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On June 9, the Office of the Solicitor General and the Federal Communications Commission declined to seek Supreme Court review of a federal appellate court decision that threatens to thwart competition in telecommunications at a staggering cost to the economy. That refusal to act constituted an unelaborated and unpersuasive U-turn from previous legal positions. The justices should therefore abandon their customary deference to the federal government in determining which cases make it onto the high court’s docket. Petitions for certiorari were filed by competitive local carriers and state regulators that want to preserve rules under the Telecommunications Act of 1996 requiring the Bell monopolists to share their local phone networks at reasonable rates. The Court should take their case. Eight years ago, the Telecom Act sought to remedy the monopoly power and prodigious scale economies of the former Baby Bells. Today just four remain: Verizon, BellSouth, SBC, and Qwest. None attained their dominance by skill, foresight, or industry � la Microsoft or Intel. In the past all had “defeated” would-be rivals with laws making competition illegal. The 1996 act ended that protectionism. It also sought to jump-start a new generation of competitors by requiring the Bells to offer unbundled network elements (UNEs) for leasing at cost-based prices. Congress directed the FCC to write rules governing the UNEs. To make a long story short, the U.S. Court of Appeals for the D.C. Circuit twice shipwrecked the commission’s UNE rules — in United States Telecom Association v. FCC (2002) (USTA I) and USTA v. FCC (2004) (USTA II). Despite clear legal errors in the D.C. Circuit’s decision that conflicted with high court precedents, the solicitor general chose not to petition for cert after USTA I for reasons of regulatory efficiency. The solicitor general admitted that USTA I was “erroneous” and that it clashed with the Supreme Court’s decisions in AT&T v. Iowa Utilities Board (1999) and Verizon Communications Inc. v. FCC (2002). But the solicitor general also opined that judicial and administrative resources would be conserved by permitting the FCC to complete its ongoing “comprehensive review of the very policy choices reflected in the orders at issue � [Thus] the government has concluded that the court of appeals’ decision does not, on balance, warrant review at this time.” In 2003, the FCC issued a post- USTA I triennial review order addressing UNEs. The order continued the unbundling that had nibbled the Bell monopolies down to 85 percent market shares; spawned innovative service packages at flat or discount rates; fueled more than $100 billion in new telecom investment; and saved residential and small business subscribers approximately $10 billion annually. The Bell monopolists assailed the order in the Court of Appeals. The Department of Justice joined the FCC in defense. And thus came USTA II in March of this year. TO SEEK CERT OR NOT TO SEEK CERT By all the usual standards, USTA II seems like a prime candidate for Supreme Court review. In throwing out the FCC’s rules requiring the Bells to share UNEs, the D.C. Circuit decision all but sounds the death knell of telecom competition. It risks regulatory balkanization by undermining federal rulemaking. And it threatens to arrest the development of exciting new technologies like VoIP, i.e., phone service over the Internet. In a twist reminiscent of Catch-22, the court of appeals demanded that the FCC’s unbundling rules be tailored to each of the countless geographic and customer markets in the nation, but forbade the commission from recruiting the states to assist in this administrative tailoring. The D.C. Circuit further insisted that the summum bonum of the 1996 act was to encourage investment in new facilities — by the Bells or new competitive carriers. Thus, the Bells could not be saddled with sharing UNEs, which permit newcomers to provide telecom services without the exorbitant expense of first building a local network, unless a compelling case of business indispensability to those competitors was demonstrated. The dissenting views of Justice Stephen Breyer in Iowa Utilities Board were summoned to justify USTA II — a move akin to relying on Al Gore to dictate the executive branch edicts of George W. Bush’s administration. By a 3-2 margin, the FCC initially voted to seek Supreme Court review, with Commissioner Kevin Martin, a Republican, joining the two Democratic commissioners, Michael Copps and Jonathan Adelstein, to cast the deciding vote. While the solicitor general and the Bush administration deliberated their next move, the industry attempted a negotiated solution to the UNE dispute under FCC and White House prodding, but without result. Finally, on June 9, the solicitor general tacitly renounced the Bush administration’s UNE views previously articulated in USTA I and USTA II by declining to seek Supreme Court review. Commissioner Martin bowed to the solicitor general’s opinion and flipped the FCC majority. The Bells rejoiced, and then expediently pledged to desist from hiking rates and thereby angering the 19 million subscribers served by their competitors until after November’s