COURT ACTION RAISES QUESTIONS ON FCC SEPARATE SUBSIDIARY MODEL
U.S. Appeals Court, D.C., ruling Tues. that rejected SBC’s advanced services subsidiary (CD Jan 10 p1) appeared to have raised more questions than it answered. Observers questioned Wed. whether decision might pressure Congress to revise Telecom Act to account for advanced services, how ruling would affect similar arrangement at Verizon and how it might play out under new Republican FCC. Court overturned trade-off FCC made with SBC: FCC allowed SBC to provide advanced services free of interconnection requirements if company formed separate affiliate to provide those services. In response to appeal filed by Assn. of Communications Enterprises (ASCENT), court ruled FCC didn’t have authority to forgo interconnection requirements of Sec. 251(c) just because SBC was providing advanced, rather than basic, services and using separate subsidiary. ASCENT represents competitive carriers, particularly those that resale ILEC service.
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SBC and Verizon officials wouldn’t comment in detail on issue because it was so fraught with legal questions. SBC has little legal recourse but to wait for possible appeal by FCC because SBC can’t bring appeal on its own. ASCENT brought case against FCC, not SBC. FCC Gen. Counsel Christopher Wright responded to ruling with terse comment: “We are reviewing the court’s decision.” Agency’s leadership will change in one week when Republicans take over Administration and it’s not even clear who will run FCC at this point. Operationally, SBC simply could roll its separate advanced services subsidiary back into its main company. However, it formed subsidiary almost year ago and already has spent great deal of money to create it. Furthermore, SBC agreed to separate subsidiary only because it would let company avoid interconnection requirements for advanced services such as DSL.
Decision also could affect similar separate subsidiary that was formed when FCC approved Bell Atlantic-GTE merger that created Verizon. Appeals Court said that although case was limited to SBC it could have broader implications. Court order said flatly that FCC couldn’t give any ILEC permission to avoid Sec. 251(c)] interconnection requirements, even for advanced services provided through separate unit.
Biggest question is whether court’s action will exert more pressure on Congress to revisit Telecom Act, analyst Scott Cleland said. Telecom Act’s regulations were “written for a circuit- switched central office model” that doesn’t accommodate packet- switched advanced services, he said. Those regulations aren’t as necessary as Internet-based telephony, he said. FCC’s advanced services subsidiary was effort to bypass that problem but it apparently didn’t work, he said. Cleland predicted “increased pressure on Capitol Hill to update the Telecom Act for data and Internet” services. Verizon spokeswoman said that as new technologies came about, there were “constantly going to be questions” about whether regulations based on old technologies were applicable. Congress needs to “draw the line to stop the migration of old telephone regulations to the world of the Internet,” she said.
FCC Comr. Furchtgott-Roth said he wasn’t surprised by court’s action because he had warned it might happen: “I dissented from the SBC-Ameritech order on precisely this ground, pointing out that this condition, as well as the other conditions imposed by the order, was of highly questionable legal validity.” Furchtgott-Roth said FCC too frequently departed from congressional intent. If agency issued orders that were more consistent with statutes, telecom providers “would be operating under a more stable set of rules today,” he said.
Meanwhile, competitive providers were elated by decision, saying it emphasized their right to gain interconnection into all ILEC services. CompTel called it “victory for the competitive industry.” Ruling “confirms what our industry has long argued -- SBC cannot, under guise of operating through a separate affiliate, be absolved of its obligations… for resale and unbundling.” AT&T said “competition is the most effective way to deliver advanced services to consumers cheaply, quickly and broadly.” Court “reaffirmed the market-opening requirements of the Telecom Act” and found FCC’s action “was inconsistent with the Act,” AT&T said.