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BellSouth may shimmy out of 'naked' DSL

Arcane rules that forced the company to sell DSL separately in four states are set to expire Tuesday.

BellSouth is considering putting an end to its "naked" DSL service in four states, as a result of local phone competition rules that are set to expire Tuesday.

Utility regulators in California, Georgia and two other states relied heavily on an arcane set of rules known as UNE-P, or Unbundled Network Elements Platform, to force BellSouth to sell DSL separately from its local phone service. In every other state, BellSouth still inextricably links the two as a means of fending off competition.

"When the rules are vacated (on Tuesday), we are no longer obligated," BellSouth spokesman Joe Chandler said. But, he added, "we won't arbitrarily end anybody's service."

He didn't provide additional details on what will happen to customers who chose to buy standalone DSL, which BellSouth has sold since December. He said the number of customers who would be affected is "small," however.

Representatives for utility regulators in California and Georgia declined to comment.

Both Qwest Communications and Verizon Communications have willingly sold standalone, or "naked," DSL, saying it's an obvious step to take. "Rather than force our customers to purchase services they don't want, we felt we needed to change our portfolio to better fit our customers' needs," Qwest spokeswoman Silvia Mclachlan said.

Verizon, which has been testing naked DSL with some of its customers on the East Coast, has kept an open mind about the service. But as a policy matter, the company is in agreement with BellSouth. "We don't believe that states have the authority to dictate how a provider offers DSL, because DSL is an interstate service under the FCC's jurisdiction," Verizon spokeswoman Bobbi Henson said.

While the standalone services are likely less profitable than the bundles the telephone companies now sell, they could represent an opportunity to grow new businesses such as Internet phone calling, companies have said.

DSL "is not providing a great profit margin for companies, but especially when phone companies roll out VoIP (voice over Internet Protocol), I think it will be a good way to upsell VoIP applications to someone who might not want or need a local phone line," said Patrick Mahoney, an analyst at The Yankee Group.

Cable companies such as Comcast and Time Warner Cable are packaging voice calls with video and broadband and selling the "triple play" package to customers. Both companies also have begun exploring ways to offer Net phone service over their broadband networks. Comcast will begin selling VoIP services nationwide in 2006. Time Warner Cable's Digital Phone service is already available in some of its smaller markets.

SBC Communications was also ordered, under the same premise, to sell local phone and broadband services separately in California. A spokesman wasn't immediately available for comment.

CNET's Jim Hu contributed to this report.