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AT&T fights for local service

Deal lets company move some local phone customers to McLeodUSA's network, as FCC readies temporary rules.

AT&T has reached a long-term deal that lets it continue selling local phone service to some customers.

Under the agreement, announced late Tuesday, AT&T plans to use McLeodUSA's business arrangements and networks in some states. The move helps AT&T replace some of the local phone lines it's losing following the expiration of federal rules that guaranteed competitors access to the Bell operating companies' networks at government-set rates. The Bells are, collectively, Verizon Communications, Qwest Communications International, SBC Communications and BellSouth.

The deal requires "regulatory clarity," however, so AT&T intends to submit a set of principles to the Federal Communications Commission for review, the company said.

The agreement was announced days before the FCC is expected to publish temporary rules on competition in local markets to guide AT&T, MCI, Sprint and other local phone companies.

The idea of paying prices set by competitors, combined with the astronomical cost of building a new local phone network, has major local phone company MCI reportedly planning to exit the local phone business. But AT&T, as evidenced by its deal with McLeodUSA, intends to fight to hold onto its 6 million customers, 4 million of which use the Bells' lines, known as UNE-P platforms.

This "should end the unhealthy stalemate that has existed over the last eight years and prevent major turmoil in the telecommunications industry," David Dorman, AT&T chairman, said in a statement.

McLeodUSA sells voice and data services in parts of 25 states in the Midwest and Southwest, which is not enough to cover all of AT&T's current local phone customers whose service is now threatened. But McLeodUSA's network, and business arrangements with the Bells, positions AT&T to renew its fight for new customers in some of the seven states, such as Ohio and Missouri, where it plans to stop soliciting for new local customers.

Neither company disclosed how many of AT&T local phone customers will be part of a promised "orderly transition" onto McLeodUSA's network. The changes will start to take place after September, pending regulatory approval.

Meanwhile, AT&T has asked the FCC to continue the unbridled access to the Bells' networks through an FCC mandate known as UNE-L, which is still in effect. UNE-L, which McLeodUSA relies on, lets phone companies lease a local phone line from the Bells; but they would have to install their own switches, which many companies can't afford to do.

"Access to these elements under fair and reasonable terms and pricing is the only way competitors to the Bell companies can continue to serve local residential and business markets profitably," Dorman said in the statement.

An FCC representative could not immediately be reached for comment.