Before the Federal Communications Commission Washington, D.C ) ) ) ) ) ) ) ) ) ) COMMENTS OF AT&T INC.

Transcription

1 Before the Federal Communications Commission Washington, D.C In the Matter of Special Access for Price Cap Local Exchange Carriers AT&T Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services ) ) ) ) ) ) ) ) ) ) WC Docket No RM COMMENTS OF AT&T INC. David L. Lawson James P. Young C. Frederick Beckner III Christopher T. Shenk Sidley Austin LLP 1501 K Street, N.W. Washington, D.C (202) Robert C. Barber Gary L. Phillips Peggy Garber AT&T Services, Inc th Street, N.W. Washington, D.C (202) Attorneys for AT&T Inc. April 16, 2013

2 TABLE OF CONTENTS INTRODUCTION AND SUMMARY...1 ARGUMENT...9 I. THE REGULATION PETITIONERS SEEK MAY BE IMPOSED ONLY IN A NEW RULEMAKING, AND PETITIONERS HAVE NOT MADE THE SHOWINGS THAT ARE LEGALLY REQUIRED TO INITIATE SUCH A RULEMAKING....9 II. THE PETITION FAILS TO ESTABLISH ANY LEGITIMATE BASIS FOR EXPENDING SCARCE COMMISSION RESOURCES TO RE-VISIT THE FINDINGS IN THE 2007 AT&T FORBEARANCE ORDER A. The Commission s Judgments In 2007 Were Correct And Petitioners Provide No Legitimate Factual Basis For Initiating A New Rulemaking B. Petitioners Traditional Market Power Framework Is Contrary To Sound Economics And Excludes Highly Relevant Sources Of Competition For Packet- Switched Broadband And Optical Transmission Services Petitioners Jury-Rigged Product Markets Should Be Rejected Petitioners Attempts To Exclude Significant Sources Of Competition Within The Relevant Market Should Be Rejected Petitioners Claims That They Cannot Compete On The Merits Should Be Rejected Petitioners Geographic Market Arguments Foreclose The Relief They Seek CONCLUSION...49 ii

3 Before the Federal Communications Commission Washington, D.C In the Matter of Special Access for Price Cap Local Exchange Carriers AT&T Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services ) ) ) ) ) ) ) ) ) ) WC Docket No RM COMMENTS OF AT&T INC. Pursuant to the Commission s Notice, 1 AT&T Inc. ( AT&T ), on behalf of itself and its affiliates, respectfully submits these comments in opposition to the Petition of Ad Hoc Telecommunications Users Committee, et al., to Reverse Forbearance from Dominant Carrier Regulation of Incumbent LECs Non-TDM-based Special Access Services. 2 INTRODUCTION AND SUMMARY Six years ago, the Commission correctly recognized that the enterprise marketplace for broadband optical and packet-switched services had become so intensely competitive that monopoly-era regulation of the services that ILECs provided in that marketplace was no longer required. As the Commission found, there are a myriad of providers prepared to make 1 FCC, Public Notice, Wireline Competition Bureau Seeks Comment on Petition to Reverse Forbearance From Dominant Carrier Regulations of Incumbent LECs Non-TDM-Based Special Access Services, 28 FCC Rcd (rel. Feb. 15, 2013) ( Notice ). 2 Petition of Ad Hoc Telecommunications Users Committee, BT Americas, CBeyond, Computer & Communications Industry Association, Earthlink, Megapath, Sprint Nextel, and tw telecom to Reverse Forbearance from Dominant Carrier Regulation Of Incumbent LECs Non-TDM-based Special Access Services, Docket No , RM (Nov. 2, 2012) ( Petition ).

4 competitive offers to enterprise customers demanding packet-switched data services located both within and outside any given incumbent LEC s service territory, including many competitive LECs, cable companies, systems integrators, equipment vendors, and value-added resellers. 3 Given that these competitive dynamics were entrenched and irreversible, the Commission granted AT&T a carefully measured degree of forbearance. The Commission granted forbearance from dominant carrier tariff filing and cost support requirements, but it made clear that Sections 201 and 202 and the Section 208 complaint process would continue to apply. 4 Similarly, the Commission granted forbearance from its antiquated, BOC-specific Computer Inquiry rules, but it retained the non-boc Computer Inquiry requirement that AT&T offer the underlying basic transmission to enhanced service providers on a nondiscriminatory basis. 5 The Commission specifically held that the outdated, monopoly-era tariffing, cost support, and Computer Inquiry obligations that it eliminated were hindering competition and harming enterprise customers, and it found that this limited forbearance would promote the public interest by furthering the deployment of advanced services consistent with Section The D.C. Circuit affirmed. 7 The enhanced competitive choices available to enterprise customers today confirm the Commission s judgment in granting forbearance. Competition for broadband optical and 3 Memorandum Opinion and Order, 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, 22 FCC Rcd , 22 (rel. Oct. 12, 2007) ( AT&T Forbearance Order ). 4 Id Id Id. 47. Although the Commission subsequently awarded similar forbearance to other ILECs, the Commission s forbearance decisions still leave AT&T and the other ILECs on an unequal competitive footing with Verizon, which was awarded complete forbearance from all common carrier regulation. See Sprint Nextel Corp. v. FCC, 508 F.3d 1129, 1132 (D.C. Cir. 2007). 7 Ad Hoc Telecomms. Users Comm. v. FCC, 572 F.3d 903 (D.C. Cir. 2009). 2

