Opposition Brief — General Communications, Inc. v. Iowa Utilities Board

Supreme Court, U.S,

FILE

Supreme Court of the Gnited States

GENERAL COMMUNICATION, INC.,

PETITIONER,

V.

IOWA UTILITIES BOARD, ET AL.,

RESPONDENTS.

AND RELATED PETITIONS

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

CONSOLIDATED BRIEF FOR THE UNITED

STATES TELECOM ASSOCIATION AND THE

RURAL TELEPHONE COALITION IN OPPOSITION

GARY M. EPSTEIN

MAUREEN E. MAHONEY*

NANDAN M. JOSHI

LATHAM & WATKINS

1001 Pennsylvania Avenue,

N.W., Suite 1300

Washington, D.C. 20004

(202) 637-2200

Counsel for Respondents United

States Telecom Association and

Rural Telephone Coalition

* Counsel of Record

(Other counsel listed on inside

cover)

Lawerence E. Sargent

Linda L. Kent

Keith Townsend

John W. Hunter

Julie E. Jones

1401 H Street, N.W., Suite 600

Washington, D.C. 20005

(202) 326-7371

Counsel for United States Telecom

Association

L. Marie Guillory

Daniel Mitchell

4121 Wilson Blvd.,

10th Floor

Arlington, Virginia 22203

(703) 351-2000

Counsel for National Telephone

Cooperative Association

Margot Smiley Humphrey

Holland & Knight, L.L.P.

2100 Pennsylvania Avenue, N.W.,

Suite 1000

Washington, D.C. 20037

(202) 955-3000

Counsel for National Rural

Telecom Association

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QUESTIONS PRESENTED

1. Where 47 U.S.C. §251(f) provides that small and

rural local exchange carriers are exempt from, and may

obtain suspensions and modifications from, certain statutory

obligations imposed on local exchange carriers if those

obligations are “unduly economically burdensome,” did the

Eighth Circuit correctly hold that 47 C.F.R. § 51.405

impermissibly departed from the ordinary meaning of an

undue economic burden?

2. Did the Eighth Circuit correctly hold that 47 U.S.C.

§ 251(f)(1) requires a party seeking to terminate a rural

exemption to bear the burden of proving that the criteria for

termination have been met, in conformity with the ordinary

rule?

8. Did the Eighth Circuit correctly hold that 47 C.F.R.

§51.405 was arbitrary and unreasonable because the

unambiguous language of the rule eliminated two of the

three statutory grounds established in 47 U.S.C. § 251(f) for

denying requests to terminate exemptions and granting

suspensions or modifications?

CORPORATE DISCLOSURE

Pursuant to Rule 29.6 of the Supreme Court Rules, the

United States Telecom Association (““USTA”) and the Rural

Telephone Coalition (“RTC”) respectfully submit this

disclosure statement.

USTA is a non-profit trade association representing the

interests of facilities-based local exchange and exchange

access providers. These companies are its full members.

USTA also has international members who provide local

exchange services in other jurisdictions, and associate

members including consultants, manufacturers, banks and

investors, and other parties with interests in the local

exchange carrier industry. USTA has no parent companies,

subsidiaries, or affiliates for whom disclosure is required by

Rule 29.6.

RTC is comprised of the National Rural Telecom

Association, the National Telephone Cooperative

Association, and the Organization for the Promotion and

Advancement of Small Telecommunications Companies.

Each of the associations in the RTC is a non-profit trade

association representing the interests of facilities-based local

exchange and exchange access providers. These companies

are full members of the associations. Some of the

associations also have international members who provide

local exchange services in other jurisdictions, and associate

members consisting of consultants, manufacturers, and

other parties with interests in the local exchange carrier

industry. Neither the RTC nor any of the associations have

any parent companies, subsidiaries, or affiliates for whom

disclosure is required by Rule 29.6.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ...ccccccoocsssssscsssssscscsecessvesseseneeeen i

CORPORATE DISCLOSURE .nccssccccssssssssssssssceessesessseseeeeeen ii

TABLE OF CONTENTS o..essccssccsssscsocccccssccssssccesseseerenssesesee iii

TABLE OF AUTHORITIES ......-.sssccccccccsssssscccssssesssenssssscees v

a 1

I. REGULATION OF COMPETITION IN

RURAL MARKETS o.ccccccccssccocccccssscecnsccsecesessesnesenseeeee 3

II. PROCEEDINGS BELOW o.cccccssccscccsocsssssssssscscesseseeenee 7

REASONS FOR DENYING THE WRIT ...c.ccssscscsscocsssseeee 9

I. THE EIGHTH CIRCUIT'S DECISION TO

VACATE RULE 51405 DOES NOT

PRESENT ANY ISSUE THAT WARRANTS

SUPREME COURT REVIEW. ...............ccccsssseseseserseenees 9

Il. THE EIGHTH CIRCUIT CORRECTLY

APPLIED SETTLED PRINCIPLES OF

STATUTORY INTERPRETATION..................cccceseees 13

A. The Eighth Circuit Correctly Interpreted

The Undue Economic Burden Standard

Of Section 251(f) In Conformity With Its

A 13

B. The Eighth Circuit Correctly Interpreted

Section 251(f) To Impose The Burden Of

Proof On The Applicant 15

iv

C. The Eighth Circuit Correctly Held That

The Unambiguous Language Of The

FCC’s Rule Impermissibly Prohibited

State Commissions From Relying On Two

v

TABLE OF AUTHORITIES

CASES Page(s)

