00-511, 00-555, 00-587, 00-590, 00-602, Verizon Communications Inc., et al. v. FCC, et al.

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This Court rejects the incumbents’ argument that “cost” in sec. 252(d)(1)’s requirement that “the … rate … be … based on the cost … of providing the … network element” can only mean, in plain language and in this particular technical context, the past cost to an incumbent of furnishing the specific network element actually, physically, to be provided, as distinct from its value or the price that would be paid for it on the open market. At the most basic level of common usage, “cost” has no such clear implication. A merchant asked about the “cost” of his goods may reasonably quote their current wholesale market price, not the cost of the items on his shelves, which he may have bought at higher or lower prices. When the reference shifts into the technical realm, the incumbents are still unconvincing. “Cost” as used in calculating the rate base under the traditional cost-of-service method did not stand for all past capital expenditures, but at most for those that were prudent, while prudent investment itself could be denied recovery when unexpected events rendered investment useless. Duquesne Light Co. v. Barasch, 488 U.S. 299, 312, 109 S.Ct. 609, 102 L.Ed.2d 646. And even when investment was wholly includable in the rate base, ratemakers often rejected the utilities’ “embedded costs,” their own book-value estimates, which typically were geared to maximize the rate base with high statements of past expenditures and working capital, combined with unduly low depreciation rates.

The Eighth Circuit read 47 U.S.C. sec. 251(c)(3)’s requirement that “[a]n incumbent … provide … network elements in a manner that allows requesting carriers to combine such elements” as unambiguously excusing incumbents from any obligation to combine provided elements. But the language is not that plain. If Congress had treated incumbents and entrants as equals, it probably would be plain enough that the incumbents’ obligations stopped at furnishing an element that could be combined. The Act, however, proceeds on the understanding that incumbent monopolists and contending competitors are unequal. Cf. sec. 251(c). And because, within the actual statutory confines, it is not self-evident that in obligating incumbents to furnish, Congress silently negated a duty to combine, the Court reads sec. 251(c)(3)’s language as leaving open who should do the work of combination. Under Chevron, that leaves the additional combination rules intact unless the incumbents can show them to be unreasonable. The Court finds, however, that those rules reflect a reasonable reading of the statute. They are meant to remove practical barriers to competitive entry into local-exchange markets while avoiding serious interference with incumbent network operations. The rules say an incumbent shall, for payment, “perform the functions necessary,” Rules 315(c) and (d), to combine elements in order to put a competing carrier on an equal footing with the incumbent when the requesting carrier is unable to combine, First Report and Order & para;294, when it would not place the incumbent at a disadvantage in operating its own network, and when it would not place other competing carriers at a competitive disadvantage, Rule 315(c)(2). This duty is consistent with the Act’s goals of competition and nondiscrimination, and imposing it is a sensible way to reach the result the Act requires.

219 F.3d 744, affirmed in part, reversed in part, and remanded.

Souter, J.,; Breyer, J., concurring in part, and dissenting in part.