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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 29, 2004 Decided July 6, 2004
No. 03-1118
SBC COMMUNICATIONS INC.,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS
CORECOMM COMMUNICATIONS, INC. AND
Z–TEL COMMUNICATIONS, INC.,
INTERVENORS
On Petition for Review of an Order of the
Federal Communications Commission
Michael K. Kellogg argued the cause for petitioner. With
him on the briefs were Colin S. Stretch, James D. Ellis, and
Gary L. Phillips.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
Richard K. Welch, Counsel, Federal Communications Com-
mission, argued the cause for respondents. With him on the
brief were Robert H. Pate III, Assistant Attorney General,
U.S. Department of Justice, Catherine G. O’Sullivan and
Steven J. Mintz, Attorneys, John A. Rogovin, General Coun-
sel, Federal Communications Commission, John E. Ingle,
Deputy Associate General Counsel, and Rodger D. Citron and
Suzanne M. Tetreault, Counsel. Nancy C. Garrison, Attor-
ney, U.S. Department of Justice, entered an appearance.
Glenn B. Manishin argued the cause for intervenors.
With him on the brief was Stephanie A. Joyce.
Before: SENTELLE, ROGERS and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: SBC Communications, Inc.
(‘‘SBC’’) brings this petition for review challenging a $6
million forfeiture levied against it by the Federal Communica-
tions Commission (‘‘FCC’’). The FCC issued the fine be-
cause, it claims, SBC flagrantly violated the terms of an FCC-
approved merger agreement to which SBC is a party. SBC’s
primary complaint is that the forfeiture order violates the
Fifth Amendment’s due process clause, because SBC was not
on ‘‘fair notice’’ of the duties under the merger agreement
that the FCC accuses it of shirking. SBC also argues that
the order is arbitrary and capricious. Because both of these
challenges are without merit, we deny the petition for review.
I. Background
A. Unbundling under the Telecommunications Act
SBC’s petition concerns its obligations as an incumbent
local exchange carrier (‘‘ILEC’’) under the Telecommunica-
tions Act. ILECs are companies that own the local wires
that connect telephone subscribers’ phones to local phone
company exchanges. ILECs also own the local exchanges.
Those exchanges centrally route calls, using switches, among
the local phone wires and the trunks that connect various
exchanges, obviating the need for each phone to be connected
to one other. To prevent ILECs from monopolizing these
facilities, the Telecommunications Act (‘‘the Act’’), as amend-
3
ed in 1996, requires ILECs to allow competing carriers,
known as competitive local exchange carriers (‘‘CLECs’’), to
use their networks, a practice known as ‘‘unbundling.’’ In
particular, the Act requires ILECs to allow CLECs to lease
‘‘unbundled network elements’’ (‘‘UNEs’’) so that CLECs can
offer service in competition with ILECs. See 47 U.S.C.
§ 251(c)(3).
The task of determining those network elements that must
be unbundled is delegated to the FCC. In determining
whether a network element should be unbundled, the Act
requires the FCC to consider ‘‘at a minimum’’ whether ‘‘ac-
cess to such network elements as are proprietary in nature is
necessary’’ and whether ‘‘the failure to provide access to such
network elements would impair the ability of the telecommu-
nications carrier seeking access to provide the services that it
seeks to offer.’’ Id. § 251(d)(2). The FCC has issued a
series of orders addressing the scope of ILECs’ obligation to
unbundle their network elements.1
‘‘Network element[s]’’ that must be unbundled include the
‘‘functions[ ] and capabilities’’ provided by ILECs’ network
facilities. Id. § 153(29). One such capability is the service of
transporting telephone calls on an ILEC’s network; it seems
fairly clear that this service is therefore a network element.
See S.W. Bell Tel. Co. v. FCC, 199 F.3d 996, 997 (8th Cir.
1999) (per curiam). Such transportation is accomplished
using transport lines that connect the exchanges and switches
in the network. ILECs’ networks transport calls either by
dedicating those transport facilities to a single carrier, which
are referred to as ‘‘dedicated transport’’ facilities, or by
allowing several carriers to share the facilities, referred to as
‘‘shared transport’’ facilities. SBC’s petition for review in-
1 Triennial Review Order, 18 FCC Rcd 16978 (2003), vacated
in part, U.S. Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004);
UNE Remand Order, 15 FCC Rcd 3696 (1999), clarified, 15 FCC
Rcd 9587 (2000), petitions for review denied, Competitive Tele-
comms. Ass’n. v. FCC, 309 F.3d 8 (D.C. Cir. 2002); Shared Trans-
port Order, 12 FCC Rcd 12460 (1997), vacated in part, S.W. Bell
Tel. Co. v. FCC, 199 F.3d 996 (8th Cir. 1999) (per curiam); Local
Competition Order, 11 FCC Rcd 15499 (1996) (subsequent history
omitted).