AT&T Corp. v. Iowa Utils. Bd.,

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Chevron U.S. A. Inc. v. Natural Resources Defense

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Director, Office of Workers’ Compensation

Programs v. Greenwich Collieries, _

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Thomas Jefferson Univ. v. Shalala,

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Sutton v. United Air Lines, Inc.,

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STATUTES AND REGULATIONS

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16 Tex. Admin. Code § 22.141 ........c.cccsccccscsssssccessssssssssessesesses 12

Implementation of the Local Competition Provisions

in the Telecommunications Act of 1996, 11

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>_—

LEGISLATIVE MATERIALS

John C. Panzar & Steve S. Wildman, “Competition in

the Local Exchange: Appropriate Policies to

Maintain Universal Service in Rural Areas”

(Northwestern Univ. 1993), attached to

National Communications Infrastructure

(Part 3), Hearings before the Subcomm. on

Telecomms and Finance of the House Comm.

on Energy and Commerce, 103d Cong. (Feb.

9, 1994) (testimony of Lawrence C. Ware,

Bate. BGR. Ble. GRBGS CODED cccecccecsnsssensecscecsencesenenensecsesessenssnstes 3

H.R. Rep. No. 104-204, pt. 1 (1995) ............cccsesssesesesreesseseseseees 5

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S. 652, 104th Cong., sec. 101, § 251(§) (1995) -.eccessssssssssssee 6, 12

In The

Supreme Court of the United States

GENERAL COMMUNICATION, INC.,

PETITIONER,

V.

IOWA UTILITIES BOARD, ET AL.,

RESPONDENTS.

AND RELATED PETITIONS

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

CONSOLIDATED BRIEF FOR THE UNITED

STATES TELECOM ASSOCIATION AND THE

RURAL TELEPHONE COALITION IN OPPOSITION

STATEMENT

Respondent United States Telephone Association

(“USTA”) is a non-profit trade association that represents

the interests of over 1000 facilities-based local exchange and

exchange access providers, most of which are small- and

mid-sized local exchange carriers (“LECs”). Respondent

Rural Telephone Coalition (“RTC”) is an alliance composed

of three national trade associations, the National Rural

Telecom Association, the National Telephone Cooperative

Association, and the Organization for the Promotion and

Advancement of Small Telecommunications Companies,

which together represent the interests of more than 850

small and rural incumbent LECs.

2

The Telecommunications Act of 1996 (the “1996 Act”)

sought to encourage competition in local markets by

permitting competitors to interconnect with and use

facilities of incumbent LECs on terms established in 47

U.S.C. §251(b) and (c). Section 251(f) of the

Communications Act of 1934 (the “1934 Act”) concerns the

application of these new competitive obligations to rural

telephone companies and other small- and mid-sized LECs.

Respondents participated in the FCC’s rulemaking at issue

here, and opposed the agency’s adoption of 47 C.F.R.

§ 51.405 (“Rule 51.405”) as an arbitrary and unreasonable

interpretation of Section 251(f). Respondents then

successfully challenged Rule 51.405 in the Eighth Circuit.

The Eighth Circuit vacated the rule because it is based on

an unreasonable interpretation of the statutory language in

violation of the Administrative Procedure Act (“APA”), 5

U.S.C. § 706.

The petition for certiorari filed by the United States in

this case does not request review of the Eighth Circuit's

decision to vacate Rule 51.405, or present any issue that

relates to the proper interpretation of Section 251(f). AT&T

Corp. (‘AT&T”) and General Communication, Inc. (“GCI”)

have nevertheless filed petitions for certiorari seeking

review of this issue. But there is no basis whatsoever to

grant certiorari to review the validity of an agency rule

when the United States has elected not to seek certiorari on

that question. In addition, Petitioners concede that there is

no judicial conflict on this issue, and the Eighth Circuit’s

interpretation of the statutory language does not foreclose

competition in rural markets as Petitioners contend. The

petitions do not present any question that warrants review

by this Court.!

