A recent decision by the D.C. Circuit Court showed that the only certainty in telecommunications regulation is a continuing litigation bonanza.

by Alex Goldman ISP-Planet Managing Editor [March 4, 2004]

Across the U.S., ISPs, CLECs, and their lobbying associations reacted with dismay and disbelief to the decision of the D.C. Circuit Court. On Tuesday, the court ruled in favor of the Regional Bell Operating Companies (RBOCs), in lawsuit brought by their lobbying association, the USTA, against the FCC concerning portions of the Triennial Review (see Court Order Doesn't Change FCC High-Speed Rules).

The court ruled on several issues, of which the most important to ISPs are that the FCC (not the states) must decide in which markets competition is impaired and unbundling can continue, and ruled in favor of the FCC's rules granting the ILECs a monopoly on new and hybrid fiber loops.

Donald B. Verilli, Jr., partner at Chicago, Ill-based law firm Jenner & Block, one of the lawyers who argued the case of the CLECs, said that the fiber decision is flawed. "We challenged this on numerous grounds," he said. "In the Act, Congress wanted competition. The FCC has no right to grant a fiber monopoly in place of that."

Verilli noted that the court agreed that the FCC's decision to grant the ILECs a monopoly on fiber and hybrid fiber loops might not aid competition or consumers. On page 40, the decision says, "while the CLECs may be right that the Commission's judgment entails increasing consumer costs today in order to stimulate technological innovations for which there is not yet clear consumer demand, there is nothing in the Act barring such trade-offs." (For our analysis of the fiber decision, see Triennial Review Part II: FCC's Fiber Failure.)

ISPs, CLECs, and trade associations were more concerned with a process they have been watching with fear for some time, the state by state, market by market determination of whether competition in each market can survive the elimination of unbundling.

When the FCC delegated to the states the task of determining whether there is competition in each market in that state, we wrote that the states needed more time to make that decision (see Triennial Review Part III: Another Unfunded Mandate).

Whether the FCC or the states make the decision, the decision will take time. But the court gives the FCC only 60 days to make its decision. This short amount of time is intended to spur the FCC to action. "This deadline is appropriate," the court writes (p. 62), "in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings."

Competitors await with uncertainty the 61st day, when all the rules may change. H. Russell Frisby, Jr., CEO of the CompTel/ASCENT Alliance, argued that since competition has saved residential users $9 billion per year and small businesses $6 billion per year, consumers could face a $15 billion addition to their collective phone bill on that day.

Mike Jackman, executive director of the California ISP Association, also said the 61st day could bring disaster. "If the FCC tries to punt on this issue by mandating a 'one-size-fits-all' network policy, it will stop the telecom and Internet recovery in its tracks," he said in a public statement.

Some said the decision flouted the law. Tom Koutsky, vice president, law and public policy at Tampa, Fla.-based Z-Tel said, "section 252 of the Act mandates that the state utility commissions establish the terms of access. The court's decision that the FCC improperly delegated those tasks to state commissions is simply wrong. No amount of judicial activism can override the law."

Frisby added, "for over a century, the courts have been cognizant of the important role played by state PSCs. We feel good because this decision is so outrageous that it will definitely end up in the Supreme Court. I'm not looking past the graveyard, though. There is a real danger to competition."

"The scheme of the [1996 Telecommunications Act] is that on issues that the FCC does not address, the states have authority," said Verilli.

Whatever happens, the activists vowed to keep fighting. "We're not going to go away today, tomorrow, or on the 61st day," said Frisby. "I've been doing this for 25 years (time flies). One thing I've learned is that competition always wins out in the end."

FCC Chairman Michael Powell predicted chaos when the FCC issued its triennial review. He said [.pdf] in a statement on August 21, 2003:

The nation will now embark on 51 major state proceedings to evaluate what elements will be unbundled and made available to competitors. These decisions will be litigated through 51 different federal district courts. These 51 cases will likely be decided in multiple ways—some upholding the state, some overturning the state and little chance of regulatory and legal harmony among them at the end of the day. These 51 district court cases are likely to be heard by 12 Federal Courts of Appeals—do we expect they will all rule similarly? If not, we will eventually be back in the Supreme Court of the United States to resolve any conflicts—the same Court that vacated our excessively permissive unbundling regime in 1999. This process will take many years and will hardly be the quieting and stabilizing regime that was so craved by a rocky market. It is, in short, a litigation bonanza.

A litigation bonanza seems guaranteed. The cause, we argue (see Regulatory Future? More Uncertainty) is not any specific action or decision, but fundamental disagreements about the meaning and purpose of telecommunications regulation and laws between ILECs and CLECs, Republicans and Democrats, and bankers and professors.

As long as these fundamental disagreements remain unresolved, the litigation bonanza will continue, and the entire apparatus of government—the legal system, the politicians, the regulators, the lawyers, and even the law itself—will continue to provide only uncertainty, destabilizing the industry, not helping it.

CLECs like Z-Tel say the cause of the disagreement is simple: the RBOCs are lying and the CLECs are not.

— End