The Department of Justice yesterday dealt an unexpected blow to Bell Atlantic's hopes of gaining permission to sell long-distance telephone service in New York state, advising the Federal Communications Commission that the company has yet to fully open its local market to competition.

"It is important for [long-distance] applicants to cross the finish line, not merely come within sight of it," the department's antitrust division wrote to the FCC. "Bell Atlantic should be required to remove the few but important obstacles to local competition that remain in New York before it enters the long-distance market."

The commission "properly could deny this application," the department concluded, but it could also approve it and apply conditions obligating Bell Atlantic to fix the remaining problems.

Under the 1996 Telecommunications Act, the FCC is required to give "substantial weight" to the department's guidance as it weighs whether to allow an applicant to enter the long-distance market.

A Bell Atlantic spokesman, Eric Rabe, called the filing "largely supportive."

Rabe said: "The issues they have raised we believe we can address at the FCC. It shouldn't be taken as a rejection or a fatal blow."

Bell Atlantic is pressing to become the first local Bell to gain permission to enter the long-distance market in its core area. Under the landmark 1996 telecommunications law, local companies have the chance to expand into long distance, but they first must convince federal regulators they are not discriminating against other local companies that need to link to their networks in order to reach customers. Though several regional Bell companies have tried to get approval to sell long-distance services, none has succeeded.

For two years, Bell Atlantic has negotiated with the New York Public Service Commission, agreeing to dozens of concessions while setting up a new system to process orders from customers wanting to switch to a competition. Last month the commission said the company had done enough, recommending that the FCC approve the application.

But Bell Atlantic's competitors--chiefly AT&T Corp. and MCI WorldCom Inc.--continue to argue that the company has not done enough.

The Justice Department lent its voice to that chorus yesterday, specifically finding that order processing is a problem while criticizing Bell Atlantic for troubles in the way it delivers lines to companies that sell DSL (digital subscriber line) high-speed connections to the Internet.

Rabe, the Bell Atlantic spokesman, said the problems identified by the Justice Department occur in roughly 1 percent of the orders. Bell Atlantic's rivals predicted the Justice Department's findings would move the FCC to deny the application.

"They have listened to the evidence rather than buckling under to the political pressure," said John Windhausen Jr., president of the Association for Local Telecommunications Services. "If the FCC were to approve Bell Atlantic's application, it would be totally inconsistent with everything the FCC has said in prior decisions."