525 U.S. 366 AT & T CORP. v. IOWA UTILITIES BD. 721sblog.s3.amazonaws.com/wp-content/uploads/2011/07/… · · 2011-07-12AT & T CORP. v. IOWA UTILITIES BD. 721 Cite as 119 S.Ct

721AT & T CORP. v. IOWA UTILITIES BD.Cite as 119 S.Ct. 721 (1999)

525 U.S. 366

525 U.S. 366, 142 L.Ed.2d 835

S 366AT & T CORPORATION,et al., Petitioners,

v.

IOWA UTILITIES BOARD, et al.

AT & T Corporation, et al., Petitioners,

v.

California, et al.

MCI Telecommunications Corporation,Petitioner,

v.

Iowa Utilities Board, et al.

MCI Telecommunications Corporation,Petitioner,

v.

California, et al.

Association For Local Telecommunica-tions Services, et al., Petitioners,

v.


Federal Communications Commissionand United States, Petitioners,

v.


Federal Communications Commissionand United States, Petitioners,

v.

California, et al.

Ameritech Corporation, et al., Petitioners,

v.

Federal CommunicationsCommission, et al.

GTE Midwest, Incorporated, Petitioner,

v.


US West, Inc., Petitioner,

v.


Southern New England TelephoneCompany, et al., Petitioners,

v.


Nos. 97–826, 97–829, 97–830, 97–831, 97–1075, 97–1087, 97–

1099, and 97–1141.

Argued Oct. 13, 1998.

Decided Jan. 25, 1999.

State utility commissions and incumbenttelephone local exchange carriers (LEC) pe-titioned for judicial review of local competi-tion rules issued by Federal CommunicationsCommission (FCC) pursuant to Telecommu-nications Act of 1996. The Court of Appealsfor the Eighth Circuit, 120 F.3d 753 and 124F.3d 934, vacated rules in part. On writs ofcertiorari, the Supreme Court, Justice Scalia,held that: (1) FCC has rulemaking authorityto carry out provisions of CommunicationsAct of 1934, which include local competitionprovisions added by Telecommunications Act;(2) claim that FCC’s general authority tohear complaints arising under Communica-tions Act also gave FCC authority to reviewinterconnection agreements approved bystate commissions was not ripe; (3) FCC’sapplication of ‘‘network element’’ definition toprimary unbundling rule was reasonable; (4)FCC did not adequately consider ‘‘necessary’’and ‘‘impair’’ standards of Telecommunica-tions Act when FCC gave blanket access tonetwork elements in primary unbundlingrule; (5) FCC’s refusal to impose facilities-ownership requirement on carriers seekingto lease network elements in incumbentLECs’ networks was proper; (6) rule forbid-ding incumbent LECs from separating net-work elements before leasing them to com-petitors was rational; and (7) ‘‘pick andchoose’’ rule was reasonable interpretation ofTelecommunications Act.

Affirmed in part, reversed in part, andremanded.

722 119 SUPREME COURT REPORTER 525 U.S. 366

Justice Souter and Justice Breyer con-curred in part and dissented in part and filedopinions.

Justice Thomas concurred in part anddissented in part and filed opinion in whichChief Justice Rehnquist and Justice Breyerjoined.

Justice O’Connor took no part in consid-eration or decision of cases.

1. Telecommunications O267

Federal Communications Commission(FCC) has rulemaking authority to carry outprovisions of Communications Act of 1934,which include local competition provisionsadded by Telecommunications Act of 1996.Communications Act of 1934, § 201(b), asamended, 47 U.S.C.A. § 201(b); Telecommu-nications Act of 1996, 47 U.S.C.A. §§ 251,252.

2. Arbitration O10.20

Section of Telecommunications Act of1996 on arbitration procedures for intercon-nection agreements did not deprive FederalCommunications Commission (FCC) of juris-diction to design pricing methodology forinterconnection and unbundled access. Com-munications Act of 1934, § 201(b), as amend-ed, 47 U.S.C.A. § 201(b); Telecommunica-tions Act of 1996, 47 U.S.C.A. § 252(c)(2); 47C.F.R. §§ 51.503, 51.505.


Federal Communications Commission(FCC) had jurisdiction to promulgate rulesregarding state review of pre-existing inter-connection agreements between incumbenttelephone local exchange carriers (LEC) andother carriers, regarding rural exemptions,and regarding dialing parity; while Telecom-munications Act of 1996 entrusted state com-missions with job of approving interconnec-tion agreements, and granting exemptions torural LECs, those assignments did not logi-cally preclude Commission’s issuance of rulesto guide state-commission judgments, andprovision of Act addressing dialing parity didnot even mention the states. Communica-tions Act of 1934, § 201(b), as amended, 47U.S.C.A. § 201(b); Telecommunications Act

of 1996, 47 U.S.C.A. §§ 251(b)(3)(f), 252(e);47 C.F.R. §§ 51.205-51.215, 51.303, 51.405.


Claim that Federal CommunicationsCommission’s (FCC) general authority tohear complaints arising under Communica-tions Act of 1934 also gave FCC authority toreview interconnection agreements approvedby state commissions under local competitionprovisions of Telecommunications Act of 1996was not ripe, where there was no immediateeffect on primary conduct of state utilitycommissions and incumbent telephone localexchange carriers (LEC), who sought reviewof FCC’s local competition rules issued pur-suant to Telecommunications Act. Commu-nications Act of 1934, § 208, as amended, 47U.S.C.A. § 208; Telecommunications Act of1996, 47 U.S.C.A. §§ 251, 252.


Federal Communications Commission’s(FCC) application of ‘‘network element’’ defi-nition of Telecommunications Act of 1996, toinclude operator services and directory assis-tance, operational support systems (OSS),and vertical switching functions as ‘‘networkelements’’ under unbundling rule settingforth minimum number of network elementsthat incumbent telephone local exchange car-riers (LEC) must make available to request-ing carriers, was eminently reasonable, givenbreadth of definition. Communications Actof 1934, § 3(29), 47 U.S.C.A. § 153(29); 47C.F.R. § 51.319.

See publication Words and Phrasesfor other judicial constructions and def-initions.


Federal Communications Commission(FCC) did not adequately consider ‘‘neces-sary and impair’’ standards of Telecommu-nications Act of 1996, when FCC gave blan-ket access to network elements, and others,in unbundling rule requiring incumbenttelephone local exchange carrier (LEC) toprovide requesting carriers with access tominimum of seven network elements; Actrequired FCC to provide some limitingstandard, rationally related to goals of Act,which FCC simply failed to do. Telecom-


525 U.S. 366

munications Act of 1996, 47 U.S.C.A.§ 251(d)(2); 47 C.F.R. § 51.319.


Federal Communications Commission(FCC) cannot, consistent with ‘‘necessaryand impair’’ standards of Telecommunica-tions Act of 1996 section concerning unbun-dled access to network elements, blind itselfto availability of elements outside incumbenttelephone local exchange carrier’s (LEC) net-work. Telecommunications Act of 1996, 47U.S.C.A. § 251(d)(2); 47 C.F.R. § 51.319.


Federal Communications Commission’s(FCC) assumption, in support of unbundlingrule requiring incumbent telephone local ex-change carrier (LEC) to provide requestingcarrier with access to minimum of sevennetwork elements, that any increase in costor decrease in quality imposed by denial ofnetwork element rendered access to that el-ement ‘‘necessary’’ within meaning of Tele-communications Act of 1996 and causedfailure to provide that element to ‘‘impair’’entrant’s ability to furnish its desired ser-vices was not in accord with ordinary andfair meaning of those terms. Telecommuni-cations Act of 1996, 47 U.S.C.A. § 251(d)(2);47 C.F.R. § 51.319.



Section of Telecommunications Act of1996 on standards for unbundled access tonetwork elements does not authorize FederalCommunications Commission (FCC) to cre-ate isolated exemptions from some underly-ing duty to make all network elements avail-able to requesting carrier; it requires FCC todetermine on rational basis which networkelements must be made available by incum-bent telephone local exchange carrier (LEC),taking into account objectives of Act andgiving some substance to the ‘‘necessary’’ and‘‘impair’’ requirements. TelecommunicationsAct of 1996, 47 U.S.C.A. § 251(d)(2); 47C.F.R. § 51.319.


Federal Communications Commission’s(FCC) refusal to impose a facilities-owner-ship requirement on carrier seeking to leasenetwork elements in incumbent telephone lo-cal exchange carrier’s (LEC) network wasproper; Telecommunication Act of 1996 im-posed no such limitation, and, if anything, itsuggested the opposite, by requiring incum-bent LEC to provide access to ‘‘any’’ re-questing carrier. Telecommunications Act of1996, 47 U.S.C.A. § 251(c)(3).


Federal Communications Commission’s(FCC) finding that Telecommunications Actof 1996 section requiring incumbent tele-phone local exchange carrier (LEC) to pro-vide unbundled network elements in mannerallowing requesting carrier to combine ele-ments did not require leasing of networkelements in discrete pieces was reasonable;section prohibited incumbent LEC from sab-otaging network elements that were providedin discrete pieces, and thus assuredly con-templated that elements would be requestedand provided in that form, but it did not say,or even remotely imply, that elements wereto be provided only in that fashion and neverin combined form. Telecommunications Actof 1996, 47 U.S.C.A. § 251(c)(3); 47 C.F.R.§ 51.315(b).


Phrase ‘‘on an unbundled basis’’, in Tele-communications Act of 1996 section requiringincumbent telephone local exchange carrier(LEC) to provide requesting carrier withnondiscriminatory access to network ele-ments on an unbundled basis, does not meanphysically separated; dictionary definition of‘‘unbundled’’ matches Federal Communica-tions Commission’s (FCC) interpretation ofword, as ‘‘to give separate prices for equip-ment and supporting services.’’ Telecommu-nications Act of 1996, 47 U.S.C.A. § 251(c)(3);47 C.F.R. § 51.315(b).



13. Telecommunications O267Federal Communications Commission’s

(FCC) rule forbidding incumbent telephonelocal exchange carriers (LEC) from separat-ing network elements before leasing them tocompetitors was rational, finding its basis innondiscrimination requirement in Telecom-munications Act of 1996 section requiringincumbent LECs to provide requesting carri-er with nondiscriminatory access to networkelements on unbundled basis. Telecommuni-cations Act of 1996, 47 U.S.C.A. § 251(c)(3);47 C.F.R. § 51.315(b).

14. Telecommunications O267Federal Communications Commission’s

(FCC) ‘‘pick and choose’’ rule was reasonableinterpretation of requirement, in Telecommu-nications Act of 1996, that incumbent tele-phone local exchange carrier (LEC) makeany interconnection, service, or network ele-ment provided under approved agreementavailable to any other requesting carrierupon same terms and conditions; FCC’s in-terpretation was not only reasonable, it wasthe most readily apparent, and, in some re-spects, rule was more generous to incumbentLECs than Telecommunications Act sectionitself. Telecommunications Act of 1996, 47U.S.C.A. § 252(i); 47 C.F.R. § 51.809.

Syllabus *

The Telecommunications Act of 1996(1996 Act) fundamentally restructures localtelephone markets, ending the monopoliesthat States historically granted to local ex-change carriers (LECs) and subjecting in-cumbent LECs to a host of duties intendedto facilitate market entry, including the obli-gation under 47 U.S.C. § 251(c) to sharetheir networks with competitors. A request-ing carrier can obtain such shared access bypurchasing local telephone services at whole-sale rates for resale to end users, by leasingelements of the incumbent’s network ‘‘on anunbundled basis,’’ and by interconnecting itsown facilities with the incumbent’s network.After the Federal Communications Commis-sion (FCC) issued regulations implementing

the 1996 Act’s local-competition provisions,incumbent LECs and state commissions filednumerous challenges, which were consolidat-ed in the Eighth Circuit. Among otherthings, that court held that the FCC lackedjurisdiction to promulgate its rules regardingpricing, dialing parity, exemptions for ruralLECs, the proper procedure for resolvinglocal-competition disputes, and state reviewof pre–1996 interconnection agreements;that, in specifying the network elementsavailable to requesting carriers under Rule319, the FCC reasonably implemented the1996 Act’s requirement that it considerwhether access to proprietary elements was‘‘necessary’’ and whether lack of access tononproprietary elements would ‘‘impair’’ anS 367entrant’s ability to provide local service,see § 251(d)(2); that, in Rule 319, the FCCreasonably interpreted the statutory defini-tion of ‘‘network element,’’ see § 153(29);that the ‘‘all elements’’ rule, which effectivelyallows competitors to provide local phoneservice relying solely on the elements in anincumbent’s network, is consistent with the1996 Act; that Rule 315(b), which forbidsincumbents to separate already-combinednetwork elements before leasing them tocompetitors, must be vacated because it re-quires access to those elements on a bundledrather than an unbundled, i.e., physicallyseparated, basis; and that the FCC’s ‘‘pickand choose’’ rule, which enables a carrier todemand access to any individual interconnec-tion, service, or network element arrange-ment on the same terms and conditions theLEC has given anyone else in an approved§ 252 agreement without having to acceptthe agreement’s other provisions, must bevacated because it would deter the ‘‘volun-tarily negotiated agreements’’ that the 1996Act favors.

Held:

1. The FCC has general jurisdiction toimplement the 1996 Act’s local-competitionprovisions. Since Congress expressly direct-ed that the 1996 Act be inserted into theCommunications Act of 1934, and since the1934 Act already provides that the FCC

* The syllabus constitutes no part of the opinion ofthe Court but has been prepared by the Reporterof Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co.,200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.


525 U.S. 368

‘‘may prescribe such rules and regulations asmay be necessary in the public interest tocarry out the provisions of this Act,’’ 47U.S.C. § 201(b), the FCC’s rulemaking au-thority extends to implementation of §§ 251and 252. Section 152(b) of the Communica-tions Act, which provides that ‘‘nothing inthis chapter shall be construed to apply or togive the Commission jurisdiction with respectto TTT intrastate communications serviceTTT,’’ does not change this conclusion becausethe 1996 Act clearly applies to intrastatematters. The Eighth Circuit erred in reach-ing the challenge of the incumbent LECs andstate commissions to the FCC’s claim that§ 208 gives it authority to review agreementsapproved by state commissions under thelocal-competition provisions, because thatclaim is not ripe. See Toilet Goods Assn.,Inc. v. Gardner, 387 U.S. 158, 87 S.Ct. 1520,18 L.Ed.2d 697. Pp. 729–733.

2. The FCC’s rules governing unbun-dled access are, with the exception of Rule319, consistent with the 1996 Act. Pp. 733–738.

(a) Given the breadth of § 153(29)’s‘‘network element’’ definition—i.e., ‘‘features,functions, and capabilities TTT provided bymeans of ’’ a facility or equipment used in theprovision of a telecommunications service—itis impossible to credit the incumbents’ argu-ment that a ‘‘network element’’ must be partof the physical facilities and equipment usedto provide local phone service. It was there-fore proper for Rule 319 to include operatorservices and directory assistance, operationalsupport S 368systems, and vertical switchingfunctions such as caller I.D., call forwarding,and call waiting within the features and ser-vices that must be provided to competitors.Pp. 733–734.

(b) However, since the FCC did not ad-equately consider the § 251(d)(2) ‘‘necessaryand impair’’ standards when it gave request-ing carriers blanket access to network ele-ments, Rule 319 is vacated. The Rule im-plicitly regards the ‘‘necessary’’ standard ashaving been met regardless of whether carri-ers can obtain requested proprietary ele-ments from a source other than the incum-

bent, and regards the ‘‘impairment’’ standardas having been met if an incumbent’s failureto provide access to a network element woulddecrease the quality, or increase the cost, ofthe service a requesting carrier seeks tooffer, compared with providing that serviceover other unbundled elements in the incum-bent LEC’s network. The FCC cannot, con-sistent with the statute, blind itself to theavailability of elements outside the incum-bent’s network. In addition, the FCC’s as-sumption that any increase in cost (or de-crease in quality) imposed by denial of anetwork element renders access to that ele-ment ‘‘necessary,’’ and causes the failure toprovide that element to ‘‘impair’’ the en-trant’s ability to furnish its desired services,is simply not in accord with the ordinary andfair meaning of those terms. Section251(d)(2) requires the FCC to determine on arational basis which network elements mustbe made available, taking into account the1996 Act’s objectives and giving some sub-stance to the ‘‘necessary’’ and ‘‘impair’’ re-quirements. Pp. 734–736.

(c) The FCC reasonably omitted a facili-ties-ownership requirement. The 1996 Actimposes no such limitation; if anything, itsuggests the opposite, by requiring in§ 251(c)(3) that incumbents provide access to‘‘any’’ requesting carrier. P. 736.

