Regulators approve rules to spur local phone competition

WASHINGTON -- Federal regulators narrowly approved rules Wednesday that phase out many of the government-mandated discounts the four major regional telephone companies must give rivals to encourage them to compete for local service customers.

It's the fourth time the Federal Communications Commission has approved rules aimed at spurring competition. The three previous attempts were thrown out by federal courts.

Critics say the new rules will lead to higher bills for some 18 million customers served by AT&T, MCI and others carriers. The FCC's chairman, Michael Powell, said consumers would benefit in the long run.

Under interim rules, the regional phone companies -- Verizon Communications Inc., SBC Communications Inc., Qwest Communications International Inc. and BellSouth Corp. -- were forced to give their rivals access to their networks at reduced cost.

The theory was it would be too expensive for a rival to build its own network so it could compete with a regional company. But the regional companies said it was unfair to force them to subsidize competitors.

The rules call for gradually ending the discounts in the residential market and for competitors of the regionals serving small and medium-size business customers in dozens of the largest markets. The discounts would remain for those business customers in other markets.

Competitors serving the residential market will have 12 months to install their own equipment or negotiate new leasing agreements at higher prices with the regionals.

"Business models may change, but competition and choice for consumers in the information age will continue to grow and thrive," Powell said.

But Adelstein said the changes could hurt business customers in particular.

"I think there's going to be widespread disruption of service for businesses that decided to work with a competitor and through no fault of their own are going to find that competitors are unable to provide the service or have to raise rates precipitously," he said.

Over the past eight years, the FCC has tried to come up with regulations to spur phone competition. Three previous attempts were rejected, most recently in March when the U.S. Court of Appeals for the District of Columbia Circuit ruled they were unjustified.

The FCC said the phone rules have been rewritten to take into consideration the court's objections. For example, the agency has set up more targeted tests to show where competition is still needed for carriers serving smaller businesses.

Martin sided with the two Democrats on the commission on the previous set of rules. He voted with his Republican colleagues this time despite expressing some reservations, including whether the rules would not fall again in court.

About 18 million people -- roughly 15 percent of those with home phones -- buy local service from a company other than the regional providers.

A few months after the appeals court decision, AT&T announced it would no longer market its local and long-distance service to residential customers. It said it would continue to provide service to current residential customers, but would focus its future efforts on business customers.

MCI also has begun to pull back in some residential markets.

Regional carrier SBC said it should not have to subsidize the businesses of competitors.

"This irrational and discredited program has stifled network investment, unnecessarily delaying the development of new services and technologies for consumers," said James C. Smith, a senior vice president at the company.

Consumer advocates also were upset.

"Consumers will be the ones paying the price through diminished choices and higher rates," said Mark Cooper, research director for the Consumer Federation of America.

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