Michigan Bell Telephone Compan v. Laura Chappelle

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 10a0052p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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No. 07-2469

Plaintiff-Appellee, --

MICHIGAN BELL TELEPHONE COMPANY,

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Nos. 07-2469/2473

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v.

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Intervenors Defendants-Appellants, -

COVAD COMMUNICATIONS COMPANY, et al.,

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MCLEODUSA TELECOMMUNICATIONS

Intervenors, -

SERVICES, INC., et al.,

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Defendants. -

J. PETER LARK, Commissioner, et al.,

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No. 07-2473 -

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Plaintiff-Appellee, -

MICHIGAN BELL TELEPHONE COMPANY,

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v. -

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Defendants-Appellants, -

LAURA CHAPPELLE, et al.,

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Intervenors. -

COVAD COMMUNICATIONS COMPANY, et al.,

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Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 06-11982—Julian A. Cook, Jr., District Judge.

Argued: December 10, 2008

Decided and Filed: February 23, 2010

Before: BATCHELDER, Chief Judge; GILMAN and SUTTON, Circuit Judges.

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Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 2

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COUNSEL

ARGUED: Bill Magness, CASEY, GENTZ & MAGNESS, L.L.P., Austin, Texas, Michael

A. Nickerson, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan,

for Appellants. William Julius Champion III, DICKINSON WRIGHT PLLC, Ann Arbor,

Michigan, for Appellee. Scott H. Angstreich, KELLOGG, HUBER, HANSEN, TODD,

EVANS & FIGEL, PLLC, Washington, D.C., for Amici Curiae. ON BRIEF: Bill Magness,

CASEY, GENTZ & MAGNESS, L.L.P., Austin, Texas, Steven D. Hughey, OFFICE OF

THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan, Michael S. Ashton,

FRASER, TREBILCOCK, DAVIS & DUNLAP, P.C., Lansing, Michigan, Steven D.

Hughey, OFFICE OF THE MICHIGAN ATTORNEY GENERAL, Lansing, Michigan, for

Appellants. William Julius Champion III, Jeffery V. Stuckey, DICKINSON WRIGHT

PLLC, Ann Arbor, Michigan, for Appellee. Scott H. Angstreich, KELLOGG, HUBER,

HANSEN, TODD, EVANS & FIGEL, PLLC, Washington, D.C., Laurel R. Bergold, P.

Michele Ellison, Richard K. Welch, FEDERAL COMMUNICATIONS COMMISSION,

Washington, D.C., for Amici Curiae.

BATCHELDER, C.J., delivered the opinion of the court, in which GILMAN, J.,

joined. SUTTON, J. (pp. 23-31), delivered a separate dissenting opinion.

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OPINION

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ALICE M. BATCHELDER, Chief Judge. A state telephone-utility commission and

several competitive local exchange carriers appeal a judgment in which the district court

vacated the commission’s order requiring the incumbent local exchange carrier to provide

certain “entrance facilities” at wholesale prices. Finding the appellants’ arguments

unpersuasive, we AFFIRM.

I.

Congress enacted the Telecommunications Act of 1996, 47 U.S.C. § 152 et seq., to

mandate “that local service, which was previously operated as a monopoly overseen by the

several states, be opened to competition.” MCI Telecom. Corp. v. Bell Atl., 271 F.3d 491,

497 (3d Cir. 2001). Congress required the incumbent local exchange carriers (ILECs) to

cooperate with competitive local exchange carriers (CLECs) to allow the CLECs to enter the

market, either by connecting their equipment to the ILEC’s existing network or by

purchasing or leasing existing network elements and services. Id. The ILECs and CLECs,

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 3

through negotiation or arbitration, enter into “interconnection agreements,” which set out the

terms, rates, and conditions. Id. Congress directed the Federal Communications

Commission (FCC) to promulgate implementing regulations, but gave oversight of the

interconnection agreements to the state public-utility commissions. Id.

In the present case, the ILEC is Michigan Bell; the CLECs are Covad

Communications, Talk America, Inc., XO Communications, McLeod USA

Telecommunications, and TDS Metrocom; and the state utility commission is the Michigan

Public Service Commission (MPSC), for which the individual commissioners were J. Peter

Lark, Laura Chappelle, and Monica Martinez. This case concerns the regulation of

“entrance facilities,” a type of transmission facility that connects a CLEC network with an

ILEC network. But, just to be clear, an “entrance facility” is really just a fancy name for a

cable or wire used to transport calls from a CLEC switch to an ILEC switch, and this wire

can be very short (if the two switches are close together), or it can be very long, stretching

for blocks or even miles (if the switches are far apart), depending on the relative locations

of the two switches.

As Congress directed, the FCC promulgated regulations regarding interconnection,

see 47 C.F.R. § 51.1 et seq., and then set about deciding which of the ILEC’s network

elements must be “unbundled”; that is, which of the ILEC’s network elements must be

1

offered for sale or lease to the CLECs at regulated prices or rates. In August 1996, the

FCC issued its Local Competition Order, 11 FCC Rcd. 15499, 1996 WL 452885 (Aug.

8, 1996), in which it purported to apply the Act’s “impairment test”2 and — finding

impairment everywhere — required the ILECs to unbundle all of their interoffice-

1

The FCC created a particular set of regulated rates called “Total Element Long Run Incremental

Cost” (TELRIC) rates. Thus, “unbundled” means “regulated,” which means “at TELRIC rates.” See

Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 531 (2002) (citing AT&T Corp. v. Iowa Utils. Bd., 525 U.S.

366, 394 (1999)) (“Bundling is about lease pricing. To provide a network element ‘on an unbundled basis’

is to lease the element, however described, to a requesting carrier at a stated price specific to that

element.”); see also USTA v. FCC (USTA II), 359 F.3d 554, 561-62 (D.C. Cir. 2004) (discussing

“unbundling requirements”).

2

The “impairment test” states:

In determining what network elements should be made available [on an unbundled

basis, i.e., to the CLECs at TELRIC rates], the [FCC] shall consider, at a minimum,

whether . . . the [ILEC’s] failure to provide access to such network elements would

impair the ability of the [CLEC] to provide the services that it seeks to offer.

47 U.S.C. § 251(d)(2)(B).

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 4

transmission facilities (which included entrance facilities). But the Supreme Court

vacated that order, finding the FCC’s analysis of impairment unjustifiably over-broad,

and remanded the issue to the FCC to try again. See AT&T Corp. v. Iowa Utils. Bd., 525

U.S. 366 (1999).

Meanwhile, Michigan Bell had begun to provide for the CLECs to connect to its

network. In so doing, Michigan Bell added “entrance facilities” (i.e., cables or wires)

with which the CLECs could connect, in order to access Michigan Bell’s network.

Acting pursuant to the FCC’s initial directives, Michigan Bell offered its “entrance

facilities” to the CLECs at regulated rates.

The FCC, on remand from the Iowa Utilities Board decision, again required the

ILECs to unbundle all of their interoffice transmission facilities (including entrance

facilities), once again under an “impairment test” in which it found impairment

everywhere. See UNE Remand Order, 15 FCC Rcd. 3696, 1999 WL 1008985 (Nov. 5,

1999). But the reviewing court vacated that order as well, finding the FCC’s analysis

of impairment unjustifiably over-broad, and remanded the issue to the FCC to try a third

time. See USTA v. FCC, 290 F.3d 415 (D.C. Cir. 2002) (“USTA I”).

In its third attempt, on remand from the D.C. Circuit, the FCC — among other

things — removed “entrance facilities” from its description of the ILEC network and

concluded that an impairment test was not even necessary to hold that entrance facilities

need not be unbundled. See Triennial Review Order (TRO), 18 FCC Rcd. 16978, 2003

WL 22175730, ¶ 366 n.1116 (Sept. 17, 2003) (“Our determination here effectively

eliminates ‘entrance facilities’ as UNEs [unbundled network elements] and, therefore,

moots the [FCC’s pending notice of proposed rule making] insofar as it proposes

limitations on obtaining entrance facilities as UNEs.”). But the reviewing court vacated

the order yet again, finding that the FCC’s exclusion of entrance facilities from the

impairment analysis was improper and directing that the FCC must conduct an

impairment analysis for entrance facilities. See USTA v. FCC, 359 F.3d 554 (D.C. Cir.

2004) (“USTA II”).

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 5

Consequently, the FCC issued a fourth order, the Triennial Review Remand

Order (TRRO), 20 FCC Rcd. 2533, 2005 WL 289015 (Feb. 4, 2005), in which it

reestablished that entrance facilities are a part of the ILEC network, but found that

unbundled access was not necessary because the CLECs were not impaired by paying

competitive rates for the use of entrance facilities.3 At the conclusion of this finding,

however, the FCC included the following paragraph:

140. We note in addition that our finding of non-impairment with respect

to entrance facilities does not alter the right of competitive LECs to

obtain interconnection facilities pursuant to section 251(c)(2) for the

transmission and routing of telephone exchange service and exchange

access service. Thus, competitive LECs will have access to these

[interconnection] facilities[4] at cost-based rates to the extent that they

require them to interconnect with the incumbent LEC’s network.

