FCC Chief Seeks Stay of Ruling Against Telecom Act

Criticizing the nation’s local telephone companies for being more willing “to litigate than compete,” the chairman of the Federal Communications Commission said Monday he will seek to block a court ruling that two local carriers obtained this week invalidating a key portion of the landmark federal Telecommunications Act.

In a pointed reaction to the controversial New Year’s Eve ruling by U.S. District Court Judge Joe Kendall of Wichita Falls, Texas, FCC Chairman William E. Kennard said the decision “is not good for consumers.” He predicted the government would be successful in seeking an immediate stay blocking implementation of the decision and would prevail on appeal of the case.

“Too many of these [Bell telephone companies] would rather litigate than compete” and federal judges are only too willing to indulge them, Kennard said. “The Telecom Act of 1996 is being rewritten by judges.”

Judge Kendall’s ruling came on a lawsuit brought by SBC Communications Inc., the parent of Pacific Bell, and US West Corp. Those companies complained that the Telecommunications Act unfairly discriminated against them and the other so-called Baby Bells--the local phone companies created as spinoffs from AT&T; in 1984--by specifically barring them from competing in the long-distance market until certain conditions were met.

The ruling theoretically would immediately allow the Baby Bells to start offering long-distance services to customers, although most experts believe a court injunction will prevent that from happening while Kendall’s decision is under appeal.

The surprise ruling was the latest setback for the Telecommunications Act. Industry observers fear it could also rend the delicate fabric of federal laws and regulations aimed at forcing the regional Bell telephone companies to open up their $100-billion local phone markets to competition as a condition to allowing them to enter the $90-billion long-distance market.

Although the Telecommunications Act was initially embraced as a model of legislative compromise by long-distance carriers and all seven of the regional Bells then in existence (two have since merged with other Bell companies), the Baby Bells--as well as the nation’s third-largest local telephone carrier, GTE--have filed more than a dozen lawsuits in state and federal courts challenging parts of the act.

Judge Kendall’s ruling came only months after a federal appeals court in St. Louis sided with local telephone companies and struck down FCC telephone pricing standards designed to implement another portion of the law. The agency is appealing that case to the U.S. Supreme Court.

The litigation has delayed the onset of competition, kept local phone prices high and left virtually all interested parties frustrated over the survival of the status quo.

Local carriers, for instance, blame the FCC for interfering with market forces that would tend to enhance competition.

“The Bell companies have been frustrated for two years by the roadblocks thrown in the way to true competition in the telecommunications industry,” William Barfield, associate general counsel for BellSouth, said Friday. “The clear path to competition that Congress intended has been blocked with piles of [bureaucratic] minutia.”

Legal experts, many of whom initially called the SBC lawsuit a long shot, continued Monday to expect that Judge Kendall’s ruling will be overturned.

“I struggle to see how the feds don’t succeed in winning this one,” said Thomas Sullivan, a Boston-based legal expert on telecommunications law. What’s more, Sullivan said, the FCC can still exert considerable leverage over local phone companies in terms of determining the phone rates they charge.

But many consumer advocates and Wall Street investors believe even if the ruling is eventually overturned, consumers and business will suffer in the short run as competition is further delayed. The case could drag on through years of appeals, creating troublesome uncertainty for new rivals seeking to raise money to compete locally against the Baby Bells.

In trading on Wall Street on Monday, shares of long-distance giant AT&T; Corp. fell $2.50 to close at $58.81 as investors rushed to abandon the stocks of long-distance carriers. Also falling were long-distance carriers MCI Communications, which closed at $42.69, down 13 cents, and WorldCom, which fell 31 cents to close at $29.31. Meanwhile many of the Baby Bells soared. BellSouth gained 44 cents to close at $56.75, SBC gained $1.69 to close at $74.94 and Ameritech gained $1.38 to close at $81.88.

“I think the market is overreacting,” said George Reed Dellinger, a telecom expert for the investment house HSBC Washington Analysis.

The severity of the impact on consumers and businesses will start to become clear in the next few days, experts say. If the federal government does not secure a stay of Judge Kendall’s decision, SBC and US West would be free to immediately enter the long-distance market, even if the rest of the case is appealed.

“The question of whether this decision is just a bump on the road to competition will depend on whether a stay is issued,” said Ronald Binz, president of the Competition Policy Institute, a Washington-based research group that follows telephone industry issues. “If the ruling is allowed to stand it’s going to be real bad news for consumers.”