Federal Court Blocks Implementation of Telecom Rules

Just three days before a landmark set of regulations aimed at opening up the local phone market were to take effect, a federal appeals court Friday blocked their implementation in order to hear claims from local phone companies and state officials that the new federal rules are arbitrary and usurp states’ rights.

The unusual eleventh-hour action by the U.S. 8th Circuit Court of Appeals in St. Louis came in response to several lawsuits filed throughout the country by GTE Corp., Southern New England Telephone Co., the United States Telephone Assn., the National Assn. of Regulatory Utility Commissioners and several state regulatory boards.

The plaintiffs argued that the Federal Communications Commission exceeded its authority last month when it issued rules implementing key provisions of the sweeping telecommunications law passed by Congress earlier this year. The regulations establish the broad ground rules under which competition will be introduced into the local phone business nationwide.

In requesting a stay, the plaintiffs said that if the FCC rules are allowed to stand, local phone companies would lose significant amounts of money and market share in the time that it could take the court to review the validity of the agency’s actions.

In general, the local phone companies believe state regulators will act more favorably toward them than the FCC would on critical issues such as the price at which they will be required to lease their facilities to competitors.

FCC Chairman Reed Hundt said he expects his agency’s rules to stand up. “It is perfectly reasonable for the court to want to hear oral arguments in this case,” Hundt said in a prepared statement. “We continue to be confident that our position will prevail.”

But the granting of a stay sparked fears among legal experts and consumer groups that there could be a significant delay in the federal government’s ambitious effort to open up the $90-billion local phone market to greater competition.

The action by the court “indicates that the court is going to give serious consideration to staying” the federal rules, said Alfred M. Mamlet, a Washington communications lawyer.

“This could cause significant delays; this is not good news for consumers,” said Gene Kimmelman, co-director of the Washington office of Consumers Union.

The court decision came as long-distance giants AT&T; Corp., MCI Communications Inc., cable TV operators and others are poised to enter the local phone market as a result of the telecommunications reform law enacted last winter.

That law, the Telecommunications Act of 1996, gives the FCC authority to set many of the terms, prices and conditions of local phone service that previously had been under the jurisdiction of state public utility commissions.

“We believe Congress intended to let the states and the free market system--not an onerous order from big government in Washington, D.C.--shape the future of telecommunications in this country,” GTE said in a statement released Friday.

The various cases challenging the rules were filed throughout the country, then consolidated with the U.S. Appeals Court in St. Louis. Next week’s arguments will be heard in a U.S. Appeals Court in Kansas City, Mo.

* A COUNTERMOVE: MCI seeks OK to offer rates lower than AT&T;’s. D3