Solicitor general won't appeal ruling on phone networks

WASHINGTON -- In a victory for regional telephone companies, the Bush administration decided Wednesday to let stand a ruling freeing them from sharing their networks with competitors. Consumer advocates said the decision would drive up costs for phone customers.

The decision by Solicitor General Theodore Olson, the administration's top Supreme Court lawyer, was the latest legal setback for federal regulators who have been trying for eight years to come up with rules to spur more competition for local phone service.

The Federal Communications Commission still can appeal on its own, but the Supreme Court would have been more likely to consider the challenge had the Justice Department joined the appeal. Phone companies favoring the rules, such as MCI and AT&T, could also appeal.

The regional phone companies -- Verizon, BellSouth, Qwest and SBC - - hailed Olson's decision.

"The administration had a clear choice: continue down a path of extreme government intervention in a competitive marketplace or embrace the free-market principles that make our economy strong," said Walter B. McCormick Jr., who heads the United States Telecom Association, the main trade group for the regionals.

Consumer groups and long-distance companies that want to gain a greater share of local markets were disappointed.

"This decision is the final nail in the coffin for local telephone competition," said Gene Kimmelman, senior director of public policy at Consumers Union, which publishes Consumer Reports magazine.

The FCC's last attempt at setting rules for local competition came in August, when the agency issued regulations allowing states to require that the regional phone companies lease parts of their networks at low prices to long-distance competitors such as AT&T and MCI.

The rules were the result of a contentious 3-2 vote that left FCC Chairman Michael Powell on the losing end -- the first time he had been in the minority since taking over the five-member panel in 2001.

The regionals balked at the regulations, saying they left them at a competitive disadvantage. In March, the U.S. Court of Appeals for the District of Columbia sided with them and threw out the rules.

However, the appeals court delayed its decision until next Tuesday to give the regionals and their competitors more time to negotiate separate line-leasing deals, and the FCC had been encouraging both sides to strike some agreements.

MCI was able to work out a deal with Qwest, but no other major companies have reached similar agreements.

And even with that deal in place, MCI's executive vice president and general counsel Stasia Kelly said, "If the FCC's rules are allowed to lapse and wholesale rates rise, MCI may be forced to raise prices in some markets and pull out of others."

BellSouth said the nullification of the rules would not automatically translate into higher prices.

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