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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Silver Star Telephone Company, Inc. ) CCB Pol 97-1 Petition for Preemption ) and Declaratory Ruling ) MEMORANDUM OPINION AND ORDER Adopted: August 19, 1998 Released: August 24, 1998 By the Commission: I. INTRODUCTION 1. Pursuant to section 1.106 of the Commission's rules, the Wyoming Public Service Commission (Wyoming Commission) and a collection of Wyoming incumbent local exchange carriers (the Wyoming Group) filed petitions for reconsideration of the Commission's Silver Star Preemption Order. For the reasons discussed below, we deny the petitions for reconsideration. II. BACKGROUND 2. In the Silver Star Preemption Order, the Commission exercised its preemption authority under section 253(d) of the Communications Act, as amended. In particular, the Commission preempted the enforcement of two legal requirements of the State of Wyoming: (i) a provision of the Wyoming Telecommunications Act of 1995 (Wyoming Act) that empowers certain incumbent local exchange carriers (LECs) serving 30,000 or fewer access lines in Wyoming to preclude anyone from providing competing local exchange service in their territories until at least January 1, 2005; and (ii) an order of the Wyoming Commission denying, on the basis of this rural incumbent protection provision, the application of Silver Star Telephone Company, Inc. (Silver Star) for a "concurrent" Certificate of Public Convenience and Necessity (CPCN) to provide local exchange service in competition with the certificated incumbent LEC in the Afton, Wyoming local exchange area. 3. In ordering such preemption, the Commission determined, inter alia, that the rural incumbent protection provision and the Wyoming Commission's Denial Order fall within the proscription of entry barriers set forth in section 253(a), because they enable certain incumbent LECs to prohibit -- legally, absolutely, and entirely at their own discretion -- the ability of any entity to provide competing local exchange telecommunications service. The Commission also determined that those Wyoming legal requirements are not "competitively neutral" within the meaning of section 253(b), because they award certain incumbent LECs the ultimate competitive advantage -- preservation of monopoly status -- and simultaneously saddle potential new entrants with the ultimate competitive disadvantage -- an insurmountable barrier to entry. Given the dispositive nature of these determinations, the Commission declined to decide whether the rural incumbent protection provision and the Denial Order are "necessary" to preserve and advance universal service and ensure the continued quality of telecommunications services within the meaning of section 253(b). III. DISCUSSION 4. Both the Wyoming Commission and the Wyoming Group claim that, under the ruling in Iowa Utilities Board v. FCC, the Commission lacks jurisdiction to preempt the rural incumbent protection provision and the Denial Order pursuant to section 253 because those State legal requirements pertain primarily to intrastate communications. We have already rejected that position in other proceedings. We reiterate that, because sections 253(a) and 253(d) of the Communications Act expressly empower the Commission to preempt the enforcement of State legal requirements restraining the provision of intrastate telecommunications services, the limitation on the Commission's authority over intrastate matters set forth in section 2(b) of the Communications Act does not apply to the Commission's preemption authority under section 253. Consequently, we reject petitioners' contention that the Silver Star Preemption Order exceeds the Commission's jurisdiction. 5. The Wyoming Commission contends that the Commission erred in concluding that the rural incumbent protection provision is a prohibition of competitive entry proscribed by section 253(a). The Wyoming Commission points out that an incumbent LEC loses its ability to block competitive entry if it: (i) fails to provide the local exchange service for which a concurrent CPCN is sought; (ii) obtains a concurrent CPCN to provide competing local exchange service outside of its incumbent territory; or (iii) begins providing competing cable service. 6. Notwithstanding these aspects of the Wyoming Act relied upon by the Wyoming Commission, the rural incumbent protection provision can prohibit the ability of entities to provide competing local exchange telecommunications services. Silver Star, for example, was barred for over a year from providing local exchange service in Afton, Wyoming, solely because the rural incumbent protection provision required the Wyoming Commission to heed the incumbent LEC's request to deny Silver Star's CPCN application. 7. Moreover, a potential new entrant cannot do anything to avoid or hurdle the rural incumbent protection provision's bar. The incumbent LEC, instead, has essentially unfettered discretion to determine whether the rural incumbent protection provision will operate to preclude competitive entry in its territory. The incumbent LEC has total control over whether to exercise its veto power over CPCN applications in a particular case and whether to engage in conduct that would void its veto power in the future. Thus, from the perspective of a potential new entrant that is denied a CPCN by operation of Wyoming law, the rural incumbent protection provision's prohibition is absolute. 8. In any event, whether the rural incumbent protection provision is deemed to be "absolute," "conditional," or something else, the fact remains that it is designed to prohibit the ability of entities to provide competing local exchange telecommunications services, which section 253(a) forbids. Moreover, the Wyoming Commission fails to explain why an incumbent LEC's decision not to compete outside of its incumbent territory justifies insulating that provider from competition within its incumbent territory. Accordingly, we reject the Wyoming Commission's contention that the rural incumbent protection provision falls outside the proscription of section 253(a). 9. According to the Wyoming Group, the Commission erred in determining that the rural incumbent protection provision and the Denial Order are not "competitively neutral" within the meaning of section 253(b) of the Communications Act. In the Wyoming Group's view, the rural incumbent protection provision and the Denial Order are, in fact, competitively neutral, because those legal requirements subject all potential new entrants into small local exchange markets to the same possibility of exclusion. The Wyoming Group argues, in other words, that a state legal requirement is competitively neutral as long as it treats all new entrants equally, regardless of whether it favors incumbent LECs over new entrants: "Neutrality" in the context of the authority granted to the states by Section 253(b) to preserve and advance universal service, requires merely that when states introduce measures to further these goals, the implementation of these measures must apply equally to all new entrants. Clearly, neither Section 253 specifically, nor the 1996 Act generally, requires that incumbents and new entrants be treated equally. 10. We reject the Wyoming Group's interpretation of the phrase "competitively neutral" in section 253(b) of the Communications Act. In particular, we reject the view that a state legal requirement is competitively neutral as long as it treats all new entrants equally, regardless of whether it favors incumbent LECs over new entrants (or vice-versa). Neither the language of section 253(b) nor its legislative history suggests that the requirement of competitive neutrality applies only to one portion of a local exchange market -- new entrants -- and not to the market as a whole, including the incumbent LEC. Indeed, the plain meaning of section 253(b) and the predominant pro-competitive policy of the 1996 Act indicate just the opposite. Specifically, section 253(b)'s reference to competitive neutrality contains no hint of market segmentation, and requiring competitive neutrality market-wide minimizes the States' capacity to create market entry barriers. As a result, in various similar contexts the Commission has consistently construed the term "competitively neutral" as requiring competitive neutrality among the entire universe of participants and potential participants in a market. 11. We hold, therefore, that section 253(b) cannot "save" a state legal requirement from preemption pursuant to sections 253(a) and (d) unless, inter alia, the requirement is competitively neutral with respect to, and as between, all of the participants and potential participants in the market at issue. Accordingly, we affirm the Silver Star Preemption Order's determination that the rural incumbent protection provision and the Denial Order are not competitively neutral, even though they disadvantage all potential new entrants equally vis-a-vis certain incumbent LECs. 12. The Wyoming Group further maintains that the Silver Star Preemption Order breaches the Commission's statutory duty to preempt only "to the extent necessary." According to the Wyoming Group, the Commission did not need to "grant an unfettered state certificate to Silver Star, supplant state certification authority entirely, and void the Wyoming statute." In the Wyoming Group's view, the Commission could have achieved its aims through at least two "less draconian options": (i) directing the State of Wyoming to reduce the duration of the rural incumbent protection provision, or (ii) directing the State of Wyoming to review periodically whether the rural incumbent protection provision has outlived its utility. 13. The Wyoming Group's argument has two fatal flaws. First, the Wyoming Group mischaracterizes the holding of the Silver Star Preemption Order. The Silver Star Preemption Order neither grants an unfettered state certificate to Silver Star nor supplants state certification authority. Indeed, the Silver Star Preemption Order expressly denies Silver Star's request for such relief. The Wyoming Commission's authority to grant and deny CPCNs remains almost entirely intact. The lone and narrow exception is that the Wyoming Commission cannot deny a potential new entrant's application for a concurrent CPCN solely because an incumbent LEC opposes the application. Second, neither of the "less draconian options" proposed by the Wyoming Group would afford potential new entrants any meaningful relief at this time. Such entities would remain subject to incumbent LEC vetoes for the indefinite future. Preempting the enforcement of the rural incumbent protection provision, therefore, is certainly "necessary" to correct the market barrier forbidden by section 253(a) that exists today. Accordingly, we reject the Wyoming Group's contention that the Silver Star Preemption Order exceeds our authority under section 253(d). 14. The Wyoming Group also argues that the Commission erred in concluding that "the specific mechanisms listed in Section 251(f) [, Section 253(f),] and Section 214(e)(2) are the exclusive remedies a State may employ to address its universal service concerns." The Wyoming Group again mischaracterizes what the Commission concluded in the Silver Star Preemption Order. What the Commission actually stated regarding sections 251(f), 253(f), and 214(e)(2) of the Communications Act was the following: because those federal provisions afford States special and carefully crafted latitude to regulate the emergence of competition in markets served by rural telephone companies, Congress did not intend to permit States to exceed that latitude by imposing the much more competitively restrictive regulation of a categorical ban on entry. The Commission did not state or imply that those provisions of the Communications Act constitute the exclusive means to promote universal service. Indeed, the only mechanism for purportedly promoting universal service that the Silver Star Preemption Order precludes is one that prohibits competitive entry. In reality, therefore, the Silver Star Preemption Order has little impact on the States' authority to adopt legal requirements to promote universal service, and only to the extent plainly required by Congress. 15. Like the Wyoming Group, the Wyoming Commission contends that section 251(f) of the Communications Act undermines rather than supports the Silver Star Preemption Order. To buttress this contention, the Wyoming Commission first posits that the relief from interconnection obligations accorded to rural incumbent LECs by section 251(f) is "effectively identical" to the relief from competition accorded to rural incumbent LECs by the rural incumbent protection provision. The Wyoming Commission then observes that section 251(f) does not establish any time limit for its relief, whereas the rural incumbent protection provision does establish such a limit, i.e., January 1, 2005 (or possibly January 1, 2008). In the Wyoming Commission's view, therefore, the rural incumbent protection provision is actually a narrower impediment to competition than the obstacle authorized by Congress in section 251(f); and Congress surely did not contemplate that the Commission would preempt State legal requirements that are less competitively restrictive than the Communications Act itself. The Wyoming Commission concludes, as a result, that the Commission should not preempt the enforcement of the rural incumbent protection provision. 16. We reject this contention because we reject its premise. The relief from interconnection obligations accorded to rural incumbent LECs by section 251(f) is not "effectively identical" to the relief from competition accorded to rural incumbent LECs by the rural incumbent protection provision. First of all, section 251(f) permits relief only if a State commission determines that other important concerns specified by Congress will seriously suffer otherwise; the rural incumbent protection provision, by contrast, permits relief whenever the incumbent LEC seeks it, even in the absence of a showing of need. Furthermore, a State commission's determination to afford relief from interconnection obligations under section 251(f) presumably will arise from fair and open proceedings, and will be subject to judicial review; an incumbent LEC's decision to veto competition under the rural incumbent protection provision, however, is conclusive. Moreover, the rural incumbent protection provision affords relief from competition, whereas section 251(f) affords relief only from interconnection obligations. The former makes competitive entry impossible; the latter certainly makes competitive entry more difficult, but it does not preclude such entry altogether. We believe, therefore, that section 251(f) is less competitively restrictive than the rural incumbent protection provision. 17. In addition, absent the Silver Star Preemption Order, the rural incumbent protection provision would render section 251(f) of the Communications Act superfluous in Wyoming, at least until January 1, 2005. If rural telephone companies in Wyoming would face no competition during that time, they certainly would not need to invoke the relief from interconnection obligations provided in section 251(f). This provides further evidence that Congress did not intend to permit States to enact prohibitions of competition in rural areas. We conclude, accordingly, that section 251(f) does not support reversal or revision of the Silver Star Preemption Order. 18. Apart from the contentions rejected above, neither the Wyoming Commission nor the Wyoming Group raises an argument not already addressed in the Silver Star Preemption Order. Most notably, the Wyoming Commission fails to even mention, much less address in any detail, one of the Silver Star Preemption Order's central conclusions -- that the rural incumbent protection provision is not "competitively neutral" within the meaning of section 253(b) of the Communications Act. Moreover, both the Wyoming Commission and the Wyoming Group neglect to discuss the Attorney General Opinion, in which the Attorney General of the State of Wyoming seems to conclude -- as does the Silver Star Preemption Order -- that enforcement of the rural incumbent protection provision is subject to preemption under section 253. 