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 reviewing applications for certification by the BOCs. Others are laying groundwork through generic review of the Telecom Act to determine their exact obligations regarding the Act's "Competitive Checklist."
Section 271 of the Act sets forth the conditions for BOC entry into the in-region, interLATA market. (The Baby Bells currently are permitted to provide long distance service outside of their own local service territories.) Section 271 also requires the FCC to consult with state regulators to verify compliance with the conditions.
Under section 271, a BOC may enter the in-region long distance market in a state in two ways: Track A or Track B.
Track A requires the presence of a facilities-based competitor who offers service to both business and residential customers. The BOC then will need only show that it has entered into at least one agreement to provide access and interconnection to its network; Track B, on the other hand, allows entry even if no facilities-based competition exists, provided that the BOC has filed a statement of terms and conditions offering to provide adequate access and interconnection. The access and interconnection provided or offered under either tract must then pass the 14-point competitive checklist contained in the Act.
Two of the 14 checklist items have drawn the most attention so far from the state PUCs: (1) Interconnection in accordance with the requirements of sections 251(c)(2) and 252(d)(1); and (2) Nondiscriminatory access to network elements in accordance with the requirements of sections 251(c)(3) and 252(d)(1).
Other key requirements include: (1) access to the poles, ducts, conduits and rights-of-way owned or controlled by the Bell operating company at just and reasonable rates; (2) white page directory listings; and (3) access to operator assistance and 911 services.
Of the PUC rulings known to be issued, the difficulties in interpretation appear to lie primarily in the area of standard of proof. What did Congress intend? How can a BOC prove that it stands ready and willing to make interconnections available, if no requests are forthcoming? Will strict interpretation place control of the checklist in the hands of BOC competitors?
Another problem arises: Do tracks A and B cover the field, or does a gap exist? Is it possible, under a peculiar set of facts, that whatever it might try to do, a BOC might find itself in a sort of black hole, unable to qualify under either Track A or Track B? (See sidebar, "State Certifications.")
Industry Reform Now Uncertain
Overall, the ruling appears to leave one part of the Act unsettled: the bargain that ended the federal government's antitrust prosecution of AT&T in 1982.
Under this settlement agreement, commonly called the "consent decree," BOCs traded certain business restrictions for a new set of obligations and opportunities. The Act opened the local exchange market to competition and requires the established local carriers to open their networks to assist competitors seeking to enter the field. It also permits entry by the BOCs into the interLATA long-
distance market, once the carriers pass a test administered by the FCC and state regulators to check whether a carrier has truly opened its network to competitors.
Commissioner Susan Ness of the Federal Communications Commission has predicted the court's order will first be stayed and then overturned on appeal. Her colleague, Commissioner Michael K. Powell, labeled the court ruling a "stern wake-up call for us all" and suggested improving the process for reviewing applications by the BOCs for entry into the long-distance market. He proposed establishing a collaborative process designed to "find common ground on which the application can be approved." Sen. Conrad Burns (R-Mont.), chairman of the Commerce Subcommittee on Communications, says he plans to "revisit" the act during hearings expected sometime this session. Sen. John McCain (R-Ariz.) plans to introduce legislation that will improve competition in local and long-distance markets. F
Phillip S. Cross is contributing legal editor to Public Utilities Fortnightly.
State Certifications: PUCs Interpret Section 271
THE TWO-TRACK SYSTEM. Telecommunications Act 271 sets up
two alterative tracks (em Track A and Track B (em for state regulators to certify that local telephone markets are sufficiently competitive to allow the former Baby Bells to offer long-distance calling within their former monopoly franchise areas. Track A applies when a facilities-based competitor offers both business and residential service. Track B allows entry even without a facilities-based competitor, as long as the Bell carrier has offered adequate access and interconnection, as determined under a 14-point checklist. (For details on the checklist, see internet site for the Communications Media Center at New York Law School, www.cmcryls.edu/public/USLaws/1996ChkL.HTM.)
FLORIDA: A BLACK HOLE? BellSouth found itself shut out of both Track A and Track B. Track A could not apply because the facilities-based local carriers already competing did not serve residential callers. But many carriers had requested interconnection, disqualifying BellSouth from using Track B, available only when no competitors are present, said the PSC. BellSouth complained to no avail that Congress could not have intended to leave a "Black Hole" between the two methods, allowing competitors to control the process. Docket No. 960786, Order No. PSC-97-1459- FOF-TL, Nov. 19, 1997 (Fla.P.S.C.).
ILLINOIS: CARROT & STICK. Ameritech failed a checklist requirement for access to its operational support system (ordering, maintenance and repair and billing functions). However, state regulators agreed that Ameritech could meet checklist items simply by proving a service was available. It need not show that a service was actually provided (em a rule that would have put the process in the hands of competitors. The commission said its carrot-and-stick approach was working extremely well in Illinois, judging by the "fast pace" with which Ameritech had completed various checklist items. No. 96-0404, Aug. 4, 1997, 180 PUR4th 1 (Ill.C.C.).
NORTH CAROLINA: PAPER PROMISES. BellSouth failed the checklist item for interconnection in North Carolina, even though it had installed 28,280 interconnection trunks between its switches and those of competing carriers. The utilities commission said BellSouth was not currently providing "physical collocation and interconnection to local tandems," but had offered only "paper promises" to fulfill 11 outstanding requests for the service. Overall, the commission said that BellSouth should have performance measurements adequate to demonstrate that electronic interfaces would actually permit nondiscriminatory access. Docket No. P-55, Sub 1022, Jan 14, 1998 (N.C.U.C.).
WASHINGTON: A POWERFUL INCENTIVE. In a generic policy statement, state regulators said they would not require BOCs to demonstrate a competitive market, but would not grant certification if agreements existed only "on paper." Such "paper availability" of nondiscriminatory interconnection services would suffice only when no request had been made. Regulators added that "conditioning the entry into interLATA toll is perhaps the most powerful available incentive for BOCs" to offer nondiscriminatory interconnection. Docket No. UT0970300, Oct. 24, 1997 (Wash.U.T.C.).
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