Bells stymied on access to local phone markets U.S. court throws out FCC's new regulations to foster competition


The plans of long-distance telephone companies to get into local telephone markets were dealt a major blow yesterday as the 8th U.S. Circuit Court of Appeals in St. Louis threw out regulations that were intended to foster competition with the local telephone incumbents.

The ruling stemmed from the court's decision in July to strike down key elements of the Federal Communications Commission's rules for opening up local telephone markets.

It was a further setback to the commission's agenda for increasing competition just as its chairman, Reed Hundt, prepares to step down.

The FCC's rules had been seen by telecommunications executives as highly advantageous for companies that wished to compete against the regional Bells in local telephone markets. Analysts said the court's decision to strike down those rules could force long-distance companies such as AT&T Corp. to spend billions more to build their own local networks.

"This is a very big deal," Scott Cleland, an analyst with the Legg Mason Precursor Group in Washington, said. "This undoes AT&T's current local strategy."

The ruling came after the stock market had closed.

One of the goals of the Telecommunications Act of 1996 was to increase competition in local telephone markets, which are dominated by the five regional Bells: Ameritech, Bell Atlantic, BellSouth, SBC Communications and US West.

Because the regional Bells own most of the equipment needed to run a local telephone network, such as the wiring and switching mechanisms, and because it would be impractical or prohibitively expensive for any other company to completely duplicate that communications infrastructure, the Bells are required to sell access to those networks.

Potential local competitors can buy a complete package of local service from a regional Bell and resell that service under their own brand name. Known as a resale, that route is seen as holding little opportunity for profit for a new entrant into the market.

Also, potential competitors can buy access to parts of a local network, such as the copper wires or the use of the complicated machines that link telephones together in a conversation.

But the FCC rules that were overturned yesterday would have forced the regional Bells not only to sell those individual pieces, known as unbundled network elements, but also to link them together into customized bundles of services without charge. That saved the long-distance companies the expense of integrating different sorts of complex systems.

The regional Bells argued that the FCC's rules were unfair.

The court, in a two-page decision, agreed, following up on the July decision in which it ruled that states, not the FCC, had the right to determine how local telephone companies set the prices for selling access to their networks.

The FCC and the long-distance companies lashed out at the decision, saying it would significantly delay the advent of widespread local telephone competition.

"This order permits monopoly local telephone companies to dismantle their networks for no reason other than to subvert competition," Hundt, the FCC chief, said.

"This decision will have the effect of significantly delaying -- perhaps even preventing -- many Americans from being able to have more than one choice for their local telephone company."

Jonathan Sallet, MCI Communications Corp.'s chief policy counsel, said, "When people ask why competition hasn't come to local telephone markets the answer is very clear. It's because of judicial decisions like these."

AT&T said in a statement: "The Telecom Act was supposed to make competition easier, not harder. This decision turns the act on its head."

The regional Bells, however, hailed the decision as an important tool that will serve consumers. By forcing serious entrants into local markets to build many of their own facilities, the decision eventually will lead to lower prices for local service, the Bells contend.

Bell Atlantic Vice President Edward D. Young 3rd said, "They were forcing us to sell parts of our network and then put them together again. Now they have to either build their own networks or take our service on a resale basis, but they can't take it at the deep discount that the FCC ordered."

Pub Date: 10/15/97

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