October 13, 1998

Re:	Application of BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance Inc., for Provision of In-Region, InterLATA Services in Louisiana; CC Docket No. 98-121.

I concur in today's decision to deny BellSouth's 271 application to provide long distance service in Louisiana. BellSouth has made substantial progress in Louisiana since its earlier application, but I am still troubled by the absence of an unambiguous facilities-based competitor for residential customers, a requirement under Section 271. I commend my colleagues and the FCC staff for their hard and sincere work on this proceeding, but I write separately to express my concern with the Commission's framework for analyzing such 271 applications and to disapprove explicitly of several aspects of this decision.⁽¹⁾

Introduction

Less than one month ago, Hurricane Georges moved across the Gulf of Mexico menacingly towards Louisiana. Hundreds of thousands of people were evacuated from homes and businesses. Faced with impending disaster, the people of Louisiana prepared themselves. They have survived, endured, and triumphed over worse.

Natural disasters have never broken the spirit of Louisiana. There may, however, lurk a greater challenge than mere hurricanes: excessive regulation. For most of the twentieth century, the unnatural forces of government regulation have distorted telecommunications markets across all 50 states, including Louisiana.

Government regulation, at both the federal and state levels, not natural market forces, prohibited competition. Government regulation, not natural market forces, compelled monopolists to set prices only coincidentally related to costs. Government regulation, not the natural progress of science and engineering, dictated the direction of technological change and innovation, and more often the lack of it. Government regulation, not consumers and competing businesses, set the standards for markets.

The dark humor of the former Soviet Union often involved three characters: a well-intentioned central planner in Moscow who dictated official prices in a certain market, and two individuals actually in that market desperately trying to conduct a transaction. In later versions of this humor, the centralized planner even had sophisticated computer models. According to Soviet economics, regulation and central planning were vastly superior to competition and markets. Under Soviet economics, planners were smarter than everyone else, and they knew what was best for everyone; accordingly, the planners allocated resources and set prices. Inevitably, in the Soviet humor, the two individuals would be forced to ignore the official prices and the official rules and would use a form of barter to make a transaction.

The Telecommunications Act of 1996

The Telecommunications Act of 1996 said that excessive regulation, like Soviet economics, belonged in the ash heap of history. Competition would replace excessive regulation. Market solutions would replace central planning solutions. Technology would evolve as demanded by consumers not dictated by regulators.

Sections 251 through 253 are the core provisions of the 1996 Act that enable competition in local telephony. Section 251 lists the legal rights and obligations of telecommunications carriers in a competitive market; Section 252 describes the State-administered processes to reach commercial agreements on terms and conditions for the legal rights and obligations under Section 251; and Section 253 provides means to remove regulatory barriers to providing telecommunications services.

There are countless markets in the United States for different goods and services. For only a relatively small number of these markets are there detailed laws and regulations that restrict entry, exit, and behavior in the market. In these highly structured markets, excessive regulations effectively restrict the market to one source, and indeed practically cause the market to cease to function. Sadly, for many decades, telecommunications markets were among these overregulated markets.

Yet the vast majority of American markets operate effortlessly and competitively with few if any regulations specific to that market. Excessive regulation in markets is the exception in the United States, not the rule.

Competitive markets in the United States and elsewhere work best with clear and consistent property rights and rules. Where property rights are respected, and the legal system treats transactions in a consistent manner, businesses can freely enter and leave markets. Once in markets, businesses vie for customers, customers can freely choose among them, and everyone understands how disputes are likely to be resolved. Mountains of detailed regulations are not needed to allow such competitive markets to function; indeed, they would only get in the way.

Sections 251 through 253, if properly interpreted, could provide for clearly understood legal rights and obligations, clear bases for the easy entry and exit of businesses from markets, the free choice by consumers among competitors, simple and predictable dispute resolution procedures, and all with a minimum of regulations. All of these results from Sections 251 and 253 could have provided for greater certainty in local telecommunications markets, not certainty about market outcomes or market prices, but greater certainty about the contours of legal rights, obligations, processes, and dispute resolutions.

