On Thursday, the Supreme Court ruled that AT&T and other incumbent telephone companies must provide their competitors, including petitioner Talk America, with facilities needed to connect to the incumbents' network at regulated rates. The FCC urged the court to side with Talk America. Writing for a unanimous court, Justice Thomas held that the court owed deference to the FCC's interpretation of its own regulations unless that interpretation was inconsistent with federal law.

The 1996 Telecommunications Act imposed two distinct obligations on a Baby Bell such as AT&T. First, AT&T is required to allow interconnection with a competitor's network at regulated rates. Second, AT&T's facilities are subject to "unbundling"—a competitor is entitled to use certain parts of the incumbent's network, such as the "local loop" that connects a customer premise with the Baby Bell's network, to provide its own services. Unbundling rates are also regulated by the FCC.

Thursday's decision relates to "entrance facilities," typically wires or cables that connect AT&T to another company's network. A competitive carrier can use entrance facilities to reach AT&T's network for interconnection purposes. Or it could use those same facilities in an "unbundled" fashion for backhaul, e.g., to carry traffic to a third party.

In 2003, the FCC decided that entrance facilities were not subject to the unbundling requirement, which meant AT&T could set its own prices when competitors wanted to use them for backhaul purposes. In response to criticism from the US court of appeals for the DC Circuit, the FCC issued a new order in 2005 changing its rationale, but not the conclusion that entrance facilities need not be unbundled.

AT&T interpreted the 2005 order as permission for across-the-board rate hikes. It informed its competitors in Michigan that it would start charging extra for all uses of entrance facilities—for interconnection or backhaul. The competitors, including Talk America, complained to the Michigan Public Service Commission, which ruled that the rate hikes were illegal. AT&T appealed that decision to the courts.

Under Supreme Court precedents, courts interpreting regulations give deference to the agency that wrote those regulations. So the Sixth Circuit solicited an amicus brief from the FCC, which sided with the MPSC. The FCC's brief argued that the agency's decision that entrance facilities need not be unbundled for backhaul didn't change AT&T's obligation to provide access to those same facilities at regulated rates for interconnection with AT&T's network.

The Sixth Circuit found this logic unpersuasive and sided with AT&T. But the Supreme Court found the FCC's arguments more compelling. Justice Thomas wrote that "the FCC has advanced a reasonable interpretation of its regulations" that did not conflict with the terms of the 1996 Telecommunications Act.

AT&T enjoyed the support of Verizon, its fellow "Baby Bell." But many smaller telecom companies, including Sprint-Nextel, filed briefs endorsing the FCC's position.