USTA v. FCC:
A Decision Ripe for the Supremes — continued

[March 25, 2004]

The court also drastically oversimplifies the case for unbundled local switching, stating that the only justification for even considering maintaining the requirement was "hot cuts." However, hot cuts were just one of many pieces of evidence in the FCC's TRO record. Apparently, the court cast the more obvious reasons to maintain unbundled switching, like the cost or extreme difficulty of otherwise serving remotely-situated and scattered customers, aside. The court flippantly argues:

"There appears to be no suggestion that mass market switches exhibit declining average costs in the relevant markets, or even that switches entail large sunk costs."

Can the court so utterly ignore the obvious reality? Economy of scale was not discussed in more detail by the FCC only because it was not seriously disputed.

Adding insult to injury, the Court dismisses hot cuts as a potential "impairment" issue on grounds that hot cuts were never raised in RBOC Section 271 cases. What the court ignores is that hot cuts were simply not germane to Section 271 proceedings, where the key issue was demonstrating the availability of unbundled local switching, not demonstrating a way to phase it out.

In its general discussion of impairment on page 26 of its opinion, the court reveals its bias by essentially arguing that the ILECs must be held harmless and protected from competition at all costs:

"The interesting case is the one where TELRIC rates are so low that unbundling does elicit CLEC entry, enabling CLECs to cut further into ILEC revenues in areas where the ILECs' service is mandated by state law—and mandated to be offered at artificially low rates funded by ILECs' supracompetitive profits in other areas."

The DC Circuit's reference to "supracompetitive profits" strongly implies that the court considers TELRIC rates to cause a loss. Again, however, the court misses the point. There is supposed to be a loss when competitors tear into a monopolist's territory. This is called a loss of monopoly profits, not a fiscal loss. This type of loss, a "competitive loss," is precisely what the 1996 Act envisioned. Should the law protect ILECs against competitive loss? We think not. That the DC Circuit thinks so reveals the court's prejudices.

The court resumes:

"In competitive markets, an ILEC can't be used as a piñata."

TELRIC covers cost in a manner that the highest court in the land just last year concluded is an appropriate measure.

Being deprived of monopoly profits is not victimhood. It's basic Economics. Monopoly profits are the amount of money that a company earns because there is no capitalist market. When there is a market, a company must only charge what customers are willing to pay.

Monopoly profits are that extra money that customers are forced to pay because there is no choice (and therefore no market, and no market price mechanism restricting prices according to the law of supply and demand). Because customers have no choice, a monopoly is able to fail to provide customer service.

But it gets worse. With regard to unbundled DS1 and DS3 transport, the Court apparently has not read the same TRO that we did:

"And, as with mass market switching, the Order itself suggests that the Commission doubts a national impairment finding is justified on this record. We therefore vacate the national impairment findings with respect to DS1, DS3, and dark fiber and remand to the Commission to implement a lawful scheme."

The TRO sets up tests for non-impairment which, in practice, will be very hard to meet for DS3 and either nonexistent or virtually so for DS1. It seems to miss the difference between those two, in the TRO-prescribed "tests." Yet the court reads the TRO to "suggest" that the default, without state action, is the opposite. This is like arguing that the glass is 1 percent empty, not 99 percent full.

 

USTA v. FCC: A Decision Ripe for the Supremes

USTA v. FCC, page 2: It gets worse

>USTA v. FCC, page 3: Moving from the strange to the truly bizarre