Pacific Bell Telephone Company v. Cpuc

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PACIFIC BELL TELEPHONE COMPANY, 
DBA AT&T California,
Plaintiff-Appellant,
v. No. 08-15568
CALIFORNIA PUBLIC UTILITIES  D.C. No.
COMMISSION; MICHAEL R. PEEVEY; 3:07-CV-01797-SI
DIAN M. GRUENEICH; JOHN BOHN;
RACHELLE CHONG; TIMOTHY ALAN
SIMON,
Defendants-Appellees.

PACIFIC BELL TELEPHONE COMPANY, 
DBA AT&T California,
Plaintiff-Appellee,
v.
CALIFORNIA PUBLIC UTILITIES No. 08-15716
COMMISSION; MICHAEL R. PEEVEY;
DIAN M. GRUENEICH; JOHN BOHN;  D.C. No.
07-CV-01797-SI
RACHELLE CHONG; TIMOTHY ALAN
SIMON, OPINION
Defendants,
and
CBEYOND COMMUNICATIONS, LLC,
Defendant-intervenor-Appellant.

Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
3387
3388 PACIFIC BELL v. CALIFORNIA PUC
Argued and Submitted
October 6, 2009—San Francisco, California
Filed March 4, 2010
Before: Mary M. Schroeder, A. Wallace Tashima and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea
3390 PACIFIC BELL v. CALIFORNIA PUC
COUNSEL
Scott K. Attaway, Kellogg, Huber, Hansen, Todd, Evans &
Figel, P.L.L.C., Washington, DC, for the plaintiff-appellant.
Frank R. Lindh, California Public Utilities Commission, San
Francisco, California, for the defendants-appellees.
Clay Deanhardt, Law Office of Clay Deanhardt, Orinda, Cali-
fornia, for the intervenor-appellant.
OPINION
BEA, Circuit Judge:
This case involves the balance the Telecommunications Act
of 1996 (“the Act”) strikes between providing newer competi-
tors access to previously monopolistic telecommunications
markets, on the one hand, and encouraging and protecting
infrastructure investments of older, incumbent telecommuni-
cations providers on the other. We must interpret two provi-
sions of the Act that impose requirements on older, incumbent
local exchange carriers (“incumbent LECs”)—like appellant
AT&T—to lease certain components of their existing infra-
structure to rival newer, competitive carriers (“competitive
LECs”)—like intervenor Cbeyond.
PACIFIC BELL v. CALIFORNIA PUC 3391
First, we must determine whether 47 U.S.C. § 251(c)(2)
requires an incumbent LEC to lease its “entrance facilities”
(wires that connect rival telephone systems) to a competitive
LEC at regulated rates when the competitor wishes to use the
“entrance facility” to permit its own customers to reach cus-
tomers of the incumbent LEC.
Second, we must determine whether 47 C.F.R.
§ 51.319(e)(2)(ii)(B) (the “DS1 Cap Rule”), which limits to
ten the number of low-capacity DS1 telephone lines an
incumbent LEC must lease to a competitive LEC at regulated
(low) rates along certain routes, is a limitation which also
applies to any route, regardless whether the competitive LEC
is “impaired” as to the alternative to such low-capacity lines:
the competitive LEC’s own higher-capacity DS3 lines.
Properly to understand the terms used and the regulatory
area into which we are about, some background would help.
BACKGROUND
A. The Telecommunications Act of 1996
Prior to 1996, local telephone service generally was pro-
vided by a local monopolist who offered services at prices
regulated and imposed by a variety of governmental agencies.
Such monopolist providers are commonly referred to as “in-
cumbent local exchange carriers” or “incumbent LECs.” Con-
gress enacted the Act to deregulate the telecommunications
market. See generally Verizon Comms. Inc. v. FCC, 535 U.S.
467, 475-76 (2002). But, to facilitate the entry of new partici-
pants into these local markets, the Act imposes on incumbent
LECs two duties relevant in this case.
Interconnection Duty at Regulated Rates.
First, the Act imposes a duty on incumbent LECs to permit
3392 PACIFIC BELL v. CALIFORNIA PUC
“interconnection.” Pursuant to 47 U.S.C. § 251(c)(2),1 incum-
bent LECs must allow the competitive LEC to link its net-
work to that of the incumbent LEC, so that customers of the
competitive LEC may place calls to customers of the incum-
bent LEC. Without the ability to link its network to that of the
incumbent LEC, the competitive LEC would have little pros-
pect of selling its telephone services, to say nothing of com-
peting for the customers of the incumbent LEC. A local
telephone service is of little use if it cannot connect to other
local telephone users.
