274 F.3d 549 (D.C. Cir. 2001)
Sprint Communications Company L.P., Appellantv.Federal Communications Commission, AppelleeSBC Communications Inc., et al., Intervenors
No. 01-1076, 01-1081, 01-1082, 01-1083, 01-1084
United States Court of Appeals  FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 17, 2001Decided December 28, 2001

Appeals from an Order of the Federal Communications Commission
David W. Carpenter argued the cause for appellants. With  him on the briefs were Mark C. Rosenblum, Mark E. Haddad, David L. Lawson, Jay T. Jorgensen, Theodore C. Whitehouse, Randy J. Branitsky, Thomas F. O'Neil III, William  Single IV, Mark D. Schneider, Robert J. Aamoth, Brad E.  Mutschelknaus and Jonathan E. Canis. Peter D. Keisler  entered an appearance.
James M. Carr, Counsel, Federal Communications Commission, argued the cause for appellee. With him on the brief  were Daniel M. Armstrong, Associate General Counsel, and  John E. Ingle, Deputy Associate General Counsel.
Geoffrey M. Klineberg argued the cause for intervenors  SBC Communications Inc., Southwestern Bell Telephone  Company and Southwestern Bell Communications Services,  Inc. With him on the brief were Michael K. Kellogg, Scott K.  Attaway, Alfred G. Richter, Jr., James D. Ellis, Martin E.  Grambow and Mary W. Marks.
Eva Powers, Elisabeth H. Ross and Douglas S. Burdin  were on the brief for intervenor Kansas Corporation Commission.
William R. Burkett was on the brief for amicus curiae  Oklahoma Corporation Commission in support of appellee.
Before:  Tatel, Circuit Judge, Silberman and Williams*,  Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge Stephen F. Williams.
Stephen F. Williams, Senior Circuit Judge:


1
The regional Bell operating companies ("BOCs"), split off from AT&T in the 1982  antitrust settlement, provide most local telephone service. Section 271 of the Telecommunications Act of 1996 (the  "Act"), 47 U.S.C. § 271, offers the BOCs a deal:  such a  company can enter the long distance business in a state  within its service area if it takes specified steps to open the  local-service market to competition.  SBC Communications, a  provider of local service in Kansas and Oklahoma, applied to  the Federal Communications Commission for authorization to  enter the long distance market in those states.  Various long  distance providers, including the five appellants before us,  objected.  The FCC granted the authorization, see Joint  Application by SBC Communications, Inc. et al. for Provision of In-Region InterLATA Services in Kansas and Oklahoma, 16 F.C.C.R. 6237 (2001) (the "Order"), and this appeal followed.  See 47 U.S.C. § 402(b)(6) & (9) (giving this court  exclusive jurisdiction over challenges to the Commission's  § 271 orders).


2
The full regulatory context of a § 271 application is set  forth comprehensively in our decision affirming the FCC's  approval of Bell Atlantic's § 271 application for New York. AT&T v. FCC, 220 F.3d 607, 610-15 (D.C. Cir. 2000), affirming Bell Atlantic New York Order, 15 F.C.C.R. 3953 (1999)  ("New York Order").  Here we state only the bare bones. The Act entitles each of the BOCs to begin offering long  distance service originating outside their local-service areas  immediately.  See 47 U.S.C. § 271(b)(2).  But for authority to  offer "in region" long distance service (i.e., service originating  in a state where it provided local service), the Act requires a  BOC to apply for Commission approval.  Id. § 271(b)(1). The Commission then has 90 days to decide whether the BOC  has shown that it is in compliance with the statutory prerequisites.  Id. § 271(d)(3).


3
First, the BOC must satisfy either "Track A" or "Track  B"--names derived from subparagraphs of § 271(c)(1).  For  Track A it must show that it provides network access to "one  or more unaffiliated competing providers of telephone exchange service ... to residential and business subscribers." Id. § 271(c)(1)(A).  If no competing provider has requested  such access, the BOC may invoke Track B, showing that it is  ready and willing to provide its competitors with network  access and interconnectivity under terms "approved ... by  the State commission."  Id. § 271(c)(1)(B).


4
Besides prevailing on Track A or B, the BOC must establish that its offering of interconnection and access to competitive local exchange companies ("CLECs") meets the fourteen  requirements of a "competitive checklist" contained in  § 271(c)(2)(B).  Many of these requirements are simply incorporations by reference of obligations independently imposed  on the BOCs by §§ 251-52 of the Act, id. § 271(c)(2)(B)(i) &  (ii), and enforced by state regulatory commissions pursuant to  § 252.  The required interconnection and access must be  available on non-discriminatory terms and at cost-based rates. See, e.g., id. §§ 251(c)(2) & (3), 252(d)(1).  Finally, the BOC  must convince the FCC that "the requested authorization is  consistent with the public interest, convenience, and necessity."  Id. § 271(d)(3)(C).


