Court Orders FCC to Justify Verizon Forbearance Denial

The court faulted the FCC for departing from precedent without adequate explanation. In previous assessments of forbearance petitions, the commission considered actual and potential competition. But with Verizon’s petition it reviewed only actual competition. That may be reasonable, but “it is arbitrary and capricious for the FCC to apply such new approaches without providing a satisfactory explanation when it has not followed such approaches in the past,” wrote Chief Judge David Sentelle. “The flaw is not in this change, but rather in the FCC’s failure to explain it.”

Denying a request by Verizon, the court set no deadline for the FCC’s response. “On remand, the FCC must either consider whether competition might be established by some evidence other than simply whether the ILEC has met a particular market share benchmark, or justify its departure from its precedent,” the court said. “The FCC must also consider whether and how the existence of potential competition would affect its [Section] 10 forbearance analysis.”

“The court’s decision confirms that the FCC applied the wrong standard, and failed to account for the full extent of existing and constantly growing competition in these already highly competitive areas,” said Verizon Deputy General Counsel Michael Glover. “There needs to be a common-sense mechanism to update regulations to keep pace with the rapid changes in the marketplace, both to ensure that all competing providers play by the same rules and to promote the continuing investment that benefits consumers. We look forward to working with the commission toward that end.”

Although the court largely ruled in Verizon’s favor, the decision doesn’t guarantee the company future unbundling relief. A competitive local exchange carrier attorney involved in the case said the remand provides the FCC wide flexibility, and doesn’t contain language dictating the case’s outcome. “The agency is now under Democratic leadership that appears less sympathetic to Bell requests for deregulation and more open to CLEC arguments,” noted Stifel Nicolaus analyst David Kaut. “Unless the court hamstrings the FCC with its guidance, we suspect Verizon may still struggle to gain relief.”

And Verizon lost its argument that the FCC should apply impairment standards from Section 251 of the Telecom Act to forbearance petitions. “Verizon’s argument fails because it unnecessarily conflates the FCC’s impairment standard with the forbearance standard” under Section 10, the court said. Unlike the impairment standard, Section 10 doesn’t require any particular market analysis, it said.

Acting Chairman Michael Copps seemed to celebrate the flexibility allowed by the court. The FCC is “pleased that the court remand focused narrowly on the need for the commission to better support [its] denial of the Verizon forbearance petitions,” he said. “While the commission will have to invest additional resources on this matter, we should always strive for a rigorous analysis of these forbearance petitions and we are confident of our ability to do just that on remand.”

CLECs also seemed cautiously upbeat, framing the remand proceeding as an opportunity to overhaul the way forbearance is handled. “The D.C. Circuit remanded the order in a manner that is favorable to our objective of establishing a new standard of review for UNE forbearance proceedings,” said TW Telecom Vice President Kelsi Reeves. “In particular, the court’s holding that the Section 10 forbearance standard and the Section 251 impairment standard are distinct gives the FCC significant leeway to deny forbearance except in product and geographic markets in which there is enough actual competition to protect consumers if UNEs are eliminated.”