SBC Communications Inc. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 9, 1998 Decided March 20, 1998

No. 97-1425

SBC Communications Inc., et al.,

Appellants

v.

Federal Communications Commission,

Appellee

AT&T Corporation, et al.,

Intervenors

Appeal of an Order of the

Federal Communications Commission

Michael K. Kellogg argued the cause for appellants, with
whom James D. Ellis, Robert M. Lynch, and Martin E.
Grambow were on the briefs.

Christopher J. Wright, General Counsel, Federal Commu-
nications Commission, argued the cause for appellee, with

whom William E. Kennard, General Counsel, John E. Ingle,
Deputy Associate General Counsel, and James M. Carr,
Counsel, were on the brief.

David W. Carpenter argued the cause for intervenors
AT&T Corporation, et al., with whom Mark E. Haddad, Peter
D. Keisler, Mark C. Rosenblum, Roy E. Hoffinger, Anthony
C. Epstein, Sue D. Blumenfeld, Michael Finn, Leon Kesten-
baum, Jay Keithley, Charles C. Hunter, Catherine M. Han-
nan, Glenn B. Manishin, Christy C. Kunn, John D. Wind-
hausen, Jr., Gary M. Cohen, Jeffrey Blumenfeld, Genevieve
Morelli, Danny E. Adams, Steven A. Augustino, Richard J.
Metzger, Emily M. Williams, Daniel L. Brenner, Neal M.
Goldberg, David L. Nicoll, Werner K. Hartenberger, Laura
H. Phillips, and J.G. Harrington were on the brief. Donald
B. Verrilli, Jr. entered an appearance.

Mickey S. Moon, Assistant Attorney General, State of
Oklahoma, was on the brief for intervenor Office of the
Oklahoma Attorney General

Jeffrey W. Sarles was on the brief for amicus curiae
Ameritech Corporation.

James R. Young and Michael E. Glover were on the brief
for intervenors Bell Atlantic Telephone Companies and Bell
Atlantic Communications, Inc.

Before: Silberman, Williams, and Sentelle, Circuit
Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Appellant SBC Communications
contends that in denying its application to provide long-
distance telephone service in the State of Oklahoma, the
Federal Communications Commission has erroneously inter-
preted the provisions governing Bell operating company en-
try into the long-distance market in their home region states
(to be codified at 47 U.S.C. s 271(c)(1)(A), (B)). We affirm.

I.

SBC Communications provides local telephone exchange
(intraLATA) 1 service in the States of Arkansas, California,
Kansas, Missouri, Nevada, Oklahoma, and Texas through its
subsidiaries Nevada Bell, Pacific Bell, and Southwestern Bell.
It is a combination of local telephone companies that AT&T
was required to divest pursuant to the Modification of Final
Judgment (MFJ), a consent decree between the government
and the then-integrated AT&T, as modified by the district
court, in settlement of the Justice Department's 1974 anti-
trust suit. See United States v. American Tel. & Tel. Co.,
552 F. Supp. 131, 227 (D.D.C. 1982), aff'd sub nom. Mary-
land v. United States, 460 U.S. 1001 (1983).2 Divestiture was
called for, in large part, because it was thought "that a
corporation that enjoyed a monopoly on local calls would
ineluctably leverage that bottleneck control in the interex-
change (long distance) market." United States v. Western
Elec. Co., 969 F.2d 1231, 1238 (D.C. Cir. 1992). The newly
independent Bell operating companies (BOCs) were given
AT&T's local network assets, and thus control of the "bottle-

__________
1 All former Bell System territory has been divided into Local
Access and Transport Areas, or "LATAs." See United States v.
Western Elec. Co., 569 F. Supp. 990 (D.D.C. 1983). InterLATA
service refers to what consumers know as long-distance service;
intraLATA to what they know as local service (although some
intraLATA calls may be "toll" calls, depending upon classifications
made by the state regulatory bodies). See generally M. Kellogg,
et al., Federal Communications Law 227-34 (1992).

2 Under the approved reorganization plan, 22 of AT&T's 24
local telephone companies became what are known as the Bell
operating companies (BOCs). The BOCs were consolidated into
seven (as the result of mergers, now only five, see Alarm Indus.
Communications Comm. v. FCC, 131 F.3d 1066, 1067 (D.C. Cir.
1997)) regional holding companies (RBOCs), of which SBC is one.
The remaining two local companies, in which AT&T owned a
minority interest, became separate corporations. See H.R. Rep.
No. 104-204, pt. 1, at 48-49 (1995).

neck" monopoly (so named because interexchange calls are
routed to homes through the local network). See SBC Com-
munications Inc., v. FCC, 56 F.3d 1484, 1491 (D.C. Cir. 1995).

