Respondents Brief — Federal Communications Commission v. Iowa Utilities Board

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Nos. 00-511, 00-555, 00-587, 00-590, 00-602 supieme Cwn, LS

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IN THE

Supreme Court of the Gnited tater g 20

VERIZON COMMUNICATIONS, INC., ef ai.,

Petiti

__ CLERK

Vv.

FEDERAL COMMUNICATIONS COMMISSION AN

U S A

NITED STATES OF AMERICA, seaaciaien A p R ti 200|

WorLpDCoM, INC., ef al.,

Petitioners,

Vv.

VERIZON COMMUNICATIONS, INC., ef ai.,

Respondents.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

Petitioners,

Vv.

IOWA UTILITIES BOARD, et al,

Respondents.

AT&T Corp.,

Petitioner,

v.

IOWA UTILITIES BOARD, et al.,

Respondents.

GENERAL COMMUNICATION, INC.,

Petitioner,

Vv.

IOWA UTILITIES BOARD, et ai.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

BRIEF ON THE MERITS OF SPRINT CORPORATION IN

SUPPORT OF PETITIONERS FEDERAL

COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA

DAVID P. MURRAY

Counsel of Record

RANDY J. BRANITSKY

KEVIN M. MILLER

WILLKIE FARR & GALLAGHER

1155 21st Street, N.W.

Washington, D.C. 20036

(202) 328-8000

Counsel for Re spondent Sprint Corporation

BEST AVAILABLE COP) nn

QUESTIONS PRESENTED

1. Whether the court of appeals erred in holding that

Section 252(d)(1) of the Act forecloses the cost methodology

adopted by the FCC, which is based on the efficient

replacement cost of existing technology, for determining the

interconnection rates that new entrants into local

telecommunications markets must pay incumbent local

telephone companies.

2. Whether Section 251(c)(3) prohibits regulators from

requiring that incumbent local telephone companies combine

certain previously uncombined network elements when a new

entrant requests the combination and agrees to compensate

the incumbent for performing that task.

(i)

il

RULE 29.6 STATEMENT

In accordance with Rule 29.6 of the Rules of this Court,

Sprint Corporation (“Sprint’’) states as follows:

Sprint is a corporation organized for the purpose of

engaging in telecommunications and related businesses

and is publicly traded under the names Sprint FON and

Sprint PCS. Sprint Communications Company L.P. is a

wholly-owned subsidiary of Sprint. Deutsche Telekom

and France Télécom, both of which have issued public

stock, each own approximately a ten percent share of

Sprint.

A.

B.

C.

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2. Network Combinations Rule..................0-.

Judicial Review of the Local Competition

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1. The First Eighth Circuit Decision. ...............

3. The Eighth Circuit’s Decision On Remand

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A COST METHODOLOGY BASED ON THE

MOST EFFICIENT REPLACEMENT COST

OF EXISTING TECHNOLOGY DOES NOT

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A. Congress Did Not Foreclose A Cost

Methodology Based On The Efficient

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iv

TABLE OF CONTENTS—Continued

Page

B. The FCC’s Efficient Network

Configuration Rule Was Reasonable And

Entitled To Deference. ...........cseeeseeeeeeeeeees 17

C. The Eighth Circuit’s Holding Is Internally

Inconsistent, Economically Unsound, And

Will Lead To Unintended Results That

Thwart Congress’ Goal Of Facilitating

CCOmOTIEIOR, ....00..cccccscccerecccecsccssszessossosssoseess 20

I. REQUIRING ILECs TO COMBINE

NETWORK ELEMENTS SERVES THE

PRO-COMPETITIVE PURPOSES OF THE

ACT AND DOES NOT VIOLATE THE

LANGUAGE OF SECTION 25 1(C)(3). .....--+++++ 21

A. This Court Has Previously Held That

Section 251(c)(3) Is Ambiguous. ................ 21

B. The Eighth Circuit Has Erred A Second

Time In Holding That Section 251(c)(3)

Unambiguously Requires New Entrants To

Cepmmtitione UNI 6. .cccccccccsscccsscccesscccssscsssssseeseses 24

C. It Was Reasonable For the FCC To

Promulgate A Regulation That Prevents

ILECs From’ Engaging In An

“Anticompetitive Practice.” ..........-ceeeeeees 25

CONCLUSION .....ccccccccccossccocscccerscscnsscssscssessesssssssssoeses 27

Vv

TABLE OF AUTHORITIES

CASES Page

AT&T Corp. v. FCC, 220 F.3d 607 (B.C. Cir.

AT&T Corp. v. lowa Utils. Ba., 525 US. 366

Ge nrenetnuenasinainngs passim

Chevron U.SA., Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837 (1984) .......c.ccceecsees 12

Duquesne Light Co. v. Barasch, 488 U.S. 299

(UI Pp icncanssescssesssssscsanmnspeptanignmeiseaiiniibinenitanies 21

lowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir.

1997), aff d in part and rev'd in part sub nom.

AT&T Corp. v. lowa Utils. Bd., 525 U.S. 366

Se anssnranencasnessvantsedatenenatibliiiiiiaiintti ccatinaatianis 7, 22

lowa Utils. Bd. v. FCC, 219 F.3d 744 (8th Cir.

SSIUTTIT <osrenanasnsncnsaneensnneenmnmmmateninudanemnmesemesuis passim

MCI Telecomms. Corp. v. U § W. Communi-

cations, Inc., 204 F.3d 1262 (9th Cir.), cert.

denied, 121 S. Ct. 504 (2000) ............cccccccceeeeeees 23

Market St. Ry. Co. v. Railroad Comm'n of Cal.,

ee es I rcenitiinaitineernitiliienitinticdiitaasineas 16

Missouri ex rel. Southwestern Bell Tel. Co. v.

Public Serv. Comm’ n, 262 U.S. 276 (1923) ...... 16

Regions Hosp. v. Shalala, 522 U.S. 448 (1998) ..... 12, 13

Southwestern Bell Tel. Co. v. Waller Creek

Communications, Inc., 221 F.3d 812 (Sth Cir.

Texas Office of Pub. Util. Counsel v. FCC, 183

F.3d 393 (Sth Cir. 1999), cert. granted sub

nom. GTE Serv. Corp. v. FCC, 530 U.S. 1213,

cert. dismissed, 121 S. Ct. 423 (2000)............... 5

U S W. Communications, Inc. v. Hix, Civ. No.

97-D-152 (consol.), Order (D. Colo. June 26,

vi

TABLE OF AUTHORITIES—Continued

Page

U S W. Communications, Inc. v. MFS Intelenet,

Inc., 193 F.3d 1112 (9th Cir. 1999), cert.

denied, 120 S. Ct. 2741, reh’g denied, 121 S.

