US Tenth Circuit Court of Appeals Upholds FCC's Market-Power Framework

Keywords: FCC, market-power framework, forbearance petitions

In Qwest Corp. v. FCC, No. 10-9543 (10th Cir. Aug. 6, 2012), the US Court of Appeals for the Tenth Circuit upheld the Federal Communication Commission's decision to adopt a flexible market-power framework for analyzing forbearance petitions. The market-power framework, which is similar to the analysis used in other FCC proceedings as well as by antitrust regulators, replaces the Commission's prior framework, which had focused on a more limited set of market metrics. This new framework affords the Commission substantially more discretion and creates considerably more uncertainty than the prior approach, presenting challenges for telecommunications providers seeking regulatory forbearance. This decision could also lead the Commission to adopt a similar market power analysis in other regulatory contexts.

Section 10 of the Telecommunications Act of 1996 provides that the FCC shall forbear from applying any regulation or statutory provision if it finds that enforcement is no longer necessary to ensure fair rates, protect consumers, and advance the public interest. If a carrier petitions the Commission for forbearance, the Commission must either grant the petition or explain within approximately one year why the requirements for forbearance are not met.

In 2004, Qwest sought forbearance from dominant carrier regulation and unbundling requirements in the Metropolitan Statistical Area (MSA) of Omaha, Nebraska. In granting that petition, the Commission adopted a two-prong test.1 Under the first prong, the Commission looked to retail market share to determine whether the incumbent carrier had a market share below a specified threshold. Under the second prong, the Commission examined whether a competing carrier offered sufficient geographic coverage in the market to reach a significant percentage of end-users.

In 2007 and 2008, the Commission denied two similar petitions filed by Verizon and Qwest seeking similar relief in various MSAs, including for the Phoenix, Arizona MSA.2 Verizon and Qwest appealed the Commission's orders to the DC Circuit. Hearing Verizon's appeal first, the court reversed and remanded the Verizon order and, upon the FCC's request, voluntarily remanded the Qwest order as well.3

Following remand of the two orders, Qwest petitioned the Commission in March 2009 for regulatory forbearance in the Phoenix MSA. The petition demonstrated that Qwest's market share was less...