******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** ORAL ARGUMENT SCHEDULED FOR OCTOBER 21, 1999 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 98-1410 U S WEST COMMUNICATIONS, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents. ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL COMMUNICATIONS COMMISSION BRIEF OF PETITIONER William T. Lake Dan L. Poole John H. Harwood II Robert B. McKenna Jonathan J. Frankel U S WEST, INC. WILMER, CUTLER & PICKERING 1020 19th Street, N.W. Suite 700 2445 M Street, N.W. Washington, D.C. 20036 Washington, D.C. 20037 (303) 672-2861 (202) 663-6000 Counsel for Petitioner U S WEST Communications, Inc. May 17, 1999 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(a)(1), petitioner U S WEST Communications, Inc. submits the following information: (A) Parties and Intervenors Petitioner U S WEST Communications, Inc. is a telecommunications carrier that provides local exchange telecommunications, data, wireless, and long-distance services pursuant to tariff and contract in fourteen western and midwestern states. U S WEST Communications, Inc. is a wholly owned subsidiary of U S WEST, Inc., a publicly held corporation that provides services to the public only through its operating subsidiaries. In addition to U S WEST, Inc., subsidiaries U S WEST Communications, Inc. and U S WEST Capital Funding, Inc. have securities in the hands of the public. U S WEST, Inc. owns other subsidiaries that market unregulated products and services, none of which has issued debt or stock to the public. The respondents in this action are the Federal Communications Commission and the United States of America. The following parties have intervened in this action: Telecommunications Resellers Association, e.spire Communications, Inc., Competitive Telecommunications Association, Sprint Corporation, MCI Telecommunications Corporation, AT&T Corporation, Association for Local Telecommunications Services, SBC Communications, Inc., Southwestern Bell Telephone Company, Pacific Bell, Nevada Bell, LCI International Telecom Corporation, Network Access Solutions, Inc., GTE Service Corporation, Rhythms Netconnections, Inc., Transwire Communications, Inc., Northpoint Communications, Inc., Internet Access Coalition, Covad Communications Company, KMC Telecom, Inc., Hyperion Telecommunications, Inc., McLeodUSA Incorporated, and Focal Communications Corporation. (B) Ruling under Review U S WEST Communications, Inc. has petitioned the Court to review the Memorandum Opinion and Order adopted by the Federal Communications Commission in CC Docket Nos. 98-11, 98-26, 98-32, 98-78, 98-81, 98-147, CCB/CPD No. 98-15, and RM 9244, Deployment of Wireline Services Offering Advanced Telecomm. Capability, 13 FCC Rcd 24011 (1998). The order is numbered FCC 98-188 and was released on August 7, 1998. A summary of the order was published in the Federal Register on August 24, 1998. See 63 Fed. Reg. 45134 (1998). A copy of the order appears in the Joint Appendix at ___. (C) Related Cases. This case has not previously been before this Court or any other court. On August 14, 1998, Southwestern Bell Telephone Company petitioned the United States Court of Appeals for the Eighth Circuit to review the same order involved in this case, but subsequently withdrew its petition. U S WEST Communications, Inc. is not aware of any other cases involving substantially the same parties and the same or similar issues. TABLE OF CONTENTS Page CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES. . . . . .i TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . iv GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . ix JURISDICTIONAL STATEMENT . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF ISSUES PRESENTED FOR REVIEW . . . . . . . . . . . 2 RELEVANT STATUTORY PROVISIONS. . . . . . . . . . . . . . . . . 2 STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . 2 STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . 4 A. Statutory Background . . . . . . . . . . . . . . . . 4 B. Traditional Telephone Local Exchange Services. . . . 7 C. Digital Subscriber Line Services . . . . . . . . . . 9 D. The Advanced Services Order. . . . . . . . . . . . . 12 SUMMARY OF ARGUMENT. . . . . . . . . . . . . . . . . . . . . . 14 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 16 I. THE FCC VIOLATED THE 1996 ACT BY EXTENDING LOCAL EXCHANGE MARKETPLACE REGULATION TO NEW SERVICES THAT ARE NEITHER "TELEPHONE EXCHANGE SERVICE" NOR "EXCHANGE ACCESS." . . . . . . . . . . . . . . . . . . . . . . 16 A. Digital Subscriber Line Services Are Not "Telephone Exchange Service.". . . . . . . . . . . . . . . 17 1. Digital subscriber line services are not intercommunicating services within a local telephone exchange and are not covered by the exchange service charge.. . . . . . 17 2. Digital subscriber line services are not "comparable" to traditional telephone exchange service . . 23 B. Digital Subscriber Line Services Do Not Constitute "Exchange Access.". . . . . . . . . . . . . . . 27 II. THE ADVANCED SERVICES ORDER FALLS SHORT OF THE REASONED DECISIONMAKING REQUIRED OF ADMINISTRATIVE AGENCIES.. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 A. To the Extent the FCC Offers Any Reasoning, Its Explanations Are Entirely Inadequate. . . . . . . . . . . . . . . . . . . . . . 31 B. The FCC's Failure To Define the Categories of Service Subject to Regulation or Even To Say Which Category Applies Here Is the Essence of Arbitrary and Capricious Agency Action. 33 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ADDENDUM A: RELEVANT STATUTORY PROVISIONS. . . . . . . . . . .A-1 ADDENDUM B: EXCERPT FROM THE ADVANCED SERVICES ORDER . . . . .B-1 TABLE OF AUTHORITIES CASES A.L. Pharma, Inc. v. Shalala, 62 F.3d 1484 (D.C. Cir. 1995) 31, 32 American Lung Association v. Environmental Protection Agency, 134 F.3d 388 (D.C. Cir. 1998) . . . . . . . . . . . . . . 31, 32 Achernar Broadcasting Co. v. Federal Communications Commission, 62 F.3d 1441 (D.C. Cir. 1995). . . . . . . . . . . . . . . . . 17 Building & Construction Trades Department, AFL-CIO v. Martin, 961 F.2d 269 (D.C. Cir. 1992). . . . . . . . . . . . . . . . . 33 Checkosky v. Securities and Exchange Commission, 139 F.3d 221 (D.C. Cir. 1998)33, 34 Colorado Interstate Gas Co. v. Federal Energy Regulatory Commission, 850 F.2d 769 (D.C. Cir. 1988). . . . . . . . . . . . . . . . . 17 * Competitive Enterprise Institute v. National Highway Traffic Safety Administration, 956 F.2d 321 (D.C. Cir. 1992) . . . . . . . . . . . . . . . . .17 Dickson v. Secretary of Defense, 68 F.3d 1396 (D.C. Cir. 1995).24 Dutton v. Wolpoff & Abramson, 5 F.3d 649 (3d Cir. 1993) . . . .18 Lorillard v. Pons, 434 U.S. 575 (1978). . . . . . . . . . . . .18 Illinois Public Telecommunications Association v. Federal Communications Commission, 117 F.3d 555 (D.C. Cir. 1997) . . . . . . . . . . . . . . . . .33 MCI Communications Corp. v. American Telephone & Telegraph Co., 708 F.2d 1081 (7th Cir. 1983) . . . . . . . . . . . .7, 8, 20, 21 * Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., 463 U.S. 28 (1983). . . . . . . . . . . . . . . . . . . . . . .32 North Carolina Utilities Commission v. Federal Communications Commission, 552 F.2d 1036 (4th Cir. 1977) . . . . . . . . . . . . . . . . .20 Pacific Northwest Newspaper Guild, Local 82 v. NLRB, 877 F.2d 998 (D.C. Cir. 1989) 33 * Pearson v. Shalala, 164 F.3d 650 (D.C. Cir. 1999). . . . .34 Southwestern Bell Telephone Co. v. Federal Communications Commission, 100 F.3d 1004 (D.C. Cir. 1996) . . . . . . . . . . . . 26, 27, 29 Southwestern Bell Telephone Co. v. Federal Communications Commission, 153 F.3d 597 (8th Cir. 1998), petition for cert. filed, 67 U.S.L.W. 3561 (U.S. Feb. 26, 1999)7 Time Warner Entertainment Co. v. Federal Communications Commission, 56 F.3d 151, 190 (D.C. Cir. 1995). . . . . . . . . . . . . . . 16 United States v. American Telephone & Telegraph Co., 552 F. Supp. 131 (D.D.C. 1982) . . . . . . . . . . . . .5, 27, 28 STATUTES * 47 U.S.C.  153(16). . . . . . . . . . . . . . . . 5, 27, 28 47 U.S.C.  153(20) . . . . . . . . . . . . . . . . . . . . . .29 * 47 U.S.C.  153(26). . . . . . . . . . . . . . . . .3, 5, 30 47 U.S.C.  153(43) . . . . . . . . . . . . . . . . . . . . . .29 * 47 U.S.C.  153(47)(A) . . . . . . . . . . . . . . . .passim * 47 U.S.C.  153(47)(B) . . . . . . . . . . . . . . . .23, 24 * 47 U.S.C.  153(48). . . . . . . . . . . . . . . . . . . .28 47 U.S.C.  160. . . . . . . . . . . . . . . . . . . . . . . . 12 47 U.S.C.  251(b) . . . . . . . . . . . . . . . . . . . . . 4, 6 47 U.S.C.  251(c) . . . . . . . . . . . . . . . . . . . . . 