Court Blocks Municipalities From Offering Phone Service

In a victory for the regional telephone monopolies, the Supreme Court has ruled that state governments can block municipalities from entering the telephone business.

Cities and towns were increasingly entering the telephone business, particularly as they offered cable broadband services in bundles that also include telephone and cable television. In effect, the court said the Telecommunications Act of 1996, which had stated that "any entity" could offer telecommunications services, did not apply to municipalities because they are state government units and not separate entities.

The decision could ultimately have an impact on the whole move of telephony to VoIP, particularly as cable companies begin to offer telephone services as part of a bundle.

One regional telephone company, SBC Communications, hailed the decision, stating: "To meet customer needs, local government should focus on creating a fair and equitable regulatory and legislative environment so that all communications companies can invest and compete, using public funds, against private-sector telecommunications companies."

SBC had brought one of the cases ruled upon by the court. Justice David Souter wrote the court's 8-1 decision; Justice John Paul Stevens was the lone dissenter. Souter wrote that the "any entity" provision in the Telecommunications Act referred to private entities and not to public entities, including municipalities.The American Public Power Association, whose members include municipalities that offer telecom services, criticized the decision. A spokesman for the association said the decision is "a setback for the development of a competitive marketplace in telecommunications." The association noted that more than 600 municipal utilities offer one form or another of broadband service and the phenomenon had been growing recently.

The decision marks the second major victory for the former Regional Bell Operating Companies in recent weeks from a Washington court. In February, the U.S. Court of Appeals for the District of Columbia issued a ruling that favored those telecom firms and their ability to set access fees for long-distance firms to connect to their local networks.