Award Winning Blog

Monday, April 16, 2007


William B. Petersen, President of Verizon Pennsylvania visited the College of Communications at Penn State where I teach. Mr. Petersen's presentation was entitled "Broadband Services Convergence: The Benefits of a 'High Fiber' Diet." No dispute there.

Mr. Petersen, an affable fellow, blamed "regulatory uncertainty" for the relative poor progress in broadband market penetration that occurred in the decade following enactment of the Telecommunications Act of 1996. While I could have noted that Verizon and other incumbents surely contributed to the uncertainty through endless litigation, I chose to question Mr. Petersen's allegation that the courts always supported the Bell point of view in such litigation.

That's not how I read the case law. Yes the courts on three occasions reversed the FCC on the scope and level of unbundling obligations. But the Supreme Court on two occasions endorsed the FCC's implementation of a Congressional mandate to promote competition. In AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366, 119 S.Ct. 721, 142 L.Ed.2d 835, 67 USLW 4104 (1999) the Supreme Court largely upheld the Commission's implementation of the Congressional mandate contained in Section 251 of the Telecommunications Act of 1996 as a reasonable exercise of its rulemaking authority, including its requirement that ILECs unbundle network elements and offer CLECs the opportunity to pick and choose from an ala carte menu or platform of elements. The Court also ruled that in identifying which network elements ILECs should unbundle, the Commission did not limit the set of network elements to those necessary to promote competition whose absence from the list might impair ILECs' ability to compete.

In other words the Court did not deem unconstitutional the Congressional mandate of unbundling. The Court also largely deferred to the FCC's dtermination how to price these unbundled elements. In Verizon Communications, Inc. v. FCC, 121 S.Ct. 877 (2001)
the Court rejected incumbent local exchange carrier arguments that using a theoretical, most efficient cost model, instead of actual historical costs, constituted a taking that violated the Fifth Amendment. The court noted that no party had disputed any specific rate established by the TELRIC pricing model and concluded that “[r]egulatory bodies required to set [just and reasonable] rates . . . have ample discretion to choose methodology.” Additionally the Court stated that the ’96 Act did not specifically require historical costs, particular in light of its explicit prohibition on the use of conventional “‘rate-of-return or other rate-based proceeding’ . . . which has been identified with historical cost ever since Hope Natural Gas was decided.”

Mr. Petersen appeared to dismiss these cases as nothing more than Chevron-type deferral to agency expertise, something he surely must have welcomed in the Brand-X case. These cases do more than indicate the Court's unwillingness to second guess the FCC. Federal courts have made a sport of second guessing the FCC, particularly its implementation of the '96 Act.

I read the two Supreme Court cases as a fundamental endorsement of the lawfulness of the '96 Act's model for promoting competition. The law failed in part, because the ILECs simply would not go along with the transition, instead prattling on about "confiscation" and "taking of property." Indeed Mr. Petersen hailed Korea as an example of where competition flourished, ignoring that the incumbent cooperated thanks to the heavy hand of government stewardship in that country.

The point here is that hindsight in telecom policy does not offer 20-20 vision. The laws that Verizon and other incumbents help draft did not offer the expected payoff. The litigation that Verizon and other incumbent initiated did not absolve these carriers of having to interconnect and price access elements at below market rates.

We can dispute the wisdom of a Congressional mandate for cooperation among competitors--a fundamental concept in common carrier-- and the terms for such access. But it surely comes across as revisionism of history and case precedent to claim the courts invalidated the Congressionally created scheme.


chris said...

Hi Rob

Good to see your blog appear as Eurotelcoblog has to sign of.

Your reading of the case law reminds us that its never as straight forward as the lobbyists tell us. Point me towards your most recent article on this?

Ben Cramer said...

I attended the speech by Peterson, and I was also skeptical of his comments on "regulatory uncertainty." Does that term have a legal definition? Is it an acceptable/accepted defense for not observing regulations?