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  •   Supreme Court Accepts Phone Rivalry Case

    By Joan Biskupic and Mike Mills
    Washington Post Staff Writers
    Tuesday, January 27, 1998; Page D01

    The Supreme Court announced yesterday that it will resolve a dispute over federal regulations intended to bring greater competition, and potentially lower consumer prices, to the nation's $110 billion local telephone markets.

    The justices will hear a challenge brought by the Clinton administration and long-distance companies to a lower-court ruling that sharply curtailed the ability of federal regulators to set terms on the prices that competitors must pay to connect to local phone networks.

    The Justice Department said the ruling last July by the 8th U.S. Circuit Court of Appeals undercut government efforts to carry out a central goal of the 1996 Telecommunications Act, breaking down monopolies and fostering competition in the local calling industry dominated by the regional Bell companies and GTE Corp.

    But the dispute – actually, eight consolidated cases – will not be heard by the high court until the fall, and a decision might be at least a year away. That is likely to further delay new competition both in local markets and the long-distance industry.

    Although the dispute involves terms for prices and connections in local competition, an overriding question is the Federal Communications Commission's ability to set national policy – possibly at the expense of individual states – under the 1996 statute representing the greatest overhaul of telecommunications law this century.

    Analysts said the high court's decision could delay not only the pace of local telephone competition but also efforts by the regional Bell companies to enter the long-distance business. The FCC must approve a Bell company's request to offer long-distance, but first agency members must be persuaded that a Bell company sufficiently allows local phone competition.

    The 8th Circuit ordered the FCC on Jan. 23 to "cease and desist" from requiring that its pricing guidelines be applied as a condition for approving a Bell company's application to offer long-distance service. The FCC in August had rejected a petition by Ameritech Corp., a Midwest regional phone company, to offer long-distance service in Michigan, in part on grounds that it failed to follow FCC pricing guidelines when setting its connection rates for competitors.

    "This is going to slow everybody down," said Stephanie Comfort, a telecommunications analyst with Morgan Stanley Dean Witter. "It will be hard for states to make decisions" on local competition issues with the case pending, she said.

    The 1996 law requires existing local telephone companies to sell the use of their equipment and service connections to competitors, so long-distance providers such as MCI Communications Corp. and AT&T Corp. can offer their local service to customers.

    The purchasing method primarily at issue involves a competitor's ability to buy access to the entire telephone network at a discount wholesale rate, and then to sell that service under its own brand name. (Because it would be exorbitantly expensive for a company trying to break into the market to build a network from scratch, reselling service is seen as a good, although short term, way to enter the residential calling market.)

    But the regional Bells and GTE have been fighting with AT&T, MCI, Sprint Corp. and other potential new local service rivals over network pricing and connection costs. Most discounts negotiated across the country have been in the 15 percent to 25 percent range – not enough, AT&T and MCI officials have said recently, to make it worthwhile for their companies to pursue a resale approach.

    The FCC attempted in 1996 to ensure that new competitors would get a deeper discount by proposing pricing "guidelines" that states should use when arbitrating disputes over interconnection terms between local carriers and upstarts. The guidelines required that the local carriers should only be allowed to charge rivals for the basic cost of providing the service.

    The Bells and GTE, which have long argued that the rates should also compensate them for their "historical" investments in the networks, sued the FCC, alleging the commission had overstepped its authority by interfering with local regulators' right to determine prices.

    The 8th Circuit in St. Louis agreed, saying Congress did not clearly give the FCC the jurisdiction to enforce national rules related to wholesale prices of local networks. Writing for the court, Judge David R. Hansen said the provision of the law safeguarding states' authority "remains a Louisiana-built fence that is hog tight, horse high, and bull strong, preventing the FCC from intruding on the states' intrastate turf."

    The 8th Circuit also threw out several other FCC rules, including one that allowed competitors to purchase separate components of local phone networks at lower prices, while requiring the local phone company to "re-bundle" them into a complete service. The Supreme Court agreed yesterday to also review the issue of rebundling and its pricing standards.

    Representing the FCC, Solicitor General Seth P. Waxman has argued that Congress gave the commission pricing authority when it required it to implement within six months of the law's enactment requirements relating to prices. The 8th Circuit said that section refers only to a deadline, not particular authority.

    "It would be much better for us if we could play using nationwide rules," AT&T President John Zeglis said yesterday after the court announced it would take up the appeal.

    But William B. Barfield, BellSouth Corp.'s associate general counsel, said, "Different parts of the country have different realities in terms of the costs to provide service and the federal government should respect the jurisdiction and judgment of the states."

    The cases at the Supreme Court are AT&T vs. Iowa Utilities Board; MCI vs. Iowa Utilities Board; FCC vs. Iowa Utilities Board; Association for Local Telecom Services vs. Iowa Utilities Board; Ameritech vs. FCC; GTE Midwest vs. FCC; U.S. West vs. FCC; and Southern New England Telephone vs. FCC.

    The consolidated case that the Supreme Court took up yesterday isn't the only legal battle over when competition will come to local markets.

    U.S. District Judge Joseph Kendall, in a Dec. 31 ruling, sided with Bell companies SBC Communications Inc. and US West Corp., which contend that the law "punishes" them unconstitutionally by keeping them out of the long-distance market.

    The government and long-distance carriers are seeking a motion to postpone that decision, which effectively would allow SBC, US West and Bell Atlantic (which joined the suit on Dec. 30) immediately into the long-distance market.

    © Copyright 1998 The Washington Post Company

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