Critics: Ruling will cut competition
By Peter J. Howe, Globe Staff | October 13, 2004

AT&T Corp., MCI Inc., and a number of smaller telephone companies were rebuffed by the US Supreme Court yesterday in their quest to save cut-rate deals to rent Bell System phone lines they use to serve business and residential customers.

Critics contend that the Supreme Court’s decision to let stand lower court rulings that scrapped the network rental rules will lead to less competition and higher prices in the $125 billion US local telecommunications market.

But Baby Bell companies such as Verizon Communications Inc. argue the old rules were regulator-imposed subsidies for their competitors. They predict wireless, cable, and other technologies will ensure vigorous competition.

The court’s move validates AT&T’s historic decision in July to phase out marketing of its traditional consumer long-distance service in favor of focusing on its Internet phone service, CallVantage, which relies on high-speed broadband Net connections, rather than on Baby Bell phone lines.

More than 4 million households in Massachusetts and other states currently buy local and long-distance service from AT&T, under arrangements that depend on the network rental deals rejected by the courts. Last week, AT&T took an $11.4 billion write-off and said it would slash its workforce 20 percent as it copes with a rapidly shrinking consumer business and business telecom price wars.

Anticipating the court’s move, the Federal Communications Commission has frozen the current network-rental system until at least December while it tries to develop new rules.

US Representative Edward J. Markey of Malden, the ranking Democrat on the House telecommunications subcommittee, said, ’’Whether consumers obtain additional choices for lower prices and higher service quality in telephone service will depend on whether the FCC and the Congress are willing to stand up to the Bell lobby on behalf of consumers."

Judy Reed Smith, president of Atlantic-ACM, a Boston telecom consulting firm, said the court ruling should have no short-term effect. ’’In the long run, the impact will depend on what other competition comes into play," Smith said, noting that ’’voice over Internet protocol" systems have improved enough to enable many businesses to get low-cost voice service over their main data lines, which would keep price competition for Bell carriers.

MCI spokesman Peter Lucht said his company, the second-biggest long-distance carrier, after AT&T, would welcome a town-by-town evaluation of where Baby Bells hold a monopoly over local phone lines and where their competitors can get alternative access to homeowners and businesses.

Unlike AT&T, MCI wants to find a way to continue to actively market local and long-distance service to consumers, but Lucht said, ’’It’s MCI’s intention to size its consumer business to the profit opportunity that exists in the marketplace."

In two other related cases, the Supreme Court upheld rulings that Verizon and other Bells must continue to make their conventional copper phone lines available to providers of broadband digital subscriber line Net service, such as Covad Communications Corp. But the Bells do not have to share newly built or upgraded fiber-optic or hybrid fiber-copper lines. They argued, and the FCC agreed, that they would face huge disincentives to improve their networks if they then had to share them with rivals at government-imposed discount rates.