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Ruling a setback for municipal phone services

WASHINGTON -- States can stop cities and towns from going into the $302 billion telecommunications business, the US Supreme Court ruled in a victory for SBC Communications Inc. and other local-phone companies.

The 1996 Telecommunications Act, which encourages phone competition, doesn't free municipalities from state-imposed limits, the justices said in an 8-1 ruling. The case pitted Missouri cities against the state and federal governments and SBC's Southwestern Bell unit. SBC is the nation's second-largest local phone company.

''The issue here does not turn on the merits of municipal telecommunications services," Justice David H. Souter wrote for the court. ''We think it farfetched that Congress meant" to preempt state laws on local phone service without a specific statement that it intended to do so, he said.

The ruling shields phone companies from one source of new competition. Supporting SBC and the state and federal governments were Verizon Communications Inc., the biggest US local phone company, and Sprint Corp., the third-biggest US long-distance company. They said cities would have an unfair advantage with their ability to use tax revenue to subsidize phone service.

Denton Roberts, a Sprint vice president, said the ruling ''ensures more fairness in the competitive marketplace."

SBC said in a statement that local governments should create an environment to let communications companies compete ''rather than trying to themselves compete, using public funds, against private sector telecommunications companies."

Federal Communications Commission chairman Michael K. Powell said the ruling ''brings needed clarity" to the issue.

The Missouri municipalities' lawyer, James Baller, said the ruling ''is not the end of the matter" and that backers of municipal phone service hope to persuade state legislatures not to enact new restrictions and to eliminate those that exist. He said some municipalities seek to offer advanced communications not offered by commercial companies, to attract economic development.

Missouri Attorney General Jay Nixon said cities ''should worry more about sidewalks, roads, and sewers than about advertising phone services."

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