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AT&T CORP. et al. v.
IOWA UTILITIES BOARD et al.
certiorari to the united states court of appeals for the eighth circuit
No. 97-826. Argued October 13, 1998--Decided January 25, 1999*1
The Telecommunications Act of 1996 (1996 Act) fundamentally restructures local
telephone markets, ending the monopolies that States historically granted to local
exchange carriers (LECs) and subjecting incumbent LECs to a host of duties intended to
facilitate market entry, including the obligation under 47 U. S. C.
§251(c) to share their networks with competitors. A requesting carrier can obtain
such shared access by purchasing local telephone services at wholesale rates for resale to
end-users, by leasing elements of the incumbent's network "on an unbundled
basis," and by interconnecting its own facilities with the incumbent's network. After
the FCC issued regulations implementing the 1996 Act's local-competition provisions,
incumbent LECs and state commissions filed numerous challenges, which were consolidated in
the Eighth Circuit. Among other things, that court held that the FCC lacked jurisdiction
to promulgate its rules regarding pricing, dialing parity, exemptions for rural LECs, the
proper procedure for resolving local-competition disputes, and state review of pre-1996
interconnection agreements; that, in specifying the network elements available to
requesting carriers under Rule 319, the FCC reasonably implemented the Act's requirement
that it consider whether access to proprietary elements was "necessary" and
whether lack of access to nonproprietary elements would "impair" an entrant's
ability to provide local service, see §251(d)(2); that, in Rule 319, the FCC
reasonably interpreted the statutory definition of "network element," see
§153(29); that the "all elements" rule, which effectively allows
competitors to provide local phone service relying solely on the elements in an
incumbent's network, is consistent with the 1996 Act; that Rule 315(b), which forbids
incumbents to separate already-combined network elements before leasing them to
competitors, must be vacated because it requires access to those elements on a bundled
rather than an unbundled, i.e., physically separated, basis; and that the FCC's
"pick and choose" rule, which enables a carrier to demand access to any
individual interconnection, service, or network element arrangement on the same terms and
conditions the LEC has given anyone else in an approved §252 agreement without
having to accept the agreement's other provisions, must be vacated because it would deter
the "voluntarily negotiated agreements" that the 1996 Act favors.
Held:
1. The FCC has general jurisdiction to implement the 1996
Act's local-competition provisions. Since Congress expressly directed that the Act be
inserted into the Communications Act of 1934, and since the 1934 Act already provides that
the FCC "may prescribe such rules and regulations as may be necessary in the public
interest to carry out the provisions of this Act," 47 U. S. C.
§201(b), the FCC's rulemaking authority extends to implementation of
§§251 and 252. Section 152(b) of the Communications Act, which provides
that "nothing in this chapter shall be construed to apply or to give the Commission
jurisdiction with respect to . . . intrastate communications service . . . " does not
change this conclusion because the 1996 Act clearly applies to intrastate matters. The
Eighth Circuit erred in reaching respondents' challenge to the FCC's claim that
§208 gives it authority to review agreements approved by state commissions under
the local-competition provisions, because that claim is not ripe. See Toilet Goods
Assoc. v. Gardner, 387 U. S. 158. Pp. 9-19.
2. The FCC's rules governing unbundled access are, with
the exception of Rule 319, consistent with the 1996 Act. Pp. 19-28.
(a) Given the breadth of
§153(29)'s "network element" definition--i.e., "features,
functions, and capabilities ... provided by means of" a facility or equipment used in
the provision of a telecommunications service--it is impossible to credit the incumbents'
argument that a "network element" must be part of the physical facilities and
equipment used to provide local phone service. It was therefore proper for Rule 319 to
include operator services and directory assistance, operational support systems, and
vertical switching functions such as caller I.D., call forwarding, and call waiting within
the features and services that must be provided to competitors. Pp. 19-20.
(b) However, since the FCC
did not adequately consider the §251(d)(2) "necessary and impair"
standards when it gave requesting carriers blanket access to network elements, Rule 319 is
vacated. The rule implicitly regards the "necessary" standard as having been met
regardless of whether carriers can obtain requested proprietary elements from a source
other than the incumbent, and regards the "impairment" standard as having been
met if an incumbent's failure to provide access to a network element would decrease the
quality, or increase the cost, of the service a requesting carrier seeks to offer,
compared with providing that service over other unbundled elements in the incumbent
LEC's network. The FCC cannot, consistent with the statute, blind itself to the
availability of elements outside the incumbent's network. In addition, the FCC's
assumption that any increase in cost (or decrease in quality) imposed by denial
of a network element renders access to that element "necessary," and causes the
failure to provide that element to "impair" the entrant's ability to furnish its
desired services, is simply not in accord with the ordinary and fair meaning of those
terms. Section 251(d)(2) requires the FCC to determine on a rational basis which
network elements must be made available, taking into account the 1996 Act's objectives and
giving some substance to the "necessary" and "impair" requirements.
Pp. 20-25.
(c) The FCC reasonably
omitted a facilities-ownership requirement. The 1996 Act imposes no such limitation; if
anything, it suggests the opposite, by requiring in §251(c)(3) that incumbents
provide access to "any" requesting carrier. P. 25.
(d) Rule 315(b), which
forbids incumbents to separate already-combined network elements before leasing them to
competitors, reasonably interprets §251(c)(3), which establishes the duty to
provide access to network elements on nondiscriminatory rates, terms, and conditions and
in a manner that allows requesting carriers to combine such elements. That section forbids
incumbents to sabotage elements that are provided in discrete pieces, but it does
not say, or even remotely imply, that elements must be provided in that fashion.
Pp. 25-28.
3. Because the "pick and choose" rule tracks
the pertinent language in §252(i) almost exactly, it is not only a reasonable
interpretation of that section, it is the most readily apparent. Pp. 28-30.
Nos. 97-826 (first judgment), 97-829 (first judgment), 97-830, 97-831 (first judgment),
97-1075, 97-1087, 97-1099, and 97-1141, 120 F. 3d 753, reversed in part, affirmed in part,
and remanded; Nos. 97-826, 97-829, and 97-831 (second judgments), 124 F. 3d 934,
reversed in part and remanded.
Scalia, J., delivered the opinion of the Court,
Parts I, III-A, III-C, III-D, and IV of which were joined by Rehnquist, C. J., and
Stevens, Kennedy, Souter, Thomas, Ginsburg, and Breyer, JJ., Part II of
which was joined by Stevens, Kennedy, Souter, and Ginsburg, JJ., and
Part III-B of which was joined by Rehnquist, C. J., and Stevens, Kennedy,
Thomas, Ginsburg, and Breyer, JJ. Souter, J., filed an opinion
concurring in part and dissenting in part. Thomas, J., filed an opinion
concurring in part and dissenting in part, in which Rehnquist, C. J., and Breyer,
J., joined. Breyer, J., filed an opinion concurring in part and dissenting
in part. O'Connor, J., took no part in the consideration or decision of these
cases.
AT&T CORPORATION, et al., PETITIONERS
97-826 v.
IOWA UTILITIES BOARD et al.;
AT&T CORPORATION, et al., PETITIONERS
v.
CALIFORNIA et al.
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
97-829 v.
IOWA UTILITIES BOARD et al.;
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
v.
CALIFORNIA et al.
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS
SERVICES, et al., PETITIONERS
97-830 v.
IOWA UTILITIES BOARD et al.
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
97-831 v.
IOWA UTILITIES BOARD et al.;
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
v.
CALIFORNIA et al.
AMERITECH CORPORATION, et al., PETITIONERS
97-1075 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
GTE MIDWEST, INCORPORATED, PETITIONER
97-1087 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
U S WEST, INC., PETITIONER
97-1099 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
SOUTHERN NEW ENGLAND TELEPHONE COMPANY,
et al., PETITIONERS
97-1141 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
on writs of certiorari to the united states court of appeals for the
eighth circuit
[January 25, 1999]
Justice Scalia delivered the opinion of the
Court.
In this case, we address whether the Federal
Communications Commission has authority to implement certain pricing and nonpricing
provisions of the Telecommunications Act of 1996, as well as whether the Commission's
rules governing unbundled access and "pick and choose" negotiation are
consistent with the statute.
I
Until the 1990s, local phone service was thought to be a
natural monopoly. States typically granted an exclusive franchise in each local service
area to a local exchange carrier (LEC), which owned, among other things, the local loops
(wires connecting telephones to switches), the switches (equipment directing calls to
their destinations), and the transport trunks (wires carrying calls between switches) that
constitute a local exchange network. Technological advances, however, have made
competition among multiple providers of local service seem possible, and Congress recently
ended the longstanding regime of state-sanctioned monopolies.
The Telecommunications Act of 1996, Pub. L. 104-104, 110
Stat. 56, (1996 Act or Act) fundamentally restructures local telephone markets. States may
no longer enforce laws that impede competition, and incumbent LECs are subject to a host
of duties intended to facilitate market entry. Foremost among these duties is the LEC's
obligation under 47 U. S. C. §251(c) (1994 ed., Supp. II) to share its
network with competitors. Under this provision, a requesting carrier can obtain access to
an incumbent's network in three ways: It can purchase local telephone services at
wholesale rates for resale to end users; it can lease elements of the incumbent's network
"on an unbundled basis"; and it can interconnect its own facilities with the
incumbent's network.1 When an entrant
seeks access through any of these routes, the incumbent can negotiate an agreement without
regard to the duties it would otherwise have under §251(b)2 or (c). See §252(a)(1). But if private negotiation
fails, either party can petition the state commission that regulates local phone service
to arbitrate open issues, which arbitration is subject to §251 and the FCC
regulations promulgated thereunder.
Six months after the 1996 Act was passed, the FCC issued
its First Report and Order implementing the local-competition provisions.
In re Implementation of the Local Competition Provisions in the Telecommunications Act
of 1996, 11 FCC Rcd 15499 (1996) (First Report & Order). The numerous challenges
to this rulemaking, filed across the country by incumbent LECs and state utility
commissions, were consolidated in the United States Court of Appeals for the Eighth
Circuit.
