In return for the regulatory relief, the Baby Bells would have to spin off as a separate company the division that would compete against data-network resellers.
The proposal goes into a comment period before any final decision on the matter. Some in the industry say the FCC could act on the plan within 45 days.
Investors weren't ready to call a clear winner after the FCC's meeting: both long-distance and regional Bells were higher in afternoon trade.
Bell Atlantic, SBC Communications, Ameritech and US West are among the regional firms that asked the FCC for the freedom to deploy high-speed data networks without having to let competitors in at wholesale prices.
Long-distance giants like AT&T and MCI Communications are opposing the plans. The FCC said it plans to study incentives to get the whole sector, including cable, satellite, wireless and emerging technologies to speed up Americans' access to the Internet.
"Neither side is happy with the decision," said analyst Mel Marten of Edward D. Jones. The issue turns on the what's known as the "local loop," or the last leg of copper that carries communications into homes and businesses.
"In its order today, the FCC has come a long way in ensuring that consumers receive the benefits of digital competition and not the harm of digital monopoly," said Jonathan Sallet, chief of policy at MCI. "They said that everyone does have access to the local loop."
The FCC proposal still would require the local phone companies to lease the high-speed services to their competitors and recognizes a difference between voice and data, key points for the Bells.
Bell Atlantic, which is looking for a way to cover its investments in high-speed services, said Thursday's action "falls far short of the 'giant leap' required to deploy advanced telecommunications services to all Americans."
But MCI also isn't happy with the proposal to allow the regional companies to create subsidiaries to run the Internet businesses. "It's like paying yourself to park your car in your own garage," Sallet said.
All communications companies are eager to position themselves for the booming market for data services, which includes hooking customers up to the Internet. The voice communication business is growing at 4-5 percent a year, Marten said.
The U.S. data transmission business, on the other hand, is roaring along at about 100 percent a year. The Internet portion of that business is seen at growing up to 1,000 percent.
The Baby Bells have argued they have little incentive to build data services networks if they have to turn around and grant competitors access at a discount. Some have already begun deploying DSL lines or have announced plans to do so.
Written By Emily Church