Ad Hoc Telecom. Users Committee v. F.C.C.

• Decision Date: 17 July 2009
• Docket Number: No. 07-1429.,No. 07-1426.,No. 07-1431.,No. 07-1427.,No. 07-1503.,No. 07-1484.,No. 07-1430.,No. 07-1452.,07-1426.,07-1427.,07-1429.,07-1430.,07-1431.,07-1452.,07-1484.,07-1503.
• Citation: 572 F.3d 903
• Parties: AD HOC TELECOMMUNICATIONS USERS COMMITTEE, et al., Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents AT&T Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

572 F.3d 903

AD HOC TELECOMMUNICATIONS USERS COMMITTEE, et al., Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents AT&T Inc., et al., Intervenors.

No. 07-1426.

No. 07-1427.

No. 07-1429.

No. 07-1430.

No. 07-1431.

No. 07-1452.

No. 07-1484.

No. 07-1503.

United States Court of Appeals, District of Columbia Circuit.

Argued February 20, 2009.

Decided July 17, 2009.

On Petitions for Review of Orders of the Federal Communications Commission.

Colleen L. Boothby and Christopher J. Wright argued the cause for private petitioners. With them on the briefs were David P. Murray, Thomas Jones, Randy Branitsky, Russell M. Blau, Joshua M. Bobeck, Brad E. Mutschelknaus, Genevieve Morelli, John J. Heitmann, Timothy J. Simeone, and Joseph C. Cavender.

Stefanie A. Brand was on the brief for petitioner the New Jersey Division of Rate Counsel. With her on the briefs was Ronald K. Chen and Christopher J. White.

Richard K. Welch, Acting Deputy Associate General Counsel, Federal Communications Commission, argued the cause for respondent. With him on the brief were Matthew B. Berry, General Counsel, Jacob M. Lewis, Associate General Counsel, and Laurel R. Bergold, Counsel. Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, and James M. Carr, Counsel, Federal Communications Commission, entered appearances.

Jonathan E. Nuechterlein argued the cause for intervenors AT & T Inc., et al. in support of the respondent. With him on the brief were Lynn R. Charytan, Heather M. Zachary, Jack S. Zinman, Gary L. Phillips, Paul K. Mancini, Michael E. Glover, Edward Shakin, William H. Johnson, Craig J. Brown, Robert B. McKenna, David W. Zesiger, Scott H. Angstreich, Gregory G. Rapawy, and Gregg Sayre.

Before: SENTELLE, Chief Judge, and KAVANAUGH, Circuit Judge, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge KAVANAUGH.

KAVANAUGH, Circuit Judge:

This case involves the FCC's regulation of "special access" broadband lines that connect individual businesses to their incumbent local exchange carriers. Businesses need dedicated special access lines to utilize essential broadband applications. In many areas, however, only one incumbent local exchange carrier (usually AT&T, Verizon, or Qwest) maintains the special access lines that connect to individual businesses in that locale. The "last mile" for broadband business customers thus differs from the analogous last mile for residential customers, who typically have at least two wires into their homes over which they can obtain Internet service (namely, their traditional telephone and cable lines). The ILECs' current control of most special access lines into businesses forms the backdrop for the FCC's action in this case.

Applying its statutory forbearance authority, the FCC largely eliminated what the Commission refers to as dominant-carrier pricing regulation with respect to AT&T's special access lines—as well as those of two smaller ILECs, Embarq and Frontier. But at the same time, the FCC maintained basic Title II common-carrier regulation on those ILECs' special access lines, including requirements for interconnection and that ILECs' prices be just, reasonable, and not unreasonably discriminatory.

A coalition of businesses, as well as competitive broadband providers that lease special access lines from the ILECs, argue that the FCC's decision was arbitrary and capricious under the Administrative Procedure Act. They contend that the FCC must continue to impose not just common-carrier regulation but also dominant-carrier pricing regulation on ILECs with respect to their special access lines. We disagree. Applying the deferential arbitrary and capricious standard, we find the FCC's decision to recalibrate the degree of regulation imposed on the ILECs' special access lines to be reasonable and reasonably explained. We therefore deny the petitions for review.

I

The background leading to this case is familiar to many, but we recount it briefly. In so doing, we will simplify the story a bit and strive to keep the jargon to a minimum.

Federal communications law historically distinguished telephone systems and cable systems. On the one hand, wireline telecommunications services have been governed by Title II of the Communications Act of 1934, which imposes various common-carrier requirements on telecommunications carriers.

