Bits on Broadband : with Fred Campbell

I recently wrote about the policy implications of eliminating the in-market exception to the automatic roaming rule. This post highlights some legal issues related to requiring service providers to open their networks to competitors “in-market.”

In the 2007 Roaming Order, to justify the imposition of an automatic roaming requirement, the FCC relied on its general authority to regulate common carriage in sections 201 and 202 of the Act. (See 2007 Roaming Order at paragraph 1.) The FCC first “clarified” that “that automatic roaming is a common carrier service, subject to the protections outlined in Sections 201 and 202 of the Communications Act.” (Id. at 23.) The Commission then concluded that, “[i]f a CMRS carrier receives a reasonable request for automatic roaming, pursuant to Section 332(c)(1)(B) and Section 201(a), it is desirable and serves the public interest for that CMRS carrier to provide automatic roaming service on reasonable and non-discriminatory terms and conditions.” (Id.) Section 332(c)(1)(B) provides that, “[u]pon reasonable request of any person providing commercial mobile service, the Commission shall order a common carrier to establish physical connections with such service pursuant to the provisions of Section 201 of this Title.” (47 U.S.C. § 332(c)(1)(B).) The FCC didn’t elaborate on the purpose served by section 332(c)(1)(B) in the analysis, nor did the FCC discuss its legal authority in relation to the in-market exception.

With its throwaway cite to section 332(c)(1)(B), the FCC implied that automatic roaming is a form of “physical” network interconnection. But, in the past, the FCC has consistently indicated that “physical connection” refers to inter-carrier connection of underlying infrastructure rather than connection of a subscriber handset to that infrastructure. (See AT&T Wireless Services Inc. and Cingular Wireless Corporation, MO&O, 19 FCC Rec. 21522 at paragraph 143 (2004); Interconnection and Resale Obligations Pertaining to Commercial Mobile Radio Services, MO&O, 16 FCC Rec. 10009 (2001).) Without more than the mere reference to section 332(c)(1)(B) in the 2007 Roaming Order, the FCC appears to have failed to justify a change in the meaning of “physical connection” for purposes of that section.

Automatic roaming bears more similarity to the network unbundling obligations of section 251(c)(3) than to physical interconnection. Like section 251(c)(3) unbundling, wireless carriers that offer automatic roaming are making elements of their networks available to other telecommunications carriers. Indeed, in its National Broadband Plan (“NBP”), the Commission included automatic roaming in the same section as network unbundling. (See NBP at pages 47-49.)

If automatic roaming is really a form of network unbundling (similar to UNE-P), then what legal authority does the FCC have to require it in-market? The answer to this question depends in part on the extent to which a reviewing court would analogize to precedent interpreting section 251(c)(3), which limits access to unbundled network elements to circumstances when access to such elements is “necessary” and “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.” Below I discuss the lengthy precedent regarding section 251(c)(3), and then I relate this precedent to automatic roaming.

In AT&T v. Iowa Util. Bd., 525 U.S. 366 (1999), the Supreme Court held that, when determining whether network elements must be unbundled, the “necessary and impair” elements of section 251 requires that the FCC apply “some limiting standard” that is rationally related to the goals of the Act. Because the FCC had not applied any limiting standard, the Court overturned the FCC’s rule. The Court was particularly concerned that the FCC had “blind[ed] itself to the availability of elements outside the incumbent’s network,” noting that this failure alone would require that the FCC’s rule be set aside.

On remand, the FCC ruled that a competitor would be “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.” (See Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, 15 FCC Rec. 3696, 3725 (1999).) In United States Telecom Ass’n v. FCC, 290 F.3d 415 (D.C. Cir. 2002) (“USTA I”), the D.C. Circuit Court of Appeals overturned this formulation as well because it failed to differentiate between normal entry costs and costs for which multiple, competitive supply is unsuitable. The court also held that the FCC’s unbundling criteria should be more “nuanced” by incorporating competitive variations within and across markets.

