Comment on 3/2/04 DC Court Ruling

John Wohlstetter
Discovery Institute
March 3, 2004
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Today the U.S. Court of Appeals, District of Columbia Circuit, largely vacated the local network unbundling rules adopted August 2003 in the Federal Communications Commission's so-called Triennial Review Order, but upheld key parts of the FCC's order eliminating requirements that local telephone companies (i.e., Incumbent Local Exchange Carriers-ILECs) share with Competitive Local Exchange Carriers (CLECs) new fiber-optic and hybrid (i.e., part fiber/part copper) broadband local lines and equipment. The Court, in an unusual move, gave the FCC 60 days to either appeal for reconsideration or adopt rules that comply with the Telecommunications Act of 1996.

The appeals court ruling was especially notable for the following reasons:

  • The Court termed the 60-day deadline it gave the FCC: "...appropriate in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings."1

  • Regarding use of below-cost network access rates (so-called TELRIC prices) and their impact on ILEC revenues, the Court admonished the FCC: "In competitive markets, an ILEC can't be used as a pinata."2

  • Regarding current broadband market competition, the Court stated: "More important, we agree with the Commission that robust intermodal competition from cable providers [including cable's roughly 60 percent share of broadband access lines] means that even if all CLECs were driven from the broadband market, mass market consumers will still have the benefits of competition between cable providers and ILECs."3

  • Regarding ILEC fiber and hybrid loop deployment, weighing the relative benefits of aiding CLEC entry versus sec. 706 of the Telecom Act, which mandates that the FCC foster investment in new broadband facilities: "Even if the CLECs are impaired with respect to [fiber deployment] the sec. 706 considerations that we upheld as legitimate [for hybrid loops] are enough to justify the Commission's decision not to unbundle [fiber]."4

  • The Court threw out the FCC's delegation to state commissions of the task of evaluating local market competition, holding that the FCC unlawfully delegated to the states a task that Congress assigned the FCC. The Court branded as "fictitious" purported limits set by the FCC as to what it delegated to the states.5



In sum, the Court threw out most of the FCC's handiwork as not only contrary to the law Congress passed, but also as an evasion of prior judicial rulings ordering the FCC to (a) give proper weight to competitive realities in today's marketplace; and (b) refrain from giving excessive assistance to the CLECs at the expense of the ILECs. Which is why the Court set a 60-day limit for the FCC to straighten up and fly right. Alas, while the FCC impeded ILEC broadband network investment for over eight years, 10 nations jumped ahead of the US in broadband deployment, with South Korea and Japan offering new broadband services that more than 99 percent of Americans can but dream of.

John C. Wohlstetter is a Senior Fellow with the Seattle-based Discovery Institute.


1 Slip Opinion, p. 62.
2 Id., p. 26.
3 Id., p. 41.
4 Id., p. 43.
5 Id., p. 27.