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BellSouth lost legal shelter from antitrust claims in an appellate court decision favoring Covad Communications Co., a seller of high-speed, digital subscriber line (DSL) Internet service that buys access to BellSouth’s nine-state, copper-wire network. The 11th U.S. Circuit Court of Appeals reversed a lower court decision concluding that Covad, based in Santa Clara, Calif., lacked standing to sue Atlanta’s BellSouth for violations of the Sherman Antitrust Act. But BellSouth probably will request a rehearing in the case. “We expect them to fight every step of the way, up to the United States Supreme Court,” said San Francisco-based Al Pfeiffer of Bingham McCutchen, the lead attorney for Covad in the case. At issue is BellSouth’s behavior as both a retail competitor of Covad in the DSL market and as a wholesale supplier to Covad and other competitors. BellSouth sells them access to its copper-wire network, as required by the Telecommunications Act of 1996. Taking advantage of the act, Covad entered into a contract in 1998 with BellSouth that allowed Covad to place its equipment in BellSouth’s central offices for easier access to the BellSouth network. The arrangement allowed Covad access to BellSouth’s high-capacity lines. But in a 2000 lawsuit filed in U.S. District Court in Atlanta, Covad alleged BellSouth denied Covad access to its network and delayed the development of Covad’s DSL business while promoting its own. Covad charged that BellSouth, among other tactics, regularly misrepresented the available space at its central offices and delayed Covad orders for increased use of BellSouth network capacity. The DSL service provider also claimed that BellSouth charged high prices for wholesale access to its network and low prices for its own DSL services, causing a monopolistic price squeeze. Covad alleged that BellSouth attempted to stifle competition in violation of the Sherman Antitrust Act, the Telecommunications Act of 1996, state anti-monopoly statutes and unfair competition laws, and state breach-of-contract law. But the court dismissed the complaint in July 2001 on technical grounds, citing an appellate decision by the 7th Circuit. In that case, Goldwasser v. Ameritech Corp., the panel found that the legal duties of Ameritech and other regional Bell operating companies, as defined by the Telecommunications Act of 1996, cannot be used to form the basis of Sherman Antitrust Act charges. On appeal, Covad argued that the trial court erred in dismissing its complaint, and a three-judge panel of the 11th Circuit agreed Aug. 2 in a unanimous decision. “We’ve always thought that the Goldwasser decision was wrong, and that the reasoning was erroneous,” said Margaret Robbins, associate general counsel of Covad Communications. The lower-court dismissal of Covad’s suit was reversed because it “held out that the 1996 Telecommunications Act pre-empted the antitrust laws,” Robbins said. In addition, “the court did not discuss or consider the ‘essential facilities’ doctrine.” Access to BellSouth facilities is essential for Covad and other telecom companies to do business. And because these facilities are considered irreplaceable, BellSouth has monopoly power that falls under the regulation of antitrust laws, Robbins said. The reversal of the lower-court decision is part of a new legal framework for disputes between regional Bell operating companies like BellSouth and the competitors they’re required to work with under the Telecommunications Act, Pfeiffer said. “A lot of district courts have followed the Goldwasser decision,” Pfeiffer said. But the 11th Circuit reversal favoring Covad, along with a similar appellate-level decision in a separate case, “go together and say that Goldwasser is wrong.” BellSouth believes otherwise. “We believe we will prevail, that we have a strong case,” said BellSouth spokesman Joe Chandler. BellSouth has 21 days from the date of the decision to file a motion for a rehearing with the 11th Circuit, Chandler said. “It is probable we will ask for a rehearing.”

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