Out of concern that the BOCs might similarly leverage that
local monopoly to their competitive advantage, the MFJ
forbad them from offering long-distance service. See United
States v. American Tel. & Tel. Co., 552 F. Supp. at 188
("there are many ways in which the company controlling the
local exchange monopoly could discriminate against competi-
tors in the interexchange market"). The MFJ provided that
the ban might be lifted if the BOCs lost their monopoly over
local service, either by "technological developments" or
"changes in the structures of competitive markets"; the
Department of Justice was to report to the district court on
whether the restriction continued to be necessary. See id. at
194-95. But subscriber plant equipment (also known as the
"local loop")--inside wiring and equipment, and the wireline
connecting each household to a local switching office, see MCI
Telecommunications Corp. v. FCC, 750 F.2d 135, 137 (D.C.
Cir. 1984)--is very costly to install. And, state regulators
helped sustain the BOCs' bottleneck control, arguably be-
cause they preferred the "subsidies and price-averages" the
local monopoly allowed. See M. Kellogg, et al., Federal
Communications Law 68 (1992). The Department of Justice,
indeed, came to believe that "the BOCs' bottleneck monopo-
lies persist[ed] primarily because of local regulation." United
States v. Western Elec. Co., 900 F.2d 283, 292 (D.C. Cir. 1990)
(per curiam). Nevertheless, the BOCs, with the FCC's sup-
port, moved in 1987 to have the interLATA restriction re-
moved. We agreed with the government in opposition that
"the BOCs failed to show that there was no substantial
possibility that they could use their monopoly power to
impede competition in the interexchange market." Id. at 301.
The restriction remained in force for the duration of the
MFJ.

The Congress--responding, in part, to the argument that
competition in the huge telecommunications industry should
no longer be governed by an antitrust consent decree admin-
istered by a single federal district judge, see S. Rep. No.

104-23, at 5, 9 (1995)--set forth a new legislative framework,
the Telecommunications Act of 1996, Pub. L. No. 104-104, 110
Stat. 56 (1996). Section 601 of the Act provided that the
"restrictions and obligations imposed" by the MFJ were to
give way (the district judge terminated the MFJ as of Febru-
ary 8, 1996, see United States v. Western Elec. Co., 1996 WL
255904 (D.D.C. Apr. 11, 1996)). Congress hoped the Act
would "provide for a pro-competitive, deregulatory national
policy framework ... by opening all telecommunications mar-
kets to competition." H.R. Conf. Rep. No. 104-458, at 1
(1996). The question of how best to achieve that goal,
however, was the subject of great debate. Some thought that
the local and long-distance markets should be open to all
competitors immediately. Others believed that the BOCs
should have to wait until actual competition was introduced in
their local markets before providing interLATA service, since
it was claimed that the long-distance market is already com-
petitive. As might be expected for an issue of this economic
significance, an extended lobbying struggle ensued. The end
product was a compromise between the competing factions.

States and localities were no longer to sanction local mo-
nopolies; they are now barred from "prohibiting the ability
of any entity to provide ... intrastate telecommunications
service." 47 U.S.C.A. s 253(a) (West Supp. 1997). The
BOCs are obliged to provide any requesting carrier with
nondiscriminatory interconnection to their networks and non-
discriminatory access to unbundled network elements at rea-
sonable rates, terms, and conditions; they must also offer
telecommunications services at wholesale rates for resale to
end users. 47 U.S.C.A. s 251(c).3

Interexchange carriers may immediately begin providing
local telephone service, and the BOCs may provide long-
distance service originating from out-of-region 4 states with-

__________
3 The Commission's regulations implementing these provisions
were upheld in part in Iowa Utilities Board v. FCC, 120 F.3d 753
(8th Cir. 1997), cert. granted, 118 S. Ct. 879 (1998).

4 A particular state is "in-region" if it is one of the states in
which the RBOC controls a local bottleneck--in SBC's case, the

out the FCC's approval. See id. at s 271(b)(2). A BOC must
apply to the Commission, however, for authorization to pro-
vide interLATA services in any of its in-region states under
section 271(d)(1). In evaluating any such application, the
FCC must consult with the United States Attorney General
and the relevant State commission, see id. at s 271(d)(2), and
must approve or deny the application within 90 days of
receipt. See id. at s 271(d)(3). The FCC may not approve a
BOC's request unless it finds that the criteria set forth at 47
U.S.C.A. s 271(d)(3) are satisfied.

