508
Opinion of the Court
ered the proffered alternatives and the reasons the FCC gave for rejecting them, 47 CFR § 51.505(d) (1997); First Report and Order ¶¶ 630-711, we cannot say that the FCC acted unreasonably in picking TELRIC to promote the mandated competition.
The incumbents present three principal alternatives for setting rates for network elements: embedded-cost methodologies, the efficient component pricing rule, and Ramsey pricing.24 The arguments that one or another of these methodologies is preferable to TELRIC share a basic claim: it was unreasonable for the FCC to choose a method of setting rates that fails to include, at least in theory, some additional costs beyond what would be most efficient in the long run,25 because lease rates that incorporate such costs will do a better job of inducing competition.26 The theory is that once an
24 Justice Breyer proposes a "less formal kind of 'play it by ear' system" based on recent European Community practices as yet another alternative, see post, at 558; but the incumbents do not appear to have advocated such an informal ratesetting scheme to the FCC, see First Report and Order ¶¶ 630-671, nor have they argued for this alternative before this Court. And to the extent that Justice Breyer's proposal emphasizes state commissions' discretion to vary rates according to local circumstances and the particulars of each case, this is a feature that is already built into TELRIC. See infra, at 519-520.
25 In the long run, "all of a firm's costs become variable or avoidable." First Report and Order ¶ 677. See also Kahn, Telecommunications Act 326 ("[A]ll costs are variable and minimized"). In general, the costs of producing a good include variable and fixed costs. Variable costs depend on how much of a good is produced, like the cost of copper to make a loop which rises as the loop is made longer; fixed costs, like rent, must be paid in any event without regard to how much is produced. See Carlton & Perloff 51-56. The long run is a timeframe of sufficient duration that a company has no fixed costs of production.
26 The argument that rates incorporating fixed costs are necessary to avoid an unconstitutional taking is taken up in Part III-C, infra. Indeed, the expert literature the incumbents rely on to advocate fixed-cost rate-setting systems, see infra, at 514-515, do so almost exclusively on the premise of averting unwanted confiscation, and thus offer little support
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