|SUPREME COURT COLLECTION|
|AT&T CORP. v. IOWA UTILITIES BD. (97-826)|
Nos. 97826 (first judgment), 97829 (first judgment), 97830, 97831 (first judgment), 971075, 971087, 971099, and 971141, 120 F.3d 753, reversed in part, affirmed in part, and remanded; Nos. 97826, 97829, and 97831 (second judgments), 124 F.3d 934, reversed in part and remanded.
[ Scalia ]
[ Souter ]
[ Thomas ]
[ Breyer ]
Justice Breyer, concurring in part and dissenting in part.
A statutes history and purpose can illuminate its language. When read in light of history, purpose, and precedent, the Telecommunications Act of 1996 (1996 Act or Act), Pub. L. 104104, 110 Stat. 56, is not the model of ambiguity or self-contradiction of which the majority complains. Ante, at 29. Neither does it permit the Federal Communications Commission to promulgate the pricing and unbundling rules before us.
The FCCs pricing rules fall outside its delegated authority because both (1) a century of regulatory history establishes state authority as the local telephone service ratemaking norm and (2) the 1996 Act nowhere changes, or creates an exception to, that norm. Justice Thomas opinion describes the history that has created the norm. Ante, at 25. In my view, the Acts purposes, its language, relevant precedent, and the nature of the FCCs rules provide added support for his conclusion.
The Acts purposes help explain why its language and structure foresee, not national rate uniformity, but traditional local ratemakingFCC views to the contrary notwithstanding. See In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, ¶113, 11 FCC Rcd 15499, 15558 (1996) (First Report & Order). To understand those purposes, one must recall that AT&T once dominated the national telecommunications industry. It controlled virtually all long-distance telephone service, most local telephone service, and a substantial amount of all telephone equipment manufacturing. See generally United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 165 (DC 1982) (describing AT&Ts commanding position in the Nations telecommunications business), affd sub nom. Maryland v. United States, 460 U.S. 1001 (1983). In 1982, however, AT&T entered into an antitrust consent decree, which ended its industry dominance. See 552 F. Supp., at 160170.
The decree split AT&T from its local telephone service subsidiaries. By doing so, the decree sought to encourage new competition in long-distance service by firms such as MCI and Sprint. And it also encouraged new competition in telephone equipment markets. But the decree did not introduce new competition into the local telephone service markets. Rather, it left each local market in the hands of a single state-regulated local service supplier, such as NYNEX in New York, or Bell Atlantic in Washington, D.C. That circumstance may have reflected the belief, current at the time, that local service competition could prove wasteful, leading to the unwarranted duplication of expensive physical facilities by requiring, say, the unnecessary digging up of city streets to install unneeded wires connecting each house with a series of new but redundant local switches. See, e.g., United States v. Western Elec. Co., 673 F. Supp. 525, 537538 (DC 1987); P. Huber, M. Kellogg, & J. Thorne, The Geodesic Network II: 1993 Report on Competition in the Telephone Industry pp. 2.32.5 (1992).
At the same time, the decree forbade most such local service suppliers from entering long-distance markets. United States v. American Tel. & Tel. Co., supra, at 186188. That prohibition, by preventing entry by local firms willing and able to supply long-distance service, risked less long-distance competition. Cf. P. MacAvoy, The Failure of Antitrust and Regulation to Establish Competition in Long-Distance Telephone Services 179183 (1996). But the decree reflected a countervailing concern. Local firms might enjoy special long-distance advantages not available to purely long-distance companies. See United States v. American Tel. & Tel., supra, at 186188. Perhaps a local service company would find it unusually easy to attract local customers to its long-distance service; perhaps it could use its control of local service to place its long-distance competitors at a disadvantage. See T. Krattenmaker, Telecommunications Law and Policy 411412 (2d ed. 1998) (explaining rationale of the decree). And though some argued that any such special advantages were innocent, rather like those enjoyed by a transcontinental airline that dominates a local hub, others claimed they were unfair, like those that had once helped AT&T (through its control of local service) maintain long-distance dominance. See United States v. American Tel. & Tel., supra, at 165; see generally A. Kahn, Letting Go: Deregulating the Process of Deregulation, or: Temptation of the Kleptocrats and the Political Economy of Regulatory Disingenuousness 3738 and n. 53 (1998) (discussing the debate). Whether the decrees trade-off made sensei.e., whether the existence of some such local-firm/long-distance-service advantage warranted the decrees prohibition limiting the number of potential long-distance competitorsbecame a fertile source for later argument. See, e.g., MacAvoy, supra, at 171177 (arguing that oligopolistic conditions in long-distance markets have produced supranormal profits that would not be sustainable with increased competition); Robinson, The Titanic Remembered: AT&T and the Changing World of Telecommunications, 5 Yale J. Reg. 517, 537 (1988) (arguing that the rationale for the decrees restrictions on local service companies was just as persuasive as that underlying the decree).
