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Fones4All Corp. v. Federal Communications Commission

December 16, 2008

FONES4ALL CORPORATION, PETITIONER,
VERIZON; AT&T, INTERVENORS,
v.
FEDERAL COMMUNICATIONS COMMISSION; UNITED STATES OF AMERICA, RESPONDENTS.



On Petition for Review of an Order of the Federal Communications Commission FCC No. WC05-261.

The opinion of the court was delivered by: Schroeder, Circuit Judge

FOR PUBLICATION

Argued and Submitted September 12, 2008 -- Pasadena, California.

Before: Mary M. Schroeder and Johnnie B. Rawlinson, Circuit Judges, and Brian E. Sandoval,*fn1 District Judge.

OPINION

This is a petition for review of a decision of the Federal Communications Commission ("FCC") denying Fones4All's petition for forbearance from the application of an FCC regulation. That regulation removed any requirement that incumbent local exchange carriers ("ILECs") provide unbundled services to competitive local exchange carriers ("CLECs"), like the petitioner, Fones4All. The principal issue for us to resolve relates, not to the merits of the regulation, but to Fones4All's contention that the order denying its petition was untimely, and that the petition therefore must be "deemed granted" within the provisions of the Telecommunications Act of 1996. See 47 U.S.C. § 160(c).

The timeliness issue involves the practice of the FCC of announcing a decision on the last possible day and then "backdating" the later explanation for that decision to the date on which it was announced. We join the D.C. Circuit in holding that a challenge to the practice is not properly before us because it was never raised before the FCC and, therefore, administrative remedies were not exhausted. See 47 U.S.C. § 405; In re Core Commc'ns, 455 F.3d 267 (D.C. Cir. 2006); Qwest Corp. v. FCC, 482 F.3d 471 (D.C. Cir. 2007).

On the merits, this petition must be viewed in light of a decade-long FCC process aimed at ensuring competition in the telecommunications market between those carriers in existence at the time of the passage of the Telecommunications Act of 1996, the ILECs, and the newcomers entering the market after that enactment, the CLECs. See 47 U.S.C. § 251(h); 47 C.F.R. § 61.26(a)(1). That process culminated in the Triennial Review Remand Order of 2005 ("TRRO"), in which, after full notice and comment, the FCC required CLECs to end their dependence on unbundled services provided by the older, better established ILECs. Prior to the TRRO, Fones4All had contracts to receive services from ILECs, the intervenors Verizon and AT&T. In seeking to get out from under the regulation implementing the 2005 TRRO, petitioner is essentially trying to fight one more round in a bout that was lost in 2006, when the D.C. Circuit upheld the TRRO. Covad Commc'ns Co. v. FCC, 450 F.3d 528 (D.C. Cir. 2006).

I. Statutory and Regulatory Background

The Telecommunications Act of 1996 sought, among other things, to promote competition and mitigate ILECs' natural advantages over new market entrants. Covad, 450 F.3d at 531; Sprint Telephony PCS, L.P. v. County of San Diego, 543 F.3d 571, 575 (9th Cir. 2008) (en banc). To help achieve that goal, the Act gave the FCC the power to require ILECs to give CLECs access to network elements on an unbundled basis. 47 U.S.C. § 251(c)(3). CLECs would also receive this access at a low cost, the so-called TELRIC pricing, which stands for Total Element Long-Run Incremental Cost. Verizon Commc'ns Inc. v. FCC, 535 U.S. 467, 523 (2002); 47 C.F.R. § 51.505(b) (defining TELRIC pricing). Before the FCC could require unbundling, however, the Act directed the FCC to consider whether failure to provide unbundled access would impair CLECs from entering the market. 47 U.S.C. § 251(d)(2). Obviously, CLECs desired widespread unbundled access, and the lower costs associated with it, while ILECs did not want to provide it. Covad, 450 F.3d at 532-33. This opposition led to what the D.C. Circuit characterized as a decade-long "tug-of-war between CLECs advocating more unbundling and ILECs advocating less." Id.

