Between a Rock & a Hard Place

The telecom industry is stuck
in a legal morass. Local phone companies have begun entering negotiations with the regional Bells to lease their networks, potentially replacing government-mandated rates that are the subject of years of litigation. At the same time, though, the biggest long-distance phone companies and smaller providers are hoping the U.S. Supreme Court will review FCC rules that a federal appeals court overturned March 2. The regulations designated rulemaking authority to state public utility commissions and upheld the right of local phone companies to lease the Bell networks at discounted rates.

The Office of the Solicitor General within the Justice Department has until June 2 to request an appeal before the Supreme Court, but the federal government may seek up to an additional 60 days to file a petition for certiorari. Brad Ramsay, general counsel with the National Association of Regulatory Utility Commissioners, says the high court agrees to hear seven out of 10 cases the Solicitor General files for appeal.

If the Supreme Court does not review the contested rules - and local phone companies are unable to reach commercial agreements with Verizon and the other regional Bells by June 15 - it is unclear what happens next. BellSouth Corp. spokesman Bill McCloskey says the company has asked the FCC to release rules at the end of the negotiation period in case the talks fail to result in commercial agreements. Interconnection agreements governing rates, terms and conditions include change-of-law provisions, but those clauses may differ from contract to contract. The change-of-law provisions include language determining that the process is moving forward, says Qwest Communications International Inc. spokesman Bill Myers.

If agreements are not reached by the June deadline and the Supreme Court declines to hear the case, an FCC official says proceedings would vary “depending on the ‘change-of-law’ provisions in each and every agreement.”

FCC rules released in the Triennial Review Order preserved wholesale access to the Bells’ local networks at government-mandated rates unless public utility commissions found specific competitive triggers were met to justify easing the regulations. The federal appeals court, however, overturned those regulations.

The rules were set to be vacated May 3, but the FCC has requested an extension of a stay until June 15 to allow local phone companies and the regional Bells to reach commercial agreements. “We believe negotiation rather than litigation is the way to move forward and we supported the FCC in its efforts to make that happen,” says Verizon spokesman Larry Plumb. “We have been in ongoing discussions … for months and months.”

In a filing April 9 with the federal appeals court, the U.S. Department of Justice and the FCC said all four regional Bells, four trade associations and 37 other carriers endorsed the FCC’s proposal to enter commercial talks. “I think that all parties … realize that they have something to lose if a good faith effort isn’t made to try to enter into mutually agreeable interconnection agreements,” says Andrew Isar, president of regulatory consulting firm, Miller Isar Inc. “It’s more what they risk, which is either a continuation of ongoing litigation or a potential ruling by the FCC … that may not ultimately be in the CLECs’ best interest.”

SBC Communications Inc., the No. 2 local phone company, was the first regional Bell to announce a privately negotiated agreement since the U.S. Court of Appeals for the District of Columbia Circuit threw out FCC rules March 2. As PHONE+ was going to print in early April, San Antonio, Texas-based SBC had not made public its seven-year agreement with Sage Telecom. Some groups were calling on the phone giant to file the agreement with state public utility commissions, asserting it was required under federal law. “Rapid filing and approval by the respective state commissions can only facilitate the ongoing industry negotiations,” NARUC president Stan Wise and NARUC Telecommunications Committee Chair Bob Nelson said in a letter to SBC and Sage. Section 252 of the Telecommunications Act of 1996 stipulates a Bell must make the terms of an agreement available to other carriers on a non-discriminatory basis. Yet, there is speculation the biggest local phone companies might argue for an exemption on the grounds that certain terms of the agreements fall outside of federal law. “We will comply with legal and regulatory obligations and make appropriate regulatory filings,” SBC spokesman Dave Pacholczyk said when asked about the Sage agreement. “We will extend comparable terms and conditions to any comparably situated wholesale customer.”

Myers says Qwest would not file commercial agreements with state public service commissions, but it would make the same terms available to other carriers.

“According to the telecommunications act, they have to be available on a non-discriminatory basis and we are still working with the FCC on how to communicate those agreements to CLECs,” he says. The “best means to do so might be to post them on our Web site. Those details are being finalized.”

While acknowledging non-disclosure agreements “can be a reasonable, effective” way to facilitate negotiations between two parties, two trade groups have promoted a framework designed to make the talks as open as possible, including a provision that would allow the companies to update government officials on the progress of negotiations.

“By encouraging a transparent process that is not impacted by overly restrictive non-disclosure agreements, it is our hope that the telecommunications industry can overcome many of the obstacles that have hampered the success of past negotiations,” says H. Russell Frisby Jr., CEO of the CompTel/ASCENT Alliance. The Association for Local Telecommunications Services (ALTS) collaborated with the Alliance to propose the framework.

The Washington, D.C.-based trade organizations also said the non-disclosure agreements should not preclude companies from sharing relevant information, including the full terms of written proposals, with federal or state officials, or regulators, so long as it may not be admitted or used in subsequent regulatory proceedings or litigation.

Verizon Seeks to Amend Interconnection Agreements

Verizon Communications Inc. is involved in arbitration proceedings in more than 20 states to amend interconnection agreements with a few hundred carriers to reflect FCC rules that took effect last October.

New York-based Verizon, the biggest local phone company, is seeking to implement FCC rules that have either been upheld by a federal appeals court in March or have not been subject to appeal, says Michael Lowe, vice president and associate general counsel, Verizon.

Verizon is seeking to amend interconnection agreements to reflect federal regulations, including rules that free Verizon and the other regional Bells from being required to lease their new fiber networks to competitors. Another rule Verizon is seeking to recognize in the amended interconnection agreements provides a three-year transition period away from a requirement to share its local phone lines with competing broadband providers.

The rules, released last summer in the conflict-ridden Triennial Review Order, established a timeline for negotiating amended interconnection agreements. Lowe says either party - a Bell or its competitor - could seek arbitration through a state public utility commission 135 to 160 days after the negotiation period began. He says Verizon began filing arbitration petitions in February.

On March 2, the U.S. Court of Appeals for the District of Columbia Circuit overturned some aspects of the Triennial Review Order, including regulations designating rulemaking authority to state PUCs and rules preserving the right of local phone companies to lease Bell switches at government-mandated rates. Lowe says those issues were “sort of peripherally addressed in the amendment but really aren’t central to it.”

Andy Klein, an associate with the Washington, D.C.-based law firm, Kelley, Drye & Warren LLP, which is representing 23 carriers in the arbitration proceedings, agrees rules that are unsettled should not be subject to arbitration. It also is important that states recognize the Bells’ obligations to make network elements available to competitors under state and federal law, including Section 271 of the Telecommunications Act of 1996, irrespective of the Triennial Review Order, Klein says.


Kelley, Drye & Warren LLP
Miller Isar Inc.
National Association of Regulatory Utility Commissioners
Qwest Communications International Inc.
Sage Telecom
SBC Communications Inc.
Verizon Communications Inc.

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