Court Sides With FCC on Unbundling Requirements

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A federal appeals court Tuesday rejected a trade group’s challenge to the FCC’s vote to roll back “unbundling” requirements for legacy phone and broadband providers that forced them to sell competitors access to parts of their networks.

INCOMPAS represents smaller competitors to legacy providers, which the FCC calls “Local Exchange Carriers” or LECs. The trade group, with the California Public Utilities Commission, challenged the Commission’s changes that were sought by US Telecom.

The FCC’s rules forced LECs to lease network infrastructure and sell voice services to rivals at wholesale rates. They date back to the Telecommunications Act of 1996.

During last week’s decision, Commissioners voted to eliminate unbundling and resale rules where they stifle technology transitions and broadband deployment. The Report and Order builds on previous Commission action to adjust those rules to keep pace with advances in the marketplace since passage of the 1996 Act, as it has shifted from one dominated by monopoly incumbents to one characterized by vigorous, intermodal competition, according to the agency.

“Over the last 24 years, there has been an ongoing battle between well-established incumbent Local Exchange Carriers and newer competitive LECs over how the FCC should implement key provisions of the Act designed to facilitate that transition,” said FCC Chairman Ajit Pai during the vote.

“Since the passage of the 1996 Act, incumbent LECs and competitive LECs have fiercely debated how broad these unbundling rules should be and their effectiveness in promoting competition,” he explained. “Incumbent LECs argue that requiring them to unbundle their networks and to lease capacity to their rivals undermines broadband competition in last-mile networks; requires maintenance of increasingly outdated technology; and discourages competitors from deploying their own networks. Competitive LECs, in contrast, argue that these rules lower barriers to entry—giving new entrants time to establish a customer base large enough to justify building a separate network—and thus facilitate competition.” 

In the decision of the U.S. Court of Appeals for the District of Columbia Circuit, Senior Circuit Judge Laurence Silberman wrote that the gist of the arguments is that incumbents still maintain existing copper loops for which there is still demand. The new companies “want to continue to be able to purchase incumbents’ services utilizing copper loops at a subsidized rate.” Their business model is largely based on providing business and government customers with phone service over copper loops, he wrote.

“We think … the FCC was quite reasonable to focus on the national market when making national policy,” wrote Silberman, rather than making policy that focused on market power in every locality. The court denied the petitions for review.

By Leslie Stimson, Inside Towers Washington Bureau Chief

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