(FORTUNE Magazine) – Back in 1996, Bob Dole thought he had a chance to be President of the U.S.; TIME magazine asked, can 13 MILLION HOOTIE FANS REALLY BE WRONG?; and the Baby Bell telephone companies thought they would be selling long-distance services by the end of the '90s.

Whoops. More than five years after Congress allowed the Bells to offer long distance in exchange for opening their local networks to competitors, federal regulators have let only two Bells--Verizon and SBC--sell long distance in five of their home states (see map).

That's about to change, for a variety of political and practical reasons. At the Federal Communications Commission, new chairman Michael Powell is believed to be more laissez faire (read: pro business) than his predecessors. He's likely to judge the Bells' long-distance applications on fixed criteria instead of adding requirements as his forerunners did. "Michael Powell has said that he prefers competition to regulation," says Jere Drummond, vice chairman of BellSouth. "We like the sound of that."

Lawmakers on Capitol Hill are also angling to let Bells into the business. Representative Billy Tauzin (R-Louisiana) is sponsoring a bill that, if passed, would permit the Bells to transmit data across state lines right away--a move that would immediately bolster their high-speed Internet service businesses.

Most important, the Bells seem to have figured out the formula for winning long-distance approval: leasing their local networks to rivals at deep discounts, and inviting consultants to come in and make sure customers can leave the Bells with ease.

As a result, the Bells should soon be able to provide long-distance service in big, important states such as California, Pennsylvania, and Georgia. Scott Cleland, an analyst with the Precursor Group in Washington, D.C., predicts that the Bells should be able to offer long distance over about three-quarters of the lines they service by the middle of next year. There are signs that they should be wildly successful: Verizon won permission to sell long-distance service in New York in December 1999 and already provides service to more than 20% of the state's residents.

Although the consumer long-distance business continues to fall on hard times--prices and profit margins are sinking fast--for the Bells this new source of revenue is gravy. Since the local telcos already bill residents for local calls and features like caller ID, they can easily add long-distance service to the package. This is sweet revenge for the Baby Bells, which many investors and pundits wrote off after the passage of the Telecom Act of 1996. "The Bells are going to be the clearest survivors of this telecom debacle," says Precursor's Cleland. Perhaps it's time to start printing Dole 2004 stickers.