Court Blocks Rule on Local Phone Rivalry

A federal appeals court on Tuesday put on hold key provisions of a landmark federal rule designed to break open the nation’s local phone monopolies while it considers a court challenge to the measure.

Attorneys and analysts said the action by the 8th U.S. Circuit Court of Appeals here could delay the introduction of widespread competition in the $100-billion local phone market now controlled by the regional Baby Bell companies.

It also represented a major setback to the Federal Communications Commission and to long-distance companies such as AT&T; Corp. that are eager to break into the local phone business. The court had earlier granted a temporary stay of the new rules, and said in its decision Tuesday that it will now hear full arguments on the issue in January.

FCC Chairman Reed Hundt immediately attacked the decision and said the federal agency would ask the Supreme Court to lift the stay.

“The 8th Circuit’s stay throws a monkey wrench into the carefully designed congressional machinery for introducing competition into the local exchange market,” Hundt said. The FCC had developed the rules to implement the landmark telecommunications deregulation act that was voted into law earlier this year.

Opponents of the rules hailed the decision as vindicating their position that the FCC rules were unfair.

“Congress’ vision of a level playing field is being restored, while the FCC’s effort to stack the deck against the local phone companies has been rebuffed,” said GTE General Counsel William Barr.

The three-judge panel wrote in its opinion that the FCC seemed to have overstepped its jurisdiction by issuing pricing guidelines for telecommunications services rather than leaving that question to the states. The pricing rules would, among other things, require the Baby Bells and other local carriers to lease their phone lines to new competitors at steep discounts of up to 25%.

The court also stayed the part of the rules requiring local carriers to “unbundle” their local networks into seven pieces that new rivals can lease to complete their own phone networks. The pieces include call-switching devices and operator and directory assistance.

States will be free to pursue their own local phone deregulation efforts without the FCC rules, but many believe national guidelines are essential and that it will be impossible to reach state-by-state agreements without them.

The court said it had “serious doubts” about the FCC’s interpretation of the recently enacted telecommunications law.

Barr said the decision “validates our view of a key point: In the Telecommunications Act itself, Congress explicitly gave the states--not the FCC--responsibility for these pricing matters.”

The other companies filing appeals against the rules include Bell Atlantic Corp., BellSouth Corp., Pacific Telesis Group, SBC Corp., Southern New England Telephone Co. and US West Inc. The National Cable Television Assn. appealed on behalf of the nation’s cable companies.

Long-distance telephone companies, including Sprint Corp. and AT&T;, favor the FCC rules.

“This is a significant setback for the FCC for two reasons,” said attorney Alfred Mamlet of Steptoe & Johnson.

He said the appeals court “concluded there is potential significant merit to the challenge to the pricing portions of the order. And second, this is going to slow down the implementation of local competition.”