Covad Communications Co. v. F.C.C.
| Decision Date | 16 June 2006 |
| Docket Number | No. 05-1130.,No. 05-1110.,No. 05-1108.,No. 05-1137.,No. 05-1133.,No. 05-1122.,No. 05-1101.,No. 05-1095.,No. 05-1100.,05-1095.,05-1100.,05-1101.,05-1108.,05-1110.,05-1122.,05-1130.,05-1133.,05-1137. |
| Citation | 450 F.3d 528 |
| Parties | COVAD COMMUNICATIONS COMPANY and Dieca Communications, Inc., d/b/a Covad Communications Company, Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents Ciena Corporation, et al., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Bruce D. Sokler and Genevieve Morelli argued the cause for the CLEC Petitioners and Intervenors in support. With them on the briefs were Michael H. Pryor, Fernando R. Laguarda, Brad E. Mutschelknaus, Steven A. Augustino, Jason Oxman, Andrew D. Lipman, Russell M. Blau, Eric J. Branfman, Patrick J. Donovan, Joshua M. Bobeck, David P. Murray, Randy J. Branitsky, and Thomas Jones. Jennifer M. Kashatus entered an appearance.
Christopher J. White argued the cause and filed the briefs for petitioner New Jersey Division of the Ratepayer Advocate.
David C. Bergmann was on the brief for petitioner National Association of State Utility Consumer Advocates.
John E. Ingle, Deputy Associate General Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Thomas O. Barnett, Acting Assistant Attorney General, U.S. Department of Justice, Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, Samuel L. Feder, General Counsel, Federal Communications Commission, Jacob M. Lewis, Associate General Counsel, and James M. Carr and Christopher L. Killion, Counsel.
David P. Murray argued the cause for CLEC Intervenors in support of respondents. With him on the brief were Randy J. Branitsky, Thomas Jones, Bruce D. Sokler, Michael H. Pryor, Fernando R. Laguarda, Jason Oxman, Andrew D. Lipman, Russell M. Blau, Eric J. Branfman, Patrick J. Donovan, Joshua M. Bobeck, Brad E. Mutschelknaus, Genevieve Morelli, and Steven A. Augustino.
Michael K. Kellogg argued the cause for ILEC Intervenors and Ciena Corporation in support of respondents. With him on the brief were Mark L. Evans, Sean A. Lev, Colin S. Stretch, Scott H. Angstreich, William P. Barr, Michael E. Glover, Edward Shakin, James D. Ellis, Gary L. Phillips, Christopher Heimann, James P. Lamoureux, Robert B. McKenna, Stephen L. Goodman, Marc Gary, James G. Harralson, and Bennett L. Ross.
Before: GINSBURG, Chief Judge, and SENTELLE and GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
The Federal Communications Commission ("FCC" or "the Commission") has thrice attempted—unsuccessfully—to implement the "unbundling" provisions of the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 ("the Act" or "the 1996 Act"). This case involves a series of petitions for review of the FCC's fourth attempt. Because we conclude the Commission's fourth try is a charm, we deny all of the petitions for review.
The 1996 Act sought to foster a competitive market in telecommunications. To minimize the characteristics of natural monopoly in the market,1 the Act gave the FCC broad powers to require incumbent local exchange carriers ("ILECs") to make unbundled network elements ("UNEs") available to competitive local exchange carriers ("CLECs"), 47 U.S.C. § 251(c)(3), (d); see also id. § 153(29) (). Thus, the Commission may require the ILECs to offer pieces of their networks as unbundled building blocks, which the CLECs can lease, repackage, and use to compete against the ILECs in telecommunications markets across the country.
Congress left to the Commission the choice of elements to be "unbundled," specifying that it must "consider, at a minimum, whether ... the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer." Id. § 251(d)(2) (emphases added). Relying upon the implicit breadth of its "at a minimum" authority and its discretion to interpret the meaning of "impair[ment]," the FCC in this case amended its unbundling determinations for three types of UNEs: "switches" (devices that direct calls to their destinations in the same way switchboard operators once did), "transport trunks" (wires that carry calls between switches), and "local loops" (wires that run from switches over the "last mile" to consumers' telephones). The propriety vel non of those determinations is the crux of this case.
