Court Opinion

ID: 767871
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:44:56+00
Date Added: 2024-06-11T17:55:31.279464
License: Public Domain

205 F.3d 416 (D.C. Cir. 2000)
GTE Service Corporation, et al.,Petitionersv.Federal Communications Commission and United States of America, Respondents,North Point Communications, Inc., et al., Intervenors
Nos. 99-1176, 99-1201
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 2, 2000Decided March 17, 2000

[Copyrighted Material Omitted]
On Petitions for Review of an Order of theFederal Communications Commission
Mark L. Evans argued the cause for petitioners.  With him  on the briefs were William P. Barr, M. Edward Whelan III., John F. Raposa, Dan L. Poole, Robert B. McKenna, Michael  K. Kellogg, Lawrence E. Sarjeant, Linda Kent, John W.  Hunter, and Julie E. Rones.
Laurence N. Bourne, Counsel, Federal Communications  Commission, argued the cause for respondents.  With him on  the brief were Joel I. Klein, Assistant Attorney General,  United States Department of Justice, Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, Christopher J.  Wright, General Counsel, Federal Communications Commission, and John E. Ingle, Deputy Associate General Counsel.
Mark C. Rosenblum, Peter D. Keisler, James P. Young,  William Single, IV., Mark D. Schneider, Ruth M. Milkman,  Robert J. Aamoth, Jonathan Jacob Nadler, Leon M. Kestenbaum, Jay C. Keithley, H. Richard Juhnke, Glenn B. Manishin, Christy C. Kunin, Renee R. Crittendon, Randall B. Lowe,  Eric J. Branfman, Andrew D. Lipman, and Rodney L. Joyce.  Harold R. Juhnke were on the brief for intervenors AT & T  Corporation, et al.  Michael B. Fingerhut, David W. Carpenter, Jodie L. Kelley, Mark B. Ehrlich, and Emily M.  Williams entered appearances.
Before:  Edwards, Chief Judge, Ginsburg and Sentelle,  Circuit Judges.
Opinion for the Court filed by Chief Judge Edwards.
Edwards, Chief Judge:

1
Section 251(c)(6) of the Telecommunications Act of 1996 (the "Act"), 47 U.S.C.       251(c)(6), imposes a statutory duty on incumbent local exchange carriers  ("LECs") to provide physical or virtual collocation for competing providers ("competitors").  The Act also requires the  Federal Communications Commission ("FCC" or "Commission") to issue implementing regulations to fulfill the collocation mandate.  See 47 U.S.C.       251(d)(1).  In March 1999, in  Deployment of Wireline Services Offering Advanced Telecommunications Capability ("Collocation Order"), 14 FCC Rcd  4761 (1999), the FCC issued rules purporting to implement        251(c)(6).  According to the Commission, a principal purpose of the Collocation Order is to "adopt ... additional  measures to further facilitate the development of competition  in the advanced services market ... [by] strengthen[ing] ...  collocation rules to reduce the costs and delays faced by  competitors that seek to collocate equipment in an incumbent  LEC's central office."  Id. at 4764 p 6.

2
The petitioners before the court are LECs who challenge  the Collocation Order on the ground that it impermissibly  imposes intrusive "physical collocation" requirements on  them. Section 251(c)(6) says that LECs must provide for  physical collocation of equipment "necessary for interconnection or access to unbundled network elements at the premises  of the local exchange carrier."  47 U.S.C.       251(c)(6).  The  FCC has taken the position that "necessary" means that "an  incumbent LEC may not refuse to permit collocation of any  equipment that is 'used or useful' for either interconnection or  access to unbundled network elements, regardless of other  functionalities inherent in such equipment."  Collocation Order, 14 FCC Rcd at 4776-77 p 28.  Petitioners argue that,  with the adoption of this rule, the FCC seeks to require  collocation well beyond what has been authorized by Congress.  Petitioners also claim that the Collocation Order is  unauthorized and unreasonable in forcing LECs to offer  competitors "cageless collocation," defining "premises" in        251(c)(6) to include a LEC's central office and adjacent  property, allowing competitors to have too much say over the  placement of their equipment in a LEC's central office, and  depriving LECs of an opportunity to gain full recovery of the  initial costs of preparing collocation space for competitors.

