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

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## Record

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

## Text

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
Council, 467 U.S. 887 (19B4) ...........eccccccccccccecccccecceees 13

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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GF Gr ie BI I ccccencsssscnnccencezesssscessenmsnmnnsensennmessns 6, 7,8
GF Ge, GB a cccsssccsmsscsesssesssscsmnnmnnmnnenen 7
16 Tex. Admin. Code § 22.141 ........c.cccsccccscsssssccessssssssssessesesses 12

Implementation of the Local Competition Provisions
in the Telecommunications Act of 1996, 11
DF Eile Se Ce crcecnernasnscensseressnesnmenscemmmennessesess 18

>_—

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
Sh GM, BU, BG Ge cccnccnsccccenentenseconieninsssntnecsesnstnansssnmnans 5

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0424%3A04. Public record. Not legal advice.