Interconnection bouts: FCC faces consequences if court finds it violated previous ruling

Like prizefighters who just won't quit, state and federal regulators are throwing punches again over interconnection pricing. The states won the latest round when a federal appeals court ruled in their favor in a long-running legal dispute.

Now the Eighth Circuit Court of Appeals in St. Louis could punish the Federal Communications Commission if it finds that the agency is violating a previous court order.

In that order, the Eighth Circuit ruled in July that states-not the FCC-have the power to set prices for interconnection, in effect determining how much incumbent local telcos can charge rivals to connect with and lease parts of their networks. The court's Oct. 14 decision affirmed that ruling.

The issue, which has bitterly divided state and federal regulators, added a new twist when it arose as part of the "Section 271" process-named for a section of the 1996 Telecommunications Act-by which the Bell companies apply to sell in-region, long-distance service.

The latest round started in August, when the FCC rejected Ameritech's bid to sell long-distance in Michigan.

At the same time, the agency set out a blueprint for the Bell regional holding companies to follow in seeking a federal OK for long-distance entry. Among the long list of requirements was a surprise: an order to use a forward-looking cost method called Telric in setting interconnection prices.

The FCC order outraged state regulators and the Bell companies, which charged that the agency was trying to reclaim pricing authority that the Eighth Circuit had already awarded to state commissions.

"The FCC is trying to use the 271 process to make an end run around the Eighth Circuit decision," said Mary McDermott, vice president of legal and regulatory affairs at the U.S. Telephone Association, which represents local telcos. The USTA, all five RHCs and the National Association of Regulatory Utility Commissioners asked the appeals court to review the Ameritech order.

In its latest decision, the Eighth Circuit affirmed that interconnection pricing authority does reside with the states. But whether the states also can lay claim to pricing as it pertains to the Section 271 process remains to be seen.

The matter is "still under active consideration. They're probably going to do something soon," McDermott said.

If the court finds that the FCC circumvented its previous order through the 271 process, it could enforce the order. The Eighth Circuit could force the FCC to let the states decide network pricing as they review the RHCs' long-distance applications, said Bob McKenna, U S West corporate counsel. "There would be no second guessing of our prices once they were set by the states," he said.

Until the court rules, though, the RHCs must follow the FCC's blueprint, including Telric pricing. Surprisingly, most RHCs seemed unfazed by the legal tiff and said it wouldn't slow down their efforts to get into the $80 billion long-distance market.

"I don't see this putting a monkey wrench in our plans," said Edward D. Young III, Bell Atlantic associate general counsel. The carrier plans to file with the New York Public Service Commission this month, he said.

Ameritech won't back off its plans to try again in Michigan and to apply in other states, a spokesman said. The FCC's August order gave the RHC "a lot more work," he added. "We have to look at every dotted 'i' and crossed 't'."

Ameritech FCC rejected application for Michigan in August

SBC Communications FCC rejected application for Oklahoma in June; appeal pending

BellSouth Applied to FCC for South Carolina in September; received state OK in Louisiana

Bell Atlantic Plans to file with New York commission in late October

U S West Applied to commissions in Colorado, Arizona, Minnesota, Nebraska, Oregon, Washington

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