Lease of Network Parts at Regulated Rates.
Second, the Act imposes a duty that incumbent LECs “un-
bundle”2 parts of their network. Each such part of the incum-
bent LEC’s network is a “network element”. Pursuant to 47
U.S.C. § 251(c)(3),3 incumbent LECs must permit competi-
1
47 U.S.C. § 251(c)(2) provides that each incumbent LEC has “the duty
to provide, for the facilities and equipment of any requesting telecommu-
nications carrier, interconnection with the local exchange carrier’s net-
work.”
2
“Unbundling” is the process of breaking apart something into smaller
parts. An example is taking a bundled computer system and unbundling
it into its individual pieces such as the PC unit, monitor, keyboard, and
mouse, and then selling each of these items individually. In the context of
this case, “unbundling” is the term used to describe the access provided
by incumbent LECs so that other service providers (i.e., competitive
LECs) can buy or lease portions of the incumbent LECs’ network ele-
ments, such as interconnection loops, to serve subscribers.
3
47 U.S.C. § 251(c)(3) provides that incumbent LEC’s have: “The duty
to provide, to any requesting telecommunications carrier for the provision
of a telecommunications service, nondiscriminatory access to network ele-
ments on an unbundled basis at any technically feasible point on rates,
terms, and conditions that are just, reasonable, and nondiscriminatory in
accordance with the terms and conditions of the agreement [negotiated in
good faith by the incumbent LEC and competitive LEC pursuant to
§ 251(c)(1)] and the requirements of this section and section 252 of this
title. An incumbent local exchange carrier shall provide such unbundled
network elements in a manner that allows requesting carriers to combine
such elements in order to provide such telecommunications service.”
PACIFIC BELL v. CALIFORNIA PUC 3393
tive LECs to lease, at regulated cost-based rates, parts of the
incumbent’s network, such as telephone wires, call
exchanges, and routing systems. This provision promotes
competition by allowing a competitive LEC to enter the tele-
phone service market without having first to overcome capital
barriers to entry, i.e., without having to construct, at high cost,
every component necessary to operate a network. See Ill. Bell
Tel. Co. v. Box, 548 F.3d 607, 609-10 (7th Cir. 2008) (“Box
II”). For example, a competitive LEC might enter a market by
providing residential telephone service in two far-flung neigh-
borhoods. Rather than having to lay its own wire to connect
the two neighborhoods, the competitive LEC can, under
§ 251(c)(3), piggyback on the incumbent LEC’s pre-existing
network at regulated, cost-based rates. In this way, a competi-
tive LEC may more easily and less expensively begin to
establish its market presence.
However, before an incumbent LEC is obligated to lease
network elements on an unbundled basis, the Federal Com-
munications Commission (“FCC”) must find that a refusal to
deal would “impair” competition. Section 251(d)(2) requires
the FCC to determine which network elements incumbent
LECs must offer to a competitive LEC on an unbundled basis.
47 U.S.C. § 251(d)(2).
Once the FCC determines that a particular network element
must be offered on an unbundled basis, a competitive LEC
that wishes to lease the network element must negotiate with
the incumbent LEC to determine price and other terms. 47
U.S.C. § 251(c)(1). If the negotiations come to an impasse or
otherwise fail to produce and agreement, the parties must sub-
mit the dispute to binding arbitration.4 The arbitrator’s deci-
sion is subject to approval by the relevant state regulatory
4
As the Seventh Circuit has noted, the “arbitration” is really the first
stage in a regulatory proceeding, for it bears none of the traditional hall-
marks of normal arbitration such as voluntary consent and finality. See Ill.
Bell Tel. Co. v. Box, 526 F.3d 1069, 1070 (7th Cir. 2008) (“Box I”).
3394 PACIFIC BELL v. CALIFORNIA PUC
commission, usually the state public utilities commission. Id.
If the parties have failed to agree on the lease price, the state
regulatory commission may set a price that is “just and rea-
sonable.” Id. § 252(d)(1).
These “just and reasonable” rates must be based upon the
Total Element Long Run Incremental Cost (“TELRIC”) meth-
odology. 47 C.F.R. § 51.505. The TELRIC methodology is
based on what it cost the incumbent LEC to acquire the net-
work elements; this historical cost method often results in
prices that, under certain circumstances, can be highly favor-
able to the competitive LECs. See Verizon Communications,
535 U.S. at 489, 496-97 (upholding 47 C.F.R. § 51.505); Box
II, 548 F.3d at 609.
