Opinion ID: 6971591
Heading Depth: 2
Heading Rank: 3

Heading: Predictive Judgment

Text: Cellnet contends that the FCC did not have an adequate basis' in the record for its predictive judgment that CMRS markets will be competitive in five years. As already mentioned, we may set aside an agency’s rule only if it is arbitrary, capricious, abusive of discretion or otherwise not in accordance with law. Cincinnati Bell Tel. Co., 69 F.3d at 758. In making its determination, we consider whether the agency has considered the relevant factors involved and whether there has been a clear error in judgment. Id. The agency must have articulated a rational connection, i.e., supporting reasons, between its fact findings and its action. Id. The petitioner argues that the FCC’s “predictive judgment” about the state of competition among CMRS providers in five years is fatally flawed. It contends that the FCC did not cite any statutory authority for its consideration of the state of competition now or in five years as a reason for terminating its prohibition of resale restrictions, and that in actuality the statutory scheme is to the contrary. The petitioner also characterizes the FCC’s predictive judgment as an illegitimate basis for its order because, while it admits that the FCC has some latitude in making policies based on its judgments and predictions, it contends that the FCC’s judgment was not based on logic or evidence in the record. It points to the fact that the FCC’s rules do not assure that the majority of the public will have access to PCS service within five years after the issuance of the initial licenses; the FCC’s licensing rules require only that PCS licensees with 30 MHz of spectrum reach one-third of their service area populations within five years of their license’s issuance, and that PCS licensees with 10 MHz of spectrum must only serve one-quarter of the population within five years or failing that, “make a showing of substantial service.” See 47 C.F.R. § 24.203. Cellnet explains that within five years of the PCS licenses’ issuance, the FCC’s rules do not guarantee that any more than one-third of the population will have access to PCS competitors. Cellnet also points to an absence of evidence in the record to support the FCC’s prediction of competition among PCS providers and cellular providers. In establishing the allocation scheme, the petitioner explains, the FCC acknowledged that many PCS licensees, particularly those with 10 MHz of spectrum, might merely provide “niche” services or augment services currently provided by the cellular carriers. See Amendment of the Commission’s Rules to Establish New Personal Communications Services, 9 F.C.C.R. 4957, 5981 (1994). Cellnet accordingly argues that there is no basis for the FCC to assume that the issuance of PCS licenses in any particular geographic area will necessarily result in PCS providers vigorously competing with existing cellular carriers. Cell-net also points out that PCS is still in the early stages of its development and thus there is no track record to predict how markets will develop. The petitioner suggests that the FCC’s prediction is revealed to be further flawed by the fact that PCS licensees will incur billions in capital costs for their licenses and infrastructure, a burden which the FCC has acknowledged may result in disaggregation of spectrum, which would enhance the number of niche competitors and decrease the number of competitors providing nationwide mobile communications services comparable to that of existing cellular providers. See Geographical Partitioning and Spectrum Disaggregation by Commercial Mobile Radio Service Licensees, 11 F.C.C.R. 10187 (1996) (notice of proposed rule-making). The petitioner asserts that until there is competition, cellular carriers and PCS licensees (as well as other CMRS carriers) have incentives to restrict resale of their service. It further contends that if the development of competition does not eliminate the carriers’ incentive to prohibit resale, then the FCC lacks a basis for sunsetting the resale rule; if, on the other hand, more competition does eliminate the carrier’s incentive to prohibit resale, the retention of the policy will not impose any costs on carriers. The FCC contends that its determination that by the end of the five-year transitional period there will be sufficient facilities-based competition in the market for cellular-competitive services to render mandatory resale unnecessary is reasonable and thus entitled to our deference. It asserts that its decision rests on a forecast of the direction of public interest which necessarily involves the agency’s expertise, and thus complete factual support in the record is not necessary or possible. The FCC points out that PCS has been historically regarded as a competitive contender for cellular service and that at the time of its order, it noted that some broadband PCS providers were already competing with cellular carriers where they had begun service and that they would begin nationwide service in the near future. In addition, the FCC points to the