FCC Changes Some Phone Network Leasing Rules

Government regulators approved rules Wednesday that would phase out discounts the four major regional telephone companies offer rivals for access to their networks, a move likely to lead to higher phone bills for some 18 million residential phone customers served by AT&T (T), MCI and others carriers.

The Federal Communications Commission (search) voted 3-2 to give competitors of the regional companies 12 months to build their own networks or negotiate new leasing agreements with the regionals — Verizon Communications Inc. (VZ) , SBC Communications Inc. (SBC), Qwest Communications International Inc. (Q) and BellSouth Corp (BLS).

The commission also voted to require the regionals, in many circumstances, to continue sharing their networks at discounted rates with local competitors serving small and medium-size businesses. The discounts the regionals would have to provide rivals in the business market could be as much as 40 percent below rates that would be available without government intervention.

In some larger markets, network access to regional competitors would be eliminated eventually.

Commissioner Michael Copps, one of the two Democrats who voted against the rules, said the rules will negatively affect American consumers.

"What we have in front of us effectively dismantles wireline competition," Copps said. "Brick-by-brick this process has been under way for some time, but today's order accomplishes the same feat with all the grace and finality of a wrecking ball."

FCC Chairman Michael Powell (search), however, said critics of the rules will be proven wrong. "Business models may change, but competition and choice for consumers in the information age will continue to grow and thrive," Powell said.

The agency has been trying to come up with regulations to spur phone competition for the last eight years. The courts have rejected three previous attempts at issuing new rules, most recently in March when the U.S. Court of Appeals for the District of Columbia threw out the commission's leasing rules.

The Supreme Court refused to hear appeals sought by AT&T, MCI and others that said without the discounts they could not afford to compete for local phone service. But the regionals argued the prices were set too low and essentially forced them to subsidize the business of their competitors.

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.