United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 5, 2001 Decided June 15, 2001
No. 00-1055
National Exchange Carrier Association, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
National Telephone Cooperative Association,
Intervenor
On Petition for Review of an Order of the
Federal Communications Commission
Richard A. Askoff argued the cause for petitioner. With
him on the briefs were Kenneth A. Levy and Judith L.
Harris.
L. Marie Guillory and Daniel Mitchell were on the brief
for intervenor National Telephone Cooperative Association.
Laurel R. Bergold, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With her on the
brief were Christopher J. Wright, General Counsel, John E.
Ingle, Deputy Associate General Counsel, A. Douglas Me-
lamed, Acting Assistant Attorney General at the time the
brief was filed, U.S. Department of Justice, Robert B. Nichol-
son and Robert J. Wiggers, Attorneys.
Before: Edwards, Chief Judge, Ginsburg and Tatel,
Circuit Judges.
Per curiam: The National Exchange Carrier Association
challenges an order of the Federal Communications Commis-
sion adopting a formula for distributing money from the
Universal Service Fund (USF) to subsidize high-cost tele-
phone service providers and thereby promote telephone sub-
scribership. The petitioner claims that the Commission's
order violates the Administrative Procedure Act because it
arbitrarily and capriciously undercompensates telephone ser-
vice providers, and it was adopted without adherence to the
applicable procedures for public notice and comment. The
NECA, however, fails to articulate an intelligible explanation
of its substantive claim, and its procedural claim lacks merit.
Accordingly, we deny the petition for review.
I. Background
Telephone service in the United States is provided within
each geographical area by a single local exchange carrier
(LEC). The LEC connects long-distance calls originated by
its subscribers to the long-distance carriers of their choice
and connects long distance calls originated elsewhere to its
subscribers. For providing this "exchange access" the LEC
may obtain compensation from the long distance carriers
either by filing its own access tariff with the Commission or
by accepting compensation under a generally applicable for-
mula adopted by the Commission. In order to effectuate the
latter option, the Commission established an independent
organization, the NECA, "to prepare and file access charge
tariffs on behalf of all telephone companies that do not file
separate tariffs." 47 C.F.R. s 69.601(a). Among those non-
filers (called average schedule companies), any company
whose local loop costs are 115% or more of the national
average may receive additional compensation from the Com-
mission, paid out of the Universal Service Fund pursuant to a
set formula. 47 C.F.R. s 36.631.
In October 1998 the NECA proposed a formula for calcu-
lating the USF payments to be made to average schedule
companies in the coming year and the Common Carrier
Bureau invited public comments on the proposal. The Bu-
reau determined that using the proposed formula would
substantially increase the number of companies receiving
payments and increase by 33% the total amount paid to
average schedule companies. The Bureau also expressed
concern that the proposed formula did not well approximate
the per loop costs of average schedule companies. In particu-
lar, the Bureau found that the formula overstated costs for
two thirds of the average schedule companies sampled; in-
deed, more than half the companies that would receive USF
payments under the NECA's formula were below the 115%
threshhold of eligibility. Ultimately, the Bureau rejected the
proposed formula and issued an order retaining the 1998
formula, as adjusted to reflect growth in the number of local
loops served by the average schedule companies. See Staff
Order, 14 FCC Rcd 4049, 4053 p 9.
The NECA filed an application for Commission review of
the order, challenging it on both substantive and procedural
grounds. The Commission denied the application, and the
NECA filed a petition for review in this court.
II. Analysis
The NECA argues that the Commission acted in an arbi-
trary and capricious manner, in violation of the Administra-
tive Procedure Act, 5 U.S.C. s 706(2)(A), by rejecting the
NECA's proposed 1999 USF formula and adhering to the
1998 formula with an upward adjustment. The NECA ad-
mits, however, that its proposed formula does not accurately
estimate the LECs' per loop costs. Its strategy is to confess
and avoid, maintaining that the "cost per loop approach is
problematic because it systematically understates USF pay-
ments to average schedule companies." Br. for Petitioner at
7. In a footnote, the NECA adds cryptically, "The reasons
for this are complex, having to do with the fact that the USF
rules contain a sharp payment 'thresholds' [sic] that limits
USF payments to companies with loop cost in excess of 115%
of the national average." Id. n.14.
