Part of BDS Order Vacated by 8th Circuit; Order Fix Predicted to Be Easy
The FCC likely can find an easy solution after a three-judge panel of the 8th U.S. Circuit Court of Appeals vacated one part (see 1808280020) of a decision easing regulation of the business data service rates of major incumbent telcos, experts said. The court denied CLEC and ILEC petitions in general but vacated the final rule on TDM transport services, remanding it to the regulator for further proceedings. The case is Citizens Telecommunications v. FCC, No. 17-2296. Oral argument was in May (see 1805150020).
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The agency will address in short order the “narrow procedural issue” remanded by the 8th Circuit, said FCC Chairman Ajit Pai. The court upheld a competitive market test the FCC devised "and the detariffing and deregulation of last-mile business data services that the test suggested,” Pai said. “The court recognized that the Commission had proposed ‘large scale de-regulation’ and repeatedly affirmed the Commission’s policy judgments as reasonable.”
The decision looks at the transparency procedures put in place by Pai early in his chairmanship. The court said the FCC argues that because it now publishes orders three weeks before a commissioner vote, it was able to “review and address comments” not raised in the 2016 notice, the court said. “We reject this argument because we do not believe that the FCC providing a few weeks to review the 2017 Order cured the deficient notice regarding transport services,” the court held. “The [Administrative Procedure Act's] procedural rules are designed to allow parties the opportunity for informed criticism and comments … and creating any exceptions to the procedural requirements would allow agencies to significantly alter the course of a proceeding without authorization.”
A lawyer in the case said the vacated part isn’t consequential. “From a procedural standpoint, it will be easy for the FCC to issue a very narrow NPRM proposing to reinstate the deregulation of interoffice transport prices,” the lawyer said. “On the merits, the court’s willingness to uphold the FCC’s competitive market test for TDM channel terminations -- which overall are subject to much less competition than interoffice transport -- suggests that the FCC will have no trouble justifying reinstatement of the same result for transport.”
Others said the FCC has work to do. It must approve a notice on the TDM transport part of the rules, said a second expert in the case. It “will need to solicit information about competition or the lack thereof for the transport links in question,” the lawyer said. “That will take some time.” Individual companies part of the litigation didn't comment.
X-Factor
"While the FCC’s analysis regarding the X-factor was not a model of clarity," the 8th Circuit ruled that the agency wasn't "arbitrary and capricious in declining to adjust" a data set in picking a new such factor. The X-factor relates to BDS prices.
Frontier Communications, whose Citizens helped bring the case, said the outcome "correctly recognized the FCC has broad latitude to deregulate" the BDS market," noting it affirmed the competitive market test for channel terminations. "We are disappointed, and disagree with, the court’s conclusions that the 'X-factor' was lawful and that there was not sufficient notice for the Commission’s rules for the transport market," emailed a spokesperson for the telco. "However, the court’s rationale acknowledges the FCC can still find on remand what is widely known: the transport market is fiercely competitive.”
CLECs complained that a 2016 notice “requested comment on a heightened regulatory scheme while the 2017 Order was broadly deregulatory,” the court said. “A somewhat Orwellian approach to proposing rules in the 2016 Notice creates much of the dispute here. One of the FCC’s stated goals was ‘large scale de-regulation,’ but it requested comment on several suggestions that would have increased regulation.”
In 2017, the composition of the FCC changed, with the election of a Republican president and elevation of Pai as chairman, the 8th Circuit noted. The new FCC “emphasized the stated goal in the 2017 Order and followed only the proposals in the 2016 Notice that adhered to that stated goal,” the court said.
CLECs say the notice proposed heightened regulations, while the order cut them, the court said. CLECs “may be correct that the FCC, as composed in 2016, would have expanded the use of price caps and applied a stricter competitive market test favoring their use, but nothing in the 2016 Notice compelled the FCC to abandon ‘large scale de-regulation’ in favor of that approach,” the 8th Circuit said. “From the 2016 Notice’s plain text, the CLEC Petitioners had adequate notice of large scale deregulation.”
CLECs Win Some
CLECs won on arguments that they didn’t have sufficient notice of the complete deregulation of transport services that the FCC approved last year: “Petitioners are correct that there is no notice of completely ending ex ante regulation of transport services in the 2016 Notice.” The Administrative Procedure Act requires an agency to include “either the terms or substance of the proposed rule or a description of the subjects and issues involved,” the court said. “Because the FCC did not propose completely ending ex ante regulation of transport services, it did not allow for informed participation by interested parties in that portion of the rulemaking, and its notice was insufficient.”
The case was heard by Judges Bobby Shepherd, Michael Melloy and Steven Grasz. The latter wrote the decision.
USTelecom sees the ruling as good for consumers and an "important step toward modernizing the delivery of broadband services and incentivizing new investment in the most efficient and effective way." CEO Jonathan Spalter believes that on remand, the agency will "find that transport services are fully competitive and not subject to pricing regulation."
"We are pleased that the court questioned the FCC's decision to deregulate transport services,” said John Windhausen, executive director of the Schools, Health & Libraries Broadband Coalition. “Schools, libraries, health providers, and other anchor institutions in rural areas and non-competitive markets are vulnerable to price increases when they have few broadband options. The court's remand will give the FCC another opportunity to examine real world evidence about the impact of transport deregulation on anchor institutions."