Item 32: Emergency Motion of AT&T
For Order Maintaining Status Quo
September 23, 2004
When the ALJ and the Assigned Commissioner granted the temporary restraining order to AT&T on September 15, they effectively reversed years of FCC interpretation of Section 251 of the Federal Telecommunications Act and put an immediate stop to the deployment of modern telecommunications technology in California. This shocking result is supposedly based on AT&T having made a showing that it was entitled to temporary relief. I do not believe AT&T came anywhere near making the requisite showing, and for that reason I oppose this decision.
As the ALJ's opinion notes, a party requesting a temporary restraining order must show four things: (1) a likelihood that it will prevail on the merits, (2) irreparable injury if the order is not granted, (3) no substantial harm to other interested parties, and (4) no harm to the public interest. For reasons that I set out below, I do not believe that AT&T carried its burden of proof on any of these requirements.
Likelihood of Success on the Merits
There is little chance that AT&T will prevail on the merits, no matter what this Commission decides. The ALJ reaches the opposite conclusion by assuming that the relevant legal question is how to interpret the interconnection agreement between the parties. But the interconnection agreement comes into play if and only if there has been a change of law that triggers its mandatory negotiation provisions. The applicable law, Section 251 of the federal Telecommunications Act, has not changed nor has the FCC's interpretation of that Section. Accordingly, there has been no "change of law" and the related sections of the interconnection agreement are inapplicable.
Since the interconnection agreement does not govern the rights of the parties to this dispute, AT&T must show that it is likely to prevail in an argument about the applicability and effect of Section 251. Specifically, AT&T has to show that it is likely to prevail on the question of whether Section 251 requires Verizon to unbundle packet switches. For reasons set out below, I think the answer to that question is clearly, "No."
When the FCC first established a national list of Unbundled Network Elements in the Local Competition Order over eight years ago,27 it explicitly "declin[ed] to find, as requested by AT&T and MCI, that incumbent LECs' packet switches should be identified as network elements" subject to unbundling under the Act.28 The FCC has never deviated from that clear ruling. The FCC reiterated its rejection of packet switching unbundling five years ago in the UNE Remand Order29 because CLECs and cable companies - even in 1999 - seriously outpaced the ILECs in the deployment of advanced services using packet switching technology. The FCC explained:
Our decision to decline to unbundle packet switching therefore reflects our concern that we not stifle burgeoning competition in the advanced service market. We are mindful that, in such a dynamic and evolving market, regulatory restraint on our part may be the most prudent course of action in order to further the Act's goal of encouraging facilities-based investment and innovation.30
The FCC reinforced this finding a third time in its Triennial Review Order. The FCC's decision not to order unbundling of packet switching - both standing alone and in the context of packet-switched networks - was guided not only by the lack of impairment clearly demonstrated by the extensive deployment of packet switching by CLECs across the country, but also by the FCC's desire to encourage further deployment of advanced telecommunications technology, consistent with section 706 of the Act:
[B]y prohibiting access to the packet-based networks of incumbent LECs, we expect that our rules will stimulate competitive LEC deployment of next-generation networks.31
In fact, the FCC has expressly noted that even if one result of replacing circuit switches with packet switches is the elimination of mass market unbundling, such an outcome is both appropriate and desirable:
[T]o the extent that there are significant disincentives caused by the unbundling of circuit switching, incumbents can avoid them by deploying more advanced packet switching. This would suggest that incumbents have every incentive to deploy these more advanced networks, which is precisely the kind of facilities deployment we wish to encourage.32
Finally, the FCC's conclusions have been recently upheld in court. On appeal, the United States Appeals Court for the District of Columbia Circuit rejected all of the CLECs' challenges to the FCC's decision not to require unbundling of ILEC broadband facilities "in light of evidence that unbundling would skew investment incentives in undesirable ways."33
In short, Verizon is not, and has never been, obligated - under Section 251 or FCC rules or precedent - to unbundle packet switches. To the contrary, federal law not only sanctions but is designed to promote and protect the precise type of network upgrade that Verizon is engaging in, and it is highly unlikely that AT&T could convince either the FCC or a federal court to the contrary.
Irreparable Injury to the Moving Party without the Order
AT&T's claims of irreparable injury are thin. It claims that customer orders won't be processed as rapidly after Verizon changes its circuit
switches to packet switches; that not all features available via UNE-P are available via resale; and that it may raise prices to its customers if it has to pay more for resale services than for UNE-P elements. These claims, even if true, hardly rise to the level of irreparable injury. As Verizon pointed out in its response to the motion for a temporary restraining order, AT&T already provides numerous customers with services purchased from Verizon on a resale basis. Those customers enjoy a bundled package of services virtually identical to the UNE-P services available to other AT&T customers. Finally, there is no reason to suppose that AT&T will not choose to absorb a price increase rather than drive its existing customers away by charging higher prices than its competitor.
