Court Questions Whether Data Roaming Mandate Imposes Common Carrier Requirements

The court has to decide whether the requirement to accept data roaming agreements treats Verizon as a common carrier, even as the rule is limited by language saying carriers can require “commercially reasonable” terms and conditions, said Judge Merrick Garland. But common carriers have to deal with all, and file just and reasonable rates, he said: “This looks nothing like that."

"There’s clearly room for the FCC to impose common carrier-like requirements” on those who are not common carriers “without running afoul of the statute,” said Judge David Tatel. This data roaming mandate seems “very different” from the common carrier obligation to serve anyone at any time, he said.

Walker said the order set out a “sweeping new theory of authority” under the Title III licensing obligations, far greater than what the commission is statutorily authorized to do. The commission wanted to make the rule look flexible, but it’s not, Walker said. The order states carriers must offer data roaming arrangements to those who have asked. It’s a “flat obligation” backed up by “very coercive measures,” she said. “That is a very onerous regime."

The FCC had said previously that voice roaming is a common carrier obligation, and the data roaming order is an “outgrowth” of the voice roaming order, Walker said. It’s “not reasonable for them to maintain this fiction that it isn’t common carrier regulation because ‘we changed some words here and there,'” she said. But, Tatel said, the FCC said voice roaming was a common carrier obligation “in the context” of common carriage; it doesn’t necessarily mean roaming is common carriage in every context.

Tatel asked whether the commission can do this under Section 303(b), which gives the commission authority to “prescribe the nature of the service to be rendered.” Requiring data roaming goes far beyond the powers granted in that section, Walker said. This rule “dictates the contract terms,” she said, and there is no case law that states the FCC can impose this sort of “substantive economic regulation” under Section 303(b), she said. “The commission can force us to enter into contracts against our will with third parties,” she said. “Where’s that on the face of 303(b)?"

Garland asked Walker if it was Verizon’s position that it can refuse to allow roaming with anyone, and that the FCC cannot require the carrier to accept data roaming from another carrier. “Your answer is you can’t legally be compelled,” Garland told her. Walker responded that the FCC has taken away Verizon’s “ability to say no.” Said Garland: You want the ability to say no, totally, to “drive a company out of business” or to offer terms that are not commercially reasonable.

The judges seem likely to uphold the FCC’s order, wrote Stifel Nicolaus analysts Christopher King and David Kaut in an industry note Thursday. “While oral arguments can sometimes be a shaky barometer of the outcome, we believe the three-judge panel … appeared skeptical of Verizon’s challenge to the FCC order,” they said. “The judges didn’t seem convinced by the Verizon argument that the FCC’s actions conflicted with its past decisions and rationales. In addition, Judge Garland seemed concerned that a Verizon legal victory would allow the Bells to simply deny data roaming, leaving competitors without viable alternatives in much of the country, though on another point raised by Verizon, he allowed, ‘I haven’t made up my mind.'"

Garland referred to the list of 17 factors the commission will consider in resolving data roaming disputes. The factors, stated in the order, include whether the host provider has “engaged in a persistent pattern of stonewalling behavior”; whether the terms and conditions are “so unreasonable as to be tantamount to a refusal to offer a data roaming arrangement”; and whether the host provider’s decision to not enter into a roaming arrangement is based on the fact that roaming is not “technically feasible,” or the changes that must be made to the host network to accommodate roaming are not “economically reasonable.” The final factor is “other special or extenuating circumstances.” These factors are “not exactly restraining,” Garland said. And Verizon could always come before the court to argue that the commission had acted arbitrarily and capriciously in applying them, he said.

But the factors take Verizon’s legitimate exercise of business judgment “off the table,” Walker said. The premise of the order is that data roaming is a “public good” and people should have access to it, she said. When one party can’t say no, it changes the negotiation, she said: “It colors everything that we do when people come in and ask for these arrangements.” The mandate is a prohibited common carrier regulation, “affirmatively fenced off by Congress,” and it opens up a “vast new frontier” of FCC authority under Title III’s licensing provisions, she said. “Free iPhones would promote nationwide connectivity as much as this would, but does the FCC really think it could do that?"

FCC Deputy General Counsel Peter Karanjia said the commission plainly acted under Section 303(b)’s licensing provision, and under Section 316, which allows for the modification of licenses. Case law clearly establishes that obligations to deal do not always create common carrier obligations, he said. In any case, if the order carried obligations to hold out service indiscriminately, then it would be a common carrier obligation, he said, but it doesn’t. Common carriers have to give the same terms to anyone who requests them, and can only engage in price discrimination if it’s based on actual costs. The order doesn’t carry any such language, he said.

Karanjia regaled the court with examples of when it might be “commercially reasonable” to charge different companies different prices, or to decline to do business altogether. Verizon is fully entitled to reject service for data roaming if there are technical incompatibilities between a 3G operator wanting to connect to its 4G network, he said. Or Verizon could provide data roaming service to one carrier, and as market conditions change, charge more to provide service to another carrier -- a move that would clearly not be reasonable under a common carrier principle, he said. “The requirement to hold out the same terms and conditions would be classic common carriage,” he said. “The order made perfectly clear, repeatedly, that it is absolutely not that.”