Bell Rivals Dealt Blow on FCC Rules

AT&T; Corp., MCI Inc. and other telephone carriers lost a Supreme Court bid Monday to keep in place regulations that have helped foster competition and saved customers $16 billion a year.

Chief Justice William H. Rehnquist denied the companies’ emergency request to maintain the federal rules while the high court decides whether to review a lower court decision that threw them out. The rules required Baby Bell phone companies to lease their lines and equipment to rivals at regulated wholesale rates.

Rehnquist’s denial, which was expected after the Bush administration refused to join the case, means that the rules will expire tonight at midnight.

The leasing scheme was part of the Telecommunications Act of 1996, which ended the Bells’ monopoly on local phone service. The Bells have long maintained that the regulated rates were below their own costs.

SBC Communications Inc. and the other Bells said they wouldn’t unilaterally raise wholesale rates immediately. Relying on that promise, Federal Communications Commission Chairman Michael K. Powell said the agency would try to adopt new rules soon and urged the Bells and their competitors to negotiate leasing agreements on their own.

“Our top priority is to ensure that consumers do not experience any disruption in service and to provide sorely needed stability in the marketplace,” Powell said.

Bell rivals were preparing for the worst and suggested that customers should too.

“If wholesale prices rise, MCI may be forced to raise rates in some markets and exit others,” spokeswoman Carolyn A. Tyler said.

One high-level FCC source said AT&T; may well withdraw from local markets in several states this week. AT&T; had no comment on that, but spokeswoman Claudia Jones said that the high court denial Monday “confirms that the administration has set the industry on a path to higher prices, less competition, fewer jobs and depressed investment.”

Jabs at the Bush administration will probably get stronger if Bell competitors have to limit service or pull out of states because of hikes in wholesale leasing rates. AT&T; sources indicated that the company would put the blame squarely on President Bush if it had to raise prices or cut services.

AT&T; and MCI -- the two biggest Bell competitors -- could be forced to transform their businesses. Competition and new technologies have hammered both the profit margins and market shares of their traditional long-distance services.

“Their consumer business will disappear; their long-distance market is declining at a 20% rate and it’s much harder for them to maintain their business,” said analyst F. Drake Johnstone of Davenport & Co. in Richmond, Va.

The Bells, which say they want the revenue from the lease deals, said they hoped Rehnquist’s refusal to grant a stay would prod competitors to come to terms with them over rates.

“Part of the rationale for not raising rates was to keep stability in the marketplace so we could come to terms on commercial agreements,” said SBC spokesman Selim Bingol. SBC is California’s dominant local phone company. “Meantime, the FCC could come out with new rules that meet the court’s standard, and we’d have to look at that.”

Besides, Bingol added, the wireless industry is setting the standard on pricing, so consumers would be protected from sharp price hikes.

Verizon Communications Inc., the nation’s largest phone company and the second-largest local carrier in California, will give competitors three months’ notice of any impending rate hikes. Those notices aren’t going out immediately, spokesman Eric W. Rabe said.

“We’re not going to put a deadline on anything,” Rabe said. “We’re trying to negotiate with these people.... I’m sure we’ll be accused of saying, ‘Take it or leave it,’ but we’ve never negotiated that way.”

The full Supreme Court will decide later this year whether to hear the appeal of the lower court decision overturning the rules.

“The bottom line here is clear ... higher rates are much more likely,” FCC Commissioner Michael J. Copps said. “As both regulator and consumer, I don’t feel very good about it.”