The FCC's implementation of the 1996 act: agency litigation strategies and delay.

• Author: Beynon, Rebecca

1. INTRODUCTION

   Since it began promulgating rules to implement the local competition provisions of the Telecommunications Act of 1996 ("1996 Act"),(1) the Federal Communications Commission ("Commission" or "FCC") has been under attack in the courts. The road has been a rough one, and the Commission has lost on a good many issues. Most recently, for example, the United States Court of Appeals for the Eighth Circuit vacated the pricing rules that the Commission had directed states to use in setting prices for incumbent local exchange carriers' ("ILECs" or "incumbents" or "incumbent carriers") unbundled network elements ("UNEs").(2) Earlier this year, in separate opinions, the District of Columbia Circuit vacated and remanded key aspects of the Commission's collocation and reciprocal compensation rules.(3) In practical terms, the litigation has meant that today--nearly four and one-half years after President Clinton signed the 1996 Act into law--much remains uncertain regarding the local competition requirements.

   The Commission has regularly accused its opponents in these legal battles--chiefly the ILECs--of using litigation to impede the implementation of the 1996 Act's local competition provisions. In October 1999, Chairman William Kennard upbraided a group of incumbent carriers for refusing to "think about competition" and responding instead to the Commission's rules with "confrontation."(4) In an earlier interview with the Los Angeles Times, Chairman Kennard said that one reason why local phone competition had not developed more quickly was that "too many of the stakeholders in this debate would rather litigate than compete."(5) Former Chairman Reed Hundt was even more blunt. Incumbent carriers, he said, rely on lawsuits to "bolster monopolies and stifle interstate commerce and create years of litigation-induced delay."(6)

   These criticisms of incumbent carriers may not be wholly without foundation. Some analysts have speculated that the largest incumbent carriers, the regional Bell operating companies ("RBOCs"), may have business reasons for protecting their existing positions in the local exchange markets, at the expense of gaining entry into the long-distance business under section 271.(7) Even if these carriers have tried to use litigation to postpone opening their networks to competitors, however, that is only part of the picture. As discussed in this Article, if litigation has in fact slowed the introduction of competition in the local exchange markets, the Commission itself must share some of the blame. In several of the Orders in which the Commission has implemented the 1996 Act's local competition provisions, the Commission has acted aggressively, and it has taken positions that have been in tension--if not directly at odds--with some of the 1996 Act's key provisions. The FCC might more effectively have encouraged the introduction of competition in the local markets had it taken an approach less antagonistic toward parties affected by its local competition rules and more defensible in light of the statute's provisions.

2. THE STATUTE, THE COMMISSION'S ORDERS, AND THE RESULTING LITIGATION

   Although this Article is not meant as a comprehensive summary of the 1996 Act or the Commission's local competition precedent, it is useful to review quickly the background of the controversies discussed within.(8)

   1. The 1996 Act

      The 1996 Act's local competition provisions appear in sections 251 and 252.(9) Acting on the hypothesis that competition would come more swiftly to the local exchange markets if competitors were given access to some of the incumbent carriers' existing facilities, Congress, in section 251, imposed certain duties on various types of local exchange carriers.(10) Incumbent carriers are subject to the most demanding requirements.(11) Among many other things, incumbent carriers must provide requesting telecommunications carriers with "unbundled access" to those network elements that the Commission determines must be made available--that is, incumbents must lease to competitors certain pieces or elements of their networks.(12) The idea is that, by purchasing unbundled elements (such as the "loop" or wire that connects the customer to the switch), new entrants will be able to begin offering service without having to build out the full facilities needed to serve even a small number of customers.

