On March 25, 2005, the FCC released an order ("Order") over two dissents (by Commissioners Adelstein and Copps) granting a petition for declaratory ruling filed by BellSouth Telecommunications, Inc. ("BellSouth"). The Order preempts separate orders of four state commissions in BellSouth's local service territory that had required BellSouth to provide DSL service to customers receiving voice services from Competitive Local Exchange Carriers ("CLECs") using unbundled loops leased by the CLECs from BellSouth. In addition to resolving an important issue relating to DSL, the FCC's Order is an important precedent regarding the procedural options of a carrier desiring to challenge a state commission decision as inconsistent with federal law, and the scope of authority of state commissions to impose unbundling and interconnection requirements in addition to those imposed by the FCC. In the same document containing the Order, the FCC issued a notice of inquiry ("NOI") into the competitive impact of bundling "legacy" and "new" services.
Since 2001, the FCC has held that an incumbent LEC ("ILEC") has no obligation to provide DSL service to end user customers who subscribe to a CLEC's voice service provided over an unbundled loop leased from the ILEC. Notwithstanding the FCC's decisions, several state commissions, including those in Florida, Georgia, Kentucky, and Louisiana, required BellSouth to provide DSL service at the request of end user customers who received their voice service from a CLEC over an unbundled loop leased from BellSouth. These state commissions held generally that they were authorized by the Telecommunications Act of 1996 ("the Telecommunications Act") to impose unbundling requirements in addition to those imposed by the FCC. They found that BellSouth's refusal to provide DSL service to CLECs’ "UNE voice customers" service harmed CLECs providing only voice service (as opposed to both voice and DSL services) and diminished customer choice. In addition to appealing the state commission decisions to federal district court, BellSouth filed its petition with the FCC.
Prior to ruling on the merits, the FCC rejected two procedural arguments raised by opponents of BellSouth's petition. First, the FCC held that its authority to preempt state regulation addressed to local competition was not limited by 47 U.S.C. § 253, which requires a threshold showing that the regulation at issue prohibits an entity from providing telecommunications service. The FCC reasoned that Congress did not, in section 253 or otherwise, intend to remove the agency's authority to preempt state regulations that conflict with federal laws (including FCC regulations). Second, the FCC held that the provision of section 252(e)(6) authorizing federal judicial review of interconnection agreements arrived at through state commission arbitration did not limit the FCC's authority to issue declaratory orders regarding state commission arbitration decisions.
To resolve the merits, the FCC had to construe and apply 47 U.S.C. § 251(d)(3), which expressly authorizes state commissions to establish interconnection and UNE access obligations, provided they are "consistent with the requirements of [section 251]" (including the FCC's implementing regulations) and do "not substantially prevent implementation" of the requirements of section 251, or the purposes of sections 251 through 261. See 47 U.S.C. § 251(d)(3)(B), (C). By italicizing the word "and," the FCC emphasized that to avoid preemption, a state regulation must satisfy both prongs of the test. Applying its construction of section 251(d)(3) to the issue before it, the FCC held that because the FCC had "expressly declined" to require an ILEC to provide DSL to a CLEC's UNE voice customer, state commission decisions imposing such a requirement "directly conflict and are inconsistent with the [FCC's] rules and policies implementing section 251," and thus "exceed the reservation of [state commission] authority under section 251(d)(3)(B)." The FCC also found that such "state requirements undermine the effectiveness of the incentives for deployment" of alternative facilities, and "therefore do not pass muster under section 251(d)(3)(C)." The FCC noted that its prior requirement that ILECs facilitate so-called "line-splitting" arrangements between CLECs, whereby one CLEC provides voice service and another provides DSL service using the same unbundled loop, mitigates the impact of its decision on CLECs and end user customers.
Finally, the FCC's NOI seeks comment on "the competitive consequences when providers bundle their legacy services with new services, or 'tie' such services together such that the services are not available [to end users] independent from one another." The NOI also seeks comment on the FCC's "authority to impose remedies" for the bundling of services, "the costs of [such] regulatory remedies," and "the least invasive regulations that could effectively remedy any potential competitive concerns." Comments are due 60 days from publication of the NOI in the Federal Register.