Judges Question FCC Ruling on Six-Market Verizon Forbearance
The FCC got tough questioning from federal appeals court judges for denying Verizon unbundling forbearance in six metropolitan statistical areas last year. In Monday oral argument at the U.S. Court of Appeals for the District of Columbia Circuit, Judges David Sentelle, Thomas Griffith and Harry Edwards spent most of their time asking why the FCC used only a market-share test to assess competition levels. In contrast, the judges asked Verizon’s attorney few questions, ending the argument with 10 minutes to spare in Verizon’s rebuttal time.
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Verizon is challenging a December FCC order denying the carrier’s petition for forbearance from loop and transport unbundling requirements in Virginia Beach, Providence and four other MSAs (CD Dec 5 p1). In the order, the FCC said not enough competition existed in the markets. Verizon wants the appeals court to vacate the order and give the agency 30 days to issue a new order on remand.
“There’s a good probability” that the court will side with Verizon and send the order back to the FCC, Stifel Nicolaus said in a note to investors. The court will probably set a deadline on the remand, but the specific time frame and how much direction the court gives is unclear, the analysts said. Most likely, the court will discredit the market-share test and force the FCC to better justify its decision, they said. Verizon could still have an uphill battle ahead, as the FCC’s decision will likely occur under a Democratic majority, they said. “FCC Democrats have been more skeptical about giving the Bells forbearance relief,” they said.
Verizon believes the FCC set too high a threshold for determining if sufficient competition existed in the six MSAs, said company attorney Scott Angstreich during the argument. The FCC denied Verizon relief because competitors didn’t comprise at least 50 percent market share in the MSAs, but that’s the wrong test to apply, said Angstreich. According to court precedent, the FCC should use an impairment test, which assesses whether competitors can potentially compete without access to shared facilities, he said. Also, the FCC’s market-share test ignored “monstrous” competition from cable and wireless companies, he said.
The judges took no apparent issue with Verizon’s argument. Instead, Sentelle asked Angstreich if imposing a 30-day deadline on the FCC was unreasonably short. Angstreich noted that the 30 day-deadline could actually run to 90 days after including administrative processing times. Later in the argument, FCC attorney Richard Welch said 30 days was too short, given no evidence of FCC delay or bad faith.
The judges, and particularly Edwards, seemed most critical of the FCC’s position. The D.C. Circuit never said the commission should exclusively use the 50 percent market share rule to test for potential competition, Edwards said. Just because a competitor isn’t successful doesn’t mean there’s no potential for competition, because the competitor might just have a bad business plan, he said. Welch responded that court precedent gives the FCC discretion to draw regulatory lines. It’s okay to use an objective standard like market share, Edwards returned, but the commission must also consider potential competition, he said. Griffith seemed to agree, asking if one competitor’s failure warranted maintaining unbundling rules. Welch started to reply, but Sentelle shot him down quickly: “You're just running from the question.”
Welch said the FCC needn’t do an impairment test, because carriers only need to file for unbundling forbearance when impairment exists. If there was no impairment in a market, the regulator would automatically relieve unbundling duties, and the carrier wouldn’t have to file for forbearance, Welch said. When the FCC reviewed Verizon’s petition, the agency assumed there was impairment, and Verizon never argued otherwise, he said.