TRRO, 20 FCC Rcd. 2533, 2005 WL 289015, ¶ 140 (footnotes omitted).

As mentioned previously, Michigan Bell had provided entrance facilities for

some time, and had been charging the CLECs regulated (TELRIC) rates for use of those

entrance facilities. But, in light of the TRRO, Michigan Bell decided that it would

henceforth charge higher (i.e., competitive) rates for the entrance facilities it was

providing.5 Thus, Michigan Bell notified the CLECs that it would be changing the

“interconnection agreements” to reflect this new pricing scheme.

3

“In fact, the [USTA II] court expressed skepticism that incumbent LECs should be required to

build entrance facilities under any circumstances.” TRRO, 20 FCC Rcd. 2533, 2005 WL 289015, ¶ 137

n.383 (citing USTA v. FCC, 359 F.3d 554, 586 (D.C. Cir. 2004) (“If (as appears) [entrance facilities] exist

exclusively for the convenience of the CLECs, it seems anomalous that CLECs do not themselves provide

them . . . .”)).

4

Although it may appear obvious, it bears express mention that, in writing this paragraph, the

FCC did not use “interconnection” as a verb, describing the act of interconnecting with the ILEC network.

As used in this paragraph, “interconnection” is an adjective, describing a noun (a certain type of facility)

and thereby creating a new noun, an “interconnection facility,” as something different and distinct from

an “entrance facility.” So, when the FCC says “access to these facilities” in the final sentence, we are

confident that the FCC is referring to these “interconnection facilities” as opposed to those “entrance

facilities” from which it has just drawn a distinction.

5

Michigan Bell continued to provide interconnection with its network at regulated (TELRIC)

rates, as required by the statute and regulations, and nothing in the record suggests otherwise. Michigan

Bell simply understood the TRRO to mean that an “entrance facility” is different from an “interconnection

facility,” such that, so long as it provides an “interconnection facility” at TELRIC rates, it can also offer

an “entrance facility” (i.e., a different apparatus) at competitive rates, should it choose to do so.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 6

The CLECs, none too pleased with this impending price increase, responded by

complaining to the MPSC, arguing that (regardless of the other paragraphs in the TRRO)

paragraph 140 dictates that the CLECs are still entitled to use the entrance facilities at

TELRIC rates for purposes of interconnection with the ILEC network. The MPSC

agreed and ordered Michigan Bell to continue to provide entrance facilities at TELRIC

rates. The parties refer to this as the “September Order.”

Michigan Bell appealed to the district court, which agreed with Michigan Bell

(i.e., disagreed with the MPSC’s interpretation of the TRRO) and reversed the September

Order, explaining:

Th[is] [c]ourt agrees with [] Michigan [Bell] and concludes that the

September Order[,] which pertains to this issue[,] does not comply with

the rules that were adopted by the FCC pursuant to Section 251. It is not

reasonable to interpret an explanatory comment, such as the one found

in ¶ 140 of the TRRO, in a manner that undermines the plain meaning of

the rule. The meaning of ¶ 140 must be interpreted in light of the FCC

rule, which provides that entrance facilities need not be provided by

incumbent carriers to competing carriers on an unbundled basis. The

TRRO conveys the finding by the FCC that entrance facilities should be

offered competitively. A review of the ruling by the MPSC reveals that

the September Order does not comply with this directive, and,

accordingly, must be set aside.

Mich. Bell Tel. Co. v. Lark, No. 06-11982, 2007 WL 2868633, at *7 (E.D. Mich. 2007).

Both the CLECs and the MPSC commissioners appealed the decision to this

court, raising one issue for review. In addition, the FCC and Verizon have submitted

briefs as amicus curiae.

II.

“When a district court’s decision on summary judgment is the result of a review

of a state administrative body’s ruling, de novo review requires that the proper standard

of review of the underlying state administrative ruling be applied.” Quick Commc’ns,

Inc. v. Mich. Bell Tel. Co., 515 F.3d 581, 584 (6th Cir. 2008). That is, we review de

novo the question of whether the MPSC’s order violated the Telecommunications Act,

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 7

but we may overturn the MPSC’s findings of fact and state law only if those findings

were arbitrary and capricious. Id. Because the present case involves no findings of fact

or determinations of state law, review in this case is entirely de novo.6

The key statutory provisions in this case involve “interconnection” and specify

that “each incumbent local exchange carrier [i.e., ILEC] has the following duties:”

(2) Interconnection — The duty to provide, for the facilities and

equipment of any requesting telecommunications carrier [i.e., CLEC],

interconnection with the local exchange carrier’s [i.e., ILEC’s] network

—

(A) for the transmission and routing of telephone

exchange service and exchange access;

(B) at any technically feasible point within the

carrier’s network;

6

The dissent reviews the present case through the prism of Auer deference, through which a

federal agency’s interpretation of its own ambiguous regulation — even an interpretation presented in an

amicus brief — is “controlling unless plainly erroneous or inconsistent with the regulation.” Auer v.

Robbins, 519 U.S. 452, 461 (1997) (quotation marks and citations omitted); Coeur Alaska, Inc. v. Se.

Alaska Cons. Council, 557 U.S. --, 129 S. Ct. 2458, 2470 (2009). The Supreme Court has since added two

additional limitations: (1) a “near equivalence of the statute and regulation belies the [applicability of]

Auer deference,” Gonzales v. Oregon, 546 U.S. 243, 257 (2006); and (2) an agency cannot “under the

guise of interpreting a regulation . . . create de facto a new regulation,” Christensen v. Harris County,

529 U.S. 576, 588 (2000); see also Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 525 (1994) (Thomas,

J., dissenting); Rosales-Garcia v. Holland, 322 F.3d 386, 403 n.22 (6th Cir. 2003) (en banc). And, the

Seventh Circuit has expressed some skepticism about the applicability of Auer deference to amicus briefs

at the circuit court level, explaining:

It is odd to think of agencies as making law by means of statements made in briefs, since

agency briefs, at least below the Supreme Court level, normally are not reviewed by the

members of the agency itself; and it is odd to think of Congress delegating lawmaking

power to unreviewed staff decisions.

Keys v. Barnhart, 347 F.3d 990, 993-94 (7th Cir. 2003) (citations omitted).

The dissent relies on the FCC’s amicus brief to this court (submitted upon our request), in which

the FCC offers an interpretation of the TRRO, which is itself an “interpretive rule” and not a true

“regulation.” See A.D. Transp. Express, Inc. v. United States, 290 F.3d 761, 768 (6th Cir. 2002) (“An

interpretative rule is a rule that clarifies or explains an existing law or regulation.”; “[I]nterpretative rules

fall within an exception to the [Administrative Procedures] Act and do not require notice and comment.”).

For these reasons alone, one might legitimately question the applicability of Auer deference in this appeal.

See Keys, 347 F.3d at 993-94; Coeur, 129 S. Ct. at 2479 (Scalia, J., concurring) (“Auer, however, stands

only for the principle that we defer to an agency’s interpretation of its own ambiguous regulation.”

(emphasis in original)); Boose v. Tri-County Metro. Transp. Dist., 587 F.3d 997, 1005 (9th Cir. 2009)

(“We will not, under the guise of deference, engage in an end-run around notice-and-comment

rulemaking.”).

But, as will be addressed in the body of this opinion, even ignoring these questions of Auer’s

applicability, we find Auer deference unavailing in this appeal because the FCC’s proffered interpretation

is so plainly erroneous or inconsistent with the regulation, see Auer, 519 U.S. at 461, that we can only

conclude that the FCC has attempted to create a new de facto regulation under the guise of interpreting the

regulation, see Christensen, 529 U.S. at 588. We therefore decline the dissent’s invitation to apply Auer

deference to amici FCC’s position in this appeal.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 8

(C) that is at least equal in quality to that provided by

the local exchange carrier to itself or to any

subsidiary, affiliate, or any other party to which

the carrier provides interconnection; and

(D) on rates, terms, and conditions that are just,

reasonable, and nondiscriminatory, in accordance

with the terms and conditions of the agreement

and the requirements of this section and § 252.[7]

(3) Unbundled access — The duty to provide, to any requesting

telecommunications carrier for the provision of a telecommunications

service, nondiscriminatory access to network elements on an unbundled

basis at any technically feasible point on rates, terms, and conditions that

are just, reasonable, and nondiscriminatory in accordance with the terms

and conditions of the agreement and the requirements of this section and

§ 252 of this title.[8] An incumbent local exchange carrier shall provide

such unbundled network elements in a manner that allows requesting

carriers to combine such elements in order to provide such

telecommunications service.

