Millions of residential and small-business customers may face higher phone bills in coming months after a vote by the Federal Communications Commission yesterday to phase out discounts...

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WASHINGTON — Millions of residential and small-business customers may face higher phone bills in coming months after a vote by the Federal Communications Commission yesterday to phase out discounts that major regional phone companies must give rivals that rent space on the big companies’ lines.

However, the agency set limits on price increases and predicted consumers will benefit in the long run from increased choices and competition for phone service, as cable telephony and Internet phone service take off.

The Telecommunications Act of 1996 required major regional phone companies, such as Verizon Communications and SBC Communications, to rent space on their phone lines at discount rates to smaller competitors, such as MCI and AT&T, that did not own lines. The sharing is called “unbundling,” and the rules governing it have been controversial and unstable.

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Three times since, the FCC has attempted to write unbundling rules, and each time federal courts — including the Supreme Court — have sent the rules back, saying the agency did not justify them satisfactorily.

This meant the 18 million customers who signed up for plans such as MCI’s The Neighborhood and deals offered by other smaller providers did so under unlawful plans, according to the courts.

Yesterday’s action phased out unbundling in some markets but not all. It passed by a 3-2 vote along party lines, with Republicans supporting and Democrats opposing. The vote represents what FCC Chairman Michael Powell said he hoped was the final time his agency had to consider these rules.

“In 1996, no one could have guessed that nearly a decade later the FCC would be on its fourth attempt to develop local competition rules that are lawful,” Powell said.

Competitors serving the residential market will have 12 months to build their own networks or negotiate new leasing agreements at higher prices with the regionals.

“Business models may change, but competition and choice for consumers in the information age will continue to grow and thrive,” Powell said.

Neither the regional carriers — often known as the Baby Bells — nor the smaller competitors are completely happy with yesterday’s vote, which might be challenged in court, FCC officials acknowledged.

Some carriers were upset by the FCC’s selective phaseout.

“SBC is pleased that the FCC took positive steps to eliminate the harmful and unlawful … subsidy program on a going-forward basis,” James Smith, SBC senior vice president, said in a statement yesterday. However, SBC pointed out that the FCC ignored cities such as Houston, where 10 rival carriers have their own fiber-optic networks but still rent space at subsidized rates on SBC’s lines.

” [Yesterday’s] order clearly eliminates the most significant, and sometimes only, competitive alternative for American residential customers,” Leonard Cali, AT&T director of federal government affairs, said in a statement. He said AT&T’s “initial estimates indicate that the FCC’s decision could deny competitors access to roughly 6.7 million business lines and up to 20 percent of all business lines in the top 50 [metropolitan areas].”

The FCC told the regional carriers they cannot raise wholesale prices to rivals by more than $1 a customer during the phaseout, which will last until early 2006. By then, the agency hopes, carriers and rivals will negotiate their own deals, and consumers will have other options.

Consumer advocates also were upset.

“Consumers will be the ones paying the price through diminished choices and higher rates,” said Mark Cooper, research director for the Consumer Federation of America.

Information on competitors’ deadline to strike new deals and on consumer advocates provided by The Associated Press.