High Court Telco Ruling May Help MSOs

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The Supreme Court last week affirmed the federal
government's authority to set the price that competitors will pay to tap into
telcos' local phone networks.

In doing so, it removed a stumbling block that could have
barred some MSOs from local phone markets, while handing them a legal argument that they
can use in their fight against the forced unbundling of their high-speed broadband
networks.

In overturning a lower court decision, the justices
restored the Federal Communications Commission's interconnection-price guidelines,
which require that the telcos lease portions of their networks to competitors at
discounted prices.

The FCC guidelines had been on hold since 1997, when the
Eighth Circuit Court of Appeals ruled that the power to set interconnection costs belonged
to the states.

The 5-3 Supreme Court ruling was a major setback for the
regional Bell operating companies, as well as for state regulators, who argued that the
FCC's one-size-fits-all pricing structure does not take into account factors that are
unique to each state.

For cable, however, the long-awaited decision represented a
second victory in as many weeks.

The Supreme Court handed operators a win one week earlier,
when it refused to hear a challenge to the clause in the Telecommunications Act of 1996
requiring the Baby Bells to open their markets to competitors before being allowed into
the long-distance business.

Industry observers said the earlier ruling forces the
telcos into "meaningful" interconnection talks. Last week's decision means
that cable operators won't have to grapple with a different set of pricing standards
in each state where they want to offer local phone service.

"The obvious benefits are that the phone companies now
have to make deals with operators, which [in turn] won't have to fight with 50
different state jurisdictions, each with its own approach to [market] entry," said
Daniel Brenner, vice president of legal and regulatory affairs for the National Cable
Television Association.

Otherwise, the court unanimously upheld the FCC's
right to require telcos to lease individual elements of their networks to new market
entrants. However, it said the agency should consider whether each network element was
truly needed by a competitor, rather than just granting blanket access.

Although a setback for the FCC, that portion of the ruling
will have little effect on cable, Brenner said, because, "We're not companies
that take all of the elements of a network: We're facilities-based providers."

Time Warner Cable -- which is in the midst of negotiations
with AT&T Corp. on a joint venture that would launch local telephone service over
cable -- applauded the court's views on unbundling. The company suggested that the
ruling might provide legal support for an industry that has been besieged by
Internet-service providers seeking access to cable's broadband pipe.

"While cable is not a common carrier, and it
shouldn't be treated as a common carrier, the court stating that the unbundling of a
network must make economic sense is potentially precedent-setting, in our view," Time
Warner spokesman Mike Luftman said.

Officials at MediaOne Group Inc. -- a top 10 MSO that has
already launched telephone service in six markets -- agreed that last week's ruling
will speed competition.

"The bottom line is that it will give us a sense of
what it's going to take to get into these markets," MediaOne spokesman Dave Wood
said. "And that's going to give our customers more choices."

Writing for the majority, Justice Anton Scalia conceded
that Congress' instructions to the FCC on how to implement the 1996 act had been
"ambiguous."

"It would be a gross understatement to say that the
Telecommunications Act of 1996 is a model of clarity," Scalia wrote. "It is, in
many important respects, a model of ambiguity, or indeed even self-contradiction."

Nevertheless, FCC chairman William Kennard immediately
labeled the court's ruling on interconnection pricing as "a monumental
victory" for consumers.

Officials with the National Association of Regulatory
Utility Commissioners expressed "disappointment" at the decision, but they
argued that the states will still play a role in introducing competition to the local
loop.

"We're still joined at the hip," a NARUC
spokesman said. "The FCC can't implement the act without the states, anymore
than the states can without the FCC."

The telcos, meanwhile, took heart from the court's
decision to remand back to the FCC the question of unbundled network elements. Most had
worried about investing billions of dollars to make their networks capable of delivering
high-speed Internet service, only to be ordered to lease elements of the improved
infrastructure to competitors.

U S West spokesman David Beigie said the ruling indicated
that competitors would be responsible for providing their own high-speed-data and Internet
services.

Meanwhile, another legal fight may be brewing over the
court's decision to order the Eighth Circuit to consider the validity of the
forward-looking price methodology used by the FCC to set its price guidelines.

"We will vigorously contest the lawfulness of the
FCC's pricing methodology, and we expect to prevail," GTE Corp. general counsel
William Barr said.

In a related development, Senate Commerce Committee
chairman John McCain (R-Ariz.) asked the FCC last week to allow the Bells to offer
long-distance data services without creating separate subsidiaries. Doing so would allow
the telcos to compete more effectively, McCain said, and it would prevent the agency from
having to unbundle cable's broadband pipe.

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