47 U.S.C. § 251(c). Thus, § 251(c)(2) requires the ILEC “to provide . . . interconnection

with [its] network” to the CLEC (i.e., “for the [CLEC’s] facilities and equipment”),

whereas § 251(c)(3) requires the ILEC “to provide . . . any requesting [CLEC with]

nondiscriminatory access to [i.e., use of] [its] network elements on an unbundled basis.”

But the statute further specifies:

In determining what network elements should be made available for

purposes of subsection (c)(3) of this section, the [FCC] shall consider, at

a minimum, whether . . . the [ILEC’s] failure to provide access to such

network elements would impair the ability of the [CLEC] to provide the

services that it seeks to offer.

7

The pertinent provision of § 252 is the “pricing standards” provision, which states:

Interconnection and network element charges — Determinations by a State commission

of the just and reasonable rate for the interconnection of facilities and equipment for

purposes of § 251(c)(2), and the just and reasonable rate for [use of or access to the

ILEC’s] network elements for purposes of § 251(c)(3) shall be based on the cost

(determined without reference to a rate-of-return or other rate-based proceeding) of

providing the interconnection or network element (whichever is applicable) and

nondiscriminatory, and may include a reasonable profit.

47 U.S.C. § 252(d) (statutory citation form altered). This was the origin of, and now means, TELRIC

rates.

8

See the foregoing footnote.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 9

47 U.S.C. § 251(d)(2)(B) (emphasis added). This is the basis for the “impairment

analysis.”

The FCC has promulgated implementing regulations, at least two of which are

pertinent here, the first being its “interconnection” regulation, which tracks 47 U.S.C.

§ 251(c)(2) (quoted above):

An incumbent LEC shall provide, for the facilities and equipment of any

requesting telecommunications carrier, interconnection with the

incumbent LEC’s network:

(1) For . . . telephone exchange traffic . . .

(2) At any technically feasible point within the [ILEC]’s

network . . .

(3) That is at a level of quality [used by the ILEC itself]

...

(4) On terms and conditions that are just. . . .

47 C.F.R. § 51.305. The FCC’s other pertinent regulation — its counterpart to its

“interconnection facility” requirement — is its rule that ILECs are not obligated to

provide “entrance facilities”:

Entrance facilities. An incumbent LEC [i.e., ILEC] is not obligated to

provide a requesting carrier [i.e., CLEC] with unbundled access to

dedicated transport that does not connect a pair of incumbent LEC wire

centers [i.e., an ‘entrance facility’].

47 C.F.R. § 51.319(e)(2)(i). Recall that “[b]undling is about lease pricing,” and “[t]o

provide a network element ‘on an unbundled basis’ is to lease the element . . . to a

requesting carrier at a stated price [i.e., TELRIC rates] specific to that element.” Verizon

Commc’ns, Inc. v. FCC, 535 U.S. 467, 531 (2002). So, this provision could be rewritten

as: an ILEC is not obligated to provide entrance facilities at TELRIC rates. Or, stated

in positive terms: an ILEC can charge competitive rates for the use of its entrance

facilities. The resulting inference is that the ILEC is not obligated to provide an entrance

facility at all if it is inconvenient (or unprofitable) to do so. See, e.g., USTA II, 359 F.3d

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at 586 (“If (as appears) [entrance facilities] exist exclusively for the convenience of the

CLECs, it seems anomalous that CLECs do not themselves provide them . . . .”)).

All of this brings us to the TRRO: what it says and what it means. In the part of

the TRRO that addressed entrance facilities (and its analysis thereof), the FCC stated:

D. Entrance Facilities

136. In the Local Competition Order, the [FCC] defined dedicated

transport as:

incumbent LEC transmission facilities dedicated to a

particular customer or carrier that provide

telecommunications between wire centers owned by

incumbent LECs or requesting telecommunications

carriers, or between switches owned by incumbent LECs

or requesting telecommunications carriers.

The [FCC] reaffirmed this definition, which encompassed entrance

facilities (the transmission facilities that connect competitive LEC

networks with incumbent LEC networks), in the UNE Remand Order.

In the Triennial Review Order, we revised the definition of dedicated

transport to exclude entrance facilities. We determined that entrance

facilities ‘exist outside the incumbent LEC’s local network’ and should

therefore — given section 251’s focus on competition within the local

network — be excluded from the definition of dedicated transport. We

also limited the definition of dedicated transport to ‘those transmission

facilities connecting incumbent LEC switches and wire centers within a

LATA.’ Reviewing the Triennial Review Order, the USTA II court

indicated that our exclusion of entrance facilities from the definition of

dedicated transport was at odds with the definition of ‘network element’

found in section 153(29) of the Act. Specifically, the court found that we

erred in excluding these facilities from the definition of dedicated

transport for purposes of implementing the section 251 unbundling

obligation. The court noted, moreover, that ‘[i]f entrance facilities are

correctly classified as ‘network elements,’ an analysis of impairment

would presumably follow.’

137. The USTA II court did not reject our conclusion that incumbent

LECs need not unbundle entrance facilities, only the analysis through

which we reached that conclusion. In response to the court’s remand, we

reinstate the Local Competition Order definition of dedicated transport

to the extent that it included entrance facilities, but we find that

requesting carriers are not impaired without unbundled access to entrance

facilities.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 11

138. As the court suggested, we now conduct an impairment analysis

with respect to entrance facilities and find that the economic

characteristics of entrance facilities that we discussed in the Triennial

Review Order support a national finding of non-impairment.

Specifically, entrance facilities are less costly to build, are more widely

available from alternative providers, and have greater revenue potential

than dedicated transport between incumbent LEC central offices. As we

noted in the Triennial Review Order, entrance facilities are used to

transport traffic to a switch and often represent the point of greatest

aggregation of traffic in a competitive LEC’s network. Because of this

aggregation potential, entrance facilities are more likely than dedicated

transport between incumbent LEC offices to carry enough traffic to

justify self-deployment by a competitive LEC. Moreover, competitive

LECs have a unique degree of control over the cost of entrance facilities,

in contrast to other types of dedicated transport, because they can choose

the location of their own switches. For example, they can choose to

locate their switches close to other competitors’ switches, maximizing

the ability to share costs and aggregate traffic, or close to transmission

facilities deployed by other competitors, increasing the possibility of

finding an alternative wholesale supply. In addition, they often can

locate their switches close to the incumbent LEC’s central office,

minimizing the length and cost of entrance facilities.

139. The record in this proceeding also demonstrates that competitive

LECs are increasingly relying on competitively provided entrance

facilities. BellSouth notes, for example, that between October 2003 and

September 2004, 10 percent to 20 percent of the entrance facilities it had

provided to competitive LECs were replaced by facilities obtained from

other sources. Verizon states that between early 2003 and mid-2004, it

migrated more than 32,000 entrance facility circuits to non-Verizon

facilities. No commenters in this proceeding have disputed this evidence,

which indicates that wholesale alternatives to entrance facilities provided

by incumbent LECs are widely available. And it appears that incumbent

LECs and competitors alike continue to agree that entrance facilities are

more competitively available than other types of dedicated transport.

140. We note in addition that our finding of non-impairment with respect

to entrance facilities does not alter the right of competitive LECs to

obtain interconnection facilities pursuant to section 251(c)(2) for the

transmission and routing of telephone exchange service and exchange

access service. Thus, competitive LECs will have access to these

[interconnection] facilities at cost-based rates to the extent that they

require them to interconnect with the incumbent LEC’s network.

141. The evidence described above convinces us that competitive LECs

are not impaired without access to entrance facilities. We also conclude

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that it would be inappropriate to apply the same impairment test to

entrance facilities that we have adopted for other types of dedicated

transport. As we have explained, entrance facilities are characterized by

unique operational and economic characteristics that justify separate

treatment: they are less costly to build, are more widely available from

alternative providers, and have greater revenue potential than dedicated

transport between incumbent LEC central offices. For these reasons, we

do not apply our test for other types of dedicated transport to entrance

facilities.

TRRO, 20 FCC Rcd. 2533, 2005 WL 289015, ¶¶ 136-141 (footnotes omitted).

In one sense, the question in this appeal concerns this passage from the TRRO:

what does it say and what does it mean? And the parties’ disagreement as to the

meaning is central to the present dispute. So, let us begin by restating it, as clearly and

succinctly as we can, and then proceed to what it means. Based on our plain reading, we

find the most plausible “translation” to be:

136. In our last order, we drew two conclusions from a single

premise:

Premise: Entrance facilities are not even a

part of (i.e., not ‘within’) the

ILEC’s network. Therefore:

First Conclusion: Entrance facilities do not need to

be unbundled; and

Second Conclusion: We do not even need to conduct

an impairment analysis on

entrance facilities.

