Appeals Court Rejects Rules for Phone Competition

Mar. 3–In the seemingly endless cycle of court appeals that characterizes the modern telecommunications industry, Verizon Communications and the other Baby Bells won a victory Tuesday.

A three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia unanimously struck down rules issued last August by the Federal Communications Commission on local telephone competition. The rules specified which parts of local telephone networks had to be leased to competitors like AT&T and MCI and for what price.

It’s a dispute of the utmost complexity and, both sides say, of critical importance to the future of their industry in Pennsylvania and nationwide.

The non-Bell companies say consumers will never see the full fruits of telephone competition if Verizon is allowed to charge what it wants for leasing critical parts of its network.

Verizon and its allies — companies that resulted from the government’s breakup of the former Bell Telephone, or Ma Bell, monopoly — say they are being forced to lease their networks for less than cost.

But what is the true cost? What it would cost to build the network in the monopoly era, or what it would cost to build it now, with all the efficiencies that competition and modern technology can bring? Both sides say they are adhering to the latter standard.

The FCC last year basically said that Verizon and its supporters were charging too much. Yesterday, the court said the FCC was wrong. It went even further, saying that the FCC was wrong to tell Verizon that it had to give discounted access to its switches, the central components of the network.

The court stayed its decision for 60 days to allow for the expected appeals.

The question of whether competitors get “discounted” access to the Bell networks won’t be finally settled until the U.S. Supreme Court makes a ruling.

AT&T Tuesday condemned the ruling, calling it a “stop sign” to competition that caters to the interests of Verizon and the Baby Bells. The company called the three judges “activist,” the epithet of choice for judges these days, and said they had substituted their judgment for that of the FCC and Congress.

“It should be remembered that the Supreme Court issued a very strong opinion in May 2002 in support of competition,” said Jim Cicconi, AT&T general counsel. “It’s now time for the highest court in the land to decide this issue once and for all.”

Verizon hailed the ruling, saying it was “an important step” toward getting the telecommunications industry back on a sound footing.

“Verizon will work with the FCC to come up with reasonable rules that comply with this order … and that also recognize the strong competition in today’s marketplace,” said Mike Glover, senior vice president and deputy general counsel for Verizon.

Stasia Kelly, MCI’s general counsel, said the company would seek an emergency stay and full review by the Supreme Court. She called the ruling a grave threat to eight years of progress in telephone competition.

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