(d) Rule 315(b), which forbids incum-bents to separate already-combined networkelements before leasing them to competitors,reasonably interprets § 251(c)(3), which es-tablishes the duty to provide access to net-work elements on nondiscriminatory rates,terms, and conditions and in a manner thatallows requesting carriers to combine suchelements. That section forbids incumbentsto sabotage elements that are provided indiscrete pieces, but it does not say, or evenremotely imply, that elements must be pro-vided in that fashion. Pp. 736–738.

3. Because the ‘‘pick and choose’’ ruletracks the pertinent language in § 252(i) al-most exactly, it is not only a reasonableinterpretation of that section, it is the mostreadily apparent. P. 738.


Nos. 97–826 (first judgment), 97–829(first judgment), 97–830, 97–831 (first judg-ment), 97–1075, 97–1087, 97–1099, and 97–1141, 120 F.3d 753, reversed in part, affirmedin part, and remanded; Nos. 97–826, 97–829,S 369and 97–831 (second judgments), 124 F.3d934, reversed in part and remanded.

SCALIA, J., delivered the opinion of theCourt, Parts I, III–A, III–C, III–D, and IVof which were joined by REHNQUIST, C. J.,and STEVENS, KENNEDY, SOUTER,THOMAS, GINSBURG, and BREYER, JJ.,Part II of which was joined by STEVENS,KENNEDY, SOUTER, and GINSBURG,JJ., and Part III–B of which was joined byREHNQUIST, C. J., and STEVENS,KENNEDY, THOMAS, GINSBURG, andBREYER, JJ. SOUTER, J., filed an opinionconcurring in part and dissenting in part,post, p. 739. THOMAS, J., filed an opinionconcurring in part and dissenting in part, inwhich REHNQUIST, C.J., and BREYER, J.,joined, post, p. 741. BREYER, J., filed anopinion concurring in part and dissenting inpart, post, p. 746. O’CONNOR, J., took nopart in the consideration or decision of thesecases.

For U.S. Supreme Court briefs, see:

1998 WL 396941 (Pet.Brief)

1998 WL 401522 (Pet.Brief)

1998 WL 404272 (Pet.Brief)

1998 WL 156779 (Resp.Brief)







1998 WL 396961 (Reply.Brief)







S 370Justice SCALIA delivered the opinionof the Court.

In these cases, we address whether theFederal Communications Commission hasauthority to implement certain pricing andnonpricing provisions of the Telecommunica-tions Act of 1996, as well as whether theCommission’s rules governing S 371unbundledaccess and ‘‘pick and choose’’ negotiation areconsistent with the statute.

I

Until the 1990’s, local phone service wasthought to be a natural monopoly. Statestypically granted an exclusive franchise ineach local service area to a local exchangecarrier (LEC), which owned, among otherthings, the local loops (wires connecting tele-phones to switches), the switches (equipmentdirecting calls to their destinations), and thetransport trunks (wires carrying calls be-tween switches) that constitute a local ex-change network. Technological advances,however, have made competition among mul-tiple providers of local service seem possible,and Congress recently ended the longstand-ing regime of state-sanctioned monopolies.

The Telecommunications Act of 1996 (1996Act or Act), Pub.L. 104–104, 110 Stat. 56,fundamentally restructures local telephonemarkets. States may no longer enforce lawsthat impede competition, and incumbentLECs are subject to a host of duties intend-ed to facilitate market entry. Foremostamong these duties is the LEC’s obligationunder 47 U.S.C. § 251(c) (1994 ed., Supp. II)to share its network with competitors. Un-der this provision, a requesting carrier canobtain access to an incumbent’s network inthree ways: It can purchase local telephoneservices at wholesale rates for resale to endusers; it can lease elements of the incum-bent’s network ‘‘on an unbundled basis’’; andit can interconnect its own facilities with theincumbent’s network.1 When an enStrant372

1. Title 47 U.S.C. § 251(c) (1994 ed., Supp. II)provides as follows:‘‘Additional Obligations of Incumbent Local Ex-change Carriers

‘‘In addition to the duties contained in subsec-tion (b) of this section, each incumbent localexchange carrier has the following duties:

‘‘(1) Duty to Negotiate


525 U.S. 374

seeks access through any of these routes, theincumbent can negotiate an agreement with-out regard to the duSties373 it would otherwisehave under § 251(b) 2 or § 251(c). See§ 252(a)(1). But if private negotiation fails,either party can petition the state commis-sion that regulates local phone service toarbitrate open issues, which arbitration issubject to § 251 and the FCC regulationspromulgated thereunder.

Six months after the 1996 Act was passed,the FCC issued its First Report and Orderimplementing the local-Scompetition374 provi-sions. In re Implementation of the LocalCompetition Provisions in the Telecommu-nications Act of 1996, 11 FCC Rcd 15499(1996) (First Report & Order). The numer-ous challenges to this rulemaking, filedacross the country by incumbent LECs andstate utility commissions, were consolidated

‘‘The duty to negotiate in good faith in accor-dance with section 252 of this title the particularterms and conditions of agreements to fulfill theduties described in paragraphs (1) through (5) ofsubsection (b) of this section and this subsection.The requesting telecommunications carrier alsohas the duty to negotiate in good faith the termsand conditions of such agreements.

‘‘(2) Interconnection‘‘The duty to provide, for the facilities and

equipment of any requesting telecommunicationscarrier, interconnection with the local exchangecarrier’s network—

‘‘(A) for the transmission and routing of tele-phone exchange service and exchange access;

‘‘(B) at any technically feasible point withinthe carrier’s network;

‘‘(C) that is at least equal in quality to thatprovided by the local exchange carrier to itself orto any subsidiary, affiliate, or any other party towhich the carrier provides interconnection; and

‘‘(D) on rates, terms, and conditions that arejust, reasonable, and nondiscriminatory, in ac-cordance with the terms and conditions of theagreement and the requirements of this sectionand section 252 of this title.

‘‘(3) Unbundled Access‘‘The duty to provide, to any requesting tele-

communications carrier for the provision of atelecommunications service, nondiscriminatoryaccess to network elements on an unbundledbasis at any technically feasible point on rates,terms, and conditions that are just, reasonable,and nondiscriminatory in accordance with theterms and conditions of the agreement and therequirements of this section and section 252 ofthis title. An incumbent local exchange carriershall provide such unbundled network elementsin a manner that allows requesting carriers tocombine such elements in order to provide suchtelecommunications service.

‘‘(4) Resale‘‘The duty—‘‘(A) to offer for resale at wholesale rates any

telecommunications service that the carrier pro-vides at retail to subscribers who are not tele-communications carriers; and

‘‘(B) not to prohibit, and not to impose unrea-sonable or discriminatory conditions or limita-tions on, the resale of such telecommunicationsservice, except that a State commission may,consistent with regulations prescribed by theCommission under this section, prohibit a resell-

er that obtains at wholesale rates a telecommuni-cations service that is available at retail only to acategory of subscribers from offering such ser-vice to a different category of subscribers.

‘‘(5) Notice of Changes‘‘The duty to provide reasonable public notice

of changes in the information necessary for thetransmission and routing of services using thatlocal exchange carrier’s facilities or networks, aswell as of any other changes that would affect theinteroperability of those facilities and networks.

‘‘(6) Collocation‘‘The duty to provide, on rates, terms, and

conditions that are just, reasonable, and nondis-criminatory, for physical collocation of equip-ment necessary for interconnection or access tounbundled network elements at the premises ofthe local exchange carrier, except that the carri-er may provide for virtual collocation if the localexchange carrier demonstrates to the State com-mission that physical collocation is not practicalfor technical reasons or because of space limita-tions.’’

2. Section 251(b) imposes the following duties onincumbents:

‘‘(1) Resale‘‘The duty not to prohibit, and not to impose

unreasonable or discriminatory conditions orlimitations on, the resale of its telecommunica-tions services.

‘‘(2) Number Portability‘‘The duty to provide, to the extent technically

feasible, number portability in accordance withrequirements prescribed by the Commission.

‘‘(3) Dialing Parity‘‘The duty to provide dialing parity to compet-

ing providers of telephone exchange service andtelephone toll service, and the duty to permit allsuch providers to have nondiscriminatory accessto telephone numbers, operator services, directo-ry assistance, and directory listing, with no un-reasonable dialing delays.

‘‘(4) Access to Rights–of–Way‘‘The duty to afford access to the poles, ducts,

conduits, and rights-of-way of such carrier tocompeting providers of telecommunications ser-vices on rates, terms, and conditions that areconsistent with section 224 of this title.

‘‘(5) Reciprocal Compensation‘‘The duty to establish reciprocal compensation

arrangements for the transport and terminationof telecommunications.’’


in the United States Court of Appeals for theEighth Circuit.

The basic attack was jurisdictional. TheLECs and state commissions insisted thatprimary authority to implement the local-competition provisions belonged to the Statesrather than to the FCC. They thus arguedthat many of the local-competition rules wereinvalid, most notably the one requiring thatprices for interconnection and unbundled ac-cess be based on ‘‘Total Element Long RunIncremental Cost’’ (TELRIC)—a forward-looking rather than historic measure.3 See47 CFR §§ 51.503, 51.505 (1997). The Courtof Appeals agreed, and vacated the pricingrules, and several other aspects of the order,as reaching beyond the Commission’s juris-diction. Iowa Utilities Board v. FCC, 120F.3d 753, 800, 804, 805–806 (1997). It heldthat the general rulemaking authority con-ferred upon the Commission by the Commu-nications Act of 1934 extended only to inter-state matters, and that the Commissiontherefore needed specific congressional au-thorization before implementing provisions ofthe 1996 Act addressing intrastate telecom-munications. Id., at 795. It found no suchauthorization for the Commission’s rules re-garding pricing, dialing parity,4 exemptionsS 375for rural LECs, the proper procedure forresolving local-competition disputes, andstate review of pre–1996 interconnectionagreements. Id., at 795–796, 802–806. In-deed, with respect to some of these matters,the Eighth Circuit said that the 1996 Act hadaffirmatively given exclusive authority to thestate commissions. Id., at 795, 802, 805.

The Court of Appeals found support for itsholdings in 47 U.S.C. § 152(b) (§ 2(b) of theCommunications Act of 1934), which, it said,creates a presumption in favor of preservingstate authority over intrastate communica-

tions. 120 F.3d, at 796. It found nothing inthe 1996 Act clear enough to overcome thispresumption, which it described as a fencethat is ‘‘hog tight, horse high, and bullstrong, preventing the FCC from intrudingon the states’ intrastate turf.’’ Id., at 800.

Incumbent LECs also made several chal-lenges, only some of which are relevant here,to the rules implementing the 1996 Act’srequirement of unbundled access. See 47U.S.C. § 251(c)(3) (1994 ed., Supp. II). Rule319, the primary unbundling rule, sets fortha minimum number of network elements thatincumbents must make available to request-ing carriers. See 47 CFR § 51.319 (1997).The LECs complained that, in compiling thislist, the FCC had virtually ignored the 1996Act’s requirement that it consider whetheraccess to proprietary elements was ‘‘neces-sary’’ and whether lack of access to nonpro-prietary elements would ‘‘impair’’ an en-trant’s ability to provide local service. See47 U.S.C. § 251(d)(2) (1994 ed., Supp. II).In addition, the LECs thought that the listincluded items (like directory assistance andcaller I.D.) that did not meet the statutorydefinition of ‘‘network element.’’ See§ 153(29). The Eighth Circuit rebuffed botharguments, holding that the Commission’sinSterpretations376 of the ‘‘necessary and im-pair’’ standard and the definition of ‘‘networkelement’’ were reasonable and hence lawfulunder Chevron U.S.A. Inc. v. Natural Re-sources Defense Council, Inc. (NRDC), 467U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694(1984). See 120 F.3d, at 809–810.

When it promulgated its unbundling rules,the Commission explicitly declined to imposea requirement of facility ownership on carri-ers who sought to lease network elements.First Report & Order ¶¶ 328–340. Becausethe list of elements that Rule 319 made avail-

3. TELRIC pricing is based upon the cost of oper-ating a hypothetical network built with the mostefficient technology available. Incumbents ar-gued below that this method was unreasonablebecause it stranded their historic costs and un-derestimated the actual costs of providing inter-connection and unbundled access. The EighthCircuit did not reach this issue, and the merits ofTELRIC are not before us.

4. Dialing parity, which seeks to ensure that anew entrant’s customers can make calls without

having to dial an access code, was addressed inthe Commission’s Second Report and Order.See In re Implementation of the Local Competi-tion Provisions of the Telecommunications Act of1996, 11 FCC Rcd 19392 (1996). In a separateopinion that is also before us today, the EighthCircuit vacated this rule insofar as it went be-yond the FCC’s jurisdiction over interstate calls.People of California v. FCC, 124 F.3d 934, 943(1997).


525 U.S. 378

able was so extensive, the effect of this omis-sion was to allow competitors to provide localphone service relying solely on the elementsin an incumbent’s network. The LECs ar-gued that this ‘‘all elements’’ rule under-mined the 1996 Act’s goal of encouragingentrants to develop their own facilities. TheCourt of Appeals, however, deferred to theFCC’s approach. Nothing in the 1996 Actitself imposed a requirement of facility own-ership, and the court was of the view that thelanguage of § 251(c)(3) indicated that ‘‘a re-questing carrier may achieve the capabilityto provide telecommunications services com-pletely through access to the unbundled ele-ments of an incumbent LEC’s network.’’ 120F.3d, at 814.

Given the sweep of the ‘‘all elements’’ rule,however, the Eighth Circuit thought that theFCC went too far in its Rule 315(b), whichforbids incumbents to separate network ele-ments before leasing them to competitors.47 CFR § 51.315(b) (1997). Taken together,the two rules allowed requesting carriers tolease the incumbent’s entire, preassemblednetwork. The Court of Appeals believedthat this would render the resale provision ofthe statute a dead letter, because by leasingthe entire network rather than purchasingand reselling service offerings, entrants couldobtain the same product—finished service—at a cost-based, rather than wholesale, rate.120 F.3d, at 813. Apparently reasoning thatthe word ‘‘unbundled’’ in § 251(c)(3) meant‘‘physiScally377 separated,’’ the court vacatedRule 315(b) for requiring access to the in-cumbent LECs’ network elements ‘‘on a bun-dled rather than an unbundled basis.’’ Ibid.

Finally, incumbent LECs objected to theCommission’s ‘‘pick and choose’’ rule, whichgoverns the terms of agreements between

LECs and competing carriers. Under thisrule, a carrier may demand that the LECmake available to it ‘‘any individual intercon-nection, service, or network element arrange-ment’’ on the same terms and conditions theLEC has given anyone else in an agreementapproved under § 252—without its having toaccept the other provisions of the agreement.47 CFR § 51.809 (1997); First Report &Order ¶ ¶ 1309–1310. The Court of Appealsvacated the rule, reasoning that it woulddeter the ‘‘voluntarily negotiated intercon-nection agreements’’ that the 1996 Act fa-vored, by making incumbent LECs reluctantto grant quids for quos, so to speak, for fearthat they would have to grant others thesame quids without receiving quos. 120F.3d, at 801.

The Commission, MCI, and AT & T peti-tioned for review of the Eighth Circuit’sholdings regarding jurisdiction, Rule 315(b),and the ‘‘pick and choose’’ rule; the incum-bent LECs cross-petitioned for review of theEighth Circuit’s treatment of the other un-bundling issues. We granted all the peti-tions. 522 U.S. 1089, 118 S.Ct. 879, 139L.Ed.2d 867 (1998).

IISection 201(b), a 1938 amendment to the

Communications Act of 1934, provides that‘‘[t]he Commission may prescribe such rulesand regulations as may be necessary in thepublic interest to carry out the provisions ofthis Act.’’ 52 Stat. 588, 47 U.S.C. § 201(b).Since Congress expressly directed that the1996 Act, along with its local-competitionprovisions, be inserted into the Communica-tions Act of 1934, 1996 Act, § 1(b), 110 Stat.56, the Commission’s rulemaking authorityS 378would seem to extend to implementationof the local-competition provisions.5

5. Justice BREYER says, post, at 749, that ‘‘Con-gress enacted [the] language [of § 201(b) ] in1938,’’ and that whether it confers ‘‘general au-thority to make rules implementing the morespecific terms of a later enacted statute dependsupon what that later enacted statute contem-plates.’’ That is assuredly true. But we thinkthat what the later statute contemplates is bestdetermined, not by speculating about what the1996 Act (and presumably every other amend-ment to the Communications Act since 1938)‘‘foresees,’’ ibid., but by the clear fact that the

1996 Act was adopted, not as a freestandingenactment, but as an amendment to, and hencepart of, an Act which said that ‘‘[t]he Commissionmay prescribe such rules and regulations as maybe necessary in the public interest to carry outthe provisions of this Act.’’ Justice BREYER can-not plausibly assert that the 1996 Congress wasunaware of the general grant of rulemaking au-thority contained within the CommunicationsAct, since § 251(i) specifically provides that‘‘[n]othing in this section shall be construed tolimit or otherwise affect the Commission’s au-thority under section 201.’’


