Appeals Court Upholds FCC Unbundling Rules

In an opinion by Judge David Sentelle, the court disagreed with CLEC arguments that they're “universally impaired” unless they have unbundled access to high-capacity DS1 and DS3 facilities. The CLECs sought nationwide unbundling of DS-1 loops, a blanket action earlier court rulings denied, Sentelle said. The Telecom Act requires some “limiting standard,” he said. The FCC order “reasonably” rejected a nationwide rule, Sentelle wrote: “The FCC adopted a nuanced standard which… uses market data to predict when and where the CLECs will be economically able to deploy their own high-speed facilities.”

“We think this balancing act is reasonable,” Sentelle said. As a fallback the CLECs argued that impairment should be measured building by building instead of doing a comparison of wire centers, as the FCC did, he said. But “even if the CLECs’ building-by-building approach were not riddled with empirical flaws and administrability problems,” there’s no reason to second-guess the FCC’s rational choice, Sentelle said.

The panel, which also included Chief Judge Douglas Ginsburg and Judge Thomas Griffith, didn’t buy a CLEC request that arguments made about DS-1 access also should apply to DS-3. The request came “in a single footnote,” which was “insufficient to raise the issue,” Sentelle wrote. The only “viable” challenge to the FCC’s DS-3 rules was an argument that proxies used by the FCC were insufficient to gauge competitive deployment, Sentelle said. But the CLECs based their complaints on lack of current DS-3 deployment, though the court had held that the FCC must consider potential competition, Sentelle said.

Of CLECs’ challenge to FCC elimination of switching as a UNE, the court said FCC data showed mass market switching was competitive and “the CLECs failed to offer any… contrary evidence.” The court also denied a NASUCA challenge to the FCC ruling on switching. NASUCA argued the ILECs conceded some market impairment in mass market switching by submitting evidence of nonimpairment in others, Sentelle said. “That is, NASUCA argues that the ILECs should suffer a negative inference for each of the markets for which the incumbents did not submit data.” The argument “is without support in the relevant case law,” he said.

The court also rejected 2 ILEC challenges to the order - - that the FCC failed to consider tariffed special access services’ relevance in its unbundling analysis, and imposed impossibly high thresholds for assessing the state of competition in the market for DS-1 and DS-3 loops and transport. Sentelle said the FCC conducted a “reasonable” analysis of special access as an alternative to UNEs, taking into consideration possible ILEC abuse if UNEs were denied wherever there were tariffed alternatives.

As for thresholds for assessing high-capacity competition, the court said “the Commission repeatedly justifies its unbundling determinations on the basis of both actual and potential competition.” Though the ILECs griped that the FCC granted too-narrow transport relief, the Commission “eliminated unbundling for high-capacity transport in more wire centers than the ILECs proposed,” Sentelle wrote.

Of loops, Sentelle wrote: “The ILECs’ challenge to the Commission’s unbundling of high-capacity loops is equally unavailing.” The court said “the FCC chose to assess loop impairment at the wire-center level because wire centers provide the best evidence” of potential as well as actual competition. “Instead of attacking the FCC’s thresholds or loop caps, the ILECs simply lament that the Commission eliminated unbundling only in those markets that are experiencing ‘extraordinary levels of competition,'” Sentelle said: “Congress gave the Commission -- not the petitioners or this court -- discretion in regulatory line-drawing. The mere fact that the Commission’s exercise of its discretion resulted in a line that the ILECs would have drawn differently is not sufficient to make it unlawful.”

The court dismissed as “meritless” all arguments in an appeal by the N.J. Ratepayer Advocate, including one questioning whether the FCC order preempts state PUCs from regulating telecom carriers. The preemption argument is “unripe at best” because the FCC hasn’t attempted to preempt a state commission’s unbundling authority, Sentelle said.

Covad was pleased with decision because it upheld an FCC ruling that has been positive for facilities-based carriers like Covad, it said. Covad Gen. Counsel James Kirkland said the order brought “regulatory stability for the past 18 months,” which he credited with stimulating investment and improving Covad’s ability to raise capital and introduce new services. “The court’s decision is a strong affirmation of policies that support facilities-based carriers,” he said. The court case carries Covad’s name, but the company was a minor participant in the case, which had attracted appeals from numerous parties, Kirkland said. He said Covad’s appeal challenged some “minor paring back” of ILEC unbundling obligations for T-1 and transport.

The ruling is “what happens when you faithfully implement the statute and have a hardworking and thoughtful staff,” Jeffrey Carlisle, chief of the FCC Wireline Bureau when the order was written, said. Carlisle is vp of PC maker Lenovo.

The court’s decision “provides clear impetus for the FCC to… reject a pending CLEC petition seeking modifications to the unbundling regime that the court just affirmed,” AT&T said.