Court Orders FCC to Reconsider Part of Telecom Rules

A U.S. appeals court Friday overturned a portion of Federal Communications Commission rules aimed at making it easier and cheaper for new local telephone companies to offer high-speed Internet connections.

The FCC last March ordered the U.S. regional phone companies and GTE Corp. to make it easier for competitors, such as Covad Communications Group Inc. and NorthPoint Communications Group Inc., to set up equipment that hooks into the regional companies’ networks, letting the rivals provide telecommunications services.

The U.S. Court of Appeals for the District of Columbia said the rules in part went “well beyond what has been authorized by Congress” and it ordered the FCC to reconsider a portion of the rule. The court largely upheld the rest of the FCC’s order and rejected arguments by GTE and US West Inc. that the rules failed to allow recovery of associated costs.

“This is a tactical setback for the [new competitors] but not likely to be a permanent one,” said Scott Cleland, managing director of Legg Mason Inc.’s Precursor Group. The FCC’s initial order was very favorable for new competitors, and it is likely to take a pro-competitor stance in its reconsideration, he said.

In the last nine months, rivals have worked out so-called collocation arrangements with phone companies, said Dhruv Khanna, general counsel for Covad.

The 1996 Telecommunications Act required the regional companies, or so-called Baby Bells, and GTE to let competitors put equipment in their offices that is “necessary” for connecting to the local network. Under the FCC’s rules, rivals were permitted to locate any equipment that is “used or useful” for interconnection, even if some equipment had other functions. The court said that portion of the rule went too far.