Appeals Court Overturns Key Provisions of FCC Triennial Review Order

March 2, 2004. The U.S. Court of Appeals (DCCir) issued its opinion [62 pages in PDF] in USTA v. FCC, overturning key parts of the Federal Communications Commission's (FCC) triennial review order (TRO).

The opinion leaves largely untouched those portions of the TRO in which the FCC refrained from unbundling next generation broadband facilities. The opinion vacates those portions of the TRO in which the FCC delegated decision making authority to the state to make impairment findings.

Commissioners Kevin Martin, Michael Copps, and Jonathan Adelstein issued a joint statement [PDF] in which they wrote that "We have instructed our General Counsel to seek a stay and to appeal the D.C. Circuit decision to the Supreme Court".

Highlights of the Opinion. First, the Appeals Court upheld portions of the TRO that were challenged by competitive local exchange carriers (CLECs) pertaining to broadband facilities. For example, the TRO provides that there is no unbundling requirement for fiber to the home (FTTH) loops. The Court upheld this.

The TRO also provides that there is no unbundling requirement for a transmission path over hybrid loops utilizing the packet switching capabilities of their DLC systems in remote terminals. However, ILECs must still provide unbundled access to a voice grade equivalent channel and high capacity loops utilizing TDM technology, such as DS1s and DS3s. This too was upheld.

Also, the Court upheld the portion of the TRO that eliminates line sharing as an unbundled network element.

However, the Appeals Court vacated key portions of the TRO that were challenged by the incumbent local exchange carriers (ILECs) pertaining to switching, and delegation to the fifty states of authority regarding impairment determinations.

The Court concluded that "We vacate the Commission's subdelegation to state commissions of decision-making authority over impairment determinations, which in the context of this Order applies to the subdelegation scheme established for mass market switching and certain dedicated transport elements (DS1, DS3, and dark fiber). We also vacate and remand the Commission's nationwide impairment determinations with respect to these elements." (Parentheses in original.)

The Court wrote that "We therefore vacate, as an unlawful subdelegation of the Commission's ß 251(d)(2) responsibilities, those portions of the Order that delegate to state commissions the authority to determine whether CLECs are impaired without access to network elements, and in particular we vacate the Commissionís scheme for subdelegating mass market switching determinations. (This holding also requires that we vacate the Commissionís subdelegation scheme with respect to dedicated transport elements, discussed below.)" (Parentheses in original.)

It also wrote that "We therefore vacate the FCCís determination that ILECs must make mass market switches available to CLECs as UNEs", subject to an exception.

The Court also wrote that "We therefore vacate the national impairment findings with respect to DS1, DS3, and dark fiber and remand to the Commission to implement a lawful scheme."

On other matters, the Court concluded that "We vacate the Commission's decision not to take into account availability of tariffed special access services when conducting the impairment analysis, and we therefore vacate and remand the decision that wireless carriers are impaired without unbundled access to ILEC dedicated transport."

It also concluded that "We vacate the Commissionís distinction between qualifying and non-qualifying services, and remand (but do not vacate) the decision that competing carriers are not entitled to unbundled EELs for provision of long distance exchange service." (Parentheses in original.)

And, it wrote that "We remand the Commissionís decision to exclude entrance facilities from the definition of ``network elementīī for further development of the record to allow proper judicial review. The petitions for review are otherwise denied, except for NASUCA's petition, which is dismissed for want of standing, and the state commissions' (and that part of the ILEC petitions relating to compensation for modification of elements), which are dismissed as unripe." (Parentheses in original.)

Finally, the Court wrote that "The ILECs' mandamus petitions are dismissed as moot."

Order Under Review. The FCC released its triennial review order [576 pages in PDF] on August 21, 2003. However, it held meeting on February 20, 2003 at which it announced that it had adopted the yet to be written TRO. The FCC was operating under a Court imposed deadline. At that time, the FCC released short press release [2 pages in PDF] and an attachment [4 pages in PDF], and individual Commissioners made statements.

This TRO is titled "Report and Order and Order on Remand and Further Notice of Proposed Rulemaking". The proceeding is titled "In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, and Deployment of Wireline Services Offering Advanced Telecommunications Capability". The proceeding is numbered CC Docket No. 01-338, CC Docket No. 96-98, and CC Docket No. 98-147.

See, story titled "Summary of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 725, August 25, 2003. See also, stories titled "FCC Announces UNE Report and Order", "FCC Order Offers Broadband Regulatory Relief", "FCC Announces Decision on Switching", "Commentary: Republicans Split On FCC UNE Order", and "Congressional Reaction To FCC UNE Order" in TLJ Daily E-Mail Alert No. 609, February 21, 2003.