4, 6 47 U.S.C.  251(g) . . . . . . . . . . . . . . . . . . . . .5, 27 Communications Act of 1934, Pub. L. No. 416,  3(r), 48 Stat. 1064 (1934)17 REGULATIONS 47 C.F.R.  69.2(b). . . . . . . . . . . . . . . . . . . . . . 27 ADMINISTRATIVE MATERIALS Access Charge Reform, 12 FCC Rcd 15982 (1997). . . . . .9, 28, 29 Amendment of Parts 21 and 43 of the Commission's Rules and Regulations Relative to various Procedural Requirements for the Domestic Public Radio Service, 76 F.C.C.2d 273 (1980) . . . . . . . . . . . . . . . . . . . . 18 American Telephone & Telegraph Co., 38 F.C.C. 1127 (1965). . . 20 Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Tele-Communications, Inc. to AT & T Corp., CS Dkt. No. 98-178, FCC 99-24 (rel. Feb. 17, 1999) . . . . . . 26 * Application of BellSouth Corp. et al. for Provision of In-Region, InterLATA Services in Louisiana, 13 FCC Rcd 20599 (1998) ("Bell South Order")18, 19, 20, 21 Applications of Midwest Corp. and Two-Way Radio of Carolina, Inc., 53 F.C.C.2d 294 (1975). . . . . . . . . . . . . . . . . . . . .18 * Bell Atlantic Telephone Cos., Bell Atlantic Tariff No. 1, 13 FCC Rcd 23667 (1998)19, 21 Cox Cable Communications Inc., 102 F.C.C.2d 110 (1985). . . . .21 * Deployment of Wireline Services Offering Advanced Telecommunications Capability, 13 FCC Rcd 24011 (1998) ("Advanced Services Order") . . . .passim Federal-State Joint Board on Universal Service, 13 FCC Rcd 11501 (1998)25, 29 General Telephone Co. of California et al., 13 F.C.C.2d 448 (1968)7, 20 * GTE Telephone Operating Cos., GTOC Tarriff No. 1, 13 FCC Rcd 22466 (1998) ("GTE ADSL Order"). . . . . . . . . . . . . . . . . . . . .passim Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 15499 (1996) . . 7, 25 * Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Dkt. No. 96-98, FCC 99-38 (rel. Feb. 25, 1999).26 * Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, 11 FCC Rcd 21905 (1996) ("Non-Accounting Safeguards Order"). . . . . . . . . . . . . . . . . . . . .28, 29 Offshore Telephone Company, Request to Participate in the National Exchange Carrier Association, Inc., 3 FCC Rcd 4137 (1998) . . . . . . . . . . . 21 Offshore Telephone Co. v. South Central Bell Telephone Co. and American Telephone and Telegraph Co., 6 FCC Rcd 2286 (1991) . . . . . . 18 Petition for Emergency Relief and Declaratory Ruling filed by the BellSouth Corp., 7 FCC Rcd 1619 (1992). . . . . . . . . . . . . . . . . . . . . 19 Teleconnect Co. v. Bell Telephone Co. of Pennsylvania, 10 FCC Rcd 1626 (1995)19 Kevin Werbach, Digital Tornado: The Internet and Telecommunication Policy 45 (Federal Communications Commission, OPP Working Paper Series No. 29, 1997)8, 9 MISCELLANEOUS Harry Newton, Newton's Telecom Dictionary 301 (15th ed. 1999) 7, 28 U S WEST, MegaBit Services Pricing (last modified May 14, 1999) . . . . 22 Webster's Third New International Dictionary 461 (1971). . . . 24 * Authorities chiefly relied upon are marked with an asterisk. GLOSSARY ALTS: Association for Local Telecommunications Services DSL: Digital subscriber line (service or technology) FCC: Federal Communications Commission LEC: Local exchange carrier PCS: Personal Communications Service PSTN: Public switched telephone network ORAL ARGUMENT SCHEDULED FOR OCTOBER 21, 1999 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 98-1410 U S WEST COMMUNICATIONS, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents. ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL COMMUNICATIONS COMMISSION BRIEF OF PETITIONER JURISDICTIONAL STATEMENT This is a petition to review a final order of the Federal Communications Commission ("FCC"), released August 7, 1998 in CC Docket Nos. 98-11, 98-26, 98-32, 98-78, 98-81, 98-147, and CCB/CPD No. 98-15 and RM 9244, Deployment of Wireline Services Offering Advanced Telecomm. Capability, 13 FCC Rcd 24011 (1998) ("Advanced Services Order"). The order is reprinted in the Joint Appendix ("J.A.") beginning at page ___. A summary of the order was published in the Federal Register on August 24, 1998. See 63 Fed. Reg. 45134 (1998). U S WEST Communications, Inc. ("U S WEST") timely filed its petition for review on September 2, 1998. This Court therefore has jurisdiction pursuant to 47 U.S.C.  402(a) and 28 U.S.C.  2342(1). Venue lies in this Circuit pursuant to 28 U.S.C.  2343. STATEMENT OF ISSUES PRESENTED FOR REVIEW 1. Did the FCC violate the Telecommunications Act of 1996 (the "Act") by ruling that digital subscriber line ("DSL") services may be regulated as "telephone exchange service," even though these services do not stay within a local exchange, do not interconnect with the local exchange network, do not permit local any-to- any calling, and are not included in the basic local calling charge? 2. Did the FCC violate the Act by ruling that DSL services may be regulated as "exchange access," even though they are not used to begin and end telephone toll calls, and even though they are mutually exclusive "information access" services? 3. Did the FCC act arbitrarily and capriciously by failing to articulate any definition of "telephone exchange service" and "exchange access," refusing to specify which of these statutory categories covers DSL services, and failing to explain why it believes either of these categories applies to DSL services at all? RELEVANT STATUTORY PROVISIONS Pertinent statutory provisions are set forth in Addendum A, which is bound with this brief. STATEMENT OF THE CASE The Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56, codified at 47 U.S.C.  151 et seq. (hereinafter "the Act" or "the 1996 Act"), regulates telecommunications carriers according to the different types of service they provide. One set of the Act's rules, designed to promote competition in the local telephone marketplace, applies to "local exchange carriers." "Local exchange carriers" are defined in the Act as entities that provide either of two specific local telephone services: "telephone exchange service" or "exchange access." 47 U.S.C.  153(26). Both the Act and consistent FCC administrative precedent define "telephone exchange service" as basic local calling service and its substitutes, and "exchange access" as the local leg of a telephone-to-telephone long-distance call. This is a petition for review of an order of the FCC applying these statutory categories to a new kind of high-speed data and Internet access service known as digital subscriber line service, or "DSL." See Deployment of Wireline Services Offering Advanced Telecomm. Capability, 13 FCC Rcd 24011, 24031-34 ( 38-44) (1998) (hereinafter, "Advanced Services Order"). In February 1998, U S WEST, a carrier providing both local telephone and DSL services in fourteen states, petitioned the FCC for a declaratory ruling clarifying the regulatory status of its DSL services. (Joint Appendix ("J.A.") at ___-___.) In its petition and its comments on similar petitions filed by other parties, U S WEST demonstrated that its DSL services are not, and indeed are fundamentally unlike, the traditional local telephone services long held to come within the definitions of "telephone exchange service" and "exchange access": those DSL services are not functional or market substitutes for basic local calling, do not use or interconnect with the local exchange network, and are not used to begin and end toll telephone calls. (J.A. ___-___, ___-___, ___-___.) In the order under review, the FCC rejected these arguments. The FCC ruled that DSL constitutes either "telephone exchange service" or "exchange access" (although it declined to say which), making a carrier that provides DSL service a "local exchange carrier." Advanced Services Order, 13 FCC Rcd at 24032 ( 40). The FCC did not articulate any definition of "telephone exchange service" or "exchange access," nor did it give any reason why it believed one or the other of these categories covers DSL service. The effect of the FCC's ruling is to extend local telephone marketplace regulation to these new data and Internet access services, even though they do not share any of the defining characteristics of local telephone service. U S WEST petitioned this Court to review the Advanced Services Order on September 2, 1998. On October 8, the FCC moved the Court to hold the case in abeyance. The Court denied the FCC's motion on December 22, 1998. U S WEST now asks the Court to vacate the Advanced Services Order as contrary to the Telecommunications Act and as arbitrary and capricious. STATEMENT OF FACTS A. Statutory Background Sections 251(b) and (c) of the Telecommunications Act of 1996 place a number of network- and market-opening obligations on "local exchange carriers" (or "LECs") to promote competition in the local telephone service market. All "local exchange carriers," for example, must make their services available to other