The basic attack was jurisdictional. The LECs and state
commissions insisted that primary authority to implement the local-competition provisions
belonged to the States rather than to the FCC. They thus argued that many
of the local-competition rules were invalid, most notably the one requiring that prices
for interconnection and
unbundled access be based on "Total Element Long Run Incremental Cost"
(TELRIC)--a forward-looking rather than historic measure.3 See 47 CFR §§51.503, 51.505 (1997). The
Court of Appeals agreed, and vacated the pricing rules, and several other aspects of the
Order, as reaching beyond the Commission's jurisdiction. Iowa Utilities Board v. FCC,
120 F. 3d 753, 800, 804, 805-806 (1997). It held that the general rulemaking
authority conferred upon the Commission by the Communications Act of 1934 extended only to
interstate matters, and that the Commission therefore needed specific congressional
authorization before implementing provisions of the 1996 Act addressing intrastate
telecommunications. Id., at 795. It found no such authorization for the
Commission's rules regarding pricing, dialing parity,4
exemptions for rural LECs, the proper procedure for resolving local-competition disputes,
and state review of pre-1996 interconnection agreements. Id., at 795-796,
802-806. Indeed, with respect to some of these matters, the Eighth Circuit said that the
1996 Act had affirmatively given exclusive authority to the state commissions. Id.,
at 795, 802, 805.
The Court of Appeals found support for its holdings in 47
U. S. C. §152(b) (§2(b) of the Communications Act of 1934),
which, it said, creates a presumption in favor of preserving state authority over
intrastate communications. 120 F. 3d, at 796. It found nothing in the 1996 Act clear
enough to overcome this presumption, which it described as a fence that is "hog
tight, horse high, and bull strong, preventing the FCC from intruding on the states'
intrastate turf." Id., at 800.
Incumbent LECs also made several challenges, only some of
which are relevant here, to the rules implementing the 1996 Act's requirement of unbundled
access. See 47 U. S. C. §251(c)(3) (1994 ed., Supp. II). Rule 319, the
primary unbundling rule, sets forth a minimum number of network elements that incumbents
must make available to requesting carriers. See 47 CFR §51.319 (1997). The LECs
complained that, in compiling this list, the FCC had virtually ignored the 1996 Act's
requirement that it consider whether access to proprietary elements was
"necessary" and whether lack of access to nonproprietary elements would
"impair" an entrant's ability to provide local service. See §251(d)(2).
In addition, the LECs thought that the list included items (like directory assistance and
caller I.D.) that did not meet the statutory definition of "network element."
See §153(29). The Eighth Circuit rebuffed both arguments, holding that the
Commission's interpretations of the "necessary and impair" standard and the
definition of "network element" were reasonable and hence lawful under Chevron
U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467
U. S. 837 (1984). See 120 F. 3d, at 809-810.
When it promulgated its unbundling rules, the Commission
explicitly declined to impose a requirement of facility ownership on carriers who sought
to lease network elements. First Report & Order ¶ ;¶ ;328-340.
Because the list of elements that Rule 319 made available was so extensive, the effect of
this omission was to allow competitors to provide local phone service relying solely on
the elements in an incumbent's network. The LECs argued that this "all elements"
rule undermined the 1996 Act's goal of encouraging entrants to develop their own
facilities. The Court of Appeals, however, deferred to the FCC's approach. Nothing in the
1996 Act itself imposed a requirement of facility ownership, and the court was of the view
that the language of §251(c)(3) indicated that "a requesting carrier may
achieve the capability to provide telecommunications service completely through access to
the unbundled elements of an incumbent LEC's network." 120 F. 3d, at 814.
Given the sweep of the "all elements" rule,
however, the Eighth Circuit thought that the FCC went too far in its Rule 315(b), which
forbids incumbents to separate network elements before leasing them to competitors. 47 CFR
§51.315(b) (1997). Taken together, the two rules allowed requesting carriers to
lease the incumbent's entire, preassembled network. The Court of Appeals believed that
this would render the resale provision of the statute a dead letter, because by leasing
the entire network rather than purchasing and reselling service offerings, entrants could
obtain the same product--finished service--at a cost-based, rather than wholesale, rate.
120 F. 3d, at 813. Apparently reasoning that the word "unbundled" in
§251(c)(3) meant "physically separated," the court vacated Rule 315(b)
for requiring access to the incumbent LEC's network elements "on a bundled rather
than an unbundled basis." Ibid.
Finally, incumbent LECs objected to the Commission's
"pick and choose" rule, which governs the terms of agreements between LECs and
competing carriers. Under this rule, a carrier may demand that the LEC make available to
it "any individual interconnection, service, or network element arrangement" on
the same terms and conditions the LEC has given anyone else in an agreement approved under
§252--without its having to accept the other provisions of the agreement. 47 CFR
§51.809 (1997); First Report & Order ¶ ;¶ ;1309-1310. The
Court of Appeals vacated the rule, reasoning that it would deter the "voluntarily
negotiated agreements" that the 1996 Act favored, by making incumbent LECs reluctant
to grant quids for quos, so to speak, for fear that they would have to grant others the
same quids without receiving quos. 120 F. 3d, at 801.
The Commission, MCI, and AT&T petitioned for review
of the Eighth Circuit's holdings regarding jurisdiction, Rule 315(b), and the "pick
and choose" rule; the incumbent LECs cross-petitioned for review of the Eighth
Circuit's treatment of the other unbundling issues. We granted all the petitions. 521
U. S. ___ (1998).
II
Section 201(b), a 1938 amendment to the Communications
Act of 1934, provides that "[t]he Commission may prescribe such rules and regulations
as may be necessary in the public interest to carry out the provisions of this Act."
52 Stat. 588, 47 U. S. C. §201(b). Since Congress expressly directed
that the 1996 Act, along with its local-competition provisions, be inserted into the
Communications Act of 1934, 1996 Act, §1(b), 110 Stat. 56, the Commission's
rulemaking authority would seem to extend to implementation of the local-competition
provisions.5
Respondents argue, however, that §201(b)
rulemaking authority is limited to those provisions dealing with purely interstate and
foreign matters, because the first sentence of §201(a) makes it "the
duty of every common carrier engaged in interstate or foreign communication by wire or
radio to furnish such communication service upon reasonable request
therefor ... ." It is impossible to understand how this use of the
qualifier "interstate or foreign" in §201(a), which limits the class of
common carriers with the duty of providing communication service, reaches forward into the
last sentence of §201(b) to limit the class of provisions that the Commission has
authority to implement. We think that the grant in §201(b) means what it says:
The FCC has rulemaking authority to carry out the "provisions of this Act,"
which include §§251 and 252, added by the Telecommunications Act of
1996.6
Our view is unaffected by 47 U. S. C.
§152(b) (§2(b) of the 1934 enactment), which reads:
"Except as provided in sections 223 through 227 ... , inclusive, and section
332 ... , and subject to the provisions of section 301 of this title ... ,
nothing in this chapter shall be construed to apply or to give the Commission jurisdiction
with respect to ... charges, classifications, practices, services, facilities, or
regulations for or in connection with intrastate communication
service ... ."
The local-competition provisions are not identified in §152(b)'s
"except" clause. Seizing on this omission, respondents argue that the 1996 Act
does nothing to displace the presumption that the States retain their traditional
authority over local phone service.
Respondents' argument on this point is (necessarily) an
extremely subtle one. They do not contend that the "nothing ... shall be
construed" provision prevents all "appl[ication]" of the Communications
Act, as amended in 1996, to intrastate service, or even precludes all "Commission
jurisdiction with respect to" such service. Such an interpretation would utterly
nullify the 1996 amendments, which clearly "apply" to intrastate service, and
clearly confer "Commission jurisdiction" over some matters. Respondents argue,
therefore, that the effect of the "nothing ... shall be construed"
provision is to require an explicit "appl[ication]" to intrastate
service, and in addition an explicit conferral of "Commission jurisdiction"
over intrastate service, before Commission jurisdiction can be found to exist. Such
explicit "appl[ication]," they acknowledge, was effected by the 1996 amendments,
but "Commission jurisdiction" was explicitly conferred only as to a few matters.
The fallacy in this reasoning is that it ignores the fact
that §201(b) explicitly gives the FCC jurisdiction to make rules
governing matters to which the 1996 Act applies. Respondents argue that avoiding this pari
passu expansion of Commission jurisdiction with expansion of the substantive scope of
the Act was the reason the "nothing shall be construed" provision was framed in
the alternative: "nothing in this Act shall be construed to apply or to give the
Commission jurisdiction" (emphasis added) with respect to the forbidden
subjects. The italicized portion would have no operative effect, they assert, if every
"application" of the Act automatically entailed Commission jurisdiction. The
argument is an imaginative one, but ultimately fails. For even though "Commission
jurisdiction" always follows where the Act "applies," Commission
jurisdiction (so-called "ancillary" jurisdiction) could exist even
where the Act does not "apply." The term "apply" limits the
substantive reach of the statute (and the concomitant scope of primary FCC jurisdiction),
and the phrase "or give the Commission jurisdiction" limits, in addition, the
FCC's ancillary jurisdiction.
The need for both limitations is exemplified by Louisiana
Pub. Serv. Comm'n v. FCC, 476
U. S. 355 (1986), where the FCC claimed authority to issue rules governing
depreciation methods applied by local telephone companies.7 The Commission supported its claim with two arguments.
First, that it could regulate intrastate because Congress had intended the depreciation
provisions of the Communications Act to bind state commissions--i.e., that the
depreciation provisions "applied" to intrastate ratemaking. Id., at
376-377. We observed that "[w]hile it is, no doubt, possible to find some support in
the broad language of the section for respondents' position, we do
not find the meaning of the section so unambiguous
or straightforward as to override the command of § 152(b) . . . " Id.,
at 377. But the Commission also argued that, even if the statute's depreciation provisions
did not apply intrastate, regulation of state depreciation methods would enable it to
effectuate the federal policy of encouraging competition in interstate telecommunications.
Id., at 369. We rejected that argument because, even though the FCC's broad
regulatory authority normally would have been enough to justify its regulation of
intrastate depreciation methods that affected interstate commerce, see id., at
370; cf. Shreveport Rate Cases, 234
U. S. 342, 358 (1914), §152(b) prevented the Commission from taking
intrastate action solely because it furthered an interstate goal. 476
U. S., at 374.8
The parties have devoted some effort in this case to
debating whether §251(d) serves as a jurisdictional grant to the FCC. That
section provides that "[w]ithin 6 months after [the date of enactment of the
Telecommunications Act of 1996,] the Commission shall complete all actions necessary to
establish regulations to implement the requirements of this section." 47
U. S. C. §251(d) (1994 ed., Supp. II). The FCC relies on this section
as an alternative source of jurisdiction, arguing that if it was necessary for Congress to
include an express jurisdictional grant in the 1996 Act, §251(d) does the job.
