Appeals Judge Questions Part of FCC Unbundling Order

Chief Judge Douglas Ginsburg asked Ingle for the source of the numbers on which the impairment test is based. Ingle had trouble answering. Ginsburg said he just wanted to know how the FCC got the numbers and asked Ingle to “show your work, like in grade school” when a student shows how he reached a mathematical answer. Ingle later gave the court several citations in the FCC order but it wasn’t clear if that was what Ginsburg wanted.

The high-capacity impairment issue was one of several parts of the 2005 order -- also known as the Triennial Review Remand Order. Attorneys for the ILECs and CLECs challenged different parts of the order during oral argument. The order, the FCC’s 3rd attempt to write UNE rules able to pass legal muster, also dropped mass market switching and dark fiber from the list of UNEs available to competitors at TELRIC rates. By dropping switching, the FCC also eliminated the UNE platform as a vehicle for low cost competitive entry.

The challenge to the impairment test for CLEC access to high-capacity elements came from the Bells, who said the test doesn’t go far enough to limit competitive access to their facilities. The test for DS3 access, for example, says CLECs are impaired, and thus deserve low-cost access to DS3 loops, when they're providing service in wire centers with no more than 38,000 business lines and no more than 4 fiber-based colocators. For DS1 service, the threshold is 60,000 business lines and 4 colocators.

Ingle said the FCC was following “pointed directions” in 2 court remands on how to design the impairment standards and that the agency has met those requirements. “The court should affirm and bring this long exercise to an end,” Ingle said. Ginsburg asked Ingle about Bell attorney Michael Kellogg’s comment that current rules are too uniform. He’s saying this is a “one size fits all” approach, Ginsburg told Ingle. Ingle said courts have told the FCC to take a “granular” approach but not to use state regulators to gauge competition. Unable to do so granular a study of every state or market on its own, the FCC chose to make “reasonable inferences” after studying competitive markets throughout the country, Ingle said. It then picked as “proxies” the number of business lines and the number of colocators based on what constituted competition in the markets studied.

David Murray, representing CLECs, said competitors backed the FCC’s impairment language and gave the Commission data on which to base its standard. The FCC “correctly found” it was hard for CLECs to compete for these high capacity business services in many markets. It’s not as easy as it sounds for a competitor to “dig a hole and run a line to a building when [the amount of] traffic doesn’t justify it,” Murray said.

But another CLEC attorney, Bruce Sokler, said the FCC didn’t go far enough in designing the impairment test. “The Commission’s fundamental flaw is it ignored its own fact finding,” Sokler said: “A wire center standard makes no sense [and is] a bad proxy.” Ginsburg asked Sokler if he favored a “building-by-building approach.” Sokler said that might be difficult but there are “sampling” methods that would work better. It’s just that using wire centers as proxies isn’t logical, Sokler said.

Kellogg also questioned an FCC decision not to consider a CLEC’s use of special access in judging whether impairment existed. An earlier court decision required the FCC to weigh a CLEC’s ability to compete using Bell-leased special access, he told the court. Ingle said the FCC did consider special access and decided it didn’t apply to the impairment standard. In the past, courts have “addressed special access in the context of wireless” and long distance services, not local exchange, which is the issue here, Ingle said. Not so, said Kellogg. The courts said special access was a factor to consider “across the board,” he said.

Ginsburg asked most of the questions in oral argument. The other 2 panelists -- Judges David Sentelle and Thomas Griffith -- asked almost no questions. Ginsburg appeared most interested in the Bell challenges to the impairment test, indicating a possible target if there is a remand. Ingle got off fairly easily in the portion of the hearing focused on CLEC issues such as a challenge to elimination of switching as a UNE.

Consultants Stifel Nicolaus said the court’s interest in the impairment argument “suggests the court could remand at least that issue for further explanation and possible modification.” In general, “we believe the Bells are more likely than the CLECs to gain ground through this court review, but we suspect if they do, it would… be incremental in scope.”

Genevieve Morelli, another CLEC attorney, said there was “significant evidence before the FCC” that the agency should not have taken mass market switching off the UNE list because impairment remained. She said the FCC based its switching decision on the “prospect that competition was possible” based the amount of competitive switching in the enterprise market. But the enterprise and mass markets differ significantly, she said. Ingle disagreed: “There is broad deployment of switching with no variation from place to place, rural or city. There is no significant variation in the deployment [pattern].”

“I don’t think the record supports the elimination of switching,” said Christopher White, an attorney for the N.J. Ratepayers’ Advocate and NASUCA. He said the FCC appeared “committed to eliminating UNE-P even in the face of facts” that would argue otherwise. The Ratepayers’ Advocate has challenged the FCC order as unconstitutional, saying it illegally preempts the states and misuses forbearance power.