[1] The incumbent LECs and state com-missions (hereinafter respondents) argue,however, that § 201(b) rulemaking authorityis limited to those provisions dealing withpurely interstate and foreign matters, be-cause the first sentence of § 201(a) makes it‘‘the duty of every common carrier engagedin interstate or foreign communication bywire or radio to furnish such communicationservice upon reasonable request thereforTTT .’’ It is impossible to understand how thisuse of the qualifier ‘‘interstate or foreign’’ in§ 201(a), which limits the class of commoncarriers with the duty of providing communi-cation service, reaches forward into the lastsentence of § 201(b) to limit the class ofprovisions that the Commission has authorityto implement. We think that the grant in§ 201(b) means what it says: The FCC hasrulemaking authority to carry out the ‘‘provi-sions of this Act,’’ which include §§ 251 and252, added by the Telecommunications Act of1996.6

S 379Our view is unaffected by 47 U.S.C.§ 152(b) (§ 2(b) of the 1934 enactment),which reads:

‘‘Except as provided in sections 223through 227 TTT, inclusive, and section 332TTT, and subject to the provisions of sec-tion 301 of this title TTT, nothing in thischapter shall be construed to apply or togive the Commission jurisdiction with re-spect to TTT charges, classifications, prac-tices, services, facilities, or regulations foror in connection with intrastate communi-cation service TTT .’’

The local-competition provisions are not iden-tified in § 152(b)’s ‘‘except’’ clause. Seizingon this omission, respondents argue that the1996 Act does nothing to displace the pre-sumption that the States retain their tradi-tional authority over local phone service.

Respondents’ argument on this point is(necessarily) an extremely subtle one. Theydo not contend that the ‘‘nothSing380 TTT shallbe construed’’ provision prevents all‘‘appl[ication]’’ of the Communications Act, asamended in 1996, to intrastate service, oreven precludes all ‘‘Commission jurisdictionwith respect to’’ such service. Such an inter-pretation would utterly nullify the 1996amendments, which clearly ‘‘apply’’ to intra-state service, and clearly confer ‘‘Commissionjurisdiction’’ over some matters. Respon-dents argue, therefore, that the effect of the‘‘nothing TTT shall be construed’’ provision isto require an explicit ‘‘appl[ication]’’ to intra-state service, and in addition an explicitconferral of ‘‘Commission jurisdiction’’ overintrastate service, before Commission juris-diction can be found to exist. Such explicit‘‘appl[ication],’’ they acknowledge, was effect-ed by the 1996 amendments, but ‘‘Commis-sion jurisdiction’’ was explicitly conferredonly as to a few matters.

The fallacy in this reasoning is that itignores the fact that § 201(b) explicitly givesthe FCC jurisdiction to make rules governingmatters to which the 1996 Act applies. Re-spondents argue that avoiding this pari pas-su expansion of Commission jurisdiction withexpansion of the substantive scope of the Act

6. Justice BREYER appeals to our cases whichsay that there is a ‘‘ ‘presumption against the pre-emption of state police power regulations,’ ’’post, at 749, quoting from Cipollone v. LiggettGroup, Inc., 505 U.S. 504, 518, 112 S.Ct. 2608,120 L.Ed.2d 407 (1992), and that there must be‘‘ ‘clear and manifest’ showing of congressionalintent to supplant traditional state police pow-ers,’’ post, at 750, quoting from Rice v. Santa FeElevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146,91 L.Ed. 1447 (1947). But the question in thesecases is not whether the Federal Government hastaken the regulation of local telecommunicationscompetition away from the States. With regardto the matters addressed by the 1996 Act, itunquestionably has. The question is whether thestate commissions’ participation in the adminis-tration of the new federal regime is to be guidedby federal-agency regulations. If there is any

‘‘presumption’’ applicable to this question, itshould arise from the fact that a federal programadministered by 50 independent state agencies issurpassing strange.

The appeals by both Justice THOMAS and Jus-tice BREYER to what might loosely be called‘‘States’ rights’’ are most peculiar, since there isno doubt, even under their view, that if thefederal courts believe a state commission is notregulating in accordance with federal policy theymay bring it to heel. This is, at bottom, a debatenot about whether the States will be allowed todo their own thing, but about whether it will bethe FCC or the federal courts that draw the linesto which they must hew. To be sure, the FCC’slines can be even more restrictive than thosedrawn by the courts—but it is hard to spark apassionate ‘‘States’ rights’’ debate over that de-tail.


525 U.S. 381

was the reason the ‘‘nothing shall be con-strued’’ provision was framed in the alterna-tive: ‘‘[N]othing in this Act shall be con-strued to apply or to give the Commissionjurisdiction ’’ (emphasis added) with respectto the forbidden subjects. The italicized por-tion would have no operative effect, theyassert, if every ‘‘application’’ of the Act auto-matically entailed Commission jurisdiction.The argument is an imaginative one, butultimately fails. For even though ‘‘Commis-sion jurisdiction’’ always follows where theAct ‘‘applies,’’ Commission jurisdiction (so-called ‘‘ancillary’’ jurisdiction) could existeven where the Act does not ‘‘apply.’’ Theterm ‘‘apply’’ limits the substantive reach ofthe statute (and the concomitant scope ofprimary FCC jurisdiction), and the phrase‘‘or to give the Commission jurisdiction’’ lim-its, in addition, the FCC’s ancillary jurisdic-tion.

S 381The need for both limitations is exempli-fied by Louisiana Pub. Serv. Comm’n v.FCC, 476 U.S. 355, 106 S.Ct. 1890, 90L.Ed.2d 369 (1986), where the FCC claimedauthority to issue rules governing deprecia-tion methods applied by local telephone com-panies.7 The Commission supported itsclaim with two arguments. First, that itcould regulate intrastate because Congress

had intended the depreciation provisions ofthe Communications Act to bind state com-missions—i.e., that the depreciation provi-sions ‘‘applied’’ to intrastate ratemaking.Id., at 376–377, 106 S.Ct. 1890. We observedthat ‘‘[w]hile it is, no doubt, possible to findsome support in the broad language of thesection for respondents’ position, we do notfind the meaning of the section so unambigu-ous or straightforward as to override thecommand of § 152(b) TTTT’’ Id., at 377, 106S.Ct. 1890. But the Commission also arguedthat, even if the statute’s depreciation provi-sions did not apply intrastate, regulation ofstate depreciation methods would enable it toeffectuate the federal policy of encouragingcompetition in interstate telecommunications.Id., at 369, 106 S.Ct. 1890. We rejected thatargument because, even though the FCC’sbroad regulatory authority normally wouldhave been enough to justify its regulation ofintrastate depreciation methods that affectedinterstate commerce, see id., at 370, 106S.Ct. 1890; cf. Houston & Shreveport R. Co.v. United States, 234 U.S. 342, 358, 34 S.Ct.833, 58 L.Ed. 1341 (1914), § 152(b) preventedthe Commission from taking intrastate actionsolely because it furthered an interstate goal.476 U.S., at 374, 106 S.Ct. 1890.8

7. We discuss the Louisiana case because of thelight it sheds upon the meaning of § 152(b). Weof course do not agree with Justice BREYER’scontention, post, at 750, that the case ‘‘raised aquestion almost identical to the one before us.’’That case involved the Commission’s attempt toregulate services over which it had not explicitlybeen given rulemaking authority; this one in-volves its attempt to regulate services over whichit has explicitly been given rulemaking authority.

8. Because this reasoning clearly gives separatemeanings to the provisions ‘‘apply’’ and ‘‘give theCommission jurisdiction,’’ we do not understandwhy Justice THOMAS asserts, post, at 744, thatwe have not given effect to every word thatCongress used. Nor do we agree with JusticeTHOMAS that our interpretation renders§ 152(b) a nullity. See post, at 744. After the1996 Act, § 152(b) may have less practical effect.But that is because Congress, by extending theCommunications Act into local competition, hasremoved a significant area from the States’ ex-clusive control. Insofar as Congress has re-mained silent, however, § 152(b) continues tofunction. The Commission could not, for exam-ple, regulate any aspect of intrastate communica-tion not governed by the 1996 Act on the theorythat it had an ancillary effect on matters withinthe Commission’s primary jurisdiction.

Justice THOMAS admits, as he must, that theCommission has authority to implement at leastsome portions of the 1996 Act. See post, at 743.But his interpretation of § 152(b) confers suchinflexibility upon that provision that he muststrain to explain where the Commission gets thisauthority. A number of the provisions he relieson plainly read, not like conferrals of authority,but like references to the exercise of authorityconferred elsewhere (we think, of course, in§ 201(b)). See, e.g., § 251(b)(2) (assigning statecommissions ‘‘[t]he duty to provide, to the extenttechnically feasible, number portability in accor-dance with requirements prescribed by the Com-mission’’); § 251(d)(2) (setting forth factors forthe Commission to consider ‘‘[i]n determiningwhat network elements should be made availablefor purposes of subsection (c)(3)’’); § 251(g) (re-quiring that any pre-existing ‘‘regulation, order,or policy of the Commission’’ governing ex-change access and interconnection agreementsremain in effect until it is ‘‘explicitly supersededby regulations prescribed by the Commission’’).Moreover, his interpretation produces a mostchopped-up statute, conferring Commission jur-isdiction over such curious and isolated mattersas ‘‘number portability, TTT those network ele-ments that the carrier must make available on anunbundled basis for purposes of § 251(c), TTT


S 382The parties have devoted some effort inthese cases to debating whether § 251(d)serves as a jurisdictional grant to the FCC.That section provides that ‘‘[w]ithin 6 monthsS 383after [the date of enactment of the Tele-communications Act of 1996,] the Commis-sion shall complete all actions necessary toestablish regulations to implement the re-quirements of this section.’’ 47 U.S.C.§ 251(d) (1994 ed., Supp. II). The FCC re-lies on this section as an alternative source ofjurisdiction, arguing that if it was necessaryfor Congress to include an express jurisdic-tional grant in the 1996 Act, § 251(d) doesthe job. Respondents counter that this pro-vision functions only as a time constraint onthe exercise of regulatory authority that theCommission has been given in the six subsec-tions of § 251 that specifically mention theFCC. See §§ 251(b)(2), 251(c)(4)(B),251(d)(2), 251(e), 251(g), 251(h)(2). Our un-derstanding of the Commission’s general au-thority under § 201(b) renders this debateacademic.9

The jurisdictional objections we have ad-dressed thus far pertain to an asserted lackof what might be called underlying FCCjurisdiction. The remaining jurisdictional ar-gument is that certain individual provisionsin the 1996 Act negate particular aspects ofthe Commission’s implementing authority.With regard to pricing, respondents point to§ 252(c), which provides:

S 384‘‘(c) Standards for Arbitration

‘‘In resolving by arbitration under sub-section (b) any open issues and imposingconditions upon the parties to the agree-ment, a State commission shall—

‘‘(1) ensure that such resolution and con-ditions meet the requirements of section251, including the regulations prescribedby the Commission pursuant to section251;

‘‘(2) establish any rates for interconnec-tion, services, or network elements accord-ing to subsection (d); and

‘‘(3) provide a schedule for implementa-tion of the terms and conditions by theparties to the agreement.’’

Respondents contend that the Commission’sTELRIC rule is invalid because § 252(c)(2)entrusts the task of establishing rates to thestate commissions. We think this attributesto that task a greater degree of autonomythan the phrase ‘‘establish any rates’’ neces-sarily implies. The FCC’s prescription,through rulemaking, of a requisite pricingmethodology no more prevents the Statesfrom establishing rates than do the statutory‘‘Pricing standards’’ set forth in § 252(d). Itis the States that will apply those standardsand implement that methodology, determin-ing the concrete result in particular circum-stances. That is enough to constitute theestablishment of rates.

[2] Respondents emphasize the factthat § 252(c)(1), which requires state com-missions to assure compliance with the

numbering administration, TTT exchange accessand interconnection requirements in effect priorto the Act’s effective date, TTT and treatment ofcomparable carriers as incumbents TTT,’’ post, at743, but denying Commission jurisdiction overmuch more significant matters. We think itmost unlikely that Congress created such astrange hodgepodge. And, of course, JusticeTHOMAS’S recognition of any FCC jurisdictionover intrastate matters subjects his analysis tothe same criticism he levels against us, post, at744: Just as it is true that Congress did notexplicitly amend § 152(b) to exempt the entire1996 Act, neither did it explicitly amend § 152(b)to exempt the five provisions he relies upon.

9. Justice THOMAS says that the grants of author-ity to the Commission in § 251 would have beenunnecessary ‘‘[i]f Congress believed TTT that§ 201(b) provided the FCC with plenary authori-ty to promulgate regulations.’’ Post, at 744. We

have already explained that three of the fiveprovisions on which Justice THOMAS relies arenot grants of authority at all. See n. 8, supra.And the remaining two do not support his argu-ment because they are not redundant of§ 201(b). Section 251(e), which provides that‘‘[t]he Commission shall create or designate oneor more impartial entities to administer telecom-munications numbering,’’ requires the Commis-sion to exercise its rulemaking authority, as op-posed to § 201(b), which merely authorizes theCommission to promulgate rules if it so chooses.Section 251(h)(2) says that the FCC ‘‘may, byrule, provide for the treatment of a local ex-change carrier TTT as an incumbent local ex-change carrier for purposes of [§ 251]’’ if thecarrier satisfies certain requirements. This pro-vision gives the Commission authority beyondthat conferred by § 201(b); without it, the FCCcertainly could not have saddled a nonincumbentcarrier with the burdens of incumbent status.


525 U.S. 386

provisions of § 251, adds ‘‘including theregulations prescribed by the Commissionpursuant to section 251,’’ whereas§ 252(c)(2), which requires state commis-sions to assure compliance with the pricingstandards in subsection (d), says nothingabout Commission regulations applicable tosubsection (d). There is undeniably a lackof parallelism here, but it seems to us ade-quately explained by the fact that § 251specifically requires the Commission topromulgate regulations implementing thatprovision, whereas subsection (d) S 385of§ 252 does not. It seems to us not pecu-liar that the mandated regulations shouldbe specifically referenced, whereas regula-tions permitted pursuant to the Commis-sion’s § 201(b) authority are not. In anyevent, the mere lack of parallelism is sure-ly not enough to displace that explicit au-thority. We hold, therefore, that the Com-mission has jurisdiction to design a pricingmethodology.

[3] For similar reasons, we reverse theCourt of Appeals’ determinations that theCommission had no jurisdiction to promul-gate rules regarding state review of pre-existing interconnection agreements betweenincumbent LECs and other carriers, regard-ing rural exemptions, and regarding dialingparity. See 47 CFR §§ 51.303, 51.405, and51.205–51.215 (1997). None of the statutoryprovisions that these rules interpret dis-places the Commission’s general rulemakingauthority. While it is true that the 1996 Actentrusts state commissions with the job ofapproving interconnection agreements, 47U.S.C. § 252(e) (1994 ed., Supp. II), andgranting exemptions to rural LECs, § 251(f),these assignments, like the rate-establishingassignment just discussed, do not logically

preclude the Commission’s issuance of rulesto guide the state-commission judgments.And since the provision addressing dialingparity, § 251(b)(3), does not even mentionthe States, it is even clearer that the Com-mission’s § 201(b) authority is not supersed-ed.10

[4] S 386Finally (as to jurisdiction), respon-dents challenge the claim in the Commis-sion’s First Report & Order that § 208, aprovision giving the Commission general au-thority to hear complaints arising under theCommunications Act of 1934, also gives itauthority to review agreements approved bystate commissions under the local-competi-tion provisions. First Report & Order¶¶ 121–128. The Eighth Circuit held thatthe Commission’s ‘‘perception of its authorityTTT is untenable TTT in light of the languageand structure of the Act and TTT operation of[§ 152(b) ].’’ 120 F.3d, at 803. The Court ofAppeals erred in reaching this claim becauseit is not ripe. When, as is the case with thisCommission statement, there is no immedi-ate effect on the plaintiff’s primary conduct,federal courts normally do not entertain pre-enforcement challenges to agency rules andpolicy statements. Toilet Goods Assn., Inc.v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18L.Ed.2d 697 (1967); see also Lujan v. Na-tional Wildlife Federation, 497 U.S. 871, 891,110 S.Ct. 3177, 111 L.Ed.2d 695 (1990).

