WASHINGTON - Federal regulators unanimously agreed yesterday to relax regulations on phone companies' high-speed Internet services, a decision cheered by Bell companies and booed by consumer advocates.
The Federal Communications Commission voted 4-0 to reclassify digital subscriber lines as an "information service" that would be far less regulated than traditional phone service. The change means the government no longer will require phone companies to lease their high-speed lines at regulated rates to competing Internet service providers such as Atlanta-based EarthLink Inc.
BellSouth Vice President Herschel Abbott said FCC Chairman Kevin Martin "should be widely applauded for pushing to completion these sweeping changes."
But Gene Kimmelman, public policy director at Consumers Union, said the change would drive independent broadband providers out of business and result in higher prices for consumers.
"The Federal Communications Commission continues down the wrong path on deregulation, allowing giant phone companies to tighten their stranglehold on competition, stifle innovation, and reach even deeper into the pockets of consumers," Kimmelman said.
Martin predicted that the reduced regulation would spur broadband competition.
If so, that could mean more people would have access to broadband Internet and prices could fall.
The decision came after several days of intense negotiations between the FCC's two Democratic members, Michael Copps and Jonathan Adelstein, and its two Republicans, Martin and Kathleen Abernathy.
The commission's fifth seat is vacant, and observers noted that this gave the two Democrats an incentive to negotiate the terms of the deregulation now, before President Bush was able to restore a Republican majority.
One compromise involved the adoption of principles that phone and cable companies should allow subscribers to use the Internet any way they wish.
"The policy may help to prevent cable and telephone companies from using their monopoly power to block consumer access to Web sites, prohibit their use of competing Internet telephone service, or prevent them from using computer applications," Mark Cooper, research director for Consumer Federation of America, said in a statement.
Another compromise requires that, for 270 days, DSL providers must continue to contribute to the Universal Service Fund, which provides subsidies for rural phone service. That period will give regulators an opportunity to develop a broader reform of the subsidy system.
Copps said such compromises were the best option, given that "the handwriting is on the wall. DSL will be reclassified whether I agree or don't agree."
The regional phone companies that evolved out of the heavily regulated Bell system, such as BellSouth Corp. and SBC Communications Inc., have complained loudly about the FCC's 2002 decision to treat cable companies as information service providers.
Those gripes grew in June after the Supreme Court's "Brand X" decision reaffirmed that the FCC had the right to give cable companies such freedom from regulation. That prompted Martin to move swiftly to similarly deregulate DSL and level the playing field between phone and cable broadband providers.
But opponents fear phone and cable companies may now be able to squeeze out independent Internet service providers that need access to DSL or cable to reach their customers.
Martin said the independent ISPs will have to reach mutually agreeable terms with those companies.
"I think that EarthLink and other ISPs will continue ... to have the opportunity to negotiate access with the incumbent telephone and cable companies," Martin told reporters after the meeting. The FCC decision requires DSL providers to grant network access to ISP competitors for one year to ease the transition.
Adelstein was cautious. "I hope that independent ISPs can continue to thrive in this new environment, but it's going to be more difficult for them - no doubt."
He said the FCC will be "watching closely to ensure that telephone companies continue to provide marketplace solutions even after the requirement is lifted." If they fail to do so, "there will be a huge consumer uproar, and I would hope the commission would look at that anti-competitive behavior and take appropriate action."
EarthLink vice president Dave Baker said he, too, believes consumers would be infuriated if independents got muscled out. He noted his company remains "confident that we will extend our existing commercial agreements with the Bells."
Phone and cable companies already control more than nine out of 10 subscriptions to high-speed service.
At the meeting, Copps said that he had "objected strenuously" to the original decision to deregulate cable-modem service. But he said the Brand X ruling "has fundamentally changed the legal landscape."