19. By and large, what the Wyoming Commission and the Wyoming Group do in their petitions, instead, is restate an argument made previously: that the rural incumbent protection provision is somehow "necessary" within the meaning of section 253(b) of the Communications Act. As in the Silver Star Preemption Order, we need not and do not reach that argument in this Order, because we affirm our conclusion that the rural incumbent protection provision is not "competitively neutral" as required by section 253(b). Nevertheless, what the Commission said in the Universal Service Order regarding the "false choice" between competition and universal service bears reiteration: Commenters who express concern about the principle of competitive neutrality contend that Congress recognized that, in certain rural areas, competition may not always serve the public interest and that promoting competition in these areas must be considered, if at all, secondary to the advancement of universal service. We believe these commenters present a false choice between competition and universal service. A principal purpose of section 254 is to create mechanisms that will sustain universal service as competition emerges. We expect that applying the policy of competitive neutrality will promote emerging technologies that, over time, may provide competitive alternatives in rural, insular, and high cost areas and thereby benefit rural consumers. For this reason, we reject assertions that competitive neutrality has no application in rural areas or is otherwise inconsistent with section 254. Moreover, by requiring competitive neutrality of any state legal requirement that effectively prohibits the ability of an entity to provide local exchange service, Congress has already decided, in essence, that outright bans of competitive entry are never "necessary" to preserve and advance universal service within the meaning of section 253(b). 20. We note, in conclusion, that after the petitions for reconsideration of the Silver Star Preemption Order were filed, the Wyoming Commission granted Silver Star's application for a concurrent CPCN to serve the Afton, Wyoming exchange. The Wyoming Group argues that this action by the Wyoming Commission requires us to vacate the Silver Star Preemption Order. According to the Wyoming Group, preemption of the enforcement of Wyoming law is no longer "necessary" within the meaning of section 253(d) because (1) Silver Star has now obtained from the Wyoming Commission the relief it sought from us, and (2) Wyoming law, as applied to Silver Star, does not presently fall within section 253(a)'s proscription of barriers to competitive entry. 21. We reject the Wyoming Group's contention. For the following reasons, we hold that the Wyoming Commission's decision to grant Silver Star's application for a concurrent CPCN to serve the Afton, Wyoming exchange does not warrant vacating the Silver Star Preemption Order as unnecessary or moot under section 253(d). 22. First, the Wyoming Commission did not base its Approval Order on a determination that the rural incumbent protection provision is invalid, unlawful, or unenforceable. Instead, the Wyoming Commission based its Approval Order on a determination that, in light of a change in key circumstances since the Denial Order, the rural incumbent protection provision was no longer relevant. Indeed, the Wyoming Commission stated that it "specifically consider[ed] neither the alternative standard of W.S.  37-15-201(c) [i.e., the rural incumbent protection provision] nor the effectiveness under federal law of its preemption by the FCC which we have formally challenged." In sum, the Approval Order does not nullify the rural incumbent protection provision. We must assume, therefore, that but for the Silver Star Preemption Order, the Wyoming Commission would continue to follow that provision and deny any future concurrent CPCN application to which an eligible incumbent LEC duly objected. Consequently, the Silver Star Preemption Order remains "necessary" to remedy the Wyoming law's improper erection of barriers to the provision of competitive local exchange service. 23. Second, the plain language of section 253(d) of the Communications Act empowers the Commission to preempt upon its own motion (after notice and an opportunity for public comment). We may preempt under section 253(d), therefore, in the absence of a directly aggrieved party or even a petition seeking preemption. Consequently, the elimination of present harm to Silver Star does not translate to the elimination of the Commission's authority to preempt under section 253. Moreover, independent of Silver Star's circumstances, the rural incumbent protection provision creates controversy and confusion concerning the extent to which the State of Wyoming lawfully may impede the advent of competition. Thus, we have discretion to affirm the Silver Star Preemption Order to terminate the controversy and remove uncertainty. 24. In sum, we conclude that the petitions for reconsideration do not raise any argument warranting reversal, revision, or vacation of the Silver Star Preemption Order. Consequently, we deny the petitions for reconsideration. IV. ORDERING CLAUSE 25. Accordingly, IT IS ORDERED, pursuant to sections 253 and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  253 and 405, and section 1.106 of the Commission's rules, 47 C.F.R.  1.106, that the Petitions for Reconsideration filed by the Wyoming Commission and the Wyoming Group on October 24, 1997, ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary