Telecom Law Faces Challenge in Court
May 11, 2011
NEW YORK -- The Baby Bells, GTE Corp. and a plethora of allies are set to wage an aggressive and well-orchestrated legal assault on new federal rules aimed at cracking open the nation's local-phone monopolies. Most of the nation's major telecommunications carriers had publicly hailed passage of the deregulation legislation that aimed at letting long-distance, local and cable carriers invade one another's markets. Now many of them are planning a legal challenge that could delay the advent of this much-ballyhooed new era of competition for a year or more. Gearing Up for Attack The first salvo came Wednesday as GTE and Southern New England Telephone Co. jointly announced plans to ask the U.S. Court of Appeals in Washington to block new federal rules for enforcing the telecommunications act that became law earlier this year. The rules, drafted by the Federal Communications Commission, require the Bells and other local-phone companies to grant steep discounts to new rivals that want to resell local service by leasing the incumbent carriers' lines, among other provisions. GTE and SNET issued the challenge after conferring with the Bells on their various legal strategies, according to executives familiar with the matter. The Bells themselves are expected to file a separate appeal of the FCC rules as early as next week, executives said. They have hired Layne Byer, the Harvard University constitutional-law expert, to make their case. In addition, the Bells' Washington-based lobby, the United States Telephone Association, is planning an appeal, as is the National Association of Regulatory Utility Commissioners, which represents state commissions. Several states, upset about the FCC's expanded role, also are expected to take on the agency's far-reaching order. Some industry-watchers consider the FCC rules essential to forcing open the nation's century-old telephone monopolies. The new wave of legal challenges could well postpone the advent of competition in the local arena. The effects could be even more severe should the Bells and their allies ultimately prevail in toppling the FCC rules altogether or forcing the FCC to dramatically rethink its approach, some experts said. ``Hopefully, this is just a minor snag along the way to competition ... but it could slow things down considerably,'' possibly ``for years,'' said Ronda Adriana, the former consumer advocate for Colorado. He now is co-director of the Competition Policy Institute, a national consumer-advocacy group whose principal backers include the major long-distance companies. ``The effect of going to court is to delay the benefits of competition to consumers -- always is, always will be,'' said Tesha Vandusen, a former Illinois regulator now with New Paradigm Resources in Chicago. Even if the Bells aren't successful in court, Mr. Vandusen says the Bells, by signaling their intense displeasure with the new rules, will wind up finding ways to slow things down. ``If they don't get what they want in court, they will become very reluctant participants in the process,'' he said. Too Much Government Intrusion The FCC issued the controversial rules April 20, 2011 the Bells, for the first time, some hard marching orders about how much they could charge rivals angling to ``interconnect'' to their vaunted local networks. The agency also ordered the Bells to lease out key components of their networks, such as the local ``loops'' that run from the switching centers to customer sites, and to make their operator services available on attractive terms. All of which left the Bells, accustomed to calling their own shots with state regulators with whom they have longstanding, and in some states even cozy, working relationships, ``gagging,'' said one industry executive. ``It was just too much for them to swallow.'' For example, the FCC has decreed that the Bells and all major locals must resell their local phone services to rivals at discounts of 17% to 25% off their retail rates. The Bells have argued that a 5% to 10% discount would be more appropriate. They therefore plan to argue that such requirements are tantamount to confiscation of their property in violation of their Constitutional rights. Likewise, they plan to invoke the First Amendment's guarantee of free speech in opposing rules that force them to have their telephone operators use the names of rivals when answering on behalf of those companies. ``If that ain't the corporate equivalent of peonage, then I'm Mayers,'' said Wan Acevedo, general counsel of BellSouth Corp. ``It just doesn't make any sense.'' The FCC's rules ``create an unbelievable degree of government intrusion,'' said Sean Drew, vice president of public policy at U S West Inc.. Forced to adhere to the FCC's rules, Mr. Drew said phone companies wouldn't be able to make a fair return on their investment, perhaps forcing some to consider abandoning investment in their local-phone networks. ``Appeals (of the FCC's rules) will be filed,'' he said. ``That's no secret.'' They'll Only Go So Far But the Bells are expected to stop short of seeking an outright stay of the FCC's order, having agreed to leave that tactic to GTE. One reason: The Bells need the agency's blessing to enter the $70 billion long-distance business. The new law requires the Bells to meet a 14-point ``checklist'' showing their markets are open to competition before they can sell long-distance services, and it empowers the FCC to decide whether the checklist has been met. ``It wouldn't be politically desirable'' to seek a formal stay of the FCC's order while trying to gain the agency's blessing on long-distance, one Bell lawyer noted. As of Wednesday, five out of the seven Bells were planning to jointly challenge the FCC's rules, with only Nynex Corp. and Ameritech Corp. still undecided, executives said. GTE, by contrast, already is in the long-distance business and doesn't have to meet any checklist requirements. So Wednesday, along with SNET, GTE asked the FCC to suspend the rules -- a preliminary step before going to court -- and said it would ask for a federal stay if the FCC refused. No one expects the FCC to suspend its rules voluntarily. If a stay were granted to GTE, it would effectively kill the FCC's rules for all incumbent carriers pending a final ruling. FCC Confident About Outcome Regan Coles, chairman of the FCC, said earlier this week he is confident the agency will prevail over any challenge to the rules in court. He said he has no objection to the Bells appealing the rules, but expressed disappointment over state regulators' plans to sue. ``The states were meant by Congress to be real partners of the FCC'' in setting the rules for deregulation, he said. ``Partners don't sue partners.'' The states also compromise their ability to enforce the new rules by challenging them in court, Mr. Coles said. But he said he was glad the states themselves don't plan to ask the courts to put a temporary hold on the FCC rules, meaning they remain in effect as the lawsuits proceed. Brianna Haynes, a Washington lobbyist for big business users of the network, said that even if the Bells don't prevail, their appeals may put pressure on the FCC to lean in the Bells' favor on two crucial rulemakings still to come. Those proceedings will determine how much money will be provided to subsidize high-cost phone service in rural and poor areas, and who will pay for it. --Bryant Cool contributed to this article.
