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Release re: FCC 99-70                               April 16, 1999

STATEMENT OF COMMISSIONER MICHAEL K. POWELL

Re: Second Further Notice of Proposed Rulemaking, Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (CC Docket No. 96-98)

I firmly support the Commission's decision to open a record in response to the Supreme Court's decision in AT&T Corp v. Iowa Utilities to vacate our unbundled network element Rule 319 and remand the issue for further consideration.(1) As I have said on a number of occasions, this proceeding must be considered "priority one" in this Commission's ongoing efforts to promote local competition.

I disagree sharply, however, with today's action to the extent it tentatively concludes, at the inception of this proceeding, that we should designate the same elements of the incumbent's network for unbundling in every region of the nation. Although I have no objection to setting national unbundling standards pursuant to the statute, I fail to see how we can tentatively conclude that those standards will yield precisely the same results nationwide without first addressing how such a "one-size-fits-all" approach can faithfully accommodate the Court's demand that we consider the availability of elements outside the incumbent's network. Thus, notwithstanding the commendable efforts that went into preparing this Notice, I do not fully support it.

As Explained by the Court, Congress Recognized That Fundamental Principles of Competition Necessitate Limiting Access to Essential Elements of the Incumbent's Network.

In Iowa Utilities Board, the Supreme Court found that section 251(d)(2) establishes a "limiting standard" that restricts entrants' access to the incumbent's network elements.(2) The Court recognized that section 251(d)(2) evidences Congress' understanding that, although requiring access to incumbent carriers' facilities may be useful (e.g., overcoming insurmountable economies of scale), unconstrained access would eviscerate incentives for entrants to install their own facilities and thereby inhibit the type of competition most likely to spur innovation, provide price discipline and otherwise benefit consumers.(3) Indeed, underlying the Court's insistence that section 251(d)(2) establishes a limiting standard is its understanding that facilitating competition under the 1996 Act requires a careful balance between aiding new entrants and not making access to the incumbent's facilities too easy. Making such access too easy or attractive will only ensure that the entrant's relationship to the incumbent is characterized more by one-sided dependence than true rivalry.(4)

Justice Breyer's concurrence in Iowa Utilities insightfully describes this fundamental tenet of competition. As he says succinctly:

It is in the unshared, not in the shared, portions of the enterprise that meaningful competition would likely emerge. Rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms.(5)

By his words, Justice Breyer correctly recognizes that meaningful, robust competition requires that rival firms vie for customers based on the distinct assets and capabilities each brings to the market. Justice Breyer's view is consistent with Justice Scalia's indication, in the majority opinion, that the limiting standard under section 251(d)(2) would be akin to the "essential facilities" doctrine in antitrust, where access to a private firm's assets is mandated when those assets are essential to the provision of a competing service.(6)

This view is also consistent with the Court's indication, twice in the majority opinion, that issues related to virtually unlimited access to the incumbent's facilities (such as under the so-called unbundled network element "platform" or "UNE-P") could easily become irrelevant if the Commission gives meaningful effect to the "necessary" and "impair" standards of section 251(d)(2).(7)

Thus, the Commission's charge on remand is to give real effect to the limiting principles established in section 251(d)(2) in a manner that will foster, rather than inhibit, meaningful competition.

The Court Insisted That Any Meaningful Limiting Standard Would Have to Account for the Availability of Elements Outside the Incumbent's Network.

My objection to the tentative conclusion in favor of a nationwide approach to designating unbundled network elements derives from several concerns.

As a preliminary matter, I note that making this tentative conclusion at this stage of the proceeding appears to conflict directly with the logical progression by which the Court envisioned network elements would be designated for unbundling. The Court concluded that the previous Commission had not interpreted or applied section 251(d)(2) in a reasonable fashion because it had not developed and then applied standards pursuant to that section that gave meaningful effect to the ordinary and fair meaning of the terms "necessary" and "impair."(8) Fundamentally, then, the Court's remand requires that we correct this deficiency by first developing and then applying a standard pursuant to section 251(d)(2) that can be used to determine whether access to particular proprietary elements is "necessary" and whether the unavailability of non-proprietary elements would "impair" a competitor's ability to provision service. Making a tentative conclusion in favor of unbundling the same elements nationwide disregards the fact that we have not yet developed (or received adequate public input regarding) interpretations of the "necessary" and "impair" standards under section 251(d)(2). Consequently, I worry that this tentative conclusion will amount, in the Court's mind, to putting our analytical "cart" before the horse.

My considerable discomfort with the tentative conclusion in favor of unbundling the same elements nationwide extends beyond mere concerns of logic, however. Rather, this discomfort encompasses more troubling concerns regarding the Commission's role in promoting competition pursuant to the Act.

