explaining that the agency “need not address every comment, but it must respond in a reasoned manner to those that raise significant problems.” (quoting Reytblatt v. Nuclear Regul. Comm’n, 105 F.3d 715 , 722 (D.C. Cir. 1997))
How later courts described this case
- explaining that the agency “need not address every comment, but it must respond in a reasoned manner to those that raise significant problems.” (quoting Reytblatt v. Nuclear Regul. Comm’n, 105 F.3d 715 , 722 (D.C. Cir. 1997))
- “It is well established that issues not raised before the agency are waived and this Court will not consider them.”
- “[W]hen the [FCC] is obligated to consider certain factors, that means only that the FCC must reach an express and considered con- clusion about the bearing of a factor, but is not required to give any spe- cifc weight to it” (internal quotation marks and alteration omitted)
- “The failure to respond to comments is significant only insofar as it demonstrates that the agency’s decision was not based on a consideration of the relevant factors.”
Written by the judges who cited it.
The opinion
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 15, 2006 Decided June 16, 2006
No. 05-1095
COVAD COMMUNICATIONS COMPANY AND
DIECA COMMUNICATIONS, INC., D/B/A COVAD
COMMUNICATIONS COMPANY,
PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS
CIENA CORPORATION, ET AL.,
INTERVENORS
Consolidated with
05-1100, 05-1101, 05-1108, 05-1110, 05-1122, 05-1130,
05-1133, 05-1137, 05-1224
On Petitions for Review of an Order of the
Federal Communications Commission
Michael K. Kellogg argued the cause for the ILEC
Petitioners. With him on the briefs were Mark L. Evans, Sean
A. Lev, Colin S. Stretch, Scott H. Angstreich, William P. Barr,
2
Michael E. Glover, Edward Shakin, James D. Ellis, Gary L.
Phillips, Christopher Heimann, James P. Lamoureux, Robert B.
McKenna, Marc Gary, James G. Harralson, and Bennett L.
Ross. Jennifer M. Kashatus entered an appearance.
Bruce D. Sokler and Genevieve Morelli argued the cause for
the CLEC Petitioners and Intervenors in support. With them on
the briefs were Michael H. Pryor, Fernando R. Laguarda, Brad
E. Mutschelknaus, Steven A. Augustino, Jason Oxman, Andrew
D. Lipman, Russell M. Blau, Eric J. Branfman, Patrick J.
Donovan, Joshua M. Bobeck, David P. Murray, Randy J.
Branitsky, and Thomas Jones.
Christopher J. White argued the cause and filed the briefs
for petitioner New Jersey Division of the Ratepayer Advocate.
David C. Bergmann was on the brief for petitioner National
Association of State Utility Consumer Advocates.
John E. Ingle, Deputy Associate General Counsel, Federal
Communications Commission, argued the cause for respondents.
With him on the brief were Thomas O. Barnett, Acting Assistant
Attorney General, U.S. Department of Justice, Catherine G.
O'Sullivan and Nancy C. Garrison, Attorneys, Samuel L. Feder,
General Counsel, Federal Communications Commission, Jacob
M. Lewis, Associate General Counsel, and James M. Carr and
Christopher L. Killion, Counsel.
David P. Murray argued the cause for CLEC Intervenors in
support of respondents. With him on the brief were Randy J.
Branitsky, Thomas Jones, Bruce D. Sokler, Michael H. Pryor,
Fernando R. Laguarda, Jason Oxman, Andrew D. Lipman,
Russell M. Blau, Eric J. Branfman, Patrick J. Donovan, Joshua
M. Bobeck, Brad E. Mutschelknaus, Genevieve Morelli, and
Steven A. Augustino.
3
Michael K. Kellogg argued the cause for ILEC Intervenors
and Ciena Corporation in support of respondents. With him on
the brief were Mark L. Evans, Sean A. Lev, Colin S. Stretch,
Scott H. Angstreich, William P. Barr, Michael E. Glover,
Edward Shakin, James D. Ellis, Gary L. Phillips, Christopher
Heimann, James P. Lamoureux, Robert B. McKenna, Stephen L.
Goodman, Marc Gary, James G. Harralson, and Bennett L.
Ross.
Before: GINSBURG, Chief Judge, and SENTELLE and
GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: The Federal Communications
Commission (“FCC” or “the Commission”) has thrice
attempted—unsuccessfully—to implement the “unbundling”
provisions of the Telecommunications Act of 1996, Pub. L. No.
104-104, 110 Stat. 56 (“the Act” or “the 1996 Act”). This case
involves a series of petitions for review of the FCC’s fourth
attempt. Because we conclude the Commission’s fourth try is
a charm, we deny all of the petitions for review.
I
The 1996 Act sought to foster a competitive market in
telecommunications. To minimize the characteristics of natural
monopoly in the market,1 the Act gave the FCC broad powers to
1
See Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 544-45 (2002)
(Breyer, J., concurring in part and dissenting in part) (describing the
history and structure of the 1996 Act and inferring that Congress
intended the 1996 Act to mitigate the incumbents’ natural-monopoly
advantages).
4
require incumbent local exchange carriers (“ILECs”) to make
unbundled network elements (“UNEs”) available to competitive
local exchange carriers (“CLECs”), 47 U.S.C. § 251(c)(3), (d);
see also id. § 153(29) (defining a “network element” as “a
facility or equipment used in the provision of a
telecommunications service”). Thus, the Commission may
require the ILECs to offer pieces of their networks as unbundled
building blocks, which the CLECs can lease, repackage, and use
to compete against the ILECs in telecommunications markets
across the country.
Congress left to the Commission the choice of elements to
be “unbundled,” specifying that it must “consider, at a
minimum, 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) (emphases
added). Relying upon the implicit breadth of its “at a minimum”
authority and its discretion to interpret the meaning of
“impair[ment],” the FCC in this case amended its unbundling
determinations for three types of UNEs: “switches” (devices
that direct calls to their destinations in the same way
switchboard operators once did), “transport trunks” (wires that
carry calls between switches), and “local loops” (wires that run
from switches over the “last mile” to consumers’ telephones).
The propriety vel non of those determinations is the crux of this
case.
A
The basics of unbundling are relatively simple. Suppose a
CLEC (such as Covad) wants to serve customers in Washington,
D.C. One way of doing so is for Covad to purchase its own
switches, trunks, and loops, which it can then use to offer
service to its new customers. However, given that the local
5
ILEC (e.g., Verizon) has already deployed switches, trunks, and
loops to serve the market, it might be economically impossible
for Covad to duplicate competitively Verizon’s infrastructure.
Through regulatory unbundling, however, Covad might be able
to lease Verizon’s switches, trunks, and loops as UNEs. Covad
could then use combinations of UNEs to cobble together a
network and compete against Verizon in Washington.
Under the Act, Covad must pay Verizon for every “facility”
and every piece of “equipment” the former requests from the
latter on an unbundled basis. See id. § 153(29); id. § 252(d)(1).
After a hard-fought litigation battle, the Commission concluded
that UNE prices must be based on each element’s Total Element
Long-Run Incremental Cost (“TELRIC”). See 47 C.F.R. §
51.505(b); Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 523
(2002) (upholding the FCC’s TELRIC pricing methodology for
UNEs as “a reasonable policy” choice). TELRIC rates are akin
to wholesale prices because CLECs are supposed to be
economically able to rent UNEs and then use them to sell
telecom services to their retail customers.
The ILECs unsurprisingly dislike seeing their own networks
wielded as competitive weapons by CLECs—especially when
the CLECs enjoy access to UNEs at TELRIC rates. The ILECs
therefore champion the use of substitute products that allow
CLECs to compete without demanding access to the ILECs’
individual network elements. For our purposes, the only
relevant substitute product is the tariffed special access service
(“TSAS”). Basically, Covad can purchase TSASs from Verizon
(at prices above the TELRIC rates associated with UNEs), and
the TSASs allow Covad to complete point-to-point calls over
dedicated lines. See, e.g., In the Matter of Implementation of the
Local Competition Provisions of the Telecommunications Act of
1996, Third Report and Order and Fourth Further Notice of
Proposed Rulemaking, 15 F.C.C.R. 3696, 3912 (1999) (“UNE
6
Remand Order”). Thus, instead of purchasing or renting a loop,
switch, space in a central office, and a transport trunk to
complete a call, a CLEC might simply pay the higher TSAS rate
for a dedicated line (which does not require separate switching
or transport).