1 This brief in opposition filed by USTA and RTC addresses only

the Eighth Circuit’s decision with respect to Section 251(). USTA has

joined the petition for certiorari filed by Verizon Communications, Inc. et

3

I. REGULATION OF COMPETITION IN RURAL

MARKETS

1. Providing universal service to rural areas has

presented difficult policy issues for many decades. The

reason for the problem is straightforward: the cost of

offering service in rural areas is substantially higher than

the cost of providing service to urban areas.2 The high cost

structure of serving sparsely populated markets has

generally discouraged investment in rural telephony. Over

the years, however, small and rural telephone providers

have made the substantial investment required to serve the

most sparsely populated areas.

As “carriers of last resort,” these small companies have

been particularly vulnerable to “cream skimming” by new

entrants that target only the few business users in the rural

territories. See, e.g., H.R. Rep. No. 81-246, at 8 (1949)

(Congress imposed area-wide coverage requirements for

rural markets because some telephone companies were

“running their lines down the highways into the most

profitable areas”). Left unchecked, the loss of even one or

al. in No. 00-511 seeking review of the Eighth Circuit’s decision with

respect to Section 252(d)(1). In addition, for the reasons set forth in the

Brief in Opposition filed by BellSouth Corporation et al. in Nos. 00-555,

00-587, and 00-590, USTA opposes the grant of certiorari on the FCC’s

wholesale pricing formula under Section 251(c)(4) and the FCC’s

requirement that LECs combine previously uncombined network

elements at the request of competitors.

. An expert advised Congress that an analysis of rural telephone

companies revealed that they had an average density of only six

subscribers per route mile, while the Bell Operating Companies had an

average density of 130 subscribers per route mile. See John C. Panzar &

Steve S. Wildman, “Competition in the Local Exchange: Appropriate

Policies to Maintain Universal Service in Rural Areas,” at 6

(Northwestern Univ. 1993), attached to National Communications

Infrastructure (Part 3), Hearing Before the Subcomm. on Telecomms.

and Finance of the House Comm. on Energy and Commerce, 103d Cong.

(Feb. 9, 1994) (testimony of Lawrence C. Ware, Rural Tel. Coalition)

(“Panzar”).

4

two high-volume customers in a rural market will drive up

the costs of serving the rural LEC’s remaining residential

customers and/or diminish the economic viability of the rural

service providers.

2. The Telecommunications Act of 1996 fundamentally

changed the nature of competition in _ the

telecommunications industry by removing many barriers to

entry to competing providers of telephone service. Policies

designed to promote vigorous competition in densely

populated urban areas where vast economies of scale are

possible, however, may harm the interests of customers in

rural markets. See Panzar at 4-8. In recognition of the

differences in rural and urban markets, the 1996 Act did not

renounce decades of special policies designed to enable small

and rural companies to provide service and update their

networks. Congress instead struck a balance between two

of its central goals: promoting competition and preserving

the economic ability of small and rural telephone companies

to continue to assume the burdens of universal service in

rural markets with high cost structures.

Numerous provisions of the 1996 Act give the State

Commissions regulating local telephone service the tools to

prevent unchecked competition in rural markets. In Section

253, for example, Congress adopted a general rule that

States may not prohibit any entity from providing “any

interstate or intrastate telecommunications service,” 47

U.S.C. § 253(a), but made a special exception to permit

States to require any firm entering a market served by a

rural telephone company to provide universal service

throughout the market. 47 U.S.C. §253(f). Similarly,

Congress decided to promote universal service in high cost

areas by granting financial support to telecommunications

carriers that offered service “throughout the service area.”

47 U.S.C. §214(e). But Congress presumed that only one

carrier should provide subsidized universal service to rural

areas, and provided that a State could not permit a second

5

telecommunications carrier in “an area served by a rural

telephone company” to obtain universal service payments

unless the State Commission makes an express finding that

it would serve the public interest to do so. 47 U.S.C.

§ 214(e)(2).

The central provision at issue here — Section

251(f)- also reflects Congress’s recognition that rural

markets are different, and that the competition policies of

the 1996 Act must be carefully tailored to those markets.

Although 47 U.S.C. §251(c) requires LECs to provide

competitors with interconnection and access to LEC

facilities and services in order to stimulate and accelerate

competitive entry, Section 251(f) establishes two statutory

mechanisms to relieve rural telephone companies and other

small carriers from those obligations? Under Section

251(f)(1), “rural telephone companfies} are granted an

automatic exemption from all of the interconnection

obligations imposed on incumbent LECs by Section 251(c).

The exemption can only be terminated in State Commission

proceedings, and only if: (1)a carrier files a “bona fide

request” for interconnection with the State Commission,

and (2) the State Commission determines that “such request

is not unduly economically burdensome,” is “technically

feasible,” and is otherwise “consistent” with certain

3 Congress recognized the need to include some type of exemption

or waiver provision to create a “level playing field, particularly when a

company or a carrier to which this subsection applies faces competition

from a telecommunications carrier that is a large global or nationwide

entity that has financial or technological resources that are significantly

greater than the resources of the company or carrier.” S. Rep. No. 104-

23, at 22 (1995); see also H.R. Rep. No. 104-204, pt. 1, at 74 (1995) (rural

exemption necessary to avoid “significant costs associated with seeking a

modification or waiver before the Commission”). Such concerns

culminated in Section 251(f).