Alas, when the USTA II court considered this

proposition, it rejected our premise and our second

conclusion.

137. But the USTA II court did not reject our first conclusion, and we now

reach that same conclusion again, albeit for a different reason.

138. There is nothing monopolistic about entrance facilities. If you are a

CLEC and you don’t like the rates the ILEC is charging for use of its

entrance facility, then build your own (or lease it from another CLEC

that has built its own).

139. Other CLECs are certainly doing that (i.e., building their own).

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 13

140. And, rest assured, if you build your own entrance facility, the ILEC must

still let you hook it up to its network (i.e., use its “interconnection

facility”) at wholesale rates.

141. Therefore, entrance facilities need not be provided at TELRIC rates.

So, the question becomes: does this mean what it says? The appellants contend that it

does not. But, to find a different meaning, it is necessary to complicate this discussion

considerably. That is, the appellants — the FCC, the MPSC Commissioners, and the

CLECs — complicate this considerably. Before explaining their position, however, we

think a simple analogy may be helpful.

Suppose you lived next to a public park that had no electrical hook-up of its own.

And suppose that the village elders decided that, rather than installing an electrical hook-

up in the park, they would allow park-goers to hook up to your electricity at your house

(and because they compensated you enough to cover the added electricity usage plus a

tidy profit, you eagerly agreed). Thereafter, when park-goers arrived at the park needing

electricity, you allowed them to plug into an electrical outlet in your garage. This outlet

is the “interconnection facility.”

But, after a few days of having park-goers trample across your yard and enter

your garage to plug into the electrical outlet on the wall inside the garage, you decide to

buy one of those big orange extension cords, plug it into the outlet in your garage, and

run it across your yard and into the park. This makes access to the electricity closer to

(and hence more convenient for) the park-goers, and they are no longer trampling your

yard or entering your garage. And note, because park-goers can still plug into the outlet

in your garage if they want to (i.e., they need not plug into the big orange extension cord

if they don’t want to), the big orange extension cord is an “entrance facility” and the

outlet in your garage remains the “interconnection facility.” Even if all the park-goers

are plugging into the big orange extension cord, the cord is still an entrance facility. The

interconnection facility remains the outlet in the garage so long as the park-goers could

plug in there if they wanted to.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 14

As more park-goers arrive, you might put out a second big orange extension cord

(i.e., a second “entrance facility”). And suppose that, at this point, all the park-goers are

happily plugged into the big orange extension cords. Now suppose that a couple more

park-goers arrive with their own big orange extension cords (“entrance facilities”),

wanting to hook up to your electricity (as is their right). So, you get one of those surge

protectors with six or eight plug-ins, plug it into the outlet in the garage, and plug your

two big orange extension cords, as well as the two new park-goers’ extension cords, into

this surge protector. The big orange extension cord would still be the entrance facility,

but the outlet in the surge protector would now be the “interconnection facility.” By

forcing the park-goers to plug into the surge protector (rather than the wall outlet), you

have moved the “interconnection facility.” (And here is a critical aside: if you forced

the park-goers to plug in to the big orange extension cord — and forbade them from

plugging into the wall outlet (or the surge protector) — the big orange extension cord

would become the “interconnection facility.” But, to ease the analogy, let’s just assume

you allowed them to plug into the surge protector.9)

Now, some time later, you need a big orange extension cord for some other

purpose (let’s say, Christmas lights), but the park-goers are using your extension cords.

So, you tell the park-goers that you are either going to take the extension cords back or

charge for their use, so that you can buy yourself a new one. But the park-goers

complain to the village that they were promised electricity and now you won’t give it.

The village elders think it over and decide that you are right: the electricity they

promised did not include free use of your big orange extension cords, so they say:

9

Of course, this aside is the very aside that confuses this whole situation in the present case —

the FCC, MPSC, CLECs, and dissent argue (and two courts have agreed) that an “entrance facility” is an

“interconnection facility” just because a CLEC can, could, or would use it to interconnect to the ILEC

network. That is, they would argue that a big orange extension cord is an “interconnection facility”

because the park-goers could or would use it to interconnect with the electrical outlet in the garage. But

all of that misses the point, which is not whether the park-goers “can” use it to interconnect, but whether

they “must.” If you, as the homeowner, had said that they may plug into the surge protector, then the big

orange extension cord is just an “entrance facility.” But, if you had said they must plug into the big orange

extension cord, then the big orange extension cord becomes the “interconnection facility” and,

consequently, the park goers may plug into it for free, under your agreement with the village to provide

them with electricity. So it goes with the ILECs and CLECs — only when the ILEC says that the CLEC

must connect at the entrance facility would that entrance facility become an interconnection facility (and,

consequently, require TELRIC rates). All of this is beside the point, however, because nothing in the

record suggests that Michigan Bell has told the CLECs that they must connect at a purported entrance

facility.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 15

138. There is nothing special about big orange extension cords. If you park-

goers don’t like the rate that the homeowner is going to charge you to use

her extension cords (i.e., ‘entrance facilities’), then bring your own (or

lease one from another park-goer who has brought his or her own, if you

can get a better deal).

139. Other park-goers are certainly doing that (i.e., bringing their own

extension cords).

140. And, rest assured, if you bring your own big orange extension cord (i.e.,

‘entrance facility’), the homeowner must still let you plug it into her

surge protector (i.e., her ‘interconnection facility’) at no cost, just as you

were doing before.

141. Therefore, the homeowner need not provide big orange extension cords

(i.e., ‘entrance facilities’).

That all seems simple enough.

And it appears just as simple when we apply this analogy to the facts of our case.

Michigan Bell offers each CLEC both an interconnection facility and an entrance

facility. So long as Michigan Bell offers an interconnection facility at TELRIC rates

(and in compliance with 47 C.F.R. § 51.305), it may charge competitive rates for the use

of its entrance facilities. Correspondingly, the CLEC may connect directly to the

interconnection facility (at TELRIC rates), connect to Michigan Bell’s entrance facility

(at Michigan Bell’s competitive rate), or connect to a third party’s entrance facility (at

the third party’s rate).

But the MPSC Commissioners, the CLECs, the dissent, and the two Circuit

Courts to have considered this all see it another way. They explain that entrance

facilities are used for two purposes: (1) to carry communications among CLEC

customers (i.e., backhauling); and (2) to interconnect the CLEC to the ILEC network.

And, relying on this — otherwise unmentioned10 — premise, they argue that ¶¶ 137,

10

The dissent contends that “backhauling” is not only mentioned, but that certain footnotes in the

TRRO, ¶ 138 n.389 and ¶ 141 n.396, “draw that precise distinction” between backhauling and

interconnection. Dis. Op. at ¶ 14. This is an overstatement of the TRRO and a misapprehension of the

TRO as it is relied upon in those footnotes. First, the footnotes, which state in their entireties:

¶138, n389. [TRO, 18 FCC Rcd. 16978] at 17204-05, para. 367. The record contains

evidence that competitive LECs are able to obtain entrance facilities from third-party

providers. See NuVox Comments, Exh. A, Declaration of Keith Coker (NuVox Coker

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 16

138, and 141 say that the ILEC can charge competitive rates for the first use (i.e.,

backhauling), but ¶ 140 says that the ILEC must charge TELRIC rates for the other use

(i.e., interconnection with the ILEC network). So, to complete our analogy, suppose a

park-goer had taken the homeowner’s big orange extension cord, strung it over a tree

branch, and connected a light to the dangling end (resulting in a light dangling from the

tree branch, via the big orange extension cord). Under this separate-use theory, the

homeowner could charge the park-goer to use the extension cord for the purpose of

holding the light off the ground, but not for conveying the electricity to that light.11

This separate-use theory requires several assumptions, none of which is easily

defended. First, it requires us to assume that the FCC used two separate terms —

Decl.) at para. 3 (“[W]here available, NuVox utilizes third-party providers for backhaul

from NuVox collocation arrangements to NuVox switches.”)

¶ 141 n.396. See Triennial Review Order, 18 FCC Rcd at 17204, para. 367 (“[T]he

economics of dedicated facilities used for backhaul between networks are sufficiently

different from transport within an incumbent LEC’s network that our analysis must

adequately reflect this distinction.”) We thus reject commenters’ suggestions that

entrance facilities should be subject to the same test that applies to dedicated transport

between incumbent LEC facilities. See AT&T Comments at 50-52; Loop-Transport

Coalition Comments at 87; ATX, Bayring, et al. Reply at 48; McLeod Reply at 37.

TRRO, 20 FCC Rcd. 2533, 2005 WL 289015 (Feb. 4. 2005) (emphasis added).

