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ON THE LAST DAY OF 1997, A U.S. DISTRICT COURT IN Texas struck down sections of the Telecommunications Act of 1996 that prevent former Bell System operating companies (BOCs) from entering certain lines of business, including interstate (and interLATA) long-distance. Some see the case as a clear victory for the BOCs. Others say it disrupts the delicate compromise forged by Congress among many diverse interests. In truth, the court's decision prompts a single question: Can Congress single out the BOCs for special treatment?
In particular, the recent ruling tackles section 271 of the Act, the section that requires Baby Bells to prove that local telephone service is sufficiently competitive to justify allowing their entry into long-distance. Judge Joe Kendall characterized section 271 as a "bill of attainder," a legislative act made unconstitutional because it inflicts punishment on an identified individual or group without the benefit of a trial. According to the judge, the "competitive checklist" contained in the law to qualify BOCs for the long-distance business was "tainted with indefiniteness and replete with arbitrary standards." Kendall found that the Act inflicted serious financial punishment on BOCs by restricting their ability to engage in a lawful business. He added that the punishment was levied for what the "court can only conclude were the sins of AT&T." (See, SBC Communications, Inc. v. FCC, No. CIV.A. 7:97-cv-163-x, 1997 wl 800662, Dec. 31, 1997, N.D.Tex.).
Even before the ruling came down, state public utility commissions had begun to tackle section 271, but not without difficulty. The PUC cases decided so far show a fair degree of controversy and diversity among state regulators.
Since Judge Kendall's ruling on Dec. 31, the controversy has increased. Expectations appear mixed at the Federal Communications Commission on what the ruling will mean in the long run. And, with lynch pin removed from the 1996 Act, and elections looming, Congress will surely feel pressure to weigh in.
Court Questions Power of Congress
Congress enacted the Telecom Act in part to relieve restrictions placed on AT&T by a series of antitrust decrees and, after the Bell System divestiture, by the Modification of Final Judgment, issued by Judge Harold Greene. Did those earlier restrictions justify the special provisions of section 271?
When the case went to court, the FCC had alleged that section 271 restrictions constituted permissible regulation of the carriers, rather than a punishment, because they "merely revamp" those already imposed under the AT&T antitrust consent decree and related court orders and regulations. But the judge rejected that argument, finding that a court can impose sanctions, while Congress cannot.
The judge added that the Act had actually reinstated certain restrictions that judicial action (antitrust decrees, MFJ, and subsequent rulings by Judge Greene) had already removed, including BOC prohibitions on electronic publishing and alarm monitor activities. Thus, in one sense, the judge seemed to view parts of the Act as a step backward.
Prior Interpretations at State PUCs
State PUCs had already begun to interpret the Act and
section 271 before the federal ruling came down in late December. In some states, regulators were