In an order dated October 6, 2004, the D.C. Circuit refused to rule on a a writ of mandamus filed by the United States Telecom Association seeking to invalidate interim rules that had been issued by the Federal Communications Commission (FCC) in August, 2004. The D.C. Circuit gave the agency until January 4, 2005 to draft permanent rules that conform to an earlier decision of the court overturning the agency's previous effort to implement the Telecommunications Act of 1996. The Telecommunications Act of 1996 (the Act) sought to foster a competitive market in telecommunications by helping new entrants in the field to compete against incumbent local exchange carriers (ILECs). In order to achieve this objective, the Act gave the FCC broad powers. These powers included requiring ILECs to make "network elements" available to other telecommunications carriers and the competitive local exchange carriers (CLECs). Congress delegated to FCC the authority to decide which elements to unbundle, based on the agency’s determination that the failure to provide access to a particular network element would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer (47 USC § 251(d)(2) (articulating the “impairment” standard)).
The scope of the impairment standard has been the subject of considerable controversy. The FCC first defined impairment as occurring when the lack of unbundled access to an element would substantially limit a CLEC’s ability to provide telecommunications service. Under this original articulation of the standard, the FCC found impairment 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. The Supreme Court in AT&T Corp v Iowa Utils Bd., 525 US 366 (1999) (“IUB”), held that this standard of ‘impairment’ was unreasonable.
Following the Supreme Court’s decision in IUB, the FCC revised the impairment standard. Under the revised definition, a would-be entrant was deemed to 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. This standard too was held to be unreasonable in light of the Act’s underlying purpose. USTA v. FCC, 290 F.3d 415 (D.C. Cir. 2002) (“USTA I”). The primary ground for rejection of the revised standard was the lack of differentiation between those cost disparities that a new entrant in any market would be likely to face and those that arise from market characteristics ”linked (in some degree) to natural monopoly that would make genuinely competitive provision of an element’s function wasteful.”
The Supreme Court’s decision in USTA I led the FCC to once again revise its definition of impairment. In its third definition, the FCC determined that a CLEC would be impaired when lack of access to an ILEC network element poses a barrier or barriers to entry, including operational and economic barriers likely to make entry into a market uneconomic. Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, CC Docket Nos. 01-338 et al., FCC 03-36, 18 FCC Rcd 16978 (Aug. 21, 2003) ("Order") (Sept. 17, 2003). The relevant question to be asked was whether all potential revenues from entering a market would exceed the costs of entry, taking into consideration any countervailing advantages that a new entrant may have. The FCC clarified that the impairment assessment would take intermodal competition into account.
This latest impairment standard led the ILECs to file two mandamus petitions before the D.C Circuit on the ground that the revised rule violated the decision in USTA I. Various CLECs, state commissions, and an association of state utility consumer advocates filed petitions for review in several other circuits, which were transferred to the Eighth Circuit and then transferred to the D.C. Circuit by the Eighth Circuit. The court consolidated the petitions for review with the mandamus petitions. In disposing off these petitions, the court addressed, inter alia, the FCC’s thrice-revised definition of impairment. The court recognized that FCC’s definition of impairment was an improvement over its earlier efforts. Nonetheless, the court criticized the FCC’s definition as vague almost to the point of being empty. The touchstone of the Commission’s impairment analysis is whether operational and entry barriers "make entry into a market uneconomic." But there is no explanation, the court complained, of what this standard means.
Following on the D.C. Circuit’s ruling in USTA I, the FCC issued interim rules in August, 2004 but the US Telecommunications Association (USTA) brought an action to overturn them. The telecommunication companies were of the view that the FCC through the interim rules sought to introduce what the court had barred it from doing in March by invalidating its permanent rules. The Court of Appeals for the District of Columbia Circuit refused to invalidate these interim rules while giving FCC time till January 4, 2005 to draft permanent rules that conform to its earlier decision overturning the agency’s previous effort to implement the Telecommunications Act of 1996.