The Federal Communications Commission (FCC) may vote on the new rules early next month, in what the Wall Street Journal reports will be the most important regulatory change in the telephone industry in seven years.
The Telecommunications Act of 1996 allowed local phone companies to compete with established long distance carriers to provide long distance service, and permitted long distance companies to enter the local telephone market.
Up to that point, the four "Baby Bells" controlled all local telephone service, as they had since they inherited the AT&T monopoly that federal regulators broke up in 1984.
When a long distance company seeks to enter a local market, it has to pay the local telephone company to use its switches and other equipment. But the 1996 law required the local firms to charge discounted prices.
The new FCC rule would, after a two-year transition period, force long distance firms to either pay more for that access or buy equipment of their own. While not finalized, sources quoted by the Journal said the plan would first apply to access charges for switches, and then allow local companies to ask state regulators to remove discounts from other equipment.
According to the Journal, FCC chairman Michael Powell believes the telecommunication industry will not have be truly competitive until rival service providers have distinct networks.
Long distance providers, which have been planning on using profits from local service to offset losses from the tight long distance market, claim the move will decrease competition, resulting in higher calling charges for consumers.
The Baby Bells counter that they face the prospect of new competition from cable providers, who could use their networks for phone service, and continuing rivalry from wireless telephones and email. Plus, the Bells say the long distance carriers are paying artificially low fees for equipment that the Bells must purchase and maintain.
But critics of the potential rule change say long distance carrier will have a hard time coming up with the cash to buy their own systems. Many companies that tried to do this in the first years of the 1996 law, called Competitive Local Exchange Companies (CLECs), failed.
Two years ago, Powell called for Congress to raise the fines the FCC could impose on local telephone monopolies that blocked CLECs from $1.2 million to $10 million per violation.