carriers for resale, provide access to their rights-of- way, and allow their customers to access other carriers' services through nondiscriminatory dialing arrangements. See 47 U.S.C.  251(b). In addition, the incumbent "local exchange carrier" in an area the one that first provided local telephone service to the area must interconnect with its competitors on reasonable terms, give them access to certain elements of its network on an unbundled basis, and provide them with its local retail services at a substantial discount for resale. See id.  251(c). The Act defines "local exchange carriers" by the services they provide. A "local exchange carrier" is "any person that is engaged in the provision" of either of two specific local telephone services: "telephone exchange service" and "exchange access." Id.  153(26). What Congress meant by these two terms is the primary issue in this case. Congress defined "telephone exchange service" as either (a) "service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge," or (b) "comparable service provided through a system of switches, transmission equipment, or other facilities." Id.  153(47). In general, and as explained below, "telephone exchange service" is basic local calling service what a customer receives for paying his or her basic monthly charge to a company such as Bell Atlantic or U S WEST. "Exchange access," the other local service that defines a LEC, is "the offering of access to telephone exchange services or facilities for the purpose of the origination or termination of telephone toll services." Id.  153(16). "Exchange access" allows long-distance companies such as AT&T to use the local exchange network to begin and end the long-distance ("toll") telephone calls placed by local subscribers. As explained in greater detail below, "exchange access" is one of two different kinds of access services recognized in the Act; the other kind, "information access," refers to services that connect local subscribers to providers of information and data services. See 47 U.S.C.  251(g) (preserving AT&T divestiture consent decree distinction between "exchange access, information access, and exchange services"); United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 228-29 (D.D.C. 1982) (consent decree; defining "exchange access" and "information access"). The definitions of "telephone exchange service" and "exchange access" are thus the key to determining whether the provision of a particular service is subject to the Act's rules for the local exchange marketplace. If a carrier is providing a service that qualifies as either "telephone exchange service" or "exchange access," the carrier is acting as a "local exchange carrier" and must provide the service subject to the obligations in section 251(b) of the Act and, if the carrier is an incumbent LEC, section 251(c). Conversely, if a carrier is providing something that is neither "telephone exchange service" nor "exchange access," it is not acting in the capacity of a LEC, and it may provide the service free from LEC regulation. For example, when AT&T enters a local market and provides basic local calling service (i.e., "telephone exchange service") in competition with an incumbent LEC, AT&T is acting as a LEC and must provide that service subject to section 251(b). But AT&T is not subject to that section when it sells long-distance services in the same market, since it does not provide those services in its capacity as a LEC. Thus, a competitor cannot demand the right to resell AT&T's long-distance voice and Internet backbone services under the requirements of section 251(b)(1), for example, or demand access to the rights-of-way containing AT&T's interexchange fibers under section 251(b)(4). B. Traditional Telephone Local Exchange Services The public switched telephone network ("PSTN") is made up of local switching centers, called exchanges, and long-distance (or "interexchange") connections between them. See MCI Communications Corp. v. American Tel. & Tel. Corp., 708 F.2d 1081, 1093 nn.8-9 (7th Cir. 1983) (describing generally local and long-distance telephone service). A single local exchange covers a limited geographic area. Within a single exchange area, virtually every home or business is connected to a switching office (or "central office") by a pair of copper wires known as a "loop." Each of the central offices, in turn, is connected by trunk lines to every other central office in the exchange. Switches in the central offices route signals along these trunk lines through the telephone company's network. When one party in a local exchange dials any other party in that same exchange, the switches choose a path to the second party and establish a temporary "circuit" between the two parties (a process known as "circuit switching"), enabling them to talk to each other. See Kevin Werbach, Digital Tornado: The Internet and Telecomm. Policy 45 (Federal Communications Comm'n, OPP Working Paper Series No. 29, 1997) (hereinafter "Digital Tornado"). The parties have exclusive use of the circuit for the entire duration of the call; only after they hang up can portions of the path be used by other callers. See Digital Tornado at 38, 39. This local exchange network is an "any-to-any" network, meaning that any user in the exchange can dial up and establish a two-way connection with any other user in the local exchange. Customers ordinarily pay a basic monthly fee the "exchange service charge" referred to in the definition of "telephone exchange service," 47 U.S.C.  153(47)(A) to cover all calling within the exchange. See Digital Tornado at 39. Long-distance (interexchange) telephone calls are routed similarly. When a party in one local exchange makes a call to a party in a different exchange, the call travels over the loop from the caller's premises to the central office serving those premises, where it is then routed to the customer's long-distance (interexchange) carrier. The interexchange carrier carries the call over its long-distance network to the local exchange of the called party. See MCI Communications Corp., 708 F.2d at 1093 n.9. The call then travels over the second local exchange network to the central office and loop serving the called party. Again, the service is circuit-switched that is, the switches establish a temporary, exclusive path for the call. See Digital Tornado at 37 (diagram). Local exchange carriers provide access to their exchanges ("exchange access") to enable the interexchange carriers to complete these calls, charging local users and the interexchange carriers "access charges" for this service. See Access Charge Reform, 12 FCC Rcd 15982, 15990-94 (1997) (discussing access charges generally). These long- distance calls are also known as "toll" calls because the caller pays a separate charge for them over and above the basic monthly "exchange service charge." C. Digital Subscriber Line Services Digital subscriber line, or DSL, services are fundamentally different from traditional local telephone exchange service and make no use of the circuit-switched PSTN. DSL services enable subscribers to use their existing loops, not for calling within a local exchange area, but to send and receive data at extremely high speeds to and from information service providers located around the world. See GTE Tel. Operating Cos., 13 FCC Rcd 22466, 22470-72 (1998) (hereinafter "GTE ADSL Order"). Subscribers use DSL services primarily to obtain a dedicated high-speed connection to their chosen Internet service provider (such as America Online), which then allows the subscriber to access the global Internet and retrieve information stored on distant computer servers. See id. Unlike traditional circuit-switched telephone services, DSL transports information over a packet-switched data network. Data is divided into separate packets, with each packet having its own unique identification and destination address. Advanced Services Order, 13 FCC Rcd at 24015-16 ( 6); Digital Tornado at 18. The packets travel independently over the network, often by different routes, and are reassembled only at their final destination. See Digital Tornado at 17. As they travel, the packets share the network with packets of other, unrelated communications traveling toward the same or different destinations. Routers distributed throughout the network read the address on each packet and send the packet along the best network path available at that time. A packet-switched network does not establish an exclusive circuit, even temporarily, between end users on a call. Instead, it establishes "virtual circuits," in which packets from multiple transmissions are intermixed in the same facilities. See Advanced