Respondents counter that this provision functions only as a time constraint on the
exercise of regulatory authority that the Commission has been given in the six subsections
of §251 that specifically mention the FCC. See §§251(b)(2),
251(c)(4)(B), 251(d)(2), 251(e), 251(g), 251(h)(2). Our understanding of the Commission's
general authority under §201(b) renders this debate academic.9
The jurisdictional objections we have addressed thus far
pertain to an asserted lack of what might be called underlying FCC jurisdiction. The
remaining jurisdictional argument is that certain individual provisions in the 1996 Act
negate particular aspects of the Commission's implementing authority. With regard to
pricing, the incumbent LECs and state commissions point to §252(c), which
provides:
"(c) Standards for Arbitration
"In resolving by arbitration under subsection (b)
any open issues and imposing conditions upon the parties to the agreement, a state
commission shall--
"(1) ensure that such resolution and conditions meet
the requirements of section 251, including the regulations prescribed by the Commission
pursuant to section 251;
"(2) establish any rates for interconnection,
services, or network elements according to subsection (d); and
"(3) provide a schedule for implementation of the
terms and conditions by the parties to the agreement."
Respondents contend that the Commission's TELRIC rule is invalid because
§252(c)(2) entrusts the task of establishing rates to the state commissions. We
think this attributes to that task a greater degree of autonomy than the phrase
"establish any rates" necessarily implies. The FCC's prescription, through
rulemaking, of a requisite pricing methodology no more prevents the States from
establishing rates than do the statutory "Pricing standards" set forth in
§252(d). It is the States that will apply those standards and implement that
methodology, determining the concrete result in particular circumstances. That is enough
to constitute the establishment of rates.
Respondents emphasize the fact that §252(c)(1),
which requires state commissions to assure compliance with the provisions of
§251, adds "including the regulations prescribed by the Commission pursuant
to section 251," whereas §252(c)(2), which requires state commissions to
assure compliance with the pricing standards in subsection (d), says nothing about
Commission regulations applicable to subsection (d). There is undeniably a lack of
parallelism here, but it seems to us adequately explained by the fact that §251
specifically requires the Commission to promulgate regulations implementing that
provision, whereas subsection (d) of §252 does not. It seems to us not peculiar
that the mandated regulations should be specifically referenced, whereas regulations
permitted pursuant to the Commission's §201(b) authority are not. In any event,
the mere lack of parallelism is surely not enough
to displace that explicit authority. We hold, therefore, that the Commission has
jurisdiction to design a pricing methodology.
For similar reasons, we reverse the Court of Appeals'
determinations that the Commission had no jurisdiction to promulgate rules regarding state
review of pre-existing interconnection agreements between incumbent LECs and other
carriers, regarding rural exemptions, and regarding dialing parity. See 47 CFR
§§51.303, 51.405, and 51.205-51.215 (1997). None of the statutory
provisions that these rules interpret displaces the Commission's general rulemaking
authority. While it is true that the 1996 Act entrusts state commissions with the job of
approving interconnection agreements, 47 U. S. C. §252(e) (1994 ed.,
Supp. II), and granting exemptions to rural LECs, §251(f), these assignments,
like the rate-establishing assignment just discussed, do not logically preclude the
Commission's issuance of rules to guide the state-commission judgments. And since the
provision addressing dialing parity, §251(b)(3), does not even mention the
States, it is even clearer that the Commission's §201(b) authority is not
superseded.10
Finally (as to jurisdiction), respondents challenge the
claim in the Commission's First Report and Order that §208, a provision giving
the Commission general authority to hear complaints arising under the Communications Act
of 1934, also gives it authority to review agreements approved by state commissions under
the local-competition provisions. First Report & Order ¶ ;¶
;121-128. The Eighth Circuit held that the Commission's "perception of its authority
... is untenable ... in light of the language and structure of the Act and ... operation
of section [152(b)]." 120 F. 3d, at 803. The Court of Appeals erred in reaching
this claim because it is not ripe. When, as is the case with this Commission statement,
there is no immediate effect on the plaintiff's primary conduct, federal courts normally
do not entertain pre-enforcement challenges to agency rules and policy statements. Toilet
Goods Assn., Inc. v. Gardner, 387
U. S. 158 (1967); see also Lujan v. National Wildlife Federation,
497
U. S. 871, 891 (1990).
III
A
We turn next to the unbundling rules, and come first to
the incumbent LECs' complaint that the FCC included within the features and services that
must be provided to competitors under Rule 319 items that do not (as they must) meet the
statutory definition of "network element"--namely, operator services and
directory assistance, operational support systems (OSS), and vertical switching functions
such as caller I. D., call forwarding, and call waiting. See 47 CFR
§§51.319(f)-(g) (1997); First Report & Order ¶ ;413. The
statute defines "network element" as
"a facility or equipment used in the provision of a telecommunications service.
Such term also includes features, functions, and capabilities that are provided by means
of such facility or equipment, including subscriber numbers, databases, signaling systems,
and information sufficient for billing and collection or used in the transmission,
routing, or other provision of a telecommunications service." 47 U. S. C.
§153(29) (1994 ed., Supp II).
Given the breadth of this definition, it is impossible to credit the incumbents'
argument that a "network element" must be part of the physical facilities and
equipment used to provide local phone service. Operator services and directory assistance,
whether they involve live operators or automation, are "features, functions, and
capabilities ... provided by means of" the network equipment. OSS, the
incumbent's background software system, contains essential network information as well as
programs to manage billing, repair ordering, and other functions. Section 153(29)'s
reference to "databases ... and information sufficient for billing and collection or
used in the transmission, routing, or other provision of a telecommunications
service" provides ample basis for treating this system as a "network
element." And vertical switching features, such as caller I. D., are
"functions ... provided by means of" the switch, and thus fall squarely within
the statutory definition. We agree with the Eighth Circuit that the Commission's
application of the "network element" definition is eminently reasonable. See Chevron
v. NRDC, 467
U. S., at 866.
B
We are of the view, however, that the FCC did not
adequately consider the "necessary and impair" standards when it gave blanket
access to these network elements, and others, in Rule 319. That rule requires an incumbent
to provide requesting carriers with access to a minimum of seven network elements: the
local loop, the network interface device, switching capability, interoffice transmission
facilities, signaling networks and call-related databases, operations support systems
functions, and operator services and directory assistance. 47 CFR §51.319 (1997).
If a requesting carrier wants access to additional elements, it may petition the state
commission, which can make other elements available on a case-by-case basis.
§51.317.
Section 251(d)(2) of the Act provides:
"In determining what network elements should be made
available for purposes of subsection (c)(3) of this section, the Commission shall
consider, at a minimum, whether--
"(A) access to such network elements as are
proprietary in nature is necessary; and
"(B) the failure to provide access to such network
elements would impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer."
The incumbents argue that §251(d)(2) codifies something akin to the
"essential facilities" doctrine of antitrust theory, see generally 3A
P. Areeda & H. Hovenkamp, Antitrust Law ¶ ;¶ ;771-773
(1996), opening up only those "bottleneck" elements unavailable elsewhere in the
marketplace. We need not decide whether, as a matter of law, the 1996 Act requires the FCC
to apply that standard; it may be that some other standard would provide an
equivalent or better criterion for the limitation upon network-element availability that
the statute has in mind. But we do agree with the incumbents that the Act requires the FCC
to apply some limiting standard, rationally related to the goals of the Act,
which it has simply failed to do. In the general statement of its methodology set forth in
the First Report and Order, the Commission announced that it would regard the
"necessary" standard as having been met regardless of whether "requesting
carriers can obtain the requested proprietary element from a source other than the
incumbent," since "[r]equiring new entrants to duplicate unnecessarily even a
part of the incumbent's network could generate delay and higher costs for new entrants,
and thereby impede entry by competing local providers and delay competition, contrary to
the goals of the 1996 Act." First Report & Order ¶ ;283. And it
announced that it would regard the "impairment" standard as having been met if
"the failure of an incumbent to provide access to a network element would decrease
the quality, or increase the financial or administrative cost of the service a requesting
carrier seeks to offer, compared with providing that service over other unbundled
elements in the incumbent LEC's network," id., ¶ ;285
(emphasis added)--which means that comparison with self-provision, or with purchasing from
another provider, is excluded. Since any entrant will request the most efficient network
element that the incumbent has to offer, it is hard to imagine when the incumbent's
failure to give access to the element would not constitute an "impairment" under
this standard. The Commission asserts that it deliberately limited its inquiry to the
incumbent's own network because no rational entrant would seek access to network elements
from an incumbent if it could get better service or prices elsewhere. That may be. But
that judgment allows entrants, rather than the Commission, to determine whether access to
proprietary elements is necessary, and whether the failure to obtain access to
nonproprietary elements would impair the ability to provide services. The Commission
cannot, consistent with the statute, blind itself to the availability of elements outside
the incumbent's network. That failing alone would require the Commission's rule to be set
aside. In addition, however, the Commission's assumption that any increase in
cost (or decrease in quality) imposed by denial of a network element renders access to
that element "necessary," and causes the failure to provide that element to
"impair" the entrant's ability to furnish its desired services is simply not in
accord with the ordinary and fair meaning of those terms. An entrant whose anticipated
annual profits from the proposed service are reduced from 100% of investment to 99% of
investment has perhaps been "impaired" in its ability to amass earnings, but has
not ipso facto been "impair[ed] ... in its ability to provide the services
it seeks to offer"; and it cannot realistically be said that the network element
enabling it to raise its profits to 100% is "necessary."11 In a world of perfect competition, in which all carriers
are providing their service at marginal cost, the Commission's total equating of increased
cost (or decreased quality) with "necessity" and "impairment" might be
reasonable; but it has not established the existence of such an ideal world. We cannot
avoid the conclusion that, if Congress had wanted to give blanket access to incumbents'
networks on a basis as unrestricted as the scheme the Commission has come up with, it
would not have included §251(d)(2) in the statute at all. It would simply have
said (as the Commission in effect has) that whatever requested element can be provided
must be provided.
