TR Daily FCC Defends Extension of Separations Freeze
Friday, September 13, 2019

FCC Defends Extension of Separations Freeze

The FCC has urged the U.S. Court of Appeals for the District of Columbia Circuit to reject a challenge of its 2018 order extending the existing freeze on the jurisdictional separations cost-allocation factors for up to six years because the challengers—a group calling itself the Irregulators—lack standing and they “never substantiate their claim that the separations rules harm consumers, and they never explain how letting the freeze expire would help,” the Commission said.

The order extending the separations freeze also directed the Federal-State Joint Board on Jurisdictional Separations to “approach the challenge” of addressing “substantive reforms” by dealing with issues “incrementally,” and granted all rate-of-return carriers the opportunity to opt out of the 2001 freeze on cost-category relationships (TR Daily, Dec. 17, 2018).

The six-year extension of the separations freeze roughly split the difference between the FCC’s proposal in a 2018 notice of proposed rulemaking (NPRM) to extend the freeze by 15 years and a resolution by the National Association of Regulatory Utility Commissioners recommending that an extension of the FCC’s jurisdictional separations freeze be no longer than two years (TR Daily, July 18, 2018).

The Irregulators—“an independent consortium of retired and semi-retired telecom experts, analysts, forensic auditors, former senior staffers from the FCC, state advocates and state Attorney General experts and lawyers and former and current telecom consultants”—have argued that the 2018 order failed to observe “procedure required by law” and is “unsupported by substantial evidence.”

They also have argued that the FCC’s action was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law”; “contrary to constitutional right, power, privilege, or immunity”; “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right”; and “unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court” (TR Daily, April 18).

In a brief filed yesterday in “The Irregulators et al. v. FCC and the United States of America” (case 19-1085), the FCC said, “The Irregulators lack standing because they have not demonstrated that the Order has injured them, or that the grant of their petition for review will redress any purported injury. Petitioners are not carriers subject to the FCC’s separations rules. Instead, they base their standing on their status as customers. But they are only customers of either interstate price cap carriers—which are not subject to the separations rules because the FCC forbore from requiring these carriers to comply with the rules—or other service providers that were never subject to the separations rules. There is therefore no legal link between the freeze at issue in the Order and Petitioners’ status as telecommunications customers.”

It added, “They also claim that the freeze raises their rates indirectly by raising the costs of small rate-of-return carriers, who then charge inflated wholesale costs to the Petitioners’ long distance and wireless providers. This attenuated chain of logic is insufficient to demonstrate that Petitioners have suffered an injury traceable to the Order, especially given that such a small fraction of phone connections are subject to rate-of-return regulation. Moreover, Petitioners’ price cap carriers are not required to set their rates directly on costs, and Petitioners have not shown a substantial likelihood that any purported change in those costs would lead directly to lowered rates. The Irregulators have thus failed to show that the rates they pay are actually affected by the Order.”

The FCC also argued that the petitioners have not shown how the court could address any injury that might exist.

“The Order simply kept in place the freeze of the separations rules. If this Court were to vacate the Order, the freeze would expire and those small rate-of-return carriers that are still subject to the rules would be forced to carry out elaborate cost studies to comply with the outdated rules. Even Petitioners do not contend that would be a good outcome. They instead urge that the Commission should ‘revise the separations rules.’ … But that option was never proposed in the NPRM and, especially in the absence of a recommended decision from the Joint Board, it was not properly before the agency at this point in the rulemaking. The only relief the Court could order, vacatur and remand of the Order, would provide Petitioners no benefit.”

Even if the court finds that the petitioners have standing, “their petition would fail because the agency acted reasonably. With less than six months remaining before the freeze expired, it was highly unlikely that the Joint Board and the FCC could comprehensively update the separations rules. The agency therefore faced a choice between extending the freeze and letting it lapse. Letting it lapse ‘would impose significant burdens on rate-of-return carriers that would far exceed the benefits, if any, of requiring those carriers to comply with rules that they have not implemented since 2001.’ Order ¶ 20 … Extending the freeze instead was clearly a reasonable choice, one that was supported by ‘the overwhelming consensus among the commenters,’ including the State Members of the Joint Board, state regulators, and both price cap and rate-of-return carriers. See Order ¶ 20 … Indeed, groups representing the carriers actually subject to the rules appear here as amici in support of the Commission,” the FCC told the court.

The FCC “reasonably” rejected the Irregulators’ three-sentence “skeletal” proposal for resetting the separations percentages, finding it to be outside the scope of the NPRM.

“Petitioners’ main attack on the order is premised on their assertion that the separations rules affect state regulation of all carriers, including price cap carriers not subject to the rules. … Many parts of this argument were not raised before the Commission and so are waived now. 47 U.S.C. § 405(a). In any case, the argument fails. First, Petitioners have never made clear the purported link between the Part 36 rules and state regulation of price cap carriers. To be sure, they have described at length why they feel the rules do not accurately describe the costs of large price cap carriers like Verizon, but they do not explain, here or to the FCC, how that actually affects the rates of price cap carriers. Second, even if they were right that the rules matter in this way, they do not explain why simply letting the freeze expire would help. They therefore fail to show why the agency’s action was unreasonable,” the FCC said.

The Irregulators are joined in their appeal by the New Networks Institute, Bruce Kushnick, Mark Cooper, Tom Allibone, Kenneth Levy, Fred Goldstein, and Charles Woodward Jr. —Lynn Stanton, [email protected]

MainStory: FederalNews FCC Courts

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