APPEALS COURT SIGNALS POSSIBLE UNE ORDER REMAND

All 3 judges -- Harry Edwards, Raymond Randolph and Stephen Williams -- raised strong questions bordering on criticism about delegating authority to the states, throughout the first half of a 2-1/2 hour oral argument. The questioning began only a few minutes in, when Edwards asked ILEC attorney Michael Kellogg his views on FCC delegation. When Kellogg said such action probably required Congressional activity, Edwards asked Kellogg what “remedy” the court should impose. Edwards’ question was considered very important by attorneys in the audience who said the court wouldn’t be discussing remedies if it weren’t considering remanding or vacating those rules.

Kellogg responded that he would remand the section to the FCC. “But where does that leave your clients,” Edwards asked. “Do they remain in limbo?” Pressed further by Edwards and Williams, Kellogg said the court should vacate the narrowband unbundling regime, set a tight deadline for FCC action and retain jurisdiction over FCC compliance. Randolph then asked several questions about whether the court, in setting aside the state delegation, would also have to act on the FCC’s decision that retained switching as a mass market UNE. Kellogg said he didn’t think the 2 could be separated because the FCC’s switching decision was a “presumption” pending state action.

Legg Mason analysts said in a report after the hearing that the judges seemed guarded about the potential remedy, indicating “this remains a potential problem for the Bell attempts to get near-term relief, even if they win a positive ruling.” The analysts’ report concluded “it was a good day for the Bells and a bad one for the IXCs [long distance providers] but the question of a remedy and timing remains a key variable.”

FCC attorney John Ingle told the court he hoped it wouldn’t reverse the Commission on delegation because the agency’s action was supported by case law and the Telecom Act. Edwards responded that he “couldn’t find any” legal support. Ingle said the Telecom Act doesn’t say the FCC has exclusive jurisdiction. “It says the FCC has to make a determination,” said Randolph. Indicating he had “major concerns” about the FCC’s delegation of authority to state commissions, Edwards said it was almost “amusing” how the FCC had moved from saying the states didn’t have authority to unbundle, to “lo and behold” declaring it was delegating authority to the states.

Attorney David Carpenter, arguing on behalf of the CLECs, told the court if it rejected the state delegation, the FCC’s national findings -- such as the presumption that switching should remain on the UNE list -- would still be “perfectly valid.” Edwards responded that “the question we're raising is if the FCC can give away what it concedes is its authority.” The court also indicated interest in the FCC’s argument that problems associated with hot cuts justified findings of impairment. Asked by Randolph what incentive CLECs have to be “self-provisioning,” Carpenter said “CLECs don’t want to be dependent” on ILECs. But, Randolph asked, “if there is no incentive but to jump on the [UNE] platform, what is the incentive to [use one’s own facilities and connect via] hot cuts?” Carpenter replied “we tried hot cuts and failed” because the ILEC-provided service didn’t work. “Nobody likes UNEs but the only alternative is no mass market competition,” Carpenter said.

Randolph said he was “puzzled” by language in the TRO dealing with operational barriers to entry. He said it appeared to be based on complaints by CLECs rather than factual evidence. “Is this evidence or is this just an argument in a brief?” Randolph asked. “How can you make a finding based on what a party asserts?” Williams questioned a portion of the order that gives states the option of instituting a rolling hot cut process. Williams asked why that shouldn’t be a universal solution. Williams also questioned how the FCC weighed CLEC “impairment,” asking if the agency looked at CLECs using the “most efficient technology available.” The impairment standard would be “vacuous unless it gave an idea of what kind of CLEC,” Williams said. Ingle pointed out that none of the petitioners had challenged the FCC’s standard.

The court’s signals weren’t as clear on the broadband portion of the FCC’s order and other issues. The D.C. Circuit is considering consolidated appeals of the massive UNE order. The court divided the oral argument into 2 parts: The first targeted the narrowband UNE portion of the order, which included the state delegation issue. The Bells had brought challenges on that part of the order. The 2nd focused on a variety of challenges by CLECs and state regulators including to the FCC’s decision to eliminate the Bells’ unbundling requirement for some broadband services. For example, Donald Verrilli, representing CLECs and long distance companies, urged the court to overturn the order’s restrictions on how long distance companies could use enhanced extended links (EELs), which he called “irrational.”

On broadband issues, judges asked about such things as the FCC’s decision to allow only narrowband access to hybrid copper/fiber loops. Williams asked another FCC attorney, James Carr, about CLEC complaints that ILECs have an advantage in hybrid broadband formations because they have facilities in place and CLECs don’t. Carr said “on balance, the FCC found that while [ILECs have] some advantages, CLECs also had advantages” in other ways. In hybrid loops, CLECs have advantages and disadvantages, so the FCC “made a reasonable judgment that there was no impairment,” Kellogg said. However, Verrilli argued: “Impairment is the touchstone. It means we can’t compete. The goals Congress sought will not be achieved if we cannot get access to hybrid loops.” On another issue, judges appeared skeptical about the order’s determination that wireless carriers may access transport as a UNE.

AT&T and MCI issued separate statements emphasizing the importance of UNE access to competitive telecommunications. “While no one can predict what the court will decide,” AT&T said, consumers and small businesses are gaining lower prices and better choices “because competitors have access to the Bells’ last mile facilities at reasonable rates.” MCI said it was “hopeful” the court would “rule in favor of maintaining the FCC’s local competition rules, protecting the benefits of consumer choice.”

ALTS Gen. Counsel Jonathan Askin said whether or not the FCC delegated some authority to the states, the basic fact remained that “the local loop is the paradigmatic bottleneck facility which must be made equally available to all competitors if consumers are to see the ultimate benefits of a competitive telecommunications market.” Askin said Randolph “seemed to have picked up on the most illogical disconnect” in the TRO,” that while the states were delegated authority to deal with most network elements, they weren’t delegated authority on access “to broadband-capable loops.” - - Edie Herman