Services Order, 13 FCC Rcd at 24015-16 ( 6). DSL technology enables the loop to carry packets of data at very high speeds compared to ordinary circuit-switched connections. Before the advent of DSL technology, the loop was "generally thought to be capable of carrying only a relatively modest stream of information," in large part because data had to be translated into analog telephone signals and sent over the loop in analog format. Id. at 24026 ( 28). DSL technology overcomes this limitation by allowing packets of data to remain in digital form and travel alongside voice signals on the same loop but at different frequencies. Id. at 24026-27 ( 29). Because voice and data travel in different frequency bands, they can share the loop simultaneously, allowing customers to access the Internet while having a voice conversation over the same line. Id. The DSL services considered by the FCC use a pair of devices attached to each end of the subscriber's loop. The device at the subscriber's house or business distinguishes between voice and data traffic; data is divided into individual packets and loaded onto the loop, see id. at 24015-16, 24026-27 ( 6, 29), while voice is carried on the loop in the traditional manner. At the other end of the loop, the second device splits the channels and sends them in separate directions. Id. at 24027 ( 30). Voice telephone calls are forwarded to and over the ordinary circuit-switched PSTN. Id. The data packets, by contrast, are transmitted over an entirely separate packet-switched network to the subscriber's chosen Internet service provider (which must also obtain a connection to this packet-switched network). The Internet service provider then delivers the subscriber's data into global Internet. See GTE ADSL Order, 13 FCC Rcd at 22471-72. In short, unlike an ordinary telephone call, a DSL transmission never travels over the PSTN once it leaves the loop. See Advanced Services Order, 13 FCC Rcd at 24027 ( 30) ("Thus, the data traffic, after traversing the local loop, avoids the circuit-switched telephone network altogether."). A DSL service provides a subscriber with a dedicated, always-on connection to his or her predesignated Internet service provider. DSL establishes a fixed logical channel (or "permanent virtual connection") across its packet-switched network between the subscriber and the Internet service provider. See, e.g., id. at 24033 n.73 ( 42 n. 73). As a result, rather than having to dial a telephone number to establish a connection for each new conversation or data transmission (as is necessary with a traditional circuit-switched dial-up connection to an Internet service provider), a subscriber's connection is "always on" once the initial connection with the Internet service provider has been made. See GTE ADSL Order, 13 FCC Rcd at 22467. By the same token, DSL enables a subscriber to connect only to the Internet service provider that the subscriber has previously designated to be at the other end of the packet-switched data "pipeline." DSL does not allow any-to-any local "intercommunicating," as does traditional circuit-switched telephone service. See 47 U.S.C.  153(47)(A). The subscriber's communications with the various servers that comprise the global Internet are all made through a single point of connection with a single, predesignated Internet service provider. D. The Advanced Services Order In February 1998, U S WEST petitioned the FCC to clarify the regulatory treatment of certain DSL and other data services. U S WEST proposed to offer high-speed data- only services to its customers, primarily rural homes and businesses in the western United States. Petition of U S WEST Communications, Inc. for Relief from Barriers to Deployment of Advanced Telecommunications Services, CC Dkt. No. 98-26 (filed Feb. 28, 1998) (hereinafter "Petition for Relief"). (J.A. ___-___.) At roughly the same time, several other incumbent local telephone companies also petitioned for declaratory relief and the adoption of new FCC rules, as did a public-interest organization and a trade association of new local entrants. The FCC set all these petitions out for public comment. In its Petition for Relief and its comments on other parties' petitions, U S WEST asked the FCC to clarify that its DSL services are not subject to local exchange carrier regulation under sections 251(b) and (c) of the 1996 Act because they do not constitute "telephone exchange service" or "exchange access" as the Act defines these terms. Petition for Relief at 45-46 n.24 (J.A. ___-___); Reply Comments of U S WEST Communications, Inc., CC Dkt. No. 98-26 at 18- 20 (filed May 6, 1998) (hereinafter "Reply Comments") (J.A. ___-___); Comments of U S WEST, Inc., CC Dkt. No. 98-78 at 11-17 (hereinafter "Comments on ALTS Petition") (J.A. ___-___). U S WEST contended that the DSL services described in its petition are fundamentally unlike the local, two-way, circuit-switched services described in the first half of Congress's definition of "telephone exchange service" (and long held by the FCC to come within that definition), and that such DSL services are not "comparable services" under the second half of the definition because they are not functional or market substitutes for local, two-way, circuit-switched telephone service. Petition for Relief at 45-46 n.24 (J.A. ___-___); Reply Comments, at 19-20 (J.A. ___- ___); Comments on ALTS Petition at 15-17 (J.A. ___-___). U S WEST further contended that DSL is not "exchange access" because it does not involve access to "telephone exchange services or facilities" and is not used for "telephone toll services." Comments on ALTS Petition at 17 (J.A. ___). In a consolidated order addressing all of the petitions, the FCC rejected U S WEST's arguments. See Advanced Services Order, 13 FCC Rcd at 24031-34 ( 38-44). (The relevant section of the Advanced Services Order is reproduced in Addendum B to this brief. The entire order appears in the Joint Appendix starting at J.A. ___.) The FCC declared that DSL services are either telephone exchange service or exchange access, but it declined to say which. Id. at 24032 ( 40). The agency gave no reason why either definition covers DSL services. Indeed, it did not articulate any interpretation of any of the relevant statutory terms whatsoever. Instead, the FCC merely stated that it disagreed with U S WEST's construction of the Act. Id. at 24032 ( 41). The FCC did not acknowledge its long line of rulings holding that "telephone exchange service" refers to ordinary local, two-way, circuit-switched service. It also rejected, without explanation, U S WEST's argument that "comparable" services must be functionally similar to or market substitutes for these traditional local services, and it did not offer an alternative meaning for "comparability." Id. The FCC did not address the statutory definition of "exchange access" service at all except to recite it. Id. at 24032 n.70 ( 41 n.70). The FCC thus made no attempt to explain why it could legally extend local marketplace regulation to these new DSL services; it simply asserted that it "[saw] nothing . . . mandating a conclusion" to the contrary. Id. at 24033 ( 42). SUMMARY OF ARGUMENT The Advanced Services Order violates the Telecommunications Act, ignores longstanding FCC precedent, and bears none of the indicia of reasoned agency action. Whereas Congress carefully defined the local telephone services "telephone exchange service" and "exchange access" that would subject a carrier to local exchange marketplace regulation, the Advanced Services Order extends that regulation to data and Internet services having none of the characteristics Congress specified. Adding insult to error, the Advanced Services Order provides no justification at all for this extension, other than that the FCC saw no reason not to regulate. The Act defines "telephone exchange service" as either service within a local exchange that permits all subscribers to call each other for a basic price, or "comparable" service. U S WEST's DSL services do not meet either half of the definition. Internet-bound DSL communications do not stay within a local exchange and do not transit or interconnect with the local exchange network; moreover, DSL does not provide universal local connectivity and is not included in a subscriber's basic local calling charge. Nor are such DSL services "comparable" to the local calling services described in the first half of the definition: They are a supplement to, and not a substitute for, basic local service, and DSL is not functionally equivalent to two-way switched local calling. Indeed, the FCC itself has consistently held that services bearing the characteristics of DSL do