Bes eT ccessiniercniasneneicadiintnnrinteintaniniaaepenineimeinines 23

AGENCY DECISIONS

In re Implementation of the Local Competition

Provisions in the Telecomms. Act of 1996, 11

os 0 ere passim

In re Implementation of the Local Competition

Provisions of the Telecomms. Act of 1996, 15

co ee 26

STATUTES

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47 U.S.C. § 252(d)(1 (A)-(B) ..............ccceeeeeeseeeseees 14

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REGULATIONS

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Vii

TABLE OF AUTHORITIES—Continued

CONGRESSIONAL MATERIAL Page

H.R. Conf. Rep. No. 104-230 (1996)...........c.ccc0ee 3,4

OTHER AUTHORITY

Paul W. Garnett, Forward-Looking Costing

Methodologies and the Supreme Court's

Takings Clause Jurisprudence, 7 CommLaw

eee 7

PRELIMINARY STATEMENT

Pursuant to Supreme Court Rules 24.2 and 25.1,

Respondent Sprint Corporation (“Sprint”) respectfully

submits this Brief on the Merits of Sprint Corporation in

Support of Petitioners Federal Communications Commission

(“FCC”) and United States of America. This brief addresses

the following questions:

e Whether the court of appeals erred in holding that 47

U.S.C. § 252(d)(1) (Telecommunications Act of 1996)

forecloses the cost methodology adopted by the FCC,

which is based on the efficient replacement cost of

existing technology, for determining interconnection

rates that new entrants into local telecommunications

markets must pay incumbent local telephone

companies.

e Whether 47 U.S.C. § 252(c)(3) prohibits regulators

from requiring that incumbent local telephone

companies combine certain previously uncombined

network elements when a new entrant requests the

combination and agrees to compensate the incumbent

for performing that task.

Supreme Court Order List (Jan. 22, 2001) at 3-4.'

‘The Court also granted the petitions for a writ of certiorari with

respect to the following question presented by Verizon Communications,

Inc. and the other incumbent local exchange carriers: “Whether the court

of appeals erred in holding that neither the Takings Clause nor the

Telecommunications Act of 1996 requires incorporation of an incumbent

local exchange carrier's ‘historical’ costs into the rates that it may charge

new entrants for access to its network elements.” Sprint supports the

decision of the court of appeals upholding the FCC’s regulations and will

file a Respondent's Brief On The Merits, in accordance with the briefing

schedule ordered by the Court.

2

OPINIONS AND ORDERS BELOW

The opinion of the United States Court of Appeals for the

Eighth Circuit is reported at 219 F.3d 744 and reprinted in the

Petition for a Writ of Certiorari of the FCC and United States

of America at la-43a.’ This decision reviewed the First

Report and Order, /n re Implementation of the Local

Competition Provisions in the Telecommunications Act of

1996, CC Docket No. 96-98 (Aug. 8, 1996) (“Local

Competition Order”), and accompanying regulations issued

by the FCC. The Local Competition Order is reported at 11

F.C.C.R. 15,499. Relevant portions of the Local Competition

Order are reprinted at FCC Pet. App. 44a-103a. The

regulations are codified at 47 C.F.R. §§51.1-51.809.

Relevant portions of the codified regulations are reprinted at

FCC Pet. App. 126a-131a. The Local Competition Order and

codified regulations implemented the Telecommunications

Act of 1996 (“Act”), Pub. L. No. 104-104, 110 Stat. 56

(codified at 47 U.S.C. §§ 151-276). Relevant portions of the

Act are reprinted at FCC Pet. App. 104a-125a.

STATEMENT OF THE CASE

A. Background.

Unlike many of the private parties participating in these

proceedings, Sprint has both local and long distance

operations. The “long distance side” of Sprint, like other new

entrants, is interested in obtaining nondiscriminatory access

to the networks of the incumbent local exchange carrier

(“incumbent LEC” or “ILEC”) at rates that will facilitate

Sprint’s ability to compete for business in the local telephone

markets. The “local side” of Sprint, like other ILECs, is

interested in ensuring that its rights and obligations under the

? The Court has agreed to the submission of a deferred Joint Appendix.

For purposes of this brief, Sprint cites to previously reproduced excerpts

from the Petition for a Writ of Certiorari of the FCC and United States of

America (“FCC Pet. App. _”).

3

Act are rationally and uniformly elucidated, that it is fairly

compensated for sharing its local networks with new entrants,

and that its operations are not unduly burdened. Sprint has

participated both as a new entrant and as an ILEC in state-

regulated arbitrations pursuant to Section 252 of the Act.

These experiences have given Sprint a balanced perspective

on the challenges of opening local telephone markets to

competition while satisfying the divergent interests of new

entrants and ILECs.

Sprint believes that the vacated FCC regulations strike the

proper balance in implementing the Act’s pro-competitive

objectives. The vacated price regulation establishes a

forward-looking, long-run methodology for pricing

unbundled network elements (“UNEs”) based on “the most

efficient telecommunications technology currently available

and the lowest cost network configuration, given the existing

location of the incumbent LEC’s wire centers.” 47 C.F.R.

§ 51.505(b)(1) (“Rule 505(b)(1)”) (FCC Pet. App. 128a).

This methodology attempts to replicate prices that would

prevail in a competitive environment while ensuring that the

ILEC is compensated for the use of its network elements at

prices reflecting what it would cost to replace the elements

today. The vacated network combinations regulation requires

that ILECs “perform the functions necessary to combine

unbundled network elements in any manner, even if those

elements are not ordinarily combined in the incumbent LEC’s

network.” /d. §51.315(c) (“Rule 315(c)”) (FCC Pet. App.

126a). This requirement is intended to ensure that new

entrants have efficient and meaningful access to UNEs in

order to offer competitive local services.

B. The Act.

The Act seeks to transform state-sanctioned local

monopolies into fully competitive markets on a national

scale. See H.R. Conf. Rep. No. 104-230, at 113 (1996) (the

primary goal of the Act is to increase competition in both

4

local and long distance telephone markets as swiftly as

possible). Congress recognized the practical and economic

impediments that new entrants would face if forced to

replicate all of the ILEC’s existing local network infra-

structure. Congress therefore established comprehensive

requirements “intended to facilitate market entry.” AT&T

Corp. v. lowa Utils. Bd., 525 U.S. 366, 371 (1999) (“JUB TI’).

“Foremost” among them is the ILEC’s “obligation under

[Section 251(c)] to share its network with competitors.” /d.

The Act provides three complementary avenues for new

entrants to obtain access to an ILEC’s network: (i) inter-

connection with an ILEC’s existing local network; (ii) leasing

UNEs of the ILEC’s network, either alone or in combination;

and (iii) reselling the ILEC’s services. 47 U.S.C. § 251(c)(2)-

(4) (FCC Pet. App. 106a-107a).

Section 251(c)(3), which is at issue here, imposes a duty on

ILECs to provide “nondiscriminatory” access to UNEs. /d.