Harm to Other Interested Parties
The ALJ's opinion concludes, amazingly, that Verizon has suffered no harm from the entry of the temporary restraining order because it has chosen not to deploy packet switches prior to the resolution of this proceeding. Verizon has suffered the considerable harm of having to wait six months or more to replace circuit switches with packet switches. Among other things, packet switches are far less costly to operate, so Verizon has lost at least six months' worth of cost savings, not to mention the substantial cost of delays in implementing system features that are only possible after a transition to packet switches.
Harm to the Public Interest
The public interest has suffered substantial harm by the granting of this temporary restraining order. California telephone customers have been denied the availability of new telephone technology and the possibility of receiving more features at lower prices that is inherent in a change to packet switches. California has suffered economic harm that may be difficult to quantify, but is nonetheless real. For example, a loss of orders from Verizon will hurt many California companies that supply and build the packet switches and associated hardware and software.
I conclude that AT&T has simply failed to make any of the requisite showings necessary to support issuance of a temporary restraining order.
As the FCC clearly stated in the portion of the Triennial Review Order quoted above, it doesn't require unbundling of packet switches in order to encourage ILECs to replace legacy technology with new technology and for CLECs to enter the market using new technology. Verizon was acting to achieve that goal by replacing its old-technology circuit switches with new-technology packet switches. On September 16, one day after the temporary restraining order was entered, Verizon formally notified us that it was unable to comply with the terms of the temporary restraining order and was therefore postponing, for at least six months, its plans to migrate from circuit switches to packet switches. The technical and legal difficulties inherent in complying with an order affecting packet switches are essentially identical to those that would be encountered by Verizon or any other ILEC in connection with upgrading any other part of the legacy phone system. In other words, by entering the temporary restraining order we have effectively put a stop to deployment of new telephone technology by California ILECs until they can be certain that they do not have to unbundle that new technology, whether it is packet switches, dark fiber or any other new technology.
The irony of this situation should not be lost on anyone. California is the world leader in the development and manufacturing of new communications technology. While our dynamic innovators in Silicon Valley and elsewhere are creating the means to revolutionize telephony, this Commission is halting the dissemination of the very same technology. Ignoring clear legal precedent while doing so, this Commission is apparently acting out of a mistaken belief that it is somehow pro-consumer to hold back progress.
Technological progress and the deployment of advanced telecommunications services have now been halted by the Commission's action. This not only harms the customers who would have been served by Verizon's new switches, but also will have a general chilling effect on investment by other carriers and technology developers.
To summarize, AT&T has not shown any of the elements required to justify a temporary restraining order. It is not likely to succeed on the merits. Its customers will continue to receive service without interruption, and the resale of basic services is an almost perfect substitute for UNE-P. Verizon has been severely harmed, as has the public interest. At bottom, this case is solely about how much money AT&T has to pay Verizon for handling its traffic - the kind of matter
this Commission considers every day without resorting to the issuance of a temporary restraining order.
/s/ SUSAN P. KENNEDY
Susan P. Kennedy
September 23, 2004
San Francisco, California
27 First Report and Order, Implementation of the Local Competition Provisions in the Telecommunications Act or 1996, CC Docket No. 96-98, released August 8, 1996, at ¶ 407 ("Local Competition Order").
28 Id. at ¶ 427.
29 Id. at ¶ 427.
30 Third Report and Order and Fourth Further Notice of Proposed Rulemaking, Implementation of the Local Competition Provisions in the Telecommunications Act or 1996, CC Docket No. 96-98, released November 5, 1999, at ¶ 306, 313 ("UNE Remand Order"). The sole exception to the no-unbundling rule related only to the unbundling of Digital Subscriber Line Access Multiplexers ("DSLAMs") at remote terminals, which is not at issue here. And the Triennial Review Order eliminated even this limited exception.
31 Id. at ¶ 316 (emphasis added).
32 Report 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 16978, ¶ 290, released August 21, 2003 ("Triennial Review Order"); see also id. ¶ 541 ("In order to ensure that both incumbent LECs and competitive LECs retain sufficient incentives to invest in and deploy broadband infrastructure, such as packet switches, we find that requiring no unbundling best serves our statutorily-required goal.").
33 Triennial Review Order ¶ 446, n. 1365 (emphasis added).