As expected, the Federal Communications Commission announced it had upheld a request by BellSouth to prevent state regulators from forcing the telephone company to sell its DSL service “naked”--or without an accompanying voice service.

The ruling was issued Friday afternoon but had been reached a week earlier, and widely rumored through Washington. It is a blow to the voice-over-IP industry because the order allows the incumbents to require customers to pay for a voice line to get the broadband service used to enable VoIP, essentially driving up the cost to consumers.

The FCC also issued a notice of inquiry, however, seeking comment on the impact on competition of the trend toward bundling of services.

“We seek comment on whether such bundling behavior is harmful to competition, particularly unaffiliated providers of new services, such as [VoIP], and if so, how this is related to several previous decisions or ongoing proceedings relating to dominance and classification issues,” the commission stated in its order.

Democratic Commissioners Michael Copps and Jonathan Adelstein issued a partial dissent, saying they thought the FCC was moving hastily in a manner that would prevent competition. The two did approve of a portion of the decision in which the FCC said it will enforce a policy of non-discriminatory number porting between service providers, in response to complaints from cable operators that incumbents are dragging their feet in porting numbers.

BellSouth had requested regulatory relief in December 2003, after state regulators in Georgia, Florida, Kentucky and Louisiana put rules in place requiring BellSouth to lease its wholesale DSL service or its retail Internet access service to competitors as part of a unbundled network element offering. According to BellSouth, about 8000 customers currently receive “naked” DSL service while purchasing a voice service from a CLEC.

In a ruling that included partial dissents by two commissioners, the FCC said that, in its 1999 Line Sharing Order and in two subsequent Triennial Review Orders, the commission had expressly stated that incumbents do not have to unbundle the low-frequency portion of an unbundled loop as a separate service from the high-frequency portion on which DSL is provided. State rules requiring BellSouth to provide naked DSL violate those rulings, the commission said.

The commission refused to address complaints that allowing incumbents to provide broadband service only to its own voice customers was anticompetitive, saying it had previously addressed that issue in the TRO. It also refused to address BellSouth’s claim that its DSL service is interstate and therefore only subject to federal regulation.

“This FCC order continues progress on clearing out regulatory underbrush that handicaps rolling out broadband,” said Jonathan Banks, BellSouth’s vice president of federal executive and regulatory affairs, in a prepared statement. “By affirming a single national policy in this area, this FCC action will increase the speed and efficiency of bringing to consumers new and innovative broadband service offerings over wireline networks. This action reaffirms the FCC's triennial review decision that the FCC, not state regulators, decides what network elements must be unbundled.”