      Incumbent carriers must provide access "at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory."(13) In deciding whether a network element must be unbundled, the Commission is to consider, at a minimum, whether failure to provide access to the element "would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer."(14) If a network element is "proprietary," the Commission must consider whether access is necessary."(15)

      Section 252 of the 1996 Act sets forth a framework that incumbent and competing carriers must use in arriving at agreements that will govern the terms under which an incumbent will share its network with its competitors, including the prices at which an incumbent will lease its network elements to a competitor. If parties are unable to negotiate an agreement voluntarily, the 1996 Act directs state commissions to arbitrate open issues.(16) In conducting this arbitration, state commissions must ensure that the ultimate agreement meets the requirements of section 251, "including the regulations prescribed by the Commission pursuant to section 251."(17) Additionally, the state commission must establish rates for interconnection, services, or network elements consistent with section 252(d), which provides, among other things, that rates for network elements shall be "based on the cost ... of providing the ... network element."(18)

      As Justice Scalia observed in AT&T v. Iowa Utilities Board, the 1996 Act is no model of clarity.(19) It is, rather, in "many important respects a model of ambiguity or indeed even self-contradiction."(20) The 1996 Act leaves many key terms undefined. For example, whether an incumbent must offer access to a given network element hinges on the meaning of section 251(d)(2)'s terms "impair," "proprietary," and "necessary," but these words are not defined in the statute. Nor does the statute make apparent the roles that the FCC and state commissions are to play in setting the rates and terms under which an incumbent must provide access to its network. Section 251(d)(1) directs the Commission to "complete all actions necessary to establish regulations to implement the requirements of [section 251],"(21) and section 251(d)(2) tells the Commission to consider various factors in deciding whether an element must be unbundled.(22) At the same time, however, section 252(d)(1) instructs state commissions to make determinations regarding the "just and reasonable rate for network elements."(23) On top of everything else, Congress said nothing about how it intended the 1996 Act to harmonize with section 2(b) of the Communications Act of 1934 ("1934 Act"), which states that, subject to certain specified exceptions, "nothing in this Act ... shall be construed to ... give the [FCC] jurisdiction with respect to ... charges, classifications, practices, services, facilities, or regulations for or in connection with intrastate communication service by wire."(24)

   2. The Local Competition Order

      In its 700-page Local Competition Order,(25) issued six months after the 1996 Act was signed into law, the Commission adopted rules to implement sections 251 and 252. Two aspects of this Order have proved especially controversial. First, the FCC expansively interpreted its authority to issue nationwide rules, including rate-setting requirements, to govern the local exchange markets--thereby assigning itself a role that until then the state commissions had played almost exclusively. In addition, the FCC promulgated a framework for the implementation of section 251 and sweepingly interpreted that provision's network-opening requirements.

      Declaring that it had authority to adopt "national pricing rules," the FCC directed state commissions to use a particular methodology in determining the prices that incumbents could charge for access to their networks.(26) The approach that the agency adopted is called the Total Element Long Run Incremental Cost ("TELRIC") methodology.(27) Under TELRIC, the prices for an incumbent's UNEs are calculated based on the forward-looking costs of a hypothetical carrier that uses the most efficient technology and network configuration possible.(28) In simplistic terms, an incumbent carrier must lease its network elements to competitors at prices based on an idealized version of what its network would look like if it were built today, in the most efficient manner possible. How an incumbent's network is actually configured is not relevant to the TELRIC inquiry. Applying this methodology, the Commission set specific prices, or "proxy prices," for states to use unless they were able to justify a departure based on a cost study prepared to the FCC's specifications.(29)

      Second, the Commission broadly interpreted section 251(c)(3)'s unbundling requirements. It ruled that section 251(c)(3)'s statement that access be provided "at any technically feasible point" established an expansive presumption that an incumbent must provide access to every element that it is technically able to unbundle.(30) The FCC went on to interpret section 251(d)(2)'s "necessary" and "impair" standards in light of this premise, such that section 251 (d)(2) did not "significantly diminish the obligation imposed by section 251(c)(3)."(31) Accordingly, the Commission held that whether access to an element was "necessary," or whether failure to provide the element would "impair" a competitor's ability to provide service, would be determined by looking only to the availability of alternative...