Justices Back FCC in Local Phone Battle
The Supreme Court on Monday supported the effort to bring competition to the local telephone market as the justices upheld federal rules that allow outsiders to lease local lines at a relatively low cost.
The 7-1 ruling is a victory for the Federal Communications Commission, which is seeking to spur competition, and for long-distance providers such as AT&T; Corp. and WorldCom Inc., which have been eager to move into the local phone market when local phone carriers increasingly are allowed to offer long-distance services.
To offer local service, the long-distance companies need to lease lines running from switching centers into homes and offices, and Monday’s ruling clears the way for them to do just that at prices that are believed to be competitive.
The ruling is a setback for what the court referred to as the “incumbent monopolists,” such as Verizon Communications Inc. and BellSouth Corp., that are fighting to preserve their traditional hold on local phone service.
After the breakup of AT&T; in 1984, local phone service was divided among seven companies, known colloquially as the “Baby Bells.” In 1996, Congress passed the Telecommunications Act, which encouraged other companies to compete with the Baby Bells in the $100-billion-a-year local phone business. However, disputes over the best way to achieve competition have thwarted that goal.
Verizon and other Baby Bells went to court to challenge the authority of the FCC to set pricing rules. After losing in the Supreme Court on that issue, they challenged the rules themselves as unfair, contending that pricing rules should allow them to profit from their original investment in building the lines, rather than the lower cost of duplicating new lines today.
The Supreme Court justices said Monday that there was no entirely right or fair answer to this complicated regulatory dispute.
“The job of judges is to ask whether the [FCC] made choices reasonably ... in deciding what and how items must be leased and the way to set rates for leasing them,” said Justice David H. Souter for the court. The commission’s pricing rules “appear to be a reasonable policy for now, and that is all that counts.”
Experts disagreed, however, on whether there is still a market for competitive, wired local phone service. Given the recent financial carnage in the telecommunications industry, the court’s ruling may have come too late to benefit consumers or jump-start significant local phone competition.
More than 200 local telephone companies have gone out of business since Congress passed telecom reform in 1996. Some 80 regional rivals to the Baby Bells remain, and they control just 10% of all local phone lines, according to the Assn. for Local Telecommunications Services in Washington.
Meanwhile, the cell phone industry has driven down the cost of wireless service to the point that some consumers are abandoning their wired phones. The trend has left investors wary of pouring more money into establishing local phone business, analysts say.
The decision comes at a critical time for California, where state regulators are scheduled Thursday to set new interim leasing prices to promote local phone competition.
Despite being the nation’s largest market for telecommunications, the state has seen little competition in residential phone service. Rival companies have said they have stayed away because the state’s leasing prices were too high, making it impossible for newcomers to make a profit.
SBC Communications Inc.’s SBC Pacific Bell, the dominant phone provider in California, has opposed efforts to reduce the leasing prices. Had the Supreme Court sided with the local companies, it would have been a blow to the efforts of California regulators to set lower leasing prices for parts of the SBC PacBell network.
On Thursday, California regulators are set to select one of three proposals for new pricing for SBC PacBell. MCI, the consumer phone service arm of WorldCom, backs the proposal supported by Loretta Lynch, president of the California Public Utility Commission.
If those price are approved, “MCI will aggressively enter local phone markets throughout [PacBell’s] territory in California,” said Jim Lewis, the company’s senior vice president for public policy.