As the first step in meeting the section 271(d)(3) criteria,
the BOCs must satisfy either 47 U.S.C.A. s 271(c)(1)(A) or 47
U.S.C.A. s 271(c)(1)(B), which the parties refer to as "Track
A" and "Track B," respectively.5 Track A provides:

A [BOC] meets the requirements of this subparagraph if
it has entered into one or more [approved] binding
agreements ... specifying the terms and conditions un-
der which the [BOC] is providing access and interconnec-
tion to its network facilities for the network facilities of
one or more unaffiliated competing providers of tele-
phone exchange service ... to residential and business
subscribers. For the purpose of this subparagraph, such
telephone exchange service may be offered by such com-
peting providers either exclusively over their own tele-
phone exchange service facilities or predominantly over
their own telephone exchange service facilities in combi-

__________
States of Arkansas, California, Kansas, Missouri, Nevada, Okla-
homa, and Texas. See 47 U.S.C.A. s 271(i)(1).

5 The Commission must also determine that: (1) the petitioning
BOC has complied with the so-called "competitive checklist" set
forth at 47 U.S.C.A. s 271(c)(2)(B), designed to ensure that the
BOC is providing access and interconnection of a particular sort;
(2) the BOC's requested authorization will be carried out by a
separate subsidiary and otherwise in accordance with 47 U.S.C.A.
s 272; and (3) granting the application would be in the "public
interest, convenience, and necessity." See 47 U.S.C.A.
s 271(d)(3)(A)-(C).

nation with the resale of the telecommunications services
of another carrier.

47 U.S.C.A. s 271(c)(1)(A) (emphasis added). Put simply
then, Track A visualizes a demonstration of a competitor in
the local exchange market. Track B, which first became
available 10 months after the date of enactment (i.e., on Dec.
8, 1996), is satisfied, on the other hand, if "3 months before
... the [BOC] makes its application" to the FCC, "no such
provider has requested the access and interconnection de-
scribed" in Track A, so long as "a statement of the terms and
conditions that the [BOC] generally offers to provide such
access and interconnection has been approved or permitted to
take effect by the State commission." 47 U.S.C.A.
s 271(c)(1)(B). As is apparent, Track B is only available to a
BOC as a default mechanism if "no such provider" has
requested the access and interconnection Track A contem-
plates. Just what the characteristics of such a provider are
and how they are measured--in other words, how useful is
Track B to the BOC's--is the key issue in this litigation.

On April 11, 1997, SBC applied to the Commission for
authorization to provide interLATA service originating from
its in-region State of Oklahoma. Prior to submitting its
application, SBC received the Oklahoma Corporation Com-
mission's (OCC) approval of several negotiated access and
interconnection agreements, one of which was made with
Brooks Fiber Communications. Before the FCC, SBC con-
tended that it satisfied Track A by virtue of its agreement
with Brooks. At the time SBC made its application, Brooks
owned and operated local telecommunications networks in
Tulsa and Oklahoma City, providing service to 20 business
customers (13 in Oklahoma City and 7 in Tulsa), and to three
Tulsa residents and one other residential customer--each a
Brooks employee. This service alone, SBC urged, meant that
Brooks qualified as a Track A provider. To bolster its
argument, SBC claimed that the tariff Brooks had filed with
the OCC obligated Brooks, under Oklahoma law, to provide
residential service over its own facilities to any requesting
customer in its areas of operation. The OCC had cryptically
opined that SBC had satisfied Track A's requirements, and

SBC argued that the FCC was obliged to defer to the OCC's
decision.

Alternatively, SBC claimed that it satisfied Track B be-
cause if the Commission determined that Brooks did not
qualify as a Track A provider, neither did any other carrier.
(SBC had filed a statement of terms and conditions at which
it offered access and interconnection generally, which the
OCC allowed to take effect by failing to complete its review
within the 60 day requirement imposed by the Act. See 47
U.S.C.A. s 252(f)(3).) As it happened, a large number of
carriers had "requested" access and interconnection agree-
ments of the sort described in Track A, but none of those
requests foreclosed Track B's availability to SBC because
SBC interpreted the phrase "such provider" to mean a com-
peting local exchange carrier that was already providing the
kind of service described in Track A--local telephone service
to residential and business subscribers exclusively or predom-
inantly over its own facilities based network--at the time it
made its request. SBC acknowledged an exception, however,
for a requesting carrier who did not have that position at the
time of its request but nevertheless achieved it no later than
three months before the BOC applied to the FCC for inter-
LATA authorization.6

The Commission concluded that appellant had not yet met
either Track A or Track B and denied SBC's application.
Application by SBC Communications Inc., Pursuant to Sec-
tion 271 of the Communications Act of 1934, as amended, to
Provide In-Region, InterLATA Services in Oklahoma (Okla-
homa Application), 12 F.C.C.R. 8685, at WW 2, 68 (1997).
Regarding Track A, the FCC concluded that Brooks--the

__________
6 That exception to SBC's general interpretation helps SBC to
claim that Brooks was a Track A provider although it had not been
providing all of its relied upon service at the time it made its
request. According to SBC, although Brooks did not qualify when
it submitted its request in March 1996, it began providing service of
the kind described in Track A on January 15, 1997. Since SBC had
made its application on April 11 of that year, Brooks became "such
provider" a few days too late to foreclose Track B.

only potentially Track A satisfying provider that SBC identi-
fied--was not a competing provider of telephone exchange
service to residential subscribers.7 The Commission con-
strued Track A's phrase "competing provider" to mean that
there be an "actual commercial alternative to the BOC."
Oklahoma Application at p 14. Since the four customers to
which Brooks provided residential service were its employees,
and the service was provided on a test basis free of charge,
Brooks did not qualify. A "competing provider must actually
be in the market, and, therefore, beyond the testing phase."
Id. at p 17. The Commission also concluded that the terms
"telephone exchange service" and "subscribers" as used in
Track A meant that the persons receiving the service had to
pay for it. Id.