§ 251(c)(3) (FCC Pet. App. 106a-107a). New entrants may

use the leased UNEs, alone or in combination with the new

entrant’s own network facilities, to offer new and different

competitive local services. ILECs are to receive “just [and]

reasonable” compensation for leasing UNEs, “based on the

cost . . . of providing” the element, including a “reasonable

profit.” Jd. §§ 251(c)(3), 252(d)(1 )(A)(i), (B) (FCC Pet. App.

106a-107a, 119a).

C. FCC Regulations.

Congress expressly delegated to the FCC the authority to

promulgate rules to implement the Act’s requirements. /d.

§§ 201(b), 251(d)(1) (FCC Pet. App. 108a). The Act sets few

limits on the FCC’s exercise of this authority. As this Court

has recognized, the key provisions of the Act are subject to

multiple interpretations and Congress was “well aware” that

these ambiguities would be resolved by the FCC. /UB I, 525

U.S. at 397. The FCC adopted its local competition rules on

5

August 8, 1996. Local Competition Order, 11 F.C.C.R. at

15,499.

1. Pricing Rules.

The FCC promulgated a cost methodology for establishing

UNE rates that attempts to replicate conditions in a

competitive market, while fairly compensating ILECs for the

“cost” of providing the UNE. The FCC concluded that a

“forward-looking long-run economic cost” approach would

best accomplish these objectives. Jd. at 15,844 (§ 672) (FCC

Pet. App. 61a-62a). A forward-looking approach measures

the cost today to build an efficient local network with the

same capabilities. /d. at 15,857-58 (705) (FCC Pet. App.

86a-87a). New entrants, which build new facilities using the

lowest cost, most efficient technology available, set prices on

that basis. In response to this competition, ILECs, likewise

would replace existing facilities using the lowest cost, most

efficient technology available.

Forward-looking cost methods have been widely accepted

in the professional literature, were implemented by several

state utility commissions prior to passage of the Act, see id. at

15,817-19 & nn.1508-14 (§ 631) (FCC Pet. App. 56a-58a),

and were used by numerous other regulatory agencies in

analogous contexts, see Texas Office of Pub. Util. Counsel v.

FCC, 183 F.3d 393, 411-12 & nn.12 & 13 (Sth Cir. 1999)

(citing examples of agencies adopting forward-looking, most

efficient technology methodologies to encourage

competition), cert. granted sub nom. GTE Serv. Corp. v.

FCC, 530 U.S. 1213, cert. dismissed, 121 S. Ct. 423 (2000).

The particular forward-looking approach adopted by the FCC

is called “Total Element Long Run Incremental Cost” or

“TELRIC.” TELRIC ensures that ILECs recover the full

forward-looking cost of leased UNEs by measuring the long-

run, incremental cost of the network element based on: (i) the

use of the “most efficient telecommunications technology

currently available and the lowest cost network configuration,

6

given the existing location of the incumbent LEC’s wire

centers,” 47 C.F.R. § 51.505(b)(1) (FCC Pet. App. 128a); (ii)

the cost of capital, thus allowing ILECs to recover normal

economic profit, id. § 51.505(b)(2) (FCC Pet. App. 128a);

and (iii) the useful life of the element, as measured by its

economic depreciation rate, id. § 51.505(b)(3) (FCC Pet.

App. 128a). In addition, TELRIC allows for a reasonable

share of joint and common costs. /d. § 51.505(c) (FCC Pet.

App. 129a).

2. Network Combinations Rule.

The FCC promulgated a network combinations rule to

implement the requirement in Section 251(c)(3) that ILECs

provide nondiscriminatory access to UNEs in a manner that

allows new entrants to use those elements to offer

competitive local services to customers. /d. § 51.315 (FCC

Pet. App. 126a-127a). The network combinations rule

establishes two related requirements. 47 C.F.R. § 51.315(b)

(“Rule 315(b)”) prohibits the ILEC from separating elements

already combined in its network. Rule 315(c) requires the

ILEC to combine, at a new entrant’s request, elements that

are not already combined to the extent technically feasible.

The FCC determined that “in practice it would be impossible

for new entrants that lack facilities and information about the

incumbent’s network to combine unbundled elements from

the incumbents’ network without the assistance of the

incumbent.” Local Competition Order, \1 F.C.C.R. at 15,647

(4 293) (FCC Pet. App. 45a). The FCC found that as a result

of these “practical difficulties,” requesting carriers “would be

seriously and unfairly inhibited in their ability to use

unbundled elements to enter local markets,” if ILECs were

not required to combine UNEs upon request. /d. (¥§ 293-

294) (FCC Pet. App. 45a-46a).

i

7

D. Judicial Review of the Local Competition Order.

1. The First Eighth Circuit Decision.

Challenges to the Local Competition Order were

consolidated in the Eighth Circuit and first decided in 1997.

Of relevance here, the Eighth Circuit invalidated the FCC’s

pricing rules—including Rule 505(b)(1)—holding that the

Act gives state public utility commissions, not the FCC,

general jurisdiction to interpret and implement the Act’s

pricing provisions. /Jowa Utils. Bd. v. FCC, 120 F.3d 753,

794-800 (8th Cir. 1997), aff'd in part and rev'd in part sub

nom. AT&T Corp. v. lowa Utils. Bd., 525 U.S. 366 (1999).°

The Eighth Circuit also invalidated Rule 315(b)-(f)—the

network combinations rule—on the ground that it violated the

plain terms of Section 251(c)(3) of the Act. /d. at 813.

According to the Eighth Circuit, “Section 251(c)(3) requires

an incumbent LEC to provide access to the elements of its

network only on an unbundled (as opposed to a combined)

basis.” Jd. The Eighth Circuit believed that the statute

“unambiguously indicates that requesting carriers will

combine the unbundled elements themselves” because “the

Act requires incumbent LECs to provide elements in a

manner that enables the competing carriers to combine them.”

Id. (emphasis added). The Eighth Circuit thus rejected the

FCC’s interpretation of Section 251(c)(3), holding that the

Statutory “language [cannot] be read to levy a duty on the

incumbent LECs to do the actual combining of elements.” /d.

* During the period when the FCC’s pricing rules were vacated on

jurisdictional grounds, the overwhelming majority of state commissions

independently chose to adopt the TELRIC methodology. See Paul W.

Garnett, Forward-Looking Costing Methodologies and the Supreme

Court's Takings Clause Jurisprudence, 7 CommLaw Conspectus 119, 132

(1999) (at least 35 states announced their intent to adopt TELRIC).

