Appeals Court Upholds FCC Rate Cap System Authority
Federal appeals judges Tuesday upheld the FCC’s authority to maintain a rate-cap system regulating ISP-bound dial-up traffic. In a decision by the U.S. Court of Appeals for the District of Columbia Circuit, Judge Stephen Williams said the court “found no legal error in the FCC’s analysis.”
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Before the commission intervened, LECs were subject to a reciprocal-compensation system under the Telecom Act of 1996, which requires them to pay for connecting and terminating services provided by the ISP’s LEC. The commission’s rules were meant to ensure that the charges of “every common carrier engaged in interstate or foreign communication by wire for such communication service be just and reasonable,” Williams wrote. He cited AT&T v. Iowa Utilities Board, which mentioned a declaration by Congress that the commission has authority to create rules to properly carry out the Telecom Act.
In a remand order, the commission pointed to regulatory arbitrage that had resulted from LECs’ signing up ISPs as customers and collecting, instead of paying, compensation. These actions “created incentives for inefficient entry of LECs intent on serving ISPs exclusively and not offering viable local telephone competition,” the order said. The commission said that “the large one-way flows of cash made it possible for LECs serving ISPs to afford to pay their own customers to use their services,” which in turn produced excessive ISP rates for customers.
The court rejected petitioner Core Communications argument that the FCC’s authority shouldn’t apply when calls terminate locally or when Internet dial-up is used, because the call ends with the ISP and so terminates locally. “This argument fails because it implicitly assumes inapplicability of the end-to-end analysis, which petitioners have not challenged,” the court order said.
The decision is a victory for incumbent local exchange and for wireless carriers like Sprint, Verizon and Metro PCS, officials said. Michael Glover, Verizon senior vice president and deputy general counsel, said the company is pleased with the decision. “Today’s decision ends a long- running dispute that was disruptive to the entire industry and reinforces the need for the FCC to act now on critical intercarrier compensation reform that will put us on the right path in the broadband age,” Glover said.
The decision was no surprise, said analysts at Stifel Nicolaus, but they said the opinion was unclear in providing “arguments that might affect whether the FCC could broadly preempt state regulators and drive down intrastate access charges, which is in play in possible intercarrier reform.” If the commission had lost, “the outcome would have been a bigger deal, as it could have exposed ILECs and wireless carriers to higher charges,” and “raised new questions about the FCC’s authority,” the report said.
This is the third remand order. The decision bars Core Communications from receiving the higher reciprocal compensation rate or any retroactive payments.