Telcos Clash Over Proper Test for Qwest, Verizon Forbearance Petitions

CLECs said the FCC was right to deny Verizon and Qwest forbearance, but called for a tighter standard of review. But Qwest and other big ILECs said the existing standard is too tough. In June, the U.S. Court of Appeals for the District of Columbia Circuit faulted the FCC for departing from precedent without adequate explanation in a 2007 decision denying Verizon forbearance in six markets. In previous assessments of forbearance petitions, including a controversial decision granting Qwest forbearance in Omaha, the commission considered actual and potential competition. But it reviewed only actual competition for subsequent petitions by Qwest and Verizon.

“On remand, the Commission has the opportunity to articulate a workable and meaningful standard” for assessing forbearance petitions seeking unbundling relief, CompTel said. The old test didn’t work in Omaha, where prices have increased tremendously, CompTel said. “Potential competition should not factor into the forbearance analysis at all.” In joint comments, TW Telecom, Integra and Cbeyond called for a standard “that hews closely to basic principles of competition policy and the FTC-DOJ Horizontal Merger Guidelines.” The FCC shouldn’t consider cut-the-cord wireless subscribers or use a residential market-share test to assess the business market, they said.

The FCC should use the market power test the agency has used in other types of forbearance reviews, said XO, Nuvox and Broadview. Under that test, “product and geographic markets must be specifically defined and a separate competitive analysis conducted for each.” Considering potential competition is acceptable in the market-power context, they said.

But Qwest said the court remands are an opportunity to “revisit” and loosen the FCC’s competition standard. By ignoring potential competition in the Verizon and Qwest decisions, the FCC “deviated from its earlier approach” that deregulation is the best way to promote competition, the ILEC said. “If the Commission once again pursues the path it took in the remanded orders, not only will the deregulatory goal of the Act be compromised, but the pro-competitive goal will be imperiled as well.” The FCC should adopt a standard based on the one used for Omaha, but make it “less stringent … to reflect the continually-developing competition” in local telecom, Qwest said.

The FCC’s rules for reviewing unbundling forbearance petitions don’t reflect competition in today’s market, Verizon said. “Carriers such as Verizon find themselves having lost half or more of their mass-market customers in many areas,” it said. “Those same competitive forces are resulting in continuing line losses in many areas at a high single- or double-digit rate annually.”

Potential competition must be considered in a market review, AT&T said. “Competition-policy analysis has always recognized that the threat of competitive entry can be as effective as existing competition in protecting the interests of consumers in low prices and high service quality.” Courts, antitrust authorities, scholars and the FCC historically have all followed that principle, the carrier said.

In its latest, March petition for Phoenix, “Qwest has again failed to demonstrate” that it deserves forbearance, CompTel said. Qwest hasn’t presented “reliable evidence that there is sufficient facilities-based competition in either the wholesale or the retail Phoenix MSA markets to warrant forbearance,” it said. And the company “inappropriately discounts its retail residential market share by a wireless substitution rate estimated at 25 percent.”

Though all CLECs opposed Qwest forbearance, some called on the FCC to hold off consideration until the agency responds to the court remands. “Once that work has ended and the Commission has settled on an appropriate framework for review of UNE forbearance requests, it can be applied here to the facts proffered by Qwest to support forbearance,” said XO Communications, Nuvox and Broadview Networks in joint comments. “It is difficult to identify how any credible analysis of the instant petition can be conducted until that time.”

The Arizona Corporation Commission said the timing of Qwest’s latest forbearance request “raises serious concerns.” The request was filed before the FCC adopted new procedural rules for forbearance, and before resolution of the remand proceeding. “Qwest would thus seem to have obtained an unfair strategic advantage over other providers simply by having filed its second petition within the window.” The Arizona commission, which had asked for more time to file comments, said it was still gathering information on the new Phoenix request, and would provide a full response in the reply-comments stage.