5 Ethernet services has greatly intensified in the ensuing six years, just as the Commission anticipated. Non-ILEC competitors now control more than half of the Ethernet marketplace, and the share of Ethernet services provided by ILECs continues to fall. ILEC and non-ilec competitors alike have invested billions of dollars to deploy state-of-the-art broadband networks, confirming the Commission s conclusion that forbearance would promote the paramount federal policy of fostering deployment of advanced services. Indeed, these intensely competitive packetbased services represent the epicenter of the broadband investment that the Commission s national broadband polices seek to promote. In the face of this unqualified regulatory success story, a group led by several broadband CLECs suddenly demand a redo. Largely repackaging arguments that both the Commission and the D.C. Circuit have already properly rejected, these petitioners ask the Commission to do something it has never previously done reverse its grants of forbearance and relitigate AT&T s 2006 petition under a form of traditional market power framework that they contend the Commission subsequently adopted in its non-broadband Phoenix Forbearance Order. The Commission should reject this effort. Indeed, even apart from the fact that the Petition is essentially a stale request for reconsideration of fully litigated and reviewed Commission decisions that are now six years (or more) old, it suffers from three fundamental and fatal flaws: (1) even if Section 10 contemplated a reverse forbearance, the Commission could impose the new rate and other regulations that the CLECs propose only through a new rulemaking under the Administrative Procedure Act ( APA ) initiated by a notice of proposed rulemaking; (2) the petition does not remotely establish that there is any market failure in today s optical transmission and packet-based services marketplace that would justify the new regulation; and 3

6 (3) even if the Phoenix Forbearance Order were relevant, the Commission has never adopted Petitioners distorted and jury-rigged market power test. First, the CLECs petition is, at best, merely a request to start a new rulemaking proceeding. Section 10 by its terms does not contemplate a petition to reverse forbearance. The deregulatory policy underlying the statute shows that statutory forbearance is not intended to be an on/off switch that can be flipped on in 2007 and back off in Once the Commission grants forbearance, Section 10 no longer applies. But even if Section 10 somehow could be stretched beyond its plain language and underlying Congressional intent to encompass a reverse forbearance proceeding, it would not suffice here, as the CLECs seek entirely new regulation that the Commission can impose only by using its general regulatory authority under Section 201 and the APA. Under the correct standard, the proponents of regulation bear the burden of showing, on today s facts, that there is a market failure that requires regulatory intervention. 8 The Petition does not grapple with any of these legal requirements. For example, Petitioners request for rate regulation of these broadband services ignores the fact that AT&T already had Phase II pricing flexibility for these same services in many areas when it petitioned for forbearance in Accordingly, reversing forbearance could not under any theory bring back rate regulation for such services. Equally important, even for the services that were under price caps in 2006, re-establishing such caps would require a major rate case to determine just and reasonable cap levels in As AT&T has previously explained, Section 205 would require specific findings, on a substantial record, both that AT&T s current rates are not just and 8 See, e.g., Cellco P ship v. FCC, 357 F.3d 88, 96 (D.C. Cir. 2004) (Commission may adopt regulations only upon finding that they advance a legitimate regulatory objective ). 4

7 reasonable and that the new regulated rates are just and reasonable. 9 The Petition offers zero guidance as to how the Commission might actually fashion new rate regulation for these services, at what levels it would set the regulated rates, or how it could lawfully or practically undo the individually negotiated commercial contracts under which these services have been provided to customers for years. In addition, the Petition does not even attempt to explain why the Commission should reverse its decision to eliminate tariffing, cost support and BOC-specific Computer Inquiry requirements. Given that the APA would require the Commission to issue a notice with a concrete proposal for new regulations in these circumstances, 10 the Petition falls far short of providing the sort of showing and detailed proposals that could support even a lawful notice of proposed rulemaking. Second, Petitioners do not make any serious attempt to show a market failure justifying the re-imposition of rate regulation or legacy tariffing, cost support and BOC-specific Computer Inquiries requirements. That is undoubtedly because any such attempt would be frivolous. The Petitioners cannot seriously be contending that AT&T has market power over OCn-level optical transmission services; even at the height of the unbundled network element era, no one disputed that such facilities (including OCn loops) are inherently conducive to competitive supply. 11 Nor is there any conceivable basis for reinstating dominant carrier regulation of legacy 9 See, e.g., AT&T v. FCC, 487 F.2d 865, (2d Cir. 1973) (a full opportunity for hearing and express Commission findings that the carrier-initiated rate is unjust and unreasonable and the prescribed rate is just and reasonable are essential to any exercise by the Commission of its authority to prescribe rates). 10 Prometheus Radio Project v. FCC, 652 F.3d 431, 449 (3d Cir. 2011). 11 Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 18 FCC Rcd , 316 (rel. Aug. 21, 2003) ( Triennial Review Order ). 5

