AT&T Corp. v. Iowa Utilities Board (01/25/1999)
AT&T Corp. v. Iowa Utilities Board (01/25/1999)
By: Alex Devine, Medill News Service
Questions presented
(1) Whether the FCC has the authority to establish nationally uniform pricing standards among local telephone companies. (2) Whether the FCC has the statutory authority to require local telephone companies to provide components of their networks to new entrants in the local phone market.
Brief
The Federal Communications Commission is seeking to establish nationally uniform standards for setting the prices local phone companies may charge new competitors seeking to enter the market for leasing essential elements of their networks. The FCC has not attempted to set prices, but instead, in the hope of increasing competition and lowering local telephone costs for consumers, to provide a framework within which state regulators and existing local phone companies can determine them.
The FCC also wants local companies to stop the practice of ""unbundling,"" that is, selling network elements piece by piece instead of as a single package. The individual elements can command a higher price than if they were sold as a bundle.
The FCC's efforts follow a Clinton administration policy to break up existing monopolies and improve competition in the local telephone market. In 1996, Congress enacted the Telecommunications Act, which requires local phone companies to lease their services at ""just, reasonable and nondiscriminatory rates.""
The act is meant to be a short-term solution for companies seeking to enter the local telephone market. The act holds that it would be prohibitively costly for new competitors to start their own networks from scratch. They must therefore be permitted to buy network elements from existing providers, interconnect them with their own facilities and then re-sell them to consumers under their brand names.
The state regulators and the local phone companies decided to challenge the FCC's new rules in court. On one side were the local phone companies, including GTE Corporation and the baby Bells, and the state regulators, led by the Iowa Utilities Board. On the other side were the FCC, consumer groups and a broad coalition of companies seeking to enter the local phone market. They include cable television companies, wireless telephone companies and long-distance companies such as MCI Telecommunications Corporation, AT&T Corporation and Sprint Corporation.
In an opinion in July 1997 , the 8th Circuit Court of Appeals upheld a lower court ruling that the FCC had exceeded its authority. It held that the Telecommunications Act does not entitle the FCC to encroach on the territory traditionally governed by state regulators.
The court found that pricing should take into consideration the local phone companies' past investment in the phone networks. The FCC pricing guidelines ignore those investments and require the companies to base their pricing solely on ""forward-looking costs,"" the costs they expect to bear for replacing the existing networks with new technologies.
The court also ruled that the new competitors could not use unbundled elements on the same terms as incumbent local telephone service providers.
In a separate but related case, the court ordered the FCC to stop denying long-distance licences to local phone companies who do not conform to their pricing standards. In August, 1997, the FCC denied Ameritech Corporation a licence to set up long distance services in Michigan, partly on the grounds that they have not conformed with the new pricing guidelines.
The case before the U.S. Supreme Court, in fact a consolidation of eight cases, was brought by the FCC and the long-distance phone companies. The court granted a writ of certiorari on January 26, 1998. The docket numbers of the other cases are 97-829, 97-830, 97-831, 97-1087, 97-1099 and 97-1141.
On Jan. 25, 1999, a divided Supreme Court reversed, finding that the FCC's pricing rules for long-distance companies and others hoping to start offering local phone service are appropriate and need not be set by the states. Writing for the majority of Justices John Paul Stevens, David Souter, Anthony Kennedy and Ruth Bader Ginsburg, Justice Antonin Scalia also upheld most of the FCC's rules aimed at prohibiting local phone companies from separating parts of their network and then requiring a customer who leases those parts to pay the cost of reassembling them. The exception was Rule 319, which requires a local phone company to provide competitors with access to various local network elements. Chief Justice William Rehnquist and Justices Clarence Thomas and Stephen Breyer dissented. Justice Sandra Day O'Connor did not participate in the decision.