The FCC’s attempts to implement the incumbent LEC’s
unbundling obligations have a long history. The first three
published rules were invalidated by the courts, in part,5 and it
was not until the FCC issued the Triennial Review Remand
Order in 2005 (the “TRRO”), Order on Remand, In the Matter
of Unbundled Access to Network Elements: Review of the Sec-
tion 251 Unbundling Obligations of Incumbent Local
Exchange Carriers, 20 F.C.C.R. 2533 (Feb. 4, 2005), that the
FCC’s rules survived judicial review, see Covad Comms. Co.
v. FCC, 450 F.3d 528 (D.C. Cir. 2006). Two predecessor
orders, the relevant parts of which were not invalidated by
courts, are relevant to our analysis and are discussed in
greater detail below: the 2003 Triennial Review Order (the
“TRO”),6 and the 1996 Local Competition Order (the “LCO”).7
5
See Covad Comms. Co. v. FCC, 450 F.3d 528, 533-534 (D.C. Cir.
2006) (describing history of invalidated FCC unbundling orders).
6
Report and Order and Order on Remand and Further Notice of Pro-
posed Rulemaking, Review of the Section 251 Obligations of Incumbent
Local Exchange Carriers, 18 F.C.C.R. 16978 (2003), vacated in part by
United States Telecom Ass’n v. FCC, 359 F.3d 554 (D.C. Cir. 2004).
7
First Report and Order, Implementation of the Local Competition Pro-
visions in the Telecommunications Act of 1996, 11 F.C.C.R. 15499 (1996)
(subsequent history omitted).
PACIFIC BELL v. CALIFORNIA PUC 3395
B. Procedural History
After the FCC issued the TRRO, AT&T—the incumbent
LEC in California—sought to negotiate changes to its agree-
ments with competitive LECs to bring their contracts into
conformity with AT&T’s now-changed obligations. After
negotiations broke down, AT&T brought a consolidated arbi-
tration proceeding before the California Public Utilities Com-
mission (“CPUC”). CPUC issued a decision favoring the
competitive LECs on several disputed issues, and AT&T filed
an action in federal district court seeking to set aside four of
CPUC’s orders related to unbundling. Two of these orders are
at issue on appeal:
1. Entrance Facilities—CPUC ordered AT&T to lease
entrance facilities to competitor LECs at TELRIC rates for the
purpose of interconnection. An entrance facility is a “dedi-
cated transport” (a wire) that connects one LEC’s “switch” (a
computer that routes calls) to another LEC’s switch. In other
words, an entrance facility is the high capacity wire that links
telephone networks. Entrance facilities may be used for two
distinct purposes. First, a competitive LEC can use an
entrance facility for interconnection—that is, to link the com-
petitive LEC’s network with that of the incumbent LEC so
that the competitive LEC’s customers may reach the incum-
bent LEC’s customers. See TRRO ¶ 138-40; TRO ¶ 366-67.
Second, a competitive LEC can use an entrance facility for
what the industry calls “backhauling.” In the case of back-
hauling, the competitive LEC uses the entrance facility to per-
mit its own customers to reach one another over the
incumbent LECs network. See id.8 The following diagram
illustrates the difference between interconnection and back-
hauling:
8
Incumbent LECs are capable of screening out calls that would be used
for backhauling. A computer identifies the destination of the call, and, if
the call is bound for a customer of the competitive LEC, the computer can
screen out the call.
3396 PACIFIC BELL v. CALIFORNIA PUC
Under the TRRO, incumbent LECs are not obligated to
offer entrance facilities on an unbundled basis under 47
U.S.C. § 251(c)(3). AT&T and the competitive LECs dis-
puted, however, whether § 251(c)(2) obligates incumbent
LECs to lease their entrance facilities to competitive LECs at
TELRIC rates for the purposes of “interconnection” (i.e., for
the purpose of allowing competitive LEC customers to place
calls to incumbent LEC customers). CPUC concluded that
§ 251(c)(2) requires incumbent LECs to lease entrance facili-
ties to competitive LECs at TELRIC rates for interconnection.
On cross motions for summary judgment, the district court
confirmed CPUC’s arbitral order on this point, and AT&T
timely appealed.