5
SBC filed an application for long distance service authorization in both Kansas and Oklahoma on October 26, 2000.  Its  petition relied on the network element rates that were set by  the Kansas Corporation Commission and the Oklahoma Corporation Commission in § 252 proceedings implementing  SBC's duties under § 251.  See Order at p p 12-16, 22-23. Numerous parties--including the Department of Justice, the  Kansas Commission and the Oklahoma Commission, and the  five appellants--filed comments.  The state commissions  weighed in on the side of SBC.  DOJ's recommendations  endorsed neither denial nor approval of the applications, but  instead urged the FCC to scrutinize particular aspects of the  petition, including SBC's prices for network elements.


6
On January 22, 2001--ninety days after the application was  filed, and for the first time in a situation involving predominantly rural states--the FCC released its order granting  SBC the authorizations.  See Order p 1.


7
The Commission found first that SBC had satisfied Track A  in both Kansas and Oklahoma because the company was  supplying network access to one or more unaffiliated competitors providing residential and business customers with "facilities-based service."  Order p p 40-44;  see also § 271(c)(1)(A).


8
Next the Commission concluded that SBC had fully met the  requirements of the competitive checklist in both states. Evidence in the record was virtually uncontested with respect  to eleven of the fourteen checklist items.  Order p p 39, 24155.  As for the remaining three items, the Commission considered and rejected commenters' contentions that SBC failed  to provide network elements and interconnection to CLECs  at cost-based rates.  See Order p p 45-240.


9
Appellants raised two rate-related arguments that are novel in § 271 litigation.  Pointing to the rather low level of  residential service by CLECs, they argued that the unbundled network element ("UNE") rates could not have genuinely conformed to the cost requirement, or else competition  would have flourished, or at least not proven so modest. Further, pointing to submissions of evidence that SBC's UNE  rates were too high to provide profitable residential service,  they argued that SBC was engaged in a "price squeeze"  (charging prices for inputs that precluded competition from  firms relying on those inputs), and that accordingly the  Commission could not find that authorization of its entry into  the long distance market was "consistent with the public  interest," as required by § 271(d)(3)(C).  The Commission  rather summarily rejected both claims.  Order p p 92, 268.


10
Appellants here pursue three basic arguments.  First, they  make the arguments summarized above about the relation  between UNE rates and low volumes of residential service. Second, they make a series of detailed attacks on the Commission's findings that the UNE rates were cost-based.  Finally, they say that the FCC improperly relied on ex parte  communications in its Kansas Track A determination, which  was, in any event, independently erroneous.  We consider the  arguments in that order.  We conclude that appellants have  made out a case for a remand to the Commission only on the  "public interest" aspect of the first issue.


11
1. Low-volume local competition, possible price squeeze and the public interest.


12
In contrast to the situation in the other two states where  the FCC has previously granted long distance authority to a  requesting BOC (New York and Texas), Oklahoma and Kansas have local telephone markets characterized by relatively  low volumes of residential competition from non-BOC firms. Order p p 34, 92, 268.  Appellants also point to evidence they submitted, evidently uncontradicted in the record, that competition in the residential market that was dependent on  UNEs at SBC's prices could not succeed.  They argue that  the low volumes and the evidence of the impossibility of  profitable competition both contradict the Commission's finding of cost-based rates and undermine its conclusion that  granting SBC's applications was consistent with the public  interest.


13
The Commission's standard for cost--"TELRIC" (or total  long-run incremental cost)--is one that might normally be  expected to generate competition.  In principle, there is no  reason to think the BOC's real costs could be lower.  In an  otherwise undistorted market, firms capable of efficiently  supplying the non-BOC elements should be able to compete. Appellants' proposal that the Commission consider the volume of competition as a cross-check for its cost finding is  therefore understandable.


14
But we can hardly find the Commission's rejection of  appellants' proposal unreasonable.  The statute imposes no  volume requirements for satisfaction of Track A, so that it  would be odd for the Commission to use low volume to defeat  a finding of TELRIC-compliant rates.  And it would be  reasonable for the Commission to treat any questions raised  by the low volumes, or by the appellants' evidence showing  the difficulty of making a profit under SBC's rates, as subsumed within the issue of TELRIC compliance.  See AT&T,  220 F.3d at 619.  As the appellants concede, the lack of  competition they allude to is neither a direct nor a conclusive  proof of a checklist violation.  Appellants' Br. at 52.1  The  Justice Department argued that the low volumes "compela closer look" at whether SBC's rates were "properly costbased," Evaluation of the U.S. Department of Justice ("DOJ  Report") at 10, and the FCC did just that, as we shall see.