4
volves its obligation to provide CLECs with unbundled access
to its shared transport facilities.
B. The Merger Order
For purposes of the present petition, the FCC does not
claim that SBC’s obligation to provide shared transport arises
directly from the unbundling provisions of the Act. The FCC
claims instead that the obligation arose from an order it
issued that conditionally approved a merger between SBC
and Ameritech, Inc., another ILEC. See In re Applications
of Ameritech Corp. and SBC Communications, Inc., 14 FCC
Rcd 14712 (1999), vacated in part on other grounds, Ass’n of
Communications Entrs. v. FCC, 235 F.3d 662 (D.C. Cir. 2001)
(‘‘Merger Order’’). As both Ameritech and SBC held FCC
licenses, the FCC was authorized to approve the merger only
if it found that ‘‘the public interest, convenience and necessity
[would have been] served’’ by it. 47 U.S.C. § 310(d). On
that question, the FCC took the position that the merger
would have anticompetitive effects not outweighed by its
benefits and therefore was not in the public interest. Accord-
ingly, the parties engaged in extensive negotiations so that
they could ‘‘explore the possibility of [SBC and Ameritech]
strengthening their application by agreeing to certain volun-
tary public interest commitments.’’ Merger Order ¶ 43.
Those negotiations resulted in a series of conditions on the
merger of the two companies, issued by the FCC October 8,
1999. One of the conditions required the merged entity
(which, for convenience, we simply call ‘‘SBC’’ unless the
context shows otherwise) to provide shared transport to
CLECs in the states formerly served by Ameritech. That
condition specifically provided:
Within 12 months of the Merger Closing Date (but
subject to state commission approval and the terms of
any future Commission orders regarding the obligation
to provide unbundled local switching and shared trans-
port), SBC/Ameritech shall offer shared transport in the
SBC/Ameritech Service Area within the Ameritech
States under terms and conditions, other than rate struc-
5
ture and price, that are substantially similar to (or more
favorable than) the most favorable terms SBC/Ameritech
offers to telecommunications carriers in Texas as of
August 27, 1999. Subject to state commission approval
and the terms of any future Commission orders regard-
ing the obligation to provide unbundled local switching
and shared transport, SBC/Ameritech shall continue to
make this offer, at a minimum, until the earlier of (i) the
date the Commission issues a final order in its UNE
remand proceeding TTT finding that shared transport is
not required to be provided by SBC/Ameritech in the
relevant geographic area, or (ii) the date of a final, non-
appealable judicial decision providing that shared trans-
port is not required to be provided by SBC/Ameritech in
the relevant geographical area.
Merger Order, App. C ¶ 56. The FCC explained that para-
graph 56 ‘‘obligates Ameritech to provide shared transport
until a final order of the Commission or a final and non-
appealable judicial decision determines that SBC/Ameritech is
not required to provide shared transport in all or a portion of
its operating territory.’’ Merger Order ¶ 396. ‘‘Shared trans-
port,’’ the conditions defined, meant ‘‘the function of shared
transport’’ as defined in a previous FCC order. Id. App. C
¶ 55.
The apparent reason for imposing this obligation to provide
shared transport in the former Ameritech states–Illinois,
Indiana, Michigan, Ohio, and Wisconsin–was to address Am-
eritech’s prior reluctance to offer unbundled access to shared
transport services. SBC, in contrast, had previously provided
CLECs with access to such service, for example, in Texas;
hence, the merger agreement defined the merged entity’s
obligation to provide such service by reference to a state SBC
already had served.
C. The UNE Remand Proceeding and the Clarification
Order
Two references in paragraph 56 of the merger conditions
warrant further explanation. First, paragraph 56 refers to
the UNE remand proceeding, which was an ongoing FCC
6
proceeding that was reconsidering, among other things, its
unbundling rules. The FCC commenced that proceeding in
response to the Supreme Court’s January 1999 decision that
had held unlawful in substantial part those initial rules. See
AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 387–92 (1999).
The initial rules had broadly ordered ILECs to provide
CLECs with unbundled access to network elements, including
shared transport. E.g., Local Competition Order, 11 FCC
Rcd 15499 ¶ 440. But the rules, the Court had held, rested
on an unreasonable and overly broad construction of when not
having access to network elements would ‘‘impair’’ CLECs.
Iowa Utils. Bd., 525 U.S. at 387.
