Supreme Court upholds TELRIC

The U.S. Supreme Court today in a 7 to 1 decision affirmed the FCC's total element long-range incremental cost (TELRIC) formula for determining the rates at which incumbent telephone companies must make their facilities available to competitors under the 1996 Telecommunications Act. Justice Sandra Day O'Connor abstained.

The Court rejected the claim of incumbent carriers that the TELRIC formula should consider the historical costs associated with providing a specific network element. It also rejected the incumbents’ argument that TELRIC is “needlessly and unreasonably complicated and impractical.” The Court said the record suggests that TELRIC rate proceedings were “surprisingly smooth-running affairs” and that state commissions typically assigned rates based on predictions from both incumbent and competitive cost models.

FCC Chairman Michael Powell said in a statement he was pleased the court had affirmed the FCC's implementation of the Act. "This decision brings much needed additional certainty to the legal landscape and should advance the commission’s efforts to carry out the statute’s competition goals," he said.

Mark Rosenblum, AT&T’s vice president-law, said in a statement that the Court's decision should put an end to the Bell companies’ strategy of “litigating the Act to death.”

"The Bells had argued that while the Act set a national policy goal to open local telephone monopolies to competition, Congress somehow did not authorize the common sense steps needed to reach that goal," Rosenblum said. "That argument was finally laid to rest today."

Royce Holland, chairman and CEO of Allegiance Telecom, said the decision "rebuffed yet another Bell company attempt to regain their stranglehold on U.S. telecommunications by re-writing the Telecom Act." He called the decision a "victory for consumers and competition and a defeat for re-monopolization."

As expected, the Bell companies took a dimmer view of the Court's decision. In a statement released by SBC Communications, the carrier said the court missed a chance to bring reason back to the rules, which would have benefited consumers in the long run by encouraging facilities-based competition.

BellSouth said in a statement the Court's decision maintains an “unfortunate status quo,” in that the carrier must continue to provide pieces of its network to competitors “at below-cost prices.” BellSouth said further the status quo discourages investment “by both us and our competitors,” resulting in poor choices for customers.

However, the Court also rejected in today’s ruling incumbent carrier claims that TELRIC “simulates but does not produce” facilities-based competition, pointing to the $55 billion spent by competitive carriers on new facilities between 1996 and 2000.

In a summary of its findings, the Court said, “A regulatory scheme that could boast such substantial competitive capital spending in four years is not easily described as an unreasonable way to promote competitive investment in facilities.”