Given the lower cost of UNEs, the CLECs favor widespread
unbundling, while ILECs favor fewer UNEs and the greater
availability of higher-priced TSASs. This tug-of-war—between
CLECs advocating more unbundling and ILECs advocating
less—has been the nub of an ongoing, decade-long dispute
between incumbents and their would-be competitors. To
explain today’s unbundling battle, we begin with the skirmishes
that preceded it.
B
The ILECs’ and CLECs’ power struggle over UNEs began
shortly after the passage of the 1996 Act. In its first attempt to
interpret the Act’s “impairment” standard, the Commission
concluded that a CLEC was entitled to a given UNE “if the
quality of the service the entrant can offer, absent access to the
requested element, declines and/or the cost of providing the
service rises.” In the Matter of Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996,
First Report and Order, 11 F.C.C.R. 15499, 15643 (1996).
The Supreme Court found this interpretation of “impair”
unreasonable in two respects. First, the Commission had
erroneously refused to consider whether a CLEC could self-
provision or acquire the requested element from a third party.
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 389-92 (1999).
Second, the Commission had considered any increase in cost or
decrease in quality, no matter how small, sufficient to establish
impairment—a result the Court concluded could not be squared
7
with the “ordinary and fair meaning” of the word “impair.” Id.
at 389-90 & n.11. The Court admonished the FCC that in
assessing which cost differentials would “impair” a new
entrant’s competition within the meaning of the statute, it must
“apply some limiting standard, rationally related to the goals of
the Act.” Id. at 388 (emphasis omitted).
On remand from Iowa Utilities, the Commission ruled that
a would-be entrant is “impaired” if, “taking into consideration
the availability of alternative elements outside the incumbent’s
network, including self-provisioning by a requesting carrier or
acquiring an alternative from a third-party supplier, lack of
access to that element materially diminishes a requesting
carrier’s ability to provide the services it seeks to offer.” UNE
Remand Order, 15 F.C.C.R. at 3725. We held the
Commission’s “impairment” standard was unlawful because it
did not differentiate between those cost disparities that a new
entrant in any market would be likely to face and those that arise
from market characteristics “linked (in some degree) to natural
monopoly . . . that would make genuinely competitive provision
of an element’s function wasteful.” U.S. Telecom Ass’n v. FCC,
290 F.3d 415, 427 (D.C. Cir. 2002) (“USTA I”), cert. denied sub
nom. WorldCom, Inc. v. U.S. Telecom Ass’n, 538 U.S. 940
(2003). USTA I concluded that the Commission’s broad concept
of impairment failed to “balance” the costs and benefits of
unbundling. See id. at 427-28.
USTA I also instructed the Commission to make nuanced
impairment determinations. Id. at 422. Though the Act does not
necessarily require the Commission to determine “on a localized
state-by-state or market-by-market basis which unbundled
elements are to be made available,” id. at 425, it does require “a
more nuanced concept of impairment than is reflected in
findings . . . detached from any specific markets or market
categories,” id. at 426. Thus, the Commission is obligated to
8
establish unbundling criteria that are at least aimed at tracking
relevant market characteristics and capturing significant
variation.
On remand from USTA I, the Commission determined that
a CLEC would
be impaired when lack of access to an incumbent LEC
network element poses a barrier or barriers to entry,
including operational and economic barriers, that are likely
to make entry into a market uneconomic. That is, we ask
whether all potential revenues from entering a market
exceed the costs of entry, taking into consideration any
countervailing advantages that a new entrant may have.
In the Matter of Review of the Section 251 Unbundling
Obligations of Incumbent Local Exchange Carriers, Report and
Order and Order on Remand and Further Notice of Proposed
Rulemaking, 18 F.C.C.R. 16978, 17035 (2003) (“Triennial
Review Order”). In response to USTA I’s demand for a more
“nuanced” impairment standard, the Commission made an
absolute national impairment finding, subject to specific
exclusions (i.e., findings of non-impairment) by state public
utility commissions. Id. at 17058-59.
We invalidated much of the Triennial Review Order in
United States Telecom Association v. FCC, 359 F.3d 554, 576
(D.C. Cir.) (“USTA II”), cert. denied sub nom., Nat’l Ass’n of
Regulatory Utility Comm’rs v. United States Telecom Ass’n, 543
U.S. 925 (2004). We concluded that the Commission’s
“touchstone” of impairment—“uneconomic” entry—was
excessively vague. See id. at 572 (“Uneconomic by whom? By
any CLEC, no matter how inefficient? By an ‘average’ or
‘representative’ CLEC? By the most efficient existing CLEC?
By a hypothetical CLEC that used the most efficient
9
telecommunications technology currently available . . . ?”
(emphasis in original) (internal quotation marks omitted)).
Moreover, USTA II held the FCC could not lawfully implement
a more “nuanced” (or “granular”) impairment standard by
adopting a blanket finding of impairment and then delegating
power to state regulatory commissions to make non-impairment
exceptions to the FCC’s nationwide rule. Id. at 565-68. Instead,
the FCC must establish unbundling criteria that take into
account “relevant market characteristics,” which capture
“significant variation,” id. at 563, sensibly define the relevant
markets, id. at 563, 574-75, connect those markets to the FCC’s
impairment findings, id. at 574-75, and consider whether the
“element in question” is “significantly deployed on a
competitive basis,” id. at 574. The fact that CLECs can viably
compete without UNEs—for example, by utilizing the ILECs’
TSASs—“precludes a finding that the CLECs are ‘impaired’ by
lack of access to the element under § 251(c)(3).” Id. at 593; see
also id. at 577.
C
On remand from USTA II, the Commission issued an
interim order and notice of proposed rulemaking. See 19
F.C.C.R. 16783 (2004) (“NPRM”). The NPRM noted that our
decision “called into question certain aspects of the
Commission’s unbundling framework, including the
‘open-endedness’ of the Commission’s ‘touchstone’ of
impairment—uneconomic entry . . . .” Id. at 16788.
Accordingly, the FCC sought “comment on how to respond to
the D.C. Circuit’s USTA II decision in establishing sustainable
new unbundling rules under sections 251(c) and 251(d)(2) of the
Act.” Id.
After receiving and considering comments, the FCC issued
a four-part order, which is the subject of this case. See In the
10
Matter of Unbundled Access to Network Elements, Order on
Remand, 20 F.C.C.R. 2533 (2005) (“Order”). We discuss each
part of the Order in turn.
1
First, the Commission altered its unbundling framework.
The FCC clarified that it would find “impairment” where it
would be “uneconomic” for a “reasonably efficient” CLEC to
compete without UNEs. See id. at 2547-49. The Commission
explained:
In analyzing entry from the perspective of the reasonably
efficient competitor, we do not attach weight to the
individualized circumstances of the actual requesting
carrier. Thus, we do not presume that a hypothetical entrant
possesses any particular assets, legal entitlements or
opportunities, even if a specific competitive carrier in fact
enjoys such advantages as a result of its unique
circumstances. Similarly, under our approach, impairment
does not arise due to any errors of business judgment made
by an actual requesting carrier.
Id. at 2548 (footnotes omitted).
While the FCC presumes that a reasonably efficient
competitor “will use reasonably efficient technologies and take
advantage of existing alternative facilities deployment,” id. at
2549, it need not utilize TSASs in the local exchange markets.
See id. at 2546 (ruling it would be “inappropriate” to limit
CLECs’ “access to UNEs whenever a requesting carrier is able
to compete using an” ILEC’s special access services). USTA II
held that the FCC “must consider” TSAS-based competition in
its impairment inquiry for mobile wireless and long-distance
UNEs, 359 F.3d at 577, because competition in those markets is
11
“robust,” id. at 592. In contrast, “[t]he local services market
does not share the competitive conditions, observed in the
mobile wireless services market and long distance services
market, that would support a parallel finding that the costs of
unbundling outweigh the benefits.” Order, 20 F.C.C.R. at 2556.
Because the Commission concluded that UNEs are vital to the
continued development of competition in the local exchange
market, it retained its unbundling requirements, regardless of
whether CLECs are currently using TSASs to provide local
service.
2
Second, the Commission amended its impairment findings
for dedicated interoffice transport. “Dedicated transport
facilities” refer to facilities that are dedicated to a particular
carrier used for transmission between or among ILEC wire
centers. Id. at 2576. For purposes of this opinion, transport
comes in two varieties: “DS1” (which can carry 24 voice calls
simultaneously) and “DS3” (which has 28 times the capacity of
DS1 facilities and can therefore carry 672 voice calls
simultaneously).
