CHALLENGE EXPECTED ON D.C. CIRCUIT UNE, LINE-SHARING RULING

Lawyers for groups outlined extent to which D.C. Circuit decision couldn’t be reconciled with high court’s interpretation of Telecom Act in upholding TELRIC model, which guides state regulators in setting prices that ILECs charge when leasing part of their networks to competitors. Former FCC Gen. Counsel Christopher Wright said Supreme Court recognized that in Telecom Act Congress had provided 3 ways for competitors to get into market -- UNEs, resale and network interconnection. Supreme Court’s decision in TELRIC case, Verizon v. FCC, spoke of elements for which there would be high demand as “costly bottleneck elements, duplication of which is neither likely nor desired,” Wright said. In Supreme Court ruling involving standard of review, Justice David Souter said it was up to court to ascertain whether FCC had made decision “reasonably within the pale of statutory responsibility in deciding what and how items must be leased,” Wright said. Attorneys at briefing said D.C. Circuit criticized FCC for adopting unbundled rules without regard to state of competitive impairment in specific market, but overturned line-sharing based on agency’s “vague” projections on prospective broadband competition.

“The D.C. Circuit decision is not going to have any type of short-term effect on our companies,” Frisby said. “Competition is still growing, the industry is weakened but clearly not dead. The rules remain in place.” Even with new factors that D.C. Circuit identified, CLECs still could meet impairment analysis laid out by FCC for provision of UNEs to competitors, he said. Frisby said: “At the end of the day we think that we will prevail on the facts. We think that the D.C. court case was wrongly decided, but in the long run… the real issues are going to be decided at the FCC and ultimately at the Supreme Court.”

If D.C. Circuit had issued its decision on UNE requirements and line-sharing before Supreme Court ruling on TELRIC, “we would have been disappointed,” said attorney Jonathan Nadler. U.S. Appeals Court ruling is so at odds with high court’s that “the fact that the D.C. Circuit issued its decision after the Supreme Court’s decision is nothing less than shocking,” he said. “The D.C. Circuit’s decision is a slap in the face to the Supreme Court and to the FCC.” Nadler said D.C. Circuit decision’s on UNE requirements was “directly inconsistent” with high court ruling because: (1) Supreme Court viewed unbundling and TELRIC rates as practical way to jump-start competition. “The D.C. Circuit, by contrast, views unbundling as if it were a dangerous narcotic, whose side effects generally outweigh its benefits, which the FCC should prescribe sparingly,” he said. (2) High court viewed billions of dollars in investments by both ILECs and CLECs since passage of 1996 Telecom Act as demonstrating that FCC’s unbundling regime was reasonable way to promote facilities-based competition. D.C. Circuit sees those figures as “entirely irrelevant,” Nadler said. (3) Supreme Court concluded judges should show significant deference to FCC interpretation of Telecom Act. “The D.C. Circuit has tried to micromanage the process,” he said.

Nadler said D.C. Circuit appeared to conclude that unbundling in urban markets wasn’t necessary because state policies already required ILECs to charge above-cost prices “and there’s no need to help the CLECs.” At same time, D.C. Circuit seemed to say unbundling in rural markets also would be pointless because states’ requirement that ILECs charge below-cost prices to UNE-based competition in those areas would be “artificial,” he said. “Essentially, the court said, ‘heads, the ILECs win, tails the FCC loses,” Nadler said.

Even under factors laid out by D.C. Circuit, CLECs still can meet “impair” standard required for obtaining UNEs, Windhausen said. But he and others stressed it was still important to seek Supreme Court review of D.C. Circuit ruling. “The unbundling standard is something that’s going to be with us for a long, long time down the road, as well as the question of what ‘impair’ means in the statutory language,” Windhausen said. Because that was “bedrock” of unbundling regime, “it’s very important to get the Supreme Court interpretation of the impair standard,” he said. Even under D.C. Circuit ruling, “we think that we can meet that showing,” Windhausen said. FCC is required, under appeals court ruling, to conduct more factual analysis of alternative facilities in marketplace, he said. “We are going to be able to show even more clearly than before that the Bells do actually have that monopoly over an awful lot of their facilities,” he said.

Windhausen said CLECs had had discussions with FCC on seeking letters of commitment from Bell companies to prevent them from altering existing line-sharing agreements. “Hopefully, the Bells won’t even consider it because they know what a horrible PR problem it would be for them if they were to start to pull the plug on our customers in violation of those agreements,” Windhausen said. “But in case they start to think about that, we do expect the FCC is going to seek commitments from them not to do that.” Nadler said that while D.C. Circuit mentioned both remanding and vacating FCC’s line-sharing requirements, ordering clause of decision referred only to remand. He and others said that left open question as to whether court had vacated line-sharing rules. Regardless, any short-term impact is expected to be minimal because mandate of ruling isn’t expected to be issued for at least 45 days.

Verizon spokesman said company hadn’t been approached by Commission on line-sharing issue. “The order doesn’t take effect for some time,” he said. Demand for most DSL provisioning for only high-frequency, data portion of loop addressed in D.C. Circuit ruling is relatively small, he said. Most DSL provisioning for CLECs is done through HDSL, which uses whole loop, he said.

“We certainly would consider it,” if FCC made request on line-sharing agreements, BellSouth spokesman said. One option available to companies is to examine so-called “change in law” provision that typically is available in such contracts, he said. “If the law changes, you can renegotiate that portion of the contract,” he said. Because law changed in this case under D.C. Circuit ruling, that’s option that is available to company, but no decisions have yet been made about those agreements, he said.