When the full record of these proceedings is examined, it
appears that that is precisely what the Commission thought Congress had said. The
FCC was content with its expansive methodology because of its misunderstanding of
§251(c)(3), which directs an incumbent to allow a requesting carrier access to
its network elements "at any technically feasible point." The Commission
interpreted this to "impos[e] on an incumbent LEC the duty to provide all network
elements for which it is technically feasible to provide access," and went on to
"conclude that we have authority to establish regulations that are coextensive"
with this duty, First Report & Order ¶ ;278 (emphasis added). See also id.,
¶ ;286 ("[w]e conclude that the statute does not require us to interpret the
`impairment' standard in a way that would significantly diminish the obligation imposed by
section 251(c)(3)"). As the Eighth Circuit held, that was undoubtedly wrong: Section
251(c)(3) indicates "where unbundled access must occur, not which
[network] elements must be unbundled." 120 F. 3d, at 810. The Commission does
not seek review of the Eighth Circuit's holding on this point, and we bring it into our
discussion only because the Commission's application of §251(d)(2) was colored by
this error. The Commission began with the premise that an incumbent was obliged to turn
over as much of its network as was "technically feasible," and viewed (d)(2) as
merely permitting it to soften that obligation by regulatory grace:
"To give effect to both sections 251(c)(3) and 251(d)(2), we conclude that the
proprietary and impairment standards in section 251(d)(2) grant us the authority to
refrain from requiring incumbent LECs to provide all network elements for which it is
technically feasible to provide access on an unbundled basis." First Report &
Order ¶ ;279.
The Commission's premise was wrong. Section 251(d)(2) does not authorize the Commission
to create isolated exemptions from some underlying duty to make all network elements
available. It requires the Commission to determine on a rational basis which
network elements must be made available, taking into account the objectives of the Act and
giving some substance to the "necessary" and "impair" requirements.
The latter is not achieved by disregarding entirely the availability of elements outside
the network, and by regarding any "increased cost or decreased service
quality" as establishing a "necessity" and an "impair[ment]" of
the ability to "provide ... services."
The Commission generally applied the above described
methodology as it considered the various network elements seriatim. See id.,
¶ ;¶ ;388-393, 419-420, 447, 481-482, 490-491, 497-499, 521-522,
539-540. Though some of these sections contain statements suggesting that the Commission's
action might be supported by a higher standard, see, e.g., ¶ ;¶
;521-522, no other standard is consistently applied and we must assume that the
Commission's expansive methodology governed throughout. Because the Commission has not
interpreted the terms of the statute in a reasonable fashion, we must vacate 47 CFR
§51.319 (1997).
C
The incumbent LECs also renew their challenge to the
"all elements" rule, which allows competitors to provide local phone service
relying solely on the elements in an incumbent's network. See First Report & Order
¶ ;¶ ;328-340. This issue may be largely academic in light of our
disposition of Rule 319. If the FCC on remand makes fewer network elements unconditionally
available through the unbundling requirement, an entrant will no longer be able to lease
every component of the network. But whether a requesting carrier can access the
incumbent's network in whole or in part, we think that the Commission reasonably omitted a
facilities-ownership requirement. The 1996 Act imposes no such limitation; if anything, it
suggests the opposite, by requiring in §251(c)(3) that incumbents provide access
to "any" requesting carrier. We agree with the Court of Appeals that the
Commission's refusal to impose a facilities-ownership requirement was proper.
D
Rule 315(b) forbids an incumbent to separate
already-combined network elements before leasing them to a competitor. As they did in the
Court of Appeals, the incumbents object to the effect of this rule when it is combined
with others before us today. TELRIC allows an entrant to lease network elements based on
forward-looking costs, Rule 319 subjects virtually all network elements to the unbundling
requirement, and the all-elements rule allows requesting carriers to rely only on the
incumbent's network in providing service. When Rule 315(b) is added to these, a competitor
can lease a complete, preassembled network at (allegedly very low) cost-based rates.
The incumbents argue that this result is totally
inconsistent with the 1996 Act. They say that it not only eviscerates the distinction
between resale and unbundled access, but that it also amounts to Government-sanctioned
regulatory arbitrage. Currently, state laws require local phone rates to include a
"universal service" subsidy. Business customers, for whom the cost of service is
relatively low, are charged significantly above cost to subsidize service to rural and
residential customers, for whom the cost of service is relatively high. Because this
universal-service subsidy is built into retail rates, it is passed on to carriers who
enter the market through the resale provision. Carriers who purchase network elements at
cost, however, avoid the subsidy altogether and can lure business customers away from
incumbents by offering rates closer to cost. This, of course, would leave the incumbents
holding the bag for universal service.
As was the case for the all-elements rule, our remand of
Rule 319 may render the incumbents' concern on this score academic. Moreover,
§254 requires that universal-service subsidies be phased out, so whatever
possibility of arbitrage remains will be only temporary. In any event, we cannot say that
Rule 315(b) unreasonably interprets the statute.
Section 251(c)(3) establishes:
"The duty to provide, to any requesting telecommunications carrier for the
provision of a telecommunications service, nondiscriminatory access to network elements on
an unbundled basis at any technically feasible point on rates, terms, and conditions that
are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of
the agreement and the requirements of this section and section 252 ... . 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."
Because this provision requires elements to be provided in a manner that "allows
requesting carriers to combine" them, incumbents say that it contemplates the leasing
of network elements in discrete pieces. It was entirely reasonable for the Commission to
find that the text does not command this conclusion. It forbids incumbents to sabotage
network elements that are provided in discrete pieces, and thus assuredly
contemplates that elements may be requested and provided in this form (which the
Commission's rules do not prohibit). But it does not say, or even remotely imply, that
elements must be provided only in this fashion and never in combined form. Nor
are we persuaded by the incumbents' insistence that the phrase "on an unbundled
basis" in §251(c)(3) means "physically separated." The dictionary
definition of "unbundled" (and the only definition given, we might add) matches
the FCC's interpretation of the word: "to give separate prices for equipment and
supporting services." Webster's Ninth New Collegiate Dictionary 1283 (1985).
The reality is that §251(c)(3) is ambiguous on
whether leased network elements may or must be separated, and the rule the Commission has
prescribed is entirely rational, finding its basis in §251(c)(3)'s
nondiscrimination requirement. As the Commission explains, it is aimed at preventing
incumbent LECs from "disconnect[ing] previously connected elements, over the
objection of the requesting carrier, not for any productive reason, but just to impose
wasteful reconnection costs on new entrants." Reply Brief for Federal Petitioners 23.
It is true that Rule 315(b) could allow entrants access to an entire preassembled network.
In the absence of Rule 315(b), however, incumbents could impose wasteful costs on even
those carriers who requested less than the whole network. It is well within the bounds of
the reasonable for the Commission to opt in favor of ensuring against an anticompetitive
practice.
IV
The FCC's "pick and choose" rule provides, in
relevant part:
"An incumbent LEC shall make available without unreasonable delay to any
requesting telecommunications carrier any individual interconnection, service, or network
element arrangement contained in any agreement to which it is a party that is approved by
a state commission pursuant to section 252 of the Act, upon the same rates, terms, and
conditions as those provided in the agreement." 47 CFR §51.809 (1997).
Respondents argue that this rule threatens the give-and-take of negotiations, because
every concession as to an "interconnection, service, or network element
arrangement" made (in exchange for some other benefit) by an incumbent LEC will
automatically become available to every potential entrant into the market. A carrier who
wants one term from an existing agreement, they say, should be required to accept all
the terms in the agreement.
Although the latter proposition seems eminently fair, it
is hard to declare the FCC's rule unlawful when it tracks the pertinent statutory language
almost exactly. Section 252(i) provides:
"A local exchange carrier shall make available any interconnection, service, or
network element provided under an agreement approved under this section to which it is a
party to any other requesting telecommunications carrier upon the same terms and
conditions as those provided in the agreement."
The FCC's interpretation is not only reasonable, it is the most readily apparent.
Moreover, in some respects the rule is more generous to incumbent LECs than
§252(i) itself. It exempts incumbents who can prove to the state commission that
providing a particular interconnection service or network element to a requesting carrier
is either (1) more costly than providing it to the original carrier, or (2) technically
infeasible. 47 CFR §51.809(b) (1997). And it limits the amount of time during
which negotiated agreements are open to requests under this section. §51.809(c).
The Commission has said that an incumbent LEC can require a requesting carrier to accept
all terms that it can prove are "legitimately related" to the desired term.
First Report & Order ¶ ;1315. Section 252(i) certainly demands no more than
that. And whether the Commission's approach will significantly impede negotiations (by
making it impossible for favorable interconnection-service or network-element terms to be
traded off against unrelated provisions) is a matter eminently within the expertise of the
Commission and eminently beyond our ken. We reverse the Eighth Circuit and reinstate the
rule.
* * *
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. That is most unfortunate for a
piece of legislation that profoundly affects a crucial segment of the economy worth tens
of billions of dollars. The 1996 Act can be read to grant (borrowing a phrase from
incumbent GTE) "most promiscuous rights" to the FCC vis-à-vis the state
commissions and to competing carriers vis-à-vis the incumbents--and the Commission 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, see Chevron v. NRDC, 467
U. S., at 842-843. We can only enforce the clear limits that the 1996 Act
contains, which in the present case invalidate only Rule 319.
For the reasons stated, the July 18, 1997 judgment of the
Court of Appeals, 120 F. 3d 753, is reversed in part and affirmed in part; the August
22, 1997 judgment of the Court of Appeals, 124 F. 3d 934, is reversed in part; and
the cases are remanded for proceedings consistent with this opinion.
It is so ordered.
Justice O'Connor took no part in the
consideration or decision of these cases.
AT&T CORPORATION, et al., PETITIONERS
97-826 v.
IOWA UTILITIES BOARD et al.;
AT&T CORPORATION, et al., PETITIONERS
v.
CALIFORNIA et al.
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
97-829 v.
IOWA UTILITIES BOARD et al.;
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
v.
CALIFORNIA et al.
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS
SERVICES, et al., PETITIONERS
97-830 v.
IOWA UTILITIES BOARD et al.
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
97-831 v.
IOWA UTILITIES BOARD et al.;
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
v.
CALIFORNIA et al.
AMERITECH CORPORATION, et al., PETITIONERS
97-1075 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
GTE MIDWEST, INCORPORATED, PETITIONER
97-1087 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
U S WEST, INC., PETITIONER
97-1099 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
SOUTHERN NEW ENGLAND TELEPHONE COMPANY,
et al., PETITIONERS
97-1141 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
on writs of certiorari to the united states court of appeals for the
eighth circuit
[January 25, 1999]
Justice Souter, concurring in part and
dissenting in part.
