LECs challenge TELRIC pricing

Local exchange carriers have asked a federal appeals court to decide whether the FCC's interconnection pricing rules are legally valid. If successful, the action could force carriers nationwide to revise more than 5400 interconnection agreements.

The Feb. 17 motion filed in the 8th Circuit Court of Appeals in St. Louis by GTE, Ameritech, Bell Atlantic, SBC Communications and Cincinnati Bell is the latest volley in 3-year-old litigation surrounding the FCC's controversial interconnection order. The Supreme Court in January upheld the right of the FCC, not the states, to set guidelines on incumbents' interconnection charges and wholesale and unbundled element pricing.

With that jurisdictional dispute settled, the LECs now want the 8th Circuit to consider the substance of the rules. The LECs allege that the FCC's pricing methodology, known as total element long-run incremental cost (TELRIC), is inconsistent with the Telecommunications Act of 1996.

"The act requires that the price of network elements cover our costs," said GTE attorney Ed Whelan. "[TELRIC] has nothing to do with real-world costs."

"It's about money and market share and who's going to have the best shot at offering services," said telecom consultant Larry F. Darby.

Although the LECs risk losing political points by continuing their lawsuit, the cost of capitulating to a national TELRIC standard would mean recovering costs by shrinking profits, raising rates or some other means, Darby said.

TELRIC tries to help new entrants by ensuring they can resell services or lease network elements based on "forward-looking" costs. LECs, however, argue TELRIC forces them to charge prices for items at or below their actual cost. They also want a method that allows them to recover their historic costs of building local networks worth billions of dollars.