10th Circuit Denies Qwest's Challenge to FCC's Denial of Forbearance

August 6, 2012. The U.S. Court of Appeals (10thCir) issued its opinion [43 pages in PDF] in Qwest v. FCC, denying Qwest's petition for review of a Federal Communications Commission (FCC) order denying a request for forbearance under 47 U.S.C. § 160.

The order under review is the FCC's Memorandum Opinion and Order (MOO) [67 pages in PDF], adopted on June 15, 2010, and released on June 22, 2010. It is FCC 10-113 in WC Docket No. 09-135.

The FCC denied Qwest's petition for forbearance from applying certain dominant carrier regulations imposed on incumbent local exchange carriers (ILECs) and certain statutory requirements that require ILECs to unbundle network elements. Qwest's petition pertains to mass market retail services in the Phoenix MSA.

The FCC's denial was based upon a market power analysis adopted by this MOO. Moreover, this analysis included the questionable conclusion that wireless service providers were not in competition with Qwest's wireline voice services.

Qwest was subsequently acquired by CenturyLink. And, back in 2000, Qwest merged with US West, one of the regional Bell operating companies created by the breakup of AT&T in 1984.

The Commission divided, with the two Republicans merely concurring, arguing that the MOO sets too high a standard. See, story titled "FCC Denies Qwest's Petition for Forbearance in Phoenix" in TLJ Daily E-Mail Alert No. 2,100, June 23, 2010.

Section 10 of the Communications Act, which is codified at 47 U.S.C. § 160(c), provides in part that "Any telecommunications carrier, or class of telecommunications carriers, may submit a petition to the Commission requesting that the Commission exercise the authority granted under this section with respect to that carrier or those carriers, or any service offered by that carrier or carriers. ..."

Subsection 160(a) provides that "the Commission shall forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service, or class of telecommunications carriers or telecommunications services, in any or some of its or their geographic markets, if the Commission determines that -- (1) enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory; (2) enforcement of such regulation or provision is not necessary for the protection of consumers; and (3) forbearance from applying such provision or regulation is consistent with the public interest."

In the 2010 order under review the FCC replaced its previous forbearance analysis with a traditional market power framework. The Court of Appeals wrote that the FCC argued that "a market-power analysis begins by delineating the relevant product and geographic markets and identifying market participants, then examines market-share data, and finally considers whether the potential for competitive market entry is sufficient to constrain an incumbent carrier’s ability to maintain prices above competitive levels."

Applying this, the FCC defined the relevant product market for Qwest's mass market retail services by excluding wireless services. It concluded that other services providers' wireless voice services do not have a material price constraining effect on Qwest's wireline voice services.

Then, after excluding wireless services from its analysis, the FCC concluded that the market is concentrated in two dominant providers, and that forbearance would therefore not be in the public interest.

Qwest argued first, that the forbearance section requires the FCC to make affirmative findings on the substantive prerequisites for granting forbearance, and that it made no such affirmative findings, so that the forbearance request should be deemed granted, and second, that the FCC's decision was irrational.

The Court of Appeals rejected both arguments, concluding that the FCC's decision was both a "reasoned and reasonable decision".

FCC Chairman Julius Genachowski stated in a release after the ruling that "This is another important legal victory for the FCC, which is now winning court cases more than 90 percent of the time. Today's decision is a win for competition and smart government. I'm pleased that the court affirmed the FCC’s ruling establishing a sound and data-driven framework for considering forbearance petitions. Competition drives innovation and investment, and benefits all telecommunications consumers -- individuals as well as businesses of all sizes."