The Act before us responds to this argument by changing the postdecree status quo in two important ways. First, it creates a legal method through which local telephone service companies may enter long-distance markets, thereby providing additional long-distance competition. See 47 U.S.C. § 271(c)(2)(B) (1994 ed., Supp. II) (listing 14 conditions that, if met, permit incumbent local firms to enter long-distance market). Second, it conditions that long-distance entry upon either (1) the introduction of competition into local markets, or (2) the failure of a competing carrier to request access to or interconnection with the local service supplier (or the competing carriers failure to engage in good faith negotiations). §§271(c)(1)(A), (B). The existence of these two alternatives is important. In setting forth the first alternative, actual local competition, the statute recognizes that local service competition would diminish any special long-distance advantages that the local firm has, thereby lessening the need for the decrees long-distance-market entry prohibition. See supra, at 4; Krattenmaker, The Telecommunications Act of 1996, 49 Fed. Comm. L. J. 1, 1516 (1996). In setting forth the second alternative, the Act recognizes that actual local competition might not prove practical; in some places, to some extent, local markets may not support more than a single firm, at least not without wasteful duplication of resources. See Note, The FCC and the Telecom Act of 1996: Necessary Steps to Achieve Substantial Deregulation, 11 Harv. J. L. & Tech. 797, 810, n. 57 (1998).
These alternatives raise a difficult empirical question. To what extent is local competition possible without wasteful duplication of facilities? The Act does not purport to answer this question. Rather, it creates a set of legal rules which, through interaction with the marketplace, aims to produce sensible answers. In particular, the Act permits new local entry by dismantling existing legal barriers that would otherwise inhibit it. 47 U.S.C. § 253(a) (1994 ed., Supp. II). Equally important, the Act promotes new local entry by requiring incumbents (1) to interconnect with new entrants (thereby allowing even a partial new entrants small set of subscribers to call others within an entire local area), §251(c)(2); (2) to sell retail services to new entrants at wholesale rates (thereby allowing newly entering firms to become resellers, competing in retailing), §251(c)(4); and (3) to provide new entrants access to network elements, say, house-to-street telephone lines, on an unbundled basis (thereby allowing new entry in respect to some aspects of the local service business without requiring wasteful duplication of the entire business), §251(c)(3). The last mentioned unbundling requirement does not specifically state which elements must be unbundled, a difficult matter that I shall discuss below. See infra, at 1821. But one can understand the basic logic of unbundling by imagining that Congress required a sole incumbent railroad providing service between City A and City B to share certain basic facilities, say, bridges, rights-of-way, or tracks, in order to avoid wasteful duplication of those hard-to-duplicate resources while facilitating competition in the remaining aspects of A-to-B railroad service. Indeed, one might characterize the Acts basic purpose as seeking to bring about, without inordinate waste, greater local service competition both as an end in local markets and as a means towards more competition, and fair competition, in long-distance markets.
For the present cases, the most important characteristic of the Acts purposes is what those purposes do not require. Those purposes neither require nor suggest reading the Acts language to change radically the scope of local regulators traditional rate-setting powers. A utilitys rate structure consists of complex sets of typically interdependent individual rates, the determination of which depends upon numerous considerations, many of which are local in nature and fall outside the Acts purview. The introduction of competition into a particular locality does not diminish the importance of place-specific factors, such as local history, geography, demands, and costs. And local regulators are likely more familiar than are national regulators, for example, with a particular utilitys physical plant, its cost structure, the pattern of local demand, the history of local investment, and the need for recovery of undepreciated fixed costs.