Sections 251 through 253 have not emerged as they might. I believe that the Commission has focused too much of its time, energy and resources on the competitive checklist under Section 271 to the detriment of the general LEC requirements of Section 251.

Some of the Commission's language implementing Section 251 has been tied up in courts. Rather than refining language on the rights and obligations of telecommunications carriers under 251 in areas clearly permitted by the Courts, the Commission has allowed Section 251 regulations to languish in a limbo of uncertainty ostensibly awaiting final court resolution. In the meantime, the uncertainty has had chilling effects, not only on local telecommunications markets directly, but on the clear interpretation of Commission authority under other Sections of the law. Section 253, for example, which outlaws barriers to market entry, has largely remained dormant.

The implementation of Section 252 by the States, has proceeded apace even without clear resolution of federal rights and obligations under Section 251. Indeed, it is the States that have handled the interconnection agreements and the disputes that have derived from them.

Section 271 and Overregulation Through the Competitive Checklist

Section 271 contains two central provisions for allowing Regional Bell Operating Companies ("RBOCs") to offer interLATA service. One requires the presence of a facilities-based competitor for both business and residential customers. The second requires compliance with the "Competitive Checklist," which is a listing of some, but not all, Section 251 obligations for an incumbent local exchange carrier. There are few if any requirements in the Competitive Checklist that are not in Section 251. The Commission cannot under Section 271 use the Competitive Checklist to impose on an RBOC conditions that are not required of all incumbent LECs under Section 251.

The Commission in this Order, however, appears to be imposing on BellSouth, ostensibly under the guise of the Competitive Checklist, specifications that are neither statutory under Section 251, nor requirements that have been formally adopted by the Commission in a regulatory proceeding under Section 251.

In this Order, the majority focuses much of its attention on deficiencies related to BellSouth's operations support systems ("OSS"). In evaluating OSS, the majority looks to specific performance measures to determine if a BOC is meeting the requirements for OSS. Indeed, much of its analysis of compliance with the competitive checklist focuses on performance data relating to OSS functions; however, the Commission has not yet imposed such performance criteria under Section 251.⁽²⁾

I hope that, in the not too distant future, this Commission will, based on the Commission's earlier Section 251 Order and subsequent Court decisions, revisit Section 251 and clarify the regulatory rights and obligations of carriers under that section, not just the RBOCs that apply under Section 271. Such a proceeding would both add a much needed degree of clarity and certainty to the interpretation of Section 251, and a measure of transparency and certainty to the proper application of Section 271. Added benefits of clarifying Section 251 would be greater certainty in the application of Section 252 by the States and Section 253 by the Commission.

I believe that the approach the Commission has taken with respect to OSS is far too regulatory. The Commission initiated its OSS performance measures proceeding under Sections 251(c)(3) and (c)(4) of the Act. In light of the Eighth Circuit's decision in Iowa Utilities v. FCC,⁽³⁾ it does not appear that the Commission has general authority to adopt any rules or regulations regarding performance measures or standards for OSS under Section 251.⁽⁴⁾ Moreover, the Eighth Circuit held that section 251(d)(1) "operates primarily as a time constraint, directing the Commission to complete expeditiously its rulemaking regarding [ ] the areas in section 251."⁽⁵⁾ It has been more than more than two years since the Telecommunications Act of 1996 passed. Any further rulemaking under Section 251 should be to clarify existing rights and obligations, not to create novel new ones.

Nor do I believe the Commission should be able to impose such performance measures under Section 271. I am not convinced that such performance measures are lawful under Section 271 because they would implicitly expand the checklist beyond the 14 specific criteria. Moreover, OSS requirements imposed only on RBOCs may be a discriminatory burden on one type of ILECs. Even if these performance criteria could lawfully be imposed under Section 271, I am not convinced that the benefits of such criteria would exceed their harm. Individual companies can and have negotiated performance requirements for interconnection agreements under Section 252. These performance requirements may vary not only by State, but by agreement within each State. By imposing a single set of federal performance criteria, we would substantially remove by government coercion the ability of private parties to negotiate the specific performance standards or measures that they may seek.

