HomeMy WebLinkAboutSCTDEC.docxMEMORANDUM
TO:COMMISSIONER HANSEN
COMMISSIONER NELSON
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
FROM:WELDON STUTZMAN
DEPUTY ATTORNEY GENERAL
DATE:FEBRUARY 5, 1999
RE:SUPREME COURT DECISION IN AT&T CORP. V. IOWA UTILITIES BOARD ISSUED JANUARY 25, 1999
Following enactment of the Telecommunications Act of 1996, the Federal Communications Commission promulgated comprehensive rules to implement provisions of the Act. The farthest reaching rules were issued by the FCC in its First Report and Order, Implementation of the Local Competition Provision in the Telecommunications Act of 1996, CC Docket No. 96-98 (August 8, 1996). In its local competition rules, the FCC among other things established a price methodology as well as specific surrogate prices that incumbent local exchange carriers (LECs) could charge new competitors for interconnection, unbundled access, and resale. These rules were challenged by incumbent LECs and 27 state commissions as beyond the authority granted to the FCC by the Telecommunications Act.
The Eighth Circuit Decision
Eventually the cases filed by the LECs and state commissions were consolidated and found their way to the Eighth Circuit Court of Appeals. The Court of Appeals issued its decision in July 1997, setting aside some of the significant rules promulgated by the FCC. Iowa Utilities Board v. FCC, 120 F.3d 753 (8th Cir. 1997). Among other things, the Court of Appeals held that the FCC did not have authority to promulgate its rules regarding: (1) pricing methodology, (2) dialing parity, (3) exemption for rural LECs, and (4) state review of pre-1996 interconnection agreements. The Court of Appeals also concluded that the FCC erred in specifying the network elements to be available to requesting carriers under its Rule 319. The Court next held that the FCC reasonably implemented the Act’s requirement that it consider whether access to proprietary elements was “necessary,” and whether lack of access to non-proprietary elements would “impair” an entrant’s ability to provide local service. Other holdings by the Eighth Circuit Court were that FCC Rule 315(b), which forbids incumbents to separate already combined network elements before leasing them to competitors, must be vacated because it required access to those elements on a bundled rather than an unbundled (physically separated) basis; that the FCC’s “pick and choose” rule, which enables a carrier to demand access to any individual interconnection, service, or network element arrangement on the same terms and conditions the LEC has given anyone else in an approved interconnection agreement, without having to accept the agreement’s other provisions, must be vacated because it would deter the “voluntarily negotiated agreements” that the 1996 Act favors. An appeal was taken from the decision of the Court of Appeals to the U S Supreme Court.
The Supreme Court Decision
A. Jurisdiction
The Supreme Court issued its decision in the consolidated appeal, AT&T Corp. et al v. Iowa Utilities Board et al, ___ US ___ (1999), on January 25, 1999. The Supreme Court reversed the Court of Appeals decision in part, most significantly in regards to the FCC’s authority to implement local competition provisions, specifically the pricing and unbundled access rules. The Court viewed the broad grant of jurisdiction to the FCC in an earlier amendment to the Communications Act as sufficient authority to reach the local competition rules promulgated by the FCC:
Section 201(b), a 1938 amendment to the Communications Act of 1934, provides that the “[t]he Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this Act.” 52 Stat. 588, 47 U.S.C. § 201(b). Since Congress expressly directed that the 1996 Act, along with its local-competition provisions, be inserted into the Communications Act of 1934, 1996 Act, § 1(b), 110 Stat. 56, the Commission’s rulemaking authority would seem to extend to the implementation of the local-competition provisions.
* * * *
We think that the grant in § 201(b) means what it says: The FCC has rulemaking authority to carry out the ‘provisions of this Act,’ which include §§ 251 and 252, added by the Telecommunications Act of 1996.
Slip. Op., pp. 9-10.
B. Network Elements
The Supreme Court also concluded that it was proper for the FCC in Rule 319 to include operator services and directory assistance, operational support systems, and vertical switching functions such as Caller ID, Call Forwarding, and Call Waiting within the features and services that must be provided to competitors as a “network element.” The Court did, however, reject part of FCC Rule 319, concluding that the FCC did not adequately consider the “necessary and impaired” standards of Section 251(d)(2) when it gave requesting carriers blanket access to network elements. The Court rejected the FCC’s assumption that any increase in costs or decrease in quality imposed by denial of a network element renders access to that element “necessary,” which also means the failure to provide that element will “impair” the entrant’s ability to furnish its desired services, as simply not in accord with the ordinary and fair meaning of those terms. Section 251(d)(2) requires the FCC to determine on a rational basis which network elements must be made available, taking into account the Act’s objectives and giving substance to the “necessary” and “impair” requirements. The “necessary and impair” standard will be remanded to the FCC.