8 ATM and Frame Relay services that are being phased out and have already been eclipsed by Ethernet services. That leaves Ethernet services. But Ethernet services are one of the most hotly competitive sectors in the entire telecommunications industry. These are next generation services, which have become popular among business and enterprise customers only during the past decade. There are no incumbent Ethernet providers. Rather, all providers have developed and deployed these services from scratch. As a result, there is intense competition among myriad alternative providers of Ethernet services today throughout the country. More than 60 providers offer retail Business Ethernet Services in the United States, 12 and no provider has a port share that exceeds one-quarter of the market. There are eight providers with shares that exceed four percent, including three ILECs, three CLECs, and two of the nation s largest cable companies. 13 Since 2005, ILEC Ethernet retail port shares among U.S. providers decreased by more than 20 percent; at the same time, cable companies and CLECs both increased their shares. Indeed, the largest cable companies alone tripled their share in that timeframe Vertical Systems Group ENS Research Program See also Frost & Sullivan, Analysis of the U.S. Retail Carrier Ethernet Services Market, 2012: Revenue Growth Surges as Carrier Ethernet Crosses the Chasm, at 42 (November 2012) ( Frost & Sullivan 2012 Ethernet Report ). 13 Vertical Systems Group s 2012 U.S. Business Ethernet Leaderboard ( Vertical Systems Group 2012 Ethernet Leaderboard Results ). Vertical Systems Group makes its Ethernet Port Share proprietary report available to its subscribers. A public version of the results is available at Vertical Systems Group s website. See 2012 U.S. Business Ethernet LEADERBOARD, Ethernet port base grew 24% in 2012; Ethernet access to IP VPNs and Cloud connectivity were the fastest growing applications, Vertical Systems Group Press Release (Jan. 29, 2013), available at See also 2012 U.S. Competitive Provider Business Ethernet Leaderboard: tw telecom, Level 3, XO, Cogent, Zayo, Reliance Globalcom and Integra Telecom ranked on new Competitive Provider Leaderboard, Vertical Systems Group Press Release (Feb. 27, 2013), available at YE_2012_US_CompetitiveProvider_Leaderboard.html ( Vertical Systems Group 2012 Press Release ). 14 Vertical Systems Group, Year End Ethernet Port Share Reports

9 It is hardly surprising, therefore, that Petitioner s competitive showing as to the need for regulation of Ethernet services consists of nearly decade-old statistics for non-ethernet services (i.e., TDM-based special access services). Obviously, even if these data were accurate, they say nothing about competition for Ethernet services in The contention that the Commission should devote its scarce resources to a new rulemaking proceeding to re-impose monopoly-era rate regulations on such services is, frankly, absurd. Third, rather than address the Commission s findings and the overwhelming evidence of robust broadband competition, Petitioners erroneously assert that the AT&T Forbearance Order must be reexamined because it failed to apply the traditional market power framework that the Commission supposedly used in the Phoenix Forbearance Order. 15 In fact, the Commission held in the Phoenix Forbearance Order that a different analysis may apply when the Commission addresses advanced services, like broadband services, instead of a petition addressing legacy [TDM] facilities, such as Qwest s petition in this [Phoenix] proceeding. 16 The Commission explained that [f]or 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. 17 And the D.C. 15 Petition at 2-3, Memorandum Opinion and Order, Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. 160(c) in the Phoenix, Arizona Metropolitan Statistical Area, 25 FCC Rcd. 8622, 39 (rel. June 22, 2010) ( Phoenix Forbearance Order ); see also id. Concurring Statement of Commissioner Baker at Phoenix Forbearance Order 39 & n.132; see also id. 41 ( We recognize, as the D.C. Circuit has held, that [o]n its face section 10 imposes no particular mode of market analysis or level of geographic rigor, but rather allow[s] the forbearance analysis to vary depending on the circumstances, quoting Earthlink Inc. v. FCC, 462 F.3d 1, 8 (D.C. Cir. 2006)). 7

10 Circuit upheld the approach used by the Commission in the AT&T Forbearance Order, which was the same approach used in all prior Commission decisions addressing broadband services. 18 In any event, the traditional market power framework Petitioners envision is nothing of the sort. It is a jury-rigged analysis that excludes virtually all competitors e.g., the cable companies, fixed wireless providers, systems integrators, resellers, and all competitive provision of Ethernet services that relies in part on transmission inputs purchased from other providers from the retail marketplace. But, even then, Petitioners recognize that the data would still show no market failure in the retail marketplace, because ILECs compete against each other nationwide, and some of the largest Ethernet providers are CLECs. So Petitioners backup argument is that the Commission should consider only wholesale offerings. That is nonsense. Wholesale regulation is merely a means of securing retail competition. If there already is effective retail competition from multiple providers as is the case here then there is no legitimate basis to enact regulations governing wholesale services. As the Commission has explained, the purpose of competition policy is to protect competition, not competitors, and the Petitioners offer no basis for deviating from that purpose here. 19 Finally, turning back the clock in the way Petitioners advocate would have profound and negative consequences for deployment of next generation broadband networks, in direct contravention of Section 706. The onerous rate regulation that the Petitioners would have the Commission adopt for modern broadband services would undermine ILEC incentives to invest in broadband facilities. At the same time, the mandated availability of wholesale broadband 18 Ad Hoc, 572 F.3d at Order and Authorization, Application of Alascom, Inc. AT&T Corporation and Pacific Telecom, Inc. For Transfer of Control of ALASCOM, Inc. from Pacific Telecom, Inc. to AT&T Corporation, 11 FCC Rcd. 732, 56 (rel. Aug. 2, 1995); see also Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (purpose of antitrust laws is for the protection of competition not competitors ) (internal quotation marks omitted). 8

