It was suggested in a recent RCR article that the Telecommunications Act of 1996 answered the question of “Who is in charge here?” by clearly placing the Federal Communications Commission in charge of regulating the telecommunications industry. The new law was said to have overhauled telecommunications policy, limited states’ powers and centralized regulatory authority with the FCC. That may be the prevailing view of the 1996 Telecom Act, and the one shared by the FCC, but the matter is hardly clearcut.
The issue of who is in charge of the telecommunications industry has been debated by the FCC and the states for nearly 20 years. Congress had the opportunity to put an end to this long-running dispute when it passed the 1996 Act to open local telecommunications markets to competition. Rather than resolving the federal-state conflict, the 1996 Act and the FCC’s actions to implement it may only escalate the controversy. That escalation will likely be kindled by flaws in the 1996 Act that the FCC exploited to enhance its authority at the expense of the states.
While it marked a dramatic shift in telecommunications regulation, the 1996 Act did not overhaul the basic regulatory structure built by Congress in the Communications Act of 1934. Congress basically inserted two new parts to the common carrier provisions of the old law. Unfortunately, Congress made no apparent effort to modify the old law so that the new parts will fit. The result promises to be akin to overhauling a 1934 Ford engine by installing 1996 parts. The engine might operate, but it will have serious problems.
Congress missed the opportunity to overhaul telecommunications regulation and end the FCC-state power struggle when it left in force the language of Section 2(b)(2) of the 1934 Act, which precludes FCC jurisdiction over the “charges, classifications, practices, services, facilities or regulations for or in connection with the intrastate communication service by wire or radio of any carrier.” The continuing vitality of that language enables states to claim that the FCC lacks jurisdiction under the 1996 Act over the intrastate aspects of interconnection, resale and access to unbundled elements.
A related flaw in the new legislation is one of terminology. The local competition provisions of the 1996 Act apply to “telecommunication carriers” and “local exchange carriers,” which are terms familiar to the industry but new to the 1934 Act. While it provided definitions of its new terms, Congress did not amend or delete the old statutory definition of “carrier.” Redefinition was necessary not only because the old definition is circular (a “common carrier” or “carrier” is “any person engaged as a common carrier for hire in interstate or foreign communication),” but because the definition of “carrier” has jurisdictional implications under Section 2(b)(2). Accordingly, a new definition of “carrier” or a change in terminology would have helped distinguish those carriers that remain fully subject to FCC regulation under the old regulatory regime from those subject to competitive forces under the new regime.
The 1996 Act created another jurisdictional problem of particular interest to the wireless industry. Congress clearly placed the FCC in charge of LEC-CMRS interconnection in the Budget Act of 1993. The FCC was directed to exercise its authority over interstate carriers to order LEC-CMRS interconnection. Moreover, the 1993 Act not only mandated that CMRS providers be regulated as interstate common carriers, but it preempted all state CMRS entry and rate regulation. Thus, the 1993 Act seemed to settle the issue of whether LEC-CMRS interconnection was subject to exclusive FCC jurisdiction. The 1996 Act resurrected the issue.
Congress opened the door for concurrent state jurisdiction of LEC-CMRS interconnection when CMRS providers fell within the definition of telecommunications carriers under the 1996 Act. Thus, Congress implied that LEC-CMRS interconnection was subject to state oversight under Section 252 of the 1996 Act, despite the FCC’s explicit jurisdiction under the 1993 Act. The effect was to decentralize authority and fuel the federal-state dispute.
Sections 251 and 252 of the 1996 Act certainly created a new regulatory process, and perhaps forged a new relationship between federal and state regulators, but those provisions did not centralize any authority with the FCC. To the contrary, Congress seems to have purposely decentralized authority “to provide for a procompetitive, deregulatory national policy framework”.
Sections 251 and 252 work in conjunction to create a regulatory process that relies primarily on private inter-carrier negotiations and state-supervised arbitrations to introduce competition to local telecommunications markets. State commissions were given authority to regulate the negotiation, arbitration and approval of interconnection and access agreements; to establish pricing standards; and to rule on requests for exemptions from the requirements of Section 251. Congress established general standards and procedures for the exercise of state authority, but it clearly did not enact specific federal rules that would effectively deprive state regulators of their right to make decisions and set policy.
The 1996 Act also did not contain an explicit limitation on the states’ authority with respect to interconnection, resale and access issues. Rather, the new law expressly preserved non-conflicting state interconnection and access regulations. And by not enacting specific directives to state agencies, Congress ceded substantial authority to state regulators to set their own policies to ensure that the rates, terms and conditions of interconnection and access agreements satisfy the “just, reasonable and nondiscriminatory” standard of the 1996 Act.
Under the regulatory scheme envisioned by Congress, the FCC was to play a decidedly subordinate role. In fact, Section 252 authorized FCC action only in individual cases in which a state agency failed to act. The FCC’s role, however, changed once it got its hands on the legislation.
