Copyright 2000 The Washington Post
The Washington
Post
July 19, 2000, Wednesday, Final Edition
SECTION: FINANCIAL; Pg. E03
LENGTH: 437 words
HEADLINE:
Court Decision Threatens Pace of Phone Competition
BYLINE: Peter S. Goodman , Washington Post Staff Writer
BODY:
The future of local telephone
competition took an uncertain turn yesterday as a federal appeals court struck
down Federal Communications Commission rules limiting how much Bell telephone
companies can charge rivals for the use of their networks to reach customers.
"This muddies the water for local telephone competition," said Gene
Kimmelman, co-director of Consumers Union in Washington. "This will slow
competitive entry." Yesterday's decision from the 8th U.S. Circuit Court of
Appeals in St. Louis adds the latest twist to a legal saga begun with the
Telecommunication Act of 1996, which was intended to deregulate
the industry and promote local competition. In its wake, the FCC ordered Bell
companies to lease elements of their local telephone networks to upstart
competitors.
Since then, a host of competing local phone companies have
negotiated agreements to interconnect to the Bell networks and gain access to
the wires reaching homes and businesses. When the rivals fail to secure
agreements, they can proceed to state-regulated arbitration. In setting out how
much companies should pay for access, the states are required to rely on FCC
rules mandating fair prices.
Local companies--led by GTE Corp.--quickly
filed suit challenging the FCC's jurisdiction. They argued that the pricing
guidelines should be left to the states. The 8th Circuit ruled for the Bells,
but the Supreme Court overturned that decision.
That prompted GTE and
the other companies to file a narrower challenge, the subject of yesterday's
decision: They attacked the method the FCC uses to weigh the costs that should
be built into its pricing rules.
The FCC currently estimates the costs
of building a local network, then uses those costs to determine fair
interconnection prices. The Bells argued that the prices should be based on
actual costs. The appeals court agreed.
Bell companies hailed the
decision. "Telecommunications carriers like BellSouth will continue to make and
be able to recover investments in infrastructure," said the company's vice
chairman, Jere Drummond.
FCC officials said they might appeal to the
Supreme Court. They said they did not know how the change would affect what
rivals pay to use Bell networks.
But analysts said rivals to the Bells
would almost surely see their costs rise, dampening competition. The court's
decision lands as many interconnection agreements are up for renewal.
"The FCC can't force as deep a discount under this ruling," said Scott
Cleland, an analyst with the Precursor Group. "Their vision of competition is
probably not going to roll out as fast."
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