not meet the definition of "telephone exchange service." Moreover, U S WEST's DSL service is not "exchange access." The statutory sine qua non of "exchange access" is that it is used for "telephone toll service" defined in the Act as telephone-to-telephone long-distance calling. The FCC has made clear that services that connect subscribers to Internet and other data service providers are "information access" links, not "exchange access." In addition to being contrary to the Telecommunications Act, the Advanced Services Order falls short of the reasoned decisionmaking required of administrative agencies. The FCC rejected U S WEST's proffered construction of the Act based on nothing more than its own ipse dixit, and it proposed no alternative interpretation of the statutory language in place of U S WEST's. Because the FCC never bothered to explain why it believed it could stretch "telephone exchange service" and "exchange access" to cover DSL services, it is impossible to know whether the Advanced Services Order is the product of rational thinking, and impossible to predict what rules the FCC will apply in future cases. At a minimum, the Court should vacate the Advanced Services Order and remand it to the FCC for more reasoned consideration. ARGUMENT I. THE FCC VIOLATED THE 1996 ACT BY EXTENDING LOCAL EXCHANGE MARKETPLACE REGULATION TO NEW SERVICES THAT ARE NEITHER "TELEPHONE EXCHANGE SERVICE" NOR "EXCHANGE ACCESS." In the Advanced Services Order, the FCC recognized that a carrier's network- and market-opening "obligations under section 251 turn on whether the carrier is providing 'telephone exchange service' or 'exchange access.'" Advanced Services Order, 13 FCC Rcd at 24031 ( 38). Congress took care to define "telephone exchange service" and "exchange access" to refer to ordinary local telephone services provided over the traditional PSTN and "comparable" services. But the FCC drained these statutory definitions of any meaning by stretching them to cover new DSL services that are not local, do not use the PSTN, do not provide universal connectivity within a local exchange, and are not market or functional substitutes for local telephone service. The agency accomplished this by pure ipse dixit: Rather than explain how the statutory definitions could be read to apply to DSL services, the FCC simply announced that it "s[aw] nothing . . . mandating a conclusion" that these definitions could not apply. Id. at 24031 ( 42). The Court should reverse the Advanced Services Order as contrary to the plain language of the Act and the FCC's own consistent understanding of that language. Because Congress precisely defined the statutory terms in question, "there is no occasion for deference" to the agency's ruling. Time Warner Entertainment Co. v. FCC, 56 F.3d 151, 190 (D.C. Cir. 1995). Moreover, the Advanced Services Order does not articulate any affirmative interpretation of the statutory language to which this Court could possibly defer. This Court has held that it "cannot defer to a vacuum," Colorado Interstate Gas Co. v. FERC, 850 F.2d 769, 774 (D.C. Cir. 1988), or "to mere decisional evasion." Competitive Enterprise Inst. v. NHTSA, 956 F.2d 321, 323 (D.C. Cir. 1992). See also Achernar Broad. Co. v. FCC, 62 F.3d 1441, 1447 (D.C. Cir. 1995) ("While agency expertise deserves deference, it deserves deference only when it is exercised."). A. Digital Subscriber Line Services Are Not "Telephone Exchange Service." Congress defined "telephone exchange service" as "(A) service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge, or (B) comparable service provided through a system of switches, transmission equipment, or other facilities . . . by which a subscriber can originate and terminate a telecommunications service." 47 U.S.C.  153(47) (emphasis added). U S WEST's DSL services do not meet either half of this definition. 1. Digital subscriber line services are not intercommunicating services within a local telephone exchange and are not covered by the exchange service charge. The first half of the definition of "telephone exchange service," 47 U.S.C.  153(47)(A), has remained substantially unchanged since the original Communications Act of 1934. See Pub. L. No. 416,  3(r), 48 Stat. 1064, 1066 (1934). It describes ordinary, circuit- switched local telephone service: that is, an "intercommunicating" service among all the subscribers "within" a single telephone exchange or set of exchanges in the same local area, for which subscribers pay a basic local service charge (the "exchange service charge"). 47 U.S.C.  153(47)(A). The FCC has long interpreted this definition narrowly to refer to "the provision of individual two-way voice communication by means of a central switching complex to interconnect all subscribers within a geographic area." Application of Midwest Corp., 53 F.C.C.2d 294, 300 (1975). See also Offshore Tel. Co. v. South Cent. Bell Tel. Co., 6 FCC Rcd 2286, 2287 (1991) (telephone exchange service is "a local calling capability that permits a community of interconnected customers to make calls to one another over a switched network"); Domestic Public Radio Svc., 76 F.C.C.2d 273, 281 (1980) (same formulation as Midwest Corp.). The FCC itself has continued to interpret this part of the statutory definition exactly the same way since the passage of the 1996 Act. See Application of BellSouth Corp. et al. for Provision of In-Region, InterLATA Services in Louisiana, 13 FCC Rcd 20599, 20621 (1998) (hereinafter "BellSouth Order") (same formulation as Midwest Corp.). Indeed, the FCC has concluded that, by leaving this half of the definition of "telephone exchange service" unchanged in the 1996 Act, Congress intended to ratify and incorporate the agency's longstanding interpretation of the statutory term. See BellSouth Order, 13 FCC Rcd at 20621 & n. 64 (citing Lorillard v. Pons, 434 U.S. 575, 580 (1978) and Dutton v. Wolpoff & Abramson, 5 F.3d 649, 655 (3d Cir. 1993)). The Advanced Services Order does not attempt to explain how DSL services meet either the text of 47 U.S.C.  153(47)(A) or the FCC's own consistent interpretation of that text. Any such attempt would have been doomed to fail. First, whether considered from a service or a facilities perspective, DSL services do not begin and end "within" a "telephone exchange" or set of exchanges in the same local area. 47 U.S.C.  153(47)(A). Considering the former: Customers use DSL services predominantly for high-speed Internet access, not for local communication within an exchange. See GTE ADSL Order, 13 FCC Rcd at 22470-72; Bell Atlantic Tel. Cos., 13 FCC Rcd 23667, 23668 (1998). A DSL customer sends a short burst of data over a dedicated, high-speed connection to a predesignated Internet service provider, which then forwards the data to the worldwide network of servers (data storage centers) comprising the Internet. See GTE ADSL Order, 13 FCC Rcd at 22471-72. The FCC deems this to be a single connection between the end user and any Internet server with which the user communicates, wherever in the world that server is located. In fact, the FCC recently confirmed that DSL-based Internet connections "do not terminate at the [Internet service provider's] local server . . . but continue to the ultimate destination or destinations, very often at a distant Internet website accessed by the end user" in other words, outside the user's local exchange. GTE ADSL Order, 13 FCC Rcd at 22476. Nor do DSL services use or interconnect with the facilities that the FCC has consistently associated with "telephone exchange service" the traditional circuit-switched PSTN. Compare BellSouth Order, 13 FCC Rcd at 20622 (finding PCS wireless service to be "telephone exchange service" because PCS users "are interconnected to the public switched network by means of a central switching complex, and thus are able to place and receive calls . . . to users of other networks connected to the public switched network"), with General Tel. Co. of Calif., 13 F.C.C.2d 448, 460 (1968) (cable television transmission does not meet definition because it "does not require an exchange [and] does not go through an exchange"). DSL transmissions are taken off the PSTN at the first feasible point before arriving at any circuit switch or other vehicle of universal connectivity, so that the only facility that they share with PSTN traffic is the copper loop connecting the end user's premises to the closest central office. See Advanced Services Order, 13 FCC Rcd at 24027 ( 30) ("Thus, the data traffic, after traversing the local loop, avoids the circuit-switched telephone network altogether."). Under FCC precedent, this minimal level of sharing is not enough to make DSL a telephone exchange service, and the FCC did not suggest otherwise in the Advanced Services Order. Even if only the initial leg of a DSL communication is considered that is, the high-speed link between the end user and the predesignated ISP that link bears no resemblance to the any-to-any local "intercommunicating service" encompassed by the statutory definition. 