High Court Rests

Posted: 03/1999

High Court Rests
Industry Holds Its Breath
By Kim Sunderland

Clearly, the majority of the U.S. Supreme Court's recent ruling in AT&T Corp. et al v. Iowa Utilities Board et al bodes well for competitors vying for a slice of the local telephone market.

On Jan. 25, the High Court reinstated federal rules aimed at opening the $100 billion local telephone market to competition. The ruling came as a surprise so early in the year; the court had heard only oral arguments last October.

In its opinion, the Supreme Court took issue with several rulings by the U.S. Court of Appeals for the 8th Circuit, which had vacated key portions of the Federal Communications Commission's (FCC's) landmark 1996 interconnection order (Common Carrier Docket No. 96-98). The FCC had adopted rules in this order on new local market entry, including what the incumbent local exchange carriers (ILECs) could charge new entrants to interconnect with their equipment. In mid-1997, however, the ILECs and several state utility commissions said the FCC's order usurped the powers of the states. The 8th Circuit agreed, setting aside massive segments of the FCC's order.

But the Supreme Court has sided with the FCC in determining that the commission should design not only a pricing methodology, but saying that most of the FCC's rules governing unbundled access are consistent with the Telecom Act and its "pick and choose" rule stands.

In its ruling, however, the Supreme Court vacated the FCC's Rule 319, the primary unbundling rule that sets forth a minimum number of network elements that ILECs must make available to requesting carriers. The court declared Rule 319 inconsistent with the Telecom Act because the FCC "did not adequately consider" all factors "when it gave requesting carriers blanket access to network elements." In other words, the court wonders if the FCC is
giving competitive LECs (CLECs) access to network elements that go beyond what is necessary to provide basic local service, which is all the Telecom Act called for. The court said the FCC virtually ignored the Telecom Act's requirement that it consider whether forcing the ILECs to provide access to each network element was "necessary" to promote competition, and whether new entrants would be "impaired" by having to get the network element on their own.

This portion of the decision, policy experts say, could speed the ILECs' deployment of high-speed Internet access services to consumers and make it harder for new local entrants to link to the ILECs' systems, especially those that deliver advanced services. That's because some unbundled network elements (UNEs) may be deemed unnecessary to providing anything other than basic phone service.

Naturally, the ILECs and GTE Corp. are encouraged by this part of the ruling. They say it's unfair for them to invest billions on such network upgrades, only to be forced to lease those lines to CLECs at a discount. Under the Supreme Court ruling, the Bells could argue that such lines are not necessary for CLECs to establish competing services.

"Competitors increasingly will have to use their own equipment and the equipment of others, not just Bell and GTE facilities," says William Barr, GTE's general counsel. "We feel vindicated in our argument that the FCC went grossly overboard" in its rules governing UNEs.

On the upside for CLECs, the Supreme Court upheld the FCC's rules barring the ILECs from unbundling their networks and then charging CLECs to reassemble them. This means that the Bell companies must adhere to the FCC's interconnection rules, which forces the ILECs to lease their networks to CLECs at deep discounts. The FCC had found that such unbundling created unnecessarily high costs for competitors.

The High Court ruling also will lend a new uniformity to pricing policies by giving the FCC jurisdiction to set those prices. Opponents had wanted that power to go to the states.

Bob Rowe, telecommunications chairman for the National Association of Regulatory Utility Commissioners (NARUC) and a member of the Montana Public Service Commission (PSC), says NARUC will work closely with the FCC on minimizing any disruption of existing state commission pricing orders; coordinating consideration of any stranded cost claims, assuring that intrastate customers don't bear an inappropriate share; and continuing to maximize the benefit of state-level diversity and innovation.

The High Court pointed out that while the state commissions still must approve interconnection agreements, this doesn't "preclude the [FCC's] issuance of rules to guide the state-commission judgments."

Meanwhile, the pricing portion of the High Court's ruling supports the FCC's order on what the ILECs can charge new entrants for interconnecting with their equipment. The FCC had advised state commissions to use the total element long-run incremental cost (TELRIC) method to determine those costs.

Policy analysts say the pricing uniformity should make it easier for CLECs seeking to do business across multiple states because the states will deaverage local loop rates, which will dramatically reduce what CLECs must pay for unbundled loops in many urban markets.

The High Court also determined that the FCC can force a "pick and choose" rule on LECs that allows competitors to buy or lease any service or network element under the same terms as they were provided under any previous agreement, without having to accept the entire agreement.

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