WHITE HOUSE WON'T SEEK AN APPEAL OF THE UNE DECISION

Competitors represented by CompTel/ASCENT were still expected to file a joint appeal and stay request with the U.S. Supreme Court late Wed. or early today (Thurs.). NARUC was set to file for a stay in the same timeframe, promising to follow up with a request for high court review by the June 30 deadline. NARUC said “a Supreme Court refusal to grant these requests will leave state regulators with a messy job of arbitrating a host of impasses over wholesale rates that might arise between the Bells and their rivals with little federal guidance on how best to proceed.”

It wasn’t known when the FCC might file, either for a stay or for appeal. In fact, it wasn’t certain the agency still planned to appeal. Some observers said the lack of SG support might make it harder for the agency to gain Supreme Court review. Only 3 of the 5 FCC commissioners support an appeal -- the 3 that originally approved the TRO, Comrs. Martin, Copps and Adelstein. Copps issued a statement saying “the result of the executive branch sitting this one out is that higher consumer prices and fewer choices are more likely.” Legg Mason analysts said they thought it was “unlikely” that the high court would review the case, but if it did, it would rule by the first half of 2005.

An outpouring of statements followed the SG’s announcement. Not surprisingly, the Bells said the SG’s decision was good for the economy, and CLEC interests warned it would hurt consumers. The White House reportedly was torn between the Bells’ argument that leaving the court ruling in place would help the economy and warnings by AT&T and other competitors that consumer prices could go up unless the court ruling was overturned. Observers have said the pricing question was particularly sensitive in an election year when other prices such as gasoline already were rising.

Consumers groups agreed with the CLECs: Mark Cooper of the Consumer Federation of America said “the Bush Administration turned its back on consumers.” Cooper said that without CLEC access to Bell facilities “at reasonable rates,” the CLECs “will be driven out of the market and the billions of dollars of savings linked to competition will be gone.” The White House “has shown just how far it would go in promoting the interests of big corporations at the expense of consumers,” he said. The National Assn. of State Utility Consumer Advocates (NASUCA) said “consumers are left holding the bag with higher telephone rates and fewer choices of telecommunications providers.”

SBC called the decision “a major victory for consumers and the nation’s economy.” The company said “allowing these unlawful rules to lapse will ensure a bright new era of stability,” SBC said, promising to continue wholesale services “without disruption.” The company said it wouldn’t raise prices “at least through the end of this year.” Verizon praised the Bush Administration for taking a “strong stand for consumers.” The decision “will help move industry to market-based competition that will drive investment, create jobs and bring new services to consumers.” BellSouth also noted that it has pledged not to cut off service or raise rates for wholesale interconnections “without going through established processes.” BellSouth said it has offered competitors “an opportunity to lock in today’s rates until the end of the year and set stable rates through 2007.”

However, MCI warned that “if the FCC’s rules are allowed to lapse and wholesale rates rise, MCI may be forced to raise prices in some markets and pull out of others.” AT&T said it was “deeply disappointed” and warned that “failure to appeal this case could do lasting damage to the entire competitive telecom industry… and will lead inevitably to higher prices and fewer choices for Americans.” Voices for Choices warned that “higher prices will hit like a rock,” and Sprint warned that consumers “will soon see some phone service prices go up.” Sprint said the SG’s decision not to appeal “also is bad news for the telecommunications industry, which will face continued investment uncertainty.”

The Solicitor Gen.’s decision was praised by House Commerce Committee Chmn. Barton (R-Tex.) and House Telecom Subcommittee Chmn. Upton (R-Mich.), who issued a statement saying the SG made the “right decision to facilitate new investment in the telecommunications sector.” They also urged the FCC to develop interim rules for carriers that don’t negotiate commercial agreements in case the D.C. Circuit’s decision, which vacated key FCC UNE rules, isn’t stayed before the June 15 effective date.

Several other members of Congress expressed concern about the decision not to appeal. House Judiciary Chmn. Sensenbrenner (R-Wis.), who has raised concerns recently about how antitrust law can be used in telecom markets, was the only Republican to publicly speak out against the decision. In a statement with Judiciary ranking Democrat Conyers (Mich.), he said: “It could stifle the enormous competitive gains made in the telecommunications industry in the last several years. We fear millions of Americans may lose the ability to choose a local telephone company or be forced to pay higher rates for local phone service.” They also urged the FCC to appeal on its own. Both recently introduced legislation (HR-4412) that would hold telecom ventures accountable to antitrust law (CD May 21 p1).

House Telecom Subcommittee ranking Democrat Markey (Mass.) said the Bush Administration sided with “large corporate behemoths over the interests of millions of consumers.” He said the decision was both anti-consumer and anti-investor. “The telecommunications marketplace is dependent upon regulatory rules ensuring market entry and enforcement,” Markey said. “Few investors will risk capital in the future in other telecommunications markets equally dependent upon the FCC’s rules because of this decision.” Rep. Eshoo (D-Cal.) said the decision renders the 1996 Telecom Act “futile.”