III

A

[5] We turn next to the unbundling rules,and come first to the incumbent LECs’ com-

10. Justice THOMAS notes that it is well settledthat state officers may interpret and apply federallaw, see, e.g., United States v. Jones, 109 U.S.513, 3 S.Ct. 346, 27 L.Ed. 1015 (1883), whichleads him to conclude that there is no constitu-tional impediment to the interpretation thatwould give the States general authority, uncon-trolled by the FCC’s general rulemaking authori-ty, over the matters specified in the particularsections we have just discussed. Post, at 745–746. But constitutional impediments aside, weare aware of no similar instances in which feder-al policymaking has been turned over to stateadministrative agencies. The arguments we

have been addressing in the last three para-graphs of our text assume a scheme in whichCongress has broadly extended its law into thefield of intrastate telecommunications, but in afew specified areas (ratemaking, interconnectionagreements, etc.) has left the policy implicationsof that extension to be determined by state com-missions, which—within the broad range of law-ful policymaking left open to administrativeagencies—are beyond federal control. Such ascheme is decidedly novel, and the attendantlegal questions, such as whether federal courtsmust defer to state agency interpretations of fed-eral law, are novel as well.


plaint that the FCC included within the fea-tures and services that must be provided tocompetitors under Rule 319 items that do not(as they must) meet the statutory definitionof ‘‘network element’’—namely, operator ser-vices and directory assistance, operationalsupport systems (OSS), and vertical switch-ing functions such as caller I.D., call forward-ing, and call waiting. See 47 CFRS 387§§ 51.319(f)-(g) (1997); First Report &Order ¶ 413. The statute defines ‘‘networkelement’’ as

‘‘a facility or equipment used in the provi-sion of a telecommunications service.Such term also includes features, functions,and capabilities that are provided bymeans of such facility or equipment, in-cluding subscriber numbers, databases,signaling systems, and information suffi-cient for billing and collection or used inthe transmission, routing, or other provi-sion of a telecommunications service.’’ 47U.S.C. § 153(29) (1994 ed., Supp. II).

Given the breadth of this definition, it isimpossible to credit the incumbents’ argu-ment that a ‘‘network element’’ must be partof the physical facilities and equipment usedto provide local phone service. Operator ser-vices and directory assistance, whether theyinvolve live operators or automation, are‘‘features, functions, and capabilities TTT pro-vided by means of’’ the network equipment.OSS, the incumbent’s background softwaresystem, contains essential network informa-tion as well as programs to manage billing,repair ordering, and other functions. Section153(29)’s reference to ‘‘databases TTT andinformation sufficient for billing and collec-tion or used in the transmission, routing, orother provision of a telecommunications ser-vice’’ provides ample basis for treating thissystem as a ‘‘network element.’’ And verti-cal switching features, such as caller I. D.,are ‘‘functions TTT provided by means of’’ theswitch, and thus fall squarely within the stat-utory definition. We agree with the EighthCircuit that the Commission’s application ofthe ‘‘network element’’ definition is eminentlyreasonable. See Chevron v. NRDC, 467U.S., at 866, 104 S.Ct. 2778.

B[6] We are of the view, however, that the

FCC did not adequately consider the ‘‘neces-sary and impair’’ standards when it gaveblanket access to these network elements,and others, in Rule 319. That Rule requiresan incumbent to provide S 388requesting carri-ers with access to a minimum of seven net-work elements: the local loop, the networkinterface device, switching capability, interof-fice transmission facilities, signaling net-works and call-related data bases, operationssupport systems functions, and operator ser-vices and directory assistance. 47 CFR§ 51.319 (1997). If a requesting carrierwants access to additional elements, it maypetition the state commission, which canmake other elements available on a case-by-case basis. § 51.317.

[7, 8] Section 251(d)(2) of the Act pro-vides:

‘‘In determining what network elementsshould be made available for purposes ofsubsection (c)(3) of this section, the Com-mission shall consider, at a minimum,whether—

‘‘(A) access to such network elements asare proprietary in nature is necessary;and

‘‘(B) the failure to provide access to suchnetwork elements would impair the abilityof the telecommunications carrier seekingaccess to provide the services that it seeksto offer.’’

The incumbents argue that § 251(d)(2) co-difies something akin to the ‘‘essential fa-cilities’’ doctrine of antitrust theory, seegenerally 3A P. Areeda & H. Hovenkamp,Antitrust Law ¶ ¶ 771–773 (1996), openingup only those ‘‘bottleneck’’ elements un-available elsewhere in the marketplace.We need not decide whether, as a matterof law, the 1996 Act requires the FCC toapply that standard; it may be that someother standard would provide an equiva-lent or better criterion for the limitationupon network-element availability that thestatute has in mind. But we do agreewith the incumbents that the Act requiresthe FCC to apply some limiting standard,rationally related to the goals of the Act,


525 U.S. 390

which it has simply failed to do. In thegeneral statement of its methodology setforth in the First Report and Order, theCommission announced that it would re-gard the ‘‘necessary’’ standSard389 as hav-ing been met regardless of whether ‘‘re-questing carriers can obtain the requestedproprietary element from a source otherthan the incumbent,’’ since ‘‘[r]equiringnew entrants to duplicate unnecessarilyeven a part of the incumbent’s networkcould generate delay and higher costs fornew entrants, and thereby impede entryby competing local providers and delaycompetition, contrary to the goals of the1996 Act.’’ First Report & Order ¶ 283.And it announced that it would regardthe ‘‘impairment’’ standard as having beenmet if ‘‘the failure of an incumbent toprovide access to a network elementwould decrease the quality, or increasethe financial or administrative cost of theservice a requesting carrier seeks to of-fer, compared with providing that serviceover other unbundled elements in the in-cumbent LEC’s network,’’ id., ¶ 285 (em-phasis added)—which means that compari-son with self-provision, or with purchasingfrom another provider, is excluded. Sinceany entrant will request the most efficientnetwork element that the incumbent hasto offer, it is hard to imagine when theincumbent’s failure to give access to theelement would not constitute an ‘‘impair-ment’’ under this standard. The Commis-sion asserts that it deliberately limited itsinquiry to the incumbent’s own networkbecause no rational entrant would seekaccess to network elements from an in-cumbent if it could get better service orprices elsewhere. That may be. Butthat judgment allows entrants, ratherthan the Commission, to determine wheth-er access to proprietary elements is nec-

essary, and whether the failure to obtainaccess to nonproprietary elements wouldimpair the ability to provide services.The Commission cannot, consistent withthe statute, blind itself to the availabilityof elements outside the incumbent’s net-work. That failing alone would requirethe Commission’s rule to be set aside.In addition, however, the Commission’sassumption that any increase in cost (ordecrease in quality) imposed by denial ofa network element renders access to thatelement ‘‘necessary,’’ and causes the fail-ure to provide S 390that element to ‘‘impair’’the entrant’s ability to furnish its desiredservices, is simply not in accord with theordinary and fair meaning of those terms.An entrant whose anticipated annual prof-its from the proposed service are reducedfrom 100% of investment to 99% of in-vestment has perhaps been ‘‘impaired’’ inits ability to amass earnings, but has notipso facto been ‘‘impair[ed] TTT in itsability to provide the services it seeks tooffer’’; and it cannot realistically be saidthat the network element enabling it toraise its profits to 100% is ‘‘necessary.’’ 11

In a world of perfect competition, inwhich all carriers are providing their ser-vice at marginal cost, the Commission’stotal equating of increased cost (or de-creased quality) with ‘‘necessity’’ and ‘‘im-pairment’’ might be reasonable; but ithas not established the existence of suchan ideal world. We cannot avoid the con-clusion that, if Congress had wanted togive blanket access to incumbents’ net-works on a basis as unrestricted as thescheme the Commission has come upwith, it would not have included§ 251(d)(2) in the statute at all. It wouldsimply have said (as the Commission ineffect has) that whatever requested ele-ment can be provided must be provided.

11. Justice SOUTER points out that one can sayhis ability to replace a light bulb is ‘‘impaired’’by the absence of a ladder, and that a ladder is‘‘necessary’’ to replace the bulb, even though one‘‘could stand instead on a chair, a milk can, oreight volumes of Gibbon.’’ True enough (andnicely put), but the proper analogy here, it seemsto us, is not the absence of a ladder, but thepresence of a ladder tall enough to enable one todo the job, but not without stretching one’s arm

to its full extension. A ladder one-half inch talleris not, ‘‘within an ordinary and fair meaning ofthe word,’’ post, at 740, ‘‘necessary,’’ nor does itsabsence ‘‘impair’’ one’s ability to do the job. Wesimilarly disagree with Justice SOUTER that abusiness can be impaired in its ability to provideservices—even impaired in that ability ‘‘in anordinary, weak sense of impairment,’’ ibid.—when the business receives a handsome profitbut is denied an even handsomer one.


[9] When the full record of these pro-ceedings is examined, it appears that that isprecisely what the Commission thoughtS 391Congress had said. The FCC was contentwith its expansive methodology because of itsmisunderstanding of § 251(c)(3), which di-rects an incumbent to allow a requestingcarrier access to its network elements ‘‘atany technically feasible point.’’ The Com-mission interpreted this to ‘‘impos[e] on anincumbent LEC the duty to provide all net-work elements for which it is technicallyfeasible to provide access,’’ and went on to‘‘conclude that we have authority to establishregulations that are coextensive’’ with thisduty. First Report & Order ¶ 278 (emphasisadded). See also id., ¶ 286 (‘‘We concludethat the statute does not require us to inter-pret the ‘impairment’ standard in a way thatwould significantly diminish the obligationimposed by section 251(c)(3)’’). As theEighth Circuit held, that was undoubtedlywrong: Section 251(c)(3) indicates ‘‘where un-bundled access must occur, not which [net-work] elements must be unbundled.’’ 120F.3d, at 810. The Commission does not seekreview of the Eighth Circuit’s holding on thispoint, and we bring it into our discussiononly because the Commission’s application of§ 251(d)(2) was colored by this error. TheCommission began with the premise that anincumbent was obliged to turn over as muchof its network as was ‘‘technically feasible,’’and viewed subsection (d)(2) as merely per-mitting it to soften that obligation by regula-tory grace:

‘‘To give effect to both sections 251(c)(3)and 251(d)(2), we conclude that the pro-prietary and impairment standards in sec-tion 251(d)(2) grant us the authority torefrain from requiring incumbent LECs toprovide all network elements for which it istechnically feasible to provide access on anunbundled basis.’’ First Report & Order¶ 279.

The Commission’s premise was wrong. Sec-tion 251(d)(2) does not authorize the Commis-sion to create isolated exemptions from someunderlying duty to make all network ele-ments available. It requires the Commissionto determine S 392on a rational basis whichnetwork elements must be made available,taking into account the objectives of the Act

and giving some substance to the ‘‘necessary’’and ‘‘impair’’ requirements. The latter is notachieved by disregarding entirely the avail-ability of elements outside the network, andby regarding any ‘‘increased cost or de-creased service quality’’ as establishing a‘‘necessity’’ and an ‘‘impair[ment]’’ of theability to ‘‘provide TTT services.’’

The Commission generally applied theabove described methodology as it consid-ered the various network elements seriatim.See id., ¶¶ 388–393, 419–420, 447, 481–482,490–491, 497–499, 521–522, 539–540. Thoughsome of these sections contain statementssuggesting that the Commission’s actionmight be supported by a higher standard,see, e.g., id., ¶¶ 521–522, no other standard isconsistently applied and we must assumethat the Commission’s expansive methodolo-gy governed throughout. Because the Com-mission has not interpreted the terms of thestatute in a reasonable fashion, we must va-cate 47 CFR § 51.319 (1997).

C[10] The incumbent LECs also renew

their challenge to the ‘‘all elements’’ rule,which allows competitors to provide localphone service relying solely on the elementsin an incumbent’s network. See First Re-port & Order ¶¶ 328–340. This issue may belargely academic in light of our disposition ofRule 319. If the FCC on remand makesfewer network elements unconditionallyavailable through the unbundling require-ment, an entrant will no longer be able tolease every component of the network. Butwhether a requesting carrier can access theincumbent’s network in whole or in part, wethink that the Commission reasonably omit-ted a facilities-ownership requirement. The1996 Act imposes no such limitation; if any-thing, it suggests the opposite, by requiringin § 251(c)(3) that incumbents provide accessto ‘‘any’’ requesting carrier. We agree withthe Court of ApSpeals393 that the Commis-sion’s refusal to impose a facilities-ownershiprequirement was proper.

DRule 315(b) forbids an incumbent to sepa-

rate already-combined network elements be-


525 U.S. 395

fore leasing them to a competitor. As theydid in the Court of Appeals, the incumbentsobject to the effect of this Rule when it iscombined with others before us today. TEL-RIC allows an entrant to lease network ele-ments based on forward-looking costs, Rule319 subjects virtually all network elements tothe unbundling requirement, and the all-ele-ments rule allows requesting carriers to relyonly on the incumbent’s network in providingservice. When Rule 315(b) is added to these,a competitor can lease a complete, preassem-bled network at (allegedly very low) cost-based rates.

The incumbents argue that this result istotally inconsistent with the 1996 Act. Theysay that it not only eviscerates the distinctionbetween resale and unbundled access, butthat it also amounts to Government-sanc-tioned regulatory arbitrage. Currently,state laws require local phone rates to in-clude a ‘‘universal service’’ subsidy. Busi-ness customers, for whom the cost of serviceis relatively low, are charged significantlyabove cost to subsidize service to rural andresidential customers, for whom the cost ofservice is relatively high. Because this uni-versal-service subsidy is built into retailrates, it is passed on to carriers who enterthe market through the resale provision.Carriers who purchase network elements atcost, however, avoid the subsidy altogetherand can lure business customers away fromincumbents by offering rates closer to cost.This, of course, would leave the incumbentsholding the bag for universal service.

As was the case for the all-elements rule,our remand of Rule 319 may render theincumbents’ concern on this score academic.Moreover, § 254 requires that universal-ser-vice S 394subsidies be phased out, so whateverpossibility of arbitrage remains will be onlytemporary. In any event, we cannot say thatRule 315(b) unreasonably interprets the stat-ute.

[11, 12] Section 251(c)(3) establishes:‘‘The duty to provide, to any requestingtelecommunications carrier for the provi-sion of a telecommunications service, non-discriminatory access to network elementson an unbundled basis at any technically

feasible point on rates, terms, and condi-tions that are just, reasonable, and nondis-criminatory in accordance with the termsand conditions of the agreement and therequirements of this section and section252 TTT. An incumbent local exchange car-rier shall provide such unbundled networkelements in a manner that allows request-ing carriers to combine such elements inorder to provide such telecommunicationsservice.’’

Because this provision requires elements tobe provided in a manner that ‘‘allows re-questing carriers to combine’’ them, incum-bents say that it contemplates the leasing ofnetwork elements in discrete pieces. It wasentirely reasonable for the Commission tofind that the text does not command thisconclusion. It forbids incumbents to sabo-tage network elements that are provided indiscrete pieces, and thus assuredly contem-plates that elements may be requested andprovided in this form (which the Commis-sion’s rules do not prohibit). But it does notsay, or even remotely imply, that elementsmust be provided only in this fashion andnever in combined form. Nor are we per-suaded by the incumbents’ insistence that thephrase ‘‘on an unbundled basis’’ in§ 251(c)(3) means ‘‘physically separated.’’The dictionary definition of ‘‘unbundle[d]’’(and the only definition given, we might add)matches the FCC’s interpretation of theword: ‘‘to give separate prices for equipmentand supporting services.’’ Webster’s NinthNew Collegiate Dictionary 1283 (1988).

[13] S 395The reality is that § 251(c)(3) isambiguous on whether leased network ele-ments may or must be separated, and therule the Commission has prescribed is entire-ly rational, finding its basis in § 251(c)(3)’snondiscrimination requirement. As theCommission explains, it is aimed at prevent-ing incumbent LECs from ‘‘disconnect[ing]previously connected elements, over the ob-jection of the requesting carrier, not for anyproductive reason, but just to impose waste-ful reconnection costs on new entrants.’’ Re-ply Brief for Federal Petitioners and Brieffor Federal Cross–Respondents 23. It istrue that Rule 315(b) could allow entrantsaccess to an entire preassembled network.


In the absence of Rule 315(b), however, in-cumbents could impose wasteful costs oneven those carriers who requested less thanthe whole network. It is well within thebounds of the reasonable for the Commissionto opt in favor of ensuring against an anti-competitive practice.

