Victory will be short-lived

Incumbent carriers--not to mention FCC Chairman Michael Powell--scored a major victory last week when the U.S. Court of Appeals for the D.C. Circuit, in USTA v. FCC, threw out a major portion of the commission's Triennial Review order. The court said the FCC erred when it delegated to state commissions the authority to determine what network elements must be unbundled at discounted rates for use by competitive carriers.

The decision vindicates Powell, who said all along that the Telecommunications Act of 1996 mandates that the FCC alone must determine the list of unbundled network elements, a position shared by fellow Commissioner Kathleen Abernathy. On the other side of the argument is the majority, led by Commissioner Kevin Martin, which maintained the decision to allow the states to determine the list in each market based on an exhaustive analysis using FCC-defined criteria was consistent with previous instructions from the D.C. Circuit. In the September 2002 USTA v. FCC decision, the appeals court told the commission to inject greater granularity into its decision-making and that its blanket approach to unbundling was inconsistent with the Telecom Act. Most observers, myself included, predicted a year ago--when the FCC issued its interim TRO--that this battle would end up at the U.S. Supreme Court. Already, the Martin-led majority has vowed to appeal the decision. When they do, the D.C. Circuit likely will be reversed.

Recall that the Supreme Court, in its May 2002 Verizon v. FCC ruling, affirmed the commission's TELRIC pricing formula used by state commissions to set wholesale rates. In doing so, the high court ruled that Congress had given the FCC wide latitude to interpret and implement the Telecom Act. Presuming the Supreme Court is consistent in its decision-making, this will be the basis for the reversal of the D.C. Circuit's TRO decision: in other words, creating a formula that states use to set wholesale rates in local markets is no different than establishing criteria that states use to determine what gets unbundled in those markets.

While acknowledging the similarities between the Verizon v. FCC and TRO cases, Jim Speta, professor of telecom law at Northwestern University, told me there is a fundamental difference between the two that could sway the Supreme Court in favor of Powell and the incumbents. "In the TELRIC case, the FCC gave the states a formula to use to set rates. It is clear the D.C. Circuit didn't see the TRO case in the same way. This is particularly clear in Judge [Stephen] Williams' opinion. The FCC gave the states so much latitude on unbundling that Williams didn't see it as a formula as much as an open-ended mandate."

But John Roberts, dean emeritus and professor of telecommunications law at Chicago's DePaul University, agrees with me that a reversal is in the offing. "The Supreme Court's attitude all along has been that the Telecom Act is a complicated and difficult piece of legislation and that the FCC is the expert body," he said. "Unless the FCC does something horrible, it is going to defer to the commission's judgment."

Roberts added that the Telecom Act clearly establishes a federal-state partnership that supports the TRO. "In this context, what the FCC did isn't outrageous. The question becomes, how much latitude is too much? The Supreme Court will side with the FCC on this. It is not going to tell the commission where to draw the line."

So the battle continues, for at least another year, maybe more. Which is good for telecom lawyers but bad for an industry that is still struggling to recover from the economic malaise that has burdened it for nearly three years.

Glenn Bischoff, Telephony's former regulatory editor, is currently editor-in-chief of Mobile Radio Technology, another Primedia publication.