15
Appellants repackage the data on volumes and potential  profitability as an attack on the Commission's public interest  finding.  Concededly, Congress did not expressly consider  whether such data could prevent a public interest finding or  even require further inquiries by the Commission.  See Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S.  837, 842-43 (1984).  But appellants in substance argue that  the only reasonable construction of the requirement calls at  least for such an inquiry.  They point to "price squeeze"  decisions, construing public-interest provisions in statutes  that are not explicitly aimed at fostering competition, which  reviewed--and found wanting--agencies' asserted grounds  for failing to follow up similar claims.  See, e.g., Mid-Tex  Elec. Coop., Inc. v. FERC, 773 F.2d 327, 351-62 (D.C. Cir.  1985).  With a statute that proclaims competition as the  congressional purpose, Pub. L. No. 104-104, purpose statement, 110 Stat. 56, 56 (1996), it follows a fortiori, appellants  say, that the Commission should pursue their price squeeze  claim, or at the very least explain why the public interest does  not require it to do so.  After all, "the words 'public interest'  in a regulatory statute ... take meaning from the purposes of  the regulatory legislation."  NAACP v. FPC, 425 U.S. 662,  669 (1976).


16
In fact, the Commission gave appellants' claim rather a  brush-off.  First, the Commission said that under its reading  of the Act, the "profitability" considerations raised by appellants were "irrelevant" because the Act directed it to assure  that the rates were cost-based, "not [to determine] whether a  competitor can make a profit by entering the market."  Order  p 92;  see also id. p 65.  This, of course, is unresponsive.  The  issue is not guarantees of profitability, but whether the UNE  pricing selected here doomed competitors to failure.


17
Second, the Commission reasoned that consideration of the  price-squeeze claims would have exceeded the Commission's  authority under the Act, because it would have required the  FCC to invade state commissions' exclusive jurisdiction over  retail rates.  Order p 92 ("Were we to focus on profitability,  we would have to consider the level of a state's retail rates,  something which is within the state's jurisdictional authority,  not the Commission's.").  But the Supreme Court rejected  precisely this argument in FPC v. Conway Corp., 426 U.S.  271 (1976).  There the Federal Power Commission had refused to hear price-squeeze evidence on the theory that it was  powerless to eliminate any such squeeze, as retail rates fell in  the exclusive jurisdiction of state commissions.  Id. at 277. The Supreme Court responded that the remedy, if any, could  take the form of the Commission's fixing the wholesale rates,  which were under its jurisdiction, at a lower level within "the  zone of reasonableness."  Id. at 279 (internal quotation marks  omitted).


18
The Commission makes a related argument in its brief,  saying that any price-squeeze claim is effectively rebutted by  the Commission's finding that UNE rates were cost-based.  That is true to the extent that an agency can pinpoint  TELRIC rates;  as we suggested earlier, in an undistorted  market "perfect" TELRIC rates would seem inconsistent  with any price squeeze.  But to the extent that an agency can  confidently identify TELRIC rates only within some band,  like those involved under conventional "just and reasonable"  regulation, the possibility exists that the agency has chosen  too high a point within the band.  As the Court said in  Conway:


19
This argument, however, assumes that ratemaking is an exact science and that there is only one level at which a wholesale rate can be said to be just and reasonable.... [H]owever, there is no single cost-recovery rate, but a [wide] zone of reasonableness....


20
Conway, 426 U.S. at 278.


21
Finally, the Commission observes, "[f]actors beyond a  BOC's control, such as individual CLEC entry strategies for  instance, might explain a low residential customer base." Order, p 268.  This is, of course, correct in principle, although  it may leave the inquisitive wondering why firms would  forego what superficially appear to be promising opportunities for profit.  But the observation is no basis for rejecting a  proffer of evidence that the ceiling level for UNE rates-fixed by the state commissions and approved by the FCC  itself--precluded profitable entry.


22
At oral argument Commission counsel offered another analysis, not explicitly mentioned in the Order.  He suggested  that state commissions have historically set relatively low  residential rates, especially rural ones, allowing the incumbent monopoly to make it up in other aspects of their  business.  Compare City of Batavia v. FERC, 672 F.2d 64, 90  n.52 (D.C. Cir. 1982) ("Conway [does not] require the Commission to set a wholesale rate so that wholesale customers  are guaranteed the ability to compete in the retail market.  It  may be, for instance, that the state commission is not allowing  an adequate rate of return.  If so, the Commission is not  obliged to follow, and indeed may not follow suit, for the rates  it sets must fall within the zone of reasonableness.").  This  was in part contested by appellants' counsel, who suggested  that even with state commission regulation it would be possible to offer certain enhanced services profitably--if only  UNE rates were capped at correct TELRIC levels, or, in the  alternative formulation, at lower levels within the correct  TELRIC range.


