FCC Suspends Special Access Rules, Will Collect Data To Modernize Them
Attachments
Federal Communications Commission
FCC 12-92
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of)
)
Special Access for Price Cap Local Exchange
)
WC Docket No. 05-25
Carriers;
)
)
AT&T Corporation Petition for Rulemaking to
)
RM-10593
Reform Regulation of Incumbent Local Exchange
)
Carrier Rates for Interstate Special Access
)
Services
)
REPORT AND ORDER
Adopted: August 15, 2012
Released: August 22, 2012
By the Commission: Chairman Genachowski and Commissioners Clyburn and Rosenworcel issuingseparate statements; Commissioners McDowell and Pai dissenting and issuing separate statements.
TABLE OF CONTENTS
HeadingParagraph #
I.
INTRODUCTION .................................................................................................................................. 1
II. BACKGROUND .................................................................................................................................... 8
A. History of Price Cap Regulation ...................................................................................................... 8
B. Pricing Flexibility .......................................................................................................................... 11
C. The CALLS Order ......................................................................................................................... 12
D. AT&T’s Petition for Rulemaking and 2005 Special Access NPRM ............................................. 14
E. Recent Actions in the Proceeding .................................................................................................. 18
1. Refresh Record ........................................................................................................................ 18
2. Analytical Framework ............................................................................................................. 19
3. Voluntary Data Requests......................................................................................................... 20
III. THE “COMPETITIVE SHOWINGS” ADOPTED IN 1999 HAVE NOT WORKED AS
EXPECTED.......................................................................................................................................... 22
A. Background .................................................................................................................................... 23
1. Rationale for Competitive Showings....................................................................................... 23
2. How the Competitive Showings Work.................................................................................... 26
B. Subsequent Evidence Undermines the Commission’s Previous Decision to Measure
Competitive Showings and Grant Relief on an MSA-Wide Basis and Justifies Suspension
of Rules .......................................................................................................................................... 32
1. Original Rationale for Granting Pricing Flexibility in MSAs and Non-MSA Portions
of Study Areas ......................................................................................................................... 32
2. The Record Now Suggests that Entry Occurs in Smaller Areas.............................................. 35
3. The Competitive Showings Are Not as Administratively Simple as Expected....................... 62
C. Shortcomings of Competitive Showings Based Exclusively on Collocation................................. 65
1. Rationale for Adopting Collocation as the Sole Indicator of Competition.............................. 66
2. More Recent Evidence Suggests that Collocation May Produce an Unreliable Picture
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FCC 12-92
of Competitive Conditions ...................................................................................................... 683. Existence of Non-Collocation Based Competition Does Not Undercut the Need to
Suspend Grants of New Pricing Flexibility Petitions.............................................................. 72
IV. GRANTS OF PRICING FLEXIBILITY ARE SUSPENDED............................................................. 76
A. Suspension of Competitive Showing Rules for Channel Terminations......................................... 77
B. Suspension of Competitive Showing Rules for Non-Channel Termination Special Access ......... 79
C. Arguments Against Suspension of Rules....................................................................................... 80
D. Changes in Regulatory Relief During Development of New Rules............................................... 84
V. UNDERTAKING A MARKET ANALYSIS FOR SPECIAL ACCESS REGULATORY
RELIEF................................................................................................................................................. 85
A. Future Steps to Analyze Competition for Special Access.............................................................. 85
B. Benefits of a More Complete Market Analysis.............................................................................. 87
1. A Market Analysis is Consistent with Agency and Court Precedent ...................................... 87
2. A Market Analysis Will Provide Analytical Precision............................................................ 91
3. A Market Analysis Will Foster Broadband Deployment and Competition............................. 93
4. Factors to be Considered in Market Analysis.......................................................................... 96
VI. PROCEDURAL MATTERS.............................................................................................................. 105
A. Paperwork Reduction Act Analysis ............................................................................................. 105
B. Final Regulatory Flexibility Certification.................................................................................... 106
C. Congressional Review Act........................................................................................................... 108
VII. ORDERING CLAUSES.................................................................................................................... 109
APPENDIX A – Rules
APPENDIX B – Final Regulatory Flexibility Certification
APPENDIX C – List of Commenters
APPENDIX D – Pricing Flexibility Grants for Channel Terminations to End Users
APPENDIX E – Pricing Flexibility Petitions and Orders
APPENDIX F – Orders Granting Pricing Flexibility
I.
INTRODUCTION
1. In this Report and Order, we suspend, on an interim basis, our rules allowing for automaticgrants of pricing flexibility for special access services in light of significant evidence that these rules,
adopted in 1999, are not working as predicted, and widespread agreement across industry sectors that
these rules fail to accurately reflect competition in today’s special access markets.1 We set forth a path to
update our rules to better target regulatory relief to competitive areas, including extending relief to areas
1 See 47 C.F.R. §§ 69.701 et seq.; Access Charge Reform, CC Docket No. 96-262; Price Cap Performance for Local
Exchange Carriers, CC Docket No. 94-1; Interexchange Carrier Purchases of Switched Access Services Offered by
Competitive Local Exchange Carriers, CCB/CPD File No. 98-63; Petition of U.S. West Communications, Inc. for
Forbearance from Regulation as a Dominant Carrier in the Phoenix, Arizona MSA, CC Docket No. 98-157, Fifth
Report and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221, 14224-25, 14232-33, 14234-35,
14257-310, paras. 1-4, 19, 24-26, 67-175 (1999) (Pricing Flexibility Order), aff’d WorldCom v. FCC, 238 F.3d 449
(D.C. Cir. 2001). The term “special access services” encompasses all services that do not use local switches; these
include services that employ dedicated facilities that run directly between the end user and an IXC’s point of
presence, where an IXC connects its network with the LEC network, or between two discrete end user locations.
Special Access Rates for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T Corp. Petition for
Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access
Services, RM-10593, Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 1997, para. 7 (2005) (Special
Access NPRM); see also AT&T Inc. and BellSouth Corporation Application for Transfer of Control, WC Docket
No. 06-74, 22 FCC Rcd 5662, 5677, para. 28 (2007) (“special access is a dedicated transmission link between two
locations, most often provisioned via high-capacity circuits”).
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that are likely competitive but have been denied regulatory relief under our existing framework. Weprovide for targeted relief in the interim through the forbearance process set forth in Section 10 of the
1996 Act, and will soon issue a comprehensive data collection order that will help craft permanent
replacement rules.
2. Special access continues to play a critical role in our economy. Four of the largest incumbent
LECs recently reported that their combined 2010 revenues from sales of DS1s and DS3s exceeded $12
billion.2 Competitive carriers rely heavily on special access to reach customers; a large competitive local
exchange carrier (LEC) that offers enterprise services to businesses using special access services as a
critical input has reported that it purchases [REDACTED] times as many special access as Ethernet
circuits.3 Enterprise customers across the country rely on special access – directly or indirectly – to
conduct their business.4 Schools, libraries, and other institutions of state and local government depend on
special access to provide services to their constituents.5
3. We continue to strongly believe, consistent with the goals set forth in the Pricing Flexibility
Order, that regulation should be reduced wherever evidence demonstrates that actual or potential
competition is acting as a constraint to ensure just and reasonable rates, terms and conditions for special
access services. In the record of this proceeding, however, there is compelling evidence that our current
pricing flexibility rules are not properly matching relief to such areas, combined with allegations that this
mismatch is causing real harm to American consumers and businesses and hindering investment and
innovation. Price cap carriers argue that they are still subject to burdensome regulation in areas where it
is apparent that competition is thriving.6 The United States Small Business Administration asserts that
“promoting competition in the business broadband market is essential in order to provide small businesses
with affordable access and choice regarding the services they need to grow and create new jobs.”7 The
2 See Verizon Response to Competition Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-
10593, Public Notice, 26 FCC Rcd 14000 (2011) (Special Access Competition Data Public Notice), Question III.B.1
(listing combined DS1 and DS3 revenues of approximately [REDACTED]); AT&T Response to Special Access
Competition Data Public Notice, Question III.B.1 (reporting combined DS1 and DS3 revenues of approximately
[REDACTED]); CenturyLink Response to Special Access Competition Data Public Notice, Question III.B.1
(reporting combined DS1 and DS3 revenues of approximately [REDACTED]); FairPoint Response to Special
Access Competition Data Public Notice, Question III.B.1 (reporting combined DS1 and DS3 revenues of
approximately [REDACTED]). In the Special Access Competition Data Public Notice, at footnote 8, citing 5
C.F.R. § 1320.3(h)(4), we explained that the data solicited from the public was not subject to the Paperwork
Reduction Act. See Special Access Competition Data Public Notice, 26 FCC Rcd at 14001 n. 8. Sprint asserts that
“[s]pecial access is an $18 billion market.” Letter from Charles W. McKee, Vice President – Government Affairs,
Federal and State Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, Federal Communications
Commission, WC Docket No. 05-25, WT Docket No. 02-55 at 2 (filed May 29, 2012).
3 [REDACTED]
4 Ad Hoc 2009 PN Comments at 1-5.
5 See, e.g., Letter from Paul Margie, Counsel for Sprint Nextel, to Marlene H. Dortch, Secretary, Federal
Communications Commission, WC Docket No. 05-25, Attach. at 4 (filed Aug. 17, 2010) (Sprint Aug. 17, 2010 ex
parte Letter).
6 See, e.g., AT&T 2009 PN Comments at 28-38; Letter from Donna Epps, Vice President, Federal Regulatory
Affairs, Verizon, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25,
RM 10593, Attach. at 4 (filed May 2, 2012) (Verizon May 2, 2012 Ex Parte Letter).
7 See, e.g., SBA 2012 Comments, WT Docket No. 12-69, WC Docket Nos. 10-188, 05-25, RM-11358, GN Docket
No. 09-51; see also, e.g., Letter from Karen Reidy, Vice President, Regulatory Affairs, COMPTEL, to Marlene H.
Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25, RM-10593 at 5 (filed June 1,
2010) (COMPTEL June 1, 2010 Ex Parte Letter).
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American Petroleum Institute expresses concern that, because its member companies’ facilities arefrequently located in isolated locations where facilities-based competition is scarce, they are highly
sensitive to incumbent LECs extracting supra-competitive profits.8 Competitive carriers argue that the
terms and conditions of special access contract tariffs “lock up” demand, preventing competitors from
entering markets and investing in new facilities.9 Wireless providers argue that high special access prices
hinder their ability to hire employees, invest in their networks, and conduct research and development.10
While we cannot yet evaluate these claims of competitive harm based on the evidence to date in the
record, our finding that the competitive showings the Commission adopted as a proxy for competition are
not working as predicted leads us to suspend the triggers and further evaluate the marketplace.
4. The approach we take is based on our evaluation of our 1999 rules, the predictive judgments
upon which they were based, and market developments since their adoption.11 As discussed in greater
detail below, the Commission decided in 1999 to use an administratively simple proxy for the presence of
actual or potential competition in special access markets – the extent of collocation within broad
geographic regions.12 The Commission predicted that certain levels of collocation within a Metropolitan
Statistical Area (MSA) would serve as an accurate indicator of competitive pressure sufficient to
constrain prices throughout that area.13
5. Based on the evidence in the record and thirteen years of experience with this regime, we
now conclude that the Commission’s existing collocation triggers are a poor proxy for the presence of
competition sufficient to constrain special access prices or deter anticompetitive practices throughout an
MSA. We therefore suspend, on an interim basis, the operation of those rules pending adoption of a new
framework that will allow us to ensure that special access prices are fair and competitive in all areas of
the country.14
6. Although we currently lack the necessary data to identify a permanent reliable replacement
approach to measure the presence of competition for special access services, we emphasize that the
8 See, e.g., API 2007 PN Comments at 6; API 2007 PN Reply at 2, 5.
9 See, e.g., Letter from Michael J. Mooney, General Counsel, Regulatory Policy, Level 3, to Marlene H. Dortch,
Secretary, Federal Communications Commission, WC Docket No. 05-25, RM-10593 at 2-3 (filed Feb. 22, 2012)
(Level 3 Feb. 22, 2012 Ex Parte Letter).
10 See, e.g., Letter from Charles W. McKee, Vice President, Government Affairs, Federal and State Regulatory,
Sprint Nextel Corp., to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket Nos. 05-
25, 06-74, RM-10593 at 2 (filed June 28, 2010) (Sprint June 28, 2010 Ex Parte Letter).
11 See infra Section III.
12 See Access Charge Reform, CC Docket Nos. 96-262, 94-1, 98-63, 98-157, Fifth Report and Order and Further
Notice of Proposed Rulemaking, 14 FCC Rcd 14221, 14621-62, para. 77 (1999) (Pricing Flexibility Order). The
definition of “collocation” is set forth in para. 29, infra.
13 MSAs are geographic areas defined by the Office of Management and Budget. A more detailed explanation of
how MSAs are defined is set forth in para. 26, infra.
14 We are committed to re-examine periodically rules that were adopted on the basis of predictive judgments to
evaluate whether those judgments are, in fact, corroborated by marketplace developments. See, e.g., Aeronautical
Radio, Inc. v. FCC, 928 F.2d 428, 445 (D.C. Cir. 1991) (deferring to the Commission’s predictive judgment “with
the caveat, however, that, should the Commission’s predictions . . . prove erroneous, the Commission will need to
reconsider its [decision] in accordance with its continuing obligation to practice reasoned decisionmaking”)
(emphasis in original); Cellnet Communications, Inc. v. FCC, 149 F.3d 429, 442 (6th Cir. 1998) (deferring to the
Commission’s predictions about the level of competition, but stating that, if the predictions do not materialize, the
Commission “will of course need to reconsider its [decision] in accordance with its continuing obligation to practice
reasoned decision-making”).
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forbearance process set forth by Congress in the 1996 Act provides an avenue for targeted relief based ona complete analysis of competitive conditions in a geographic area.
7. Going forward, in the absence at this time of clear evidence to establish reasonable and
reliable proxies to determine where regulatory relief is appropriate, we will collect necessary data and
undertake a robust competition analysis that may identify reliable proxies for competition in the market
for special access services going forward. 15 We will issue a comprehensive data collection order within
60 days to facilitate this market analysis.16 We anticipate that during the pendency of the data request, we
will continue to analyze the information submitted in the record, and may issue further decisions as
warranted by the evidence. Nonetheless, the record in this proceeding demonstrates that a comprehensive
evaluation of competition in the market for special access services is necessary, and that further data to
assist us in that evaluation is needed with respect to establishing a new framework for pricing flexibility.
15 Although we do not have sufficient data to fully resolve this proceeding by adopting new or revised permanent
rules governing Phase I and/or Phase II pricing flexibility areas, the record supports our action today, and it is
appropriate for us to rely on the data we have available to make incremental progress on this complicated issue. See,
e.g., FCC v. Fox Television Stations, Inc., 129 S.Ct. 1800, 1815 (2009) (“Nothing prohibits federal agencies from
moving in an incremental manner.”); NAB v. FCC, 740 F.2d 1190, 1210 (D.C. Cir. 1984) (“[A]dministrative action
generally occurs against a shifting background in which facts, predictions, and policies are in flux and in which an
agency would be paralyzed if all the necessary answers had to be in before any action at all could be taken.”). We
also note that the analysis in these sections relies in part on information submitted to the Commission in response to
the Special Access Competition Data Public Notice on or after the requested response date of December 5, 2011.
Compare infra Dissenting Statement of Commissioner Robert McDowell (McDowell Statement) at 88-90 (asserting
that additional data is needed based on, among other things, statements in a Commission brief filed in October
2011); and Dissenting Statement of Commissioner Ajit Pai (Pai Statement) at 94-97, 102 (noting the same), with
infra para. 59 (citing data collected after October 2011), and supra para. 2 (citing data collected after October 2011).
Moreover, evidence in the record suggests that the limited amount of facilities-based competition for channel
terminations reflects problems in the special access market. For example, among other things, commenters have
told us that ILEC DS1 and DS3 prices are oftentimes higher than CLEC prices to the same physical location. They
have also told us that, in many instances, prices in Phase II areas are higher than prices in other areas. They also
allege that the terms and conditions associated with the sale of ILEC services are anticompetitive and inhibit
competitors’ ability to attract new customers and build new facilities. Though we acknowledge the need to obtain
more specific data to evaluate these allegations fully, it is highly likely that these factors, rather than others, reflect
and have contributed to the low level of facilities-based competition for channel terminations. Compare Letter from
Erin Boone, Level 3 Communications, LLC, to Marlene H. Dortch, Secretary, Federal Communications
Commission, WC Docket 05-25, Attach at 6-8 (filed June 28, 2012) ([REDACTED] and alleging that ILEC terms
and conditions “lock up” the customer demand needed to make building competing facilities economic for CLECs
like Level 3), and tw telecom 2007 PN Comments at 29-31 (noting that “special access purchasers have already
placed substantial evidence on the record in this proceeding demonstrating that month-to-month and term tariff rates
have nearly universally increased in Phase II areas to levels higher than is the case in price cap markets”), with infra
Pai Statement at 101 (stating that one reason competitors may not have deployed channel termination facilities is
that price cap rates, in combination with potential competition, have “constrained special access prices so much that
competitive deployment of last-mile channel terminations is unprofitable”).
16 The data collection will become effective once it has received final approval from the Office of Management and
Budget in accordance with the Paperwork Reduction Act. While it is difficult to predict the exact timing on such
approval, we can anticipate that the approval process and data collection will take several months. The Commission
will then need to analyze the data. Thus we will aim for final conclusions on the need for overall reform of the
special access marketplace to occur in 2013. It is our intent that we work as quickly as possible to conclude this
proceeding as soon as possible to provide all parties the certainty they seek in the marketplace.
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II.
BACKGROUND
A. History of Price Cap Regulation
8. Through the end of 1990, interstate access charges were governed by “rate-of-return”regulation, under which incumbent LECs calculated their access rates using projected costs and projected
demand for access services.17 An incumbent LEC was limited to recovering its costs plus a prescribed
return on investment. It also was potentially obligated to provide refunds if its interstate rate of return
exceeded the authorized level. However, a rate of return regulatory structure bases a firm’s allowable
rates directly on the firm’s reported costs and was thus subject to criticisms that it removed the incentive
to reduce costs and improve productive efficiency.18
9. Consequently, in 1991 the Commission implemented a system of price cap regulation that
altered the manner in which the largest incumbent LECs (often referred to today as price cap LECs)
established their interstate access charges.19 The Commission’s price cap plan for LECs was intended to
avoid the perverse incentives of rate-of-return regulation in part by divorcing the annual rate adjustments
from the cost performance of each individual LEC, and provide for sharing efficiency gains with
customers in part by adjusting the cap based on industry productivity experience.20
10. In contrast to rate-of-return regulation, which focuses on an incumbent LEC’s costs and fixes
the profits an incumbent LEC may earn based on those costs, price cap regulation focuses primarily on
the prices that an incumbent LEC may charge. The access charges of price cap LECs originally were set
at levels based on the rates that existed at the time the LECs entered the price cap regime. Increases in
their rates have, however, been limited over the course of price cap regulation by price indices that are
adjusted annually pursuant to formulae set forth in Part 61 of our rules.21 Price cap regulation is a form of
incentive regulation that seeks to “harness the profit-making incentives common to all businesses to
produce a set of outcomes that advance the public interest goals of just, reasonable, and
nondiscriminatory rates, as well as a communications system that offers innovative, high quality
services.”22 A core component of our price cap regulation is the Price Cap Index (PCI). As the
17 Since 1981, the Commission has allowed certain smaller incumbent LECs to base their access rates on historic,
rather than projected, cost and demand. See 47 C.F.R. § 61.39.
18 See Access Charge Reform, CC Docket No. 96-262; Price Cap Performance Review for Local Exchange Carriers,
CC Docket No. 94.1; Low-Volume Long-Distance Users, CC Docket No. 99-249; Federal-State Joint Board On
Universal Service, CC Docket No. 96-45, Sixth Report and Order in CC Docket Nos. 96-262 and 94-1, Report and
Order in CC Docket No. 99-249, Eleventh Report and Order in CC Docket No. 96-45, 15 FCC Rcd 12962, 12968,
paras. 13, 15 (2000) (CALLS Order), aff'd in part, rev'd in part, and remanded in part, Tex. Office of Pub. Util.
Counsel v. FCC, 265 F.3d 313 (5th Cir. 2001), cert. denied, Nat'l Ass'n of State Util. Consumer Advocates v. FCC,
535 U.S. 986 (2002), on remand, Access Charge Reform, CC Docket Nos. 96-262, 94-1, 99-249, 96-45, Order on
Remand, 18 FCC Rcd 14976 (2003); see also Cost Review Proceeding for Residential and Single-Line Business
Subscriber Line Charge (SLC) Caps, CC Docket Nos. 96-262, 94-1, Order, 17 FCC Rcd 10868 (2002), aff'd, Nat'l
Ass'n of State Util. Consumer Advocates v. FCC, 372 F.3d 454 (D.C. Cir. 2004).
19 The Commission required price cap regulation for the BOCs and GTE, and permitted other LECs to elect price
cap regulation voluntarily, provided that all their affiliates also convert to price cap regulation and that they
withdraw from the pools administered by the National Exchange Carrier Association (NECA). Policy and Rules
Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Second Report and Order, 5 FCC Rcd 6786,
6818-20, paras. 257-59 (1990) (LEC Price Cap Order), aff’d Nat’l Rural Telecom Ass’n v. FCC, 988 F.2d 174 (D.C.
Cir. 1993). Most small LECs elected to remain subject to rate-of-return regulation.
20 See CALLS Order, 15 FCC Rcd at 12968, para. 14.
21 See 47 C.F.R. § 61.45.
22 LEC Price Cap Order, 5 FCC Rcd at 6787, para. 2.
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Commission has explained previously, the PCI is designed to limit the prices LECs charge for service.23The PCI provides a benchmark of LEC cost changes that encourages price cap LECs to become more
productive and innovative by permitting them to retain reasonably higher earnings.24 The PCI has three
basic components: (1) a measure of inflation, i.e., the Gross Domestic Product (chain weighted) Price
Index (GDP-PI);25 (2) a productivity factor or “X-Factor,” that represents the amount by which LECs can
be expected to outperform economy-wide productivity gains;26 and (3) adjustments to account for
“exogenous” cost changes that are outside the LEC’s control and not otherwise reflected in the PCI.27
B. Pricing Flexibility
11. Pursuant to the pro-competitive, deregulatory mandates of the 1996 Act, the Commission in1996 began exploring whether and how to remove price cap LECs’ access services from price cap and
tariff regulation once they are subject to substantial competition.28 Three years later, in 1999, the
Commission adopted the Pricing Flexibility Order in an effort to ensure that the Commission’s interstate
access charge regulations did not unduly interfere with the operation of interstate access markets as
competition developed in those markets.29 The Commission developed competitive showings (also
referred to as “triggers”) designed to measure the extent to which competitors had made irreversible, sunk
investment in collocation and transport facilities.30 Price cap carriers that demonstrated the competitive
showings were met in their serving areas could obtain so-called “pricing flexibility,” namely the ability to
offer special access services at unregulated rates through generally available and individually negotiated
tariffs (i.e., contract tariffs).31 The operation of the pricing flexibility rules is discussed in greater detail
in section A below.
C. The CALLS Order
12. In 2000, after a comprehensive examination of the interstate access charge and universalservice regulatory regimes for price cap carriers, the Commission adopted the industry-proposed CALLS
23 Id. at 6792, para. 47. To ascertain compliance with the PCI, LEC rate levels within each basket are measured
through the use of an Annual Price Index (API). The API is the weighted sum of the percentage change in LEC
prices. The API weights the rate for each rate element in the basket based on the quantity of each element sold in a
historical base year. The historical base year is the calendar year that immediately precedes the annual tariff filing
on July 1. A price cap LEC’s rates are in compliance with the cap for a basket if the API is less than or equal to the
PCI.
24 Id. at 6787, 6792, paras. 2-3, 47.
25 CALLS Order, 15 FCC Rcd at 13038-39, paras. 183-84.
26 Id. at 6795-801, paras. 74-119.
27 Id. at 6792, 6807-10, paras. 48, 166-90. Exogenous costs are incurred due to administrative, legislative, or
judicial action beyond the LEC’s control. See id. at 6807, para. 166.
28 See Access Charge Reform, CC Docket No. 96-262, Price Cap Performance Review for Local Exchange Carriers,
CC Docket No. 94-1; Transport Rate Structure and Pricing, CC Docket No. 91-213; Usage of the Public Switched
Network by Information Service and Internet Access Providers, 96-263, Notice of Proposed Rulemaking, Third
Report and Order, and Notice of Inquiry, 11 FCC Rcd 21354, 21357-58, 21363, paras. 1, 15 (1996) (Access Charge
NPRM, Order, and NOI).
29 Pricing Flexibility Order, 14 FCC Rcd at 14224, para. 1.
30 Id. at 14261, paras. 77-83. The competitive showings are described in greater detail in section III.A, infra.
31 Id. at 14287-94, 14301-02, paras. 122-33, 153-55. Although the Commission developed pricing flexibility
triggers for both special access and switched access services, we addressed only special access services in the
Special Access NPRM.
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plan.32 This plan represented a five-year interim regime designed to phase down implicit subsidies and(as it pertained to switched and special access charges) to move towards a more market-based approach to
rate setting.33 In adopting the CALLS plan, the Commission offered price cap carriers the choice of
completing the forward-looking cost studies required by the Access Charge Reform Order34 or voluntarily
making the rate reductions required under the five-year CALLS plan.35 The Commission permitted
carriers to defer the planned forward-looking cost studies in favor of the CALLS plan because it found the
plan to be “a transitional plan that move[d] the marketplace closer to economically rational competition,
and it [would] enable [the Commission], once such competition develops, to adjust our rules in light of
relevant marketplace developments.”36 All price cap carriers opted for the CALLS plan.37
13. The CALLS plan separated special access services into their own basket38 and applied a
separate X-factor to the special access basket.39 The X-factor under the CALLS plan, unlike under prior
price cap regimes, is not a productivity factor. Rather, it represents “a transitional mechanism . . . to
lower rates for a specified period of time for special access.”40 The special access X-factor was 3.0
percent in 2000 and 6.5 percent in 2001, 2002, and 2003. In addition to the X-factor, access charges
under CALLS are adjusted for inflation as measured by the GDP-PI.41 For the final year of the CALLS
plan (July 1, 2004 – June 30, 2005), the special access X-factor was set equal to inflation, thereby
freezing rate levels.42 Thus, in the absence of a new price cap regime post-CALLS, price cap LECs’
special access rates have remained frozen at 2003 levels43 (excluding any necessary exogenous cost
32 CALLS Order, 15 FCC Rcd at 12962.
33 See id. at 12965, 12977-79, paras. 4, 36-42.
34 Access Charge Reform, CC Docket No. 96-262; Price Cap Performance Review for Local Exchange Carriers, CC
Docket No. 94-1; Transport Rate Structure and Pricing, CC Docket No. 91-213; End User Common Line Charges,
CC Docket No. 95-72, First Report and Order, 12 FCC Rcd 15982, 16007-34, paras. 67-122 (1997) (Access Charge
Reform Order), aff’d Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523 (8th Cir. 1998).
35 Id. at 12974, 12983-86, paras. 29, 56-62.
36 Id. at 12977, para. 36.
37 But see Petition for Forbearance of Iowa Telecommunications Services, Inc. d/b/a Iowa Telecom Pursuant to 47
U.S.C. § 160(c) from the Deadline for Price Cap Carriers to Elect Access Rates Based on the CALLS Order or a
Forward Looking Cost Study, CC Docket No. 01-131, Order, 17 FCC Rcd 24319, 24320, at para. 3 (2002). In that
order, the Commission allowed Iowa Telecom to set its average traffic sensitive rate at forward-looking cost levels
instead of at the CALLS rate of $0.0095 per minute. Id. at 24328, para. 24.
38 A price cap basket is a broad grouping of services, such as special access services. Prices for services within a
basket are limited by the price cap index (PCI) for the basket, which limits the LEC’s pricing flexibility and its
incentives to shift costs. See Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313,
Second Report and Order, 5 FCC Rcd 6786, 6810-11, paras. 198-203 (1990) (LEC Price Cap Order), aff'd Nat'l
Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993).
39 CALLS Order, 15 FCC Rcd at 12974-75, 13033-34, paras. 30, 172. The CALLS plan also retained the low-end
adjustment for price cap LECs. Id. at 13038, para. 182.
40 Id. at 13028, para. 160.
41 Id. at 13038, para. 183.
42 Id. at 13025, para. 149. Because rates are both reduced by and increased by the inflation rate, they are effectively
frozen. See supra para. 10.
43 Because the special access rates were reduced by a universally applied productivity factor, all LECs achieved the
2003 special access rate target at the same time.
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adjustments).44 The Commission hoped that, by the end of the five-year CALLS plan, competition wouldexist to such a degree that deregulation of access charges (switched and special) for price cap LECs
would be the next logical step.45
D. AT&T’s Petition for Rulemaking and 2005 Special Access NPRM
14. On October 15, 2002, AT&T Corp. filed a petition for rulemaking requesting that theCommission revoke the pricing flexibility rules and revisit the CALLS plan as it pertains to the rates that
price cap LECs, and the BOCs in particular, charge for special access services.46 AT&T claimed that the
competitive showings required to obtain pricing flexibility failed to predict price-constraining competitive
entry and, rather, that significant competitive entry had not occurred.47 It further contended that, based on
Automated Reporting Management Information System (ARMIS) data, the BOCs’ interstate special
access revenues had more than tripled, from $3.4 billion to $12.0 billion, between 1996 and 2001 and that
the BOCs’ returns on special access services were between 21 and 49 percent in 2001.48 Further, AT&T
stated that, in every MSA for which pricing flexibility was granted, BOC special access rates either
remained flat or increased.49 Thus, AT&T contended both that the predictive judgment at the core of the
Pricing Flexibility Order had not been confirmed by marketplace developments, and that BOC special
access rates exceeded competitive levels and hence were unjust and unreasonable in violation of section
201 of the Communications Act.50 Because the predictive judgment had proven wrong, AT&T asserted,
the Commission was compelled to revisit its pricing flexibility rules in a rulemaking proceeding.51
15. Price cap LECs generally opposed the AT&T Petition for Rulemaking. They claimed that
their special access rates were reasonable and therefore lawful, that there was robust competition for
special access services, that the collocation-based competitive showings were an accurate metric for
competition, and that the data relied upon by AT&T were unreliable in the context used by AT&T.52
44 47 C.F.R. § 61.45(b)(1)(iv) (“Starting in the 2004 annual filing, X shall be equal to GDP-PI for the special access
basket.”).
45 CALLS Order, 15 FCC Rcd at 12977, para. 35.
46 AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for
Interstate Special Access Services, RM-10593 at 1, 6, 39-40 (Filed on October 15, 2002) (2002 Special Access
Rulemaking Petition). Competitive LECs and telecommunications users generally supported the AT&T Petition for
Rulemaking. See, e.g., 2002 Special Access Rulemaking Petition, RM-10593, Comments of Ad Hoc
Telecommunications Users Committee at 1-7 (filed Dec. 2, 2002); 2002 Special Access Rulemaking Petition, RM-
10593, Comments of American Petroleum Institute at 1-5 (filed Dec. 2, 2002); 2002 Special Access Rulemaking
Petition, RM-10593, Comments of AT&T at 1-7 (filed Dec. 2, 2002); 2002 Special Access Rulemaking Petition,
RM-10593, Comments of PAETEC at 1-6 (filed Dec. 2, 2002); 2002 Special Access Rulemaking Petition, RM-
10593, Comments of WorldCom at 1-14 (filed Dec. 2, 2002). The 2002 Special Access Rulemaking Petition was
filed prior to AT&T’s merger with SBC; see SBC Communications, Inc. and AT&T Corp. Application for Approval
of Transfer of Control, WC Docket No. 06-65, Memorandum Opinion and Order, 20 FCC Rcd 18290 (2005)
(SBC/AT&T Merger Order).
47 2002 Special Access Rulemaking Petition at 2, 6-7, 11-13, 20, 25-32.
48 Id. at 3-4, 8-9, 14.
49 Id. at 11-13.
50 Id. at 1-6, 20, 34-35.
51 Id. at 6-7, 35-36.
52 See, e.g., 2002 Special Access Rulemaking Petition, RM-10593, SBC Opposition to Petition at 10-13, 19, 22-24
(filed Dec. 2, 2002); 2002 Special Access Rulemaking Petition, RM-10593, Verizon Opposition to Petition at 9-10,
13-14, 17, 21 (filed Dec. 2, 2002).
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SBC noted that AT&T only provided (and could only provide) data from a single year (2001) that post-dated the initial implementation of Phase II pricing flexibility in 2001,53 and SBC and Verizon claimed
that ARMIS data were not designed to evaluate the reasonableness of rates.54 The BOCs contended,
moreover, that special access revenues per line declined between 1996 and 2001.55
16. On January 31, 2005, the Commission released the Special Access NPRM. The Special
Access NPRM initiated a broad examination of what regulatory framework to apply to price cap LECs’
interstate special access services following the expiration of the CALLS plan, including whether to
maintain or modify the Commission’s pricing flexibility rules for special access services.56 As part of our
review of the pricing flexibility rules, which were adopted, in part, based on the Commission’s predictive
judgment, the Commission sought to examine whether the available marketplace data supported
maintaining, modifying, or repealing these rules.57 The Commission noted its commitment to re-examine
periodically rules that were adopted on the basis of predictive judgments to evaluate whether those
judgments are, in fact, corroborated by marketplace developments.58 Accordingly, the Commission
sought data and comments on whether actual marketplace developments supported the predictive
judgments used to support the special access pricing flexibility rules.59
17. The Special Access NPRM also responded to AT&T’s request for interim relief. AT&T
asked, in addition to initiating a rulemaking, that the Commission reinitialize Phase II pricing flexibility
special access rates at an 11.25 percent rate of return, and impose a temporary moratorium on further
pricing flexibility applications.60 These requests were denied; however, the Commission sought comment
on whether to adopt any interim requirements in the event that the Commission was unable to conclude
the NPRM in time for any adopted rule changes to be implemented in the 2005 annual tariff filings.61
E. Recent Actions in the Proceeding
1.Refresh Record
18. In July 2007, the Commission invited interested parties to update the record in the specialaccess rulemaking in light of a number of recent developments in the industry, including several
“significant mergers and other industry consolidation,” “the continued expansion of intermodal
competition in the market for telecommunications services,” and “the release by GAO [the Government
Accountability Office] of a report summarizing its review of certain aspects of the market for special
access services.”62 While the special access rulemaking was pending, the Commission also addressed
special access regulation for price cap carriers in several other proceedings. A petition for forbearance
53 SBC 2002 Special Access Rulemaking Petition Opposition at 16.
54 Id. at 22; Verizon 2002 Special Access Rulemaking Petition Opposition at 21.
55 SBC 2002 Special Access Rulemaking Petition Opposition at 23-24, Decl. of Alfred E. Kahn and William E.
Taylor at 15.
56 Special Access NPRM, 20 FCC Rcd at 1955, para. 1.
57 Id. at 1996-97, para. 5.
58 Id.
59 Id.
60 Id. at 1997, para. 6.
61 Id.
62 Parties Asked to Refresh Record in the Special Access Notice of Proposed Rulemaking, WC Docket No. 05-25,
RM-10593, 22 FCC Rcd 13352, 13352-53 (2007) (Refresh the Record Public Notice).
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from dominant carrier regulation of enterprise broadband special access services (i.e., packet-basedswitched, high-speed telecommunications services for businesses) filed by Verizon was deemed granted
in 2006.63 In orders issued in October 2007 and August 2008, the agency granted petitions filed by
AT&T, Embarq, Frontier, and Qwest under 47 U.S.C. § 160 seeking similar forbearance relief, and, in
August 2008, granted Qwest’s petition for similar relief from regulation of enterprise broadband special
access. 64
2.
Analytical Framework
19. In November 2009, the Commission sought comment on the appropriate analyticalframework for examining the issues that the Special Access NPRM raised.65 In July 2010, the
Commission’s Wireline Competition Bureau (Bureau) held a staff workshop on the economics of special
access to gather further input from interested parties on the analytical framework the Commission should
use – and the data it should collect – to evaluate whether the current special access rules are working as
intended.66
3.
Voluntary Data Requests
20. In October 2010, the Bureau issued a public notice inviting the public to submit data on thepresence of competitive special access facilities to assist the Commission in evaluating the issues that the
Special Access NPRM raised.67 Explaining that data “would need to be reviewed” before the Commission
63 See Verizon Telephone Companies' Petition for Forbearance from Title II and Computer Inquiry Rules with
Respect to their Broadband Services Is Granted by Operation of Law, WC Docket No. 04-440, News Release (rel.
Mar. 20, 2006) (March 20 News Release); Petition of the Verizon Telephone Companies for Forbearance under 47
U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to Their Broadband Services, WC Docket
No. 04-440 (filed Dec. 20, 2004).
64 Petition of the Embarq Local Operating Companies for Forbearance under 47 U.S.C. § 160(C) from Application
of Computer Inquiry and Certain Title II Common Carriage Requirements, Petition of the Frontier and Citizens
ILECs for Forbearance under Section 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to
Their Broadband Service, FCC 07-184, WC 06-147, Memorandum Opinion and Order, 22 FCC Rcd 19478 (2007);
Petition of AT&T Inc. for Forbearance under 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with
Respect to its Broadband Services, Petition of BellSouth Corporation for Forbearance Under Section 47 U.S.C. §
160(c) from Title II and Computer Inquiry Rules with Respect to its Broadband Services, FCC 07-180, WC 06-125,
Memorandum Opinion and Order, 22 FCC Rcd 18705 (2007); Qwest Petition for Forbearance Under 47 U.S.C. §
160(c) from Title II and Computer Inquiry Rules with Respect to Broadband Services, FCC 08-168, WC Docket No.
06-125, Memorandum Opinion and Order, 23 FCC Rcd 12260 (2008). We note that a similar petition filed by
CenturyLink is pending before the Commission. Petition of CenturyLink for Forbearance Pursuant to 47 U.S.C §
160(c) from Dominant Carrier and Certain Computer Inquiry Requirements on Enterprise Broadband Services, WC
Docket No. 12-60 (filed Feb. 23, 2012), amended by Letter from Craig J. Brown, Associate General Counsel,
CenturyLink, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 12-60 (filed
March 21, 2012).
65 Parties Asked to Comment on Analytical Framework Necessary to Resolve Issues in the Special Access NPRM,
WC Docket No. 05-25, RM-10593, Public Notice, 24 FCC Rcd 13638 (2009) (Analytical Framework Public
Notice).
66 Wireline Competition Bureau Announces July 19, 2010 Staff Workshop to Discuss the Analytical Framework for
Assessing the Effectiveness of the Existing Special Access Rules, WC Docket No. 05-25, Public Notice, 25 FCC Rcd
8458 (2010) (Staff Workshop Public Notice).
67 Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-10593, Public Notice, 25 FCC Rcd
15146(2010) (Special Access Facilities Data Public Notice); see also Clarification of Data Requested in Special
Access NPRM, WC Docket No. 05-25, RM-10593, Public Notice, 25 FCC Rcd 17693 (2010) (Special Access
Facilities Data Request Clarification). In the Special Access Facilities Data Public Notice, at footnote 7, citing 5
(continued….)
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could address the issues raised by the proceeding,68 the Bureau asked that the requested data be submittedby January 27, 2011.69 The Bureau also noted that while it continued to develop an analytical framework,
it would “ask for additional voluntary submissions of data in a second public notice.”70
21. On September 19, 2011, the Bureau issued a second public notice requesting the submission
of special access data.71 In this request, the Bureau sought detailed data on special access prices,
revenues, and expenditures, as well as the nature of terms and conditions for special access services. The
Bureau requested that the data be submitted to the Commission by December 5, 2011.72
III.
THE “COMPETITIVE SHOWINGS” ADOPTED IN 1999 HAVE NOT WORKED AS
EXPECTED
LECs to show, in an administratively workable way, that certain parts of the country were sufficiently
competitive to warrant pricing flexibility for special access services. As discussed in greater detail below,
we find that the record indicates that the administratively simple competitive showings we adopted in
1999 have not worked as intended, likely resulting in both over- and under- regulation of special access in
parts of the country. We therefore suspend the pricing flexibility competitive showings, on an interim
basis, until we obtain the requisite data and conduct the market analysis required to craft replacement
rules.
A. Background
1.Rationale for Competitive Showings
23. In the Pricing Flexibility Order, the Commission adopted rules that allow price cap LECs toobtain relief from pricing regulations as competition for special access services increased. The
Commission concluded that relief should be granted in two phases. Phase I relief permits price cap LECs
the ability to lower their rates through contract tariffs and volume and term discounts, but requires that
they maintain their generally available price cap-constrained tariff rates to “protect those customers that
lack competitive alternatives.”73 Phase II relief permits price cap LECs to raise or lower their rates
throughout an area, unconstrained by the Commission’s part 61 and part 69 rules.74
24. The Commission found that different levels of collocation in an area would justify different
levels of relief. Specifically, the Commission held that Phase I deregulatory relief would be appropriate
in areas where the price cap LEC was able to show that competitors had made irreversible, sunk
(Continued from previous page)
C.F.R. § 1320.3(h)(4), we explained that the data solicited from the public was not subject to the Paperwork
Reduction Act. See Special Access Facilities Data Public Notice, 25 FCC Rcd at 15147 n. 7.
68 Special Access Facilities Data Public Notice, 25 FCC Rcd at 15146.
69 Id. at 15147.
70 Id.
71 Special Access Competition Data Public Notice, 26 FCC Rcd 14000.
72 Id.
73 Pricing Flexibility Order, 14 FCC Rcd at 14258, para. 69.
74 Id. at 14301, para. 153. For a definition of MSA, see infra para. 26. Price cap LECs granted Phase II relief must
continue to maintain generally available tariffs, but may file such tariffs on one day’s notice. See Id. at 14301, para.
153.
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investment sufficient to “discourage[e] incumbent LECs from successfully pursuing exclusionarystrategies,”75 such as “‘locking up’ large customers by offering them volume and term discounts.”76
25. The Commission held that Phase II deregulatory relief would be appropriate only in areas
where a price cap LEC could show there was a higher level of collocation – specifically, that “competitors
have established a significant market presence, i.e., that competition for a particular service within the
[area] is sufficient to preclude the incumbent from exploiting any monopoly power over a sustained
period.”77 That is, competitors would have “sufficient market presence to constrain prices throughout
the” area because “almost all special access customers have a competitive alternative” and “[i]f an
incumbent LEC charges an unreasonably high rate for access to an area that lacks a competitive
alternative, that rate will induce competitive entry, and that entry will in turn drive rates down.”78
2.
How the Competitive Showings Work
26. Geographic Area of Relief. The Commission chose to grant pricing flexibility relief on anMSA basis, finding that, among the proposed alternatives “MSAs best reflect the scope of competitive
entry, and therefore are a logical basis for measuring the extent of competition” and avoiding the
“increased expenses and administrative burdens associated with” proposals to grant relief in smaller
geographic areas, such as wire centers.79 The Office of Management and Budget (OMB) defines MSAs
as geographic entities that contain a core urban area of 50,000 or more population, and often includes
adjacent counties that have a high degree of social and economic integration with the urban core, as
measured by commuting to work.80 MSAs were developed not for the purposes of competition policy,
but to meet the Federal Government’s need to have “nationally consistent definitions for collecting,
tabulating and publishing Federal statistics for a set of geographic areas.”81 OMB may add counties or
principal cities to an MSA, remove them, or even create new MSAs if census and population estimates
indicate changes in social and economic integration between outlying areas and the urban core.82
75 Id. at 14258, para. 69.
76 Id. at 14263, para. 79.
77 Id. at 14296, para. 141.
78 Id. at 14262, 14296-97, paras. 77, 142, 144.
79 Id. at 14260, paras. 72, 74.
80 47 C.F.R. § 22.909(a); see also U.S. Census Bureau, Metropolitan and Micropolitan Statistical Areas,
www.census.gov/population/metro/ (last visited Aug. 13, 2012).
