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Court bolsters case for local competition

A Supreme Court decision brings local phone service competition a step closer, blocking regional Bell companies' end-run around a three-year old federal law designed to deregulate phone markets.

The Supreme Court today brought local phone service competition a step closer, blocking regional Bell companies' end-run around a three-year-old federal law designed to deregulate local and long distance phone markets.

The decision closes one chapter in the litigious history of the 1996 Telecommunications Act, and strengthens regulators' case as they try open the Baby Bells' local telephone markets to competition.

"The effect will be to embolden regulators to keep [the Bell companies'] feet to the fire," said Terry Barnich, president of New Paradigm Resources Group, a Chicago-based telecommunications consulting company.

But analysts said that the Court's decision is unlikely to bring an end to the legal sparring that has hampered Congress' three-year effort to bring competition to local and long distance telephone markets.

"The Bells still have more legal resources available to them," said Hillary Mine, a telecommunications analyst with Probe Research. "They'll find ways to play the courts in the states."

Three years in court, and counting Under the 1996 Telecommunications Act, the regional Bell operating companies are barred from entering the $90 billion U.S. long distance telephone market until they have opened their own local monopolies to competition.

Led by SBC Communications, US West, and Bell Atlantic, the companies had argued that Congress could not legally single them out with this restriction, while allowing competitors to compete in all markets. A district court and federal Appeals court had earlier upheld the law, but the Supreme Court's decision not to review the case today removes one more piece of uncertainty that had slowed the law's enactment.

The move will help bolster regulators, who have been accused by critics in Congress and by some inside the Bell companies of overstepping their authority in interpreting the 1996 law.

"I don't think [the Bell companies] have any other legal avenues on the issue of the unconstitutionality of the Act," Barnich said. The companies, however, will still be able to challenge individual FCC decisions, he said.

Few expect the court battles that have dominated the last three years to disappear as a result of today's decision, however.

Analysts said they also expect more suits to be filed as each company begins to submit more long distance applications for approval, state-by-state. The FCC already has denied five Bell applications, and more reviews are expected by mid-year.

"From this point on legal proceedings will deal with whether the Bells have met the [law's] requirements," said Daniel Ernst, director of the Strategis Group's competitive telephony division. "Clearly there is some ambiguity in the law."

That means more waiting, while regulators and attorneys at the state and local level continue to hash out the details of individual companies' business plans and individual market demographics.

But the Bells can not wait much longer for their entry into long distance, even if they are able to keep much of their local monopolies effectively intact, some analysts say. The local companies need to compete with aggressive moves by AT&T, MCI WorldCom and others to package long distance, Internet, wireless, and other communications services together, added.

"There has got to be a sense of urgency to get into the long distance market so they can bundle all these services together," Barnich said. "This is really becoming a tremendous impediment to them."