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January 28, 1999


Re: Policy and Rules Concerning the Interstate Interexchange Marketplace; Implementation of Section 254(g) of the Communications Act of 1934, as Amended; Petitions for Forbearance (CC Docket No. 96-61), Memorandum Opinion and Order

I. Introduction

I cannot support this decision to deny the reconsideration and forbearance petitions filed by these five Commercial Mobile Radio Service (CMRS) providers and their industry trade associations. Although I am pleased to see that some regulatory restraint is shown by continuing the earlier stay, limiting enforcement of 254(g)'s rate integration provision to inter-MTA separately-billed CMRS toll calls, and announcing the intent to issue a Further Notice, I disagree with the analysis -- or lack thereof -- in this Order. Accordingly, and for the reasons discussed below, I respectfully dissent.

II. Statutory Interpretation - Petitions for Reconsideration

The goals of Section 254(g) of the Communications Act are laudable and uncontroverted as they relate to traditional, national, interstate interexchange carriers that were clearly subject to the Commission's policy prior to being incorporated into the 1996 Telecom Act. However, even when looking at the plain language of the statute, I believe that there are substantial questions as to whether Congress actually intended to expand the Commission's pre-1996 rate integration policy to CMRS providers and whether it should be expanded.

I am unpersuaded by the "plain language" analysis in the Order, for I have trouble accepting that the phrase, "provider of interstate interexchange services" in 254(g) is so clear and unambiguous. Congress does not provide a statutory definition of the term "provider of interstate interexchange services" and there certainly is not a common, dictionary definition of the phrase or its terms to assist us in the context of local, mobile wireless telecommunications providers. Indeed, the Majority's conclusion that rate integration applies only to "inter-MTA" service concedes that "interexchange" does not simply mean "between exchanges" as standard interpretation would imply, for MTAs can include multiple exchanges.(1) Moreover, as far as I can discern, terms such as "interstate" "interexchange" and "interLATA" are frequently interchanged in different contexts, without the word choice affecting the regulatory effect.

Interestingly (and inconsistently), the Commission has previously found this very same language ambiguous -- albeit in a slightly different context concerning the scope of the requirement to integrate the rates of affiliated companies:

The meaning of the phrase "a provider of interstate interexchange telecommunications services" in Section 254(g) is, in our view, ambiguous. That phrase is not specifically defined, nor does the statute give any explicit guidance on how to treat affiliated companies. Thus, we interpret this phrase in the way that best comports with our prior rate integration policy, and Congress' stated intent to codify that policy.(2)

Now, my colleagues apparently have looked at the phrase with new spectacles and concluded that the phrase is unambiguous and plainly applies to CMRS providers. Statutory interpretation under the well worn principles of Chevron require us to first determine if the language is unambiguous.(3) If so, that is the end of the matter. If it is unclear, we are instructed to discern its intended meaning by turning to legislative history. What we cannot do, is read the same language plainly to achieve one purpose, but treat it as murky in order to import legislative history to serve another purpose.(4)

What is particularly troubling here is that, if we find ambiguity in the language (as the Commission has at times), then the legislative history leads us squarely to the conclusion that Congress intended to codify the Commission's existing rate integration policy. That policy did not cover CMRS carriers. Even when the Majority assumes, arguendo, that there is some ambiguity in the statutory language, requiring an examination of the legislative history, they look for something that "unambiguously indicates" that CMRS providers are exempted from Section 254(g). But, when it is undisputed that CMRS providers were not subject to the Commission's pre-1996 Act rate integration policy, and where Congress seems to say it is merely incorporating that policy, why would we expect to find an explicit and unambiguous indication to exclude them?