The reasons may be complex, but if the NECA wanted to
demonstrate that retaining the incumbent formula was arbi-
trary and capricious, then it needed to explain the reasons to
the court. Instead, the petitioner purports to show the
superiority of its own proposed approach, as follows:
Instead of attempting to model cost per loop amounts,
NECA ... calculates the actual USF payment that each
sample company would receive if it were to conduct a
cost study. These calculated USF expense adjustments
(payments) are then compared to available demand varia-
bles, and a formula is developed that predicts USF
payments for individual companies.
This "expense adjustment" modeling approach not only
avoids the systematic underpayment problem inherent in
the cost per loop approach, it appears to conform more
closely with the language of section 69.606 which requires
that formulas simulate "disbursements" of representative
cost companies (not "cost per loop" amounts or other
intermediate steps in the process).
Without a grasp of what is wrong with the Commission's
approach, however, the court cannot deem it arbitrary and
capricious, much less appreciate the supposed superiority of
the NECA's alternative.
Separately, the NECA argues, or at least observes, that
"average schedule formulas are only intended to achieve a
reasonable balance between accuracy and ease of administra-
tion," and no schedule will fit all companies perfectly. While
no doubt true, that point falls well short of establishing that
the Commission acted in an arbitrary and capricious manner
in adjusting the prior year's formula.
Most likely there is more to the NECA's claim or it would
not have litigated it to this point, but we are unable to tell
what that more might be. Neither the petitioner nor the
court gets any help from the Commission in this regard
either; the Commission responds to the petitioner's brief
more or less in kind, leaving the court with no greater grasp
of what the parties are arguing about than what little we
could glean from the petitioner's brief. The burden of per-
suasion being with the petitioner, however, the Commission's
failings will not succor the NECA's case. Nor is it the court's
duty to identify, articulate, and substantiate a claim for the
petitioner. As we have said before, "this court tries not to
base its decisions on mind reading." Goos v. Nat'l Ass'n of
Realtors, 997 F.2d 1565, 1572 (1993).
In sum, the NECA has failed to make intelligible to the
court any coherent argument in support of its substantive
claim. That may reflect the court's own limitations as much
as any failure on the petitioner's part; but that is a limitation
with which both bench and bar must live. For the court's
part, we take some comfort in thinking we have previously
understood cases a good deal more complicated than this one.
The NECA also raises a procedural argument, namely that
the Commission violated s 553 of the Administrative Proce-
dure Act by failing to follow notice and comment procedures
in making the upward adjustment to the prior year's USF
formula. The Commission first suggests that the petitioner
lacks standing to challenge an adjustment in its favor, as
though it were not injured by getting less of an adjustment
than it sought. More seriously, the Commission argues that
additional notice and comment were not required before it
issued the order adjusting the prior year's formula because
the adjustment was a "logical outgrowth" of the rule it had
put out for comment. See Fertilizer Institute v. EPA, 935
F.2d 1303, 1311 (D.C. Cir. 1991).
As this court has explained, "the logical outgrowth test
normally is applied to consider whether a new round of notice
and comment would provide the first opportunity for interest-
ed parties to offer comments that could persuade the agency
to modify its rule." Arizona Public Service Co. v. EPA, 211
F.3d 1280, 1299 (2000); see also Association of Battery
Recyclers, Inc. v. EPA, 208 F.3d 1047, 1059 (D.C. Cir. 2000);
First Am. Discount Corp. v. Commodity Futures Trading
Comm'n, 222 F.3d 1008, 1014 (D.C. Cir. 2000). In this case,
the NECA has had ample opportunity to argue to the Com-
mission that the 1998 rule should be modified so as to
increase USF payments to average schedule companies; in-
deed, that has been the NECA's purpose throughout. The
NECA even argued specifically that, should the Bureau reject
the NECA's proposed formula and retain the 1998 one in-
stead, then it should not limit any upward adjustment in the
1998 formula to the rate of loop growth. Clearly, a new
round of notice and comment would not provide the NECA its
"first opportunity ... to offer comments" upon the order.
For the foregoing reasons, the petition for review is
Denied.