47 U.S.C.  153(47)(A). According to the FCC, telephone exchange service involves "a central switching complex which interconnects all subscribers within a geographic area." BellSouth Order, 13 FCC Rcd at 20621. And telephone exchange service is "a local calling capability that permits a community of interconnected customers to make calls to one another over [such] a switched network." Offshore Tel. Co., 3 FCC Rcd 4137, 4142 (1988). Services that connect only predesignated locations or do not permit ubiquitous local intercommunication do not, according to the FCC, constitute telephone exchange service. DSL does not permit any-to-any intercommunication within a local exchange. When an end user signs up for DSL, the user must also specify the Internet service provider (or other party) with whom the user wants to establish its high-speed connection. Once the DSL provider establishes a permanent virtual connection between the two, the end user has an always- on, dedicated "pipe" connected exclusively to the other party. If the other party is an Internet service provider, it can, in turn, route traffic from the end user's pipe over the Internet. But this routing is done by the Internet service provider, not the DSL provider; the end user's DSL pipe always remains pointed to its locally predesignated party. The end user can ask the DSL provider to redirect its dedicated link to a different Internet service provider, but the end user cannot simply "dial up" any Internet service provider (or any other DSL end user) at will, as would be possible with a true, intercommunicating "telephone exchange service" under 47 U.S.C.  153(47)(A). In other words, DSL services generally interconnect at a single point within the local exchange, and permit the customer to communicate with the World Wide Web only through this single point. Finally, in order to qualify as a "telephone exchange service" under subsection (A), the statute also requires that a service be "covered by the exchange service charge" that is, the basic local calling charge. 47 U.S.C.  153(47)(A). DSL is not included in the price of basic local telephone service. See, e.g., U S WEST, MegaBit Services Pricing (last modified May 14, 1999) ("The pricing of MegaBit Services [U S WEST's DSL offering] does not include pricing of phone service."). Nor is DSL a substitute for local telephone service, such that the DSL price could be a de facto basic exchange service charge. Customers who purchase U S WEST's DSL connections for their data traffic must continue to buy basic local voice telephone service and pay separate charges. See id. ("The [DSL] customer's phone service remains the same and the customer continues to pay the current charges for residential or business phone service."); GTE ADSL Order, 13 FCC Rcd at 22471- 22472 (noting that, with DSL, "an end user will still need to purchase standard residential or basic service"). 2. Digital subscriber line services are not "comparable" to traditional telephone exchange service. The 1996 Act added the second part of the definition of "telephone exchange service," clarifying that the term includes "comparable service provided through a system of switches, transmission equipment, or other facilities." 47 U.S.C.  153(47)(B) (emphasis added). Although there is no legislative history explaining this amendment to the prior statutory definition, it presumably reflects an understanding that network technologies might change over time, and that the traditional local telephone services described in the old definition might eventually be provided over different facilities and networks than the ones originally described. The Advanced Services Order takes this amendment as a license to remove all limits on the class of regulated services. In its comments to the FCC, U S WEST argued that, by using the word "comparable," Congress meant to include those services that are functionally similar to and can substitute for the switched local services long held to satisfy the original statutory definition. Petition for Relief at 45-46 n.24 (J.A. ___-___); Reply Comments at 19-20 (J.A. ___-___); Comments on ALTS Petition at 15-17 (J.A. ___-___). In the Order, however, the FCC ignored this argument and instead set up and rejected a straw man. The FCC ruled that the amendment "refutes any attempt to tie these statutory definitions to a particular technology" even though U S WEST had never suggested that technological identity was the standard of comparability. Advanced Services Order, 13 FCC Rcd at 24032 ( 41). The Advanced Services Order does not propose any alternative definition of "comparable." Nor does it articulate any principle that might limit the class of services that could be regulated as "telephone exchange service." The Court should reject the FCC's attempt to deny content to the definition of "telephone exchange service." While Congress's amendment arguably expanded the range of services that count as "telephone exchange service," it plainly did not remove all limits on the term. On the contrary, it only broadened the definition to include those services that are "comparable" to those described in the preexisting language again, two-way, any-to-any, switched local services. 47 U.S.C.  153(47)(B). "Comparable" here has its ordinary meaning of "equivalent" or "similar"; "comparable" services have "enough like characteristics or qualities to make comparison appropriate." Webster's Third New Int'l Dictionary 461 (1971). Service is "comparable" to traditional telephone exchange service if it is the functional "equivalent" of such service, or sufficiently "similar" to be a substitute. Indeed, this was how the FCC itself interpreted "comparability" under this same provision prior to the Advanced Services Order: The FCC ruled, for example, that cellular and other wireless services are "comparable" because wireless carriers "provide local, two-way switched voice service as a principal part of their business," and these wireless services could "become a true economic substitute for wireline local exchange service." Implementation of the Local Competition Provisions in the Telecommunications Act, 11 FCC Rcd 15499, 15999-16000 (1996). See also Federal-State Joint Bd. on Universal Svc., 13 FCC Rcd 11501, 11528 (1998) (describing comparability in terms of providing the same services over alternative facilities, such as substitutes for the copper loop). In the order under review, however, the FCC denied that it was required to find that DSL services are equivalent to or substitutes for traditional telephone exchange service. See Advanced Services Order, 13 FCC Rcd at 24032 ( 41). It could not have made this finding in any case. U S WEST's DSL services are not a market substitute for ordinary two-way switched local calling. They are high-speed data services that are marketed as a supplement to, not a substitute for, basic local service; a customer who purchases DSL service must still buy basic local telephone service separately to make and receive local calls. Moreover, DSL services are not functionally equivalent to traditional local calling: Rather than offering freely switched connections among all the subscribers within a limited local calling area, DSL provides only a dedicated connection to a predesignated local recipient. See GTE ADSL Order, 13 FCC Rcd at 22472. Notably, since issuing the Advanced Services Order, the FCC has ruled that these very same characteristics will disqualify a service from the expanded definition of "telephone exchange service." The FCC has ruled that even typical dial-up Internet access, where the end user makes an ordinary circuit-switched telephone call over the PSTN to an Internet service provider's local number, is not "telephone exchange service" because the communication is not local: As with a DSL transmission, the FCC deems an Internet-bound dial-up call to terminate not at the Internet service provider, but at the various web servers located outside the local calling area. See Declaratory Ruling, Inter-Carrier Compensation for ISP Bound Traffic, CC Dkt. No. 96-98, FCC 99-38,  12, 16-17 (rel. Feb. 25, 1999). Similarly, the FCC has recently ruled that "special access" defined as "a dedicated path between an end user and an interexchange carrier's point of presence" is not "telephone exchange service" because it does not