By contrast, cable services have been governed by a separate set of obligations set forth in Title VI of the Act. Cable services have generally been exempt from mandatory common-carrier regulation.

Broadband services do not correspond to the old telephone-cable regulatory divide: A residential customer can obtain high-speed or broadband Internet access over the telephone line through Digital Subscriber Line (DSL) service offered by local "telephone companies," or through cable modem service offered by "cable companies," among other newer alternatives provided by satellite companies and electric companies. See Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 975, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005).

The FCC ultimately decided that services offering the same essential functions to residential customers should not be regulated under different statutory frameworks simply because of the wire used. To harmonize its regulatory approach, the FCC ruled that many common-carrier obligations would not apply to residential broadband lines, whether DSL or cable modem. See Internet Over Cable Declaratory Ruling, 17 F.C.C.R. 4,798 (2002); see also Wireline Broadband Order, 20 F.C.C.R. 14,853 (2005); see generally Brand X, 545 U.S. at 973-74, 125 S.Ct. 2688; Daniel F. Spulber & Christopher S. Yoo, Rethinking Broadband Internet Access, 22 HARV. J.L. & TECH. 1, 16-18 (2008).

Unlike residential customers who typically rely on their telephone or cable wires to obtain broadband Internet service, business customers ordinarily can obtain essential broadband services¹ only through a dedicated high-capacity special access line owned by an ILEC such as AT&T, Verizon, or Qwest. See WorldCom, Inc. v. FCC, 238 F.3d 449, 453 (D.C.Cir.2001); Lawrence A. Sullivan, Is Competition Policy Possible in High Tech Markets?: An Inquiry Into Antitrust, Intellectual Property, and Broadband Regulation as Applied to "The New Economy," 52 CASE W. RES. L.REV. 41, 76 (2001). Because one ILEC usually controls the only special access line to an individual business, there is of course concern that the ILEC might charge unduly excessive rates or improperly discriminate against unaffiliated broadband service providers seeking to lease its lines.

As a starting point, the FCC has determined that Title II pricing and common-carrier regulations largely still apply to the ILECs' special access lines, absent forbearance. See Wireline Broadband Order, 20 F.C.C.R. at 14,861, ¶ 9. The issue for the FCC, therefore, has been when and how much to forbear from applying the Title II obligations using its statutory forbearance authority. See 47 U.S.C. §§ 160, 1302. To put that choice into context some overview of Title II and the FCC's regulations is necessary.

Title II imposes certain mandatory common-carrier requirements on interstate telecommunications carriers. For example, telecommunications carriers must charge just and reasonable rates. Id. § 201(b). Telecommunications carriers must not engage in unreasonable discrimination. Id. § 202(a). And telecommunications carriers must allow other carriers to interconnect with their networks. Id. § 251(a)(1).

Additional statutory pricing regulation also applies to what the FCC refers to as dominant carriers. As relevant here, dominant carriers are typically subject to rate-of-return regulation or price caps accompanied by stringent tariff advance filing rules, whereas non-dominant common carriers are not. See id. §§ 203(b), 204(a)(3); compare 47 C.F.R. §§ 61.38, 61.41, 61.58 with id. §§ 1.773(a)(ii), 61.23(c).²

Title II was enacted in 1934 in part to regulate monopolistic telephone service, at a time when broadband service obviously was not offered. As Congress and the FCC have recognized, regulation of broadband can pose different issues and challenges than regulation of local telephony.

In 1996, to guide the FCC's regulation of broadband in the residential and business markets, Congress enacted § 706 of the Telecommunications Act, 47 U.S.C. § 1302.

Section 706 directs the Commission to "encourage the deployment" of broadband "on a reasonable and timely basis." Naturally, there are different ideas about the best means to achieve that statutory objective —for example, some advocate a more market-based approach (which would spur more facilities-based competition) and others favor a more common-carrier, equal-access-based approach.

Interestingly, and perhaps not surprisingly given the compromises necessary to reach agreement on such a massive piece of legislation, Congress did not choose between those competing philosophies for broadband regulation. To be sure, the preamble to the Act does say that it is to "promote competition and reduce regulation." Pub.L. No. 104-104, 110 Stat. 56, 56 (1996) (emphasis added). But § 706 speaks in very broad terms and instructs the FCC to facilitate broadband deployment "by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment." And § 706 mandates that, if broadband capability is not being sufficiently deployed, the Commission "shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market."

The general and generous phrasing of § 706 means that the FCC possesses significant ...