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

Under a settlement agreement with regulators, 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.

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 and up to 25 percent over three years. The company still must file under the streamlined process to change its 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 have abandoned their traditional phone lines in droves for cable and wireless options. The legacy Baby Bell company says it lost more than half its landline connections in Arizona from 2001 to 2010.

CenturyLink has been allowed flexible pricing under certain caps for most other services, under a plan adopted in 2001 and renewed in 2006.

Today’s ruling means the company’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.

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

The agreement was approved by the Corporation Commission on a 4-1 vote.