2. IUBI.

In /UB I, this Court described the paramount role Congress

gave the FCC to interpret and implement the Act and the

limited circumstances under which federal courts may

override the decisions of the FCC. The Court stated as

follows:

It would be gross understatement to say that the

Telecommunications Act of 1996 is not a model of

clarity. It is in many important respects a model of

ambiguity or indeed even self-contradiction.... The

1996 Act can be read to grant . . . “most promiscuous

rights” to the FCC vis-a-vis the state commissions and to

competing carriers vis-a-vis the incumbents—and the

[FCC] has chosen in some instances to read it that way.

But Congress is well aware that the ambiguities it

chooses to produce in a statute will be resolved by the

implementing agency. (citation omitted). We can only

enforce the clear limits that the 1996 Act contains... .

IUB I, 525 U.S. at 397 (emphasis added).

This Court reversed numerous parts of the Eighth Circuit's

decision. Among other things, the Court held that Section

201(b) of the Act gives the FCC jurisdiction to adopt rules to

implement all of the Act’s local competition provisions. /d.

at 377-86. The Court reversed the Eighth Circuit’s ruling that

the FCC lacked the statutory authority to establish national

pricing rules, reinstated the FCC’s pricing rules, and

remanded so that the Eighth Circuit could review the

substantive challenges to those rules. /d. at 377-78.

This Court also addressed one aspect of the FCC’s network

combinations rule, Rule 315(b), which prohibits ILECs from

separating requested network elements that the ILEC

ordinarily combines. The Court rejected the Eighth Circuit's

“plain language” argument, holding that Section 251(c)(3) is

ambiguous. /d. at 395. The Court held that the term

“unbundled” in Section 251(c)(3) could refer to separately

9

priced assets as distinguished from “physically separated”

assets. /d. at 394. Although the Act contemplates that

elements may be requested and provided in discrete pieces,

the Court held that the Act “does not say, or even remotely

imply, that elements must be provided only in this fashion

and never in combined form.” /d. (emphasis in original).

The Court further found Rule 315(b) to be “entirely rational,

finding its basis in §251(c)(3)’s_ nondiscrimination

requirement.” /d. at 395. The Court accepted the FCC’s

explanation that the only reason an ILEC would disconnect

previously connected elements over the objection of the new

entrant would be to impose wasteful reconnection costs. The

Court held that “[iJt is well within the bounds of the

reasonable for the [FCC] to opt in favor of ensuring against

an anticompetitive practice.” /d.

3. The Eighth Circuit’s Decision On Remand

(“7UB IP’).

In July 2000, the Eighth Circuit issued its decision on

remand. The Eighth Circuit found that the term “cost” in

§ 252(d)(1) is “ambiguous” and that the FCC was therefore

authorized to interpret the term to allow for a forward-looking

cost model. /owa Utils. Bd. v. FCC, 219 F.3d 744, 751-52

(8th Cir. 2000) (“/UB IT’) (FCC Pet. App. 11a). The Eighth

Circuit further held that the FCC’s “use of a forward-looking

cost methodology was reasonable,” noting that the FCC had

explained its reasoning “in detail.” /d. at 752 (FCC Pet. App.

12a).*

‘The court also heia that the doctrine of constitutional avoidance did

not require the FCC to use a historical cost model, citing well established

law that “a takings claims cannot be based on the ratemaking

methodology, but rather it must be based on the rate itself.” /UB //, 219

F.3d at 754 (FCC Pet. App. 17a). The court thus rejected as premature the

incumbents’ Takings Clause challenge to the TELRIC methodology. /d.

(FCC Pet. App. 17a-18a)

10

Despite affirming the use of a forward-looking price

methodology, the Eighth Circuit invalidated a key component

of the FCC’s methodology that measures forward-looking

costs “based on the use of the most efficient tele-

communications technology currently available and the

lowest cost network configuration.” /d. at 749-50 (FCC Pet.

App. 8a). The Eighth Circuit held that because Section

252(d)(1) states that an ILEC may charge a just and

reasonable rate “based on the cost ... of providing the ...

network element,” Rule 505(b)(1) is contrary to “the plain

meaning” of the statute. /d. at 750 (FCC Pet. App. 8a)

(emphasis in original). According to the Eighth Circuit,

Congress’ use of the definite article “the” in Section

252(d)(1) necessarily refers to the actual facilities deployed

by the ILEC and thus precludes a _ forward-looking

methodology that calculates costs by reference to the most

efficient technology and design choices. /d.

The Eighth Circuit also reaffi: med its prior invalidation of

Rule 315(c)-(f), notwithstanding this Court’s reinstatement of

Rule 315(b). /d. at 759 (FCC Pet. App. 27a). The Eighth

Circuit again held that Congress, in the second sentence of

Section 251(c)(3), “has directly spoken on the issue of who

shall combine previously uncombined network elements. It is

the requesting carriers who shall ‘combine such elements.’”

Id. (FCC Pet. App. 28a-29a).

SUMMARY OF ARGUMENT

In /UB I, this Court noted that the Act is in many respects

ambiguous and held that the FCC is entitled to deference in

interpreting and implementing its local competition

provisions. The Eighth Circuit on remand refused to accord

such deference to the FCC’s determinations that forward-

looking costs should be measured based upon a “least cost,

most efficient technology” (Rule 505(b)(1)), and that ILECs

should be required to combine network elements not

ordinarily combined in their networks upon request (Rule

315(c)-(f)). The Eighth Circuit reasoned that both challenged

regulations violated the “plain meaning” of the Act. These

holdings rest on overly restrictive readings of the Act that will

thwart, rather than promote, local telephone competition.

Rule SOS(b)(1)’s “efficient network configuration”

requirement helps to ensure that prices for UNEs are set at

rates that replicate a competitive market, compensating the

ILEC for what it would cost to replace the elements in

today’s market. As an organization with both long distance

and local operations, Sprint believes that Rule 505(b)(1)

strikes a fair and reasonable balance and is consistent with the

pro-competitive purposes of the Act. The Eighth Circuit

erroneously believed the statutory language in Section 252

(d)(1) requiring that UNE rates be based on the cost of

providing “the” interconnection or network element

unambiguously means that rates may only be based on the

cost of the ILEC’s existing network. This holding

compensates ILECs based on the cost of replacing network

equipment with the very same equipment, even if no rational

firm would deploy such technology in a competitive

marketplace. Such an outcome is unsatisfactory to Sprint’s

entire organization. If costs are set too high, it will preclude

effective competition. If costs are set too low, it will send

false signals to potential new entrants concerning efficient

entry levels. Rule 505(b)(1) helps to avoid these adverse

results by setting costs in a manner that most closely

simulates those of a competitive market.

Rule 315(c)-(f)’s combinations requirement ensures that

new entrants will have nondiscriminatory access to UNEs in a

manner that permits them to provide competitive services.

