Paving the way for greater competition in local telephone markets, the Supreme Court on Monday gave the Federal Communications Commission more authority to implement a landmark 1996 law designed to cut rates and give consumers more choices in local phone service.
The court said the FCC has authority to set guidelines for how much local companies can charge their new competitors for tapping into their networks. The court also approved FCC rules that outline how competitors can go about breaking into the local markets by, among other things, leasing certain elements of existing networks.
A lower court had ruled that local commissions had the authority to set pricing guidelines, but the high court said the FCC has jurisdiction to determine the methods local commissions will use to set prices.
The court also affirmed some other rules the FCC adopted to implement the 1996 law, making the ruling a victory for long-distance companies seeking to break into local phone markets.
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“AT&T is delighted the court has confirmed that the telecom act established a national policy in support of local competition,” said Jim Cicconi, general counsel of AT&T Corp.
Sprint Corp.’s general counsel, J. Richard Devlin, hailed the ruling as “a total victory for consumers. Instead of a patchwork of state regulations, we’ll have a uniform federal structure.”
Lower courts have ruled the FCC went too far when it adopted rules implementing the law. The FCC had maintained that competition will come about more quickly if it sets pricing formulas, instead of each of the 50 states.
Reed Hundt, who was FCC chairman when the rules were first challenged, said that he was “tickled” by the ruling that “returns the FCC to center stage in creating a national policy to accelerate competition.”
Baby Bells Ameritech Corp. of Chicago and SBC Communications Inc. of San Antonio, both vociferous opponents of the FCC’s interpretation of the federal telecommunications law, are waiting for approval of their proposed merger, which would create the country’s largest local phone company.
Despite their interests at stake, the companies were decidedly low-key in their reaction to the Supreme Court decision.
“Since the court didn’t rule on the merits of the FCC’s current pricing rules, many of the most significant decisions on local competition lie ahead,” said Ameritech’s general counsel, Kelly Welsh.
And a prepared statement released by SBC said, “A great deal has happened since the FCC’s interpretation of the telecom act’s interconnection provisions began being reviewed by the courts in 1996. As the issue has moved through the courts, SBC has opened up its markets and worked with state regulators consistent with the rules outlined by the FCC. The marketplace has moved on, and SBC has moved on.”
The Baby Bells have several reasons to mute whatever disappointment the ruling brings, said Craig Clausen, a senior vice president with New Paradigm Resources, a Chicago-based consultancy.
“With their merger now pending before state and federal commissions, the last thing that Ameritech and SBC want to do right now is to rock the competitive boat,” Clausen said. “They both claim to be pro-competition and keep a low profile otherwise.”
There may be more court challenges to specific aspects of FCC rules in the future, said Dwight Allen, a Washington-based telecommunications consultant with Deloitte Consulting.
“What’s at issue is how difficult and expensive will it be for competitors to buy elements of the local phone network,” Allen said. “You’ll see more litigation over this issue.”
The real significance of Monday’s ruling, said Mark Hellmann, a Chicago attorney specializing in telecommunications matters, is that it removes much uncertainty.
“What the court said is that there is no turning back now,” Hellmann said. “The law clearly calls for competition in telecommunications and gives the FCC the teeth to ensure that we get it.”
At issue in the case was a lower court’s interpretation of the 1996 Telecommunications Act, which was intended to open up local phone markets to competition. The idea behind the act is that more competition would give consumers more choices, lower rates and better services. That thinking has proven true in the long-distance arena, where rates have fallen 70 percent since the market opened up 15 years ago.
Regional companies now providing local service, such as Ameritech, opposed the FCC’s interpretation of the law and sued to block it. They want to make it cost as much as possible for competitors to break into the $100 million phone market. Local commissions and utilities boards sued, as well, fighting to retain their oversight authority.
But the Supreme Court’s ruling does not mean the disputes are over. State commissions and local phone companies still can challenge the substance of the federal rules.
The vote in favor of the FCC setting the pricing rules was 5-3. Justices John Paul Stevens, David Souter, Anthony Kennedy and Ruth Bader Ginsburg joined the majority opinion by Antonin Scalia. Chief Justice William Rehnquist and Justices Clarence Thomas and Stephen Breyer dissented.
The voting on other aspects of the dispute also was split.
Justice Sandra Day O’Connor, who long has owned AT&T stock, did not participate in the decision.