Court declares portions of Telecom Act unconstitutional

Restrictions on the Bells are declared a "bill of attainder" but prior restrictions may govern the companies if the current law is thrown out.

By STEPHEN N. BROWN

Last June, no one expected a federal district court in Wichita Falls, TX, to side with sbc Communications Inc. when the company filed a lawsuit seeking that the Telecommunications Act`s "competitive checklist" be declared unconstitutional. The checklist specifies the conditions that must be met by regional Bell operating companies before the Federal Communications Commission (fcc) lets them offer long-distance service in the states where the companies offer local service. mci`s chief policy counsel, Jonathan B. Sallet, said of sbc`s lawsuit, "We trust the federal court will recognize this action for what it is: a desperate attempt by an entrenched local monopoly to avoid opening its local telephone market to competition."

Sallet misplaced his trust.

On December 31, the district court agreed with sbc and ruled that the checklist was a bill of attainder, which is "a legislative act that inflicts punishment without a judicial trial." The U.S. Constitution prohibits Congress from passing any legislation that is a bill of attainder, and the court said the checklist`s "barriers to entry in the long-distance [market]...constitute punishment as that term is applied to a bill of attainder." The court concluded its argument by saying it could "reach no other conclusion than that Congress intended...to punish" the Bell operating companies.

One-stop shopping

This judicial reasoning hinges on the term "punishment." The court`s perspective on "punishment" is composed of economic arguments. Judge Joseph Kendall wrote, "To put the [companies`] plight in perspective, all other telecommunications carriers, including all other nonspecified similarly situated local- exchange carriers, may offer any of the services forbidden to the [Bells]. This allows other...carriers that are in competition with the [Bells] to offer `one-stop shopping` for customer needs. No longer will consumers need to purchase local service through one carrier and long-distance through another carrier. The inability of the [Bells] to provide [their] customers with all of their telecommunications needs greatly increases the likelihood of enormous losses of existing business in addition to the economic losses the [Bells] will suffer by their inability to enter various telecommunications markets."

The court implies that one-stop shopping is a constitutional right in the telecommunications business and that potential losses are losses in fact. This argument can be a two-way street: Local companies have no right to impede or discourage competitive entry into their markets, and to the extent that local companies hinder entry, they deprive their competitors of their constitutional rights de facto and cause them economic loss.

Judge Kendall`s reasoning will be tested because the fcc immediately appealed his decision to the next level of the federal judiciary. If the courts follow regular procedures, all parties to the case will be enjoined from action while the case works its way from district court to the appellate level and finally to the Supreme Court--which could take many months. Competitive entry to both the local and long-distance markets will be delayed unless the Supreme Court calls the case directly to its own venue, thus allowing the parties to bypass the intervening courts. This delay will continue to thwart the Act`s central goal: to create competitive telecommunications markets.

Competition always threatens established carriers, and to the extent that they all had a hand in the creation of the Act, it is regarded as compromise legislation: No one got exactly what he wanted, but everyone agreed to abide by it. And if there had been no agreement, the legislation would not be law today. This view is confirmed by fcc commissioner Susan Ness, who sees the agency as administering a legislative compromise between the Bells and the long-distance carriers.

For example, in fcc Docket 97-418, the agency unanimously rejected BellSouth`s application to provide long-distance service in South Carolina. In a separate statement on the case, Ness said, "The thousands of pages of pleadings and the detailed debates over arcane statutory provisions must not obscure the simple legislative bargain that governs Bell company entry into long distance. Once Bell companies fulfill their responsibilities to eliminate barriers to entry in the local marketplace, the barrier to their entry into the long-distance market will in turn be removed. Today`s order eliminates all doubt that the new Commission will enforce that sequence."

Unfortunately for the fcc, plenty of doubt now exists. For the federal court to construe the Act as a bill of attainder suggests that the "legislative bargain" is ended. Sen. John McCain (R-AZ), chairman of the Senate Commerce Committee, commented on the ruling, saying that the long-distance checklist is unworkable and that "it is incumbent on the Congress to act fairly and swiftly to fix the way [the checklist] is--or, to be more accurate, isn`t--working." That fix will not happen until all appeals are exhausted.

Pyrrhic victory?

The appeals process has three possible outcomes: The checklist is ultimately found unconstitutional and the Bells have immediate access to the long- distance markets; the checklist is ultimately found unconstitutional and the at&t consent decree is reinstated over the Bell companies; or the checklist is found constitutional and the fcc`s authority is reinstated.

The first possibility guarantees Bell dominance in local markets because once the companies have unfettered access to a long-distance market, they have nothing to gain and can only lose by opening their local systems to potential competitors. But political repercussions would be likely, supposedly because President Clinton would not have agreed to the Act if it had not contained the checklist. Also, sbc hailed the district court`s decision as a victory for consumers, but this is the same company that persuaded the Texas legislature to set local competition requirements that eliminated at&t and mci from Texas`s local markets. Companies that had more than 5% of the Texas long-distance market were not allowed to offer local service unless they built facilities to serve 60% of the local telephone lines in a 25-sq-mi area. Those conditions were overturned by the fcc late last year.

The possibility that the consent decree would be reinstated follows from the Telecommunications Act of 1996. Section 601 of Title VI, "Applicability of Consent Decrees and Other Laws," states: "at&t Consent Decree--Any conduct or activity that was, before the date of enactment of this Act, subject to any restriction or obligation imposed by the at&t Consent Decree shall, on and after such date, be subject to the restrictions and obligations imposed by the Communications Act of 1934 as amended by this Act and shall not be subject to the restrictions and obligations imposed by such Consent Decree." The consent decree was never considered unconstitutional and absolutely barred the Bell operating companies from entering long-distance markets. That restriction was replaced by the competitive checklist of the Telecom Act of 1996.

The courts and the companies face a legal conundrum: How can the consent decree`s restrictions, which were considered lawful, be replaced by restrictions that are unconstitutional? The answer is simple: Legal and constitutional restrictions cannot be replaced by unconstitutional ones. Therefore, in terms of law, the replacement never occurred, and the companies have still not escaped the consent decree. Thus the fcc, at&t, and mci could ask Judge Harold Green to reinvoke his jurisdiction over the Bell operating companies. If he were to pursue this course, it would mean complete judicial nullification of the Act and would send Congress back to square one.

The first and second scenarios are destructive: They do nothing to make the law and the markets workable. The safest and most practical outcome is for the courts to reaffirm the checklist`s constitutionality. Otherwise the Act is moot, and there is no level playing field between the Bell operating companies and their potential competitors in local markets. If the checklist is unconstitutional, then such a finding tells everyone that a company`s unilateral action can successfully replace the informed consensus of elected representatives. That is a deeply cynical message to send to the public and will lead to nothing good. A finding of unconstitutionality will provoke the other parties to petition Judge Greene to reassert the consent decree over the Bells. Then what would happen is anyone`s guess. q