Verizon, Qwest Seek to Overturn FCC Rate Freeze

Verizon Communications Inc. and other parties have asked a federal court to throw out a set of temporary regulations banning giant regional phone companies from raising the wholesale rates they charge competitors for at least six months.

The legal action comes after the Federal Communications Commission issued the temporary rate freeze on Friday. The rivals, including AT&T Corp. and MCI Inc., have no local network of their own and depend on the regulated rates to offer their own brand of local phone service.

Verizon, along with Qwest Communications International Inc., argued in yesterday's filing that the six-month delay was little more than an effort by the FCC to avoid implementing an order by the U.S. Court of Appeals for the District of Columbia to scrap the rules. The court found in March that the agency had failed to justify why the rates were necessary in order to promote competition in the local phone business.

The appeals court ruling was the latest defeat for regulations that have been at the center of an intense legal battle for the past eight years.

"It is simply inexcusable for the FCC to flout a binding judicial determination yet again, and to extend those never-lawful requirements for nearly another year," the regional giants stated in their motion. Also joining the legal brief was the United States Telecom Association, a trade group representing the nation's four major regional phone companies, often referred to as the Baby Bells because they were formed from the breakup of AT&T, long known as Ma Bell.

FCC spokesman David Fiske declined to comment yesterday on the filing.

Although the rules have been a source of legal controversy since Congress passed the Telecommunications Act of 1996, the latest court decision appears to be a turning point for the industry. In the wake of the March court order, AT&T announced it would no longer market long-distance service to consumers, a dramatic statement by a company that effectively founded the telephone industry in the early part of the 20th century.

In just the past three years, regional phone giants have been able to take millions of customers from long-distance carriers including AT&T and MCI by selling local and long-distance service in a single package. AT&T said that without the ability to offer local service at competitive prices, it could not compete for consumers against the regional phone giants and would instead focus on the business market.

Consumer advocates say the FCC's former rules promoted competition and helped keep rates down for consumers. When the rivals began offering cut-rate plans including unlimited local and long-distance service, the former Bell companies had no choice but to respond, said Mark Cooper, director of research for the Consumer Federation of America.

The demise of the wholesale discounts for Verizon's competitors will inevitably lead to rate hikes for consumers. "For the 19 to 20 million [customers of competitors] and the 40 million customers of bundled plans offered by the Bells, they are going to see prices go up. The only question is when," Cooper said.

In June the Bush administration essentially sealed the fate of the rules when it decided not to appeal the appeals court's decision to the Supreme Court. As the Bush administration weighed the decision, the four regional phone giants made a voluntary commitment to keep the current rates in place at least through the November presidential election. The regional giants made the commitment after AT&T and other competitors threatened to air advertisements pointing out that any rate hikes would be the result of the Bush administration's decision to forgo an appeal.

Verizon said it would keep its rates in place until Nov. 11. SBC Communications Inc., BellSouth Corp. and Qwest said they would honor their agreements until the end of the year.

Competitors, including AT&T, say yesterday's filing was an effort by the regional phone giants to back away from their public commitments to the FCC.

"Obviously, the Bells' promise that they would freeze wholesale rates was empty. The FCC shouldn't be surprised that when you play with snakes, you get bitten," said AT&T spokeswoman Claudia Jones.

In response, Verizon argued that it had to take legal action because the temporary rules extend the rate freeze until at least February and possibly even longer if it fails to put final rules in place by the time the interim regulations expire.

"Now we find ourselves having to join with others in challenging the FCC's so-called interim rules that extend the illegal status quo with no clear end in sight," said Michael Glover, Verizon senior vice president and deputy general counsel in a statement e-mailed to reporters.