Three times the FCC tried, unsuccessfully, to implement the unbundling provisions of the Telecommunications Act. Its fourth attempt, in 2006, was finally upheld in Covad. Id. at 531 ("[T]he Commission's fourth try is a charm."). In its first try, the FCC issued a set of local competition rules in August of 1996. Implementation of the Local Competition Provisions in the Telecomms. Act of 1996, First Report and Order ("Local Competition Order"), 11 F.C.C.R. 15499 (1996). The rules then adopted unbundled access only "if the quality of the service the entrant can offer, absent access to the requested element, declines and/or the cost of providing the service rises." Id. at 15643. The Supreme Court vacated these unbundling rules, holding that the Commission had failed properly to conduct the impairment analysis. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 389-92 (1999). The FCC's second attempt to provide unbundled access met with no more success. Implementation of the Local Competition Provisions of the Telecomms. Act of 1996, 15 F.C.C.R. 3696 (1999). The D.C. Circuit vacated those rules in May of 2002. U.S. Telecomm. Ass'n v. FCC, 290 F.3d 415 (D.C. Cir. 2002) ("USTA I"). The court instructed the FCC to make more nuanced unbundling determinations. Id. at 422, 426. Following the USTA I remand, the FCC attempted to make these nuanced determinations. In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, ("Triennial Review Order"), 18 F.C.C.R. 16978, 17035 (2003). The FCC eliminated unbundling requirements for CLECs that served enterprise customers, such as larger businesses, but kept other unbundling requirements in place. The former determination was upheld, U.S. Telecomm. Ass'n v. FCC, 359 F.3d 554, 586-87 (D.C. Cir. 2004) ("USTA II"), but the latter was not, id. at 564-71.

On August 20, 2004, the FCC released an Interim Order that required ILECs to continue to adhere to any commitments they had made to provide unbundled access to CLECs. Order and Notice of Proposed Rulemaking, ("Interim Order and Triennial Review Remand NPRM"), 19 F.C.C.R. 16783, 16783-84 (2004). With respect to that NPRM, the FCC sought "comment on how to respond to the D.C. Circuit's USTA II decision in establishing sustainable new unbundling rules." Id. at 16788. The comment period was held open for twenty-one days. Id. at 16783. Reply comments could be filed up to thirty-six days after publication in the Federal Register. Id.

The FCC received and considered comments, and the process culminated in the TRRO. In the Matter of Unbundled Access to Network Elements, Order on Remand ("Triennial Review Remand Order"), 20 F.C.C.R. 2533 (2005). Fones4All had full opportunity to comment, but this record does not reflect whether it did.

The Commission then determined that CLECs would generally not be impaired if they lost unbundled access to mass market switching. Unbundled Access to Network Elements; Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 70 F.R. 8940, 8942 (2005). Thus most CLECs had become competitively viable and no longer needed unbundled access. The goal of viable market competition between CLECs and ILECs had been achieved; it was no longer necessary for ILECs to provide unbundled access to CLECs because, generally, CLECs could provide their own. Accordingly, the FCC amended regulation § 51.319(d) to terminate mandatory unbundling of mass market switching.

In Covad Communications Co. v. FCC, the D.C. Circuit reviewed the TRRO and upheld the FCC's actions, including the FCC's adoption of regulation § 51.319(d). 450 F.3d 528. It is that regulation that Fones4All now challenges in this proceeding, because it wants to continue enjoying low-cost access provided by the ILECs.

Regulation § 51.319(d) provides as follows:

(i) An incumbent LEC [ILEC] is not required to provide access to local circuit switching on an unbundled basis to requesting telecommunications carriers for the purpose of serving end-user customers using DS0 [mass market] capacity loops.

(ii) Each requesting telecommunications carrier shall migrate its embedded base of end-user customers off of the unbundled local circuit switching element to an alternative arrangement within 12 months of the effective date of the Triennial Review Remand Order.

47 C.F.R. ยง 51.319(d)(2)(i)-(ii). This regulation enables ILECs to disavow any contractual obligations for unbundled access to mass market switching. The regulation flows directly from the TRRO's findings that ...


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