The Federal Communications Commission (FCC), led by Colin Powell's son Michael, is expected to soon deliver some glad tidings for the Baby Bells and some bad news for long-distance giants AT&T(NYSE: T) and WorldCom.

It will propose that the Baby Bells -- Verizon Communications(NYSE: VZ), BellSouth(NYSE: BLS), SBC Communications(NYSE: SBC), and Qwest Communications -- no longer be required to rent their networks to competitors at wholesale rates.

The Telecommunications Act of 1996 increased competition by making it easy for providers to enter local markets without having to build their own costly networks. The proposed changes would essentially undo some provisions of that Act.

If the proposal survives all challenges and is phased in after a couple of years, the Baby Bells -- with an equipment monopoly in the local markets -- would be free to charge whatever they wanted to rent landlines to competitors. AT&T, WorldCom, and other potential customers believe the rates will be prohibitive, leaving no competition in the markets.

The Baby Bells, on the other hand, say wireless handsets and cable telephones give consumers sufficient alternatives for the local market. Cable telephony, which involves companies such as Comcast(Nasdaq: CMCSK) and Cox Communications(NYSE: COX), currently makes up only about 1% of the market, but is seen as serious future competition for traditional landlines.

This extremely complicated issue bears watching as it unfolds over the next several months due to the implications for all companies involved.