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Appeals court backs large Bell companies Judges narrow role of state regulators

Posted on: Thursday, 4 March 2004, 06:00 CST

A federal appeals court has handed a victory to the four large regional Bell telephone companies, striking down regulations that required the Bells to lease their local networks to rival companies at low prices set by state regulators.

If the decision survives further legal challenges, it would be a substantial blow to AT&T, WorldCom and smaller companies that have relied on inexpensive access to the local networks to reach their customers.

By increasing the cost of access, the ruling, announced on Tuesday, could significantly reduce competition in local markets and lead to higher prices for callers, according to competitors of the Bell companies, consumer groups and some analysts.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit sharply narrowed the role of state regulators in overseeing competition in the phone market. It criticized the Federal Communications Commission for its delegation of authority to the states and for issuing other regulations last year that a majority of the commissioners had said were intended to make local phone markets more competitive.

After the decision, separate statements issued by the FCC chairman and another commissioner, who had opposed the rules, and by the three commissioners who approved them, suggested that the agency was in a kind of civil war over the regulations.

The three commissioners who approved the rules said they had instructed our general counsel to seek an appeal to the Supreme Court. But the chairman, Michael Powell, who dissented from the rules, said he had instructed the staff to begin drafting new regulations to comply with the appeals panel's order. A fifth commissioner who had dissented with Powell applauded the decision and urged the FCC to rewrite the rules.

As a matter of protocol, the agency will consult with the Justice Department, which argued in favor of the new rules before the court, before deciding whether to pursue an appeal.

Rivals of the Bells criticized the decision.

At a time when consumers and small-business owners are just beginning to realize the benefits of competition, the D.C. Circuit Tuesday held up a stop sign and halted eight years of progress, said James Cicconi, AT&T's general counsel. This decision is not in the public interest, but is instead in the interest of four Bell monopolies.

But executives of the regional Bell companies contended that the rules never made economic sense and in reality discouraged greater investment in local phone networks. The rules, they argued, had forced the Bells to set artificially low leasing rates to rivals.

William Daley, president of SBC Communications, said: Today's court action is a victory for consumers, and should help this industry move forward in developing healthy, sustainable and economically rational competition that will extend telecommunications innovations further and faster in the marketplace. This appears to be a victory for those who support markets free of rules that have repeatedly been judged illegal and which have eliminated jobs, shrunk investment and hurt fair competition.

The news of the decision, which came about two hours before the market closed, sent the share price of the regional Bells SBC, Verizon, BellSouth up, while AT&T shares declined.

For the time being, at least, the decision was vindication for Powell, who lost control of the commission and predicted in February 2003 that the new rules would not be able to withstand judicial challenge. He found himself in the uncomfortable position of being the first chairman in more than a decade to dissent from a major telecommunications decision.

The court upheld rules, supported by Powell and two other commissioners, that had relieved the Bell companies of their obligation to give rivals low-cost access to many of the crucial elements of their new high-speed Internet networks.

Powell issued a statement after the decision that all but said, I told you so.

I dissented from the majority's decision on local telephone competition because it was inconsistent with the law and would result in years of regulatory uncertainty and unrealized consumer promise, he said.

Today, the court agreed and restored the opportunity to bring about new advanced services and true competition that will bring consumers choice and innovation.

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