C. Unbundling
The Supreme Court upheld Rule 315(b), which forbids incumbents to separate already combined network elements before leasing them to competitors, as a reasonable interpretation of Section 251(c)(3) of the Act. That section establishes the duty to provide access to network elements on non-discriminatory rates, terms and conditions and in a manner that allows requesting carriers to combine such elements. The Court held that Section 251(c)(3) forbids incumbents to sabotage elements that are provided in discrete pieces, but it does not say or even imply that elements must be provided in that fashion and never in combined form.
D. Pick & Choose
The Supreme Court next upheld the FCC rule that allows requesting carriers to “pick and choose” portions of approved interconnection agreements. The Court held that the FCC rule closely tracks Section 252(i) of the Act and thus is a reasonable interpretation of that section.
E. Dialing Parity
Also caught in the Supreme Court’s reversal of the Court of Appeals were the FCC rules regarding dialing parity. Although the dialing parity rules were not at issue in the Iowa Utilities Board case, an Eighth Circuit Court of Appeals decision in a separate case was considered with the Iowa Utilities Board appeal. See People of State of California v. FCC, 124 F.3d 934 (8th Cir. 1997). The Court did not issue a separate decision. Instead, the Court merely stated (without substantive discussion) it was reversing “the Court of Appeals’ determination that the Commission had no jurisdiction to promulgate rules regarding state review of pre-existing interconnection agreements between incumbent LECs and other carriers, regarding rural exemptions, and regarding dialing parity.” Slip. Op., p. 17. Both the Iowa Utilities Board decision, 120 F.3d 753, and the California v. FCC decision, 124 F.3d 934, were reversed in part “and remanded for proceedings consistent with this [AT&T Corp. v. Iowa Utilities Bd.] decision.”
DISCUSSION
The challenge to the FCC rules brought by the LECs and state commissions was basically one of jurisdiction. As the Supreme Court noted,
the LECs and state commissions insisted that primary authority to implement the local competition provisions belonged to the States rather than to the FCC. They thus argued that many of the local-competition rules were invalid, most notably the one requiring that prices for interconnection and unbundled access be based on “Total Element Long-Run Incremental Cost” (TELRIC)—a forward looking rather than historic measure.
Slip. Op., pp. 5-6 (footnote omitted).
The decision of the Court of Appeals to invalidate the particular FCC rules thus was seen as affirming the traditional authority of state commissions in matters of intrastate telecommunication services. By reversing the Court of Appeals’ decisions, the Supreme Court decision must be regarded as a significant shift in authority—especially intrastate communications— back to the FCC. The Court noted as much in the penultimate paragraph of the decision:
The 1996 Act can be read to grant (borrowing a phrase from incumbent GTE) ‘most promiscuous rights’ to the FCC vis-à-vis the state commissions and to competing carriers vis-à-vis the incumbents—and the Commission has chosen in some instances to read it that way. But Congress is well aware that the ambiguities it chooses to produce in a statute will be resolved by the implementing agencies, see Chevron v. NRDC, 467 US at 842-843.
Slip. Op., pp. 29-30. The Supreme Court also was critical of the ambiguities in the Telecommunications Act:
It would be gross understatement to say that the Telecommunications Act of 1996 is not a model of clarity. It is in many important respects a model of ambiguity or indeed even self-contradiction. That is most unfortunate for a piece of legislation that profoundly affects a crucial segment of the economy worth tens of billions of dollars.
Slip. Op., p. 29.
Although the Supreme Court reversed the Court of Appeals invalidation of specific FCC local competition rules, it does not follow automatically that the rules are now in effect. The Court remanded the cases back to the Court of Appeals for proceedings consistent with the Court’s decision. In regard to Rule 319 (access to unbundled elements), which the Supreme Court invalidated, it is clear that the case will return to the FCC for further action. The Supreme Court’s holding requires the FCC to promulgate a new Rule 319 to consider, in determining what network elements should be made available to competitors, whether
(A) Access to such network elements as are proprietary in nature is necessary; and
(B) The failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.
47 U.S.C. § 251(d)(2). The FCC probably will initiate a new rulemaking procedure early this summer.
The rules reinstated by the Supreme Court may not need further action by the FCC, but additional litigation or procedural requirements may mean the rules will not be immediately enforced. For example, the Court of Appeals vacated the pricing regulations on jurisdictional grounds, which obviated the need to consider the substantive merits of other challenges to the rules. Some incumbent LECs may renew those additional challenges--for example, to the TELRIC pricing methodology--once the case is reopened at the Court of Appeals.
Additional challenges to the FCC’s dialing parity rules may also be brought. The competitive LECs and interexchange carriers undoubtedly will argue that the rules requiring implementation of intraLATA dialing parity by February 8, 1999, are now effective. However, even the FCC rules allowed incumbent LECs six months for filing an implementation plan prior to actual implementation by February 8, 1999. It certainly can be argued that even if the FCC dialing parity rules are now effective, incumbent LECs are entitled to adequate time to plan and implement toll dialing parity.
The now reinstated FCC rules are not attached to this memorandum because they consist of many pages. The Legal Division can provide you with any or all of the affected rules should you so desire.
Weldon Stutzman
vld/M:sctdec.ws