2. DS1 Transport—CPUC also ruled that the DS1 Cap
Rule applies only on routes where competitive LECs are not
“impaired”9 as to DS3 transport circuits. A “transport circuit”
9
According to FCC regulations, a competitive LEC’s ability to provide
service is “ ‘impaired’ if, taking into consideration the availability of alter-
PACIFIC BELL v. CALIFORNIA PUC 3397
is a wire that carries telecommunications signals along
“routes” between switching centers (computers that direct
calls to other locations). TRRO ¶ 67. Transport circuits come
in two grades relevant here: DS1 (low capacity) and DS3
(high capacity). A DS3 line can carry twenty-four times as
many calls as a DS1 line but is more expensive to buy and
install than DS1 lines. TRRO ¶ 129 n. 361. All parties agree
that the FCC’s rules cap the number of DS1 circuits competi-
tive LECs may lease from incumbent LECs on an unbundled
basis along routes where competitive LECs are not “im-
paired” as to higher capacity DS3 lines. Once a competitive
LEC has sufficient traffic to justify leasing ten or more DS1
lines, it is economical for the competitive LEC to build,
deploy, and install its own DS3 line. TRRO ¶¶ 71-73.
However, AT&T and the competitive LECs disputed
whether this cap also applies to routes where the FCC had
concluded that competitive LECs were “impaired” as to
higher capacity DS3 lines. CPUC ruled in favor of the com-
petitive LECs, and held that the cap did not apply along such
“DS3-impaired” routes. The district court disagreed, conclud-
ing that, under the plain language of the FCC’s rule, the DS1
Cap applies along all routes, and vacated the arbitral order on
this point. Cbeyond filed a motion in the district court to join
the action as an intervenor for the purpose of appeal.
ANALYSIS
This court reviews de novo claims of error in a district
court’s order determining whether an arbitrator’s decision
complies with FCC regulations. Verizon Cal., Inc. v. Peevey,
native elements outside the incumbent LEC’s network, including elements
self-provisioned by the requesting carrier or acquired as an alternative
from a third-party supplier, lack of access to that element poses a barrier
or barriers to entry, including operational and economic barriers, that are
likely to make entry into a market by a reasonably efficient competitor
uneconomic.” 47 C.F.R. § 51.317(b).
3398 PACIFIC BELL v. CALIFORNIA PUC
462 F.3d 1142, 1150 (9th Cir. 2006). This court owes no def-
erence to the arbitrator’s decision. Id. The parties may not
challenge the validity of any final order of the FCC, including
FCC regulations, in this action. 28 U.S.C. § 2342.10
A. Access to Entrance Facilities Under 47 U.S.C.
§ 251(c)(2).
[1] AT&T contends the district court erred by affirming
the CPUC’s arbitral order permitting competitive LECs to
lease entrance facilities from incumbent LECs under 47
U.S.C. § 251(c)(2), the interconnection provision. Both the
Seventh and the Eighth circuits recently rejected AT&T’s
position, and have concluded that FCC regulations authorize
state public utilities commissions to order incumbent LECs to
lease entrance facilities to competitive LECs at regulated rates
for the purpose of interconnection. See Sw. Bell Tel., LP v.
Mo. Pub. Serv. Comm’n, 530 F.3d 676 (8th Cir. 2008)
(“SWBT“); Ill. Bell Tel. Co. v. Box, 526 F.3d 1069 (7th Cir.
2008) (“Box I”).11 We agree with our sister circuits.
10
Under the Hobbs Act, this court lacks jurisdiction to rule on a collat-
eral attack of an FCC order. 28 U.S.C. § 2342; see also US West Comms,
Inc. v. Jennings, 304 F.3d 950, 958 n.2 (9th Cir. 2002) (“Properly promul-
gated FCC regulations currently in effect must be presumed valid for the
purposes of this appeal. The Hobbs Act, 28 U.S.C. § 2342, requires that
all challenges to the validity of final orders of the FCC be brought by orig-
inal petition in a court of appeals. The district court thus lacked jurisdic-
tion to pass on the validity of the FCC regulations, and no question as to
their validity can be before us in this appeal.”); see also GTE S., Inc. v.
Morrison, 199 F.3d 733, 742-43 (4th Cir. 1999) (holding the court lacked
jurisdiction to rule on the validity of FCC rules “including those relating
to rulemaking” on review of district court order affirming state public util-
ity’s arbitral decision relating to provisions of the Act).