23
In any event Commission counsel's observation is not a  ground for rejecting appellants' claim;  we can affirm only on  the Commission's reasoning.  See SEC v. Chenery Corp., 318  U.S. 80, 88 (1943).  We therefore remand the case to the  Commission for reconsideration of this issue.  Of course  Conway itself "merely holds that the Commission must weigh  anticompetitive effects along with other factors in setting  rates."  Kansas Cities v. FERC, 723 F.2d 82, 94 (D.C. Cir.  1983) (citing Conway, 426 U.S. at 278-79).  Here, as the Act  aims directly at stimulating competition, the public interest  criterion may weigh more heavily towards addressing potential "price squeeze."  But the Commission's reasoning, when  it is proffered, will presumably help establish the reasonable  range for interpretations of the statutory criterion.


24
In closing we note two points, without evaluation.  First,  the potential scale of a serious price squeeze inquiry may  present a problem;  we have already recognized that Congress's 90-day limit constrains the scope of the Commission's  inquiries.  AT&T, 220 F.3d at 631.  Second, if the Commission is correct in reading Track A to require only a minimal volume of competition to be present, see Order p 42, and that  reading is not challenged here (though its application is), it  may reflect a recognition that the residential market may not  be attractive to competitors even if UNE costs are at the  lower end of TELRIC (assuming it to have a material range). See City of Batavia, 672 F.2d at 90.  While we remand for  consideration of this issue, we do not vacate the Order.  See,  e.g., Allied-Signal, Inc. v. NRC, 88 F.2d 146, 150-51 (D.C.  Cir. 1993) ("The decision whether to vacate depends on 'the  seriousness of the order's deficiencies (and thus the extent of  doubt whether the agency chose correctly) and the disruptive  consequences of an interim change that may itself be  changed.' ").


25
2. Specific attacks on the Commission's UNE rate findings.


26
General background.  There is no dispute here on the basic  principle governing the rates at which a BOC must offer  unbundled network elements.  The 1996 Act gives the Commission general authority to promulgate rules necessary to  implement the statute, while entrusting the individual state  commissions with the application of those principles in the  process of approving interconnection agreements and rates  pursuant to § 252.  See AT&T Corp. v. Iowa Utils. Bd., 525  U.S. 366, 385 (1999);  AT&T, 220 F.3d at 615.  In August 1996  the FCC adopted general rules, including the TELRIC standard.  See First Report and Order, Implementation of Local  Competition Provisions in the Telecommunications Act of  1996, 11 F.C.C.R. 15499, 15844 p 672 (1996).


27
A forward-looking rather than a historical measure,  TELRIC bases rates on "the cost of operating a hypothetical  network built with the most efficient technology available." Iowa Utils. Bd., 525 U.S. at 374 n.3.  "TELRIC is not a  specific formula," but rather a collection of "methodological  principles."  AT&T, 220 F.3d at 615 (internal quotation marks  omitted).  As it allows the states wide latitude to account for  "local technological, environmental, regulatory, and economic  conditions," its application "may result in different rates in  different states."  Id. (internal quotation marks omitted).  When the Commission adjudicates § 271 applications, it does  not--and cannot--conduct de novo review of state ratesetting determinations.  Instead, it makes a general assessment of compliance with TELRIC principles.  Id.


28
Specifically, the Commission has said that it "will not reject  an application ... [unless] basic TELRIC principles are  violated or the state commission makes clear errors in factual  findings on matters so substantial that the end result falls  outside the range that the reasonable application of TELRIC  principles would produce."  Order p 59 (quoting New York  Order, 15 F.C.C.R. at 4084, p 244).


29
We review the Commission's decision on TELRIC compliance under the arbitrary and capricious standard.  5 U.S.C.  § 706(2)(A).  In AT&T we identified three reasons why "special deference" was in order for our review of a § 271 finding  by the Commission:  that the issues at stake were ones  involving a high level of technical expertise in an area of  rapidly changing technological and competitive circumstances; that the Commission itself was reviewing a state agency with  considerable expertise;  and that "enormous flexibility built into TELRIC."  220 F.3d at 616. These reasons of  course continue to apply, and so shall the deference.


30
Thus, a challenger can prevail here by making one of two  showings.  First, he may demonstrate that the FCC acted  arbitrarily and capriciously in finding that the state commission followed basic TELRIC principles.  Alternatively, he  may point to specific factual errors made by the state commission, and demonstrate either that the FCC failed to  consider these errors or that it arbitrarily determined that  the rates were nevertheless within the range acceptable  under TELRIC.


31
Kansas non-recurring charges.  A CLEC leasing a network element from the BOC incurs two types of charges. Recurring charges are assessed for the use of the network  element in question over some time period.  Non-recurring  charges are for one-time activity of processing orders for  UNEs and for physically providing them initially.  Under the  FCC's rules, TELRIC applies to both.  See 47 C.F.R.  51.507(e).  Our inquiry in this section focuses on SBC's  non-recurring charges in Kansas.


