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Appeals Court Strikes Down FCC Ruling Requiring Phone Firms to Lease Lines

Posted on: Tuesday, 2 March 2004, 06:00 CST

Mar. 3--A U.S. appeals court handed a big victory to BellSouth, Verizon Communications and other major local-telephone companies, eliminating federal rules that require them to sell network access to rivals at a discount to foster competition in the local-phone market.

The 3-0 ruling from the U.S. Court of Appeals in Washington could threaten competition in the local-phone service market in Florida and mean fewer choices and higher prices for consumers and businesses.

The ruling struck down Federal Communications Commission regulations issued in August that delegated states the authority to set the discounted rates for leasing part of phone network. The court found that competitors in the local-phone market aren't "impaired" without access to discounted pricing.

The appeals court decision carries a 60-day stay.

Consumer advocates fear that if the FCC or one of the rival phone companies don't ask for a rehearing by the appeals court or take the case to the U.S. Supreme Court in those 60 days, current wholesale pricing for competing firms could begin to disappear.

The impact could eventually be higher prices for consumers and small businesses as the rival companies fade away because it may become no longer economically feasible for them to offer service.

The court ruling means rivals to the local carriers "will no longer have a level playing field with the incumbent telephone monopolies and the result will be less competition and higher prices for consumers," said Christopher Murray, an attorney with Consumers Union in Washington.

"Eliminating the FCC's local-competition rules scraps the significant progress we have made to deliver consumers lower rates and innovative service," said Stasia Kelly, MCI general counsel.

Jim Cicconi, AT&T general counsel, said, "This decision is not in the public interest but is instead in the interest of four Bell monopolies."

AT&T and MCI are two long-distance companies eager to lease portions of the BellSouth network in Florida to provide a competing local-phone service. There are a handful of homegrown competitors to BellSouth, including the Miami-based Supra Telecom, IDS Telecom and DSLi.com, STS Telecom in Cooper City, FDN in Orlando and Z-Tel in Tampa.

The rival companies have long complained that wholesale prices were already too high in Florida, thus limiting their ability to compete with BellSouth.

Says Bradford Hamilton at STS Telecom: "Any change proposed by the U.S. Court of Appeals will immediately eliminate competitors, create unemployment and deprive Florida telephone consumers of making a choice in their local-telephone service provider. The ruling is bad from all angles."

Tuesday's appeals court decision is particularly frustrating to the state's telecom regulators.

Florida's Public Service Commission held four days of hearings last week on whether it should allow the Bell companies to raise the wholesale prices they charge rival companies to lease a portion of their networks to provide competing local-phone service. Another three days of hearings are scheduled to start today. Georgia's regulators began their round of hearings Monday.

Kevin Bloom, a PSC spokesman, said today's hearing would be convened because Tuesday's decision from the appeal court came too late to allow today's proceedings to be canceled.

Florida was the first state in the Southeast to begin this price review, which had been mandated by the FCC decision last year. That decision also had delegated to state regulators the authority to promote competition and provide choices for consumers.

BellSouth, Verizon, SBC Communications and Qwest Communications are known as Baby Bells, formed in the 1984 breakup of AT&T Corp. These companies have challenged the network-leasing rules, saying it costs them as much as $180 million a month and caused customer defections.

"It's a good legal victory for the Bells," analyst Paul Glenchur of Schwab SoundView Capital Markets said. The decision "has the effect of undermining" the wholesale discounts, he said.

The ruling is a victory for FCC Chairman Michael Powell, a Republican, who had advocated that the agency throw out the leasing rules.

The three FCC commissioners who outvoted Powell and Republican Kathleen Abernathy to let the states set leasing rates said in a statement that they had directed the agency's lawyer to appeal the court's order.

Said Peter Arnold, a spokesman for the Voices for Choices, a coalition of companies that compete with the Baby Bells: "The fact that so many millions of Americans have opted to switch service providers shows that this genie is not going back in the bottle."

--This report was supplemented with material from Bloomberg News.

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(c) 2004, The Miami Herald. Distributed by Knight Ridder/Tribune Business News.

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