4 The definition of a “rural telephone company” is established in 47

U.S.C. § 158(37).

6

universal service provisions of Section254. 47 U.S.C.

§ 251(f)(1)(A), (B).

Congress also adopted a distinct mechanism for granting

other discretionary relief in Section 251(f(2). Any LEC

(including a rural telephone company) that has “fewer than 2

percent of the Nation’s subscriber lines installed in the

aggregate nationwide” may petition a State Commission for

a suspension or modification of any requirement imposed by

Section 251(b) or Section 251(c). 47 U.S.C. § 251(f(2). A

petition filed under this section may be granted by the State

Commission if it finds that the suspension or modification is

necessary to avoid a “significant adverse economic impact on

users of telecommunications services generally,” an undue

economic burden, or a requirement that is “technically

infeasible,” to the extent consistent with “the public

interest.” 47 U.S.C. § 251(f)(2)(A), (B).

Exemption, suspension, and modification proceedings

can only be conducted by State Commissions. Congress

rejected a bill that would have granted the FCC concurrent

jurisdiction to conduct these hearings. See S. 652, 104th

Cong., sec. 101, § 251(i) (1995).

3. In its First Report and Order, the FCC promulgated

only one rule concerning Section 251(f) exemptions and

suspensions. Rule 51.405 establishes mandatory standards

of proof that restrict the discretion of State Commissions

conducting exemption, suspension, and modification

hearings under Section 251(f). Three features of the rule are

at issue in this case.

First, the text of Rule 51.405 unambiguously requires

State Commissions to terminate a rural exemption unless

the request for interconnection would impose an “undue

economic burden.” In contrast, the statute establishes two

5 “In order to justify continued exemption under section 251(f)(1) of

the Act once a bona fide request has been made, an incumbent LEC

must offer evidence that the application of the requirements of section

7

additional grounds for denying a request to terminate a

rural exemption: technical infeasibility and inconsistency

with universal service provisions. The text of Rule 51.405

similarly eliminated two of the three independent criteria

for granting a suspension or modification by requiring small

and rural LECs to demonstrate undue economic burdens in

all cases. 47 C.F.R. § 51.405(d).

Second, the FCC restricted the authority of State

Commissions to consider the full extent of the “economic

burden” that would result from a competitor's request to

terminate an exemption (or the denial of a request for

suspension or modification). Rule 51.405 provides that a

State Commission finding that an economic burden is

“undue” must not be based upon any “economic burden that

is typically associated with efficient competitive entry.” 47

C.F.R. § 51.405(c).

Third, the FCC prohibited State Commissions from

imposing the burden of proof on carriers requesting

termination of an exemption. The FCC’s order did not

attempt to reconcile its rule with the statutory language,

but claimed that “it is appropriate to place the burden of

proof on the party seeking relief from otherwise applicable

requirements.” GCI Pet. App. at 75a.

II. PROCEEDINGS BELOW

On remand from this Court’s decision in AT&T Corp. v.

Iowa Utilities Board, 525 U.S. 366 (1999), the Eighth Circuit

concluded that Rule 51.405 violated the APA. The Eighth

Circuit vacated the FCC’s rule because the rule departed

from the statutory text in three respects.

1. The Court held that Rule 51.405 could not survive

scrutiny under the APA because the plain language of the

regulation eliminated two of the three statutory bases for

251(c) of the Act would be likely to cause undue economic burden beyond

the economic burden that is typically associated with efficient

competitive entry.” 47 C.F.R. § 51.405(c) (emphasis added).

8

denying a competitor’s request to terminate an exemption.

GCI Pet. App. at 27a. The statute permits a State to

terminate a rural exemption only where “a request for

interconnection, services, or network elements ‘is not

unduly economically burdensome, is technically feasible, and

is consistent with section 254.” Jd. at 26a (emphasis added).

In contrast, the FCC’s rule provides that the rural

telephone company “must offer evidence” of an “undue

economic burden” to “justify continued exemption” from the

interconnection obligations of Section 251(c). 47 C.F.R.

§ 51.405(c).

The FCC claimed that it did not intend to eliminate the

other statutory criteria despite the unambiguous language

of the rule. The Eighth Circuit explained, however, that

State Commissions — not the FCC — must apply the rule,

and “{a] State Commission looking at rule 51.405(c) would

conclude that, if a rural ILEC had failed to show an undue

economic burden, the exemption must be terminated,

regardless of the existence of the ILEC’s companion

defenses of technical infeasibility and/or inconsistency with

§ 254 of the Act.” GCI Pet. App. at 27a. Under these

circumstances, the Eighth Circuit held that the rule was

“arbitrary and unreasonable,” and should be vacated. Jd.

