A deeply divided Federal Communications Commission voted yesterday to preserve regulations that govern local telephone competition but swept away similar rules for high-speed Internet connections that represent the nation's telecommunications future.
In a rancorous culmination to a year-long industry brawl, the commission split 3 to 2, with shifting majorities, on a series of votes that demonstrated sharply different visions for how to best help a business sector battling a vicious downturn while preserving choices and low prices for consumers.
In the end, the commission handed the former Bell telephone companies a significant victory by ending requirements that they lease to competitors at regulated rates new or upgraded networks for high-speed, or broadband, Internet access.
With those regional giants free to set rates, competitors would have to decide if they still could afford to offer service, or build their own networks. The result could be that consumers who want Internet service over telephone lines will have no choice other than the telephone company that owns the wires.
With Internet service over cable television lines equally unregulated, consumers face the prospect of only two primary providers of high-speed Internet access: the cable company and the phone company.
"It's all about the new world," said Blair Levin, an analyst at the investment firm Legg Mason Wood Walker Inc. and a former FCC staffer. "And on broadband, it's a huge win for the Bells."
The Bells spent hundreds of millions of dollars in a furious lobbying campaign to convince Congress and the FCC that they could not be expected to push broadband out into rural areas, or invest in new, advanced networks, if they were forced to then lease them to rivals.
With about 5.5 million consumers getting high-speed Internet service over phone lines, a service known as DSL, the Bells have been losing ground to cable firms, which have roughly 10 million Internet subscribers.
Although the details of the new rules have yet to be crafted, they closely follow proposals by a coalition of high-technology companies, led by Intel Corp., that lobbied aggressively that new investment by the Bells is essential to jump-start technology spending and provide competition for cable companies.
Under the new rules, any upgrade by the Bells to higher-speed networks using fiber-optic technology releases them from leasing requirements. The Bells already have been replacing aging networks with fiber equipment, but they have held off on making major investments in new service, which offers connection speeds as much as 100 times as fast as can be provided over standard copper wires.
Consumer groups and the panel's two Democrats blasted the decision. They said it would extinguish competitors who could not possibly afford to replicate the Bells' networks, raise prices and leave the phone companies positioned to be monopolies again when it comes to Internet access.
"We are playing fast and loose with the country's broadband future," said Democratic commissioner Michael J. Copps. "Today we may be choking off competition. . . . Consumers and the Internet itself may well suffer."
But the Bells lost their bid to be freed of similar leasing requirements for local telephone service.
In a vote in which Copps and Democrat Jonathan S. Adelstein joined Republican Kevin J. Martin, the commission allowed state regulators to continue to decide how much competitors should pay for leasing networks, under a new set of federal guidelines.
That system has enabled long-distance companies such as AT&T Corp. and WorldCom Inc. to enter the local telephone business. By packaging local and long-distance service together, they have forced the Bells to lower their rates in some states.
James C. Smith, a senior vice president at telephone giant SBC Communications Inc., said the decision negated the benefits of the deregulation of broadband service.
The ruling means that the phone companies have "no additional incentive" to invest in new networks, he said, and they would not do so.
Smith said the phone companies, which include Verizon Communications Inc., BellSouth Corp. and Qwest Communications International Inc., would continue the fight in the courts and on Capitol Hill to end local phone regulation.
The vote angered FCC Chairman Michael K. Powell, who had argued that competitors should not be able to piggyback on Bell facilities at discounted rates.
In a biting oration, Powell called the decision "chaotic" and said it created varying state regulations that would be rejected by the courts.
In response to a lawsuit brought by the Bells, a federal appeals court ruled last year that the FCC rules were unfair and needed to be revised.
"To explain their decision, the majority has cloaked itself in the drape of states' rights," a grim-faced Powell said. But he said "the impulse to leave much more telecom policy to state commissions may run against the winds of technological change."
FCC chairmen rarely lose control of their agendas on major issues, but Powell was outflanked by fellow Republican Martin, who decided that maintaining state regulations was important and forged a coalition with the two Democrats.
In fact, all of what the commission approved was pushed by Martin, putting him in an increasingly powerful position as the agency moves on to other media and Internet rulemaking.
Martin has close ties to the White House, having served on President Bush's transition team, and his wife works for Vice President Cheney.
But Martin's actions drew a rebuke from Rep. W.J. "Billy" Tauzin (R-La.), who pushed legislation to free the Bells from regulation.
"Ironically, as President Bush campaigned around the country on behalf of a promising new program to create more jobs and more opportunities, a renegade Republican at the FCC assured the continuation of a tired old program that will only create more layoffs and more misery for working families in the future," Tauzin said.
Martin even got the two Democrats to go along with one piece of broadband deregulation that Powell opposed, in an apparent deal that involved the vote on local phone service.
In an interview, Powell said that he will reflect on how he handled the past year but is determined to move forward.
"I was very committed to some core principles," he said. "What became clear is that I could have found some warmed-over compromise, but at great expense to principles I had laid out over two years."