The primary manifestation of the Commission's failure to articulate a limiting standard pursuant to section 251(d)(2) was the Commission's failure, in the Court's view, to consider whether elements were available to entrants from sources outside the incumbent's network. The Court stated:

The Commission cannot, consistent with the statute, blind itself to the availability of elements outside the incumbent's network. That failing alone would require the Commission's rule to be set aside.(9)

Thus, under the Court's interpretation, the Act requires that the Commission, at a minimum, examine the extent to which elements are available from sources other than the incumbent.

The availability of elements outside the incumbent's network could potentially turn on many factors, such as the existence of vendors and distribution channels, the presence of competing facilities-based LECs and the price of non-incumbent elements relative to the requesting competitor's ability to pay. These factors are likely to vary significantly from one market to the next. It is beyond question, for example, that given the presence of facilities-based competitors in the more lucrative urban markets,(10) a new entrant to an urban market will be faced with many more potential sellers of leased switching capacity than a new entrant to less dense and rural areas where competition has not yet taken hold. Further, to the extent other facilities-based competitors do not use elements of the incumbent's network, the presence of those competitors in a particular market should be probative in evaluating whether other firms would be "impaired" in their ability to provide service in that market absent mandated access to the incumbent's elements. It follows directly, then, that assessments of whether an element is necessary to provide service or whether failing to mandate access to that element would impair a new entrant's ability to provide service will vary significantly among different markets, states and regions.(11)

Regardless of the Merits of National Rules, Such Rules Must Account for Potentially Widespread Variation in the Availability Of Elements.

Accordingly, as the Commission attempts to apply the limiting standard it will develop pursuant to section 251(d)(2) and the Court's remand, one important question we will have to address is whether the Commission can defensibly require the unbundling of specific elements on a categorical, nationwide basis. I am somewhat skeptical that the Commission can give meaningful effect to the requirement that we assess the availability of non-incumbent elements and related geographic variation for all areas and markets in the nation. Although I think the Commission could potentially conduct such a sweeping assessment, at least in theory, that project would likely necessitate an exhaustive, fact-intensive inquiry to which I fear the Commission would devote inadequate time and resources. This raises such questions as: (1) whether regional, state or market-specific approaches to designating elements for unbundling are necessary to meaningfully assess the availability of non-incumbent network elements; and (2) whether regulators with closer proximity and more intimate knowledge of the availability of non-incumbent elements (e.g., state commissions) should take a leading role in that analysis.

The substance and spirit of the Court's command that we assess the availability of non-incumbent elements and the strong likelihood that such availability will vary with geography convince me that any interpretations of the "necessary" and "impair" standards we adopt must somehow address (or, at the very least, methodically discount) these geographic variations. The tentative conclusion in favor of unbundling the same elements nationwide does neither. Indeed, the Notice seeks comment on the issue of geographic variation in availability almost as afterthought, with no clear explanation or suggestion of how unbundling the same elements nationwide could possibly address such obvious variation. At best, the Notice itself requests information that the Commission might use to address geographic variation in availability, and obviously we have not yet received that information.

Given that we currently lack information by which we could measure or discount geographic variations in element availability, as well as the fact we have not yet developed a record for purposes of helping us to develop the "necessary" and "impair" standards of section 251(d)(2), I do not yet share the majority's confidence that unbundling the same elements nationwide will adequately fulfill the Court's mandate. As I have said in another context, A HREF="#N_12_"(12) I feel we should make tentative conclusions only when we are more sure than not that those tentative conclusions should be the ultimate outcome. I fully recognize the many potential benefits of unbundling the same elements nationwide. In light of the substantial likelihood of geographic variation in the availability of non-incumbent elements, however, I feel it is incumbent on me to reserve judgment entirely until we develop a record that will enable us thoughtfully to address this issue.(13)

Conclusion

In closing, I wish to reiterate that my opposition to making a tentative conclusion in favor of unbundling the same elements nationwide in no way indicates that I could not be persuaded that a final ruling along these lines is appropriate in light of the record we will develop and the requirements of the statute as interpreted by the Court. I believe, however, that the majority's tentative conclusions here are premature. Our task in responding to the Court's remand must be to interpret and apply section 251(d)(2) anew, giving full effect to the Court's guidance and building an unbundling regime from the ground up, not the top down. If we fail in this task, we will, at the very least, incur substantial litigation risk on judicial review of this action and possibly subject the industry to yet another court battle, ending in a further shift in our implementation of the Act. At worst, we will fail to give real effect to the specific regulatory framework erected by Congress and possibly delay the myriad consumer benefits of meaningful competition that I believe the Act and section 251(d)(2) can make possible if faithfully executed.

It is because I find the tentative conclusion in favor of unbundling the same elements nationwide fundamentally inconsistent with building a rational unbundling regime from the bottom up that I cannot fully support today's action. I wish to commend the Common Carrier Bureau and my colleagues, however, on their excellent contributions to this Notice.


