The FCC has been considering comprehensive intercarrier compensation reform for more than a decade, and on more than one occasion has appeared to be on the brink of issuing a major decision.  Now, once again, there are signs that the FCC may finally take action in this complex area which presents some of the most intractable issues in telecommunications.  This post will provide some background on this issue and focus on one of the more controversial aspects of the debate – possible preemption by the FCC of what have traditionally been intrastate ratemaking decisions.

On May 26, 2011, the Federal Communications Commission (“FCC”) released an Order clarifying that telecommunications carriers with rural exemptions under the Telecommunications Act of 1996 (“Telecom Act”)  still have the obligation to  negotiate interconnection under Sec. 251(a) and (b) of the Telecom Act and that state commissions have jurisdiction to arbitrate disputes arising from those negotiations.   Specifically, the FCC reaffirmed that:

all telecommunications carriers, including rural carriers covered by section       251(f)(1), have a basic duty to interconnect their networks under section 251(a) and that all LECs, including rural LECs covered by section 251(f)(1), have the obligation to comply with the requirements set forth in section 251(b).  We also clarify that a rural carrier’s exemption under section 251(f)(1) offers an exemption only from the requirements of section 251(c) and does not impact its obligations under sections 251(a) or (b).

In the Matter of Petition of CRC Communications of Maine, Inc. and Time Warner Cable Inc. for Preemption Pursuant to Section 253 of the Communications Act, as Amended, WC Dkt No. 10-143 (FCC, May 26, 2011).

The FCC’s ruling arose out of a dispute before the Maine Public Utility Commission (“PUC”), which had a concluded that carriers with rural exemptions had no duty to negotiate obligations under 251(a) and (b), and that the state commissions had no duty to arbitrate any disputes until the rural exemption is lifted.  Time Warner Cable asked the FCC to preempt this decision, and similar state commission decisions (none by the Pennsylvania PUC).

The FCC examined the scope of the rural exemption  under 251(f)(1) and concluded that it only exempts rural telephone companies from the obligations imposed on incumbent telephone companies under 251(c), and thus does not exempt them from obligations under 251(a) (which apply to all telecommunications carriers) or 251(b) (which apply to all local exchange carriers).  The FCC then proceeded to address the question, not expressly addressed in the Telecom Act, of whether disputes over a rural carrier’s  251(a) and (b) obligations could be resolved by state commissions under the Telecom Act’s arbitration provisions.  The FCC interpreted the arbitration power of the state commissions to include any dispute under Sec. 251, not just those arising under Sec. 251(c).   The FCC concluded that “our approach allows the rural incumbent LEC to retain its exemption from more rigorous section 251(c)(2) interconnection, as well as unbundling and wholesale access requirements, while still providing it the procedural protections of having state commissions arbitrate section 251(a) and (b) interconnection and services requests.”

This decision reaffirms the rural carriers’ obligations to adhere to the market opening provisions in Sec. 251(a) and (b) of the Telecom Act.  At the same time, the FCC interpreted the arbitration power of the state commissions very broadly.  While the Pennsylvania Public Utility Commission has not addressed this precise issue, its actions, both in its treatment of rural carriers and its exercise of its arbitration jurisdiction, has been consistent with the FCC’s conclusions.