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Court Order Doesn't Alter FCC High-Speed Rules

The U.S. Court of Appeals decision Tuesday afternoon overturning the Federal Communications Commission (FCC) year-old decision to force incumbent Bells to share their networks with long distance rivals at discounted prices is as significant for what it upheld as for what it didn't.

While the court tossed out discount line pricing for long distance carriers, it upheld all parts of the FCC's new broadband regulations outlined in last year's Triennial Review Order (TRO), which established a framework under which competitors such as MCI and Sprint can access the Bell-controlled public phone network.

A sharply divided FCC ruled the Bells do not have to share their high-speed fiber lines with broadband competitors but also decided the Bells would have to continue to share their local voice copper lines.

The FCC also imposed a three-year phase out of "line sharing" from unbundling requirements. Line sharing allows higher frequency DSL signals to coexist with voice calls over copper lines. At the end of the three-year phase out, competitors who use the Bell lines to provide DSL service will have to renegotiate at market rates to use the phone company's loop.

"Generally, we are happy with the court decision," Dave McClure, president of the U.S. Internet Industry Association, told internetnews.com. "We think the court acted properly in not applying telephony rules to broadband. We don't much care about the other parts of the ruling."

McClure said he did not think dialup Internet consumers would "wake up some day and say, 'Oh my God, I've lost local access.' I mean, think about it, do you have any problem finding an Internet access provider (ISP)? I'm not sure what we are really losing anything. There's really not a spits worth of difference between ISPs today."

As for any immediate impact of the court decision, a Legg Mason analysis issued Wednesday noted, "... the market reaction to this opinion, driving the Bell stocks higher by 4 percent after the announcement, is premature since the interim and ultimate rules remain very much in doubt."

Legg Mason believes unbundling is not a "long-term strategy" for the telecom industry but the "question remains whether it will continue as a transitional strategy; the question is whether the timing of the process now gives AT&T and MCI enough time to transition to a new platform (VoIP) without losing a critical mass of existing customers."

Shortly after the court issued its opinion, three FCC commissioners -- Republican Kevin Martin and Democrats Michael Copps and Jonathan Adelstein -- asked the FCC legal staff to seek a stay of the decision and to prepare a Supreme Court appeal.

"We are disappointed in the Court's decision to eliminate the Commission's rules requiring incumbent carriers to open their legacy voice networks to competition. We believe that the rules preserve competition in a manner that is lawful," they said in a joint statement. "Today over 50 million Americans benefit from the new local and long distance one-rate plans offered by both incumbents and competitors that are a result of our rules."

FCC Chairman Michael Powell hailed the court ruling as a justification of his and fellow Republican Commissioner Kathleen Abernathy's no vote on the TRO.

"Today's court ruling upheld the Commission's decision to spur the development and deployment of vital broadband services to all Americans," Powell wrote in a statement. "As a result, our citizens will enjoy the increased capabilities, innovation, and lower prices of advanced wireline broadband services for decades to come."

Powell said he voted against the original TRO because "it would result in years of regulatory uncertainty and unrealized consumer promise. Today, the court agreed and restored the opportunity to bring about new advanced services and true competition that will bring consumers choice and innovation."

Congress is also closely monitoring the decision and its aftermath. Lawmakers are preparing legislation for next year to revise the Telecommunications Act of 1996. When the legislation was originally passed, Congress was intent on opening up local and long distance competition as well as providing some regulatory relief to the nascent Internet industry.