Court Reinstates Rules on Local Phone Markets

In a decision that could lead to lower phone bills nationwide, the Supreme Court reinstated complex federal rules aimed at opening up the $100-billion local phone market to competition.

The high court upheld the authority of the Federal Communications Commission to set the price, terms and conditions that GTE Corp., PacBell parent SBC Communications Inc. and the four other regional Bell telephone companies must offer in sharing their communication facilities with rivals.

However, the Supreme Court instructed the FCC to be more specific about what kinds of communication equipment and services the existing carriers are required to share with rivals.

“This is the end of the first wave of resistance to telecom reform,” said Michael Salsbury, general counsel for long-distance giant MCI WorldCom Inc., which, along with AT&T; Corp., had petitioned the Supreme Court to take up the telephone case. “This means FCC can make broad national rules to foster competition.”

To promote competition in accordance with the Telecommunications Act of 1996, the FCC approved rules in August 1996 requiring the Baby Bells and GTE to offer their competitors--which range from small start-ups such as RCN Corp. to long-distance giants such as AT&T--access; to their local phone network at discounted prices.

Regulators hoped the plan would jump-start local phone competition by enabling new carriers to compete with incumbents more quickly than if they were required to construct their own networks from scratch.

But the Baby Bells balked, suing on grounds that the FCC did not have the authority to supersede state and local regulation.

The Supreme Court decision puts more pressure on the Bells to open their markets in accordance with federal law and makes it more financially appealing for rivals to challenge the Bells.

The decision was the second defeat in a week for GTE and the Baby Bells, which provide more than 80% of the local phone service in the United States.

Last Tuesday, the Supreme Court rejected an appeal by Bell Atlantic Corp., SBC and US West Inc. to lift long-distance restrictions Congress placed on the Baby Bells when it passed the Telecommunications Act in 1996.

“This latest decision is good news for the consumer,” said Mark Cooper, policy director for the Consumer Federation of America. “We think there is about $10 a month of excess charges on [phone bills] that can be squeezed out” by competition.

Indeed, as a result of the Telecommunications Act, supporters say local telephone competition is already proceeding at a faster pace than long-distance competition, where it took 15 years for challengers to gain 40% of the long-distance market.

According to John Windhausen, president of the Assn. for Local Telecommunications Carriers in Alexandria, Va., new phone entrants now control 3% of the nation’s local phone lines and 5% of local telephone revenues, figures nearly double the totals of a year ago.

But GTE--which has agreed to be acquired by Bell Atlantic for about $58 billion--vowed to carry on its legal fight notwithstanding the Supreme Court ruling. And experts were not surprised.

“While the court, by a bare majority, upheld the FCC’s jurisdiction to impose pricing rules . . . the substantive validity of those pricing rules is now open to challenge,” said William P. Barr, GTE’s general counsel. “We will vigorously contest the lawfulness of the FCC’s” rules.

“Unfortunately, I think these people are hard learners,” said Jeanne Schaaf, a senior telecommunications analyst at Forrester Research in Cambridge, Mass. “I don’t think the court decision will change them . . . only more competition” will.

But some Baby Bells on Monday were sounding considerably less competitive than GTE following the court ruling. Several carriers say they have changed their tune and are trying to tone down their aggressiveness and be more accommodating of regulators.

Bell Atlantic spokesman Shannon Fioravanti, for example, said the carrier is currently working closely with New York state officials in hopes of becoming the first regional Bell in the country to be granted permission to offer long-distance service.

Shares of GTE and the Bells dropped after the ruling. GTE lost $4 to close at $64.75, SBC fell $2.31 to close at $54.31, and BellSouth Corp. dropped $5.06 to close at $43. Bell Atlantic lost $4.25 to close at $54.44 and US West declined $4.06 to close at $57.38. All trade on the New York Stock Exchange.