The FCC acknowledged its obligation to consult with the
State commissions, but pointed out that the Act is silent as to
how much weight it should place on the advice it receives. As
the "expert agency charged with implementing" the statute,
the Commission decided that it was required to make an
independent determination on the matter. Id. at p 15. It
thought the OCC's recommendation unpersuasive because the
OCC failed to provide the basis or reasoning in support of its
decision. Id. at p 16. The Commission then determined that
whatever legal obligations Brooks had under Oklahoma law,
those obligations could not supply evidence of actual competi-
tion. Brooks' own executive vice president had averred that
Brooks was " 'not now offering ... nor had it ever offered
residential service in Oklahoma.' " Id. at p 18 (quoting affida-
vit of John C. Shapleigh). And because it lacked the neces-
sary facilities, Brooks was not " 'accepting any request in
Oklahoma for residential service.' " Id. Accordingly, the
Commission said Brooks "at present has at most paper
commitments to furnish service." Id. at p 14. In reaching

__________
7 Given this conclusion, the FCC thought it "unnecessary to
reach the issue of whether Brooks [was] a competing provider of
telephone exchange service to business subscribers." Oklahoma
Application at p 13.

this conclusion, the Commission explicitly relied upon the
comments of the United States Department of Justice, whose
recommendations the FCC must give "substantial weight."
See 47 U.S.C.A. s 271(d)(2)(A).

The Commission went on to decide that Track B was not
open to SBC. The Commission understood Track B to be
foreclosed to a BOC if a provider had made a request that if
implemented would satisfy Track A. The phrase "such pro-
vider" was not limited, as SBC claimed, to a provider who was
already providing the very service contemplated at the time
of its request (or one who achieved that status three months
before a BOC's application), but rather included one who
after implementation of its requested access and interconnec-
tion agreement would be a competitor. The Commission
recognized, to be sure, that whether such a request satisfied
this standard was a potentially difficult question that obliged
the Commission to rely on its predictive judgment as an
expert agency. See id. at p 57. On the record before it, the
Commission found that SBC had received 45 requests for
interconnection, id. at p 62; "at the very least, ... several [of
which were] qualifying requests for access and interconnec-
tion that foreclose[d] Track B." Id. at p 61. The Commission
identified four of the requesting carriers--Brooks, Cox Com-
munications, Inc., ICG Telecom Group, Inc., and U.S. Long
Distance--as having made interconnection agreements that if
implemented would satisfy Track A, id. at p 62; two of
which--Brooks and Cox--had "already taken affirmative
steps to enter the residential and business local exchange
markets." Id. at p 63.8

The FCC rejected SBC's narrow reading of "such provid-
er" in Track B, primarily because under that interpretation,
BOCs would have a considerable incentive to delay and
prevent interconnection so that they could apply under Track

__________
8 The Commission noted that SBC did not dispute that the
requests it had received would "lead to the type of telephone
exchange service described in [Track A]," preferring to rest upon
its interpretation of Track B. Id. at p 60.

B immediately on December 8, 1996. See id. at p 29. The
Commission thought that "Congress intended Track B to
serve as a limited exception to the Track A requirement of
operational competition," id. at p 46, and believed that its
reading "best further[ed] Congress' goal of introducing com-
petition in the local exchange market by giving BOCs an
incentive to cooperate with potential competitors in providing
them the facilities they need to fulfill their requests for access
and interconnection." Id. at p 28. The Commission also
discarded what it called the "equally unreasonable" position
advanced by SBC's potential competitors--that "any request
for access and interconnection submitted by a potential new
entrant to a BOC is a qualifying request [that] precludes the
BOC from proceeding under Track B"--as that interpretation
would allow potential competitors to effectively deny the
BOC's entry into the interLATA market by submitting re-
quests that might never satisfy Track A even if implemented.
Id. at p 29.

After deciding that SBC could not satisfy either Track A or
Track B, the FCC declined to address whether SBC's applica-
tion could satisfy the remainder of section 271(d)'s require-
ments. See id. at p 65. SBC appealed, and we have exclusive
jurisdiction to hear that appeal under 47 U.S.C.A. s 402(b)(9).

II.