81 Office of Management and Budget, Bulletin no. 10-02, Updates of Statistical Area Definitions and Guidance on
their Uses 1 (2009), available at http://www.whitehouse.gov/sites/default/files/omb/assets/bulletins/b10-02.pdf
(OMB 2009 MSA Update). OMB establishes and maintains the definitions of MSAs, and cautions against using
MSAs for non-statistical purposes “without full consideration of the effects of using these definitions for such
purposes.” Id. at 2.
82 See id., App. at 1. For example, in 2003 OMB defined 370 MSAs, whereas its most recent list includes 374.
Office of Management and Budget, Bulletin no. 03-04, Revised Definitions of Metropolitan Statistical Areas, New
Definitions of Micropolitan Statistical Areas and Combined Statistical Areas, and Guidance on Uses of the
Statistical Definitions of Those Areas, Attach., List 2 (Metropolitan Statistical Areas) at 22 (2003), available at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/bulletins/b03-04_attach.pdf (listing 370 MSAs in the
United States and Puerto Rico); see also OMB 2009 MSA Update, App., List 2 (Metropolitan Statistical Areas) at 23
(listing 374 MSAs in the United States and Puerto Rico).
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27. In the Pricing Flexibility Order, the Commission adopted a list of 306 MSAs based largelyon data compiled from the 1980 census, and froze that list for use in all pricing flexibility petitions.83
Therefore, even if OMB subsequently expanded the geographic area of an MSA, a price cap LEC’s grant
of pricing flexibility remains within the borders of the applied-for MSA. The Commission also
recognized that some price cap LEC study areas fall outside of MSA boundaries, and held that it would
“grant price cap LECs pricing flexibility within the non-MSA parts of a study area if” they were able to
make the required showings “throughout that area.”84
28. MSAs can be geographically extensive and, in many cases, may encompass areas with vastly
different business density within their borders. Some illustrative examples include the Pensacola, Florida
MSA85 and the Atlanta, Georgia MSA.86
83 See Pricing Flexibility Order, 14 FCC Rcd at 14259, para. 71 n. 193 (citing Common Carrier Public Mobile
Services Information, Cellular MSA/RSA Markets and Counties, Public Notice, Report No. CL-92-40, 7 FCC Rcd
742 (1992) (1992 MSA/RSA Public Notice) (containing 306 areas that were defined by OMB but “as modified by the
FCC”)); see also 47 C.F.R. § 22.909. MSA analysis in this Order refers to these modified MSAs unless otherwise
noted.
84 Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
85 The Pensacola, Florida MSA (“Pensacola MSA”) encompasses the counties of Escambia and Santa Rosa, city of
Pensacola, employment centers such as Naval Air Station Pensacola and the University of West Florida. The
Pensacola MSA also includes Jay, Florida, an agricultural town approximately 50 miles from Pensacola on the other
side of the Escambia River Wildlife Management Area. The density of business establishments in the Jay, Florida
ZIP code (32565) is about 0.37 per square mile, whereas the density of business establishments in the City of
Pensacola (approximated by ZIP codes 32501-4) is about 100 per square mile. The density of business
establishments across the entire Pensacola, FL MSA is about 6. See, e.g., Commander Navy Installations Command
Naval Air Station Pensacola, http://www.cnic.navy.mil/pensacola/ (last visited Aug. 13, 2012); University of West
Florida, http://www.uwf.edu/ (last visited Aug. 13, 20102) Town of Jay, Florida, http://townofjayfl.com/about.htm
(last visited Aug. 13, 2012); Esacambia River Wildlife Management Area,
http://myfwc.com/viewing/recreation/wmas/cooperative/Escambia-River (last visited Aug. 13, 2012). Business
establishment data are from U.S. Census Bureau. U.S. Census Bureau, County Business Patterns/ZIP Code
Business Patterns (2009), ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip; see also U.S. Census Bureau,
County Business Patterns (ZBP), http://www.census.gov/econ/cbp/index.html (last visited Aug. 13, 2012). The
number of business establishments was normalized to square miles using U.S. Census Bureau data. U.S. Census
Bureau, ZIP Code Tabulation Areas (2010), http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug. 13,
2012). Establishment density was calculated by summing the establishment counts across the sets of ZIP codes that
approximate the geographic extent of regions estimated (i.e., the city of Jay, the city of Pensacola and Pensacola
MSA) and dividing by the total area of the ZIP code set.
86 The Atlanta, Georgia MSA (“Atlanta MSA”) includes Fulton and De Kalb counties, which encompass the city of
Atlanta, and Butts County, which encompasses Flovilla, Georgia. See 1992 MSA/RSA Public Notice, 7 FCC Rcd at
743; OMB 2009 MSA Update. Atlanta houses major employers such as Coca-Cola Company and CNN and has
about 99 business establishments per square mile. In contrast, ZIP Code 30216 (Flovilla, Georgia) covers the city of
Flovilla and contains 13 business establishments in total. The average business density for ZIP Code 30216 is about
0.43 per square mile, but even if we assumed all 13 establishments are within the two square mile city of Flovilla,
Flovilla’s business establishment density would be about 6.5. Business establishment data are from U.S. Census
Bureau, County Business Patterns/ZIP Code Business Patterns (2009), available at
ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip (last visited Aug. 13, 2012). The number of business
establishments was normalized to square miles using U.S. Census Bureau data. U.S. Census Bureau, ZIP Code
Tabulation Areas (2010), http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug. 13, 2012). Establishment
density was calculated by summing the establishment counts across the set of ZIP codes that approximate the
geographic extent of the city of Atlanta, GA and dividing by the total area of the ZIP code set.
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29. Proxies for Competitive Showings. For the sake of administrative convenience, theCommission adopted proxies for competition designed to allow price cap LECs to make the required
showings, “with a minimum of administrative burden for the industry and the Commission.” 87
Specifically, the Commission chose to “rely on collocation as a proxy for irreversible, sunk investment”
in special access facilities and services.88 Collocation – as used in the competitive showing rules – is an
offering by an incumbent LEC whereby a requesting telecommunications carrier’s transmission
equipment is located, for a tariffed charge, at the incumbent LEC’s central office.89 The Commission
predicted that collocation by competitors in incumbent LEC wire centers would be a reliable indicator of
competition because collocation typically represented a financial investment by a competitor to establish
facilities within a wire center.90 The Commission predicted that the collocation-based competitive
showings would “provide a bright-line rule to guide the industry” and “an administratively simple and
readily verifiable mechanism for determining whether competitive conditions warrant the grant of pricing
flexibility.”91
30. The Commission established bright line “triggers” based on the extent of collocation within
an MSA that it expected would allow a price cap LEC to demonstrate that market conditions in a given
MSA would warrant relief. Specifically, the Commission held that price cap LECs would need to
demonstrate
either that (1) competitors unaffiliated with the incumbent LEC have established
operational collocation arrangements in a certain percentage of the incumbent LEC's wire
centers in an MSA, or (2) unaffiliated competitors have established operational
collocation arrangements in wire centers accounting for a certain percentage of the
incumbent LEC's revenues from the services in question in that MSA. In both cases, the
incumbent also must show, with respect to each wire center, that at least one collocator is
87 Pricing Flexibility Order, 14 FCC Rcd at 14258, para. 69.
88 Id. at 14280, para. 104 (finding it reasonable to utilize collocation as a proxy for sunk investment in channel
terminations); id. at 14273-74, paras. 93-94 (utilizing collocation as a proxy for sunk investment in dedicated
transport and special access services other than channel terminations).
89 Id. at 14265, para. 81 (“The Commission adopted these collocation rules, with only minor modifications, to
implement the collocation requirements of section 251(c)(6) of the Act.”); see also Local Exchange Carriers’ Rates,
Terms, and Conditions for Expanded Interconnection Through Physical Collocation for Special Access and
Switched Transport, CC Docket No. 93-162, Second Report and Order, 12 FCC Rcd 18730, 18736, para. 6 (1997)
(Expanded Interconnection Order); 47 C.F.R. § 51.5 (2012). See also 47 U.S.C. § 251(c)(6). In a physical
collocation arrangement, the requesting carrier has access to the leased space to install, maintain, and repair their
own equipment, which is usually caged off from the incumbent LEC’s equipment. Expanded Interconnection
Order, 12 FCC Rcd at 18736, para. 6; 47 C.F.R. § 51.5. In a virtual collocation arrangement, the incumbent LEC
buys or leases equipment at the requesting carrier’s direction, and installs, maintains, and repairs the equipment
itself; the requesting carrier can only monitor the equipment from offsite. Expanded Interconnection with Local
Telephone Facilities, CC Docket No. 91-141, Memorandum Opinion and Order, 9 FCC Rcd 5154, 5163-64, para. 25
(1994); 47 C.F.R. § 51.5. We note that the term “collocation” can also be used to describe a situation where carriers
and other service providers choose to place their facilities in the same location without recourse to the Act. See, e.g.,
Connect America Fund, A National Broadband Plan for Our Future, High-Cost Universal Service Support, WC
Docket Nos. 10-90, 05-337, GN Docket No. 09-51, 25 FCC Rcd 6657, 6844 (2010) (“Internet gateway sites are
assumed to be located in regional carrier collocation facilities (known commonly as ‘carrier hotels.”); Harry
Newton, Newton's Telecom Dictionary 209-10 (23d ed. 2007) (defining “carrier hotel”).
90 Pricing Flexibility Order, 14 FCC Rcd at 14265-67, paras. 81-82.
91 Id. at 14267-76, paras. 84, 96.
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relying on transport facilities provided by a transport provider other than the incumbentLEC.92
The specific level of collocation required varies depending on whether a price cap LEC is seeking Phase I
or Phase II relief and whether it is seeking relief for channel terminations or other special access
services.93
31. On February 2, 2001, the U.S. Court of Appeals for the D.C. Circuit upheld the Pricing
Flexibility Order, finding that the Commission made a reasonable policy determination and sufficiently
explained its basis for adopting the competitive showing requirements.94
B. Subsequent Evidence Undermines the Commission’s Previous Decision to Measure
Competitive Showings and Grant Relief on an MSA-Wide Basis and Justifies Suspension of
Rules
Original Rationale for Granting Pricing Flexibility in MSAs and Non-MSA
Portions of Study Areas
analysis because the record at the time indicated “that MSAs best reflect the scope of competitive entry,
and therefore are a logical basis for measuring the extent of competition.”95 The Commission rejected
larger geographic areas such as states and LATAs “[b]ecause competitive LECs generally do not enter
new markets on a statewide basis.”96 Accordingly, “granting pricing flexibility over such a large
geographic area would increase the likelihood of exclusionary behavior by incumbent LECs, by granting
them flexibility in areas where competitors have not yet made irreversible investment in facilities.”97
33. The Commission rejected concerns from some parties that “competition may exist in only a
small part of an MSA,” finding that “[t]he triggers we establish . . . are sufficient to ensure that
competitors have made sufficient sunk investment within an MSA.”98 The Commission therefore rejected
92 See id. at 14261-62, 14296, paras. 77, 141.
93 To obtain Phase I relief for interstate special access services other than channel terminations between a LEC end
office and an end user’s customer premises, a price cap LEC must demonstrate that unaffiliated competitors have
collocated in at least 15 percent of the LEC’s wire centers within an MSA or collocated in wire centers accounting
for 30 percent of the LEC’s revenues from these services within the MSA. To obtain Phase I pricing flexibility for
channel terminations between a LEC end office and a customer premises, the LEC must demonstrate that
unaffiliated competitors have collocated in at least 50 percent of the LEC’s wire centers within an MSA or
collocated in wire centers accounting for 65 percent of the LEC’s revenues from these services within the MSA. 47
C.F.R. §§ 69.709, 69.711; Pricing Flexibility Order, 14 FCC Rcd at 14235-36, 14273-77, paras. 24, 93-99. To
obtain Phase II relief for special access services other than channel terminations to end users, the trigger thresholds
are unaffiliated collocation in 50 percent of the LEC’s wire centers or in wire centers accounting for 65 percent of
the LEC’s revenues from these services within the MSA. For channel terminations to end users, the Phase II
thresholds are unaffiliated collocation in 65 percent of the LEC’s wire centers or in wire centers accounting for 85
percent of the LEC’s revenues for these services. 47 C.F.R. §§ 69.709, 69.711; Pricing Flexibility Order, 14 FCC
Rcd at 14235, 14298-300, paras. 25, 146-52.
94 WorldCom, Inc. v. FCC, 238 F.3d 449, 452 (D.C. Cir. 2001).
95 Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 72.
96 Id. The Commission noted that many LATAs include an entire state. Pricing Flexibility Order, 14 FCC Rcd at
14260, para. 73.
97 Id. at para. 72.
98 Id. at para. 74.
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smaller geographies, such as wire centers, concluding that “the record does not suggest that this level ofdetail justifies the increased expenses and administrative burdens associated with these proposals.”99
34. The Commission received little guidance from commenters on how to establish an
appropriate geographic area for grants of pricing flexibility in areas that fall outside of MSAs.100 In the
absence of such guidance, the Commission allowed price cap LECs to make a competitive showing for
the entirety of the non-MSA portions of a study area for which they sought relief. It decided against
requiring competitive showings at a more granular level – such as on a rural service area (RSA) basis,101
stating that
. . . .we expect competitors to enter MSA markets first and then to extend their networks
into less densely populated areas. Because rural areas by definition do not have large
concentrations of population comparable to urban areas, we expect that competitive entry
into rural areas will be less concentrated than in urban areas. Therefore, we do not expect
that pricing flexibility will enable an incumbent to engage successfully in exclusionary
pricing behavior with respect to one RSA because competitive entry is limited to another
RSA.102
The Commission therefore placed more weight on administrative ease, and chose to allow price cap LECs
to apply for pricing flexibility for the entirety of the non-MSA components of a study area.103
2.
The Record Now Suggests that Entry Occurs in Smaller Areas
35. The record in this proceeding suggests that, contrary to the Commission’s prediction in 1999,MSAs have generally failed to reflect the scope of competitive entry. Rather, in many instances, the
scope of competitive entry has apparently been far smaller than predicted.
36. In the sections that follow, we evaluate whether record evidence supports the Commission’s
prediction that MSAs and non-MSA sections of incumbent LEC study areas best reflect the scope of
competitive entry. Entry is one of the many elements the Commission and antitrust agencies analyze
when evaluating competition.104 As a general principle, firms are likely to enter a geographic area to
99 Id.
100 Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
101 In the Pricing Flexibility Order, the Commission noted that “the non-MSA part of a study area comprises one or
more rural service areas (RSAs), as defined in Section 22.909(b) of the Commission's rules.” Id. at 14261, para. 76
n.202. Section 22.909(b) of the Commission’s rules defines RSAs as the “428 areas, other than MSAs, established
by the FCC” and listed in the 1992 MSA/RSA Public Notice. 47 C.F.R. § 22.909(b).
102 Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
103 Id.
104 The FTC and the Department of Justice evaluate entry in merger analysis and Commission orders have
referenced similar analyses. See U.S. Department of Justice & Federal Trade Commission, FTC/DOJ Horizontal
Merger Guidelines at 2 (2010) (FTC/DOJ Horizontal Merger Guidelines), available at
http://www.justice.gov/atr/public/guidelines/hmg-2010.pdf; see also SBC/AT&T Merger Order, 20 FCC Rcd at
18310-11, paras. 39-40 (competitive entry analyzed; divestiture required when entry deemed unlikely); Motion of
AT&T Corp. to Be Reclassified As A Non-Dominant Carrier, FCC Docket No. 95-427, Order, 11 FCC Rcd 3271,
3293-3309, paras. 38-73 (1995) (AT&T Domestic Non-Dominance Order); Regulatory Treatment of LEC Provision
of Interexchange Services Originating in the LEC's Local Exchange Area, CC Docket No. 96-149, Second Report
and Order in CC Docket No. 96-149 and Third Report and Order in CC Docket No. 96-61, 12 FCC Rcd 15756
(1997) (LEC Classification Order), recon. denied, Second Order on Reconsideration and Memorandum Opinion and
Order, 14 FCC Rcd 10771 (1999) (modifying dominant/non-dominant analyses in accordance with the antitrust
agencies merger analyses).
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compete “if the entrant generates sufficient revenue to cover all costs apart from the sunk costs of entry.Such entry succeeds in the sense that the entrant becomes and remains a viable competitor in the
market.”105 In order to gauge whether entry would be profitable, firms are more likely to focus on areas
with high demand for their services, relative to the cost of providing those services.106 Our review of the
evidence suggests that demand varies significantly within any MSA, with highly concentrated demand in
areas far smaller than the MSA. This leads us to conclude that competitive entry is considerably less
likely to be profitable and hence is unlikely to occur in areas of low demand throughout an MSA,
regardless of whether the MSA also contains areas with demand at sufficient levels to warrant
competitive entry. This conclusion is confirmed by the available data, including the record of pricing
flexibility grants since the Commission’s 1999 Order, and data on subsequent competitive developments
in these areas.107
a.
Business Demand Varies Significantly Within MSAs
37. The Commission sought to define the geographic areas for which pricing flexibility requestswould be considered “narrowly enough so that the competitive conditions within each area are reasonably
similar, yet broadly enough to be administratively workable.”108 Our analysis of business establishment
density indicates that business demand can vary significantly across an MSA.109 This suggests that
competitive conditions within an MSA are also likely to vary significantly, since areas with higher
demand tend to be more capable of supporting competition and are more attractive to potential entrants
than low demand areas.110 These data provide context for our analysis of evidence about grants of pricing
105 See U.S. Department of Justice & Federal Trade Commission, FTC/DOJ Commentary on the Horizontal Merger
Guidelines at 37-47 (2006), available at
http://www.ftc.gov/os/2006/03/CommentaryontheHorizontalMergerGuidelinesMarch2006.pdf; see also FTC/DOJ
Horizontal Merger Guidelines at 29 (entry is likely “if it would be profitable”); Review of the Section 251
Unbundling Obligations of Incumbent Local Exchange Carriers, CC Docket No. 01-338, Implementation of the
Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, Deployment of
Wireline Services Offering Advanced Telecommunications Capability, CC Docket No. 98-147, Report and Order
and Order on Remand and Further Notice of Proposed Rulemaking, 18 FCC Rcd 16978, 17032, para. 77 (2003)
(subsequent history omitted) (“a firm's decision to enter a market depends on whether the revenues it expects to
obtain exceed the costs of entering and serving the market, factoring in the cost and risk of failure”) (Triennial
Review Order).
106 For example, “it is much cheaper (all else being equal) to deploy a single cable to a 100-unit apartment building
than 100 different cables to 100 farms.” Jonathan E. Nuechterlein & Philip J. Weiser, Digital Crossroads 65 (MIT
Press 2005); Nuechterlein and Weiser also explain how entry in special access occurred exactly where quality-
adjusted prices were well above costs and the density of demand was highest. Id. at 10-12, 65; see also infra paras.
48-55.
107 See infra section III.2.a-III.3.
108 Pricing Flexibility Order, 14 FCC Rcd at 14259-60, para. 71.
109 The term “business establishment” is identical to the term “establishment” as defined by the U.S. Census Bureau:
“A single physical location where business is conducted or where services or industrial operations are performed.”
United States Census Bureau, Statistics of U.S. Businesses, Definitions,
http://www.census.gov/econ/susb/definitions.html (last visited Aug. 13, 2012); see also United States Census
Bureau, Statistics of U.S. Businesses, How the Data are Collected,
http://www.census.gov/econ/susb/methodology.html (last visited Aug. 13, 2012).
110 Commenters note that competitors are drawn only to areas of concentrated special access demand. See SBC
2005 NPRM Comments, Attach. A, Decl. of Parley Casto (SBC Casto Decl.) at para. 12 (“demand for special access
services is highly concentrated in a relatively small number of dense urban wire centers and ex-urban wire centers
containing office parks and other campus environments. Indeed, more than [REDACTED] percent of SBC’s
special access demand in Phase II MSAs is concentrated in [REDACTED] percent of its wire centers. To meet this
(continued….)
18
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flexibility petitions and how competitive entry has occurred since adoption of the Pricing FlexibilityOrder.
38. The plots in Figures 1 and 2 below illustrate that business demand varies significantly within
MSAs. They show the distribution of business establishment density by ZIP code in 12 of the sample of
24 MSAs for which we sought data in our voluntary data requests.111 Figure 1 shows the six MSAs with
the least variance in business establishment density across ZIP codes – Fayetteville, North Carolina;
Johnstown, Pennsylvania; Phoenix, Arizona; Ocala, Florida; Greenville-Spartanburg, South Carolina; and
Lima, Ohio.112 The distributions show that, even within these relatively homogeneous MSAs, dense
pockets of business establishments exist as well as areas in which business establishments are few and far
between. Johnstown, Pennsylvania is an extremely concentrated example. In Johnstown, seventy-five
percent of the ZIP codes (from the minimum observation, represented by an upside-down “T” shape, to
the top of the box) are clustered near the bottom of the scale with densities close to zero, while the
remaining twenty-five percent (from the top of the box to the maximum observation, represented by a “T”
shape) are scattered along the vertical axis between about five establishments per square mile and 230
establishments per square mile. The most dense ZIP code (15901), which covers the central business
district of Johnstown, is 23 times more dense than the average zip code in the area. Phoenix is much
(Continued from previous page)
demand, competitors have deployed myriad competitive facilities – including fiber connected directly to end-user
premises – in markets across SBC’s territory, particularly in dense, metropolitan areas and large campus
environments. And while competitors have not build out to every end user location, their existing fiber networks
generally are close enough to most of the businesses and other customers that use high-capacity services that it
would be simple enough for them to reach those locations if demand warranted.”) (emphasis in the original); see
also Verizon 2007 PN Reply at 25-26 (“the vast majority of special access connections – both from incumbents and
competitors – go to buildings with much more than one DS1 of demand . . . . Indeed, even the limited data GAO
reviewed on competitive deployment reveal that CLECS already have extended competitive facilities to at least 25
percent of buildings with two DS3s or greater demand.”) (emphasis added); tw / One Communications 2007 PN
Comments at 13 (stating that for carriers like One Communications it is almost never possible to self-deploy a loop
for a single DS3 level of service); XO et al. 2007 PN Reply at 23 (stating that competitors do not build laterals
unless demand at a location exceeds 3 DS3s of capacity); see also Nuechterlein & Weiser, supra n.106, at 65.
111 We based our analyses here on a set of 12 MSAs, six with the lowest variance in business density and six with
the highest, selected from a list of 24 for which we requested data and information in two voluntary data requests in
this proceeding. In those requests, we sought data for 24 MSAs (16 of which were studied by the Government
Accountability Office (“GAO”) in a report evaluating competition for special access services and eight MSAs
representing different parts of the country serviced by smaller providers than those evaluated in the GAO study).
See Special Access Facilities Data Public Notice, 25 FCC Rcd at 15161, Attach. C; see also Special Access
Competition Data Public Notice, 26 FCC Rcd at 14022, Attach. A. We note that our analyses in paras. 37-41 are
not based on data collected from those voluntary data requests. However, the analyses here are based on the same
MSAs for which we sought data and information in the data requests.
112 Each “boxplot” ranks the ZIP codes in the MSA by establishment density then places the lowest 25 percent of the
ZIP codes between the minimum observation and the bottom of the box (Q1); the next 25 percent between the
bottom of the box and the horizontal line (the median) that divides the box in two; the next 25 percent between the
horizontal line and the top of the box (Q3); and finally the top 25 percent between the top of the box and the
maximum observation. The vertical distance covered by each of the four sections of the plot represents the
dispersion of establishment densities such that a small distance means that the densities are nearly identical and a
large distance means that ZIP codes are diverse in terms of establishment density. The “+” sign on the boxplots
represents the average (as opposed to the median). Business establishment data are from U.S. Census Bureau,
County Business Patterns / ZIP Code Business Patterns (2009), available at
ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip (last visited Aug. 13, 2012). The number of business
establishments was normalized to square miles using U.S. Census Bureau data. U.S. Census Bureau data. U.S.
Census Bureau, ZIP Code Tabulation Areas (2010), http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug.
13, 2012).
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larger and somewhat more uniform than Johnstown, but is nonetheless characterized by a few very denseZIP codes amid a majority of less dense ZIP codes: while the Phoenix MSA has three ZIP codes with
over 300 establishments per square mile, over half of the ZIP codes in the MSA have fewer than 40
establishments per square mile. Overall, these MSAs are similar in that a small number of ZIP codes are
far more dense than the rest.
39. The distributions shown in Figure 2 demonstrate more extreme examples of intra-MSA
variance of competitive conditions. Figure 2 depicts business establishment density variation for the six
MSAs with the most business establishment density variation across ZIP codes: Chicago, Illinois; New
Orleans, Louisiana; New York, New York; Seattle-Everett, Washington; Washington, DC; and Los
Angeles, California.113 Except for New York, half of the ZIP codes in each MSA contain fewer than 100
establishments per square mile, whereas other areas within each MSA have upwards of 1,000
establishments per square mile.
113 Again, out of the 24 MSAs used in our voluntary data requests, these were the six with the highest business
establishment density. See supra n.111. The full name of the New York MSA is the “New York, NY-NJ/Nassau-
Suffolk, NY/Newark, Jersey City and Paterson-Clifton-Passaic, NJ” MSA, of the Washington, DC MSA is the
“Washington, DC-MD-VA” MSA, and the Los Angeles, California MSA is the “Los Angeles-Long
Beach/Anaheim-Santa Ana-Garden Grove/Riverside-San Bernadino-Ontario, CA” MSA. 1992 MSA/RSA Public
Notice, 7 FCC Rcd at 742-43.
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Figure 1
Distribution of Business Establishment Densities by MSA and ZIP Code
Sample Small Metropolitan Areas
Establishments / Square MileZIPs in MSA
16
61
76
40
26
131
Median
9
9
2
3
5
39
300
200
100
Establishment Density by ZIP Code
0Fayetteville
Greenville
Johnstown
Lima
Ocala
Phoenix
Note: Each box plot shows the distribution of establishment densities in ZIP codes within each Metropolitan Area. The + denotes
the average establishment density taken across all ZIP codes in the MSA; is the minimum observation above Q1-1.5(Q3-Q1);
T is the maximum observation below Q3+1.5(Q3-Q1); and is a data point beyond Q1-1.5(Q3-Q1) or Q3+1.5(Q3-Q1).
Densities above 300 establishments per square mile were topcoded to 300
Sources: U.S. Census Bureau, ZIP-Code Business Patterns: 2009; U.S. Census Bureau, ZIP Code Tabulation Areas, 2010.
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Figure 2
Distribution of Business Establishment Densities by MSA and ZIP Code
Sample Large Metropolitan Areas
Establishments / Square MileZIPs in MSA
299
538
55
737
113
247
Median
86
97
41
139
79
69
1000
750
500
250
Establishment Density by ZIP Code
0Chicago
Los Angeles
New Orleans
New York
Seattle
Washington
Note: Each box plot shows the distribution of establishment densities in ZIP codes within each Metropolitan Area. The + denotes
the average establishment density taken across all ZIP codes in the MSA; is the minimum observation above Q1-1.5(Q3-Q1);
T is the maximum observation below Q3+1.5(Q3-Q1); and is a data point beyond Q1-1.5(Q3-Q1) or Q3+1.5(Q3-Q1).
Densities above 1,000 establishments per square mile were topcoded to 1,000
Sources: U.S. Census Bureau, ZIP-Code Business Patterns: 2009; U.S. Census Bureau, ZIP Code Tabulation Areas, 2010.
40. This variance of competitive conditions within an MSA is an artifact of the way MSAs are
defined.114 The resulting statistical entity can be large, including the entirety of distant counties if those
counties contain exurban areas linked to the core by commuting behavior. The Atlanta, Georgia MSA,
for example, includes Butts County, Georgia (see Figure 3 below). Of the three ZIP codes within that
county, the densest (Jackson, Georgia 30233) has on average about 2.3 business establishments per square
mile.115 This contrasts to the density level of the central business district of Atlanta’s MSA, which
contains thousands of business establishments per square mile.116 This kind of variation is common
across the 12 MSAs we have examined for these purposes.
114 See supra para. 26.
115 See U.S. Census Bureau, supra n.112. ZIP code 30233 covers about 156 square miles and contains 357 business
establishments.
116 See U.S. Census Bureau, supra n.112. ZIP code 30303, for example, in the center of Atlanta, covers about one
square mile yet has over 1,600 business establishments.
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Figure 3
Business Density in the Atlanta, GA MSA
41. Given the foregoing evidence that MSAs do not have “reasonably similar” competitiveconditions across their geographic areas, and as discussed fully below, when such competitive conditions
are considered together with the evidence of how relief has been granted and how some competitive entry
has occurred, we can no longer conclude that MSAs “best reflect the scope of competitive entry” by
LECs.117
b.
Prior Grants of Relief Suggest that Competitive LEC Entry
Occurred at a Smaller Geographic Level than the MSA
concentrated in certain areas, it designed the competitive showings with the intent of ensuring that price
cap LECs could not obtain pricing flexibility throughout an MSA in instances of extremely concentrated
demand. While recognizing that “a few wire centers may account for a disproportionate share of
revenues for a particular service,” the Commission attempted to set its revenue based collocation triggers
at levels designed to “ensure that competitors have extended their networks beyond a few revenue-
intensive wire centers.”118 Our analysis indicates that the 1999 rules have not effectively fulfilled this
117 Pricing Flexibility Order, 14 FCC Rcd at 14259, para. 71.
118 Id. at 14276-77, paras. 97-98.
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intent. This provides further evidence that MSAs likely do not reflect the actual scope of competitiveentry.
43. As noted above, the Commission adopted two types of rules by which price cap LECs could
make the competitive showings required to obtain relief. The first type of rule permitted price cap LECs
to obtain relief by showing the presence of collocators in a certain percentage of its wire centers within an
MSA.119 The second type, the revenue-based rule described above, reflected the Commission’s
concession that demand for special access services is often concentrated.120 Despite this concession,
however, the Commission cautioned that the revenue-based threshold for dedicated transport services
would need to be set high enough “to ensure that competitors have extended their networks beyond a few
revenue-intensive wire centers.”121 With respect to channel terminations to end users, which the
Commission noted were less competitive than dedicated transport, it doubled the revenue requirement for
limited pricing flexibility and increased by almost a third the requirement for full relief.122 In short, the
Commission made the revenue-based rule more difficult to meet specifically to protect against grants of
pricing flexibility based on extremely concentrated demand.
44. We have analyzed the 217 incumbent LEC areas for which pricing flexibility relief for
channel terminations to end users was granted by order of the Bureau, representing all such grants
associated with pricing flexibility petitions available in the Commission’s Electronic Tariff Filing System.
These grants cover 199 MSAs and five non-MSAs.123 The majority of those grants were based
exclusively on the revenue-based rule.124 Because the revenue-based rule has different revenue thresholds
for each type of special access service, the Commission restricted its analysis to one type, channel
terminations to end users, to keep the analysis consistent.
45. This analysis shows that our rules permitted MSA-wide relief on the basis of extremely
concentrated demand in many instances. For example, as detailed in the chart below, 72 of the 212 grants
for MSAs were based on revenues of no more than a quarter of the relevant wire centers within the
MSA.125 For example, AT&T obtained Phase II pricing flexibility in the Pensacola MSA based on the
revenues of three out of 12 wire centers.126 Further, 30 of those 72 grants were based on the revenues of
119 See 47 C.F.R. §§ 69.709(b), (c); 69.711(b), (c).
120 See supra para. 30; 47 C.F.R. §§ 69.709(b), (c), 69.711(b), (c).
121 Pricing Flexibility Order, 14 FCC Rcd at 14277, para. 98.
122 The revenue threshold for Phase I pricing flexibility for dedicated transport services is 30 percent, and for Phase
II its 65 percent. 47 CFR § 69.709(b)(2), (c)(2). For channel terminations, the thresholds are 65 percent and 85
percent, respectively. 47 CFR § 69.711(b)(2), (c)(2).
123 We note that there are 204, rather than 217, areas for which pricing flexibility has been granted by order of the
Bureau because multiple incumbent LECs have obtained overlapping grants of pricing flexibility in a number of
MSAs. See infra Appendix D. We analyze the non-MSA grants in Section III.2.f, infra.
124 Of the pricing flexibility grants made in MSAs, 180 were based exclusively on the revenue-based rule, two were
based exclusively on the percentage-of-collocation rule, and 30 met the requirements of both types of competitive
showings. Of the grants made in non-MSA areas, three were based exclusively on the revenue-based rule and two
met the requirements of either type of showing. See infra Appendix D.
125 See infra Appendix D. Under our rules, petitioners may meet revenue thresholds only by counting revenues from
wire centers which have at least one collocator that is “using transport facilities owned by a transport provider other
than the price cap LEC to transport traffic from that wire center.” See 47 C.F.R. §§ 69.709(b)(2), (c)(2);
69.711(b)(2), (c)(2). We analyze the non-MSA grants in Section III.2.f, infra.
126 See Petition of BellSouth Telecommunications, Inc. for Pricing Flexibility Under Section 69.727 of the
Commission’s Rules for Specific MSAs, Petition for Pricing Flexibility and attachments, attach. 3 (filed Aug. 24,
(continued….)
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only one wire center, 12 were based on the revenues of only two, and 5 were based on the revenues ofonly three.
Table 4: MSA-Wide Grants Based on Extremely Concentrated Demand127
Carrier Name
Competitive Showing
% of WireAt Time of WCs With Total
MSA
Current
Centers with
Grant
Collocation WCs
Collocation
Alexandria LAAT&T
Bell South
1
10
10%
Anderson IN
AT&T
Ameritech
1
5
20%
Anderson SC
AT&T
Bell South
1
5
20%
Asheville NC
AT&T
Bell South
1
9
11%
Bangor, ME
Fairpoint
Verizon
1
14
7%
Burlington NC
AT&T
Bell South
1
5
20%
Columbus GA-AL
AT&T
Bell South
1
7
14%
Evansville IN-KY
AT&T
Bell South
1
4
25%
Evansville-Henderson IN-KY
AT&T
Ameritech
1
13
8%
Gainesville FL
AT&T
Bell South
1
6
17%
Harrisburg PA
CenturyLink
Sprint
1
14
7%
Jackson MI
AT&T
Ameritech
1
6
17%
Joplin MO
AT&T
SWBT
1
6
17%
Kalamazoo MI
AT&T
Ameritech
1
8
13%
Lawton OK
AT&T
SWBT
1
4
25%
Lima OH
CenturyLink
Embarq
1
16
6%
Medford, OR
CenturyLink
Qwest
1
7
14%
Memphis TN-AR-MS
AT&T
SWBT
1
5
20%
Muncie IN
AT&T
Ameritech
1
5
20%
Ocala FL
CenturyLink
Sprint
1
10
10%
Owensboro KY
AT&T
Bell South
1
9
11%
Panama City FL
AT&T
Bell South
1
5
20%
Pittsburgh PA
CenturyLink
Sprint
1
14
7%
Pueblo CO
CenturyLink
Qwest
1
5
20%
Salem OR
CenturyLink
Qwest
1
7
14%
Sioux City IA-NE
CenturyLink
Qwest
1
8
13%
St. Cloud, MN
CenturyLink
Qwest
1
8
13%
St. Joseph MO
AT&T
SWBT
1
5
20%
Waco TX
AT&T
SWBT
1
14
7%
(Continued from previous page)
2000); see also BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 00-20, Memorandum Opinion and Order, 15 FCC Rcd 24588 (2000).
127 This chart is based on an analysis of 212 grants of pricing flexibility for channel terminations to end users. It
represents grants made for either Phase I or Phase II pricing flexibility. See generally Appendix D.
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Carrier Name
Competitive Showing
% of WireAt Time of WCs With Total
MSA
Current
Centers with
Grant
Collocation WCs
Collocation
Waterloo-Cedar Falls, IACenturyLink
Qwest
1
6
17%
Battle Creek MI
AT&T
Ameritech
2
8
25%
Boise City, ID
CenturyLink
Qwest
2
8
25%
Clarksville-Hopkinsville TN/KY
AT&T
Bell South
2
12
17%
Eugene-Springfield, OR
CenturyLink
Qwest
2
13
15%
Fargo-Moorehead, ND-MN
CenturyLink
Qwest
2
8
25%
Fort Smith AR-OK
AT&T
SWBT
2
11
18%
Manchester NH
Frontier
Verizon
2
13
15%
Oxnard-Simi Valley-Ventura CA
AT&T
Pac Bell
2
9
22%
Provo-Orem UT
CenturyLink
Qwest
2
10
20%
Springfield IL
AT&T
Ameritech
2
11
18%
Springfield MO
AT&T
SWBT
2
12
17%
Wilmington NC
AT&T
Bell South
2
8
25%
Augusta GA
AT&T
Bell South
3
13
23%
Bloomington-Normal, IL
Frontier
Verizon
3
20
15%
Chattanooga TN-GA
AT&T
Bell South
3
13
23%
Pensacola FL
AT&T
Bell South
3
12
25%
Portland, ME
Fairpoint
Verizon
3
22
14%
46. In sum, more than a third of the cases in which pricing flexibility was granted were premised
on the existence of collocations where 65 percent or more of the special access revenue generated within
the MSA came from 25 percent or fewer of the wire centers in the MSA. This is consistent with extreme
variations in business density. Qualitatively, this suggests that MSA-wide grants of pricing flexibility
have encompassed areas in which little or no competitive entry would be expected.
47. Even with more relaxed standards for what constitutes extremely concentrated demand, the
data shows that 97 grants were based on revenues from less than a third of the wire centers, and 144 were
based on revenues from less than half of the wire centers. Conversely, only 28 grants were based on
revenues of two-thirds or more of the wire centers within the applied-for MSA.128
c.
Data indicates that Competitive LEC entry occurs only in areas of
high business demand
already were, competitive more than a decade ago, recent data indicates that competitors have a strong
tendency to enter in concentrated areas of high business demand, and have not expanded beyond those
areas despite the passage of more than a decade since the grant of Phase II relief. This provides further
evidence that an MSA is probably a much larger area than a competitor would typically choose to enter.
49. For example, data about the Atlanta MSA, where BellSouth was granted Phase II relief in
2000, demonstrates the importance of geographic business establishment density as a driver of
128 See infra Appendix D.
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competitive entry.129 In 2011, staff collected data, on a voluntary basis, about the presence of competitivespecial access facilities for channel terminations to end users in 24 MSAs.130 The following providers
submitted data indicating that they provide facilities-based competition in parts of the Atlanta MSA:
[REDACTED]. The first of these carriers is [REDACTED], another is the [REDACTED], and three
are among the nation’s [REDACTED]. According to those data, only 40 percent of the ZIP codes in the
Atlanta MSA had competitive access facilities supplied by even one of the [REDACTED] reporting
competitors.131
50. The ZIP codes in which the reporting carriers in Atlanta offered facilities-based competition
were those with the highest average business establishment densities. This is reflected in Table 5, which
compares average business establishment density between ZIP code areas in which reporting carriers
compete and ZIP codes areas in which they do not (and includes similar data for the Miami and Norfolk
MSAs).132 Because the data submissions that serve as the basis for Table 5 were voluntary, the reporting
competitors do not necessarily represent all competition in the three MSAs discussed above, and it is
possible that competitors have higher market shares than our data show. However, Table 5 does not show
market shares, but rather the geographic breadth of coverage by competitors within the MSA. Further
analysis of these data indicates that the reporting carriers had a tendency to enter the same areas within
the MSA.133 We have no reason to believe that the competitors’ focus on high business establishment
density indicated by these data would change if we were able to obtain data from any other competitive
providers with access facilities in the Atlanta, Miami and Norfolk MSAs.134 Thus, despite the fact that
our competitive showings rules were designed to predict competitive entry across an MSA, these data
129 Petition of BellSouth Telecommunications, Inc. (BellSouth) for Pricing Flexibility Under Section 69.727 of the
Commission’s Rules for the Specific MSAs, Petition for Pricing Flexibility and attachments, attach. 3 (filed Aug. 24,
2000); see also BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 00-20, Memorandum Opinion and Order, 15 FCC Rcd 24588 (Common Carrier Bur. 2000).
130 The data was responsive to the Special Access Facilities Public Notice, which focused exclusively on facilities-
based competition for channel terminations to end users. See Special Access Facilities Data Public Notice, 25 FCC
Rcd at 15146; see also Special Access Facilities Data Request Clarification, 25 FCC Rcd at 17693.
131 See [REDACTED]; U.S. Census Bureau data. U.S. Census Bureau, ZIP Code Tabulation Areas (2010),
http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug. 13, 2012).
132 Here, business establishment density is computed by averaging the densities of each ZIP code served by reporting
carriers other than the incumbent LEC and areas that are not served (i.e., summing the densities of each ZIP code
and dividing that number by the number of ZIP codes). We conducted the analysis at the level of the ZIP code
because this was the smallest geographic unit for which business establishment data were available from the U.S.
Census. We selected these MSAs from the 24 for which data were requested in the Special Access Facilities Data
Public Notice based on whether a carrier in that MSA had Phase II pricing flexibility, the length of time since Phase
II pricing flexibility had been granted (we selected MSAs which had Phase II for the longest amount of time), and
whether the MSAs were largely served by the single incumbent LEC that had obtained Phase II pricing flexibility.
133 [REDACTED].
134 See infra paras. 52-57. Moreover, we note that AT&T recently submitted maps of competitive fiber in many of
the same MSAs in which we collected data, using data from a commercial database. Letter from David L. Lawson,
Counsel for AT&T Inc., to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No.
05-25, Exh. B (Geotel Report CLEC Fiber Routes and Wire Centers for Atlanta, Chicago, Detroit, Greenville (SC),
Los Angeles, Miami and New Orleans MSAs) (AT&T June 20 Ex Parte Letter). Though AT&T notes that the
database may understate the amount of facilities-based competition, it is likely that the commercial database
includes data from carriers who did not respond to our voluntary data request. Those database-based maps appear to
show that competitors build out in many of the same areas within the MSA as the areas in which carriers who
responded to our data request chose to build facilities.
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suggest a strong tendency for competitive LECs to deploy channel termination facilities to end users onlyin ZIP codes with the highest density of business establishments.135
Table 5: Average Business Establishment Density in MSAs by ZIP Codes With vs. Without Facilities-Based
Competition from Reporting Carriers
136MSA and Status of Number of
% of ZIP
Average
Average of
Incumbent
ZIP Codes
Codes in
Establishment Density
Establishment Density
Provider
in MSA
MSA With
in ZIP Codes with
in ZIP Codes Without
with
Reported
Reported Facilities-Based Reported Facilities-
Reported
Facilities-
Competition (Units:
Based Competition
Facilities-
Based
Estab. Per Square Mile)
(Units: Estab. Per
Based
Competition137
Square Mile)
Competition
Atlanta, GA (2000
AT&T/BellSouth
Phase II Pricing
Flexibility)
59
40%
175
41
Miami, FL (2000
41
31%
390
181
AT&T/BellSouth
Phase II)
Norfolk, VA138
36
78%139
106
59
(2001 Verizon
Phase II)
135 See [REDACTED]; U.S. Census Bureau, County Business Patterns/ZIP Code Business Patterns (2009),
available at ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip (last visited Aug. 13, 2012); U.S. Census
Bureau data, U.S. Census Bureau, ZIP Code Tabulation Areas (2010), http://www.census.gov/geo/ZCTA/zcta.html
(last visited Aug. 13, 2012).