IVThe FCC’s ‘‘pick and choose’’ rule pro-

vides, in relevant part:‘‘An incumbent LEC shall make availablewithout unreasonable delay to any request-ing telecommunications carrier any individ-ual interconnection, service, or network el-ement arrangement contained in anyagreement to which it is a party that isapproved by a state commission pursuantto section 252 of the Act, upon the samerates, terms, and conditions as those pro-vided in the agreement.’’ 47 CFR§ 51.809 (1997).

Respondents argue that this rule threatensthe give-and-take of negotiations, because ev-ery concession as to an ‘‘interconnection, ser-vice, or network element arrangement’’ made(in exchange for some other benefit) by anincumbent LEC will automatically becomeavailable to every potential entrant into themarket. A carrier who wants one termS 396from an existing agreement, they say,should be required to accept all the terms inthe agreement.

[14] Although the latter propositionseems eminently fair, it is hard to declare theFCC’s rule unlawful when it tracks the perti-nent statutory language almost exactly. Ti-tle 47 U.S.C. § 252(i) (1994 ed., Supp. II)provides:

‘‘A local exchange carrier shall make avail-able any interconnection, service, or net-work element provided under an agree-ment approved under this section to whichit is a party to any other requesting tele-communications carrier upon the sameterms and conditions as those provided inthe agreement.’’

The FCC’s interpretation is not only reason-able, it is the most readily apparent. More-over, in some respects the rule is more gen-erous to incumbent LECs than § 252(i) itself.It exempts incumbents who can prove to thestate commission that providing a particularinterconnection service or network element

to a requesting carrier is either (1) morecostly than providing it to the original carri-er, or (2) technically infeasible. 47 CFR§ 51.809(b) (1997). And it limits the amountof time during which negotiated agreementsare open to requests under this section.§ 51.809(c). The Commission has said thatan incumbent LEC can require a requestingcarrier to accept all terms that it can proveare ‘‘legitimately related’’ to the desiredterm. First Report & Order ¶ 1315. Section252(i) certainly demands no more than that.And whether the Commission’s approach willsignificantly impede negotiations (by makingit impossible for favorable interconnection-service or network-element terms to be trad-ed off against unrelated provisions) is a mat-ter eminently within the expertise of theCommission and eminently beyond our ken.We reverse the Eighth Circuit and reinstatethe rule.

S 397* * *

It would be gross understatement to saythat the 1996 Act is not a model of clarity.It is in many important respects a model ofambiguity or indeed even self-contradiction.That is most unfortunate for a piece of legis-lation that profoundly affects a crucial seg-ment of the economy worth tens of billions ofdollars. The 1996 Act can be read to grant(borrowing a phrase from incumbent GTE)‘‘most promiscuous rights’’ to the FCC vis-a-vis the state commissions and to competingcarriers vis-a-vis the incumbents—and theCommission has chosen in some instances toread it that way. But Congress is wellaware that the ambiguities it chooses to pro-duce in a statute will be resolved by theimplementing agency, see Chevron, 467 U.S.,at 842–843, 104 S.Ct. 2778. We can onlyenforce the clear limits that the 1996 Actcontains, which in the present cases invali-date only Rule 319.

For the reasons stated, the July 18, 1997,judgment of the Court of Appeals, 120 F.3d753, is reversed in part and affirmed in part;the August 22, 1997, judgment of the Courtof Appeals, 124 F.3d 934, is reversed in part;and the cases are remanded for proceedingsconsistent with this opinion.


525 U.S. 399

It is so ordered.

Justice O’CONNOR took no part in theconsideration or decision of these cases.

Justice SOUTER, concurring in part anddissenting in part.

I agree with the Court’s holding that theFederal Communications Commission hasauthority to implement and interpret the dis-puted provisions of the TelecommunicationsAct of 1996, and that deference is due to theCommission’s reasonable interpretation un-der Chevron U.S.A. Inc. v. Natural Re-sources Defense Council, Inc., 467 U.S. 837,104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Idisagree with the Court’s holding that theCommission was S 398unreasonable in its inter-pretation of 47 U.S.C. § 251(d)(2) (1994 ed.,Supp. II), which requires it to considerwhether competitors’ access to network ele-ments owned by local exchange carriers(LECs) is ‘‘necessary’’ and whether failure toprovide access to such elements would ‘‘im-pair’’ competitors’ ability to provide services.Ante, at 733. Because I think that, underChevron, the Commission reasonably inter-preted its duty to consider necessity andimpairment, I respectfully dissent from PartIII–B of the Court’s opinion.

The statutory provision in question speci-fies that in determining what network ele-ments should be made available on an unbun-dled basis to potential competitors of theLECs, the Commission ‘‘shall consider’’whether ‘‘access to such network elements asare proprietary in nature is necessary,’’§ 251(d)(2)(A), and whether ‘‘the failure toprovide access’’ to network elements ‘‘wouldimpair the ability of the telecommunicationscarrier seeking access to provide the servicesthat it seeks to offer,’’ § 251(d)(2)(B). TheCommission interpreted ‘‘necessary’’ to mean‘‘prerequisite for competition,’’ in the sensethat without access to certain proprietarynetwork elements, competitors’ ‘‘ability tocompete would be significantly impaired orthwarted.’’ In re Implementation of the Lo-cal Competition Provisions in the Telecom-munications Act of 1996, ¶ 282, 11 FCC Rcd15499, 15641–15642 (1996) (First Report &Order). On this basis, it decided to requireaccess to such elements unless the incumbent

LEC could prove both that the requestednetwork element was proprietary and thatthe requesting competitor could offer thesame service through the use of another,nonproprietary element offered by the in-cumbent LEC. Id., ¶ 283, at 15642.

The Commission interpreted ‘‘impair’’ tomean ‘‘diminished in value,’’ and explainedthat a potential competitor’s ability to offerservices would diminish in value when thequality of those services would decline ortheir price rise, absent the element in ques-tion. Id., ¶ 285, at 15643. The Commissionchose to apply this standard ‘‘by evaluatingS 399whether a carrier could offer a serviceusing other unbundled elements within anincumbent LEC’s network,’’ ibid., and decid-ed that whenever it would be more expensivefor a competitor to offer a service using otheravailable network elements, or whenever theservice offered using those other elementswould be of lower quality, the LEC mustoffer the desired element to the competitor,ibid.

In practice, as the Court observes, ante, at735, the Commission’s interpretation willprobably allow a competitor to obtain accessto any network element that it wants; acompetitor is unlikely in fact to want anelement that would be economically unjustifi-able, and a weak economic justification willdo. Under Chevron, the only question beforeus is whether the Commission’s interpreta-tion, obviously favorable to potential competi-tors, falls outside the bounds of reasonable-ness.

As a matter of textual justification, certain-ly, the Commission is not to be faulted. Thewords ‘‘necessary’’ and ‘‘impair’’ are ambigu-ous in being susceptible to a fairly widerange of meanings, and doubtless can carrythe meanings the Commission identified. IfI want to replace a light bulb, I would bewithin an ordinary and fair meaning of theword ‘‘necessary’’ to say that a stepladder is‘‘necessary’’ to install the bulb, even though Icould stand instead on a chair, a milk can, oreight volumes of Gibbon. I could just aseasily say that the want of a ladder would‘‘impair’’ my ability to install the bulb underthe same circumstances. These examples


use the concepts of necessity and impairmentin what might be called their weak senses,but these are unquestionably still ordinaryuses of the words.

Accordingly, the Court goes too far when itsays that under ‘‘the ordinary and fair mean-ing’’ of ‘‘necessary’’ and ‘‘impair,’’ ante, at735, ‘‘[a]n entrant whose anticipated annualprofits from the proposed service are re-duced from 100% of investment to 99% ofinvestment TTT has not ipso facto been ‘im-pair[ed] TTT in its ability to provide the ser-vices S 400it seeks to offer’; and it cannotrealistically be said that the network elementenabling it to raise profits to 100% is ‘neces-sary,’ ’’ ante, at 735. A service is surely‘‘necessary’’ to my business in an ordinary,weak sense of necessity when that servicewould allow me to realize more profits, and abusiness can be said to be ‘‘impaired’’ indelivery of services in an ordinary, weaksense of impairment when something stopsthe business from getting the profit it wantsfor those services.

Not every choice of meaning that fallswithin the bounds of textual ambiguity isnecessarily reasonable, to be sure, but theCourt’s appeal to broader statutory policycomes up short in my judgment. The Courtsays, with some intuitive plausibility, that‘‘the Act requires the FCC to apply somelimiting standard, rationally related to thegoals of the Act, which it has simply failed todo.’’ Ante, at 734–735. In the Court’s eyes,the trouble with the Commission’s interpre-tation is that it ‘‘allows entrants, rather thanthe Commission, to determine’’ necessity andimpairment, ante, at 735, and so the Courtconcludes that ‘‘if Congress had wanted togive blanket access to incumbents’ networkson a basis as unrestricted as the scheme theCommission has come up with, it would nothave included § 251(d)(2) in the statute atall,’’ ante, at 735.

The Court thus judges the reasonablenessof the Commission’s rule for implementing§ 251(d)(2) by asking how likely it is thatCongress would have legislated at all if itspoint in adopting the criteria of necessity andimpairment was to do no more than requireeconomic rationality, and the Court answersthat the Commission’s notion of the congres-

sional objective in using the ambiguous lan-guage is just too modest to be reasonable.The persuasiveness of the Court’s answer toits question, however, rests on overlookingthe very different question that the Commis-sion was obviously answering when itadopted Rule 319. As the Court itself notes,ante, S 401at 733–734, the Commission explicit-ly addressed the consequences that wouldfollow from requiring an entrant to satisfythe necessity and impairment criteria byshowing that alternative facilities were un-available at reasonable cost from anyone ex-cept the incumbent LEC. First Report &Order ¶ 283, 11 FCC Rcd, at 15642. Torequire that kind of a showing, the Commis-sion said, would encourage duplication of fa-cilities and personnel, with obvious systemiccosts. Ibid. The Commission, in otherwords, was approaching the task of givingreasonable interpretations to ‘‘necessary’’and ‘‘impair’’ by asking whether Congresswould have mandated economic inefficiencyas a limit on the objective of encouragingcompetition through ease of market entry.The Commission concluded, without any ap-parent implausibility, that the answer wasno, and proceeded to implement the necessityand impairment provisions in accordancewith that answer.

Before we conclude that the Commission’sreading of the statute was unreasonable,therefore, we have to do more than simplyask whether Congress would probably havelegislated the necessity and impairment cri-teria in their weak senses. We have to askwhether the Commission’s further question isan irrelevant one, and (if it is not), whetherthe Commission’s answer is reasonably de-fensible. If the question is sensible and theanswer fair, Chevron deference surely re-quires us to respect the Commission’s conclu-sion. This is so regardless of whether theanswer to the Commission’s question pointsin a different direction from the answer tothe Court’s question; there is no apparentreason why deference to the agency shouldnot extend to the agency’s choice in respond-ing to mutually ill-fitting clues to congres-sional meaning. This, indeed, is surely aclassic case for such deference, the statutehere being infected not only with ‘‘ambiguity’’


525 U.S. 403

but even ‘‘self-contradiction.’’ Ante, at 738.I would accordingly respect the Commis-sion’s choice to give primacy to the questionit chose.

S 402Justice THOMAS, with whom THECHIEF JUSTICE and Justice BREYERjoin, concurring in part and dissenting inpart.

Since Alexander Graham Bell invented thetelephone in 1876, the States have been, forall practical purposes, exclusively responsiblefor regulating intrastate telephone service.Although the Telecommunications Act of1996 altered that more than century-old tra-dition, the majority takes the Act too far intransferring the States’ regulatory authoritywholesale to the Federal CommunicationsCommission. In my view, the Act does notunambiguously indicate that Congress in-tended for such a transfer to occur. Indeed,it specifically reserves for the States theprimary responsibility to conduct mediationsand arbitrations and to approve agreementsbetween carriers See 47 U.S.C. §§ 252(c), (e)(1994 ed., Supp. II). I therefore respectfullydissent from Part II of the majority’s opin-ion.1

IFrom the time that the commercial offer-

ing of telephone service began in 1877 untilthe expiration of key patents in 1893 and1894, Alexander Graham Bell’s telephonecompany—which came to be known as theAmerican Telephone and Telegraph Compa-ny—enjoyed a monopoly. J. Brooks, Tele-phone: The First Hundred Years 59, 67, 71–72 (1976). In the decades that followed,thousands of independent phone companiesemerged to fill in the gaps left by the tele-phone giant and, in most larger markets, tobuild rival networks in direct competitionwith it. Id., at 102–111. As competitiondeveloped, many municipalities began to

adopt ordinances regulating telephone ser-vice. See, e.g., K. Lipartito, The Bell Systemand Regional Business 177–186 (1989).

During the 1900’s, state legislatures cameunder increasing pressure to centralize theregulation of telephone service. S 403See, e.g.,id., at 185–207. Although the quasicompeti-tive system had significant drawbacks fromthe consumers’ standpoint—principally therefusal of competing systems to intercon-nect—perhaps the strongest advocate ofstate regulation was AT & T itself. Ibid.The company’s arguments that telephoneservice was naturally monopolistic and thatcompetition was resulting in wasteful duplica-tion of facilities appealed to Progressive-eralegislatures. Cohen, The Telephone Problemand the Road to Telephone Regulation in theUnited States, 3 J. Policy Hist. 42, 55–57(1991); see generally Lipartito, supra, at185–207. By 1915, most States had estab-lished public utility commissions and chargedthem with regulating telephone service.Brooks, supra, at 144. Over time, the BellCompanies’ policy of buying out independentproviders coupled with the state commis-sions’ practice of prohibiting competitive en-try led back to the monopoly provision oflocal telephone service. See R. Garnet, TheTelephone Enterprise: The Evolution of theBell System’s Horizontal Structure, 1876–1909, 146–153 (1985).

Early federal telecommunications regula-tion, which began with the Mann–Elkins Actof 1910, did not displace the States’ fledglingefforts to regulate intrastate telephone ser-vice. To the contrary, the Mann–Elkins Actextended the jurisdiction of the InterstateCommerce Commission (ICC) to cover onlyinterstate and international telecommunica-tions services.2 As a result, state and federalagencies were required to meticulously sepa-rate the intrastate and interstate aspects oftelephone services. Accordingly, in Smith v.Illinois Bell Telephone Co., 282 U.S. 133, 51S.Ct. 65, 75 L.Ed. 255 (1930), this Court

1. I agree with the majority’s analysis of the un-bundling and pick-and-choose rules, which werenot challenged on jurisdictional grounds.

2. The Mann–Elkins Act provided, in relevantpart, that ‘‘the provisions of this Act shall applyto TTT telegraph, telephone, and cable companiesTTT engaged in sending messages from one State,

Territory, or District of the United States, to anyother State, Territory or District of the UnitedStates, or to any foreign country, who shall beconsidered and held to be common carriers with-in the meaning and purpose of this Act.’’ Act ofJune 18, 1910, ch. 309, § 7, 36 Stat. 544–545.


S 404invalidated an Illinois Commerce Commis-sion order establishing rates for the city ofChicago because it failed to distinguish be-tween the intrastate and interstate propertyand business of the telephone company. Inso doing, the Court emphasized that ‘‘[t]heseparation of the intrastate and interstateproperty, revenues and expenses of the Com-pany is TTT essential to the appropriate rec-ognition of the competent governmental au-thority in each field of regulation.’’ Id., at148, 51 S.Ct. 65.

In the Communications Act of 1934, 48Stat. 1064, as amended, 47 U.S.C. § 151 etseq., Congress transferred authority over in-terstate communications from the ICC to thenewly created Federal CommunicationsCommission (FCC or Commission). As inthe Mann–Elkins Act, Congress chose not todisplace the States’ authority over intrastatecommunications. Indeed, Congress tookcare to preserve it explicitly in § 2(b), whichprovides, in relevant part, that ‘‘nothing inthis chapter shall be construed to apply or togive the Commission jurisdiction with re-spect to TTT charges, classifications, prac-tices, services, facilities, or regulations for orin connection with intrastate communicationservice.’’ 47 U.S.C. § 152(b). We have care-fully guarded the historical jurisdictional di-vision codified in § 2(b). See LouisianaPub. Serv. Comm’n v. FCC, 476 U.S. 355, 106S.Ct. 1890, 90 L.Ed.2d 369 (1986). In Loui-siana, we held that § 2(b) precluded theFCC from pre-empting state depreciationregulations. In so doing, we rejected theFCC’s argument that § 220 of the Communi-cations Act of 1934 provided it with authorityto displace state regulations that were incon-sistent with federal depreciation standards.We instead concluded that § 2(b) ‘‘fences offfrom FCC reach or regulation intrastatematters—indeed, including matters ‘in con-nection with’ intrastate service,’’ id., at 370,106 S.Ct. 1890, and we further indicated thatthe FCC could breach § 2(b)’s jurisdictional‘‘fence’’ only when Congress used ‘‘unambig-uous or straightforward’’ language to give itjurisdiction over intrastate communications,id., at 377, 106 S.Ct. 1890.