3
Petitioners' position that "physical collocation" under the  Act is limited to caged collocation is meritless, as is the claim  that the FCC's definition of "premises" is unduly broad. We  also reject petitioners' challenge to the cost recovery mechanism under the Collocation Order.  We agree with petitioners, however, that the FCC's interpretations of "necessary"  and "physical collocation" appear to be impermissibly broad. We therefore vacate the challenged Collocation Order insofar  as it embraces unduly broad definitions of "necessary" and "physical collocation" and remand for further consideration  by the FCC.

I. Background

4
In recent years, the FCC has sought to increase competition in the market for interstate access services, which connect long-distance companies with local telephone networks  and subscribers.  In 1992 and 1993, the Commission issued  orders requiring LECs to set aside portions of their premises  for occupation and use by competitive access providers, thus  generating legal battles that have continued to the present. See Bell Atlantic Telephone Cos. v. FCC, 24 F.3d 1441 (D.C.  Cir. 1994).  In their initial attempts to require LECs to  permit physical collocation of competitors' equipment on demand, the FCC relied on       201(a) of the Communications Act  of 1934, 47 U.S.C.       201(a), which empowers the agency to  order "physical connections" as necessary for the public interest.  The FCC reasoned that its efforts to create a level  playing field of competition in the market for interstate  access services served the public interest. On review, however, this court upheld a challenge to the Commission's physical  collocation rule, finding that nothing in the Communications  Act of 1934 explicitly authorized the FCC to order takings of  LECs' property through physical collocation.  See id. at 1446  ("The Commission's power to order 'physical connections,'  undoubtedly of broad scope, does not supply a clear warrant  to grant third parties a license to exclusive physical occupation of a section of the LEC's central offices.").  The court  was concerned that

5
Chevron deference to agency action that creates a broadclass of takings claims, compensable in the Court of Claims, would allow agencies to use statutory silence orambiguity to expose the Treasury to liability both mas-sive and unforeseen.

6
Id. at 1445 (citing Chevron U.S.A. Inc. v. Natural Resources  Defense Council, Inc., 467 U.S. 837 (1984)).  Thus, absent a  more definite congressional authorization, the court was unwilling to defer to the FCC's unduly broad reading of        201(a).

7
The FCC responded to the court's ruling in Bell Atlantic  Telephone by adopting new rules that gave LECs the option  to rely more on "virtual collocation" in lieu of physical collocation.  See Expanded Interconnection with Local Telephone  Company Facilities, Memorandum Opinion and Order, 9 FCC  Rcd 5154 (1994).  Virtual collocation allows a LEC to retain  physical control of the equipment, along with the responsibility for installing, maintaining, and repairing it.  Virtual collocation therefore minimizes the takings problem, because competitors do not have physical access to a LEC's property.The LECs petitioned for review of this order, but the issue on  appeal was rendered moot with the passage of the Telecommunications Act of 1996.  The court therefore remanded the  case for reconsideration in light of 47 U.S.C.        251(c)(6) &  (g), as applied after the enactment of the Telecommunications  Act of 1996.  See Pacific Bell v. FCC, 81 F.3d 1147 (D.C. Cir.  1996).

8
The 1996 Act completely revamped the statutory landscape  by providing explicit congressional authorization for physical  collocation.  Under       251(c)(6), LECs are now required

9
to provide, on rates, terms, and conditions that are just,reasonable, and nondiscriminatory, for physical colloca-tion of equipment necessary for interconnection or accessto unbundled network elements at the premises of thelocal exchange carrier, except that the carrier may pro-vide for virtual collocation if the local exchange carrierdemonstrates to the State commission that physical collo-cation is not practical for technical reasons or because ofspace limitations.

10
47 U.S.C.       251(c)(6) (emphasis added).

11
Armed with this explicit congressional authorization, the  FCC first adopted rules resembling earlier orders mandating  collocation.  See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (CC Docket No. 96-98), 11 FCC Rcd 15499 ("Local Competition Order"), aff'd in part and rev'd in part, Iowa Utils. Bd. v. FCC,  120 F.3d 753 (8th Cir. 1997), rev'd in part and aff'd in part,  AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999).However, under the heat of critical commentary, the Commission decided that more was necessary "to remove[ ] barriers to competition so that competing providers are able to  compete effectively with incumbent LECs and their affiliates  in the provision of advanced services."  Collocation Order, 14  FCC Rcd at 4763 p 3.  After studying the issue and reviewing comments, the FCC "adopted several measures" in the  Collocation Order that are designed to "promote competition  in the advanced services market."  Id. p 4.

