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  • Supreme Court Special Report

  •   Supreme Court Backs FCC On Phone Rules

    By Mike Mills
    Washington Post Staff Writer
    Tuesday, January 26, 1999; Page E01

    The Supreme Court yesterday upheld federal rules that let new local telephone companies connect to the Bell companies' huge networks at lower cost, a decision that could hasten the pace of competition in one of the last bastions of monopoly in telecommunications, the $100 billion-a-year business of local phone service.

    For the most part, businesses are currently the only customers that can choose which company will carry their calls across the street or across town. The Federal Communications Commission, which wrote the rules in question, contends that their enforcement will help make choice broadly available to homes in years ahead.

    The court essentially reaffirmed the FCC's powers to carry out the Telecommunications Act of 1996. That law, lawmakers had promised, would create an industry in which Americans would choose their local phone company just as they choose their long-distance or Internet companies today.

    The long-awaited ruling was a victory for the FCC and companies such as AT&T Corp. and MCI WorldCom Inc. that are entering the local-calling market and want low connection rates under one set of nationwide rules. It was a defeat for the regional Bell companies, which wanted higher connection rates.

    To nurture newcomers, the 1996 law required established local phone companies to lease capacity on their networks to competitors. This would allow the newcomers to offer full phone service as they built competing networks. It also would mean that new companies' customers could call people who still used the old phone company.

    The FCC contended the law gave it authority to issue guidelines to state regulators for those leasing rates, but the Bell companies, GTE Corp. and state regulators challenged that view in court almost immediately.

    The uncertainty created by that challenge ended yesterday. "This just brings out the lawyer in me: Vindictive, pleased at the defeat of others," joked Reed E. Hundt, who was chairman of the FCC when the challenged rules were written.

    "For three years Congress pounded the FCC, saying we didn't get it right. We were a rogue agency," Hundt said. "But we said all along that Congress couldn't conceivably have passed a national policy without giving us authority to write national rules."

    The rules the commission wrote limited established companies' ability to set rates so as to recoup money they spent building their networks. Instead, the rules required them to lease their networks at prices based only on the incremental cost of providing the service, which meant lower rates.

    The Bells and GTE took solace yesterday from winning on one issue. The court ruled that the FCC acted too broadly in forcing Bell companies to lease, piece by piece, a long list of individual network components, even if those elements – such as operator services or switches in competitive urban areas – were available elsewhere.

    On the broader jurisdictional issue, the court ruled that the FCC did not trample on states' authority when it set a nationwide blueprint for pricing methods and terms that states should use when arbitrating connection disputes between local companies and their new rivals.

    The law "explicitly gives the FCC jurisdiction to make rules governing matters to which the 1996 Act applies," wrote Justice Antonin Scalia for the majority.

    The decision overturns a ruling by the Eighth Circuit Court of Appeals in St. Louis, which agreed with the Bells, GTE and state regulators that states should be allowed to consider the "historic" cost of building local phone networks when deciding prices to charge rivals.

    The chief effect of the ruling will be to create certainty on Wall Street and within the industry, FCC Chairman William E. Kennard said yesterday.

    "The clear message to the marketplace is it's time to get down to the business of competition and put the litigation aside," Kennard said.

    The impact of the ruling might have been more pronounced had it gone against the FCC. Most states already have adopted pricing rules that closely follow the FCC guidelines.

    Bell Atlantic Corp., which is trying to win federal permission to offer long-distance service in New York, already had agreed to FCC pricing guidelines and rules on network components. In order to get that permission, it must first satisfy the FCC that it has opened the local calling market to competition.

    "Consumers are going to benefit," said Edward Young, deputy general counsel for Bell Atlantic.

    "We now know what the rules of the game are with certainty. There is going to be even more local competition and it should allow us to get into long-distance quickly."

    Opinions were divided over whether the ruling would cool, or heat up, interest in Congress to rewrite the 1996 law. The Bells have been pushing for legislation that would allow them to enter the long-distance market immediately, instead of winning permission from the FCC.

    Senate Commerce Committee Chairman John S. McCain (R-Ariz.), who voted against the law in 1996, said the court's action makes it "extremely important for the Congress to reexamine the Telecommunications Act of 1996 as we reauthorize the FCC."

    Yesterday's decision was the second Supreme Court defeat in a week for the Bells. The justices last week declined to challenge a New Orleans appeals court ruling that dismissed claims that the law amounted to an unconstitutional punishment of the Bells.

    © 1999 The Washington Post Company

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