In response to Iowa Utilities Board, the FCC issued its
order in the UNE remand proceeding on November 5, 1999,
about a month after the merger order issued. That proceed-
ing concluded that an ILEC should, as a general matter,
provide a CLEC with shared-transport services if the ILEC
provides the CLEC with unbundled switching. UNE Re-
mand Order ¶¶ 369–79. The order also concluded that ‘‘as a
general matter’’ ILECs were required to unbundle ‘‘local
circuit switching.’’ Id. ¶ 253. Several ILECs and CLECs
petitioned for clarification of the UNE Remand Order. The
FCC issued a clarification in response. Clarification Order,
15 FCC Rcd 9587 (2000), petitions for review denied, Compet-
itive Telecomms. Ass’n v. FCC, 309 F.3d 8 (D.C. Cir. 2002).
As relevant to the present case, the clarification addressed
the proper methodology for analyzing whether an ILEC must
unbundle exchange-access service, assuming it was also re-
quired to unbundle local-exchange service. Id. ¶¶ 13–14.
‘‘Exchange access service’’ is the process of originating and
terminating calls on the ILEC’s network, i.e., providing ‘‘ac-
cess’’ to the users physically connected to the ILEC’s local
loops and switches, so that they may send and receive calls to
and from other networks. ‘‘Local exchange service,’’ in con-
trast, is simply the practice of providing local telephone
service to customers using the ILEC’s local network.
The core of the methodology the FCC outlined was that
each of these services, even though they both employ the
7
same physical facilities owned by the ILEC, needed to be
analyzed separately, service by service, for purposes of deter-
mining whether the ILEC had to unbundle each of them.
The FCC noted that the Act explicitly distinguishes the
markets for the two services. Id. ¶ 14. (Again, under the
Act, whether a given network element must be unbundled
depends, in part, on whether the CLEC would be ‘‘im-
pair[ed]’’ absent access to the network element. 47 U.S.C.
§ 251(d)(2).) Therefore, the Commission reasoned, a finding
that CLECs would be ‘‘impaired’’ absent access to one of
these markets did not mean ‘‘for that reason alone, and
without further inquiry’’ that the CLEC would be ‘‘impaired’’
absent access to another of these markets, even though both
exchange-access service and local-exchange service use the
same physical facilities. Clarification ¶ 14. In other words,
unbundling local-exchange service did not necessarily mean
that exchange-access service should also be unbundled. The
Commission’s task, it explained, instead should be to resolve
‘‘whether the markets for local exchange service and special
access are so closely interrelated from an economic and
technological perspective that a showing of impairment with
respect to the former market would by itself tend to suggest,
as a practical matter, that the ‘impair’ standard is satisfied
with respect to the latter market.’’ Id. ¶ 16. The Commis-
sion did not in the clarification, however, resolve whether
local-exchange-service unbundling should be tied to exchange-
access-service unbundling; it merely stated its intention to do
so in a future rulemaking using the methodology it had
described.
The Commission also noted, more generally, that this mar-
ket-specific ‘‘impairment’’ analysis outlined in the clarification
was a departure from the analysis it had employed in its
initial set of unbundling rules. ‘‘Before the Supreme Court
issued its decision in Iowa Utility Board,’’ the Commission
explained, ‘‘we sometimes approached an incumbent’s obli-
gation to unbundle network elements as though it were an all-
or-nothing proposition, suggesting that, if a competitor were
entitled to obtain access to an element for one purpose, it was
generally also entitled to obtain access to that element for
8
wholly different purposes as well.’’ Id. ¶ 12. ‘‘Now that the
Supreme Court has rejected our previous interpretation of
that provision as insufficiently rigorous,’’ it continued, ‘‘it is
appropriate for us to revisit the issue.’’ Id. The new meth-
odology described by the Commission was the result of that
revisiting. On petition for review, this Court held that the
Commission’s new methodology was a reasonable interpreta-
tion of the Act. Competitive Telecomms. Ass’n v. FCC, 309
F.3d 8, 12–13 (D.C. Cir. 2002).
D. SBC/Ameritech’s Service in Texas as of August 27,
1999
The second reference in paragraph 56 that requires addi-
tional explanation is its allusion to the service that SBC/Am-
eritech was ‘‘offer[ing]’’ in Texas as of August 27, 1999.
Again, that paragraph required SBC to ‘‘offer shared trans-
port in the SBC/Ameritech Service Area within the Ameri-
tech States under terms and conditions TTT that are substan-
tially similar to (or more favorable than) the most favorable
terms SBC/Ameritech offers to telecommunications carriers
in Texas as of August 27, 1999.’’ Merger Order, App. C ¶ 56.
