A federal appeals court Wednesday gave states the authority to regulate new telephone services such as voice mail and computer access, a move one Baby Bell company said could raise costs to consumers. The decision could force the seven regional Bell telephone companies to set up separate corporate entities to handle their regulated telephone services and their newer, unregulated services, officials said. The 9th Circuit Court of Appeals opinion vacated a 1985 Federal Communications Commission rule that had required the Baby Bells to keep finances separate for regulated and unregulated services but not create separate corporations. Seven lawsuits had been filed to overturn the rule. The court's ruling allows each state to decide whether to require separate corporations. The California Public Utilities Commission, which filed three of the lawsuits against the FCC, heralded the decision. The plaintiffs had contended that the Baby Bells could have subsidized unregulated services by charging higher prices on regulated phone service. ``It properly gives the states greater freedom to promote the development of enhanced services and the terms and conditions upon which those services are provided,'' Commission President G. Mitchell Wilk said. Steven Harris, director of planning and policy for Pacific Bell, said the company supports state regulation but fears state control could lead to a costly corporate division of regulated and unregulated services. ``It's not clear that we are going to have to split off,'' Harris said. ``It's up to the states. But we strongly believe that independent subsidiaries are not necessary and would make it more difficult to provide the services to the public.'' An FCC spokeswoman said the opinion is a setback for the communications industry. ``We adopted the rules because we believed they would be in the public interest,'' said spokeswoman Jane Mago. ``So, of course, we're disappointed in the outcome. We have to start from scratch.'' Unregulated communications services have developed rapidly in the past 10 years into a multi-billion-dollar industry that ranges from voice and electronic mail to automatic teller machines, Harris said. The appeals court ordered the FCC to develop new rules to help regulate new telecommunications services offered by the Baby Bell companies. Those companies had been prevented from providing information services under a court decree that stripped AT&T of its local operating companies in January 1984. Later that year, the FCC allowed the Baby Bells to offer unregulated services through separate subsidiaries. But in 1985, the federal agency dropped the requirement for separate subsidiares. The court said the FCC arbitrarily and capriciously reversed itself without showing that cost-shifting between unregulated and regulated services wouldn't occur and raise the bills of ``captive telephone customers.'' ``The record yields no evidence that the (Bell Operating Companies) power to extract monopoly rents from local telephone customers has diminished,'' the court said.
