FCC Told It Can’t Set Intrastate Phone Policy

The Supreme Court ruled Tuesday that state utility commissions, not the federal government, can keep control of rate-setting policies for telephone service within states, a decision that state officials say will save Californians about $50 million a year on their phone bills.

But telephone companies say the ruling means that they will be forced to hold on to outdated equipment, a practice that may prove expensive to consumers over the longer term.

Nevertheless, the justices ruled 5 to 2 that the Federal Communications Commission had exceeded its authority when it set depreciation policies covering all telephone operations, both within states and across state lines.

Ruling on Failed Banks

“The language, the structure and the legislative history of (the Federal Communications) Act . . . denies the FCC the power to dictate to the states as it has in these cases,” Justice William J. Brennan Jr. said for the majority.

Meanwhile, in another case, the justices ruled on a 6-3 vote that “standby letters of credit” are not the same as bank deposits when a bank folds, a decision that spares the Federal Deposit Insurance Corp. what it had called a potentially crushing burden of liability.

In the telephone case, state attorneys hailed the ruling as a victory for state regulators and consumers.

“What was at stake here was more than depreciation policies but instead who would regulate intrastate communication,” said Gretchen Dumas, an attorney for the California Public Utilities Commission, one of 23 state regulatory panels that had appealed the case to the high court.

Faster Writeoffs

The PUC estimated that the ruling will spare every California phone user about $5 a year in higher charges.

The case grew out of the modern revolution in telecommunications equipment and the government’s move to deregulate the phone industry.

In 1980 and 1981, the FCC changed its rules to allow phone companies to take faster writeoffs on new equipment. The next year, to the surprise of state regulators, FCC attorneys said the new accounting rules should apply uniformly to companies, even if the equipment were being used for phone service entirely within the state.

In several states where courts backed the FCC, consumers were quickly faced with higher phone bills. In Louisiana, which led the challenge to the FCC, South Central Bell Telephone Service Co. won a $40.5-million rate increase as a result of the new depreciation policies.

In 1984, a federal appeals court in Richmond, Va., upheld the FCC move, saying that the tough state regulations of the phone companies must not come “at the expense of an efficient, viable interstate telecommunications network.”

On Tuesday, the justices reversed that decision. Brennan pointed out that the 1934 law said quite specifically that “nothing in this chapter shall be construed to give the FCC jurisdiction” over telephone operations within states, and Congress chose not to change that part of the law.

Chief Justice Warren E. Burger and Justice Harry A. Blackmun dissented but did not explain their reasons. Also without explanation, Justices Lewis F. Powell Jr. and Sandra Day O’Connor took no part in the decision (Louisiana Public Service Commission vs. FCC, 84-871).

Save $1 Billion a Year

Lawyers for the telephone companies that lost out Tuesday said the ruling will increase long-term costs to consumers.

“We’re disappointed because we think a uniform depreciation policy throughout the country is needed to keep equipment in a modern state,” said Donald Rose, a Cincinnati attorney who represented 26 phone companies. “Over the longer term, the higher depreciation rates would have resulted in lower rates (for customers) and better service.”

Nationwide, utility commission attorneys estimated that the ruling would save consumers $1 billion nationwide.

In California, PUC officials said the state’s phone customers would have immediately faced higher bills for the new equipment if the court had sided with the FCC.

In the banking case, Tuesday’s ruling spared the FDIC, the nation’s bank insurer, from responsibility for an estimated $120 billion in standby letters of credit.

The case began in 1982, when Philadelphia Gear Corp. lost $145,000 after Penn Square Bank of Oklahoma City failed. Attorneys for the company won federal district and appeals court rulings that the FDIC must pay on the firm’s letters of credit just as bank deposits.

But Justice O’Connor, writing for the majority, reversed those rulings.