State regulators have approved a plan to classify CenturyLink local phone services as competitive, allowing the company to change its rates under a streamlined process.

CenturyLink will be able to raise residential and business rates on basic dial-tone and related services by up to 10 percent per year, but no more than 25 percent over three years, under a settlement agreement with regulators approved Tuesday by the Arizona Corporation Commission.

The regulated rate for the company's standard residential line has been $13.18 since the 1990s. Under the new plan, the basic rate could go up by $1.30 per month in any of the next three years, or increase up to $3.30 overall.

Rates for small- to medium-sized businesses could go up 15 percent annually up to 25 percent over three years. The company still must file under the streamlined process to change its rates.

Regulators say they expect the company to file quickly to increase rates.

But the company will not be able to charge different rates in separate geographical areas - a safeguard consumer advocates said was needed to protect ratepayers in rural areas lacking competitive services such as cable or wireless.

CenturyLink, which acquired Qwest Communications last year, said it needs more rate flexibility to compete as people abandon their land lines in droves for cable and wireless options. The company said this will allow it to better compete with rivals including Cox Communications, Comcast and wireless carriers.

The settlement approved Tuesday means CenturyLink's basic phone rates will no longer be regulated under traditional cost-of-service regulation, which entails an exhaustive examination of company expenses and an allowed rate of return.

"We need businesses that we regulate to be as competitive as possible and to be able to respond as quickly as possible, and this is a first step," Corporation Commission Chairman Gary Pierce said.

The commission approved the agreement 4-1, with Democrat Sandra Kennedy dissenting. Paul Newman, the five-member panel's other Democrat and the only commissioner from Southern Arizona, voted for the plan despite some reservations.

"It should be a win-win for the consumer (and the company). … That's yet to be seen, but I hope it will be," Newman said.

The Corporation Commission will continue to regulate CenturyLink service quality, and the company is still required to offer service in its service territory.

Contact Assistant Business Editor David Wichner at 573-4181 or