xpert analysis, and rendered a decision, and an appeal has been taken to a federal district court pursuant to § 252(e)(6).

Petitioners also argue that the FCC's determination that incumbent LECs mus t pro vide shared transport on an unbundled basis is inconsistent with Iowa Utilitie s Board , in which we wrote:

[Section ] 251(c)(3) does not permit a new entrant to purchase th e incumbent LEC's assembled platform(s) of combined network ele ments (or any lesser existing combination o f two or more elements) in order to offer comp etitive telecommunications services. To permit such an acquisition of alr eady combined elements at cost based rates for unbundled acces s would o bliterate the careful distinctions Congress has drawn i n subsec tions 251(c)(3) and (4) between access to unbundled network elements on the one hand and the purchase at wholesale rates of a n incu mbent's telecommunications retail services for resale on the other

. Acco rdingly, the Commission's rule, 47 C.F.R. § 51.315(b), whic h prohibits an incumbent LEC from separati ng network elements that it may
cur rently combine, is contrary to § 251(c)(3) because the rule woul d permit the new entrant access to the incumbent LEC's network elements on a bundled rather than an unbundled basis.

120 F.3d at 813.

Petitio ners argue that this holding should be read to prohibit the FCC fro m requiring incumbent LECs to provide shar ed transport as a single unbundled element at

a cost -based price. They argue that treating shared transport as a single unbundle d element is the functional equivalent of requiri ng incumbent LECs to combine individual transmissionfacilities, which are themselves network elements, and provide them t o new entrants on a bundled basis. They argue that by defining "shared transport"-18-

br oadly as a function derived from numerous shared transmission facilities, the FC C has acted in contravention of our Iowa Utilities Boarddecision.

In support of this reading, petitioners quote then-FCC Chairman Reed Hundt , who opined that the Third Order on Reconsideration "highlights the importance w e place o n incumbents making available to new entrants their network elements on a combined basis." Separate Statement of Chairman Reed Hundt (attached to the Third Order on Reconsideration)

. We conclude that Chairman Hundt's remarks wer e ad dressed to the provisions of 42 C.F.R. § 51.315(b), which then prohibited a n incumbent LEC from separating requeste d network elements that it currently combined in its own confi guration. Because we had not yet vacated subsection 315(b) when the FCC issue d its Third Order on Reconsideration, the FCC believed at that time that i t could prevent LECs from disassembling the combinations of individual networ k elements that the LECs had already assembled in various configurati ons to provide local telecommunications services. See Third Order on Reconsideration ¶ 44 . Shortly after the issuance of the Third Order on Reconsideration, we vacatedsubsection 315(b) in response to a petition for rehearing. See Iowa Utils. Bd. , 120 F.3d at 813. Accordingly, to the extent that the FCC relied on subsection 315(b) as support for the Third Order on Reconsideration, that reliance is no longer justified.
Mr. Hundt's remarks and paragraph 44 notwithsta nding, we respectfully disagree with petitioners' argument that the Third Order on Reconsidera tion violates our mandate in Iowa Utilities Board . While the existence of § 51.315(b) may have provided some additional support for the FCC's determination that shared transport is a network ele ment subject to unbundled access, it was certainly not the principal basis for tha t det ermination. As discussed above, the statutory definition of "network element " cont ainedin § 153(29) expressly includes both individual network facilities and th e functions which those facilities provide, either individually or in consort. Pursuant to section 251(d)(2), it is within the authority of the FCC to determine which of thes e network elements—the facilities, the functions, or both—incumbent LECs-19-

mustmake a vailable on an unbundled basis. Accordingly, when the FCC made it s de cision on reconsideration regarding shared transport, it was acting according t o express statutory authority.

In Iowa Utilities Board , on the other hand, the FCC was acting in the absence of any statutory authority and in vi olation of section 251(c)(3) of the Act. There we were faced with the FCC's attempt to force incumbent LECs to make available precombined packages of alreadyassembled network elements (i.e., platforms), which the FCC had never suggested were

themselves network elements. Because the Act does not invest the FCC with th e authority to require LECs to "bundle" elements and provide them on

a com bined basis, and because section 251(c)(3) expressly provides that network elements are to be provided on an "u nbundled" basis "that allows requesting carriers to combine such elements," we held that the FCC had violated the Act. See 120 F.3d at 813.

