Opinion ID: 799751
Heading Depth: 1
Heading Rank: 2

Heading: Elimination of sharing

Text: 24 Before the rule at issue in this case, the FCC's price cap regime included a sharing mechanism, which mandated LEC rate reductions sufficient to return profits above specified levels to their customers, the IXCs. The most recent sharing regime, enacted in the 1995 interim order, made the sharing obligation dependent on the X-Factor, imposing no obligation of firms choosing a 5.3% X-Factor, and the following on ones choosing 4.7% and 4.0%: 25 Table 3 Chosen X-Factor 50% Give-back required 100% Give-back required for rate-of-return over for rate-of-return over 4.7% 13.25% 17.25% 4.0% 12.25% 16.25% 26 In the Matter of Price Cap Performance Review for Local Exchange Carriers, 10 FCC Rcd 8961, 9058, p 222 (Performance Review Order) (1995). Attacking the Commission's elimination of the sharing mechanism, MCI first claims that the statutory mandate of just and reasonable rates, 47 U.S.C. § 201(b), requires the FCC to impose a mechanism to prevent unreasonable returns. In the absence of any indication that Congress directly addressed the issue, we defer to the FCC's interpretation of the Communications Act unless it is unreasonable. See Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984). MCI cites no authority rejecting an FCC interpretation of the statute contrary to the one MCI advances, and in Time Warner Entertainment Co. v. FCC, 56 F.3d 151 (D.C. Cir. 1995), we endorsed a pure price cap regime with no sharing provision in the face of a statutory mandate to ensure reasonable basic cable rates. See id. at 162, 164-74. 27 Next, MCI argues that elimination of sharing was arbitrary and capricious. But the agency advanced two sound rationales for its decision. First, it found that sharing severely blunts the efficiency incentives of price cap regulation by reducing the rewards of LEC efforts and decisions. 1997 Order, 12 FCC Rcd at 16,700, p 148. When all profits are taken away, a firm has no incentive to make them; when some proportion is taken away, firms will avoid at least some otherwise desirable choices with a prospect of enhancing profit but a risk of loss. Second, the FCC found that eliminating sharing would remove the incentive to shift costs to services that are subject to sharing and away from services that are not, thus cross-subsidizing the latter. 1997 Order, 12 FCC Rcd at 16,700, p 148; id. at 16,701, p 151. MCI does not contest these effects, nor does it question the Commission's argument that monitoring to catch them would be administratively burdensome and would increase its reliance on obsolete embedded accounting costs. Id. at 16,701-02, pp 151-52. 28 Finally, MCI contends that it was arbitrary and capricious for the FCC to scuttle sharing but at the same time retain its low-end adjustment, which gives the LECs some pricing leeway to prevent their returns from falling below a given level. There is clearly a literal asymmetry in protecting LECs in lean conditions while not constraining them in unexpectedly fat ones. But the FCC gave a good reason for creating this asymmetry--the Constitution's takings clause, which forbids the imposition of confiscatory rates without just compensation. See 1997 Order, 12 FCC Rcd at 16,704, p 157; Duquesne Light Co. v. Barasch, 488 U.S. 299, 307-08 (1989). The Commission thus avoided raising a non-trivial constitu-tional question, one that has no analogy at the upper end of the range of allowable rates. See Time Warner, 56 F.3d at 170.