Rules on Phone Deregulation Face Legal Fight

WASHINGTON — Telephone industry lawyers and the nation’s utility commissioners said they would file a legal challenge today against controversial new federal rules aimed at deregulating the $100-billion local phone market.

The National Cable Television Assn. reportedly led the pack late Wednesday by filing court papers with the U.S. Court of Appeals, protesting that the rules are arbitrary and capricious.

Meanwhile, GTE Corp., Southern New England Telephone and the National Assn. of Regulatory Utility Commissioners--a group of state regulators--said they would file a similar lawsuit today, when the new Federal Communications Commission rules on telephone interconnection are expected to be officially published in the Federal Register.

If the legal challenges succeed, they could significantly delay the long-awaited introduction of competition in the local phone service market--an objective of the landmark telecommunications reform law enacted in February. The FCC regulations spell out exactly how the directives in the new law should be implemented.

Although state regulators and industry representatives initially reacted favorably when the FCC approved the general outlines of the rules at an Aug. 1 meeting, they said they did an about-face when the fine print emerged in more than 650 pages of regulations issued by the agency a few weeks later.

We “have some fundamental disagreements with our federal colleagues,” NARUC President Cheryl Parrino said in a statement. She said the rules usurp nearly all state regulatory authority over local phone service.

“We have big government trying to micro-manage competition rather than letting the marketplace and the states do their job,” said Bob Bishop, a spokesman for GTE, the nation’s largest local phone company, with 16 million telephone lines.

FCC officials were not available for comment. But Reed Hundt, chairman of the agency, issued a statement saying the rules are consistent with the wishes of federal lawmakers.

“The 1996 Telecommunications Act and our implementing rules are designed to fulfill the congressional intent to introduce competition into the local exchange marketplace,” Hundt said. “All private parties are welcome to seek any judicial review they believe is appropriate.”

Long-distance giant AT&T; Corp. also rejected the challenges as unfounded.

“It’s not surprising that monopolists would take whatever steps are necessary to try to preserve their monopoly,” it said in a statement.

Industry executives said Pacific Telesis, Bell Atlantic, BellSouth and perhaps other regional Bell companies will probably challenge the rules as well.

The new telecom law and the FCC regulations are aimed at lowering phone rates by giving consumers a choice of local companies. Federal officials hope to encourage rivals to build their own local phone networks to compete with existing providers.

But many industry executives say the rules will actually discourage the construction of new facilities because they make it highly attractive for would-be competitors to simply buy excess local phone capacity from current carriers and resell it to customers.

“Who’s going to deploy any kind of equipment facilities or new services if they have to turn around and sell them to their competitors at below cost?” William P. Barr, GTE’s general counsel, said in a prepared statement.

The FCC regulations define eight areas of telephone service--ranging from the sharing of switches and directory assistance facilities to electronic services such as call forwarding--that must be “unbundled” by local carriers and offered to competitors at reasonable rates. They also set guidelines on what level of discount local carriers must provide to rivals who want to resell their services.