The scope of SBC’s ‘‘offer[ings]’’ as of that date is compli-
cated by a dispute in which it was embroiled at the time with
the Texas Public Utility Commission. The dispute was over
the scope of its contractual obligation to provide shared
transport to two CLECs, Sage Telecom and Birch Telecom of
Texas, Ltd. See Notice of Apparent Liability for Forfeiture,
17 FCC Rcd 1397 ¶ 9 (2002) (‘‘NAL’’). In particular, the
disagreement concerned SBC’s contractual duty to provide
the two CLECs shared-transport service for intra-Local Ac-
cess and Transport Area (‘‘LATA’’) toll calls. LATAs are
service areas within which, but not beyond, the Bell operating
companies–one of the operating companies divested from
AT&T in the early 1980s as a result of antitrust litigation–
were authorized to provide telephone service under the de-
cree that the litigation produced. At the beginning of 1999,
SBC had been providing such service to Sage and Birch
under agreements with those companies. Id. However, SBC
interpreted its agreement with Sage and Birch to authorize
9
SBC to stop providing such service (for reasons not relevant
here), and announced that it intended to do so.
Sage and Birch disagreed with SBC and in April com-
plained to the Texas Public Utility Commission. That same
month, a panel of Texas PUC arbiters temporarily enjoined
SBC from carrying out its plan to stop providing shared-
transport service for intraLATA toll calls to Sage and Birch,
pending its resolution of the dispute. This injunction was
upheld in November 1999 (about a month after the issuance
of the merger order) when the arbitration panel ruled that
SBC’s agreements with Sage and Birch required SBC to
provide them with shared-transport service for intraLATA
toll calls. NAL ¶ 11. The full Texas PUC affirmed the
arbitration panel’s decision the next month. Id.
E. The Administrative Proceedings Below
After the October 1999 merger order issued, SBC decided
to offer shared transport in the states that Ameritech had
formerly served–Illinois, Indiana, Michigan, Ohio, and Wis-
consin–only for local-exchange service, not for intraLATA toll
service. SBC, both in its submissions below and in its briefs,
sees a significant difference between providing intraLATA
shared-transport toll service and providing local shared-
transport service. The market for intraLATA toll service,
unlike the market for local phone service, SBC claims, is
‘‘competitive,’’ though it does not state precisely how competi-
tive it believes that market is, much less whether that degree
of competition is in the public interest. As ILECs generally
lack significant market power (i.e., the ability to price above
cost) in that market, the argument goes, there is no warrant
for a regulatory requirement for them to provide shared-
transport service in such markets to CLECs.
The FCC, however, took the position that paragraph 56 of
the merger conditions required SBC to offer such service in
the five former Ameritech states. Because SBC had been
providing, pursuant to the interim order of the Texas PUC
arbitration panel, intraLATA shared-transport service in Tex-
as as of August 27, 1999, the FCC concluded that SBC’s
failure to provide such service in the former Ameritech states
10
violated paragraph 56 of the merger conditions and issued a
Notice of Apparent Liability for Forfeiture to that effect in
January 2002. See NAL ¶¶ 12–19. The Commission is au-
thorized to impose such forfeitures under 47 U.S.C. § 503(b)
for willful or repeated failures to comply substantially with
the terms and conditions of any license or other instrument
issued by the Commission. The Notice proposed a forfeiture
amount of $6 million. Id. ¶ 22. For substantially the same
reasons outlined in the Notice of Apparent Liability, the
Commission in October 2002 issued an order assessing a $6
million forfeiture on SBC, the statutory maximum $1.2 million
fine per each continuing violation of paragraph 56, see 47
U.S.C. § 503(b)(2)(B), one for each former Ameritech state.
Forfeiture Order, 17 FCC Rcd 19923 ¶¶ 22–27 (2002).
In April 2003, SBC paid the $6 million forfeiture and
petitioned this Court for review of the FCC’s forfeiture order.
We have jurisdiction over the petition pursuant to 47 U.S.C.
§ 402(a). See AT&T Corp. v. FCC, 323 F.3d 1081, 1083–85
(D.C. Cir. 2003).
II. Analysis
SBC raises two challenges to the forfeiture order. SBC
first argues that it was not on ‘‘fair notice’’ that paragraph 56
of the merger conditions obligated it to provide shared-
transport service for intraLATA toll calls in the former
Ameritech states, and therefore that the forfeiture infringed
its due process rights. SBC’s second argument is that the
FCC imposed the fine in arbitrary-and-capricious fashion.
Both arguments fail.
A. Fair–Notice Claim
The first issue we address is whether the merger conditions
allowed SBC ‘‘to identify, with ascertainable certainty, the
standards with which the agency expect[ed] [SBC] to con-
form,’’ Trinity Broad. v. FCC, 211 F.3d 618, 628 (D.C. Cir.