The Eighth Circuit erroneously believed that the statutory

language “unambiguously” requires new entrants to “do the

combining themselves.” This Court has already rejected that

interpretation of Section 251(c)(3), which, as the FCC found,

would effectively preclude many new entrants from using

UNEs to offer competitive services. Because an ILEC

12

maintains control over its own network, it typically would be

more efficient and less costly for the ILEC to perform the

functions necessary to combine UNEs. In some instances, it

may be practically impossible for a new entrant to combine

UNEs located within the network of the ILEC. Under the

FCC’s rule, the ILEC would be compensated at cost-based

rates for performing the functions necessary to combine the

elements. Sprint knows of no reason why an ILEC would

refuse to do so other than to impose unnecessary burdens and

costs on the new entrant.

The Act is designed to benefit consumers by bringing rapid

competition to local telephone services. The regulations

vacated by the Eighth Circuit are rational measures that the

FCC deemed necessary to carry out Congress’ mandate. The

regulations should be restored.

ARGUMENT

This Court’s review of the challenged FCC regulations

should be highly deferential. Under the relevant standard, the

FCC’s implementing regulations should be upheld unless

“Congress has . . . addressed the precise question at issue”

and unambiguously foreclosed the FCC’s choice, or the

agency’s reasoning was arbitrary. Chevron U.S.A., Inc. v.

Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43, 845

(1984) (“Chevron”); IUB 1, 525 U.S. at 397 (pursuant to

Chevron, courts are only to “enforce the clear limits that the

[Telecommunications Act of 1996] contains”). In making

these determinations, “considerable weight should be

accorded to an executive department’s construction of a

statutory scheme it is entrusted to administer.” Chevron, 467

U.S. at 844. “If the agency's reading [of a statute] fills a gap

or defines a term in a reasonable way in light of the

-Legislature’s design, we give that reading controlling weight,

even if it is not the answer ‘the court would have reached if

the question initially had arisen in a judicial proceeding.’”

13

Regions Hosp. v. Shalala, 522 U.S. 448, 457 (1998) (quoting

Chevron, 467 U.S. at 843 n.11).

The Act, as this Court noted, “is in many important

respects a model of ambiguity or indeed even self-

contradiction” that imposes few restraints on the FCC’s

exercise of its implementing authority. See JUB 1, 525 U.S. at

397 (the Act grants “most promiscuous rights” to the FCC);

see also id. (“Congress is well aware that the ambiguities it

chooses to produce in a statute will be resolved by the

implementing agency.”). The Eighth Circuit acknowle iged

that the Act contained ambiguities and that the responsibility

for resolving them belongs to the FCC, not the courts.

IUB Il, 219 F.3d at 752 (FCC Pet. App. 11a-12a). Even so,

the Eighth Circuit invalidated the pricing and network

combinations rules based on strained readings of the “plain

language” of the statute, thereby improperly depriving the

expert agency of its authority to implement the Act’s

objectives. |

I. A COST METHODOLOGY BASED ON THE

MOST EFFICIENT REPLACEMENT COST OF

EXISTING TECHNOLOGY DOES’ NOT

VIOLATE THE ACT.

A. Congress Did Not Foreclose A Cost

Methodology isased On The _ Efficient

Replacement Cost Of Existing Technology.

The Eighth Circuit recognized that “the term ‘cost,’ as it is

used in [Section 252(d)(1)], is ambiguous and that Congress

has not spoken directly on the meaning of the word in this

context.” /d. at 751 (FCC Pet. App. 11a). The Eighth Circuit

thus held that “the FCC’s use of a forward-looking cost

methodology was reasonable,” noting that in the Local

Competition Order, “the FCC explained in detail its reason

for selecting a forward-looking cost methodology to

implement the new competitive goals of the Act.” Jd. at 752

(FCC Pet. App. 12a).

14

Despite correctly holding that Section 252(d)(1) is

ambiguous with respect to what is meant by “cost,” the

Eighth Circuit erroneously concluded that Section 252(d)(1)

unambiguously precludes the FCC from adopting a

methodology that measures that cost by reference to an

efficient network. “It is clear from the language of the

statute,” the court held, “that Congress intended the rates to

be ‘based on the cost . . . of providing the interconnection or

network element’ . . . not the cost some imaginary carrier

would incur by providing the newest, most efficient, and least

cost substitute for the actual item or element which will be

furnished.” Jd. at 750 (FCC Pet. App. 8a-9a) (emphasis in

original). The court then detailed its understanding of what

the Act mandates: “The new entrant competitor, in effect,

piggybacks on the ILEC’s existing facilities and equipment.

It is the cost to the ILEC of providing that ride on those

facilities that the statute permits the ILEC to recoup.” /d. at

751 (FCC Pet. App. 9a). Accordingly, the Eighth Circuit

concluded, Section 252(d)(1) requires that rates be calculated

based on the forward-looking cost of the ILEC’s existing

network.

The Eighth Circuit misinterpreted Section 252(d)(1). The

provision states, in pertinent part, that “the just and

reasonable rate for the interconnection of facilities and

equipment . . . and the just and reasonable rate for network

elements” be based on the cost “of providing the

interconnection or network element (whichever is applicable),

and [] nondiscriminatory, and [] may include a reasonable

profit.” 47 U.S.C. § 252(d)(1)(A)-(B) (FCC Pet. App. 118a-

119a) (emphasis added). The use of “the” before the phrase

“interconnection or network element” merely identifies the

thing (interconnection or network element) to which the cost-

based requirement applies. “The” does not carry—and

should not be read necessarily to imply—some greater

connotation that unambiguously limits the FCC’s ability to

15

determine a basic component of its methodology for

determining UNE “cost.”

A cost methodology based on the most efficient

replacement cost of existing network elements comports with

the Eighth Circuit’s conclusion that Section 252(d)(1)

mandates that rates be based on the cost of providing the

actual network element used by a new entrant. A long-run

methodology assumes a period long enough that all costs are

variable. That is to say, the very nature of such a

methodology assumes that all plant and equipment can be

replaced. If all plant and equipment can be replaced, any

rational firm would do so in the most efficient manner. The

long-term, forward-looking cost of the original piece of

equipment is the cost of the efficient, new equipment needed

to replace it.

Rule 505(b)(1) thus correctly measures the cost of

providing the actual network element or interconnection by

asking what cost the ILEC or any other carrier would bear in

the marketplace today to replace the functions at issue with

efficient substitutes currently available on the market that

could be used consistently with the location of the ILEC’s

existing wire centers. Although the Eighth Circuit agreed that

Section 252(d)(1) could be reasonably interpreted to permit a

forward-looking cost methodology, the court’s strained

emphasis on the word “the” in the provision precludes a key

component that gives rational effect to that methodology.

Given that the Act’s pricing provisions “give rate-setting

commissions broad methodological leeway; [and] say little

about the ‘method employed’ to determine a particular rate,”

see [UB 1, 525 U.S. at 423 (Breyer, J., dissenting in part), the

FCC’s use of the most efficient replacement cost in

Rule 505(b)(1), as a component of its TELRIC methodology,

should be given controlling weight.