12
The Collocation Order obviously strengthens the Commission's stance on physical collocation.  First, the Order requires LECs to allow competitors to collocate "all equipment  that is necessary for interconnection or access to unbundled  network elements, regardless of whether such equipment  includes a switching functionality, provides enhanced service  capabilities, or offers other functionalities."  Id. at 4776 p 28.In particular, the Order says that "an incumbent LEC may  not refuse to permit collocation of any equipment that is 'used  or useful' for either interconnection or access to unbundled  network elements, regardless of other functionalities inherent  in such equipment."  Id. at 4776-77 p 28.  Second, the Order  requires LECs to offer competitors both caged and cageless  collocation.  Third, the Order requires LECs to offer collocation space in both their central offices and in adjacent controlled environmental vaults or similar structures;  and it  prohibits LECs from imposing unreasonable minimum space  requirements on collocators.  Finally, the Order requires  LECs to bear the initial costs of preparing collocation space  for their competitors, as opposed to requiring the first collocator to bear the entire cost of preparing new collocation  space--and thus bear the risk of unoccupied space--as an up front charge.  Petitioners claim that these new rules are neither authorized by the Act nor justified by reasoned  decision making.

II. Discussion
A. Standard of Review

13
The principal issue in this case is whether the Commission's interpretation of       251(c)(6) of the Telecommunications  Act of 1996 can withstand scrutiny.  In particular, petitioners  challenge the FCC's Collocation Order on the ground that the  agency's constructions of "necessary," "physical collocation,"  and "premises" will allow unauthorized takings of LEC property by their competitors.

14
As this court noted in Bell Atlantic Telephone Companies  v. FCC, 131 F.3d 1044 (D.C. Cir. 1997),

15
Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), governs review of agency interpretation of a statute which the agency administers. Under the first step of Chevron, the reviewing court"must first exhaust the 'traditional tools of statutory construction' to determine whether Congress has spoken to the precise question at issue."  Natural Resources Defense Council, Inc. v. Browner, 57 F.3d 1122, 1125(D.C. Cir. 1995) (quoting Chevron, 467 U.S. at 843 n.9,104 S. Ct. at 2782 n.9).  The traditional tools include examination of the statute's text, legislative history, and structure, see Southern California Edison Co. v. FERC,116 F.3d 507, 515 (D.C. Cir. 1997);  as well as its purpose, see First Nat'l Bank & Trust v. National Credit Union,90 F.3d 525, 529-30 (D.C. Cir. 1996).  This inquiry using the traditional tools of construction may be characterized as a search for the plain meaning of the statute.  If this search yields a clear result, then Congress has expressed its intention as to the question, and deference is not appropriate.  See Hammontree v. NLRB, 894 F.2d 438,441 (D.C. Cir. 1990).  If, however, "the statute is silent or ambiguous with respect to the specific issue," Chevron, 467 U.S. at 843, 104 S. Ct. at 2782, Congress has not spoken clearly, and a permissible agency interpretation of the statute merits judicial deference.  Id.

16
Id. at 1046-47.

17
There is no doubt here that Congress has delegated to the  FCC the authority to issue regulations implementing        251(c)(6).  See 47 U.S.C.       251(d)(1).  It is equally clear  that, given the complexity of the task at hand, any search for  "plain meaning" in the statute is fruitless.  The disputed  terms at issue--"necessary," "physical collocation," and  "premises"--all bear relatively clear definitions if taken out of  the context of the statutory provision in which they are found. The problem here is that these terms are found in a circumscribed statutory provision that seeks to ensure competition  in areas of advanced technology in telecommunications;  i.e.,  the statute gives competitors access to the private property of  LECs by requiring LECs to offer physical collocation on  reasonable terms, but this access is neither open-ended nor is  it even required if not practical for technical reasons or  because of space limitations.  This is hardly the stuff of "plain  meaning."

