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Court Rejects Fcc Rules On Phone Service

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

A federal appeals court yesterday rejected rules giving states more authority to determine which companies may offer local phone service within their borders.

The three-judge panel of the Washington, D.C., Circuit Court of Appeals unanimously sided with former Bell companies Verizon, BellSouth, SBC and Qwest. Those companies had argued that the rules adopted by the Federal Communications Commission forced them to give competitors access to their networks at artificially low prices.

It's the third time the commission's attempts to write rules for local telephone service competition have been rejected by the courts. The latest ruling decried the FCC's "apparent unwillingness to adhere to prior judicial rulings."

At issue is how to spur competition for local telephone service, which Congress mandated in 1996.

Because it's too costly for a company to duplicate the existing network of switches and wires, the FCC looked for a way to let competitors use existing systems. So the rules issued in August let the states require the former Bell companies to lease elements of their networks, such as lines and central office switching capabilities, to competitors such as AT&T and MCI.

State regulators, eager to give consumers more choices, have set those lease prices low. The Bell companies say that leaves them at a competitive disadvantage and takes away incentive to build better networks.

The court yesterday said responsibility for encouraging competition rested with the FCC, not the states.

"It is clear here that Congress has not delegated to the FCC the authority" to pass the responsibility elsewhere, the decision said.

In Washington state, as elsewhere, the immediate effect of yesterday's ruling is to introduce uncertainty into the telecommunications industry.

It throws into question the extent to which the state's largest incumbent phone company, Qwest, must continue allowing the use of its computers and lines by numerous rivals here, including mainly AT&T Corp. and MCI Corp. but also Covad, Echelon, McCloud, Global Crossing, Vtel and Integra.

But "in the short term, the decision won't have any significant impact on the cost or availability of phone service," said Marilyn Showalter, chairwoman of the Washington Utilities and Transportation Commission.

She said the commission had just begun hearings yesterday on whether to relax requirements that Qwest must cooperate with competitors.

"We came back from lunch, heard about the court's decision, and suspended the proceedings indefinitely," Showalter said.

The telephone industry's trade group, the U.S. Telecom Association, praised the ruling. President Walter McCormick Jr. said the rules impede "the vigorous investment and real competition that Congress sought to foster. Real competition means making investments that deliver a range of innovations to communities across the country," he said.

A coalition of Bell competitors, led by AT&T, urged the Bush administration to appeal the decision to the U.S. Supreme Court.

"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," said Peter Arnold, spokesman for the Voices for Choices coalition. "If the administration declines to appeal to the Supreme Court, these consumers will be forced back to the very Bell monopolies they have consciously tried to leave."

The rules were the result of a contentious 3-2 FCC vote in February 2003. Chairman Michael Powell was on the losing end of the vote, the first time he had been on the losing side since taking over the five-member panel in 2001.

Powell applauded the court decision and said he has ordered the FCC staff to begin work on new rules.

The court did uphold other rules requiring the former Bell companies to allow providers of high-speed DSL Internet service to use their copper wires, but not upgraded fiber-optic or fiber- copper lines. The FCC said requiring the companies to provide access to the upgraded lines would act as a disincentive for the former Bells to develop better systems.

P-I reporter Dan Richman contributed to this report by The Associated Press.

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