Antitrust Lawyer Blog Commentary on Current Developments

Appeals Court Upholds FCC Rules on Phone Companies

On June 16, a U.S. appeals court affirmed the FCC's most recent stab at spelling out local phone monopolies' obligation to lease their networks to startup competitors at discounted prices. “The FCC is pleased that the court has upheld its pro-competitive rules governing network unbundling,” an FCC spokesman said in a statement. “The court's decision provides long-awaited certainty for the telecommunications industry and consumers.” The rules required the local giants to provide transport and access to local loops at wholesale rates, except in certain big cities and business centers where sufficient competition exists. To many industry watchers, however, the June 16 decision was a case of too little, too late for the startup rivals, many of them VC-backed, known as competitive local exchange carriers (“CLECs”).
At issue is an FCC rule, approved in a 3-2 vote along party lines in December 2004 that limits the extent to which competitors can use the networks and switches of local Bell phone companies to reach customers. The FCC said Bells are not required to lease their switches to rivals. Similarly, the FCC provided the Bells with some relief on other parts of the network, including transport and high-capacity loops that connect the Bell's central office to each customer's home. The U.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 decision, also denied any additional petitions for review. As a result, most regulatory experts contend that this is the end of a long legal battle over access to the Bell companies' lines. Three previous attempts by the FCC to set phone competition rules, in litigation that began roughly a decade ago, were all struck down by the court. Bell companies, such as Verizon Communications Inc. and SBC Communications Inc., (now AT&T Inc.), began their latest round of appeals last year. They contend that Bells should not be required to lease any of their networks to rivals at discounted rates. The CLECs appealed the FCC's subsequent court-ordered rewrite, hoping to restore access to Bell network switches and separate requirements that had enabled them to use the Bell company lines to offer local and broadband service without building their own local networks.