FCC Plans Rewrite of Phone Rules

The head of the Federal Communications Commission said Thursday that the agency would write new regulations on the leasing of local telephone networks, now that the Bush administration has decided not to appeal a ruling overturning competition rules.

FCC Chairman Michael K. Powell said that revising the rules was at the top of his agenda. The rules, thrown out by an appeals court in March, have saved customers $16 billion a year by forcing SBC Communications Inc. and other Baby Bells to lease parts of their networks to rivals like AT&T; Corp. at regulated wholesale rates.

Powell said the rewriting process would cause “as minimal consumer disruption as possible” and that any increase in price would be “phased in, if necessary.” He didn’t outline how he would recommend that the rules -- crafted by a divided FCC last year -- be refashioned.

His comments came a day after the FCC and the solicitor general said they wouldn’t ask the Supreme Court to reverse the U.S. Court of Appeals ruling.

The government’s decision put in doubt the ability of AT&T;, MCI Inc. and other Bell rivals to offer the sort of competitive local phone service envisioned by the Telecommunications Act of 1996.

Chief Justice William H. Rehnquist must decide whether to stay the appellate court ruling until the Supreme Court considers whether to hear the case. Without a stay, the rules will expire Tuesday.

A full Supreme Court hearing couldn’t take place until November at the earliest.

“The solicitor general represents the United States of America, and the Supreme Court is much more likely to hear a case if it has the backing of the government ... so this represents a big blow for the chance of an appeal,” said Jason Oxman, general counsel for the Assn. for Local Telecommunications Services, a Washington trade group that is supporting an appeal.

Other backers of an appeal are the state of California, Michigan utility regulators and the National Assn. of Regulatory Utility Commissioners. In court papers, they told the high court that the appeals court ruling “jeopardizes the local telecommunications competition that has developed over the last decade.”

In moving to rewrite the FCC phone rules, Powell didn’t indicate how he and his four fellow commissioners would mend their bitter disagreement. The rules were approved last year with Republican Commissioner Kevin J. Martin siding with the agency’s two Democratic commissioners.

Phone industry and FCC sources said the regulatory landscape was unlikely to dramatically change, at least in the short term.

The Bells have long complained that the regulated rates were below their own costs. Consumer groups, some labor unions and lawmakers have predicted the Bells would try to raise prices for consumers. But the Bells contend fierce competition inhibits their ability to raise prices anytime soon.

The Bells are already losing local phone subscribers to wireless phone carriers and new providers that offer local phone service over cable TV systems or the Internet.

In any event, the Bells need the money they receive for leasing their networks to others, because they are under pressure to improve their networks to offer more modern communications services such as high-speed Internet access and even video programming.

Experts say that’s why, despite winning the legal battle this week, the Bells have expressed a willingness to compromise in negotiations with competitors.

“The Bells have essentially embraced a self-imposed stay,” said Blair Levin, a telecommunications analyst for Legg Mason Inc., referring to the Bells’ pledge to hold the line on rate increases until at least the end of the year.

An industry official agreed that the Bells and the FCC would preserve the status quo for at least the short term.

“The FCC is going to move pretty quickly with interim rules that are likely to include some short-term price freeze,” said H. Russell Frisby Jr., president of CompTel/ASCENT, a Washington trade group that represents AT&T; and other Bell rivals. “But after that, it’s an open question what’s going to happen.”