SBC reiterates its statutory interpretation arguments be-
fore us, but alternatively argues that even if the Commission
permissibly construed both Tracks A and B, it was arbitrary
and capricious not to go on to determine whether SBC's
application otherwise satisfied the requirements of section
271(d)(3), see supra note 5, so that at least appellant would
have adequate guidance.

Track A

We do not think much of appellant's argument that the
Commission was obliged to conclude that Brooks was a
"competing provider" in the local residential market merely
because four Brooks employees were provided free residential
service and under Brooks' tariff it is legally bound to offer

such service. Track A does not indicate just how much
competition a provider must offer in either the business or
residential markets before it is deemed a "competing" provid-
er. Nor does the legislative history offer any guidance.
Under those circumstances, the Commission's interpretation
of the ambiguous phrase "competing provider" is certainly
entitled to Chevron 9 deference.

It is at least permissible, within the meaning of Chevron
Step II, for the Commission to interpret "competing provid-
er" as meaning that a Track A satisfying provider must offer
"an actual commercial alternative to the BOC." Oklahoma
Application at p 14. Indeed, we doubt that appellant's inter-
pretation, even if adopted by the Commission, would be
thought reasonable. Test service provided to only four em-
ployees is hardly a commercial alternative, and Brooks was
not accepting requests for further residential service in Okla-
homa. Id. at p 18. SBC nevertheless insists that Brooks is
required, by virtue of its tariff, to offer local residential
service to all who request it. We cannot quarrel, however,
with the FCC's conclusion that before a competing local
carrier is deemed to offer "an actual commercial alternative,"
it must have more than "at most paper commitments to
furnish service." Id. at p 14. The Commission reasonably
interprets the statute to mean that it must ask not whether
Brooks is required to provide residential service under state
law (which, incidentally, intervenor Office of the Oklahoma
Attorney General disputes), but rather whether Brooks was
in fact providing such service at the time SBC made its
application.

Nor is the Commission obliged to defer to the OCC's
judgment that SBC satisfied Track A. Although the Com-
mission must consult with the State commissions, the statute
does not require the FCC to give the State commissions'

__________
9 Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984).

views any particular weight. Unless the FCC concludes to its
own satisfaction that the applying BOC has satisfied either
Track A or Track B, as well as the other statutory require-
ments, it "shall not approve the authorization." 47 U.S.C.A.
s 271(d)(3). Louisiana Public Service Commission v. FCC,
476 U.S. 355 (1986), which holds that matters in connection
with intrastate service are "fence[d] off from FCC reach,"
simply does not apply in this case. Congress has clearly
charged the FCC, and not the State commissions, with decid-
ing the merits of the BOCs' requests for interLATA authori-
zation, and interLATA service is typically interstate. For
these reasons, we uphold the Commission's determination
that SBC's application did not satisfy Track A's require-
ments.10

Track B

Since appellant's argument is primarily a linguistic one, we
think it useful to set forth section 271(c)(1)(B) in its entirety.

(B) Failure to request access. A Bell operating com-
pany meets the requirements of this subparagraph if,
after 10 months after February 8, 1996, no such provider
has requested the access and interconnection described
in subparagraph (A) before the date which is 3 months
before the date the company makes its application under
subsection (d)(1) of this section, and a statement of the
terms and conditions that the company generally offers
to provide such access and interconnection has been
approved or permitted to take effect by the State com-
mission under section 252(f) of this title. For purposes
of this subparagraph, a Bell operating company shall be
considered not to have received any request for access
and interconnection if the State commission of such State
certifies that the only provider or providers making such
a request have (i) failed to negotiate in good faith as
required by section 252 of this title, or (ii) violated the

__________
10 We need not consider whether, as SBC argues, free service
provided to a customer can be "telephone exchange service" or that
a customer receiving such service is a "subscriber" within the
meaning of the statute.

terms of an agreement approved under section 252 of
this title by the provider's failure to comply, within a
reasonable period of time, with the implementation
schedule contained in such agreement.

47 U.S.C.A. s 271(c)(1)(B) (emphasis added).

Appellant contends that because the phrase "such provid-
er" in Track B necessarily refers back to the "competing
providers" in Track A, Track B must be available to a BOC
unless an actual competing provider is on the scene and has
requested or entered into binding agreements with a BOC to
provide access and interconnection. In SBC's view, it will be
recalled, Track B can only be foreclosed if a requesting
provider has begun competing in the local telephone market
over its own facilities-based network before even asking for an
access and interconnection, or, alternatively, if the requesting
provider becomes an actual facilities-based competitor at least
three months before the BOC makes its application to provide
interLATA service (of course, at that point it would not
matter if Track B were foreclosed to the BOC because Track
A would be available). If the Commission is correct in
determining that Brooks is not "such a provider" because it is
not sufficiently competitive, then it follows, according to ap-
pellant--since no other carrier is claimed to have achieved
greater competitive status--that Track B is open to SBC. As
we have noted, the Commission read "such provider" differ-
ently; it thought that Track B was foreclosed the moment a
provider requested interconnection so long as it could predict
that the carrier would, after implementing the agreement,
provide competitive service to both residential and business
customers, at least predominantly over its own facilities.