136 Again, we note that the data for this table comes from responses to the Special Access Facilities Public Notice,
which focused exclusively on facilities-based competition for channel terminations to end users, combined with data
from the U.S. Census Bureau. See [REDACTED]; U.S. Census Bureau, County Business Patterns/ZIP Code
Business Patterns (2009), available at ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip (last visited Aug.
13, 2012); U.S. Census Bureau data, U.S. Census Bureau, ZIP Code Tabulation Areas (2010),
http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug. 13, 2012).
137 This column represents the percentage of ZIP codes in the MSA served by reporting carriers.
138 Though the Norfolk MSA includes Currituck, North Carolina, the analysis here only focuses on those ZIP codes
in the Norfolk MSA within Virginia’s borders. See 1992 MSA/RSA Public Notice (listing the component counties
and cities of the Norfolk MSA).
139 The Norfolk, Virginia, MSA has a high percentage of ZIP codes with competitive access to channel terminations
largely due to reporting by a single carrier.
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51. Chart 6 displays the distribution of establishment density for ZIP codes in the three MSAs ofTable 5. The distribution at the top of Chart 6 is for ZIP codes in which no reporting carrier offered
facilities-based competition for end-user channel terminations and the distribution at the bottom is for ZIP
codes in which one or more reporting carriers did offer facilities-based competition for end-user channel
terminations. The chart indicates that the reporting carriers had a greater tendency to offer competition in
ZIP codes with business establishment density greater than 100 establishments per square mile than they
did in ZIP codes with lower establishment densities. Based on an analysis of the individual ZIP code
areas, the probability that the carriers’ location decisions in these metropolitan areas were not tied to
business establishment density is exceedingly small.140 The findings from this analysis are consistent
with other evidence in the record.141
140 The distribution of establishment densities among the 136 ZIP code areas with competitive LEC entry by the
reporting carriers was compared to the distribution of establishment densities among the 192 ZIP code areas with no
competitive LEC entry by the reporting carriers. The mean and median of the "competitive LEC entry" distribution
were both greater than those of the "no competitive LEC entry" distribution. A formal statistical test (the Mann-
Whitney test) concluded that the probability of the two distributions being equal was only 0.000001. See supra n.
133. This means that our statistical analysis shows that there is an extremely low likelihood that the distribution of
establishment densities in ZIP codes with CLEC entry would be the same as ZIP codes without CLEC entry. Since
ZIP code areas with entry by the reporting carriers had higher establishment densities than those with no entry and
this difference is large enough not to be random, we conclude that establishment density was likely a factor in the
decision for a CLEC to enter an area. See [REDACTED]; see also U.S. Census Bureau, County Business
Patterns/ZIP Code Business Patterns (2009), available at ftp://ftp.census.gov/econ2009/CBP_CSV/zbp09totals.zip
(last visited Aug. 13, 2012); U.S. Census Bureau, ZIP Code Tabulation Areas (2010),
http://www.census.gov/geo/ZCTA/zcta.html (last visited Aug. 13, 2012); Robert V. Hogg & Allen T. Craig,
Introduction to Mathematical Statistics 371 (3d ed. 1970).
141 See infra paras. 53-55 (competitive entry does not occur throughout an MSA, but is clustered in specific areas of
high demand), 68-71(providing evidence that facilities buildout by competitive special access providers is very
limited).
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Chart 6:
Distributions of Zip Code Business Establishment Densities By Competitive LEC Entry
for Atlanta, Miami, and Norfolk MSAs52. The fact that there may be other competitors in these MSAs that are not reflected in our data,
that more competitors may enter in the future, or that current competitors may build out to other parts of
the MSA with high business density does not diminish our finding that competitors typically enter in
areas of high business establishment density. Commenters rightly point out that we do not have
comprehensive facilities data for the MSAs above.142 We recognize the limitations of our existing data
set and, as described below, we intend to collect additional data in the coming months that will help
inform our analysis. However, even this partial data provides insight into where competitors choose to
enter within an MSA, and reinforces evidence we have received in this record.143
53. Incumbent LECs generally concede that competitors have focused on areas in which demand
for special access services is very concentrated. As SBC noted:
142 See, e.g., AT&T 2009 PN Comments at 8, 39-44; Verizon 2009 PN Comments at 34-36; Qwest 2009 PN Reply
at 22-23; Letter from Glenn Reynolds, Vice President – Policy, USTelecom, to Marlene H. Dortch, Secretary,
Federal Communications Commission, WC Docket No. 05-25 (filed Apr. 27, 2009).
143 While we cannot rely on this data as conclusive nationwide evidence at this time, see infra para. 71, the responses
are illustrative of trends we have observed in the market and are the best data available to test the viability of the
Commission’s predictions in the Pricing Flexibility Order.
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Demand for special access services is highly concentrated in a relatively small number ofdense urban wire centers and ex-urban wire centers containing office parks and other
campus environments. Indeed, more than [REDACTED] percent of SBC’s special
access demand in Phase II MSAs is concentrated in [REDACTED] percent of its wire
centers. To meet this demand, competitors have deployed myriad competitive facilities –
including fiber connected directly to end-user premises – in markets across SBC’s
territory, particularly in dense, metropolitan areas and large campus environments.144
Verizon states that more than 80 percent of demand is generated in 8 percent of its wire centers, “enabling
competitors to address a large portion of demand through targeted investments.”145 This is consistent
with the Commission’s earlier finding that communities within an MSA share a center of commerce, but
not necessarily common economic characteristics relating to telecommunications deployment.146 This
record also demonstrates that demand exists for special access services outside of these areas and it raises
concerns regarding the availability of competitive alternatives to meet such demand.147
54. Some commenters also allege that extending new facilities is sufficiently easy that
competitors could reach all parts of an MSA if warranted even if they only have facilities in part of an
MSA today.148 SBC, for example, states that a large percentage of its demand for DS1 and DS3 services
runs within 1,000 feet, or about three city blocks, of existing alternative fiber.149 Thus, incumbent LECs
argue that potential competition exists throughout an MSA even if competitive facilities are only present
in a small area. In contrast, competitive carriers assert that entry is far more difficult than incumbents
describe in the record.150 Such commenters state that, as compared to incumbent providers who have
144 SBC Casto Declaration at para. 12. Though SBC further contends that competitors are “close enough to most of
the businesses and other customers that use high-capacity services that it would be simple enough for them to reach
those locations if demand warranted,” this point is related to potential competition and discussed below. See infra
para. 54; see also infra para. 100.
145 Verizon 2005 NPRM Comments at 3.
146 Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, WC Docket No. 04-
313, CC Docket No. 01-338, Order on Remand, 20 FCC Rcd 2533, 52, para. 82 (Feb. 4, 2005) (TRRO) (“MSAs are
comprised of communities that share a locus of commerce, but not necessarily common economic characteristics as
they relate to telecommunications facilities deployment … [Thus] competitive fiber consistently is located in and
around the core business district of every major city – and not necessarily elsewhere. Due to the wide variability in
market characteristics within an MSA, MSA-wide conclusions would substantially over-predict the presence of
actual deployment, as well as the potential ability to deploy.”).
147 See infra para. 55.
148 See SBC Casto Decl. at para. 12 (“And while competitors have not build out to every end user location, their
existing fiber networks generally are close enough to most of the businesses and other customers that use high-
capacity services that it would be simple enough for them to reach those locations if demand warranted.”) (emphasis
added); see also Verizon 2007 PN Reply at 26 (“GAO’s model, therefore, overestimates the number of buildings in
which there is likely to be significant special access demand and fails to acknowledge that, given the marketplace
reality of concentrated demand, competitors’ facilities reach the majority of special access demand and can easily be
extended to reach the remainder.”) (emphasis added).
149 SBC 2005 NPRM Comments at 13.
150 See, e.g., Sprint 2007 PN Comments at 24, n.75; tw telecom 2007 PN Comments at 13-14; BT Americas 2007
PN Comments at 5-6; Covad et al. 2007 Comments, Decl. of Ajay Govil at para. 9 (Covad et al. Govil Decl.); XO et
al. 2007 PN Reply at 22-24; T-Mobile 2007 PN Reply at 4-5; XO 2005 NPRM Comments at 4; Nextel 2005 NPRM
Reply at 14-15; tw telecom 2005 NPRM Reply at 8-10; Sprint 2007 PN Comments, Attachment 1, Declaration of
Gary B. Lindsey (Sprint Lindsey Decl.) at para. 7.
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achieved economies of scope and scale in the provision of telecommunications services, it is noteconomical for competitors to deploy their own facilities to serve all special access demand.151
Competitive carriers note that construction costs, the costs of fiber and electronics, backhaul costs,
transaction costs involved in negotiating with suppliers, and other recurring costs such as rent, utilities,
and maintenance are typically too large to justify provisioning a building with relatively low levels of
demand.152 Covad and XO, for example, estimate the costs of deploying a building lateral to be
[REDACTED], and tw telecom estimates that [REDACTED].153 Commenters, including Covad, XO,
BT Americas, and tw telecom, also point to important barriers to entry, including the delays in or
impossibility of securing municipal franchise agreements, rights-of-way agreements, building access
agreements, and building and zoning permits.154
55. We need not resolve this controversy here, however, for data provided by incumbent LECs
demonstrate that, even if competitors could easily deploy fiber to serve customer demand within 1,000
feet of incumbents’ facilities, many parts of an MSA would still not be served by competitive fiber. For
instance, a 2007 AT&T map depicting competitive fiber deployment in the Austin, Texas MSA appears to
indicate that, out of the 24 AT&T wire centers in the MSA, competitive fiber does not extend to
[REDACTED]. 155 Maps submitted by SBC in 2005 provide similar data.156 For instance, SBC estimates
that in the San Diego MSA, [REDACTED]. This cuts against assertions that the majority of special
access demand could be easily and quickly served by proximate competitive alternatives.157
d.
Analysis of Multi-Incumbent LEC MSAs Also Suggests that MSAs
Do Not Correspond to the Scope of Entry
reflected the scope of competitive entry.158 If our rules operated in a manner consistent with our
predictions, it should follow that uniform relief would generally be granted when two or more price cap
LECs operate in the same MSA. That has not proven to be the case. For example, in the Evansville,
Indiana MSA, BellSouth has 4 wire centers and Ameritech has 13.159 In 2001, Ameritech qualified for
151 See, e.g., T-Mobile 2007 PN Reply at 4-5; Nextel 2005 NPRM Reply at 15; Covad et al. Govil Decl. at para. 9.
152 See BT Americas 2007 Comments at 5-6; Covad et al. Govil Decl. at para. 14; XO et al. 2007 PN Reply at 22-
24; Sprint 2007 PN Comments at 24, n.75; tw telecom 2007 PN Comments at 14; XO 2005 NPRM Comments at 4;
Sprint Lindsey Decl. at 3, para. 7.
153 Covad et al. 2007 PN Comments at 22-23 & Covad et al. Govil Decl. at para. 16; tw telecom 2007 PN
Comments at 13-14.
154 BT Americas 2007 PN Comments at 5-6; Covad et al. 2007 PN Comments at 26 & Covad et al. Govil Decl. at 8-
9; tw telecom 2005 NPRM Comments at 12; XO 2005 NPRM Comments at 4.
155 AT&T 2007 Comments at Conf. Attach. to Castro Decl. (Fiber Maps). See also infra Appendix D at 70
(providing the number of wire centers in the Austin MSA).
156 SBC 2005 NPRM Comments, Attach. 2 (Fiber Maps) (indicating that, among others, [REDACTED]).
157 See SBC 2005 NPRM Comments at 13-14.
158 Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 72.
159 Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone Company, Incorporated
(Ameritech Indiana), Michigan Bell Telephone Company (Ameritech Michigan), The Ohio Bell Telephone Company
(Ameritech Ohio), and Wisconsin Bell, Inc. (Ameritech Wisconsin) for Pricing Flexibility Under Section 69.727 of
the Commission’s Rules for Specific MSAs, Petition for Pricing Flexibility and Appendices, App. C at 14 (filed Nov.
17, 2000); Petition of BellSouth Telecommunications, Inc. for Pricing Flexibility as Specified in Section 69.727 of
the Commission’s Rules, Petition for Pricing Flexibility and Attachments, Attach. 3 at 1 (filed Aug. 2, 2002).
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Phase I pricing flexibility.160 In contrast, BellSouth met the higher competitive showings requirementsfor Phase II pricing flexibility one year later.161 Likewise, in 2002, Verizon satisfied the requirements for
Phase II pricing flexibility for its 2 wire centers in the Bridgeport-Stamford-Norwalk, Connecticut
MSA.162 Two years later, SNET was only able to get Phase I pricing flexibility, based on revenue of 9
out of its 22 wire centers in the same MSA.163 In the total of 12 MSAs in which we granted pricing
flexibility to more than one provider within the MSA, our data shows instances of inconsistent grants of
pricing flexibility in nine.164 These data reinforce our conclusion that competitive conditions can vary
significantly across an MSA.
e.
Billing Practices May Not Be Indicative of Competitive Entry
57. It is not clear, based on our existing record, that incumbent LEC billing practices lead toconsistent pricing across an MSA. Commenters, in particular incumbent LECs, argue that special access
pricing is generally not tied to a small geographic market, but rather pricing is uniform throughout an
MSA or larger geographic region.165 Thus, because tariffs typically encompass an MSA or larger
geographic region, incumbents assert that prices are constrained across that whole area, regardless of the
presence of competition in any individual location.166 Such commenters also argue that it is
administratively burdensome for the Commission to assess whether competition exists for granular
geographic markets, and that it would be onerous for carriers to implement pricing flexibility for
individual buildings or wire centers.167 Thus, AT&T, for example, states that the current pricing
160 Petition of Ameritech Illinois, Ameritech Indiana, Ameritech Michigan, Ameritech Ohio, and Ameritech
Wisconsin for Pricing Flexibility, CCB/CPD No. 00-26, Petition of Pacific Bell Telephone Company for Pricing
Flexibility, CCB/CPD No. 00-23, Petition of Southwestern Bell Telephone Company for Pricing Flexibility,
CCB/CPD No. 00-25, Memorandum Opinion and Order, 16 FCC Rcd 5889 (Common Carrier Bur. 2001).
161 See BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, WBC/Pricing
No. 02-24, Memorandum Opinion and Order, 17 FCC Rcd 23725 (Wireline Comp. Bur. 2002).
162 See Petition of Verizon for Pricing Flexibility for Special Access and Dedicated Transport Services, CCB/CPD
File No. 01-27, Memorandum Opinion and Order, 17 FCC Rcd 5359, 5371, para. 27 (Common Carrier Bur. 2002);
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, Petition for Pricing
Flexibility and Attachments, Attach. D (filed Nov. 29, 2001).
163 See Petition of Southern New England Telephone Company for Pricing Flexibility as Specified in Section 69.727
of the Commission’s Rules for the Hartford, et al., CT and Bridgeport, et al., CT MSA, Petition for Pricing
Flexibility and Appendices, App. C at 1 (filed Feb. 13, 2004); Southern New England Telephone Company Petition
for Pricing Flexibility for Special Access and Dedicated Transport Services, WCB/Pricing No. 04-12, Memorandum
Opinion and Order, 19 FCC Rcd 10298, 10305, para. 16 (Wireline Comp. Bur. 2004).
164 As discussed above, our analysis of pricing flexibility grants was restricted to grants of pricing flexibility for
channel terminations to end users.
165 SBC 2005 NPRM Reply at 54; Verizon 2009 PN Reply at 22. Verizon states that it “offers discounts across
broad geographic areas because this is consistent with the way that many customers purchase special access
services. In addition, broad geographic discounts are also responsive to customer requests for discounts at every
location where they purchase special access services.” Letter from Donna Epps, Vice President Federal Regulatory
Affairs, Verizon, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25 at
5 (filed Aug. 16, 2010) (Verizon Aug. 16, 2010 Ex Parte Letter).
166 AT&T 2009 PN Reply at 32-33; Qwest 2009 PN Comments at 28; SBC 2005 NPRM Reply at 55; Verizon 2005
NPRM Comments at 44-45. For example, AT&T notes that “[t]o the extent transport costs may be higher in rural
areas, that is a consequence of the longer distances and lower population densities in those areas – the per-mile
pricing of special access is almost always uniform throughout an MSA.” AT&T 2009 PN Reply at 32.
167 AT&T 2009 PN Comments, Exh. A, Decl. of Dennis W. Carlton & Hal S. Sider (AT&T Carlton / Sider Decl.) at
para. 19; AT&T 2009 PN Reply at 31-32; SBC 2005 NPRM Reply at 54-56; Verizon 2009 PN Reply at 24, 26; see
(continued….)
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flexibility rules strike “a reasonable balance between the costs and benefits of identifying with greatergranularity those geographic areas where LECs face competition from rivals with sunk investments and
the administrative manageability of pricing flexibility rules.”168
58. There also is evidence, however, that incumbent LEC billing practices may not be uniform
across MSAs. Price cap LECs have the authority to set prices in zones within an MSA or the non-MSA
portions of a study area.169 In the Pricing Flexibility Order, the Commission amended Section 69.123 of
its rules to permit incumbent price cap LECs to deaverage geographically their rates for access services in
the trunking basket, and to allow price cap incumbent LECs to define the scope and number of density
zones.170 The Commission noted that “averaging across large geographic areas distorts the operation of
markets in high-cost areas because it requires incumbent LECs to offer services in those areas at prices
substantially lower than their costs of providing those services.”171 However, by granting incumbent
LECs the flexibility to “choose the number of zones and the criteria for establishing zone boundaries, they
are more likely to establish reasonable and efficient pricing zones.”172 The record indicates that price cap
LECs do, in at least some cases, take advantage of Section 69.123’s geographic deaveraging
provisions.173 It is therefore possible for price cap LECs to charge different prices in, for example, rural
and urban areas within an MSA or non-MSA portion of a study area, and the record indicates that carriers
may engage in this practice.174
59. Moreover, in Phase I and Phase II pricing flexibility areas, carriers can and do offer contract
tariffs to special access customers on an individualized basis. The record indicates that such contract
(Continued from previous page)
Qwest 2009 PN Comments at 26-28. Verizon notes that, for instance, in 2009, there were 71,000 total significant
commercial buildings in the Chicago MSA. Verizon 2009 PN Reply at 23.
168 AT&T 2009 PN Comments, AT&T Carlton / Sider Decl. at para. 35. AT&T notes that in WorldCom, the D.C.
Circuit upheld the Commission’s selection of the MSA as the appropriate geographic market for pricing flexibility.
AT&T 2007 PN Reply at 44.
169 See 47 C.F.R. § 69.123; Pricing Flexibility Order 14 FCC Rcd at 14252-57, paras. 59-66.
170 Pricing Flexibility Order 14 FCC Rcd at 14252, para. 59.
171 Pricing Flexibility Order 14 FCC Rcd at 14254, para. 61.
172 Id. at 14254, para. 62.
173 See, e.g., Verizon Aug. 16, 2010 Ex Parte Letter at 5 (“The discounts available under Verizon’s non-circuit
specific discount plans are applied to Verizon’s standard or base tariffed rates, which typically vary by study area
(which are roughly equal to an entire state and typically contain several different density zones) and also by density
zone. As a result, customers generally pay a range of prices for special access services purchased under Verizon’s
generally available, non-circuit specific discount plans.”); Verizon Wholesale, Density Cells/Zones (East), XLS File,
http://www22.verizon.com/wholesale/searchportal/index.jsp?datapath=http://www22.verizon.com/wholesale/&ip_te
xt=density&category (last visited Aug. 13, 2012); CenturyLink Wholesale, MSA & Geographic Zone Data for
Pricing, Density, and Maintenance and Repair Intervals,
http://www.centurylink.com/wholesale/guides/geozone.html (last visited Aug. 13, 2012).
174 See, e.g., T-Mobile 2009 PN Reply at 8 (“In some rural areas, prices for connectivity may be multiples of prices
for the same level of service in more populated areas. Many incumbent LECs in rural markets continue to charge
legacy prices for special access even though their facilities may have been paid off for years.”); USTA 2009 PN
Reply, Fact Report Appendix at para. 5 (“Under FCC rules, price-cap regulated rates may vary across “density
zones” to reflect the different characteristics of urban, suburban, and rural geographies. As one would expect, in
some (not all) cases, pricing by zones persists under pricing flexibility.”); Letter from Thomas Jones, Counsel for tw
telecom, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25 Attach. A
at 3, 6-7 (filed July 9, 2009) (tw telecom July 9, 2009 Ex Parte Letter) (illustrating price variations for like services
in different areas within a single tariffed region).
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terms are rarely, if ever, adopted by other special access purchasers.175 Thus, whether special accesspricing is, in fact, disciplined across a broad geographic area as claimed by incumbent LECs remains an
open question.
f.
Changes to MSAs Impact Non-MSA Rules
60. Price cap LECs seeking pricing flexibility under our rules in a non-MSA area must makecompetitive showings throughout the entire non-MSA portion of a study area, rather than a Rural Service
Area or smaller geography.176 The Commission justified its adoption of the non-MSA as the appropriate
geographic area because it predicted that “competitive entry into rural areas [would] be less concentrated
than in urban areas.”177 Embarq contends that our decision to use the non-MSA parts of a study area,
instead of an RSA, has made it impossible for Embarq to obtain relief in Missouri despite the presence of
competition.178 Though Embarq’s situation may be indicative of a problem specific to our choice of
adopting the non-MSA, any changes we find to be warranted with respect to the MSA, as discussed
above, must be reflected by corresponding changes to non-MSA areas.
61. Moreover, the record in this proceeding suggests that the Pricing Flexibility Order’s
prediction that competition in rural areas would not be concentrated was incorrect.179 A review of our
grants of pricing flexibility for channel terminations to end users in non-MSA areas highlights problems
similar to what we found in MSA areas. Specifically, out of five of these types of grants, three were
based on high concentrations of demand. Verizon’s grant in non-MSA Idaho was based on the revenues
of 3 out of 26 wire centers,180 and its grant for non-MSA West Virginia was based on revenues from 8 out
of 97 wire centers.181 A third grant, from ACS, was based on revenues from only half of the wire centers
in non-MSA Juneau, Alaska.182 This suggests that, at the time the grant of pricing flexibility was made,
175 See, e.g., AT&T Response to Special Access Competition Data Public Notice, Question B.8.d at 3 (stating that
[REDACTED] subscribe to each of its contract tariffs in the surveyed MSAs); Letter from Melissa E. Newman,
Vice President – Federal Regulatory Affairs, CenturyLink, to Marlene H. Dortch, Secretary, Federal
Communications Commission, WC Docket No. 05-25, RM-10593, at 2 (filed June 19, 2012) (stating that “it is rare
for a customer to opt into an existing contract-based tariff negotiated by a different customer,” because those
contract tariffs are “individually negotiated and tailored to meet individual customers’ needs”) (CenturyLink June
19, 2012 Ex Parte Letter); CenturyLink Response to Special Access Competition Data Public Notice, Question
III.B.8 (filed Dec. 5, 2011) (same).
176 47 C.F.R. § 69.707(b); Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
177 Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
178 Embarq 2007 PN Comments at 15.
179 Pricing Flexibility Order, 14 FCC Rcd at 14261, para. 76.
180 See Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, Petition for
Pricing Flexibility and Attachments, Attach. D at 27 (filed Nov. 29, 2001); Verizon Petition for Pricing Flexibility
for Special Access and Dedicated Transport Services, CCB/CPD File No. 01-27, Memorandum Opinion and Order,
17 FCC Rcd 5359, 5371, para. 27 (Common Carrier Bur. 2002); see also App. D.
181 See Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, Petition for
Pricing Flexibility and Attachments, Attach. D (filed Dec. 13, 2002); Verizon Petition for Pricing Flexibility for
Special Access and Dedicated Transport Services, WCB/Pricing File No. 02-33, Memorandum Opinion and Order,
18 FCC Rcd 6237, 6244, para. 17 (Wireline Comp. Bur. 2003); see also App. D.
182 See ACS of Anchorage, Inc., ACS of Alaska, Inc., and ACS of Fairbanks, Inc. Petition for Phase II Pricing
Flexibility Pursuant to Sections 69.709 and 69.711 of the Commission’s Rules, Petition for Pricing Flexibility and
Appendices, App. B at 3-4 (filed Jan. 29, 2010); Petition of ACS of Anchorage, Inc., ACS of Alaska, Inc., and ACS of
Fairbanks, Inc., for Pricing Flexibility Pursuant to Sections 69.709 and 69.711 of the Commission’s Rules,
(continued….)
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competitive conditions varied greatly within the non-MSA areas. Even if new competitors subsequentlyentered the non-MSA, for the reasons discussed above with respect to MSAs, they are likely to locate
only in areas of high demand.183 Thus, the evidence in this proceeding suggests highly concentrated
competitive conditions at the time pricing flexibility was granted. This indicates that the Pricing
Flexibility Order’s prediction that competition in non-MSA areas would be less concentrated than in
urban areas may have been incorrect.
3.
The Competitive Showings Are Not as Administratively Simple as Expected
62. In addition to the issues identified above, our experience shows that our rules, which wereintended first and foremost to be straightforward and simple to administer, are not. Specifically, in
adopting the Pricing Flexibility Order, the Commission concluded that using MSA-based rules would be
simpler and less expensive to administer than rules based on other geographies or regimes that might
create a “more finely-tuned picture of competitive conditions.”184 However, the rules have not been as
administratively simple or easy to verify as the Commission anticipated, nor does it appear that they have
provided bright-line guidance to industry. We therefore choose to redirect our efforts to conducting a
more complete market analysis, as discussed in greater detail in Section V below.
63. Previous pricing flexibility petitions demonstrate that our rules have failed to provide a clear-
cut guide to industry. For example, Section 22.909(a) of our rules define MSAs for pricing flexibility, as
“…306 areas… defined by the Office of Management and Budget, as modified by the FCC.”185 Because
OMB changes the list of MSAs and component counties, as discussed above, Section 22.909 of the
Commission’s rules refers to a static list, based on data from the 1980 Census.186 Nonetheless, the fact
that our rules refer to areas in which to make a competitive showing as “MSAs” has apparently created
some confusion among petitioners, resulting in petitions containing data calculated over different MSA
definitions. For example, Pacific Bell submitted a petition for pricing flexibility in the San Diego and
Sacramento MSAs based on the list referenced in Section 22.909 of our rules.187 In contrast, Embarq and
Cincinnati Bell based their 2007 pricing flexibility petitions on MSAs drawn in accordance with a
“Metropolitan Areas (1993)” map, located on the Commission’s website, that provides a detailed
description of how the map includes MSAs as defined by OMB.188 However, because the 1993 MSAs
(Continued from previous page)
WCB/Pricing File No. 10-02, Order, 25 FCC Rcd 7128, 7135, para. 20 (Wireline Comp. Bur. 2010); see also App.
D.
183 See SBC Casto Decl. at para. 6; see also supra paras. 52-55 (discussing competitors showing a high tendency to
locate in areas of concentrated high business demand).
184 Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 74.
185 47 C.F.R. 22.909(a).
186 See supra para. 26; see also supra n.82.
187 Our pricing flexibility rules define the term “MSA” at 47 C.F.R. § 22.909(a). See e.g., Petition of Pacific Bell
Telephone Company for Pricing Flexibility as Specified in Section 69.727 of the Commission’s Rules for the San
Jose, San Francisco, Sacramento, Los Angeles/Long Beach, Orange County, Oakland and San Diego CA MSAs,
Petition for Pricing Flexibility and Appendices, App. D at 1 (filed Nov. 17, 2000) (available on the Commission’s
Electronic Tariff Filing System).
188 Petition of Embarq Local Operating Companies (Embarq) for Phase I and Phase II Pricing Flexibility for
Special Access and Dedicated Transport Services in the Lima, Ohio and Mansfield, Ohio Metropolitan Statistical
Areas and Phase I and Phase II Pricing Flexibility for Channel Termination Services in the Lima, Ohio
Metropolitan Statistical Area, Petition for Pricing Flexibility and Attachments at Attach. B at 2 n.2 (filed Apr. 30,
2007) (Embarq 2007 Pricing Flexibility Petition); Petition of Cincinnati Bell Telephone Company LLC (CBT) for
Phase I Pricing Flexibility for Special Access, Dedicated Transport Services and End-User Channel Terminations,
and Phase II Pricing Flexibility for POP Channel Termination in the Cincinnati, Ohio-Kentucky-Indiana
(continued….)
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were more recently constructed and based on 1990 Census data, the component counties that make upeach MSA are often different from those in the MSA list referenced in Section 22.909 of our rules.189
Thus, our supposedly bright-line rules have failed to provide guidance to sophisticated firms such as
Embarq and Cincinnati Bell.
64. Moreover, our competitive showings are ambiguous and require time-intensive review and
policy decisions by Commission staff. In order to fulfill the requirements of the revenue-based
competitive showings, a petitioner must: a) provide a list of wire centers within that MSA; and b)
calculate revenues based on that number.190 However, our rules do not specify how to determine whether
a wire center belongs to a specific MSA, nor do they provide enough specifics as to what revenues should
be included. Therefore, as applied, petitioners are making these determinations using different
methodologies. For example, Southwestern Bell determined which wire centers belonged to the Amarillo
and St. Louis MSAs based on “the Collocation Implementation, Collocation Point of Contact and
Tracking Database,” which includes wire center information for all MSAs.191 It excluded from its
revenue calculations those revenues derived from Individual Case Basis (ICB) arrangements,192 i.e., “the
carrier practice of providing a particular service in response to a specific request from a customer under
individualized rates, terms, and conditions.”193 An ICB arrangement may involve services directly related
(Continued from previous page)
Metropolitan Statistical Area, and Phase I Pricing Flexibility for Special Access Dedicated Transport Services and
POP Channel Terminations in the Hamilton – Middletown, Ohio Metropolitan Statistical Service Area, Petition for
Pricing Flexibility and Attachments at Attach. B at 2 n.8 (filed Nov. 27, 2007) (Cincinnati Bell 2007 Pricing
Flexibility Petition).
189 The Embarq and Cincinnati Bell petitions cite http://transition.fcc.gov/oet/info/maps/census/metroareas/, which
shows a map of the 1993 MSAs as defined by OMB. Embarq 2007 Pricing Flexibility Petition at Attach. B at 2 n.2;
Cincinnati Bell 2007 Pricing Flexibility Petition at Attach. B at 2 n.8. A text-based list of the 1993 MSAs and
component counties can be found at http://www.census.gov/population/metro/files/lists/historical/93mfips.txt. But
cf. 1992 MSA/RSA Public Notice, 7 FCC Rcd at 742-97 (listing a different set of MSAs and component counties).
190 See 47 C.F.R. §§ 1.774, 64.707, 64.713.
191 Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section 69.727 of the
Commission’s Rules for the Amarillo TX, and St. Louis MO MSAs, Petition for Pricing Flexibility and appendices,
app. D at 2 (filed Dec. 19, 2001).
192 Id. at App. D, 3. See also, e.g., Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell
Telephone Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech Michigan),
The Ohio Bell Telephone Company (Ameritech Ohio), and Wisconsin Bell, Inc. (Ameritech Wisconsin) for Pricing
Flexibility Under Section 69.727 of the Commission’s Rules for the Specific MSAs, Petition for Pricing Flexibility
and Appendices, App. D at 3 (filed Jan. 30, 2003); Petition of Pacific Bell Telephone Company for Pricing
Flexibility as Specified in Section 69.727 of the Commission’s Rules for the Bakersfield, Fresno, Los Angeles-Long
Beach, et al., Oxnard-Simi Valley-Ventura, Santa Rosa-Petaluma, and Stockton, CA MSAs, Petition for Pricing
Flexibility and Appendices, App. D at 3 (filed Jan. 30, 2003).
193 Local Exchange Carriers Individual Case Basis DS3 Service Offerings, CC Docket No. 88-166, Order on
Remand, 23 FCC Rcd 569, 570 n. 2 (2008). See also Southwestern Bell Telephone Company, CC Docket No. 97-
158, Transmittal No. 2633, Order Designating Issues for Investigation, 12 FCC Rcd 10231, 10242, para. 20 (CCB
1997) (“[U]nlike contract tariffs, although the tariffs containing the specific service offerings and ICB rates are filed
with the Commission, ICB offerings are not immediately available to other prospective customers.”) (citing Price
Cap Performance Review for Local Exchange Carriers, CC Docket Nos. 94-1, 93-124, 93-197, Second Further
Notice of Proposed Rulemaking, 11 FCC Rcd 858, 888 (1995); Common Carrier Bureau Restates Commission
Policy on Individual Case Basis Tariff Offerings, Public Notice, 11 FCC Rcd 4001, 4001 (CCB 1995)) (defining
ICB offerings and finding that such offers are generally not available to other prospective purchasers). The
Commission has explained that “there are two types of ICB offerings: (1) those that provide a new technology for
which little demand initially exists, but that later evolve into generally-available offerings as demand grows; and (2)
(continued….)
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to the provision of special access services, such as special conditioning of a line. In contrast, in a 2008petition, Windstream acknowledged that some of its wire centers located outside the applied-for MSA
may serve locations inside the MSA boundary.194 Therefore, based on its own engineering maps,
“Windstream calculated the exchange area that fell within the MSA. If the area calculated exceeded 50
percent of the total area of the wire center, the wire center was assigned to the MSA.”195 In contrast to
Southwestern Bell’s system of calculating revenues, Windstream included ICB revenues in its revenue
calculations.196 Thus, in order to properly evaluate whether these petitioners have fulfilled the
requirements of our rules, which are silent on these issues, Commission staff would have to do a thorough
review of the company’s internal records, exercise an extensive amount of independent judgment, and
make some significant policy decisions as to whether each company’s interpretation of our rules are
consistent with the terms of the Pricing Flexibility Order.
C. Shortcomings of Competitive Showings Based Exclusively on Collocation
65. Significant questions also exist about the reliability of collocation as a proxy for facilities-based competition in end user channel terminations. Charges for special access generally are divided into
channel termination charges and channel mileage charges.197 Channel termination charges recover the
costs of facilities between the customer’s premises and the LEC end office and the costs of facilities
between the IXC POP and the LEC serving wire center.198 Channel mileage charges recover the costs of
facilities (also known as interoffice facilities) between the serving wire center and the LEC end office
serving the end user.199 In the Pricing Flexibility Order, the Commission found that pricing flexibility for
channel terminations between a LEC end office and a customer premises required a higher threshold
showing than pricing flexibility for other dedicated transport and special access services.200 In reaching
this determination, the Commission acknowledged that the economics of channel terminations between
the LEC office and the customer premises make it more costly for new entrants to compete in that product
market.201
(Continued from previous page)
those that are unique service arrangements offered to meet the needs of specific customers and that never evolve into
a generally-available offering.” Local Exchange Carriers' Rates, Terms, and Conditions for Expanded
Interconnection Through Physical Collocation for Special Access and Switched Transport, CC Docket No. 93-162,
Second Report and Order, 12 FCC Rcd 18730, 18906, para. 428 (1997).
194 Petition of Windstream Kentucky East, LLC for Pricing Flexibility as Specified in Section 69.727 of the
Commission’s Rules for the Lexington, Kentucky MSA and Ashland, Kentucky MSA, Petition for Pricing Flexibility
and Appendices, App. D at 1 (filed June 13, 2008).
195 Id.
196 Id. at 2.
197 Special Access NPRM, 20 FCC Rcd at 1997, para. 8.
198 Id.
199 Id.
200 Pricing Flexibility Order, 14 FCC Rcd at 14278-79, paras. 101-02.
201 Special Access NPRM, 20 FCC Rcd at 2022, para. 82 n.203. The Commission noted that
Entrance facilities, direct-trunked transport, channel mileage, and the flat-rated portion of tandem-
switched transport all involve carrying traffic from one point of traffic concentration to another.
Thus, entering the market for these services requires less investment per unit of traffic than is
required, for example, for channel terminations between an end office and customer premises.
Furthermore, investment in entrance facilities enables competitors to provide service to several
end users, while channel terminations between an end office and customer premises serve only a
single user. Accordingly, competitors are likely to enter the market for entrance facilities, direct-
(continued….)
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1.Rationale for Adopting Collocation as the Sole Indicator of Competition
66. The competitive showings require price cap LECs to offer evidence of collocation by“competitors that use transport provided by a transport provider other than the incumbent LEC” for
granting pricing flexibility for special access and dedicated transport. The Commission considered that
the competitive showings reasonably balanced two goals: “(1) having a clear picture of competitive
conditions in the MSA, so that we can be certain that there is irreversible investment sufficient to
discourage exclusionary pricing behavior; and (2) adopting an easily verifiable, bright-line test to avoid
excessive administrative burdens.”202 The Commission found that collocation was a “reliable indicator of
sunk investment by competitors” in dedicated transport and special access services other than channel
terminations because it demonstrated a financial investment by the competitor in establishing facilities in
that wire center.203
67. With respect to channel terminations, the Commission acknowledged that “collocation by
competitors does not provide direct evidence of sunk investment by competitors in channel terminations
between the end office and the customer premises.”204 Indeed, the Commission recognized that “a
competitor collocating in a LEC end office continues to rely on the LEC's facilities for the channel
termination between the end office and the customer premises, at least initially, and thus is susceptible to
exclusionary pricing behavior by the LEC.”205 The Commission predicted, however, that “that a new
market entrant would provide channel terminations through collocation and leased LEC facilities only on
a transitional basis and [would] eventually extend its own facilities to reach its customers.”206 It thus
concluded that despite “the shortcomings of using collocation to measure competition for channel
terminations, . . . it appears to be the best option available to us at this time.”207
2.
More Recent Evidence Suggests that Collocation May Produce an
Unreliable Picture of Competitive Conditions
prediction that collocators would eventually build their own channel terminations to end users. By the
end of 2005, six years after the adoption of the Pricing Flexibility Order, SBC Communications, Inc.
(SBC) had obtained pricing flexibility for channel terminations to end users in 67 MSAs.208 That same
year, it acquired AT&T Corporation.209 Both the Commission and the Antitrust Division of the U.S.
Department of Justice (“the Division”) approved the transaction, subject to several concessions, including
(Continued from previous page)
trunked transport, channel mileage, and the flat-rated portion of tandem-switched transport before
they enter the market for channel terminations between a LEC end office and a customer premises.
Id. (quoting Pricing Flexibility Order, 14 FCC Rcd at 14279, para. 102).
202 Pricing Flexibility Order, 14 FCC Rcd at 14262, para. 78.
203 Id. at 14265-66, paras. 81-82 (stating that “in the past, the presence of an operational collocation arrangement in a
wire center almost always implied that a competitor has installed transmission facilities to compete with the
incumbent”).
204 Id. at 14279, para. 103.
205 Id.
206 Id. at 14280, para. 104.
207 Id. at 14279, para. 103.
208 See infra App. D.
209 See Letter from Wayne Watts, Senior Vice President and Associate General Counsel, AT&T, to Marlene H.
Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-65 (filed Dec. 19, 2005) (AT&T Dec.
19, 2005 Ex Parte Letter).
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divestitures.210 Despite SBC’s success in obtaining pricing flexibility in many MSAs, the Division’santitrust investigation concluded that “for the vast majority of commercial buildings in its territory, SBC
is the only carrier that owns a last-mile connection to the building.”211 That same year, the Commission’s
review of Qwest’s petition for forbearance in Omaha, Nebraska showed that some buildout to end users
had occurred, but only in 9 out of 24 of Qwest’s wire centers in the Omaha MSA.212 This was three years
after Qwest had obtained Phase II pricing flexibility in the Omaha MSA, based on the revenues of 11 wire
centers (8 of which overlapped with the 9 wire centers with buildout to end users).213 In 2006, the U.S.
Government Accountability Office (“GAO”) analyzed 16 metropolitan areas in which the Commission
had granted pricing flexibility and found that facilities-based competitors served fewer than 6 percent of
buildings with at least a DS1-level of demand.214 In 2010, Qwest noted in its transfer of control
application with CenturyLink that “it is Qwest’s practice generally to use the facilities of other carriers
when it sells services to enterprise customers in locations outside of its service territory.”215
210 SBC/AT&T Merger Order, 20 FCC Rcd at 18310-11, para. 40; United States v. SBC Communications, Inc., Civil
Action No. 1:05CV02102, Final Judgment (D.D.C. filed Oct. 27, 2005).
211 Competitive Impact Statement, U.S. v. SBC Communications Inc. and AT&T Corp., Civil Action No.
1:05CV02102 (EGS) at 6 (filed Nov. 16, 2005) (cited in ATX et al. 2007 PN Comments at 17-18), available at
http://www.justice.gov/atr/cases/f213000/213026.pdf.
212 Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. §160(c) in the Omaha Metropolitan
Service Area, WC Docket No. 04-223, Memorandum Opinion and Order, 20 FCC Rcd 19415, 19444-45, paras 59-
60 (2005) (Qwest Omaha Forbearance Order) (granting forbearance in 9 of 24 wire centers in Qwest’s petition
based on greater competitive deployment in those 9 wire centers). The Commission noted that
except in limited geographic areas, Qwest has not demonstrated that it is subject to significant
competition from competitors that do not rely heavily on Qwest’s wholesale services . . . . Cox is
not able to provide the same level of competition where it does not have extensive coverage as
where it has such coverage. We find that forbearing from section 251(c)(3) and the other market-
opening provisions of the Act and our regulations where no competitive carrier has constructed
substantial competing ‘last-mile’ facilities is not consistent with the public interest and likely
would lead to a substantial reduction in the retail competition that today is benefiting customers in
the Omaha MSA.
Qwest Omaha Forbearance Order, 20 FCC Rcd at 19444-45, paras 59-60. Although the Commission’s analysis in
the Qwest Omaha Forbearance Order concerned the use of loop and transport network elements to compete in the
retail market, the essential distinction between established, successful, facilities-based competition vs. reliance on
wholesale access to facilities applies equally to special access services.
213 See Qwest Petition For Pricing Flexibility for Special Access and Dedicated Transport Services, WCB/Pricing
File No. 02-01, Memorandum Opinion and Order, 17 FCC Rcd 7363 (Wireline Comp. Bur. 2002); see also Qwest
Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, App. F (Required Collocator
Demonstrations) at 18 (filed Dec. 31, 2001); Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C.
160(c), Exh. A, Affidavit of David L. Teitzel at 2 n.3.
214 U.S. Government Accountability Office, FCC Needs to Improve its Ability to Monitor and Determine the Extent
of Competition in Dedicated Access Services 10, 19 (2006), available at http://www.gao.gov/assets/260/254069.pdf.
215 Qwest Communications International, Inc., Transferor, and CenturyTel, Inc. d/b/a CenturyLink,
Transferee, Application for Transfer of Control Under Section 214 of the Communications Act, as
Amended, at 6 n. 36 (filed May 10, 2010) (“Although it is Qwest’s practice generally to use the facilities of other
carriers when it sells services to enterprise customers in locations outside of its service territory, it is possible that,
within Qwest’s 14-state region, Qwest has built facilities to serve individual customers within CenturyLink territory.
Any such situations would be limited to sales to customers with multiple sites, within and outside of Qwest territory.
Qwest has not built facilities in CenturyLink territory for the purpose of marketing to multiple customers.”)