S 405Congress enacted the Telecommunica-tions Act of 1996 (1996 Act or Act), Pub.L.

104–104, 110 Stat. 56, against this backdrop.To be sure, the 1996 Act marked a significantchange in federal telecommunications policy.Most important, Congress ended the States’longstanding practice of granting and main-taining local exchange monopolies. See 47U.S.C. § 253(a) (1994 ed., Supp. II). It alsorequired incumbent local exchange carriersto allow their competitors to access theirfacilities in three different ways. As themajority describes more completely, ante, at726–727, n. 1, incumbents must: interconnecttheir networks with requesting carriers’ facil-ities and equipment, § 251(c)(2); providenondiscriminatory access to network ele-ments on an unbundled basis at any techni-cally feasible point, § 251(c)(3); and offer toresell at wholesale rates any telecommunica-tions service that they provide to subscriberswho are not telecommunications carriers,§ 251(c)(4). The Act sets forth additionalobligations applicable to all telecommunica-tions carriers, § 251(a), and all local ex-change carriers, § 251(b). To facilitate rapidtransition from monopoly to competitive pro-vision of local telephone service, Congress setforth a process to ensure that the incumbentand competing carriers fulfill these obli-gations in § 252.

Section 252 sets up a preference for nego-tiated interconnection agreements. § 252(a).To the extent that the incumbent and com-peting carriers cannot agree, the Act givesthe state commissions primary responsibilityfor mediating and arbitrating agreements.Specifically, Congress directed the state com-missions to mediate disputes between carri-ers during the voluntary negotiation period,§ 252(a)(2), and—after the negotiations haverun their course—to arbitrate any ‘‘open is-sues,’’ § 252(b)(1). In conducting these arbi-trations, state commissions are directed toensure that open issues are resolved in accor-dance with the requirements of § 251, ‘‘es-tablish TTT rates for interconnection, ser-vices, or network elements’’ according to thestandards that Congress S 406set forth in§ 252(d), and provide a schedule for imple-menting the agreement reached during arbi-tration. § 252(c). The state commissionsare also to approve or reject any interconnec-tion agreement, whether adopted by negotia-


525 U.S. 408

tion or arbitration, § 252(e)(1), guided by thestandards set forth in § 252(e)(2). The 1996Act permits the FCC to intervene in thisprocess only as a last resort, when ‘‘a Statecommission fails to act to carry out its res-ponsibilit[ies].’’ § 252(e)(5). In that event,‘‘the Commission shall issue an orderpreempting the State commission’s jurisdic-tion TTT and shall assume the responsibilityof the State commission TTT and act for theState commission.’’ Ibid.

To be sure, the Act directs the state com-missions, in conducting arbitrations, to en-sure that open issues are resolved in accor-dance with the ‘‘regulations prescribed bythe [FCC] pursuant to section 251,’’§ 252(c)(1), and provides that the state com-missions may reject an arbitrated agreementif it does not meet the requirements of § 251,‘‘including the regulations prescribed by theCommission pursuant to section 251,’’§ 252(e)(2)(B). But the scope of the FCC’srulemaking authority under the Act is quitelimited. Section 251(d)(1) directs the Com-mission to ‘‘complete all actions necessary toestablish regulations to implement the re-quirements of this section’’ within a certaintime period. I believe that this subsection isa time limitation upon, and a mandate for,the exercise of rulemaking authority con-ferred elsewhere. The source of that author-ity, as I describe below, is not § 201(b), but,rather, § 251 itself. Section 251 specificallyidentifies those subjects upon which the FCCmay regulate. The FCC has authority toregulate on the subject of number portabili-ty, § 251(b)(2); those network elements thatthe carrier must make available on an unbun-dled basis for purposes of § 251(c),§ 251(d)(2); numbering administration,§ 251(e); exchange access and interconnec-tion requirements in effect prior to the Act’seffective date, § 251(g); and treatment ofcomparable carriers as incumbents,§ 251(h)(2).

S 407IIThe regulations that are the subject of the

jurisdictional challenge of the respondent

LECs and state commissions contravene thedivision of authority set forth in the 1996 Actand disregard the 100–year tradition of stateauthority over intrastate telecommunications.In the introduction to its First Report andOrder, the FCC peremptorily declared that§§ 251 and 252 ‘‘require [it] to establish im-plementing rules to govern interconnection,resale of services, access to unbundled net-work elements, and other matters, and directthe states to follow the Act and those rules inarbitrating and approving arbitrated agree-ments under sections 251 and 252.’’ In reImplementation of the Local CompetitionProvisions in the Telecommunications Act of1996, 11 FCC Rcd 15499, 15544–15545 (1996)(emphasis added). In fulfilling its perceivedstatutory mandate, the FCC promulgatedpainstakingly detailed regulations dictatingto the state commissions how they must im-plement §§ 251 and 252. I agree with theEighth Circuit that the FCC lacked jurisdic-tion to promulgate the regulations challengedon jurisdictional grounds.3

A

In endorsing the FCC’s claim that it hasgeneral rulemaking authority to implementthe local competition provisions of the 1996Act, the majority relies upon a general grantof authority that predates the Act, 47 U.S.C.§ 201(b). The last sentence of that provi-sion, upon which the majority so heavily re-lies, provides that ‘‘[t]he Commission mayprescribe such rules and regulations as maybe necessary in the public interest to carryout the provisions of this chapter.’’ S 408Thisgrant of authority, however, cannot be readin isolation. As the first Justice Harlan onceobserved: ‘‘it is a familiar rule in the inter-pretation of TTT statutes that ‘a passage willbe best interpreted by reference to thatwhich precedes and follows it.’ ’’ Neal v.Clark, 95 U.S. 704, 708, 24 L.Ed. 586 (1877).Section 201(a) refers exclusively to ‘‘inter-state or foreign communication by wire orradio,’’ and the first sentence of § 201(b)refers to ‘‘charges, practices, classifications,

3. I agree with the majority, ante, at 733, thatrespondents’ challenge to the FCC’s assertionthat it has authority under 47 U.S.C. § 208 toconsider complaints arising under the 1996 Act

is not ripe for review. It appears to me, howev-er, that the Court of Appeals’ conclusion that theFCC lacks such authority carries considerableforce.


and regulations for and in connection withsuch communication service.’’ ‘‘Under theprinciple of ejusdem generis, when a generalterm follows a specific one, the general termshould be understood as a reference to sub-jects akin to the one with specific enumer-ation.’’ Norfolk & Western R. Co. v. TrainDispatchers, 499 U.S. 117, 129, 111 S.Ct.1156, 113 L.Ed.2d 95 (1991). Applying thisprinciple here, it is clear that the last sen-tence of § 201(b) only gives the FCC author-ity to promulgate regulations governing in-terstate and foreign communications. Byfailing to read § 201(b)’s grant of rulemak-ing authority in light of the limitation thatprecedes it, the majority attributes to theprovision ‘‘a meaning so broad that it is in-consistent with its accompanying words, thusgiving ‘unintended breadth to the Acts ofCongress.’ ’’ Gustafson v. Alloyd Co., 513U.S. 561, 575, 115 S.Ct. 1061, 131 L.Ed.2d 1(1995) (quoting Jarecki v. G.D. Searle & Co.,367 U.S. 303, 307, 81 S.Ct. 1579, 6 L.Ed.2d859 (1961)).

That Congress apparently understood§ 201(b) to be so limited is demonstrated bythe fact that the FCC is specifically charged,under the 1996 Act, with issuing regulationsthat implement particular portions of § 251,as I have described, supra, at 743. If Con-gress believed, as does the majority, that§ 201(b) provided the FCC with plenary au-thority to promulgate regulations implement-ing all of the 1996 Act’s provisions, it pre-sumably would not have needed to makeclear that the FCC had regulatory authoritywith respect to particular matters.

S 409BMoreover, I cannot see how § 201(b) rep-

resents an ‘‘unambiguous’’ grant of authoritythat is sufficient to overcome § 2(b)’s juris-dictional fence. In my view, the majority’sinterpretation of § 201(b) necessarily impliesthat Congress sub silentio rendered § 2(b) anullity by extending federal law to coverintrastate telecommunications. That conclu-sion is simply untenable in light of the factthat § 2(b) is written in the disjunctive. Sec-tion 2(b), 47 U.S.C. § 152(b), provides that‘‘nothing in this chapter shall be construed toapply to or to give the Commission jurisdic-

tion with respect to ’’ intrastate telecommuni-cations service. (Emphasis added.) Con-trary to the majority’s suggestion, ante, at731, there is nothing ‘‘subtle’’ or ‘‘imagina-tive’’ about the principle that ‘‘[i]n construinga statute we are obliged to give effect, ifpossible, to every word Congress used. Can-ons of construction ordinarily suggest thatterms connected by a disjunctive be givenseparate meanings, unless the context dic-tates otherwiseTTTT’’ Reiter v. SonotoneCorp., 442 U.S. 330, 339, 99 S.Ct. 2326, 60L.Ed.2d 931 (1979) (citation omitted). Nor isthe majority correct that Louisiana Pub.Serv. Comm’n v. FCC, supports its reading of§ 2(b). Indeed, the disjunctive structure ofthe provision led us to conclude in Louisi-ana, that § 2(b) contains both ‘‘a rule ofstatutory construction’’ and a ‘‘substantivejurisdictional limitation on the FCC’s power.’’476 U.S., at 372–373, 106 S.Ct. 1890. Itfollows that we should give independent legalsignificance to each. Thus, it is not enoughfor the majority simply to demonstrate thatthe 1996 Act ‘‘appl[ies] to’’ intrastate ser-vices; it must also point to ‘‘unambiguous’’and ‘‘straightforward’’ evidence that Con-gress intended to eliminate § 2(b)’s ‘‘substan-tive jurisdictional limitation.’’

This they cannot do. Nothing in the 1996Act eliminates § 2(b)’s jurisdictional fence.Congress has elsewhere demonstrated that itknows how to exempt certain provisions fromS 410§ 2(b)’s reach; indeed, it has done soquite recently. For example, in 1992, Con-gress enacted legislation providing that§ 2(b) shall apply ‘‘[e]xcept as provided insections 223 through 227’’ of the Communica-tions Act of 1934. Pub.L. 102–243. Thefollowing year, Congress also exempted§ 301 from § 2(b)’s purview. Pub.L. 103–66.With the 1996 Act, Congress neither elimi-nated § 2(b) altogether nor added §§ 251and 252 to the list of provisions exemptedfrom its jurisdictional fence. I believe thatwe are obliged to honor that choice.

C

Even if the rulemaking authority grantedby § 201(b) was not limited to interstate andinternational communications and the 1996


525 U.S. 412

Act rendered § 2(b) a nullity, the FCC’sargument would still fail with respect to itspricing rules and its rules governing thestate commissions’ approval of interconnec-tion agreements. We have made it clear that‘‘[w]here there is no clear intention other-wise, a specific statute will not be controlledor nullified by a general one.’’ CrawfordFitting Co. v. J.T. Gibbons, Inc., 482 U.S.437, 445, 107 S.Ct. 2494, 96 L.Ed.2d 385(1987) (emphasis deleted; internal quotationmarks omitted). Section 201(b) at best givesthe FCC general rulemaking authority. Butthe 1996 Act gives the state commissions theprimary responsibility for conducting media-tions and arbitrations and approving inter-connection agreements. Indeed, as I havedescribed, Congress set forth specific stan-dards that the state commissions are to ad-here to in setting pricing, § 252(d), and inapproving interconnection agreements,§ 252(e). The majority appears to believethat Congress expected that the FCC wouldpromulgate rules to ‘‘guide the state-commis-sion judgments.’’ Ante, at 733. I do notagree. It seems to me that Congress con-sciously designed a system that respectedthe States’ historical role as the dominantauthority with respect to intrastate communi-cations. In giving the state commissions pri-mary responsibility for conducting media-tions and arbitrations and for apSproving411

interconnection agreements, I simply do notthink that Congress intended to limit States’authority to mechanically apply whatevermethodologies, formulas, and rules that theFCC mandated. Because Congress set forthspecific provisions giving primary responsi-bility in certain areas to the States, andbecause the subsections setting forth thestandards that the state commissions are toapply make no mention of FCC regulation, Ibelieve that we are obliged to presume thatCongress intended the specific grant of pri-mary authority to the States to control.4

DMy interpretation, of course, would require

the state commissions to interpret and imple-

ment the substantive provisions of the 1996Act in those instances where the 1996 Actgave the state commissions primary authori-ty. Several parties have suggested that it isinappropriate for the States to do so. One ofthe many petitioners in these cases goes sofar as to suggest that under our decision inPrintz v. United States, 521 U.S. 98, 117S.Ct. 2365, 138 L.Ed.2d 914 (1997), the ‘‘legit-imacy of any such delegation of federal sub-stantive authority [to the States] would besuspect.’’ Brief for Petitioner in No. 97–829,p. 40. To be sure, we held in Printz that theFederal Government may not commandeerstate executive agencies. But I do not knowof a principle of federal law that prohibits theStates from interpreting and applying federallaw. Indeed, basic principles of federalismcompel us to presume that States are compe-tent to do so. As Justice Field observedover 100 years ago in a decision upholding afederal law delegating to the States the au-thority to determine compensation in takingscases:

S 412‘‘[I]t was the purpose of the Constitu-tion to establish a general government in-dependent of, and in some respects superi-or to, that of the State governments—onewhich could enforce its own laws throughits own officers and tribunals TTTT Yetfrom the time of its establishment thatgovernment has been in the habit of using,with the consent of the States, their offi-cers, tribunals, and institutions as itsagents. Their use has not been deemedviolative of any principle or as in any man-ner derogating from the sovereign authori-ty of the federal government; but as amatter of convenience and as tending to agreat saving of expense.’’ United States v.Jones, 109 U.S. 513, 519–520, 3 S.Ct. 346,27 L.Ed. 1015 (1883).

When, in 1996, Congress decided to attemptto introduce competition into the market forlocal telephone service, it deemed it wise totake advantage of the policy expertise thatthe state commissions have developed in reg-

4. My conclusion applies with equal force to otherFCC regulations that trump the state commis-sions’ responsibilities, including exemptions, sus-pensions, and modification, § 251(f); approval of

agreements predating the Act, § 252(a); and pre-emption of state access regulations that are in-consistent with FCC dictates, § 251(d)(3).


ulating such service. It is not for us—or theFCC—to second-guess its decision.

* * *

Contrary to longstanding historical prac-tice, this Court’s precedents respecting thatpractice, and the 1996 Act’s adherence to it,the majority grants the FCC unbounded au-thority to regulate a matter of state concern.Because I do not believe that Congress in-tended such a result, I respectfully dissentfrom Part II of the majority’s opinion.

Justice BREYER, concurring in part anddissenting in part.

A statute’s history and purpose can illumi-nate its language. When read in light ofhistory, purpose, and precedent, the Tele-communications Act of 1996 (1996 Act orAct), Pub.L. 104–104, 110 Stat. 56, is not the‘‘model of ambiguity’’ or ‘‘self-contradiction’’of which the majority complains. Ante, at738. Neither does it permit the FederalCommuniScations413 Commission (FCC) topromulgate the pricing and unbundling rulesbefore us.

IThe FCC’s pricing rules fall outside its

delegated authority because both (1) a centu-ry of regulatory history establishes state au-thority as the local telephone service rate-making norm and (2) the 1996 Act nowherechanges, or creates an exception to, thatnorm. Justice THOMAS’ opinion describesthe history that has created the norm. Ante,at 741–742. In my view, the Act’s purposes,its language, relevant precedent, and the na-ture of the FCC’s rules provide added sup-port for his conclusion.