CLECs often use DS1 transport as part of an end-to-end
circuit, called an “enhanced extended link” (“EEL”), which can
be used to serve a single customer (typically a small- or
medium-sized business). See USTA II, 359 F.3d at 590. EELs
are often composed of a DS1 loop combined with a DS1
transport link. After noting that it will “measure impairment
with regard to dedicated transport on a route-by-route basis,”
Order, 20 F.C.C.R. at 2581-82, the Commission identified two
proxies for determining whether entry into a particular market
would be economic without unbundled DS1 or DS3 facilities: (i)
12
the extent of fiber-based collocation and (ii) business line
density.2
The FCC found that CLECs are not impaired without DS1
transport links when both ends of the transport route terminate
in “Tier 1” wire centers (i.e., those with four or more fiber-based
collocators or 38,000 or more business lines). Similarly, CLECs
are not impaired without access to DS3 transport where both
ends of the route terminate in “Tier 2” wire centers (i.e., those
with at least three fiber-based collocators or at least 24,000
business lines). Id. at 2575-76. The higher impairment
threshold for DS1 transport reflects the fact that DS1 facilities
have less capacity and generate less revenue (thus making them
less likely to be deployed by CLECs).
If a CLEC self-certifies that a transport trunk meets the
applicable test, the ILEC is obligated to offer immediate access
to the trunk on an unbundled basis. Id. at 2665-66. If the ILEC
seeks to challenge the propriety of unbundling the trunk, it must
first provide the UNE and then raise a challenge through the
dispute resolution procedures prescribed by the applicable
interconnection agreements (i.e., contracts between ILECs and
CLECs).
3
Third, the Commission amended its impairment findings for
DS1 and DS3 loops.3 The Commission noted it is often not
2
A fiber-based collocator is an arrangement that allows a CLEC to
interconnect its facilities with those owned and operated by an ILEC.
See 47 C.F.R. § 51.5. A business line is a loop that runs from the wire
center to a business customer. See id.
3
The definitions of DS1 and DS3 loops mirror those for DS1 and
DS3 transport. Thus, DS1 loops can carry 24 individual voice calls
13
economical for a CLEC to deploy its own DS1 loops, given their
capacity limitations. Id. at 2616. However, the FCC explained
that to offer DS1 or DS3 service, CLECs “install high-capacity
fiber-optic cables [including DS3 loops and “optical carrier level
n,” or “OCn,” facilities] and then use electronics to light the
fiber at specific capacity levels, often ‘channelizing’ these
higher-capacity offerings into multiple lower-capacity streams.”
Id. Thus, the FCC concluded, CLECs are not impaired without
DS1/DS3 UNEs in markets where CLECs have deployed—or
could economically deploy—higher-capacity facilities that can
be “channelized” to provide service at lower levels. Id. at 2625.
After noting that the relevant market for measuring
impairment in DS1 and DS3 loops is the area served by a wire
center, id. at 2619-20, the Commission again relied upon fiber-
based collocators and business-line density as proxies for
predicting impairment in high-capacity loop markets, id. at
2625-26. Specifically, the Commission found that CLECs are
not impaired without DS1 loops within the service area of a wire
center that has at least four fiber-based collocators and at least
60,000 business lines. Similarly, CLECs are not impaired
without access to DS3 loops within the service area of a wire
center containing at least four fiber-based collocators and at
least 38,000 business lines. Id. at 2614. The higher impairment
threshold for DS1 loops reflects the fact that DS1 facilities have
less capacity and generate less revenue (thus making them less
prone to deployment by CLECs). Id. at 2628-29. Loops are
governed by the same implementation procedures that the
Commission employed for dedicated transport. See id. at 2665-
66 (if CLECs self-certify that a DS1/DS3 loop meets the
impairment thresholds, ILECs must offer immediate unbundled
access and then litigate the issue before the state commissions).
simultaneously, and DS3 loops are equivalent to 28 DS1 loops and can
carry 672 individual voice calls simultaneously.
14
4
Fourth and finally, the Commission concluded that ILECs
no longer need to provide CLECs with unbundled access to
mass market local circuit switching (“MMLS”). See id. at 2641-
42. The FCC adopted transitional rules to wean CLECs off the
local circuit switching UNEs that are currently in use.
Specifically, the Commission afforded CLECs 12 months to
eliminate their reliance on unbundled MMLS, id. at 2659-60,
and it increased the rates at which ILECs are compensated for
unbundled local switching during the transitional period,4 id. at
2660-61.
D
Numerous parties filed petitions for review. Our review is
governed by the classic two-step framework from Chevron USA
v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984): If Congress “has directly spoken to the precise question
at issue,” we “must give effect to [its] unambiguously expressed
intent”; on the other hand, “if the statute is silent or ambiguous,”
we must defer to the Commission’s interpretation so long as it
is “based on a permissible construction of the statute.” Id. at
4
The Commission ordered that “unbundled access to local circuit
switching during the transition period [shall] be priced at the higher of
(1) the rate at which the requesting carrier leased [the unbundled
network element-platform (“UNE-P”)] on June 15, 2004 plus one
dollar, or (2) the rate the state public utility commission establishes,
if any, between June 16, 2004, and the effective date of this Order, for
UNE-P plus one dollar.” Order, 20 F.C.C.R. at 2660. UNE-P refers
to a group of unbundled elements, which the CLECs typically use as
a package to provide telecom services to their customers. The UNE-P
package includes unbundled switching, loops, and transport. See In
the Matter of Review of the Section 251 Unbundling Obligations of
Incumbent Local Exchange Carriers, Notice of Proposed Rulemaking,
16 F.C.C.R. 22781, 22802 n.102 (2001).
15
842-43. Ultimately, if the Commission’s reading of the statute
is reasonable, Chevron requires us “to accept the agency’s
construction of the statute, even if the agency’s reading differs
from what the court believes is the best statutory interpretation.”
Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs.,
125 S. Ct. 2688, 2699 (2005).
Both the Supreme Court and our Court have held that the
1996 Act’s use of the term “impair,” 47 U.S.C. § 251(d)(2)(B),
is ambiguous and should be reviewed under Chevron’s second
step. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 387-92
(1999); USTA I, 290 F.3d at 422. Similarly, the Commission’s
reasonable interpretations of § 251(c) are entitled to deference.
Cf. USTA II, 359 F.3d at 580. Under the Administrative
Procedure Act, we will uphold the Commission’s policy choices
unless they are arbitrary and capricious. See 5 U.S.C. §
706(2)(A). To survive review under this standard, the FCC
“must examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection
between the facts found and the choice made.” Motor Vehicle
Mfrs. Ass’n, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983).
In Part II below, we address and reject the ILECs’ two
challenges to the Order. In Part III, we address and reject the
CLECs’ three challenges to the Order.5 In Part IV, we address
and reject one miscellaneous argument raised by the New Jersey
Division of the Ratepayer Advocate.
5
As explained further in Part III, two of the CLECs’ challenges are
echoed in parallel petitions for review filed by the New Jersey
Division of the Ratepayer Advocate and the National Association of
State Utility Consumer Advocates.
16
II
The ILECs raise two challenges to the Order. First, the
ILECs argue that the FCC unlawfully failed to consider the
relevance of TSASs in its unbundling analysis. Second, the
ILECs argue that the Commission imposed impossibly high
thresholds for assessing the state of competition in the market
for DS1/DS3 loops and transport. We reject both claims.
A
The ILECs first argue that the Commission unjustifiably
concluded that it would be “inappropriate” to eliminate UNEs
where CLECs are “able to compete using an incumbent LEC’s
[TSASs].” Order, 20 F.C.C.R. at 2536. The ILECs argue that
to the extent TSASs allow viable competition, the Act’s
“impairment” requirement is not met, 47 U.S.C. § 251(d)(2), and
unbundling is not required. In the ILECs’ view, the
Commission’s conclusion to the contrary “violates this Court’s
mandate” from USTA II. Pet. Br. at 20.
We disagree. In USTA II, we reversed the FCC’s decision
to make UNEs available to providers of wireless services where
CLECs’ use of TSASs had allowed “competition not only to
survive but to flourish.” USTA II, 359 F.3d at 576. Noting that
the use of special access had spawned similarly “robust
competition” in the long-distance market, we declared that “the
presence of robust competition” by users of special access
“precludes a finding” that CLECs are impaired without UNEs in
the wireless and long-distance markets. Id. at 592-93. We
therefore held
that the Commission’s impairment analysis must consider
the availability of tariffed ILEC special access services
17
when determining whether would-be entrants are impaired
. . . . This of course still leaves the Commission free to
take into account such factors as administrability, risk of
ILEC abuse, and the like. What the Commission may not
do is compare unbundling only to self-provisioning or
third-party provisioning, arbitrarily excluding alternatives
offered by the ILECs.