2. The Eighth Circuit also held the FCC had

impermissibly departed from Congress’s “chosen language”

when establishing standards of proof governing a State

Commission’s inquiry into whether a _ request for

interconnection would be “unduly economically

burdensome.” Jd. at 30a. The Eighth Circuit explained that

the statutory language demonstrated that “{i}t is the full

economic burden on the ILEC of meeting the request that

must be assessed by the state commission,” and the FCC’s

decision to “exclude” consideration of the “economic burden

that is typically associated with efficient competitive entry”

had “substantially alter{ed] the requirement Congress

established” and “impermissibly weakened the broad

protection Congress granted to small and rural telephone

companies.” Jd. at 29a (citation omitted).

The Court further determined that the FCC’s departure

from the statutory text could not be justified by the FCC’s

asserted goal of increasing competition. The Court

explained that “Congress sought both to promote

competition and to protect rural telephone companies.” Id.

at 28a. The Court also rejected the claim that “consideration

of the whole economic burden occasioned by the request will

result in state commissions ‘automatically’ continuing the

exemption, or ‘automatically’ granting a petition for

suspension or modification.” Jd. at 30a. The Court observed

that State Commissions that decide whether to terminate an

exemption or grant a suspension or modification will

“undoubtedly” consider the payments that the small and

rural LECs receive from fulfilling interconnection requests

when determining whether the overall economic burden was

“undue.” Id.

3. The Eighth Circuit also rejected the FCC’s attempt

to shift the burden to the rural LEC to “prove that it is

entitled to a continuing exemption.” Jd. The Court held

that “[tJhe plain meaning of the statute requires the party

making the request to prove that the request meets the

three prerequisites to justify the termination of the

otherwise continuing rural exemption.” Jd. at 3la-32a.

REASONS FOR

DENYING THE WRIT

I. THE EIGHTH CIRCUIT'S DECISION TO

VACATE RULE 51.405 DOES NOT PRESENT

ANY ISSUE THAT WARRANTS SUPREME

COURT REVIEW

Petitioners do not claim that review of the Eighth

Circuit’s interpretation of Section 251(f) is necessary to

resolve a conflict with any other court. AT&T Pet. at 16-21;

GCI Pet. at 7. Nor do Petitioners claim that review is

7 10

appropriate because the Section 251(f) issues are in any way

intertwined with other questions presented in the parties’

petitions for certiorari. They are not.® Petitioners instead

claim that immediate review by this Court is essential

because the Eighth Circuit’s interpretation of Section 251(f)

will effectively foreclose competition in rural markets. But

that contention is completely undermined by the FCC’s

decision not to seek certiorari on the Section 251(f) issues,

and Petitioners’ claim rests upon a fundamental

mischaracterization of Section 251(f) and the Eighth

Circuit’s decision.

1. GCI contends that this Court’s review is warranted

because “a panel of three Eighth Circuit judges alone will

have effectively foreclosed the ability of the FCC to

effectuate policy choices” necessary for competition in rural

areas. GCI Pet. at 7-8. The F'CC obviously does not share

that view. The United States elected to exclude the Eighth

Circuit’s decision on Rule 51.405 from the scope of its own

petition for certiorari. That decision provides a high level of

assurance that the Section 251(f) issues raised by Petitioner

do not rise to the level of national importance that warrants

this Court’s review.

The Eighth Circuit’s decision does not foreclose the

FCC’s authority to adopt rules to promote competition in

rural areas in any event. The decision merely requires those

rules to be consistent with the 1996 Act. On the discrete

legal questions at issue in this case, the Court held that the

FCC’s rule was not consistent with Section 251(f). This

hardly forecloses the FCC from adopting other rules and

6 See Verizon Communications, Inc., et al. v. FCC, et al., No. 00-

511; FCC, et al. v. Jowa Utils. Bd, et al., No. 00-587; WorldCom, Inc., e

al. v. Verizon Communications, Inc., et al., No. 00-555; see also AT&T

Pet. at i (raising questions other than the Eighth Circuit’s decision on

Rule 51.405).

11

policies relating to rural competition that are consistent

_ with the statute.

- 2. Petitioners overstate the effect of rural exemptions,

suspensions, or modifications on the rights of competitors.

Contrary to Petitioners’ claims, Section 251(f) does not serve

to prohibit competitors from entering rural markets. The

exemptions, suspensions, and modifications authorized by

the Act merely relieve small and rural LECs of the

obligations to provide competitors with the right to compete

through the use of the incumbents’ facilities on the terms

established by Section 251(b) and (c). Thus, even where a

rural telephone company is exempt under Section 251(f)(1),

or a small or rural LEC has received a suspension or

modification under Section 251(f)(2), Section 251(f) does not

prevent new entrants from providing local telephone service

through the use of their own facilities in competition with

the incumbent or using the incumbents’ services pursuant to

sections 201 and 251(a), 47 U.S.C. §§ 201, 251(a).