32
The key dispute revolves around the so-called "fall-out  factor."  Even with the best technology available, each stage  in the various automatic processes may fail, requiring more  expensive manual intervention.  When this occurs, a service  order is said to "fall out."  Kansas Commission Nov. 3, 2000  Non-Recurring Charges Order p 35;2 see also Order p 57  (comparing a $2.35 non-recurring service charge for electronically-processed orders with a $12.35 charge associated with  manual processing).


33
At the outset of its § 252 proceeding, the Kansas Commission found itself faced with what it deemed unrealistic cost  proposals submitted by both parties (SBC and the long  distance providers).  Over a four-year period it conducted  "extensive workshops, hearings, and other types of discovery"  aimed at obtaining an accurate estimate of SBC's UNE costs. Order p 49.  Finally, it ordered both sides to rerun their  TELRIC recurring and non-recurring cost studies "using  certain prescribed inputs and cost assumptions" that the  commission thought would better approximate efficient network design and operation.  See id.


34
For non-recurring charges this attempted solution proved  defective.  Making an estimate that fall-out probably would  occur about 5% of the time in a well-functioning system, the  commission directed the two sides to re-run their studies on  this aspect yet again, using this figure.  Kansas Commission  Sept. 17, 1999 Reconsideration Order p 70;  Kansas Commission Nov. 3, 2000 Non-Recurring Charges Order p 35.  Both  sides, however, applied the 5% factor creatively so as to  inflate or understate the net rate of manual processing, as  would suit their respective cases.  Kansas Commission Nov.  3, 2000 Non-Recurring Charges Order p p 13(C), 35, 38 (noting that in the case of one particular network element, SBC's  unfounded assumptions ballooned the cumulative fall-out factor to 59.3%).  Although the exact nature of AT&T's fudging  is obscure, see id. p 13(C), AT&T here makes no claim to have  complied precisely with the commission order.


35
Concerned with preventing further delay in the already  lengthy proceedings, and frustrated by the carriers' failure to  follow its directions, the commission decided to set nonrecurring rates based on "information previously received in  this matter" and "its best judgment."  Kansas Commission Nov. 3, 2000 Non-Recurring Charges Order p 4.  To fix the  majority of non-recurring rates it split the baby, adopting a  weighted average of the AT&T (2/3) and SBC (1/3) proposals. Kansas Commission Nov. 3, 2000 Non-Recurring Charges  Order p 32;  Revised Attachment B at 10 n.2.  In weighting  the studies "so that the final price fell toward the low end of  the range of possible prices," id. p 32, the commission aimed  to avoid "reward[ing] an inefficient service provider," id. It  set the remaining rates by adopting either SBC or AT&T cost  proposals, or by relying on similar rates from comparable  jurisdictions.


36
SBC's initial § 271 application to the FCC relied on the  non-recurring charges calculated as described above.  Responding to comments filed by the Department of Justice and  private commenters, which noted that many of the charges  were a good deal higher than the corresponding rates in  Texas, SBC proposed to lower its non-recurring rates in  Kansas by 25%.  SBC December 28, 2000 Ex Parte Letter at  2, Joint Appendix ("J.A.") 1447;  see also Order p 56.  The  Kansas Commission adopted these cuts on January 5, 2001. Order p 52.  In light of "these additional voluntary reductions," the Commission reasoned that it "need not reach a  conclusion as to whether the carriers' failure to follow the  Kansas Commission's directions" in running cost studies resulted in non-recurring rates that violate TELRIC.  Order  p 60.  In its opinion, the cuts eliminated "any remaining  concerns" about the non-recurring rates in Kansas.


37
Appellants claim the FCC could not properly find these  rates TELRIC-compliant, as they are the product of a crude  "settlement" method, trimmed by an arbitrary 25% "haircut."  Accusing the Kansas Commission of acting out of selfimposed pressure to support SBC's § 271 application, the  appellants say that the Kansas Commission should have  required SBC to continue re-running its studies until they  reflected "accurate and Commission-approved cost data." Appellants' Br. at 39 (quoting Kansas Commission Nov. 3,  2000 Non-Recurring Charges Order p 30 (internal quotation  marks omitted)).  (Appellants often cite to pages in the  Kansas Commission's rulings where the commission finds  fault with SBC's studies, never mentioning that the same  pages allocate seemingly equal fault to AT&T's.)