States, not the FCC nor the DOJ, are in the best position to determine the detailed, day-to-day, compliance with Section 251, and thus with the Competitive Checklist.⁽⁶⁾ It is the States, not the FCC nor the DOJ, that review all agreements under Section 252 implementing and resolving disputes under Section 251. And the statutory language of Section 271 states that the FCC must consult with States only on compliance with the Competitive Check List.⁽⁷⁾

Uncertainty

The current approach in which the Commission adopts standards or even reporting measurements under each Section 271 application that are not required of incumbent local exchange carriers under Section 251 adds enormous uncertainty to the Section 271 process. Neither applicants, States, the Department of Justice, nor third parties can have any certainty of how the Competitive Check List will be interpreted in such a Section 271 process. Flexible rules under Section 271 invite suggestions for even greater flexibility in interpretations, and even arbitrariness to the extent that different Section 271 applications could be held to different standards, much less to the same standard applied to all incumbent carriers under Section 251.

Facilities-Based Competition

The core of a Section 271 review should be the presence of a facilities-based competitor for both business and residential customers. Section 271 requires that, under Track A, at least one competitor must serve business subscribers "predominantly over their own telephone exchange service facilities," and at least one competitor must serve residential subscribers "predominantly over their own telephone exchange service facilities."⁽⁸⁾ In contrast, the majority concludes that:

[R]eading the statutory language to require that there must be facilities-based service to both classes of subscribers to meet Track A could produce anomalous results, . . . In particular, if all other requirements of section 271 have been satisfied, it does not appear to be consistent with congressional intent to exclude a BOC from the in-region, interLATA market solely because the competitors' service to residential customers is wholly through resale.⁽⁹⁾

The majority's reading, however, ignores Congress' strong desire for facilities-based competition in both the business and residential markets, instead overemphasizing the FCC's ability to "regulate competition" with the competitive checklist.

Compliance with the checklist should indeed be a mere formality that any incumbent LEC could meet. Indeed, an incumbent LEC that is not in compliance with the Competitive Check List is by definition not in compliance with Section 251, part of the core of the Telecommunications Act of 1996.

Surely, an incumbent LEC that is not in compliance with Section 251 must also be out of compliance with the implementation of Section 251 by the States under Section 252. The State of Louisiana does not reach that conclusion for BellSouth, nor, according to the PSC, have any parties lodged formal complaints at the PSC against BellSouth for non-compliance with any aspect of Section 252. Perhaps, alternatively, the Louisiana PSC has misapplied Section 252 to the benefit of BellSouth and the detriment of other parties. But no party has lodged such a complaint with the FCC under Section 253. As a formal matter, we have no record under Sections 251 through 253 -- other than objections raised only within the narrow confines of this specific Section 271 application -- of BellSouth's non-compliance with the Competitive Checklist.

The hallmark of the Telecommunications Act of 1996 is competition, not regulation, and the hallmark of Section 271 should also be competition, not regulation. The statutory language clearly provides for such a finding. The central issue should not be more regulations as a means of measuring compliance with regulations but rather the presence of competition as a means of measuring compliance with the law. Where competition has failed to take hold, compliance with regulations is suspect. Conversely, where competition exists, existing regulatory obligations must be sufficient.

It is a paradox of the majority's interpretation of facilities-based competition, taken to its logical conclusion, that sufficient competition may already exist in Louisiana but that BellSouth nonetheless is not in compliance with the competitive check list. I would find such a conclusion troubling; I am disappointed that the majority does not actually try to apply their interpretation of the requirement for facilities-based competition and reach the issue of whether the competition in Louisiana is sufficient to meet that test.

Public Interest Standards

Finally, I note that the majority raises the possibility that the "public interest" would be served if a BOC has agreed to performance monitoring, including performance standards, reporting requirements, and self-executing enforcement mechanisms. I believe that even the implication that such measures and enforcement mechanisms would be favored may add criteria to the checklist beyond the 14 specific criteria in violation of the statute.

The bulk of the application, and the bulk of outside comments, focus on the Section 271 checklist. Views on compliance or noncompliance with the checklist are based almost entirely on measures of regulation rather than measures of competition. The public interest is always best served by focusing on competition, not further regulation.

