Optical/IP Networks

RBOCs Ring Up Court Victory

The battle over broadband’s last mile is heating up, as regional Bell operating companies (RBOCs) and competitive carriers duke it out in the courtroom. On Friday, a federal appeals court rejected rules forcing local phone companies to open their networks up to competitors.

In some ways the court's decision seems to contradict a United States Supreme Court opinion issued earlier this month, which upheld the current pricing mechanism for unbundled network elements laid out by the Federal Communications Commission (FCC) (see Supremes Rule for Competitive Carriers). In the majority opinion of that ruling, the high court essentially rejected incumbent carrier claims that they are being forced to resell parts of their networks to competitors for below cost.

But on Friday, the U.S Court of Appeals for the District of Columbia ruled that the FCC must reevaluate and provide better explanation of its rules for unbundling networks. The court said the FCC went too far with its rules and that the regional phone companies shouldn't have to lease all network parts in all markets.

The court specifically rejected the Commission’s requirement that the regional phone companies share lines with high-speed Internet rivals such as Covad Communications Inc. (OTC: COVD), as well as long-distance providers like AT&T Corp. (NYSE: T) and WorldCom Inc. (Nasdaq: WCOM). Back in 1999 when the FCC was interpreting the 1996 Telecom Act, the agency had ordered RBOCs to split copper lines so two different companies could carry data traffic and conventional telephone service.

Based on Friday’s opinion, it is clear that the Court of Appeals has sided with the RBOCs in their argument that competition already exists from alternative technologies. In the ruling, the justices stated that the Commission "completely failed to consider the relevance of competition in broadband services coming from cable (and to a lesser extent satellite)." Nationally, cable modems make up over 50 percent of broadband access technology.

But competitive carriers argue that the D.C. District Court is simply ignoring the Supreme Court’s ruling on the matter, which did not buy into the RBOCs' argument that there is already enough competition.

“The district court is flat wrong,” says Jason Oxman, assistant general counsel for Covad. “They seem to have ignored the earlier ruling. And the reality is that the Supreme Court trumps a District Court.”

Incumbent carriers say that the two cases are completely unrelated and that the Supreme Court was simply ruling on pricing of unbundled elements, while the District Court ruled on which elements should be unbundled.

"The Telecom Act of 1996 calls for unbundling, but it limited which elements should be unbundled," says Ed Shakin, vice president and associate general counsel for Verizon. "The District case deals with those limitations. The Supreme Court case simply dealt with the issue of pricing after it had been determined that those elements should be unbundled."

So what is likely to happen next? So far, the FCC hasn’t said that it will appeal the decision, but Oxman says that Covad, along with other competitive carriers, will likely file an appeal. As a result, the matter could once again end up on the Supreme Court’s docket.

As for the immediate future, the decision has little impact on competitive carriers. The District Court only ordered the FCC to review its rules on unbundling and line sharing, something the agency is already doing as part of its triennial review process (see Competitive Carriers Lash Out at FCC).

“Yes, we are disappointed,” says Russell Frisby, president of the Competitive Telecommunications Association, an industry association that represents competitive carriers. “But right now it’s of little consequence, since the rules are already being evaluated.”

On Friday, FCC Commissioner Michael K. Powell issued a statement reiterating the fact that the agency is already reviewing its rules. “While we continue to evaluate the Court's opinion and consider all the Commission's options, in the meantime, the current state of affairs for access to network elements remains intact.”

Still, Verizon Communications Inc. (NYSE: VZ) and other RBOCs are hopeful that ultimately the courts, the FCC, and Congress will all see their side to the argument.

“Today’s decision is good news for competition and lays out a roadmap for rules that will promote investment and economic growth,” said Michael Glover, senior vice president and deputy general counsel for Verizon, in a prepared statement. “Verizon is pleased that the court of appeals recognized that the current overly broad unbundling requirements undermine investment and innovation by all competitors, and impose significant costs on the economy as a whole.”

— Marguerite Reardon, Senior Editor, Light Reading

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