A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit has rejected petitions from both Incompas and the California Public Utility Commission challenging the FCC’s 2019 order that granted the remaining requests from the forbearance petition filed by USTelecom in May 2018, which dealt with unbundling and resale requirements (TR Daily, Aug. 2, 2019).
Incompas had challenged the order’s forbearance from enforcing the 1996 Telecommunications Act’s wholesale price requirements, which the CPUC challenged the FCC’s forbearance from the Act’s requirement to make network elements available to competitors on an unbundled basis.
Specifically, the 2019 memorandum opinion and order relieved incumbent local exchange carriers that operate under price cap regulation from requirements to "unbundle two-wire and four-wire analog voice-grade copper loops, including the attached TDM [time-division multiplexed] equipment (UNE [unbundled network element] Analog Loops)" and to "offer for resale at wholesale rates telecommunications services that the incumbent LEC offers at retail to non-carrier customers (Avoided-Cost Resale)."
Joined in his opinion in the consolidated cases beginning at Comptel d/b/a Incompas v. FCC (case 19-1164) by Chief Judge Sri Srinivasan and Circuit Judge David S. Tatel, Senior Circuit Judge Laurence H. Silberman wrote that "the FCC found that incumbents face significant and increasing intermodal competition for voice services. While they once controlled virtually all of the market for voice services, the promulgation of new modes of voice communication—including mobile phones, voice services through cable and fiber providers, and other VoIP voice services—have created a competitive market."
"Rather than the near-complete monopoly that incumbents had as recently as 1996, now incumbents account for just 12% of all voice connections (both wired and mobile voice plans) and 37% of all wireline telephone connections (the subset of all voice connections that are physical rather than wireless—e.g., TDM [time division multiplexed] copper, cable, and fiber). Lines sold through the unbundled copper loops account for less than 0.5% of all voice connections (less than 2% of wireline connections) and resold lines account for just over 1% of all voice connections (3% of wireline connections). Further, the Commission found that next-generation voice services like mobile phones and Voice Over Internet Protocol (VoIP) services are rapidly growing, whereas traditional copper wire voice services are declining in both market share and in absolute terms," Judge Tatel continued.
"The FCC concluded that, given this intermodal competition, the unbundling and wholesale pricing requirements are not necessary to maintain just and reasonable prices or protect consumers (thus addressing the first two forbearance requirements [of the FCC’s forbearance authority and obligations in section 10 of the Communications Act, as amended])," he wrote.
"Finally, the Commission concluded that forbearance from the unbundling and the wholesale pricing requirements would each benefit the public interest (the third requirement [of the statutory forbearance provision]) because … they will encourage the transition to next-generation voice services. The FCC reasoned that insurgents would be induced to invest in their own new facilities. More controversial, however, the Commission also concluded that incumbents would also be induced to similarly invest because the statutory provisions at issue ‘trap’ the incumbents into maintaining outdated equipment. Still, the key to the FCC’s determination is that the statutory provisions impose unnecessary costs on the incumbents and discourage insurgents and other potential competitors from investing in their own facilities-based networks and next-generation services," he added.
Judge Tatel said that the FCC’s analysis of both the unbundling and wholesale pricing issues focuses on market conditions, and the petitioners’ challenges before the court "overlap, except that CPUC presents a safety argument regarding the 9-1-1 system which we are obliged to deal with separately. Petitioners contend that somehow it was inappropriate to analyze both requirements in similar fashion, but we think there is absolutely no merit to this contention because the concerns that justify the Commission’s forbearance of the two provisions are essentially the same."
"The nub of both Petitioners’ complaints is rather simply explained. Incumbents, although transitioning to new modes of voice communication (like fiber, cable, etc.), still maintain existing copper loops for which there is still some demand. That is particularly true for governments and certain businesses that want line-powered redundancy in addition to the more advanced modalities. The insurgents, who themselves are gradually introducing new techniques for voice transmission, want to continue to be able to purchase incumbents’ services utilizing copper loops at a subsidized rate," he wrote.
The FCC’s refusal to consider voice services to business and government customers as a separate market was reasonable, the court held. It also held that "[g]iven the Order’s limitation to price-cap incumbents, the concerns expressed by Petitioners concerning rural areas [which are largely served by rate-of-return carriers] were insignificant."