involve any-to-any intercommunication among all local subscribers. In so ruling, the FCC cited DSL as the paradigm of a "special access" service. See Mem. Op. and Order, Applications for Consent to the Transfer of Control of Licenses from Tele-Communications, Inc. to AT&T Corp., CS Dkt. No. 98-178, FCC 99-24,  135 & n.384 (rel. Feb. 17, 1999) (citing GTE ADSL Order, 13 FCC Rcd at 22480). (As explained in the next section, calling DSL a "special access" service does not mean that DSL is "exchange access" the second service that defines a LEC. "Special" access simply means that the connection is dedicated rather than switched. See GTE ADSL Order, 13 FCC Rcd at 22480; Southwestern Bell Tel. Co. v. FCC, 100 F.3d 1004, 1005 (D.C. Cir. 1996) (describing difference between "special" and "switched" access.)) These later holdings confirm that, if the FCC had actually tried to apply the statute to determine whether U S WEST's DSL services are "comparable" to traditional telephone exchange service, it would have been required to agree with U S WEST that they are not. B. Digital Subscriber Line Services Do Not Constitute "Exchange Access." In the decision under review, the FCC merely recited Congress's definition of "exchange access," then promptly ignored it. See Advanced Services Order, 13 FCC Rcd at 24032-33 n.71 ( 41 n.71). Here, too, if the agency had tried to apply the definition, it would have had to acknowledge that DSL services do not fall within its terms. DSL does not involve the use of telephone exchange facilities to originate and terminate long-distance "toll" telephone calls, the sine qua non of "exchange access." "Access services" refer generically to "services and facilities provided for the origination and termination of any interstate or foreign telecommunication." 47 C.F.R.  69.2(b). See also Southwestern Bell Tel. Co., 100 F.3d at 1005 (describing access services generally). There are two different subcategories of "access services." The Act's definition of a "local exchange carrier" applies only to an entity that provides "exchange access," defined as "the offering of access to telephone exchange services or facilities for the purpose of the origination or termination of telephone toll services." 47 U.S.C.  153(16) (emphasis added). The other subcategory of "access service" is "information access," defined since before the Act as "the provision of specialized exchange telecommunications . . . in connection with the origination, termination, transmission, switching, forwarding or routing of telecommunications traffic to or from the facilities of a provider of information services." See United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 229 (D.D.C. 1982) (AT&T divestiture decree). The 1996 Act preserves the distinction between "exchange" and "information" access, see, e.g., 47 U.S.C.  251(g) (distinguishing between "exchange access, information access, and exchange services"), and the FCC has acknowledged that these remain distinct services under the Act. See Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, 11 FCC Rcd 21905, 22023-24 n. 621 (1996) (hereinafter "Non-Accounting Safeguards Order"); Access Charge Reform, 12 FCC Rcd 15982, 16134-35 (1997). DSL is not used to originate or terminate "telephone toll services," as is required of "exchange access." 47 U.S.C.  153(16). The 1996 Act defines "telephone toll service" as "telephone service between stations in different exchange areas" in other words, ordinary telephone-to-telephone long-distance calling. 47 U.S.C.  153(48). (A "station" is simply another word for a telephone. See Harry Newton, Newton's Telecom Dictionary 744 (15th ed. 1999).) DSL service does not connect one telephone user to another for the purpose of making a long-distance toll call; therefore, it is not "exchange access." DSL is, instead, a form of "information access" a service giving end users high- speed data access from their computers to Internet service providers and other providers of information services. FCC decisions make this clear. In its Non-Accounting Safeguards Order, the FCC reaffirmed that the data services offered by Internet service providers cannot be "telephone toll services" because these companies provide "information services" rather than basic "telecommunications." 11 FCC Rcd at 22023-24. For that reason, it further held, the access links that allow subscribers to reach information service providers cannot be considered "exchange access." Id. The FCC held that information service providers instead purchase "information access," which, it acknowledged, is a wholly distinct category under the Act. Id. n.621. The FCC has reinforced this holding in other decisions confirming that Internet service providers are not required to pay the access charges normally paid by purchasers of exchange access. The FCC did not acknowledge these precedents in the Advanced Services Order, let alone distinguish them. Indeed, the FCC gave no explanation at all of how DSL services could constitute "exchange access," just as it did not explain why they might meet the old or expanded definitions of "telephone exchange service." Tracing through Congress's language and agency precedent makes it abundantly clear that DSL is neither of the two kinds of service listed in Congress's definition of a "local exchange carrier," 47 U.S.C.  153(26); rather, it falls in the entirely different statutory category of information access. II. THE ADVANCED SERVICES ORDER FALLS SHORT OF THE REASONED DECISIONMAKING REQUIRED OF ADMINISTRATIVE AGENCIES. The five paragraphs of the Advanced Services Order purporting to address U S WEST's statutory arguments are hardly a model of administrative clarity or rationality. As noted above, in rejecting those arguments, the FCC never articulates any view of what it believes "telephone exchange service" or "exchange access" to mean, even though it concedes that a carrier's regulatory obligations "turn on whether the carrier is providing" one or the other of these services. Advanced Services Order, 13 FCC Rcd at 24031 ( 38). With respect to "telephone exchange service," the FCC takes the mere fact of the addition of the "comparability" test as license to read the definition's limitations out of the Act. Id. at 24032-33 ( 41). And with respect to "exchange access," the FCC says nothing at all. What is more, the FCC refuses even to say which of the two statutory categories might apply to DSL services, id. at 24032 ( 40), and other recent orders strongly indicate that DSL does not fall into either category. At its core, the Advanced Services Order simply says, "I know it when I see it, and I'll regulate it when I do." At a minimum, the Court should vacate the Advanced Services Order and remand it to the FCC for a reasoned consideration of U S WEST's arguments and explanation of its ruling. The FCC is entitled to no deference in this regard. "Judicial deference to decisions of administrative agencies . . . rests on the fundamental premise that agencies engage in reasoned decision-making." American Lung Ass'n v. EPA, 134 F.3d 388, 392 (D.C. Cir. 1998). See also A.L. Pharma, Inc. v. Shalala, 62 F.3d 1484, 1491 (D.C. Cir. 1995) ("Deferring to an agency's exercise of its discretion . . . is not tantamount to abdicating the judiciary's responsibility under the Administrative Procedure Act to set aside agency actions that are 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'"). The Advanced Services Order fails that test. A. To the Extent the FCC Offers Any Reasoning, Its Explanations Are Entirely Inadequate. To find that DSL services constitute either "telephone exchange service" or "exchange access" within the meaning of the 1996 Act, the FCC had to find one of three things: (1) DSL services meet the pre-Act definition of "telephone exchange service," (2) DSL services are "comparable" to the services that meet the pre-Act definition, or (3) DSL services fall within the statutory definition of "exchange access," meaning that they are used for "telephone toll services." The Advanced Services Order says not a word about the first and third propositions. With respect to the second, the FCC rejects U S WEST's reading of "comparable services" that they must be functionally equivalent to or substitutes for services long held to satisfy the old definition on the basis of a straw man. The FCC's only explanation is that the "language of the statute . . . refutes any attempt to tie these statutory definitions to a particular technology." Advanced Services Order, 13 FCC Rcd at 24032-33 ( 41). But that is an argument U S WEST never made; on the contrary, U S WEST took technological evolution as a given, and suggested that