Stunned by a court ruling, federal regulators are scrambling to salvage a historic 1996 law

By Larry Margasak Associated Press Published:

WASHINGTON - Stunned by a court ruling, federal regulators are scrambling to salvage a historic 1996 law carefully written to spur competition between regional and long-distance telephone competitors. In a shocker of a decision Wednesday, a federal judge in Texas declared that key parts of the 1996 Telecommunications Act were unconstitutional, giving regional Bell telephone companies an unobstructed path to compete in the $80 billion long-distance market. Prior to the 1996 law, the Bells had been prevented from entering the long-distance business. On Thursday, despite the New Year's holiday, lawyers for long-distance companies and federal officials were plotting a fast-track attempt to win the next round. They first will seek postponement of the decision's implementation, and then go to a federal appeals court to begin a potentially long battle for a reversal. The five regional Bell companies and long-distance carriers such as AT&T, MCI and Sprint each want to compete in the other's market. But the long-distance companies and the Federal Communications Commission argued that the Bells should not have unrestricted access to long-distance because of the virtual monopoly the Bells hold in many localities. The Bells and long-distance carriers waged a years-long lobbying battle that resulted in the 1996 act. It allowed, for the first time, SBC Communications, US West, Ameritech, Bell Atlantic and BellSouth to offer long-distance in their own service areas if they could show the FCC they had sufficiently opened local phone markets to competition. Despite having to meet that test, it was a considerable gain for the regional Bells. But the FCC has yet to grant a Bell company's application to provide long-distance in their local service areas, and after SBC's application to provide local calling in Oklahoma was turned down, the company sued the federal government. SBC said it was being prevented from entering the long-distance and other businesses _ such as electronic publishing or electronic alarm monitoring _ that other local phone companies may provide. U.S. District Judge Joe Kendall in Wichita Falls, Texas, sided with SBC and struck down key portions of the 1996 act on constitutional grounds. The judge said that by singling out the Bells specifically, the Communications Act essentially had declared them guilty of anti-competitive behavior without a trial. The two sides, not surprisingly, had different views of the ruling. Massachusetts Rep. Edward Markey, ranking Democrat on the House Commerce telecommunications subcommittee, said the court ruling would destroy a compromise that was "painstakingly worked out." "This lawsuit breaks faith with telephone consumers and the Congress and reneges on that deal," he said. The decision "is good news for consumers," Bell Atlantic said in a statement. "It gives consumers new choices for long distance providers, and will speed the pace of competition in local markets as AT&T, MCI and Sprint now have added incentives to provide local service. Jonathan Sallet, chief policy counsel for MCI, said, "We will be in court very quickly to seek a stay of this order. If the stay goes into effect, there should not be an immediate impact for consumers. If it would go into effect, consumers would immediately see anti-competitive actions by the Bells." William Kennard, chairman of the FCC, sided with Markey and the long-distance companies. He said the regional carriers "never raised the constitutional question" during negotiations on the legislation. "I'm confident this decision will be ... overturned," Kennard added in an interview. "If that happens quickly, this is a minor blip on the road to competition. If that is the case, consumers won't be hurt by this." Kennard and long-distance companies were especially critical of SBC Communications, which originally challenged the law and later was joined by US West. "SBC was at the table and helped forge the compromise," Kennard said. SBC Chairman and CEO Edward E. Whitacre Jr. said the company planned to offer long-distance service in Oklahoma as soon as the necessary tariffs were filed and approved. SBC operates under the Southwestern Bell, Pacific Bell and Nevada Bell brands in its seven-state territory of Arkansas, Kansas, Missouri, Oklahoma, Texas, California and Nevada. Ruthlyn Newell, a spokeswoman for AT&T, said if the court for some reason did not grant a stay, "There could be harm to customers because of damage that would be done to competition."

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