2000) (quoting General Electric Co. v. EPA, 53 F.3d 1324,
1329 (D.C. Cir. 1995)) (internal quotation marks omitted), and
therefore gave SBC the process it was due under the Fifth
Amendment. More specifically, the question is whether para-
11
graph 56 of the merger conditions clearly placed SBC on
notice that it was required to provide shared-transport ser-
vice for intraLATA toll calls in the five former Ameritech
states. The answer is yes.
Paragraph 56 plainly says that SBC was required to pro-
vide such service. Paragraph 56 required SBC to
offer shared transport in the SBC/Ameritech Service
Area within the Ameritech States under terms and condi-
tions, other than rate structure and price, that are sub-
stantially similar to (or more favorable than) the most
favorable terms SBC/Ameritech offers to telecommunica-
tions carriers in Texas as of August 27, 1999.
Merger Order, App. C ¶ 56. The parties agree that as of
August 27, 1999, SBC was providing shared-transport service
to two CLECs for intraLATA toll calls. From this fact, one
might think it fairly straightforward to conclude that SBC
was required to provide that same service throughout the
Ameritech states. The condition directs the parties to look at
the terms SBC was ‘‘offer[ing]’’ in Texas on a date certain.
On that date, SBC was providing shared transport service for
intraLATA toll calls. It seems to follow that SBC would be
required to provide that same service in the former Ameri-
tech states. Indeed, it is difficult to imagine how the parties
could have more clearly specified the precise terms of provid-
ing shared-transport service: the same, or more favorable,
terms that were in effect on a date certain between a compa-
ny and its customers in a single state.
SBC’s vigorous attempts to create ambiguity in these
words are not persuasive. SBC argues that it was not clear
that it was ‘‘offer[ing]’’ such service to those CLECs, because
it was providing such service involuntarily, pursuant to an
injunction entered by an arbitration panel of the Texas PUC.
This argument is a non-starter. SBC concedes that the
‘‘term ‘offer’ means ‘[t]o present for acceptance or rejection,’
or ‘[t]o put forward for consideration.’ ’’ SBC Reply Br. at 20
(quoting American Heritage Dictionary 863 (2d ed. 1991)).
SBC did exactly that by providing two CLECs with shared-
transport service for intraLATA toll calls. It does not matter
12
whether SBC was providing the service involuntarily. Even
involuntary offers to contract are still ‘‘offers’’ in the ordinary
sense of that word. They are ‘‘offers’’ because the offerees–in
this case, the CLECs–have the option of voluntarily either
accepting or rejecting it. This core feature of an offer does
not depend on why the offeror ‘‘present[s]’’ it.
Another condition confirms this plain meaning of the word
‘‘offer.’’ Paragraph 53 of the conditions is headed ‘‘Offering
of UNEs.’’ That condition provides that ‘‘SBC/Ameritech
shall continue to make available TTT such UNEs TTT that
were made available in the state under SBC’s’’ current inter-
connection agreements. Merger Order, App. C. ¶ 53. The
merger conditions call this an ‘‘offering’’ even though the
conditions require SBC ‘‘to make available TTT such UNEs.’’
If SBC’s reading of the term ‘‘offer’’ were correct, that
heading would make no sense.
SBC’s argument that the term ‘‘shared transport’’ in the
conditions was defined to include shared-transport service
only for local calls is also unpersuasive. SBC correctly points
out that paragraph 55 of the conditions defined ‘‘the function
of shared transport’’ as defined in the Shared Transport
Order, 12 FCC Rcd 12460 (1997) (subsequent history omit-
ted), and argues that this definition only encompassed shared-
transport service for local calls. The definition of ‘‘shared
transport’’ in that order, however, did not exclude toll service.
The order dealt with ‘‘shared transport’’ as ‘‘defined by the
Commission.’’ Id. ¶ 10. At the time of the Shared Transport
Order, the Commission defined ‘‘shared transport’’ as ‘‘the
transmission facilities shared by more than one carrier, in-
cluding the incumbent LEC, between end office switches,
between end office switches and tandem switches, and be-
tween tandem switches, in the incumbent LEC’s network.’’
47 C.F.R. § 51.319(d)(1)(ii) (1997); see also Merger Order
¶ 396 n.741 (defining ‘‘shared transport’’ the same way). That
definition includes intraLATA toll shared-transport service,
as intraLATA toll service uses ILECs’ end office switches,
tandem switches, etc. It is irrelevant that scattered passages
in the Shared Transport Order referred to shared transport
in the context of discussing the provision of local telephone
13
service. See 12 FCC Rcd 12460 ¶ 10. Regardless, it remains
true that the definition of shared transport in that order
included intraLATA toll service. For the same reason, it is
also irrelevant that the Commission stated in that order that
shared transport ‘‘is particularly important for stimulating
initial competitive entry into the local exchange market.’’ Id.
