UPDATE 2-US FCC lets phone companies avoid added rules

(Adds further details, AT&T quote in paragraphs 5, 9-12)

By Peter Kaplan

WASHINGTON, Aug 31 (Reuters) - U.S. communications regulators gave AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) the go-ahead on Friday to more closely combine their local and long-distance businesses without being subject to additional regulations.

The Federal Communications Commission agreed to modify its rules so that long distance service offered by the carriers would not be burdened with so-called "dominant carrier" requirements if the companies integrate them with their local telephone operations.

The FCC said large regional phone carriers had agreed to provisions that would protect customers, including a promise to offer special rate plans for three years to customers who make few long distance calls.

"This is a classic instance where regulation had been appropriate to protect emerging competitors and consumers, but where the relevant market has become sufficiently competitive to warrant less onerous regulation, while continuing to protect consumers," FCC Commissioner Robert McDowell, a Republican, said in a statement.

The commission's action came in response to a petition by AT&T, but the agency said its decision applied to all large regional phone companies, including Verizon. The agency had already agreed to waive the regulations for Qwest Communications International Inc (Q.N).

The old regulations imposed a series of hurdles on big regional phone companies if they combined local and long distance operations, including one that would require them to submit large amounts of information about rates.

The rules were aimed at ensuring major carriers did not use their dominant positions in local phone service to thwart potential competitors in the long distance market.

Telephone carriers have argued that those rules are no longer needed because of the fierce competition for long distance services. They said operating the two businesses separately was costly and unnecessary.

AT&T said in a statement the changes reflected "the converged nature" of wireline, wireless and Internet-delivered long distance services today. "This will allow us to operate our local and long-distance services in a manner similar to that of our competitors and to better serve our customers."

The two Democrats on the commission expressed partial support for the action. They said they had some reservations because the action "does not fully take into account the significant consolidation that has taken place in the marketplace and what this means for consumers."

"Consumers will not be well-served if the Commission allows the competitive options to dwindle to a choice of bundles from a duopoly of providers," Democratic commissioners Jonathan Adelstein and Michael Copps said in a statement.

Adelstein and Copps also said the FCC should have included a provision for monitoring changes in the market.