Ruling Could Slow Local Phone Competition : Communications: Federal appeals court says FCC can’t force Baby Bells to give rivals space inside their central offices.

The Federal Communications Commission cannot force local phone companies to give rivals space inside their central offices to hook up independent phone networks, a federal appeals court ruled Friday.

The ruling, which some saw as slowing competition in local phone services, was a victory for the regional Bell companies, which have been fighting with so-called competitive access providers for some time over lucrative business customers.

Basically, the new competitors have been able to set up their equipment in phone company offices in order to route their calls directly to the local phone network. They can then sell cut-rate phone services to business customers, who account for the lion’s share of phone spending.

The court ruling, if it stands, means the competitive access providers will probably have to set up shop outside central phone company offices, which would raise their costs and reduce their competitive advantage.

California, along with many other states and the federal government, has been trying to promote local-service competition as a way of giving consumers and businesses greater choices and lower prices.

Regulators also hope greater competition will promote development of the highly touted information superhighway.

This ruling is not expected to halt the inevitable march toward greater competition, but it does puts pressure on Congress and the FCC to write new rules governing competition. Those rules now could more strongly favor the Baby Bells.

Also, some analysts suggest, the Baby Bells now might have more leverage in their efforts to enter long-distance phone service and compete in cable television.

Associated Press quoted a senior FCC official as saying the agency will challenge the ruling, although a lawyer for the FCC said late Friday that the agency’s general counsel was still reviewing the matter.

The U.S. Court of Appeals ruling in Washington came after six of the seven Baby Bells and several other local telephone concerns sued the FCC, arguing that granting space in their central offices to competitive access providers would compromise phone company security and amount to a taking of property in violation of the U.S. Constitution.

“The court viewed this as a disruption of central offices, which are the nerve centers of telephone company operations and a key to maintaining the security and reliability of the network,” said Mark L. Evans, who represented the Baby Bells and the other plaintiffs.

The court struck down a 2-year-old FCC rule requiring local phone companies to make space available for equipment needed to connect their customers’ calls to the local telephone exchange, saying federal law “does not expressly authorize” such action.

“This is a serious setback for competition,” said Bradley Stilman, legislative director for the Consumer Federation of America, a Washington advocacy group. “It gives greater control to the local phone company and hinders the ability of others to compete.”

Central office equipment rooms are usually tightly secured areas where network switches are often individually partitioned and segregated with locked chain link fences to thwart vandalism and sabotage.

The FCC rule would have given competitive access providers their own space in this central office area to install and maintain the equipment that hooked their independent phone networks into the main local telephone loop.

Local phone calls travel to a central office exchange, where they are routed through switches and multiplexers that deliver the calls to long-distance networks or other local telephone exchanges.

Companies such as New York-based Teleport Communications Group and MFS Communications in Omaha have invested hundreds of millions of dollars stringing high-capacity fiber-optic cable and sophisticated switches in urban areas in hopes of siphoning customers--particularly business phone users--from the Baby Bells.

In Nasdaq trading Friday, shares of Omaha-based MFS Communications Co. plummeted $3.75 to close at $24.875. Intermedia Communications of Florida fell 75 cents to close at $13.25.

“We’re disappointed with the ruling,” said James Crowe, chief executive of MFS Communications. “It’s going to cause confusion in the financial markets.”