The FCC said, however, that the major regional companies who install high-speed fiber-optic lines may keep them off-limits to Internet rivals.
The rules are the result of fractious 3-2 FCC votes in February. Chairman Michael Powell was on the losing end in the vote on phone competition, the first time he has been in the minority since taking over the five-member panel in 2001.
Thursday's 576-page order is far from the final word on the subject; the rules are expected to be challenged in court.
"There are some important achievements in this order that have long been objectives of mine--namely substantial broadband relief," Powell said. "Yet, regrettably, there are some fateful decisions as well that I believe represent poor policy and flout the law."
Commissioner Michael Copps, one of the two Democrats on the five-member FCC and part of the three-member majority on phone competition, offered the opposite view.
"We preserve essential tools to foster voice competition," Copps said. "The bad news is this decision plays fast and loose with the country's broadband future. Consumers, innovation, entrepreneurs and the Internet itself are going to suffer."
The order gives states the right to require the Bells to lease elements of their networks, such as lines and central office-switching capabilities, to competitors at wholesale rates. To foster competition in residential service, companies such as AT&T and MCI enjoy low lease prices set by friendly state regulators.
The FCC adopted the policy of requiring the phone companies to lease parts of their networks at wholesale rates seven years ago to encourage competing companies to offer local service while giving the Bells the chance to enter the long-distance business.
The four regional phone companies, BellSouth Corp., SBC Communications, Verizon Communications, and Qwest Communications, have objected to being forced to allow competitors to use their networks at artificially low prices.
In the face of evidence that competitors could provide their own switching, which routes calls from individual homes and businesses to the phone network, Powell would have phased out these low-cost leases in nine months. But the final FCC order allows states to continue discounting switching leases, except when either three competitors in a market provide their own equipment or two wholesalers sell the service. Still, the FCC allows the states to set the boundaries of each market, except a whole state cannot be one market.
While requiring the Bell companies to continue opening existing copper wires to other providers of high-speed DSL Internet service, the new FCC rules say the companies do not need to lease upgraded fiber optic or fiber-copper lines to competitors.
A Verizon official said he would need time to digest the order.
"The world is changing so fast it may already be outdated," said Tom Tauke, senior vice president for public policy and external affairs. "Every day, it becomes more and more apparent there's a whole new world of communications around us that connects people in ways that weren't even imagined just a few years ago."
AT&T's federal regulatory affairs vice president, Robert Quinn, said the FCC telephone rules would "allow AT&T to continue to serve our existing local customers and to follow through with our plans to expand to other markets."
But Quinn criticized the rules for broadband. "Consumers will pay for this lack of FCC resolve in the form of higher rates, less choice, and lower quality services," he said.