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69. Commenters’ pleadings also suggest that collocation has not always developed into facilities-based competition. As evidence to support its assertion that our predictions about collocation were
inaccurate, TW Telecom relied on data supplied by Verizon to assert that between 1996 and 2004, non-
incumbent LEC channel termination buildout to commercial buildings increased from 24,000 buildings to
approximately 31,467 buildings (a change of 7,467), in contrast to the “millions of buildings served by
incumbent LEC fiber.”216 In 2005, WilTel estimated that competitors had deployed to 25,000 buildings,
whereas Sprint asserted in 2007 that only 22,000 buildings had competing connections.217 Moreover, TW
Telecom states that, as of a 2003 Commission finding, competitors serve only three to five percent of
commercial buildings nationwide.218 It also submitted evidence that it contends shows that, four years
after Verizon had obtained Phase I pricing flexibility in the New York MSA for channel terminations to
end users, competitors served fewer than [REDACTED] of 220,000 buildings in New York City.219 Its
evidence also showed that, in Chicago, where Ameritech had obtained pricing flexibility for channel
terminations in 2003, competitors connected to only 429 out of 241,000 commercial buildings.220
70. Commenters also argue that the mere installation of third party facilities within wire centers
does not equate to competition by collocators because in some cases they are not being used to provide
competitive service. For example, in its oppositions to two incumbent LEC petitions for pricing
flexibility, AT&T argued that it never used the facilities it had installed in some of the wire centers listed
in the petitions, and it was therefore erroneously identified as a competitive collocator.221 However, the
competitive showing rules do not require incumbent LECs to show that collocation facilities are being
used, but only that they exist in the wire center.222 Moreover, Sprint argues that collocation “is indicative
216 tw telecom 2005 NPRM Reply at 5-6.
217 WilTel 2005 NPRM Reply at 6; Letter of Anna Gomez, VP-Government Affairs, Sprint/Nextel to Marlene H.
Dortch, Secretary, FCC (filed Mar. 27, 2007), Attachment at 2 n.4.
218 tw telecom / One Communications 2007 PN Comments at 9; tw telecom 2005 NPRM Reply at 5-6. See also tw
telecom / One Communications 2007 PN Comments at 8 (citing Triennial Review Order, 18 FCC Rcd at 17155,
para. 298 n.856.).
219 tw telecom 2005 NPRM Reply at 5-6.
220 Id. at 15-16; tw telecom / One Communications 2007 PN Comments at 9.
221 Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, Interexchange Carrier
Purchases of Switches Access Services Offered by Competitive Local Exchange Carriers, Petition of US West
Communications, Inc. for Forbearance from Regulation as a Dominant Carrier in the Phoenix, Arizona MSA,
Petition for Pricing Flexibility and attachments (filed Mar. 20, 2001); see also AT&T Opposition to Frontier Petition
for Pricing Flexibility for Special Access and Dedicated Transport Services, CCB/CPD No. 01-07 (filed Apr. 4,
2001); Frontier Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, CCB/CPD File
No. 01-07, Memorandum Opinion and Order, 16 FCC Rcd 13885, 13889-90, para. 10 (Wireline Comp. Bur. 2001);
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, Petition for Pricing
Flexibility and attachments (filed Nov. 29, 2001); AT&T Opposition to Verizon Petition for Pricing Flexibility for
Special Access and Dedicated Transport Services at 3 (filed Dec. 13, 2001); Verizon Petition for Pricing Flexibility
for Special Access and Dedicated Transport Services, CCB/CPD File No. 01-27, Memorandum Opinion and Order,
17 FCC Rcd 5359, 5365-66, paras. 13-14 (Common Carrier Bur. 2002) (Verizon 2002 Pricing Flexibility Order).
AT&T noted that bankrupt competitive LECs were not in a position to comment on those proceedings. Verizon
2002 Pricing Flexibility Order, 17 FCC Rcd at 5356-66 nn.39-40.
222 BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, CCB/CPD File
No. 00-20, Memorandum Opinion and Order, 15 FCC Rcd 24588 (Common Carrier Bur. 2000).
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not that the competitor has placed its own facilities into buildings but rather that it has dependence uponthe incumbent’s facility.”223
71. We acknowledge that this evidence is limited. The Commission’s recent attempts to obtain
more robust facilities data through voluntary production have provided useful, but incomplete, data.224
Nonetheless, the evidence we do have suggests our predictions were inaccurate and that the accuracy of
the use of collocations as a proxy for actual or potential competition warrants further investigation. We
therefore intend to issue a data request that will require carriers to submit the data we need to test the
accuracy of the predictions we made about collocation in the Pricing Flexibility Order.
3.
Existence of Non-Collocation Based Competition Does Not Undercut the
Need to Suspend Grants of New Pricing Flexibility Petitions
undercounts entry by non-collocating firms who have built their own facilities.225 We agree, but because
we lack reliable data on the extent or location of this competition, it does not change our conclusion that
new pricing flexibility petitions should be suspended at this time.
73. Several commenters discuss growing competition from non-collocating competitors, such as
cable. For example, Verizon claims that the competitive showings preclude it from obtaining pricing
flexibility commensurate to the level of competition they claim exists in Los Angeles, Boston, New York,
Philadelphia, and Washington, DC, because our rules do not account for several non-collocating firms
that Verizon’s research indicates have operations in those areas. 226 AT&T has similar complaints for its
operations in Chicago, Dallas, Houston, Detroit, San Diego and St. Louis, contending that it has lost
special access business to cable firms in many instances.227 Embarq asserts that it too has lost business to
a competitive LEC, Cox Cable, that does not collocate in Las Vegas, Nevada, and Fort Walton Beach and
Ocala, Florida.228 Price cap LECs also criticize the rules for excluding competitors that collocate at
“collocation hotels,” as opposed to price cap LEC wire centers.229 Thus, the record indicates that at times
223 Letter from Paul Margie & Rachel Petty, Counsel, Sprint, to Marlene H. Dortch, Secretary, Federal
Communications Commission, Federal Communications Commission, WC Docket No. 05-25, RM-10593,
WCB/Pricing Docket Nos. 12-04, 12-05, 12-06 at 5 (filed May 24, 2012) (quoting July 2010 Special Access
Workshop Transcript at 23-24 (July 19, 2010) (Remarks of Lee Selwyn, Economics and Technology, Inc.),
http://reboot.fcc.gov/c/document_library/get_file?uuid=f01ad781-6dd7-4ace-a7fc-bc296dc88315&groupId=19001).
224 See Special Access Facilities Data Public Notice, 25 FCC Rcd at 15146 (seeking information and data on special
access facilities); see also Special Access Competition Data Public Notice, 26 FCC Rcd at 14000 (seeking
information and data on special access pricing and terms and conditions).
225 Sprint 2005 NPRM Comments at 2, 9-10; Verizon 2005 NPRM Comments at 36-8; BellSouth 2005 NPRM
Comments at 50-55; USTA 2005 NPRM Comments at 15-16; Iowa Telecom/Valor 2005 NPRM Comments at 19-
20; Sprint 2009 PN, Decl. of Bridger M. Mitchell (Sprint Mitchell Decl.), Attach. A at 19, paras. 78-79.
226 Verizon 2005 NPRM Comments at 27.
227 AT&T 2007 PN Comments at 28. Though AT&T also complained about its inability to achieve Phase II pricing
flexibility in the San Francisco MSA, we note that Pacific Bell recently obtained Phase II pricing flexibility for
channel terminations there. See Petitions of Pacific Bell, Southwestern Bell, and Windstream for Pricing Flexibility
in Specified Metropolitan Statistical Areas Deemed Granted by Operation of Law, WCB/Pricing File Nos. 12-04,
12-05, 12-06, Public Notice, DA 12-1000 (Wireline Comp. Bur. rel. June 26, 2012).
228 Embarq 2007 PN Comments at 7.
229 Verizon 2005 NPRM Reply at 23-25; see also AT&T 2009 PN Comments at 29-30 & n. 50; AT&T 2009 PN
Reply at 17; AT&T 2007 PN Comments at 4, 28; AT&T 2007 PN Reply at 45; CenturyLink Response to Special
Access Competition Data Public Notice, Question III.E.1 (filed Dec. 5, 2011); Qwest Response to Special Access
Facilities Data Public Notice, Question III.F (filed Jan. 27, 2011); Verizon Response to Special Access Facilities
(continued….)
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the rules may prevent price cap LECs from obtaining partial or full pricing flexibility because they do notaccount for competition sufficient to discipline rates from facilities-based competitors.
74. We agree. As the Commission stated when it adopted its competitive showings rules, it has
“long recognized that it should allow incumbent LECs progressively greater pricing flexibility as they
face increasing competition” and wanted to ensure that its “regulations do not unduly interfere with the
development and operation of these markets as competition develops.”230 It would be inconsistent with
this approach if we inappropriately subjected price cap LECs to unnecessary regulations, despite the
emergence of competition that bright-line rules are unable to detect. We therefore agree to undertake a
robust competition analysis that takes these factors into account, as described below.
75. Moreover, there is currently no evidence in the record addressing the relationship, if any,
between collocation levels and the presence of non-collocated competitors. Such data would assist in
testing incumbents’ claims that they have lost business to non-collocating competitors with their own
fiber.231 We intend to obtain evidence on this point in order to conduct the robust competition analysis
described below.232
IV.
GRANTS OF PRICING FLEXIBILITY ARE SUSPENDED
76. As set forth in sections B and III.C above, there is compelling evidence that the competitiveshowings adopted in 1999 have not worked as intended, and that our pricing flexibility rules are
simultaneously preventing grants of pricing flexibility in areas that likely are competitive and allowing
grants of pricing flexibility in areas where it is not appropriate to do so. While we today initiate the
process of developing a better way to identify areas where special access regulatory relief is appropriate,
it would not serve the public interest to allow continued grants of pricing flexibility under our
old rules. We therefore act in this section to temporarily suspend the operation of our competitive
showing rules pending completion of our inquiry.
A. Suspension of Competitive Showing Rules for Channel Terminations
77. Based on the evidence in the record as discussed in subsections B and III.C above, wesuspend further grants of pricing flexibility on the basis of our existing pricing flexibility rules.
Generally, the Commission’s rules may be suspended for good cause shown.233 In light of the significant
problems identified with grants of regulatory relief at the MSA level, continuing to grant relief under the
current framework would run precisely the risk that the Commission sought to avoid in the Pricing
Flexibility Order: “granting pricing flexibility over such a large geographic area would increase the
likelihood of exclusionary behavior by incumbent LECs by giving them flexibility in areas where
(Continued from previous page)
Data Public Notice, Question III.F (filed Jan. 27, 2011); AT&T 2007 PN Comments, Attach. A, Decl. of Parley
Casto (AT&T Casto Decl.) at paras. 12, 16, 20; Letter from Glenn Reynolds, Vice President for Policy, US
Telecom, to Marlene Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25, RM-10593
at 2 (filed Dec. 1, 2010) (USTA Dec. 1, 2010 Ex Parte Letter).
230 Pricing Flexibility Order, 14 FCC Rcd at 14257, para. 67.
231 See, e.g., Verizon 2005 NPRM Comments at 27-29. Verizon notes, for example, that its number of collocation
arrangements decreased between 2001 and 2005, from 6293 collocation arrangements in Verizon East and 1224 in
Verizon West (2001) to 4922 collocation arrangements in Verizon East and 1158 collocation arrangements in
Verizon West (2005). Verizon 2005 NPRM Comments at 24 n.18.
232 See infra Section V.
233 47 C.F.R. § 1.3 (“The provisions of this chapter may be suspended, revoked, amended, or waived for good cause
shown . . . .”).
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competitors have not yet made irreversible investment in facilities.”234 Given our finding that the specialaccess pricing flexibility triggers are not operating as predicted by the Commission, our action here
suspending the application of those rules while we consider possible new regulatory approaches is
necessary in the public interest. In addition, it is consistent with our “continuing obligation to practice
reasoned decision making” under the APA.235 Indeed, this continuing obligation to practice reasoned
decision making and revisit our rules is especially relevant where our predictive judgments do not
materialize.236 The record indicates that the 1999 competitive showing rules are both over-inclusive and
under-inclusive, thereby resulting in grants of pricing flexibility to broad geographic areas (i.e., MSAs)
based on small pockets of concentrated demand, or denials of pricing flexibility where competitive
alternatives are not recognized by the existing rules.237 Moreover, there is evidence that collocations –
while perhaps “the best option available” to the Commission at the time – are not a reliable indicator of
the presence of actual or potential competition in the provision of channel terminations.238
78. The Commission’s rules provide that petitions for pricing flexibility for special access
services that are not denied within 90 days after the close of the pleading cycle are deemed granted.239
Given the significant problems identified with our existing pricing flexibility rules discussed above, we
find that it would be inappropriate to allow new grants of flexibility under those rules. Thus, pursuant to
rule 1.3, we find good cause to suspend the 90 day deadline in rule 1.774(f)(1) and do so on our own
motion.240 We therefore amend our rules as set forth in Appendix A.
234 Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 72.
235 See, e.g., Aeronautical Radio v. FCC, 928 F.2d 428, 445 (D.C. Cir. 1991).
236 See Cellnet Commc’ns v. FCC, 149 F.3d 429, 442 (6th Cir. 1998) (“If the FCC’s predictions about the level of
competition do not materialize, then it will of course need to reconsider its sunsetting provisions in accordance with
its continuing obligation to practice reasoned decision making.”).
237 See supra section III.
238 Pricing Flexibility Order, 14 FCC Rcd at 14279-80, para. 103; see supra section III. For comments raising
additional concerns about the use of collocations as a proxy for competition for channel terminations, see, for
example, XO 2005 NPRM Comments at 10; Sprint 2007 PN Comments at 16 n.48; tw telecom 2007 PN Comments
at 20-21, 24; COMPTEL 2007 PN Comments at 6.
239 47 C.F.R. § 1.774(f).
240 The 2005 Special Access NPRM sought comment on “whether our pricing flexibility rules reflect a sufficiently
robust assessment of the level of interstate special access competition,” including whether “actual marketplace
developments have validated the . . . predictive judgments made in the Pricing Flexibility Order” and whether “we
should consider additional measures of competition.” Special Access NPRM, 20 FCC Rcd at 2021, para. 80. Though
it sought general comment on “what interim relief, if any, is necessary to ensure special access rates remain
reasonable while” the Commission considered possible permanent rule changes, it declined to adopt at that time a
proposal by AT&T that included, as one element, a proposed moratorium on further grants of pricing flexibility
because the record was insufficient to justify that action. Id. at 2035-36, paras. 128-29, 131. As discussed above,
the record now provides a sufficient basis to justify such action. While one of the dissenters complains that it has
taken years to address aspects of the issues raised in the NPRM, it is nonetheless appropriate for the Commission to
address issues in the pending NPRM, and we particularly note that as the Commission has worked through these
issues, it issued public notices to ensure the record was updated and highlighted that the issue of whether the pricing
flexibility rules were “working as intended” was central to this inquiry. See Parties Asked to Refresh Record in the
Special Access Notice of Proposed Rulemaking, WC Docket No. 05-25, RM-10593, 22 FCC Rcd 13352 (2007)
(Refresh the Record Public Notice); see also Parties Asked to Comment on Analytical Framework Necessary to
Resolve Issues in the Special Access NPRM, WC Docket No. 05-25, RM-10593, Public Notice, 24 FCC Rcd 13638
(2009) (Analytical Framework Public Notice); Data Requested in Special Access NPRM, WC Docket No. 05-25,
RM-10593, Public Notice, 25 FCC Rcd 15146(2010) (Special Access Facilities Data Public Notice); Special Access
(continued….)
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B. Suspension of Competitive Showing Rules for Non-Channel Termination Special Access
79. As noted above, the staff analysis of specific data highlighting problems with the MSA wasrestricted to channel terminations to end users. Nonetheless, the record also indicates a lack of
“reasonably similar” competitive conditions within an MSA for dedicated transport. As discussed above,
both Verizon and SBC concede that special access demand – for all categories of special access services –
is extremely concentrated.241 Fiber maps that they submitted throughout this proceeding, which include
both dedicated transport and channel terminations, highlight that fact. In 2007, AT&T submitted detailed
maps showing competitive deployment for Atlanta, Georgia; Miami, Florida, Columbus, Ohio, Austin,
Texas and San Jose, California.242 In 2012, it submitted competitive deployment maps for three of those
same MSAs (Atlanta, Miami and San Jose), as well as several other MSAs.243 Though each of those
maps – whether they were produced in 2007 or 2012 – display competitive fiber in the central portion of
each MSA, none of those maps show that those competitive fibers reach throughout the MSAs.244 In
addition, as discussed above with respect to our review of pricing flexibility grants for channel
terminations for end users, in a significant number of the MSAs where price cap carriers have been
granted relief, a large proportion of wire centers have either no collocations, no competitive transport, or
both. This calls into question whether our transport bright-line tests, which if met lead to pricing
flexibility being applied to the entire MSA, appropriately distinguish where competition exists and where
it does not.245 Further, though the Pricing Flexibility Order noted competitive differences among special
access services, it did not make any distinctions as to the appropriate geographic area of relief based on
the type of service at issue.246 Instead, the Commission adopted bright-line competitive showings, with a
(Continued from previous page)
Competition Data Public Notice, 26 FCC Rcd at 14000. Thus, the Report and Order we adopt here is, at a
minimum, a “logical outgrowth” of that central issue of the 2005 Special Access NPRM. Compare Covad
Commc’ns Co. v. FCC, 450 F. 3d 528, 548-49 (D.C. Cir. 2006) (noting that the “logical outgrowth” test is
contingent on whether parties could have anticipated an agency action in light of the initial notice), and Building
Indus. Ass’n of Superior California v. Norton, 247 F.3d 1241, 1246 (D.C. Cir. 2001) (“to avoid perpetual cycles of
new notice and comment periods, a final rule that is a logical outgrowth of the proposal does not require an
additional round of notice and comment even if the final rule relies on data submitted during the comment period”)
(internal quotation marks and citations omitted); and Ethyl Corp. v. EPA, 541 F.2d 1, 48 (D.C. Cir. 1976) (because
comments submitted in response to a rulemaking notice “will frequently prompt changes in the ultimate
regulations,” nothing in the APA “requires new notice whenever the agency responsibly adopts the suggestions of
interested parties”), with infra Pai Statement at 103 (stating that the Commission declined to suspend grants of
pricing flexibility in 2005 and must provide public notice of its intent to suspend and amend its rules). Comments
suggest that a logical outgrowth of this language is that suspension of further grants of pricing flexibility was a
possibility. See, e.g., Letter from Charles W. McKee, Vice President, Government Affairs, Sprint, to Marlene H.
Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25 at 2 (filed June 28, 2010); Letter
from Tamar E. Finn and Michael R. Romano, counsel for TelePacific, to Marlene H. Dortch, Secretary, Federal
Communications Commission, WC Docket No. 05-25, Attach. at 3 (filed Dec. 4, 2009); SBC 2005 NPRM
Comments at 27.
241 See, e.g., Verizon 2005 NPRM Comments at 3.
242 Attach. to AT&T Casto Decl. (Fiber Maps).
243 AT&T June 20 Ex Parte Letter at Exh. B (Geotel Report CLEC Fiber Routes and Wire Centers for Atlanta,
Chicago, Detroit, Greenville (SC), Los Angeles, Miami and New Orleans MSAs).
244 See id.; see also Attach. to AT&T Casto Decl.
245 See supra section III.
246 See Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 72.
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uniform geographic area, for all categories of special access service.247 For these reasons, we find itappropriate to temporarily suspend our competitive showing rules for dedicated transport.
C. Arguments Against Suspension of Rules
80. Broad Assertions Regarding Competition. Commenters assert that the deregulatory approachof pricing flexibility, as well as the current competitive showing rules, has been sufficient to constrain
exclusionary or predatory conduct by LECs to date.248 For example, Verizon, Qwest, AT&T, and
CenturyLink assert that special access prices have fallen since the adoption of pricing flexibility, and that
special access outputs have increased.249 CenturyLink states that special access must be considered in the
broader context, as incumbent LECs have been facing substantial business challenges.250 Thus, absent
evidence of a fundamental failure in the current pricing flexibility rules – which commenters believe has
not been shown in the record – the Commission should not substantially revise or eliminate those rules.251
81. There is insufficient evidence in the record upon which to base general or categorical
conclusions regarding the competitiveness of the special access market. As an initial matter, it is not clear
how the Commission should consider arguments that market definitions are not relevant because the
undefined market is highly competitive. Such arguments would have us presume the outcome at the heart
of our inquiry prior to conducting any analysis of market conditions. Categorical assertions about
competitiveness are not an adequate basis upon which we can base grants of pricing flexibility,
particularly in light of the problems with the current competitive showing requirements,252 as well as the
potentially conflicting evidence in the record about the changes in special access prices in Phase I and
Phase II pricing flexibility areas. While incumbent LECs assert that special access prices have fallen in
pricing flexibility areas, competitors state that prices, particularly in areas granted Phase II relief, have
increased.253 This evidence is inconclusive; thus, we do not pass judgment on these assertions in this
247 Id.
248 See, e.g., AT&T Carlton / Sider Decl. at para. 32; AT&T 2009 PN Reply at 17; Verizon 2009 PN Reply at 4-6;
HT / HTSC 2009 PN Reply at 1, 6-7; Qwest 2007 PN Comments at 55; Embarq 2007 PN Reply at 12; USTA 2007
PN Reply at 6; Verizon 2005 NPRM Comments at 6, 36; BellSouth 2005 NPRM Comments at 51.
249 Qwest 2009 PN Comments at 2 & Decl. of Timothy J. Tardiff & Dennis L. Weisman at paras. 15-21 (Qwest
Tardiff / Weisman Decl.); Verizon 2009 PN Comments at 4-5; CenturyLink 2009 PN Reply at 5; AT&T 2007
Comments at 24. For example, Verizon states that, between 2002 and 2006, the prices customers paid for Verizon’s
DS1 services fell an average of 5.28 percent per year, while the prices paid for Verizon’s DS3 services during that
same period fell an average of 4.97 percent per year, both in real terms. Verizon 2009 PN Comments at 6 (citing
Verizon 2007 PN Comments, Attach. A, Suppl. Decl. of William E. Taylor at para. 7). Similarly, Qwest states that,
between 2002 and 2008, prices for DS1 services declined by [REDACTED] in Qwest’s largest MSAs with Phase I
pricing flexibility and [REDACTED] in Qwest’s largest MSAs with Phase II pricing flexibility, respectively (in real
terms). Qwest Tardiff / Weisman Decl. at para. 20. Retail prices for Qwest’s DS3 services declined by
[REDACTED] in Qwest’s largest MSAs with Phase I pricing flexibility and [REDACTED] in Qwest’s largest
MSAs with Phase II pricing flexibility (in real terms). Qwest Tardiff / Weisman Decl. at para. 21.
250 CenturyLink notes that incumbent LECs have been “losing substantial percentages of their landline customers
and traffic annually, generally without realizing comparable reductions in operating costs or sunk investments.”
CenturyLink 2009 PN Reply at 5.
251 AT&T 2009 PN Comments at 20, 46; Verizon 2005 NPRM Comments at 44-45; Qwest 2007 PN Reply at 14;
USTA 2007 PN Reply at 9.
252 See supra section III.
253 See, e.g., Global Crossing 2009 PN Comments at 4-6; T-Mobile 2007 PN Comments at 7; Sprint 2007 PN
Comments at 16-17, 22-23; tw telecom / One Communications 2007 PN Comments at 31-41; COMPTEL 2009 PN
Reply at 9-10.
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Report and Order. However, given the problems associated with the 1999 competitive showing rules, wedo believe that the record contains sufficient disputed evidence to warrant further scrutiny by the
Commission. The current competitive showing rules provide only a limited inquiry into the state of
competition in a given market, a fact that commenters, including incumbent LECs, concede.254
82. Moreover, we do not agree that WorldCom or the Pricing Flexibility Order compel us to
maintain the collocation-based competitive showing rules or a similar standard. In WorldCom, the court
explicitly affirmed the Commission’s discretion to adopt new policy positions, provided that it provides a
reasoned analysis to support its decisions.255 Further, the WorldCom court noted that, unless they are
statutorily precluded from doing so, agencies have the discretion to make adjustments to their regulations
in light of changed circumstances.256 The court also held that the Commission did not err in basing its
policymaking on “predictive forecasts,” because the Commission’s adoption of the competitive showing
rules was a reasonable prediction of how competition for special access might develop in the future.257
Throughout this Report and Order, we identify the problems associated with the current pricing flexibility
rules and explain why suspending the current competitive showings while we conduct a market analysis
will enable us to identify a replacement for the competitive showing rules that will allow us to more
effectively evaluate requests for pricing flexibility. Thus, we disagree with commenters who assert that
precedent requires a different result.
83. Data Collection Necessary. We do not agree with commenters that it is necessary to collect
additional data prior to suspending our rules.258 As discussed in section III, above, the existing record
contains sufficient evidence to call the continued viability of the collocation-based competitive showing
rules into question.259 We therefore will not allow the inefficiencies resulting from those rules to go
unaddressed until we are able to obtain a more extensive data set.260 In our view, it is appropriate to
suspend the competitive showing rules adopted in the Pricing Flexibility Order while we undertake a
competition analysis to assist us in determining how to assess the presence of actual and potential
competition sufficient to discipline special access prices.
254 See, e.g., AT&T 2007 PN Comments at 6, 25-26, 51-52; AT&T 2009 PN Comments at 4, 7, 28-29, 39; BellSouth
2005 NPRM Comments at 55; Qwest 2009 PN Comments at 5-7, 25-26, 39; Verizon 2009 PN Comments at 42;
BellSouth 2005 NPRM Reply at 21.
255 See WorldCom, 238 F.3d at 460; see also Nat’l Cable & Telecomm. Ass’n v. FCC, 567 F.3d 659, 667 (D.C. Cir.
2009); FCC v. Fox Television Stations, 556 U.S. 502, 515 (2009).
256 See WorldCom, 238 F.3d at 460.
257 See WorldCom, 238 F.3d at 459 (stating that “it is within the scope of the agency's expertise to make such a
prediction about the market it regulates, and a reasonable prediction deserves our deference notwithstanding that
there might also be another reasonable view” (quoting Environmental Action, Inc. v. FERC, 939 F.2d 1057, 1064
(D.C. Cir. 1991)) (internal quotation marks omitted)).
258 See, e.g., AT&T Motion to Strike and Reply to Sprint’s Late-Filed Opposition to Petitions for Pricing Flexibility,
WC Docket No. 05-25 at 1 (filed June 1, 2012) (citing Letter of R. Paul Margie, Wiltshire & Grannis LLP, on behalf
of Sprint Nextel Corporation, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket
No. 05-25 (filed May 23, 2012) (Sprint May 23, 2012 Ex Parte Letter)) (AT&T June 2012 Motion to Strike); AT&T
2009 PN Comments at 20, 43 (contending that the Commission may not change the pricing flexibility rules unless
commenters “show with actual evidence that long settled and judicially upheld conclusions are no longer valid.”).
259 See supra section III.
260 The Commission issued voluntary data requests in October 2010 and September 2011. See Special Access
Facilities Data Public Notice, 25 FCC Rcd at 15146; Special Access Competition Data Public Notice, 26 FCC Rcd
at 14000.
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D. Changes in Regulatory Relief During Development of New Rules
84. We note that parties may still take steps to alter the regulatory status of special accessservices during the pendency of this proceeding. As commenters have noted, the Commission has the
power to resolve allegations of unjust or unreasonable rates, terms and conditions through the complaint
process in the Act,261 rather than through a rulemaking proceeding.262 Parties also may petition for
forbearance from any regulation or provision of the Act pursuant to section 10 thereof,263 or seek a waiver
of our rules.264 The availability of these forms of recourse provides additional support for suspension of
our competitive showing rules pending development of an improved method for providing regulatory
relief.265
V.
UNDERTAKING A MARKET ANALYSIS FOR SPECIAL ACCESS REGULATORY
RELIEF
A. Future Steps to Analyze Competition for Special Access
85. In this section, we commence a process that will enable us to more effectively determinewhere regulatory relief is appropriate. In the coming months, we will undertake a robust market analysis
to assist us in determining how best to assess the presence of actual and potential competition for special
access that is sufficient to discipline prices. Our analysis will follow the collection of additional data and
261 47 U.S.C. §§ 206, 207, 208.
262 See, e.g., CenturyLink 2009 PN Reply at 6 (“If there are credible allegations from purchasers or competitors that
particular rates or practices are unjust or unreasonable, then the Commission (or a federal court) could address the
problem through the complaint process in sections 206 and 207 of the Communications Act.”); USTA 2007
Comments at 14 (stating that “if any parties truly believe that special access rates are unjust or unreasonable, they
can challenge those rates before the Commission under Section 208 of the Communications Act”). But see Letter
from John J. Heitmann, Counsel, XO Communications, LLC, to Marlene H. Dortch, Secretary, Federal
Communications Commission, WC Docket Nos. 05-25, 06-125, 06-147, at 1-5 (filed Oct. 12, 2007) (stating that
“special access rates, terms and conditions imposed by the Bells and other price cap LECs should be addressed in
this rulemaking proceeding rather than through the Commission's section 208 complaint process”).
263 47 U.S.C. § 160.
264 See, e.g., Petition for Waiver of Pricing Flexibility Rules for Fast Packet Services, Petition for Forbearance
Under 47 U.S.C. Section 160(c) from Pricing Flexibility Rules for Fast Packet Services, WC Docket No. 04-246,
Memorandum Opinion and Order, 20 FCC Rcd 16840 (2005) (Verizon Advanced Services Waiver Order); SBC
Communications Inc. Petition for Waiver of Section 61.42 of the Commission’s Rules, WC Docket No. 03-250,
Order, 22 FCC Rcd 7224 (Wireline Comp. Bur. 2007) (SBC Advanced Services Waiver Order); Qwest Petition for
Waiver of Pricing Flexibility Rules for Advanced Communications Networks Services, WC Docket No. 06-187,
Order, 22 FCC Rcd 7482 (Wireline Comp. Bur. 2007) (Qwest Pricing Flexibility Waiver Order). Each of these
orders permitted a carrier to obtain Phase I pricing flexibility for packet-based advanced services in areas where the
carrier had already qualified for Phase I or Phase II pricing flexibility for other special access services.
265 As discussed above, contrary to the predictive judgments underlying the adoption of the existing collocation
triggers as proxies for sufficient special access competition, we find that those triggers are a poor proxy for the
presence of competition sufficient to constrain special access prices or deter anticompetitive practices throughout an
MSA. See supra Section III. Where, as here, we find systemic issues with our special access rules, we find it
reasonable for us to take a systemic, rather than case-by-case, approach to resolve them. Compare Federal-State
Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 17 FCC Rcd 24952, 24978, para. 49
(2002) (“Using our enforcement authority to address such a systemic problem would not be an efficient use of the
Commission’s resources.”), with infra Pai Statement at 105-06 (contending that currently available case-by-case
remedies, such as the complaint process noted above, provide sufficient avenues for relief and obviate the need to
suspend our rules).
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an opportunity for public comment. As described below, there is widespread accord in the record on theappropriateness of collecting additional data to inform our future actions.
86. The market analysis we will undertake in the coming months may identify reliable proxies for
competition for special access services, which we could adopt in lieu of the 1999 competitive showings.
Our analysis may also provide evidence that changes in our regulatory approach are warranted in
particular geographic areas. At this time, we do not exhaustively specify the factors that will comprise
our market analysis: these will be subject to comment by interested parties in an upcoming notice.266 We
anticipate that the analysis will be a one-time assessment of the competitive conditions in the special
access market; however, we do not foreclose the possibility that further analyses may be needed in the
future. In any event, we will issue a comprehensive data collection order within 60 days to facilitate this
market analysis.
B. Benefits of a More Complete Market Analysis
1.A Market Analysis is Consistent with Agency and Court Precedent
87. We concur with commenters who point out that use of market analysis in the special accesscontext is consistent with Commission precedent.267 The Commission historically has conducted an
examination of market conditions in several instances to assess competition for telecommunications
services. In a series of orders in the Competitive Carrier proceedings, the Commission established a
framework to evaluate competition in telecommunications markets and determine whether deregulatory
treatment of certain carriers is warranted.268 In those orders, the Commission performed a structural
266 See infra V.4 (discussing factors to be considered in market analysis).
267 See, e.g., Qwest 2007 PN Comments at iii, 5; XO 2009 PN Comments at 3-5; tw telecom 2009 PN Reply at 7-8.
268 See Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations
Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); Policy and
Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC
Docket No. 79-252, First Report and Order, 85 FCC 2d 1 (1980) (Competitive Carrier First Report and Order);
Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations
Therefor, CC Docket No. 79-252, Further Notice of Proposed Rulemaking, 84 FCC 2d 445 (1981) (Competitive
Carrier First Further Notice); Policy and Rules Concerning Rates for Competitive Common Carrier Services and
Facilities Authorizations Therefor, CC Docket No. 79-252, Further Notice of Proposed Rulemaking, 47 Fed. Reg.
17308 (1982) (Competitive Carrier Second Further Notice); Policy and Rules Concerning Rates for Competitive
Common Carrier Services and Facilities Authorizations Therefor, CC Docket No. 79-252, Second Report and
Order, 91 FCC 2d 59 (1982) (Competitive Carrier Second Report and Order); Policy and Rules Concerning Rates
for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC Docket No. 79-252, Order on
Reconsideration, 93 FCC 2d 54 (1983) (Competitive Carrier Order on Reconsideration); Policy and Rules
Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC Docket
No. 79-252, Third Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 (1983) (Competitive Carrier Third
Further Notice); Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities
Authorizations Therefor, CC Docket No. 79-252, Third Report and Order, 48 Fed. Reg. 46791 (1983) (Competitive
Carrier Third Report and Order); Policy and Rules Concerning Rates for Competitive Common Carrier Services
and Facilities Authorizations Therefor, CC Docket No. 79-252, Fourth Report and Order, 95 FCC 2d 554
(1983) (Competitive Carrier Fourth Report and Order), vacated, AT&T v. FCC, 978 F.2d 727 (D.C. Cir.
1992) (AT&T v. FCC), cert. denied, MCI Telecomms. Corp. v. AT&T, 509 U.S. 913 (1993); Policy and Rules
Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC Docket
No. 79-252, Fifth Report and Order, 98 FCC 2d 1191 (1984) (Competitive Carrier Fifth Report and Order); Policy
and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC
Docket No. 79-252, Sixth Report and Order, 99 FCC 2d 1020 (1985) (Competitive Carrier Sixth Report and
Order), vacated, MCI Telecomms. Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985), aff'd, MCI v. AT&T, 512 U.S. 218
(1994) (MCI v. AT&T) (collectively, the Competitive Carrier proceedings).
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market analysis to distinguish between “dominant carriers,” which “possess market power (i.e., the powerto control price),” and “non-dominant carriers,” which “do not possess power over price.”269 The
Commission focused its inquiry on certain “clearly identifiable market features,” including a carrier’s
market share, number and size distribution of competing firms, the nature of competitors’ barriers to
entry, the availability of reasonably substitutable services, the level of demand elasticity, and whether the
firm controlled bottleneck facilities.270 This analysis was designed to identify when competition is
sufficient to constrain carriers from imposing unjust, unreasonable, or unjustly or unreasonably
discriminatory rates, terms, and conditions, or from acting in an anticompetitive manner.271 The
Commission subsequently applied the same framework to reclassify AT&T as non-dominant in the
interstate interexchange service market, finding that AT&T no longer possessed individual market power
with respect to those services.272
88. In the 1997 LEC Classification Order, the Commission modified its framework for
dominance / non-dominance analyses to bring the framework into accord with the antitrust analysis laid
out in the 1992 Merger Guidelines,273 a precursor to the 2010 Horizontal Merger Guidelines that are in
use today.274 In that order, the Commission stated that the assessment of competitive conditions requires
a thorough analysis which begins with a delineation of the relevant product and geographic markets, and
then considers market characteristics, including market shares, the potential for the exercise of market
269 Competitive Carrier First Report and Order, 85 FCC 2d at 20, para. 54.
270 AT&T Domestic Non-Dominance Order, 11 FCC Rcd at 3274-75, para. 5 (citing Competitive Carrier First
Report and Order, 85 FCC 2d at 21-22, paras. 56-59). Of particular relevance to this discussion, the Commission
concluded in the Competitive Carrier First Report and Order that “[a]n important structural characteristic of the
marketplace that confers market power upon a firm is the control of bottleneck facilities,” because it provides
carriers with the ability “to impede access of its competitors to those facilities” and is therefore treated as “prima
facie evidence of market power requiring detailed regulatory scrutiny.” Competitive Carrier First Report and
Order, 85 FCC 2d at 21, para. 58.
271 In the Competitive Carrier First Report and Order, the Commission found that “firms lacking market power
simply cannot rationally price their services in a way which, or impose terms and conditions which, would
contravene Sections 201(b) and 202(a) of the Act.” Competitive Carrier First Report and Order, 85 FCC 2d at 31,
para. 88; see also 47 U.S.C. §§ 201(b), 202(a).
272 Among the factors the Commission cited in support of its finding were: (1) AT&T's market share had been
falling steadily for ten years, and had decreased to approximately “55.2 and 58.6 percent in terms of revenues and
minutes respectively;” (2) AT&T faced at least three nationwide facilities-based providers and hundreds of smaller
competitors; (3) AT&T's competitors possessed the ability to accommodate a substantial number of new customers
on their networks with “little or no investment immediately, and relatively modest investment in the short term,”
(i.e., that they had sufficient excess capacity to constrain AT&T's pricing behavior); (4) “virtually all customers . . .
have numerous choices of equal access carriers;” (5) both business and residential customers were highly demand
elastic and frequently switched carriers; and (6) AT&T had not controlled local bottleneck facilities for over ten
years. See AT&T Domestic Non-Dominance Order, 11 FCC Rcd at 3303-46, paras. 57-137.
273 See Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local Exchange
Area, CC Docket No. 96-149, Second Report and Order in CC Docket No. 96-149 and Third Report and Order in
CC Docket No. 96-61, 12 FCC Rcd 15756 (1997) (LEC Classification Order), recon. denied, Second Order on
Reconsideration and Memorandum Opinion and Order, CC Docket Nos. 96-149 and 96-61, 14 FCC Rcd 10771
(1999); AT&T Domestic Non-Dominance Order, 11 FCC Rcd at 3293-3309, paras. 38-73; see also, e.g., Brown
Shoe Co. v. United States, 370 U.S. 294 (1962); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325
(7th Cir. 1986).
274 FTC/DOJ Horizontal Merger Guidelines at 2. The FTC/DOJ Horizontal Merger Guidelines describe the main
analytical techniques and the types of evidence typically relied upon by the DOJ and the FTC to predict whether a
horizontal merger may substantially lessen competition. Id. at 1.
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power, and whether potential entry would be timely, likely, and sufficient to counteract the exercise ofmarket power.275
89. More recently, the Commission has undertaken market analysis to assess the extent of
competition in both merger proceedings and in the evaluation of forbearance petitions.276 For instance, in
its analysis of the proposed AT&T/ BellSouth and Verizon / MCI mergers, the Commission considered
whether the mergers would reduce existing competition, as well as their likely effects on the market
power of dominant firms in the relevant communications markets and the mergers’ effects on future
competition.277 Similarly, in the Qwest Phoenix Forbearance Order the Commission employed a
structural market analysis akin to that of the Competitive Carrier cases to evaluate Qwest’s petition for
forbearance from certain wholesale and retail regulations in the Phoenix, Arizona, MSA.278 Additionally,
275 LEC Classification Order, 12 FCC Rcd at 15774-75, paras. 26-28 (explaining that the Commission determines
whether a carrier is dominant by: (1) delineating the relevant product and geographic markets for examination of
market power; (2) identifying firms that are current or potential suppliers in that market; and (3) determining
whether the carrier under evaluation possesses individual market power in that market); William M. Landes &
Richard A. Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937, 938 (1981); FTC/DOJ Horizontal
Merger Guidelines at 1-3.
276 See, e.g., Petition of Qwest Corp. for Forbearance Pursuant to 47 U.S.C. § 160(c) in the Phoenix, Arizona
Metropolitan Statistical Area, WC Docket No. 09-135, Memorandum Opinion and Order, 25 FCC Rcd 8622 (2010)
(Qwest Phoenix Forbearance Order), aff’d Qwest Corp. v. Fed. Commc’ns Comm’n, No. 10-9543 (10th Cir. Aug. 6,
2012), available at http://www.ca10.uscourts.gov/opinions/10/10-9543.pdf; AT&T Inc. and BellSouth Corporation
Application for Transfer of Control, WC Docket No. 06-74, Memorandum Opinion and Order, 22 FCC Rcd 5662,
5675-76, paras. 23-26 (2007) (AT&T/BellSouth Merger Order); SBC Communications Inc. and AT&T Corp.
Applications for Approval of Transfer of Control, WC Docket No. 05-65, Memorandum Opinion and Order, 20 FCC
Rcd 18290, 18303-04, paras. 20-23 (2005) (SBC/AT&T Merger Order); Verizon Communications Inc. and MCI, Inc.
Application for Approval of Transfer of Control, WC Docket No. 05-75, Memorandum Opinion and Order, 20 FCC
Rcd 18433, 18446-47, paras. 20-23 (2005) (Verizon/MCI Merger Order); Applications of Comcast Corp., General
Electric Co., and NBC Universal, Inc. for Consent to Assign Licenses and Transfer Control of Licensees, MB
Docket No. 10-56, Memorandum Opinion and Order, 26 FCC Rcd 4238, 4248-49, paras. 24, 26 (2011)
(Comcast/NBC Merger Order); Qwest Petition for Forbearance Under 47 U.S.C. § 160(c) from Title II and
Computer Inquiry Rules with respect to Broadband Services, WC Docket No. 06-125, Memorandum Opinion and
Order, 23 FCC Rcd 12260 (2008); Petition of Qwest Corp. for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Denver, Minneapolis-St. Paul, Phoenix, and Seattle Metropolitan Statistical Areas, WC Docket No. 07-97,
Memorandum Opinion and Order, 23 FCC Rcd 11729 (2008); Petitions of the Verizon Telephone Companies for
Forbearance Pursuant to 47 U.S.C. § 160(c) in the Boston, New York, Philadelphia, Pittsburgh, Providence, and
Virginia Beach Metropolitan Statistical Areas, WC Docket No. 06-172, Memorandum Opinion and Order, 22 FCC
Rcd 21293 (2007).
277 AT&T/BellSouth Merger Order at 5673-74, para. 21; Verizon/MCI Merger Order at 18444-45, para. 18.
278 See Qwest Phoenix Forbearance Order at 8623-24, paras. 1-3. The Commission noted that, in a series of orders
beginning with the 2005 grant of forbearance to Qwest in the Omaha MSA, it had moved away from using a market
power analysis to evaluate the merits of petitions for forbearance. Qwest Phoenix Forbearance Order at 8630-32,
paras. 16-20. See also Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. § 160(c) in the Omaha
Metropolitan Statistical Area, WC Docket No. 04-223, Memorandum Opinion and Order, 20 FCC Rcd 19415
(2005) (Qwest Omaha Forbearance Order), aff'd, Qwest Corp. v. FCC, 482 F.3d 471 (D.C. Cir. 2007) (Qwest v.
FCC); Request for Additional Comment and Data Related to Qwest Corporation’s Petition for Forbearance and
Certain Network Element and Other Obligations in the Phoenix, Arizona MSA, WC Docket No. 09-135, Public
Notice, 25 FCC Rcd 3720 (Wireline Comp. Bur. 2010). However, in light of subsequent market developments, the
Commission opted to return to a traditional market power framework to evaluate competition in telecommunications
markets in forbearance proceedings. Qwest Phoenix Forbearance Order at 8642-43, para. 37. In practice, the
factors that the Commission has assessed as part of its market analysis have varied depending on the data available.
See, e.g., Qwest Phoenix Forbearance Order at 8634, para. 26 (“the Commission has acknowledged that it did so as
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a market analysis is consistent with the investigation performed by the DOJ and FTC to assess whether ahorizontal merger could adversely impact competition in relevant markets.279
90. In the Pricing Flexibility Order, the Commission declined to require incumbent LECs to
perform a complete market analysis as part of the carrier’s application for pricing flexibility and instead,
without the benefit of a fulsome market analysis, adopted proxies for competition that were intended to
measure whether actual or potential competition was sufficient to ensure just and reasonable rates, terms
and conditions for special access services.280 As discussed above and based on the record in this
proceeding, we have suspended grants of pricing flexibility on the basis of these proxies because we find
that the geographic market over which relief is granted, MSAs, do not correspond to the scope of
competitive entry and serious question have been raised concerning whether the presence of collocation
and competitive transport are reliable indicators of the presence of competitive channel termination
services.281 The process we begin today may well assist in developing new proxies for special access
competition, which could be employed going forward to evaluate petitions for pricing flexibility. Once
we have had the opportunity to collect and analyze additional data, we will be better positioned to
determine what specific showings price cap carriers must make in their petitions for pricing flexibility and
what information they could submit to satisfy those showings.282
2.