18
Because the disputed terms in       251(c)(6) are ambiguous in  their meanings, we are required to consider the Commission's  interpretations.  Under the second step of Chevron, we will  defer to the Commission's interpretations if they are reasonable and consistent with the statutory purpose.  See Troy  Corp. v. Browner, 120 F.3d 277, 285 (D.C. Cir. 1997) (noting  that an agency's interpretation must be "reasonable and  consistent with the statutory purpose");  City of Cleveland v.  U.S. Nuclear Regulatory Comm'n, 68 F.3d 1361, 1367 (D.C.  Cir. 1995) (providing that an agency's interpretation must be  "reasonable and consistent with the statutory scheme and  legislative history").  However, a court will not uphold an  interpretation "that diverges from any realistic meaning of  the statute."  Massachusetts v. Department of Transp., 93 F.3d 890, 893 (D.C. Cir. 1996).  In this case, as will be shown  below, the FCC's interpretations of "necessary" and "physical  collocation" appear to diverge from any realistic meaning of  the statute, because the Commission has favored the LECs' competitors in ways that exceed what is "necessary" to  achieve reasonable "physical collocation" and in ways that  may result in unnecessary takings of LEC property.

19
Petitioners' claim that the Collocation Order unfairly precludes LECs from gaining full recovery of the initial costs of  preparing collocation space for competitors raises a matter  that is subject to review under the traditional "arbitrary and  capricious" standard.  As the Supreme Court explained in  Motor Vehicle Manufacturers Ass'n v. State Farm Mutual  Automobile Insurance Co., 463 U.S. 29, 43 (1983),

20
[t]he scope of review under the "arbitrary and capricious" standard is narrow and a court is not to substitute its judgment for that of the agency.  Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a "ration-al connection between the facts found and the choice made."  Burlington Truck Lines, Inc. v. United States,371 U.S. 156, 168 (1962).  In reviewing that explanation, we must "consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment."  Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc.,[419 U.S. 281, 285 (1974)];  Citizens to Preserve Overton Park v. Volpe, [401 U.S. 402, 416 (1971)].  Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has notintended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence be fore the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.  The reviewing court should not attempt itself to make up for such deficiencies;  we may not supply are asoned basis for the agency's action that the agency itself has not given.  SEC v. Chenery Corp., 332 U.S. 194,196 (1947).  We will, however, "uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned."  Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., [419 U.S. at 286].  See also Camp v. Pitts, 411 U.S. 138, 142-143 (1973) (per curiam).

21
Id.;  see also Communications Satellite Corp. v. FCC, 836 F.2d 623 (1988) (quoting Motor Vehicle Mfrs. Ass'ns, 463 U.S.  at 43).  As we indicate below, the cost allocation rules under  the Collocation Order easily survive arbitrary and capricious  review.  There is a discernible, reasoned basis for the agency's action, and the decision reached by the agency does not  reflect a clear error of judgment.

22
We now turn to a consideration of the statutory interpretation questions, focused on the meaning of       251(c)(6).

23
B."Necessary"

24
The first question in this case centers on the meaning of  "necessary" under 47 U.S.C.       251(c)(6).  As noted above, the  statute requires LECs to provide physical collocation of  equipment as "necessary for interconnection or access to  unbundled network elements at the premises of the local  exchange carrier."  This statutory provision is, at first blush,  fairly straightforward.  Something is necessary if it is required or indispensable to achieve a certain result.  Thus,  competitors who are protected by the Act have a right to  collocate any equipment that is required or indispensable to  achieve interconnection or access to unbundled network elements at the premises of the local exchange carrier.  In the  Collocation Order, however, the FCC appears to ignore the  statutory reference to "necessary" in requiring LECs to  collocate any competitors' equipment that is " 'used or useful'  for either interconnection or access to unbundled network  elements, regardless of other functionalities inherent in such  equipment."  14 FCC Rcd at 4776-77 p 28.  Petitioners argue  that by interpreting "necessary" as "used or useful" and by  permitting competitors to collocate equipment that may do  more than what is required to achieve interconnection or  access, the FCC's Collocation Order impermissibly invites  unwarranted intrusion upon LECs' property rights.  The  petitioners' argument has merit, for the Collocation Order as  presently written seems overly broad and disconnected from  the statutory purpose enunciated in       251(c)(6).