Indeed, AT&T asserts that it intends to compete in

many rural markets usit:z its own facilities. AT&T Pet. at

20-21. This in itself belies its contention that the Eighth

Circuit’s decision forecloses local competition in rural

markets. AT&T’s true complaint is that it may not obtain

the competitive advantage of “cost-based interconnection”

under Section 251(c)(2) (id. at 21), but that is a far cry from

its claim that the Eighth Circuit’s interpretation forecloses

LECs from competing with incumbents in rural markets.

3. Petitioners’ claim that the Eighth Circuit’s decision

makes exemption, suspensions, and modifications

“automatic” and “permanent” is also mistaken. See id. at 18.

The Court’s interpretation of Section 251(f) does not

transform every “economic loss{] from competitive entry”

into an “undue” burden. Jd. at 18-19. The decision instead

allows for the possibility, which Rule 51.405 foreclosed, that

economic burdens arising out of efficient competitive entry

may, in particular circumstances, be “unduly economically

12

burdensome.”” The decision accordingly does not foreclose

competitive entry, but restores the State Commission’s

statutory authority to consider all the relevant factors in

determining whether the competitor’s request would be

“unduly economically burdensome.”

Similarly, placing the burden of proof on the party

seeking to terminate a rural exemption does not place an

insurmountable obstacle on competitors in Section 251(f)

proceedings as Petitioners suggest. Jd. at 19-20; GCI Pet. at

17. Litigants in State Commission hearings have many

sources of information, including discovery and mandatory

reporting requirements, from which they may obtain

relevant information. See, eg., 16 Tex. Admin. Code

§ 22.141 (providing for discovery in administrative

proceedings).

4. There is also no merit to GCI’s contention that the

“cultural predilection” of “local regulators” will now ensure

that competition is thwarted. GCI Pet. at 9. Congress did

not share GCI’s_ skepticism concerning the State

Commissions’ willingness to fulfill their statutory

responsibilities. To the contrary, Congress rejected a bill

that would have given the FCC concurrent jurisdiction to

conduct Section 251(f) hearings and entrusted the

adjudicatory responsibility for conducting these proceedings

to the State Commissions. See S. 652, 104th Cong., sec. 101,

§ 251() (1995).

7 Contrary to AT&T's suggestion, AT&T Pet. at 19, this does not

mean that every uncompensated loss of customers will impose an undue

burden on small or rural LECs. Whether a loss of customers as a result

of efficient competitive entry results in an undue burden will depend on a

number of factors. Indeed, the situation contemplated by AT&T's

example, where the rural LEC receives minimal revenue with which to

meet its universal service obligations while losing significant numbers of

customers to competition, is a situation in which, contrary to AT&T's

argument, the burdens on the LEC will be the greatest, not the most

trivial. Id.

13

Il. THE EIGHTH CIRCUIT CORRECTLY

APPLIED SETTLED PRINCIPLES OF

STATUTORY INTERPRETATION

Petitioners’ request for review boils down to their claim

that the Eighth Circuit misinterpreted Section 251(f. A

claim of legal error, however, provides no basis for review,

and the Eighth Circuit correctly applied settled principles of

statutory interpretation in any event.

A. The Eighth Circuit Correctly

Interpreted The Undue Economic

Burden Standard Of Section 251(f) In

Conformity With Its Ordinary Meaning

1. Contrary to Petitioners’ contentions (AT&T Pet. at

17-18; GCI Pet. at 20), the Eighth Circuit did not depart

from the standards of interpretation established in Chevron

U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837 (1984). As Chevron itself explains, a reviewing

court must consider the statutory text and “traditional tools

of statutory construction” when determining whether a

regulation represents a permissible construction of the

statute. Chevron, 467 U.S. at 842-43 & n.9. The Eighth

Circuit undertook that examination and properly found that

Rule 51.405 did not satisfy the Chevron standard.

The Eighth Circuit correctly held that Rule 51.405

excluded consideration of certain types of economic

burdens — those “associated with efficient competitive

entry” — without any support in the statutory text. As the

Court explained, “[the] chosen language looks to the whole

of the economic burden the request [for interconnection]

imposes, not just a discrete part.” GCI Pet. App. at 30a

(emphasis added). As the Court emphasized, “[i}f Congress

had wanted the state commissions to consider only that

economic burden which is in excess of the burden ordinarily

imposed on a small or rural ILEC by a competitor's

requested efficient entry, it could easily have said so.” Jd. at

29a-30a.

