Wednesday, June 09, 2004

Bush Admin. Won't Intervene in Telecom Fight

Bush Admin. Won't Intervene in Telecom Fight By Jeremy Pelofsky and Justin Hyde Reuters Wednesday, June 9, 2004; 2:26 PM Large U.S. local telephone carriers like Verizon Communications won a huge victory Wednesday when the Bush administration declined to appeal a decision that freed them from sharing their networks with rivals at reduced prices. Stocks of the big local carriers, known as the Baby Bells, shot up as much as 3 percent, while competitors' shares slid. The rivals said that consumers could feel the bite of higher local telephone rates over the long term. The Federal Communications Commission adopted rules more than 15 months ago that required the local telephone carriers to continue leasing access to rivals like AT&T Corp. at government-set rates in hopes of spurring further competition. Thanks to the rules, competitors have garnered some 21 million phone lines from the Bells. The U.S. Court of Appeals for the District of Columbia in March threw out the FCC's new rules, sparking cries for an appeal to the U.S. Supreme Court. Without a stay by the high court, that decision would take effect on Tuesday. A majority of FCC commissioners had said they would pursue an appeal, and companies heavily lobbied U.S. Solicitor General Theodore Olson, who represents the government before the high court, to join in an appeal. But Olson decided against doing so, his office said in a brief statement. News of the decision sent shares of AT&T and MCI Inc. , the primary competitors, down about 4 percent and smaller competitors like Talk America Holdings Inc. as much as 21 percent. The majority of FCC commissioners supporting an appeal could still instruct the FCC's general counsel to pursue one without Olson's backing. But FCC Chairman Michael Powell does not support such a move and Olson's decision likely decreases the chances that the Supreme Court would hear any appeal. Still, AT&T General Counsel Jim Cicconi vowed the company would continue its quest to have the case heard. "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," he said in a statement. UBS analyst John Hodulik said that the Bells would likely try to raise wholesale rates next year, both in the business and consumer markets. Legg Mason analyst Blair Levin said if the Supreme Court did not take the appeal, the competitors would likely try to fight the Bells to keep their agreements state by state. The Bells and their competitors have tried to reach private commercial agreements to lease access to the local telephone networks, but only a handful have been reached so far, and only one between big players. The FCC had adopted the rules in hopes of spurring further competition between the carriers, since the Bells own most telephone lines into U.S. homes. Rivals have been leasing part of the networks in order to compete, but the Bells had argued that the prices set were below their costs. All four of the Bells hailed the decision. "Allowing these unlawful rules to lapse will ensure a bright new era of stability in the highly competitive telecommunications industry that will benefit American consumers," SBC Communications Inc. General Counsel James Ellis said in a statement.

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