Court backs telcos in US network wars

Big four take on FCC

A full-scale war for cheap communications interconnection has broken out in the US. The FCC demands it and has issued as set of regulations on the matter.

Last week, however, judges ruled in favour of local US telcos to strike the rules out. BellSouth, Verizon SBC and Qwest all felt that they would end up offering competitors network access at below cost. The FCC has sworn to fight the decision.

This is how it's done in the US. Not even a government agency like the FCC can formulate a new set of regulations for interconnection without the courts intervening - even though that is exactly why the FCC exists.

The issue is about not being allowed to charge full commercial rates when one telco wants to use another's network, especially to offer a competing service to a customer who is connected only to a rival company. These rates would be set by a government committee. The upshot of the FFC's stance is that everyone in the US could choose to use any local telco, even if he or she could only get a physical connection to it over another telco's wire.

The rules were voted through by a majority 3 to 2 at the FCC, but immediately the 600-page document was published back in August, all four of the big local carriers filed legal challenges to stop them being implemented.

It took Verizon just one week to ask a court to intervene. One of the tenets proposed then was that if telcos invest in new technologies such as fiber optics cable to the home, then it would not make the telcos share this technology interconnection at a discounted rate, because new investment was what the FCC was trying to stimulate. Since then most of the major US telcos have instigated large multi $ billion investment programs into fiber connection, anticipating that the FCC will get some of its way in the end.

The US Court of Appeals for the District of Columbia earlier this week gave the FCC just 60 days to reconsider the rules before it wipes them off the US legal statutes.

Almost every other telecom authority in the world is controlled by a entity similar to the FCC, normally with the authority to set interconnect rates. Things work a little differently in the US.

In particular, the US is the only country where there are successful competitive carriers such as the cable TV companies that are allowed to offer local phone connection and where there are separate long distance carriers from the local carriers, which also want to offer local service.

The FCC paradoxically treats the established local carriers with a completely different set of rules from other companies offering similar services, such as the cable companies. Cable firms are treated as information services despite the fact that they often supply no content of their own and are in truth just 'bit carriers' - just like the telcos.

This double standard was rejected by a US court in October, and is being appealed by the FCC. Both Qwest and SBC issued statements applauding this week's latest court action.

William Daley, president of SBC, said: "The DC Circuit Court today ordered the Federal Communications Commission to come up with new wholesale and unbundling rules that can pass legal approval. This marks the third time since 1996 that the agency's rules have been rejected by US courts.

"In its ruling, the circuit court said the FCC did not comply with the 1996 Telecommunications Act and its order from two years ago to apply a workable, legal test to determine exactly what competitors needed from incumbent local phone companies to compete. Known as an 'impairment' test, the court said the FCC erred by not providing unified, federal guidelines and by pushing many FCC decisions to the states."

© Copyright 2004 Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.