Telecom reform goes to Supreme Court

By David Rohde
Network World Fusion, 10/9/98

Next week the U.S. Supreme Court finally starts getting its say over telecom reform.

After nearly three years of legal wrangling and name-calling among carriers, on Tuesday, the court will take up key disputed provisions of the Telecommunications Act of 1996. Most notably, the court will decide whether the Federal Communications Commission has the right to set prices for new local competitors to lease pieces of incumbent local carriers' networks - in a suit brought by those carriers.

The FCC set those prices in August 1996, six months after the act's enactment. The FCC action led to hopes that users would see many competitors in numerous cities lease parts of existing local networks to quickly compete with regional Bell operating companies.

But a St. Louis federal appeals court threw out the FCC's prices in 1997, ruling Congress gave each state the right to set its own wholesale prices. Backed by long-distance carriers, the government appealed that ruling to the Supreme Court. The long-distance carriers claim that without a national pricing standard for buying wholesale network elements, they cannot enter the local market that way.

For large users, experts agree that the case has somewhat less impact than it might have had a year ago. That's because the two top national carriers have since jumped into the local market through another avenue: buying or merging with competitive local carriers that have built complete networks rather than lease pieces. AT&T recently closed its acquisition of Teleport Communications, and the MCI WorldCom merger joins WorldCom's former MFS local unit with MCI's long-distance business.

Still, a Supreme Court ruling reinstating the FCC pricing rules would help users obtain more options in small cities, branch offices and other locations that don't pass competitive carriers' local rings, says Washington, D.C. user attorney Jim Blaszak. Right now, potential competitors ''have to collocate their own switches in every RBOC end-office” to cover an entire area, Blaszak says. Reinstating the FCC rules would give the competitors an economic way to piggyback on RBOC switches, he says.

The case will turn on whether the Supreme Court gives more weight to certain clauses in the Telecom Act that appear to give pricing decisions to the states than it does to others that give the FCC overall authority over the process. For example, one pricing clause prohibits the FCC from blocking any state ruling that succeeds in giving competitors reasonable access and interconnection rights.

''But this begs the question of whether the state commissions are to be guided by a uniform approach,'' says Tom O'Neil, MCI WorldCom's chief litigation counsel. ''We think the statute has to be looked at as a whole.'' O'Neil cites other clauses in which Congress appeared to give the FCC blanket authority to promote local competition however it saw fit.

The local-exchange carriers, who oppose national pricing rules, will have some heavy hitters on their side. Presenting their arguments to the Supreme Court will be former U.S. Attorney General William Barr, now a top lawyer at GTE Corp., as well as Laurence Tribe, a well-known Harvard law professor. Lawyers for AT&T and MCI WorldCom, plus U.S. Solicitor General Seth Waxman, will present the case for the FCC rules. The justices are not expected to issue their decision until next spring.

In the run-up to the case, some analysts have suggested that even if the FCC's rules are reinstated, long-distance carriers will still be reluctant to serve the broad residential and small-business local market.

''I think it will make a big difference,'' counters MCI WorldCom's O'Neil. ''If competitive pricing structures are established, I think you'll see companies move as quickly as possible [to enter the broad local market].'' But O'Neil stopped short of firmly committing MCI WorldCom to entering the residential, small-business and branch-office local markets if it wins the case.