I agree with the Court's holding that the Federal
Communications Commission has authority to implement and interpret the disputed provisions
of the Telecommunications Act of 1996, and that deference is due to the Commission's
reasonable interpretation under Chevron U. S. A. Inc. v. Natural Resources
Defense Council, Inc., 467
U. S. 837 (1984). I disagree with the Court's holding that the Commission was
unreasonable in its interpretation of 47 U. S. C. §251(d)(2) (1994 ed.,
Supp. II), which requires it to consider whether competitors' access to network elements
owned by Local Exchange Companies (LECs) is "necessary" and whether failure to
provide access to such elements would "impair" competitors' ability to provide
services. Ante, at 17. Because I think that, under Chevron, the
Commission reasonably interpreted its duty to consider necessity and impairment, I
respectfully dissent from Part III-B of the Court's opinion.
The statutory provision in question specifies that in
determining what network elements should be made available on an unbundled basis to
potential competitors of the LECs, the Commission "shall consider" whether
"access to such network elements as are proprietary in nature is necessary,"
§251(d)(2)(A), and whether "the failure to provide access" to network
elements "would impair the ability of the telecommunications carrier seeking access
to provide the services that it seeks to offer," §251(d)(2)(B). The
Commission interpreted "necessary" to mean "prerequisite for
competition," in the sense that without access to certain proprietary network
elements, competitors' "ability to compete would be significantly impaired or
thwarted." In re Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, ¶ ;282, 11 FCC Rcd 15,499, 15641-15642
(1996) (First Report & Order). On this basis, it decided to require access to such
elements unless the incumbent LEC could prove both that the requested network element was
proprietary and that the requesting competitor could offer the same service through the
use of another, nonproprietary element offered by the incumbent LEC. Id.,
¶ ;283, at 15642.
The Commission interpreted "impair" to mean
"diminished in value," and explained that a potential competitor's ability to
offer services would diminish in value when the quality of those services would decline or
their price rise, absent the element in question. Id., ¶ ;285, at 15643.
The Commission chose to apply this standard "by evaluating whether a carrier could
offer a service using other unbundled elements within an incumbent LEC's network," ibid.,
and decided that whenever it would be more expensive for a competitor to offer a service
using other available network elements, or whenever the service offered using those other
elements would be of lower quality, the LEC must offer the desired element to the
competitor, ibid.
In practice, as the Court observes, ante, at 18,
the Commission's interpretation will probably allow a competitor to obtain access to any
network element that it wants; a competitor is unlikely in fact to want an element that
would be economically unjustifiable, and a weak economic justification will do. Under Chevron,
the only question before us is whether the Commission's interpretation, obviously
favorable to potential competitors, falls outside the bounds of reasonableness.
As a matter of textual justification, certainly, the
Commission is not to be faulted. The words "necessary" and "impair"
are ambiguous in being susceptible to a fairly wide range of meanings, and doubtless can
carry the meanings the Commission identified. If I want to replace a light bulb, I would
be within an ordinary and fair meaning of the word "necessary" to say that a
stepladder is "necessary" to install the bulb, even though I could stand instead
on a chair, a milk can, or eight volumes of Gibbon. I could just as
easily say that the want of a ladder would "impair" my ability to install the
bulb under the same circumstances. These examples use the concepts of necessity and
impairment in what might be called their weak senses, but these are unquestionably still
ordinary uses of the words.
Accordingly, the Court goes too far when it says that
under "the ordinary and fair meaning" of "necessary" and
"impair," ante, at 18, "[a]n entrant whose anticipated annual
profits from the proposed service are reduced from 100% of investment to 99% of investment
... has not ipso facto been `impair[ed] ... in its ability to provide the
services it seeks to offer'; and it cannot realistically be said that the network element
enabling it to raise profits to 100% is `necessary,' " ante, at 18-19.
A service is surely "necessary" to my business in an ordinary, weak sense of
necessity when that service would allow me to realize more profits, and a business can be
said to be "impaired" in delivery of services in an ordinary, weak sense of
impairment when something stops the business from getting the profit it wants for those
services.
Not every choice of meaning that falls within the bounds
of textual ambiguity is necessarily reasonable, to be sure, but the Court's appeal to
broader statutory policy comes up short in my judgment. The Court says, with some
intuitive plausibility, that "the Act requires the FCC to apply some
limiting standard, rationally related to the goals of the Act, which it has simply failed
to do." Ante, at 17. In the Court's eyes, the trouble with the Commission's
interpretation is that it "allows entrants, rather than the Commission, to
determine" necessity and impairment, ante, at 18, and so the Court concludes
that "if Congress had wanted to give blanket access to incumbents' networks on a
basis as unrestricted as the scheme the Commission has come up with, it would not have
included §251(d)(2) in the statute at all." Ante, at 19.
The Court thus judges the reasonableness of the
Commission's rule for implementing §251(d)(2) by asking how likely it is that
Congress would have legislated at all if its point in adopting the criteria of necessity
and impairment was to do no more than require economic rationality, and the Court answers
that the Commission's notion of the congressional objective in using the ambiguous
language is just too modest to be reasonable. The persuasiveness of the Court's answer to
its question, however, rests on overlooking the very different question that the
Commission was obviously answering when it adopted Rule 319. As the Court itself notes, ante,
at 17-18, the Commission explicitly addressed the consequences that would follow from
requiring an entrant to satisfy the necessity and impairment criteria by showing that
alternative facilities were unavailable at reasonable cost from anyone except the
incumbent LEC. First Report & Order ¶ ;283, 11 FCC Rcd, at 15642. To require
that kind of a showing, the Commission said, would encourage duplication of facilities and
personnel, with obvious systemic costs. Ibid. The Commission, in other words, was
approaching the task of giving reasonable interpretations to "necessary" and
"impair" by asking whether Congress would have mandated economic inefficiency as
a limit on the objective of encouraging competition through ease of market entry. The
Commission concluded, without any apparent implausibility, that the answer was no, and
proceeded to implement the necessity and impairment provisions in accordance with that
answer.
Before we conclude that the Commission's reading of the
statute was unreasonable, therefore, we have to do more than simply ask whether Congress
would probably have legislated the necessity and impairment criteria in their weak senses.
We have to ask whether the Commission's further question is an irrelevant one, and (if it
is not), whether the Commission's answer is reasonably defensible. If the question is
sensible and the answer fair, Chevron deference surely requires us to respect the
Commission's conclusion. This is so regardless of whether the answer to the Commission's
question points in a different direction from the answer to the Court's question; there is
no apparent reason why deference to the agency should not extend to the agency's choice in
responding to mutually ill-fitting clues to congressional meaning. This, indeed, is surely
a classic case for such deference, the statute here being infected not only with
"ambiguity" but even "self-contradiction." Ante, at 25. I
would accordingly respect the Commission's choice to give primacy to the question it
chose.
AT&T CORPORATION, et al., PETITIONERS
97-826 v.
IOWA UTILITIES BOARD et al.;
AT&T CORPORATION, et al., PETITIONERS
v.
CALIFORNIA et al.
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
97-829 v.
IOWA UTILITIES BOARD et al.;
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
v.
CALIFORNIA et al.
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS
SERVICES, et al., PETITIONERS
97-830 v.
IOWA UTILITIES BOARD et al.
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
97-831 v.
IOWA UTILITIES BOARD et al.;
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
v.
CALIFORNIA et al.
AMERITECH CORPORATION, et al., PETITIONERS
97-1075 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
GTE MIDWEST, INCORPORATED, PETITIONER
97-1087 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
U S WEST, INC., PETITIONER
97-1099 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
SOUTHERN NEW ENGLAND TELEPHONE COMPANY,
et al., PETITIONERS
97-1141 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
on writs of certiorari to the united states court of appeals for the
eighth circuit
[January 25, 1999]
Justice Thomas, with whom the Chief Justice and
Justice Breyer join, concurring in part and dissenting in part.
Since Alexander Graham Bell invented the telephone in
1876, the States have been, for all practical purposes, exclusively responsible for
regulating intrastate telephone service. Although the Telecommunications Act of 1996
altered that more than century-old tradition, the majority takes the Act too far in
transferring the States' regulatory authority wholesale to the Federal Communications
Commission. In my view, the Act does not unambiguously indicate that Congress intended for
such a transfer to occur. Indeed, it specifically reserves for the States the primary
responsibility to conduct mediations and arbitrations and to approve agreements between
carriers See 47 U. S. C. §§252(c); (e) (1994 ed., Supp. II). I
therefore respectfully dissent from Part II of the majority's opinion.1
I
From the time that the commercial offering of telephone
service began in 1877 until the expiration of key patents in 1893 and 1894, Alexander
Graham Bell's telephone company--which came to be known as the American Telephone and
Telegraph Company--enjoyed a monopoly. J. Brooks, Telephone: The First Hundred Years 59,
67, 71-72 (1976). In the decades that followed, thousands of independent phone companies
emerged to fill in the gaps left by the telephone giant and, in most larger markets, to
build rival networks in direct competition with it. Id., at 102-111. As
competition developed, many municipalities began to adopt ordinances regulating telephone
service. See, e.g., K. Lipartito, The Bell System and Regional Business
177-186 (1989).
During the 1900's, state legislatures came under
increasing pressure to centralize the regulation of telephone service. See, e.g., id.,
at 185-207. Although the quasicompetitive system had significant drawbacks from the
consumers' standpoint--principally the refusal of competing systems to
interconnect--perhaps the strongest advocate of state regulation was AT&T itself. Ibid.
The company's arguments that telephone service was naturally monopolistic and that
competition was resulting in wasteful duplication of facilities appealed to
Progressive-era legislatures. Cohen, The Telephone Problem and the Road to Telephone
Regulation in the United States, 3 J. Policy Hist. 42, 55-57 (1991); see generally,
Lipartito, supra, at 185-207. By 1915, most States had established public utility
commissions and charged them with regulating telephone service. Brooks, supra,
at 144. Over time, the Bell Companies' policy of buying out independent providers coupled
with the state commissions' practice of prohibiting competitive entry led back to the
monopoly provision of local telephone service. See R. Garnet, The Telephone
Enterprise: The Evolution of the Bell system's Horizontal Structure, 1876-1909, 146-153
(1985).