11 access at regulated prices, terms and conditions could only reduce incentives of CLECs and other entrants to build their own competing networks. The Commission has repeatedly recognized these considerations in the past in eliminating unnecessary dominant carrier regulation, and reversing course now in the face of undisputed evidence of ongoing broadband investment and competition would be the paradigm of arbitrary agency action. ARGUMENT I. THE REGULATION PETITIONERS SEEK MAY BE IMPOSED ONLY IN A NEW RULEMAKING, AND PETITIONERS HAVE NOT MADE THE SHOWINGS THAT ARE LEGALLY REQUIRED TO INITIATE SUCH A RULEMAKING. Petitioners misapprehend the legal framework for revisiting the Commission s 2007 forbearance decision, and they make no real attempt to comply with the correct standard. They assert that the Commission can reverse its forbearance decision and subject AT&T to a robust dominant carrier regulatory regime, including new, detailed pricing and quality-of-service regulations, 20 without engaging in formal rulemaking. Thus, Petitioners have styled their pleading as a kind of mirror-image reverse forbearance petition, arguing that the Commission must overturn its six-year-old decision if any of the Section 10 criteria that justified forbearance in the first place is no longer satisfied. 21 Although no Commission action is ever chiseled in marble, 22 the fact that the Commission can revisit its forbearance decision says nothing about how it must do so. 23 In this case, even if petitioners substantive claims had any merit and they 20 Petition at Id. at Id. at Notably, the Commission never has reversed a forbearance determination. Austin Schlick, General Counsel, FCC, A Third-Way Legal Framework for Addressing the Comcast Dilemma, at 9 (May 6, 2010), available at A1.pdf ( Schlick Statement ) ( The difficulty of overcoming section 10 s deregulatory 9

12 do not the Commission cannot impose the new pricing regulations that petitioners seek without satisfying the rulemaking standards of the Communications Act and Administrative Procedure Act ( APA ). First, Section 10 does not contemplate petitions to reverse an earlier forbearance order. The plain terms of Section 10 provide only for an affirmative petition asking the Commission to exercise its forbearance authority, and it spells out the substantive standards and procedural requirements that govern such petitions. Section 10 makes no mention of any other type of petition, such as a petition to reverse forbearance. 24 Congress designed Section 10 forbearance this way to prevent lingering regulatory uncertainty over forbearance decisions, because such uncertainty would wreak havoc on industry investment in broadband networks and innovation. 25 Forbearance thus is not an on/off switch that may be flipped on and off again willy-nilly based solely on showings relating to the three forbearance criteria listed in Section 10(a). Once forbearance has been granted, the only statutory mechanism for imposing new regulation and mandate and a prior agency finding in favor of forbearance is illustrated by the fact that the FCC has never reversed a forbearance determination made under section 10, nor one made for wireless under the similar criteria of section 332(c)(1) ). 24 Compare 47 U.S.C. 271(d)(6) (expressly providing for suspension or revocation of BOC interlata authority upon a showing that the original conditions for such authority are no longer met). 25 Congress has repeatedly underscored the Commission s duty to rely first on market forces to promote the deployment of advanced services to all Americans. In the preamble to the 1996 Act, Congress explained that the Act s overarching purpose is [t]o 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. Preamble to the Telecommunications Act of 1996, Pub. L. No , 110 Stat. 56 ( 1996 Act ) (emphasis added). In section 706 of the 1996 Act, Congress further directed the Commission to encourage the deployment on a reasonable and timely basis of advanced telecommunications capability by adopting a policy of regulatory forbearance and other measures to remove barriers to infrastructure investment. 47 U.S.C. 1302(a) (emphasis added). 10

13 especially the new regulation proposed by the Petitioners is through the Commission s general rulemaking and other regulatory authority under Section 201(b) and the APA. 26 The legal framework for revisiting forbearance is therefore very different from Petitioners conception. But regardless whether Section 10 could be stretched to encompass the concept of reverse forbearance, it could not support the imposition of the specific regulations Petitioners seek. That would clearly require a rulemaking. In contrast to AT&T s original forbearance petition, in which AT&T bore the burden of showing that the Section 10 criteria had been satisfied, Petitioners now bear the burden of demonstrating that regulatory intervention is affirmatively necessary. Moreover, any such regulatory intervention here would have to take the form of a rulemaking; Petitioners themselves ask the Commission to adopt pricing regulations to be implemented in tariffs, 27 which would necessarily require a rulemaking given that no such pricing regulations establishing price caps for these services currently exist (or have existed for years) Petitioners version of reverse forbearance is also inconsistent with Section 10 s deemed granted provision. The deemed granted provision could be rendered a nullity if the next day the Commission could simply reverse the grant of forbearance. 27 Petition at 59 & n.200 (emphasis added); see also id. ( the Commission should adopt regulations that are appropriately tailored to prevent incumbent LECs from exploiting their dominance... [t]hose regulations should be similar to those that the Commission applies to those TDM-based special access services for which the Commission concludes that incumbent LECs have market power ) (emphasis added); id. at 8 ( the Commission should establish regulations that limit the incumbent LECs ability to act on their incentives to harm consumers.... ; [t]he Commission should then establish pricing regulations (to be implemented via tariffs) and service quality regulations for incumbent LEC non-tdm-based special access services ). 28 Compare with Order and Notice of Proposed Rulemaking, Special Access for Price Cap Local Exchange Carriers, 20 FCC Rcd. 1994, 130 (rel. Jan. 31, 2005) ( we find the record inadequate for prescribing new special access rates pursuant to section 205 of the Communications Act ). In that regard, neither the still-pending Notice of Proposed Rulemaking in this proceeding nor the recently issued Further Notice of Proposed Rulemaking, satisfy Petitioners burden. As the Commission recently noted, the scope of services affected by its original NPRM was narrowed considerably by the forbearance orders that Petitioners seek to reverse. Report and Order and Further Notice of Proposed Rulemaking, Special Access for Price 11

