Supreme Court Backs FCC Rulemaking Authority

(January 27, 1999)  The U.S. Supreme Court decided on Monday, January 25, that the FCC does have authority to set pricing rules for telecommunications carriers' access to local exchange carriers networks.  However, the Court ruled that the FCC exceeded its authority in promulgating Rule 319. Also, the Court upheld the FCC's "pick and choose" rule.

The case pitted the incumbent local exchange carriers (ILECs), especially the "Baby Bells", and some state utilities boards, who disputed FCC authority, against the Federal Communications Commission and long distance carriers seeking access to local facilities. The 8th Circuit Court of Appeals ruled in favor of state authority.  The Supreme Court, in large part, reversed.

However, to the extent that many state utilities boards have set rules that are consistent with the FCC's rules, the ruling will have limited impact.

The Telecommunications Act of 1996 ended the regime of state sanctioned monopolies.   It further required the incumbent local exchange carriers to share their networks.   (See, 47 USC § 251.)  The Federal Communications Commission, which is the federal regulatory agency with jurisdiction over telecommunications, then assumed that it had authority under the Act to set the terms and prices for such access.

However, various state utilities boards also claimed this authority.  AT&T and other long distance companies favored the rules promulgated by the FCC, while the ILECs supported state utilities board rule making.  Numerous legal challenges were filed, which were ultimately consolidated into this one action.

The 8th Circuit Court of Appeals ruled against the FCC, AT&T, and other long distance companies last year.  It  ruled that 47 USC § 251 and 252 "authorize the state commissions to determine the prices an incumbent LEC may charge for fulfilling its duties under the Act."

This case goes to who has authority (under the Telecom Act of 1996 and the Telecommunications Act of 1934) to regulate long distance carriers' entry into local markets, and what regulations are appropriate.  Specifically, the issues addressed by the Supreme Court were:

• Whether the FCC has the authority to adopt rules to set prices for services and network elements that incumbent local telephone companies are required to provide to new entrants. (See, Part II of Supreme Court Decision.)
• Whether the FCC's regulation (Rule 319) allowing new entrants in the local phone market to obtain and use existing combinations of network elements from incumbent LECs, precluding those elements from being broken apart, is valid.  (Part III.)
• Whether the FCC's "pick and choose" rule (Rule 315(b)), which allows new entrants to select provisions of other negotiated agreements to establish their own service, is valid.  (Part IV.)

First, the Court ruled that the FCC does have authority to set prices under §§ 251 and 252 of the 1996 Act.  Also, the Court ruled that the FCC has "jurisdiction to promulgate rules regarding state review of pre-existing interconnection agreements between incumbent LECs and other carriers, regarding rural exemptions, and regarding dialing parity."  (See, Part II of Opinion.)

Second, the Court ruled that the FCC exceeded its authority in promulgating Rule 319 (47 CFR § 51.319). This rule requires the incumbent carriers to provide access to a minimum of seven network elements: the local loop, the network interface device, switching capability, interoffice transmission facilities, signaling networks and call-related databases, operations support systems function, and operator services and directory assistance.  (See, Part III of Opinion.)

Finally, the Court upheld the FCC's "pick and choose rule."  The Court explained simply that it is almost identical to the statutory language in 47 USC § 252(i).  (See, Part IV of Opinion.)

Justice Antonin Scalia wrote the opinion of the Court.  Although, Justice Thomas wrote an opinion, in which Rehnquist and Breyer joined, which argued that the majority went too far in limiting state authority.

The long distance companies were pleased with the ruling.  Michael Armstrong, Chairman and CEO of AT&T, touched on the decision in his keynote address to the ComNet 99 convention in Washington DC on Tuesday, January 26.

"Today, the regulatory barriers are breaking down, and yesterday was an awful good day for that.  So are technical barriers.  And that spells the end of divided networks.  Soon, you'll get what you're gonna need. Seemless service from one vendor, that works at any distance, any bandwidth, any way."

Robert Annunziata, President of AT&T Business Services, told Tech Law Journal on Tuesday at the ComNet 99 convention that the decision is good for AT&T.

"We think it is very positive for us.  We think it is a positive action that basically states that it is an FCC jurisdiction, and that they need to relook at how they look at how they package and bundle all the different elements.  I mean, one was a 'complete on an unbundled basis.'  Another was an unbundled basis with a 'glue charge.'   So that all will be looked at.  We are looking deeper into the actual ruling.  We haven't studied it.  But, our initial impression is that it is going to make it more competitive."

Jim Cicconi, AT&T Vice President and General Counsel said the following in a statement released on January 26:

"The Supreme Court’s decision today is a victory for local telephone customers and for the local competition intended by the Telecom Act of 1996.

AT&T is delighted the Court has confirmed that the Telecom Act established a national policy in support of local competition. It’s especially good news the Court upheld the FCC’s rules prohibiting local monopolies from misusing their control of network elements to inhibit competitors from entering the local market.

Although the Court vacated and sent back an FCC rule that defines network elements, the decision does not mean that the FCC’s list of elements is wrong – merely that the FCC needs to consider additional factors in defining network elements."

James Cullen, President and CEO of Bell Atlantic, released the following statement on January 25:

While many of these rules have been debated in the courts, Bell Atlantic has moved very aggressively to open its network to all those who choose to compete with us. As of the end of 1998 Bell Atlantic had spent $1 billion and dedicated more than 1,000 employees to opening the local marketplace to competition.

In addition, all the state public service commissions in our serving area have set prices that are consistent with the FCC's rules.

Bell Atlantic has already committed to offering "platforms"" in New York on terms that are consistent with today's Supreme Court decision. "Platforms" provide a way to get all the pieces of the network so competitors can offer the same services to their customers as Bell Atlantic offers.

Finally, today's decision makes it clear that elements of our network do not have to be unbundled when they are available from other sources, including pieces competitors can provide themselves. This is especially significant because competitors in the Bell Atlantic region already have widely deployed their own switches, fiber, operator services and other elements that they clearly do not need from us.

William Barfield, BellSouth Associate General Counsel had this to say:

"The Court, in a complex order, ruled that the Federal Communications Commission does have jurisdiction to offer guidelines to the state public service commissions on most pricing issues.

"However, the Court did agree with us that the FCC was overly broad in defining which parts of our network we would be required to separate out and sell to our competitors at bargain-basement prices. It was the intent of Congress -- and fairness would dictate -- that we should not be required to sell to our competitors network elements that they can easily obtain elsewhere on their own.

"We hope the clarifications contained in today's decision help to accelerate the process of letting BellSouth into the long-distance marketplace.

"We will continue to work with the commission as it seeks to fashion a standard defining which network elements our competitors require from us.

"It is important to note that BellSouth's network is and has been for some time open to competitors and that competition is not only possible, it is growing to the tune of 700,000 customer local lines in the Southeast being served by our competitors."