The Telecommunications Act Under Siege

The Telecommunications Act of 1996 ("Act")¹ is barely two years old, but it has been subjected to an intense and continuing scrutiny that most acts of Congress rarely experience. Initially hailed as a landmark event in the development of telecommunications deregulation, the Act on its first birthday was roundly criticized by consumer groups and members of Congress for failing to deliver on its purported promise immediately to end the decades-old local telephone monopoly and unleash competitive forces in both the local and long distance markets. The Act began its "terrible twos" not merely scorned for its unmet expectations but also under siege from the federal courts.

On December 31, 1997, the United States District Court for the Northern District of Texas ruled that sections 271 through 275 of the Act are unconstitutional.² These sections are the "carrot" that Congress established to encourage the monopoly local telephone companies that were formerly part of AT&T and the Bell System (known as "Bell Operating Companies," "BOCs" or "Baby Bells") to open their local markets to competition. Section 271, in particular, establishes a "checklist" of ways in which a BOC must provide competitors with access to its network.³ BOCs are prohibited from providing long distance service-as they have been since the breakup of AT&T in 1984-until they satisfy this "checklist" and other specified requirements.

The Act requires a BOC that believes it has satisfied the requirements of Section 271 in a particular state to notify the state utility commission and to petition the Federal Communications Commission ("FCC") to allow the BOC to enter the long distance market in that state. The FCC, in consultation with the state utility commission and the federal Department of Justice, evaluates the BOC's application and determines whether the BOC has complied with the statutory requirements. Several BOCs have applied for authority to provide long distance services under Section 271, but no application has yet been granted.

SBC Corporation, the BOC that operates in California and the south central states, is one of the BOCs whose application the FCC denied.⁴ SBC not only appealed that decision to the District of Columbia Circuit Court of Appeals (which has exclusive jurisdiction of such appeals under the Act), but also filed a separate action in the district court in Texas to have Section 271 declared unconstitutional. SBC raised several grounds in its complaint, including violation of the First Amendment, but the court reached and based its decision only on the ground that Section 271 is a "bill of attainder" in violation of Article I, Section 9, Clause 3.

"A statute is considered an unconstitutional bill of attainder when it (1) identifies a specific individual or group (2) inflicts punishment on that individual or group (3) without the benefit of judicial trial."⁵ The district court acknowledged that the Supreme Court has rarely held a statute to be an unconstitutional bill of attainder, but nevertheless concluded that the Act "punishes" the BOCs without benefit of judicial trial by legislatively declaring the BOCs guilty of antitrust violations and preventing them from pursuing otherwise lawful business opportunities. The court recognized that the Modified Final Judgment ("MFJ") dissolving AT&T imposed many of the same restrictions on BOCs' ability to provide long distance service and, unlike that decree, specifically authorizes such entry upon satisfaction of certain conditions. The court nevertheless found that the Act impermissibly reinstates restrictions that had been removed in the MFJ and that the conditions for removal of those restrictions were insufficient to withstand constitutional scrutiny because they are "extremely onerous" and "may never be met" and because "the process for applying to have the numerous restrictions removed is tainted with indefiniteness and replete with arbitrary standards."⁶

The Texas district court's decision caused quite a ripple in the telecommunications community when it was first issued, particularly to long distance companies and the FCC, which were faced with the prospect of immediate entry into long distance markets by BOCs that have not sufficiently opened their local markets to competition. The court, however, stayed the effectiveness of its order pending appeal to the Fifth Circuit Court of Appeals,⁷ and few industry participants expect the decision to be upheld. Only the BOCs and the Northern District of Texas believe that the Section 271 checklist is "onerous," and the FCC is making renewed efforts to consult with the BOCs and their competitors to make the process for evaluating BOC statutory compliance more definite and predictable. Even were the district court's decision to be upheld, the FCC and its supporters would be expected to seek judicial reinstatement of the MFJ and its flat prohibition on BOC entry into long distance markets, claiming that Congress' nullification of the MFJ was contingent on the validity of sections 271 through 275. Rather than removing all restraints, therefore, the ultimate success of SBC's suit could be imposition of even greater restrictions-a Phyrric victory that certainly is not what the BOCs had in mind.

Meanwhile, the District of Columbia Court of Appeals upheld the FCC's denial of SBC's initial Section 271 application, affirming the FCC's interpretation of the statute.⁸ The questions raised by judges on that panel during oral argument also demonstrated a thinly veiled disapproval of SBC's tactic of bringing its constitutional complaint in a "home town" court without the expertise that the D.C. Circuit has in telecommunications regulation. The D.C. Circuit in a split decision also recently rejected to same bill of attainder arguments on which the Texas district court relied-as well as the First Amendment arguments that district court did not reach-in upholding the constitutionality of Section 274 of the Act, which restricts BOC's ability to provide electronic publishing.⁹ Indeed, the D.C. Circuit, rather than the Fifth Circuit, may be the first court of appeals to determine the constitutionality of Section 271, since Bell South has raised that issue in its appeal of the FCC's denial of its application to provide long distance service in South Carolina. The Supreme Court will be the ultimate arbiter of the Act's constitutionality, but for now, the BOCs only route to providing long distance is through the state commissions and the FCC under the requirements of Section 271.

Gregory J. Kopta is a partner in the firm's Seattle office. He practices in the areas of communications, intellectual property and appellate advocacy and regularly represents telecommunications clients before state regulatory agencies.

Footnotes

1. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of Title 47, United States Code).

2. SBC Communications, Inc. v. FCC, 981 F. Supp. 996 (N.D. Tex. 1997).

3. 47 U.S.C. § 271(c)(2)(B).

4. See Application by SBC Communications, Inc., to Provide In-Region InterLATA Services in Oklahoma, 12 F.C.C. Rcd 8685 (1997).

5. SBC Communications, 981 F. Supp. at 1004.

6. Id. at 1007.

7. SBC Communications, Inc. v. FCC, No. 97-CV-163-X, Order Granting Stay and Denying Injunction (Feb. 11, 1998). The Fifth Circuit has tentatively scheduled oral argument in the FCC's appeal for the week of July 6, 1998.

8. SBC Communications, Inc. v. FCC, ___ F.3d ___, No. 97-1425, 1998 WL 121492 (D.C. Cir. Mar. 20, 1998).

9. BellSouth Corp. v. FCC, No. 97-1113 (D.C. Cir. May 15, 1998) This is the end of this article.