Id. at 577.
Notwithstanding the ILECs’ arguments to the contrary, the
above-quoted holding does not apply with equal force to the
local exchange markets. Unlike the “robust competition” that
special access services have spawned in the wireless and long-
distance markets, the FCC found that TSAS-based competition
in the local exchange markets is much more “limited.” Order,
20 F.C.C.R. at 2572. Nothing in USTA II specified how the
Commission should analyze the impact of special access
services in markets where competition is less than “robust.”
Instead, we entrusted that task to the agency’s discretion and
emphasized that the FCC was “free to take into account such
factors as administrability, risk of ILEC abuse, and the like.”
USTA II, 359 F.3d at 577.
On remand, the Commission considered the viability of
TSAS-based competition and concluded that “even in cases
where [CLECs] currently compete using special access,” a case-
by-case TSAS-based impairment inquiry “would raise
insurmountable hurdles regarding administrability . . . .” Order,
20 F.C.C.R. at 2575. The FCC found that such an inquiry
“would require the Commission to examine all revenues [a
CLEC] might hope to capture using the UNE or special access
service at issue in a given market . . . and to compare those
potential revenues against every relevant state and federal tariff
and every [ILEC] retail and wholesale service offered in every
18
market at issue for every element or service,” taking into
account all “available term and volume discounts.” Id. at 2566.
Adding to the complexity of this endeavor, the prices and terms
governing special access vary greatly from market to market.
Id. at 2564. Given the apples-to-oranges nature of comparing
TSASs nationwide, the Commission decided that evaluating the
effect of special access on impairment in individual local
markets “would be excessively complicated” and “utterly
impracticable,” “requiring resources far beyond those available
to this Commission.” Id. at 2566.
Moreover, the FCC found that a rule denying access to
UNEs whenever tariffed alternatives are available would create
an “unacceptable risk of significant abuse by [ILECs].” Id. at
2567; see also USTA II, 359 F.3d at 577 (suggesting that “on an
appropriate record the Commission might find impairment”
where the elimination of UNEs would pose a “risk of ILEC
abuse” in the TSAS market). The Commission found record
evidence that the availability of UNEs serves to discipline
special access rates by exercising “a constraining influence” on
the ILECs’ ability to increase their TSAS rates. Order, 20
F.C.C.R. at 2574. Indeed, in an unrelated proceeding, the ILECs
acknowledged this was the case. See Merger of SBC
Communications Inc. and AT&T Corp., Description of the
Transaction, Public Interest Showing and Related
Demonstrations, Feb. 21, 2005, at 105 & n.348. The
Commission therefore found that the “elimination of UNEs
would significantly risk increased special access pricing,
undermining or destroying the ability to compete using tariffed
alternatives.” Id. at 2574-75; see also Pub. Citizen. Inc. v.
NHTSA, 374 F.3d 1251, 1260-61 (D.C. Cir. 2004) (“Predictions
regarding the actions of regulated entities are precisely the
[types] of policy judgments that courts routinely and quite
correctly leave to administrative agencies.” (internal quotation
marks and citation omitted)).
19
The Commission’s analysis is reasonable. In contrast to the
wireless and long-distance markets, “carriers generally make
only limited use of special access offerings to provide service in
the local exchange services market.” Order, 20 F.C.C.R. at
2572. Moreover, in accordance with our instructions from
USTA II, the FCC tempered its consideration of TSAS-based
competition by “tak[ing] into account such factors as
administrability, risk of ILEC abuse, and the like.” USTA II,
359 F.3d at 577. Thus, the Commission “consider[ed]” the
import of TSASs in its impairment inquiry, and it provided a
reasoned explanation for its decision not to eliminate unbundling
solely on the basis of limited TSAS-based competition.
Chevron’s second step requires nothing more.6 See, e.g., Time
Warner Entm’t Co. v. FCC, 56 F.3d 151, 175 (D.C. Cir. 1995)
(holding that when the Commission is obligated to consider
certain factors, “[t]hat means only that [the FCC] must ‘reach an
express and considered conclusion’ about the bearing of a factor,
but is not required ‘to give any specific weight’ to it.” (citation
omitted)).
6
The ILECs also challenge the Commission’s adherence to its
policy of allowing CLECs to convert TSASs to UNEs in markets
where other CLECs have access to UNEs. See Order, 20 F.C.C.R. at
2661-64. As the Commission explained, “[t]he [ILECs’] arguments
against conversions are essentially the same as their arguments for
finding non-impairment wherever special access facilities are
available,” id. at 2663, and the Commission rejected both sets of
arguments for essentially the same reasons. Given that an agency’s
policy decisions are entitled to deference so long as they are
reasonably explained, see Nat’l Ass’n of State Util. Consumer
Advocates v. FCC, 372 F.3d 454, 460 (D.C. Cir. 2004), and given the
FCC’s reasoned explanation of the administrability problems that a bar
on conversions would cause, e.g., Order, 20 F.C.C.R. at 2664, we
deny the petition for review as to this issue as well.
20
B
The ILECs’ second argument is that competition is viable
(and hence unbundling is both unnecessary and unlawful) in
wire centers that have far fewer business lines and fiber-based
collocators than required by the Commission’s unbundling
thresholds. See Order, 20 F.C.C.R. at 2575-76; id. at 2614-15.
The ILECs argue that USTA I and USTA II require the FCC to
“deny unbundling not only in markets that are already extremely
competitive, but also in markets where the evidence shows that
[CLECs] can compete without UNEs.” Pet. Br. at 32 (emphasis
in original); see also USTA II, 359 F.3d at 575 (noting the FCC
must determine whether “competition is possible” without
unbundling). However, in the ILECs’ view, the Commission
denied unbundling only in those markets that are experiencing
“extraordinary levels of competition,” without considering “the
class of markets in which competition is possible without UNEs
. . . .” Pet. Br. at 33 (emphasis in original).
Again, we disagree. Notwithstanding the ILECs’ arguments
to the contrary, the Commission repeatedly justifies its
unbundling determinations on the basis of both actual and
potential competition. See, e.g., Order, 20 F.C.C.R. at 2586
(The Commission “evaluate[s] impairment through a focus on
wire centers, the end-points of routes, in a manner that accounts
for both actual and potential competition.”); id. (“The tests we
adopt today are designed to capture both actual and potential
competition, based on indicia of significant revenue
opportunities at wire centers.”); id. at 2587 (“Our approach here,
though route-specific, is also consistent with [USTA II’s]
instruction to make inferences about potential economic
deployment on similarly situated routes. . . . For example, even
if a particular [Tier 1] wire center exhibits few or no competitive
fiber facilities, the fact that other wire centers displaying similar
21
economic characteristics tend to be the site of more significant
competitive facilities deployment will serve as the basis for a
reasonable inference that the wire center in question could
potentially support such deployment.”); id. at 2588 (“We have
weighed carefully a variety of actual competitive indicia for
determining impairment and determine that the best and most
readily administered indicator of the potential for competitive
deployment is the presence of fiber-based collocators in a wire
center.”); id. (“[W]e conclude that applying [the high-capacity
transport thresholds] will better capture actual and potential
deployment than any single measure.”); id. at 2589 (Fiber-based
collocation and business line density “measure the potential
revenues available from a wire center. Wire centers that are rich
in potential revenues will be counted similarly, capturing areas
in which intermodal and intramodal competitors alike have
incentives to deploy transmission facilities.”); id. at 2591 (“[W]e
reject MCI’s proposal” for measuring impairment because “we
find that it fails to account for areas of potential deployment, or
to make any significant inferences” of potential competition.);
id. at 2593 (“[O]ur test will capture . . . relatively smaller [wire
centers] that, through fiber-based collocation, display signs of
significant potential revenues.”); id. at 2597 (defining Tier 1,
Tier 2, and Tier 3 wire centers “based on indicia of the potential
revenues and suitability for competitive transport deployment”);
id. at 2605 (“Tier 1 wire centers are those characterized by very
significant competitive facilities presence or potential, as
measured by fiber-based collocation and business lines.”); id. at
2606 (The Commission eliminates unbundling requirements in
Tier 1 and Tier 2 wire centers for DS3 transport because, “due
to the potential revenues available at the DS3 level, we find that
scale economies sometimes are sufficient to recover the fixed
and sunk costs of deploying transport facilities.”); id. at 2620
(“Our choice of the wire center service area as the appropriate
level of geographic granularity at which to assess requesting
carriers’ impairment without access to high-capacity loops is
22
grounded on [USTA II’s mandate that] the Commission . . .
consider not only actual competition within a given market, but
also potential competition within that market.” (emphases in
original)); id. at 2622 (The Commission rejects a building-
specific impairment inquiry because that approach is “flawed by
its failure to draw reasonable inferences from actual deployment
regarding potential deployment.” (emphasis in original)); id. at
2626 (“[H]igh business line counts and the presence of fiber-
based collocators, when evaluated in conjunction with one
another, are likely to correspond with actual self-deployment of
[CLECs’] loops or to indicate where deployment would be
economic and potential deployment likely.”); id. at 2627
(“While the evidence does not (and could not) reveal a precise,
immutable relationship between actual and potential deployment
of high-capacity loops on the one hand, and the numbers of
business lines and fiber-based collocators on the other hand, we
adopt these proxies because they best minimize and balance any
under-inclusiveness and over-inclusiveness.”).