Early federal telecommunications regulation, which began
with the Mann-Elkins Act of 1910, did not displace the States' fledgling efforts to
regulate intrastate telephone service. To the contrary, the Mann-Elkins Act extended the
jurisdiction of the Interstate Commerce Commission (ICC) to cover only interstate
and international telecommunications services.2
As a result, state and federal agencies were required to meticulously separate the
intrastate and interstate aspects of telephone services. Accordingly, in Smith v.
Illinois Bell Telephone Co., 282
U. S. 133 (1931), this Court invalidated an Illinois Commerce Commission order
establishing rates for the city of Chicago because it failed to distinguish between the
intrastate and interstate property and business of the telephone company. In so doing, the
Court emphasized that "[t]he separation of the intrastate and interstate property,
revenues and expenses of the Company is ... essential to the appropriate recognition of
the competent governmental authority in each field of regulation." Id., at
148.
In the Communications Act of 1934, 48 Stat. 1064, as
amended, 47 U. S. C. §151 et seq., Congress transferred
authority over interstate communications from the ICC to the newly created Federal
Communications Commission (FCC or Commission). As in the Mann-Elkins Act, Congress chose
not to displace the States' authority over intrastate communications. Indeed, Congress
took care to preserve it explicitly in §2(b), which provides, in relevant part,
that "nothing in this chapter shall be construed to apply to or give the Commission
jurisdiction with respect to ... charges, classifications, practices, services,
facilities, or regulations for or in connection with intrastate communication
service." 47 U. S. C. §152(b). We have carefully guarded the
historical jurisdictional division codified in §2(b). See Louisiana Pub.
Serv. Comm'n v. FCC, 476
U. S. 355 (1986). In Louisiana, we held that §2(b) precluded
the FCC from pre-empting state depreciation regulations. In so doing, we rejected the
FCC's argument that §220 of the Communications Act of 1934 provided it with
authority to displace state regulations that were inconsistent with federal depreciation
standards. We instead concluded that §2(b) "fences off from FCC reach or
regulation intrastate matters--indeed, including matters `in connection with' intrastate
service," id., at 370, and we further indicated that the FCC could breach
§2(b)'s jurisdictional "fence" only when Congress used
"unambiguous or straightforward" language to give it jurisdiction over
intrastate communications. Id., at 377.
Congress enacted the Telecommunications Act of 1996
(Act), Pub. L. 104-104, 110 Stat. 56, against this backdrop. To be sure, the 1996 Act
marked a significant change in federal telecommunications policy. Most important, Congress
ended the States' longstanding practice of granting and maintaining local exchange
monopolies. See 47 U. S. C. §253(a) (1994 ed., Supp. II). It also
required incumbent local exchange carriers to allow their competitors to access their
facilities in three different ways. As the majority describes more completely, ante,
at 3, n. 1, incumbents must: interconnect their networks with requesting
carriers' facilities and equipment, §251(c)(2); provide nondiscriminatory access
to network elements on an unbundled basis at any technically feasible point,
§251(c)(3); and offer to resell at wholesale rates any telecommunications service
that they provide to subscribers who are not telecommunications carriers,
§251(c)(4). The Act sets forth additional obligations applicable to all
telecommunications carriers, §251(a), and all local exchange carriers,
§251(b). To facilitate rapid transition from monopoly to competitive provision of
local telephone service, Congress set forth a process to ensure that the incumbent and
competing carriers fulfill these obligations in §252.
Section 252 sets up a preference for negotiated
interconnection agreements. §252(a). To the extent that the incumbent and
competing carriers cannot agree, the Act gives the state commissions primary
responsibility for mediating and arbitrating agreements. Specifically, Congress directed
the state commissions to mediate disputes between carriers during the voluntary
negotiation period, §252(a)(2), and--after the negotiations have run their
course--to arbitrate any "open issues," §252(b)(1). In conducting these
arbitrations, state commissions are directed to ensure that open issues are resolved in
accordance with the requirements of §251, "establish ... rates for
interconnection, services, or network elements" according to the standards that
Congress set forth in §252(d), and to provide a schedule for implementing the
agreement reached during arbitration. §252(c). The state commissions are also to
approve or reject any interconnection agreement, whether adopted by negotiation or
arbitration, §252(e)(1), guided by the standards set forth in
§252(e)(2). The 1996 Act permits the FCC to intervene in this process only as a
last resort, when "a State commission fails to act to carry out its
responsibilit[ies]." §252(e)(5). In that event, "the Commission shall
issue an order preempting the State commission's jurisdiction ... and shall assume the
responsibility of the State commission ... and act for the State commission." Ibid.
To be sure, the Act directs the state
commissions, in conducting arbitrations, to ensure that open issues are resolved in
accordance with the "regulations prescribed by the [FCC] pursuant to section
251," §252(c)(1), and provides that the state commissions may reject an
arbitrated agreement if it does not meet the requirements of §251,
"including the regulations prescribed by the Commission pursuant to section
251," §252(e)(2)(B). But the scope of the FCC's rulemaking authority under
the Act is quite limited. Section 251(d)(1) directs the Commission to "complete all
actions necessary to establish regulations to implement the requirements of this
section" within a certain time period. I believe that this subsection is a time
limitation upon, and a mandate for, the exercise of rulemaking authority conferred
elsewhere. The source of that authority, as I describe below, is not §201(b), but
rather, §251 itself. Section 251 specifically identifies those subjects upon
which the FCC may regulate. The FCC has authority to regulate on the subject of number
portability, §251(b)(2); those network elements that the carrier must make
available on an unbundled basis for purposes of §251(c), §251(d)(2);
numbering administration, §251(e); exchange access and interconnection
requirements in effect prior to the Act's effective date, §251(g); and treatment
of comparable carriers as incumbents, §251(h)(2).
II
The regulations that are the subject of respondents'
jurisdictional challenge contravene the division of authority set forth in the 1996 Act
and disregard the 100-year tradition of state authority over intrastate
telecommunications. In the introduction to its First Report and Order, the FCC
peremptorily declared that §§251 and 252 "require [it] to
establish implementing rules to govern interconnection, resale of services, access to
unbundled network elements, and other matters, and direct the states to follow the Act and
those rules in arbitrating and approving arbitrated agreements under sections 251 and
252." In re Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, 11 FCC Rcd 15544-15545 (1996) (emphasis added). In
fulfilling its perceived statutory mandate, the FCC promulgated painstakingly detailed
regulations dictating to the state commissions how they must implement
§§251 and 252. I agree with the Eighth Circuit that the FCC lacked
jurisdiction to promulgate the regulations challenged on jurisdictional grounds.3
A
In endorsing the FCC's claim that it has general
rulemaking authority to implement the local competition provisions of the 1996 Act, the
majority relies upon a general grant of authority that predates the Act, 47
U. S. C. §201(b). The last sentence of that provision, upon which the
majority so heavily relies, provides that "[t]he Commission may prescribe such rules
and regulations as may be necessary in the public interest to carry out the provisions of
this chapter." This grant of authority, however, cannot be read in isolation. As the
first Justice Harlan once observed: "[I]t is a familiar rule in the interpretation of
... statutes that `a passage will be best interpreted by reference to that which precedes
and follows it.' " Neal v. Clark, 95
U. S. 704, 708 (1878). Section 201(a) refers exclusively to "interstate or
foreign communication by wire or radio," and the first sentence of §201(b)
refers to "charges, practices, classifications, and regulations for and in connection
with such communication service." "Under the principle of ejusdem generis,
when a general term follows a specific one, the general term should be understood as a
reference to subjects akin to the one with specific enumeration." Norfolk &
Western R. Co. v. Train Dispatchers, 499
U. S. 117, 129 (1991). Applying this principle here, it is clear that the last
sentence of §201(b) only gives the FCC authority to promulgate regulations
governing interstate and foreign communications. By failing to read §201(b)'s
grant of rulemaking authority in light of the limitation that precedes it, the majority
attributes to the provision "a meaning so broad that it is inconsistent with its
accompanying words, thus giving `unintended breath to the Acts of Congress.' " Gustafson
v. Alloyd Co., 513
U. S. 561, 575 (1995) (quoting Jarecki v. G. D. Searle &
Co., 367
U. S. 303, 307 (1961)).
That Congress apparently understood §201(b) to
be so limited is demonstrated by the fact that the FCC is specifically charged, under the
1996 Act, with issuing regulations that implement particular portions of §251, as
I have described, supra, at 7. If Congress believed, as does the majority, that
§201(b) provided the FCC with plenary authority to promulgate regulations
implementing all of the 1996 Act's provisions, it presumably would not have needed to make
clear that the FCC had regulatory authority with respect to particular matters.
B
Moreover, I cannot see how §201(b) represents an
"unambiguous" grant of authority that is sufficient to overcome §2(b)'s
jurisdictional fence. In my view, the majority's interpretation of §201(b)
necessarily implies that Congress sub silentio rendered §2(b) a nullity
by extending federal law to cover intrastate telecommunications. That conclusion is simply
untenable in light of the fact that §2(b) is written in the disjunctive. Section
2(b), 47 U. S. C. §152(b), provides that "nothing in this chapter
shall be construed to apply to or to give the Commission jurisdiction with respect to"
intrastate telecommunications service (Emphasis added.) Contrary to the majority's
suggestion, ante, at 12, there is nothing "subtle" or
"imaginative" about the principle that "[i]n construing a statute we are
obliged to give effect, if possible, to every word Congress used. Canons of construction
ordinarily suggest that terms connected by a disjunctive be given separate meanings,
unless the context dictates otherwise . . . ."
Reiter v. Sonotone Corp., 442
U. S. 330, 339 (1979) (citation omitted). Nor is the majority correct that Louisiana
supports its reading of §2(b). Indeed, the disjunctive structure of the provision
led us to conclude in Louisiana Pub. Serv. Comm'n v. FCC, 476
U. S. 355 (1986), that §2(b) contains both "a rule of statutory
construction" and a "substantive jurisdictional limitation on the FCC's
power." Id., at 372-373. It follows that we should give independent legal
significance to each. Thus, it is not enough for the majority simply to demonstrate that
the 1996 Act "appl[ies] to" intrastate services; it must also point to
"unambiguous" and "straightforward" evidence that Congress intended to
eliminate §2(b)'s "substantive jurisdictional limitation."