Moreover, local regulators have experience setting rates that recover both the immediate, smaller, added costs that demand for additional service imposes upon a local system and also a proper share of the often huge fixed costs (of local loops, say, or switches) and overhead needed to provide the dial tone itself. Indeed, local regulators would seem as likely, if not more likely, than national regulators to know whether, when, or the extent to which, particular local charges or systems of charges will lead new entrants to abandon efforts to use a local incumbents elements, turning instead to alternative technologies. And local regulators would seem as likely as national regulators to know whether or when use of such alternative technologies in the local circumstances will prove more beneficial than wasteful. It is the local communities, and, hence, local regulators, that will directly confront the problems and enjoy the benefits associated with local efforts to integrate new and old communications resources and communications firms. These factors, along with the fact that the relevant technology changes rapidly, argue in favor of, not against, local rate-setting control, including local rate-setting differences, for those differences can amount to the kind of experimentation long thought a strength of our federal system.
At most, the Acts purposes argue for a grant to the FCC of authority to set federal limitations preventing States from adopting forms of ratemaking that would interfere with the Acts basic objectives. The Act explicitly grants the FCC a particular pre-emption tool, not here invoked, which is apparently suited to that job. 47 U.S.C. § 253(d) (1994 ed., Supp. II) (permitting the FCC to pre-empt, after notice and comment, any state legal requirement that has the effect of prohibiting entry into local service). Such a grant could not help the FCC here, however, for, as I discuss below, infra, at 1317, the FCCs rules do not just create an outer envelope or simply prevent the States from going too far. Rather, they effectively supplant much of a local regulators local rate-setting work.
Read in light of its purposes, the Acts language more clearly foresees retention, not replacement, of the traditional allocation of state-federal rate-setting authority. Ante, at 67 (Thomas, J., concurring in part and dissenting in part). Sections 251 and 252, which establish and provide for implementation of new local service obligations, contain the relevant language.
Section 251 lists basic obligations that the Act imposes upon local incumbents. These include obligations to interconnnect, to unbundle, to sell at wholesale rates, to provide number portability, to assure dialing parity, to negotiate with potential entrants in good faith, and generally to encourage local competition. Section 251 also refers to the FCC, but only in respect to some of these obligations. See, e.g., §251(d)(2) ([T]he Commission shall consider certain standards in determining which network elements must be unbundled); §251(b)(2) (local firms have duty to provide number portability in accordance with requirements prescribed by the Commission); see ante, at 7 (Thomas, J., concurring in part and dissenting in part). It makes no mention of a regulator in respect to other matters, which others include ratemaking. Thus, §251s language leaves open the relevant questionwhich regulator has the authority to set rates.
Section 252, which specifically describes how §251s obligations are to be implemented, is less ambivalent. Its implementation system consists of negotiation between incumbents and new entrants, followed by state regulatory commission arbitration if negotiations fail. §§252(a), (b). Certain of §252s language, I concede, can be read to favor the majorityin particular its statement that the results of state arbitration must be consistent with §251 and with regulations prescribed by the [FCC] pursuant to section 251. §252(c)(1). But the word regulations here might or might not include rate regulations. Ante, at 1314. And the immediately following language indicates that it does not.
That immediately following language, beginning with the immediately subsequent subsection and including nine paragraphs, speaks separately, and specifically, of rates. §§252(c)(2), (d). And that language expressly says that the State commission[s] are to establish any rates. It adds that they are to do so according to a further subsection, subsection (d). And this further subsection (d), headed by the words Pricing standards and focusing upon charges, sets forth the pricing standards for use by the state commissions. It speaks of [d]eterminations by a [S]tate commission of the just and reasonable rate (which, it adds, must be nondiscriminatory and based on cost), but it says nothing about a role for the FCC. § 252s references to the state commissions, its rate-setting detail, and its silence about the FCCs role all favor a reading of the earlier word regulations that excludes, rather than includes, FCC rate regulations.
Thus, §251 is silent about local rate-setting power. Section 252 speaks of state, not federal, ratemaking. As most naturally read, the structure and language of those sections foresee the traditional allocation of ratemaking authorityan allocation that within broad limits assumes local rates are local matters for local regulators.
