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Opinion analysis: No profit for Bells from providing access to competitors

The Court handed the FCC and smaller telecommunications companies a victory last week in Talk America, Inc. v. Michigan Bell Telephone Company, upholding the FCC’s interpretation’s of its prior orders as limiting the amount that incumbent Bell carriers can charge for access to facilities used to connect competitors to their network. 

To increase competition in the telecommunications industry, the Federal Communications Act of 1996 required AT&T and its successor Bell companies to provide competitors access to their networks.  The statute further provided that AT&T could charge only cost-based rates for this interconnection (i.e., low rates with no profit component).  Another provision required AT&T to lease network elements to its competitors  for example, actual telephone wires running from switches to the competitors customers  but also allowed it to charge market rates for those leases unless the FCC determines that doing so would impair the competitor’s ability to offer its services to its customers. 

This case involves prices for what are calledentrance facilities in simplified form, the wire that connects a competitor’s physical network to AT&T’s.  AT&T argued that because the entrance facility is a network element, it is not required to lease the wire to its competitors at cost-based rates (because the FCC has not determined that selling access at market rates would impair competition).  The FCC, siding with AT&T’s competitors, argued to the Court that its regulations treat entrance facilities as part of AT&T’s interconnection obligation, and therefore they must be provided at cost-based rates.

The Court held that the FCC’s interpretation of its own orders was entitled to deference.  In an opinion by Justice Thomas, the Court explained that the statute itself did not clearly indicate whether entrance facilities were network elements or part of the interconnection obligation.  Accordingly, it was a question open to the expert resolution of the Commission.  The Court further explained that it would accept the FCC’s explanation of its own orders, set forth in its brief to the Court, unless the interpretation is plainly erroneous or inconsistent with the regulation[s]or there is some other reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter in question.  In this case, the Court concluded that the agency’s interpretation of its prior order met that standard.

The Court was careful to leave undecided whether AT&T had any obligation to build new entrance facilities, or what rates it could charge for them if it did.  But it held that when a competitor requests access to an existing facility, AT&T may not charge market rates for that access.

Perhaps the most interesting part of the decision was Justice Scalia’s separate concurrence.  He noted that the Court has long applied the rule that an agency’s interpretation of its own regulation is entitled to deference, but he explained that he had “become increasingly doubtful of its validity.’Allowing an agency to issue an ambiguous rule, then definitively determine its meaning later in the course of litigation, Justice Scalia wrote, raises constitutional concerns.  It seems contrary to fundamental principles of separation of powers to permit the person who promulgates a law to interpret it as well. Moreover,deferring to an agency’s interpretation of its own rule encourages the agency to enact vague rules which give it the power, in future adjudications, to do what it pleases. This frustrates the notice and predictability purposes of rulemaking, and promotes arbitrary government.  Because none of the parties challenged the continuing validity of the rule in this case, Justice Scalia was content to note that he would have accepted the FCC’s decision even without deferring to its amicus brief.  But he made clear that he is open to considering such an argument in a future case.  Notably, however, no other Justice joined his opinion.

Recommended Citation: Kevin Russell, Opinion analysis: No profit for Bells from providing access to competitors, SCOTUSblog (Jun. 14, 2011, 3:21 PM),