My concern about how to read the statute and the legislative history to discern the will of Congress in 1996 does not, of course, mean that the Commission is now or forever precluded from examining whether the policy should be expanded to cover CMRS. But, we should do so in a consistent, fair and reasonable manner. In light of the provisions ambiguity and the Commission's prior interpretations, I do not think that CMRS carriers have had fair notice and the ability to adequately address whether this policy should be similarly expanded to cover CMRS carriers.(5)

I, thus, would have preferred to grant reconsideration on the grounds of inadequate notice and initiated the appropriate proceeding to consider the applicability of Section 254(g) to CMRS providers and, if applicable, whether or not to forbear from its enforcement. Unfortunately, the Majority accepts the applicability of 254(g) as obvious and lurches to the question of whether to forbear. It is the summary consideration of this question I find most troubling and inconsistent with Congress' command under Section 10 of the Communications Act, to which I now turn.

III. Requests for Forbearance

Even if the language of the rate integration provision applies to CMRS carriers, there are still substantial questions in my mind whether Section 254(g) should be enforced against the most competitive and dynamic segment of the telecommunications industry. But, the Order does not demonstrate anything that can be called analysis of whether competitive conditions are sufficient to effectuate the purposes or concerns underlying 254(g) or the public interest. At bottom, the discussion amounts to a summary denial on the basis that petitioners did not meet what seems to be an impossible burden.(6)

Moreover, I fear that the failure to forbear will actually harm the interests that Section 254(g) seeks to protect. I discuss these points below.

A. The Commission has the Burden to Justify Continued Regulation

I believe that under the congressional forbearance scheme, the Commission has an obligation to validate or justify continued regulation in light of competitive conditions and cannot discharge that burden by shifting complete responsibility to petitioners. It is becoming a pattern at this Commission to set its own malleable standards of proof in forbearance cases and then sit back and summarily dismiss petitions for lack of proof.(7) I believe Section 10 requires more. It requires the Commission to come down from on high and itself except responsibility for demonstrating with some rigor why continued regulation is justified. It requires us to get our hands dirty.

The language of Section 10 sets forth the responsibilities of the Commission affirmatively. The Commission, in subsections (a) and (b) of Section 10, is directed to "determine" and "consider" certain things and mandates forbearance ("shall") if the Commission determines that the three enumerated considerations warrant. 47 U.S.C. 160(a), (b). These words suggest that the Commission has an affirmative duty to work through, not whether forbearance is warranted, but whether the challenged regulation is warranted any longer. For if it is not, forbearance is mandated as a matter of law. Indeed, a petition for forbearance "shall be deemed granted," whether or not it meets the forbearance requirements, if the Commission does not deny it within one year (plus 90 days, if extended). Id. 160(c). Thus, I believe the Commission must justify and defend the need for continued regulation with more forcefulness. That is, the presumption leans in favor of deregulation, not continued regulation, therefore, the proponents of continued regulation (including the Commission) should bear a greater share of the burden under Section 10 than this and previous orders admit to.

Read in the context of the pro-competitive, de-regulatory 1996 Telecom Act,(8) I would suggest that under Section 10, once carriers show that a market is competitive (their prima facie case), the burden should shift back to the Commission to determine that enforcement of our rule or a statutory provision is, in light of such competition, still necessary to ensure that rates and practices are reasonable and not unreasonably discriminatory. If it seeks to maintain enforcement, the Commission must then show why the rule or provision is necessary to protect consumers. Under the "public interest" prong of the forbearance test, the Commission must thoroughly evaluate whether forbearance will promote competition, which (among other things) may form the basis of a public interest finding. 47 U.S.C. 160(b).

Specifically, I submit that proponents of forbearance could make a prima facie showing in its petition that the relevant product, service and geographic markets for which it is seeking regulatory relief is or is becoming competitive or that forbearance would promote competition. Such a showing would identify the applicable markets, services, licensees, providers, etc., and could include, among other things, data or information identifying:

(1) the competitors in the market or markets;

(2) the competitive characteristics of a market such as consumer choices, declining prices, increased subscribership, or increased innovation; and

(3) the actual or likely competitive or consumer harms that result from enforcing the rule or provision such as decreasing pricing flexibility, increasing entry barriers or creating other artificial and unnecessary constraints on conducting business.