14

2. Petitioners contend that the Eighth Circuit should

have upheld the FCC’s rule because Congress sought to

bring competition to rural areas. AT&T Pet. at 18; GCI Pet.

at 24. The Eighth Circuit did not hold otherwise. See GCI

Pet. App. at 28a (“It is clear that Congress intended that all

Americans, including those in sparsely settled areas served

by small telephone companies, should share the benefit of

the lower cost of competitive telephone service and the

benefits of new telephone technologies”). The Eighth

Circuit recognized, however, that “Congress sought both to

promote competition and to protect rural telephone

companies,” and that adherence to the ordinary meaning of

the words used in Section 251(f) achieved both of those

goals. Id.

The Eighth Circuit’s analysis of the competing statutory

policies is consistent with other provisions of the 1996 Act

that balance Congress’s twin goals of promoting competition

and preserving the viability of the universal service

providers in rural markets. For example, while Congress

generally preempted state requirements that would

“prohibit or have the effect of prohibiting” any entity from

providing a competitive telecommunications service, 47

U.S.C. § 253(a), it permitted States to require any firm

entering a market served by a rural telephone company to

provide universal service throughout the market, even if

this requirement effectively prohibits new entrants.

Similarly, Congress permitted States to limit universal

service support in rural markets to one carrier, absent a

finding that it would serve the public interest to have

additional carriers receive support. 47 U.S.C. § 214(e)(2).

These provisions undoubtedly discourage some competitive

entry, but that is a reflection of the congressional scheme.

The Eighth Circuit’s interpretation of Section 251(f) fits

squarely within this framework.

15

B. The Eighth Circuit Correctly

Interpreted Section 251(f) To Impose

The Burden Of Proof On The Applicant

1. The Eighth Circuit held that the “plain meaning of

the statute requires the party making the request to prove

that the request meets” the criteria for termination of the

exemption. GCI Pet. App. at 31a-32a. That conclusion finds

direct support in the language and structure of the Act.

Congress established in Section 251(f(1) that a rural

telephone company has an “exemption” from the obligations

imposed by Section 251(c) of the Act, and that a State

Commission cannot terminate the exemption unless the

“party making a bona fide request... for interconnection,

services or network elements ...submit[{s] a notice of its

request to the State Commission” and the State Commission

determines that “the request is not unduly economically

burdensome, is technically feasible, and is consistent with

[certain universal service provisions in] section 254.” 47

U.S.C. § 251(f)(1)(B) (emphasis added).

In direct contrast to this language, Subsection (f)(2)

requires a LEC seeking a suspension or modification to

initiate the State Commission proceedings and to

demonstrate that a requirement “is unduly economically

burdensome,” or that the other criteria are satisfied. 47

U.S.C. § 251(f)(2) (emphasis added). The different language

used in the two sections clearly reflected a different

allocation of the burden of proof, but Rule 51.405 ignored

those differences and imposed the burden of proof on the

rural LEC in exemption proceedings.®

Petitioners contend that, absent language in the

statutory text expressly referring to the burden of proof,

the FCC has complete discretion in deciding which party

5 Respondents have always acknowledged that the language of

Section 251(f)(2) demonstrates that a LEC seeking suspension or

modification bears the burden of proof.

16

bears the burden. AT&T Pet. at 19-20; GCI Pet. at 14.

Contrary to Petitioners’ arguments, the plain meaning of a

statute may be discerned even where the statute itself does

not answer the question with explicit language. See, e.g.,

Sutton v. United Air Lines, Inc., 527 U.S. 471, 482 (1999)

(Americans with Disabilities Act held to require

consideration of corrective measures in determining class of

persons protected, even though the Act itself did not

expressly state that corrective measures must be

considered). Here, the Eighth Circuit had ample evidence

from the statutory text to conclude that the plain meaning

of Section 251(f) imposed the burden of proof on the party

seeking to terminate a rural exemption.

2. The Eighth Circuit’s reading of the statute is also

buttressed by the ordinary rules governing the allocation of

the burden of proof. The Administrative Procedure Act

unequivocally establishes that “[e]xcept as otherwise

provided by statute, the proponent of... [an] order has the

burden of proof.” 5 U.S.C. §556(d). If the APA were

applicable to State Commission proceedings, there could be

no question but that the carrier requesting the termination

of the exemption—the “proponent of... [an]

order’ — would bear the burden of proof. Id.; see also 47

C.F.R. § 1.254 (providing that the burden of proof in FCC

hearings “shall be upon the applicant except as otherwise

provided”); Director, Office of Workers’ Compensation

Programs v. Greenwich Collieries, 512 U.S. 267, 281 (1994)

(Department of Labor had no authority to adopt an

adjudicative interpretation that shifted the burden of proof

to the party opposing a request). Congress used no

language whatsoever to suggest an intent to mandate a

different rule for State Commission proceedings under

Section 251(f)(1).