25
The Collocation Order makes two critical points in interpreting "necessary" under       251(c)(6):  First, the Order says  that "an incumbent LEC may not refuse to permit collocation  of any equipment that is 'used or useful' for either interconnection or access to unbundled network elements, regardless  of other functionalities inherent in such equipment."  Id. at  4776-77 p 28 (emphasis added).  Second, the Order makes it  clear that LECs must allow competitors to collocate "all  equipment that is necessary for interconnection or access to  unbundled network elements, regardless of whether such  equipment includes a switching functionality, provides enhanced services capabilities, or offers other functionalities."Id. at 4776 p 28 (emphasis added).  In other words, the  Collocation Order appears to permit competitors to collocate  equipment that may do more than what is required to achieve  interconnection or access.

26
Petitioners' concerns with the breadth of the Collocation  Order are not idle.  The Supreme Court recently had occasion to address a similar problem in reviewing a challenge to  the FCC's interpretation of 47 U.S.C.       251(d)(2), which  provides, in relevant part, that

27
[i]n determining what network elements should be made available for purposes of subsection (c)(3) of this section, the Commission shall consider ... whether ... access to such network elements as are proprietary in nature is necessary.

28
47 U.S.C.       251(d)(2).  In AT & T Corp. v. Iowa Utilities  Board, 525 U.S. 366 (1999), the Court faced a controversy  over what "necessary" meant in the context of       251(d)(2).See id. at 388.  The Court rejected the FCC's formulation,  concluding that "the Act requires the FCC to apply some  limiting standard, rationally related to the goals of the Act,  which it has simply failed to do."  Id.  The Court noted that

29
the Commission announced that it would regard the 'necessary' standard as having been met, regardless of whether 'requesting carriers can obtain the requested proprietary element from a source other than the incumbent,' since '[r]equiring new entrants to duplicate unnecessarily even a part of the incumbent's network could generate delay and higher costs for new entrants, and thereby impede entry by competing local providers and delay competition, contrary to the goals of the 1996 Act.'...  The Commission cannot, consistent with the statute, blind itself to the availability of elements outside the incumbent's network.  That failing alone would require the Commission's rule to be set aside.  In addition, however, the Commission's assumption that any in creasein cost (or decrease in quality) imposed by denial of a network element renders access to that element 'necessary' ... is simply not in accord with the ordinary and fair meaning of [the statute's] terms.

30
Id. at 389-90.

31
As is clear from the Court's judgment in Iowa Utilities  Board, a statutory reference to "necessary" must be construed in a fashion that is consistent with the ordinary and  fair meaning of the word, i.e., so as to limit "necessary" to  that which is required to achieve a desired goal.  The Court's  admonition seems particularly relevant here where a broader  construction of "necessary" under       251(c)(6) might result in  an unnecessary taking of private property.

32
One clear example of a problem that is raised by the  breadth of the Collocation Order's interpretation of "necessary" is seen in the Commission's rule requiring LECs to  allow collocating competitors to interconnect their equipment  with other collocating carriers.  See Collocation Order, 14  FCC Rcd at 4780 p 33 ("We see no reason for the incumbent  LEC to refuse to permit the collocating carriers to cross connect their equipment, subject only to the same reasonable  safety requirements that the incumbent LEC imposes on its  own equipment.").  The obvious problem with this rule is that  the cross-connects requirement imposes an obligation on  LECs that has no apparent basis in the statute.  Section  251(c)(6) is focused solely on connecting new competitors to  LECs' networks.  In fact, the Commission does not even  attempt to show that cross-connects are in any sense "necessary for interconnection or access to unbundled network elements."  Rather, the Commission is almost cavalier in  suggesting that cross-connects are efficient and therefore  justified under       251(c)(6).  This will not do.  The statute  requires LECs to provide physical collocation of equipment as  "necessary for interconnection or access to unbundled network elements at the premises of the local exchange carrier,"  and nothing more.  As the Supreme Court made clear in  Iowa Utilities Board, the FCC cannot reasonably blind itself  to statutory terms in the name of efficiency.  Chevron deference does not bow to such unbridled agency action.