I recognize that the majority finds the relevant rulemaking authority, not in §§251 and 252, but in a different section containing a general grant of rulemaking authority. Ante, at 910 (citing 47 U.S.C. § 201(b)). But Congress enacted that language in 1938, see 52 Stat. 588. The scope of the FCCs legal power to apply an explicit grant of general authority to make rules implementing the more specific terms of a later enacted statute depends upon what that later enacted statute contemplates. Cf. Louisiana Pub. Serv. Commn v. FCC, 476 U.S. 355, 376377, n. 5 (1986). And here, as just explained, the 1996 Act foresees the reservation of most local rate-setting authority to local regulators.
The most the FCC can claim is linguistic ambiguity. But such a claim does not help the FCC, for relevant precedent makes clear that, when faced with ambiguity, we are to interpret statutes of this kind on the assumption that Congress intended to preserve local authority. See, e.g., Cipollone v. Liggett Group, Inc., 505 U.S. 504, 518 (1992) (presumption against the pre-emption of state police power regulations); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947) (requiring clear and manifest showing of congressional intent to supplant traditional state police powers). Moreover, the Communications Act itself, into which Congress inserted the provisions of the 1996 Act with which we are here concerned, comes equipped with a specific instruction that courts are not to construe the FCCs statutory grant of authority as
giv[ing] the Commission jurisdiction with respect to charges for or in connection with intrastate communication. 47 U.S.C. § 152(b).
Thus, as Justice Thomas points out, ante, at 10, it is not surprising to find that this Court has interpreted the Communications Act as denying the FCC authority to determine local rate-related practices in the face of statutory language far more helpful to the FCC than anything present here. Louisiana Pub. Serv. Commn v. FCC, supra. That precedent requires a similar result here.
Louisiana raised a question almost identical to the one before us: Does a statute granting the FCC authority to set certain general rate-related rules (there, depreciation rules) also grant the FCC authority to set primarily local rate-related rules (i.e., local depreciation rules)? Writing for the Court, Justice Brennan stated that the basic rule of statutory construction contained in §152(b) and just quoted above requires interpretations that favor the reservation of ratemaking authority to the States. Louisiana, id., at 373. Hence, the statute did not permit the FCC to write depreciation rules that would apply to equipment insofar as it was used for local service. Ibid.
Consider the similarities between Louisiana and the present cases. The relevant rules of statutory constructionthe general and explicit presumptions favoring retention of local authorityare the same. See id., at 369 (asking whether Congress intended that federal regulation supersede state law and citing Rice v. Santa Fe Elevator Corp., supra); 476 U.S., at 371373 (relying on §152(b)). The subject matter is highly similarboth cases involve the way in which local rates will be set for equipment used for both intrastate and interstate calls. Compare Brief for Federal Petitioners 3638, with Louisiana, supra, at 374376. And both cases involve intrastate charges that could affect interstate rates, here because of local competitions interstate impact, see First Report & Order ¶84, 11 FCC Rcd, at 15544, in Louisiana because more (or less) stringent local depreciation rules would affect the rate of replacement of equipment used for interstate calls, 476 U.S., at 362363.
Consider, too, the differences. The language of the relevant statute here explicitly refers to State commission[s], which, it says, will establish any rates. 47 U.S.C. § 252(c)(2) (1994 ed., Supp. II) (emphasis added). The language of the relevant statute in Louisiana, by contrast, was far more easily read as granting the FCC the authority it sought. That statute said that the FCC would prescribe depreciation practices for the relevant local telephone companies, and it prohibited any depreciation charges . . . other than those prescribed by the [FCC], §220(b); it made it unlawful to keep any other [depreciation] accounts than those so prescribed or approved by the FCC, §220(g); it ordered the FCC to hear from state commissions before establishing its own rules, §220(i); and it authorized the FCC to exempt state-regulated companies from its depreciation rules, §220(h). See Louisiana, supra, at 366367. These differences, of course, make the argument for local ratemaking in these cases stronger, not weaker, than in Louisiana.
The majority says its view is unaffected by §152(b). Ante, at 11. But Congress apparently was not, for when it enacted the 1996 Act, it initially considered amending §152(b) to make it inapplicable to the provisions that we here consider, thereby facilitating an interpretation, like the majoritys, that would give the FCC the local rate-setting power it now seeks to exercise. See S. 652, 104th Cong., 1st Sess., §101(c)(2) (1995); H. R. 1555, 104th Cong., 1st Sess., §101(e)(1) (1995). The final legislation, however, rejected that proposed language. See 47 U.S.C. § 152(b). It cannot be thought that Congress intend[ed] sub silentio to enact statutory language that it ha[d] earlier discarded in favor of other language. INS v. Cardoza&nbhyph;Fonseca, 480 U.S. 421, 442443 (1987) (internal quotation marks and citation omitted).