The Eighth Circuit misconstrued the statutory language in

another respect as well. The Eighth Circuit incorrectly

presumed that, in considering the costs of efficient

16

substitutes, regulators are determining the forward-looking

cost of something other than the elements whose functions

the new entrant seeks to obtain. The forward-looking cost of

any asset necessarily turns on the cost of replacing its

functions with currently available, efficient substitutes. The

term “element” describes, at an appropriately high level of

generality, the class of facilities (or “features, functions, and

capabilities”) associated with particular tasks within the

network. 47 U.S.C. § 153(29); JUB 1, 525 U.S. at 387. For

example, fiber wires and copper wires, despite their

technological differences, can both be used to provide the

loop element. Cf. AT&T Corp. v. FCC, 220 F.3d 607, 618-19

(D.C. Cir. 2000) (reviewing relative merits of using optical

fiber versus copper to determine forward-looking cost of loop

element). Similarly, analog switches and digital switches can

both be used to provide the switching element. Local

Competition Order, 11 F.C.C.R. at 15,691, 15,706 (q{ 380,

412). The Eighth Circuit’s decision confines the term

“element” to individual pieces of equipment. Consequently,

the Eighth Circuit believed that the forward-looking inquiry

should turn on the cost of replacing an ILEC’s existing

facilities in every physical particular—rather than the

function of those facilities—regardless of whether a rational

actor would construct such facilities in today’s market.

Nothing in the language of Section 252(d)(i) remotely

compels the adoption of that long-discredited methodological

approach. /d. at 15,848 (§ 684) (FCC Pet. App. 70a)

(recognizing that such an approach could produce rates “that

reflect inefficient or obsolete network design and

technology”); Missouri ex rel. Southwestern Bell Tel. Co. v.

Public Serv. Comm’ n, 262 U.S. 276, 312 (1923) (Brandeis, J.,

concurring in the judgment) (disparaging, as the Jleast

appropriate cost methodology, an inquiry into “what it would

cost to reproduce the identical property”); Market St. Ry. Co.

v. Railroad Comm'n of Cal., 324 U.S. 548, 567 (1945) (in

rate-setting contexts it never has been held that state

17

commissions must “fix rates on the present reproduction

value of something no one would presently want to

reproduce’”’).

B. The FCC’s Efficient Network Configuration

Rule Was Reasonable And Entitled To

Deference.

The FCC adopted TELRIC because, in its view, a

methodology based on forward-looking economic costs

should “drive retail prices to their competitive levels” by

setting costs at levels firms would face in a competitive

market. Local Competition Order, 11 F.C.C.R. at 15,846

({ 679) (FCC Pet. App. 66a). This “give[s] appropriate

signals to producers and consumers and ensure[{s] efficient

entry and _ utilization of the telecommunications

infrastructure.” Jd. at 15,817 ({ 630) (FCC Pet. App. 55a).

The FCC carefully evaluated alternatives to its TELRIC

methodology, as well as more general objections to the use of

forward-looking pricing. The FCC also considered several

variants of forward-looking pricing before determining that

TELRIC is the most effective and fair means to implement

the Act’s pro-competitive goals.

In particular, the FCC rejected pricing based on the

“historical” or “embedded” costs reflected on the ILECs’

accounting books. The FCC recognized that these costs could

be either higher or lower than forward-looking costs. /d. at

15,857-58 (§ 705) (FCC Pet. App. 86a-87a). The FCC

reasoned that the use of historical costs in determining the

rates paid by new entrants would force competitors to pay for

the existing inefficiency of the ILECs’ networks and would

not “ensure the efficient investment decisions and

competitive entry contemplated by the [] Act.” /d. at 15,858

(q 705) (FCC Pet. App. 87a). The FCC thus concluded that

historical cost pricing would frustrate the Act’s competitive

objectives. /d. at 15,857-60 (44 704-711) (FCC Pet. App.

84a-9 1a).

18

The FCC likewise declined to establish a formula that

would estimate the “forward-looking” cost of the ILEC’s

existing network. /d. at 15,848 (§ 684) (FCC Pet. App. 70a).

This approach appears to most closely resemble the Eighth

Circuit’s decision. Because this approach would allow ILECs

to recover costs “that reflect inefficient or obsolete network

design and technology,” the FCC found it would be

“essentially an embedded cost methodology.” /d. In asking

what-it would cost to replace the functions that make an asset

valuable, the FCC noted that a forward-looking methodology

requires an inquiry into currently available substitutes—

including assets that perform the same functions as the

original asset, but that do not resemble the asset in all

respects—because they embody more efficient technology

than does the original asset. /d. at 15,848-49 (4§ 683-685)

(FCC Pet. App. 69a-7 1a).

The FCC did not, as the Eighth Circuit wrongly contends,

base its TELRIC methodology on “some state of the art

presently available technology ideally configured but neither

deployed by the ILEC nor to be used by the competitor.” See

IUB II, 219 F.3d at 751 (FCC Pet. App. 10a). The FCC noted

that “[p]rices based on the least-cost, most efficient network

design and technology replicate conditions in a_ highly

competitive marketplace by not basing prices on existing

network design and investments unless they represent the

least-cost systems available for purchase... .” Local

Competition Order, 11 F.C.C.R. at 15,848 (4 683) (FCC Pet.

App. 69a). Even so, the FCC expressly declined to adopt a

forward-looking methodology “based on the most efficient

network architecture, sizing, technology, and operating

decisions that are operationally feasible and currently

available to the industry.” Jd. The FCC instead established a

methodology “based on costs similar to those incurred by

incumbents.” /d. at 15,846 (§ 679) (FCC Pet. App. 66a-67a).

The FCC accomplished this by determining that TELRIC

should take as given the ILEC’s existing wire centers. /d. at

19

15,848-49 (§ 685) (FCC Pet. App. 70a-71a). That pragmatic

limitation has considerable significance for determining the

rates that ILECs may charge, because it confines the inquiry

to efficient alternatives that are compatible with the most

basic geographic design of the existing network. By basing

prices on efficient new technology that is compatible with the

ILEC’s actual wire center locations, the FCC’s approach

mitigates ILECs’ concerns that a forward-looking pricing

methodology ignores their existing infrastructure. In the

FCC’s words, “[t}his benchmark of forward-looking cost and

existing network design most closely represents the

incremental costs that incumbents actually expect to incur in

making network elements available to new entrants.” Id. at

15,849 (4 685) (FCC Pet. App. 70a-71a) (emphasis added).

The FCC further determined that this limitation, by

encouraging new entrants to reduce costs “by designing more

efficient network configurations,” would put to rest any

concern that the use of a forward-looking cost methodology

would leave new entrants with insufficient incentives to

construct their own facilities. Jd. (FCC Pet. App. 71a).