The first thing to note is that these two, seemingly incidental, references to backhauling — within

the context of six paragraphs and 23 footnotes — are hardly the paragons of “precise distinction” the

dissent suggests. The second thing to note is that the FCC’s reference to backhauling in the TRO ¶ 367

was not in support of a separate-use theory, but rather, was in support of the separate-facilities scheme we

have explained throughout this opinion. Specifically, the FCC used this distinction to support its position

(since reversed) that entrance facilities are not even part of the ILEC’s network, and therefore would not

require any impairment analysis at all. See TRO ¶ 366 n. 1116 (“Our determination here effectively

eliminates ‘entrance facilities’ as [unbundled network elements] and, therefore, moots the [FCC’s pending

notice of proposed rule making] insofar as it proposes limitations on obtaining entrance facilities as

UNEs.”) (overruled by USTA II, 539 F.3d 554).

11

At this point, as we are about to abandon this big-orange-extension-cord analogy, we invite you

to return momentarily to the foregoing paragraph, in which we restated TRRO ¶¶ 138-141 in terms of this

analogy, and attempt to reconcile this separate-use theory with the statement in those paragraphs (138-

141). It cannot be done. Similarly, the backhauling separate-use theory simply cannot be reconciled with

the plain language of TRRO ¶¶ 138-141.

We should also, at this point, pause to address the dissent’s two corollaries to this hypothetical:

its “meet-point” and its “collocation” examples. The first is incorrect and the second is inapposite. The

dissent says that “[a]n incumbent’s portion of a meet-point facility, it turns out, is merely one manifestation

of an entrance facility,” Dis. Op. at ¶ 8, but that is simply untrue. An ILEC’s portion of a meet-point

facility — as described by the dissent and the regulations — is an “interconnection facility,” whereas the

CLEC’s portion of the meet-point is an “entrance facility.” The meet-point example fits perfectly within

our framework. (For further explanation, see the next footnote.) The dissent also cites the “collocation”

example. This is one of virtually limitless examples of an analogy being an imperfect fit, as would be the

case with any analogy. As for the question of whether an interconnection facility is distinct and different

from an entrance facility, however, this collocation example is wholly irrelevant.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 17

“entrance facility” and “interconnection facility” — to describe the same exact wire,

without any explanation why.12

Second, it requires us to assume that the FCC used “entrance facility” to refer to

a particular use of that wire (i.e., for purposes of transporting data among CLEC

customers (backhauling), rather than between the CLEC and ILEC),13 even though the

12

This assumption is the crux of the dissent’s principal argument — that interconnection facilities

and entrance facilities are really one and the same because “[e]ntrance facilities come within the ordinary

meaning of a ‘technically feasible method of obtaining interconnection.’” Dis. Op. at ¶ 7 (quoting 47

C.F.R. § 51.321(a)). That is, the dissent “reasons” that because ILECs must “provide . . . any technically

feasible method of obtaining interconnection” at cost-based rates, see 47 C.F.R. § 51.321(a), and because

entrance facilities are a technically feasible method of obtaining interconnection, the ILECs must therefore

provide entrance facilities at cost-based rates.

We reject this argument for at least three reasons. First, this directly contradicts 47 C.F.R.

§ 51.319(e)(2)(i), which says that an ILEC is not obligated to provide entrance facilities at cost-based rates.

Second, at least in our view, entrance facilities are not actually a “technically feasible means of obtaining

interconnection” because they do not connect the CLEC with the ILEC network directly; entrance

facilities, when used, connect the CLEC with the interconnection facility (i.e., ILEC ø Interconnection

Facility ø Entrance Facility ø CLEC). And finally, even if entrance facilities were a technically feasible

method of interconnection, 47 C.F.R. § 51.321(a) does not require the ILEC to provide an entrance facility

rather than some other (“any”other) technically feasible means. The dissent’s logic is flawed. Suppose,

for example, a public school system was obligated to provide school children with a feasible means of

transportation to and from school. A limousine is a feasible means of transportation — indeed, some

children, at least on television, take limousines to and from school. So, by the dissent’s logic, the school

system would be obligated to provide limousines because limousines are a feasible means of transportation.

13

The dissent eagerly accepts this assumption, suggesting that the TRO and the TRRO should be

read in conjunction and arguing that the TRO establishes the separate-use distinction between backhauling

and interconnection. Dis. Op. at ¶ 15.

“Why [else],” the dissent exclaims, “would the FCC clutter its unbundling analysis [in the TRO]

by stressing the distinction between backhauling and interconnection?” Dis. Op. at ¶ 15 (citing TRO

¶ 365). If we treat this as a real inquiry, and not a rhetorical argument, the answer is plain. The FCC took

an entirely different approach in the TRO — an approach that was later rejected by USTA II and

reconsidered in the TRRO — in which it held that entrance facilities (no matter their use) were outside of

the ILEC’s network, so no impairment analysis was even necessary.

In the paragraph cited by the dissent (TRO ¶ 365), the FCC drew a distinction between

interconnection facilities and entrance facilities, albeit without using those terms. In fact, the FCC did not

use the phrase “interconnection facility” anywhere in the TRO; that is a phrase new to the TRRO. In the

TRO, the FCC referred to what it now calls “interconnection facilities” as “interconnection points” (see,

e.g., TRO ¶¶ 7, 350 n.1058, 367 n.1120), designated certain types of these points (e.g., single point of

interconnection (SPOI), minimum point of entry (MPOE)), and grouped these points by description as “the

facilities that incumbent LECs explicitly must make available for section 251(c)(2) interconnection” (TRO

¶ 365). The FCC did not use the phrase “interconnection points” anywhere in the TRRO; it used the phrase

“interconnection facilities.” See, e.g., TRRO ¶ 140. On the other side of that distinction, the FCC — in

the TRO — described “entrance facilities” as “transmission facilities connecting incumbent LEC networks

to competitive LEC networks for the purpose of backhauling traffic.” TRO ¶ 365. So, the distinction

between backhauling and interconnection is, again, not between uses but between facilities. The paragraph

states, in pertinent part:

[I]n order to access UNEs, including transmission between incumbent LEC switches or

wire centers, while providing their own switching and other equipment, competitive

LECs require a transmission link [i.e., an entrance facility] from the UNEs on the

incumbent LEC network [i.e., interconnection facility] to their own equipment located

elsewhere. Competitive LECs use these transmission connections between incumbent

LEC networks and their own networks [i.e., entrance facilities] both for interconnection

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 18

FCC has never defined entrance facility that way. See TRRO ¶ 136 (“entrance facilities

[are] the transmission facilities that connect competitive LEC networks with incumbent

LEC networks”); 47 C.F.R. § 51.319(e)(2)(i) (“Entrance facilities [are] . . . dedicated

transport that does not connect a pair of incumbent LEC wire centers”).

Third, it requires us to assume that the FCC used the term “interconnection

facility” to refer to a particular use of that wire (i.e., for purposes of transporting data

between the CLEC and ILEC, rather than among CLEC customers), even though neither

the FCC nor any court has ever defined interconnection that way. See Local Competition

Order, 11 FCC Rcd. 15499, 1996 WL 452885, ¶ 176 (Aug. 8, 1996) (“the term

‘interconnection’ under section 251(c)(2) refers only to the physical linking of two

networks”); AT&T Corp. v. FCC, 317 F.3d 227, 234 (D.C. Cir. 2003) (“to ‘interconnect’

and to exchange traffic have distinct meanings”; interconnect “refers only to ‘facilities

and equipment,’ not to the provision of any service”); Competitive Telecom. Ass’n v.

FCC, 117 F.3d 1068, 1071-72 (8th Cir. 1997) (“Congress intended ‘for the transmission

and routing of telephone exchange service and exchange access’ only to describe what

the interconnection, the physical link, would be used for. . . . By its own terms, this

reference [to interconnection] is to a physical link, between the equipment of the carrier

seeking interconnection and the LEC’s network.”).

and to backhaul traffic. Unlike the facilities that incumbent LECs explicitly must make

available for section 251(c)(2) interconnection [i.e., interconnection facilities], we find

that the Act does not require incumbent LECs to unbundle transmission facilities

connecting incumbent LEC networks to competitive LEC networks for the purpose of

backhauling traffic [i.e., entrance facilities].

TRO ¶ 365 (footnote omitted). This same paragraph would read as follows if it were translated into the

terms of the TRRO (i.e., using the phrases “entrance facility” and “interconnection facility”):

In order to access the ILEC network, CLECs need a transmission link from the ILEC’s

interconnection facility to their own equipment located elsewhere, and this is called an

“entrance facility.” CLECs use these entrance facilities both for interconnection with

the interconnection facility and to backhaul traffic. Unlike “interconnection facilities,”

which ILECs must make available for interconnection, the Act does not require ILECs

to provide these “entrance facilities.”