In short , because the FCC action currently at issue—requiring LECs to provide

acces s to shared transport on an unbundled basis —was made pursuant to expres s statutory authority, this case is distinguishable in this important respect from Iow a Utilities Board , where we held that the FCC had no auth ority to order LECs to combine network elements. Because we find tha t the statutory authority provided in §§ 153(29) and 251(d)(2) is sufficient, standing alone, to support the FCC's determination tha t shared tran sport is a network element, the fact that the FCC may have also relied on a rule (§ 51.315(b)) we later vacated is of little consequence.

Indeed, we believe that our decision in Iowa Utilities Board supports our decision in the case at ha

nd. As discussed supra under subheading A, we expressly upheld the FCC's section 251(d)(2) determination that various "functions" should be provided on

an unbu ndled basis, notwithstanding the fact that these functions could also b e considered finis hed services purchasable for resale pursuant to section 251(c)(4). See Iowa Utils. Bd. , 120 F.3d at 809 (acknowledging that "a competing carrier mayOnly when a state commission fails to act to carry out its responsibility under 7 § 252 to determine rates for unbundled access to network elements is the FCC authorized to step in and assume the state commission's pricing role. 47 U.S.C.A. § 252(e)(5).
-20- have the option of gaining access to features of an incumbent LEC's network through either unbundling or resale"). If the FCC may require incumbent LECs to provid e unbundled access to fun ctions and capabilities which may also be purchasable at retail as "finished services" (e .g., caller I.D., call waiting, call forwarding, operator services, and directory assistance), it certainly may require LECs to provide unbundled acces s to a separate function or capability such as shared transport which , when combined with other n etwork elements, enables a new entrant to provide local telecommunication s service.

In short, we hold that the FCC's determination that shared transport should b e made av ailable to entrants on an unbundled basis is not arbitrary, capricious, o r otherwise contrary to law. See Chevron , 467 U.S. at 843.

C. The FCC Did Not Assert Pricing Authority in the Third Order o n Reconsideration.
Petitioners and intervenors have exp ressed concern regarding paragraphs 30 and 35 o f the Third Order on Reconsideration, in which the FCC opined that share d tran sport should be priced on a usage-sensitive, per-minute-of-use basis. Petitioner s
co rrectly note that, under our cases, the FCC has no authority to establish pricing fo r shared tra nsport or any other network element. See Iowa Utils. Bd. , 120 F.3d at 794- 96; Iowa Utils. Bd. v. FCC , 135 F.3d 535, 537-38 (8th Cir. 1998), petitions for cert

. filed , 66 U.S.L.W. 3672 (March 13, 1998) (Nos. 97-1519 & 97-1520). 7-21-

Clearly, any attempt by the FCC to assert authority over the pricing of unbundled network elements would violate both the Act as we read it and our decision in Iow a Utilities B oard . However, we do not believe that the relevant passages of the Thir d Order on Reconsiderati on reflect any such attempt on behalf of the FCC. We read the relevant language in both paragraphs 30 and 35 to be dict a, in which the FCC expresses its opinion as to ho w the states ought to approach the question of pricing. Clearly, the FCC expresses a preference for usage- based pricing, but it follows this discussion with an express acknowledgment that, pursuant to Iowa Utilitie s Board , it "may not establish pricing rules for shared transport." Third Order on Reconsideration ¶ 30. In light of this express acknowledgment, we reject petitioners' assertion that language in eithe r paragraph 30 or 35 represents an attempt to assert pricing authority in disregard of our Iowa Utilities Boarddecision.
Finally, we agree with petitioners that certain unvacated language in the Firs t Report & Order can be read to assert pricing authority. See id. ¶ 258 ("Carriers seeking other elements, especially shared facilities such as common transport, are essentiall y purchasing access to a functionality o f the incumbent's facilities on a minute-by-minute bas is .") (emphasis added). However, this language was drafted before our decision s in Iowa Utils. Bd. , 120 F.3d at 793-800, and Iowa Utils. Bd. , 135 F.3d at 537-38, and we believe the FCC's current position is as expressed in paragraph 30 of th e Third Order on Reconsideration.

III.
Accordingly, we deny the consolidated petitions for reviewand affirm th e Federal Communications Commission's Third Order on Reconsideration.-22-

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT