Heading for a showdown Federal interconnection soldiers march into legal battlefield >BY SANDRA GUY, News Editor

Sorting out the rules of local telephone competition will require lengthy court battles, but local exchange carriers will end up the better for it, says William Barr, GTE's general counsel and senior vice president.

Barr, who served as U.S. attorney general under former President Bush, argued the LECs' case before the Eighth U.S. Circuit Court of Appeals in St. Louis-the court that in September froze key pricing rules aimed at opening local markets to competition.

The U.S. Supreme Court last week refused to set aside the stay, denying petitions from the Federal Communications Commission, interexchange carriers and others.

"We think this is very good news for the local exchange companies," Barr said last week. "It means a set of very onerous and unfair rules that the FCC was trying to impose on us have been rebuffed by the courts. And the states have been put back in charge of managing the process of the transition to a competitive market.

Barr likely will take up the states' rights cause on behalf of GTE, Southern New England Telecommunications, U S West and Cincinnati Bell when the circuit court hears arguments about the FCC's entire interconnection order, starting Jan. 17. The order deals with giving competitors access to incumbents' unbundled network elements and encompasses pricing and related issues as well. Although many LECs opposed the order, only the four that Barr represented requested that the circuit court suspend the rules.

The carriers contend that state regulators should have jurisdiction over the pricing aspects of interconnection because the states' histories in dealing with the LECs-and particularly the Bell regional holding companies-will result in fairer terms than the FCC's one-size-fits-all pricing guidelines.

They also argue that the federal rules would force them to subsidize competitors entering their markets. Therefore, the large competitors could sell the incumbents' network services at lower prices.

"If the prices are set too low-the way the FCC wanted-no one is going to invest in the network," Barr said. "It will just be parasites living off the network built by the [RHCs] and GTE, not putting anything into the ground themselves. There will be no jobs and no innovations. Ultimately, that's bad for the American consumer.

The potential for a patchwork quilt of state rules evoked mixed feelings from one analyst. Market-by-market competition would mean that the four or five telecom companies competing in New York, for example, would be different from those competing in Atlanta or New Orleans, and the varying market dynamics would drive pricing, said Melodie Reagan, director of local and long-distance consulting at TeleChoice, Verona, N.J.

Such complexity would put the burden on new players, she said. "If, everywhere you go, you have to play by different rules, it makes it a very complex business arrangement for the smaller market entrants."