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FCC rules to encourage local Net competition

Federal regulators move to protect the big local phone companies from some competition in their high-speed Internet business, but said the companies still must share most of their networks with competitors.

Federal regulators today acted to protect the big local phone companies from some competition in their high-speed Internet business, but said the companies still must share most of their networks with competitors.

The ruling comes after months of lobbying from rival local phone companies that want to use the Bells' networks to offer their own telephone and Internet services. Both sides see today's ruling as critical in determining what kinds of companies can survive in the competitive phone and high-speed Net access markets.

The heated lobbying--prompted by a Supreme Court ruling earlier in the year that forced the Federal Communications Commission to revise its rules on local network competition--brought both sides some consolation.

Commissioners did keep most of their old rules intact, saying that companies like Bell Atlantic and SBC Communications must give smaller companies access to their lines and much of the technology inside their phone networks. Because local phone networks are expensive and difficult to construct, this is critical to having local phone competition, the commission said.

But the Bells did convince the commission to keep the equipment that provides high-speed Internet service out of the deal. This means that companies like Covad Communications or NorthPoint Communications can continue to use Bell Atlantic's phone network--but the Baby Bell won't have to share specific high-speed Internet equipment with its competitors.

The ruling effectively closes off the possibility for small companies to resell the Bells' high-speed Internet service without adding their own equipment.

Commissioners said any new regulations directed at the Bell companies would directly slow consumers' access to high-speed Internet services.

"One of the most important things this agency can do is to ensure we're creating an environment for aggressive deployment of broadband services," said FCC chairman William Kennard told Bloomberg.

The decision over access to high-speed Internet equipment is part of a broader ruling aimed at encouraging local phone competition by giving competitive local providers access to key equipment.

"The FCC increased regulation of the local telephone companies, but not as much as feared," said Scott Cleland, managing director of Legg Mason's Precursor Group.

The FCC's rules identify the parts of the Bells networks that must be leased to competitors at a discount. Rival phone firms welcomed this decision, as they say building a network from scratch is not only time consuming, but very costly. The Baby Bells, on the other hand, argued that they should have to sell only specific pieces of their network at a discount, as the equipment is readily available in the market. The FCC largely agreed with the new rivals.

The agency's 1996 rules required the Bells and GTE to discount the prices on seven pieces of their networks, including connections from the central offices, the switches that direct phone traffic to the right location, and operator and directory services. The Supreme Court in January ordered the agency to reconsider which network pieces are essential to the new competitors.

Today, the agency reaffirmed the need for the Bells and GTE to lease most of the pieces originally required in 1996. One exception is that those companies will no longer be required to sell directory and operator services to competitors.

Bloomberg contributed to this report.