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Court Tosses Rules for Phone Competition

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

A federal appeals court on Tuesday struck down rules designed to foster competition for local telephone service, handing a major victory to Verizon, SBC, BellSouth and Qwest.

A three-judge panel of the D.C. Circuit Court of Appeals unanimously overturned the rules adopted last August by the Federal Communication Commission. The judges said the FCC acted improperly by leaving it to state regulators to decide whether to spur competition between the former Bell companies and others wanting to provide local phone service.

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 Verizon, BellSouth, SBC 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.

The court said the 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 court said.

The FCC commissioners who backed the new rules - Republican Kevin Martin and Democrats Michael Copps and Jonathan Adelstein - said they would appeal to the Supreme Court.

"In the past, the Supreme Court has made clear that the FCC has significant discretion in ensuring that the local telephone markets are open to competition," they said in a joint statement.

FCC Chairman Michael Powell, who was on the losing side of the decision to enact the rules, praised the court's decision and said he already has ordered the FCC staff to begin work on new rules.

He said the court "restored the opportunity to bring about new advanced services and true competition that will bring consumers choice and innovation" because new companies would have to offer something different, rather than sell the same local service on the same phone lines as the Bells do.

Verizon also welcomed the decision. "Today's court decision is an important step toward getting the telecommunications industry back on a sound footing," said Mike Glover, the company's senior vice president and deputy general counsel.

Nevada state consumer advocate Timothy Hay, president of the National Association of State Utility Consumer Advocates, said the decision "puts at risk the meager competitive gains in local telephone service seen by residential and small business consumers in the last two years."

AT&T General Counsel Jim Cicconi echoed those concerns.

"Consumers across the nation should be outraged at the prospect of being unplugged and underserved if the D.C. Circuit decision is left unchallenged," he said.

The former Bell companies cheered the court decision.

"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," SBC Communications President William Daley said.

The court upheld 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 deter the former Bells from making better systems.

Even if Bell competitors were shut out of offering DSL service because they couldn't use the upgraded telephone lines, cable companies would provide enough competition through their high-speed Internet connections, the court said.

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On the Net:

Court of Appeals: http://www.cadc.uscourts.gov

FCC: http://www.fcc.gov

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