A Market Analysis Will Provide Analytical Precision
91. Several commenters recommend that, prior to adopting a new analytical framework, wecollect competitive data to assess whether the current competitive showing rules are a reasonably accurate
proxy for the presence of competition.283 Undertaking a market analysis will allow the Commission to
more precisely determine where competition exists, or could potentially exist, and to develop better tests
for regulatory relief to replace the current collocation-based approach. For example, as described above,
some commenters observe that the collocation-based competitive showings do not account for sources of
intermodal and/or intramodal competition that do not collocate in incumbent LEC facilities.284 Other
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part of a broader evaluation of competition and as a reflection of how parties submitted data in that proceeding”
(quoting Petition of ACS of Anchorage, Inc. Pursuant to Section 10 of the Communications Act of 1934, as
Amended, for Forbearance from Sections 251(C)(3) and 252(D)(1) in the Anchorage Study Area, WC Docket No.
05-281, Memorandum Opinion and Order, 22 FCC Rcd 1958, 1966, para. 12 n.41 (2007)) (internal quotation marks
omitted)); Verizon/MCI Merger Order at 18466-67, para. 62 (altering market analysis due to lack of data in record).
279 See supra n.104; FTC/DOJ Horizontal Merger Guidelines at 1; William C. Holmes, 1 Intellectual Property and
Antitrust Law § 9:4 (Thomson Reuters 2012).
280 Pricing Flexibility Order, 14 FCC Rcd at 14271-72, para. 90. The Commission determined that, as compared to
establishing a proxy for special access competition: (1) a market analysis would present administrative challenges;
and (2) the costs of delaying deregulatory action outweighed any costs associated with deregulating special access
markets before competition had fully developed. Pricing Flexibility Order, 14 FCC Rcd at 14271-72, para. 90.
281 See supra section III.
282 Commenters state that the Commission could analyze a representative sample set of data to assess what further
action is warranted. See, e.g., AT&T 2009 PN Comments at 39-44; Qwest 2009 PN Comments at 39. Commenters
assert that it would be too burdensome for the Commission to perform such a market analysis for every petition for
flexibility that is filed. See, e.g., Qwest 2009 PN Comments at 39.
283 See AT&T 2009 PN Comments at 28; Embarq 2007 PN Reply at 13-15; NoChokePoints 2009 PN Comments at
1-2, 5-12; Qwest 2009 PN Comments at 25-26, 39; Sprint 2009 PN Comments at 4-6; Verizon 2009 PN Comments
at 42; XO 2009 PN Comments at 1-5.
284 See, e.g., AT&T 2009 PN Comments at 38, 43-44; Iowa Telecom / Valor 2005 NPRM Comments at 19; Verizon
2005 NPRM Comments at 49-50; Qwest 2007 PN Reply at 32; Verizon 2009 PN Reply at 9-10, 20. Examples of
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commenters raise concerns that the 1999 competitive showing rules overlook competitors who couldpotentially enter the market in the near term or in the more distant future.285 In contrast to our current
approach, a market analysis would seek to identify significant current and potential market participants,
and consider their impact when assessing the level of competition in a market.286
92. Several commenters state that a single market characteristic (e.g., high special access rates or
carrier revenues, large market share) is generally not sufficient on its own to signify whether a given
market is competitive.287 For example, AT&T and Verizon both assert that the Commission should not
rely on market share as the basis for concluding that a given market lacks competition, because market
share is a static measure that can understate the impact of competitive alternatives in dynamic markets.288
We agree that the Commission must conduct a more comprehensive analysis of the state of competition
prior to adopting replacement competitive proxies or making other changes to the ways that incumbent
LECs may obtain regulatory relief in the provision of special access services. A market analysis will
enable us to make a multi-faceted assessment of competition that considers a variety of factors, including
both price and non-price effects.289 Additionally, this type of fact-specific analysis is in line with current
approaches to competition policy.290
3.
A Market Analysis Will Foster Broadband Deployment and Competition
93. Finally, a comprehensive market analysis will help us to take future steps to supportbroadband deployment and competition. In the Qwest Phoenix Forbearance Order, the Commission
found that, “by using the more comprehensive antitrust-based analysis that the Commission frequently
has used in past proceedings, and that the [FTC and DOJ] regularly use to measure competition, we
ensure that competition in downstream markets is not negatively affected by premature forbearance from
regulatory obligations in upstream markets.”291 Citing the National Broadband Plan, the Commission
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such sources of competition could include, for example, fixed wireless, cable, and non-collocating wireline
providers. For further discussion of this issue, see infra paras. 98-100.
285 See, e.g., AT&T 2009 PN Comments at 40-43, 46; AT&T 2009 PN Reply at 26-28; CenturyLink 2009 PN Reply
at 4; Embarq 2007 PN Reply at 12; Qwest 2007 PN Reply at 33-34; Verizon 2009 PN Reply at 9, 26-27. For further
discussion of this issue, see infra paras. 98-100
286 See FTC/DOJ Horizontal Merger Guidelines at 15-16.
287 See, e.g., AT&T 2009 PN Comments at 18, 42-43; Qwest 2009 PN Comments at 22-25; Verizon 2009 PN
Comments at 9-10, 17, 27; AT&T 2009 PN Reply at 34-35; CenturyLink 2009 PN Reply at 3-4; Free State
Foundation 2009 PN Reply at 4; tw telecom 2009 PN Reply at 21-23; Verizon 2009 PN Reply at 7, 30-32; XO 2009
PN Reply at 3.
288 AT&T 2009 PN Comments at 18, 42-43; Verizon 2009 PN Comments at 9-10, 17, 27; AT&T 2009 PN Reply at
34-35; Verizon 2009 PN Reply at 7, 30-32. See also infra para. 101.
289 In the LEC Classification Order, for example, the Commission considered several factors as part of its structural
competition analysis, including the relevant product and geographic markets, market characteristics (including
market shares), the potential for the exercise of market power, and whether the exercise of market power could be
counteracted by potential entry by competitors. See LEC Classification Order, 12 FCC Rcd 15756, 15774-77, paras.
28-29; see FTC/DOJ Horizontal Merger Guidelines at 1-2.
290 See FTC/DOJ Horizontal Merger Guidelines; Holmes, supra n.279 at § 9:4; Steven C. Salop, The First Principles
Approach to Antitrust, Kodak, and Antitrust at the Millennium, 68 Antitrust L.J. 187 (2000).
291 Qwest Phoenix Forbearance Order, 25 FCC Rcd at 8645, para. 40; see also, e.g., MAG-Net 2009 PN Reply at 7-
8 (“To ensure that an analysis of market competition in the special access market does not further deprive
disenfranchised communities of competition in the broadband market, it is critical that competition is measured on a
more granular level.”); Sprint 2009 PN Reply at 11 (arguing that incumbent LEC market power “must be addressed,
because the harm caused by this trend extends well beyond just special access services - it affects important
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noted that “regulatory policies for wholesale access affect the competitiveness of markets for retailbroadband services provided to small businesses, mobile customers and enterprise customers.”292
94. Special access circuits are a particularly important input for carriers’ broadband service
offerings. As the National Broadband Plan found, the costs associated with purchasing special access
circuits can be a significant expense that impacts a carrier’s ability to provide affordable broadband
service, particularly to smaller, rural communities.293
95. A market analysis will enable us to ensure that appropriate regulatory relief is granted in
those markets where competitive conditions justify it. For example, we expect that our analysis will aid
in determining whether purchasers can obtain special access circuits at just and reasonable prices.294 This
inquiry could provide insight into challenges that carriers may face in deploying broadband and what
actions, if any, are needed to respond to those challenges.
4.
Factors to be Considered in Market Analysis
96. Some commenters, in particular incumbent LECs, recommend specific factors orconsiderations they believe the Commission should include in a market analysis. We address several of
these recommendations below.
a.
Analysis Must Be Forward-Looking and Consider Various Sources
of Competition
looking and account for significant competitors in a market. 295 We agree.
98. In our view, a comprehensive market analysis will best facilitate a complete inquiry into the
existence of competition in a given market, including sources of intermodal and intramodal competition,
potential market entrants, uncommitted entrants, carriers that self-supply their own special access, and
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downstream services, as well”); Letter from Colleen Boothby, Ad Hoc, to Marlene H. Dortch, Secretary, Federal
Communications Commission, WC Docket No. 05-25, WT Docket No. 11-65 at 5 (filed June 13, 2011) (“Ad Hoc’s
concern is that price squeezes can be used to impede competition and exploit ratepayers before (and regardless of
whether) competitors are completely forced from downstream markets.”) (Ad Hoc June 13, 2011 Ex Parte Letter).
292 Qwest Phoenix Forbearance Order, 25 FCC Rcd at 8645, para. 40 (quoting Federal Communications
Commission, Omnibus Broadband Initiative, Connecting America: The National Broadband Plan 47 (March 2010)
(NBP), available at http://www.broadband.gov/plan (last visited Aug. 14, 2012)). We note that in the Qwest
Phoenix Forbearance Order, the Commission stated that “a different analysis may apply when the Commission
addresses advanced services, like broadband services, instead of a petition addressing legacy facilities, such as
Qwest's petition in this proceeding. For advanced services, not only must we take into consideration the direction of
section 706, but we must take into consideration that this newer market continues to evolve and develop in the
absence of Title II regulation.” Qwest Phoenix Forbearance Order, 25 FCC Rcd at 8644, para. 39.
293 NBP at 48 (Recommendation 4.8). The National Broadband Plan noted that, for example, a competitive provider
with its own fiber optic network in a city will frequently purchase special access connections from the incumbent
provider in order to serve customer locations that are “off net.” NBP at 48; see tw telecom 2007 PN Comments at
35-36 (stating that incumbent LEC discounted Ethernet prices are also substantially higher than competitor’s
wholesale rates, which prevents tw telecom from providing Ethernet to retail consumers).
294 See 47 U.S.C. §§ 201(b), 202(a).
295 AT&T 2009 PN Comments at 40-43, 46; AT&T 2009 PN Reply at 26-28; CenturyLink 2009 PN Reply at 3-4;
Embarq 2007 PN Reply at 12; Iowa Telecom/Valor 2005 NPRM Comments at 19-20; Qwest 2007 PN Reply at 33-
34; Verizon 2009 PN Comments at 14; Verizon 2009 PN Reply at 9-10, 26-27.
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non-facilities-based competitors. This analysis also will consider the impact of competitors that do notcollocate in an incumbent’s wire center.296
99. For instance, the 2010 Horizontal Merger Guidelines contain a detailed process employed to
identify participants in the relevant market.297 Pursuant to the 2010 Horizontal Merger Guidelines, an
identification of market participants includes all firms that currently earn revenues in the relevant
market.298 A firm may be considered to be a market participant even if it does not currently earn
revenues, but it is “committed to entering the market in the near future,”299 or if the firm is not a current
producer in the relevant market, but “would very likely provide rapid supply responses with direct
competitive impact in the event of a [small but significant and non-transitory increase in price (SSNIP)],
without incurring significant sunk costs.”300 Thus, in those instances where a competitor, such as a cable
or fixed wireless provider, can quickly enter the market and respond to customer demand, a market
analysis would enable us to consider the likely impact of that entry on competition.301
100.
Moreover, a market analysis allows for specific, economically rigorous, and factually
specific inquiries regarding potential competition, a factor that price cap LECs such as Verizon and
AT&T contend should be included in any framework we adopt.302 A market analysis of potential
competition assesses whether a firm is perceived to be a potential competitor, exerting a price-
constraining effect on firms currently participating in the market, even though it is not currently
participating in the market.303 We agree with commenters that our analysis of competitive conditions
296 See, e.g., Embarq 2007 PN Reply at 25-26; Verizon PN 2007 Comments at 48-50; AT&T 2009 PN Reply at 17.
297 American Bar Association, Section on Antitrust Law, Antitrust Law Developments 346 (7th Ed. 2012) (citing
FTC/DOJ Horizontal Merger Guidelines at 7-15) (2012 Antitrust Law Developments).
298 FTC/DOJ Horizontal Merger Guidelines at 15. This also includes firms that self-supply their own product. 2012
Antitrust Law Developments at 346.
299 FTC/DOJ Horizontal Merger Guidelines at 15.
300 FTC/DOJ Horizontal Merger Guidelines at 15-16. Such competitors, known as “rapid entrants,” may include (1)
firms that produce the relevant product but do not sell it in the relevant geographic market; (2) firms that produce
but do not currently sell the relevant product to a targeted group of customers that define the relevant market, but
could easily and rapidly begin to do so; and (3) firms that have the necessary assets and readily available “swing”
capacity to begin producing the relevant product. 2012 Antitrust Law Developments at 347.
301 See Verizon 2009 PN Comments at 17 (“Once competitors have deployed fiber or wireless networks in an area,
they are able cost effectively to use or extend those networks to serve customers in individual buildings where there
is sufficient demand.”); Letter from Glenn T. Reynolds, Vice President, Policy, US Telecom, to Marlene H. Dortch,
Secretary, Federal Communications Commission, WC Docket No. 05-25, GN Docket No. 09-51, Attach. at 5, 23
(filed July 16, 2009) (discussing how competitive fiber networks can cost effectively serve new customers); Darren
S. Tucker, Potential Competition Analysis Under the 2010 Merger Guidelines, 12 Sedona Conf. J. 273 (2011)
(discussing the evolution of “actual competition” and “potential competition” in antitrust law analysis).
302 AT&T 2009 PN Comments at 24-25 & n.38 (citing AT&T/BellSouth Merger Order, 22 FCC Rcd at 5682-83,
paras. 41-42) (discussing the Department of Justice’s required divestitures of merging parties’ facilities based on a
potential competition analysis)); AT&T 2009 PN Reply at 19-29; AT&T 2007 PN Reply at 4-5; BellSouth 2005
NPRM Reply at 32-37; Embarq 2007 PN Reply at 12 & n.32 (citing Qwest 2007 Comments at 13 & nn.32-33
(citing United States Telecom Association v. FCC, 359 F.3d 554, 575 (D.C. Cir. 2004) (USTA II); Unbundled Access
to Network Elements; Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers,
WC Docket No. 04-313, CC Docket No. 01-338, Order on Remand, 20 FCC Rcd 2533, 2558-59, para. 43 (2005)
(TRRO)); Qwest 2009 PN Reply at 7; Verizon 2009 PN Comments at 9-10, 17, 27.
303 See Tucker, supra note 301 at 279; Gregory J. Werden & Kristen C. Limarzi, Forward-Looking Merger Analysis
and the Superfluous Potential Competition Doctrine, 77 Antitrust L.J. 109 (2010). Firms that are not poised to enter
the market rapidly or that must incur significant sunk costs to enter are considered potential competitors under the
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should incorporate an assessment of potential competition. We also agree that barriers to market entryshould be considered.304 Entry is an important consideration in a structural analysis, as the exercise of
market power is unlikely where entry barriers are low and incumbents cannot profitably raise price or
otherwise reduce competition to a level below that of a competitive market.305 In the past, the
Commission has considered potential competition and barriers to entry as part of its market analysis.306
101.
Further, we concur with commenters that the multi-faceted and forward-looking analysis
of competition we will undertake would be inadequate if it focused solely on market share or building
counts.307 By examining factors such as the potential for competitive effects, market entry, and potential
competition, a market analysis is a forward-looking alternative to the current competitive showing rules
or any like standard.308 That being said, we must carefully balance the benefits of relying on solid, if
historical data, against the risks associated with placing too much weight on speculative data sources. We
will continue to consider our future data collection needs with these points in mind.
b.
Approach that Enhances Consumer Welfare
102.We agree with commenters who assert that the Commission must conduct its market
analysis in light of its broader objectives for the telecommunications industry.309 For example, Verizon
notes that pricing flexibility was among several deregulatory actions taken by the Commission in the
1990s with the goal of encouraging innovation, cost savings, and efficiencies.310
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2010 Merger Guidelines only if entry by the firm “would be timely, likely, and sufficient in its magnitude, character,
and scope to deter or counteract the competitive effects of concern.” 2012 Antitrust Law Developments at 347 n.113
(quoting FTC/DOJ Horizontal Merger Guidelines at 28).
304 See, e.g., PAETEC 2007 PN Comments at 11 (stating that inherent barriers to building and deploying fiber or
copper special access facilities include the costs of trenching and the need to obtain conduit space, rights of way, and
access to buildings); ATX et al. 2007 PN Comments at 25 (stating that it is rarely economically feasible for
competitive carriers to construct loops at the DSO, DSl, or DS3 capacity levels); tw/One Communications 2007 PN
Comments at 13 (stating that carriers like One Communications find the cost of loop deployment prohibitive in
almost all cases).
305 FTC/DOJ Horizontal Merger Guidelines at 28; Elizabeth E. Bailey & William J. Baumol, Deregulation and the
Theory of Contestable Markets, 1 Yale J. on Reg. 111 (1984).
306 See, e.g., Competitive Carrier First Report and Order, 85 FCC 2d at 21, paras. 57-58; LEC Classification Order,
12 FCC Rcd at 15775 para. 28; AT&T Non-Dominance Order, 11 FCC Rcd at 3303-05, paras. 57-62; Qwest
Phoenix Forbearance Order, 25 FCC Rcd at 8635, para. 28; Comcast/NBC Merger Order, 26 FCC Rcd at 4261,
n.123; AT&T/BellSouth Merger Order, 22 FCC Rcd at 5676-5677, para. 27; Verizon/MCI Merger Order, 20 FCC
Rcd 18446, para.21.
307 See, e.g., Verizon 2009 PN Comments at 9-10; AT&T 2009 PN Comments at 18-19, 42-43; FreeState 2009 PN
Reply at 4; CenturyLink 2009 PN Reply at 3-4; AT&T 2009 PN Reply at 34-35; Qwest 2009 PN Reply at 7;
Verizon 2009 Reply at 24-25, 30-32.
308 As commenters note, the collocation-based competitive showing rules focus only on the current existence of sunk
competition, and only a subset of those existing competitors. See, e.g., Sprint 2007 PN Comments at 16; Public
Knowledge 2009 PN Reply at 3-4; supra paras. 98-100. If we were to employ a similar proxy for competition, we
risk making simplistic classifications based on a static view of the market at the time the criteria are established.
309 AT&T 2009 PN Reply at 17; Verizon 2009 PN Reply at 44.
310 Verizon 2009 PN Reply at 44.
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103.The major purpose of the 1996 Act was to establish “a pro-competitive, deregulatory
national policy framework.”311 Indeed, among its primary goals were “opening the local exchange and
exchange access markets to competitive entry” and “promoting increased competition in
telecommunications markets that are already open to competition, including the long-distance services
market.”312 We undertake an analytical process to assess the level of competition in the special access
market with these goals in mind. For example, our analysis may indicate that further regulatory relief is
warranted in areas where competition exists, but is not captured by the current competitive proxies. As
detailed above, the competitive showings adopted in the Pricing Flexibility Order are both over- and
under-inclusive, resulting in inaccurate assessments of whether actual and potential competition is
sufficient to constrain special access prices in the areas granted relief.313 Indeed, given the unreliable
nature of the competitive showing requirements adopted in 1999, we believe a market analysis will aid us
in granting deregulation in areas where actual and potential competition is sufficient to constrain prices.
A nuanced market analysis will also allow us to better balance the potential costs of regulating too heavily
against the potential harms of failing to undertake appropriate regulation where it is needed.314
c.
Dominance / Non-Dominance Classification
104.Finally, incumbent LECs assert that special access pricing flexibility should not be
treated as akin to the non-dominance analyses undertaken by the Commission in the Competitive Carrier
proceeding.315 Further, AT&T argues that, under a non-dominance framework, upon a finding that an
incumbent lacked market power, the Commission would have to reclassify the carrier as non-dominant
and relieve its dominant carrier obligations.316 We agree with AT&T that, once we have performed a
311 Joint Explanatory Statement of the Committee of Conference, S. Rep. No. 104-230, at 113 (1996) (Conf. Rep.)
(Joint Explanatory Statement).
312 Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-
98, Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC
Docket No. 95-185, First Report and Order, 11 FCC Rcd 15499, 15505, 16144-45, paras. 3, 1327-30 (1996) (First
Local Competition Order) (subsequent history omitted).
313 See supra section III; cf. Stephen G. Wood, Don C. Fletcher & Richard F. Holley, Regulation, Deregulation, and
Re-Regulation: An American Perspective, 1987 B.Y.U. L. Rev. 381, 386-87 (1987) (noting arguments that, among
other things, a deregulatory approach may not control monopoly power or “excess profits” and could provide
inadequate information).
314 See, e.g., Pricing Flexibility Order, 14 FCC Rcd at 14271-72, para. 90; Office of Management and Budget,
Office of Information and Regulatory Affairs, 2011 Report to Congress on the Benefits and Costs of Federal
Regulations and Unfunded Mandates on State, Local, and Tribal Entities 4 (June 2011), available at
http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf (stating that “careful
consideration of costs and benefits is best understood as a way of ensuring that regulations will improve social
welfare, above all by informing design and development of various options so as to identify opportunities for both
minimizing the costs of achieving social goals (cost-effectiveness) and maximizing net social benefits (efficiency)”);
See AT&T 2009 PN Reply at 17-18; HT / HTSC 2009 PN Reply at 5; Verizon 2005 NPRM Reply at 37-38 (noting
that the Commission’s Part 69 rules impose costs on price cap LECs by limiting their ability to develop rate
structures in response to market forces).
315 See, e.g., AT&T 2009 PN Comment at 7, 25-28. They argue that a non-dominance analysis is inappropriate in
the special access context because “the pricing flexibility rules are merely an incremental measure within the context
of dominant carrier regulation.” AT&T 2009 PN Comment at 25-26. Commenters also contend that it is not
necessary or administratively feasible for the Commission to determine whether “actual and potential competition
extends to every nook and cranny of an MSA.” AT&T 2009 PN Comment at 23-26; see also SBC 2005 NPRM
Reply at 55; Qwest 2009 PN Comment at 29. Rather, it is sufficient that significant competition exists in areas of
high demand. AT&T 2009 PN Comment at 27; Verizon 2009 PN Comment at 10-12.
316 AT&T 2009 PN Comment at 27-28.
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broader evaluation of competitive conditions, our analysis may show that a carrier classified as dominantdoes not possess market power as defined in the Competitive Carrier proceeding for a particular special
access service in a geographic area. In that case, the Commission may ultimately conclude that it is
appropriate to grant regulatory relief in the form of non-dominance treatment for the particular service
and geographic area. We will determine at a future date what criteria the Commission will consider to
assess whether a finding of non-dominance for special access service is warranted in a given area.317
VI.
PROCEDURAL MATTERS
A. Paperwork Reduction Act Analysis
105.This document does not contain new or modified information collection requirements
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it
does not contain any new or modified information collection burden for small business concerns with
fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-
198, see 44 U.S.C. 3506(c)(4).
B. Final Regulatory Flexibility Certification
106.As required by the Regulatory Flexibility Act (RFA),318 an Initial Regulatory Flexibility
Analysis (IRFA) was incorporated into the 2005 Special Access NPRM.319 The Commission sought
written public comment on the possible significant economic impact on small entities regarding the
proposals addressed in the 2005 Special Access NPRM, including comments on the IRFA.
107.
As required by Section 603 of the RFA, the Commission has prepared a Final Regulatory
Flexibility Certification (FRFC) of the expected impact on small entities of the requirements adopted in
the Report and Order, which is set forth in Appendix B.320 The Commission will send a copy of the
Report and Order, including the FRFC, to the Chief Counsel for Advocacy of the Small Business
Administration.
C. Congressional Review Act
108.The Commission will send a copy of this Report and Order to Congress and the
Government Accountability Office pursuant to the Congressional Review Act.321
VII.
ORDERING CLAUSES
109.Accordingly, IT IS ORDERED that pursuant to sections 1, 4(i), 4(j), and 201-205 of the
Communications Act of 1934, as amended, 47 U.S.C. § 151, 154(i), 154(j), 201, 202, 203, 204, 205, this
Report and Order is ADOPTED.
110.
IT IS FURTHER ORDERED that Part 1 of the Commission’s rules IS AMENDED as set
forth in Appendix A, and such rule amendments shall be effective 30 days after the date of publication of
the rule amendments in the Federal Register.
317 It is likely that any finding of non-dominance would be granted in a limited geographic area. Further, we will
determine what protections, if any, are necessary to prevent overly broad findings of non-dominance (for example,
where a carrier “ties” the purchase of special access in one market to a purchase of special access in another market,
or the purchase of a different product).
318 See 5 U.S.C. § 603(a).
319 See Special Access NPRM, 20 FCC Rcd at 2037-40, paras. 134-146.
320 See 5 U.S.C. § 603(a).
321 See 5 U.S.C. § 801(a)(1)(A).
58
Federal Communications Commission
FCC 12-92
111.IT IS FURTHER ORDERED that section 1.774(f)(1) of the Commission’s rules, 47
C.F.R. § 1.774(f)(1), is SUSPENDED until the amendments set forth in Appendix A are effective.
112.
IT IS FURTHER ORDERED that, pursuant to sections 1.4(b)(1) and 1.103(a) of the
Commission’s rules, 47 C.F.R. §§ 1.4(b)(1), 1.103(a), this Report and Order is EFFECTIVE upon release.
113.
IT IS FURTHER ORDERED that the Commission will send a copy of this Report and
Order to Congress and the Government Accountability Office pursuant to the Congressional Review Act,
see 5 U.S.C. 801(a)(1)(A).
114.
IT IS FURTHER ORDERED that the Commission’s Consumer and Governmental
Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Report and Order, including
the Final Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business
Administration.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
59
Federal Communications Commission
FCC 12-92
APPENDIX A
AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS
PART 1 -- PRACTICE AND PROCEDURE
1.The authority citation continues to read as follows:
Authority: 15 U.S.C. 79 et seq., 47 U.S.C. 151, 154(i), 154(j), 155, 157, 225, 227, 303(r) and 309.
2
Delete Section 1.774 paragraph (f)(1) and reserve it for future use.
§ 1.774 Pricing flexibility
* * * * *
(f) * * *
(1) reserved for future use.
* * * * *
60
Federal Communications Commission
FCC 12-92
APPENDIX B
FINAL REGULATORY FLEXIBILITY CERTIFICATION
115.Final Regulatory Flexibility Certification. The Regulatory Flexibility Act of 1980, as
amended (RFA),1 requires that a regulatory flexibility analysis be prepared for rulemaking proceedings,
unless the agency certifies that “the rule will not have a significant economic impact on a substantial
number of small entities.”2 The RFA generally defines “small entity” as having the same meaning as the
terms “small business,” “small organization,” and “small governmental jurisdiction.”3 In addition, the
term “small business” has the same meaning as the term “small business concern” under the Small
Business Act.4 A small business concern is one which: (1) is independently owned and operated; (2) is not
dominant in its field of operation; and (3) satisfies any additional criteria established by the Small
Business Administration (SBA).5
116.
This Report and Order suspends, on an interim basis, rules allowing for automatic grants
of pricing flexibility for special access services in light of significant evidence that these rules, adopted in
1999, are not working as predicted, and widespread agreement across industry sectors that these rules fail
to accurately reflect competition in today’s special access markets.6 Because the rules are suspended, this
action imposes no recordkeeping or compliance requirements on any entities. Therefore, there is no
impact of this action on small entities.
117.
The Commission commits in the Report and Order to undertake a robust market analysis
to assist in determining how best to assess the presence of actual and potential competition for special
access that is sufficient to discipline prices. The Report and Order does not, however, exhaustively
specify the factors that will comprise the market analysis: these will be subject to comment by interested
parties in an upcoming notice. Therefore, as with the suspension of rules addressed in the preceding
paragraph, this action imposes no recordkeeping or compliance requirements on any entities.
118.
Therefore, we certify that the requirements of this Report and Order will not have a
significant economic impact on a substantial number of small entities. The Commission will send a copy
of the Report and Order including a copy of this final certification in a report to Congress pursuant to the
Small Business Regulatory Enforcement Fairness Act of 1996.7 In addition, the Report and Order and
this certification will be sent to the Chief Counsel for Advocacy of the Small Business Administration,
and will be published in the Federal Register.8
1 The RFA, see 5 U.S.C. § 601 et seq., has been amended by the Contract With America Advancement Act of 1996,
Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA).
2 5. U.S.C. § 605(b).
3 5 U.S.C. § 601(6).
4 5 U.S.C. § 601(3) (incorporating by reference the definition of “small business concern” in Small Business Act, 15
U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an agency,
after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public
comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and
publishes such definition(s) in the Federal Register.”
5 Small Business Act, 15 U.S.C. § 632.
6 See 47 C.F.R §§ 69.701 et seq.
7 See 5 U.S.C. § 801(a)(1)(A).
8 See 5 U.S.C. § 605(b).
61
Federal Communications Commission
FCC 12-92
APPENDIX C
LIST OF COMMENTERS
WC Docket No. 05-25RM-10593
2005 NPRM Commenters
Commenter
Abbreviation
Ad Hoc Telecommunications Users
Committee
Ad Hoc
American Petroleum Institute
API
AT&T Corporation
AT&T
ATX Communications Services, Inc.;
BridgeCom International, Inc.; Broadview
Networks, Inc.; Pac-West Telecom, Inc.; US
LEC Corp.; U.S. Telepacific Corp. d/b/a
Telepacific Communications
ATX et al.
BellSouth Corporation
BellSouth
Broadwing Communications, LLC & Savvis
Communications Corporation
Broadwing / Savvis
BT Americas Inc.
BT
CenturyTel, Inc.
CenturyTel
COMPTEL / ALTS; Global Crossing North
America, Inc.; NuVox Communications
CompTel / ALTS et al.
Ionary Consulting; NationsLine Inc.;
Brahmacom; Fitch Affordable Telecom
Ionary et al.
Iowa Telecommunications Services, Inc.
and Valor Telecommunications of Texas,
L.P.
Iowa Telecom / Valor
New Jersey Division of the Ratepayer
Advocate
NJ DRC
Nextel Communications Inc.
Nextel
PAETEC Communications, Inc.
PAETEC
Qwest Communications International Inc.
Qwest
SBC Communications Inc.
SBC
Sprint Corporation
Sprint
Time Warner Telecom
tw telecom
T-Mobile USA, Inc.
T-Mobile
United States Telecom Association
USTA
Verizon
Verizon
WilTel Communications, LLC
WilTel
XO Communications, Inc.
XO
2005 NPRM Reply Commenters
Commenter
Abbreviation
Ad Hoc Telecommunications Users
Committee
Ad Hoc
62
Federal Communications Commission
FCC 12-92
CommenterAbbreviation
American Petroleum Institute
API
ATX Communications Services, Inc.;
BridgeCom International, Inc.; Broadview
Networks, Inc.; Pac-West Telecom, Inc.; US
LEC Corp.; U.S. Telepacific Corp. d/b/a
Telepacific Communications
ATX et al.
BellSouth Corporation
BellSouth
Broadwing Communications LLC & Savvis
Communications Corporation
Broadwing / Savvis
BT Americas Inc.
BT
COMPTEL; Global Crossing North
America, Inc.; NuVox Communications
COMPTEL et al.
New Jersey Division of the Ratepayer
Advocate
NJ Ratepayer Advocate
Nextel Communications Inc.
Nextel
Office of Advocacy, U.S. Small Business
Administration
SBA
Qwest Communications International Inc.
Qwest
SBC Communications Inc.
SBC
Sprint Corporation
Sprint
Time Warner Telecom
tw telecom
T-Mobile USA, Inc.
T-Mobile
United States Telecom Association
USTA
Verizon
Verizon
WilTel Communications, LLC
WilTel
XO Communications, Inc.
XO
2005 NPRM IRFA Commenters
Commenter
Abbreviation
Office of Advocacy, US Small Business
SBA
Administration
2007 Refresh the Record Pleadings
Commenter
Abbreviation
Ad Hoc Telecommunications Users
Committee
Ad Hoc
American Petroleum Institute
API
AT&T Inc.
AT&T
ATX Communications, Inc.; Bridgecom
International, Inc.; Broadview Networks,
Inc.; Cavalier Telephone, LLC; Deltacom,
Inc.; Integra Telecom, Inc.; Lightyear, Inc.;
McLeod USA Telecommunications
Services, Inc., Penn Telecom, Inc.; RCN
ATX et al.
63
Federal Communications Commission
FCC 12-92
CommenterAbbreviation
Telecom Services, Inc.; SAVVIS, Inc.; U.S.
Telepacific Corp. d/b/a Telepacific
Communications
BT Americas Inc.
BT
COMPTEL
COMPTEL
Computer Technology Industry Association
CompTIA
Covad Communications Group; NuVox
Communications; XO Communications,
LLC
Covad et al.
Embarq
Embarq
Global Crossing North America, Inc.
Global Crossing
Iowa Telecommunications Services, Inc.
Iowa Telecom
Independent Telephone and
Telecommunications Alliance
ITTA
New Jersey Division of Rate Counsel
NJ DRC
Office of Advocacy, U.S. Small Business
Administration
SBA
PAETEC Communications, Inc.
PAETEC
Qwest Communications International Inc.
Qwest
Sprint Nextel Corporation
Sprint
The Free State Foundation
Free State Foundation
Time Warner Telecom, Inc. & One
Communications Corp.
tw telecom / One Communications
T-Mobile USA, Inc.
T-Mobile
United States Telecom Association
USTA
Verizon
Verizon
2007 Refresh the Record Reply Commenters
Commenter
Abbreviation
360 Networks (USA), Inc.; ATX
Communications, Inc.; Bridgecom
International, Inc.; Broadview Networks,
Inc.; Cavalier Telephone, LLC; Deltacom,
Inc.; Integra Telecom, Inc.; Lightyear, Inc.;
McLeod USA Telecommunications
Services, Inc., RCN Telecom Services, Inc.;
SAVVIS, Inc.; U.S. Telepacific Corp. d/b/a
Telepacific Communications
360 Networks et al.
AT&T Inc.
AT&T
BT Americas Inc.
BT
Cincinnati Bell
Cincinnati Bell
Clearwire
Clearwire
COMPTEL
COMPTEL
Embarq
Embarq
Global Crossing North America, Inc.
Global Crossing
64
Federal Communications Commission
FCC 12-92
CommenterAbbreviation
Mobile Satellite Ventures Subsidiary LLC
MSV
National Association of State Utility
Consumer Advocates
NASUCA
New Jersey Division of Rate Counsel
NJ DRC
PAETEC Communications, Inc.
PAETEC
PCIA – The Wireless Infrastructure
Association
PCIA
Qwest Communications International Inc.
Qwest
Sprint Nextel Corporation
Sprint
Technology and Democracy
Project/Discovery Institute (Hance Haney,
Senior Fellow)
Hance Haney
T-Mobile USA, Inc.
T-Mobile
United States Telecom Association
USTA
Verizon
Verizon
XO Communications, LLC; Covad
Communications Group; NuVox
Communications
XO et al.
2009 Analytical Framework Public Notice Commenters
Commenter
Abbreviation
Ad Hoc Telecommunications Users
Committee
Ad Hoc
AT&T Inc.
AT&T
BT Americas Inc.
BT
Competitive Enterprise Institute
CEI
COMPTEL
COMPTEL
Global Crossing North America, Inc.
Global Crossing
Massachusetts Department of
Telecommunications and Cable
MA DTC
NoChokePoints Coalition
NoChokePoints
PAETEC Holdings Inc., TDS Metrocom
LLC, U.S. Telepacific Corp. and Mpower
Communications Corp., d/b/a Telepacific
Communications; Masergy Communications,
Inc.; New Edge Network, Inc.
PAETEC et al.
Qwest Communications International Inc.
Qwest
Sprint Nextel Corporation
Sprint
Technology and Democracy Project /
Discovery Institute (Hance Haney)
Hance Haney
Time Warner Telecom
tw telecom
Verizon and Verizon Wireless
Verizon
XO Communications, Inc.
XO
65
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FCC 12-92
2009 Analytical Framework Public Notice Reply CommentersCommenter
Abbreviation
Ad Hoc Telecommunications Users
Ad Hoc
Committee
AT&T Inc.
AT&T
BT Americas Inc.
BT
CenturyLink
CenturyLink
COMPTEL
COMPTEL
Hawaiian Telecom, Inc. & Hawaiian Telecom HT / HTSC
Services Company, Inc.
Laurence Brett Glass, d/b/a LARIAT
LARIAT
Level 3 Communications
Level 3
Media Action Grassroots Network
MAG-Net
New Jersey Division of Rate Counsel
NJ DRC
NoChokePoints Coalition
NoChokePoints
PAETEC Holdings Inc., TDS Metrocom LLC, PAETEC et al.
U.S. Telepacific Corp. and Mpower
Communications Corp., d/b/a Telepacific
Communications; Masergy Communications,
Inc.; New Edge Network, Inc.
Public Knowledge
Public Knowledge
Qwest Communications International Inc.
Qwest
Rural Cellular Association
RCA
Sprint Nextel Corporation
Sprint
The Free State Foundation
Free State Foundation
T-Mobile USA, Inc.
T-Mobile
TW Telecom, Inc.
tw telecom
United States Telecom Association
USTA
Verizon and Verizon Wireless
Verizon
XO Communications, Inc.
XO
Facilities Data Request Respondents
Commenter
Abbreviation
360 Networks
360 Networks
AT&T Inc.
AT&T
BT Americas Inc.
BT
BTI
BTI
Cbeyond Communications, LLC
CBeyond
CenturyLink
CenturyLink
Comcast
Comcast
Cox Communications, Inc.
Cox
DeltaCom, Inc.
DeltaCom
Frontier Communications
Frontier
Insight Communications, Inc.
Insight
66
Federal Communications Commission
FCC 12-92
CommenterAbbreviation
Integra Telecom, Inc.
Integra
Level 3 Communications, LLC
Level 3
MegaPath, Inc. and Covad Communications
Megapath / Covad
Company
New Edge Network, Inc.
New Edge Network
One Communications Corporation
One Communications
Qwest
Qwest
RCN Telecom Services, LLC
RCN
Sprint Nextel Corp.
Sprint
TDS Metrocom, LLC
TDS Metrocom
Time Warner Cable
Time Warner Cable
T-Mobile USA
T-Mobile
TW Telecom, Inc.
tw telecom
U.S. TelePacific Corp
TelePacific
United States Cellular Corporation
US Cellular
Verizon
Verizon
Competition Data Request Respondents
Commenter
Abbreviation
AT&T Services, Inc.
AT&T
British Telecom
BT
Cbeyond Communications, LLC
CBeyond
California Association of Competitive
Telecommunications Companies
CALTEC
CenturyLink
CenturyLink
Fairpoint
Fairpoint
Frontier Communications
Frontier
Level 3 Communications, LLC
Level 3
RCN
RCN
Sprint Nextel Corporation
Sprint
TW Telecom, Inc.
tw telecom
Verizon
Verizon
XO Communications, Inc.
XO
67
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FCC 12-92
APPENDIX D
PRICING FLEXIBILITY GRANTS FOR CHANNEL TERMINATIONS TO END USERS
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Asheville NCAT&T
Bell South
I
Yes
76%
11%
1
9
2000
1
1
Atlanta GA
AT&T
Bell South
II
Yes
88%
28%
16
58
2000
1
1
Augusta GA
AT&T
Bell South
I
Yes
73%
23%
3
13
2000
1
1
Baton Rouge LA
AT&T
Bell South
II
Yes
91%
38%
6
16
2000
1
1
Biloxi-Gulfport MS
AT&T
Bell South
II
Yes
85%
27%
3
11
2000
1
1
Birmingham AL
AT&T
Bell South
I
Yes
81%
21%
7
33
2000
1
1
Charlotte-Gastonia NC
AT&T
Bell South
II
Yes
96%
55%
12
22
2000
1
1
Chattanooga TN-GA
AT&T
Bell South
II
Yes
87%
23%
3
13
2000
1
1
Columbus GA-AL
AT&T
Bell South
I
Yes
80%
14%
1
7
2000
1
1
Daytona Beach FL
AT&T
Bell South
II
Yes
94%
31%
4
13
2000
1
1
Gainesville FL
AT&T
Bell South
II
Yes
93%
17%
1
6
2000
1
1
Greensboro-Winston Salem-High
Point NC
AT&T
Bell South
II
Yes
91%
39%
7
18
2000
1
1
Greenville-Spartanburg SC
AT&T
Bell South
I
Yes
78%
21%
5
24
2000
1
1
1 For purposes of this chart, the term “MSA” is defined in accordance with our pricing flexibility rules. See 47 C.F.R. § 22.909(a).
2 “PF Type” means type of pricing flexibility, i.e., Phase I or Phase II.
3 This column indicates whether an incumbent LEC made a competitive showing through the collocation rule or through the alternative revenue-based trigger, or both.
4 “Pet.” is an abbreviation for petition, and refers to an incumbent LEC’s petition for pricing flexibility. See infra App. E.