comparability be defined in terms of functional or marketplace similarity. Petition for Relief at 45-46 n.24 (J.A. ___-___); Reply Comments at 19-20 (J.A. ___-___); Comments on ALTS Petition at 16-17 (J.A. ___-___). In any event, the Advanced Services Order offers no definition of "comparable" that could justify equating non-local, non-any-to-any DSL services with traditional local telephone exchange service. The Order thus contains no explanation at all as to why the FCC may extend local exchange regulation to DSL services. At the end of the day, the FCC seeks to regulate because it sees no reason not to: The agency "see[s] nothing . . . mandating a conclusion that advanced services offered by incumbent LECs fall outside of the 'telephone exchange service' or 'exchange access' definitions set forth in the Act." Advanced Services Order, 13 FCC Rcd at 24033 ( 42) (emphasis added). This utter lack of justification and tacit suggestion that none is necessary cannot stand. "'[A]n agency must cogently explain why it has exercised its discretion in a given manner,' . . . and that explanation must be 'sufficient to enable [a court] to conclude that the [agency's action] was the product of reasoned decisionmaking.'" A.L. Pharma, Inc., 62 F.3d at 1491 (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 28, 48, 52 (1983)). See also American Lung Ass'n, 134 F.3d at 392 ("'[I]t will not do for a court to be compelled to guess at the theory underlying the agency's action.'"). It is not enough for an agency simply to recite a party's arguments, then issue "ipse dixit conclusion[s]" saying nothing more than "We disagree." Illinois Pub. Telecomm. Ass'n v. FCC, 117 F.3d 555, 564 (D.C. Cir. 1997). See also Building & Constr. Trades Dep't, AFL-CIO v. Martin, 961 F.2d 269, 277 (D.C. Cir. 1992) ("To state a conclusion is not to reason."). The FCC's failure to articulate its reasons for regulating justifies a vacation and remand of the Advanced Services Order. B. The FCC's Failure To Define the Categories of Service Subject to Regulation or Even To Say Which Category Applies Here Is the Essence of Arbitrary and Capricious Agency Action. By refusing to explain the criteria by which it will consider a service to be "telephone exchange service" or "exchange access" (and therefore subject to the obligations of sections 251(b) and (c)), the FCC leaves telecommunications carriers with no guidance as to when deploying a new service will subject them to local exchange carrier regulation. In the wake of the Advanced Services Order, carriers must simply assume that the FCC might try to regulate any future telecommunications service they provide, and adjust their investment and deployment decisions accordingly. (The FCC's statutory errors in this case only reinforce this assumption.) Moreover, an order such as this one permits the FCC to make itself unaccountable: A decision that contains no reasoning cannot be tested for consistency with prior rulings and cannot become precedent that constrains the agency in the future. Such "ad hocery . . . is the core concern underlying the prohibition of arbitrary or capricious agency action." Pacific Northwest Newspaper Guild, Local 82 v. NLRB, 877 F.2d 998, 1003 (D.C. Cir. 1989) (quotation marks omitted). It also violates "[e]lementary administrative law norms of fair notice." Checkosky v. SEC, 139 F.3d 221, 224 (D.C. Cir. 1998). The Court has made clear that it "simply will not do for a government agency to declare without explanation that a proposed course of private action is not approved. To refuse to define the criteria it is applying is equivalent to simply saying no without explanation." Pearson v. Shalala, 164 F.3d 650, 660 (D.C. Cir. 1999) (citation omitted). An agency may never regulate simply by saying, "I know it when I see it." Id. Cf. Checkosky, 139 F.3d at 225 (rejecting agency interpretation that effectively permits it "a self-proclaimed license to charge and prove improper professional conduct whenever it pleases, constrained only by its own discretion"). To be sure, an agency may resolve issues incrementally through case-by-case proceedings rather than by general regulation, "but it must be possible for the regulated class to perceive the principles which are guiding agency action" in the individual cases. Pearson, 164 F.3d at 661. It is impossible for carriers to derive any such principles from the Advanced Services Order because the FCC went out of its way to avoid articulating any. CONCLUSION For the foregoing reasons, the Advanced Services Order should be vacated and remanded to the FCC. Respectfully submitted, William T. Lake John H. Harwood II Jonathan J. Frankel WILMER, CUTLER & PICKERING 2445 M Street, N.W. Washington, D.C. 20037 (202) 663-6000 Dan L. Poole Robert B. McKenna U S WEST, INC. 1020 19th Street, N.W. Suite 700 Washington, D.C. 20036 (303) 672-2861 Counsel for Petitioner DATE: May 17, 1999 CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION I HEREBY CERTIFY, pursuant to Fed. R. App. P. 32(a)(7)(C), that this brief complies with the type-volume limitation set forth in Fed. R. App. P. 23(a)(7)(B). I further certify that the brief contains 10,150 words. Jonathan J. Frankel CERTIFICATE OF SERVICE I HEREBY CERTIFY that on May 17, 1999, I caused two true and correct copies of the foregoing Brief of Petitioner to be served by hand upon each of the following: Laurence N. Bourne John Edward Ingle Christopher J. Wright Federal Communications Commission 445 Twelfth Street, SW, Room 8-A741 Washington, DC 20554 Nancy Caroline Garrison Catherine G. O'Sullivan U. S. Department of Justice Antitrust Division, Appellate 601 D Street, NW Patrick Henry Building Washington, DC 20530 I FURTHER CERTIFY that on May 17, 1999, I caused two true and correct copies of the foregoing Brief of Petitioner to be served by first-class mail, postage prepaid upon each of the following: Charles C. Hunter Catherine M. Hannan Hunter Communications Law Group 1620 I Street, NW, Suite 701 Washington, DC 20006 Brad E. Mutschelknaus Kelley, Drye & Warren 1200 19th Street, NW, Suite 500 Washington, DC 20036-2423 Riley Marie Murphy American Communications Services, Inc. 131 National Business Parkway, Suite 100 Annapolis, MD 20701 Genevieve Morelli Competitive Telecommunications Association 1900 M Street, NW, Suite 800 Washington, DC 20036 Robert Jeffery Aamoth Steven A. Augustino Kelley, Drye & Warren 1200 19th Street, NW, Suite 500 Washington, DC 20036-2423 Leon Marvin Kestenbaum Harold Richard Juhnke Jay Clark Keithley Sprint Corporation 1850 M Street, NW, Suite 1100 Washington, DC 20036 Anthony C. Epstein Jenner & Block 601 13th Street, NW, 12th Floor Washington, DC 20005 Matthew Bennett Pachman MCI Telecommunications Corp. 1133 19th Street, NW Washington, DC 20036 Peter Douglas Keisler Sidley & Austin 1722 Eye Street, NW, Suite 600 Washington, DC 20006-3795 David W. Carpenter Sidley & Austin One First National Plaza Chicago, IL 60603 Mark C. Rosenblum American Telephone & Telegraph 295 North Maple Avenue Basking Ridge, NJ 07920 Emily M. Williams Association for Local Telecommunications Services 888 17th Street, NW, Suite 900 Washington, DC 20006 Mark Lewis Evans Kellogg, Huber, Hansen, Todd & Evans 1301 K Street, NW, Suite 1000 West Washington, DC 20005 Michael J. Zpevak Southwestern Bell Telephone One Bell Plaza, Room 3008 Dallas, TX 75202 James D. Ellis SBC Communications, Inc. 175 E. Houston San Antonio, TX 78205 Durward D. Dupre SBC Communications Inc. One Bell Plaza, Suite 3703 Dallas, TX 75202 Linda Lee Oliver Hogan & Hartson 555 13th Street, NW Columbia Square Washington, DC 20004-1109 Rodney L. Joyce Shook, Hardy & Bacon 1850 K Street, NW, Suite 900 Washington, DC 20006-2244 Gail Laurie Polivy GTE Service Corporation 1850 M Street, NW, Suite 1200 Washington, DC 20036-5801 John Francis Raposa GTE Telephone Operations P.O. Box 152092 Irving, TX 75015-2092 Glenn B. Manishin Jeffrey Blumenfeld Blumenfeld & Cohen 1615 M Street, NW, Suite 700 Washington, DC 20036 Randall Brian Lowe Piper & Marbury 1200 19th Street, NW, Suite 700 Washington, DC 20036 Ruth Margaret Milkman The Lawler Group 7316 Wisconsin Avenue NW, Suite 400 Bethesda, MD 20814 Colleen Boothby Levine, Blaszak, Block & Boothby 2001 L Street, NW, Suite 900 Washington, DC 20036 Jonathan Jacob Nadler Squire, Sanders & Dempsey 1201 Pennsylvania Avenue NW Washington, DC 20044 Russell M. Blau Swidler Berlin Shereff Friedman 3000 K Street, NW, Suite 300 Washington, DC 20007-5116 Dana Frix Swidler Berlin Shereff Friedman 3000 K Street, NW, Suite 300 Washington, DC 20007-5116 . Richard Martin Rindler Swidler Berlin Shereff Friedman 3000 K Street, NW, Suite 300 Washington, DC 20007-5116 Jonathan J. Frankel