Monday, August 03, 2009

New Potential for Forbearance at FCC

A noteworthy item on the FCC forbearance front is Qwest's recently-filed forbearance petition requesting regulatory relief for certain services it provides in the Phoenix-Mesa-Scottsdale Metropolitan Statistical Area (MSA). It seeks relief from unbundling obligations, dominant carrier requirements, price cap regulations, certain Computer III requirements, and some other rules. Qwest's new forbearance petition is its second petition seeking forbearance relief from these regulations for the greater Phoenix MSA. This time around Qwest maintains that it "provides 'an even stronger case for forbearance for the Phoenix MSA.'" How the FCC handles this new forbearance petition will be interesting for a couple of reasons.

First, Qwest's new forbearance petition for the Phoenix MSA will be considered by the FCC under part of its new procedures for forbearance petitions. How the FCC's new procedures might affect the outcome is uncertain. When considering Qwest’s prior forbearance petition, the FCC rejected calls to adopt new forbearance procedures. In a display of administrative discipline, the FCC insisted it would only consider adopting new procedures in its rulemaking proceeding.

Qwest's new forbearance petition must satisfy the formal burden of proof that the FCC has now erected. And Qwest is bound by the FCC's new procedural rules limiting petition withdrawal. Since Qwest's new forbearance petition was filed before the FCC issued its new forbearance procedures, however, the FCC itself suggests that Qwest's new petition won’t be obligated to meet the FCC's new "complete as filed" requirements.

Second, and more significantly, the FCC will have to take potential marketplace competition in the MSA seriously in its analysis under the Section 10 forbearance provision of the Telecom Act of 1996. (Or the FCC will at least be required to explain why potential competition should no longer be relevant to its own forbearance analysis.) This should weigh in Qwest’s favor for its new forbearance petition, particularly because the FCC failed to take potential marketplace competition seriously when it denied Qwest’s prior forbearance petition.

The importance of potential marketplace competition follows from the D.C. Circuit's recent ruling in Verizon v. FCC (also discussed in an earlier post). In that case, the Court held that the FCC had arbitrarily and capriciously departed from the FCC precedent in relying only upon existing market share in denying a Verizon forbearance petition. The Court remanded to the FCC for reconsideration of Verizon’s forbearance petition. For its part, the FCC will have to either consider potential marketplace competition or explain its departure from precedent.

Here's the connection between Verizon v. FCC and Qwest's prior forbearance petition: Qwest's prior forbearance petition was denied largely according to the same rationale that the FCC had used in wrongfully denying Verizon’s petition. Qwest's own court challenge of the FCC's denial of its prior forbearance petition was deferred pending the outcome of Verizon v. FCC.

Just this month, the FCC's General Counsel filed a motion with the D.C. Circuit requesting remand to reconsider Qwest's prior forbearance petition. The General Counsel acknowledged that "[t]he Qwest Forbearance Order involves the denial of petitions for forbearance of the same regulatory requirements" that were at issue in Verizon v. FCC, and it said that remand would enable the FCC "to issue a ruling on the Qwest petitions in light of the Court’s guidance provided by the Verizon decision."

So Qwest's new forbearance petition for the Phoenix MSA will be considered in light of the new arguments and information proffered by Qwest and under the FCC's new formal burden of proof. And both Qwest's new forbearance petition and its prior forbearance petition for Denver, Minneapolis-St. Paul, and Seattle MSAs should hopefully be analyzed by the FCC in light of both existing market share and potential marketplace competition.

In today's technologically dynamic and rapidly changing marketplace environment, it certainly doesn't make sense for the FCC to shut a blind eye to potential competition, which, after all, operates to constrain any market power that Qwest may retain.