This they cannot do. Nothing in the 1996 Act eliminates
§2(b)'s jurisdictional fence. Congress has elsewhere demonstrated that it knows
how to exempt certain provisions from §2(b)'s reach; indeed, it has done so quite
recently. For example, in 1992, Congress enacted legislation providing that §2(b)
shall apply "except as provided in sections 223 through 227"of the
Communications Act of 1934. Pub. L. 102-243. The following year, Congress also exempted
§301 from §2(b)'s purview. Pub. L. 103-66. With the 1996 Act,
Congress neither eliminated §2(b) altogether nor added §§251
and 252 to the list of provisions exempted from its jurisdictional fence. I believe that
we are obliged to honor that choice.
C
Even if the rulemaking authority granted by
§201(b) was not limited to interstate and international communications and the
1996 Act rendered §2(b) a nullity, the FCC's argument would still fail with
respect to its pricing rules and its rules governing the state commissions' approval of
interconnection agreements. We have made it clear that "[w]here there is no clear
intention otherwise, a specific statute will not be controlled or nullified by a general
one." Crawford Fitting Co. v. J. T. Gibbons, Inc., 482
U. S. 437, 445 (1987) (emphasis omitted; internal quotation marks omitted).
Section 201(b) at best gives the FCC general rulemaking authority. But the 1996 Act gives
the state commissions the primary responsibility for conducting mediations and
arbitrations and approving interconnection agreements. Indeed, as I have described,
Congress set forth specific standards that the state commissions are to adhere to in
setting pricing, §252(d), and in approving interconnection agreements,
§252(e). The majority appears to believe that Congress expected that the FCC
would promulgate rules to "guide the state-commission judgments." Ante,
at 18. I do not agree. It seems to me that Congress consciously designed a system that
respected the States' historical role as the dominant authority with respect to intrastate
communications. In giving the state commissions primary responsibility for conducting
mediations and arbitrations and for approving interconnection agreements, I simply do not
think that Congress intended to limit States' authority to mechanically apply whatever
methodologies, formulas, and rules that the FCC mandated. Because Congress set forth
specific provisions giving primary responsibility in certain areas to the States, and
because the subsections setting forth the standards that the state commissions are to
apply make no mention of FCC regulation, I believe that we are obliged to presume that
Congress intended the specific grant of primary authority to the States to control.4
D
My interpretation, of course, would require the state
commissions to interpret and implement the substantive provisions of the 1996 Act in those
instances where the 1996 Act gave the state commissions primary authority. Several parties
have suggested that it is inappropriate for the States to do so. One of the many
petitioners in this case goes so far as to suggest that under our decision in Printz v.
United States, 521
U. S. 898 (1997), the "legitimacy of any such delegation of federal
substantive authority [to the States] would be suspect." Brief for Petitioner in
No. 97-829, p. 40. To be sure, we held in Printz that the Federal
Government may not commandeer state executive agencies. But I do not know of a principle
of federal law that prohibits the States from interpreting and applying federal law.
Indeed, basic principles of federalism compel us to presume that States are competent to
do so. As Justice Field observed over 100 years ago in a decision upholding a federal law
delegating to the States the authority to determine compensation in takings cases:
"[I]t was the purpose of the Constitution to establish a general government
independent of, and in some respects superior to, that of the State governments--one which
could enforce its own laws through its own officers and tribunals ... . Yet from
the time of its establishment that government has been in the habit of using, with the
consent of the States, their officers, tribunals, and institutions as its agents. Their
use has not been deemed violative of any principle as in any manner derogating from the
sovereign authority of the federal government; but as a matter of convenience and as
tending to a great saving of expense." United States v. Jones, 109
U. S. 513, 519-520 (1883).
When, in 1996, Congress decided to attempt to introduce competition into the market for
local telephone service, it deemed it wise to take advantage of the policy expertise that
the state commissions have developed in regulating such service. It is not for us--or the
FCC--to second-guess its decision.
* * *
Contrary to longstanding historical practice, this
Court's precedents respecting that practice, and the 1996 Act's adherence to it, the
majority grants the FCC unbounded authority to regulate a matter of state concern. Because
I do not believe that Congress intended such a result, I respectfully dissent from
Part II of the majority's opinion.
AT&T CORPORATION, et al., PETITIONERS
97-826 v.
IOWA UTILITIES BOARD et al.;
AT&T CORPORATION, et al., PETITIONERS
v.
CALIFORNIA et al.
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
97-829 v.
IOWA UTILITIES BOARD et al.;
MCI TELECOMMUNICATIONS CORPORATION,
PETITIONER
v.
CALIFORNIA et al.
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS
SERVICES, et al., PETITIONERS
97-830 v.
IOWA UTILITIES BOARD et al.
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
97-831 v.
IOWA UTILITIES BOARD et al.;
FEDERAL COMMUNICATIONS COMMISSION and
UNITED STATES, PETITIONERS
v.
CALIFORNIA et al.
AMERITECH CORPORATION, et al., PETITIONERS
97-1075 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
GTE MIDWEST, INCORPORATED, PETITIONER
97-1087 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
U S WEST, INC., PETITIONER
97-1099 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
SOUTHERN NEW ENGLAND TELEPHONE COMPANY,
et al., PETITIONERS
97-1141 v.
FEDERAL COMMUNICATIONS COMMISSION et al.
on writs of certiorari to the united states court of appeals for the
eighth circuit
[January 25, 1999]
Justice Breyer, concurring in part and
dissenting in part.
A statute's history and purpose can illuminate its
language. When read in light of history, purpose, and precedent, the Telecommunications
Act of 1996 (1996 Act or Act), Pub. L. 104-104, 110 Stat. 56, is not the "model of
ambiguity" or "self-contradiction" of which the majority complains. Ante,
at 29. Neither does it permit the Federal Communications Commission to promulgate the
pricing and unbundling rules before us.
I
The FCC's pricing rules fall outside its delegated
authority because both (1) a century of regulatory history establishes state authority as
the local telephone service ratemaking norm and (2) the 1996 Act nowhere changes, or
creates an exception to, that norm. Justice Thomas' opinion describes the history
that has created the norm. Ante, at 2-5. In my view, the Act's purposes, its
language, relevant precedent, and the nature of the FCC's rules provide added support for
his conclusion.
A
The Act's purposes help explain why its language and
structure foresee, not national rate uniformity, but traditional local ratemaking--FCC
views to the contrary notwithstanding. See In re Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996, ¶ ;113, 11 FCC
Rcd 15499, 15558 (1996) (First Report & Order). To understand those purposes, one must
recall that AT&T once dominated the national telecommunications industry. It
controlled virtually all long-distance telephone service, most local telephone service,
and a substantial amount of all telephone equipment manufacturing. See generally United
States v. American Tel. & Tel. Co., 552 F. Supp. 131, 165 (DC 1982)
(describing AT&T's "commanding position" in the Nation's telecommunications
business), aff'd sub nom. Maryland v. United States, 460
U. S. 1001 (1983). In 1982, however, AT&T entered into an antitrust consent
decree, which ended its industry dominance. See 552 F. Supp., at 160-170.
The decree split AT&T from its local telephone
service subsidiaries. By doing so, the decree sought to encourage new competition in
long-distance service by firms such as MCI and Sprint. And it also encouraged new
competition in telephone equipment markets. But the decree did not introduce new
competition into the local telephone service markets. Rather, it left each local market in
the hands of a single state-regulated local service supplier, such as NYNEX in New York,
or Bell Atlantic in Washington, D.C. That circumstance may have reflected the belief,
current at the time, that local service competition could prove wasteful, leading to the
unwarranted duplication of expensive physical facilities by requiring, say, the
unnecessary digging up of city streets to install unneeded wires connecting each house
with a series of new but redundant local switches. See, e.g., United States
v. Western Elec. Co., 673 F. Supp. 525, 537-538 (DC 1987); P. Huber, M.
Kellogg, & J. Thorne, The Geodesic Network II: 1993 Report on Competition in the
Telephone Industry pp. 2.3-2.5 (1992).
At the same time, the decree forbade most such local
service suppliers from entering long-distance markets. United States v. American
Tel. & Tel. Co., supra, at 186-188. That prohibition, by preventing entry by
local firms willing and able to supply long-distance service, risked less long-distance
competition. Cf. P. MacAvoy, The Failure of Antitrust and Regulation to Establish
Competition in Long-Distance Telephone Services 179-183 (1996). But the decree reflected a
countervailing concern. Local firms might enjoy special long-distance advantages not
available to purely long-distance companies. See United States v. American
Tel. & Tel., supra, at 186-188. Perhaps a local service company would find it
unusually easy to attract local customers to its long-distance service; perhaps it could
use its control of local service to place its long-distance competitors at a disadvantage.
See T. Krattenmaker, Telecommunications Law and Policy 411-412 (2d ed. 1998) (explaining
rationale of the decree). And though some argued that any such special advantages were
innocent, rather like those enjoyed by a transcontinental airline that dominates a local
hub, others claimed they were unfair, like those that had once helped AT&T (through
its control of local service) maintain long-distance dominance. See United States
v. American Tel. & Tel., supra, at 165; see generally A. Kahn, Letting Go:
Deregulating the Process of Deregulation, or: Temptation of the Kleptocrats and the
Political Economy of Regulatory Disingenuousness 37-38 and n. 53 (1998) (discussing the
debate). Whether the decree's trade-off made sense--i.e., whether the existence
of some such local-firm/long-distance-service advantage warranted the decree's prohibition
limiting the number of potential long-distance competitors--became a fertile source for
later argument. See, e.g., MacAvoy, supra, at 171-177 (arguing that
oligopolistic conditions in long-distance markets have produced supranormal profits that
would not be sustainable with increased competition); Robinson, The Titanic Remembered:
AT&T and the Changing World of Telecommunications, 5 Yale J. Reg. 517, 537 (1988)
(arguing that the rationale for the decree's restrictions on local service companies was
"just as persuasive" as that underlying the decree).
The Act before us responds to this argument by changing
the postdecree status quo in two important ways. First, it creates a legal method through
which local telephone service companies may enter long-distance markets, thereby providing
additional long-distance competition. See 47 U. S. C. §271(c)(2)(B)
(1994 ed., Supp. II) (listing 14 conditions that, if met, permit incumbent local firms to
enter long-distance market). Second, it conditions that long-distance entry upon either
(1) the introduction of competition into local markets, or (2) the failure of a
competing carrier to request access to or interconnection with the local service supplier
(or the competing carrier's failure to engage in "good faith" negotiations).
