States to Keep Local Phone Service Regulatory Role; Plan Offered by FCC Chairman Powell Is Rejected

Byline: Christopher Stern and Jonathan Krim

The Federal Communications Commission voted today to uphold a strong role for states to regulate local telephone service, a system that has led to recent price wars between the major regional phone giants and their rivals.

But the deeply divided agency swept away regulations governing Internet access lines, freeing the major phone companies from requirements that they open their networks to rival providers of high-speed Internet services.

The vote allowing a state role is a defeat for the more deregulatory agenda of FCC Chairman Michael K. Powell and the former Bell local telephone monopolies that lobbied the FCC relentlessly during the past year to abandon rules that require them to lease their networks to rivals at discounted rates set by the states.

AT&T Corp., WorldCom Inc. and other companies have taken advantage of the rules to sell local phone service to more than 10 million customers nationwide. By bundling local and long-distance services into aggressively priced packages, they have forced the Bells to drop prices in some states.

Powell delayed the vote for a week but failed to gain support for his plan to assert broad federal authority over the leasing system, a system he has said should force competitors to build their own facilities.

Powell has sought to overhaul the agency's rules according to his vision of how to increase competition for telephone and Internet services in a fast-changing digital world. The FCC also was forced to reexamine its leasing rules after they were rejected by a federal court, which said the agency had not adequately demonstrated that they were fair.

It is unusual for a chairman to vote in the minority at the five-member FCC, but Powell ran into trouble when fellow Republican commissioner Kevin J. Martin joined with the agency's two Democrats on the issue. State utility regulators, as well as the Bells' competitors, lobbied strongly to maintain active state involvement.

The regulators have proposed modifications to the current system, which took effect in 1996 when Congress mandated that the Bells' monopoly phone networks should be opened to competition.

The states' proposal, which sources said is a blueprint for what Martin and the Democrats have embraced, establishes some national guidelines for how business and consumer rates are set without compromising individual state authority.

Relations between Martin and Powell are said to be tense, with the two men now hardly on speaking terms. There is still a chance that a last-minute compromise could be reached that avoids a split vote, but sources said it is unlikely. Powell's sole supporter on the issue is Commissioner Kathleen Q. Abernathy, a former local-phone-company lobbyist.

Powell's supporters note that the last time an FCC chairman voted in the minority on a major decision, the outcome was later overturned by the courts. That 1991 decision allowed television networks to own, in a limited way, shows that aired during prime time. Alfred C. Sikes, who was chairman at the time, opposed the decision and wanted to eliminate the rule completely. Ultimately, Sikes was vindicated when a federal court in Los Angeles threw out the rules.

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