Supreme Court backs local-phone rule
Ruling seen as win for long-distance carriers vs. Bells
By Jeffry Bartash, CBS.MarketWatch.com
Last Update: 11:31 AM ET May 13, 2002
WASHINGTON (CBS.MW) -- The U.S. Supreme Court on Monday upheld federal rules for local-phone wholesale rates, giving long-distance carriers a legal victory over the Baby Bells.
The ruling could also save the long-distance carriers hundreds of millions of dollars and make it easier for them to compete with the Baby Bells for local-phone customers.
Federal Communications Commission Chairman Michael Powell applauded the ruling.
"This decision brings much-needed additional certainty to the legal landscape and should advance the commission's efforts to carry out the statute's competition goals," he said.
Under the 1996 Telecommunications act, Congress authorized the FCC to set up a process for determining how much local phone incumbents - the Baby Bells, Qwest Communications and rural providers such as Alltel - can charge other carriers to interconnect to their networks.
The goal was to stimulate competition in the local market. In exchange, the Bells would receive permission to sell long-distance.
Yet the Bells have fought pricing rules for years. They've charged that the agency's approach was flawed and forced them to offer wholesale access at prices below what it cost to supply it.
"Today's decision maintains an unfortunate status quo: BellSouth (BLS: news, chart) must continue to provide pieces of its network to competitors at below-cost prices," BellSouth said. "This status quo discourages investment by both us and our competitors, resulting in poorer choices for customers."
The Court rejected that view, however.
The FCC's pricing rules "appears to be a reasonable policy for now, and that's all that count," Justice David Souter said in the 7-1 decision.
In Monday trading, the Bells appeared largely unaffected. Shares rose 2 percent to 3 percent.
The company most likely to reap the most immediate benefit, WorldCom (WCOM: news, chart), didn't get any boost. Shares of the financially strapped communications carrier fell 4.4 percent to $1.51. Its consumer long-distance arm, MCI Group (MCIT: news, chart) , slid 4.3 percent to $2.20.
WorldCom needs lowerholesale rates to ensure the success of its new Neighborhood plan, which allows customers to talk as long as they want on the phone at one flat monthly rate of $50 or $60. The plan includes local and long-distance service and features such as Caller ID and call waiting.
The company offered the plan in an effort to stop the decline in its long-distance business. Long-distance carriers need to enter the local phone market to stave off the Baby Bells, which are increasingly gaining permission to sell long distance in the states they serve.
Where the Bells have received permission, they've quickly siphoned off as much as 25 percent of the long-distance market, largely at the expense of AT&T (T: news, chart), Sprint (FON: news, chart) and WorldCom.
Jeffry Bartash is a reporter for CBS.MarketWatch.com in Washington. |
