March 24, 2004 11:26 AM PST

Baby Bells win another battle

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Incumbent local phone companies won a key battle Wednesday when the Supreme Court ruled that states have the right to pass laws prohibiting cities and local governments from selling telecommunications services.

In the 8-1 ruling, the court interpreted the 1996 Telecommunications Act, which opened up competition of the local telephone market. It said that while the act was intended to spur competition, Congress did not necessarily intend to open up competition to government-owned municipalities and publicly funded utilities.

Missouri cities and public utilities argued that Congress had intended to include them when it said that states may not prohibit "any entity" from getting into the phone business. They also argued that municipally owned networks were beneficial to customers by forcing local incumbents to offer new services in regions they probably would not have offered them in had there been no competition.

Justice David H. Souter, writing for the majority, said that the issue at hand did "not turn on the merits of municipal telecommunications services." He said that allowing these municipalities to sell telecommunication services would lead to "strange and indeterminate results" in interpreting the law.

"We feel that the majority opinion is full of hypothetical situations that may never arise," said James Baller, founder of the Baller Herbst Law Group, which helped litigate the Missouri cases. "If you deal with the issues and don't get sidetracked by an endless chain of hypothetical, then the decision would have been more focused and consistent with our position."

Justice John Paul Stevens filed the only dissent. Citing federal law, he argued that Congress did in fact intend to include municipalities and the subset of utilities that are publicly funded.

"The answer to the question presented in these cases does not, of course, turn on which side has the better view in this policy debate," he said. "It turns on whether Congress itself intended to take sides when it passed the 1996 act."

The ruling will help protect phone companies from more competition in many local markets. Municipally owned networks have been growing in popularity, particularly in rural regions, where incumbent telephone companies are less likely to introduce cutting-edge services.

In several states, the large regional Bell operating companies have lobbied state legislatures to pass laws limiting the ability of municipalities to offer telecommunications services. Similar laws in Texas, Nebraska and Iowa have been challenged in court. Arkansas, Minnesota, Nevada, Tennessee and Virginia also have laws similar to the ones in question in the Missouri cases.

Baller, who specializes in representing local governments and public power utilities, said that the ruling could pave the way for other states to enact laws limiting municipally owned telecom networks. But he added that he is confident that state legislators will look past the Bells' arguments and not limit the ability for local utilities and municipalities to offer competitive services.

"We are disappointed in the ruling," he said. "If it had gone in our favor, it would have made it illegal for states to limit these networks. But even without this, we?ve had good success in convincing many states that there are benefits to municipally owned networks, and we will continue in our efforts."

The cases decided by the court are Federal Communications Commission v. Missouri Municipal League, Nixon v. Missouri Municipal League, and Southwestern Bell Telephone v. Missouri Municipal League.

 

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