TELRIC thus encourages and facilitates efficient market

entry. If the rates for network elements are set below

forward-looking cost, new entrants might be deterred from

building competing facilities. Moreover, some new entrants

would be induced to enter using network elements where it

would not otherwise be economically efficient for them to do

so. If the rates for network elements are set too high,

however, competitive entry may never occur. That is because

it is unlikely that new entrants will ever build completely

ubiquitous local networks and consequently must rely, at least

in part, on leased elements. Because new entrants would be

unable to price their retail services at competitive levels, they

would decline to enter the market at all. By designing a

forward-looking cost methodology that simulates a

competitive market, the FCC sought to ensure that the rates

eventually produced by that methodology would encourage

20

new entrants to build competing facilities without stifling

competition from the outset. /d. at 15,848-49 (q 685) (FCC

Pet. App. 70a-71a). Rule 505(b)(1)’s network configuration

requirement is a reasonable and necessary component of that

methodology. The Rule should be reinstated under Chevron.

C. The Eighth Circuit’s Holding Is Internally

Inconsistent, Economically Unsound, And Will

Lead To Unintended Results That Thwart

Congress’ Goal Of Facilitating Competition.

Contrary to the Eighth Circuit’s suggestion, the more

appropriate way to “deal{] with reality” in determining the

forward-looking costs of network elements is to take current

available alternatives into account, rather than ignore them.

In competitive markets, the price that a firm would pay to

lease particular facilities varies with the cost of obtaining the

function of the facilities through some other means, including

through the use of more efficient substitutes. A firm would

not arbitrarily blind itself to the availability of such

substitutes. Taking those substitutes fully into account is not

“fantasizing about what might be,” as the Eighth Circuit

wrongly believed, but is a routine part of any sensible inquiry

into the current value of an asset. Indeed, it would be

irrational, in conducting such an inquiry, to omit

consideration of the effective substitutes altogether and to

proceed on the assumption that technology has frozen in time

and has no bearing on replacement costs.

Moreover, the Eighth Circuit's holding undermines

Congress’ goal of creating competitive market conditions as

quickly as possible—a goal the Eighth Circuit itself

recognized was advanced by a forward-looking cost

methodology. If new competitors could enter the local

market immediately by building ubiquitous networks, they

would set prices based on forward-looking costs using the

latest and most efficient technologies, and ILECs would be

forced to follow suit. TELRIC achieves a similar result in the

21

short term by allowing new entrants to lease parts of the

existing network at their competitive market value. See

Duquesne Light Co. v. Barasch, 488 U.S. 299, 308 (1989)

(forward-looking costs “mimic{] the operation of the

competitive market”), The FCC’s approach encourages the

“efficient entry and utilization of the telecommunications

infrastructure,” Local Competition Order, 11 F.C.C.R. at

15,817 (¢ 630) (FCC Pet. App. 55a) (emphasis added), while

sending the correct signals for entry, investment and

innovation to producers, investors and consumers. By

contrast, the Eighth Circuit’s decision, which results in a cost

methodology that attempts to calculate the cost to reproduce

the identical equipment in the ILEC’s network at today’s cost,

even if such a network would never be built today because

the technology deployed is obsolete and inefficient, is

essentially an embedded cost methodology.

Finally, the Eighth Circuit’s holding could lead to

unexpected results. The court’s conclusion that “it is the cost

to the ILEC of carrying the extra burden of the competitor’s

traffic that Congress entitled the ILECs to recover” suggests

that the Act mandates a pure incremental cost methodology.

This approach could result in a sweeping downward departure

from the prices arrived at under TELRIC, providing

inadequate compensation to ILECs and artificial incentives

for new entrants to compete solely by leasing UNEs instead

of establishing their own networks.

Il. REQUIRING ILECs TO COMBINE NETWORK

ELEMENTS SERVES THE PRO-COMPET-

ITIVE PURPOSES OF THE ACT AND DOES

NOT VIOLATE THE LANGUAGE OF SECTION

251(c)(3).

A. This Court Has Previously Held That Section

251(c)(3) Is Ambiguous. ;

Section 251(c)(3) imposes on ILECs:

22

The duty to provide, to any requesting telecom-

munications carrier for the provision of a telecom-

munications service, nondiscriminatory access to

network elements on an unbundled basis .... 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)(3) (FCC Pet. App. 106a-107a).

To implement this statutory provision, the FCC

promulgated regulations that prohibited ILECs_ from

separating already combined network elements requested by

new entrants, 47 C.F.R. § 51.315(b) (FCC Pet. App. 126a),

and that required ILECs to combine network elements that

are not “ordinarily combined in the incumbent’s network at a

new entrant’s request,” see id. § 51.315(c)-(f) (FCC Pet. App.

126a-127a). The first time the Eighth Circuit reviewed the

FCC’s network combinations rule, it held that Section

251(c\(3) “requires an incumbent LEC to provide access to

the elements of its network only on an unbundled (as opposed

to a combined) basis” and “unambiguously indicates that

requesting carriers will combine the unbundled elements

themselves.” Jowa Utils. Bd. v. FCC, 120 F.3d at 813

(emphasis added).

In /JUBI, this Court rejected the Eighth Circuit's

interpretation of Section 251(c)(3), holding that the statute

was ambiguous. This Court held that Section 251(c)(3) “does

not say, or even remotely imply, that elements must be

provided only [in discrete pieces] and never in combined

form.” /JUBI, 525 U.S. at 394 (emphasis in original). The

FCC’s interpretation of “unbundled,” this Court found,

matched the only dictionary interpretation of that word: “‘to

give separate prices for equipment and supporting services.””

Id. (citation omitted). The Court thus deferred to the FCC's

interpretation of Section 251(c)(3), finding that “[ijt was

23

entirely reasonable for the [FCC] to find that the text does not

command [the] conclusion” that the provision “contemplates

the leasing of network elements in discrete pieces.” /d.

Moreover, the Court found that “[iJn the absence of Rule

315(b) . . . incumbents could impose wasteful costs on [new

entrants}." /d. at 395. The Court held that the FCC was right

to prohibit such “an anticompetitive practice.” Jd. at 394-95.

In light of this Court's decision, a number of federal courts

have held that state commissions may impose terms in

interconnection agreements requiring ILECs to combine

previously uncombined UNEs. See U S W. Communications,

Inc. v. MFS Intelenet, Inc., 193 F.3d 1112, 1121 (9th Cir.

1999) (“It also necessarily follows from [this Court’s decision

in /UB I) that requiring [the ILEC] to combine unbundled

network elements is not inconsistent with the Act: the...

combination provision does not conflict with the Act because

the Act does not say or imply that network elements may only

be leased in discrete parts.”), cert. denied, 120 S. Ct. 2741,

reh’g denied, 121 S. Ct. 18 (2000); MCI Telecomms. Corp. v.