5 See infra App. F.
68
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Huntsville ALAT&T
Bell South
I
Yes
66%
31%
4
13
2000
1
1
Jackson MS
AT&T
Bell South
II
Yes
86%
22%
4
18
2000
1
1
Jacksonville FL
AT&T
Bell South
II
Yes
93%
38%
13
34
2000
1
1
Knoxville TN
AT&T
Bell South
II
Yes
94%
43%
6
14
2000
1
1
Lake Charles LA
AT&T
Bell South
II
Yes
92%
50%
3
6
2000
1
1
Louisville KY-IN
AT&T
Bell South
II
Yes
86%
44%
8
18
2000
1
1
Melbourne-Titusville-Palm Bay FL
AT&T
Bell South
II
Yes
87%
44%
4
9
2000
1
1
Memphis TN-AR-MS
AT&T
Bell South
II
Yes
97%
61%
11
18
2000
1
1
Miami-Ft. Lauderdale-Hollywood
FL
AT&T
Bell South
II
Yes
Yes
93%
75%
38
51
2000
1
1
Mobile AL
AT&T
Bell South
I
Yes
76%
25%
4
16
2000
1
1
Monroe LA
AT&T
Bell South
II
Yes
97%
40%
2
5
2000
1
1
Montgomery AL
AT&T
Bell South
II
Yes
95%
43%
3
7
2000
1
1
Nashville Davidson TN
AT&T
Bell South
II
Yes
94%
39%
16
41
2000
1
1
New Orleans LA
AT&T
Bell South
I
Yes
74%
21%
6
28
2000
1
1
Orlando FL
AT&T
Bell South
II
Yes
Yes
100%
70%
7
10
2000
1
1
Panama City FL
AT&T
Bell South
I
Yes
78%
20%
1
5
2000
1
1
Pensacola FL
AT&T
Bell South
II
Yes
91%
25%
3
12
2000
1
1
Raleigh-Durham NC
AT&T
Bell South
II
Yes
94%
53%
8
15
2000
1
1
Savannah GA
AT&T
Bell South
II
Yes
94%
38%
3
8
2000
1
1
Shreveport LA
AT&T
Bell South
II
Yes
88%
33%
5
15
2000
1
1
West Palm Beach-Boca Raton FL
AT&T
Bell South
II
Yes
89%
63%
10
16
2000
1
1
Wilmington NC
AT&T
Bell South
II
Yes
91%
25%
2
8
2000
1
1
Champaign-Urbana IL
AT&T
Ameritech
II
Yes
67%
2
3
2001
2
2
Evansville-Henderson IN-KY
AT&T
Ameritech
I
Yes
67%
8%
1
13
2001
2
2
Kalamazoo MI
AT&T
Ameritech
I
Yes
76%
13%
1
8
2001
2
2
69
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Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Springfield ILAT&T
Ameritech
II
Yes
95%
18%
2
11
2001
2
2
Toledo OH
AT&T
Ameritech
I
Yes
71%
47%
7
15
2001
2
2
Sacramento CA
AT&T
Pac Bell
I
Yes
77%
23%
8
35
2001
3
2
San Diego CA
AT&T
Pac Bell
I
Yes
67%
25%
13
51
2001
3
2
Austin-San Marcos TX
AT&T
SWBT
I
Yes
77%
25%
6
24
2001
4
2
Dallas-Fort Worth TX
AT&T
SWBT
I
Yes
74%
21%
18
86
2001
4
2
Houston TX
AT&T
SWBT
I
Yes
74%
30%
21
70
2001
4
2
Kansas City MO-KS
AT&T
SWBT
I
Yes
66%
21%
7
33
2001
4
2
Lubbock TX
AT&T
SWBT
II
Yes
67%
4
6
2001
4
2
Oklahoma City OK
AT&T
SWBT
I
Yes
70%
22%
7
32
2001
4
2
San Antonio TX
AT&T
SWBT
I
Yes
76%
26%
8
31
2001
4
2
Springfield MO
AT&T
SWBT
II
Yes
97%
17%
2
12
2001
4
2
Tulsa OK
AT&T
SWBT
I
Yes
83%
19%
5
26
2001
4
2
Altoona PA
Verizon
Verizon
I
Yes
Yes
76%
50%
1
2
2001
5
3
Baltimore, MD
Verizon
Verizon
I
Yes
74%
45%
21
47
2001
5
3
Charleston WV
Frontier
Verizon
II
Yes
Yes
100%
100%
5
5
2001
5
3
Hagerstown, MD
Verizon
Verizon
II
Yes
Yes
100%
100%
1
1
2001
5
3
Lynchburg VA
Verizon
Verizon
I
Yes
75%
29%
2
7
2001
5
3
Manchester NH
Frontier
Verizon
I
Yes
81%
15%
2
13
2001
5
3
No MSA Delaware
Verizon
Verizon
II
Yes
Yes
100%
100%
9
9
2001
5
3
Norfolk-Virginia Beach-
Portsmouth VA-NC
Verizon
Verizon
II
Yes
Yes
92%
83%
15
18
2001
5
3
Parkersburg-Marietta, OH-WV
Frontier
Verizon
II
Yes
Yes
100%
100%
1
1
2001
5
3
Philadelphia, PA
Verizon
Verizon
I
Yes
79%
42%
46
110
2001
5
3
Portland, ME
Fairpoint
Verizon
I
Yes
67%
14%
3
22
2001
5
3
Reading PA
Verizon
Verizon
II
Yes
Yes
96%
80%
4
5
2001
5
3
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Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Richmond VAVerizon
Verizon
II
Yes
Yes
91%
65%
15
23
2001
5
3
Roanoke VA
Verizon
Verizon
II
Yes
91%
60%
3
5
2001
5
3
Vineland-Millville-Bridgeton NJ
Verizon
Verizon
II
Yes
Yes
100%
75%
3
4
2001
5
3
Washington DC-MD-VA-WV
Verizon
Verizon
I
Yes
66%
26%
25
95
2001
5
3
Williamsport PA
Verizon
Verizon
II
Yes
87%
50%
1
2
2001
5
3
Wilmington, DE-NJ-MD
Verizon
Verizon
II
Yes
Yes
100%
80%
12
15
2001
5
3
Sarasota, FL
Verizon
Verizon
I
Yes
66%
27%
3
11
2001
6
3
Rochester NY
Frontier
Frontier
I
Yes
77%
27%
15
56
2001
7
4
Fayetteville NC
CenturyLink
Sprint
II
Yes
85%
60%
3
5
2002
8
5
Harrisburg PA
CenturyLink
Sprint
I
Yes
79%
7%
1
14
2002
8
5
Ocala FL
CenturyLink
Sprint
I
Yes
67%
10%
1
10
2002
8
5
Pittsburgh PA
CenturyLink
Sprint
I
Yes
66%
7%
1
14
2002
8
5
York PA
CenturyLink
Sprint
II
Yes
Yes
100%
100%
1
1
2002
8
5
Akron, OH
Frontier
Verizon
II
Yes
93%
50%
1
2
2002
9
6
Albany-Schenectady-Troy, NY
Verizon
Verizon
I
Yes
82%
28%
12
43
2002
9
6
Allentown-Bethlehem-Easton, PA-
NJ
Verizon
Verizon
I
Yes
72%
36%
4
11
2002
9
6
Binghamton, NY
Verizon
Verizon
II
Yes
87%
38%
3
8
2002
9
6
Boston-Lowell-Brockton-
Lawrence-Haverhill, MA-NH
Verizon
Verizon
I
Yes
76%
34%
48
142
2002
9
6
Bridgeport-Stamford-Norwalk-
Danbury, CT
Verizon
Verizon
II
Yes
99%
50%
1
2
2002
9
6
Buffalo, NY
Verizon
Verizon
I
Yes
80%
35%
14
40
2002
9
6
Fort Wayne, IN
Frontier
Verizon
II
Yes
88%
31%
8
26
2002
9
6
Harrisburg, PA
Verizon
Verizon
II
Yes
87%
58%
7
12
2002
9
6
Huntington-Ashland, WV/KY/OH
Frontier
Verizon
II
Yes
Yes
100%
100%
2
2
2002
9
6
71
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Lakeland-Winter Haven, FLVerizon
Verizon
I
Yes
66%
23%
5
22
2002
9
6
Lancaster, PA
Verizon
Verizon
II
Yes
Yes
97%
67%
2
3
2002
9
6
New York, NY-NJ/Nassau-Suffolk,
NY/Newark, Jersey City and
Paterson-Clifton-Passaic, NJ
Verizon
Verizon
I
Yes
76%
38%
90
239
2002
9
6
No MSA Idaho
Frontier
Verizon
I
Yes
65%
12%
3
26
2002
9
6
Northeast Pennsylvania, PA
Verizon
Verizon
II
Yes
87%
47%
8
17
2002
9
6
Pittsburgh, PA
Verizon
Verizon
II
Yes
89%
47%
34
73
2002
9
6
Portland, OR-WA
Frontier
Verizon
I
Yes
83%
32%
7
22
2002
9
6
Providence-Warwick-Pawtucket, RI
Verizon
Verizon
I
Yes
Yes
79%
50%
11
22
2002
9
6
Raleigh-Durham, NC
Frontier
Verizon
I
Yes
74%
42%
5
12
2002
9
6
San Francisco-Oakland, CA
Verizon
Verizon
II
Yes
Yes
100%
100%
1
1
2002
9
6
Seattle-Everett, WA
Frontier
Verizon
I
Yes
68%
18%
5
28
2002
9
6
Sharon, PA
Verizon
Verizon
II
Yes
Yes
100%
100%
1
1
2002
9
6
Springfield-Chicopee-Holyoke, MA
Verizon
Verizon
I
Yes
78%
29%
9
31
2002
9
6
State College, PA
Verizon
Verizon
II
Yes
85%
50%
1
2
2002
9
6
Syracuse, NY
Verizon
Verizon
I
Yes
80%
23%
8
35
2002
9
6
Worchester-Fitchburg-Leominster,
MA
Verizon
Verizon
I
Yes
84%
48%
21
44
2002
9
6
Chicago IL
AT&T
Ameritech
I
Yes
83%
42%
58
139
2002
10
7
Cleveland OH
AT&T
Ameritech
I
Yes
74%
35%
14
40
2002
10
7
Decatur IL
AT&T
Ameritech
II
Yes
Yes
100%
67%
2
3
2002
10
7
Detroit-Ann Arbor MI
AT&T
Ameritech
I
Yes
71%
27%
26
97
2002
10
7
Flint MI
AT&T
Ameritech
II
Yes
Yes
100%
90%
9
10
2002
10
7
Grand Rapids MI
AT&T
Ameritech
II
Yes
96%
57%
16
28
2002
10
7
Indianapolis IN
AT&T
Ameritech
I
Yes
79%
24%
8
33
2002
10
7
72
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Madison WIAT&T
Ameritech
II
Yes
Yes
98%
86%
6
7
2002
10
7
Milwaukee WI
AT&T
Ameritech
II
Yes
88%
53%
18
34
2002
10
7
Rockford IL
AT&T
Ameritech
II
Yes
Yes
100%
100%
3
3
2002
10
7
San Francisco/Oakland CA
AT&T
Pac Bell
I
Yes
80%
31%
23
75
2002
11
7
San Jose CA
AT&T
Pac Bell
II
Yes
92%
58%
11
19
2002
11
7
Amarillo TX
AT&T
SWBT
II
Yes
93%
50%
3
6
2002
12
7
St. Louis MO-IL
AT&T
SWBT
I
Yes
80%
31%
15
49
2002
12
7
Albuquerque, NM
CenturyLink
Qwest
II
Yes
88%
50%
7
14
2002
13
8
Bellingham, WA
CenturyLink
Qwest
II
Yes
100%
50%
1
2
2002
13
8
Boise City, ID
CenturyLink
Qwest
II
Yes
91%
25%
2
8
2002
13
8
Colorado Springs, CO
CenturyLink
Qwest
II
Yes
93%
25%
4
16
2002
13
8
Davenport-Rock Island-Moline,
IA/IL
CenturyLink
Qwest
II
Yes
Yes
97%
67%
4
6
2002
13
8
Denver-Boulder CO
CenturyLink
Qwest
I
Yes
77%
35%
17
48
2002
13
8
Des Moines, IA
CenturyLink
Qwest
II
Yes
87%
21%
4
19
2002
13
8
Dubuque, IA
CenturyLink
Qwest
II
Yes
99%
50%
1
2
2002
13
8
Eugene-Springfield, OR
CenturyLink
Qwest
II
Yes
86%
15%
2
13
2002
13
8
Fargo-Moorehead, ND-MN
CenturyLink
Qwest
II
Yes
99%
25%
2
8
2002
13
8
Fort Collins-Loveland CO
CenturyLink
Qwest
I
Yes
68%
40%
2
5
2002
13
8
Iowa City, IA
CenturyLink
Qwest
II
Yes
Yes
100%
100%
1
1
2002
13
8
Medford, OR
CenturyLink
Qwest
II
Yes
87%
14%
1
7
2002
13
8
Minneapolis-St. Paul MN-WI
CenturyLink
Qwest
I
Yes
81%
37%
20
54
2002
13
8
Olympia, WA
CenturyLink
Qwest
II
Yes
Yes
99%
67%
2
3
2002
13
8
Omaha, NB-IA
CenturyLink
Qwest
II
Yes
94%
52%
11
21
2002
13
8
Phoenix, AZ
CenturyLink
Qwest
II
Yes
88%
40%
19
48
2002
13
8
Portland, OR-WA
CenturyLink
Qwest
II
Yes
91%
56%
10
18
2002
13
8
73
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Provo-Orem UTCenturyLink
Qwest
I
Yes
81%
20%
2
10
2002
13
8
Pueblo CO
CenturyLink
Qwest
I
Yes
70%
20%
1
5
2002
13
8
Rochester, MN
CenturyLink
Qwest
II
Yes
99%
50%
1
2
2002
13
8
Salem OR
CenturyLink
Qwest
I
Yes
78%
14%
1
7
2002
13
8
Salt Lake City-Ogden, UT
CenturyLink
Qwest
II
Yes
88%
34%
10
29
2002
13
8
Seattle-Everett WA
CenturyLink
Qwest
I
Yes
79%
44%
12
27
2002
13
8
Sioux City IA-NE
CenturyLink
Qwest
I
Yes
80%
13%
1
8
2002
13
8
Spokane, WA
CenturyLink
Qwest
II
Yes
96%
50%
6
12
2002
13
8
St. Cloud, MN
CenturyLink
Qwest
II
Yes
92%
13%
1
8
2002
13
8
Tacoma, WA
CenturyLink
Qwest
I
Yes
72%
29%
4
14
2002
13
8
Tucson, AZ
CenturyLink
Qwest
I
Yes
75%
24%
5
21
2002
13
8
Waterloo-Cedar Falls, IA
CenturyLink
Qwest
I
Yes
71%
17%
1
6
2002
13
8
Yakima WA
CenturyLink
Qwest
II
Yes
92%
50%
1
2
2002
13
8
Burlington NC
AT&T
Bell South
I
Yes
65%
20%
1
5
2002
14
9
Clarksville-Hopkinsville TN/KY
AT&T
Bell South
I
Yes
75%
17%
2
12
2002
14
9
Columbia SC
AT&T
Bell South
II
Yes
87%
38%
5
13
2002
14
9
Evansville IN-KY
AT&T
Bell South
II
Yes
94%
25%
1
4
2002
14
9
Lafayette LA
AT&T
Bell South
II
Yes
89%
29%
2
7
2002
14
9
Owensboro KY
AT&T
Bell South
II
Yes
99%
11%
1
9
2002
14
9
Bangor, ME
Fairpoint
Verizon
I
Yes
84%
7%
1
14
2003
15
10
Bloomington-Normal, IL
Frontier
Verizon
II
Yes
94%
15%
3
20
2003
15
10
Erie, PA
Verizon
Verizon
II
Yes
89%
33%
5
15
2003
15
10
No MSA West Virginia
Frontier
Verizon
I
Yes
75%
8%
8
97
2003
15
10
Tampa-St. Petersburg, FL
Verizon
Verizon
I
Yes
83%
48%
24
50
2003
15
10
Columbus OH
AT&T
Ameritech
II
Yes
88%
47%
14
30
2003
16
11
Eau Claire WI
AT&T
Ameritech
I
Yes
Yes
77%
50%
1
2
2003
16
11
74
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Janesville WIAT&T
Ameritech
II
Yes
Yes
98%
67%
2
3
2003
16
11
Kenosha WI
AT&T
Ameritech
I
Yes
70%
40%
2
5
2003
16
11
Lansing-East Lansing MI
AT&T
Ameritech
II
Yes
89%
25%
6
24
2003
16
11
Racine WI
AT&T
Ameritech
II
Yes
88%
50%
3
6
2003
16
11
Sheboygan WI
AT&T
Ameritech
II
Yes
90%
50%
1
2
2003
16
11
Fresno CA
AT&T
Pac Bell
II
Yes
89%
24%
5
21
2003
17
11
Los Angeles-Long Beach CA
AT&T
Pac Bell
II
Yes
85%
55%
64
116
2003
17
11
Oxnard-Simi Valley-Ventura CA
AT&T
Pac Bell
I
Yes
72%
22%
2
9
2003
17
11
Santa Rosa-Petaluma CA
AT&T
Pac Bell
I
Yes
83%
22%
4
18
2003
17
11
Stockton CA
AT&T
Pac Bell
I
Yes
77%
33%
3
9
2003
17
11
Fort Smith AR-OK
AT&T
SWBT
I
Yes
68%
18%
2
11
2003
18
11
Little Rock-North Little Rock AR
AT&T
SWBT
II
Yes
90%
38%
9
24
2003
18
11
Topeka KS
AT&T
SWBT
II
Yes
91%
29%
2
7
2003
18
11
Reno NV
AT&T
Nevada Bell
I
Yes
83%
29%
4
14
2003
19
11
Elkhart-Goshen, IN
Frontier
Verizon
I
Yes
71%
29%
2
7
2004
20
12
Anderson IN
AT&T
Ameritech
I
Yes
79%
20%
1
5
2004
21
13
Appleton-Oshkosh-Neenah WI
AT&T
Ameritech
II
Yes
91%
33%
3
9
2004
21
13
Battle Creek MI
AT&T
Ameritech
I
Yes
71%
25%
2
8
2004
21
13
Bloomington IN
AT&T
Ameritech
II
Yes
100%
50%
1
2
2004
21
13
Green Bay WI
AT&T
Ameritech
II
Yes
96%
57%
4
7
2004
21
13
Muncie IN
AT&T
Ameritech
II
Yes
94%
20%
1
5
2004
21
13
South Bend-Mishawaka IN
AT&T
Ameritech
II
Yes
96%
57%
4
7
2004
21
13
Bridgeport-Stamford-Norwalk-
Danbury CT
AT&T
SNET
I
Yes
80%
41%
9
22
2004
22
13
Hartford et al., CT
AT&T
SNET
II
Yes
92%
25%
11
44
2004
22
13
Abilene TX
AT&T
SWBT
II
Yes
98%
40%
2
5
2004
23
13
75
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Joplin MOAT&T
SWBT
I
Yes
78%
17%
1
6
2004
23
13
Longview-Marshall TX
AT&T
SWBT
II
Yes
89%
40%
2
5
2004
23
13
St. Joseph MO
AT&T
SWBT
II
Yes
92%
20%
1
5
2004
23
13
Waco TX
AT&T
SWBT
I
Yes
66%
7%
1
14
2004
23
13
Wichita Falls TX
AT&T
SWBT
I
Yes
82%
29%
2
7
2004
23
13
Dallas-Forth Worth, TX
Verizon
Verizon
II
Yes
Yes
93%
81%
29
36
2005
24
14
New Haven, et al., CT
AT&T
SNET
I
Yes
79%
31%
8
26
2005
25
15
Corpus Christi TX
AT&T
SWBT
II
Yes
85%
33%
3
9
2005
26
15
Lawton OK
AT&T
SWBT
II
Yes
88%
25%
1
4
2005
26
15
Memphis TN-AR-MS
AT&T
SWBT
I
Yes
79%
20%
1
5
2005
26
15
Midland TX
AT&T
SWBT
II
Yes
Yes
91%
67%
2
3
2005
26
15
Wichita KS
AT&T
SWBT
I
Yes
83%
19%
5
26
2005
26
15
Dallas TX
CenturyLink
Sprint
I
Yes
67%
24%
4
17
2006
27
16
Cincinnati OH-KY-IN
AT&T
Ameritech
I
Yes
Yes
68%
50%
1
2
2006
28
17
Hamilton-Middletown, OH
AT&T
Ameritech
II
Yes
Yes
97%
67%
2
3
2006
28
17
Jackson MI
AT&T
Ameritech
II
Yes
89%
17%
1
6
2006
28
17
Louisville KY-IN
AT&T
Ameritech
II
Yes
91%
50%
3
6
2006
28
17
Saginaw-Bay City-Midland MI
AT&T
Ameritech
II
Yes
87%
38%
6
16
2006
28
17
Fayetteville-Springdale AR
AT&T
SWBT
II
Yes
97%
44%
4
9
2006
29
17
Kokomo IN
AT&T
Ameritech
II
Yes
98%
50%
2
4
2007
30
18
Lima OH
CenturyLink
Embarq
II
Yes
87%
6%
1
16
2007
31
19
Cincinnati
Cincinnati
Cincinnati OH-KY-IN
Bell
Bell
I
Yes
69%
21%
9
42
2008
32
20
Albany GA
AT&T
Bell South
II
Yes
99%
33%
1
3
2008
33
21
Alexandria LA
AT&T
Bell South
I
Yes
79%
10%
1
10
2008
33
21
Anderson SC
AT&T
Bell South
II
Yes
87%
20%
1
5
2008
33
21
76
Federal Communications Commission
FCC 12-92
Type of Rule
Number of
Competitive
Used to Make
Wire
Year
MSA1
Carrier Name
PF
Showing
Source
Type2
Competitive
Centers in Granted
Metrics
Showing 3
MSA
%At Time of
Phase
%With
Current
Rev
Collo
Wire
Total
Pet.4 Order5
Grant
I or II
Rev
Collo
Ctrs
Athens GAAT&T
Bell South
II
Yes
Yes
97%
67%
2
3
2008
33
21
Charleston-North Charleston SC
AT&T
Bell South
II
Yes
87%
50%
7
14
2008
33
21
Florence SC
AT&T
Bell South
II
Yes
98%
50%
1
2
2008
33
21
Lexington KY
Windstream
Windstream
I
Yes
65%
38%
5
13
2008
34
22
Anchorage AK
ACS
ACS
II
Yes
96%
64%
7
11
2010
35
23
Fairbanks AK
ACS
ACS
II
Yes
Yes
100%
100%
1
1
2010
35
23
Non-MSA Juneau AK
ACS
ACS
II
Yes
99%
50%
2
4
2010
35
23
77
Federal Communications Commission
FCC 12-92
APPENDIX E
PETITIONS FOR PRICING FLEXIBILITY
1.Petition of BellSouth Telecommunications, Inc. (BellSouth) for Pricing Flexibility Under Section
69.727 of the Commission’s rules for the Specific MSAs, Petition for Pricing Flexibility and
attachments, attach. 3 (filed Aug. 24, 2000).
2.
Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone
Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech
Michigan), and Wisconsin Bell, Inc. (Ameritech Wisconsin) for Pricing Flexibility Under Section
69.727 of the Commission’s Rules for Specific MSAs, Petition for Pricing Flexibility and
appendices, app. C (filed Nov. 17, 2000).
3.
Petition of Pacific Bell Telephone Company for Pricing Flexibility as Specified in Section 69.727
of the Commission’s Rules for the San Jose, San Francisco, Sacramento, Los Angeles/Long
Beach, Orange County, Oakland and San Diego CA MSAs, Petition for Pricing Flexibility and
appendices, app. C (filed Nov. 17, 2000).
4.
Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Austin/San Marcos TX, Amarillo TX, El Paso TX,
Dallas/Ft. Worth TX, Corpus Christi TX, Houston TX, Lubbock TX, San Antonio TX, Kansas City
MO-KS, St. Louis MO, Springfield MO, Little Rock AR, Oklahoma City OK, Tulsa OK and
Topeka KS MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Nov. 17, 2000).
5.
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Nov. 17, 2000).
6.
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Dec. 18, 2000).
7.
Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers,
Interexchange Carrier Purchases of Switches Access Services Offered by Competitive Local
Exchange Carriers, Petition of US West Communications, Inc. for Forbearance from Regulation
as a Dominant Carrier in the Phoenix, Arizona MSA, Petition for Pricing Flexibility and
attachments, attach. 3 (filed Mar. 20, 2001).
8.
Sprint Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Nov. 16, 2001).
9.
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Nov. 29, 2001).
10. Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone
Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech
Michigan), The Ohio Bell Telephone Company (Ameritech Ohio), and Wisconsin Bell, Inc.
(Ameritech Wisconsin) for Pricing Flexibility Under Section 69.727 of the Commission’s Rules
for the Specific MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Dec. 19,
2001); Letter from Davida M. Grant, Senior Counsel for Ameritech Operating Companies, et al.,
to Magalie R. Salas, Secretary, FCC, with appendix, app. C (filed Jan. 18, 2002); Letter from
Davida M. Grant, Senior Counsel for Ameritech Operating Companies, et al., to William Canton,
Acting Secretary, FCC, with appendix, app. C (filed Mar. 22, 2002).
11. Petition of Pacific Bell Telephone Company for Pricing Flexibility as Specified in Section 69.727
of the Commission’s Rules for the San Jose, Los Angeles/Long Beach, and San
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Francisco/Oakland, CA MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Dec.19. 2001).
12. Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Amarillo TX, and St. Louis MO MSAs, Petition for
Pricing Flexibility and appendices, app. C (filed Dec. 19, 2001).
13. Qwest Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. F (filed Dec. 31, 2001); Letter from Craig
J. Brown, Senior Attorney for Qwest, to Magalie R. Salas, Secretary, FCC (filed Jan. 4, 2002).
14. Petition of BellSouth Telecommunications, Inc. for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules, Petition for Pricing Flexibility and attachments, attach. 3 (filed
Aug. 2, 2002).
15. Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Dec. 13, 2002).
16. Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone
Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech
Michigan), The Ohio Bell Telephone Company (Ameritech Ohio), and Wisconsin Bell, Inc.
(Ameritech Wisconsin) for Pricing Flexibility Under Section 69.727 of the Commission’s Rules
for the Specific MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Jan. 30,
2003).
17. In the Matter of Petition of Pacific Bell Telephone Company for Pricing Flexibility as Specified
in Section 69.727 of the Commission’s Rules for the Bakersfield, Fresno, Los Angeles-Long
Beach, et al., Oxnard-Simi Valley-Ventura, Santa Rosa-Petaluma, and Stockton, CA MSAs,
Petition for Pricing Flexibility and appendices, app. C (filed Jan. 30, 2003).
18. Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Joplin MO, St. KS, Wichita KS, Beaumont-Port Arthur
TX, and Midland TX MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Jan. 30,
2003).
19. Petition of Nevada Bell Telephone Company for Pricing Flexibility as Specified in Section 69.727
of the Commission’s Rules for the Reno, NV MSA, Petition for Pricing Flexibility and appendices,
app. C (filed Jan. 30, 2003).
20. Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
Petition for Pricing Flexibility and attachments, attach. D (filed Jan. 16, 2004).
21. Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone
Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech
Michigan), The Ohio Bell Telephone Company (Ameritech Ohio), and Wisconsin Bell, Inc.
(Ameritech Wisconsin) for Pricing Flexibility Under Section 69.727 of the Commission’s Rules
for the Specific MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Feb. 13,
2004).
22. Petition of Southern New England Telephone Company for Pricing Flexibility as Specified in
Section 69.727 of the Commission’s Rules for the Hartford, et al., CT and Bridgeport, et al., CT
MSA, Petition for Pricing Flexibility and appendices, app. C (filed Feb 13, 2004).
23. Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Joplin MO, St. Joseph MO, Abilene TX, Brownsville-
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Harlingen TX, Longview-Marshall TX, Waco TX, and Wichita Falls TX MSAs, Petition forPricing Flexibility and appendices, app. C (filed Feb 13, 2004).
24. Verizon Petition for Pricing Flexibility for Special Access Services, Petition for Pricing
Flexibility and attachments, attach. D (filed Jan. 28, 2005).
25. Petition of Southern New England Telephone Company for Pricing Flexibility as Specified in
Section 69.727 of the Commission’s Rules for the New Haven, et al., CT and New London-
Norwich, CT MSAs, Petition for Pricing Flexibility and appendices, app. C (filed Feb. 18, 2005).
26. Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Corpus Christi TX, McAllen-Edinburg-Mission TX,
Memphis, TN-AR-MS, Midland TX, Lawton OK, Tyler TX, and Wichita KS MSAs, Petition for
Pricing Flexibility and appendices, app. C (filed Feb. 18, 2005).
27. Sprint Local Telephone Companies Petition for Pricing Flexibility for Special Access and
Dedicated Transport Services, Petition for Pricing Flexibility and attachments, attach. D (filed
Dec. 7, 2005).
28. Petition of Illinois Bell Telephone Company (Ameritech Illinois), Indiana Bell Telephone
Company, Incorporated (Ameritech Indiana), Michigan Bell Telephone Company (Ameritech
Michigan), The Ohio Bell Telephone Company (Ameritech Ohio), and Wisconsin Bell, Inc.
(Ameritech Wisconsin) for Pricing Flexibility Under Section 69.727 of the Commission’s Rules
for the Specific MSA and Non-MSA, WI, Petition for Pricing Flexibility and appendices, app. C
(filed Jan. 19, 2006).
29. Petition of Southwestern Bell Telephone Company for Pricing Flexibility as Specified in Section
69.727 of the Commission’s Rules for the Fayetteville-Springdale, AR MSA, Non-MSA, KS and
Non-MSA, MO, Petition for Pricing Flexibility and appendices, app. C (filed Jan. 19, 2006).
30. Petition of Indiana Bell Telephone Company, Incorporated (Ameritech Indiana) and The Ohio
Bell Telephone Company (Ameritech Ohio) for Pricing Flexibility Under Section 69.727 of the
Commission’s Rules for the Specific MSAs, Petition for Pricing Flexibility and appendices, app. C
(filed Jan. 12, 2007).
31. Petition of Embarq Local Operating Companies (Embarq) for Phase I and Phase II Pricing
Flexibility for Special Access and Dedicated Transport Services in the Lima, Ohio and Mansfield,
Ohio Metropolitan Statistical Areas and Phase I and Phase II Pricing Flexibility for Channel
Termination Services in the Lima, Ohio Metropolitan Statistical Area, Petition for Pricing
Flexibility and attachments, attach. D (filed Apr. 30, 2007).
32. Petition of Cincinnati Bell Telephone Company LLC (CBT) for Phase I Pricing Flexibility for
Special Access, Dedicated Transport Services and End-User Channel Terminations, and Phase II
Pricing Flexibility for POP Channel Termination in the Cincinnati, Ohio-Kentucky-Indiana
Metropolitan Statistical Area, and Phase I Pricing Flexibility for Special Access Dedicated
Transport Services and POP Channel Terminations in the Hamilton – Middletown, Ohio
Metropolitan Statistical Service Area, Petition for Pricing Flexibility and attachments, attach. D
(filed Nov. 27, 2007).
33. Petition of BellSouth Telecommunications, Inc. (BellSouth) for Pricing Flexibility Under Section
69.727 of the Commission’s rules for the Specific MSAs, Petition for Pricing Flexibility and
appendices, app. C (filed Jan. 25, 2008).
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34. Petition of Windstream Kentucky East, LLC for Pricing Flexibility as Specified in Section 69.727of the Commission’s Rules for the Lexington, Kentucky MSA and Ashland, Kentucky MSA,
Petition for Pricing Flexibility and appendices, app. C (filed June 13, 2008).
35. ACS of Anchorage, Inc., ACS of Alaska, Inc., and ACS of Fairbanks, Inc. Petition for Phase II
Pricing Flexibility Pursuant to Sections 69.709 and 69.711 of the Commission’s Rules, Petition
for Pricing Flexibility and appendices, app. B (filed Jan. 29, 2010).
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APPENDIX F
ORDERS GRANTING PRICING FLEXIBILITY
1.BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 00-20, Memorandum Opinion and Order, 15 FCC Rcd 24588 (Common
Carrier Bur. 2000).
2.
Petition of Ameritech Illinois, Ameritech Indiana, Ameritech Michigan, Ameritech Ohio, and
Ameritech Wisconsin for Pricing Flexibility, CCB/CPD No. 00-26, Petition of Pacific Bell
Telephone Company for Pricing Flexibility, CCB/CPD No. 00-23 Petition of Southwestern Bell
Telephone Company for Pricing Flexibility, CCB/CPD File No. 00-25, Memorandum Opinion
and Order, 16 FCC Rcd 5889 (Common Carrier Bur. 2001).
3.
Verizon Petitions for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File Nos. 00-24, 00-28, Memorandum Opinion and Order, 16 FCC Rcd 5876
(Common Carrier Bur. 2001).
4.
Frontier Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 01-07, Memorandum Opinion and Order, 16 FCC Rcd 13885 (Wireline
Comp. Bur. 2001).
5.
Sprint Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 01-022, Memorandum Opinion and Order, 17 FCC Rcd 2335 (Common
Carrier Bur. 2002).
6.
Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
CCB/CPD File No. 01-27, Memorandum Opinion and Order, 17 FCC Rcd 5359 (Common
Carrier Bur. 2002).
7.
Petitions for Pricing Flexibility for Special Access and Dedicated Transport Services for
Ameritech Operating Companies, Pacific Bell Telephone Company, Southern New England
Telephone Company, and Southwestern Bell Telephone Company, CCB/CPD File Nos. 01-32,
01-33, 02-03, 01-34, 01-35, Memorandum Opinion and Order, 17 FCC Rcd 6462 (Wireline
Comp. Bur. 2002).
8.
Qwest Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
WCB/Pricing File No. 02-01, Memorandum Opinion and Order, 17 FCC Rcd 7363 (Wireline
Comp. Bur. 2002).
9.
BellSouth Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
WCB/Pricing File No. 02-24, Memorandum Opinion and Order, 17 FCC Rcd 23725 (Wireline
Comp. Bur. 2002).
10. Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
WCB/Pricing File No. 02-33, Memorandum Opinion and Order, 18 FCC Rcd 6237 (Wireline
Comp. Bur. 2003).
11. SBC Communications Inc. Petitions for Pricing Flexibility for Special Access and Dedicated
Transport Services for Ameritech Operating Companies, Nevada Bell, Pacific Bell Telephone
Company, Southern New England Telephone Company, and Southwestern Bell Telephone
Company, WCB/Pricing File No. 03-8, Memorandum Opinion and Order, 18 FCC Rcd 10167
(Wireline Comp. Bur. 2003).
12. Verizon Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
WCB/Pricing File No. 04-01, Memorandum Opinion and Order, 19 FCC Rcd 8689 (Wireline
Comp. Bur. 2004).
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13. Ameritech Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,WCB/Pricing File No. 04-09, Nevada Bell Telephone Company Petition for Pricing Flexibility
for Special Access and Dedicated Transport Services, WCB/Pricing File No. 04-10, Pacific Bell
Telephone Company Petition for Pricing Flexibility for Special Access and Dedicated Transport
Services, WCB/Pricing File No. 04-11, Southern New England Telephone Company Petition for
Pricing Flexibility for Special Access and Dedicated Transport Services, WCB/Pricing File No.
04-12, Southwestern Bell Telephone Company Petition for Pricing Flexibility for Special Access
and Dedicated Transport Services, WCB/Pricing File No. 04-13, Memorandum Opinion and
Order, 19 FCC Rcd 10298 (Wireline Comp. Bur. 2004).
14. Verizon Petition for Pricing Flexibility for Special Access Services, WCB/Pricing File No. 05-11,
Memorandum Opinion and Order, 20 FCC Rcd 9809 (Wireline Comp. Bur. 2005).
15. Ameritech Operating Companies Petition for Pricing Flexibility for Dedicated Transport and
Special Access Services, WCB/Pricing File No. 05-14, Southern New England Telephone
Company Petition for Pricing Flexibility for Dedicated Transport and Special Access Services,
WCB/Pricing No. 05-15, Southwestern Bell Telephone Company Petition for Pricing Flexibility
for Dedicated Transport and Special Access Services, WCB/Pricing File No. 05-16,
Memorandum Opinion and Order, 20 FCC Rcd 9883 (Wireline Comp. Bur. 2005).
16. Sprint Local Telephone Companies Petition for Pricing Flexibility for Special Access and
Dedicated Transport Services, WCB/Pricing File No. 05-35, Order, 21 FCC Rcd 3412 (Wireline
Comp. Bur. 2006).
17. Ameritech Operating Companies Petition for Pricing Flexibility for Special Access and
Dedicated Transport Services, WCB/Pricing File No. 06-8, Southwestern Bell Telephone
Company Petition for Pricing Flexibility for Special Access and Dedicated Transport Services,
WCB/Pricing File No. 06-9, Order, 21 FCC Rcd 5172 (Wireline Comp. Bur. 2006).
18. Petition of Indiana Bell Telephone Company, Incorporated (Ameritech Indiana) and the Ohio
Bell Telephone Company (Ameritech Ohio) for Pricing Flexibility Under Section 69.727 of the
Commission’s Rules for the Specific MSAs, WCB/Pricing File No. 07-07, Order, 22 FCC Rcd
9174 (Wireline Comp. Bur. 2007).
19. Petition of the Embarq Local Operating Companies for Phase I and Phase II Pricing Flexibility
for Special Access and Dedicated Transport Services in the Lima, Ohio and Mansfield, Ohio
Metropolitan Statistical Areas and Phase I and Phase II Pricing Flexibility for Channel
Termination Services in the Lima, Ohio Metropolitan Statistical Area, WCB/Pricing File No. 07-
13, Order, 22 FCC Rcd 16651 (Wireline Comp. Bur. 2007).
20. Petition of Cincinnati Bell Telephone Company LLC (CBT) for Phase I Pricing Flexibility for
Special Access, Dedicated Transport Services and End-User Channel Terminations, and Phase II
Pricing Flexibility for POP Channel Terminations in the Cincinnati, Ohio-Kentucky-Indiana
Metropolitan Statistical Area, and Phase I Pricing Flexibility for Special Access, Dedicated
Transport Services and POP Channel Terminations in the Hamilton-Middletown, Ohio
Metropolitan Statistical Area, WCB/Pricing File No. 07-20, Order, 23 FCC Rcd 4046 (Wireline
Comp. Bur. 2008).
21. Petition of BellSouth Telecommunications, Inc. for Phase I and/or Phase II Pricing Flexibility for
Dedicated Transport and Special Access Services in the Albany, GA; Athens, GA; Macon-Warner
Robins, GA; Alexandria, LA; Pascagoula, MS; Anderson, SC; and Florence, SC Metropolitan
Statistical Areas, and Phase I and/or Phase II Pricing Flexibility for Channel Terminations in the
Albany, GA; Athens, GA, Alexandria LA; Anderson, SC; Charleston-North Charleston, SC; and
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Florence, SC Metropolitan Statistical Areas, WCB/Pricing File No. 08-02, Order, 23 FCC Rcd7937 (Wireline Comp. Bur. 2008).
22. Petition of Windstream Kentucky East, LLC for Pricing Flexibility as Specified in Section 69.727
of the Commission’s Rules for the Lexington, Kentucky MSA and Ashland, Kentucky MSA,
WCB/Pricing File No. 08-17, Order, 23 FCC Rcd 14626 (Wireline Comp. Bur. 2008).
23. Petition of ACS of Anchorage, Inc., ACS of Alaska, Inc., and ACS of Fairbanks, Inc., for Pricing
Flexibility Pursuant to Sections 69.709 and 69.711 of the Commission’s Rules, WCB/Pricing File
No. 10-02, Order, 25 FCC Rcd 7128 (Wireline Comp. Bur. 2010).
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STATEMENT OF
CHAIRMAN JULIUS GENACHOWSKI
Re:Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T
Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier
Rates for Interstate Special Access Services, RM-10593
Competition is the lifeblood of our free market economy, driving private investment, innovation,
and benefits to consumers. Today the Commission acts to promote competition in communications
services by taking an important step in the process of modernizing policies for access to dedicated
business lines, known as “special access.” Based on the record and the undisputed finding that legacy
regulations are not working as intended, we temporarily suspend outdated rules that not only allow
incumbent carriers to raise prices in the absence of competition, but also deny them the flexibility to
lower prices in the presence of competition. We do this as we determine what permanent rules would best
promote a healthy competitive marketplace. Next month we will issue a comprehensive data collection
enabling the Commission to conclusively resolve its special access proceeding as quickly as possible,
including to remove unnecessary regulations in many areas of the country.
My colleagues’ dissents struggle to explain why the Commission should ignore the record and
maintain a broken system. In contrast to the responsible decision in today’s Order, the dissenters’
approach would abandon the Commission’s fundamental commitment to competition. In their many
pages, the dissenters have no answer to the harm their approach would cause consumers and businesses of
all sizes that depend on competitively provided communications services.
*
*
*
Special access services – services that provide dedicated, high-quality data connections – are a
vital input to our broadband economy. Mobile providers use these connections to link cell towers to
wireline backbone networks. Banks, credit card, technology and insurance companies, and other large
enterprises use special access links to communicate among their branch offices. Small businesses rely on
these services for Internet access and have made clear that promoting competition in the market for
special access is essential to helping them grow and create new jobs. And our nation’s schools, libraries,
and government institutions use special access connections every day to provide services to their
constituents. Indeed, contrary to the claims of some who say special access services are no longer
relevant, these services remain a $12-$18 billion market annually.
As one group of businesses, including representatives from the financial services, automotive,
manufacturing, insurance, aerospace, package delivery, information technology, and transportation
industries, told us, “special access services [are] the building blocks of their corporate networks.”
There is widespread agreement, however, that the rules that govern these services – rules that
were adopted over a decade ago based on the predictive judgment of the agency at the time – are not
working as intended. These rules, while adopted in good faith, relied on predicted developments that have
not occurred. As one incumbent provider has said, “the ineffectiveness of the [competitive showing rules]
is one area where purchasers of special access and ILECs agree.” This understanding is confirmed by the
detailed analysis in today’s decision, including a thorough review of all the petitions received to date, and
responses to the Commission’s voluntary data requests.
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It’s also supported by common sense: The current rules rely on competitive showings in a portionof a large area to demonstrate competition throughout the area. In practice, these rules say that because
competition exists in, say, downtown, Washington D.C., small businesses 40 miles away in Leesburg,
Virginia are adequately protected.
In light of the extensive record demonstrating that our existing rules do not accurately measure
competition, we’re obliged to take seriously the strong arguments by multiple stakeholders that these
rules are allowing anti-competitive practices in some areas while maintaining unnecessary regulation in
others. Thus, today’s Order temporarily suspends new grants of pricing flexibility under the current rules,
while laying out a path to replace those rules based on economically sound and data-driven competitive
analysis.
This is a modest but important step. It does not, as one of my dissenting colleagues suggests, re-
regulate anything. It does preserve the status quo while laying out a path for important pro-competition
reforms.
The dissenting Commissioners insist that we lack the data to support even this modest measure,
emphasizing past Commission statements where we said we need more information to complete the
special access proceeding. But it’s one thing to say we don’t yet know enough to know what the final
rules should be – a fact on which we agree – and quite another to recognize that the record raises serious
doubts about the rules we have.
Indeed, today’s Order has at its heart a detailed and careful review of the data: an examination of
the petitions received since our current special access rules were enacted; analysis of developments in
several markets since petitions were granted to free incumbents from regulation; review of Department of
Justice, Government Accountability Office, and FCC investigations into the competitive environment in
several other areas after the current rules were applied to give regulatory relief; and review of new
deployment data from our voluntary data requests. It is by far the most thorough and up-to-date
evaluation of the special access rules we’ve ever done. And there’s no question the interim suspension we
approve today is based on better and more up-to-date data than the 13-year old rules the dissenters argue
so vigorously to protect from temporary interruption.
So the dissenters argue that we should ignore the data before us and maintain a broken system as
we proceed with reform. But it would be inconsistent with reasoned decision-making and defy our duty as
an expert agency to continue granting new pricing petitions based on a competition analysis we know is
flawed.
It would be unfair to every business and every community that would suffer from the higher
prices and reduced services that come with a lack of competition.
Finally, contrary to those who say updating our special access rules will somehow impede the
transition to IP networks, ensuring the right policies are in place to promote competition and investment is
critical to driving private sector deployment of next generation networks. Modernizing our special access
rules is a vital part of the broadband competition equation, and also an important opportunity to remove
unnecessary regulations in many parts of the country.
So while there is not unanimity on today’s Order, I look forward to working with my colleagues
to move this proceeding forward quickly in the weeks and months ahead, including through the
comprehensive data request that we all agree is the next step, which I expect to circulate soon.
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Thank you to the staff of the Wireline Competition Bureau for their excellent and diligent work inthis proceeding.
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DISSENTING STATEMENT OF
COMMISSIONER ROBERT M. McDOWELL
Re:Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T
Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier
Rates for Interstate Special Access Services, RM-10593
Since at least February 2007, I have called upon the Commission to seek detailed and up-to-date
special access market data, in part, to ensure that any potential changes to the special access rules would
be transparent and legally-sustainable.1 I have long maintained that the Commission must have granular
data from all players in the special access market, no matter their technology or market position, on a
building-by-building and cell-site-by-cell-site basis. Not only would such an approach be appropriate, it
would be consistent with the prudent past practices of the federal government when examining the special
access market. For instance, the Department of Justice, in close consultation with FCC staff, routinely
conducted detailed data collections and analyses during its reviews of the Verizon-MCI, SBC-AT&T and
AT&T-BellSouth mergers. Furthermore, the Commission has undertaken many complex data collections
in reviewing various mobile wireless and media transactions. Despite this sound tradition of seeking and
analyzing the most relevant and probative evidence, calls from Members of Congress, commissioners,
industry and civil society for a comprehensive data collection and analysis in the course of contemplating
a change in special access rules have gone unanswered for more than five years.
Today, the majority has opted to suspend a thirteen-year-old special access regulatory framework
without an adequate evidentiary record or market analysis, both of which are necessary to make such a
sweeping rule change. In doing so, the majority chose to lay its procedural path backwards. Due to such
glaring deficiencies, I have no choice but to respectfully cast a dissenting vote.