AThe Act’s purposes help explain why its

language and structure foresee not nationalrate uniformity, but traditional local rate-making—FCC views to the contrary notwith-standing. See In re Implementation of theLocal Competition Provisions in the Tele-communications Act of 1996, ¶ 113, 11 FCCRcd 15499, 15558 (1996) (First Report &Order). To understand those purposes, onemust recall that AT & T once dominated thenational telecommunications industry. It

controlled virtually all long-distance tele-phone service, most local telephone service,and a substantial amount of all telephoneequipment manufacturing. See generallyUnited States v. American Tel. & Tel. Co.,552 F.Supp. 131, 165 (D.D.C.1982) (describ-ing AT & T’s ‘‘commanding position’’ in theNation’s telecommunications business), aff’d.sub nom. Maryland v. United States, 460U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472(1983). In 1982, however, AT & T enteredinto an antitrust consent decree, which endedits industry dominance. See 552 F.Supp., at160–170.

The decree split AT & T from its localtelephone service subsidiaries. By doing so,the decree sought to encourage new competi-tion in long-distance service by firms such asMCI and Sprint. And it also encouragednew competition in telephone equipmentmarkets. But the decree did notS 414introduce new competition into the localtelephone service markets. Rather, it lefteach local market in the hands of a singlestate-regulated local service supplier, such asNYNEX in New York, or Bell Atlantic inWashington, D.C. That circumstance mayhave reflected the belief, current at the time,that local service competition could provewasteful, leading to the unwarranted duplica-tion of expensive physical facilities by requir-ing, say, the unnecessary digging up of citystreets to install unneeded wires connectingeach house with a series of new but redun-dant local switches. See, e.g., United Statesv. Western Elec. Co., 673 F.Supp. 525, 537–538 (D.D.C.1987); P. Huber, M. Kellogg, &J. Thorne, The Geodesic Network II: 1993Report on Competition in the Telephone In-dustry, pp. 2.3–2.5 (1992).

At the same time, the decree forbade mostsuch local service suppliers from enteringlong-distance markets. United States v.American Tel. & Tel. Co., supra, at 186–188.That prohibition, by preventing entry by lo-cal firms willing and able to supply long-distance service, risked less long-distancecompetition. Cf. P. MacAvoy, The Failure ofAntitrust and Regulation to Establish Com-petition in Long–Distance Telephone Ser-vices 179–183 (1996). But the decree re-


525 U.S. 416

flected a countervailing concern. Local firmsmight enjoy special long-distance advantagesnot available to purely long-distance compa-nies. See United States v. American Tel. &Tel., supra, at 186–188. Perhaps a localservice company would find it unusually easyto attract local customers to its long-distanceservice; perhaps it could use its control oflocal service to place its long-distance com-petitors at a disadvantage. See T. Kratten-maker, Telecommunications Law and Policy411–412 (2d ed.1998) (explaining rationale ofthe decree). And though some argued thatany such special advantages were innocent,rather like those enjoyed by a transcontinen-tal airline that dominates a local hub, othersclaimed they were unfair, like those that hadonce helped AT & T (through its control oflocal service) maintain long-distanceS 415dominance. See United States v. Ameri-can Tel. & Tel., supra, at 165; see generallyA. Kahn, Letting Go: Deregulating the Pro-cess of Deregulation, or: Temptation of theKleptocrats and the Political Economy ofRegulatory Disingenuousness 37–38, and n.53 (1998) (discussing the debate). Whetherthe decree’s tradeoff made sense—i.e.,whether the existence of some such local-firm/long-distance-service advantage war-ranted the decree’s prohibition limiting thenumber of potential long-distance competi-tors—became a fertile source for later argu-ment. See, e.g., MacAvoy, supra, at 171–177(arguing that oligopolistic conditions in long-distance markets have produced supranormalprofits that would not be sustainable withincreased competition); Robinson, The Titan-ic Remembered: AT & T and the ChangingWorld of Telecommunications, 5 Yale J. Reg.517, 537 (1988) (arguing that the rationale forthe decree’s restrictions on local service com-panies was ‘‘just as persuasive’’ as that un-derlying the decree).

The Act before us responds to this argu-ment by changing the postdecree status quoin two important ways. First, it creates alegal method through which local telephoneservice companies may enter long-distancemarkets, thereby providing additional long-distance competition. See 47 U.S.C.§ 271(c)(2)(B) (1994 ed., Supp. II) (listing 14conditions that, if met, permit incumbent lo-

cal firms to enter long-distance market).Second, it conditions that long-distance entryupon either (1) the introduction of competi-tion into local markets, or (2) the failure of acompeting carrier to request access to orinterconnection with the local service suppli-er (or the competing carrier’s failure to en-gage in ‘‘good faith’’ negotiations).§§ 271(c)(1)(A), (B). The existence of thesetwo alternatives is important. In settingforth the first alternative, actual local compe-tition, the statute recognizes that local ser-vice competition would diminish any speciallong-distance advantages that the local firmhas, thereby lessening the need for the de-cree’s long-distance-market S 416entry prohibi-tion. See supra, this page; Krattenmaker,The Telecommunications Act of 1996, 49 Fed.Com. L.J. 1, 15–16 (1996). In setting forththe second alternative, the Act recognizesthat actual local competition might not provepractical; in some places, to some extent,local markets may not support more than asingle firm, at least not without wastefulduplication of resources. See Note, TheFCC and the Telecom Act of 1996: Neces-sary Steps to Achieve Substantial Deregula-tion, 11 Harv. J.L. & Tech. 797, 810, n. 57(1998).

These alternatives raise a difficult empiri-cal question. To what extent is local compe-tition possible without wasteful duplication offacilities? The Act does not purport to an-swer this question. Rather, it creates a setof legal rules which, through interaction withthe marketplace, aims to produce sensibleanswers. In particular, the Act permits newlocal entry by dismantling existing legal bar-riers that would otherwise inhibit it. 47U.S.C. § 253(a) (1994 ed., Supp. II). Equallyimportant, the Act promotes new local entryby requiring incumbents (1) to ‘‘interconnect’’with new entrants (thereby allowing even apartial new entrant’s small set of subscribersto call others within an entire local area),§ 251(c)(2); (2) to sell retail services to newentrants at wholesale rates (thereby allowingnewly entering firms to become ‘‘resellers,’’competing in retailing), § 251(c)(4); and (3)to provide new entrants ‘‘access to networkelements,’’ say, house-to-street telephonelines, ‘‘on an unbundled basis’’ (thereby al-


lowing new entry in respect to some aspectsof the local service business without requir-ing wasteful duplication of the entire busi-ness), § 251(c)(3). The last mentioned ‘‘un-bundling’’ requirement does not specificallystate which elements must be unbundled, adifficult matter that I shall discuss below.See infra, at 753–754. But one can under-stand the basic logic of ‘‘unbundling’’ byimagining that Congress required a sole in-cumbent railroad providing service betweenCity A and City B to share certain basicfacilities, say, bridges, rights-of-way, ortracks, in order to avoid wasteSful417 duplica-tion of those hard-to-duplicate resourceswhile facilitating competition in the remain-ing aspects of A–to–B railroad service. In-deed, one might characterize the Act’s basicpurpose as seeking to bring about, withoutinordinate waste, greater local service com-petition both as an end in local markets andas a means toward more competition, andfair competition, in long-distance markets.

For the present cases, the most impor-tant characteristic of the Act’s purposes iswhat those purposes do not require. Thosepurposes neither require nor suggest read-ing the Act’s language to change radicallythe scope of local regulators’ traditionalratesetting powers. A utility’s rate struc-ture consists of complex sets of typically in-terdependent individual rates, the determi-nation of which depends upon numerousconsiderations, many of which are local innature and fall outside the Act’s purview.The introduction of competition into a par-ticular locality does not diminish the impor-tance of place-specific factors, such as localhistory, geography, demands, and costs.And local regulators are likely more famil-iar than are national regulators, for exam-ple, with a particular utility’s physical plant,its cost structure, the pattern of local de-mand, the history of local investment, andthe need for recovery of undepreciated fixedcosts.

Moreover, local regulators have experiencesetting rates that recover both the immedi-ate, smaller, added costs that demand foradditional service imposes upon a local sys-tem and also a proper share of the oftenhuge fixed costs (of local loops, say, or

switches) and overhead needed to provide thedial tone itself. Indeed, local regulatorswould seem as likely, if not more likely, thannational regulators to know whether, when,or the extent to which particular localcharges or systems of charges will lead newentrants to abandon efforts to use a localincumbent’s elements, turning instead to al-ternative technologies. And local regulatorswould seem as likely as national regulators toknow whether or when use of such alterna-tive technologies in the local cirScumstances418

will prove more beneficial than wasteful. Itis the local communities, and, hence, localregulators, that will directly confront theproblems and enjoy the benefits associatedwith local efforts to integrate new and oldcommunications resources and communica-tions firms. These factors, along with thefact that the relevant technology changesrapidly, argue in favor of, not against, localratesetting control, including local ratesettingdifferences, for those differences can amountto the kind of ‘‘experimentation’’ longthought a strength of our federal system.

At most, the Act’s purposes argue for agrant to the FCC of authority to set federallimitations preventing States from adoptingforms of ratemaking that would interferewith the Act’s basic objectives. The Actexplicitly grants the FCC a particular pre-emption tool, not here invoked, which is ap-parently suited to that job. 47 U.S.C.§ 253(d) (1994 ed., Supp. II) (permitting theFCC to pre-empt, after notice and comment,any state legal requirement that has theeffect of prohibiting entry into local service).Such a grant could not help the FCC here,however, for, as I discuss below, infra, at751–753, the FCC’s rules do not just createan outer envelope or simply prevent theStates from going too far. Rather, theyeffectively supplant much of a local regu-lator’s local ratesetting work.

BRead in light of its purposes, the Act’s

language more clearly foresees retention, notreplacement, of the traditional allocation ofstate-federal ratesetting authority. Ante, at742–743 (THOMAS, J., concurring in partand dissenting in part). Sections 251 and


525 U.S. 420

252, which establish and provide for imple-mentation of new local service obligations,contain the relevant language.

Section 251 lists basic obligations that theAct imposes upon local incumbents. Theseinclude obligations to interconnect, to unbun-dle, to sell at wholesale rates, to provide‘‘number portability,’’ to assure ‘‘dialing pari-ty,’’ to negotiate S 419with potential entrants ingood faith, and generally to encourage localcompetition. Section 251 also refers to theFCC, but only in respect to some of theseobligations. See, e.g., § 251(d)(2) (‘‘[T]heCommission shall consider’’ certain standardsin determining which network elements mustbe unbundled); § 251(b)(2) (local firms haveduty to provide ‘‘number portability in accor-dance with requirements prescribed by theCommission’’); see ante, at 743 (THOMAS,J., concurring in part and dissenting in part).It makes no mention of a regulator in respectto other matters, which others include rate-making. Thus, § 251’s language leaves openthe relevant question—which regulator hasthe authority to set rates.

Section 252, which specifically describeshow § 251’s obligations are to be implement-ed, is less ambivalent. Its implementationsystem consists of negotiation between in-cumbents and new entrants, followed by stateregulatory commission arbitration if negotia-tions fail. §§ 252(a), (b). Certain of § 252’slanguage, I concede, can be read to favor themajority—in particular its statement that theresults of state arbitration must be consistentwith § 251 and with ‘‘regulations prescribedby the [FCC] pursuant to section 251.’’§ 252(c)(1). But the word ‘‘regulations’’ heremight or might not include rate regulations.Ante, at 733. And the immediately followinglanguage indicates that it does not.

That immediately following language, be-ginning with the immediately subsequentsubsection and including nine paragraphs,speaks separately, and specifically, of rates.§§ 252(c)(2), (d). And that language ex-pressly says that the ‘‘State commission[s] ’’are to ‘‘establish any rates.’’ It adds thatthey are to do so ‘‘according to’’ a furthersubsection, ‘‘subsection (d).’’ And this fur-ther subsection (d), headed by the words‘‘Pricing standards’’ and focusing upon

‘‘charges,’’ sets forth the pricing standardsfor use by the state commissions. It speaksof ‘‘[d]eterminations by a [s]tate commissionof the just and reasonable rate’’ (which, itadds, must be S 420‘‘nondiscriminatory’’ and‘‘based on TTT cost’’), but it says nothingabout a role for the FCC. Section 252’sreferences to the state commissions, its rate-setting detail, and its silence about the FCC’srole all favor a reading of the earlier word‘‘regulations’’ that excludes, rather than in-cludes, FCC rate regulations.

Thus, § 251 is silent about local ratesettingpower. Section 252 speaks of state, not fed-eral, ratemaking. As most naturally read,the structure and language of those sectionsforesee the traditional allocation of ratemak-ing authority—an allocation that withinbroad limits assumes local rates are localmatters for local regulators.

I recognize that the majority finds therelevant rulemaking authority not in §§ 251and 252, but in a different section containinga general grant of rulemaking authority.Ante, at 729–730 (citing 47 U.S.C. § 201(b)).But Congress enacted that language in 1938,see 52 Stat. 588. The scope of the FCC’slegal power to apply an explicit grant ofgeneral authority to make rules implement-ing the more specific terms of a later enactedstatute depends upon what that later enactedstatute contemplates. Cf. Louisiana Pub.Serv. Comm’n v. FCC, 476 U.S. 355, 376–377,n. 5, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986).And here, as just explained, the 1996 Actforesees the reservation of most local rate-setting authority to local regulators.

C

The most the FCC can claim is linguisticambiguity. But such a claim does not helpthe FCC, for relevant precedent makes clearthat, when faced with ambiguity, we are tointerpret statutes of this kind on the as-sumption that Congress intended to pre-serve local authority. See, e.g., Cipollone v.Liggett Group, Inc., 505 U.S. 504, 518, 112S.Ct. 2608, 120 L.Ed.2d 407 (1992) (‘‘pre-sumption against the pre-emption of statepolice power regulations’’); Rice v. Santa Fe


Elevator Corp., 331 U.S. 218, 230, 67 S.Ct.1146, 91 L.Ed. 1447 (1947) (requiring ‘‘clearand manifest’’ showing of congressional in-tent to supplant traditional state police pow-ers). Moreover, S 421the Communications Actof 1934 itself, into which Congress insertedthe provisions of the 1996 Act with which weare here concerned, comes equipped with aspecific instruction that courts are not to‘‘construe’’ the FCC’s statutory grant of au-thority as

‘‘giv[ing] the Commission jurisdiction withrespect to TTT charges TTT for or in con-nection with intrastate communication.’’47 U.S.C. § 152(b).

Thus, as Justice THOMAS points out, ante,at 744, it is not surprising to find that thisCourt has interpreted the CommunicationsAct as denying the FCC authority to deter-mine local rate-related practices in the faceof statutory language far more helpful to theFCC than anything present here. Louisi-ana Pub. Serv. Comm’n v. FCC, supra.That precedent requires a similar resulthere.

Louisiana raised a question almost identi-cal to the one before us: Does a statutegranting the FCC authority to set certaingeneral rate-related rules (there, deprecia-tion rules) also grant the FCC authority toset primarily local rate-related rules (i.e.,local depreciation rules)? Writing for theCourt, Justice Brennan stated that the basic‘‘rule of statutory construction’’ contained in§ 152(b) and just quoted above requires in-terpretations that favor the reservation ofratemaking authority to the States. Id., at373, 106 S.Ct. 1890. Hence, the statute didnot permit the FCC to write depreciationrules that would apply to equipment insofaras it was used for local service. Ibid.

Consider the similarities between Louisi-ana and the present cases. The relevantrules of statutory construction—the generaland explicit presumptions favoring retentionof local authority—are the same. See id., at369, 106 S.Ct. 1890 (asking whether ‘‘Con-gress intended that federal regulation super-sede state law’’ and citing Rice v. Santa FeElevator Corp., supra ); 476 U.S., at 371–373, 106 S.Ct. 1890 (relying on § 152(b)).The subject matter is highly similar—both

cases involve the way in S 422which local rateswill be set for equipment used for both intra-state and interstate calls. Compare OpeningBrief for Federal Petitioners in No. 97–831,pp. 36–38, with Louisiana, supra, at 374–376,106 S.Ct. 1890. And both cases involve intra-state charges that could affect interstaterates, here because of local competition’s in-terstate impact, see First Report & Order¶ 84, 11 FCC Rcd, at 15544, in Louisianabecause more (or less) stringent local depre-ciation rules would affect the rate of replace-ment of equipment used for interstate calls,476 U.S., at 362–363, 106 S.Ct. 1890.

