Federal Appeals Court Remands FCC’s Decision Refusing to Deregulate IP Platform Services

Yesterday, in AT&T, Inc. v. FCC, No. 05-1186 (June 27, 2006), the United States Court of Appeals for the D.C. Circuit ruled that the FCC erroneously denied SBC’s petition seeking forbearance from Title II common carrier regulation of Internet Protocol (IP) “platform” services, and remanded the matter to the FCC for further proceedings. The statutory provisions governing the FCC’s actions (Section 10 of the Communications Act) provide that the FCC “shall forbear” from applying any regulation or any provision of the Communications Act if it determines that continued enforcement is unnecessary to ensure the continued availability of services on just, reasonable and nondiscriminatory terms, is no longer in the public interest, or would otherwise help “promote competitive market conditions.”

In its May 2005 Order, the FCC denied then-SBC’s forbearance petition on two separate grounds. First, the FCC found that the petition was premature as it was “conditioned” on regulatory decisions that had not yet been made—i.e., the FCC had not (and still has not) determined whether Title II applies to IP Platform services. (The IP-Enabled Services Rulemaking is still pending at the FCC). The FCC therefore denied the petition, finding that it was not in the “public interest” to rule on a “conditional” application. Second, the FCC ruled that SBC had failed to identify the regulations and specify which IP Platform services would be the beneficiaries of forbearance.

The D.C. Circuit rejected much of the FCC’s reasoning. First, the Court held that the FCC’s refusal to consider “conditional petitions” was unlawful because Congress had clearly contemplated that the FCC would exercise forbearance in advance of regulating services in order to promote competition. The Court further explained that while the forbearance statute authorizes the FCC to consider the “public interest” in deciding whether forbearance is appropriate, it may not use the public interest factor as a basis to avoid ruling on the substance of a forbearance petition altogether.

The Court also rejected the FCC’s finding that SBC had failed to adequately identify the specific IP Platform services from which it sought forbearance. As the Court noted, the FCC failed to point to a single defect in SBC’s definition of “IP Platform services.” But the Court did agree with the FCC that SBC did not adequately identify the provisions of Title II that would be subject to forbearance. The Court remanded the case to the FCC for further proceedings but because the matter was not reversed, IP Platform Services may still be subject to Title II, pending the outcome of the separate rulemaking.

The next steps are uncertain. Remand proceedings have been known to sit at the FCC for years. The FCC has a one-year statutory deadline to review forbearance petitions and it arguably already fulfilled that requirement in this case. Unless AT&T refiles the petition, it is very possible that the FCC might not take any further action on AT&T’s petition.

The ruling is noteworthy in several respects. First, it is something of a surprise that the court so closely scrutinized a ruling in an area in which the law affords the FCC such broad discretion. If nothing else, the case stands for the proposition that the FCC cannot easily brush aside difficult forbearance petitions on procedural grounds. Likewise, if AT&T (or some other party) refiles the petition, the pending matter could put added pressure on the FCC to issue a ruling in its IP-Enabled Services proceeding docket.

Please contact us if you have any questions regarding the implications of this ruling. We will keep you apprised of future developments.