38
Appellants' complaints overlook the procedural context of  the Kansas proceeding.  The commission stated that the  burden of producing cost studies "squarely fell upon AT&T  and SWBT," Kansas Commission Nov. 3, 2000 Non Recurring Charges Order p 28 (J.A. 800-01);  appellants have  not contested this (or mentioned it!).  Given that calculation  of forward-looking costs for a hypothetical network requires  far more pervasive use of predictive judgments than does  standard cost-of-service ratemaking, some such allocation was  likely essential.  Especially in the rural states, the burden on  regulatory resources might otherwise have proven overwhelming.  Cf. Order p 2.  Perhaps AT&T might have legitimately protested the assignment of any burden to the protesters, but it appears not to have done so.


39
In fact the Kansas Commission diligently labored for several years scrutinizing AT&T's and SBC's submissions;  to the  extent that it believed those studies contained errors, it made  adjustments.  As the appellants concede, the Kansas Commission "identified the many cost-inflating flaws in SBC's cost  studies."  Appellants' Repl. Br. at 17.  In such instances it  would then use "inputs, in some instances those proposed by  AT&T, that it found more reasonable," accordingly reducing  SBC's non-recurring charges for service orders and several  kinds of loops.  Order p 63.


40
As we have seen, however, sound application of a fall-out  rate proved comparatively intractable.  Appellants argue that  the weighted (2/3)/(1/3) formula, even when coupled with the 25% cut, was "mathematically incapable" of bringing SBC's  exaggerated fall-out ratios down to the correct 5% level.  But  in fact appellants waited until their reply brief before deigning to offer any detailed numbers in support of their complaint.  See id. at 20-21 n.5.  Further, we note that if the  calculations were so simple, surely AT&T itself could have  offered the Kansas Commission some easy way of bringing  SBC's submissions--or its own--into line with the 5% criterion.  In AT&T, rejecting AT&T's insistence that switching  costs should have been adjusted to reflect newly discovered  information, we endorsed the New York agency's observation  that its computations were "the result of a complex analysis  that does not lend itself to simple arithmetic correction  through the adjustment of a single input."  220 F.3d at 617  (internal quotes omitted).  Here, too, we cannot fault the  FCC for approving the Kansas Commission's compromise  resolution of an issue that the parties' behavior had left a  muddle.


41
Nor are we persuaded by appellants' suggestion that because some of SBC's non-recurring charges (even after its  25% discount) remain significantly higher in Kansas than in  Texas, such charges are not TELRIC-compliant. First, even  if the appellants' calculations were properly done, only two of  the five non-recurring UNE rates on which appellants rely in  this appeal--loop and cross-connect charges--are higher in  Kansas;  the other three--service order charge, analog line  switch port, and central office access--are identical in both  states.  AT&T Clarke Supp. Decl. Ex. 1, Cols. F & J (J.A.  1526-27).  Second, SBC submitted evidence indicating that if  the relevant non-recurring charges (pre-discount) were amortized over a reasonable period of time, the total monthly  UNE costs for CLECs serving comparable exchanges would  be lower in Kansas than in Texas.  Order p 61 n.171.  Although appellants dispute the latter conclusion, saying that it  was generated by selectively comparing charges in urban  areas of Kansas to those in more costly suburban Texas,  Appellants' Reply Br. 21, their own citations (see J.A. 151920, 1563-64) do not clearly establish a fallacy in SBC's  contention.


42
Even if the two states' rates in fact differ, the FCC  identified a likely cause.  Whereas the Texas Commission had  explicitly rejected SBC's claimed entitlement to a "trip  charge" for various installation and maintenance activities, a  comparable charge was evidently allowed in Kansas.  Order  p 61.  Because the "trip charge" is not a directly observable  quantity, but like many other inputs to the TELRIC model is  a prediction about future costs faced by a not-yet existent  efficient provider, a state-to-state difference in prediction  scarcely proves that either resulting rate is non-TELRIC.


43
Appellants argue that the Kansas Commission never explicitly approved a trip charge.  But in fact the Kansas Commission cited a statement by AT&T that "20 percent of service orders will require sending a truck (and technician) to  work the order."  Kansas Commission Nov. 3, 2000 NonRecurring Charges Order p 24;  see also id. p 48-49.  (Presumably this 20% is applied to a set different from and  smaller than the set for which the 5% fall-out rate was  considered appropriate.)  While there may be no explicit  Kansas finding of a trip charge, the Kansas Commission's  express recognition of AT&T's own suggestion makes its  exclusion by Kansas seem implausible.


44
Accordingly, we reject appellants' claim that the Commission was arbitrary or capricious in finding no violation by the Kansas Commission of basic TELRIC principles and no  "clear errors in factual findings on matters so substantial that  the end result falls outside the range that the reasonable  application of TELRIC would produce."  Order p 59.