Parties Disagree Whether Supreme Court Will Hear Appeal

Absent SG support to stay and appeal the D.C. Circuit decision on FCC UNE rules, parties disagreed on whether the Supreme Court is likely to review the case. Several sources said the SG decision has reduced the chance the court will take the case, but the odds are still good. But some analysts said absence of SG support made it unlikely the Supreme Court would take the case. UBS said in a report it was “very unlikely that the Supreme Court will grant a stay of the D.C. Court’s mandate.” Legg Mason said it believed “the Supreme Court is unlikely to review the case, though that possibility can’t be completely discounted.” The analysts also agreed the decision was good news for the Bells.

Several sources said Supreme Court Chief Justice William Rehnquist would probably decide on the stay by June 15 or shortly after. If the court accepts the case, the decision is expected in the first half of 2005.

“Competitors still have very strong arguments even absent the solicitor general’s support,” attorney Andrew Lipman said in an interview. He admitted there would be “a much steeper climb for competitors to get a stay and cert,” but said there was “a good possibility the Supreme Court will issue a stay. The outcome is not yet predetermined. We'll see turns on the way before we see the final decision.” Another telecom attorney agreed “it’s a strong appeal with strong issues on merits for reversing.” CompTel/Ascent CEO Russell Frisby told us parties still had “good” chances to win the appeal, because the USTA II decision by the D.C. Circuit was “clearly in conflict” with another decision by the Supreme Court in Verizon TELRIC case, in which he said the court reviewed the FCC authority in general under the Telecom Act. Sources said they expected the Supreme Court to announce in Oct. whether it will review the case.

Sources said while making its decision on the stay, the Supreme Court could also grant a “housekeeping stay,” which would put the D.C. Circuit decision on hold temporarily. They said if Rehnquist decided not to grant the stay, parties could still ask the entire court to grant the stay, but they agreed it would be difficult to convince his colleagues to go the other way.

Lipman said if the court grants the stay, “it’s highly probable it will grant cert.” But he said “even the Supreme Court doesn’t grant the stay, it’s still feasible it will grant cert.” Refusing to speculate on the possible outcome, another telecom attorney said: “The Supreme Court [has been] taking a lot of these cases since 1996. Historically, they've been very interested in competition issues.” But he said in general, only about 2% of all cert (certiorari) petitions are granted.

Randolph May of the Progress & Freedom Foundation said the SG decision was “likely to mark a key turning point on the road to a communications marketplace characterized by facilities-based competition.” He said “once it’s clear that the old rules… will be replaced by new rules consistent with the D.C. Circuit’s decision, we will almost certainly see CLECs and ILECs negotiate mutually beneficial, market- oriented commercial agreements that best meet the needs of their customers and that lead to increased investment in the telecom sector.”

But Legg Mason said the absence of the stay after June 15 would “create new uncertainty this summer about the terms” under which the IXCs and CLECs would continue to lease Bell networks at wholesale discounts. It said it expected negotiations and legal challenges in the states with the “change of law” provisions of interconnection contracts becoming “a new central battlefield. Even if those change of law provisions implement appellate court rulings at this stage, the IXCs/CLECs can continue to fight to preserve their wholesale terms, state by state and court by court.”

Analysts said in the absence of a stay, the FCC will probably issue interim rules. Lipman and Frisby said they expected to see a lot of fighting before state commissions in interpretation of “change-of-law” provisions in interconnection agreements. But Kaufman Bros. analyst Michael French said it was unlikely the court would review the case, and the FCC and state commissions would come up with wholesale rates, which he said would be “higher than TELRIC” and “closer to commercial rates.”

“Bells [are] likely to act aggressively to increase rates in 2005,” UBS said in a report. It said it believed the incumbents would raise rates in business and consumer markets. Some Bells have informed competitors about wholesale rate increases starting next year. Frisby said the Bells had decided to wait till year-end “to move the problem beyond the election year. They can’t do that.” He predicted consumer phone rates would go up before the presidential election. But a Verizon spokesman said his company needed that time for transition.

Legg Mason said while it viewed these developments as positive for the Bells, “we cautiously note that hurdles remain before TRO is ultimately resolved… While the potential benefits for the Bells of better wholesale pricing are clearly a positive development, we continue to believe that the longer-term remains clouded by [VoIP] competition.”

UBS said states were “weighing their options in the event the D.C. Court’s mandate is not stayed.” It predicted there would be public filings from many of them over the next couple of weeks. “We believe the majority of these will ask the Bells to stand still in the event the UNE-P rules are vacated.”