Notwithstanding the foregoing mountain of references, the
ILECs argue that the FCC paid mere lip service to the potential
for competition in the markets for both transport and loops. We
reject both claims.
1
The ILECs complain that the Commission granted
“exceedingly narrow transport relief.” Pet. Br. at 33. Ironically,
however, the Commission eliminated unbundling for high-
capacity transport in more wire centers than the ILECs
proposed. Specifically, the ILECs suggested—and the FCC
rejected—a proposal to eliminate transport unbundling between
wire centers that contain one or more fiber-based collocators.
See Order, 20 F.C.C.R. at 2603. The Commission concluded
that the ILECs’ proposal would underestimate the potential for
23
competitive deployment and that unbundling was warranted for
transport between wire centers that contained zero fiber-based
collocators. See id. (eliminating unbundling in wire centers with
zero fiber-based collocators if those wire centers have “a
significant number of business lines [, which indicate] the
presence of significant potential revenues”).
To be sure, the Commission’s chosen business-line
thresholds (38,000 for DS1s and 24,000 for DS3s) are higher
than the ILECs would have liked. However, as the Commission
explained, the alternative thresholds proffered by the ILECs
were too low—as an empirical matter—to support consistent
competitive deployment. See id. at 2602-03. Given the fact that
the Commission has “wide discretion to determine where to
draw administrative lines,” AT&T Corp. v. FCC, 220 F.3d 607,
627 (D.C. Cir. 2000), and given “the inevitability of some over-
and under-inclusiveness in the Commission’s unbundling rules,”
USTA II, 359 F.3d at 570 (emphasis in original), we have been
“generally unwilling to review line-drawing performed by the
Commission unless a petitioner can demonstrate that lines drawn
. . . are patently unreasonable, having no relationship to the
underlying regulatory problem.” Cassell v. FCC, 154 F.3d 478,
485 (D.C. Cir. 1998) (internal quotation marks and citation
omitted).
Here, the Commission applied its transport thresholds in a
“disjunctive tandem” (that is, there is no impairment if the wire
centers meet either the business line or the collocation metrics).
Order, 20 F.C.C.R. at 2588. Because “complementary tests will
capture markets [with] significant potential revenues and thus,
the potential for further competitive build-out,” the Commission
concluded that a disjunctive test “will better capture actual and
potential deployment than any single measure.” Id. This
analysis clearly bears some “relationship to the underlying
24
regulatory problem.” As a result, we deny the ILECs’ petition
for review of the Commission’s transport thresholds.
2
The ILECs’ challenge to the Commission’s unbundling of
high-capacity loops is equally unavailing. Again, the FCC
chose to assess loop impairment at the wire-center level because
wire centers provide the best evidence of “not only actual
competition within a given market, but also potential
competition within that market.” Id. at 2620 (emphases in
original). Again, the ILECs complain that the FCC “removed
high-capacity loop unbundling obligations only in a tiny subset
of wire centers where there is evidence of extreme competition.”
Pet. Br. at 32. And again, we disagree.
After surveying the economic realities surrounding loop
deployment, the Commission decided to apply its loop
thresholds “in conjunction with one another” (that is, there is no
impairment if a wire center meets both the business line and the
collocation metrics). Order, 20 F.C.C.R. at 2626. The FCC
concluded that a conjunctive application of the loop-impairment
thresholds would “best minimize and balance any
under-inclusiveness and over-inclusiveness” in its unbundling
inquiry. Id. at 2627. Similarly, after surveying the economic
differences between DS1 and DS3 loops, the FCC unbundled
fewer of the latter than the former because “economic conditions
surrounding competitive deployment of DS3-capacity loops
permit [more optimistic] inferences regarding potential
deployment in the context of DS3 loops that would not be
appropriate in the context of DS1 loops.” Id. Moreover,
because it is generally economic to self-deploy a DS3 loop
“when demand nears two DS3s of capacity to a particular
location,” the FCC imposed a one-loop limit on DS3s. Id. at
2631.
25
By contrast, the Commission ordered wider unbundling of
DS1 loops because “[t]he record before us indicates that
[CLECs] typically do not provision stand-alone DS1 loops . . . .”
Id. at 2627. In light of evidence that CLECs generally provide
DS1 service by “channelizing” a bigger DS3 loop, the
Commission “denie[d] unbundled access to DS1 loops only in
the areas served by wire centers where . . . [CLECs] actually
have deployed, or will deploy, competitive facilities at the DS3
capacity level or higher, creating the potential for [CLECs] to
channelize those facilities to offer service at the DS1 capacity
level.” Id. at 2628. Because it is generally more efficient for a
CLEC to self-deploy a DS3 (and channelize it, if necessary)
rather than use ten or more DS1-UNEs, the Commission
imposed a ten-loop limit on DS1s. Id. at 2633.
Instead of attacking the FCC’s thresholds or loop caps, the
ILECs simply lament that the Commission eliminated
unbundling only in those markets that are experiencing
“extraordinary levels of competition.” Pet. Br. at 33. Of course,
the levels of competition in non-impaired areas (where
competition is thriving at “extraordinary levels”) are irrelevant
for purposes of the ILECs’ petition for review. The real
question is whether the Commission ignored evidence of
competition (either actual or potential) in impaired areas. After
conducting a thorough analysis of the economic realities
surrounding high-capacity loop deployment, the FCC concluded
that some of the wire centers identified by the ILECs’ alternative
unbundling thresholds exhibit indicia of impairment because
they “do not generally exhibit extensive competitive fiber
deployment, and do not offer sufficient revenue opportunities to
incent such deployment.” Order, 20 F.C.C.R. at 2637.
Tellingly, the ILECs never claim (much less show7) that
7
The ILECs attempt to shift the blame for this failure by arguing
that the CLECs should suffer an “adverse inference” for their failure
to disclose evidence within their control regarding deployment vel non
26
competition exists below the Commission’s loop thresholds. Cf.
Pet. Br. at 33 (claiming competition exists below the
Commission’s transport thresholds).
Congress gave the Commission—not the petitioners or this
Court—discretion in regulatory line-drawing. The mere fact
that the Commission’s exercise of its discretion resulted in a line
that the ILECs would have drawn differently is not sufficient to
make it unlawful. The FCC’s loop-impairment
thresholds—combined with the loop caps—suggest that the
Commission “confront[ed] . . . the issue” of the costs and
benefits of unbundling and “ma[d]e reasonable trade-offs”
between allowing unbundling where it is necessary and
eliminating unbundling where it is not. USTA I, 290 F.3d at
425. We have never required anything more. Nor do we today.
III
While the ILECs want less unbundling of high-capacity
loops and transport trunks, the CLECs want more. To that end,
the CLECs raise three arguments. First, the CLECs argue that
they are universally impaired without unbundled access to DS1
loops, DS3 loops, and DS1 transport. Second, the CLECs argue
that they are universally impaired without unbundled access to
of high-capacity loops. Again, however, the ILECs’ arguments are
misguided. Agreeing with comments filed by the ILECs themselves,
the Commission adopted an objective wire-center test, which is based
on publicly available data that neither party controls. See Order, 20
F.C.C.R. at 2619-22; id. at 2636-37. Because only non-proprietary
data were relevant to the Commission’s unbundling inquiry, there is
no basis upon which to draw an adverse inference against the CLECs.