11
In Box I, the Seventh Circuit held that because entrance facilities were
a “technologically feasible” means of handing off traffic between a com-
petitive LEC and an incumbent LEC, an obligation to lease such facilities
at TELRIC rates was within the scope of § 251(c)(2) and the implement-
ing regulations. 526 F.3d at 1071-72. The Eighth Circuit reached the same
conclusion in SWBT, 530 F.3d at 683-84. In SWBT, the Eighth Circuit
stated: “If a [competitive] LEC needs entrance facilities to interconnect
with an [incumbent] LEC’s network, it has the right to obtain such facili-
ties from the [incumbent] LEC.” Id. at 684.
 PACIFIC BELL v. CALIFORNIA PUC 3399
[2] Section 251(c)(2) provides that “each incumbent local
exchange carrier has the . . . duty to provide, for the facilities
and equipment of any requesting telecommunications carrier,
interconnection with the local exchange carrier’s network.” 47
U.S.C. § 251(c)(2). The FCC defines interconnection as “the
linking of two networks for the mutual exchange of traffic.”
47 C.F.R. § 51.5. In other words, interconnection provides a
way for a competitive LEC’s customers to reach AT&T’s cus-
tomers and vice versa. Section 251(c)(2)(B) specifies that
incumbent LECs must offer competitive LECs such intercon-
nection “at any technically feasible point within the [incum-
bent] carrier’s network.” 47 U.S.C. § 251(c)(2)(B). The FCC
regulation also states that incumbent LECs must provide com-
petitive LECs with “any technically feasible method of
obtaining interconnection.” 47 C.F.R. § 51.321(a).
[3] The FCC calls entrance facilities “the transmission
facilities that connect competitive LEC networks with incum-
bent LEC networks.” TRRO ¶ 136. As the term “entrance”
implies, entrance facilities provide a way for a competitive
LEC’s calls to enter AT&T’s network and reach AT&T cus-
tomers, a fact that AT&T concedes. For the competitive LECs
to use the entrance facilities this way is interconnection.12
[4] That AT&T’s entrance facilities can be used for a pur-
pose besides interconnection (i.e., backhauling) does not
change the result that 47 U.S.C. § 251(c)(2) mandates AT&T
12
AT&T seeks to distinguish the historical use of entrance facilities for
interconnection by long distance service providers, which did not compete
with AT&T, and the current use by competitive LECs, which do compete
with AT&T. AT&T states that “entrance facilities in this case provides the
same function” as entrance facilities did historically (i.e., connecting net-
works), but competitive LECs can feasibly interconnect with AT&T at a
different point in AT&T’s network, whereas the long distance providers
could not. This contention does not survive the plain language of
§ 251(c)(2)(B), which requires an incumbent LEC to provide interconnec-
tion “at any technically feasible point within [its] network.” (Emphasis
added.)
3400 PACIFIC BELL v. CALIFORNIA PUC
to provide competitive LECs access at regulated rates to its
entrance facilities for interconnection. The parties disagree
about the effect on this result of the FCC’s finding in its
TRRO that under a different subsection of the Act, § 251(c)(3),13
competitive LECs are not impaired14 in building entrance
facilities and therefore that entrance facilities are not “unbun-
dled network elements” that incumbent LECs like AT&T
have a duty to provide competitive LECs for any purpose,
including backhauling. TRRO ¶¶ 136-141.
As an initial matter, under general principles of statutory
interpretation, the specific duty found in 47 U.S.C.
§ 251(c)(2) of providing interconnection facilities prevails
over the general duty of providing network elements at
unbundled rates, found in § 251(c)(3) (regardless whether that
general unbundling duty exists as to entrance facilities). See
NLRB v. A-Plus Roofing, Inc., 39 F.3d 1410, 1415 (9th Cir.
13
Section 251(c)(3) provides that incumbent LECs have “[t]he duty to
provide, to any requesting telecommunications carrier for the provision of
a telecommunications service, nondiscriminatory access to network ele-
ments on an unbundled basis at any technically feasible point on rates,
terms, and conditions that are just, reasonable, and nondiscriminatory in
accordance with the terms and conditions of the agreement and the
requirements of this section and section 252 of this title. An incumbent
local exchange carrier shall provide such unbundled network elements in
a manner that allows requesting carriers to combine such elements in order
to provide such telecommunications service.”
14
The Act tasks the FCC with deciding whether a particular network
element, i.e., “a facility or equipment used in the provision of a telecom-
munications service,” 47 U.S.C. § 153(29), is one that incumbent LECs
must lease to competitive LECs at regulated rates, i.e., the element is “un-
bundled” under 47 U.S.C. § 251(c)(3). 47 U.S.C. § 251(d). To make that
determination, the FCC must consider, at a minimum, two factors:
“whether — (A) access to such network elements as are proprietary in
nature is necessary; and (B) the failure to provide access to such network
elements would impair the ability of the telecommunications carrier seek-
ing access to provide the services that it seeks to offer.” Id. The FCC thus
makes an “impairment finding” as to that network element. See Covad
Comms., 450 F.3d at 534-45.
