Supreme Court rules against FCC, MCI, AT&T

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Supreme Court Rejects FCC Phone Rule Request

WASHINGTON (Reuter) - The Supreme Court Tuesday declined a request by federal
regulators and long-distance phone companies to reactivate landmark rules
intended to pry open the nation's local phone monopolies to competition. 

The denial means key terms and conditions for deregulating the $100 billion
local phone market will for now depend on the decisions of state regulators
in the 50 states -- instead of on uniform rules issued by the Federal
Communications Commission. 

It is a defeat for the FCC and long-distance giants AT&T Corp. and MCI
Communications Corp. They sought to reinstate the FCC's "interconnection"
order after a U.S. appeals court suspended key provisions pending a challenge
to the rules, and Supreme Court Justice Thomas declined to restore them. 

It is a victory for the Baby Bell companies, GTE Corp., other local carriers
and state regulators who are seeking to overturn the regulations in the St.
Louis-based appeals court. They argue the FCC unfairly snatched away from the
states the power to issue policies governing pricing and other matters. 

The rules spell out how long-distance companies, cable-TV operators,
utilities and others wanting to get into the local phone business can plug
into the local network under the new telecommunications law. 

"For all practical purposes the state have complete control over the prices
new entrants will pay to share the existing telephone networks during the
critical period when competition is supposed to begin in local telephone
markets," FCC Chairman Reed Hundt said after the high court's denial. 

The appeals court temporarily suspended the rules last month, saying the FCC
probably erred when it drafted them. 

On Oct. 31, Justice Thomas declined a request by the FCC and its
long-distance allies to lift the lower court's "stay." They separately asked
Justices Ruth Bader Ginsberg and John Paul Stevens to reconsider the request.
The justices referred the matter to the entire court. 

"The stay prevents grossly arbitrary and distored pricing rules from going
into effect and ruining the whole process," said GTE General Counsel William
Barr. "It does not delay the timetable set forth in the Telecommunications
Act of 1996 for the introduction of competition, but instead allows for a
more level playing field." 

Oral arguments in the St. Louis case are set for January. FCC Chairman Hundt
conceded Friday it was unlikely the appeals court would decide in favor of
the FCC. And he doubts the rules will be put into effect for at least 1 1/2
years, if ever, while they are fought over in the courts. 

Hundt was encouraged, however, by the actions of state regulators arbitrating
interconnection agreements between the Bells and their long-distance rivals. 

He said key provisions to the arbitration decisions issued so far are similar
to the suspended FCC rules. 

Iowa, Texas, Maryland, Virginia and Pennsylvania have been among the states
that have issued decisions that will lay the groundwork for arbitrated
agreements between the Bells and AT&T, MCI and No. 3 long-distance company
Sprint Corp. 

"There hasn't been any evidence that the states are going off and doing any
wild and crazy stuff," said analyst Robert Mayer of Deloitte & Touche
Consulting Group.