COURT RULES TO FREEZE OUT FCC Panel of judges sides with LECs, cuffs FCC >BY BETH SNYDER, Associate Editor-News

A U.S. District Court slapped the Federal Communications Commission on the wrist last week with its ruling to freeze the agency's interconnection pricing rules. The court then patted the backs of GTE and the other local exchange carriers and state commissioners that filed the suit.

The St. Louis appeals court decreed that the pricing rules will remain frozen and unenforceable for new competitors hammering out interconnection agreements with LECs to offer local service. Pricing includes charges for unbundled elements, access fees and formulas laid out by the FCC in its Aug. 8 ruling.

The three-judge panel's decision is a partial extension of a temporary injunction it issued several weeks ago.

Pricing is stayed, but the other parts of the FCC rules remain in effect. The full case will go to trial as early as January.

FCC Chairman Reed Hundt fumed over the freeze, while GTE's head counsel William Barr reveled.

Hundt released a terse message saying the decision "throws a monkey wrench into the carefully designed congressional machinery for introducing competition. We intend to go immediately to the Supreme Court."

Barr, who presented the LEC arguments representing GTE, Southern New England Telecommunications and U S West, told a press conference, "I have a suspicion that the FCC knows how wacko their prices are." Barr said pricing was "the most noxious part of the FCC order" and that the FCC took a "bizarre position" on those issues.

Indeed, the situation looks bleak for the FCC-mandated rules. The court's written decision repeatedly states that the LECs and regulators will probably win the case.

"In this case, however, we believe that the petitioners have a better-than-even chance of convincing the court that the FCC's pricing rules conflict with the plain meaning of the [Telecommunications Reform] Act," one part reads.

Another passage states, "The petitioners have demonstrated they will likely succeed on the merits of their appeals based on their argument, that under the Act, the FCC is without jurisdiction to establish pricing regulations regarding intrastate telephone service."

If the complaining parties win the case, it will be a major victory for incumbent LECs, said Bob Rosenberg, president of Insight Research, Livingston, N.J.

"It'll put the issues of unbundling and pricing right back where the Bells have the greatest power-at the state utility commission level where they have been working for years," he said.

Most of the Bell regional holding companies praised the ruling, while long-distance carriers denounced it.

Jonathan Sallet, MCI chief policy counsel, said, "We're disappointed. But we believe that it is inevitable that consumers ultimately will prevail and that they will realize the benefits promised-lower prices, better service and greater choice." Although the FCC is now getting hammered, the situation is not all its fault, Rosenberg said.

"The FCC was put in an untenable situation under the Telecommunications Act. [The FCC was] required to move much more rapidly into a political situation than it could reasonably move. Six months wasn't enough time for them to line up state-level support to make the accounting scheme politically palpable."

If the FCC had had a chance to go to the National Association of Regulatory Utility Commissioners and get support, it might have been in a much stronger position, he said.

After several aborted efforts to build a wired broadband network, Nynex finally opted to follow in Bell Atlantic's switched digital video footsteps last week. It announced a multimillion-dollar deal with General Instrument subsidiary Next Level Communications for its NLevel3 SDS Access System platform.

Nynex's decision to bypass BroadBand Technologies and Lucent Technologies-the vendors for SBC Communications' and Bell Atlantic's SDV networks-in favor of a product from SDV newcomer GI raised some eyebrows in the video industry, particularly in light of the proposed Bell Atlantic/Nynex merger.

"It's odd that Nynex has chosen a different vendor for its system than Bell Atlantic," said John Aronsohn, senior analyst at The Yankee Group, Boston. "They will have to come to some sort of agreement on how to interconnect their networks in the future if the merger goes through, and that could be a difficult task with two separate systems."

The merged Bell Atlantic/Nynex plans to have more than one vendor for its networks, said Walter Silvia, vice president of broadband at Nynex. The carrier issued a request for proposal at the end of 1995 and settled on the GI system because of its technology and price points, Silvia said.

GI undercut the price of BBT/ Lucent's joint product by nearly 30%, according to one industry source.

Given the price difference, a BBT spokesman said he can't blame Nynex for going with GI, even though the GI system was introduced only this past summer (Telephony, July 1, page 16).

"If a vendor comes to me and says, 'We've got a solution that we'll deliver to you for less, even though a few pieces still need to be trialed,' I'd let them take a shot at it," he said.

But BBT doesn't believe GI has a lock on Nynex's SDV plans.

"Nynex is watching closely to see what Bell Atlantic and Southwestern Bell are doing," he said. "The GI deal covers only a million lines, so there's obviously still room for a determination on how to serve the rest of the folks on their networks."

Nynex expects to deploy the Nlevel3 system in Somerville, Mass., in the first quarter of 1997 and offer voice over the network by the second quarter, Silvia said. The carrier will add high-speed data and video services when it is satisfied with its voice service performance.

The agreement also covers Nynex's networks in the New York City area, including parts of Long Island and Westchester County, and gives Nynex the option of extending the purchase up to 5 million lines.-East Coast Bureau Chief Denise Pappalardo contributed to this story.