The Supreme Court decision in Verizon et al v. FCC et al has finally settled the legality of the FCC's methodology for setting prices for wholesale services that are "based on cost", as required by the Telecommunications Act of 1996. The Court's decision reveals unanimous agreement that forward-looking costs may be used as the measure of cost. It also reveals agreement that the FCC's leeway in establishing a methodology for measuring these costs is limited by the need for the methodology to bear a "rational connection" to the goals of the Act. The majority and Justice Breyer differ in whether this limitation was binding in this case. This paper examines the theoretical and empirical evidence that could have shed light on the Court's disagreement - evidence that was not part of the case presented to the Court. While the evidence casts considerable doubt on the wisdom of the public policy approach adopted by the FCC, it does not lead to the conclusion that the Court should have ruled differently.