Upon such a showing, there would be a presumption in favor of forbearance from enforcing the rule or provision in question. Then, the burden would shift to the opponents of forbearance and the Commission (if it seeks to deny the forbearance request) to establish that forbearance would, despite the competitiveness of the market, still not meet the Section 10 criteria. If the Commission chooses forbearance, as contemplated by Congress, it would determine that the forbearance standard is met by reliance on the competitive circumstances demonstrated by the carriers.

B. Competition Should Enjoy a Greater Presumption than Regulation

I continue to be troubled with the near-impossible evidentiary standard that the Commission seems to demand petitioners meet. There seems to be an assumption, more often than not, that regulation is superior to competition for maximizing consumer welfare. We regularly express skepticism that competitive conditions will guard against "unjust and discriminatory rates," that it will facilitate deployment of services to all Americans, that it will offer any consumer protection generally, and that it simply is, too often, a threat to the "public interest." These are laudable concerns, but the Commission too often asks petitioners to disprove a hit parade of merely speculative harms while opponents of forbearance seem to be granted the benefit of the doubt.

Why do we tend to agree at face value that regulation is "necessary to provide. . .access to interexchange services at affordable and nondiscriminatory rates?" Order at 28 (citing Alaska Opposition at 12). We undertake no evaluation as to whether competitive conditions could (or do presently) produce affordable access to service, at least as well as regulation can. Congress' commitment to competition reflects its faith that competitive markets are effective tools for growth and low prices, thus it is odd to be so skeptical about competition's ability to serve these purposes. I also take umbrage that this Order so often treats different rates synonymously with discriminatory rates. See, e.g., Order at 30. Rates can easily be different without being discriminatory. They will be different, if there are different inputs and costs. A rate is unreasonably discriminatory only if it cannot be justified by the underlying economic costs. One may question whether an economically sound, non-discriminatory rate is affordable to consumers. And, if not, government can play a role to subsidize, in some way, the costs. But, that approach should be extended only after it has clear evidence that competition cannot drive prices down to values consumers are able and willing to pay. In any case, "affordability" should be a separate question from "discrimination."

We also have the tendency to state the purpose behind a rule or provision and demand that petitioners prove conclusively that competition will produce the results we desire (without any consideration of whether it will produce those results at least as well as do the existing regulations we administer). Simply sample some of the statements made in this Order:

"without rate integration, CMRS providers would, when consistent with their economic interests, discriminate against the offshore points" ( 29)

Translation: Without regulation, private firms and competition will discriminate against certain populations. Competition, if healthy, will discipline rates, keeping them in proportion to their costs. That is not discrimination. I do not know how a petitioner proves to us that it will not discriminate irrespective of competitive forces that would make it difficult to do. What evidence is provided for the assertion that competitive conditions will produce discriminatory pricing? I see none in this Order. Indeed, for many years, CMRS carriers have set long distance rates apparently under the belief that they were not subject to rate integration. Yet, we rely on the speculative pronouncement about discriminatory rates without looking to see in any detail if rates have in fact been unjust and discriminatory in states such as Alaska and Hawaii.

"rate integration is necessary to ensure that nondiscriminatory charges and practices are offered with respect to CMRS services to and from the offshore points" and "there is no evidence to show that rate integration is not necessary for the protection of consumers." ( 30)

In other words, petitioners fail to prove (with record evidence) that competition can protect consumers as well as regulation. How do you do this?

Competition and free markets are not simply regimes that allow firms to profit at the expense of consumers. Trusting these devices is not to abandon any concern for consumer in favor of money-grubbing, self-interested firms. History and, more importantly, Congress have judged that competition is a superior device for maximizing consumer welfare. It, generally, keeps prices at levels consumers are willing to pay, it generally promotes innovation in new products and services for consumers, and it generally promotes growth into new and, yes, even traditionally underserved markets. I emphasize generally, for markets in any given snapshot in time will not be doing all of these things equally well. Some markets will not yet be served, some prices may still be high, but the grinding dynamic generally produces better results. We cannot demand at one sitting total, ubiquitous, nirvana-like satisfaction. It is not that competition is not yet ripe, it is that markets and the capitalist system can never guarantee continuous and universal results at any given moment in time. Though competition is not perfect in maximizing consumer well-being, I challenge anyone to make the case that regulation does it better.

