Opinion ID: 185358
Heading Depth: 3
Heading Rank: 1

Heading: Collocation

Text: 33 Under the Pricing Flexibility Order, LECs are eligible for regulatory relief upon a showing that there is sufficient collocation by one or more competitors. In this fashion, the FCC uses investment in collocation as a proxy for competition in access service. Petitioners contend that this is arbitrary and capricious because collocation is not a sufficient measure of actual market competition. Therefore, petitioners argue, the FCC can offer no assurance that LECs will continue to offer just and reasonable rates once they are granted pricing flexibility. To petitioners, the regulatory relief provided for by the FCC's Order is tantamount to foregoing dominant carrier regulation altogether, and can only be justified upon a finding of actual competition. 34 It may well be that collocation is a poor measure of market share, as petitioners attest. That competing firms have invested in collocation does not mean that they have captured a significant portion of the market for access services. Yet the FCC did not conclude that a loss of market share was necessary to prevent an incumbent LEC from raising prices. The FCC has long held that market share is not the be-all, end-all of competition. See AT&T Corp. v. FCC, 236 F.3d 729, 736 (D.C. Cir. 2001) (the FCC has never viewed market share as an essential factor in evaluating market competition) (emphasis in original). It is merely one of several relevant factors considered when making a market power determination. For example, in Motion of AT&T Corp. to Be Declared Non-Dominant for International Service, 11 F.C.C.R. 17,963, 17,976 p 34 (1996), the FCC wrote that 35 market shares, by themselves, are not the sole determining factor of whether a firm possesses market power. Other factors, such as demand and supply elasticities, conditions of entry and other market conditions must be examined to define a relevant market, and determine whether a particular firm can exercise market power in the relevant market. 36 The FCC is free to change this policy so long as it provides an adequate explanation for the shift, AT&T, at 737, but it has not done so. 37 As the FCC noted in its Order, the presence of substantial sunk investment, and the resulting potential for entry into the market, can limit anticompetitive behavior by LECs. Specifically, the FCC found that: 38 Once multiple rivals have entered the market and cannot be driven out, rules to prevent exclusionary pricing behavior are no longer necessary. Investment in facilities, particularly those that cannot be used for another purpose, is an important indicator of such irreversible entry. If a competitive LEC has made a substantial sunk investment in equipment, that equipment remains available and capable of providing service in competition with the incumbent, even if the incumbent succeeds in driving that competitor from the market. 39 Order p 80. Even if a rival LEC is unsuccessful at challenging an incumbent, the presence of facilities-based competition with significant sunk investment makes exclusionary pricing behavior costly and highly unlikely to succeed. Id. Collocation, in the FCC's expert view, is a reliable indication of sunk investment by competitors. Id. p 81. Therefore, collocation can reasonably serve as a measure of competition in a given market and predictor of competitive constraints upon future LEC behavior. 40 Whatever its faults as a measure of competition, the FCC found collocation to be superior to the various alternatives proposed by petitioners during the notice and comment period. See id. p p 84, 104. Petitioners, for their part, offer no alternative save a painstaking analysis of market conditions such as that which is required when an LEC seeks classification as a non-dominant carrier or the forbearance of dominant carrier regulation under Section 10 of the Communications Act. See, e.g., AT&T Corp. v. FCC, No. 99-1535 (D.C. Cir. Jan. 23, 2001). The FCC determined that this would be burdensome and time-consuming--a point which petitioners do not contest--and thus not appropriate in all cases. It therefore sought an alternative for the purpose of providing pricing flexibility, in addition to the statutory procedure under Section 10, 47 U.S.C. § 160, which remains a viable and independent means for carriers to seek regulatory relief. AT&T, 236 F.3d at 737. 41 That the FCC chose to rely upon an admittedly imperfect measure of competition does not render its use arbitrary and capricious. Nat'l Ass'n of Regulatory Util. Comm'rs v. FCC, 737 F.2d 1095, 1116 (D.C. Cir. 1984) (NARUC). Nor is the FCC's decision to make ease of administration and enforce ability a consideration in setting its standard for regulatory relief. So long as the FCC's proxy is reasonable, as it is here, we have no basis upon which to require the FCC to engage in a more searching analysis of competition before granting pricing flexibility. Cf. United States v. FCC, 652 F.2d 72, 90-91 (D.C. Cir. 1980) (en banc) (Someone must decide when enough data is enough. In the first instance that decision must be made by the Commission.... To allow others to force the Commission to conduct further evidentiary inquiry would be to arm interested parties with a potent instrument for delay.). 