Returning to the FCC’s "dubious" claim that its action would induce incumbents to update their facilities, the court said it did not understand what the FCC meant by saying that the statute "trapped" incumbents into maintaining copper lines.
"[N]othing stops the incumbents from abandoning copper loops. Indeed, the Commission’s regulations explicitly authorize the incumbents to do just that. This bit of confusing language might have suggested a remand, if it were not for footnote 52 of the Order, which explains that ‘Incumbent[s] can relieve themselves of unbundling requirements by retiring copper.’ In other words, the footnote clarifies the statement in the body concerning the incumbents being ‘trapped.’ Under these circumstances, we can regard the ‘trapped’ observation in the body of the Commission’s opinion—which is not essential to the Commission’s rule—as careless wording," Judge Tatel wrote.
Turning to the CPUC’s public safety argument—"that the abandonment of the unbundling requirement would jeopardize 9-1-1 calls if there were an emergency when the power was out"—the court agreed with the FCC that "it is by no means obvious" that forbearance will mean the end of TDM service, as the CPUC contended.
"As we have observed, that is up to the decision of the incumbents, who can, if they wish, discontinue the use of copper networks. California is nevertheless correct that the FCC’s Order did not explicitly respond to California’s contention that the Order could have a negative impact on public safety," Judge Tatel wrote.
"This omission presents a troubling problem for the FCC, as we recognized the FCC’s statutory mandate to consider public safety in a previous case. See 47 U.S.C. § 151; Mozilla Corp. v. FCC, 940 F.3d 1, 59 (D.C. Cir. 2019). The Commission may not subsequently assert that public safety issues were redundant of other issues that were addressed—that would be an off-limits post hoc rationalization. Mozilla, 940 F.3d at 62. Were it not for exceptional circumstances, the Commission’s failure to address public safety considerations—which is an error—would require a remand," he continued.
"However, California has essentially conceded the issue, which makes a remand pointless. At oral argument, CPUC ultimately admitted that the Order would not reduce the availability of line-powered TDM copper. And, as the FCC pointed out in its brief, California is itself migrating its legacy 9-1-1 system to an IP-based communication system. The California Office of Emergency Services, the very state agency responsible for emergency preparedness, explained (apparently shortly before the Commission’s Order issued) that incorporating next-generation networks would increase the safety and reliability of California’s 9-1-1 system. CPUC did not dispute these statements. We would normally not take into account this non-record information, particularly when the information is subsequent to the promulgation of the rule. However, this is an unusual situation, where we actually have Petitioner’s admission contrary to—or at least severely undermining—its position in its Brief. In other words, the FCC’s error was not prejudicial. … Given that CPUC effectively conceded that greater consideration of public safety would not change the outcome, we think a remand on this issue unnecessary," Judge Tatel said.
Finally, turning to the petitioners’ administrative law claims that "various findings and modes ofanalysis in the Order are inconsistent with past Orders, that those inconsistencies are unexplained, and thus that the Order is arbitrary and capricious," Judge Tatel said that it "would hardly be surprising" for the FCC to take "different positions over the last few decades because the market for voice services and the relevant technology have changed dramatically. … Here, the FCC explained how the market had evolved and concluded—we think reasonably—that intermodal competition is now sufficient."
The court also rejected the necessity for the FCC to use the same analytical framework in different forbearance proceedings, recalling that the court previously found the FCC is "free to tailor the forbearance inquiry to the situation at hand."
Commenting on the court’s decision, Incompas Chief Advocate and General Counsel Angie Kronenberg said, "We are obviously disappointed with the decision. While the court acknowledges that aspects of the FCC’s forbearance order, ’might have suggested a remand,’ the decision gave the agency a pass by chalking it up to ‘careless wording.’"
She said that "the FCC reversed course without explanation on its past treatment of avoided cost resale. Unfortunately, as we argued, and the decision also acknowledges, government and business customers who rely on traditional TDM phone service should now expect to pay higher prices for it."
"As the pandemic ravages small business customers who are struggling to survive, words matter, price hikes matter and competition matters now more than ever," Ms. Kronenberg added.
A USTelecom spokesperson said, "Today’s D.C. Circuit decision confirms that the FCC has taken the right approach to modernize its regulations to make sure they reflect the current realities of today’s ultra-competitive broadband marketplace." —Lynn Stanton, [email protected]
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