# Respondents Brief — Federal Communications Commission v. Iowa Utilities Board

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Respondents Brief
- **Published:** January 1, 2002
- **Citation:** 537 U.S. 807

## Text

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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-.

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

3. The Eighth Circuit’s Decision On Remand
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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
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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0422%3A11. Public record. Not legal advice.