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Bell Atlantic sues over state competition

The Baby Bell files suit against Maryland state regulators, charging they were illegally forcing the company to sell network access at artificially low prices.

Bell Atlantic filed suit against the Maryland Public Service Commission, charging that regulators in that state were illegally forcing them to sell access to their networks to competitors at artificially low prices.

Last month, state regulators ruled that the telephone company had to provide rivals with access to its network, along with pre-packaged "bundles" of elements that go into providing complete telephone service.

Bell Atlantic late yesterday said regulators have gone too far, and have violated federal law.

"The decision would force Bell Atlantic to subsidize our competitors' entry into the local market by allowing them to use our network at rates that are significantly below our costs, or the costs they would incur if they built their own network," said Sherry Bellamy, CEO of Bell Atlantic in Maryland.

The lawsuit revolves around the power of state regulators to interpret the 1996 Telecommunications Act. That law was intended to jump-start competition in local phone markets by allowing rival local phone companies to purchase and resell wholesale network access from the dominant local companies.

The core of Bell Atlantic's suit--and of many similar disputes between local telephone companies and their regulators around the country--rests on the question of "bundled" network elements.

The elements in question, which range from dial tone to operator service, are already combined in the main local companies' networks. The Bell companies want to take them apart and offer them piecemeal to their rivals, allowing rivals to reassemble them for their own services.

But such an exercise would be inefficient and expensive, Maryland regulators say.

"Such separation and recombination serves no public purpose and provides no cost benefits," commission staffers wrote in their decision last month. "[Bell Atlantic] will incur additional costs in disassembling its network, and the competing carrier will also incur additional costs putting these elements back together again. These additional and unnecessary costs ultimately would be passed on to the consumer."

But Bell officials say the state regulators are exceeding their legal authority, and are skewing the competitive market. The 1996 law does not say states have the ability to require companies to sell bundled services, and a 1997 court decision explicitly took this power away from the FCC, company officials note.

"Instead of fostering investment in the state's telecommunications market, the [Commission] has made it clear that Bell Atlantic's competitors in Maryland do not have to invest or build their own networks," Bellamy said. "That is not good for Marylanders, and it is not what Congress intended."

The company wants the court to overturn the state regulators' pricing order, and revisit the bundling issue.

If the court rules with regulators, it could point the way for expanding state powers to push local competition. To date, most state regulatory bodies that have ruled on the issue have said that the Bell companies have delayed opening their markets to rivals, but have had only limited success in speeding the process.