33
There are other examples, as well, to demonstrate that the  FCC's interpretation of "necessary" under       251(c)(6) is impermissibly broad.  At oral argument, counsel was asked  whether, under the Collocation Order, a LEC would be  required to afford collocation of a competitor's equipment that  included unnecessary multi-purpose features, such as enhancements that might facilitate payroll or data collection  features.  In other words, must a LEC allow collocation of  equipment that is not truly "necessary" for a competitor's  "interconnection or access to unbundled network elements"?Counsel could offer no satisfactory answer to the question. Counsel seemed to recognize that to require collocation on  such broad terms would not really square with the terms of        251(c)(6);  yet, the literal terms of the Collocation Order  seem to embrace any and all equipment that is otherwise  necessary without regard to whether such equipment unnecessarily "includes a switching functionality, provides enhanced service capabilities, or offers other functionalities."Collocation Order, 14 FCC Rcd at 4776 p 28 (emphasis added).  The FCC's Collocation Order seeks to justify this broad  rule by contending that "competitive telecommunications providers must be permitted to collocate integrated equipment  that lowers costs and increases the services they can offer  their customers."  Id. at 4777-78 p 29.  It was precisely this  kind of rationale, based on presumed cost savings, that the  Supreme Court flatly rejected in Iowa Utilities Board.  See 525 U.S. at 389-90.  In short, the FCC's interpretation of  "necessary" under       251(c)(6) goes too far and thus "diverges from any realistic meaning of the statute."  Massachusetts v.  Department of Transp., 93 F.3d at 893.

34
Because, in some significant respects, the FCC's current  definition of "necessary" finds no support in the Act, we  vacate the offending portions of the Collocation Order and  remand the case to the agency for further consideration.  We  do not mean to vacate the Collocation Order to the extent  that it merely requires LECs to provide collocation of competitors' equipment that is directly related to and thus necessary, required, or indispensable to "interconnection or access  to unbundled network elements."  Anything beyond this,  however, demands a better explanation from the FCC, for the  current rules under the Collocation Order make no sense in  light of what the statute itself says.  And the Commission  must operate within the limits of "the ordinary and fair  meaning of [the statute's] terms."  Iowa Utilities Bd., 525 U.S. at 390.

35
C."Physical Collocation" and "Premises"

36
Petitioners also challenge the FCC's interpretations of  "physical collocation" and "premises" under       251(c)(6).  The  Collocation Order requires LECs to make "cageless" collocation available to requesting competitors.  Absent problems  related to technical feasibility or specific security concerns,  new competitors are entitled "to collocate in any unused space  in the incumbent LEC's premises."  Collocation Order, 14  FCC Rcd at 4785 p 42.  And to protect against bogus claims  by LECs that they have run out of space, the Collocation  Order provides that, when space is legitimately exhausted,  LECs must "permit collocation in adjacent controlled environmental vaults or similar structures to the extent technically feasible."  Id. at 4786 p 44.

37
Petitioners claim that the FCC lacks the authority to  promulgate such sweeping rules in support of cageless collocation, because "[a]s the language, structure, and history of        251(c)(6) reflect, Congress understood 'physical collocation'  to mean the installation of a competitor's equipment in an  area that is physically separate from the incumbent's own  facilities."  Br. of Petitioners at 24.  Petitioners also contend that Congress intended collocation to be limited to available  space within a LEC's central office, and not to extend to  anywhere on a LEC's property beyond the confines of the  central office.

38
Although petitioners raise some telling points, their arguments go too far.  Section 251(c)(6) merely provides that  incumbents have a duty to provide "for physical collocation of  equipment necessary for interconnection or access to unbundled network elements at the premises of the local exchange  carrier."  47 U.S.C.       251(c)(6).  Congress chose not to define either "premises" or "physical collocation," and, at least  in this context, the meaning of these terms is far from self evident.  Moreover, nothing in the statute can be read to  require caged collocation, so the FCC surely was free to  promulgate reasonable rules implementing physical collocation under a cageless regime.

39
The FCC has satisfied its burden under step two of Chevron in interpreting       251(c)(6) as requiring cage less collocation.  The Collocation Order points out that caged collocation  results in the "inefficient use of the limited space in a LEC  premises," Collocation Order, 14 FCC Rcd at 4784 p 42.  A  cage less regime, the Order notes, ensures that LECs do not  place unreasonable minimum space requirements on collocating competitors;  the rule thus has the effect of reducing the  cost of collocation and reducing the likelihood of premature  space exhaustion.  See id. at 4785-86 p 43.  We find that the  agency's interpretation in support of cage less collocation is  reasonable and consistent with the statutory purpose of promoting competition, without raising the threat of unnecessary  takings of LEC property.  Indeed, on the record at hand, it is  hardly surprising that the FCC opted to prohibit LECs from  forcing competitors to build cages, particularly given the  alternative means available to LECs to ensure the security of  their premises.

