Local Phone Firms Called to Strike Deals

The nation’s top telephone regulator offered a stark choice Wednesday to local phone service providers hurt by a court decision that tossed out federal competition rules: Strike deals with the Baby Bells within 30 days or risk getting kicked off their networks.

Federal Communications Commission Chairman Michael K. Powell said in a speech to state regulators that they and the FCC must identify the “reasonable middle ground” in disputes over how much companies such as AT&T; Corp. should pay to lease lines, switches and other gear owned by Bells, including SBC Communications Inc.

Otherwise, Powell warned, the FCC might fashion interim rules that in 18 months would eliminate the regulated rates set by individual states -- a move some fear would cripple the competition that saves phone customers as much as $10 billion a year.

The Bells contested FCC rules passed last summer that regulated how competitors gain access to the Bells’ networks. Powell opposed those rules, and last week, a federal appeals court overturned them.

Three of the FCC’s five commissioners want to appeal the ruling by the District of Columbia U.S. Circuit Court of Appeals to the Supreme Court. Powell said that would cause an additional two years of confusion and delay.

Powell told the National Assn. of Regulatory Utility Commissioners general assembly in Washington that federal and state regulators “owe a duty to get this right for consumers.”

His comments were greeted warmly by the Bells, which started calling on competitors recently to negotiate rates rather than adhere to state-mandated pricing.

Competitors have two choices, said Selim Bingol, spokesman for SBC, California’s dominant local phone company: “Continue the contentious and litigious path of uncertainty we have been on for the past eight years or enter commercial agreements.”

Powell’s plan drew angry responses from Bell rivals and their trade groups, which saw in his words an end to competition and the return of local telephone monopolies.

“Chairman Powell’s call is not one for negotiation but rather a call for surrender,” said James W. Cicconi, AT&T;’s general counsel. The Assn. for Local Telecommunications Services said it was “extremely unrealistic” to think any agreement could be reached within a month, especially after eight years of failed negotiations.

Bell rivals serve more than 19 million consumer and small-business lines nationwide, including 1.8 million in California. They, along with consumer and business groups, are launching a campaign that they hope will make phone competition a national election issue.

The rules rejected by the appellate court would have given states the authority to determine the level of competition in their local markets. That determination is key to whether competitors can use Bell equipment at regulated rates. The court also threw out the FCC formula that states had to follow in figuring out whether a company could offer phone service without relying on Bell equipment.

The court gave the commission 60 days to appeal the case or come up with better rules.

The three FCC members who approved the rules, over Powell’s strident dissent, have said they would vote to ask the Supreme Court to review the case and stay the appellate court’s ruling.

“I and the majority continue to think we had a balanced approach,” Commissioner Kevin Martin, a Republican who joined with the FCC’s two Democrats on the competition rules, said recently. “Consumers are benefiting all over the country.”

Without a stay of the appellate court’s ruling, the rules fashioned to implement the Telecommunications Act of 1996, aimed at spurring competition in local telephone service, would be wiped out. That would presumably leave it up to the states to enact their own rules.

The Bells aren’t waiting 60 days. On March 3, the day after the appeals court ruling, SBC sent letters to competitors saying it would honor state wholesale rates for 90 days, giving the other companies time to negotiate commercial agreements for SBC equipment.

“The bottom line is this: Even assuming there is a change in the law, there will be no disruption in service to consumers, and we are committed to working with [competitors] to make sure that is the case,” SBC’s Bingol said. “There are options out there, and suggestions by AT&T; and others that service might be disrupted are nothing more than the usual scare tactics.”

AT&T;’s Cicconi denied that his company was using such tactics but said consumers should nevertheless be fearful.

“Clearly, this will mean an end to a competitive local marketplace,” he said, “not only for the millions of customers [who] have chosen competitive carriers as their local providers, but also for the millions of others who are benefiting from the lower prices that competition brings.”