45
Oklahoma rates.  Oklahoma's recurring and non-recurring  UNE rates were set by the Oklahoma Commission's administrative law judge on June 30, 1998, and approved by the  Oklahoma Commission without modification on July 17, 1998. Although SBC's initial recurring and non-recurring cost proposals were founded on cost studies similar to those it had  used in Kansas, the Oklahoma ALJ did not--unlike its Kansas counterpart--order a re-run of estimates.  Declaration of  Baranowski & Flappan, November 15, 2000, at 7.  Instead, he  recommended adoption of rates that SBC and Cox Oklahoma, a cable competitor, had agreed to in a § 252 arbitration,  convinced that they appropriately reflected forward-looking  costs.  Order p 69.


46
Oklahoma non-recurring charges.  Appellants now challenge the FCC's conclusion that Oklahoma's non-recurring  rates, after a 25% discount paralleling that in Kansas, satisfied the § 271 checklist.  Pointing out that Cox uses its own  network to provide telephone service, has no need for most  UNEs that other CLECs must rely on, and thus would  benefit--or, at least, be indifferent--if SBC overcharges other local competitors for these elements, AT&T insists that the  Oklahoma non-recurring rates are not supported by any cost  evidence.  Thus, it reasons, the FCC should have independently determined compliance with TELRIC.


47
We are unconvinced.  First, the fact that the non-recurring  charges recommended by the ALJ (before the 25% haircut)  were 33% below those originally proposed by SBC, Order  p 100, tends to rebut the claim that Cox didn't really object to  high rates for SBC's UNEs.  Second, that the ALJ's ultimate  selection was of stipulated rates did not in itself show that  they were not backed by any cost studies.  The ALJ had  SBC's and AT&T's cost data before him, and found that the  stipulated rates fell within the range of cost-based rates  proposed by the parties.  Order p p 69, 90;  see also Oklahoma ALJ Report at 159.  The FCC ultimately concluded  that the Oklahoma ALJ had "carefully analyzed the various  cost studies submitted for nonrecurring charges, and was  committed to TELRIC principles in making his evaluations." Order p 98.  While appellants point to passages in the ALJ's  report that may be ambiguous on the articulation of TELRIC, Appellants' Repl. Br. at 24 (citing Oklahoma ALJ  Report at 165-66), even these snippets are not clearly inconsistent with a sound understanding of TELRIC.


48
Appellants correctly note that the ALJ mistakenly assumed  manual processing for all service order charges. But the FCC  saw that error too, and concluded that it was neutralized by  SBC's subsequent implementation of a reduced charge for  electronic orders, so that the higher charge originally adopted by the ALJ was in fact applied only to manually processed  orders.  Order p 99.  Appellants question that conclusion,  and, again challenging the ALJ's grasp of TELRIC, point to  a section of the record where the ALJ rejected the contention--just as the Kansas Commission had--of an AT&T  witness who claimed that almost all of the actual provisioning  of UNEs could be done electronically.  Order p 100 & n.286; see also Oklahoma ALJ Report at 166.  The passage in fact  doesn't show the ALJ to be the hopeless rube appellants  paint him as.


49
Oklahoma recurring charges.  Following the same line of  reasoning it had applied when considering Oklahoma nonrecurring charges, the FCC also determined that SBC's  Oklahoma recurring rates, with one exception, complied with  TELRIC.  Order p p 75, 90, 91.  To the extent that appellants' challenge to the recurring rates in Oklahoma tracks  their arguments raised against the non-recurring charges, we  reject it for the reasons just stated.


50
The FCC's only serious doubt concerned the ALJ's choice  of what the Commission viewed as an unreasonably low loop  "fill factor" for the computation of recurring loop rates.  "A  fill factor is the estimate of the proportion of a facility that  will be used.  In other words, the per-unit cost associated  with a particular element ... [is] the total cost associated  with the element divided by a reasonable projection of the  actual total usage of the element."  Order p 78.  Thus, the  lower the fill factor, the higher the rate ceiling.  The ALJ had  erred, the Commission thought, by basing the fill factor on its  current value (30%) instead of "consider[ing] the forwardlooking fill or assum[ing] that the fill factor would increase  over time."  Order p 80.  AT&T was urging 50%.  Id.


51
The FCC resolved this issue by (1) taking into account  SBC's proposal of a 25% reduction in its rates and (2)  comparing the resulting loop charge with that approved by  the Commission for Texas.  Order p p 82-87.  To do so, it  took into account estimates from its "USF" (universal service  fund) cost model, which it regards as generally valid for  comparisons between states, indicating that loop costs were 23% higher in Oklahoma than in Texas.  Id. p 84.  As the  weighted average of the various Oklahoma discounted loop  rates was only 11% higher than the equivalent for Texas, the  FCC concluded that the Oklahoma rates, though not calculated by TELRIC means, nonetheless fell "within the range that  TELRIC would produce."  Order p 86.  To create a distinction between properly derived cost-based rates and rates that  were equal to them, the Commission said, "would promote  form over substance, which, given the necessarily imprecise  nature of setting TELRIC-based pricing, is wholly unnecessary."  Order p 87.