Regardless of which of these two interpretations is correct,
the Commission would still have authority to determine
whether a BOC met the other section 271(d)(3) criteria,
including whether a BOC's entry into the interexchange
market in an in-region state was in the public interest. Still,

appellant, intervenors, amicus, and the Commission regard
this threshold question as of great significance. Appellant
argues that the Commission's interpretation makes Track B
virtually useless to BOCs because of the flood of interconnec-
tion requests. The record showed that SBC received 45 such
requests in Oklahoma, and the Commission concluded that
four of those would meet the facilities-based competitive
standard after being implemented.11 And SBC asserts that it
does not know of any state where no carrier expressing a
desire to become a facilities-based competitor requested in-
terconnection. The Commission, on the other hand, contends
that appellant's reading would nullify Track A, which it
believes Congress intended as the primary path for a BOC
seeking to enter the interLATA market.

Carefully parsing the language of the two sections, we
come to the conclusion that it is not apparent on their face
whether "such provider" in Track B is intended to mean a
carrier who has met the requirements of Track A--i.e., is
actually providing service, either on its own, or under an
access and interconnection agreement with a BOC--or one
who has requested such an agreement but has not yet imple-
mented it and begun providing the requisite service. There
seems to be an ambiguity as to how close to competitive
status a provider must be when the request is made.

We do see an immediate weakness in appellant's argument.
SBC's basic contention--that the statute requires the charac-
teristics of "such providers" to be measured at the time they

__________
11 In making this prediction, the FCC must have at least
implicitly determined that the four providers would satisfy Track
A's facilities-based requirement. Yet, what it means for a carrier to
offer service "exclusively ... or predominantly over their own
telephone exchange service facilities," 47 U.S.C.A. s 271(c)(1)(A), is
nowhere spelled out in the text or by the Commission (it is clear
that pure "resale of the BOC's telephone exchange service does not
qualify," H.R. Conf. Rep. No. 104-458, at 148). Indeed, the FCC
claimed not to have addressed the issue. Oklahoma Application at
p 22. We are puzzled by the FCC's reasoning, but no party has
raised this point, so the FCC's interpretation of what it means to be
predominantly facilities-based remains for another case.

make their requests--is considerably undermined by its con-
cession that a provider such as Brooks can gain the requisite
characteristics and foreclose Track B's availability after it
makes a request, so long as that occurs at least three months
before the date that the BOC makes its application. It would
be one thing for appellant to argue that the term "such
provider" must refer to a provider with the characteristics
described in Track A at the time it makes its request. Under
that construction, the statutory requirement that it make its
request "3 months before" the BOC makes its application
would be an added condition. But by construing the three
months clause as an exception to its basic contention, SBC
destroys the linguistic coherence of its argument, and instead
simply illustrates Track B's ambiguity concerning the time as
of which the characteristics of "such provider" are to be
assessed.

The Commission's counsel argued that the draftsmen's
words were deliberately and specifically intended to lead to
the Commission's interpretation. He noted that in Track A,
after setting forth the competing provider requirement, that
subsection then states "such telephone exchange service may
be offered by such competing providers either exclusively ...
or predominantly over their own telephone exchange service
facilities." 47 U.S.C.A. s 271(c)(1)(A) (emphasis added). But
in Track B, the word "competing" is omitted between "such"
and "provider." That omission indicated that Congress did
not require that a requesting carrier be a competing provider
at the time it made the request. Appellant protests that this
argument is not made in the Commission's decision and
therefore should be disregarded. Alternatively, it offers an
explanation: the omission of "competing" in Track B was
necessary to incorporate Track A's requirements that the
provider not only be competing but also be facilities-based.
In Track A, "such competing provider" is used to identify
which providers must provide service over their own facilities.
If Track B had said "such competing provider," Track B may
have incorporated only Track A's competitive requirements,
to the exclusion of the facilities-based requirement.

Appellant is of course correct that we do not normally
accept counsel's post hoc rationalizations. This principle,
grounded in the reasoning of SEC v. Chenery Corporation,
318 U.S. 80 (1943) and Citizens to Preserve Overton Park v.
Volpe, 401 U.S. 402 (1971), requires that courts adjudicate
agency actions based solely on the grounds relied upon by the
agency. Nevertheless, we must determine on our own wheth-
er the statute is ambiguous without regard to the FCC's
reasoning, see Rettig v. Pension Benefit Guar. Corp., 744
F.2d 133, 141 (D.C. Cir. 1984), and we take counsel's point as
an added indication of ambiguity, if not support for the
Commission's interpretation.