14 But to invoke the Commission s authority to regulate competition and to impose new rate regulation under Sections 201 and 202, Petitioners must clearly demonstrate that there is a market failure that requires a regulatory solution. 29 And were the Commission to re-impose any regulation from which it previously granted forbearance, it must support such regulation with substantial evidence relating to current marketplace conditions. 30 Only clear and substantial record evidence of market failure and harm flowing from the forbearance grant could warrant contemplating such a reversal. 31 Moreover, the Commission must tailor the regulation to the problem it has identified, 32 and the resulting regulation must not be contrary to law Cap Local Exchange Carriers, 27 FCC Rcd , 9 (rel. Dec. 18, 2012) ( Further NPRM ). As such, the regulations that the Petitioners seek are not encompassed within the anticipated data collection effort and subsequent market analysis that the Commission announced in its December order. Indeed, nothing in that Order even suggests that the Commission was entertaining the notion of reversing its forbearance orders. The Petition itself earned only one brief mention in the Order, and that was a footnote citation in a discussion of whether to include best efforts broadband Internet services within the data collection effort. Id., 17 and n See, e.g., Tentative Decision and Request for Further Comments, Amendment of 47 CFR (j)(1)(i) and (ii), the Syndication and Financial Interest Rules, 94 FCC 2d 1019, 107 (rel. Aug. 12, 1983) (acknowledging that the Commission should not intervene in the market except where there is evidence of a market failure and a regulatory solution is available that is likely to improve the net welfare of the consuming public, i.e., does not impose greater costs than the evil it is intended to remedy ); Memorandum Opinion and Order, Orloff v. Vodafone Airtouch Licenses LLC, 17 FCC Rcd. 8987, 22 n.69 (rel. May 16, 2002) (absent a marketplace failure the Commission generally rel[ies] on market forces, rather than regulation ); Second Report and Order, Implementation of Sections 3(n) and 332 of the Communications Act, 9 FCC Rcd. 1411, 173 (rel. Mar. 7, 1994) ( [I]n a competitive market, market forces are generally sufficient to ensure the lawfulness of... terms and conditions of service by carriers who lack market power ); Cellco P ship, 357 F.3d at 96 (the Commission may adopt regulations only upon finding that they advance a legitimate regulatory objective ). 30 Comcast Corp. v. FCC, 579 F.3d 1, 6 (D.C. Cir. 2009); see also Seattle Audubon Soc. v. Espy, 998 F.2d 699, (9th Cir. 1993) (agency cannot rely on stale evidence). 31 Schlick Statement at 9 ( In order to overturn a grant of forbearance, the Commission would first have to compile substantial record evidence that the circumstances it previously identified as supporting forbearance had changed, and then survive judicial review under the Administrative Procedure Act s arbitrary-and-capricious standard. ). 32 Motor Vehicles Mfrs. Ass n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (an agency must examine the relevant data and articulate a satisfactory explanation for its action 12

15 particularly, in this case, Section 706, which requires the Commission to promote investment in advanced services and broadband networks. 33 Accordingly, the entire basis of Petitioners request is misguided. Petitioners apparently want to re-litigate the original forbearance petition, but under a different forbearance standard (i.e., what Petitioners call the traditional market power framework they say was used in the Commission s subsequent Phoenix Forbearance Order). The Petition reads exactly like a petition for reconsideration albeit one filed more than six years too late. Petitioners even rely frequently on passages from the Phoenix Forbearance Order that apply an evidentiary standard to the party asking for forbearance, as if AT&T still has the burden of showing that the Section 10 standards have been met years after the forbearance order was issued and was upheld by the D.C. Circuit. 34 All of this is wholly improper. Section 10 does not apply to Petitioners request for new regulation, nor does the Phoenix Forbearance Order (or any other forbearance-related standard). Thus, if the Commission were inclined to expend the time and resources to address Petitioner s claims which, for the reasons discussed below, it should not it would find itself in the same position as in any other circumstance in which there is no regulation governing a particular activity it must start from scratch with a new regulatory proceeding under the APA. And the Petition must be considered as, at most, a request to initiate a new rulemaking proceeding that including a rational connection between the facts found and the choice made and agency action is arbitrary where it has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise ) (internal quotation marks omitted) Act 706 (codified at 47 U.S.C. 157 Note). 34 See, e.g., Petition at 12-14,