Curiously, while adopting a substantive rule change today, only months ago the Commission
admitted that the record in this proceeding was insufficient to render a substantive decision. In fact, in an
attempt to remedy that ongoing deficiency, the Wireline Competition Bureau has sought data over the
past three years regarding the special access marketplace by soliciting voluntary submissions.2 Yet, the
Commission has consistently determined that these efforts failed to harvest the evidence needed to sustain
a substantive rule change, explaining as much to the U.S. Court of Appeals for the District of Columbia
Circuit. Specifically, the Commission reported last fall that the pending special access rulemaking
“involves intensely fact-bound issues . . . [which] cannot adequately be addressed until the Commission
itself compiles an evidentiary record that is sufficient to evaluate current conditions in the special access
market.”3 The Commission further stated that “[w]hile the agency has made progress toward building a
sufficient evidentiary record, its efforts have been impeded by the failure of some parties to produce
1 In fact, in response to a May 23, 2007, letter from Congressman Edward Markey, I indicated that I supported
completing review of the record necessary to adopt a special access order by September 15, 2007.
2 See Parties Asked to Comment on Analytical Framework Necessary to Resolve Issues in the Special Access
NPRM, 24 FCC Rcd 13638 (2009); Data Requested in Special Access NPRM, 25 FCC Rcd 15146 (2010); see also
Clarification of Data Requested in Special Access NPRM, 25 FCC Rcd 17693 (2010); Competition Data Requested
in Special Access NPRM, 26 FCC Rcd 14000 (2011).
3 Opposition of the Fed. Commc’ns Comm’n to Petition for Writ of Mandamus at 1, In re COMPTEL, et al., No. 11-
1262 (D.C. Cir. filed Oct. 6, 2011).
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information clearly documenting their claims that special access rates are unreasonable.”4 The majorityclaims that, since the FCC filed this brief with the D.C. Circuit, additional data has been submitted into
the record in this proceeding. At the same time, the majority acknowledges that the FCC needs more
specific data to fully resolve this rulemaking. They cannot have it both ways.
Next, this order purports to be an “interim” change, but, as is often the case with “interim” FCC
orders, the Commission neglects to reveal how long this “interim” period will last. Literally, no end is in
sight. “Interim” solutions often turn into long-term changes or sometimes even effectively permanent
regulations. For example, in 2008, the FCC adopted an “interim” cap on universal service funding for
competitive eligible telecommunications carriers5 with the hope that comprehensive universal service
reform would be adopted within months. In reality, however, the “interim” rule change, which I
supported, lasted approximately three and a half years, a length of time I never anticipated. Another
example is the Commission’s adoption in 1998 of the “interim” wireless interstate revenue safe harbor
which is still in effect today -- and still referred to as “interim.”6
In fact, the Commission has been considering changes to the special access rules since 2002,
when AT&T filed a petition for rulemaking,7 yet has not acted in the ensuing decade. Experience has
taught us that the Commission is quite capable of measuring the frequency of its actions on special access
matters in geologic time. Accordingly, my expectation that the Commission will act with alacrity now
that it has implemented “interim” rule changes is low. In short, this “interim” rule change is
constructively permanent yet lacks a proper evidentiary foundation. By all appearances, the majority is
wrapping its decision in the protective cloak of “interim” status merely to increase its odds of success
during the inevitable appeal.
Additionally, perhaps as a harbinger of future inaction, today’s order does not include the
mandatory data request many had expected. To be fair, the order indicates that the Commission will issue
a data request within 60 days, however, this process should have been completed by now. The
Commission has been working on this project for years and it offers no defensible reason as to why it
needs even more time to issue a mandatory data collection. Moreover, as the order concedes, because the
data collection will be subject to Office of Management and Budget approval under the Paperwork
Reduction Act, final resolution of merely the initiation of the data harvest could be months away. The
4 Id. at 2.
5 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337,
CC Docket No. 96-45, Order, 23 FCC Rcd 8834, para. 1 (2008).
6 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Memorandum Opinion and Order and
Further Notice of Proposed Rulemaking, 13 FCC Rcd 21252, 21257, para. 11 (1998) (establishing an “interim safe
harbor” percentage rate for revenue calculations of certain universal service fund contributors); Federal-State Joint
Board on Universal Service et al., CC Docket Nos. 96-45 et al., Report and Order and Second Further Notice of
Proposed Rulemaking, 17 FCC Rcd 24952, 24954, para. 1 (2002) (increasing the “interim safe harbor” percentage
rate for the revenue calculations of certain wireless universal service contributors); Universal Service Contribution
Methodology et al., WC Docket No. 06-122 et al., Report and Order and Notice of Proposed Rulemaking, 21 FCC
Rcd 7518, 7520, para. 2 (2006) (further increasing the “interim safe harbor” percentage rate for the revenue
calculations of certain wireless universal service contributors).
7 AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for
Interstate Special Access Services, RM-10593 (Filed on October 15, 2002).
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federal government’s glacial athleticism is on full display.In sum, adopting a “temporary” rule suspension without an appropriate data collection and market
analysis is procedurally and substantively deficient and could create tremendous market uncertainty,
therefore deterring investment in critical broadband backhaul infrastructure.8 Nevertheless, I urge the
Commission to move quickly with its upcoming mandatory data collection and market analysis so that it
can make fully-informed decisions as to whether and how the special access rules should be changed, all
in the absence of preconceived outcomes. As a matter of good government, such reasoned resolution is
long overdue.
For all of these reasons, I respectfully dissent.
8 See, e.g., Letter from Edwin D. Hill, International President, International Brotherhood of Electrical Workers, to
Marlene Dortch, Secretary, Federal Communications Commission, WC Docket No. 05-25 (filed June 8, 2009) (new
price controls on special access “would undermine investment, hurt competition and dampen incentive for telephone
companies to invest further in their networks, which may slow the deployment of broadband services.”).
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STATEMENT OF
COMMISSIONER MIGNON L. CLYBURN
Re:Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T
Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier
Rates for Interstate Special Access Services, RM-10593
While special access may not be that sexy topic everyone is tweeting about or some popular new
mobile application downloaded by millions, it is indeed important to every single consumer. When they
use that ATM machine, swipe their credit card at the gas pump, or access those new, fun mobile apps on
their smart phone, chances are those services are being delivered because of the connections that special
access provide. These connections ensure a level of quality and speed that millions of businesses rely on
every day to serve consumers in many sectors of our economy.
Some argue that special access uses the technology of the past; therefore, we should not waste our
time discussing it, much less fixing a system that we know is broken. Others say that, until you know
what to replace your current pricing flexibility rules with, you should leave this imperfect system in place.
I don’t agree with either of these views. First, the evidence we have collected to date demonstrates that
our pricing flexibility rules aren’t working. Knowing this, it would be irresponsible and inconsistent with
our obligations under one of our governing statutes, the APA, for us to continue to allow them to operate.
While we don’t have a permanent replacement for the pricing flexibility framework ready for
implementation at this time, carriers will have the opportunity to make individual demonstrations for
pricing flexibility under the widely accepted market power analysis we use for our forbearance decisions
and merger analysis, just like the Department of Justice and the Federal Trade Commission do in their
review of proposed mergers. Moreover, our staff is in the process of preparing a mandatory data request
that we expect will result in additional and necessary information that will assist us in our reform efforts,
including implementing a new, proper framework for pricing flexibility petitions.
As for the claims that there is no harm to leaving a broken system in place, the evidence in this
Order demonstrates otherwise. Price cap regulation is designed to ensure that rates are just and
reasonable. Flexibility from that regulation (i.e., deregulation) should only occur where there are
disciplinary forces of effective competition so that rates continue to be just and reasonable. This applies
to both flavors of deregulation under the current pricing flexibility rules. Those that obtain Phase I
flexibility (which allows carriers to offer lower rates than their tariffs on an individualized basis), have the
capability to not just lower their prices, but they can do so by targeting potential competitors, further
entrenching their own market positions. For those that obtain Phase II flexibility, they have the capability
to unilaterally increase prices in those areas that do not have effective competition. As discussed in this
Order, there is significant evidence that competition for special access services has not materialized
throughout the areas granted flexibility. Given the ongoing demand for special access services and the
fact that it’s consumers who are ultimately paying those higher prices, I fully support the suspension of
our pricing flexibility rules and our ongoing review of the prices, terms and conditions.
This agency has devoted significant resources to reform the Universal Service Fund over the last
two and a half years—which is an approximately $9 billion a year system. Estimates of the special access
market are anywhere between $12-18 billion annually. Given its size and importance in delivering
services to consumers and the fact that this proceeding has been outstanding for seven years, I support the
efforts that are being made to adopt a data collection order within 60 days and the completion of our fact
finding and decision-making in this proceeding next year. I want to thank the Chairman for devoting staff
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resources towards these goals and adding specificity of our timeline for completion of this proceeding inthe Order, including a specific timeframe for the mandatory data request.
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STATEMENT OF
COMMISSIONER JESSICA ROSENWORCEL
Re:Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T
Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier
Rates for Interstate Special Access Services, RM-10593
Special access services are high-capacity dedicated services that many businesses and institutions
rely on to meet their voice and data communications needs. In 1999, the Commission put in place a series
of pricing flexibility triggers designed to serve as a proxy for competitive conditions within a geographic
market. Where these proxies were met, the Commission relaxed its rules governing special access
services. When proposed, this was a good and sensible system. But time and the evolution of technology
has rendered these proxies increasingly ill-suited to discern between competitive and noncompetitive
markets. Consider, for instance, that more than a decade later Flint, Michigan has been granted a higher
level of pricing flexibility than New York City. This kind of result has led a wide variety of interests,
including the Small Business Administration, Government Accountability Office, American Petroleum
Institute, and wireless and wireline carriers to question their continuing validity. In short, the system put
in place a decade ago both overestimates and underestimates competition. It deserves a fresh look.
Consequently, I support today’s decision. But I would have preferred that the Commission
concurrently issue a mandatory data request to begin the long-overdue process of collecting the
information necessary to move forward with special access reform. Nonetheless, I appreciate that the
agency has committed to issuing such a data request within 60 days. It is my hope that this data will lay
the foundation for a new system that promotes competition, investment, and deployment of high-capacity
services across the country.
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DISSENTING STATEMENT OF
COMMISSIONER AJIT PAI
Re:Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25; AT&T
Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier
Rates for Interstate Special Access Services, RM-10593
In Lewis Carroll’s Alice’s Adventures in Wonderland, the Queen of Hearts impatiently exclaims:
“Sentence first—verdict afterwards.”1 Unfortunately, the Commission’s approach today draws more
inspiration from the Queen of Hearts than the Administrative Procedure Act. First, the Commission
proclaims its “sentence” by suspending our current pricing flexibility triggers. It then announces its intent
to go about collecting the data necessary to reach a “verdict” on the competitiveness of the special access
market and the effect of the current rules on prices. In short, the Commission has reversed the steps that a
data-driven agency should take. As a result, today’s action appears consistent with the Administrative
Procedure Act only when viewed through the proverbial looking glass.
These procedural infirmities, however, are not the most troubling aspect of this item. Rather, it is
the demise of the bipartisan deregulatory framework constructed by the Clinton Administration (and
maintained by the Bush Administration) so that the Commission can travel down the rabbit hole of re-
regulation. I do not expect that special access will be the only stop on this journey. Rather, today’s order
lays the predicate for the Commission to re-regulate fiber; a consistent regulatory philosophy demands as
much.2 Industry players will likely draw the same conclusion. As a result, the Commission’s decision
will chill infrastructure investment, slow the deployment of next-generation networks, and impede job
creation. At a time when the private sector needs regulatory certainty and incentives to invest tens of
billions of dollars in broadband infrastructure, the Commission takes action today that will have precisely
the opposite effect.
We should be encouraging competition and infrastructure investment, not undermining it. We
should be looking forward toward an all-IP world, not backward at legacy regulations developed during
the fading era of copper. And we should ground any changes to our rules on data, not regulatory impulse.
For these reasons, I respectfully dissent.
I.
For at least six years, the Commission has acknowledged that it does not have adequate data to
determine how the rules on the books are affecting competition and infrastructure investment in the
special access market.3 Scattered throughout the docket are the many milestones: The Commission has
asked parties to refresh the record on the special access market,4 sought comment on the appropriate
analytical framework for examining that market,5 held a staff workshop on the analytical framework,6
1 LEWIS CARROLL, ALICE’S ADVENTURES IN WONDERLAND (1865).
2 For example, while I do not doubt that the Commission views today’s action as “critical to driving private sector
deployment of next generation networks,” that statement will likely give the operators of those next generation
networks considerable pause about their future regulatory environment.
3 U.S. GOV’T ACCOUNTABILITY OFFICE, FCC NEEDS TO IMPROVE ITS ABILITY TO MONITOR AND DETERMINE THE
EXTENT OF COMPETITION IN DEDICATED ACCESS SERVICES, GAO-07-80 (2006) (GAO REPORT).
4 Parties Asked to Refresh Record in the Special Access Notice of Proposed Rulemaking, WC Docket No. 05-25,
RM-10593, 22 FCC Rcd 13352 (2007).
5 Parties Asked to Comment on Analytical Framework Necessary to Resolve Issues in the Special Access NPRM,
WC Docket No. 05-25, RM-10593, Public Notice, 24 FCC Rcd 13638 (2009).
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requested information about the deployment of special access facilities,7 and requested information aboutthe prices, terms, and conditions offered in the special access market.8
And yet, just four months ago, the then-Chief of the Wireline Competition Bureau accurately
summed up where things stand: “There is an incredible dearth of data. We need to be able to show that
costs either do or don’t relate to a market. We cannot do the analysis without the data. I understand that
it would be ideal for CLECs if we could just make a finding without it. But we can’t.”9
The Commission itself said much the same thing to the U.S. Court of Appeals for the District of
Columbia Circuit late last year. Despite the fact that it has been “actively engaged in the process of
gathering and analyzing data that might (or might not) bear out . . . assertions about special access
pricing,”10 the Commission represented to the D.C. Circuit that it did not have the data to assess “how the
pricing flexibility rules have affected the special access market.”11 Specifically, the Commission told the
court that it “[l]ack[ed] sufficient data to resolve this fundamental dispute” and therefore “appropriately
recognized that it should make no decisions about revising its special access rules before it has compiled
and analyzed an adequate evidentiary record.”12 In other words, “[g]iven the highly fact-bound nature of
the issues raised by that proceeding,” any changes to our special access pricing flexibility rules must be
“based on a full evidentiary record.”13
Now, if the Commission had gathered material data in response to its September 2011 Special
Access Competition Data Public Notice, then it might be possible to reconcile its filing in the D.C. Circuit
(but not the Bureau Chief’s April 2012 comments) with today’s order. But it has not.14 Indeed, the
Commission today does not claim that it has the data necessary to engage in a meaningful assessment of
(Continued from previous page)
6 Wireline Competition Bureau Announces July 19, 2010 Staff Workshop to Discuss the Analytical Framework for
Assessing the Effectiveness of the Existing Special Access Rules, WC Docket No. 05-25, Public Notice, 25 FCC Rcd
8458 (2010).
7 Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-10593, Public Notice, 25 FCC Rcd 15146
(2010); see also Clarification of Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-10593,
Public Notice, 25 FCC Rcd 17693 (2010).
8 Competition Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-10593, Public Notice, 26 FCC
Rcd 14000 (2011) (Special Access Competition Data Public Notice).
9 Ted Gotsch, USF Contribution FNPRM Will Propose Fixes, Gillett Says, TRDAILY, Apr. 17, 2012 (quoting then-
Wireline Competition Bureau Chief Sharon Gillett) (emphasis added).
10 In re Comptel et al., Case No. 11-1262, Opposition of the FCC to Petition for Writ of Mandamus at 22 (D.C. Cir.,
filed Oct. 6, 2011) (General Counsel’s Brief) (included as an attachment to this Statement).
11 Id. at 17.
12 Id. at 19.
13 Id. at 15–16.
14 In this item, the Commission cites data that it obtained through the Special Access Competition Data Public
Notice just two times. See Report and Order at note 15. First, it refers to such data to note the combined special
access revenues of the largest carriers in 2010. See Report and Order at para. 2. It next uses that data to show that
carriers offers individualized contract tariffs to customers in areas where they have obtained pricing flexibility. See
Report and Order at para. 59. As noted above, supra note 9, I have attached the General Counsel’s Brief to my
statement. I will leave it to readers (and potentially the D.C. Circuit) to decide for themselves whether these two
unremarkable data points can explain the dramatic change in the Commission’s position between October 2011 and
today.
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the state of the marketplace.It acknowledges “limitations [in] our existing data set,”15 concedes the “widespread accord in the
record on the appropriateness of collecting additional data,”16 and asserts that “further data . . . is needed”
for “a comprehensive evaluation of competition in the market for special access services.”17 Moreover,
despite myriad findings regarding how well (or poorly) the existing competitive triggers reflect the state
of competition in the special access marketplace, the Commission does not make a single finding about
the effect our pricing flexibility rules have had upon that marketplace—and the reason, it is safe to say, is
a lack of data.
For example, when it comes to the key issue of the effect that our pricing flexibility triggers have
on prices, the most that the Commission can muster is that the “evidence is inconclusive.”18 Thus, it
“does not pass judgment on assertions” concerning our rules’ impact on prices.19 Others who have looked
at this question have reached a similar determination. The General Accounting Office has concluded that
the Commission “needs a more accurate measure of effective competition and needs to collect more
meaningful data,”20 but drew no conclusions regarding how our pricing flexibility rules affected prices
and deployment of special access services. Similarly, the National Regulatory Research Institute has
concluded that “the available special access pricing data ‘do not support any clear conclusions about price
trends. Some data suggest rising prices, while other data suggest declining prices. Data quality could
well be the reason for these ambiguities.’”21
Given the state of the record, the next step that we should be taking in this proceeding is obvious:
a mandatory data collection.22 In May, when the Chairman’s Office first circulated an order addressing
special access, I made it clear that I strongly supported moving forward with such a collection. Had we
followed that path, we could have unanimously approved a mandatory date collection in June. But it is
now August, and still no mandatory data collection has been issued. Remarkably, even today’s order
does not contain one; instead, it only contains a promise that a mandatory data collection will be
forthcoming within 60 days.23 A Commission aspiring to function as a data-driven agency should
15 Report and Order at para. 52.
16 Id. at para. 85.
17 Id. at para. 7.
18 Id. at para. 81.
19 Id. Given that today’s decision makes no findings as to how our current rules are impacting prices or competition
in the special access marketplace, the Chairman’s assertion that Commissioner McDowell and I have “no answer to
the harm” that our approach would allegedly cause misses the mark. We cannot rebut findings that are nowhere to
be found in the item.
20 GAO REPORT at 15.
21 General Counsel’s Brief at 19 (quoting PETER BLUHM & ROBERT LOUBE, NATIONAL REGULATORY RESEARCH
INSTITUTE, COMPETITIVE ISSUES IN SPECIAL ACCESS MARKETS 67 (Jan. 21, 2009) (NRRI REPORT)).
22 Our past voluntary efforts have failed to provide the data we need in part because “the vast majority of the service
provider members of . . . the trade association COMPTEL[] did not provide any data in response to the agency’s
October 2010 request.” General Counsel’s Brief at 14. If voluntary requests cannot provide the data we need, a
mandatory data collection—with real penalties for non-compliance and an actual enforcement mechanism—is the
only logical solution.
23 Report and Order at paras. 7, 86.
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prioritize gathering the facts, not jumping to conclusions.* * *
We should bring this decade-old proceeding24 to a close soon so that special-access providers and
purchasers will have the regulatory certainty they need to carry out their businesses and invest in high-
capacity infrastructure. The Commission apparently agrees: It aims “for final conclusions on the need
for overall reform of the special access marketplace to occur in 2013.”25 I fear, however, that today’s
order does not move us closer to resolving this proceeding; it moves us farther away.
To begin with, the Commission’s timeframe is just not realistic. Any reasonable outline of the
necessary steps in the regulatory process illustrates why this is so. Let us say the Commission does meet
its 60-day target and issues a mandatory data collection in October. The Paperwork Reduction Act does
not allow such information collections to take immediate effect; instead, we must first seek approval from
the Office of Management and Budget (OMB). Assuming we commence that process in a timely manner
and everything goes smoothly, the comment period on our proposed information collection will end in
December.26 Then, if we respond to comments and submit the collection to OMB by January 2013, there
will need to be another comment cycle, and the earliest OMB would approve the collection would be in
March 2013.27 Under the best of circumstances, we will collect the information by May (60 days). After
that, our experts surely will need a few months to filter through that data, correct for errors, and analyze
it; perhaps they could do it by September 2013. Next, we would need to develop a Notice of Proposed
Rulemaking. If the NPRM were issued in November, the comment cycle would close in 2014. Final
action in the proceeding might not happen for many months thereafter, if not for a year.
Even if such an aggressive schedule were possible, today’s order makes it less likely that the
Commission will be able to stick to it. For one, today’s order declines to “exhaustively specify the factors
that will comprise our market analysis,”28 which muddies the contours of the mandatory data collection
(how do we know what data to seek if we do not know what factors we should consider?). Instead, the
Commission will seek public comment on the factors “in an upcoming notice”—sometime.29
Furthermore, the Commission’s chosen framework—a full-blown market analysis—may provide
“analytical precision,”30 but it is also resource- and time-intensive. The fact that such analyses take up
“considerable time and expense” on the part of all interested parties was precisely why the Commission
24 Although this proceeding formally commenced in 2005, Special Access Rates for Price Cap Local Exchange
Carriers, WC Docket No. 05-25; AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local
Exchange Carrier Rates for Interstate Special Access Services, RM-10593, Order and Notice of Proposed
Rulemaking, 20 FCC Rcd 1994 (2005) (Special Access NPRM), it actually started with a 2002 petition to reform the
Commission’s pricing flexibility rules. See AT&T Corp. Petition for Rulemaking to Reform Regulation of
Incumbent Local Exchange Carrier Rates for Interstate Special Access Services, RM-10593 (Oct. 15, 2002).
25 Report and Order at note 16.
26 44 U.S.C. § 3506(c)(2)(A).
27 Id. § 3507(a)(1)(D).
28 Report and Order at para. 86.
29 Id.
30 Id. Subsection V.B.2.
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rejected conducting market analyses prior to granting regulatory relief in the Pricing Flexibility Order.31All in all, today’s decision illustrates two starkly different approaches for how the Commission
should proceed in the face of uncertainty. In my judgment, when faced with an “incredible dearth of
data,” the right answer is to collect the necessary information and analyze that data before taking action.
By contrast, the Commission’s choice is to re-regulate first and collect data later.32
II.
Turning from procedure to substance, I strongly disagree with the merits of the Commission’s
decision to suspend the competitive showings (and accompanying regulatory relief) adopted for special
access and transport services in the Commission’s 1999 Pricing Flexibility Order.33 In that order, the
Commission recognized that traditional price-cap tariffing rules “clearly limit [price-cap carriers’] ability
to respond to competition.”34 For example, traditional tariffing requires geographic averaging,35 putting
price-cap carriers to a Hobson’s choice of “lowering a rate throughout the area at issue or not lowering the
rate at all” when competing for an enterprise customer’s business.36 Similarly, unregulated competitors
could use volume and term discounts as a means of attracting customers and recouping the up-front costs
of investing in high-capacity infrastructure; restricting price-cap carriers from doing the same, as
traditional tariffing did, “distort[ed] the market for access services by preventing [them] from competing
efficiently.”37 In sum, traditional tariffing prevented price-cap carriers from “tailor[ing] services to their
customers’ individual needs”38 resulting in less competition and less efficient deployment of high-
capacity services.39
31 Access Charge Reform; Price Cap Performance Review for Local Exchange Carriers; Interexchange Carrier
Purchases Of Switched Access Services Offered By Competitive Local Exchange Carriers; Petition of US West
Communications, Inc. for Forbearance from Regulation as a Dominant Carrier in the Phoenix, Arizona MSA, CC
Docket Nos. 96-262, 94-1, 98-157, CCB/CPD File No. 98-63, 14 FCC Rcd 14221, 14271–72, para. 90 (1999)
(Pricing Flexibility Order).
32 I disagree with the Chairman’s view that today’s item preserves the status quo. Rather, it suspends pricing
flexibility triggers that are part of the status quo. If, for example, a state were to suspend issuing driver’s licenses
tomorrow, I hardly believe that most people would think of such a step as preserving the status quo in any
meaningful sense. Rather, it would constitute a fundamental change to the state’s licensing regime. Similarly, the
Commission’s action here constitutes a substantial change to our regulatory regime for special access – a change that
moves in a re-regulatory direction.
33 Id. Part IV.
34 Pricing Flexibility Order, 14 FCC Rcd at 14273, para. 92.
35 In recognition that greater deaveraging of tariffs would benefit consumers and competition by bringing prices
more in line with costs, the Pricing Flexibility Order expanded the ability of price-cap carriers to deaverage their
special access rates. See id. at 14252–57, paras. 59–66. Even with deaveraging, however, price-cap carriers’
flexibility remained constrained: Each pricing zone other than the highest priced zone had to account for at least 15
percent of the price-cap carrier’s trunking revenues for the study area and the annual price increase within any given
zone is limited to 15 percent. Id. at 14254–56, paras. 62–63.
36 Id. at 14288, para. 122.
37 Id. at 14289, para. 124.
38 Id. at 14291, para. 128.
39 Although small enterprise customers may not need their special access services tailored in any particular fashion,
larger customers—which include regional and national wireless providers—may request highly specialized
(continued….)
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The Pricing Flexibility Order also recognized that, because ratemaking “is not an exactscience,”40 traditional price-cap tariffing could distort the competitive market and deter infrastructure
investment. For example, Part 69 rate structure rules could “create implicit subsidies if [that rate
structure] does not reflect accurately the manner in which [price-cap carriers] incur the costs of providing
a service.”41 Similarly, competitive entry would be deterred if traditional tariffing required price-cap
carriers “to price access services below cost in certain areas.”42
The Pricing Flexibility Order determined that removing these regulatory obstacles to competition
and infrastructure investment advanced the Telecommunications Act of 1996’s deregulatory, pro-
competitive national policy43 and the goal of “foster[ing] competition and allow[ing] market forces to
operate where they are present.”44 And its theory for when to afford relief was well within the
mainstream of antitrust theory: The “presence of facilities-based competition with significant sunk
investment,” i.e., irreversible competitive entry, “makes exclusionary pricing behavior costly and highly
unlikely to succeed.”45 In other words, the presence of competitive, high-capacity facilities in an area
undermined a price-cap carrier’s market power and justified allowing price-cap carriers to compete with
their unregulated brethren.46
I do not read anything in the Commission’s order as questioning the costs of traditional tariffing,
the benefits of the deregulatory relief afforded through pricing flexibility, or even the theory of
irreversible entry. Indeed, the Commission states that it cannot “evaluate . . . claims of competitive harm
based on the evidence to date in the record.”47 Nevertheless, the Commission suspends the operation of
the competitive triggers adopted in the Pricing Flexibility Order because they are supposedly “not
working as predicted,”48 are “both over-inclusive and under-inclusive,”49 and are “likely resulting in both
over- and under- regulation.”50 These conclusions are, in turn, premised on three assertions: (1) that the
competitive showings are not as simple to administer as expected; (2) that collocation may produce an
unreliable picture of competitive conditions; and (3) that competitive entry in the special access
marketplace occurs in areas smaller than metropolitan statistical areas (MSAs). I address each of these
(Continued from previous page)
proposals for deployments covering a city or region. See id. at 14293, para. 133 (noting that traditional tariffing
restricts the ability of price-cap carriers to compete for RFPs, but the contract tariffs of Phase I pricing flexibility
should be sufficient to allow competition).
40 Id. at 14276, para. 96.
41 Id. at 14301, para. 154; see also 47 C.F.R. Part 69.
42 Id. at 14301, para. 155.
43 Pub. L. No. 104-104, 110 Stat. 56 (1996).
44 Pricing Flexibility Order, 14 FCC Rcd at 14235, para. 26.
45 Id. at 14264, para. 80.
46 The Commission’s only hesitation—and the reason it required a competitive showing before affording regulatory
relief—was its concern that automatic relief could lead to the exclusion of competitive entry or unreasonably high
special-access prices. Id. at 14257, para. 68.
47 Report and Order at para. 3.
48 Id.
49 Id. at para. 77.
50 Id. at para. 22.
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assertions in turn.Administrative Simplicity.—The evidence that the existing triggers are administrable is simply
overwhelming. By my count, the Bureau has processed 35 separate petitions for pricing flexibility
encompassing over 200 separate requests for pricing flexibility, all within the 90-day deadline established
by the Commission’s rules.51 That seems like a pretty substantial administrative success to me. This is
even more so the case when the biggest “controversies” the Bureau has faced are mistakes by two
petitioners regarding the scope of geographic relief52 and minor ambiguities regarding whether particular
wire centers or revenues should be counted as part of the competitive showing.53
Collocation.—I agree with the Commission that a competitor’s collocation of high-capacity
equipment within a price-cap carrier’s wire center, coupled with the competitive provision of transport, is
not a perfect proxy for channel termination facilities or facilities built out by non-collocating
competitors.54
But then again, it was never meant to be. The Pricing Flexibility Order established collocation-
and-transport triggers because the high costs of collocation suggested substantial sunk investment by
competitors,55 because the existence of competitive transport facilities at each collocation created actual
competition for the price-cap carrier’s transport services,56 and because such a measure was administrable
and verifiable.57 Indeed, the arguments recited by the Commission against using collocation as a measure
of competitive entry were presaged in the Pricing Flexibility Order. There, the Commission noted that
collocation likely overstated competitive entry in the channel termination market because competitors are
likely to focus their initial investments in carrying traffic from one aggregation point to the next and are
most likely to collocate if they intend to use the price-cap carrier’s last-mile facilities.58 Conversely,
“collocation may underestimate the extent of competitive facilities within a wire center because it fails to
account for the presence of competitors that do not use collocation and have wholly bypassed [price-cap
carrier] facilities.”59 The Pricing Flexibility Order explicitly accounted for these imperfections when it
established its competitive triggers.60
51 See id. Appendices D–F. I am only aware of two petitions that the Bureau did not issue orders resolving within
the 90-day period. Both were filed earlier this year, and as I understand it, the Bureau was able to review both
petitions in time but for whatever reason did not issue orders. Instead, it issued public notices explaining that each
was deemed granted by operation of law.
52 Id. at para. 63. Notably, our rules hardly make it easy on parties to determine the contours of what we call an
MSA for purposes of the pricing flexibility triggers. The pricing flexibility rules refer to a definition within our
rules defining cellular telephone markets, see 47 C.F.R. §§ 1.774(a), 22.909(a), and that definition provides no
guidance whatsoever as to what year’s MSA list is used for pricing flexibility purposes. That the occasional
petitioner chose the wrong MSA list is an argument for clarifying our rules, not for suspending them.
53 Report and Order at para. 64.
54 Id. at paras. 68–70, 73.
55 Pricing Flexibility Order, 14 FCC Rcd at 14265–66, para. 81.
56 Id. at 14267, para. 82.
57 Id. at 14267–68, para. 84.
58 Id. at 14278–79, paras. 102–03.
59 Id. at 14274, para. 95.
60 See id. at 14274–76, 14278, paras. 95, 100–01.
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Moreover, even if the Pricing Flexibility Order incorrectly predicted that facilities-based,collocating competitors would rely on price-cap carrier channel terminations “only on a transitional
basis,”61 that fact alone does not justify suspending the competitive triggers. The question the
Commission needs to ask and answer if it wants to suspend the triggers based on this finding is why
collocating competitors have not deployed channel termination facilities to the extent predicted by the
Pricing Flexibility Order (assuming that to be the case). One possibility is that the persistence of price-
cap regulation in Phase I areas or the potential competition triggered by the irreversible competitive entry
of collocating (and non-collocating) competitors has in fact constrained special access prices so much that
competitive deployment of last-mile channel terminations is unprofitable.62 If true, the lack of such
facilities would show that pricing flexibility works, not that it’s broken. Another possibility, of course, is
that build-out by non-collocating competitors has deterred collocating competitors from deploying their
own last-mile channel terminations, a phenomenon that also would not provide any justification for
suspending our pricing flexibility rules.
Geographic Scope of Relief.—The Commission’s final attack on the pricing flexibility triggers
targets the use of MSAs as the geographic scope of relief for pricing flexibility.63 Today’s order seizes
upon a stray comment within the Pricing Flexibility Order—the decision to set revenues-based triggers
higher than wire-center-based triggers “to ensure that competitors have extended their networks beyond a
few revenue-intensive wire centers”64—and then ably demonstrates that the current triggers do not always
bear out that comment.65 The Commission also finds, unsurprisingly, that “evidence suggests that
demand varies significantly within any MSA,”66 “that competitors have a strong tendency to enter in
concentrated areas of high business demand,”67 that “competitive entry is considerably less likely to be
profitable and hence is unlikely to occur in areas of low demand,”68 and that the few times we have
granted regulatory relief outside of MSAs, the grants were “based on high concentrations of demand.”69
None of these facts undermines the choice of MSAs as the most appropriate area for analyzing
irreversible competitive entry into a market. The Pricing Flexibility Order, for example, specifically
anticipated that “a few wire centers may account for a disproportionate share of revenues for a particular
61 Id. at 14280, para. 104; see Report and Order at paras. 68–70 (arguing that collocation does not correlate with
competitive channel terminations based on available data).
62 Recall that the competitive triggers are based on the theory that irreversible competitive entry into a market
constrains a price-cap carrier’s ability to engage in anticompetitive conduct or significantly raise prices for sustained
period. That theory does not depend on a competitor building out facilities to each and every special access
customer. Instead, it recognizes that a competitor’s investment-backed presence in a market creates the very real
potential for competitive-facilities deployment, which in turn should constrain the behavior of price-cap carriers.
The Commission recognizes that the issue is not just actual competition, but potential competition as well. See
Report and Order at para. 85.
63 Pricing Flexibility Order, 14 FCC Rcd at 14260, para. 72.
64 Id. at 14277, para. 98; see Report and Order at paras. 42–43.
65 Report and Order at paras. 44–47.
66 Id. at para. 36; see also id. at paras. 37–40.
67 Id. at para. 48; see id. at paras. 49–53.
68 Id. at para. 36.
69 Id. at para. 61.
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service” and that is precisely why that order established revenues-based triggers.70 Indeed, revenues-based triggers protect consumers by ensuring that the competitive facilities are located where the
customers actually are. Revenues-based triggers also guard against gamesmanship by competitive local
exchange carriers, who might only collocate in areas of high demand to prevent a price-cap carrier from
receiving any regulatory relief.
What is more, the Commission’s approach ignores the complete cost-benefit calculus underlying
the Pricing Flexibility Order’s selection of MSAs rather than smaller geographic areas: choosing a
smaller area would require the filing of “additional pricing flexibility petitions” (perhaps hundreds or
thousands if done by wire center or zip code) that “might produce a more finely-tuned picture of
competitive conditions” but cannot “justif[y] the increased expenses and administrative burdens.”71 If the
Commission had reliable evidence that pricing flexibility granted under the existing triggers had led to
anticompetitive conduct or unreasonably high prices in the portions of an MSA without collocation-and-
transport based entry, I perhaps could see the logic behind requiring more granular geographic triggers
despite the administrative hassle they would likely create. But again, we lack the data to make that type
of determination.72
In short, the Commission seems to believe that using MSAs is flawed because the corresponding
triggers grant price-cap carriers Phase II pricing flexibility even if a small minority of customers within an
MSA does not have competitive facilities collocated at the nearest wire center.73 It seems to me this is
precisely backwards. The vast majority of customers within an MSA should not be denied the benefits of
additional competition and infrastructure investment on the theoretical possibility that a few customers
may face higher prices.
The Decision to Suspend the Triggers.—Even if I were convinced by the Commission’s analysis
that the current pricing flexibility triggers were incurably flawed, I still could not join today’s order
because the remedy the Commission chooses is fatally overbroad.
For example, if the problem with the triggers is that revenues-based triggers allow regulatory
relief even if collocation and transport has occurred only in a few key wire centers, then the Commission
should suspend revenues-based triggers, not all the triggers. If using MSAs yields pricing flexibility even
when no competitor has deployed in a given wire center, then shrink the scope of a relief to a single wire
center. If our rules are ambiguous regarding what wire centers or revenues to include in the analysis, we
should clarify the rules. And if “our decision to use the non-MSA parts of a study area . . . has made it
impossible for Embarq to obtain relief in Missouri despite the presence of competition,”74 if the triggers
deny “pricing flexibility where competitive alternatives are not recognized by the existing rules,”75 if our
70 Pricing Flexibility Order, 14 FCC Rcd at 14276, para. 97.
71 Id. at 14260, para. 74.
72 The most relevant data the Commission cites regarding competitive deployment was confidentially filed by SBC
in response to the 2005 NRPM. See Report and Order at para. 55 & notes 155–56. But we should not draw any firm
conclusions about the state of facilities-based deployment from a single party’s seven-year-old filing regarding four
MSAs.
73 For channel terminations, the revenues-based threshold is 85 percent, meaning the price-cap carrier receives less
than 15 percent of its special-access revenues from customers in wire centers without collocation and competitive
transport.
74 Report and Order at para. 60.
75 Id. at para. 77.
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existing triggers actually understate the extent of competition within the marketplace,76 then revision ofthe triggers is the right remedy. Indeed, suspending the current triggers because they are insufficiently
broad is the regulatory equivalent of cutting off one’s nose to spite one’s face.
I also find the decision to suspend our pricing flexibility triggers troubling for three other reasons.
First, the primary complaint I have heard in this proceeding is about the price of special-access services.
And yet pricing flexibility Phase I, which we deny to any future petitioners today, only lets price-cap
carriers reduce their prices in response to competition. I am not sure I see the consumer benefit in
forbidding price reductions.77
Second, the Commission’s analysis entirely focuses on the pricing flexibility triggers for special-
access channel terminations. And yet the Commission suspends the triggers for transport services as
well,78 even though the collocation-and-transport triggers are not a proxy for potential special-access
facilities (as they are with channel terminations) but instead represent the deployment of actual,
competitive alternatives to a price-cap carrier’s transport services.
Third, I question whether the Commission has provided adequate notice of its decision to suspend
the pricing flexibility rules in a manner consistent with the Administrative Procedure Act. The
Commission reasons that we have a “continuing obligation to practice reasoned decision making,”79 and
our rules allow us to suspend our own rules for “good cause.”80 No quibble here, but the APA demands
more: We must either publish notice of our intent to suspend and amend our rules in the Federal Register
or “for good cause find[] (and incorporate[] the finding and a brief statement of reasons therefor in the
rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the
public interest.”81
In a footnote, the Commission points to the seven-and-a-half year old Special Access NPRM as
the source of its notice. But that item specifically rejected the request for “a moratorium on consideration
of further pricing flexibility applications pending completion of the rulemaking.”82 Given that the
Commission today does not purport to rule on a petition for reconsideration of that earlier decision (and
the thirty-day deadline for the Commission to reconsider that decision sua sponte has long since passed), I
fail to see how the Commission can reverse course here without providing new notice. In addition,
leaving aside the requirements of the Administrative Procedure Act, the fact that the Commission is
forced to rely upon a near-decade-old NPRM as the foundation for today’s action itself demonstrates that
the normal means of rulemaking have been subsumed by the end of re-regulation.
76 Id. at paras. 77, 103.
77 See, e.g., Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 340 (1990) (“Low prices benefit consumers
regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten
competition.”).
78 Report and Order at para. 79.
79 Id. at para. 77 (citing Aeronautical Radio v. FCC, 928 F.2d 428, 445 (D.C. Cir. 1991)).
80 Id. at para. 78 (citing 47 C.F.R. § 1.3).
81 5 U.S.C. § 553(b). Nothing in the Commission’s order suggests that “notice and public procedure” would be
impractical here, and I do not think that our newfound disagreement with the Clinton Administration’s deregulatory
framework would constitute “good cause” to waive such notice.
82 Special Access NPRM, 20 FCC Rcd at 2035, para. 128.
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III.Aside from disagreeing with the Commission’s decision to suspend the pricing flexibility
triggers, I also cannot follow the path forward sketched out by the Commission.
First, the Commission suggests that a market-power/non-dominance analysis should be the test
for any regulatory relief.83 The Pricing Flexibility Order specifically considered—and rejected—that
approach,84 and I agree. For one thing, “non-dominance showings are neither administratively simple nor
easily verifiable.”85 Instead, they require the Commission to consider “several complex criteria,” such as
market share and supply elasticity, which “generate considerable controversy that is difficult to resolve.”86
For another, I agree with the Pricing Flexibility Order that the costs of “delaying regulatory relief
outweigh any costs associated with granting that relief before competitive alternatives have developed to
the point that the incumbent lacks market power.”87 For yet another, the market power test developed in
the Competitive Carrier proceedings88 has traditionally been used by the Commission to determine when
regulatory obligations should be effectively eliminated—not merely altered.89 And because pricing
flexibility does not grant price-cap carriers “all the regulatory relief we afford to non-dominant carriers,”
a market power test is simply unnecessary.90
83 Report and Order Section V.B.
84 Pricing Flexibility Order, 14 FCC Rcd at 14271–72, para. 90.
85 Id.
86 Id. Indeed, the Commission singled out market share analyses as especially burdensome, requiring “considerable
time and expense” on the part of all interested parties. Id.
87 Id.
88 See Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations
Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979) (initiating
those proceedings).
89 See, e.g., Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities
Authorizations Therefor, CC Docket No. 79-252, Sixth Report and Order, 99 FCC 2d 1020 (1985) (imposing
mandatory detariffing on non-dominant carriers), vacated, MCI Telecomms. Corp. v. FCC, 765 F.2d 1186 (D.C. Cir.
1985); Policy and Rules Concerning the Interstate, Interexchange Marketplace, CC Docket No. 96-61, Second
Report and Order, 11 FCC Rcd 20730 (1996) (imposing mandatory detariffing on non-dominant interexchange
carriers); Implementation of Sections 3(n) and 332 of the Communications Act Regulatory Treatment of Mobile
Services, GN Docket No. 93-252, Second Report and Order, 9 FCC Rcd 1411, 1479, para. 178 (1994) (“Even
permitting the filing of tariffs, in the case of non-dominant carriers in competitive markets, is not in the public
interest.”); Hyperion Telecommunications, Inc. Petition Requesting Forbearance; Time Warner Communications
Petition for Forbearance; Complete Detariffing for Competitive Access Providers and Competitive Local Exchange
Carriers, CCB/CPD No. 96-3, 96-7, CC Docket No. 97-146, Memorandum Opinion and Order and Notice of
Proposed Rulemaking, 12 FCC Rcd 8596 (1997) (imposing permissive detariffing on non-dominant local exchange
carriers); Petition of Qwest Corp. for Forbearance Pursuant to 47 U.S.C. § 160(c) in the Phoenix, Arizona
Metropolitan Statistical Area, WC Docket No. 09-135, Memorandum Opinion and Order, 25 FCC Rcd 8622 (2010)
(denying non-dominant carrier treatment based on a market power test). This is because “firms lacking market
power simply cannot rationally price their services in a way which, or impose terms and conditions which, would
contravene Sections 201(b) and 202(a) of the Act.” Policy and Rules Concerning Rates for Competitive Common
Carrier Services and Facilities Authorizations Therefor, CC Docket No. 79-252, First Report and Order, 85 FCC 2d
1, 31, para. 88 (1980).