§§271(c)(1)(A), (B). The existence of these two alternatives is
important. In setting forth the first alternative, actual local competition, the statute
recognizes that local service competition would diminish any special long-distance
advantages that the local firm has, thereby lessening the need for the decree's
long-distance-market entry prohibition. See supra, at 4; Krattenmaker, The
Telecommunications Act of 1996, 49 Fed. Comm. L. J. 1, 15-16 (1996). In setting forth
the second alternative, the Act recognizes that actual local competition might not prove
practical; in some places, to some extent, local markets may not support more than a
single firm, at least not without wasteful duplication of resources. See Note, The FCC and
the Telecom Act of 1996: Necessary Steps to Achieve Substantial Deregulation, 11 Harv.
J. L. & Tech. 797, 810, n. 57 (1998).
These alternatives raise a difficult empirical question.
To what extent is local competition possible without wasteful duplication of facilities?
The Act does not purport to answer this question. Rather, it creates a set of legal rules
which, through interaction with the marketplace, aims to produce sensible answers. In
particular, the Act permits new local entry by dismantling existing legal
barriers that would otherwise inhibit it. 47 U. S. C. §253(a) (1994
ed., Supp. II). Equally important, the Act promotes new local entry by requiring
incumbents (1) to "interconnect" with new entrants (thereby allowing even a
partial new entrant's small set of subscribers to call others within an entire local
area), §251(c)(2); (2) to sell retail services to new entrants at wholesale rates
(thereby allowing newly entering firms to become "resellers," competing in
retailing), §251(c)(4); and (3) to provide new entrants "access to network
elements," say, house-to-street telephone lines, "on an unbundled basis"
(thereby allowing new entry in respect to some aspects of the local service
business without requiring wasteful duplication of the entire business),
§251(c)(3). The last mentioned "unbundling" requirement does not
specifically state which elements must be unbundled, a difficult matter that I shall
discuss below. See infra, at 18-21. But one can understand the basic
logic of "unbundling" by imagining that Congress required a sole incumbent
railroad providing service between City A and City B to share certain basic facilities,
say, bridges, rights-of-way, or tracks, in order to avoid wasteful duplication of those
hard-to-duplicate resources while facilitating competition in the remaining aspects
of A-to-B railroad service. Indeed, one might characterize the Act's basic purpose as
seeking to bring about, without inordinate waste, greater local service competition both
as an end in local markets and as a means towards more competition, and fair competition,
in long-distance markets.
For the present cases, the most important characteristic
of the Act's purposes is what those purposes do not require. Those purposes
neither require nor suggest reading the Act's language to change radically the scope of
local regulators' traditional rate-setting powers. A utility's rate structure consists of
complex sets of typically interdependent individual rates, the determination of which
depends upon numerous considerations, many of which are local in nature and fall outside
the Act's purview. The introduction of competition into a particular locality does not
diminish the importance of place-specific factors, such as local history, geography,
demands, and costs. And local regulators are likely more familiar than are national
regulators, for example, with a particular utility's physical plant, its cost structure,
the pattern of local demand, the history of local investment, and the need for recovery of
undepreciated fixed costs.
Moreover, local regulators have experience setting rates
that recover both the immediate, smaller, added costs that demand for additional service
imposes upon a local system and also a proper share of the often huge fixed costs (of
local loops, say, or switches) and overhead needed to provide the dial tone itself.
Indeed, local regulators would seem as likely, if not more likely, than national
regulators to know whether, when, or the extent to which, particular local charges or
systems of charges will lead new entrants to abandon efforts to use a local incumbent's
elements, turning instead to alternative technologies. And local regulators would seem as
likely as national regulators to know whether or when use of such alternative technologies
in the local circumstances will prove more beneficial than wasteful. It is the local
communities, and, hence, local regulators, that will directly confront the problems and
enjoy the benefits associated with local efforts to integrate new and old communications
resources and communications firms. These factors, along with the fact that the relevant
technology changes rapidly, argue in favor of, not against, local rate-setting control,
including local rate-setting differences, for those differences can amount to the kind of
"experimentation" long thought a strength of our federal system.
At most, the Act's purposes argue for a grant to the FCC
of authority to set federal limitations preventing States from adopting forms of
ratemaking that would interfere with the Act's basic objectives. The Act explicitly grants
the FCC a particular pre-emption tool, not here invoked, which is apparently suited to
that job. 47 U. S. C. §253(d) (1994 ed., Supp. II) (permitting the FCC
to pre-empt, after notice and comment, any state legal requirement that has the effect of
prohibiting entry into local service). Such a grant could not help the FCC here, however,
for, as I discuss below, infra, at 13-17, the FCC's rules do not just create an
outer envelope or simply prevent the States from going too far. Rather, they effectively
supplant much of a local regulator's local rate-setting work.
B
Read in light of its purposes, the Act's language more
clearly foresees retention, not replacement, of the traditional allocation of
state-federal rate-setting authority. Ante, at 6-7 (Thomas, J.,
concurring in part and dissenting in part). Sections 251 and 252, which establish and
provide for implementation of new local service obligations, contain the relevant
language.
Section 251 lists basic obligations that the Act imposes
upon local incumbents. These include obligations to interconnnect, to unbundle, to sell at
wholesale rates, to provide "number portability," to assure "dialing
parity," to negotiate with potential entrants in good faith, and generally to
encourage local competition. Section 251 also refers to the FCC, but only in respect to some
of these obligations. See, e.g., §251(d)(2) ("[T]he Commission
shall consider" certain standards in determining which network elements must be
unbundled); §251(b)(2) (local firms have duty to provide "number portability
in accordance with requirements prescribed by the Commission"); see ante, at
7 (Thomas, J., concurring in part and dissenting in part). It makes no mention of
a regulator in respect to other matters, which others include ratemaking. Thus,
§251's language leaves open the relevant question--which regulator has the
authority to set rates.
Section 252, which specifically describes how
§251's obligations are to be implemented, is less ambivalent. Its implementation
system consists of negotiation between incumbents and new entrants, followed by state regulatory
commission arbitration if negotiations fail. §§252(a), (b). Certain of
§252's language, I concede, can be read to favor the majority--in particular its
statement that the results of state arbitration must be consistent with §251 and
with "regulations prescribed by the [FCC] pursuant to section 251."
§252(c)(1). But the word "regulations" here might or might not include
rate regulations. Ante, at 13-14. And the immediately following language
indicates that it does not.
That immediately following language, beginning with the
immediately subsequent subsection and including nine paragraphs, speaks separately, and
specifically, of rates. §§252(c)(2), (d). And that language expressly
says that the "State commission[s]" are to "establish any
rates." It adds that they are to do so "according to" a further subsection,
"subsection (d)." And this further subsection (d), headed by the words
"Pricing standards" and focusing upon "charges," sets forth the
pricing standards for use by the state commissions. It speaks of
"[d]eterminations by a [S]tate commission of the just and reasonable rate"
(which, it adds, must be "nondiscriminatory" and "based on ... cost"),
but it says nothing about a role for the FCC. § 252's references to the state
commissions, its rate-setting detail, and its silence about the FCC's role all favor a
reading of the earlier word "regulations" that excludes, rather than includes,
FCC rate regulations.
Thus, §251 is silent about local rate-setting
power. Section 252 speaks of state, not federal, ratemaking. As most naturally read, the
structure and language of those sections foresee the traditional allocation of ratemaking
authority--an allocation that within broad limits assumes local rates are local matters
for local regulators.
I recognize that the majority finds the relevant
rulemaking authority, not in §§251 and 252, but in a different section
containing a general grant of rulemaking authority. Ante, at 9-10 (citing 47
U. S. C. §201(b)). But Congress enacted that language in 1938, see 52
Stat. 588. The scope of the FCC's legal power to apply an explicit grant of general
authority to make rules implementing the more specific terms of a later enacted statute
depends upon what that later enacted statute contemplates. Cf. Louisiana Pub. Serv.
Comm'n v. FCC, 476
U. S. 355, 376-377, n. 5 (1986). And here, as just explained, the 1996 Act
foresees the reservation of most local rate-setting authority to local regulators.
C
The most the FCC can claim is linguistic ambiguity. But
such a claim does not help the FCC, for relevant precedent makes clear that, when faced
with ambiguity, we are to interpret statutes of this kind on the assumption that Congress
intended to preserve local authority. See, e.g., Cipollone v. Liggett
Group, Inc., 505
U. S. 504, 518 (1992) ("presumption against the pre-emption of state police
power regulations"); Rice v. Santa Fe Elevator Corp., 331
U. S. 218, 230 (1947) (requiring "clear and manifest" showing of
congressional intent to supplant traditional state police powers). Moreover, the
Communications Act itself, into which Congress inserted the provisions of the 1996 Act
with which we are here concerned, comes equipped with a specific instruction that courts
are not to "construe" the FCC's statutory grant of authority as
"giv[ing] the Commission jurisdiction with respect to ... charges ... for or in
connection with intrastate communication." 47 U. S. C. §152(b).
Thus, as Justice Thomas points out, ante, at 10, it is not surprising
to find that this Court has interpreted the Communications Act as denying the FCC
authority to determine local rate-related practices in the face of statutory language far
more helpful to the FCC than anything present here. Louisiana Pub. Serv. Comm'n
v. FCC, supra. That precedent requires a similar result here.
Louisiana raised a question almost identical to
the one before us: Does a statute granting the FCC authority to set certain general
rate-related rules (there, depreciation rules) also grant the FCC authority to set primarily
local rate-related rules (i.e., local depreciation rules)? Writing for the
Court, Justice Brennan stated that the basic "rule of statutory
construction" contained in §152(b) and just quoted above requires
interpretations that favor the reservation of ratemaking authority to the States. Louisiana,
id., at 373. Hence, the statute did not permit the FCC to write depreciation rules
that would apply to equipment insofar as it was used for local service. Ibid.
Consider the similarities between Louisiana and
the present cases. The relevant rules of statutory construction--the general and explicit
presumptions favoring retention of local authority--are the same. See id., at 369
(asking whether "Congress intended that federal regulation supersede state law"
and citing Rice v. Santa Fe Elevator Corp., supra); 476
U. S., at 371-373 (relying on §152(b)). The subject matter is highly
similar--both cases involve the w |
