The court decision Monday turned away arguments by the regional Bell companies that the FCC's pricing formulas allowed local competitors access to the Bell networks too cheaply.
"It restores confidence in the 1996 Telecommunications Act -- that it works, that it's the right set of principles," said John Windhausen Jr., president of the Association for Local Telecommunication Services, a trade group.
The court said the FCC could set the Bells' prices based on future cost estimates instead of historical data, which means a lower cost to entry for competitors who wish to buy access onto the Bell networks.
The regional Bell companies -- BellSouth, Qwest Communications, SBC Communications and Verizon -- argued that such a scheme does not provide them a high enough rate of return on their infrastructure investments and, therefore, reduces the incentive to introduce new services.
The court ruled 5-3 in 1999 that the FCC could set pricing rules.
Justice David Souter wrote for the majority that the Telecommunications Act "appears to be a reasonable policy for now, and that is all that counts."
FCC Chairman Michael Powell said the ruling "brings much-needed additional certainty to the legal landscape."
But Justice Stephen Breyer, who was joined in dissent by Justice Antonin Scalia, said the court was giving the FCC too much authority with the latest ruling. Justice Clarence Thomas endorsed only part of the decision.
Verizon spokesman Bob Bishop said the companies that lost in the court case hope Powell "won't reflexively follow these bankrupt policies of the past."
The court ruling was "fundamentally unfair to the Bells, but what the regulators did was weigh in the favor of the good of the many outweighing the needs of the few," said Jeff Kagan, an independent telecom analyst in Atlanta. "This ruling was done to try to jump-start companies on the consumer side."
Since the milestone 1996 law, which opened local service to long-distance companies and allowed the Bells to eventually sell long-distance, local competitors said they have been stymied by legal uncertainty and thin profit margins.
The nation's four Bell monopolies have maintained a firm grip on local telephone service -- they still handle more than 90 percent of the nation's local calls.
While business customers have many local choices, the residential market has remained largely the Bells' domain except in a handful of major metropolitan areas.
The court's ruling is likely to spur more investment and national plans that include local phone service, said Ramkrishna Kasargod, a telecom analyst with Morgan Keegan & Co. Last month, Worldcom's MCI unit announced that it will offer local-service in all 50 states by next year as part of a new calling plan.
Local competitors contend they've been unable to make inroads because it was unclear whether the Supreme Court would uphold the FCC's rules governing what incumbent Bells can price competitors.
Without that clear signal on the costs to access Bell networks, many companies were reluctant to offer residential service, said Mark Rosenblum, an AT&T vice president.
"A competitor has to know with some degree of confidence what the future holds -- not to be guaranteed a profit -- but they have to know that some court somewhere is not going to toss out the pricing structure," Rosenblum said.
The ruling had little effect on stock prices Monday. Analysts said that's because the court only affirmed current practices, and barriers remain to competition.
Justice Sandra Day O'Connor, who has stock in AT&T and WorldCom, did not participate in the case.
Copyright 2002. Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