The FCCs strongest argument, in my view, is that its rate rules do not actually supplant local rate-setting authority; they simply set forth limits, creating a kind of envelope marking the outer bounds of what would constitute a reasonable local rate-setting system. The majority may accept a version of this argument, for it says the FCC has prescribed a requisite pricing methodology that no more prevents the States from establishing rates than do the statutory Pricing standards set forth in §252(d). Ante, at 16. That, however, is not what the FCC has done.
The FCCs rate regulations are not at all like §252(d)s pricing standards. The statute sets forth those standards in general terms, using such words as, based on cost, nondiscriminatory, and just and reasonable. Terms such as these give rate-setting commissions broad methodological leeway; they say little about the method employed to determine a particular rate. FPC v. Hope Natural Gas Co., 320 U.S. 591, 602 (1944). The FCCs rules, on the other hand, are not general. The dozens of pages of text that set them forth are highly specific and highly detailed. See First Report & Order ¶¶672715, supra, at 1584415862. They deprive state commissions of methodological leeway. Their rate-setting instructions grant a state commission little or no freedom to choose among reasonable rate-determining methods according to the States policy-related judgments, assessing local economic circumstance or community need. I grant the fact that the rules leave it to the state commissions to fix the actual rate, but that is rather like giving a restaurant chef the authority to choose a menu while restricting him to one dish, an omelette, and to one single favorite recipe.
Nor can the FCC successfully argue that the Act requires the particular rate-setting system that its regulations contain. The FCCs system, which the FCC calls forward-looking, bases the charge for the use of an unbundled element (say, a set of local wires connecting a subscriber to a local switch) upon a hypothetical set of coststhe costs of providing that service using the incumbents actual wire center, but otherwise assuming use of the most efficient technology that the incumbent could use (not the equipment the incumbent actually does use). See First Report & Order ¶¶682, 685, supra, at 1584715849. The FCC does not claim that the statutes language (though ruling out certain kinds of rate-of-return proceedings, 47 U.S.C. § 252(d)(1)(A)(i) (1994 ed., Supp. II)) forces use of this forward-looking cost determination system. Moreover, I have explained above why I do not believe the Acts purposes demand what its language denies, namely, a single nationwide rate-setting system. Supra, at 78; compare First Report & Order ¶114, supra, at 1555815559 (arguing that a single pricing methodology is needed to assure uniform administration of the Act).
The FCC does argue that the Acts purpose, competition, favors its system. For competition, according to the FCC, tends to produce prices that reflect forward-looking replacement costs, not actual historical costs. E.g., id., ¶672, 11 FCC Rcd, at 15844. But this argument does not show that the Act compels the use of the FCCs system over any other. How could it? The competition that the Act seeks is a process, not an end result; and a regulatory system that imposes through administrative mandate a set of prices that tries to mimic those that competition would have set does not thereby become any the less a regulatory process, nor any the more a competitive one.
Most importantly, the FCCs rules embody not an effort to circumscribe the realm of the reasonable, but rather a policy-oriented effort to choose among several different systems, including systems based upon actual costs or price caps, which other systems the FCCs rules prohibit. A few examples, focusing upon some of the claimed weaknesses of the FCCs preferred system, will illustrate, however, how easily a regulator weighing certain policy considerations (for example administrative considerations) differently might have chosen a different set of reasonable rules:
Consider the FCCs decision to deny state commissions the choice of establishing rates based on actual historic, rather than hypothetical forward-looking, costs. See First Report & Order ¶705, 11 FCC Rcd, at 1585715858. Justice Brandeis, joined by Justice Holmes, pointed out the drawback of using a forward-looking, rather than an actual historic, cost system many years ago. They wrote that whatever the theoretical economic merits of a reproduction cost system (a system bearing an uncanny resemblance to the FCCs choice), the hypothetical nature of the regulatory judgments it required made such a system administratively unworkable. See Missouri ex rel. Southwestern Bell Telephone Co. v. Public Serv. Commn of Mo., 262 U.S. 276, 292296 (1923) (Brandeis, J., dissenting).
