Appeals Court Sides with FCC on Incumbent Forbearance Approvals
An appeals court upheld two FCC orders granting incumbent phone companies forbearance from dominant-carrier requirements applying to the special-access market. In an order Friday, the U.S. Court of Appeals for the District of Columbia Circuit rejected an effort by competitive carriers and business users of special-access services to throw out 2007 FCC decisions that partly deregulated AT&T, Embarq and Frontier. But the court left the door open for future price regulation, saying the commission has the power to tweak its rules in its special-access rulemaking
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“The FCC reached a hotly debated and eminently debatable, but ultimately reasonable, conclusion that eliminating the extra layer of dominant-carrier pricing regulation on the ILEC’ special access lines -- while leaving in place basic Title II common-carrier regulation -- will better promote competition and the public interest,” Judge Brett Kavanaugh wrote in a decision supported by Judges David Sentelle and Harry Edwards. “We find no legal basis to upset the FCC’s policy judgment.”
The deregulatory order seems to encourage infrastructure investment, the court said. “Perhaps an obvious point, but a decision that gives owners of telecommunications lines more control over access to those lines tends to increase the incentive for competitors to build competing lines,” it said. “The FCC thus reasonably considered both the existence and the desirability of self-deployment as factors that further supported eliminating dominant-carrier regulation on the ILECs.”
The court rejected the challengers’ claim that the FCC was wrong to use a nationwide market analysis rather than more local information. It cited a decision, EarthLink v. FCC, in which the same appeals court said the law doesn’t require a “particular mode of market analysis or level of geographic rigor” when the commission deregulates broadband providers through forbearance.
Competitors and business customers have remedies for abuses by incumbents, the court added. Complaints on special access can be brought to the commission under Section 208 of the Telecom Act, the court said. In the contested order, the FCC committed to resolving the complaints within five months, it said. Competitive carriers that are mistreated can also gain access to incumbents’ TDM-based services, since the commission order deregulated only other services in the order, the court said.
The court recognized the FCC’s “important and legitimate goal of promoting facilities-based competition,” said AT&T Senior Vice President Robert Quinn. “At a time when policymakers should be encouraging the migration of copper facilities to fiber-based networks and other advanced infrastructure, today’s court decision reinforces the importance of that objective.”
The decision could have gone either way, analysts at Stifel Nicolaus said in a note Friday. “While the ruling upholds the status quo, we had thought it was a close call, with the court more likely to fault the FCC’s decisions and send them back to the agency for further review.” The ruling “will make it more difficult for critics to undo [incumbents'] enterprise broadband freedom from certain tariffing, pricing, and other rules,” the analysts said. “This regulatory forbearance gives the ILECs leverage to demand more favorable terms and conditions from wireless and CLEC competitors” and business customers.
Although supporters of special-access regulation lost the battle, the appeals court indicated they can still win the war, in the FCC rulemaking. “The FCC’s forbearance decision in this particular matter (or in the related Verizon and Qwest special access matters) is not chiseled in marble,” the court said. “So Congress and the FCC will be able to reassess as they reasonably see fit based on changes in market conditions, technical capabilities, or policy approaches to regulation in this area.”
The forward-looking language is “encouraging,” said Colleen Boothby, an attorney for the AdHoc Telecommunications Users Committee, which represents business users of special access services and challenged the FCC. AdHoc plans to press for relief in the rulemaking. It hasn’t decided whether to pursue further legal action, she said. The court “has declined to disturb an FCC order that was out of step with marketplace realities,” Boothby said. “It is now up to the current FCC to do that.”
A spokeswoman for the NoChokePoints Alliance said that special-access coalition is looking ahead as well. “Clearly, the court ruled on the FCC’s authority, not on the merits of the issue itself,” she said. “We are confident the issue will be revisited, as the court specifically suggested in its decision, in the special access rulemaking, and that the commission will address and correct this failed market.”