16 would consider new pricing regulations tailored to these optical hubbing and packet-switched services. As shown in more detail below, Petitioners have not remotely made a factual case that the Commission should initiate any such rulemaking. Equally important, however, Petitioners do not seem to have given much thought to the forbearance the Commission actually granted in the AT&T Forbearance Order or what the Commission would need to consider in imposing some or all of the regulations they seek. As a result, the notice seeking comment on the Petition does not qualify as a notice of proposed rulemaking under the APA, nor has the Petition provided enough evidence or detailed proposals to permit the Commission to issue such an NPRM any time soon. More specifically, the Petition fails to meet the threshold standards under the APA for beginning a rulemaking proceeding in three respects. First, many of the services at issue had already been granted Phase II pricing flexibility relief when AT&T filed its petition for forbearance in Accordingly, reversing the grant of forbearance would not under any theory bring back the price caps or rate regulation for such services that Petitioners seek. Indeed, the principal focus of the AT&T Forbearance Order was on forbearance from tariffing requirements along with other remnants of dominant carrier regulation such as cost support and discontinuance showings. Petitioners have also made no attempt to explain why the Commission should restore tariffing requirements for these services. As the Commission explained, these services are not one-size-fits all, and customers demand[]... innovative service arrangements tailored to each customer s individualized needs. 35 The Commission also recognized that tariffing can deter competition: tariffing allows AT&T s competitors to counter innovative product and service 35 AT&T Forbearance Order

17 offerings even before they are made available to the public. 36 Thus, the Commission found forbearance would provide substantial benefits for customers. [D]etariffing of these services will facilitate innovative integrated service offerings designed to meet changing market conditions and will increase customers ability to obtain service arrangements that are specifically tailored to their individualized needs. 37 Further, [r]elief from advanced notice requirements and cost-based pricing requirements would enable AT&T to respond quickly and creatively to competing service offers. 38 The new tariffing requirements Petitioners seek to impose thus would undermine the competitive and customer benefits that the Commission sought to promote. Second, even with respect to services that were subject to price caps at the time forbearance was granted, the Commission would have to undertake a major rate case in order to re-impose price caps or other rate-related restrictions. Petitioners themselves seem to recognize that the Commission must do more than simply reverse the forbearance order itself. Accordingly, they ask that the Commission adopt pricing regulations to be implemented in tariffs to be filed with the Commission and supported with appropriate cost data, and service quality regulation[s] that must also be implemented in incumbent LEC tariffs. 39 The Petitioners did not propose for consideration any draft regulations implementing these demands. But it is clear that any such rate and service quality regulations would require a 36 Id. 37 Id. 38 Id. The Commission also found that Phase I pricing flexibility did not already grant sufficient relief... to meet... customers needs and compete effectively. Id. 34. The Commission noted that AT&T was still limited in its ability to negotiate arrangements with customers that operate on a nationwide basis and the Commission s pricing flexibility rules still require... contract-based tariffs to be filed with specified information that is available publicly to any party, including competitors. Id. 39 Petition at 59 & n

18 full rulemaking. Under Section 205 of the Communications Act, the Commission may not subject the AT&T services at issue to detailed tariff requirements until after it conducts a hearing and (1) makes definitive findings that the existing charges or practices for these services are in violation of any provisions of this chapter and (2) determines what will be the just and reasonable charges or practices to be thereafter observed. 40 Indeed, to paraphrase the Commission s defense of its decision not to impose interim special access rate prescriptions, here the record would have to support the conclusion that every... rate [and practice for] every [non-tdm-based service for] which [forbearance] has been granted violates Section As the courts have repeatedly held, and as the Commission itself has repeatedly recognized, these statutory requirements apply to all prescriptions, whether they are permanent or interim. When the Commission lacks an adequate record to make such findings, it must leave the matter of prescription for resolution on an adequate record after further proceedings U.S.C. 205; AT&T v. FCC, 487 F.2d at (a full opportunity for hearing and express Commission findings that the carrier-initiated rate is unjust and unreasonable and the prescribed rate is just and reasonable are essential to any exercise by the Commission of its authority to prescribe rates); Sw. Bell Corp. v. FCC, 43 F.3d 1515, 1519 (D.C. Cir. 1995) (the Commission is not free to circumvent or ignore th[e] balance [created by Congress in 205]. Nor may the Commission rewrite this statutory scheme on the basis of its own conception of the equities of a particular situation ) (internal quotation marks omitted). 41 Brief for Federal Communications Commission, In re AT&T Corp., et al., No , 2004 WL , at *23 (D.C. Cir. filed Aug. 23, 2004) (emphasis in original). 42 See AT&T v. FCC, 449 F.2d 439, 451 (2d Cir. 1971) (striking down interim prescription; since record was insufficient, 205(a) required the Commission to leave the matter of prescription for resolution on an adequate record ); Memorandum Opinion and Order, American Telephone and Telegraph Company Revisions to Tariff F.C.C. No. 259, Wide Area Telecommunications Service (WATS), 86 FCC 2d 820, 88 (rel. May 20, 1981) (rejecting interim phase-in proposal, because we now have no record on which to base such a prescription. Section 205 of the Act, 47 U.S.C. 205, permits the Commission to prescribe just, fair, and reasonable charges, regulations or practices only after hearing. Since we have not yet investigated NTS costs, we are not in a position to determine whether such proposals are reasonable ). 16

