Appeals Court Rejects FCC Rules Forcing Phone Companies to Rent Out Lines
Posted on: Tuesday, 2 March 2004, 06:00 CST
Mar. 3--A federal appeals court on Tuesday struck down U.S. government rules that forced SBC and Verizon to rent out their telephone lines to competitors such as AT&T and MCI, which then re-sell phone service to consumers and businesses.
The Federal Communications Commission said it would appeal the decision to the U.S. Supreme Court.
Tuesday's decision is the latest chapter in years of legal battles between SBC and Verizon, which control most of California's original phone networks, and companies that are trying to woo customers away from those established players.
"If this decision holds up, you could just kiss any competition for local phone service goodbye," said Regina Costa, a telecommunications analyst with The Utility Reform Network, a consumer advocacy group in San Francisco.
While it was a major victory for Verizon, SBC, BellSouth and Qwest, it's not yet clear how the dust will settle. Three of the FCC's five commissioners said they've instructed the agency's general counsel to seek a stay and clarify what they described as "tension" between the decision and previous Supreme Court rulings.
If Tuesday's decision prevails, consumer groups say prices for phone service will rise. A "worst-case scenario" could push some companies that compete with SBC and Verizon to pull out of California's local-phone market, said Paul Fadelli, executive director of Californians for Telecommunications Choice.
"A lot of the competitive local exchange companies in the state may be questioning whether they can continue to do business," he said. "Without swift appeal, hundreds of thousands of local phone customers in California who have chosen to leave the Bell monopolies for a competing provider could see that choice stripped away."
Fadelli's group represents AT&T, Telscape, and more than a dozen other local-phone competitors.
SBC and Verizon say regulators unfairly require them to lease their lines out to rivals at rates that are below cost.
If Tuesday's ruling prevails, SBC spokesman John Britton said his company will continue to lease out its local lines to rivals, but the rates would rise.
"We just want to do so at fair-market negotiated rates," Britton said.
California currently requires that SBC charge other phone companies a wholesale rate of about $15 a month per line, a fee that the company says is below its cost.
The ruling was made by a U.S. Court of Appeals panel in Washington, which analysts said has historically sided with local-phone companies such as SBC.
"Everyone knew they would issue a bad decision. But this thing is just ridiculous," said Costa, of The Utility Reform Network.
It's the third time courts have invalidated FCC attempts to write rules for local-telephone service competition. The judges decried the FCC's "apparent unwillingness to adhere to prior judicial rulings."
The court put its decision on hold for 60 days to hear motions to reconsider its decision.
Congress mandated in 1996 that the FCC write rules to encourage competition with the former Bell phone companies, which have held a near monopoly in local markets.
In a bitterly contested 3-2 decision last August, the FCC voted to let state regulators require SBC, Verizon, BellSouth, and Qwest to lease parts of their networks to competitors like AT&T and MCI at low prices.
The idea was that competitors couldn't afford to build their own networks, but allowing them to use existing infrastructure would make it attractive to get into local markets.
The former Bell companies say that left them at a competitive disadvantage and took away the incentive to build better networks.
--Reuters and The Associated Press contributed to this report.
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(c) 2004, The Orange County Register, Calif. Distributed by Knight Ridder/Tribune Business News.
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