52
AT&T's main complaint here is that the Commission was  wrong to accept the Texas rates as a standard, as "the  reasonableness of Texas network element rates was not litigated" in the Texas § 271 proceedings.  But all of the  appellants in this case participated in the Texas administrative proceedings and were free to litigate the matter if they  thought litigation promising.  As the stakes for appellants  must have been high, and as they have not generally been shy  about pressing claims in this area, we see no abuse of  discretion in the Commission's reliance on the Texas rates,  with suitable adjustments, to verify TELRIC compatibility  for the Oklahoma recurring loop rates.


53
Against the Texas comparison AT&T also urges that new  evidence, coming to light after the Texas rates had been set,  shows that CLECs have abandoned their efforts to provide  residential service in the state.  But nothing that AT&T cites  ties the alleged decline to excessive UNE rates.


54
Finally, AT&T says that as the FCC used some Texas  recurring rates for comparison, it should have also compared  all the Oklahoma recurring rates to Texas's.  This issue was  not raised before the FCC and is therefore waived.  See 47  U.S.C. § 405;  Coalition for Noncommercial Media v. FCC,  249 F.3d 1005, 1008-09 (D.C. Cir. 2001).


55
3. Track A.  Under the FCC's interpretation of § 271, a  BOC cannot qualify under Track A unless it shows that at  least one competing provider, with which it has entered into  an interconnection agreement, serves "more than a de minimis" number of residential and business customers using  either exclusively or predominantly that CLEC's own telephone exchange facilities (including therein UNEs leased  from the BOC, Ameritech Michigan Order, 12 F.C.C.R.  20543, 20588 p 101 (1997)) and thus constitutes "an actual  commercial alternative to the BOC."  SBC Oklahoma Order,  12 F.C.C.R. 8685, 8695 p 14 (1997);  see also Order p 42. Appellants contend that SBC had failed to make that showing  with respect to Kansas residential subscribers.


56
The weakness of appellants' position is most easily viewed  in relation to the evidence for residential service offered by a  CLEC named Ionex.  SBC was not privy to Ionex's own  figures on the subject.  But because Ionex was offering  service via UNEs leased from SBC, SBC was in a position to  estimate the sum of Ionex's aggregate service volumes, and,  by further extrapolation, to estimate the residential service. In its Reply Comments before the Commission, it produced  an analysis suggesting that Ionex's residential service via  UNE was sufficient to meet the Commission's standard-"more than a de minimis number."  See SBC Reply Comments at 73, J.A. 1240;  Affidavit of J. Gary Smith dated  December 11, 2000 at 6, J.A. 1269.


57
Later SBC submitted an "ex parte" letter dated December  20, 2000, with actual numbers for Ionex and an explanation of  its methodology.  J.A. 1370-71, 1373.  SBC made the filing of  the letter public by an open filing on January 12, 2001, and  appellants secured a copy from SBC on January 17, just two  days before the Commission decided SBC's application.  Appellants cry foul.


58
But Ionex was itself a party to the proceeding, sturdily  resisting SBC's application and presumably fully aware of its  residential services.  The public SBC Reply put it on notice  that SBC was using Ionex's service to satisfy Track A. Ionex  uttered not a peep in protest, correction or qualification.  So  the FCC's observation that it used the ex parte letter only as  "additional support" for the Track A finding, Order p 43, was  entirely legitimate.


59
Appellants also say the Commission contradicted its own  prior decision when it counted Birch as a competitive alternative, even though Birch was "not actively marketing" residential service in Oklahoma.  They point to the Commission's  1997 decision on SBC's first Oklahoma § 271 application,  where it found Brooks Fiber's residential service inadequate: the only "customers" were four Brooks employees receiving  free service as a test, and Brooks was refusing to accept any  new business.  See SBC Oklahoma Order, 12 F.C.C.R. 8685,  8698 p 20 (1997).  The Commission's finding no commercial  alternative there hardly contradicts a positive finding here,  where the Commission found that more than a de minimis  number of real customers were actually being served.  Order  p 42.


60
* * *


61
Because the Commission has offered an inadequate justification for why it thought that evidence of a "price squeeze"  precluding profitable CLEC competition was irrelevant to its  public interest analysis, we remand the case for reconsideration of that issue.  We reject all other claims.


62
So ordered.



Notes:


*
 Senior Circuit Judge Williams was in regular active service at  the time of oral argument.


1
  All cites to briefs are to pages in the sealed versions.


2
  The Kansas Commission set the rates for non-recurring costs  on November 3, 2000, a week after SBC filed for § 271 approval,  and SBC's application was duly supplemented.  Order p 50.