¶ 35. Paragraph 55 of the conditions establishes that the
definition of ‘‘shared transport’’ in the order is what matters,
not the purpose for which the Commission believed shared
transport ‘‘particularly important.’’
SBC also points to paragraph 56’s reference to ‘‘unbundled
local switching,’’ and claims that because the switching at
issue in paragraph 56 was limited to local switching ‘‘SBC
reasonably understood that the shared transport necessarily
connected to that switching was likewise limited to ‘local.’ ’’
SBC Br. at 30. To the contrary, this understanding is not
reasonable. Paragraph 56 did not tie SBC’s obligation to
provide shared transport, as SBC’s brief suggests, to that
shared transport that was ‘‘necessarily connected’’ to local
switching. It tied that obligation to SBC’s ‘‘shared-
transport’’ (again, as defined in the Shared Transport Order)
offerings in Texas as of August 27, 1999. As discussed,
shared-transport service for intraLATA toll service was one
such offering.
Equally unavailing are SBC’s attempts to overcome the
clear meaning of paragraph 56 by citing affidavits from
several SBC employees and a former employee of the law
firm of Kellogg, Huber, Hansen, Todd, and Evans, the firm
representing SBC in this matter, who were all involved in
negotiating the merger conditions. SBC claims that these
affidavits show that the ‘‘intent’’ of the parties in drafting
paragraph 56 was to obligate SBC only to provide shared-
transport service for local, not toll, service. As it is impossi-
ble for the individuals involved in multilateral negotiations to
speak to the collective intent of all parties involved in those
negotiations, however, such statements throw little light on
the meaning of the actual document to which those parties
collectively agreed. The best objective evidence of the collec-
tive intent of the parties in such circumstances is the ordinary
14
meaning of that document, and that meaning, as we have
stated, is plain. The affidavits therefore fall far short of
creating the ambiguity SBC seeks.
SBC further argues that subsequent FCC orders have
altered its obligation in paragraph 56 to provide shared-
transport for intraLATA toll service, but this argument too is
incorrect. SBC’s claim relies on paragraph 56’s statement
that SBC’s obligations under the merger conditions were
‘‘[s]ubject to TTT the terms of any future Commission orders
regarding the obligation to provide unbundled local switching
and shared transport.’’ Merger Order, App. C ¶ 56. The
major premise of SBC’s argument is that this language
means that subsequent Commission decisions regarding
ILECs’ unbundling duties under the Act govern SBC’s obli-
gations under paragraph 56 of the merger conditions. The
minor premise is that two subsequent Commission decisions–
the UNE Remand Order and a Commission clarification of
that order–have implicitly found that ILECs are not general-
ly obligated to unbundle shared-transport service to complete
intraLATA toll calls. As those orders govern the merger
conditions, SBC contends, SBC is not obligated to provide
shared-transport service for intraLATA toll calls, regardless
of whether the merger conditions originally imposed that
obligation on it.
The major premise of this argument is incorrect. The
dictionary definition of ‘‘subject to,’’ in the sense apparently
meant here, is ‘‘contingent on or under the influence of some
later action.’’ Merriam Webster’s Collegiate Dictionary 1172
(10th ed. 1995). As the ‘‘subject to’’ phrase does not specify
in what particular sense paragraph 56 is ‘‘contingent on’’
those future orders, it is natural to read the ‘‘subject to’’
phrase simply to adopt anything in those future orders that,
by the terms of such orders, contravened or altered anything
in paragraph 56. For example, if the FCC issued a future
order stating that ‘‘shared transport, as we defined in the
Merger Order, excludes shared-transport service for intra-
LATA toll service,’’ then the definition of shared transport
would be so modified. The future orders ‘‘condition’’ the
merger conditions in exactly the sense any future order would
15
‘‘condition’’ an old order: anything in the old order that is
contradicted or modified by the new order is void.
SBC, nevertheless, reads into the ‘‘subject to’’ language the
notion that future Commission orders concerning ILECs’
general unbundling obligations ‘‘govern the scope of [its]
shared-transport obligation.’’ SBC Reply Br. at 11. Al-
though SBC’s reply brief denies it, this inference hinges on
the assumption that ‘‘subject to’’ means ‘‘superseded by’’ or
‘‘governed by,’’ that is, that those subsequent orders–in par-
ticular, the UNE remand order and the resulting clarifica-
tion–fully specified SBC’s duties under paragraph 56 of the
merger conditions, regardless of what that paragraph origi-
nally required. This way of speaking defies linguistic conven-
tion. ‘‘Superseded by’’ means ‘‘to displace in favor of anoth-
er,’’ Merriam Webster’s Collegiate Dictionary 1183 (10th ed.