The passage of time has not outdated the Brandeis and Holmes criticism. Modern critics question whether regulators can accurately determine the efficient cost of supplying telephone service, say, to a particular group of Manhattan office buildings, by means of hypothetically efficient up-to-date equipment connected to a hypothetically efficient New York City network built to connect with NYNEXs existing (nonhypothetical) wire center. See, e.g., Kahn, Letting Go, at 93, and n. 135. The use of historic costs draws added support from one major statutory aimexpeditious introduction of competition. That is because efforts to determine hypothetical (rather than actual) costs means argument, and argument means delay, with respect to entry into both local and long-distance markets. See supra, at 45. Though the FCC disfavors actual or historic costs, it does not satisfactorily explain why their use would be arbitrary or unreasonable.
Consider the FCCs decision to prohibit use of an efficient component pricing rule. See First Report & Order ¶708711, supra, at 1585915860. Where an incumbent supplies an element to New Entrant B that it otherwise would have provided Old Customer A, that rule, roughly speaking, permits the incumbent to charge a price measured by either (1) the elements market price, if it is sold in the marketplace, or (2), if it is not, the incumbents actual costs (including the net revenue the incumbent loses from foregoing the sale to Old Customer A). See generally, e.g., W. Baumol & J. Sidak, Toward Competition in Local Telephony 9597 (1994). This pricing system seeks to assure the incumbent that it will obtain from B the contribution, say, to fixed costs or to overhead, that A had previously made. Many experts prefer such a system. See, e.g., Sidak & Spulber, The Tragedy of the Telecommons: Government Pricing of Unbundled Network Elements Under the Telecommunications Act of 1996, 97 Colum. L. Rev. 1081, 11111113, and nn. 7585 (1997); Kahn & Taylor, The Pricing of Inputs Sold to Competitors: A Comment, 11 Yale J. Reg. 225, 228230 (1994). The FCC rejected that system, but in doing so it did not claim, nor did its reasoning support the claim, that the use of such a system would be arbitrary or unreasonable. See Sidak & Spulber, supra, at 10951098.
Consider the FCCs decision to forbid the use of what regulators call Ramsey pricing, see First Report & Order ¶696, supra, at 1585215853. Ramsey pricing is a classical regulatory pricing system that assigns fixed costs in a way that helps maintain services for customers who cannot (or will not) pay higher prices. See generally, e.g., 1 A. Kahn, The Economics of Regulation: Principles and Institutions 137141 (reprint 1988). Many experts strongly prefer the use of such a system. See, e.g., Sidak & Spulber, supra, at 1109 (arguing that the FCCs prohibition of Ramsey pricing will minimize rather than maximize consumer welfare). The FCC disfavors Ramsey pricing, but it does not explain why a contrary judgment would conflict with the statute or otherwise be arbitrary or unreasonable.
These examples do not show that the FCCs rules themselves are unreasonable. That question is not now before us, and I express no view on the matter. The examples simply help explain why the FCCs rules could not set forth the only rate-setting system consistent with the Acts objectives. The FCCs regulations do not set forth an outer envelope surrounding a set of reasonable choices; instead, they constitute the kind of detailed policy-related rate-setting that the statute in respect to local matters leaves to the States.
Two Terms ago the Court held that Congress could not constitutionally require a state sheriff to fill out a form providing background information about a buyer of a gun. Printz v. United States, 521 U.S. 898, 935 (1997). Dissenters in that case noted that the law deprived the States of a power that had little practical significance. See id., at 961 (Stevens, J., dissenting); id., at 977 (Breyer, J., dissenting). Todays decision does deprive the States of practically significant power, a camel compared with Printzs gnat. The language of the statute nowhere reveals any clear and manifest purpose, Rice, 331 U.S., at 230, that such was Congress intent. History, purpose, and precedent all argue to the contrary. I would hold that, in respect to local ratesetting, the FCCs reach has exceeded its legal grasp.
