December 24, 1997
Re: Application of BellSouth Corporation, et al. Pursuant to Section 271 of the Communications Act of 1934, as amended, To Provide In-Region, InterLATA Services in South Carolina
Although framed as a denial of an application, today's order in truth sends a positive message: the newly reconstituted Commission is committed to enforcing the law as Congress wrote it, so that consumers in all telecommunications markets can enjoy the benefits of competition.
The thousands of pages of pleadings and the detailed debates over arcane statutory provisions must not obscure the simple legislative bargain that governs Bell company entry into long distance. Once Bell companies fulfill their responsibilities to eliminate barriers to entry in the local marketplace, the barrier to their entry into the long distance market will in turn be removed. Today's order eliminates all doubt that the new Commission will enforce that sequence.
At the heart of the Telecommunications Act is Congress's recognition that new entrants in the formerly monopolized local exchange market cannot be expected to spend the many billions of dollars necessary to build ubiquitous, fully redundant local networks. Under the statute, the incumbent providers must make available their network facilities, elements, and services under conditions that allow for genuine competition. When these statutory requirements are satisfied in any given State, the Bell company will be allowed to provide long distance service originating in that State.
The current record clearly demonstrates that, while progress has been made, BellSouth has not yet fulfilled its market-opening responsibilities in South Carolina. New entrants currently do not have nondiscriminatory access to the local facilities and services essential to compete effectively with the incumbent carrier. New entrants' orders are not processed as reliably and efficiently as those submitted by BellSouth itself. Terms and conditions for collocation of competitors' facilities have not yet been fully specified, much less implemented. BellSouth has asserted its right to physically disassemble the piece-parts of its network when they are sought by a competitor, but it has not yet specified how it will meet its corresponding obligation to permit its competitors to reassemble those piece-parts themselves. Cost-based prices for network elements, collocation, and transport and termination have yet to be established.
No one can reasonably expect new entrants to invest their resources -- and risk their reputations -- to entice consumers to subscibe to their services unless they can count on the incumbents' cooperation in effectuating a seamless transfer of service and, thereafter, in reliably delivering all promised network elements, facilities, and services.
In sum, BellSouth's unfulfilled responsibilities unfortunately leave us no alternative but to deny the application.
Getting to Yes
I have long promoted competition in all sectors of the telecommunications marketplace, and I firmly believe that the long distance restriction should be eliminated as soon as possible, consistent with the statute. I agree with BellSouth and with the South Carolina Commission that the American consumer will benefit from intensified competition in the long distance market, and I look forward to the day when I can cast my vote to approve a Section 271 application.
To this end, this Commission stands ready to work cooperatively with any Bell company that is truly committed to fulfilling its part of the statutory bargain. At the request of the Bell operating companies, we laid out a "road map" in the Ameritech Michigan order, offering substantial guidance on how the Bell companies can secure Section 271 approval. Today's order provides additional guidance.
Our experience with Section 271 applications is now sufficient that we can and should formulate a new "getting to yes" strategy. The state commissions, Justice Department, and the FCC should collaborate constructively with the Bell companies and their would-be competitors to identify those market-opening tasks that remain unfinished and to devise practical means for successfully completing them. Such a pro-active approach may well lead more quickly to mutually satisfactory resolutions than post hoc review of measures that have already been implemented. I strongly encourage the Bell companies -- and their competitors -- to accept this invitation.
Perspective on Pricing
Our order today does not address the issue of pricing -- whether the prices BellSouth charges to new entrants for unbundled network elements, transport and termination, and collocation are based on cost, as the statute requires. Pricing matters are not decisional in this case, and the state commission has not finished its own work on this critical matter.
While we do not address the sticky issue of pricing in our order today, I nonetheless write separately to elaborate on the principles guiding my decisions in this area.
First, the rulings by the U.S. Court of Appeals for the Eighth Circuit clearly are the law of the land today. The pricing provisions of our Interconnection Order have been voided. Thus, in arbitrating any open issues brought to them for resolution, the state commissions have the responsibility to follow the Telecommunications Act and make their own decisions on pricing, subject to review in the federal district courts and then the courts of appeal. The overwhelming majority of states appear to be using forward-looking economic cost principles -- a very positive development for competition. In any event, the 8th Circuit ruling makes it clear that these decisions are for the state commissions to make when called upon to arbitrate interconnection disputes.
