An appeals court has upheld a Federal Communications Commission ruling that broadband markets can be competitive even when there is only one Internet provider.
The FCC can “rationally choose which evidence to believe among conflicting evidence,” the court ruling said.
The FCC voted last year to eliminate price caps imposed on some business broadband providers such as AT&T and Verizon. The FCC decision eliminated caps in any given county if 50 percent of potential customers “are within a half mile of a location served by a competitive provider.”
This is known as the “competitive market test.” Because of this, broadband-using businesses might not benefit from price controls even if they have just one choice of ISP.
The FCC decision was challenged in court by Competitive Local Exchange Carriers (CLECs) and purchasers of business broadband, including Sprint and Windstream. But the FCC order was mostly upheld yesterday in a ruling by the US Court of Appeals for the 8th Circuit.
The court said that the FCC provided adequate notice to the public before making most of the changes in the deregulation order. The court also rejected challenges to the economic theory and merits of the FCC’s competitive market test.
The FCC’s decision to lift price caps affected Business Data Services (BDS), which are dedicated, point-to-point broadband links delivered over copper-based TDM networks by incumbent phone companies like AT&T, Verizon, and CenturyLink. The decision affects prices paid by customers including businesses, government agencies, schools, libraries, hospitals, and wireless carriers.
FCC can “choose which evidence to believe”
The FCC and petitioners disagreed over whether it’s generally economically viable for CLECs to expand their networks to locations within a half-mile.
“The dispute here is whether the evidence shows that the CLEC [Competitive Local Exchange Carrier] Petitioners cannot economically build out to low-bandwidth customers in areas deemed competitive by the Competitive Market Test,” judges wrote. “The FCC did not believe the CLEC Petitioners’ evidence, and the CLEC Petitioners protest that the evidence compels a finding in their favor.”
The FCC “cited evidence that some competitors will build as far as a mile out,” and said that “most of the buildings at issue are far closer to competitive fiber than half a mile,” the court ruling noted.
While petitioners presented data suggesting that it isn’t generally economically feasible to expand networks, the FCC argued that “the CLEC Petitioners’ studies inflate costs by selecting the most expensive build (entirely underground lines), presuming a separate lateral line for each individual low-bandwidth customer, and treating the main fiber ring as part of the cost of reaching new customers rather than as an existing ‘sunk’ cost near a potential new customer,” judges wrote.
Judges concluded that the evidence in support of both arguments is credible and that the FCC can decide which one it wants to believe:
We recognize that the relevant data presents radically different pictures of the competitiveness of the market depending on the economic theory applied and the weight given to conflicting pieces of evidence. But the FCC may rationally choose which evidence to believe among conflicting evidence in its proceedings, especially when predicting what will happen in the markets under its jurisdiction. Thus, we deny the petitions for review as to the Competitive Market Test because the FCC’s resolution of competing evidence was not arbitrary and capricious.
Petitioners also challenged “the reasonableness of finding duopolies competitive” under the FCC’s market test but failed to convince judges. Judges also accepted the FCC’s argument that cable networks are increasingly functioning as substitutes for copper-based services.
FCC gets leeway on predictions of competition
The FCC received deference from the judges for its prediction that “the impact of one nearby competitor ensur[es] reasonably competitive outcomes in the medium term (i.e., over several years).”
“Regardless of whether its predictions based on uncertain data prove true, the FCC is not acting arbitrarily and capriciously when it makes such predictions in choosing how to regulate the market under its jurisdiction,” judges wrote.
Petitioners argued that the FCC didn’t even attempt to show that “nearby potential competitors” drive prices to “reasonably competitive” in the near term.
“This accusation wrongly presumes that the FCC needed to find competition in the short term,” judges wrote. “If the FCC chose to follow a traditional market power framework, then it would need to look to short-term results. Under the public interest balancing that the FCC applied, however, it could weigh competition in the medium term, meaning that the omission of short-term assessments is not fatal to its analysis.”
Judges did grant the petitioners’ challenge to the FCC’s decision to end price regulation of TDM transport services, which are middle-mile connections rather than last-mile connections that extend directly to end users. The FCC failed to provide adequate public notice before ending regulation of the transport services, judges ruled.
“We grant the CLEC Petitioners’ petitions, in part, vacating the portions of the final rule affecting TDM transport services and remanding that issue alone to the FCC for further proceedings,” judges wrote. “We deny the petitions for review on all other issues.”
FCC Chairman Ajit Pai celebrated the decision to uphold the FCC’s competitive market test.
“I’m pleased that the Eighth Circuit upheld that test and the detariffing and deregulation of last-mile business data services that the test suggested,” Pai said.
As for the court rebuffing the FCC’s attempt to deregulate transport services, Pai called that “a narrow procedural issue” that the FCC will fix “as soon as possible.”