Verizon Communications Inc. v. FCC
Encyclopedia
Verizon Communications Inc. v. FCC, , was a case decided by the Supreme Court of the United States
where Verizon Communications
was arguing that the FCC
had an unreasonable way for setting rates for leasing network elements. It held that the FCC can require state commissions to set the rates charged by incumbents for leased elements on a forward-looking basis untied to the incumbents' investment and that the FCC can require incumbents to combine elements of their networks at the request of entrants.
left the FCC freedom to define the standard for leasing rates with very few details. This led to Verizon questioning if the FCC is authorized to be able to require state utility commissions to set the rates charged by the incumbents for leased elements.
The court focused on three main issues, which were the FCC’s pricing rules for these unbundled network elements, also whether the exclusion of historical costs in the pricing rules constitutes a governmental taking, and lastly, various rules for combining network elements. It focused primarily on the economic implications of the FCC’s costing standards which the Court upheld and secondarily on the takings claim.
allows the FCC the ability to require state utility commissions to set rates charged by ILECs for lease of network elements to CLECs on a forward-looking basis, untied to the incumbents' historical or past investments. The methodology of doing this by the FCC is not inconsistent with the act therefore is reasonable.
The Act contains unbundled access obligations of local exchange carriers:
is the cost of using long-lived assets in any given period which depends on the original costs of assets. In the telecommunications industry these have the trend of dropping over time due to technological innovation and progress. This cost calculating method may then overstate the current long run marginal cost
which is why, in contrast, the FCC uses a "foward-looking" cost, referred to as Total Long Run Incremental Cost, or TELRIC, which uses current replacement costs instead of the original cost in its methodology.
Under the Telecommunications Act, Bell Operating Companies, which includes Verizon, have the incentive to unbundle their elements. If conditions are met, elements that are unbundled need not be offered at TELRIC and prices only need to avoid being "unjust, unreasonable, or unreasonably discriminatory." Enough interconnection, unbundling and resale agreements with the companies can foster competition.
. The Respondent, the Federal Communications Commission
(FCC), received six out of eight votes with Justices Stephen Breyer
and Antonin Scalia
dissenting.
In the certiorari
from the Supreme Court to the Appeal court they state, “In order to foster competition between monopolistic carriers providing local telephone service and companies seeking to enter local markets provisions of the Telecommunications Act of 1996
entitle the new entrants to lease elements of the incumbent carriers local-exchange networks”. In five separate cases they argued over the FCC's regulations though ultimately the Court of Appeals held that the use of the TELRIC methodology was foreclosed because the Act plainly required rates based on the actual cost of providing the network element and invalidated certain combination rules.
The following are other press releases by Verizon that relate to the case decision.
Consumer.net and Russ Smith v. Verizon et al.
Four cases included in the same certiorari where parties challenged FCC regulations are:
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
where Verizon Communications
Verizon Communications
Verizon Communications Inc. is a global broadband and telecommunications company and a component of the Dow Jones Industrial Average...
was arguing that the FCC
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
had an unreasonable way for setting rates for leasing network elements. It held that the FCC can require state commissions to set the rates charged by incumbents for leased elements on a forward-looking basis untied to the incumbents' investment and that the FCC can require incumbents to combine elements of their networks at the request of entrants.
Background
The Telecommunications Act of 1996Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
left the FCC freedom to define the standard for leasing rates with very few details. This led to Verizon questioning if the FCC is authorized to be able to require state utility commissions to set the rates charged by the incumbents for leased elements.
The court focused on three main issues, which were the FCC’s pricing rules for these unbundled network elements, also whether the exclusion of historical costs in the pricing rules constitutes a governmental taking, and lastly, various rules for combining network elements. It focused primarily on the economic implications of the FCC’s costing standards which the Court upheld and secondarily on the takings claim.
Telecommunications Act of 1996
The Telecommunications Act of 1996Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
allows the FCC the ability to require state utility commissions to set rates charged by ILECs for lease of network elements to CLECs on a forward-looking basis, untied to the incumbents' historical or past investments. The methodology of doing this by the FCC is not inconsistent with the act therefore is reasonable.
The Act contains unbundled access obligations of local exchange carriers:
The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service.
Pricing network elements
The Historical costHistorical cost
In accounting, historical costs is the original monetary value of an economic item. Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of...
is the cost of using long-lived assets in any given period which depends on the original costs of assets. In the telecommunications industry these have the trend of dropping over time due to technological innovation and progress. This cost calculating method may then overstate the current long run marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
which is why, in contrast, the FCC uses a "foward-looking" cost, referred to as Total Long Run Incremental Cost, or TELRIC, which uses current replacement costs instead of the original cost in its methodology.
