The Impossible Dream: Forbearance after the Phoenix Order

Abstract

The Federal Communications Commission ("FCC") recently announced a new "market power" test to analyze whether forbearance is appropriate under Section 10 of the Communications Act. As we explain, the standard for forbearance set forth by the FCC effectively renders, perhaps inadvertently, Section 10 of the Act moot by establishing a forbearance threshold - price equals marginal cost - that is impossible to satisfy in most (if not all) communications markets. In fact, the pricing standard set forth by the Commission implies that even Total Element Long-Run Incremental Costs (“TELRIC”), the long-fought pricing standard for unbundled network elements, is “unjust and unreasonable.” While the agency’s formulation of the standard is plain enough, we suspect these implications of its new “market power” standard are largely unintended. Whether intentional or otherwise, it is certain that the FCC's new forbearance analysis will require significant modification in the future to be useful. Establishing a forbearance threshold that is impossible to realistically satisfy necessarily fails to foster a “pro-competitive, deregulatory national policy framework” and guarantees the perpetuation of outdated and unnecessary regulations prone to reduce economic efficiency, curb investment, and impede innovation in the communications industry.

Keywords: Federal Communications Commission, Section 10, Forbearance, Phoenix Order, Market Power, Marginal Cost, TELRIC

JEL Classification: K20, K23, L11, L21, L50, L51, L52, L96, O33, O38