Looking further to the structure of the sections to under-
stand their meaning, we see that Track B provides that a
BOC will be deemed not to have received an interconnection
request if a State commission determines that a requesting
provider negotiated in bad faith or violated the terms of an
interconnection agreement by delaying its implementation
unreasonably. We think that provision supports the Commis-
sion's interpretation. As should be apparent, the BOCs have
an incentive to protect their local markets from competition,
just as the long-distance carriers have one to prevent the
BOCs from entering the interexchange market. The bad
faith and unreasonable delay exceptions explicitly contem-
plate and seek to deal with the problem that SBC identifies--
that a provider might request interconnection only to prevent
a BOC from using Track B. If SBC's reading of the statute
were correct, a BOC, merely by refusing to enter into an
interconnection agreement, could easily prevent a competing
facilities-based provider from emerging, thus preserving
Track B's availability. To be sure, another provision of the
statute obliges the BOCs (as well as requesting carriers) to
negotiate access and interconnection agreements in good
faith. See 47 U.S.C.A. s 251(c)(1). But only the requesting
carriers are penalized for negotiating in bad faith in the
Track A and B subsections; there is no reciprocal provision
that prevents a BOC from using Track B if it in bad faith
refused to allow interconnection. Under SBC's reading, the
draftsmen would have left an inexplicable loophole in the

legislative scheme, one inconsistent with the treatment of
requesting providers acting in bad faith.

The Track B exceptions clause poses another difficulty with
SBC's interpretation of "such provider." As the Commission
pointed out in its order, the very inclusion of the Track B
exceptions for a requester's bad faith or unreasonable delay is
an indication that Congress thought "there would be a period
during which good-faith negotiations are taking place, inter-
connection agreements are being reached, and the potential
competitors are becoming operational by implementing their
agreements." Oklahoma Application at p 45. Under SBC's
alternative reading, as the Commission observes, this process
would have to occur in the first seven months from the date
of enactment (assuming the BOC requested in-region inter-
LATA authorization at its first opportunity, on December 8,
1996). Id. at p 53. Even supposing that there were competi-
tors able to provide the facilities-based service Track A
contemplates without an access and interconnection agree-
ment, as SBC surmises, those providers "would need inter-
connection from the BOC prior to becoming operational in
order to complete calls to, and receive calls originating from,
BOC customers." Id. at p 33. SBC appears to have con-
ceded as much before the Commission, where it argued that
providers "would be full competitors in the local market only
after they implement interconnection agreements." It seems
unlikely that Congress would have seen the need to include
the Track B exceptions had it thought that the negotiation
and implementation of agreements would take substantially
less than seven months, especially given that Congress gave
the FCC six months to promulgate regulations implementing
the Act's interconnection requirements. See 47 U.S.C.A.
s 251(d)(1). If Congress really meant for Track B to be
readily available to the BOCs after 10 months, as SBC
contends, it is very difficult to see why the exceptions clause
would be included at all.

Appellant and amicus Ameritech Corporation vigorously
protest that Track B's device to protect it against the possible
bad faith and unreasonable delay of requesting providers is
palpably inadequate for two reasons. First, the unreasonable

delay clause is worthless unless the BOCs are entitled to
insist that a requesting carrier negotiate an implementation
schedule as part of its access and interconnection agreement
(Ameritech seems to go so far as to argue that when an
agreement with a requesting provider does not include an
implementation schedule, the requesting provider is necessar-
ily delaying implementation unreasonably). We think the
BOCs make a good point; denial of such freedom to the
BOCs would undermine the reasonableness of the FCC's
interpretation. But the Commission appears to agree. In its
order, the Commission said that the "BOCs are free to
negotiate implementation schedules for their interconnection
agreements." Oklahoma Application at p 37 n. 109. And
the FCC noted further that "nothing in the Commission's
rules precludes [the BOCs] from negotiating, or states from
imposing in arbitration, schedules for the implementation of
the terms and conditions by the parties to the agreement."
Id.12 SBC also argues that there could be a number of
requesting providers who qualify under the Commission's
predictive appraisal, and it is unduly burdensome to show
that each is acting in bad faith. It should be remembered,
however, that the determination of whether requesting carri-
ers are negotiating in bad faith or unreasonable delaying
implementation of their agreements is solely in the hands of
the State commissions, which traditionally have not been
hostile to the BOCs. In any event, this argument does not
really go to congressional purpose as revealed by the struc-
ture of the statute but rather to the adequacy of the remedy
Congress provided.

