Federal Court Eviscerates TRO, FCC's UNE Rules
In a ruling surprising for both its strength and length, the U.S. Court of Appeals for the District of Columbia Circuit Tuesday struck down much of the Federal Communications Commission's (“FCC”) "Triennial Review Order" (“TRO”) that dealt with “Unbundled Network Elements” (“UNEs”). The judges’ ruling represents a significant victory for the incumbent local exchange carriers (“ILECs”) and further unsettles the regulatory landscape for competitive local exchange carriers (“CLECs”) dependent on UNEs.
The decision also marks a victory for FCC Chairman Michael Powell, who was outflanked on the TRO by Commissioners Martin, Copps, and Adelstein.
Responding to a Congressional directive in the Telecommunications Act of 1996, the FCC has attempted several times over the past seven years to develop a list of UNEs that ILECs must make available for CLECs. Twice before yesterday’s decision courts have faulted the FCC for both its identification of the network elements to be unbundled, and its justifications for requiring UNEs to be made available.
The FCC’s first attempt on UNEs was struck down in large part by the U.S. Supreme Court in 1999. In a 2002 decision the U.S Court of Appeals for the D.C. Circuit invalidated the FCC’s second effort, prompting the FCC to consolidate the court’s remand order with its regularly scheduled ‘‘triennial review’’ of the scope of obligatory unbundling. The FCC’s third attempt, colloquially known as the TRO, was released in the early fall of 2002. Now this third effort, too, has been deemed unlawful.
Although the court found the TRO “a little less unlawful” than past FCC efforts, the court:
- Chided the FCC for “subdelegating” to state utility commissions the task of determining where and whether CLECs would be “impaired” without access to certain UNEs;
- Strongly hinted the FCC should tread carefully in its application of the “impairment” test used to determine whether CLECs face barriers to entry absent a particular UNE, particularly in areas where ILEC rates may be artificially inflated by state regulators for universal service reasons;
- Declared unlawful the FCC’s nationwide finding of impairment regarding certain UNEs, specifically mass-market switching and dedicated transport elements (DS1, DS3, and dark fiber);
- Held that the FCC must consider availability of tariffed ILEC special access services when determining whether would-be entrants are impaired (even if special access is more expensive than a UNE);
- Upheld the FCC’s decision not to require ILECs to unbundle certain facilities used to provide broadband services, including line-sharing, hybrid loops, or fiber-to-the-home;
- Ordered the FCC to reconsider whether “entrance facilities” are UNEs; and
- Remanded to the FCC the question of whether and when CLECs are entitled to enhanced extended loops ("EELs”).
The court stayed the effectiveness of this order for 60 days, presumably to give the FCC and parties time to seek reconsideration and a longer stay from the full appeals court, or a direct appeal and request for stay to the Supreme Court. Current thinking (or perhaps wishful thinking) in the competitive community is that while the full appeals court may be inhospitable to an appeal and stay request, the decision is so lopsided that the Supreme Court likely will accept certiorari and grant a stay.
Whether the FCC joins the appeal and stay forces is uncertain, however, given the rumored split amongst FCC commissioners about UNE strategies going forward. Chairman Powell’s hand with respect to UNEs (and competitive policy under the Telecom Act in general) certainly has been strengthened by Tuesday’s decision, and we believe his influence over appeal strategy in this case has only been magnified as well.
Still, we believe that a coalition of CLECs, state utility commissions and state consumer advocates will press for an appeal and stay at the full appeals court and/or Supreme Court in the next 60 days. If the full appeals court or Supreme Court does not grant a stay, we anticipate that ILECs may argue that most, if not all, of their UNE obligations are unenforceable starting in early May and until the FCC rehabilitates its UNE rules.
This decision also confuses the state regulatory landscape. Verizon, for example, has petitioned dozens of state commissions for consolidated arbitrations to flow through the now-vacated TRO requirements. By contrast, Qwest took the approach that CLECs should agree to a short extension before the FCC-mandated TRO arbitrations would start to sort through the complexities of amending the several hundred interconnection contracts currently in force in Qwest territory. In either case, we anticipate that ILECs will attempt to leverage yesterday’s ruling against CLECs needing UNEs and state commissions that try to exert jurisdiction over UNE disputes.