AT&T Loses Big At D.C. Circuit

Communications Today, August 2, 2000

Court Upholds Bell Atlantic N.Y. Long Distance

The FCC, which of late has been battered around by the U.S. Court of Appeals for the D.C. Circuit like a cat in a dryer, won a major victory yesterday. The court, firmly slapping down a challenge by AT&T [T] and Covad Communications [COVD], upheld the commission's Dec. 21 decision to let Bell Atlantic [VZ] into long-distance in New York.

AT&T, which fought Bell Atlantic's application (and every previous Section 271 application for long distance before it) violently at every turn, has nowhere to run, except for the Supreme Court. And it's hard to imagine the Supremes taking this case and condemning themselves to months of reading minutia about network-element pricing.

Circuit Judge David Tatel, writing for the appeals court, seemed tired of reading it. Time and time again in his opinion, he deferred to the FCC's technical judgment. The technical landscape is changing rapidly in telecom, Tatel wrote. "To deal with these constantly-unfolding changes, the Section 271 process 'must have some play in the joints'" in the form of FCC discretion, Tatel quoted from an earlier decision.

AT&T and Covad challenged the FCC's approval on grounds that Bell Atlantic does not provide nondiscriminatory access to DSL or voice loops; that it does not conform to the TELRIC pricing decreed by the commission; that it is discriminatory in marketing its own long-distance service; and that it imposes improper restrictions on the use of unbundled network elements. The court rejected all of those arguments, using reasoning that could avoid years of haggling over future Section 271 applications.

On pricing, AT&T and Covad claimed that Bell Atlantic used wrong inputs for determining switch, voice-loop and DSL loop pricing. The challenging carriers argued that the FCC and the New York PSC had not considered the latest information, particularly on switch pricing.

The court limited itself to finding that the FCC had not acted arbitrarily or capriciously in determining Bell Atlantic's rates to be within TELRIC principles. Tatel rejected the idea that the court should re-jigger element prices based on newer inputs.

"If new information automatically required rejection of Section 271 applications, we cannot imagine how such applications could ever be approved in this context of rapid regulatory and technological change," Tatel wrote.

FCC Chairman William Kennard, who hasn't been able to get some recent orders through the court with a battering ram, seemed overjoyed.

"This decision is a great victory," Kennard said. "The court clearly affirmed the FCC's framework for deciding long distance applications from the Bell companies -- the heart and soul of the Telecommunications Act of 1996. This marks an important milestone in our efforts to move competition out of the courtroom and into the marketplace, where it belongs."

Verizon (the new company formed by the merger of Bell Atlantic and GTE [GTE]) also was in gloat mode.

The decision "once again rejects AT&T's ceaseless efforts to seek government protection for its long distance market and keep customers from receiving the benefits of competition," said Verizon General Counsel Michael Glover.

U.S. Telecom Association President Roy Neel also cracked on AT&T. "This case was simply an attempt by AT&T to eliminate one of its competitors," he said.

An AT&T spokeswoman defended the appeal.

"Our case raised valid concerns of substantial importance to consumers and local competition," she said. "In today's decision, a court gave the FCC considerable deference in its interpretation and application of the Telecom Act's local-competition requirements. We are hopeful that in future 271 proceedings, the FCC will be vigilant to protect the interests of consumers and competition."

Paul Coe Clark III