So, returning to the dissent’s question: “Why . . . would the FCC clutter its unbundling analysis

by stressing the distinction between backhauling and interconnection?” Dis. Op. at ¶ 15 (citing TRO

¶ 365). The answer is clear: to describe and differentiate two types of facilities for which it had not yet

established names. And, “Why would [the FCC] underscore the incumbents’ continuing obligation to

provide interconnection facilities?” Dis. Op. at ¶ 15. Because interconnection facilities and entrance

facilities are different things.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 19

Finally, it requires us to assume that when Congress used the phrase “provide . . .

interconnection with the [ILEC]’s network,” 47 U.S.C. § 251(c) (emphasis added),

Congress actually meant that the ILEC is obligated to “lease a physical facility (or wire)”

to the CLEC rather than merely “make a plug-in available” for connection with the

CLEC’s facilities and equipment, even though this is an unnatural reading of the phrase,

with no support in the statute.

In Illinois Bell Telephone Co. v. Box, 526 F.3d 1069, 1071-72 (7th Cir. 2008),

the Seventh Circuit considered this issue and held that “[w]hat the FCC said in ¶ 140 is

that ILECs must allow use of entrance facilities for interconnection at ‘cost-based

rates.’” But, the Seventh Circuit began its analysis by assuming the very question to be

decided, stating:

In the [TRRO], the FCC concluded that CLECs do not need entrance

facilities for backhauling and should build their own equipment for

handling CLEC-to-CLEC traffic. ILECs need not provide unbundled

network elements to CLECs that can serve customers without

‘impairment’ through their own network elements. No one contests the

FCC’s conclusion in this litigation.

Id. at 1071 (citation omitted; emphasis added). But, these two14 qualifiers — “for

backhauling” and “for handling CLEC-to-CLEC traffic” — are nowhere to be found in

the text of the TRRO passage at issue here. The Seventh Circuit added these, without

explanation or justification.

If we remove those qualifiers from this passage, we have an interpretation of

¶ 140 that is both drastically different from the Seventh Circuit’s and true to the plain

language of the TRRO:

In the TRRO, the FCC concluded that CLECs do not need [ILEC-

provided] entrance facilities for backhauling and should build their own

14

Obviously, this is actually just one qualifier, inasmuch as “for handling CLEC-to-CLEC traffic”

is the definition of “backhauling,” and why the Seventh Circuit used two separate labels is unclear — other

than as a show of solidarity with the FCC and its claim that it used two separate labels for the same wire:

“entrance facility” and “interconnection facility.” In any event, we note them separately here to emphasize

that neither term is actually included in the TRRO passage at issue here, nor is either term clearly

connected to this passage when used elsewhere in the TRRO.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 20

[entrance-facility] equipment for handling CLEC-to-CLEC traffic.

ILECs need not provide unbundled network elements to CLECs that can

serve customers without ‘impairment’ through their own network

elements. No one contests the FCC’s conclusion in this litigation.

Thus, we cannot join the Seventh Circuit’s interpretation of the TRRO.

Using its qualifier-filled interpretation of ¶ 140 of the TRRO, the Seventh Circuit

declared that this is the proper reading of the TRRO because this is what the FCC said

in the TRRO. But the Seventh Circuit’s “reasoning” is entirely circular. It said:

AT&T protests that [by making entrance facilities available at TELRIC

rates to the CLECs for interconnection, the state commission] nullifies

the FCC’s order. What’s the point of specifying that CLECs cannot

demand access to entrance facilities as unbundled network elements,

AT&T inquires, if state commissions can turn around and require the

same access at the same price anyway? The answer . . . is that CLECs do

not enjoy the ‘same’ access to entrance facilities under the state

commission’s decision as they did before the FCC’s order. Until then

CLECs could use entrance facilities for both interconnection and

backhauling. Under the state’s order, CLECs use entrance facilities

exclusively for interconnection, just as the FCC said in ¶ 140.

Id. (emphasis added). But once we omit the unexplained and unjustified qualifiers, and

thereby remove the artificial distinction that they create (between backhauling and

interconnection), it becomes clear that the act of making entrance facilities available at

TELRIC rates for interconnection (but not backhauling) is insupportable inasmuch as

its sole support (i.e., TRRO ¶ 140) actually says no such thing. Consequently, we reject

both the premise and the conclusion in Illinois Bell.

In Southwestern Bell Telephone, L.P. v. Missouri Public Service Commission,

530 F.3d 676, 683-84 (8th Cir. 2008), the Eighth Circuit considered this issue and

reached the same conclusion as the Seventh Circuit. After acknowledging the clear

statement in the TRRO that CLECs are not impaired without access to entrance facilities,

the Eighth Circuit turned right around and asserted that this finding “does not, however,

alter the right of CLECs to obtain interconnection facilities pursuant to § 251(c)(2) for

transmission and routing of telephone exchange service and exchange access service,

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 21

i.e., CLEC to ILEC and ILEC to CLEC traffic.” Id. Without further explanation or

justification (other than a “see” cite to Box, 526 F.3d at 1071-72), the court asserted:

The FCC determined [that] when a CLEC uses entrance facilities to carry

traffic to and from its own end users, i.e., backhauling or CLEC to

CLEC, the CLEC is not entitled to obtain entrance facilities as UNEs at

TELRIC rates. If a CLEC needs entrance facilities to interconnect with

an ILEC’s network, it has the right to obtain such facilities from the

ILEC. Thus, CLECs must be provided access at TELRIC rates if

necessary to interconnect with the ILEC’s network.

Id. But, as with Box, this conclusion is only true if the (assumed) premise is true, and

it is not — the FCC made no backhauling distinction in the TRRO and the FCC has not

said that CLECs have a right to entrance facilities for some purposes but not others. The

FCC has said that ILECs have no obligation to provide entrance facilities at TELRIC

rates. See 47 C.F.R. § 51.319(e)(2)(i).

We do not find these two cases persuasive. The most plausible reading of the

plain language of the TRRO is that the ILEC must allow the CLEC to connect its

network to the ILEC’s network, and may not charge the CLEC more than TELRIC rates

for this connection. If the ILEC requires the CLEC to connect at some point other than

directly into its network, then the link (or “bridge” if the word “bridge” provides a better

image) between the ILEC’s designated connection point and the ILEC’s network is what

TRRO ¶ 140 refers to as an “interconnection facility,” and the ILEC may charge only

TELRIC rates for the use of that (or any) interconnection facility.

Any facility (link, “bridge,” etc.) outside of the ILEC’s designated connection

point (i.e., the link that connects the CLEC to the ILEC’s designated connection point,

and from there to the ILEC network via the ILEC’s interconnection facility), is not itself

an “interconnection facility”; it is an “entrance facility.” Obviously, the CLEC would

ultimately be using the entrance facility to connect its network with the ILEC’s network

(through the designated point, via the interconnection facility), but that is wholly

immaterial. The material distinction is not between interconnection and some other use

(e.g., backhauling); the material distinction is between the ILEC’s side of the designated

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 22

connection point (i.e., the “interconnection facility”) and the CLEC’s side of the

designated connection point (i.e., the “entrance facility”).

Moreover, the ILEC most assuredly has no obligation to provide any entrance

facility and the CLEC has no obligation to use the ILEC’s entrance facility (the CLEC

can connect directly to the interconnection facility, rent someone else’s entrance facility,

or build its own entrance facility). Of course, if the ILEC chooses to provide an entrance

facility, it must provide it in addition to the interconnection facility, not instead of the

interconnection facility (as that would effectively change the designated connection

point and transform the purported “entrance facility” into an “interconnection facility”).

And, if the CLEC chooses to use the ILEC’s entrance facility, it must pay the rates

determined by the ILEC, in competition with other providers.

As we understand the situation in the case before us, the ILEC (Michigan Bell)

offers its CLECs an interconnection facility at TELRIC rates and entrance facilities at

competitive rates, which is in perfect accordance with the plain language of the TRRO.

The MPSC ordered Michigan Bell to offer the CLECs the use of its entrance facilities

at TELRIC rates, and based this order on its mistaken belief that TRRO ¶ 140 requires

Michigan Bell to treat its entrance facilities as interconnection facilities any time the

CLECs ultimately use them for interconnection. The district court rejected the MPSC’s

reading of the TRRO, and we agree with the district court’s view.

III.

For all of the foregoing reasons, we AFFIRM the judgment of the district court.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 23

__________________

DISSENT

__________________

SUTTON, Circuit Judge, dissenting. The majority admirably pieces together the

statutory, regulatory and technical components of this complicated case. Together, the

majority concludes, they show that the duty of the incumbent telecommunication

provider, Michigan Bell, “to provide . . . interconnection with [its] network” to

competitors at cost-based rates, 47 U.S.C. § 251(c)(2), requires only that Michigan Bell

provide competitors with a place to plug into its local telephone network and that

“entrance facilities” fall outside of this interconnection obligation. That may be a

reasonable interpretation. So too, however, is the FCC’s competing interpretation, one

premised on an interpretation of its own regulations and one that we must respect as a

result. See Auer v. Robbins, 519 U.S. 452, 461 (1997). I accordingly respectfully

dissent.