presidential balloting. The rejoicing, however, seems premature. The Supreme Court is, after all, no puppet of the solicitor general, even when the solicitor general recommends no action. Last term, for instance, the Court disagreed with the solicitor general’s argument that no further review of the 4th Circuit’s decision in Hamdi v. Rumsfeld was needed and took the case. Then it went even further by rejecting the 4th Circuit’s ruling that upheld the president’s authority to designate U.S. citizens as illegal combatants subject to indefinite detention — and thereby rejected President Bush’s claim of unreviewable power. A CASE TO HEAR Despite the acquiescence of the solicitor general and the FCC, the Bell rivals and state regulatory commissions have filed cert petitions in USTA II. A grant is clearly justified for several reasons. The unbundling rules affect a critical multibillion-dollar industry. Local phone bills exceed $125 billion annually, or approximately 80 percent of industry revenues. The Supreme Court in Iowa Utilities Board noted that the FCC’s UNE decrees “profoundly affect[] a crucial segment of the economy.” That recognition similarly informed the Court’s decision to examine cost-based pricing of UNEs in Verizon. Moreover, telecom competition still requires federal encouragement. Wireless phone service does not constrain monopoly pricing for landline connections. Only a minuscule 2 percent of subscribers employ wireless as a complete substitution. In any event, the Bells control more than 75 percent of the wireless market. The Bells are also thwarting new competitive technologies like VoIP by demanding exorbitant access fees for calls traveling over the Internet. The monopolists fear the stranding of countless billions in obsolete copper wire investments if telecom innovations prove less expensive and more consumer-friendly. Further, the 1996 act authorized the Bells to offer long-distance service combined with local calling in all 50 states under certain conditions. They have now captured staggering percentages of that long-distance market by offering subscribers one-stop shopping. Verizon, for example, commands a 61 percent share of the long-distance market in New York. Now, in the aftermath of USTA II, AT&T has ceased seeking new local exchange customers. If even a giant long-distance company fears that it will be crippled in providing local exchange services without guaranteed access to UNEs, how much more difficult must it be for new competitive carriers? Consumers will soon suffer from Bell monopolies in both local and long-distance markets. AS THE JUSTICES SAID The Court should also focus on the fact that USTA II wars with its own Iowa Utilities Board and Verizon precedents. According to Iowa Utilities Board, decisions about unbundling should disregard retail pricing skewed to fund universal service because the 1996 act requires elimination of the universal service fund. But the D.C. Circuit in USTA II faulted the FCC for neglecting the competitive impact of universal service funding mechanisms in every locale in each state in fashioning its unbundling rules — a practical impossibility for the commission in any event. Both Iowa Utilities Board and Verizon denied that promoting facilities-based competition and new telecom investments were the paramount goals of the 1996 act. The twin decisions acknowledged that nurturing the emergence of new competitive local carriers by providing UNEs was an equally, if not more urgent, objective that the FCC was entitled to embrace. In Verizon, a commanding majority of the Court elaborated that the 1996 act permits the FCC to create a UNE regime that encourages the entry of “hundreds of smaller carriers” in order to restrain monopoly pricing, and that the provision of particular UNEs was not invalid simply because some local carriers might replicate those elements at nonprohibitive costs. The Court also denied that the availability of UNEs materially deterred investments and occasioned artificial competition inconsistent with the act’s multiple missions. The D.C. Circuit in USTA II turned the Supreme Court’s recent federalism precedents on their heads: It insisted that federal agencies are presumptively precluded from delegating to eager and willing states the authority to assist in implementing a federal statute. Congress can overcome that presumption only by unambiguous statutory language, according to USTA II. The FCC’s decision on Aug. 20 to freeze for six months the UNE regime upset by the D.C. Circuit’s decision further strengthens the case for high court review. A final decision on the merits of USTA II could be forthcoming before the local exchange market faces irreparable dislocations that would be impossible to unscramble. In short, the Supreme Court in returning to action this fall must grant certiorari to hear USTA II. It would thereby send a clarion message to the solicitor general and the FCC that their views will be deprecated when they ignore the law. Bruce Fein of D.C.’s Bruce Fein & Associates is a former general counsel of the FCC and a contributing editor of the Web site Tech Central Station. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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