3. Petitioners nevertheless protest that rural telephone

companies should bear the burden of proof because they

possess information that would be relevant to the State

17

Commission’s determination whether to terminate the

exemption. AT&T Pet. at 20; GCI Pet. at 16-17.

Petitioners’ argument ignores that the party requesting

termination of the exemption has exclusive possession of

much of the relevant information. For example, an analysis

of the economic burdens that would be caused by a request

for interconnection necessarily depends upon the details of

the requesting party’s plans, including specific information

about the types of interconnection that such party is

seeking, whether the requesting carrier intends to provide

service throughout the rural area, and how the requesting

carrier intends to price its services vis-a-vis the rate-

regulated incumbent.

While Petitioners rely on the FCC’s statement that the

rural LEC controls much of the necessary information, see

GCI Pet. App. at 75a, the Eighth Circuit was correct to

discount the FCC’s analysis. The FCC did not even attempt

to identify the types of information that would be necessary

or to explain why State Commissions’ discovery rules and

publicly available information about the incumbent LEC

would be inadequate to provide a carrier requesting

termination of an exemption with the relevant information.

4. GCI erroneously asserts that rural telephone

companies should bear the burden of proof because they are

seeking an exemption from general statutory requirements.

The cases cited by GCI generally stand for the

unremarkable proposition that a party seeking to take

advantage of a statutory exemption must prove that it

qualifies for that exemption. See GCI Pet. at 18.

Respondents do not dispute that rural telephone companies

must prove that they qualify as rural telephone companies

to receive the benefit of the rural exemption under

Section 251(f)(1). Once this is shown, however, the burden is

on a party requesting termination of the exemption granted

by the 1996 Act to show that the criteria for termination

have been met. Contrary to GCI’s contention, the Eighth

18

Circuit’s approach to assigning the burden of proof is fully

consistent with “the approach generally taken in this Court

of assigning burdens of proof.” Jd. at 18.

C. The Eighth Circuit Correctly Held That

The Unambiguous Language Of The

._ FCC’s Rule Impermissibly Prohibited

State Commissions From Relying On

Two Of The Statutory Grounds For

Relief

The Eighth Circuit held that Rule 51.405 was invalid

because the rule, by its terms, eliminated two of the three

statutory criteria required to terminate a rural exemption.

GCI alone contends that this Court should review the

Eighth Circuit’s decision on this point, citing an FCC order

adopted after Rule 51.405 was promulgated to support its

view that the FCC did not intend to preclude State

Commissions from relying on any of the statutory grounds

set forth in Section 251(f), GCI Pet. at 27 (citing

Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996, 11 F.C.C.R. 20166, 4 15

(1996)). Based on this order, GCI contends that the Eighth

Circuit’s interpretation of the FCC’s rule was erroneous.

The issue raised by GCI is wholly unsuited for review in

this Court. If, as GCI contends, the FCC did not intend to

eliminate any statutory criteria for terminating the rural

exemption, the FCC may easily re-promulgate Rule 51.405

in a manner that makes clear on the face of the regulation

that all of the statutory criteria must be satisfied before the

rural exemption can be terminated. Rule 51.405 as drafted,

however, does not state this: it unambiguously provides

that a rural telephone company “must offer evidence” of an

undue economic burden to justify continued exemption

under Section 251(f(1). While an agency has some

discretion in interpreting its rules, the agency may not

justify a regulation by advancing an interpretation that is

flatly inconsistent with its text, especially in the unusual

19

situation here where State Commissions, not the FCC, will

have to apply the rule. Thomas Jefferson Univ. v. Shalala,

512 U.S. 504, 512 (1994).

The Eighth Circuit correctly

vacated Rule 51.405 as an “arbitrary” and “unreasonable”

rule in violation of the APA under these circumstances.

CONCLUSION

The petitions for certiorari should be denied.

November 17, 2000

Respectfully submitted,

GARY M. EPSTEIN

MAUREEN E. MAHONEY*

NANDAN M. JOSHI

LATHAM & WATKINS

1001 Pennsylvania Avenue,

N.W., Suite 1300

Washington, D.C. 20004

(202) 637-2200

Counsel for Respondents United States

Telecom Association and Rural

Telephone Coalition

*Counsel of Record

(Other counsel listed on next page)

Lawerence E. Sargent

Linda L. Kent

Keith Townsend

John W. Hunter

Julie E. Jones

1401 H Street, N.W,,.

Suite 600

Washington, D.C. 20005

(202) 326-7371

Counsel for United States Telecom Association

L. Marie Guillory

Daniel Mitchell

4121 Wilson Blvd.,

10th Floor

Arlington, Virginia 22203

(703) 351-2000

Counsel for National Telephone Cooperative Association

Margot Smiley Humphrey

Holland & Knight, L.L.P.

2100 Pennsylvania Avenue, N.W.,

Suite 1000

Washington, D.C. 20037

(202) 955-3000

Counsel for National Rural Telecom Association

os