1. 1 See AT&T Corp. et al. v. Iowa Utils. Bd. et al., 119 S. Ct. 721 (1999).

2. 2 The Court stated:

"[T]he Act requires the FCC to apply some limiting standard, rationally related to the goals of the Act, which it has simply failed to do."

119 S. Ct. at 734-35 (emphasis added). The Court stated further that:

"[w]e cannot avoid the conclusion that, if Congress had wanted to give blanket access to incumbents' networks on a basis as unrestricted as the scheme the Commission has come up with, it would not have included 251(d)(2) in the statute at all. It would simply have said (as the Commission in effect has) that whatever requested element can be provided must be provided."

119 S. Ct. at 735. In addition, the Court concluded that the Commission was "undoubtedly wrong" in its belief that the requirement for incumbent LECs to unbundle "at any technically feasible point" meant that every element that can be unbundled must be unbundled.2 Thus, the Court harshly criticized whether the Commission could sweep all elements of the incumbent's network into the unbundling requirements consistent with the statute.

3. 3 See cf., John T. Soma et al., The Essential Facilities Doctrine in the Deregulated Telecommunications Industry, 13 Berkeley Tech. L. J. 565, 607 (1998) (arguing that unbundling requirements may "discourage incumbents and competitors from directing their efforts toward alternative technologies and delivery systems"); J. Gregory Sidak & Daniel F. Sperber, Deregulation and Managed Competition in Network Industries, 15 Yale J. on Reg. 117, 145 (1998) (indicating that certain forms of unbundling "will induce inefficient decisions by entrants concerning whether to build facilities or merely resell services that use the incumbent's existing facilities").

4. 4 As Justice Breyer indicates, for example, pervasive dependence by new entrants on incumbent carriers' facilities would require regulators to intervene constantly to establish reasonable terms and conditions: "Rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms." 119 S. Ct. at 754. Thus, overdependency by entrants on the incumbent's network elements will likely prove inconsistent with the Act's procompetitive, deregulatory purpose.

5. 5 See Iowa Utils. Bd., 119 S. Ct. at 754 (citing 3A P. Areeda & H. Hovenkamp, Antitrust Law 771-73 (1996)) (emphasis added).

6. 6 119 S. Ct. at 734.

7. 7 Under the Commission's original pricing principles, the merits of which are currently under consideration by the Eighth Circuit Court of Appeals, access to the UNE-P by competitors generally would have allowed them essentially to resell the incumbent's service at deeper discounts than the statute prescribes for purposes of resale. Though the Court agreed that the statute did not prevent the Commission from requiring the UNE-P consistent with the statute, it twice suggested that the platform question may be largely "academic." 119 S. Ct. at 736, 737. These two references, taken together with Justice Breyer's concurrence, evidence the Court's expectation that, if the Commission limits unbundling by giving meaningful effect to the "necessary" and "impair" standards, there would not be a full platform for competitors to buy.

8. 8 Section 251(d)(2) provides:

[i]n determining what network elements should be made available for purposes of subsection (c)(3), the Commission shall consider, at a minimum, whether--(A) access to such network elements as are proprietary in nature is necessary; and (B) the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.

See 47 U.S.C. 251(d)(2) (1999) (emphases added). The Court concluded that the Commission did not adequately consider the "necessary" and "impair" requirements when, by adopting section 51.319 of the Commission's rules, it gave requesting telecommunications carriers blanket access to virtually all network elements. The Court vacated Rule 319 and remanded the issue to the Commission.

9. 9 119 S. Ct. at 735.

10. 10 Common Carrier Bureau Industry Analysis Division, Federal Communications Commission, Local Competition 2 (1998) ("Facilities-based [new entrants] appear to have concentrated in more urbanized areas. For example, the Atlanta, Dallas, Los Angeles, and New York City LATAs each have more than 20 [entrants] . . . , while 30 of the nation's more rural LATAs have no such [entrants].").

11. 11 It also seems likely that an assessment of whether an element is necessary to provide service or whether failing to mandate access to that element would impair a new entrant's ability to provide service will vary considerably among firms, as each firm brings to market a unique complement of assets and capabilities. I do not, however, address this issue further here.

12. 12 See, e.g., Deployment of Wireline Services Offering Advanced Telecommunications Capability, First Report and Order and Further Notice of Proposed Rulemaking, CC Dkt. No. 98-147, FCC 99-48 (rel. Mar. 31, 1999) (statement of Commissioner Michael K. Powell, concurring in part).

13. 13 I reject, furthermore, any suggestion that such a record cannot be built on the excellent questions and observations made in this Notice unless we also make tentative conclusions. This notion is a red herring and, in any event, is unsupported. Although tentative conclusions may allow regulators to "send signals" as to how they will ultimately decide an issue, they add nothing from an evidentiary standpoint to a Notice of this caliber, in which the specificity of the proposals and discussion themselves is likely to lead to an adequately focused record.