C. Not Forbearing In This Context May Actually Undermine The Purposes Of Section 254(g)

My pointed criticism of the lack of rigor shown in this Order with regard to forbearance is driven, in part, out of a real concern that failure to forbear may actually undermine the goals and objectives embodied in Section 254(g) and the Telecom Act generally. Rate integration is a form of universal service intended to facilitate both ubiquitous deployment of service, including service to high cost and rural areas, and "affordable" rates. But, given the competitive nature of the CMRS market, it is not difficult to imagine that rate integration may disserve these objectives.

Take, for example, the desire to promote expansion of service to high cost areas. Many new CMRS services have emerged, logically, in robust, low-cost, urban markets. In these markets, increasingly, one will find fairly heated competition among up to five and six providers. Rates may be quite low in those markets because of the lower cost structure and the slimmer margins required to remain competitive. If a carrier is obligated under the law to provide the same rates if it expands into a rural or higher cost area, it may be unwilling to do so. The costs in those areas may actually exceed the rates being charged in the competitive market, or because of the higher costs, the margins that would be possible due to rate integration make it impossible as a business matter to go into those areas. Thus, contrary to the goal of 254(g), there exists a disincentive to expand into all regions of the nation.

Conversely, rate integration may hamstring a carriers ability to respond to price pressures in competitive markets. Lets say that Carrier A has operations in two regions. One is a higher-cost area with little competition (region 1) and it charges 12 cents a minute there for long distance calls. The carrier also has operations in a lower-cost, competitive market in another state (region 2), where it charges 10 cents a minute to remain competitive. Carrier B only operates in that competitive market and, in order to compete against Carrier A, cuts its price to 8 cents a minute for long distance calls. Under Section 254(g), Carrier A is required to charge the same rate to its subscribers in both region 1 and region 2.(9) Thus, not only must it charge 10 cents in each location now, but the carrier may be unable to respond with its own 8 cent offering in the competitive market because, as a matter regulation, it would have to do the same in region 1, which it cannot afford. Thus, the carrier faces a serious price squeeze, all due to regulation. This example at least illustrates that the public interest may not be served by the rate integration rule in the CMRS context. At a minimum, it demonstrates that the Commission should have engaged in a much more serious and comprehensive analysis than it did.

Furthermore, it seems likely that CMRS carriers have plenty of flexibility to modify their plans in a manner that will avoid the rule altogether. For example, the Commission does not regulate a CMRS carrier's local airtime rates and other charges. Nor do the States. Because of the wide-area nature of these services, it would not take much to fold what are now "interexchange" calls into basic or "local" rates, avoiding the reach of the statute.(10) Similarly, carriers may simply stop billing for long distance separately, which also avoids the current rule's reach. Finally, the trend in this industry is toward wide-area plans in which there is one, low flat rate for calling anywhere in the country, thereby eviscerating any distinction between local and "interexchange" service. "Great," one might say, "the market will respond to this problem!" Yes, but innovation and markets should develop tailored to the desires of customers, and not be skewed simply to avoid government regulation.

We should also have explored whether enforcement of the rate integration requirement dampens innovation. CMRS competition has delivered a steady downward trend in all rates. CMRS is quickly becoming a substitute to traditional local wireline service. These carriers compete with incumbent local providers and traditional wireline interexchange carriers by offering innovative and attractive price packages and minute bundles (not to mention the technological innovations and add-ons). This tit-for-tat has produced lower, flatter rates to which consumers have greatly responded. Will rate integration inhibit price and marketing innovation and price flexibility which are critical weapons in any competitive industry?

These are the types of questions that should have been explored by the Commission in this proceeding. If the Commission is serious about the protection of the public interest I do not believe that it can simply dismiss forbearance petitions without much study on the basis that petitioners were unconvincing. I think forbearance requests require us to actively evaluate continued regulation and not simply play the role of judgmental skeptic when presented with pleas to cede regulation to competitive conditions. I hope we will do better next time.