Under the Telecommunications Act, Bell Operating Companies, which includes Verizon, have the incentive to unbundle their elements. If conditions are met, elements that are unbundled need not be offered at TELRIC and prices only need to avoid being "unjust, unreasonable, or unreasonably discriminatory." Enough interconnection, unbundling and resale agreements with the companies can foster competition.
Arguments
The case was decided in an opinion written by Justice David SouterDavid Souter
David Hackett Souter is a former Associate Justice of the Supreme Court of the United States. He served from 1990 until his retirement on June 29, 2009. Appointed by President George H. W. Bush to fill the seat vacated by William J...
. The Respondent, the Federal Communications Commission
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
(FCC), received six out of eight votes with Justices Stephen Breyer
Stephen Breyer
Stephen Gerald Breyer is an Associate Justice of the U.S. Supreme Court. Appointed by President Bill Clinton in 1994, and known for his pragmatic approach to constitutional law, Breyer is generally associated with the more liberal side of the Court....
and Antonin Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
dissenting.
In the certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
from the Supreme Court to the Appeal court they state, “In order to foster competition between monopolistic carriers providing local telephone service and companies seeking to enter local markets provisions of the Telecommunications Act of 1996
Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
entitle the new entrants to lease elements of the incumbent carriers local-exchange networks”. In five separate cases they argued over the FCC's regulations though ultimately the Court of Appeals held that the use of the TELRIC methodology was foreclosed because the Act plainly required rates based on the actual cost of providing the network element and invalidated certain combination rules.
Majority opinion
Dissenting opinion
Subsequent developments
- Feb. 19, 2003: Verizon claims that "rather than bringing stability, certainty and clarity to the regulatory structure for the industry, the commission left a void and handed off the decision-making to the states. This is a recipe for continued disarray in the industry and more litigation."
- Feb. 23, 2003: "Verizon Chief Executive Officer Ivan Seidenberg today told financial analysts that the FCC's policies are flawed both legally and as a sustainable business model for creating competition."
In the news
In 2010 Verizon Wireless launched its latest advertising campaign creating the new tagline "Rule The Air." The campaign boasts Verizon's superior ability in its 4G network to "send a strong signal.""While Verizon Wireless would like to "rule the air," as this ads suggest, the carrier, along with AT&T, must instead share the air, ruled by the Federal Communications Commission ... to create data-roaming agreements, ensuring all Americans have access to mobile e-mail and Internet services."
Relative cases
Verizon Communications v. Law Offices of Curtis V. Trinko, LLPVerizon Communications v. Law Offices of Curtis V. Trinko, LLP
Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, often shortened to Verizon v. Trinko, 540 U.S. 398 , is a case decided by the Supreme Court of the United States in the field of Antitrust law...
- The Sherman Antitrust Act and requirements of telecommunications companies under the Telecommunications Act of 1996
Consumer.net and Russ Smith v. Verizon et al.
- The FCC found only one violation of the Commission’s rules and the Communications Act. This violation related to the failure of Verizon New Jersey to record a company-specific DNCL request made by Smith in September 2003. The rest of the complaints were dismissed.
Four cases included in the same certiorari where parties challenged FCC regulations are:
- WorldCom, Inc., et al. v. Verizon Communications Inc. et al.
- Federal Communications Commission et al. v. Iowa Utilities Board et al.
- AT&T v. Iowa Utilities Board
- General Communications, Inc. v. Iowa Utilities Board et al.
Law reviews
- Entry Policy in Local Telecommunications: Iowa Utilities and Verizon
This article draws on the Supreme Court decision in Verizon to argue that the intersection of ambiguous telecommunication access statues and the limits on judicial review as a result of the separation of powers and the application of Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., mean that administrative law has become an ineffective tool in ensuring the accountability of telecommunications regulators…This article argues for Congress to address pricing in greater detail.
- Verizon Communications, Inc. v. FCC: Telecommunications Access Pricing and Regulator Accountability through Administrative Law and Takings Jurisprudence
Similarly, while we think the Court made some missteps in the Iowa Utilities and Verizon, overall the Court’s analysis in both of these cases strikes us as reasonable and likely even right. The economic issues at the core of these cases were complicated and at times ambiguous, and the Court in out view exercised good judgment in deciding when to wade into the morass and when to defer to technical issues to the Commission. Out purpose of this article, then, is not to criticize either the Commission of the Court. Instead we, we set out her to move the analysis forward…
External links
- Verizon website - Verizon's Homepage
- FCC website - FCC's Homepage