On remand from USTA I, the Commission determined that a competitor “would be impaired when lack of access to an incumbent LEC network element poses a barrier or barriers to entry, including operational and economic barriers that are likely to make entry into a market uneconomic.” (See In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, R&O and Order on Remand and FNPRM, 18 FCC Rec. 16978, 17035 (2003) (“Triennial Review Order”).) In response to the D.C. Circuit’s demand for a more nuanced impairment standard, the FCC made an absolute national impairment finding subject to specific exclusions (i.e., findings of non-impairment) by state public utility commissions.

In its USTA II order, 359 F.3d 554 (2004), the D.C. Circuit again struck down the FCC’s impairment standard. The court held that the impairment term “uneconomic” was excessively vague, and that the FCC could not delegate to the states the power to make non-impairment findings. Instead, the FCC must establish unbundling criteria that take into account relevant market characteristics, which capture significant variation; sensibly define the relevant markets; connect those markets to the FCC’s impairment findings; and consider whether the element in question is significantly deployed on a competitive basis.

In its response to USTA II, the FCC imposed unbundling obligations only in those situations where it found that carriers genuinely are impaired without access to particular network elements and where unbundling does not frustrate sustainable, facilities-based competition. Specifically, the FCC evaluated impairment in regard to a “reasonably efficient” competitor and applied its impairment test by drawing reasonable inferences regarding the prospects for competition in a geographic market based on the state of competition in other, similar markets. The FCC also prohibited the use of unbundled network elements exclusively for the provision of telecommunications services in the mobile wireless and long distance markets because competition had developed in those markets without unbundling. The FCC’s new approach to impairment was upheld by the DC Circuit.

So what is the relevance of all this section 251(c)(3) precedent to automatic roaming? Although section 251(c)(3) isn’t directly applicable in the wireless context, it is analogous to automatic roaming, and thus the analyses the courts used to interpret that section are relevant. The precedent interpreting section 251(c)(3) shows that the courts scrutinize unbundling obligations carefully because “unbundling of an element imposes costs of its own, spreading the disincentive to invest . . . .” (USTA I at 428.) Vague statements that market entry is “uneconomic” are likely just as unsustainable in the roaming context as they were in the section 251(c)(3) context. I also expect that the courts will want as much nuance in the analysis of roaming as they sought in the section 251(c)(3) context, where nationwide pronouncements without any real market analysis were rejected.

At a minimum, any FCC action to require service providers to offer their networks to competitors must be rationally related to the goals of the Act. Drawing a rational relationship between an automatic roaming requirement and the goals of the Act is relatively straightforward where a requesting carrier holds no spectrum; in that instance, the requesting carrier lacks a necessary market input, and is thus barred as a legal matter from entering the market without some form of roaming agreement. This rational relationship is much harder to draw, however, in markets where a requesting carrier holds spectrum and wishes to continue to hold that spectrum indefinitely. As the D.C. Circuit noted in USTA II, it is “hard to see any need for the Commission to impose the costs of mandatory unbundling” in cases “where robust competition in the relevant markets belies any suggestion that the lack of unbundling makes entry uneconomic.” This is just as true in regard to automatic roaming under sections 201 and 202 as it is under section 251(c)(3), especially when a carrier refuses to turn its spectrum back into the FCC, which clearly indicates its intent to enter the market in the future. Accordingly, a finding by the FCC that automatic roaming should be required even in markets where the requesting carrier holds spectrum and that are subject to existing competition may be difficult to sustain on appeal.

Even if the FCC could overcome this hurdle in some markets, it may have difficulty in sustaining a nationwide finding that “in-market” automatic roaming is necessary to promote competition. The D.C. Circuit’s desire for a more “nuanced” approach to unbundling in section 251(c)(3) would also appear applicable to automatic roaming. Thus, to have the best chance of being upheld on appeal, an FCC order eliminating the “in-market” exception nationwide should include analysis demonstrating that there is no significant variation among wireless markets – assuming such a finding is supportable by the evidence.

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broadband   data ro   mobile   spectrum   wireless   wireless competition