1. 1 Rather, the Order takes us on a venture to the statutory definition of "telephone exchange service" and then to the Commission's policy decision to declare CMRS a "comparable service" to telephone exchange service because, "as a general matter, CMRS carriers provide local, two-way switched voice service as a principal part of their business." Order at 22-24 (emphasis added.) It goes on to come up with MTA as the relevant area, which I find nowhere in the plain language or legislative history of Section 254(g).

2. 2 First Memorandum Opinion And Order On Reconsideration, CC Docket No. 96-61, 12 FCC Rcd. 11,812 at 14 (1997) (emphasis added).

3. 3 See Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984).

4. 4 Of course, we must interpret a statute "flexibly -- not in a sterile textual vacuum, but in the context of implementing policy decisions in a technical and complex arena," id. at 863, and we may change our interpretation of the statute, id. at 842. However, the Order includes no attempt to distinguish this approach from the earlier decision from just over a year ago and provides no justification for doing so -- nor can I think of one it might provide.

5. 5 In fact, no CMRS carrier commented on whether the rate integration policy applies or should apply to CMRS until the issue came up on reconsideration in connection with the affiliation question. This Order notes that we stayed application of the affiliation requirement, which "would benefit from a fuller record" in a separate proceeding. In addition, as the Commission recognized in its original rate integration Notice, the pre-1996 Act policy required interexchange carriers to offer service to subscribers in all fifty states, the U.S. Virgin Islands, and Puerto Rico on a rate-integrated basis. However, the Act's definition of "State" includes all U.S. territories and possessions, thereby extending -- geographically -- the Commission's then-existing rate integration policy. The Commission sought comment on this specific issue. Notice of Proposed Rulemaking, CC Docket No. 96-61, 11 FCC Rcd. 7141 at 77-78 (1996). Why cannot we stop here and take this same step before extending the rate integration requirement to a new class of carriers?

6. 6 According to this Order, CMRS providers must:

-- "ensure that such rates [that comply with the rate integration requirement] will be offered by all CMRS providers in the future" (Order at 29);

-- provide "specific persuasive arguments on [the] record" that "rate integration would interfere with competition, resulting in less consumer choice" (Id. at 29);

-- show "that, in the absence of rate integration, CMRS rates will be just and reasonable and not unjustly or unreasonably discriminatory" ( 30);

-- "explain how the benefits of Section 254(g) can be attained if we forbear from applying the rate integration requirement of Section 254(g) to the interstate, interexchange services of CMRS providers" ( 31); and

-- submit "record evidence to support that contention or, conversely, that competitive conditions will be promoted in the absence of rate integration" ( 34).

7. 7 See Memorandum Opinion and Order and Notice of Proposed Rulemaking, Personal Communications Industry Association's Broadband Personal Communications Services Alliance's Petition For Forbearance For Broadband Personal Communications Services, 13 FCC Rcd. 16857 (1998) (recon. pending); See also, id., Statement of Commissioner Powell, dissenting in part.

8. 8 See Pub. L. No. 104-104, 110 Stat. 56 (1996) (preamble to the Act) (directing the Commission to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.") See also H.R. Conf. Rep. No. 104-458, 104th Cong., 2d Sess. 113 (1996) (revealing the congressional intent "to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all American by opening all telecommunications markets to competition"). Title IV of the 1996 Act (entitled "Regulatory Reform") included Section 401 (entitled "Regulatory Forbearance") and added a new Section 10 to the Communications Act, entitled "Competition In Provision Of Telecommunications Service" (emphasis added).

9. 9 Section 254(g) provides that "a provider of interstate interexchange telecommunications services shall provide such services to its subscribers in each State at rates no higher than the rates charged to its subscribers in any other State."

10. 10 From the example above, Carrier A could match the 8 cents long distance rate in the competitive market, adjust the long distance rates in the other market to 8 cents to comply with Section 254(g), and then (assuming competitive forces and other safeguards allow it) would raise local rates in the less competitive market to recover the additional costs in that market, as a result of regulation, from integrating its long distance rates.