D.C. Circuit Issues Decision in Verizon UNE Forbearance Appeal

Kelley Drye Client Advisory

The U.S. Court of Appeals for the District of Columbia issued its long-awaited decision in Verizon v. FCC, the Verizon Telephone Companies’ appeal of the Federal Communications Commission’s (“FCC’s”) December 2007 decision denying Verizon forbearance from Section 251(c)(3) unbundling obligations in the Boston, New York, Philadelphia, Pittsburgh, Providence, and Virginia Beach Metropolitan Statistical Areas (“MSAs”). The Court granted Verizon’s appeal on the very limited ground that the FCC failed to adequately explain its departure from the standard previously used to measure Section 251(c)(3) forbearance requests. The case was remanded to the FCC for further consideration.

Verizon contended that the FCC erroneously denied forbearance because it relied on a new bright-line market share test to determine whether the retail market in the six MSAs was sufficiently competitive to warrant forbearance and that this test is inconsistent with FCC precedent. The Court agreed with Verizon that the test applied in the six-MSA docket departed from FCC precedent and that the FCC failed to provide a reasoned explanation for this departure. Importantly, however, the Court stated that Congress did not prescribe a particular mode of market analysis under the Section 10 forbearance provision and that the FCC is free to apply a new approach. The Court held only that the FCC must explain its adoption of a new approach. The Court stated: “[T]he FCC changed tack from is precedent . . . The flaw is not in this change, but rather in the FCC’s failure to explain it.”

The D.C. Circuit explicitly rejected Verizon’s argument that forbearance under Section 10 is warranted because the standard that (Verizon believes) applies to unbundling determinations under Section 251(c)(3) is not met in the six MSAs. The Court ruled that Verizon’s argument fails because it unnecessarily conflates the FCC’s [Section 251(c)(3)] impairment standard with the forbearance standard under § 10.” The Court cited with approval the FCC’s previous finding that its analyses under Section 10 and Section 251 are wholly distinct and that the standard to determine unbundling under Section 251 does not bind the FCC’s forbearance review.

Finally, the Court rejected Verizon’s request that it vacate the FCC’s order and that it require the FCC to issue a new decision within 30 days from the issuance of the mandate. The Court noted that the appropriate remedy in a case such as this is to remand for a reasoned explanation and the Court found nothing in Section 10 to support the imposition of such a restrictive time frame on remand.

For further information on this decision or any Section 10 forbearance issue, please contact your usual Kelley Drye attorney or any member of the Communications practice group. For more information on the Communications practice group, please click here.