fact that private entities have bid and paid significant sums for PCS licenses and that such providers thus have an incentive to establish viable entities. It also points out that in the FCC’s report to Congress on the state of competition in the CMRS market, it reported that cellular providers, in anticipation of PCS, were lowering prices and investing in digital technology. See First Competition Report, 10 F.C.C.R. at 8851-52 & n. 34. The FCC goes on to point to recent indicators that its predictions are being borne out. The FCC dismisses the fact that the FCC’s rules require PCS licensees to reach only one-third of the population in their service area within five years. It points out that because many PCS licensees paid significant sums for their license, they have incentives to build out their systems quickly. See Geographic Partitioning and Spectrum Disaggregation by Commercial Mobile Radio Services Licensees, 11 F.C.C.R. 10187, 10197 (1996) (noting that “many broadband PCS licensees may meet their five-year construction obligations early”). It also disputes Cellnet’s implicit assertion that some of the PCS licensees may only.be able to provide niche services. It argues that Cellnet’s claim that there will not be that many PCS licensees in each market does not address the rationale behind the sunset rule, which is the sufficiency of competition in the market for cellular-like services. The existence of niches will not undermine the FCC’s goal of competition with cellular licensees. The FCC notes that any disaggregation that may occur will encourage competition and that it already noted such in an earlier unrelated report; additionally,, disaggregation agreements remain subject to the FCC’s review. Cellnet’s argument on this issue fails. As the FCC’s judgment is a predictive one, it cannot necessarily be proven by the record. It is well-established that under the arbitrary and capricious standard of review, an agency’s predictive judgments about areas that are within the agency’s field of discretion and expertise are entitled to particularly deferential review. Milk Industry Foundation v. Glickman, 132 F.3d 1467, 1478 (D.C.Cir.1998); Franklin Savings Ass’n v. Director, Office of Thrift Supervision, 934 F.2d 1127, 1147-48 (10th Cir.1991); Aeronautical Radio, Inc. v. FCC, 928 F.2d 428, 445 (D.C.Cir.1991); Western Fuels-Ill., Inc. v. Interstate Commerce Comm’n, 878 F.2d 1025, 1030 (7th Cir.1989). This deference has been explained as deriving from the fact that such judgments tend to be infused with policy considerations that are not appropriate for close judicial scrutiny. See, e.g., Natural Resources Defense Council, Inc. v. SEC, 606 F.2d 1031, 1052 (D.C.Cir.1979). While we must be particularly deferential when reviewing such predictive judgments, such judgments are of course not unimpeachable. International Ladies’ Garment Workers’ Union v. Donovan, 722 F.2d 795, 821 (D.C.Cir.1983). An agency must still engage in reasoned decision-making, although predictive judgments may often involve “dramatic departures from longstanding policy.” Id. at 822. The petitioner has a fundamental misconception as the premise for its challenge. The FCC did not adopt its resale policy for the purpose of ensuring the availability of resale. It adopted the policy as a means to achieve competition; Cellnet has confused the means and ends the FCC had in mind. The question of whether lifting the resale prohibition would offer the public the benefits of competition implicates the FCC’s expertise. The agency’s predictive judgment on this point is certainly not arbitrary or capricious given the accepted fact that broadband PCS will offer wireless services competitive with cellular services and that five years is the standard build-out time period for broadband PCS licensees, see 47 C.F.R. § 24.203 (requiring PCS licensees to build out networks within five years of being licensed). See, e.g., Western Fuels, 878 F.2d at 1030 (noting that predictions about price disclosure are within ICC’s area of expertise and accordingly giving due deference to its predictive judgment regarding such); Natural Resources Defense Council, 606 F.2d at 1052 (identifying as within the SEC’s area of expertise the probable burden on corporations of complying with proposed rules and the likelihood that a proposed disclosure rule would produce particular corporate policies and noting court’s deference for agency’s deductions in these areas). Because five years is the required build-out time frame, the FCC expects that cellular carriers will not possess sufficient market power at that time to enable them to impose unreasonable restrictions on resale and stifle the competition of resellers. If the FCC’s predictions about the level of competition do not materialize, then it will of course need to reconsider its sunsetting provision in accordance with its continuing obligation to practice reasoned decision-making. See, e.g., Aeronautical Radio, 928 F.2d at 445 (noting such a possibility of reconsideration in context of declining to set aside a FCC rule based on a predictive judgment).