Supreme Court tells telcos to open nets

By David Rohde
Network World, 02/01/99

WASHINGTON, D.C. - The regional Bell operating companies have to do what the Federal Communications Commission tells them to do after all.

Upshot
Why exactly do CLECs prefer national FCC rules?
They say having 50 states set local-interconnection prices results in distortions such as the following wholesale prices for local loops conditioned for digital service:
Chicago: $3.72/mo.
Dallas: $34.91/mo.

The lower price in Chicago is considered much closer to the FCC's methodology.
Source: Covad Communications, Santa Clara, Calif.

In a victory for long-distance carriers and new local carriers, the U.S. Supreme Court last week ended a three-year battle over telecom-reform rules by reinstating the FCC's basic blueprint for local competition.

The FCC's 1996 rules direct RBOCs and other incumbent local exchange carriers to provide local loops, switching ports and other network elements to competitors at specified prices. A federal appeals court threw out those regulations in 1997, ruling that only the states could set prices for RBOCs to sell network elements to competitive local exchange carriers (CLEC).

Last week's Supreme Court ruling, which overturns the appeals court decision, means users in many more markets may eventually enjoy local-service options from competitive carriers that haven't built complete local networks or still need key pieces to reach end users. The ruling was also vindication for FCCChairman William Kennard, who was the agency's general council in 1997 when the St. Louis court threw out the rules.

But like most telecom-reform legal events, the ruling will probably not immediately change the environment for competitive local services. First, the FCC and the states have to rewrite some of their rules to conform to the Supreme Court decision. Second, some clauses in interconnection agreements between RBOCs and CLECs may have to be renegotiated.

In addition, the FCC last week put off a missing piece of the telecom-reform puzzle. The five commissioners decided to postpone a decision on whether RBOCs and other local carriers should be able to provide digital subscriber line (DSL) and other broadband services without the usual restrictions on local calling areas and without being required to resell the services to competitors. ISPs had pleaded for the delay, saying DSL deregulation for RBOCs could put many small ISPs out of business.

For its part, the Supreme Court split 5-3 on the major question of whether the FCC has the right to set national wholesale prices for local loops and other network pieces that new local carriers typically can't afford to build. Those national prices are not so much specific numbers as they are a methodology that forces RBOCs to use only costs based on current technology - not higher historical or "embedded" costs - to devise a wholesale price for network elements.

Writing for the majority, Justice Antonin Scalia cited the fact that the Telecommunications Act of 1996 is technically a series of amendments to the original Communications Act of 1934, which authorized the FCC to "prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of the act." Leading the dissent, Justice Clarence Thomas stressed the state governments' historic role in setting local prices from the beginning of the Bell system. Justice Sandra Day O'Connor did not participate in the case because she owns AT&T stock.

The Supreme Court also ruled that new local carriers don't have to show that they have invested in something - a fiber loop or a telephone or data switch - to get the best available wholesale prices on everything else. RBOCs have complained that if every new carrier gets to cobble together a network based entirely on inexpensive RBOC piece-parts, the recent investment boom in new physical local networks will end.

Paradoxically, the ruling may ease pressure on the RBOCs in one key area: mergers. SBC Communications and Bell Atlantic have endured criticism for trying to reduce the number of potential competitors with their attempts to takeover Ameritech and GTE, respectively.

Now the two super-RBOCs may be able to argue that local competitors have only themselves to blame if they fail to attack the local market. The ruling may also aid the RBOCs' applications to enter the long-distance market if the ruling is viewed as resolving the local-competition debate.