Compare Tendler v. Jaffe, 203 F.2d 14, 19 (D.C. Cir. 1953) (“[T]he
omission by a party to produce relevant and important evidence of
which he has knowledge, and which is peculiarly within his control,
raises the presumption that if produced the evidence would be
unfavorable to his cause.” (emphases added)).
27
mass market local switching. Third, the CLECs argue that the
Commission’s transitional rules for implementing the Order are
arbitrary and capricious. We reject all three claims.
A
The CLECs first argue that it is economically impossible
(and wasteful) for non-incumbents to supply high-capacity loops
and transport trunks where the ILECs have already deployed
them. Because “these fundamental economic facts” do not vary
across markets, the CLECs argue that the Commission’s
unbundling thresholds are unlawfully high. Pet. Br. at 9. The
CLECs mount separate challenges to the Commission’s analysis
for DS1 loops, DS3 loops, and DS1 transport. We address each
in turn.
1
In the CLECs’ view, the Commission erred by restricting
the unbundling of DS1 loops. Given the FCC’s finding that
CLECs “cannot deploy stand-alone DS1-capacity loops on an
economic basis,” Order, 20 F.C.C.R. at 2628, the CLECs
conclude that they must be impaired in (and thus entitled to
unbundling of) DS1 loops nationwide.
We disagree. USTA I and USTA II require a nuanced
application of a “granular” impairment standard, which
incorporates competitive variations within and across markets.
The CLECs appear to recognize this fact. See, e.g., Pet. Br. at
14. Nonetheless, the CLECs advocate the most un-nuanced and
un-granular impairment finding imaginable—namely, a
nationwide unbundling decree—notwithstanding the fact that we
vacated the CLECs’ proffered alternative in USTA II. See 359
F.3d at 574; see also Iowa Utils., 525 U.S. at 388 (holding the
Commission cannot order blanket unbundling because “the Act
28
requires the FCC to apply some limiting standard, rationally
related to the goals of the Act” (emphasis in original)); USTA I,
290 F.3d at 422 (criticizing the FCC’s decision “to adopt a
uniform national rule, mandating [an] element’s unbundling in
every geographic market”).
In the order before us, the FCC rejected a nationwide
unbundling rule—and reasonably so. Instead of a blanket
impairment finding, the FCC adopted a nuanced standard, which
assesses impairment vel non at the wire center level and imposes
“caps” on unbundling in markets in which the prevalence of
UNEs suggests that facilities-based competition is viable.8 The
Commission’s standard uses market data to predict when and
where the CLECs will be economically able to deploy their own
high-speed facilities, thus obviating the need for UNEs. We
think this balancing act is reasonable.
As a fallback position, the CLECs argue that impairment
should be assessed on a building-by-building (as opposed to a
wire center-by-wire center) basis. However, after chronicling
extensive record evidence, the Commission concluded that a
building-by-building approach would be an administrative
nightmare, a font of endless litigation, and an ineffective metric
of impairment. See Order, 20 F.C.C.R. at 2620-25.
Even if the CLECs’ building-by-building approach were not
riddled with empirical flaws and administrability problems, “the
fact that there are other solutions to a problem is irrelevant
provided that the option selected [by the FCC] is not irrational.”
Ass’n of Pub.-Safety Commc’ns Officials-Int’l, Inc. v. FCC, 76
F.3d 395, 400 (D.C. Cir. 1996) (internal quotation marks and
citation omitted). “The FCC need not demonstrate that it has
made the only acceptable decision, but rather that it has based its
8
See Part II.B.2, supra (discussing the particulars of the FCC’s
thresholds and loop caps).
29
decision on a reasoned analysis supported by the evidence
before the Commission.” Id. at 398 (emphasis in original). “[I]f
the [Commission] has offered a reasoned explanation for its
choice between competing approaches supported by the record,
the court is not free to substitute its judgment for that of the
agency.” Id.
Here, “the Commission has offered a reasoned
explanation.” The FCC explained that it chose to focus on wire
centers, fiber-based collocation, and business line density
because those variables are objective, easily verifiable, and
highly correlated with both extant and potential levels of
facilities-based competition. See Order, 20 F.C.C.R. at 2588-
97. This explanation easily qualifies as “rational,” “reasonable,”
and “non-arbitrary.”
Even if the FCC explained its standard, the CLECs argue,
that standard is nonetheless divorced from economic reality. In
the CLECs’ view, “[t]here is absolutely no evidence” to
substantiate the purported correlation between competition and
the level of fiber collocation and business line density within a
wire center. Pet. Br. at 18. Moreover, the CLECs argue that
even if fiber-based collocation can reasonably predict
competition in enterprise markets, it is still insufficiently
“granular” to predict competition for mass-market consumers.
Id. at 19-20.
Again, the CLECs’ argument is wide of the mark. As we
have previously held, “collocation can reasonably serve as a
measure of competition in a given market,” particularly where
it is “superior to the various alternatives proposed by
petitioners.” WorldCom, Inc. v. FCC, 238 F.3d 449, 459 (D.C.
Cir. 2001). Here, the CLECs “offer no alternative save a
painstaking analysis of market conditions.” Id. (emphasis
added). For example, the CLECs argue that the FCC’s
30
impairment analysis should incorporate “operational or
structural impediments,” Pet. Br. at 10, which are “specific to
the customer’s location within a building,” Order, 20 F.C.C.R.
at 2623 (emphasis added). Such a suggestion takes the concept
of granularity to an unrealistic extreme: It defies common
sense—and USTA II’s mandate—to require the Commission to
conduct individualized inquiries into the economic
particularities of each floor within each building served by the
millions of DS1 loops nationwide. See USTA II, 359 F.3d at 577
(holding the FCC is “free to take into account such factors as
administrability” in its impairment inquiry). Under these
circumstances, the Commission is justified in its reliance upon
what is “an admittedly imperfect measure of competition.”
WorldCom, 238 F.3d at 459.
Finally, even if the Order properly accounts for economic
reality, the CLECs claim that the Commission arbitrarily
“turn[ed] around and ignore[d]” its own “reasonably efficient
competitor” standard in its refusal to unbundle DS1 loops. In
the CLECs’ view, the Order “relies on a [CLEC] holding . . . a
fiber transmission network,” Pet. Br. at 21, notwithstanding the
fact that the Commission’s “reasonably efficient competitor”
standard “do[es] not presume that a hypothetical entrant
possesses any particular assets.” Order, 20 F.C.C.R. at 2548.
The CLECs either misunderstand or misconstrue the FCC’s
ruling. The Order does not presume that a particular CLEC
possesses a fiber transmission network. Rather, the FCC
presumes that under certain economic conditions, it would be
financially possible and attractive for a “reasonably efficient”
CLEC to deploy high-speed facilities. And where a “reasonably
efficient” CLEC can economically deploy its own facilities, the
FCC concludes, all CLECs are not “impaired.”
31
At first blush, it might seem a little harsh to eliminate
unbundling for all CLECs where one or more has demonstrated
the economic feasibility of competing without UNEs. However,
as the Commission explained, CLECs can use TSASs and other
wholesale facilities “as a gap-filler” to enter or expand into new
markets. Id. at 2623-24. And the CLECs’ assertion that the
wholesale supply of DS1 loops is “extremely limited,” Pet. Br.
at 22, is belied by the CLECs’ own evidence confirming that
they are “able to purchase wholesale capacity to serve a DS1
customer.” Order, 20 F.C.C.R. at 2628. The ILECs
corroborated the CLECs’ concessions with respect to the
availability of DS1 loops at wholesale prices. See Ex parte
Letter from Evan T. Leo to Marlene H. Dortch, tbl. 9 (Oct. 4,
2004), Joint Appendix (“J.A.”) 2067-68; Declaration of Claire
Beth Nogay on behalf of Verizon, exh. 6 (Oct. 4, 2004), J.A.
1683-85. In the face of evidence that CLECs can—and
do—offer DS1 services without UNEs, there is nothing unlawful
about the FCC’s well-reasoned refusal to order unbundling.
2
The CLECs next argue that the Commission erred by
restricting the unbundling of DS3 loops. In a single footnote,
the CLECs attempt to incorporate by reference all of their DS1-
related arguments “to apply equally to single DS3 loops.” Pet.
Br. at 14 n.8. This reference is insufficient to raise the issue.
See Sugar Cane Growers Co-op. of Florida v. Veneman, 289
F.3d 89, 93 n.3 (D.C. Cir. 2002) (“On appeal, appellants failed
to raise their . . . claim—a footnote at the end of their opening
brief does not suffice.”); Hutchins v. Dist. of Columbia, 188
F.3d 531, 539 n.3 (D.C. Cir. 1999) (en banc) (“We need not
consider cursory arguments made only in a footnote.”).