In wading through the FCC’s 668-page order implementing Sections 251 and 252, it becomes apparent that the FCC’s rulemaking fundamentally altered the regulatory framework adopted by Congress. The FCC did not read the 1996 Act to shift any authority to state regulators. To the contrary, the Commission concluded that the statute gave it authority over state regulators. The FCC proceeded to adopt “uniform national rules” to govern both the interstate and intrastate aspects of interconnection, resale and access to unbundled elements. Federal “baselines” (standards) were imposed on the entire process of opening local telecommunications markets. The FCC even developed pricing methodologies for state agencies to follow, and went so far as to set default proxy prices. In sum, the FCC adopted pervasive federal rules for the states to follow and enforce.
The FCC conceded that the 1996 Act did not explicitly grant it authority over “historically intrastate matters.” The FCC found its jurisdiction over such matters by construing various statutory provisions. It effectively ignored Section 2(b)(2), both as a limit on its jurisdiction and as a rule of statutory construction. Consequently, it may appear to a reviewing court that the FCC’s intrastate jurisdiction was self-generated.
The FCC also may have difficulty defending its claim that its explicit authority to implement the provisions of Section 251 empowered it to adopt national rules that not only went beyond the scope of that section, but intruded on state authority under Section 252. Nor will the FCC be able to argue persuasively that its authority was implicit in Sections 251 and 252. Those sections show that state interests in local competition are predominate, and that the FCC’s role is subordinate to state authority. Clearly, Section 252 did not call on the FCC to issue national rules. That section authorizes FCC action only by default.
However well-intended, the FCC’s dec
ision to promulgate national rules will ensure that the local telecommunications markets will open at best under the cloud of serious litigation. Not unexpectedly, the FCC’s order has been challenged by state regulators and incumbent LECs. As of this writing, NARUC, the New York PSC, and the Florida PSC have filed appeals, while several other agencies are considering similar actions. GTE and Southern New England Telephone have asked the FCC to stay its interconnection rules pending their appeal. US West and Pacific Telesis have filed separate appeals, while at least two other RHCs have indicated that they will join in the fray. All apparently will argue that the FCC usurped the role Congress intended the states to play.
The FCC’s treatment of LEC-CMRS interconnection and reciprocal compensation arrangements is vulnerable to a jurisdictional attack from a different angle. The FCC’s decision to subject LEC-CMRS interconnection to state jurisdiction under the 1996 Act, could be challenged as contrary to the intent of Congress expressed in the 1993 Act. Thus, while it is presently under attack for asserting federal jurisdiction over intrastate interconnection matters, the FCC could be attacked for abdicating federal jurisdiction over LEC-CMRS interconnection. Such an attack could come from within the wireless industry.
Although the FCC’s interconnection order was well received by the wireless industry, some CMRS providers have cause to be concerned that interconnection issues will be subject to state level arbitration authority. While the 1996 Act provided the BOCs with incentives to negotiate in good faith with CMRS providers and to cooperate in state arbitrations, Congress gave no such incentives to small independent telcos. Negotiations may prove difficult with such LECs, and arbitrations before understaffed state agencies will be expensive and time-consuming. Indeed, those CMRS providers that urged the FCC to preempt state regulation of interconnection rates could elect to seek FCC reconsideration, judicial review, or to have state regulators simply decline to act so their arbitrations default to the FCC.
Gone unnoticed in the debate over the FCC’s authority are the constitutional implications of the FCC’s actions. By commandeering state agencies to enforce its national rules, the FCC may have transgressed an implied limit on federal power that the Supreme Court has found grounded in the Tenth Amendment and principles of federalism.
The regulation of competition in local telecommunications markets under the 1996 Act was within the broad commerce power of Congress. And the Commerce Clause permitted Congress to secure the assistance of state regulators to develop competitive markets. However, the FCC was far more intrusive when it implemented the 1996 Act-it compelled state commissions to adopt and enforce a federal regulatory program. That action is subject to challenge under the Tenth Amendment.
Whether or not it acted constitutionally, the FCC unquestionably infringed on state sovereignty. By its interconnection order, the FCC reduced state regulators to mere administrators without real decisionmaking authority. Moreover, the FCC forced state commissions to enact regulations to conform with federal rules, and to adopt procedures to comply with federal requirements. The FCC’s rules command state activities which lie at the very core of state sovereignty.
Finally, there is an element of unfairness to the FCC’s implementation of the 1996 Act. The FCC employed the legislation as a Congressionally-imposed, unfunded mandate to the states to administer a federal program. While it conducts spectrum auctions that have added some $20 billion to federal coffers, the FCC forced state commissions, some of which are understaffed and underfunded, to assume the massive burden of administrating federal interconnection and access requirements at their own expense.
With the issuance of its interconnection order, the FCC clearly placed itself in charge of the telecommunications industry. How long the FCC will remain in charge will depend on how it fairs before the courts. In the interim, the FCC-state jurisdictional battle will continue to rage.
Russell D. Lukas is a partner in the law firm of Lukas, McGowan, Nace & Gutierrez.