40
We also reject petitioners' claim that the FCC lacks authority to require LECs to make available space beyond their  central offices for the collocation of competitors' equipment. The Collocation Order simply requires "incumbent LECs, when space is legitimately exhausted in a particular LEC  premises, to permit collocation in adjacent controlled environmental vaults or similar structures to the extent technically  feasible."  Id. at 4786 p 44.  The rule seeks to address the  "issue of space exhaustion by ensuring that competitive carriers can compete with the incumbent, even when there is no  space inside the LEC's premises."  Id.  The rule clearly  furthers the purpose underlying       251(c)(6).  The rule is also  eminently reasonable:  adjacent collocation is required only  when space in the central offices is exhausted;  adjacent  collocation may occur only to the extent that it is technically  feasible;  adjacent collocation is subject to state regulations  over zoning, design, and construction parameters;  and adjacent collocation is subject to reasonable safety and maintenance requirements.  And petitioners can find no argument  to show that this rule is impermissible under       251(c)(6), for  the simple reason that the disputed "adjacent" properties all  are on the LECs' "premises," which is all that is required by  the statute.

41
In sum, the FCC's regulations forbidding LECs from requiring competitors to "cage" their equipment and requiring  LECs, under limited circumstances, to use adjacent property  for the collocation of competitors' equipment are permissible  and reasonable under step two of Chevron.  This is not the  end of the inquiry, however, regarding petitioners' challenge  to the FCC's interpretation of "physical collocation" under        251(c)(6).

42
Petitioners argue that, even conceding the validity of cageless collocation and an interpretation of "premises" that includes both the central office and adjacent property, the  Collocation Order still goes too far in giving competitors  rights well beyond what is reasonably required by       251(c)(6).In particular, petitioners point to paragraph 42 of the Collocation Order, which states, in part, that LECs

43
must give competitors the option of collocating equipment in any unused space within the incumbent's prem-ises, to the extent technically feasible, and may not require competitors to collocate in a room or isolatedspace separate from the incumbent's own equipment.

44
Id. at 4785 p 42 (emphases added);  see also Reply Br. at 16  (complaining about paragraph 42).  The Order acknowledges  that a LEC "may take reasonable steps to protect its own  equipment, such as enclosing the equipment in its own cage,"  id., but this gloss does not save the rest of the paragraph.

45
The FCC offers no good reason to explain why a competitor, as opposed to the LEC, should choose where to establish  collocation on the LEC's property;  nor is there any good  explanation of why LECs are forbidden from requiring competitors to use separate entrances to access their own equipment;  nor is there any reasonable justification for the rule  prohibiting LECs from requiring competitors to use separate  or isolated rooms or floors.  It is one thing to say that LECs  are forbidden from imposing unreasonable minimum space  requirements on competitors;  it is quite another thing, however, to say that competitors, over the objection of LEC  property owners, are free to pick and choose preferred space  on the LECs' premises, subject only to technical feasibility. There is nothing in       251(c)(6) that endorses this approach. The statute requires only that LECs reasonably provide  space for "physical collocation of equipment necessary for  interconnection or access to unbundled network elements at  the premises of the local exchange carrier," nothing more.

46
The sweeping language in paragraph 42 of the Collocation  Order appears to favor the LECs' competitors in ways that  exceed what is "necessary" to achieve reasonable "physical  collocation" and in ways that may result in unnecessary  takings of LEC property.  Once again we find that the FCC's  interpretation of       251(c)(6) goes too far and thus "diverges  from any realistic meaning of the statute."  Massachusetts v.  Department of Transp., 93 F.3d at 893.