The basics of unbundling are relatively simple. Suppose a CLEC (such as Covad) wants to serve customers in Washington, D.C. One way of doing so is for Covad to purchase its own switches, trunks, and loops, which it can then use to offer service to its new customers. However, given that the local ILEC (e.g., Verizon) has already deployed switches, trunks, and loops to serve the market, it might be economically impossible for Covad to duplicate competitively Verizon's infrastructure. Through regulatory unbundling, however, Covad might be able to lease Verizon's switches, trunks, and loops as UNEs. Covad could then use combinations of UNEs to cobble together a network and compete against Verizon in Washington.
Under the Act, Covad must pay Verizon for every "facility" and every piece of "equipment" the former requests from the latter on an unbundled basis. See id. § 153(29); id. § 252(d)(1). After a hard-fought litigation battle, the Commission concluded that UNE prices must be based on each element's Total Element Long-Run Incremental Cost ("TELRIC"). See 47 C.F.R. § 51.505(b); Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 523, 122 S.Ct. 1646, 152 L.Ed.2d 701 (2002) (). TELRIC rates are akin to wholesale prices because CLECs are supposed to be economically able to rent UNEs and then use them to sell telecom services to their retail customers.
The ILECs unsurprisingly dislike seeing their own networks wielded as competitive weapons by CLECs—especially when the CLECs enjoy access to UNEs at TELRIC rates. The ILECs therefore champion the use of substitute products that allow CLECs to compete without demanding access to the ILECs' individual network elements. For our purposes, the only relevant substitute product is the tariffed special access service ("TSAS"). Basically, Covad can purchase TSASs from Verizon (at prices above the TELRIC rates associated with UNEs), and the TSASs allow Covad to complete point-to-point calls over dedicated lines. See, e.g., In the Matter of Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, 15 F.C.C.R. 3696, 3912 (1999) ("UNE Remand Order"). Thus, instead of purchasing or renting a loop, switch, space in a central office, and a transport trunk to complete a call, a CLEC might simply pay the higher TSAS rate for a dedicated line (which does not require separate switching or transport).
Given the lower cost of UNEs, the CLECs favor widespread unbundling, while ILECs favor fewer UNEs and the greater availability of higher-priced TSASs. This tug-of-war—between CLECs advocating more unbundling and ILECs advocating less—has been the nub of an ongoing, decade-long dispute between incumbents and their would-be competitors. To explain today's unbundling battle, we begin with the skirmishes that preceded it.
The ILECs' and CLECs' power struggle over UNEs began shortly after the passage of the 1996 Act. In its first attempt to interpret the Act's "impairment" standard, the Commission concluded that a CLEC was entitled to a given UNE "if the quality of the service the entrant can offer, absent access to the requested element, declines and/or the cost of providing the service rises." In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 F.C.C.R. 15499, 15643 (1996).
The Supreme Court found this interpretation of "impair" unreasonable in two respects. First, the Commission had erroneously refused to consider whether a CLEC could self-provision or acquire the requested element from a third party. AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 389-92, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). Second, the Commission had considered any increase in cost or decrease in quality, no matter how small, sufficient to establish impairment—a result the Court concluded could not be squared with the "ordinary and fair meaning" of the word "impair." Id. at 389-90 & n. 11, 119 S.Ct. 721. The Court admonished the FCC that in assessing which cost differentials would "impair" a new entrant's competition within the meaning of the statute, it must "apply some limiting standard, rationally related to the goals of the Act." Id. at 388, 119 S.Ct. 721 (emphasis omitted).
On remand from Iowa Utilities, the Commission ruled that a would-be entrant is "impaired" if, "taking into consideration the availability of alternative elements outside the incumbent's network, including self-provisioning by a requesting carrier or acquiring an alternative from a third-party supplier, lack of access to that element materially diminishes a requesting carrier's ability to provide the services it seeks to offer." UNE Remand Order, 15 F.C.C.R. at 3725. We held the Commission's "impairment" standard...
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