90 Pricing Flexibility Order, 14 FCC Rcd at 14300, para. 151.
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Second, the Commission seems to consider forbearance under section 10 of the Act to be asufficient means of granting regulatory relief to price-cap carriers during the suspension of the
competitive triggers.91 But the Pricing Flexibility Order adopted the competitive triggers in response to
forbearance petitions filed by price-cap carriers,92 and specifically rejected forbearance (and the pending
forbearance petitions) because the bright-line competitive triggers obviated the need for the Commission
to make “difficult market share determinations,” as required by forbearance petitions.93 Moreover,
forbearance petitions are handled in a far less timely manner than are petitions for relief under our pricing
flexibility triggers. The Commission usually takes fifteen months to process the former, while the latter
have almost always been resolved within 90 days.
Third and finally, the Commission seems to discount the value of administrative simplicity in
favor of analysis on a more granular basis. I certainly agree that we should strive to understand the
market as best we can. But I also agree with the assessment of the Pricing Flexibility Order that we must
not let the perfect be the enemy of the good. We are an agency of limited resources, after all, and
congressional appropriators are not likely to increase our budget to analyze pricing flexibility petitions if
we switch the geographic scope of our analysis from 306 MSAs to more than 40,000 zip codes.
IV.
At the end of the day, those in the private sector will likely be left with the same question that I
am: Why is the Commission in such a rush to re-regulate? As the Commission pointed out to the D.C.
Circuit, there are several avenues available to those who believe that carriers are offering special access at
rates, terms, and conditions that are not “just and reasonable.” First, “[i]f they object to the rates or terms
contained in a newly filed special access tariff, [they] can ask the FCC to suspend [a] tariff for up to five
months and to hold a hearing on the tariff’s lawfulness pursuant to section 204 of the Act, 47 U.S.C. §
204.”94 Second, “if [they] believe that [carriers] are providing special access on terms or conditions that
are not just and reasonable, they can bring an action in federal district court seeking damages under
sections 206 and 207 of the Act, 47 U.S.C. §§ 206–207.”95 Or third, “they can file an administrative
complaint with the Commission under section 208.”96 If these alternatives were good enough for the
Commission ten months ago, why are they no longer sufficient today?97 And more broadly, if the
91 Report and Order at para. 6.
92 See, e.g., Petition of U S West Communications, Inc. for Forbearance from Regulation as a Dominant Carrier in
the Phoenix, Arizona MSA, CC Docket No. 98-157 (filed Aug. 24, 1998).
93 Petition of U S West Communications, Inc. for Forbearance from Regulation as a Dominant Carrier in the
Phoenix, Arizona MSA et al., CC Docket Nos. 98-157 et al., Memorandum Opinion and Order, 14 FCC Rcd 19947,
19948, para. 2 (1999); id. at 19953, para. 11 (“As the record in these proceedings clearly illustrates, non-dominance
showings are neither administratively simple nor easily verifiable. The Commission previously has based non-
dominance findings on complex criteria, including market share and supply elasticity. Market share analyses require
considerable time and expense, and they generate controversy that is difficult to resolve.”).
94 General Counsel’s Brief at 27.
95 Id. at 28.
96 Id.
97 The Commission’s only answer to this question is it prefers to take a systemic approach to deal with “systemic
issues with [the] special access rules.” Report and Order at note 268. Among other problems with this response, the
Commission today does not make any “systemic” findings regarding the effect of our current pricing flexibility
triggers on either special access prices or the competitiveness of the marketplace.
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Commission did not have sufficient data to take action back then, how are things any different today?I do not know the answer to these questions, and neither will those in the private sector. I fear
that those who must decide whether to invest tens of billions of dollars in next-generation networks will
conclude that this Commission’s first instinct is to re-regulate, even though it is unable to assess the
competitiveness of the special access market or the effect of the current pricing flexibility triggers on
prices given the current state of the record.
What does this portend for the future? If the Clinton Administration’s deregulatory framework
for special access can be dismantled upon such a thin record, will our current deregulatory framework for
fiber survive? The private sector will have serious doubts (as do I), and this uncertainty will chill
industry’s willingness to invest capital in broadband infrastructure, deploy next-generation broadband
networks, and create jobs. In a misguided attempt to re-regulate the networks of yesterday,98 we will end
up deterring investment in the IP networks of tomorrow.
* * *
At the end of Alice’s Adventures in Wonderland, Alice wakes up from a trial that has gone awry
to discover that it had all been a dream. Similarly, it is my hope that someday, we will look back on
today’s order as merely a fleeting departure from the pursuit of policies that provide strong incentives for
infrastructure investment and facilities-based competition. If the Commission can re-regulate special
access on evidence comparable to that presented against the Knave of Hearts,99 then it will not be difficult
to reverse today’s decision and return to a more pragmatic path.
Until then—curiouser and curiouser. I respectfully dissent.
98 For example, DS1 connections, which provide service at 1.5 Mbps, do not even qualify as broadband according to
the benchmark outlined in the National Broadband Plan or our recent Broadband Deployment Reports. See
Omnibus Broadband Initiative, FCC, Connecting America: The National Broadband Plan, at 135 (setting a
broadband target of 4 Mbps downstream); Inquiry Concerning the Deployment of Advanced Telecommunications
Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such
Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data
Improvement Act; A National Broadband Plan for Our Future, GN Docket Nos. 09-137, 09-51, Sixth Broadband
Deployment Report, 25 FCC Rcd 9556, 9563, para. 11 (2010) (defining broadband for as a service with speeds of at
least 4 Mbps downstream).
99 See CARROLL, ALICE’S ADVENTURES IN WONDERLAND (“‘If that’s all you know about [the Knave’s alleged theft
of the Queen’s tarts], you may stand down,’ continued the King. ‘I can’t go no lower,’ said the Hatter: ‘I’m on the
floor, as it is.’”); id. (“‘Give your evidence,’ said the King. ‘Shan’t,’ said the cook.”); id. (“Alice watched the White
Rabbit as he fumbled over the [witness] list, feeling very curious to see what the next witness would be like, ‘— for
they haven’t got much evidence yet,’ she said to herself.”).
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ATTACHMENTIN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
)
In re COMPTEL, et al.,
)
No. 11-1262
)
Petitioners.
)
OPPOSITION OF FEDERAL COMMUNICATIONS COMMISSION
TO PETITION FOR WRIT OF MANDAMUS
A group of telecommunications carriers and their trade associations, alongwith several groups representing users of telecommunications services, have
jointly filed a petition for writ of mandamus. Petitioners ask the Court to direct the
Federal Communications Commission (“FCC” or “Commission”) to complete a
rulemaking regarding “special access” telecommunications services and to issue
new rules within six months, even though the Commission is still in the process of
gathering data it needs to assess whether its special access rules should be revised.
Petitioners have failed to carry their heavy burden to justify the
extraordinary remedy of mandamus. Contrary to their claim, the FCC has not
unreasonably delayed completion of its special access rulemaking. That
proceeding involves intensely fact-bound issues. Notwithstanding petitioners’
undeveloped assertions to this Court, those issues cannot adequately be addressed
until the Commission itself compiles an evidentiary record that is sufficient to
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evaluate current conditions in the special access market. The agency has diligentlysought to collect the data it needs.
In particular, in the past two years, the Commission has: (1) issued a
November 2009 request for comment on the appropriate analytical framework for
assessing the effectiveness of the current special access rules; (2) conducted a
workshop in July 2010 regarding the analytical framework and the sort of data
required to evaluate the special access market; (3) issued an October 2010 public
notice requesting the submission of special access data; and (4) released another
public notice in September 2011 requesting additional data concerning the rates,
terms, and conditions for special access services. While the agency has made
progress toward building a sufficient evidentiary record, its efforts have been
impeded by the failure of some parties to produce information clearly documenting
their claims that special access rates are unreasonable.
Particularly where (as here) there is no statutory deadline for agency action,
the Commission has broad discretion to order its proceedings and to allocate its
scarce resources by prioritizing other pressing policy objectives that, in the
agency’s considered judgment, merit more immediate attention. The FCC has
reasonably exercised that discretion by, for example, devoting substantial resources
to reforming its universal service and intercarrier compensation programs, even as
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it continues to examine its special access rules.In any event, even if petitioners could demonstrate unreasonable delay in
this case – and they cannot – they are not entitled to the extraordinary remedy of
mandamus for a separate and independent reason. Petitioners have other adequate
alternative remedies under the Communications Act, including review of newly
filed special access tariffs under 47 U.S.C. § 204, recovery of damages in federal
district court under 47 U.S.C. §§ 206 and 207, and the administrative complaint
process established by 47 U.S.C. § 208.
The petition for mandamus should be denied.
BACKGROUND
A. Special Access Services
To complete the transmission of an interstate telephone call, atelecommunications carrier “must have ‘access’ to the local networks at both the
originating and receiving end of the call.” WorldCom, Inc. v. FCC, 238 F.3d 449,
453 (D.C. Cir. 2001). Part 69 of the FCC’s rules establishes two basic categories
of access services: switched access and special access. 47 C.F.R. Part 69. Unlike
switched access, which uses local exchange switches to route originating and
terminating interstate telecommunications, special access employs dedicated
facilities that run between the end user and the carrier’s network or between two
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discrete end user locations. Access Charge Reform, 14 FCC Rcd 14221, 14226 ¶ 8(1999) (“Pricing Flexibility Order”), petitions for review denied, WorldCom, 238
F.3d 449. “Most users of special access services are companies with high call
volumes.” WorldCom, 238 F.3d at 453. Among other things, “[s]pecial access
circuits connect wireless towers to the core network” and sometimes provide “the
critical broadband link . . . between a small town and the nearest Internet point of
presence.” FCC, Connecting America: The National Broadband Plan 143 (2010),
available at http://download.broadband.gov/plan/national-broadband-plan.pdf.
For many years, incumbent local exchange carriers (“ILECs”) were the sole
providers of access services. In the 1980s, however, competitive access providers
(“CAPs”) began to challenge the ILEC monopolies by offering limited end-to-end
special access services over their own transport facilities. See Expanded
Interconnection with Local Telephone Company Facilities, 7 FCC Rcd 7369, 7373
¶ 4 (1992), on recon., 8 FCC Rcd 127 (1993), rev’d in part and remanded in part,
Bell Atlantic Tel. Cos. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994). Under a 1996
amendment to the Communications Act, CAPS are entitled to install (or
“collocate”) their equipment at ILEC facilities. 47 U.S.C. § 251(c)(6).
B. Federal Price Cap Regulation Of Access Services
Historically, ILECs and other telecommunications carriers have been subject110
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to rate-of-return regulation, which “is based directly on cost.” National RuralTelecom Ass’n v. FCC, 988 F.2d 174, 177 (D.C. Cir. 1993); see also WorldCom,
238 F.3d at 453. In October 1990, the FCC adopted a new framework for
regulating the largest ILECs’ rates – an incentive-based system that imposes “caps”
on the aggregate prices that those carriers charge for certain services in a given
area. WorldCom, 238 F.3d at 453 (citing 47 C.F.R. §§ 61.41-61.49). “Price cap
regulation is intended to provide better incentives to the carriers than rate of return
regulation, because the carriers have an opportunity to earn greater profits if they
succeed in reducing costs and becoming more efficient.” Bell Atlantic Tel. Cos. v.
FCC, 79 F.3d 1195, 1198 (D.C. Cir. 1996).
For purposes of setting price caps, the Commission grouped different access
services into “baskets.” See WorldCom, 238 F.3d at 453. “For each basket, the
Commission established a maximum price, called the price cap index.” Bell
Atlantic, 79 F.3d at 1198. Under the price cap system, “companies are relatively
free to set their own prices so long as they remain below the cap.” WorldCom, 238
F.3d at 454.
Carriers that are classified as “dominant” carriers are subject to price cap
regulation. These price cap LECs must comply with tariff requirements,
publishing rate changes before they go into effect. WorldCom, 238 F.3d at 454
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(citing 47 U.S.C. §§ 203(a), 204(a)).C. The Pricing Flexibility Order
In August 1999, the Commission adopted rules under which “price capLECs would receive pricing flexibility in the provision of interstate access services
as competition for those services develops.” Pricing Flexibility Order, 14 FCC
Rcd at 14225 ¶ 2. Those rules “granted immediate pricing flexibility [to price cap
LECs] for some services.” WorldCom, 238 F.3d at 454. They also provided for
future pricing flexibility to be implemented in two phases. “In Phase I, LECs may
offer contract tariffs and volume and term discounts, while remaining subject to
some price cap rules and tariff requirements.” Id. at 455. “In Phase II, LECs are
given greater freedom to raise and lower rates outside of price cap regulation.” Id.
at 456.
To obtain pricing flexibility under Phase I or Phase II, a price cap LEC must
file a petition demonstrating that certain competitive “triggers” have been met
within a particular Metropolitan Statistical Area (“MSA”). The triggers are based
on the extent to which competitive carriers have collocated their facilities on ILEC
premises within the MSA. “The triggers measure market competition based upon
investments in infrastructure by potential competitors. . . . [T]he more relief
sought, the higher the trigger is set – that is, a greater level of investment by
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competitors is required.” WorldCom, 238 F.3d at 455.“In order to obtain Phase I relief” for special access services, an ILEC “must
show collocation in fifteen percent of wire centers within the MSA in which relief
is sought, or in wire centers accounting for at least thirty percent of revenues for
services in question.” WorldCom, 238 F.3d at 455-56. To qualify for Phase II
relief, an ILEC must demonstrate more extensive deployment of competitive
facilities: “collocation in fifty percent of wire centers within the MSA in which
relief is sought or in wire centers accounting for at least sixty-five percent of
revenues for services in question.” Id. at 456. In addition, before an ILEC can
obtain pricing flexibility under either Phase I or Phase II, “at least one competitor
must rely on transport facilities provided by a non-incumbent LEC in each wire
center relied on in the applicant LEC’s petition.” Id.
The FCC acknowledged that its pricing flexibility rules could potentially
allow for “Phase II relief before the manifestation of actual competitive
alternatives for interstate access service customers.” WorldCom, 238 F.3d at 456.
Nonetheless, the Commission concluded that “the costs of delaying regulatory
relief outweigh the potential costs of granting it before [competitive carriers] have
a competitive alternative for each and every end user.” Id. (quoting Pricing
Flexibility Order, 14 FCC Rcd at 14297 ¶ 144). The Commission recognized that
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its selection of pricing flexibility triggers was “not an exact science,” but rather apolicy determination “based on our agency expertise, our interpretation of the
record before us in this proceeding, and our desire to provide a bright-line rule to
guide the industry.” Pricing Flexibility Order, 14 FCC Rcd at 14276 ¶ 96.
On review, this Court rejected various challenges to the FCC’s pricing
flexibility rules. WorldCom, 238 F.3d at 457-64. It held that the Commission
acted reasonably in using collocation as a proxy for competition. Id. at 458-60.
The Court also held that the agency based its collocation triggers on reasonable
predictive judgments that were entitled to deference. Id. at 461-62.
D. The CALLS Plan
In May 2000, the Commission adopted “an integrated interstate accessreform and universal service proposal” made by the Coalition for Affordable Local
and Long Distance Service (“CALLS”), a group of local and long-distance
telecommunications carriers. Access Charge Reform, 15 FCC Rcd 12962, 12964
¶ 1 (2000) (“CALLS Order”), aff’d in part and remanded in part, Texas Office of
Public Utility Counsel v. FCC, 265 F.3d 313 (5th Cir. 2001). The CALLS plan was
a five-year transitional mechanism “designed to further accelerate the development
of competition in the local and long-distance telecommunications markets.” Id. at
12965 ¶ 4. Among other things, the CALLS plan created “a separate special access
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basket” for purposes of price cap regulation. Id. at 13033 ¶ 172.The CALLS Order gave price cap LECs a choice. They could either
“subscribe to the CALLS [plan] for its full five-year term” or “submit a cost study
based on forward-looking economic costs.” CALLS Order, 15 FCC Rcd at 12984
¶ 59. “All price cap carriers opted for the CALLS plan.” Special Access Rates for
Price Cap Local Exchange Carriers, 20 FCC Rcd 1994, 2000 ¶ 14 (2005)
(“Special Access NPRM”).
Although the CALLS plan “was intended to run until June 30, 2005,” it
remains in place and will continue in effect “until the Commission adopts a
subsequent plan” to replace CALLS. Special Access NPRM, 20 FCC Rcd at 1995
¶ 2.
E. AT&T’s Petition For Rulemaking
In October 2002, AT&T filed a petition for rulemaking “essentiallyrequesting that the Commission revoke the pricing flexibility rules and revisit the
CALLS plan as it pertains to the rates that price cap LECs . . . charge for special
access services.” Special Access NPRM, 20 FCC Rcd at 2002 ¶ 19.1 AT&T
1 At that time, AT&T was a purchaser of special access services and a competitor
to the ILECs. In 2005, AT&T merged with SBC, an ILEC. As currently
(continued….)
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contended that “the predictive judgment at the core of the Pricing Flexibility Orderhas not been confirmed by marketplace developments,” and that ILECs were
charging unreasonably high rates for special access services. Id. at 2003 ¶ 19. In
addition to seeking rule changes, AT&T requested interim relief while the
rulemaking was pending. It asked the Commission to impose a moratorium on
pricing flexibility and to reduce all special access charges to levels that would
produce an 11.25 percent rate of return. Id.
The Commission’s staff invited comment on AT&T’s rulemaking petition.2
Price cap LECs opposed AT&T’s petition and disputed its claims. In particular,
they asserted that “there is robust competition in the special access market,” and
that the existing special access rates were “reasonable and therefore lawful.”
Special Access NPRM, 20 FCC Rcd at 2003 ¶ 20.
In November 2003, AT&T filed with this Court a petition for writ of
mandamus. It asked the Court to direct the Commission to act on AT&T’s
rulemaking petition and to grant the interim relief sought. Special Access NPRM,
(Continued from previous page)
constituted, AT&T is both an ILEC and an interexchange carrier, and thus is both a
provider and a purchaser of special access services.
2 Wireline Competition Bureau Seeks Comment on AT&T’s Petition for
Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for
Interstate Special Access Services, 17 FCC Rcd 21530 (2002).
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20 FCC Rcd at 2003 ¶ 21. In October 2004, the Court held the matter in abeyanceand directed the Commission to provide status reports on December 1, 2004 and
February 1, 2005. Id. at 2003-04 ¶ 21.
F.
The Special Access NPRM
On January 31, 2005, the Commission released a notice of proposedrulemaking “to seek comment on the interstate special access regime that we
should put in place post-CALLS.” Special Access NPRM, 20 FCC Rcd at 2004
¶ 22. The Commission specifically requested comment “on whether, as part of that
regime, we should maintain, modify, or repeal the Commission’s pricing flexibility
rules.” Id. Insofar as AT&T’s petition requested a new special access rulemaking,
the Commission granted the petition. Id. at 2042 ¶ 152. The agency also
incorporated into this proceeding “the record already compiled in response to”
AT&T’s petition. Id. at 1997 ¶ 5.
At the same time it commenced the special access rulemaking, the FCC
denied AT&T’s request for interim relief. It found that “the evidence submitted by
AT&T in its petition” was not “sufficient to justify the requested relief at this
time.” Special Access NPRM, 20 FCC Rcd at 2035 ¶ 129.3
3 In the Special Access NPRM, the Commission sought comment “on what interim
relief, if any, is necessary to ensure” that “special access rates remain reasonable”
(continued….)
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Shortly after the Commission notified the Court of the release of the SpecialAccess NPRM, the Court dismissed AT&T’s mandamus petition as moot. In re
AT&T Corp., 2005 WL 283198 (D.C. Cir. Feb. 4, 2005).
G.
Subsequent Developments
In July 2007, the Commission invited interested parties to update the recordin the special access rulemaking in light of a number of recent developments in the
industry, including several “significant mergers and other industry consolidations,”
“the continued expansion of intermodal competition in the market for
telecommunications services,” and “the release by GAO [the Government
Accountability Office] of a report summarizing its review of certain aspects of the
market for special access services.” Parties Asked to Refresh Record in the Special
Access Notice of Proposed Rulemaking, 22 FCC Rcd 13352, 13352-53 (2007).
While the special access rulemaking was pending, the FCC also addressed
special access issues in several other proceedings. In two orders issued in October
2007, the agency granted petitions filed by AT&T, Embarq, and Frontier under 47
U.S.C. § 160 seeking FCC forbearance from enforcement of dominant carrier and
(Continued from previous page)
while the Commission considered “what regulatory regime will follow the CALLS
plan.” 20 FCC Rcd at 2036 ¶ 131 (emphasis added). Specifically, the Commission
sought comment on a proposal to make interim rate adjustments to account for
increased productivity in the provision of special access services. Id.
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tariff filing requirements with respect to enterprise broadband special accessservices (i.e., high-speed telecommunications services for businesses). Petition of
the Embarq Local Operating Companies for Forbearance, 22 FCC Rcd 19478
(2007); Petition of AT&T Inc. for Forbearance, 22 FCC Rcd 18705 (2007). This
Court affirmed those forbearance orders. Ad Hoc Telecomm. Users Comm. v. FCC,
572 F.3d 903 (D.C. Cir. 2009). In August 2008, the Commission granted Qwest’s
petition for similar relief from regulation of enterprise broadband special access.
Qwest Petition for Forbearance, 23 FCC Rcd 12260 (2008). The Court dismissed
a petition for review of that forbearance grant. Ad Hoc Telecomm. Users Comm. v.
FCC, 2009 WL 2461594 (D.C. Cir. Aug. 7, 2009) (granting motion for voluntary
dismissal).
During the summer of 2009, in the wake of the 2008 Presidential election,
the Senate confirmed a new Chairman of the 5-member Commission and two new
Commissioners.
In November 2009, the Commission sought comment on the appropriate
analytical framework for examining the issues that the Special Access NPRM
raised. Parties Asked to Comment on Analytical Framework Necessary to Resolve
Issues in the Special Access NPRM, 24 FCC Rcd 13638 (2009) (“Analytical
Framework Public Notice”).
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In July 2010, the FCC’s Wireline Competition Bureau held a staff workshopto gather further input from interested parties on the analytical framework the
Commission should use – and the data it should collect – to evaluate whether the
current special access rules are working as intended. Wireline Competition Bureau
Announces July 19, 2010 Staff Workshop to Discuss the Analytical Framework for
Assessing the Effectiveness of the Existing Special Access Rules, 25 FCC Rcd 8458
(2010) (“Staff Workshop Public Notice”).
In October 2010, the Wireline Competition Bureau issued a public notice
inviting the public to submit data to assist the Commission in evaluating the issues
that the Special Access NPRM raised. Data Requested in Special Access NPRM,
25 FCC Rcd 15146 (2010) (“First Data Request Public Notice”). Explaining that
data “would need to be reviewed” before the Commission could address the issues
raised by the proceeding, id. at 15146, the Bureau asked that the requested data be
submitted on or before January 27, 2011. Id. at 15147. It also noted that while it
continued to develop its analytical framework, it would “ask for additional
voluntary submissions of data in a second public notice.” Id.
On September 19, 2011, the Bureau issued its second public notice
requesting the submission of special access data. Competition Data Requested in
Special Access NPRM, DA 11-1576 (released Sept. 19, 2011) (“Second Data
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Request Public Notice”) (Attachment A). The Bureau asked for detailed data onspecial access prices, revenues, and expenditures, as well as the nature of terms
and conditions for special access services. It requested that the data be submitted
to the Commission by December 5, 2011.
While the Commission has made progress in its data-gathering efforts, the
vast majority of the service provider members of the principal petitioner here (the
trade association COMPTEL) did not provide any data in response to the agency’s
October 2010 request.4
4 The member list on COMPTEL’s website includes approximately 90 “service
provider” members. See http://www.comptel.org/memberlist.asp?contentid=2109.
According to the Commission’s records, only seven of those member carriers –
360networks, Cbeyond, RCN, Sprint, TDS Metrocom, TelePacific
Communications, and tw telecom – provided special access data in response to the
agency’s October 2010 request.
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ARGUMENT
PETITIONERS HAVE NOT CARRIED THEIR BURDEN OF SHOWING
THAT THEY HAVE A CLEAR AND INDISPUTABLE RIGHT
TO THE EXTRAORDINARY REMEDY OF MANDAMUS
“Mandamus is a ‘drastic’ remedy available only in ‘extraordinarysituations.’” Oglala Sioux Tribe of Pine Ridge Indian Reservation v. U.S. Army
Corps of Eng’rs, 570 F.3d 327, 333 (D.C. Cir. 2009) (quoting Kerr v. U.S. Dist.
Court for N. Dist. of Cal., 426 U.S. 394, 401 (1976)). “Mandamus is available
only if: (1) the plaintiff has a clear right to relief; (2) the defendant has a clear duty
to act; and (3) there is no other adequate remedy available to plaintiff.” Fornaro v.
James, 416 F.3d 63, 69 (D.C. Cir. 2005) (quoting Power v. Barnhart, 292 F.3d 781,
784 (D.C. Cir. 2002)). “The party seeking mandamus has the burden of showing
that its right to issuance of the writ is clear and indisputable.” Power, 292 F.3d at
784 (internal quotation marks omitted); see also Gulfstream Aerospace Corp. v.
Mayacamas Corp., 485 U.S. 271, 289 (1988). Because petitioners have failed to
carry that heavy burden here, the petition should be denied.
I.
The FCC Has Reasonably And Responsibly Sought To Compile
A Sufficient Evidentiary Record For Purposes Of Resolving The
Complex Question Whether Its Current Special Access Rules
Ensure Just And Reasonable Rates.
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the FCC has unreasonably delayed action in its pending special access proceeding.Given the highly fact-bound nature of the issues raised by that proceeding –
including the pricing issues that must be resolved based on a full evidentiary record
– there has been no unreasonable delay, much less an “egregious” delay. In re
Monroe Commc’ns Corp., 840 F.2d 942, 945 (D.C. Cir. 1988) (the “extraordinary
remedy” of mandamus is “warranted only when agency delay is egregious”).
In assessing whether an “agency’s delay is so egregious as to warrant
mandamus,” the Court has declared that “the time agencies take to make decisions
must be governed by a ‘rule of reason.’” Telecomm. Research & Action Ctr. v.
FCC, 750 F.2d 70, 79-80 (D.C. Cir. 1984) (“TRAC”). This “rule of reason” cannot
be applied “in the abstract, by reference to some number of months or years
beyond which agency inaction is presumed to be unlawful.” Mashpee Wampanoag
Tribal Council v. Norton, 336 F.3d 1094, 1102 (D.C. Cir. 2003). “Resolution of a
claim of unreasonable delay is ordinarily a complicated and nuanced task requiring
consideration of the particular facts and circumstances before the court.” Id. at
1100. Thus, before determining whether an agency’s delay is unreasonable, the
Court must consider (among other things) “the complexity of the task at hand” and
“the resources available to the agency.” Id. at 1102. These factors weigh
decisively against a finding of unreasonable delay in this case.
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As a threshold matter, petitioners are wrong when they claim that “[t]herehas been no resolution” of AT&T’s 2002 petition for rulemaking. Petition at 21;
see also id. (alleging a “near-decade of inaction”). To the contrary, the FCC acted
on that petition when it initiated the special access rulemaking proceeding and
denied AT&T’s request for interim relief in 2005. See Background, Section F,
supra. In the Special Access NPRM, the Commission explicitly stated that AT&T’s
petition for rulemaking was “GRANTED to the extent specified herein and
otherwise [was] DENIED.” Special Access NPRM, 20 FCC Rcd at 2042 ¶ 152.
This Court recognized that the agency had taken action when it dismissed AT&T’s
mandamus petition as moot in 2005. See id.5
In any event, petitioners cannot show that the FCC unreasonably delayed
action in this case. Their claim of unreasonable delay rests on a fundamentally
flawed premise. Petitioners assert that the FCC “has known for nearly a decade
that its predictions in the Pricing Flexibility Order were wrong.” Petition at 14.
5 Similarly, there is no basis for petitioners’ suggestion that the FCC’s
representations to this Court in the AT&T mandamus litigation were misleading.
See Petition at 11, 21. The agency never represented to the Court that a special
access rulemaking would be completed within a specified timeframe. Rather, the
Commission informed the Court in July 2004 that it expected to act on AT&T’s
rulemaking petition “in the near future” (In re AT&T Corp., D.C. Cir. No. 03-1397,
FCC Br. at 3), and it did so by issuing its Special Access NPRM in January 2005.
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To the contrary, the FCC has yet to draw any firm conclusions about the accuracyof its predictions regarding special access. Instead, it is in the process of collecting
and analyzing data to ascertain how the pricing flexibility rules have affected the
special access market.
Petitioners maintain that a 2006 report by the Government Accountability
Office “confirmed” that the predictions on which the FCC based its pricing
flexibility rules were wrong. Petition at 14. But the GAO did not reach any such
definitive conclusion.6 Instead, the GAO Report confirms the FCC’s need for
additional data as it considers reform of its special access rules. “[I]n order to
better meet its regulatory responsibilities,” the GAO explained, the FCC “needs a
more accurate measure of effective competition and needs to collect more
meaningful data.” GAO Report at 15. The Commission is now taking the very
action that the GAO recommended.
Petitioners maintain that consumers are paying unreasonably high prices for
6 The GAO merely noted that its analysis of the limited data available at the time
“suggests that [the] FCC’s predictive judgment – that MSAs with pricing
flexibility have sufficient competition – may not have been borne out.” GAO,
Telecommunications: FCC Needs to Improve Its Ability to Monitor and Determine
the Extent of Competition in Dedicated Access Services, GAO-07-80, at 42 (Nov.
2006) (emphasis added) (“GAO Report”), available at
www.gao.gov/new.items/d0780.pdf.
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special access under the pricing flexibility rules. Petition at 15-16. But the ILECshotly contest petitioners’ basic premise that special access rates have increased.
Indeed, they contend that special access rates have steadily declined since the
introduction of pricing flexibility.7
Even one of the reports on which petitioners rely (Petition at 14) notes that
the available special access pricing data “do not support any clear conclusions
about price trends. Some data suggest rising prices, while other data suggest
declining prices. Data quality could well be the reason for these ambiguities.”
Peter Bluhm & Robert Loube, National Regulatory Research Institute, Competitive
Issues in Special Access Markets 67 (Jan. 21, 2009).
7 See, e.g., Reply Comments of AT&T Inc., WC Docket No. 05-25, Feb. 24, 2010,
at 4 (“Over the decade that [the pricing flexibility] rules have been in place, the
prices that special access customers actually pay have decreased dramatically,
output has risen sharply, both incumbents and their competitors have invested
billions in new facilities,” and “innovation has increased”); Reply Comments of
Verizon and Verizon Wireless, WC Docket No. 05-25, Feb. 24, 2010, at 6 (“the
prices customers pay for special access services have followed an overall
downward trend”); Declaration of Michael D. Topper on behalf of Verizon and
Verizon Wireless, WC Docket No. 05-25, Jan. 19, 2010, at 37 (“Evidence
presented in this proceeding indicates that special access prices have been steadily
declining since pricing flexibility was introduced,” and that the quantity of special
access services “has increased significantly over time.”); Declaration of Dennis W.
Carlton and Hal S. Sider on behalf of AT&T Inc., WC Docket No. 05-25, Jan. 19,
2010, at 30 (citing evidence that “average special access prices have fallen
substantially in areas where full Phase II pricing flexibility has been granted”).
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Lacking sufficient data to resolve this fundamental dispute, the Commissionappropriately recognized that it should make no decisions about revising its special
access rules before it has compiled and analyzed an adequate evidentiary record.
In the last two years, since Chairman Genachowski’s arrival at the agency, the
Commission has taken a number of steps to build that record.
In November 2009, the agency sought comment on the appropriate
analytical framework for examining the issues raised by the special access
rulemaking. Analytical Framework Public Notice, 24 FCC Rcd at 13638-44. In
July 2010, Commission staff held a workshop to obtain further input from
interested parties regarding the analytical framework and the sort of data that the
Commission would need to evaluate whether the current special access rules are
working as intended. Staff Workshop Public Notice, 25 FCC Rcd at 8458-59.8 In
October 2010, the FCC’s Wireline Competition Bureau invited the submission of
data to help the agency evaluate the current special access regime. First Data
Request Public Notice, 25 FCC Rcd at 15146-64. And just last month, the Bureau
8 A transcript of the staff workshop can be found on the FCC’s website at
http://reboot.fcc.gov/c/document_library/get_file?uuid=f01ad781-6dd7-4ace-a7fc-
bc296dc88315&groupId=19001. As the transcript makes clear, the issues raised
by this proceeding are complicated, and economists disagree about the appropriate
framework for analyzing the special access market.
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requested that before the end of 2011, interested parties submit detailed dataconcerning the rates, terms, and conditions for special access services. Second
Data Request Public Notice, DA 11-1576 (Attachment A).
As Chairman Genachowski explained in testimony to Congress, he found
“the paucity of data that the FCC had” when he arrived at the Commission “very
troubling,” and he saw “no point to doing something in this area that’s not based on
a record, that’s not based on facts and data, and that wouldn’t be upheld in court.”
Transcript of Hearing of the Communications & Technology Subcommittee of the
House Energy & Commerce Committee, May 13, 2011, at 40 (Mandamus Petition,
Tab 13); see also Letter from FCC Chairman Julius Genachowski to Congressman
Mike Doyle, August 19, 2011 (Attachment B) (noting that while “the data we have
collected so far will help us to understand how best to move forward,” the special
access proceeding presents “a number of difficult issues” for which “there are no
quick fixes”).
Even one of the parties that advocates special access reform has
acknowledged that the FCC will need to obtain and analyze more data before it can
determine the appropriate course of action in this proceeding. In March 2011,
Level 3 Communications told the Commission that “the competitive significance”
of special access contract tariffs “is not ascertainable without further data.” Letter
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from Erin Boone, Level 3, to Marlene H. Dortch, FCC, WC Docket No. 05-25,March 7, 2011, at 2 (Attachment C). And in June 2011, representatives of Level 3
discussed with FCC staff “the types of pricing data concerning tariffed and non-
tariffed special access purchases by Level 3 that might be available and useful to
enable the Commission to more fully evaluate competition relating to such
purchases.” Letter from Erin Boone, Level 3, to Marlene H. Dortch, FCC, WC
Docket No. 05-25, June 23, 2011, at 1 (Attachment D).
Unfortunately, the Commission has faced obstacles in its efforts to gather the
data it needs to make an informed decision on special access. For instance, in
response to the FCC’s October 2010 request for special access data, fewer than 10
percent of petitioner COMPTEL’s service provider members (7 of approximately
90) submitted data concerning their experience in the special access market. See
note 4, supra.
The Commission is actively engaged in the process of gathering and
analyzing data that might (or might not) bear out petitioners’ assertions about
special access pricing. This orderly and responsible administrative process should
not be disrupted while the Commission is making steady progress.
“Absent some unreasonable delay or significant prejudice to the parties, the
Commission cannot be said to abuse its discretion merely by adopting procedures
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and timetables which it considers necessary to effective treatment of complex anddifficult problems.” Telecomm. Resellers Ass’n v. FCC, 141 F.3d 1193, 1196 (D.C.
Cir. 1998) (quoting GTE Serv. Corp. v. FCC, 782 F.2d 263, 274 (D.C. Cir. 1986)).
Where (as here) an agency confronts complex and difficult questions, this Court
has held that it is not unreasonable for the agency to take a number of years to
resolve thorny issues. See, e.g., Her Majesty the Queen in Right of Ontario v. EPA,
912 F.2d 1525, 1534 (D.C. Cir. 1990) (the EPA’s delay of “more than nine years”
in resolving an issue was not unreasonable given “the unusual complexity of the
factors facing the agency”). In light of these precedents, and in view of the
Commission’s diligent and conscientious efforts to gather the data it needs to
resolve the issues presented by the special access rulemaking, the Court should
deny the mandamus petition.
In assessing the reasonableness of the agency’s conduct here, it is also
significant that Congress has not “provided a timetable or other indication of the
speed with which it expects the agency to proceed” in addressing the issues raised
by the special access proceeding. See TRAC, 750 F.2d at 80. In the absence of a
statutory deadline for action, the FCC “has broad discretion to set its agenda and to
first apply its limited resources to the regulatory tasks it deems most pressing.”
Cutler v. Hayes, 818 F.2d 879, 896 (D.C. Cir. 1987). The agency reasonably
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exercised that discretion here.For example, the Commission is currently devoting substantial resources to
completing a comprehensive proceeding to reform its universal service and
intercarrier compensation regulations in light of the changing telecommunications
marketplace. The component of the federal Universal Service Fund that supports
telecommunications services in high-cost areas has grown from $2.6 billion in
2001 to $4.3 billion in 2010, but it still primarily supports voice services. Connect
America Fund, 26 FCC Rcd 4554, 4559 ¶ 6 (2011). Similarly, the current system
of intercarrier compensation “was designed for a world of voice minutes and
separate long-distance and local telephone companies.” Id. In the last decade,
however, the communications landscape has changed dramatically: More than 27
percent of adults live in households with only wireless phones; broadband Internet
access revenues have surged from $13.1 billion in 2003 to $36.7 billion in 2009;
and interconnected Voice over Internet Protocol subscriptions increased by 22
percent between 2008 and 2009. Id. at 4559-60 ¶ 8.
The Commission is working to release soon a comprehensive order that will
fundamentally reform the universal service and intercarrier compensation regimes
to adapt to these market developments. On October 6, 2011, Chairman
Genachowski announced that he is circulating to his fellow Commissioners a
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proposed set of comprehensive reforms to modernize the Universal Service Fundand the intercarrier compensation system. The Chairman has scheduled this
proposal for a vote by the full Commission later this month. See “Connecting
America: A Plan to Reform and Modernize the Universal Service Fund and
Intercarrier Compensation System” (speech delivered by FCC Chairman Julius
Genachowski, Oct. 6, 2011) (Attachment E).
The FCC personnel who have been working on the universal service and
intercarrier compensation proceedings are the same personnel assigned to the
special access rulemaking. To the extent that the Commission has not moved faster
in the special access proceeding due to the agency’s allocation of its available
resources to the more pressing subjects of universal service and intercarrier
compensation reform, that reflects a reasonable balancing of the agency’s policy
priorities.
To give another example of competing priorities, since 2004 the
Commission has issued more than 20 orders addressing petitions for forbearance
under 47 U.S.C. § 160, a number of which have involved special access issues.
Unlike the special access rulemaking, however, forbearance proceedings are
subject to a statutory deadline. The FCC must rule on a forbearance petition
“within one year after the Commission receives it” (or within one year and 90 days
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if the agency finds that an extension of the deadline is necessary). 47 U.S.C.§ 160(c). If the agency fails to act by the deadline, the forbearance petition “shall
be deemed granted.” Id.; see also Sprint Nextel Corp. v. FCC, 508 F.3d 1129 (D.C.
Cir. 2007). Given the serious consequences of agency inaction in this context, the
Commission understandably gives precedence to addressing forbearance petitions.
The Commission thus has dedicated substantial resources to its forbearance
proceedings – including in cases where the forbearance petition was withdrawn
before the agency had an opportunity to issue its dispositive order. See Letter from
Michael J. Copps, Acting Chairman, FCC, to Congressman Henry A. Waxman,
June 5, 2009 (Attachment F) (documenting that FCC staff spent thousands of work
hours on proceedings in which the petitioner withdrew forbearance petitions
shortly before the statutory deadline for a Commission ruling). The Commission’s
decision to devote resources initially to proceedings involving forbearance
petitions, rather than the special access rulemaking, was entirely reasonable under
the circumstances.
In any event, the Commission is making steady and reasonable progress in
its efforts to review the special access market. It has already collected a significant
body of evidence regarding the operation of that market, and just last month, it
requested the submission of additional special access pricing data before the end of
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the year. Given the need for the agency to compile and analyze a comprehensiverecord to understand and address those issues properly, it would serve no useful
purpose for the Court to impose on the agency an arbitrary deadline for completion
of the special access proceeding. See Petition at 30 (requesting imposition of six-
month deadline).
II.
Even If Petitioners Could Demonstrate Unreasonable Delay
In This Case, They Are Not Entitled To Mandamus Because
Adequate Alternative Remedies Are Available.
they cannot – they still would not be entitled to a writ of mandamus because they
have “failed to show that there [is] ‘no other adequate remedy available.’” Baptist
Mem’l Hosp. v. Sebelius, 603 F.3d 57, 64 (D.C. Cir. 2010) (quoting Power, 292
F.3d at 784). To obtain the extraordinary remedy of mandamus, a litigant must
demonstrate that he has “no other adequate means to attain the relief he desires.”
Allied Chem. Corp. v. Daiflon, Inc., 449 U.S. 33, 35 (1980) (internal quotation
marks omitted). Petitioners cannot make that showing here because adequate
alternative remedies are available to them under the Communications Act.
Petitioners observe that the Commission “has a statutory mandate to ensure
that rates, terms and conditions of special access and other telecommunications
services are ‘just and reasonable.’” Petition at 19 (quoting 47 U.S.C. § 201(b)).
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Essentially, they maintain that ILECs are violating section 201(b) by offeringspecial access at rates, terms, and conditions that are not “just and reasonable.”
Petitioners conclude that the Commission therefore should revise its rules to ensure
that special access rates, terms, and conditions comply with section 201(b). But
petitioners have several alternative avenues – other than an immediate overhaul of
the special access rules – for pursuing the relief they seek.
If they object to the rates or terms contained in a newly filed special access
tariff, petitioners can ask the FCC to suspend the tariff for up to five months and to
hold a hearing on the tariff’s lawfulness pursuant to section 204 of the Act, 47
U.S.C. § 204.9 The statute requires the Commission to issue an order concluding
such a hearing “within 5 months after the date” that the contested rate or term
“becomes effective,” 47 U.S.C. § 204(a)(2)(A), and provides for refunds, with
interest, in the event the FCC determines that the rate is unlawful, 47 U.S.C.
§ 204(a)(1).
Alternatively, if petitioners believe that ILECs are providing special access
on terms and conditions that are not just and reasonable, they can bring an action in
9 Petitioners note that Verizon recently revised its special access tariff, increasing
its rates. Petition at 15. Petitioners had the opportunity under section 204 to
request suspension of that tariff revision and a hearing on its lawfulness. They did
not.
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federal district court seeking damages under sections 206 and 207 of the Act, 47U.S.C. §§ 206-207. Or, as this Court has noted, they can file an administrative
complaint with the Commission under section 208, 47 U.S.C. § 208. See Ad Hoc,
572 F.3d at 910 (if “ILECs try to abuse their control over special access lines,”
competitive carriers “can file § 208 complaints with the FCC”). Congress directed
the Commission to address any section 208 complaint concerning tariffed special
access rates and terms “within 5 months after the date on which the complaint was
filed.” 47 U.S.C. § 208(b)(1).
Given the availability of these alternative remedies, petitioners cannot
legitimately claim that mandamus is the only available means of obtaining the
relief they desire. The Court has repeatedly denied mandamus petitions in cases
where an adequate alternative remedy was available to petitioners.10 It should do
likewise here.
10 See, e.g, Baptist Mem’l Hosp., 603 F.3d at 64; Ass’n of Flight Attendants-CWA
v. Chao, 493 F.3d 155, 159-60 (D.C. Cir. 2007); Power, 292 F.3d at 786-88;
Northern States Power Co. v. U.S. Dep’t of Energy, 128 F.3d 754, 759 (D.C. Cir.
1997); Council of and for the Blind of Delaware County Valley, Inc. v. Regan, 709
F.2d 1521, 1533 (D.C. Cir. 1983) (en banc).
136
Federal Communications Commission
FCC 12-92
CONCLUSION
For the foregoing reasons, the Court should deny the petition for writ ofmandamus.
Respectfully submitted,
Austin C. Schlick
General Counsel
Peter Karanjia
Deputy General Counsel
Richard K. Welch
Deputy Associate General Counsel
/s/ James M.Carr
James M. Carr
Counsel
Federal Communications Commission
Washington, DC 20554
(202) 418-1740
October 6, 2011
137
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