A U.S. appeals court today overturned some key FCC positions on UNE-P line-sharing, resulting in a rally for the shares of incumbent service providers and applause from the minority seats in the FCC.

In last August's Triennial Review, the FCC delegated much of the regulation of local telecom line-sharing to individual states. At the same time, the FCC rules said carriers had no obligation to share access to any new construction of fiber optic broadband access. The decision deeply divided the FCC, which split 3 to 2 on the decision on UNE-P and states' rights (see FCC Rumbles on the Rules , Fiber Surprise in FCC Rules? ).

Today, the U.S. Court of Appeals, D.C. Circuit, said the FCC had no authority to hand control of UNE-P line-sharing over to the states. It also upheld provisions exempting line-sharing requirements for newly built fiber-access line sharing.

The decision shows that the federal courts are inclined to strike down the FCC's efforts to regulate line-sharing -- and appear to significantly undermine the authority of the Commission. The court granted a 60-day stay of the order to give the FCC a chance to appeal, but the language was strong and indicated that the courts are anxious to put the issue to rest:

"This deadline is appropriate in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings."

D'oh!

The decision also adds an additional twist to an already complicated political scenario at the FCC: Chairman Michael Powell, who found himself on the losing end of the battle to eliminate line-sharing, in the Triennial Review, now finds himself being supported by the courts.

The FCC decision last August put Chairman Powell in the awkward position of being on the minority side of the UNE-P battle. He was abandoned by fellow Republican Kevin Martin, who switched sides to vote with democratic commissioners Jonathan Adelstein and Michael Copps to oppose the elimination of UNE-P.

Today, the majority of commissioners opposed the court decision, which essentially undermines their authority.

"We are disappointed in the Court’s decision to eliminate the Commission’s rules requiring incumbent carriers to open their legacy voice networks to competition," said a statement released by Commissioners Copps, Adelstein, and Martin. "We believe that the rules preserve competition in a manner that is lawful, and recognize the important role that states have historically played."

Meanwhile, the Powell side dug in. "Today’s court ruling upheld the Commission’s decision to spur the development and deployment of vital broadband services to all Americans," said a statement released by Powell. "As a result, our citizens will enjoy the increased capabilities, innovation, and lower prices of advanced wireline broadband services for decades to come."

In short, the FCC now finds itself in a position of having a Chairman who supports a court ruling that struck down the commission's own past efforts.

Where's it all headed? Given that the courts and the FCC are still battling over essential rules of the 1996 Telecom Act, there will be further appeals and legal wrangling. But two thing's are for sure: The FCC's authority looks to have been significantly weakened by the ruling and the incumbent providers are feeling more confident. — R. Scott Raynovich, US Editor, Light Reading