PACIFIC BELL v. CALIFORNIA PUC 3401
1994) (“It is a well-settled canon of statutory interpretation
that specific provisions prevail over general provisions.”).
Moreover, as the district court found, the TRRO reinforces
that the duties of incumbent LECs under 47 U.S.C.
§ 251(c)(2) and § 251(c)(3) are independent. The TRRO
states that the FCC’s finding that incumbent LECs need not
lease entrance facilities as unbundled network elements under
(c)(3) “does not alter the right of competitive LECs to obtain
interconnection facilities pursuant to section 251(c)(2).”
TRRO ¶ 140.
[5] AT&T contends TRRO Paragraph 140 does not require
incumbent LECs to offer entrance facilities at TELRIC rates
because the TRRO uses the term “interconnection facilities”
instead of “entrance facilities” when it refers to the right
under 47 U.S.C. § 251(c)(2) that is not altered by the TRRO’s
determination that “entrance facilities” need not be unbundled
under § 251(c)(3). First, although the FCC did not use the
term “entrance facilities” in Paragraph 140, the paragraph
appears in a section of the TRRO entitled “Entrance Facili-
ties,” which solely discusses the effect of the FCC’s finding
as to entrance facilities. Moreover, prior FCC rulings make
clear that the interconnection obligation contained in
§ 251(c)(2) includes a duty to lease entrance facilities at TEL-
RIC rates when such facilities will be used for the purposes
of interconnection. The 1996 Local Competition Order
(“LCO”) broadly defined the interconnection obligation to
include a duty to offer unbundled network elements at TEL-
RIC rates:
We conclude that, under sections 251(c)(2) and
251(c)(3), any requesting carrier may choose any
method of technically feasible interconnection or
access to unbundled elements at a particular point.
Section 251(c)(2) imposes an interconnection duty at
any technically feasible point; it does not limit that
3402 PACIFIC BELL v. CALIFORNIA PUC
duty to a specific method of interconnection or
access to unbundled elements.
LCO ¶ 549 (emphasis added); see also 47 C.F.R. § 51.321(a)
(stating that incumbent LECs are required to offer “any tech-
nically feasible method of obtaining interconnection”).
[6] Though the LCO did not expressly state that entrance
facilities were one of the “network elements” incumbent
LECs were required to make available under 47 U.S.C.
§ 251(c)(2), the later Triennial Review Order (“TRO”)
expressly interpreted the LCO to impose this obligation. The
TRO stated:
In reaching [the determination that entrance facilities
are not “network elements” subject to the unbun-
dling obligation in § 251(c)(3)] we note that, to the
extent that requesting carriers need facilities in order
to ‘interconnect with the incumbent LEC’s network,’
section 251(c)(2) of the Act expressly provides for
this and we do not alter the Commission’s interpreta-
tion of this obligation.
TRO ¶ 365. The TRO elaborated:
[C]ompetitive LECs often use transmission links
including unbundled transport connecting incumbent
LEC switches or wire centers in order to carry traffic
to and from its end users. These links constitute the
incumbent LEC’s own transport network. However,
in order to access UNEs [unbundled network ele-
ments], including transmission between incumbent
LEC switches or wire centers, while providing their
own switching and other equipment, competitive
LECs require a transmission link from the UNEs on
the incumbent LEC network to their own equipment
located elsewhere. Competitive LECs use these
transmission connections between incumbent LEC
PACIFIC BELL v. CALIFORNIA PUC 3403
networks and their own networks both for intercon-
nection and to backhaul traffic. Unlike the facilities
that incumbent LECs explicitly must make available
for section 251(c)(2) interconnection, we find that
the Act does not require incumbent LECs to
unbundle transmission facilities connecting incum-
bent LEC networks to competitive LEC networks for
the purpose of backhauling traffic.
TRO ¶ 366. The TRO thus expressly interpreted the LCO to
allow competitive LECs to lease entrance facilities or “trans-
mission links” at TELRIC rates for the purpose of achieving
interconnection. This interpretation of the LCO is reasonable
and entitled to deference.15 Auer v. Robbins, 519 U.S. 452,
461 (1997) (An agency’s interpretation of its own regulation
is “controlling unless plainly erroneous or inconsistent with
the regulation.”).16 Moreover, AT&T’s contention that the
TRO’s interpretation of the LCO conflicts with the terms of
47 U.S.C. § 251(c)(2) is foreclosed because AT&T cannot
15
Contrary to AT&T’s assertion, this portion of the TRO was not
vacated in USTA II, 359 F.3d 554. USTA II vacated only the TRO’s con-
clusion that entrance facilities are categorically excluded from the defini-
tion of “network elements” under § 251(c)(3). Id. at 585. The court did not
rule on the validity of the FCC’s conclusion that, under § 251(c)(2),
incumbent LECs are obligated to offer entrance facilities at TELRIC rates.
16
The specific statements in the TRO and the LCO that the obligation
to provide facilities and equipment under § 251(c)(2) includes a duty to
provide entrance facilities foreclose AT&T’s interpretation of the term
“interconnection facilities.” AT&T relies on 47 C.F.R. § 51.5, which
defines “interconnection” to exclude the “transport and termination of traf-
fic.” AT&T construes this language to exclude any duty under § 251(c)(2)
to carry a competitive LEC’s traffic. This conflicts with TRRO ¶ 140
itself, which explains that “interconnection facilities” are “for transmission
and routing” of telephone calls. If the duty to provide “interconnection”
did not include any duty to provide any transport of calls, then § 251(c)(2)
would be meaningless because incumbents could physically link networks
with the competitive LEC, but refuse to carry calls to the incumbent
LEC’s terminal customers, thus effectively locking the competitive LEC
out of the market.
3404 PACIFIC BELL v. CALIFORNIA PUC
challenge the validity of FCC orders in this proceeding. See
Jennings, 304 F.3d at 958 n.2.
AT&T also contends CPUC’s interpretation conflicts with
the FCC’s express findings that competitive LECs are not
“impaired” as to entrance facilities. See TRRO ¶¶ 138, 139.
But those FCC findings also expressly distinguished entrance
facilities used for the purpose of interconnection and for back-
hauling. TRRO ¶¶ 138-140. In light of the different economic
considerations associated with the use of entrance facilities
for interconnection, on the one hand, and for backhaul, on the
other, the FCC could reasonably conclude that different regu-
lations were appropriate. Where a competitive LEC uses an
interconnection facility for backhaul, only the competitive
LEC benefits—both the originator and the recipient of the call
are competitive LEC customers. But when the competitive
LEC uses the entrance facility for interconnection, both com-
petitor and incumbent benefit: the incumbent’s customers can
reach customers of the competitor, and vice versa. See gener-
ally LCO ¶ 162 (“In this situation . . . each gains value from
the interconnection arrangement.”); TRO ¶ 367 (“Our conclu-
sion in this respect is buttressed by the fact that the economics
of dedicated facilities used for backhaul between networks are
sufficiently different from transport within an incumbent
LEC’s network that our analysis must adequately reflect this
distinction.”); see also Box I, 526 F.3d at 1071 (“What’s the
point of specifying that [competitive] LECs cannot demand
access to entrance facilities as unbundled network elements,
AT&T inquires, if state commissions can turn around and
require the same access at the same price anyway? The
answer . . . is that [competitive] LECs do not enjoy the
“same” access to entrance facilities under the state commis-
sion’s decision as they did before the FCC’s order. Until then,
[competitive] LECs could use entrance facilities for both
interconnection and backhauling.”).
[7] Accordingly, we agree with the district court and hold
that, under 47 U.S.C. § 251(c)(2), incumbent LECs must lease
PACIFIC BELL v. CALIFORNIA PUC 3405
entrance facilities at TELRIC rates to competitive LECs for
the purpose of interconnection.
B. Unbundled Access to DS1 Circuits Under 47 U.S.C.
§ 251(c)(3).
[8] In its cross-appeal, Cbeyond contends the district court
erred in vacating the CPUC’s order that required incumbent
LECs to grant unbundled access to an unlimited number of
DS1 transport circuits along routes on which competitive
LECs are impaired as to DS3 transport circuits.17 The district
court concluded that the plain language of the governing regu-
lation, 47 C.F.R. § 51.319(e)(2)(ii)(B) (the “DS1 Cap Rule”),18
limits a competitive LEC to a maximum of ten DS1 circuits
along any route regardless whether the competitive LEC is
impaired as to DS3 lines. We agree. Under the plain language
of the regulation, the DS1 Cap Rule applies to all routes
where DS1 circuits are available on an unbundled basis.
On appeal, Cbeyond contends the district court’s interpreta-
tion of the DS1 Cap Rule is contrary to the FCC’s findings in
the earlier TRRO. Cbeyond concedes, however, that the lan-
guage of the DS1 Cap Rule—47 C.F.R. § 51.319(e)(2)(ii)(B)
—unambiguously limits to ten the number of DS1 circuits an
incumbent LEC must offer at TELRIC rates on any route.
17
AT&T incorrectly contends Cbeyond waived this issue by failing to
raise it in the district court. This issue is (1) a pure question of law; and
(2) was fully briefed in the district court by the CPUC. Accordingly, the
issue has not been raised for the first time on appeal and this court can
reach the issue. Even if the issue was presented for the first time on
appeal, the court could reach the question. See K&N Eng., Inc. v. Bulat,
510 F.3d 1079, 1081 n.2 (9th Cir. 2007) (the court may, in its discretion,
reach issues raised for the first time on appeal if the record is fully devel-
oped, the question is a pure question of law, and no prejudice will result).
18
The DS1 Cap Rule provides: “Cap on unbundled DS1 transport cir-
cuits. A requesting telecommunications carrier may obtain a maximum of
ten unbundled DS1 dedicated transport circuits on each route where DS1
dedicated transport is available on an unbundled basis.”
3406 PACIFIC BELL v. CALIFORNIA PUC
In general, the plain meaning of an administrative regula-
tion controls. Webb v. Smart Document Solutions, LLC, 499
F.3d 1078, 1084 (9th Cir. 2007). Plain meaning, however, is
“not the end of the inquiry.” Id. at 1086; see also Safe Air for
Everyone v. EPA, 488 F.3d 1088, 1097 (9th Cir. 2007). The
plain language of a regulation does not control if “clearly
expressed administrative intent is to the contrary or if such
plain meaning would lead to absurd results.” Id. (internal quo-
tation marks and alterations omitted). “[T]he regulatory intent
that overcomes plain language must be referenced in the pub-
lished notices that accompanied the rulemaking process.” Id.
A rule leads to absurd results only if it would be “patently
inconceivable” that the agency intended the result. Id. at 1098.
[9] Here, there is no “clearly expressed administrative
intent” in the published notices that accompanied the DS1
Cap Rule rulemaking process. Further, the DS1 Cap Rule as
we read its plain text would not lead to absurd results. It is
perfectly conceivable the FCC meant what it said when it lim-
ited the number of DS1 circuits that a competitive LEC can
lease on routes where the competitive LEC is impaired as to
a higher capacity DS3 circuit. Where a competitive LEC is so
impaired, it will have access to an incumbent’s DS3 circuits
on an unbundled basis. Hence, it would be more economical
for the competitive LEC to lease a single DS3 line from the
incumbent LEC, rather than eleven or more DS1 lines at
greater cost. TRRO ¶ 128 (“This is consistent with the pric-
ing efficiencies of aggregating traffic. While a DS3 circuit is
capable of carrying 28 uncompressed DS1 channels, the
record reveals that it is efficient for a carrier to aggregate traf-
fic at approximately 10 DS1s.”). The FCC expressly found
that once a competitive LEC could aggregate sufficient traf-
fic, the DS3 rules should apply: “When a carrier aggregates
sufficient traffic on DS1 facilities such that it effectively
could use a DS3 facility, we find that our DS3 impairment
conclusions should apply.” Id.
[10] It is hardly “patently inconceivable” that the FCC
intended the DS1 cap to apply on all routes, even those where
PACIFIC BELL v. CALIFORNIA PUC 3407
competitive LECs are impaired as to DS3 circuits. In such cir-
cumstance, the competitive LEC can obtain more economical
DS3 circuits, and there is no reason why the FCC would have
intended to permit competitive LECs to impose greater costs
on incumbent LECs by allowing unlimited leases of DS1 cir-
cuits.
Cbeyond’s contention that the DS1 Cap Rule conflicts with
the terms of 47 U.S.C. § 251(c)(3) is foreclosed because
Cbeyond cannot challenge the validity of the FCC orders in
this proceeding. See Jennings, 304 F.3d at 958 n.2.
[11] Accordingly, we agree with the district court and hold
that, under the plain language of the regulation, the DS1 Cap
Rule limits to ten the number of DS1 lines an incumbent LEC
must lease to a competitive LEC at TELRIC rates on all
routes.
CONCLUSION
For the all of the foregoing reasons, we affirm the district
court’s order confirming in part and vacating in part the
CPUC’s arbitral order.
AFFIRMED.