42 Petitioners emphasize the FCC's concession that the pricing flexibility contained in the Order could if granted prematurely ... enable price cap LECs to (1) exclude new entrants from their markets, or (2) increase rates to unreasonable levels. Order p 68. Petitioners contend it is reversible error for the FCC to fail to show that its new regulations will result in just and reasonable rates for consumers. See Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1510 (D.C. Cir. 1984). 43 The FCC readily admits that its decision to adopt the thresholds contained in the Pricing Flexibility Order was dependent, at least in part, on the agency's predictive forecasts. Despite their inherent uncertainty, there is little question that agency prognostications of this sort may be used in the formulation of policy; 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. Envtl Action, Inc. v. FERC, 939 F.2d 1057, 1064 (D.C. Cir. 1991). There is no statutory requirement that the FCC be confident to a metaphysical certainty of its predictions about the future of competition in a given market before it may modify its regulatory scheme. 44 Petitioners also contend that the FCC's reliance upon a proxy for competition is arbitrary and capricious because it is contrary to Commission precedent. Petitioners argue that since the Pricing Flexibility Order would grant incumbent LECs much of the relief afforded to carriers that are declared non-dominant, the FCC should be precluded from granting such relief without engaging in the sort of competition analysis it conducted when considering whether to declare a carrier non-dominant. We do not agree. 45 The Commission readily admits it made different findings when declaring AT&T to be non-dominant, as petitioners claim. See Motion of AT&T Corp. to Be Reclassified as a Non-Dominant Carrier, 11 F.C.C.R. 3271 (1995). However, the Pricing Flexibility Order expressly does not grant incumbent LECs all the regulatory relief ... afford[ed] to nondominant carriers. Order p 151. Even those LECs which receive Phase II relief must still file tariffs. This is not insignificant; tariff filing is the centerpiece of ... common carrier regulation. Southwestern Bell Tel. Co. v. FCC, 19 F.3d 1475, 1479 (D.C. Cir. 1994). Therefore, the fact that the FCC did not engage in the thorough competition analysis common in non-dominance proceedings does not render the FCC's action arbitrary and capricious. 46 Petitioners' appeal to other FCC precedent is equally unavailing. For instance, petitioners note that in the UNE Remand Order, the FCC preferred actual measures of competition to a bright-line test in determining when to relieve LECs of specific regulatory burdens. In re Implementation of the Local Competition Provisions of the Telecomms. Act of 1996, 15 F.C.C.R. 3696 (1999). However, this proceeding concerned the conditions upon which local service providers are given access to unbundled transport in the first place, not whether deregulatory measures are warranted once competitive providers have used such access to gain a foothold in a given market. 47 There is no rule against agencies adopting new policy positions. Everyone agrees that an agency's change of mind does not itself render the agency's action arbitrary. Bell Atl., 79 F.3d at 1202. Rather [w]hat matters is the Commission's explanation. Id. Agencies are not bound to the service of any single regulatory formula; they are permitted, unless their statutory authority otherwise plainly indicates, to make pragmatic adjustments which may be called for by particular circumstances. Permian Basin Area Rate Cases, 390 U.S. 747, 776-77 (1968) (internal quotation omitted). Here, the Commission determined that there was reason to modify the regulatory requirements imposed upon LEC provision of access services and, unlike in its consideration of US West's forbearance petition, thoroughly explained why the Commission found it appropriate to grant incumbent LECs relief from existing regulations upon certain competitive showings. See AT&T Corp. v. FCC, No. 99-1535 (D.C. Cir. Jan. 23, 2001) (remanding FCC denial of forebearance petition for failure to adequately explain departure from FCC precedent). 48 More broadly, the FCC contends that the Order should not be viewed in isolation, but rather as an additional step along the road of greater deregulation and pricing flexibility in the interstate access market. See, e.g, Order p 67. Beginning in 1990, the FCC has taken several steps to encourage innovation, cost-reduction, and greater efficiency by reducing regulatory strictures in favor of market discipline. See, e.g., id. p p 11-18 (summarizing replacement of rate-of-return regulation with price-cap regulation and subsequent developments). Much as the FCC decided that replacing rate-of-return regulation with price cap regulation furthered the public interest, it has now determined that relaxing price cap regulation, when certain levels of collocation have been achieved, furthers its statutory mandate and promotes the public interest. Petitioners fail to show how this conclusion is arbitrary and capricious or otherwise contrary to law.