The CLECs’ only viable DS3 challenge is their argument
that “the FCC’s proxies are an insufficient indicator of
32
competitive deployment.” Pet. Br. at 19. However, the CLECs
base their attack entirely on the alleged paucity of extant
competition. See id. at 23 (“[T]he record plainly shows that the
number of buildings where [CLECs] have deployed [DS3]
facilities . . . is minuscule.”). Because we have held that
unbundling may be appropriate only after the Commission
considers the potential for future competition, see USTA II, 359
F.3d at 575, the CLECs’ complaints that current DS3
deployment is “minuscule” are wide of the mark. We therefore
deny the petition for review with respect to DS3 loops.
3
The CLECs next argue that the Commission erred by
restricting the unbundling of DS1 transport. In light of the same
record evidence that informed the Commission’s impairment
analysis for DS1 loops, the FCC found that CLECs are not
impaired without unbundled access to DS1 transport on routes
between “Tier 1” wire centers. See Order, 20 F.C.C.R. at 2598;
id. at 2605. The CLECs’ challenge to this conclusion is feeble:
They do not dispute that wire centers provide a perfectly
reasonable metric to gauge transport impairment, Pet. Br. at 16,
nor do they dispute that competitive transport is or can be self-
provisioned between Tier 1 wire centers, Order, 20 F.C.C.R. at
2605. Nor do the CLECs dispute that those competitive
transport facilities can be channelized to provide transport at the
DS1 level. See id. at 2585-86. Instead, the CLECs argue that
the Commission’s impairment inquiry was based “solely on the
unfounded prediction” that a wholesale market for DS1 transport
might develop. Pet. Br. at 27.
The CLECs’ characterization of the Commission’s inquiry
is inaccurate. After finding empirical proof that more than two-
thirds of wire centers above the business-line threshold can
attract four or more fiber-based collocators, see Order, 20
33
F.C.C.R. at 2598-99 & nn.322-23, the Commission inferred that
it was “possible that competitors can deploy transport facilities
to the remainder of the wire centers above this business line
threshold,” id. at 2599 (emphasis added). Thus, the Commission
did not focus “solely” on the availability of wholesale
transport—in fact, the FCC’s impairment inquiry centered on
the potential for CLECs to self-deploy DS1 transport. We
therefore deny the petition for review with respect to DS1
transport.
B
The CLECs’ second challenge pertains to the Commission’s
decision not to require unbundled access to mass-market local
switching. See Order, 20 F.C.C.R. at 2641-61. “Local
switching” is the modern-day equivalent of a switchboard
operator: Computerized switches route a signal from a caller to
a receiver. “Mass market” switching refers to phone calls made
by or to residential consumers (as opposed to “enterprise”
switching, which refers to calls made by or to business
customers). In the Order, the Commission declined to order
unbundling in MMLS. The CLECs—joined by National
Association of State Utility Consumer Advocates (“NASUCA”)9
9
Because NASUCA presses the point at length in its briefs, we
note that the association has standing. In USTA II, we held that “it is
not at all self-evident from the record that NASUCA meets the
associational standing criteria established in Hunt v. Washington State
Apple Advertising Commission, 432 U.S. 333, 344-45 (1977).” 359
F.3d at 593-94 (parallel citations omitted). Here, by contrast,
NASUCA has submitted an affidavit that demonstrates “(a) its
members would otherwise have standing to sue in their own right; (b)
the interests it seeks to protect are germane to the organization’s
purpose; and (c) neither the claim asserted nor the relief requested
requires the participation of individual members in the lawsuit.” Hunt,
432 U.S. at 343. Accordingly, NASUCA has associational standing
to press its claims.
34
and the New Jersey Division of the Ratepayer Advocate
(“NJDRA”)—petition for review. We discuss and reject each
petitioner’s claims separately.
1
First, we reject the CLECs’ challenge to the Commission’s
ruling on MMLS. The CLEC petitioners argue that a nationwide
non-impairment finding must be vacated because it is
insufficiently “granular.” However, the mere fact that the
Commission eliminated unbundling across the board does not
make it unlawful: The “granularity” criterion does not require
the FCC to manufacture regulatory variation where the record
does not support it. See USTA II, 359 F.3d at 570 (holding the
Commission need only adopt a granular rule if “there is
evidence that markets vary decisively (by reference to [the
FCC’s] impairment criteria) . . .”).
On the record before it, the Commission reasonably
concluded that CLECs are not “impaired” without unbundled
access to MMLS. In light of the fact that CLECs have deployed
their own switches in 86% of the ILECs’ wire centers across the
country, J.A. 2047, and in light of the fact that CLECs are
deploying high-tech switches that have “higher capacity and
wider geographic reach” than the old switches employed by the
ILECs, Order, 20 F.C.C.R. at 2646, the record suggests that it is
neither “uneconomic” nor “wasteful” for CLECs to deploy their
own switches, USTA II, 359 F.3d at 572-73. While other parts
of the ILECs’ networks might remain “bottleneck facilities,” the
CLECs’ widespread deployment of switching technology
suggests “competition is possible” without unbundled switches.
Id. at 575; see also Order, 20 F.C.C.R. at 2646 (noting that
CLECs are currently combining their own switching and the
ILECs’ unbundled loops to serve mass market customers in 137
of the nation’s largest 150 metropolitan statistical areas).
35
Moreover, the Commission’s prior impairment finding was
based solely on the technical difficulties associated with
connecting CLECs’ switches with the ILECs’ networks (a
process termed “hot cutting”). See Triennial Review Order, 18
F.C.C.R. at 17277. Here, however, the Commission found (and
the CLECs do not dispute) that the ILECs have made vast
improvements in their hot cut procedures, thus making it easier
and more financially attractive than ever for CLECs to deploy
their own switches. Order, 20 F.C.C.R. at 2647-49.
Confronted with this record of competitive switch
deployment, the CLECs failed to offer any explanations or
contrary evidence. The CLECs insist that the Commission
unduly focused on improvements in hot cuts while ignoring
other “impairments faced by CLECs attempting to serve the
mass market with their own switches.” Pet. Br. at 36-37.
However, the CLECs do not offer an explanation for what these
other “impairments” might be. The CLECs also failed to offer
evidence that it is “uneconomic” to serve mass market
customers with switches that were originally deployed to serve
enterprise customers. See Order, 20 F.C.C.R. at 2656-57.
Moreover, the CLECs did “not rebut[] the evidence of
commenters showing that [CLECs] in many markets have
recognized that facilities-based carriers could not compete with
TELRIC-based UNE-P, and therefore have made UNE-P their
long-term business strategy.” Id. at 2654. Given that UNE-P is
a “completely synthetic” form of competition, USTA I, 290 F.3d
at 424, the Commission reasonably eliminated switch
unbundling. See USTA II, 359 F.3d at 572, 581-82 (noting that
the FCC may reasonably use its “at a minimum” authority under
§ 251(d)(2) to encourage CLECs to invest in—and compete
through—their own facilities). Therefore, we deny the CLECs’
petition for review.
36
2
Second, we reject NASUCA’s challenge to the
Commission’s ruling on MMLS. The Association argues that
the ILECs have “conceded impairment” in some MMLS markets
by submitting evidence of non-impairment in others. Pet. Br. at
15. That is, NASUCA argues that the ILECs should suffer a
negative inference for each of the markets for which the
incumbents did not submit data.
NASUCA’s argument is without support in the relevant
caselaw. USTA I and USTA II make clear that the burden of
persuasion rests on the shoulders of the party that urges the
Commission to find impairment. See USTA I, 290 F.3d at 425;
USTA II, 359 F.3d at 570-71. And the rationale for our
conclusion is simple: The plain text of § 251(d)(2) permits
unbundling only where the Commission receives evidence that
UNEs are “necessary” to prevent “impair[ment]” of the CLECs’
competitive aspirations. Thus, the 1996 Act does not obligate
the ILECs to prove non-impairment—it forces the CLECs to
prove impairment.
In this case, there was no evidence of impairment in MMLS
markets. The only evidence before the FCC (provided by the
ILECs) suggested switches are “significantly deployed on a
competitive basis.” USTA I, 290 F.3d at 422; see Order, 20
F.C.C.R. at 2644-45 & n.545. NASUCA offers nothing to
suggest otherwise. Nor does it dispute that the sole basis for the
FCC’s prior impairment finding (namely, the costliness of hot
cuts) is no longer an issue. Given the lopsided record, the
Commission reasonably declined to find impairment. Therefore,
we deny NASUCA’s petition for review.
