Court Upholds Limits on Baby Bells

In a victory for government regulators, an appeals court Tuesday upheld a law forcing the nation’s biggest local phone companies to meet special requirements before they can offer long-distance service to their customers.

The ruling by the U.S. Court of Appeals for the District of Columbia is significant because it means the nation’s five regional Bell telephone companies will continue to face tough standards as they try to get into the $90-billion long-distance market.

BellSouth, a regional phone company, sought to overturn these requirements, contained in a 1996 law, arguing that they unconstitutionally discriminate against and punish the Baby Bells because they don’t apply to other local phone companies.

But the court disagreed, in a 3-0 decision. The law “does not violate any of the constitutional provisions raised by BellSouth,” the court said.

Specifically, the law requires the Baby Bells to open their local phone markets to long-distance companies and other potential rivals before the Federal Communications Commission will let them sell their own long-distance service to local customers.

No Bell company has won such FCC approval because they haven’t sufficiently opened their markets, the commission says.

The Bells provide a total of more than 80% of the local phone service in the United States.

The 1996 law’s provisions go to the heart of the government’s efforts to open the local phone market to competition.

“We’re disappointed that we lost this decision,” said BellSouth’s associate general counsel William Barfield. The company hasn’t decided whether to appeal to the Supreme Court.

But the law’s defenders, led by the FCC and long-distance companies AT&T; and MCI WorldCom, hailed the decision.

FCC Chairman William Kennard called the decision “a victory for consumers” that lets the commission continue to implement the will of Congress and bring the full benefits of competition in the local phone market to all Americans.”

BellSouth filed the case after the FCC rejected its request to provide long-distance service in South Carolina, part of its local phone market. The court also ruled that the FCC was correct in turning down that request.

The company said parts of the 1996 law amount to a “bill of attainder,” unconstitutional legislation that inflicts punishment without a court trial. BellSouth said it punishes the Bells for the past anti-competitive sins of their former parent, AT&T;, and for any offenses they may commit in the future.

But the court disagreed. In fact, the court said, the law gives the Bells considerably more leeway in offering long-distance service than they had under the 1984 consent decree that broke up AT&T.;