I agree with the Courts disposition of the FCCs unbundling rules. As earlier explained, the Act seeks to introduce competition into local markets by removing legal barriers to new entry, by requiring interconnection, by requiring incumbents to sell to potential retail competitors at wholesale rates, and by requiring the sharing, or unbundling, of certain facilities. Supra, at 6; see 47 U.S.C. § 251(c)(2)(4), 253(a) (1994 ed., Supp. II). The Act expresses this last-mentioned sharing requirement in general terms, reflecting congressional uncertainty about the extent to which compelled use of an incumbents facilities will prove necessary to avoid waste. Will wireless technology or cable television lines, for example, permit the efficient provision of local telephone service without the use of existing telephone lines that now run house to house?
Despite the empirical uncertainties, the basic congressional objective is reasonably clear. The unbundling requirement seeks to facilitate the introduction of competition where practical, i.e., without inordinate waste. Supra, at 67. And although the provision describing which elements must be unbundled does not explicitly refer to the analogous essential facilities doctrine (an antitrust doctrine that this Court has never adopted), the Act, in my view, does impose related limits upon the FCCs power to compel unbundling. In particular, I believe that, given the Acts basic purpose, it requires a convincing explanation of why facilities should be shared (or unbundled) where a new entrant could compete effectively without the facility, or where practical alternatives 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, 852853 (1989).
As the majority points out, the Acts language itself suggests some such limits. Ante, at 2025. The fact that compulsory sharing can have significant administrative and social costs inconsistent with the Acts purposes suggests the same. Even the simplest kind of compelled sharing, say, requiring a railroad to share bridges, tunnels, or track, means that someone must oversee the terms and conditions of that sharing. Moreover, a sharing requirement may diminish the original owners incentive to keep up or to improve the property by depriving the owner of the fruits of value-creating investment, research, or labor. And as one moves beyond the sharing of readily separable and administrable physical facilities, say, to the sharing of research facilities, firm management, or technical capacities, these problems can become more severe. One would not ordinarily believe it practical, for example, to require a railroad to share its locomotives, fuel, or workforce. Nor can one guarantee that firms will undertake the investment necessary to produce complex technological innovations knowing that any competitive advantage deriving from those innovations will be dissipated by the sharing requirement. The more complex the facilities, the more central their relation to the firms managerial responsibilities, the more extensive the sharing demanded, the more likely these costs will 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 economic or competitive gain that a sharing requirement might otherwise provide. The greater the administrative burden, for example, the more the need for complex proceedings, the very existence of which means delay, which in turn can impede the entry into long-distance markets that the Act foresees. See supra, at 5.
Nor are any added costs imposed by more extensive unbundling requirements necessarily offset by the added potential for competition. Increased sharing by itself does not automatically mean increased competition. It is in the unshared, not in the shared, portions of the enterprise that meaningful competition would likely emerge. Rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms.
The upshot, in my view, is that the statutes unbundling requirements, read in light of the Acts basic purposes, require balance. Regulatory rules that go too far, expanding the definition of what must be shared beyond that which is essential to that which merely proves advantageous to a single competitor, risk costs that, in terms of the Acts objectives, may make the game not worth the candle.
I believe the FCCs present unbundling rules are unlawful because they do not sufficiently reflect or explore this other side of the unbundling coin. See Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983). They do not explain satisfactorily why, for example, an incumbent must share with new entrants call waiting, or various operator services. Nor do they adequately explain why an incumbent should be forced to share virtually every aspect of its business. As the majority points out, ante, at 2223, they seem to assume, without convincing explanation, that the more the incumbent unbundles, the better. Were that the Acts objective, however, would Congress have seen a need for a separate wholesale sales requirement (since the unbundling requirement would have led to a similar result)? Indeed, would Congress have so emphasized the importance of competition? A totally unbundled worlda world in which competitors share every part of an incumbents existing system, including, say, billing, advertising, sales staff, and work force (and in which regulators set all unbundling charges)is a world in which competitors would have little, if anything, to compete about.
I understand the difficulty of making the judgments that the statute entrusts to the FCC and the short time that it gave the FCC in which to make them. 47 U.S.C. § 251(d)(1) (1994 ed., Supp. II). I also understand that the law gives the FCC considerable 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 explanation, I must conclude that the unbundling rules before us go too far. They are inconsistent with Congress approach. They have not been adequately justified in terms of the statutes mandate, read in light of its purposes. See 5 U.S.C. § 706(2). For this reason, as well as the reasons set forth in the majoritys opinion, I agree with its conclusion that Rule 319 must be vacated.