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The Never-Ending Telecom Story
by Ted Leventhal
An appeals court's rejection of FCC rules governing competitors' access to the Bell telephone networks will not end contention in the industry over how to implement the 1996 Telecommunications Act, according to industry representatives. Key stakeholders in the industry remain far apart on what rules should govern competition for local telecom services, each side apparently ready for another day in court.
On March 2, a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia voided the FCC's latest attempt at governing access to the Bell networks. The rules were the latest manifestation of a multiyear effort to implement a provision of the Telecommunications Act requiring the Bells to share their networks with competitors.
In 2002, the court overturned a previous effort to offer access to the host of network services known as the unbundled network element platform (UNE-P). The FCC deliberation that followed resulted in last August's rules, which found that competitors are impaired unless they have access to the Bells' network switches and the ability to switch customer lines. The FCC left the details to state public-utility commissions, arguing that only states have the expertise to determine the degree of impairment in local markets and should suggest remedies on a market-by-market basis.
The Bells said the FCC violated the court's earlier mandate, arguing that only the FCC can make such an analysis and not delegate it to outside parties, including the states. Finding for the Bells and the U.S. Telecom Association (USTA), the court ordered the FCC to draft new rules.
For Whom The Bells Toll
The Bells are telling their competitors to say uncle, claiming that the latest ruling indicates a rejection of their legal arguments and that if they want to compete for local service, competitors should build their own networks, a concept known as "facilities-based competition."
"This is the third time that a federal court has told the FCC it must regulate in a way that stimulates facilities-based competition," USTA President Walter McCormick said. "A highly competitive marketplace already exists between facilities-based providers," including cable, wireless and satellite companies.
The court said competitors who want to lease access from the Bells instead must make money "the old-fashioned way," he added.
FCC Commissioners Jonathan Adelstein and Michael Copps called for an appeal to the Supreme Court "so that we can clarify tension with the Supreme Court's past decisions." And Commissioner Kevin Martin told the National Association of Regulatory Utility Commissioners (NARUC), state officials that regulate the telecom and energy industries, that by overturning the FCC rules, the court reduced the states to just "any other lobbyist."
"I am troubled by their failure to recognize the traditional federal-state relationship," he said. "I think you are different; they did not."
On Tuesday, NARUC wrote to President Bush, calling for the White House to support an appeal to the Supreme Court. "State commissioners have the vital task of arbitrating disputes between incumbents [like the Bells] and new entrants that arise from the FCC's rules, including determining how the incumbent providers unbundled the required network elements and the rates for these elements," the group said.
An 'Abdication Of Responsibility'?
In a speech to NARUC, FCC Chairman Michael Powell, who opposed the new rules and supports the court's decision, urged the Bells and their competitors to begin negotiations on interconnection arrangements. "The statute authorizes and encourages commercial negotiation of interconnection agreements, and it would be irresponsible for the critical industry players not to make meaningful efforts to do so," he said.
Powell said he also will instruct commission staff to "craft an 18-month moratorium and transition to protect existing UNE-P customers from sudden changes in their service" while developing a framework for new rules. "No matter what twists and turns continued litigation will bring, eventually this matter will likely require further regulatory decisions," he said.
Commissioner Kathleen Abernathy joined Powell, noting in a statement that "the majority's abdication of our responsibility to decide where impairment exists was inconsistent with the statute and prior court decisions."
Randolph May, a senior fellow and director of communications policy studies with the Progress and Freedom Foundation, said the FCC should move more quickly to draft new rules and specify a firm date for the old UNE-P regime to end and to restore stability to the marketplace.
"It was the court's expectation that the commission would have new rules in place within 60 days," May said. "There's just no basis to think that the cost of providing switches or of acquiring switches really is something the FCC can't determine."
He added that providers of long-distance telephone service could readily replace their access to local switching in a short timeframe. "We really don't know that [competitors] can't provide service within this interim period by virtue of going out and acquiring their own switching service," May said, adding that the evidence was presented to the commission, but not accepted, during the FCC's review of the rules.
Expressions Of Outrage
The long-distance companies and their supporters reject those arguments, claiming damage to their business interests in local markets and the role of states in regulatory policy if the decision stands. "It's pretty clear the genie is not going back in the bottle," said Peter Arnold, a spokesman for Voices for Choices, said in noting that 19 million customers now rely on traditional long-distance providers for local phone service.
"Without the rules as adopted by the FCC, there won't be any facilities-based competition," said Russell Frisby, CEO of the Competitive Telecommunications Association. "To get customers, we need to lease facilities from the Bells, then we can build our own facilities."
He called the Bells' case "completely hypocritical" given that they are using the same facilities-sharing strategy to enter the long-distance phone market.
Frisby said the prospects of a Supreme Court reversal of the circuit court's ruling are "good" given the court's past rulings, especially in 2001's Verizon v. FCC, where the court ruled that lower courts should give the FCC "great discretion" in regulatory matters. The appeals court "completely ignored" Verizon, he said. "If the Bells get their way, the first thing to go by the boards will be the rates the Supreme Court upheld in the Verizon case."
Frisby dismissed Powell's proposal for negotiations as "a ruse to intimidate the majority on the FCC. "We haven't been able to negotiate successfully in eight years, and we won't do it 30 days," Frisby said.
But McCormick said the long-distance providers' claims that the USTA decision would drive them out of business are "outrageous." These companies are "telling Congress they are going out of business but telling Wall Street the decision will have no effect," he said. Telecom "should not be the only segment of the economy that is not allowed to operate according to the free market," he said.
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