1995); ‘‘governed by’’ means ‘‘to exert a determining or
guiding influence in or over,’’ id. at 504. These phrases
propose a particular way in which those future orders could
condition paragraph 56–by replacing it wholesale. That, how-
ever, is not what the paragraph says. It says that it is
‘‘subject to’’ future Commission orders, without specifying in
what sense the future orders would condition or qualify
paragraph 56. As we have discussed, that means that those
particular future orders would specify the sense in which they
‘‘condition’’ paragraph 56. A future order, for example, could
specify that ‘‘this order supersedes any and all of SBC’s
obligations under paragraph 56 of the merger conditions.’’
No future order to which SBC points, however, did any
such thing. SBC points to the UNE remand order and the
resulting clarification of that order, both of which we de-
scribed more fully above. But those orders had nothing to do
with SBC’s paragraph 56 obligations under the Merger Order.
They concerned instead SBC’s unbundling obligations under
the Act. They were silent on SBC’s independent obligations
under the Merger Order. Although paragraph 56 is ‘‘subject
to’’ those orders, no command in them modified or contra-
vened SBC’s paragraph 56 obligations.
16
When pressed at oral argument on this natural reading of
the ‘‘subject to’’ clause, SBC’s only answer was that if this
were the correct interpretation of the ‘‘subject to’’ language,
then certain portions of paragraph 56 would be surplusage.
In particular, SBC pointed to the statement that SBC
shall continue to make [the shared-transport] offer, at a
minimum, until the earlier of (i) the date the Commission
issues a final order in its UNE remand proceeding TTT
finding that shared transport is not required to be pro-
vided by SBC/Ameritech in the relevant geographical
area, or (ii) the date of a final, non-appealable judicial
decision providing that shared transport is not required
to be provided by SBC/Ameritech in the relevant geo-
graphical area.
Merger Order, App. C ¶ 56. This argument, too, is incorrect.
To the contrary, this passage imposes an independent qualifi-
cation on SBC’s shared-transport obligations under para-
graph 56. It simply says that, if in the UNE remand
proceedings, the FCC ‘‘find[s]’’ that, under the Act, SBC is
not required to unbundle shared-transport in those states,
then it is not required to do so under paragraph 56 either.
That condition is independent of the ‘‘subject to’’ condition,
because FCC unbundling orders are, again, independent of
merger-condition obligations. This passage, then, made the
FCC’s future unbundling orders relevant to SBC’s obligations
under paragraph 56 in one, and only one, circumstance: if the
Commission in the UNE remand order issued a ‘‘finding that
shared transport is not required to be provided by SBC/Am-
eritech in the relevant geographical area.’’
Despite SBC’s vigorous protestations, the UNE remand
order contained no such finding. SBC’s best argument to the
contrary is that the UNE remand order and the subsequent
clarification made clear that ILECs are not required to
provide shared-transport service for intraLATA toll calls.
SBC points out that the UNE remand order, as we described
above, tied the obligation to unbundle shared-transport ser-
vice to the obligation to unbundle switching, i.e., that ILECs
must provide shared-transport service if they provide switch-
17
ing service. SBC then argues that because the unbundling
switching obligation in the UNE remand order was limited to
switching service to complete local, rather than toll, calls, the
UNE remand order did not require ILECs to provide shared-
transport service to complete intraLATA toll calls. The FCC
interprets the UNE remand order exactly the opposite. Far
from limiting ILECs’ obligations to provide shared-transport
service only to local service, the FCC argues that the order
affirmatively required ILECs to provide such transport so
CLECs may complete intraLATA toll calls.
We need not resolve which party has the better of this
debate, because the UNE remand order and the clarification
lack the required finding even if SBC is correct. SBC’s
reading of the UNE remand order shows, at most, that the
obligation to provide shared transport in the UNE remand
order was directed to local service. The rest of the UNE
remand order, on this understanding, is silent on whether this
obligation extends as well to intraLATA toll service. The
same is true of the clarification order, which simply set forth
a new analytical framework for analyzing ILECs’ unbundling
obligations generally, rather than making specific unbundling
findings. These orders were therefore, we assume, both
silent on whether ILECs generally are exempt from unbun-
dling intraLATA shared-transport service for toll calls under
the Act. That silence is simply not a ‘‘finding that shared
transport is not required to be provided by SBC/Ameritech in
the relevant geographical area.’’ It is the absence of such a
finding.