U S W. Communications, Inc., 204 F.3d 1262, 1268 (9th Cir.)

(“The Supreme Court's interpretation of the Act makes

absolutely clear that” a provision requiring combinations does

not violate the Act.), cert. denied, 121 S. Ct. 504 (2000);

Southwestern Bell Tel. Co. v. Waller Creek Communications,

Inc., 221 F.3d 812, 821 (Sth Cir. 2000) (“There is nothing

‘illegal’ about the provision requiring [the ILEC] to combine

network elements for [the new entrant]” because “[nJothing in

the Telecommunications Act forbids such combinations.”);

US W. Communications, Inc. v. Hix, Civ. No. 97-D-152

(consol.), Order at 13-14 (D. Colo. June 26, 2000)

(interconnection agreement provisions “that require [the

ILEC] to combine network elements at the request of new

entrants are fully consistent with Section 251(c)(3) of the Act,

as dispositively interpreted by the Supreme Court”). These

courts upheld provisions requiring ILECs to combine UNEs

as consistent with the Act and rejected the Eighth Circuit's

24

conclusion that Section 251(c)(3) forecloses such a

requirement.

B. The Eighth Circuit Has Erred A Second Time

In Holding That Section 251(c)(3) Un-

ambiguously Requires New Entrants To

Combine UNEs.

On remand, the Eighth Circuit reaffirmed its earlier

decision to invalidate Rule 315(c)-(f) based on the same

“plain language” interpretation of Section 251(c)(3) that this

Court rejected in JUB I. IUB II, 219 F.3d at 759 (FCC Pet.

App. 27a). The Eighth Circuit focused on the phrase “in a

manner that allows requesting carriers to combine” in

concluding that the statute unambiguously requires new

entrants to do the combining. /d. (FCC Pet. App. 28a-29a).

This holding ignores the important implications of the Court's

IUB I decision. In restoring Rule 315(b), this Court implicitly

rejected an interpretation of Section 251(c)(3) that precludes

ILECs from being required to provide UNE combinations.

Rule 315(b) prevents ILECs from separating already

combined UNEs, meaning that ILECs must provide those

UNEs to new entrants in combined form. Requiring ILECs to

combine previously uncombined UNEs upon request is the

“flip-side” of prohibiting them from separating already

combined UNEs. In both instances, combined UNEs are

being provided. There is no basis to say that the statutory

provision is unambiguous in requiring new entrants to

combine UNEs in one context, yet ambiguous enough to

require ILECs to provide UNE combinations in the other.

The Eighth Circuit’s holding also fails to give full effect to

the statutory language. Section 251(c)(3) obligates ILECs to

provide UNEs “in a manner that allows requesting carriers to

combine such elements in order to provide [a]

telecommunications service.” 47 U.S.C. § 251(c)(3) (FCC

Pet. App. 107a). The FCC correctly found that, in many

instances, a requesting carrier would have no practical ability

25

to combine elements on an ILEC’s network or could only do

so through cumbersome and wasteful efforts. If the

language were read as narrowly as the Eighth Circuit

Suggests, the provision would be rendered a nullity, since

requesting carriers would be effectively deprived of the

ability to use combined UNEs “in order to provide a

telecommunications service.” The FCC properly determined

that an ILEC’s statutory duty to provide UNEs in the manner

contemplated by Congress may require that the ILEC do the

actual combining. As the FCC explained, Section 251(c)(3)’s

language “means that incumbents must provide unbundled

elements in a way that enables requesting carriers to combine

them to provide a service[; it] does not impose the obligation

of physically combining elements exclusively on requesting

carriers.” Local Competition Order, 11 F.C.C.R. at 15,647

({ 294) (FCC Pet. App. 46a).

C. It Was Reasonable For the FCC To

Promulgate A Regulation That Prevents

ILECs From Engaging In An “Anti-

competitive Practice.”

Because Section 251(c)(3) is ambiguous, the Eighth Circuit

should have deferred to the FCC’s expertise in implementing

the provision’s requirements. Accord IUB I, 525 U.S. at 395,

397. Rule 315(c)-(f) ensures that new competitors are not

“seriously and unfairly inhibited in their ability to use

unbundled network elements to enter local markets.” Local

Competition Order, 11 F.C.C.R. at 15,647 (4 293) (FCC Pet.

App. 45a). The FCC determined that a new entrant might

lack sufficient information about the ILEC’s network to be

able to perform the combinations at all. In particular, the

FCC noted that “in practice it would be impossible for new

entrants that lack facilities and information about the

incumbent’s network to combine unbundled elements from

the incumbents’ network without the assistance of the

incumbent.” /d.

26

These are the same types of competitive concerns that led

this Court to reinstate Rule 315(b). The Eighth Circuit

acknowledged that this Court’s decision to reinstate Rule

315(b) “is rationally based on the nondiscrimination language

in § 251(c)(3),” yet the Eighth Circuit never considered the

potential for similar discriminatory or anticompetitive

conduct as a reasonable justification for Rule 315(c)-(f). The

only reason an ILEC would refuse to combine UNEs would

be to impose unnecessary burdens and costs on new entrants.

ILECs routinely combine UNEs and, because they control

their networks, can do so much more efficiently than a new

entrant. As long as the ILEC is fairly compensated for

providing UNE combinations, there is no reason that new

entrants—and ultimately their customers—should be forced

to bear the additional costs, logistical delays, maintenance

difficulties, and other burdens of attempting to combine

elements on another carrier’s network. These extra costs and

delays, which ILECs do not suffer when serving their retail

customers, would be pure economic waste borne exclusively

by the new entrant, putting it at a substantial competitive

disadvantage.

Recent developments illustrate the critical significance of

Rule 315(c)-(f). The FCC has found that, in many contexts,

“incumbent LECs have refused to provide access to network

elements so that competitors could combine them.” /n re

Implementation of the Local Competition Provisions of the

Telecomms. Act of 1996, 15 F.C.C.R. 3696, 3910 (§ 482)

(1999). Thus, as a practical matter, new entrants cannot

simply take uncombined elements within the ILEC’s network

and combine them themselves. Absent a requirement that the

ILEC do the combining, competitors in many instances will

not be able to use UNEs—the most promising of the Act’s

mechanisms for developing competition—to provide local

service. Rule 315(c)-(f) should be restored.

27

CONCLUSION

For the foregoing reasons, Sprint respectfully requests that

this Court reinstate 47 C.F.R. § 51.505(b)(1) and 47 C_ER.

§ 51.315(c)-(f).

Respectfully submitted,

DAVID P. MURRAY

Counsel of Record

RANDY J. BRANITSKY

KEVIN M. MILLER

WILLKIE FARR & GALLAGHER

1155 21st Street, N.W.

Washington, D.C. 20036

(202) 328-8000

Counsel for Respondent Sprint

Corporation