19 Moreover, the Commission has previously held that even where a carrier s tariffed rates were found to be unlawful, the Commission could not simply order a rollback to earlier lawful rates in the absence of a full determination, on a new record, that the prior rates would still be just and reasonable. The Commission explained that it can only prescribe rates affirmatively found just and reasonable.... Ordering a rollback to rates which were no longer in effect would simply amount to a prescription in another guise... [which would be inappropriate here because] we cannot find any specific rate level to be just and reasonable on the basis of the present record. 43 This reasoning applies with even greater force here, where petitioners do not even purport to show that AT&T s current rates are unlawful, and where a rollback, to the extent there are even rates to rollback to, would re-instate rates that have not applied for more than six years. Third, Petitioners request that that Commission re-impose BOC-specific Computer Inquiry requirements is completely unsupported. The Commission did not forbear from all Computer Inquiry requirements, but only the BOC-specific structural separation requirements and the alternative Computer III requirements relating to comparably efficient interconnection ( CEI ) and open network architecture ( ONA ) requirements, which were especially antiquated as applied to these services. 44 The Petition is completely silent as to why the Commission should open a new rulemaking to consider re-imposition of these requirements. For all of these reasons, Petitioners have not offered what would be required for a notice of proposed rulemaking that would satisfy the APA. Among other things, the Commission s rules for promulgating new regulations require the submission of a petition that set[s] forth the 43 Memorandum Opinion and Order, American Telephone and Telegraph Company, Charges for Private Line Services Revisions of Tariff FCC Nos. 260, 264, and 266 Filed in Transmittal, 85 FCC 2d 549, & n.20 (rel. Mar. 4, 1981) ( AT&T Private Line Services Revisions ). 44 AT&T Forbearance Order 33,

20 text or substance of the proposed rule,... together with all facts, views, arguments and data deemed to support the action requested. 45 The APA also would require notice to be published in advance of a proposed rulemaking, disclosing, inter alia, the subject of the proposed rule or a description of the subjects and issues involved. 46 Here, petitioners have completely failed to set forth the text and substance of the new price and quality-of-service tariffing requirements they seek, or to provide the detailed data necessary to support such relief. Similarly, the February 15, 2013, Public Notice seeking comment on the Petition does not suffice to initiate a rulemaking on these issues. The generality and informality of petitioners requests for a robust dominant carrier regulatory regime 47 fall far short of the notice that would be required as a prerequisite to the imposition of new rules. 48 The Petition was lodged in the special access rulemaking proceeding, which is focused on entirely different services than the non-tdm based special access services that are the subject of the Petition. And the Commission s February 15, 2013, Public Notice simply states that petitioners filed a petition to reverse forbearance from dominant carrier regulation and certain Computer Inquiry requirements granted to... AT&T, then states that interested parties may file comments and reply comments. 49 AT&T thus lacks notice of the content of any of the regulations the Commission might impose on AT&T s non-tdm-based special access services. Because, as the Commission itself properly recognizes, detailed notice is required to impose or alter dominant carrier regulations, a C.F.R (c) (emphasis added). 46 AT&T Private Line Services Revisions at n.11; see also 5 U.S.C. 553(b)(3). 47 Petition at See, e.g., Sprint Corp. v. FCC, 315 F.3d 369, (D.C. Cir. 2003) (reversing Commission for adopting rules without providing adequate notice). 49 Notice at 1. 18

21 single-sentence request for comments on a petition to reverse a forbearance order cannot possibly provide adequate notice of an entirely new robust dominant carrier regulatory regime that may include price and quality-of-service tariffing requirements, structural separation requirements, and other regulatory measures, even though none of the details of any such measures has been disclosed. 50 Indeed, the D.C. Circuit has warned that an agency cannot issue broad NPRMs only to justify any final rule it might be able to devise by whimsically picking and choosing within the four corners of a lengthy notice. 51 It follows a fortiori that the Commission cannot issue a broad but detail-free notice, then justify any set of regulations it subsequently adopts on the theory that the subject of dominant carrier regulation was encompassed within the four-corners of the notice. Finally, Petitioners do not explain how the rulemaking they want would be consistent with Section 706. The services at issue in their Petition optical transmission and packet-based broadband services are among the most intensely competitive services in the entire telecommunications industry and represent the epicenter of the broadband investment the Commission s National Broadband Plan seeks to promote. All of the available evidence confirms that the Commission s forbearance is working as intended, as competitors of all types are investing to deploy start-of-the art broadband networks to provide these enterprise-level Ethernet and optical services. As the Commission has repeatedly recognized, the imposition of heavy-handed, rate-ofreturn era regulation on one set of competitors (the ILECs) would create severe disincentives to 50 See CSX Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076, 1082 (D.C. Cir. 2009) (notice inadequate where there was no way that commenters... could have anticipated which particular aspects of [the Board s] proposal [were] open for consideration. ) (internal quotation marks omitted). 51 Id. (internal quotation marks omitted) (emphasis in original). 19