Conclusion

The long-suffering People of Louisiana have now witnessed two BellSouth applications. They have seen proceedings within their State, and they have watched endless boxes of paper move back and forth to Washington as if on a merry-go-round. There is a remedy. Some will prescribe more paper, more proceedings, and more regulations, all monitored in great detail from Washington.

There is a simpler remedy: no more paper, just some simple competition in Louisiana. More regulations cannot create competition. It is coming despite and not because of all of the paperwork. I look forward to that day.

1. For months preceding this application, BellSouth, other RBOCs, and other parties met behind closed doors with the Common Carrier Bureau under a carefully orchestrated schedule to discuss various aspects of the 271 application process. Meetings were also held between various parties and the Department of Justice. Not all parties, however, were invited to these meetings. Efforts by some outside parties to receive copies of documents generated from these meetings have not been successful. Oral summaries of these meetings have been provided to this office, but no written documents. There is no public record of exactly what was said and what, if anything, was promised in any of these meetings.

The government employees involved in these meetings have unquestionably had only the best of intentions to inform and to resolve issues. I do not question their intentions, motivations, or integrity. As a Commissioner in this Section 271 proceeding, however, I am placed in an awkward position of forming an opinion based on a public record that does not include a review of a series of highly-publicized private meetings with various parties and Commission staff and DOJ staff to discuss specific aspects of possible applications. These meetings involved senior corporate personnel to discuss specific aspects of potential 271 applications that went far beyond simple information gathering. I do not know whether this application, the DOJ recommendation, or the Commission staff recommendation were in any way altered as the result of information -- not part of the public record today -- that may have been conveyed at these meetings. I simply must assume that there was no such effect.

2. See Performance Measurements and Reporting Requirements for Operations Support Systems, Interconnection, and Operator Services and Directory Assistance, CC Docket No. 98-56, Notice of Proposed Rulemaking, 13 FCC Rcd 12817 (1998).

3. Iowa Utilities v. FCC, 120 F.2d 753 (8th Cir. 1997), writ of mandamus issued sub nom. Iowa Utilities Bd. v. FCC, No. 96-3321 (8th Cir. 1998), petition for cert. granted Nos. 97-826, 97-829, 97-830, 97-831, 97-1075, 97-1087, 97-1099, 97-1141 (U.S. Jan. 26, 1998).

4. The Eighth Circuit expressly held that the Commission's authority to prescribe and enforce regulations to implement section 251 is confined to six areas; section 251(c)(3) is not one of those enumerated sections and it is not clear that any of the six would provide sufficient authority for these OSS measurements and reporting requirements.

5. Iowa Utilities v. FCC, 120 F.3d at 794. Section 251(d)(1) instructs the Commission that "[w]ithin 6 months of the date of enactment" it "shall complete all action necessary to establish regulations to implement the requirements of this section [251]". 47 USC section 251(d)(1).

6. I give substantial weight to the findings and recommendations of the Department of Justice. Given the intellectual firepower and experience of that agency in examining the competitive effects of changes in markets, I expected to find such an analysis that DOJ is uniquely qualified to provide. I am somewhat surprised that DOJ has chosen instead to provide yet another opinion -- after the FCC has already received such opinions from the State of Louisiana and many private parties -- on BellSouth's technical compliance in Louisiana with the specific details of the Competitive Check List. The DOJ review of compliance is all the more surprising given that DOJ does not appear to have contacted, subsequent to the BellSouth application, the State of Louisiana which has the primary jurisdiction to monitor the implementation of Section 251 requirements under Section 252. I am not suggesting, however, that DOJ or any federal agency should be in close contact or coordinating with any State officials prior to an RBOC application under Section 271. Such contact and coordination may inadvertently taint the record of the application.

7. Subsequent to the application, I met with Members of the Louisiana Public Service Commission and other Members of the government of the State of Louisiana to discuss the BellSouth application.

8. 47 USCA Section 271(c)(1)(A).

9. BellSouth Order at para. 48. As a Congressional staffer, I witnessed the drafting, deliberating, and negotiating of much of the language of the 1996 Act including Section 271. I have no doubt about either Congressional intent or the plain meaning of the statutory language of Section 271. I am disturbed that a government agency's interpretation of Section 271 is consistent with neither.