Court throws out AT&T case vs. SBC

AT&T is trying to enter the local telephone market in Texas, while SBC is attempting to extend its traditional local phone monopoly into long distance. Regulatory hurdles have slowed movement in both directions, and both companies have complained bitterly about their rivals' business practices.

Thursday's court decision stems from disputes over the loyalties of accounting firm Ernst and Young, which had been hired to guide both companies' efforts in Texas.

AT&T hired the accounting firm to help develop a electronic support system that would allow the company to exchange orders and billing information with SBC. But last spring, SBC asked the company what it was doing for AT&T, and after a review of the situation, Ernst and Young concluded it had a conflict between its two customers.

So Ernst & Young dropped its contract with AT&T. The long-distance company promptly sued, saying that SBC had no right to interfere in its business relationship with the accounting firm.

SBC defended its actions in court and in the press. "We are in a very competitive telecommunications market in Texas, so it was only natural that we would ask our auditing firm what it was doing for a major competitor of ours," said David Cole, president of Southwestern Bell's Texas division, in a statement today.

On Thursday, a judge dismissed AT&T's claim, saying SBC had done nothing wrong in contacting Ernst and Young.

An AT&T spokesman said the company would appeal the ruling.

"This has been a very significant setback," said spokesman Kerry Hibbs. "[The loss of Ernst and Young] has delayed our entry into local service markets by months."

The lawsuit itself marks just the tip of the bitter rhetoric wars between the phone company rivals.

AT&T has long charged that SBC, along with other major local phone companies, is dragging its heels in opening its local markets to outside competition.

For their part, SBC officials claim that AT&T is deliberately moving slowly into local markets for fear that evidence of local competition would speed the tightly regulated Baby Bells' entry into long-distance markets.

"They know that if they start serving large numbers of customers--which they can do today--Southwestern Bell will be allowed into the long distance market that much faster," Cole said. "The last thing AT&T wants is a competitor like us in their market."

For all its vitriol, SBC appears to be moving fairly quickly along the path towards winning regulatory approval to offer long distance in Texas.

State regulators say they have completed a three-month long review of SBC's operations, performed in conjunction with the company and its competitors. That review showed that SBC has met or is close to meeting federal standards for opening its market to competition, a commission spokeswoman said.

The next step is to test the review's findings in the real world, to see if SBC customers really can switch local telephone providers seamlessly. That is proving harder than expected, since few customers are actually switching, said Texas Public Utilities Commission spokeswoman Leslie Kjellstrand.

"There's not a whole lot of marketing going on," Kjellstrand said. "There's not a lot of customer movement yet."

The testing phase is expected to last about three months. After that time, the Texas commission should give a recommendation to the Federal Communications Commission on whether SBC should be allowed into long distance markets in the state.