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High Court Rejects Baby Bells' Appeal

Telecom: Justices' refusal to review law is another blow to local phone giants seeking to enter long-distance.


WASHINGTON — Handing local phone giants another defeat in their quest for quick entry into the $70-billion long-distance market, the Supreme Court on Tuesday refused to review a federal law that prevents the regional Bell phone companies from offering long-distance service.

Without comment, the high court rejected appeals by Bell Atlantic Corp., SBC Communications Inc. and US West Inc. to lift long-distance restrictions Congress placed on them and two other regional Bell telephone companies when it passed the Telecommunications Act in 1996.

The court's refusal to hear the Bells' appeal was at least the third major setback this year to efforts by the Baby Bells to gain access to the lucrative long-distance market now dominated by AT&T Corp., MCI Worldcom Inc. and Sprint Corp. The rejection will force the five regional phone companies to continue to seek permission to offer long-distance service on a state-by-state basis.

"This decision confirms the logic of the Telecom Act: that competition breeds competition," said William Kennard, chairman of the Federal Communications Commission, which oversees the phone industry. "The companies should stop litigating and give Americans what they want--choice."

Spokeswomen for US West and Bell Atlantic said they were disappointed with the Supreme Court decision. But the Bell Atlantic spokeswoman said the company would press ahead with plans to gain regulatory approval at the state level.

The regional Bells, which have been limited to offering only local phone service since the 1984 breakup of the Bell telephone monopoly, have been angling to enter the long-distance market, even as prices for long-distance service have fallen more than 40% during the period.

The Baby Bells and phone giant GTE Corp. provide more than 80% of the local phone service in the United States. But they have been lured to long-distance by the promise of potentially huge profits, since they wouldn't have to pay the hefty fees that long-distance carriers pay to local phone companies to handle the last leg of toll calls.

The Baby Bells have been opposed by long-distance carriers and regulators, who say the Bells haven't done enough to open up their local markets to competition.

Last summer, US West and Ameritech Corp. were blocked by the courts from consummating long-distance marketing deals with Qwest Communications International Inc. And last month, a federal appeals court in Washington voted 3 to 0 to block a bid by BellSouth Corp. to offer long-distance service in South Carolina.

GTE and the Baby Bells have filed more than a dozen lawsuits in state and federal courts since the passage of the 1996 Telecommunications Act.

"Local telephone monopolies have tried every creative and cockamamie legal challenge to get out of the requirement to open up their local phone network; hopefully, this is the last chapter in a litany of absurd legal challenges to slow down the development of local phone competition," said Gene Kimmelman, co-director of the Washington office of Consumers Union.

Under the Telecommunications Act of 1996, in order to get access to the long-distance market, the Baby Bells must demonstrate they have met a 14-point checklist to show they have opened up their local phone markets to outside competition.

In the wake of the legal setback, many experts say the Baby Bells will redouble their efforts to open up their markets to competition. Some analysts now expect state and federal regulators will grant at least one of the Bells authority to enter the long-distance market as early as this spring in the New York area.

"The Baby Bells are not back to square one" with this decision, argued Melinda Mullet, a telecommunications regulatory analyst at Arthur Andersen & Co. "Time is moving along and we are getting to the point where the markets are almost open," said Mullet, adding that she expects Bell Atlantic to gain regulatory approval for long-distance this year.

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