Court orders FCC to re-examine local competition rules

In a decision viewed as a victory for incumbent local phone providers, better known collectively as Baby Bells, the U.S. Court of Appeals for the District of Columbia Circuit has ordered a review of the regulations that govern how the Bells must treat competitors in the local phone market.

The Court of Appeals on Friday ordered the U.S. Federal Communications Commission (FCC) to re-examine two of its rules designed to implement some of the pro-competitive mandates found in the Telecommunications Act of 1996.

The first obliges incumbent local carriers to lease "unbundled network elements," or UNEs, to competitors, therefore making it easier and cheaper for Bell challengers to offer services over existing phone lines than if they had to build their own networks. The second rule forces Bell companies to unbundle local connections used for high-speed digital subscriber line (DSL) Internet services and allow competitors to offer services through them.

In both instances, the Court of Appeals' ruling, written by Senior Circuit Judge Stephen Williams, sided with the Bell petitioners requesting that the FCC orders be reviewed.

The ruling questioned the FCC's decision to make access to UNEs a universal right of Bell competitors, regardless of whether that access will improve competition. In the 1996 act, Congress gave the FCC the authority to define which network elements must be unbundled in order to foster competition, and to set related leasing prices. As for the issue of unbundling and renting DSL lines to competitors, the Court of Appeals said such unbundling is not warranted in a market where robust competition already exists, noting the threat posed by competing broadband services such as cable, wireless, and satellite connections.

The Court of Appeals remanded both regulations to the FCC for further consideration in accordance with its ruling.

The FCC is currently examining its unbundling framework and taking public comment on the issue, said Michael Powell, the commission's chairman.

"We will be exploring many of the issues that the court raised in its opinion in the coming months as we evaluate the record in this proceeding," Powell said in a statement issued Friday. "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."

Incumbent local phone provider Verizon Communications Inc. lauded the Court of Appeals' finding.

"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," said Michael Glover, senior vice president and deputy general counsel for Verizon. "The biggest win for consumers is the court's recognition that unbundling requirements are especially unwarranted in the already competitive broadband market."

Officials at AT&T Corp., which offers local telephone service in four states, took issue with the ruling, saying that the FCC's unbundling rules have helped consumers benefit from heightened competition. The company claims its real-world experience in providing local phone service proves that competition exists when there is unbundling of network elements, and suffers when there is not.

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