D.C. CIRCUIT UPHOLDS FCC'S ILEC PRICING FLEXIBILITY ORDER

U.S. Appeals Court, D.C., sided with FCC Fri. on its 1999 ILEC pricing flexibility order, rejecting challenge by long distance providers such as AT&T, Time Warner Telecom, WorldCom. Decision written by Judge David Sentelle concluded that long distance carriers’ objections to colocation thresholds set by agency in order “are no more than policy differences with the Commission.” Decision said FCC must provide rational basis when setting such standards, “but it is not held to a standard of perfection.” Court ruled Commission made reasonable decision that colocation was “a sufficient proxy for market power” in ascertaining whether to grant LECs such pricing flexibility.

WorldCom didn’t disagree with FCC goal of allowing pricing flexibility once competition was in place (CD Dec 1 p3). But it argued use of colocation as primary standard for gauging when competition was adequate was “arbitrary and capricious.” WorldCom said order based competition thresholds for pricing flexibility on colocation and not actual market conditions and granted pricing flexibility on marketwide basis based on colocation in only part of market. Court disagreed that FCC policy amounted to arbitrary action, upholding decision to grant pricing flexibility to ILECS through colocation-based triggers, deregulation of new services and rate deaveraging. “That competing firms have invested in colocation does not mean that they have captured a significant portion of the market for access services,” court ruled. “Yet the FCC did not conclude that a loss of market share was necessary to prevent an incumbent LEC from raising prices. The FCC has long held that market share is not the be-all, end-all of competition.” Chief Judge Harry Edwards and Judge Raymond Randolph joined Sentelle in unanimous decision.

Commission’s reliance “upon an admittedly imperfect measure of competition does not render its use arbitrary and capricious,” court said. It said WorldCom didn’t offer alternative except same type of “painstaking” analysis that’s required when LEC pursues classification as nondominant carrier. As long as agency uses reasonable proxy to assess competition, court said it had no basis to require FCC to engage in more thorough analysis before granting pricing flexibility. Ruling also said part of Commission’s calculation was based on “predictive forecasts.” Sentelle wrote in decision: “There is no statutory requirement that the FCC be confident to a metaphysical certainty of its predictions about the future of competition in a given market before it may modify its regulatory scheme.”

“WorldCom is disappointed by the Appeals Court ruling and we believe the FCC is misinformed about the actual extent of facilities-based competition in the access services market,” WorldCom spokeswoman said. Group of LECs, including BellSouth, Qwest, SBC and Verizon, had intervened in case in support of FCC. Policy challenged by IXCs had given LECs immediate pricing flexibility for some interstate access services and created procedures for them to seek additional relief from price cap regulations.