Meaning of Unbundling. The TRO addresses the Section 251 unbundling obligations of incumbent local exchange carriers (ILECs). Unbundled network elements (UNEs) are those portions of telephone networks that the ILECs, such as Verizon, BellSouth, SBC and Qwest, must make available to competing carriers, such as AT&T and MCI WorldCom, seeking to provide telecommunications services. The Telecommunications Act of 1996 provides that ILECs must provide access to certain of their network elements at regulated rates.

47 U.S.C. ß 251(c)(3) provides that ILECs have "The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service."

Section 251 unbundling requirements were created by the 1996 Act. 47 U.S.C. ß 251(d)(1) requires that "Within 6 months after February 8, 1996, the Commission shall complete all actions necessary to establish regulations to implement the requirements of this section."

Section 251(d)(2) requires the FCC, in establishing unbundling requirements, to "consider, at a minimum, whether ... the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer." The interpretation of the work "impair" has been central the FCC's unbundling orders, and the Court opinions overturning them.

The ILECs, and their groups, such as the U.S. Telecom Association (USTA), have long argued that requiring them to give their competitors access to their facilities at low rates gives the ILECs no incentive to build new facilities. CLECs, and their groups, such as CompTel/ASCENT, have argued that such access is necessary to spur competition.

Litigation History. The unbundling requirements, and the requirement that the FCC write regulations, where enacted in the Telecommunications Act of 1996, which became effective over eight years ago. On two prior occasions, courts struck down the FCC's unbundling rules.

The Supreme Court vacated the FCC's first unbundling order in AT&T v. Iowa Utilities Board, 525 U.S. 366 (1999). The FCC then promulgated another unbundling order. But, the U.S. Court of Appeals (DCCir) vacated this order in USTA v. FCC (2002). And, the Supreme Court denied certiorari.

The triennial review order, so named because the FCC consolidated its proceeding on remand with its triennial review of unbundling obligations, is the FCC's third attempt to write unbundling rules. The present opinion faults this third attempt.

Moreover, the Court expressed its impatience with the FCC's repeated failures. It wrote that "As to the portions of the Order that we vacate, we temporarily stay the vacatur (i.e., delay issue of the mandate) until no later than the later of (1) the denial of any petition for rehearing or rehearing en banc or (2) 60 days from today's date. This deadline is appropriate in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings."

Reactions of Commissioners. Kevin MartinThree of the five Commissioners -- Martin, Copps, and Adelstein -- issued a joint statement [PDF]. They wrote that "We are disappointed in the Court's decision to eliminate the Commission's rules requiring incumbent carriers to open their legacy voice networks to competition. We believe that the rules preserve competition in a manner that is lawful, and recognize the important role that states have historically played."

"Today over 50 million Americans benefit from the new local and long distance one-rate plans offered by both incumbents and competitors that are a result of our rules." The three concluded that "In the past, the Supreme Court has made clear that the FCC has significant discretion in ensuring that the local telephone markets are open to competition. We have instructed our General Counsel to seek a stay and to appeal the D.C. Circuit decision to the Supreme Court so that we can clarify tension with the Supreme Courtís past decisions."

Michael PowellChairman Michael Powell (at left) also issued a statement [PDF]. He wrote that "Today's court ruling upheld the Commission's decision to spur the development and deployment of vital broadband services to all Americans. As a result, our citizens will enjoy the increased capabilities, innovation, and lower prices of advanced wireline broadband services for decades to come."

"I dissented from the majority's decision on local telephone competition because it was inconsistent with the law and would result in years of regulatory uncertainty and unrealized consumer promise.  Today, the court agreed and restored the opportunity to bring about new advanced services and true competition that will bring consumers choice and innovation."

He concluded that "My fellow Commissioners and I need to expeditiously get to work to produce a set of judicially sound rules, once and for all. I have already directed the staff to begin preparing new rules that will provide the sorely needed clarity and guidance essential to bringing consumers the benefits they were promised and deserve."

The fifth Commissioner, Kathleen Abernathy, issued a statement [PDF] too. She wrote that "Today, the D.C. Circuit Court of Appeals upheld the Commissionís decision to refrain from unbundling next-generation broadband facilities. This is a big victory for American consumers. The Commissionís framework will help promote greater investment by removing regulatory barriers to broadband deployment. Telecommunications providers already have stepped up their deployment in the wake of the Commissionís Order, and I hope that the Courtís decision upholding our framework will further accelerate investment."

"I am not surprised that the Court vacated the Commission's decision to delegate extremely broad decisionmaking authority to state commissions to preserve the unbundled network element platform (UNE-P).  As I stated in my dissent when the Commission announced its decision last year, the majorityís abdication of our responsibility to decide where impairment exists was inconsistent with the statute and prior court decisions.  At this point, I sincerely hope that the Commission will work collaboratively toward developing an unbundling framework that can survive judicial scrutiny. I am open to considering a variety of approaches, but our primary goal should be to provide greater certainty to a beleaguered industry. I look forward to working with my colleagues to respond expeditiously to the courtís directives", said Abernathy.