We express no view on the adequacy of the forfeiture
order’s interpretation of ILECs’ unbundling obligations under
the Act. At times, SBC’s arguments read as if this is indeed
the issue before us. For example, SBC suggests that the
FCC in the forfeiture order interpreted its unbundling rules
in arbitrary-and-capricious fashion because those interpreta-
tions are contrary to the analysis in the UNE remand order
and the resulting clarification. But the rationality of the
forfeiture order’s unbundling analysis is not before us. The
only issue is whether paragraph 56 of the merger conditions
clearly put SBC on notice that it was required to provide
18
intraLATA toll service in the former Ameritech states. For
the reasons we have stated, it did.
B. Arbitrary-and-Capricious Claim
We can much more easily dispose of SBC’s second chal-
lenge–that the scale of the fine imposed by the Commission is
arbitrary and capricious. As discussed, the Act makes it
unlawful ‘‘willfully or repeatedly [to] fail[ ] to comply substan-
tially with the terms and conditions of any TTT instrument or
authorization issued by the Commission.’’ 47 U.S.C.
§ 503(b)(1)(A). FCC regulations authorize the Commission
to assess a fine of up to $120,000 for each such individual
violation or each day of a continuing violation, up to a
maximum fine of $1.2 million ‘‘for any single act or failure to
act.’’ 47 C.F.R. § 1.80(b)(2). Factors the Commission shall
‘‘take into account’’ in determining the size of the fine include
‘‘the nature, circumstances, extent, and gravity of the viola-
tion,’’ as well as ‘‘ability to pay.’’ 47 U.S.C. § 503(b)(2)(D).
The FCC imposed a fine of $6 million in this case because it
considered SBC’s refusal to provide shared-transport service
to complete intraLATA toll calls five separate acts, one in
each of the former Ameritech states. Forfeiture Order ¶ 23.
It imposed the maximum $1.2 million for each such violation
because SBC had failed to provide such service in each of
these states beginning October 8, 2000, 12 months after the
close of the merger, and continuing at least until May 14,
2001, and therefore constituted five individual continuing
violations. Id. ¶ 26; NAL ¶ 21.
We hold that the FCC’s application of these statutory
factors to impose a fine of $6 million was reasonable. SBC
argues it was not because SBC undertook to offer shared-
transport service (short of offering such service to complete
intraLATA toll calls) ‘‘expeditiously and in good faith consis-
tent with its understanding of the merger conditions.’’ SBC
Br. at 36. Still, it remains true, as discussed above and as
the FCC found, that SBC’s failure to offer shared-transport
service in five separate states violated the clear terms of the
merger condition and that this noncompliance continued for
19
some time. The FCC was well within its discretion in finding
that this recalcitrant behavior was substantial and wide-
spread.
Similarly unavailing is SBC’s complaint that the Commis-
sion’s finding below that its failure to provide such service
had an adverse impact on competition. Apart from competi-
tive impact, other independent factors the FCC considered
more than justify the extent of the fine. The FCC’s primary
reason for imposing such a large fine was the need to deter
SBC, a sophisticated, profit-maximizing business whose 2001
operating revenues were nearly $46 billion, from violating the
clear terms of merger conditions for which it had specifically
bargained, conditions that themselves arose from the need to
protect the public interest against the adverse competitive
effects from the merger of SBC and Ameritech. Forfeiture
Order ¶ 24. As discussed, a company’s ability to pay is a
statutory factor the FCC may consider, and it is reasonable
to expect that a larger fine might be necessary to deter a
large company like SBC.
The FCC also linked the amount of the forfeiture necessary
to deter SBC from violating paragraph 56 of the conditions
not simply to SBC’s overall revenues, but also to the amount
SBC stood to gain from taking that particular action. The
FCC noted, specifically, that SBC benefitted by causing its
competitors the inconvenience of litigating over the extent of
SBC’s shared-transport obligations in the five Ameritech
states. Id. That reasoning was eminently sensible. When
its competitors suffer, SBC benefits, and therefore it private-
ly benefitted from inflicting harm on its competitors. Be-
cause the amount of deterrence necessary to prevent an
action from occurring depends on both a company’s revenues
and the private benefit to the company of taking the action,
there is a rational relationship between this factor and the
seriousness of the fine the FCC imposed. The FCC may
have not considered other factors relevant to that calculus,
but that does not change the fact that there is a rational
20
relationship between these two factors and the extent of the
fine.
III. Conclusion
For the reasons expressed above, we deny the petition for
review.