Opinion ID: 185358
Heading Depth: 2
Heading Rank: 1

Heading: Legal and Regulatory Context

Text: 3 In recent years, the FCC has sought to facilitate greater competition in the provision of both long-distance and local telephone service. See, e.g., AT&T v. FCC, 220 F.3d 607 (D.C. Cir. 2000); Bell Atl. Tel. Cos. v. FCC, 79 F.3d 1195 (D.C. Cir. 1996); Nat'l Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993). Competition for telephone services, where it exists, serves the FCC's statutory goal of ensuring fair and reasonable prices for telecommunications services. Therefore, as telephone markets become more competitive, the FCC has lessened regulatory control over those markets, including the market for interstate access services. It is within this evolving regulatory context that this case arises.
4 Local telephone service is provided by local exchange carriers. 47 U.S.C. S 153(26). Typically, one LEC is the dominant, or incumbent, service provider in each local area. Until relatively recently, the incumbent LECs had virtual monopolies over the provision of local phone service in their territories. 5 Long distance service--that is, service between local access and transport areas (LATAs) or InterLATA service--is, for the most part, provided by interexchange carriers (IXCs), such as petitioners WorldCom and AT&T. Long distance providers are reliant upon LECs to reach their customers. When a customer makes a long distance call, the IXC must have access to the local networks at both the originating and receiving end of the call in order to complete the connection. Generally, the LEC connects the call from the caller to a switch or end office, which is in turn connected to a serving wire center (SWC), which is itself connected to an interconnection point, or point of presence (POP), with the long distance carrier. This same series of connections will also be made at the receiving end of the phone call--from POP to SWC to switch to call recipient. LECs charge the IXCs for providing this access service in accordance with 47 C.F.R. Part 69. IXCs then bill customers directly for long distance calls. 6 There are two types of access service: switched access and special access. Switched access service requires the creation of a connection between the caller and the long distance company on a call-by-call basis. This entails (1) a connection between the caller and a local LEC switch, (2) a connection from the LEC switch to the SWC (interoffice transport), and (3) an entrance facility which connects the SWC and the long distance company's POP. Switched access can either be dedicated to a particular IXC (dedicated transport or direct trunked transport) or shared among IXCs. Special access service, on the other hand, uses dedicated lines between the customer and the IXC's local POP. Switched access is used by most residential customers. Most users of special access services are companies with high call volumes. 7 For quite some time incumbent LECs dominated access service markets. In recent years, however, other companies have begun to enter these markets. Market entrants typically provide a portion of full access service, such as from the IXC POP to the SWC, in any given market. This development was facilitated by changes in FCC regulations. Beginning in 1992, the FCC required incumbent LECs to permit competitors to collocate their equipment at LEC wire centers and connect directly to the LEC networks as a means of spurring additional competition in access service. See Expanded Interconnection with Local Tel. Co. Facilities, 7 F.C.C.R. 7369, p P1-3, 39, reconsidered 8 F.C.C.R. 127 (1992), vacated in part and remanded in part, Bell Atl. Tel. Cos. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994). Now, the FCC believes, there may be sufficient competition for access services to justify deregulatory measures.
8 For years the FCC imposed traditional rate of return regulation on the LECs. Beginning in 1990, however, the FCC substituted price cap regulation for the largest LECs. See Nat'l Rural Telecom Ass'n, 988 F.2d at 178-79. Price cap regulation imposes a cap on aggregate prices charged by LECs for certain services in a given area. See 47 C.F.R. §§ 61.41-.49. For the purposes of setting the caps, services are grouped in various baskets. See 47 C.F.R. § 61.42(d). These are the common line basket, traffic-sensitive basket, trunking basket, and special access basket, the latter two of which are at issue in this case. LECs are also required to charge averaged (i.e., uniform) rates in given service areas, absent substantial cost differentials. See 47 C.F.R. § 69.3(e)(7). This averaging requirement is designed to prevent price discrimination by LECs. 9 Price cap regulation offers more pricing flexibility than rate of return regulation, as companies are relatively free to set their own prices so long as they remain below the cap. A company can raise the price for one service so long as that increase is offset by a price decrease in another. Prices that are below upper price bands for a given service are also presumed lawful and given streamlined review by the FCC. See Bell Atl. Tel. Cos., 79 F.3d at 1198. The FCC implemented price cap regulation for LECs as a transitional regulatory scheme until actual competition makes price cap regulation unnecessary. Order p 11. 10 Price cap regulation is supplemented by tariff requirements for dominant carriers (including all regional Bell Operating Companies in their local service areas), under which companies are required to publish rate changes before they are implemented. 47 U.S.C. § 203(a), § 204(a). Tariffs must be filed fifteen days in advance of price increases and seven days in advance of price decreases. 47 U.S.C. § 204(a)(3). This allows both the FCC and affected customers to review and challenge price changes by LECs. The tariff requirement is waived for those carriers that are deemed non-dominant because they face substantial competition from other firms.
11 In 1996, Congress enacted the Telecommunications Act of 1996 to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies. Pub. L. No. 104-104, 110 Stat. 56, 56 (Introductory Statement). The 1996 Act requires incumbent LECs to grant competitors (such as the IXCs) greater access to their local networks through collocation of facilities, the purchase and resale of unbundled network elements and services, and mandated interconnection. 47 U.S.C. § 251(c)(2)-(4). In response to the 1996 Act, the FCC has sought to move toward greater competition for, and less regulation of, telecommunications services.