22 continue investment in broadband networks and would unbalance competition for these services by arbitrarily hobbling the ILECs. 52 Quite obviously, price and other heavy-handed common carrier regulation threatens to constrain[] incentives to invest in and deploy the infrastructure needed to deliver broadband services by ILECs. 53 At the same time, mandating that AT&T and other ILECs provide competitors wholesale access to broadband networks at regulated prices will reduce incentives to deploy such facilities. As the Commission aptly summarized in refusing to unbundle broadband loops in the Triennial Review Order: First, with the certainty that their fiber optic and packet-based networks will remain free of unbundling requirements, incumbent LECs will have the opportunity to expand their deployment of these networks, enter new lines of business, and reap the rewards of delivering broadband services to the mass market.... Second, with the knowledge that incumbent LEC next-generation networks will not be available on an unbundled basis, competitive LECs will need to continue to seek innovative network access options to serve end users and to fully compete against incumbent LECs in the mass market. 54 Thus, the new regulation the Petitioners seek would not just undermine the ILECs efforts to invest and innovate, it would discourage all potential investors in broadband network platforms. 55 And both results will clearly work to the detriment of consumers. 52 AT&T Forbearance Order 48-49; Report and Order and Notice of Proposed Rulemaking, Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, 20 FCC Rcd , 45 (rel. Sept. 23, 2005) ( Wireline Broadband Internet Access Services Order ); Triennial Review Order AT&T Forbearance Order Triennial Review Order 272. The D.C. Circuit upheld the Commission s decision to decline to unbundle broadband loops based on its findings regarding the impact on investment incentives. United States Telecom Ass n v. FCC, 359 F.3d 554, (D.C. Cir. 2004) ( An unbundling requirement under these circumstances seems likely to delay infrastructure investment, with CLECs tempted to wait for ILECs to deploy [fiber loops] and ILECs fearful that CLEC access would undermine the investments potential return. ). 55 AT&T Forbearance Order 49 (emphasis added). 20

23 II. THE PETITION FAILS TO ESTABLISH ANY LEGITIMATE BASIS FOR EXPENDING SCARCE COMMISSION RESOURCES TO RE-VISIT THE FINDINGS IN THE 2007 AT&T FORBEARANCE ORDER. Petitioners have not shown that there is any marketplace failure, customer harm or other basis that would justify new regulation of any of the broadband services for which AT&T was granted forbearance in the 2007 AT&T Forbearance Order. To the contrary, the marketplace evidence confirms that the Commission s analysis in the AT&T Forbearance Order that AT&T s packet-switched and optical transmission services were subject to competition and that removing dominant carrier regulations would unleash further competition was correct. If anything, as explained below in greater detail, marketplace realities over the past six years show that the Commission greatly underestimated the extraordinary investments and growth in competition for broadband services that would occur after it granted AT&T s 2007 petition for forbearance. Rather than come to grips with this evidence, Petitioners claim that the AT&T Forbearance Order must be reexamined because it failed to apply the traditional market power framework that the Commission used in the Phoenix Forbearance Order. 56 Neither aspect of this claim is correct. The Commission expressly recognized in the Phoenix Forbearance Order that the analysis it was applying there was limited to legacy TDM services and that broader, national considerations were implicated when considering the regulatory treatment of the next-generation broadband network facilities that are at issue here. 57 Nor did the Phoenix Forbearance Order adopt Petitioners contrived framework for defining markets and assessing competition within those markets. As explained below, Petitioners framework is little more than a series of gimmicks to reach a pre-determined market power conclusion by 56 Petition at 2-3, Phoenix Forbearance Order

24 arbitrarily excluding from consideration actual, price constraining alternatives to ILEC optical and packet-based services. A. The Commission s Judgments In 2007 Were Correct And Petitioners Provide No Legitimate Factual Basis For Initiating A New Rulemaking. The marketplace for high-capacity optical and packet-switched services is extremely competitive, and Petitioners have not come close to making the sort of showing that would justify opening a new proceeding to re-impose regulations from which AT&T received forbearance. Indeed, the forbearance order that Petitioners seek to overturn was a quite modest and narrowly tailored decision that was designed to eliminate only the most burdensome and outdated rate-of-return era regulations that were hobbling competition and impeding investment. The order addressed both non-tdm-based optical networking, hubbing, and transmission services, and broadband packet-switched services like Frame Relay, ATM, and Ethernet-based services. 58 New entrants had been offering OCn, Frame Relay, and ATM services in competition with ILECs for more than a decade, and although AT&T still actively marketed Frame Relay and ATM services in 2007, Ethernet-based services offered by a wide variety of competitors were rapidly replacing those legacy services. Based on an examination of the overall competitive alternatives available... as well as the way in which they are typically offered to enterprise customers, 59 the Commission concluded (and the D.C. Circuit affirmed) that Section 10 required forbearance. 60 Consistent with a decade of precedent, the Commission examined these services on a nationwide basis AT&T Forbearance Order, Id Ad Hoc, 572 F.3d at AT&T Forbearance Order, 20-21; see also Ad Hoc, 572 F.3d at (specifically affirming the Commission s decision to analyze the marketplace on a national basis). 22