States Regain Phone Service Power

In vacating a 1985 Federal Communications Commission rule Wednesday, a federal appeals court handed back to states authority to regulate newer telephone services such as voice mail and computer access.

The 9th Circuit Court of Appeals opinion, which affected seven lawsuits, means some telephone companies might have to set up separate corporations for their regulated normal telephone services and their unregulated extra options. The FCC would have allowed the companies to merge their regulated and unregulated services, but now that decision would rest with each state.

The California Public Utilities Commission, which filed three of the lawsuits against the FCC, heralded the appeals court decision, but a spokesman for Pacific Bell said it could cost customers more in the long run.

“It properly gives the states greater freedom to promote the development of enhanced services and the terms and conditions upon which those services are provided,” PUC President G. Mitchell Wilk said.

Steven Harris, director of planning and policy for Pacific Bell, said the company supports state regulation. But he said Pacific Bell fears state control could lead to a costly corporate division of its regulated and unregulated services--something the FCC required in mid-1984 before it changed its mind 14 months later, bringing on the 1987 legal challenge.

“It’s not clear that we are going to have to split off,” Harris said. “It’s up to the states. But we strongly believe that independent subsidiaries are not necessary and would make it more difficult to provide the services to the public.”

Harris said innovative communications systems, which have developed rapidly in the past 10 years, are a multibillion-dollar industry that ranges from voice and electronic mail to automatic teller machines.

An FCC spokeswoman said the opinion is a setback for the communications industry, which under federal rules had been required to merely keep finances separate for unregulated and regulated services but not create detached corporations.

“We adopted the rules because we believed they would be in the public interest,” she said. “So, of course, we’re disappointed in the outcome. We have to start from scratch.”

The appeals court ordered the FCC to develop new rules to help regulate new telecommunications services offered by the Baby Bell companies. Until the disputed FCC rule, those smaller firms had been prevented from providing information services under a court decree that stripped AT&T; of its local operating companies in January, 1984.

The court said the FCC arbitrarily and capriciously reversed itself without showing that cost-shifting between unregulated and regulated services wouldn’t occur and raise the bills of “captive telephone customers.”

“The record yields no evidence that the (Bell Operating Companies) power to extract monopoly rents from local telephone customers has diminished,” the court said.

The complicated set of lawsuits attracted interveners from most telecommunications firms that compete with the telephone companies.