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Bush Sides With Bells

The administration and the FCC don't seek Supreme Court review of the phone rules. Rivals plan to appeal.

June 10, 2004|James S. Granelli and Jube Shiver Jr. | Times Staff Writers

The Bush administration and federal regulators sided with the Baby Bell companies Wednesday and refused to seek Supreme Court review of telephone competition rules.

AT&T Corp. and MCI Inc. said they still planned to appeal the court decision that threw out rules requiring the Bells to lease their local phone lines and gear to competitors at regulated wholesale rates.

The legal and political muscle of the White House and the Federal Communications Commission could have bolstered the two companies' effort -- and critics accused the Bush administration of favoring giant Bell companies like SBC Communications Inc. over relative newcomers to the local phone business.

"This decision is the final nail in the coffin for local telephone competition," said Gene Kimmelman, public policy director for Consumers Union, publisher of Consumer Reports magazine. "It signifies that the Bush administration is willing to let nascent local phone competition wither or disappear, enabling the Bell telephone companies to become dominant local phone monopolies again."

There were predictions that the administration's refusal to join the appeal could turn into a political liability during an election year in which voters are already stewing over high gasoline and milk prices.

The chairman and the ranking Democrat on the House Judiciary Committee, Rep. F. James Sensenbrenner Jr. (R-Wis.) and John Conyers Jr. (D-Mich.), called the decision "unwise."

They said in a statement that the administration's stance "undermines the clear intent of Congress" when it passed the Telecommunications Act of 1996 and "threatens to undermine consumer choice and local telephone competition for millions of Americans."

White House spokeswoman Claire Buchan said the decision was "consistent with the administration's policy of ending the cycle of litigation and moving to regulatory stability" after eight years of court challenges to rules implementing the act, aimed at opening the phone business to competition.

SBC, California's dominant local phone service provider, called the White House and FCC staying out of the fight "a major victory for consumers and the nation's economy."

The federal rules are set to be taken off the books Tuesday. The Bells are, in the meantime, in talks with companies that have been leasing lines and equipment at the wholesale rates. The Bells have long argued that rates should be set in the marketplace, not by regulators.

Industry analyst Richard Klugman of Jeffries & Co. said that with Wednesday's decision in Washington, the Bells "now have the upper hand in negotiations with competitors to squeeze the wholesale-retail spread for their local service."

Written by the FCC, the rules have enabled AT&T, MCI and other Bell rivals to help push down the prices of calling plans, saving phone customers $16 billion a year.

But the U.S. Circuit Court of Appeals in Washington said in a March 2 ruling that the FCC had made errors in writing the rules, including wrongly delegating authority to states to decide where competition exists.

If wholesale rates rise, competitors would have to pass the costs on to consumers, accept thinner profit margins or trim their offerings.

Since the court's ruling, the administration and the FCC have pushed the Bells and their rivals to reach commercial agreements.

SBC General Counsel James D. Ellis said the company wouldn't unilaterally raise any rates through the end of the year as it negotiated commercial agreements with AT&T, MCI, Sprint Corp. and countless small phone companies.

Said Eric Rabe, spokesman for Verizon Communications Inc., California's second-largest phone company: "Pricing in the phone business is being set by wireless," new technologies and the Bells. "There's no reason to think any of them will raise consumer rates."

The Bells' victory could be short-lived, analyst Klugman said, "because of fundamental shifts in telecommunications technology." That includes increased use of wireless phones, other wireless technologies and the growing use of voice over Internet protocol, which requires only a broadband connection to send voice over data networks, like e-mail.

On Wednesday, shares of AT&T fell 39 cents to $16.56. SBC's shares rose 28 cents to $24.62. Both trade on the New York Stock Exchange.

AT&T said it would appeal in the next week, though the chances of the Supreme Court hearing the case fell with the decision by the White House and the FCC. AT&T General Counsel James W. Cicconi, who has close ties to the White House, said phone companies had businesses to run. "I don't believe anybody in this industry owes it to the administration to sugarcoat the impact of this decision on their customers."

At the FCC, a 3-2 majority had said it would appeal the case to the Supreme Court. Commissioner Kevin J. Martin, a Republican who had sided with the agency's two Democrats in adopting the competition rules last year, said Wednesday that because Solicitor Gen. Theodore B. Olson wouldn't support an appeal, he no longer would either.

FCC Chairman Michael K. Powell, who had bitterly opposed the majority's competition rules, couldn't be reached for comment. As for Commissioner Michael J. Copps, a Democrat, he lamented: "The people who pay America's phone bills deserve better."

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