Regional Bells Face Antitrust Lawsuit

Just as Congress prepares to rewrite the Telecom Act, a federal appeals court has ruled that the Regional Bell Operating Companies will have to face charges that they conspired to prevent competition in traditional local telephony.

The Telecommunications Act of 1996 failed to spur robust competition in traditional local telephony, but just as Congress prepares to rewrite it, a federal appeals court ruled that the Regional Bell Operating Companies, or RBOCs, will have to face charges that they conspired to prevent that very competition.

Last week, the U.S. Court of Appeals for the Second Circuit overturned a lower-court decision to dismiss the case, which was brought on behalf of consumers in New York, and sent it back to be reconsidered. The appeals court disagreed with the standard that the District Court for the Southern District of New York applied, but it did not make any decisions on the case itself.

"This is a technical ruling, not a decision on the merits," said Paul Mancini, senior vice president and assistant general counsel at SBC Communications Inc., in San Antonio. "Still, were disappointed that resources that could be put to much better use serving our customers and the nation will instead be spent defending against a meritless suit based on out-of-context quotes and uninformed speculation."

Under the Telecom Act, the longtime monopoly telephone companies were required to open up components of their networks to rival carriers at just, reasonable and nondiscriminatory rates. The law produced an avalanche of investment in CLECs (Competitive Local Exchange Carriers), most of which subsequently went out of business.

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The two-pronged antitrust lawsuit, brought against SBC, Verizon Communications Inc., BellSouth Corp., Qwest Communications International Inc. and others, charges that those companies conspired to avoid competing with one another and also to prevent CLECs from competing successfully.

The suit alleges, among other things, that the RBOCs gave CLECs poor-quality connections and continued to bill CLEC customers after they had switched service providers. The RBOCs have been accused of such abuses before, but the allegation that they conspired not to compete with one another is new.

"The Bells look exactly like each other, and they all have the same pricing. They have this parallel approach, and yet they dont have any overlapping offers," said Daniel Berninger, an analyst at Tier 1 Research Inc., in Washington. "The notion is that even if these guys didnt have a meeting where they coordinated this, they are following each other consciously."

The lawsuit alleges that Verizon should have a competitive advantage in competing with SBCs service in Connecticut because Verizon provides service in the surrounding states, but the two carriers dont compete meaningfully there.

Regardless of the outcome of the case, the fate of the Telecom Act is already decided, and the marketplace conditions will not be altered, Berninger said.

However, a favorable outcome for the plaintiffs could set a precedent. "Even if it doesnt change the structure of the industry going forward, its a method to hold forces that are extremely powerful accountable," Berninger said.

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