More choices could be coming to a home phone near you

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Posted 7:57AM on Tuesday, May 14, 2002

ATLANTA - Americans are likely to see a greater choice for local-phone service after a Supreme Court ruling that the government's method of bringing competition to the telephone market has been reasonable. The court decision Monday turned away arguments by the regional Bell companies that the Federal Communications Commission's pricing formulas allowed local competitors access to the Bell networks at below-cost prices. ``It restores confidence in the 1996 Telecommunications Act - that it works, that it's the right set of principles,'' said John Windhausen Jr., president of the Association for Local Telecommunication Services, a trade group. The court said the FCC could set the Bells' prices based on future cost estimates instead of historical data, which means lower cost for competitors buying elements of the Bell networks. The regional Bell companies - BellSouth Inc., Qwest Communications, SBC Communications Inc. and Verizon - argued that such a scheme does not allow them to recover their infrastructure expenses and removes their incentive to introduce new services. The court ruled 5-3 in 1999 that the FCC could set pricing rules. Justice Stephen Breyer, joined by Justice Antonin Scalia, said Monday the court was giving the FCC too much authority with the latest ruling. Justice Clarence Thomas endorsed only part of the decision. Justice David Souter wrote for the majority: ``We cannot say whether the passage of time will show competition prompted by TELRIC to be an illusion, but TELRIC appears to be a reasonable policy for now, and that is all that counts.'' Federal Communications Commission Chairman Michael Powell said the ruling ``brings much-needed additional certainty to the legal landscape.'' Verizon spokesman Bob Bishop said the companies that lost in the court case hope Powell ``won't reflexively follow these bankrupt policies of the past.'' The court ruling was ``fundamentally unfair to the Bells, but what the regulators did was weigh in the favor of the good of the many outweighing the needs of the few,'' said Jeff Kagan, an independent telecom analyst in Atlanta. ``This ruling was done to try to jump-start companies on the consumer side.'' Since the milestone 1996 law, which opened local service to long-distance companies and allowed the Bells to eventually sell long-distance, local competitors have been stymied by legal uncertainty and thin profit margins. The nation's four Bell monopolies have maintained a firm grip on local telephone service - they still handle more than 90 percent of the nation's local calls. Business customers have broader local choices, but the residential market has remained largely the Bells' domain except in a handful of major metro areas. The court's ruling is likely to spur more investment and national plans that include local phone service, said Ramkrishna Kasargod, a telecom analyst with Morgan Keegan & Co. Last month, Worldcom's MCI unit announced that it will offer local-service in all 50 states by next year as part of a new calling plan. ``This (ruling) makes it easier for long-distance carriers to provide a competitive local offering,'' Kasargod said. ``In some states, it was becoming uneconomical for them to offer that.'' Local competitors contend they've been unable to make inroads because it was unclear whether the Supreme Court would uphold the FCC's rules governing what incumbent Bells can price competitors. Without that clear signal on the costs to access Bell networks, many companies were reluctant to offer residential service, said Mark Rosenblum, an AT&T vice president. ``A competitor has to know with some degree of confidence what the future holds not to be guaranteed a profit - but they have to know that some court somewhere is not going to toss out the pricing structure,'' Rosenblum said. The ruling had little effect on stock prices Monday. Analysts said that's because the court only affirmed current practices, and barriers remain to competition. ``For many new local competitors, the ruling is akin to completing a fourth-and-long pass for a first down while trailing late in the game. It keeps the drive alive, but they still have a long way to go to score,'' said Blair Levin, a telecommunications analyst in Washington. The FCC faces several decisions later this year on how much of the Bells' networks competitors should be allowed to lease. Justice Sandra Day O'Connor, who has stock in AT&T and WorldCom, did not participate in the case. The cases are Verizon Communications v. FCC, 00-511; FCC v. Iowa Utilities Board, 00-587; General Communication Inc. v. Iowa Utilities Board, 00-602; AT&T Corp. v. Iowa Utilities Board, 00-590; WorldCom Inc. v. Verizon, 00-555.