Second, I do not read the 8th Circuit's rulings as curtailing the FCC's role in determinations on Bell company applications to offer long distance services. Just as the Court found that interconnection arbitrations are assigned by Section 252 to the states, determinations of checklist compliance and the public interest are expressly assigned by Section 271 to the FCC. This Commission is required to "consult" with the states on the requirements of the competitive checklist and is required to give "substantial weight" to the views of the Attorney General, but specific determinations of compliance with the checklist, conformity with Section 272, and the public interest are the responsibility of the FCC.
Given that Congress enjoined the FCC from giving "any preclusive effect" even to the views of the Attorney General, I can find no statutory basis for treating the determinations of state commissions -- whether on pricing or on any other checklist items -- as dispositive for Section 271 purposes. Nor can I see how we might give the Attorney General's views "substantial weight" if a state commission's contrary opinion on any subject is to be deemed definitive.
It has been suggested that it is disrespectful of the 8th Circuit for us to evaluate pricing matters in the Section 271 context. I do not agree. It certainly would not be my intention to disregard an order of the Court. If I thought the 8th Circuit had foreclosed us from considering whether unbundled network element prices are based on cost (as the checklist requires) or are consistent with promoting efficient entry in the local telephone marketplace (as we might consider in making a public interest determination), then, of course, I would abide by both the spirit and effect of that order.
But I do not believe that the 8th Circuit's ruling was intended to have such a sweeping effect and do not assume that the Court meant to so circumscribe our decisionmaking under Section 271. Congress's directive that our Section 271 determinations are reviewable only by the U.S. Court of Appeals for the District of Columbia Circuit reinforces this conclusion.
Third, I believe that there is a workable solution that both state and federal officials can agree upon. Some states are uncomfortable with the FCC determining for purposes of Section 271 that forward-looking cost-based pricing is essential for competition, even though the state commissions are completely free to develop their own pricing methodology for purposes of Section 252. Similarly, this Commission would not be comfortable approving a Section 271 application if the prices for unbundled network elements, transport and termination, and collocation are set so as to discourage efficient competitive entry in the local market.
The Justice Department has proposed an approach that may bridge the differing state and federal perspectives. Specifically, the Department advocates that the FCC examine, in a Section 271 application, whether the prices are based on a "reasoned application of an appropriate methodology," a flexible formulation set forth in the Department's submission in this docket. A number of leading state commissioners have responded favorably to this approach. While I cannot speak for my colleagues, I, for one, am prepared to endorse it.
The circumstances of an adjudicatory proceeding involving a single party's application that must be resolved within a 90-day deadline do not permit negotiation and consensus-building involving five FCC commissioners and dozens of state commissions. But this middle-ground solution holds great promise. Moreover, resolution of our jurisdictional controversies may be advanced by (1) the widespread substantive agreement, both throughout the states and internationally, on the importance of using forward-looking economic costs; and (2) the prospects for a collaborative, multi-jurisdictional, getting-to-yes process for addressing Section 271 issues.
I note that the South Carolina commission has acknowledged that the current prices in BellSouth's statement of generally available terms are not the product of any particular methodology -- thus, it would be difficult to conclude that the prices are based on any articulable notion of what the statute means by "cost." But the state commission plans to resolve interconnection pricing issues in the near future, so there is no reason to assume that any current problems with interconnection prices will not be cured before BellSouth files its next application for South Carolina.
Hastening the Arrival of Local Competition
The Telecommunications Act is based on the premise that entrepreneurial companies are willing to compete if barriers that have previously stood in their way are removed. Experience in South Carolina bears this out. Although the biggest cities and biggest potential customers are elsewhere, scores of companies have expressed an interest in entering the local market in South Carolina: over eighty had signed interconnection agreements at the time of BellSouth's application, and dozens more requests for interconnection were pending.
I cannot believe that these companies have explicitly or tacitly agreed to hold back their efforts to penetrate the market, in the shared hope that doing so will foreclose BellSouth from entering the long distance market. A far more probable explanation for the nascent state of competition is that opening the local market is proving to be an immensely complicated process and that, despite the progress BellSouth has made to date in implementing its responsibilities under Section 251, a great deal more remains to be accomplished.
If all parties work together in a spirit of cooperation, we can achieve for the consumer the benefits of robust local and long distance competition. I hope that we will see continued progress in the new year, such that we will be able to "get to yes" -- to conclude that BellSouth has fulfilled its responsibilities fully and can in turn properly be authorized to bring additional competition to the long distance market.