At bottom, appellant's reading of Track B rests on its
contention, drawn from the legislative history, that Congress

__________
12 At oral argument, FCC's counsel stated that the General
Counsel's Office agreed with SBC's reading. Counsel for interve-
nor AT&T, et al. agreed that "the Commission made it very explicit
that the BOCs can get implementation schedules and if they are
violated [the] BOCs would then qualify for Track B." He also
agreed that Congress included this provision to address "their
concern that long distance carriers and others would hold back."

understood that there were carriers in existence at the time
the statute was passed which were actually competing in the
local exchange market, or at least that requesting carriers
would quickly become facilities-based competitors, before a
BOC was first eligible to file under Track B. In support of
the first proposition, SBC points to the Conference Report's
acknowledgment that Cablevision and New York Telephone
had entered into an interconnection agreement. H.R. Conf.
Rep. No. 104-458, at 148. As the Commission noted in its
order, "it is not obvious from this reference in the legislative
history whether Cablevision either actually provided tele-
phone exchange service to both residential and business
subscribers on the date of enactment or intended to do so in
the future." Oklahoma Application at p 51. Congress did
not find that there were actual competitors in the local
market. If anything, the legislative history suggests the
opposite; Track B "is intended to ensure that a BOC is not
effectively prevented from seeking entry into the interLATA
services market simply because no facilities-based competitor
that meets the criteria set out in [Track A] has sought to
enter the market." H.R. Conf. Rep. No. 104-458, at 148
(emphasis added).

Nor is there much support for SBC's alternative contention
that the Congress expected cable companies and others to
quickly fill the role. Although there was mention of the
possibility that cable companies could provide meaningful
facilities-based competition in the Conference Report, id., we
see no indication that the Congress believed that cable com-
panies, or anyone else, had such near term capability. While
SBC argues that competition in the local exchange market
has emerged in nine states since the Act became law, it can
point to only one such provider--Brooks in the State of
Michigan--as one that satisfies the facilities-based competi-
tive requirements of Track A. Even if Congress thought
facilities-based competition existed or at least would develop
quickly in nine states, we doubt that it would have ignored
conditions in the remaining states and enacted Track B so as
to permit the BOCs to successfully apply to provide inter-

LATA service in those states after December 8, 1996, when
the 10 month moratorium that section provides had elapsed.

In truth, neither the statute itself nor the legislative history
focuses specifically on the issue this case presents. If the
draftsmen had so focused, it seems to us quite unlikely that
the language of Track B would have been written as it was.
Indeed, it is flatly inconceivable to us that a competent
draftsman would have chosen the language of Track B if he
or she had consciously intended SBC's interpretation. It
would have been all too easy to have said something more
than "such provider" to make clear that this referred to a
provider who at the time of its request (or some specific later
date) had satisfied the Track A criteria.13 Track B, like
Track A, is ambiguous and therefore under Chevron we must
give deference to the Commission's interpretation if it is a
permissible reading. We have no doubt that it passes that
test; it may again be the only reasonable interpretation.

* * * *

There remains appellant's argument that the Commission
was arbitrary and capricious in not proceeding to give it more
guidance--and certainty--by determining whether, in the
event SBC had satisfied Track A or B, it would also have met
the balance of the section 271(d) criteria--the so-called com-
petitive checklist, the separate affiliate requirement, and the
public interest standard. Although we can well understand
SBC's desire for clarity as to the criteria it must meet, we do
not see how a reviewing court can fault the Commission for
refusing to answer what on this record could be thought a
hypothetical question. Inherent in an agency's ability to
choose adjudication rather than rulemaking, see SEC v. Chen-
ery Corp., 332 U.S. 194 (1947), is the option to make policy
choices in small steps, and only as a case obliges it to. For

__________
13 As the issue was so heavily lobbied on both sides with the
support of quite competent lawyers, we must assume that this
ambiguity was noticed, but for an undisclosed reason, not addressed
in the drafting stage.

similar reasons, we reject amicus Ameritech's complaint that
the FCC's use of its predictive judgment to determine wheth-
er a requesting provider would be a real competitor if it
implemented its interconnection agreement is too imprecise a
standard. Ameritech and appellant's complaint that it will be
too great a burden on the BOCs to show, at the time they
apply for interLATA authorization, that none of many re-
questors could qualify after implementation likewise fails.
These contentions boil down to the proposition that the
Commission cannot be trusted to fairly implement the statute
to draw an acceptable balance between the interests of the
BOCs in breaking out into the interexchange market and the
interests of the interexchange carriers in delaying that even-
tuality. The Commission, to be sure, has on occasion en-
gaged in unprincipled decisionmaking when its policy or
political inclinations came into conflict with legal restraints,
see, e.g., Bechtel v. FCC, 10 F.3d 875 (D.C. Cir. 1993); Bechtel
v. FCC, 957 F.2d 873 (D.C. Cir. 1992); Meredith Corp. v.
FCC, 809 F.2d 863 (D.C. Cir. 1987), and this has been so even
in the telecommunications field. See American Tel. & Tel.
Co. v. FCC, 978 F.2d 727 (D.C. Cir. 1992). Still, Congress
quite clearly gave the Commission the primary responsibility
to make delicate judgments under this statute and we may
not presume that the Commission will perform that task in
bad faith. The Commission's order is affirmed.