Prior to the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56,

incumbent local telephone companies, such as Michigan Bell, enjoyed a natural

monopoly. The high fixed costs of recreating a local telephone network, including

running wires to each home and business in a community, together with the low

marginal cost of operating a pre-existing network gave incumbents “an almost

insurmountable competitive advantage.” Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467,

490 (2001). To combat these monopolies, the 1996 Act mandates that incumbents share

their network with competitors at cost-based rates. See id. at 489; AT&T Corp. v. Iowa

Utils. Bd., 525 U.S. 366, 371 (1999).

As part of this sharing obligation, incumbents must lease certain elements of their

network to competitors on an “unbundled”—a la carte—basis and must do so at cost-

based rates. 47 U.S.C. § 251(c)(3), (d)(2). That allows a competitor to connect its

network with other phone networks, to provide enhanced services to its customers or to

expand its network so it can reach a broader potential customer base. See id. § 153(29);

Triennial Review Order, 18 F.C.C.R. 16978 ¶ 59 (2003); 47 C.F.R. § 51.319(a). The

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 24

upshot of this duty is that, if a competitor wishes to offer phone service to everyone in

a given community without incurring the up-front costs of running its own wire to each

potential customer, the Act and implementing regulations facilitate the entrant’s efforts

by requiring the incumbent to offer these services on unbundled terms and at cost-based

rates.

The Act imposes a related, but narrower, sharing obligation, one that also must

be provided at cost-based rates. Incumbents must “provide . . . interconnection with

[their] network” to competitors so customers on one network can seamlessly call

customers on the other network. 47 U.S.C. § 251(c)(2); see id. § 251(d)(1); 47 C.F.R.

§ 51.5 (defining interconnection as the “linking of two networks for the mutual exchange

of traffic”); FCC Br. at 4. In the absence of this obligation, no rational consumer would

switch from the large incumbent to the competing entrant, at least without a steep

discount. Who wants a local phone service that connects customers to just a handful of

other individuals in the community? See Verizon Commc’ns, 535 U.S. at 490. By

requiring cost-based rates for this service, the Act ensures that incumbents do not charge

competition-dampening rates for interconnection, a not insignificant risk given that

entrants need interconnection more than incumbents do.

Which brings me to “entrance facilities,” the part of the network of the

incumbent, Michigan Bell, at issue here. Entrance facilities physically link

telecommunications networks together, see Triennial Review Remand Order (TRRO),

20 F.C.C.R. 2533 ¶¶ 136–39 (2005), and competitors use an incumbent’s entrance

facilities for two purposes: interconnection and backhauling. See Triennial Review

Order ¶ 365. When used for interconnection, entrance facilities route traffic between

one of the competitor’s customers and one of the incumbent’s customers. When used

for backhauling, entrance facilities route traffic between two of the competitor’s

customers, likely because the competitor leases some elements of the incumbent’s

network, rather than between a customer of the competitor and a customer of the

incumbent. See id. ¶¶ 365, 367.

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In deciding what incumbents may charge for the use of their entrance facilities,

the FCC interprets its regulations to draw a distinction. On one side of the line,

incumbents must lease their entrance facilities to competitors at cost-based rates when

they use the facilities for interconnection. On the other side, incumbents may charge

market-based rates, or not lease the facilities at all, when competitors use the facilities

for backhauling. See FCC Br. at 15–17, 20. Everyone (at least everyone involved in this

case) agrees that the FCC correctly concluded that incumbents may charge market-based

rates for backhauling. What divides the parties is whether the FCC correctly concluded

that incumbents cannot do the same for interconnection. In answering this question, we

must keep in mind that Congress charged the FCC with administering § 251, see 47

U.S.C. § 251(d)(1), and the FCC wrote the regulations at issue, all of which means that

the FCC’s interpretation binds us unless it flouts the regulations’ text. See Auer, 519

U.S. at 461.

The line drawn by the FCC permissibly interprets its own regulation. In

elaborating on § 251(c)(2)’s duty to “provide . . . interconnection,” the FCC’s regulation

says that incumbents must provide “any technically feasible method of obtaining

interconnection” at cost-based rates. 47 C.F.R. § 51.321(a). Entrance facilities come

within the ordinary meaning of a “technically feasible method of obtaining

interconnection.” They are “designed for the very purpose of linking two carriers’

networks.” Ill. Bell Tel. Co. v. Box, 526 F.3d 1069, 1072 (7th Cir. 2008). And that is

how competitors use them—to bridge the gap between their network and an

interconnection point within the incumbent’s network so that the two networks can

mutually exchange traffic. See U.S. Telecom Ass’n v. FCC, 359 F.3d 554, 586 (D.C. Cir.

2004).

In providing illustrative examples of an incumbent’s interconnection duties in

§ 51.321, the FCC confirms that the regulation uses the phrase “method of obtaining

interconnection” in its ordinary sense—one that applies to entrance facilities. One

example says that incumbents upon request must interconnect with competitors through

meet point facilities, see 47 C.F.R. § 51.321(b)(2), which requires the incumbent and

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competitor to build transmission facilities from their respective networks to a designated

meet point and to link the two transmission facilities together at that point “for the

mutual exchange of traffic,” Local Competition Order, 11 F.C.C.R. 15499 ¶ 553 (1996).

An incumbent’s portion of a meet point facility, it turns out, is merely one manifestation

of an entrance facility, as entrance facilities are “the transmission facilities that connect

competitive LEC networks with incumbent LEC networks.” See TRRO ¶ 136. Another

example—dealing with collocation, which is installing and maintaining equipment for

use solely by the competitor at an incumbent’s physical facilities, see 47 C.F.R.

§ 51.5—also shows that an incumbent’s duty to provide methods of obtaining

interconnection covers facilities that aid in bridging the gap between two networks. See

47 U.S.C. § 251(c)(6) (mandating that incumbents allow physical or virtual “collocation

of equipment necessary for interconnection”); 47 C.F.R. § 51.321(b)(1).

To put all of this in context, it might help to return to the majority’s extension-

cord analogy. The meet-point example is akin to saying that the homeowner sometimes

must provide a park-goer with an extension cord, at a cost-based price, that links the

outlet in the garage with the park-goer’s extension cord, rather than forcing the park-goer

to run an extension cord all the way from the park to the garage or forcing the park-goer

to pay the homeowner market-based rates for the use of one of its cords. The collocation

obligation is akin to saying that the homeowner sometimes must let park-goers store an

extension cord on a reel in the garage and access the garage when they want to extend

the cord from the garage to the park. As these examples show, an incumbent’s

interconnection duty encompasses more than providing competitors with an outlet to

plug into.

The Triennial Review Remand Order does not undermine the FCC’s position.

The TRRO represents the FCC’s fourth attempt to promulgate valid unbundling

regulations, see Covad Commc’ns Co. v. FCC, 450 F.3d 528, 531 (D.C. Cir. 2006), and

it aims to satisfy the D.C. Circuit’s concerns in setting aside the FCC’s previous

unbundling regulations, see TRRO ¶¶ 1–4, 13, 19–20. Nearly a quarter of the order

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clarifies the FCC’s overarching unbundling analysis and not one paragraph discusses

how the FCC analyzes interconnection obligations. See id. ¶¶ 20–65.

The one section that mentions entrance facilities confirms the TRRO’s focus on

unbundling, not interconnection. The section analyzes whether competitors would be

“impair[ed]” without unbundled access to entrance facilities under § 251(c)(3), and it

concludes that they would not be. See TRRO ¶¶ 136–41; see also 47 U.S.C. § 251(d)(2).

Yet, as the FCC points out, an impairment analysis has no role to play under § 251(c)(2),

see 47 U.S.C. § 251(d)(2); FCC Br. at 16, and the FCC has never, to my knowledge,

considered impairment when analyzing an incumbent’s interconnection obligations. See

Ill. Bell, 526 F.3d at 1072 (noting that whether an incumbent can charge market-based

rates for interconnection “is not related to the scope of an [incumbent’s] obligations

under § 251(c)(3) to furnish unbundled network elements”). It would be surprising,

then, if the TRRO exempted entrance facilities from the pre-existing obligations of 47

C.F.R. § 51.321(a) through a novel analysis without comment.

The TRRO’s sole mention of interconnection in the context of entrance facilities

instead sounds a cautionary note: No one should read the FCC’s categorical unbundling

analysis under § 251(c)(3) as affecting incumbents’ interconnection duties under

§ 251(c)(2). See TRRO ¶ 140 (stating “our finding of non-impairment with respect to

entrance facilities does not alter the right of competitive LECs to obtain interconnection

facilities pursuant to section 251(c)(2)”). This cautionary note makes perfect sense if,

as the FCC and both courts of appeals to address this issue have concluded, entrance

facilities used for interconnection fall within § 251(c)(2)’s interconnection obligation.

