Posted on: Thursday, June 10, 2004

Phone competition set back

By Jennifer C. Kerr
Associated Press

WASHINGTON — In a victory for regional telephone companies, the Bush administration decided yesterday to let stand a ruling freeing them from sharing their networks with competitors. Consumer advocates said the decision would drive up costs for phone customers.

The decision by Solicitor General Theodore Olson, the administration's top Supreme Court lawyer, was the latest legal setback for federal regulators who have been trying for eight years to come up with rules to spur more competition for local phone service.

The Federal Communications Commission still can appeal on its own, but the Supreme Court would have been more likely to consider the challenge had the Justice Department joined the appeal. Phone companies favoring the rules, such as MCI and AT&T, could also appeal.

The regional phone companies — Verizon, BellSouth, Qwest and SBC — hailed Olson's decision.

"The administration had a clear choice: Continue down a path of extreme government intervention in a competitive marketplace or embrace the free-market principles that make our economy strong," said Walter B. McCormick Jr., who heads the United States Telecom Association, the main trade group for the regionals.

Consumer groups and long-distance companies that want to gain a greater share of local markets were disappointed.

"This decision is the final nail in the coffin for local telephone competition," said Gene Kimmelman, senior director of public policy at Consumers Union, which publishes Consumer Reports magazine.

The FCC's last attempt at setting rules for local competition came in August, when it issued regulations allowing states to require regional phone companies to lease parts of their networks at low prices to long-distance competitors like AT&T and MCI.

The rules were the result of a 3-2 vote that left FCC Chairman Michael Powell on the losing end — the first time he had been in the minority since taking over the five-member panel in 2001.

The regionals balked at the regulations, saying the rules left them at a competitive disadvantage. In March, the U.S. Court of Appeals for the District of Columbia sided with them and threw out the rules.

However, the appeals court delayed its decision until next Tuesday to give the regionals and their competitors more time to negotiate separate line-leasing deals, and the FCC had been encouraging both sides to work toward some agreements.

MCI was able to work out a deal with Qwest, but no other major companies have reached similar agreements.

And even with that deal in place, MCI's executive vice president and general counsel Stasia Kelly said, "If the FCC's rules are allowed to lapse and wholesale rates rise, MCI may be forced to raise prices in some markets and pull out of others."

BellSouth said the nullification of the rules would not necessarily translate into higher prices.

"BellSouth has pledged to its wholesale customers that we will not cut off service or raise rates for any wholesale interconnection services without going through established processes," said Herschel Abbott, BellSouth's vice president of governmental affairs.

"We have offered our wholesale customers an opportunity to lock in today's rates until the end of the year and set stable rates through 2007 by negotiating and signing a new long-term agreement with us."

Scott Cleland, CEO of Precursor, a telecom research firm based in Washington, said there's been "a whole bunch of huffing and puffing and crying wolf over this on both sides."

"This is an inside-the-beltway battle that is unlikely to spill out and have a lot of real world impact anytime soon," he said.