47
The Collocation Order again suggests that there may be  cost savings that will flow from the enunciated approach.  See  Collocation Order, 14 FCC Rcd at 4785 p 42.  This is a weak  claim.  First, there is no explanation from the FCC as to why  this would be so.  It is not intuitive that all of what is required by paragraph 42 of the Collocation Order will support a decrease in the cost of collocation and an increase in  the amount of available collocation space, as suggested by the  FCC.  See id. And merely saying it does not make it so. Second, and more importantly, as noted by the Court in Iowa  Utilities Board, "delay and higher costs for new entrants ...  [that may] impede entry by competing local providers and  delay competition" cannot be used by the FCC to overcome  statutory terms in the Telecommunications Act of 1996. 525 U.S. at 389-90.

48
We therefore vacate the Collocation Order insofar as it  embraces the afore cited sweeping rules on physical collocation in paragraph 42.  On remand, the FCC will have an  opportunity to refine its regulatory requirements to tie the  rules to the statutory standard, which only mandates physical  collocation as "necessary for interconnection or access to  unbundled network elements at the premises of the local  exchange carrier."  47 U.S.C.       251(c)(6).  Even counsel for  the Commission seemed unwilling to embrace an expansive  view of paragraph 42:  He suggested that LECs should be  allowed to choose the collocation space;  he also suggested  that the LECs should be allowed to segregate collocation  space from the rest of a LEC's property.  If counsel's  interpretation is correct, the FCC must make that clear.  In  any event, paragraph 42, as presently written, does not  withstand scrutiny under step two of Chevron.

D. The FCC's Cost Allocation Rule

49
The final issue before the court is petitioners' challenge to  the FCC's cost allocation rule.  The Collocation Order provides that LECs

50
must allocate space preparation, security measures, and other collocation charges on a pro-rated basis so the first collocator in a particular incumbent premises will not be responsible for the entire cost of site preparation....In order to ensure that the first entrant into an incumbent's premises does not bear the entire cost of site preparation, the incumbent must develop a system of partitioning the cost by comparing, for example, the amount of conditioned space actually occupied by the new entrant with the overall space conditioning expenses.

51
Collocation Order, 14 FCC Rcd at 4789 p 51.  State commissions are charged to oversee this process "to ensure that  incumbent LECs properly allocate site preparation costs  among new entrants."  Id. at 4790 p 51.

52
Petitioners claim that the new rule is arbitrary and capricious, because it forces LECs to bear the risk of unoccupied  space.  On this score, petitioners argue that "[i]t is bad  enough that the incumbent must prepare space so that its  competitors can take its property;  it is beyond the pale that  the Commission would make incumbents pay to do so."  Br.  of Petitioners at 32.  This argument is specious.

53
The approach adopted by the Commission is fully justified  as a reasonable way to ensure that LECs do not impose  prohibitive requirements on new competitors and thus kill  competition before it ever gets started.  As the Government  pointed out in its brief in support of the FCC,

54
new entrants asserted that incumbent LEC pricing practices with respect to the preparation of collocation spaceacted as an unreasonable barrier to competitive entry. In particular, they assailed the practice of many [LECs]of charging the first collocator up front for the entire cost of preparing new collocation space (e.g., air conditioning and power generation upgrades), even if that collocator was only going to use a small portion of the available central office space.

55
See Br. of Respondents at 16.  Petitioners do not seriously  challenge this assertion.

56
Petitioners nonetheless contend that the Commission's cost  allocation rules fail to give them any reasonable mechanism to  recover their costs for space that is not fully or permanently  occupied.  Petitioners' complaints are based, however, upon  an apparent misreading of the Collocation Order.  The Order  does not define the contours of a recovery mechanism, but it  clearly does not foreclose mechanisms for the recovery of  LECs' prudently incurred costs.  Rather, the Order simply notes that state commissions are charged with the responsibility of "determin[ing] the proper pricing methodology,"  which undoubtedly may include recovery mechanisms for  legitimate costs.  Collocation Order, 14 FCC Rcd at 4789-90  p 51;  see also Br. for Respondents at 51 ("[T]he Order, fairly  read, contemplates mechanisms for the recovery of [a LEC's]  prudently incurred costs.").  The FCC's cost allocation rule  thus withstands judicial scrutiny, because it is neither arbitrary nor capricious.

III. Conclusion

57
Consistent with the foregoing opinion, we grant the petitions for review in part and hereby vacate the challenged  Collocation Order insofar as it embraces unduly broad definitions of "necessary" and "physical collocation."  The case will  be remanded for further consideration by the FCC with  respect to these two points.  On all other points, the petition  for review is denied.