See Ill. Bell, 526 F.3d at 1071–72 (“What the FCC said in ¶ 140 is that [incumbents]

must allow use of entrance facilities for interconnection at ‘cost-based rates’.”); Sw. Bell

Tel., L.P. v. Mo. Pub. Serv. Comm’n, 530 F.3d 676, 684 (8th Cir. 2008).

The regulations promulgated by the TRRO, moreover, discuss only unbundling

obligations. They say that “in accordance with section 251(c)(3)”—the provision

imposing the unbundling requirement—an incumbent “is not obligated to provide a

requesting carrier with unbundled access” to entrance facilities. 47 C.F.R. § 51.319(e)

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 28

(emphasis added); see also TRRO, 20 F.C.C.R. at 2682. This speaks only to an

incumbent’s unbundling obligation, not its narrower, independent duty to “provide . . .

interconnection” under § 251(c)(2). Michigan Bell disagrees, claiming the regulation

“unequivocal[ly]” states that incumbents have no obligation to provide entrance

facilities, period. Michigan Bell Br. at 23. But this turns the phrase “with unbundled

access” into a useless appendage. See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47,

59–60 (2007) (noting general rule that courts should give effect to all words in a

provision).

Michigan Bell reads the TRRO differently. The TRRO, it says, draws no

distinction between the functions of an entrance facility (backhauling versus

interconnection), but instead draws a distinction between two distinct and mutually

exclusive types of facilities (entrance versus interconnection). The text of ¶¶ 136–41,

it is true, does not distinguish between backhauling and interconnection. But the

footnotes to those paragraphs draw that precise distinction. See TRRO ¶¶ 138 n.389, 141

n.396. And even if the FCC had not drawn this functional line, that would not eliminate

ambiguity about the point; the silence would create ambiguity, particularly since the

FCC consistently has drawn functional lines when implementing the 1996 Act. See

Triennial Review Order ¶¶ 365–67; Local Competition Order ¶ 553. Either way, Auer

deference applies to the FCC’s position that those paragraphs draw a functional line that

exempts incumbents only from the obligation to lease their entrance facilities at cost-

based rates when competitors use those facilities for backhauling, as opposed to

interconnection.

Michigan Bell’s competing interpretation also fits awkwardly with the TRRO and

its predecessor, the Triennial Review Order. Why, if that interpretation is correct, would

the FCC clutter its unbundling analysis by stressing the distinction between backhauling

and interconnection? See Triennial Review Order ¶ 365. And why would it underscore

the incumbents’ continuing obligation to provide interconnection facilities? See id.;

TRRO ¶ 140. These points of emphasis make little sense if entrance facilities never

function as § 251(c)(2) interconnection facilities.

Nos. 07-2469/2473 Michigan Bell Telephone Co. v. Lark, et al. Page 29

To support its mutual exclusivity theory, the majority notes that incumbents may

choose whether a facility counts as an entrance facility or an interconnection facility.

If the incumbent requires that competitors interconnect at that facility, then it is an

interconnection facility. But if the incumbent provides a facility that bridges the gap

between the incumbent-designated interconnection point and the competitor’s network,

then it counts as an entrance facility. This premise, however, does not square with

§ 251(c)(2), which requires incumbents to “provide . . . interconnection” “at any

technically feasible point within [its] network.” 47 U.S.C. § 251(c)(2) (emphasis added);

see also Local Competition Order ¶ 209 (stating that § 251(c)(2) allows competitors “to

select the points in an incumbent[’s] . . . network at which they wish to deliver traffic”).

And in the absence of this premise, I see no workable way to distinguish between these

two supposedly distinct and mutually exclusive types of facilities.

One more point. While the majority’s principal objection to this analysis is that

the regulation is plain as day and thus leaves no room for administrative deference, it

also suggests two reasons for ignoring Auer deference altogether. First, it cites a

Seventh Circuit case, which suggests that agency amicus briefs (like the one filed here)

should get Auer deference only at the Supreme Court, not at the court of appeals. Until

a case reaches the Supreme Court, goes the view, agency briefs represent “unreviewed

staff decisions,” and Congress could not have meant to delegate “the power to make law

to fill gaps in” the law to low-level staff. Keys v. Barnhart, 347 F.3d 990, 993–94 (7th

Cir. 2003).

A deference doctrine that turns on whether a brief was filed in the United States

Supreme Court or a court of appeals has little to commend it. An “inferior” appellate

court, U.S. Const. art. III § 1, has just as many reasons, if not more, to learn the agency’s

interpretation of one of its regulations in the course of resolving a dispute between two

private parties before it issues a decision rather than after. This case is a perfectly good

example. The regulations are intricate and complex, and as a result we called for the

views of the FCC in order to understand how the agency construed its regulations and

to make sure we were not missing something in the process. The Seventh Circuit may

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or may not be right that, when a court of appeals invites an agency to take a position in

a given case, it can expect nothing more than “unreviewed staff decisions.” As for

myself, I doubt it, and if I am wrong that suggests a management problem, not a proper

view of how agencies should operate. It seems likely that agencies take their amicus

briefs—particularly those filed at the request of a court of appeals—at least as seriously

as their more frequent opinion letters, which also receive Auer deference, see Ford

Motor Credit Co. v. Milhollin, 444 U.S. 555, 563–64 (1980). As agencies must well

appreciate, moreover, lower courts reap the same benefits as the Supreme Court from an

agency’s “fair and considered judgment,” Auer, 419 U.S. at 462, including the

advantage of the agency’s “unique expertise and policymaking prerogatives,” Martin v.

Occupational Safety & Health Review Comm’n, 499 U.S. 144, 151 (1991). In any event,

the Supreme Court has strongly hinted that Auer deference does not turn on whether an

agency’s position was prepared by its staff or its head. See Ford Motor Credit Co., 444

U.S. at 566 n.9. There is, in short, no reason why an agency brief—particularly one filed

at the request of a court—becomes less authoritative because it is filed with a court

based in Cincinnati, Ohio rather than one based in Washington, D.C.

Second, the majority suggests that the TRRO does not deserve Auer deference

because it is an interpretive rule, not a legislative one. I disagree with the majority’s

characterization of the TRRO and its suggestion that interpretive rules do not deserve

Auer deference. The FCC had a formal notice-and-comment period before issuing the

TRRO, and the TRRO concludes by adopting seven pages of amendments to the Code

of Federal Regulations. See TRRO ¶¶ 18–19, 239–251, App’x A, App’x B. The TRRO

in point of fact promulgates the version of 47 C.F.R. § 51.319(e)(2)(i) that the majority

quotes. See TRRO at 2677, 2682; Maj. Op. at 9–10. All of this confirms that the TRRO

is a legislative rule. See Lincoln v. Vigil, 508 U.S. 182, 195–196 (1993); St. Francis

Health Care Ctr. v. Shalala, 205 F.3d 937, 949 (6th Cir. 2000) (“[I]f by its action the

agency intends to create new law . . . , the rule is properly considered to be a legislative

rule.”).

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Perhaps the majority means that ¶¶ 136–40 of the TRRO do not deserve deference

because those paragraphs are part of the “concise general statement” of the TRRO’s

“basis and purpose,” 5 U.S.C. § 553(c), not amendments to the federal code. See Maj.

Op. at 7 n.6 (“[T]he TRRO . . . is . . . not a true ‘regulation.’”). I am unaware of any

court reading such a line into Auer. No one has done so, I believe, because “[c]ourts and

Congress treat the terms ‘regulation’ and ‘rule’ as interchangeable,” Nat’l Treasury

Employees Union v. Weise, 100 F.3d 157, 160 (D.C. Cir. 1996), and “concise general

statements” are part of the rule, see 5 U.S.C. § 553(c); Lincoln, 508 U.S. at 195–96.

Justice Scalia’s concurrence in Couer Alaska is not to the contary. See Couer Alaska,

Inc. v. Se. Alaska Conservation Council, ___ U.S. ___, 129 S. Ct. 2458, 2479 (noting

courts defer under Auer only “to an agency’s interpretation of its own ambiguous

regulation.”). Justice Scalia was distinguishing between regulations and statutes, not

between sections of a legislative rule. See id.

But whether the TRRO is an interpretive or legislative rule is beside the point.

We generally defer to an agency’s interpretation of its own rules because it “make[s]

little sense” to impose our interpretation on the agency when it remains free to rewrite

the rule (largely) however it wants. Auer, 519 U.S. at 463. That rationale applies with

extra force to interpretive rules: An agency could amend its interpretive rule and wipe

a court’s interpretation off the board without even the delay of notice-and-comment

rulemaking.

In the final analysis, the FCC’s interpretation reasonably respects the words of

its regulations and Auer requires us to respect that interpretation. The majority seeing

it differently, I respectfully dissent.