37
3
Finally, we reject NJDRA’s challenge to the Commission’s
ruling on MMLS. The Ratepayer Advocate argues that the
Commission’s “analytical construct for assessing mass market
impairment”—namely, the “reasonably efficient competitor”
standard—was not a “logical outgrowth” of the NPRM. Pet. Br.
at 6. Without explaining how, NJDRA simply asserts that the
Order “is a substantial and significant departure from the
NPRM.” Id.
NJDRA’s argument is meritless. An agency’s final rule
need only be a “logical outgrowth” of its notice. See Shell Oil
Co. v. EPA, 950 F.2d 741, 750-51 (D.C. Cir. 1991); see also
Env’l Integrity Proj. v. EPA, 425 F.3d 992, 996 (D.C. Cir. 2005)
(“[A]gencies [may not] use the rulemaking process to pull a
surprise switcheroo on regulated entities.”). Whether the
“logical outgrowth” test is satisfied depends on whether the
affected party “should have anticipated” the agency’s final
course in light of the initial notice. Small Refiner Lead Phase-
Down Task Force v. EPA, 705 F.2d 506, 548-49 (D.C. Cir.
1983).
NJDRA should have anticipated the FCC’s “reasonably
efficient competitor” standard. In the NPRM, the FCC sought
comment on how to respond to USTA II’s vacatur of the
Commission’s “open-ended[]” impairment inquiry into
“uneconomic entry.” See NPRM, 19 F.C.C.R. at 16788 (citing
USTA II, 359 F.3d at 571-73); see also USTA II, 359 F.3d at 572
(“Uneconomic by whom? By any CLEC, no matter how
inefficient? By an ‘average’ or ‘representative’ CLEC? By the
most efficient existing CLEC? By a hypothetical CLEC that
used ‘the most efficient telecommunications technology
currently available’ . . . ?” (emphasis in original)). In response
38
to comments, the Commission answered USTA II’s questions by
promulgating the “reasonably efficient competitor” standard.
See Order, 20 F.C.C.R. at 2547. Given that the NPRM put
interested parties on notice that the FCC wanted to answer our
questions, and given that the Order answered our questions, the
latter was easily a “logical outgrowth” of the former. Therefore,
we deny NJDRA’s petition for review.10
C
The CLECs’ third challenge—echoed in NJDRA’s
petition—pertains to the FCC’s transitional efforts to wean
CLECs off unbundled access to ILECs’ local switching. In the
Order, the Commission authorized the ILECs to increase local
switching prices over the next twelve months by $1 above the
highest unbundled network element-platform rate approved by
the relevant state commission. See Order, 20 F.C.C.R. at 2660-
61. We reject the challenges filed by both the CLECs and
NJDRA.
1
We first reject the CLECs’ challenge to the Commission’s
transitional rules. The CLECs argue that the $1 rate increase
violates the ILECs’ unbundling obligations under § 271 of the
Act. Under § 271, ILECs are obligated to offer unbundled local
10
NJDRA also echoes the CLECs’ challenge to the Commission’s
finding of nationwide non-impairment for MMLS. NJDRA argues
that the FCC failed to provide a reasoned explanation for its decision:
“Unexplained reliance upon inference upon inference, rather than
actual granular analysis and evidence is not reasoned decision making.
One can infer an elephant is a mouse . . . with a glandular problem.”
Reply Br. at 14 (ellipsis in original). While NJDRA’s argument is
somewhat less than clear, we reject it for the same reasons we rejected
the CLECs’. See Part III.B.1, supra.
39
switching at “just and reasonable” prices, as a precondition to
the incumbents’ right to compete in nationwide long-distance
markets. However, the CLECs argue that the Commission in
this case unlawfully approved the ILECs’ rate increase without
analyzing whether a $1 hike would be “just and reasonable.”
We need not reach the merits of the CLECs’ claim because
they waived it. “It is well established that issues not raised in
comments before the agency are waived and this Court will not
consider them.” Nat’l Wildlife Fed’n v. EPA, 286 F.3d 554, 562
(D.C. Cir. 2002); see also Nat’l Min. Ass’n v. DOL, 292 F.3d
849, 874 (D.C. Cir. 2002). Here, the Commission put the public
on notice of its proposed $1 rate hike. See NPRM, 20 F.C.C.R.
at 16798. However, the CLECs cannot point to a single place in
the record—and we could not find one—in which anyone
objected to the rate hike as “unjust” or “unreasonable” under §
271. Cf. Pet. Br. at 41 (pointing to challenges to the transitional
rules, but pointing to no comments that challenged the rate hike
as “unjust,” “unreasonable,” or in any way objectionable under
§ 271); NJDRA Reply Br. at 10 (same). Accordingly, the claim
is waived.
2
We next reject NJDRA’s challenge to the Commission’s
transitional rules. NJDRA argues that the $1 increase was
arbitrary because the FCC never disclosed any empirical
justification for its calculation, and it ignored proffered
alternatives, such as tinkering with the federal subscriber line
charge. In NJDRA’s view, “[t]his failure to address a material
issue alone justifies setting aside the FCC’s mass market
decision.” Pet. Br. at 13.
NJDRA’s argument is meritless. The FCC “need not
address every comment, but it must respond in a reasoned
40
manner to those that raise significant problems.” Reytblatt v.
Nuclear Regulatory Comm’n, 105 F.3d 715, 722 (D.C. Cir.
1997) (citing Action on Smoking & Health v. CAB, 699 F.2d
1209, 1216 (D.C. Cir. 1983)). “The failure to respond to
comments is significant only insofar as it demonstrates that the
agency’s decision was not based on a consideration of the
relevant factors.” Thompson v. Clark, 741 F.2d 401, 409 (D.C.
Cir. 1984) (internal quotation marks and citation omitted); see
also City of Waukesha v. EPA, 320 F.3d 228, 257-58 (D.C. Cir.
2003) (per curiam).
Here, the Commission placed all interested parties on notice
that it was considering an increase in local switching rates equal
to $1 over the UNE-P rate as a means of easing the transition to
a world without unbundled switching. See NPRM, 19 F.C.C.R.
at 16798. In its comments, NJDRA challenged the
appropriateness of any rate increase, but it did not challenge the
empirical justification for the specific rate increase proposed in
the NPRM. See, e.g., Comments of the NJDRA at 20-21, J.A.
953-54; Reply Comments of the NJDRA at 3-6, J.A. 2310-13.
In response, the FCC explained its decision to adopt a rate
increase, see Order, 20 F.C.C.R. at 2660-61, and “[t]his
response demonstrates that the [FCC] considered and rejected
petitioners’ arguments . . . . This is all that the [Administrative
Procedure Act] requires.” City of Waukesha, 320 F.3d at 258.
IV
Finally, we address a miscellaneous claim, raised only in
NJDRA’s petition, that the FCC cannot preempt state public
utility commissions from regulating telecommunications
carriers. In NJDRA’s view, the Commission “failed to
acknowledge, let alone respond and address” the Ratepayer
Advocate’s question of whether the 1996 Act “violates the U.S.
Constitution with respect to Article 1 [sic] (separation of power
41
[sic]), Article [sic] V (equal protection of the law), Articles [sic]
X and XI.” Pet. Br. at 16. NJDRA further argues that the Act
violates the nondelegation doctrine because the FCC’s power to
grant forbearance petitions, see 47 U.S.C. § 160, constitutes a
legislative power to “eliminate, modify, or repeal substantive
provisions of the Act.” Pet. Br. at 18.
Again, the Ratepayer Advocate’s argument is meritless.
NJDRA’s claim boils down to the proposition that the Act’s
preemptive force is unconstitutional as applied, notwithstanding
the fact that the Act has not been applied. Given that we have
already held that any preemption challenge must be raised (if at
all) only after the FCC attempts to preempt a state commission’s
unbundling authority, see USTA II, 359 F.3d at 594, and given
that the Order under review does not contain any reference to
the Commission’s preemptive authority (much less does it
actually preempt anything), NJDRA’s legal arguments are
unripe at best. NJDRA’s forbearance claim suffers from similar
shortcomings: Because the Order did not forbear from
enforcing a statutory requirement any more than it preempted a
particular state action, NJDRA’s petition for review is not ripe.
V
For the reasons stated above, each of the petitions for
review is
Denied.