Consider, too, the differences. The lan-guage of the relevant statute here explicitlyrefers to ‘‘State commission[s],’’ which, itsays, will ‘‘establish any rates.’’ 47 U.S.C.§ 252(c)(2) (1994 ed., Supp. II) (emphasisadded). The language of the relevant statutein Louisiana, by contrast, was far more easi-ly read as granting the FCC the authority itsought. That statute said that the FCCwould ‘‘prescribe’’ depreciation practices forthe relevant local telephone companies, and itprohibited ‘‘any depreciation charges TTT oth-er than those prescribed by the [FCC],’’§ 220(b); it made it ‘‘unlawful TTT to keepany other [depreciation] accounts TTT thanthose so prescribed or TTT approved’’ by theFCC, § 220(g); it ordered the FCC to hearfrom state commissions before establishingits own rules, § 220(i); and it authorized theFCC to exempt state-regulated companiesfrom its depreciation rules, § 220(h). See476 U.S., at 366–367, 106 S.Ct. 1890. Thesedifferences, of course, make the argument forlocal ratemaking in these cases stronger, notweaker, than in Louisiana.

The majority says its view is ‘‘unaffected’’by § 152(b). Ante, at 730. But Congress’apparently was not, for when it enacted the1996 Act, it initially considered amending§ 152(b) to make it inapplicable to the provi-sions that we here consider, thereby facilitat-ing an interpretation, like the majority’s, thatwould give the FCC the local ratesettingpower it now seeks to exercise. See S. 652,104th Cong., 1st Sess., § 101(c)(2) (1995);H.R. 1555, 104th Cong., 1st Sess.,S 423§ 101(e)(1) (1995). The final legislation,


525 U.S. 425

however, rejected that proposed language.See 47 U.S.C. § 152(b). It cannot bethought that Congress ‘‘intend[ed] sub silen-tio to enact statutory language that it ha[d]earlier discarded in favor of other language.’’INS v. Cardoza—Fonseca, 480 U.S. 421, 442–443, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987)(internal quotation marks and citation omit-ted).

DThe FCC’s strongest argument, in my

view, is that its rate rules do not actuallysupplant local ratesetting authority; theysimply set forth limits, creating a kind ofenvelope marking the outer bounds of whatwould constitute a reasonable local rateset-ting system. The majority may accept aversion of this argument, for it says the FCChas prescribed a ‘‘requisite pricing methodol-ogy’’ that ‘‘no more prevents the States fromestablishing rates than do the statutory ‘Pric-ing standards’ set forth in § 252(d).’’ Ante,at 732. That, however, is not what the FCChas done.

The FCC’s rate regulations are not at alllike § 252(d)’s pricing standards. The stat-ute sets forth those standards in generalterms, using such words as ‘‘based on TTT

cost,’’ ‘‘nondiscriminatory,’’ and ‘‘just andreasonable.’’ Terms such as these give rate-setting commissions broad methodologicalleeway; they say little about the ‘‘methodemployed’’ to determine a particular rate.FPC v. Hope Natural Gas Co., 320 U.S. 591,602, 64 S.Ct. 281, 88 L.Ed. 333 (1944). TheFCC’s rules, on the other hand, are notgeneral. The dozens of pages of text thatset them forth are highly specific and highlydetailed. See First Report & Order ¶¶ 672–715, supra, at 15844–15862. They deprivestate commissions of methodological leeway.Their ratesetting instructions grant a statecommission little or no freedom to chooseamong reasonable rate-determining methodsaccording to the State’s policy-related judg-ments, assessing local economic circumstanceor community need. I grant the fact thatthe rules leave it to the state commissions tofix the actual rate, but that is rather likegiving a restaurant S 424chef the authority tochoose a menu while restricting him to one

dish, an omelette, and to one single favoriterecipe.

Nor can the FCC successfully argue thatthe Act requires the particular ratesettingsystem that its regulations contain. TheFCC’s system, which the FCC calls ‘‘for-ward-looking,’’ bases the charge for the useof an unbundled element (say, a set of localwires connecting a subscriber to a localswitch) upon a hypothetical set of costs—thecosts of providing that service using the in-cumbent’s actual wire center, but otherwiseassuming use of the most efficient technologythat the incumbent could use (not the equip-ment the incumbent actually does use). SeeFirst Report & Order ¶¶ 682, 685, supra, at15847–15849. The FCC does not claim thatthe statute’s language (though ruling out cer-tain kinds of rate-of-return proceedings, 47U.S.C. § 252(d)(1)(A)(i) (1994 ed., Supp. II))forces use of this forward-looking cost deter-mination system. Moreover, I have ex-plained above why I do not believe the Act’spurposes demand what its language denies,namely, a single nationwide ratesetting sys-tem. Supra, at 748; cf. First Report &Order ¶ 114, 11 FCC Rcd, at 15558–15559(arguing that a single pricing methodology isneeded to assure uniform administration ofthe Act).

The FCC does argue that the Act’s pur-pose, competition, favors its system. Forcompetition, according to the FCC, tends toproduce prices that reflect forward-lookingreplacement costs, not actual historical costs.E.g., id., ¶ 672, 11 FCC Rcd, at 15844. Butthis argument does not show that the Actcompels the use of the FCC’s system overany other. How could it? The competitionthat the Act seeks is a process, not an endresult; and a regulatory system that imposesthrough administrative mandate a set ofprices that tries to mimic those that competi-tion would have set does not thereby becomeany the less a regulatory process, nor anythe more a competitive one.

Most importantly, the FCC’s rules embodynot an effort to circumscribe the realm of thereasonable, but rather a S 425policy-orientedeffort to choose among several different sys-tems, including systems based upon actualcosts or price caps, which other systems theFCC’s rules prohibit. A few examples, fo-


cusing upon some of the claimed weaknessesof the FCC’s preferred system, will illus-trate, however, how easily a regulator weigh-ing certain policy considerations (for exam-ple, administrative considerations) differentlymight have chosen a different set of reason-able rules:

—Consider the FCC’s decision to denystate commissions the choice of establishingrates based on actual historic, rather thanhypothetical forward-looking, costs. See id.,¶ 705, 11 FCC Rcd, at 15857–15858. JusticeBrandeis, joined by Justice Holmes, pointedout the drawback of using a forward-looking,rather than an actual historic, cost systemmany years ago. He wrote that whateverthe theoretical economic merits of a ‘‘repro-duction cost’’ system (a system bearing anuncanny resemblance to the FCC’s choice),the hypothetical nature of the regulatoryjudgments it required made such a systemadministratively unworkable. See Missouriex rel. Southwestern Bell Telephone Co. v.Public Serv. Comm’n of Mo., 262 U.S. 276,292–296, 43 S.Ct. 544, 67 L.Ed. 981 (1923)(dissenting opinion).

The passage of time has not outdated theBrandeis and Holmes criticism. Moderncritics question whether regulators can accu-rately determine the ‘‘efficient’’ cost of sup-plying telephone service, say, to a particulargroup of Manhattan office buildings, bymeans of hypothetically efficient up-to-dateequipment connected to a hypothetically effi-cient New York City network built to connectwith NYNEX’s existing (nonhypothetical)wire center. See, e.g., Kahn, Letting Go, at93, and n. 135. The use of historic costsdraws added support from one major statuto-ry aim—expeditious introduction of competi-tion. That is because efforts to determinehypothetical (rather than actual) costs meansargument, and argument means delay, withrespect to entry into both local and long-distance markets. See supra, at 747.Though S 426the FCC disfavors actual or his-toric costs, it does not satisfactorily explainwhy their use would be arbitrary or unrea-sonable.

—Consider the FCC’s decision to prohibituse of an ‘‘efficient component pricing rule.’’See First Report & Order ¶ 708–711, supra,

at 15859–15860. Where an incumbent sup-plies an element to New Entrant B that itotherwise would have provided Old CustomerA, that rule, roughly speaking, permits theincumbent to charge a price measured byeither (1) the element’s market price, if it issold in the marketplace, or (2), if it is not, theincumbent’s actual costs (including the netrevenue the incumbent loses from forgoingthe sale to Old Customer A). See generally,e.g., W. Baumol & J. Sidak, Toward Competi-tion in Local Telephony 95–97 (1994). Thispricing system seeks to assure the incumbentthat it will obtain from B the contribution,say, to fixed costs or to overhead, that A hadpreviously made. Many experts prefer sucha system. See, e.g., Sidak & Spulber, TheTragedy of the Telecommons: GovernmentPricing of Unbundled Network ElementsUnder the Telecommunications Act of 1996,97 Colum. L.Rev. 1081, 1111–1113, and nn.75–85 (1997); Kahn & Taylor, The Pricing ofInputs Sold to Competitors: A Comment, 11Yale J. Reg. 225, 228–230 (1994). The FCCrejected that system, but in doing so it didnot claim, nor did its reasoning support theclaim, that the use of such a system would bearbitrary or unreasonable. See Sidak &Spulber, supra, at 1095–1098.

—Consider the FCC’s decision to forbidthe use of what regulators call ‘‘Ramsey pric-ing,’’ see First Report & Order ¶ 696, supra,at 15852–15853. Ramsey pricing is a classi-cal regulatory pricing system that assignsfixed costs in a way that helps maintainservices for customers who cannot (or willnot) pay higher prices. See generally, e.g., 1A. Kahn, The Economics of Regulation:Principles and Institutions 137–141 (reprint1988). Many experts strongly prefer the useof such a system. See, e.g., Sidak & Spulber,supra, at S 4271109 (arguing that the FCC’sprohibition of Ramsey pricing will ‘‘minimizerather than maximize consumer welfare’’).The FCC disfavors Ramsey pricing, but itdoes not explain why a contrary judgmentwould conflict with the statute or otherwisebe arbitrary or unreasonable.

These examples do not show that theFCC’s rules themselves are unreasonable.That question is not now before us, and I


525 U.S. 429

express no view on the matter. The exam-ples simply help explain why the FCC’s rulescould not set forth the only ratesetting sys-tem consistent with the Act’s objectives.The FCC’s regulations do not set forth anouter envelope surrounding a set of reason-able choices; instead, they constitute thekind of detailed policy-related ratesettingthat the statute in respect to local mattersleaves to the States.

* * *

Two Terms ago the Court held that Con-gress could not constitutionally require astate sheriff to fill out a form providing back-ground information about a buyer of a gun.Printz v. United States, 521 U.S. 898, 935,117 S.Ct. 2365, 138 L.Ed.2d 914 (1997). Dis-senters in that case noted that the law de-prived the States of a power that had littlepractical significance. See id., at 961, 117S.Ct. 2365 (opinion of STEVENS, J.); id., at977, 117 S.Ct. 2365 (opinion of BREYER, J.).Today’s decision does deprive the States ofpractically significant power, a camel com-pared with Printz’s gnat. The language ofthe statute nowhere reveals any ‘‘clear andmanifest purpose,’’ Rice, 331 U.S., at 230, 67S.Ct. 1146, that such was Congress’ intent.History, purpose, and precedent all argue tothe contrary. I would hold that, in respectto local ratesetting, the FCC’s reach hasexceeded its legal grasp.

III agree with the Court’s disposition of the

FCC’s ‘‘unbundling’’ rules. As earlier ex-plained, the Act seeks to introduce competi-tion into local markets by removing legalbarriers to new entry, by requiring intercon-nection, by reSquiring428 incumbents to sell topotential retail competitors at wholesalerates, and by requiring the sharing, or ‘‘un-bundling,’’ of certain facilities. Supra, at748; see 47 U.S.C. §§ 251(c)(2)-(4), 253(a)(1994 ed., Supp. II). The Act expresses thislast-mentioned sharing requirement in gener-al terms, reflecting congressional uncertaintyabout the extent to which compelled use ofan incumbent’s facilities will prove necessaryto avoid waste. Will wireless technology orcable television lines, for example, permit theefficient provision of local telephone service

without the use of existing telephone linesthat now run house to house?

Despite the empirical uncertainties, the ba-sic congressional objective is reasonablyclear. The unbundling requirement seeks tofacilitate the introduction of competitionwhere practical, i.e., without inordinatewaste. Supra, at 748. And although theprovision describing which elements must beunbundled does not explicitly refer to theanalogous ‘‘essential facilities’’ doctrine (anantitrust doctrine that this Court has neveradopted), the Act, in my view, does imposerelated limits upon the FCC’s power to com-pel unbundling. In particular, I believe that,given the Act’s basic purpose, it requires aconvincing explanation of why facilitiesshould be shared (or ‘‘unbundled’’) where anew entrant could compete effectively with-out the facility, or where practical alterna-tives to that facility are available. § 251(d)(2);see generally Areeda, Essential Facilities:An Epithet in Need of Limiting Principles,58 Antitrust L.J. 841, 852–853 (1989).

As the majority points out, the Act’s lan-guage itself suggests some such limits.Ante, at 734–736. The fact that compulsorysharing can have significant administrativeand social costs inconsistent with the Act’spurposes suggests the same. Even the sim-plest kind of compelled sharing, say, requir-ing a railroad to share bridges, tunnels, ortrack, means that someone must oversee theterms and conditions of that sharing. More-over, a sharing requirement may diminishthe original owner’s incentive to keep up orto improve the propSerty429 by depriving theowner of the fruits of value-creating invest-ment, research, or labor. And as one movesbeyond the sharing of readily separable andadministrable physical facilities, say, to thesharing of research facilities, firm manage-ment, or technical capacities, these problemscan become more severe. One would notordinarily believe it practical, for example, torequire a railroad to share its locomotives,fuel, or work force. Nor can one guaranteethat firms will undertake the investment nec-essary to produce complex technological in-novations knowing that any competitive ad-vantage deriving from those innovations willbe dissipated by the sharing requirement.


The more complex the facilities, the morecentral their relation to the firm’s managerialresponsibilities, the more extensive the shar-ing demanded, the more likely these costswill become serious. See generally 1 H.Demsetz, Ownership, Control, and the Firm:The Organization of Economic Activity 207(1988). And the more serious they become,the more likely they will offset any economicor competitive gain that a sharing require-ment might otherwise provide. The greaterthe administrative burden, for example, themore the need for complex proceedings, thevery existence of which means delay, whichin turn can impede the entry into long-dis-tance markets that the Act foresees. Seesupra, at 747.

Nor are any added costs imposed by moreextensive unbundling requirements necessar-ily offset by the added potential for competi-tion. Increased sharing by itself does notautomatically mean increased competition.It is in the un shared, not in the shared,portions of the enterprise that meaningfulcompetition would likely emerge. Rules thatforce firms to share every resource or ele-ment of a business would create not competi-tion, but pervasive regulation, for the regu-lators, not the marketplace, would set therelevant terms.

The upshot, in my view, is that the stat-ute’s unbundling requirements, read in lightof the Act’s basic purposes, reSquire430 bal-ance. Regulatory rules that go too far, ex-panding the definition of what must beshared beyond that which is essential to thatwhich merely proves advantageous to a sin-gle competitor, risk costs that, in terms ofthe Act’s objectives, may make the game notworth the candle.

I believe the FCC’s present unbundlingrules are unlawful because they do not suffi-ciently reflect or explore this other side ofthe unbundling coin. See Motor VehicleMfrs. Assn. of United States, Inc. v. StateFarm Mut. Automobile Ins. Co., 463 U.S. 29,43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983).They do not explain satisfactorily why, forexample, an incumbent must share with newentrants ‘‘call waiting,’’ or various operatorservices. Nor do they adequately explainwhy an incumbent should be forced to share

virtually every aspect of its business. As themajority points out, ante, at 735, they seemto assume, without convincing explanation,that the more the incumbent unbundles, thebetter. Were that the Act’s objective, how-ever, would Congress have seen a need for aseparate wholesale sales requirement (sincethe ‘‘unbundling’’ requirement would have ledto a similar result)? Indeed, would Congresshave so emphasized the importance of com-petition? A totally unbundled world—aworld in which competitors share every partof an incumbent’s existing system, including,say, billing, advertising, sales staff, and workforce (and in which regulators set all unbun-dling charges)—is a world in which competi-tors would have little, if anything, to competeabout.

I understand the difficulty of making thejudgments that the statute entrusts to theFCC and the short time that it gave the FCCin which to make them. 47 U.S.C.§ 251(d)(1) (1994 ed., Supp. II). I also un-derstand that the law gives the FCC consid-erable leeway in the exercise of its judgment.E.g., R. Pierce, S. Shapiro, & P. Verkuil,Administrative Law and Process § 7.4, p. 353(2d ed.1992). But, without added explana-tion, I must conclude that the unbundlingrules before us go too far. They are incon-sistent with Congress’ apSproach.431 Theyhave not been adequately justified in termsof the statute’s mandate, read in light of itspurposes. See 5 U.S.C. § 706(2). For thisreason, as well as the reasons set forth in themajority’s opinion, I agree with its conclusionthat Rule 319 must be vacated.

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525 U.S. 366 AT & T CORP. v. IOWA UTILITIES BD. 721sblog.s3.amazonaws.com/wp-content/uploads/2011/07/… · · 2011-07-12AT & T CORP. v. IOWA UTILITIES BD. 721 Cite as 119 S.Ct