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FCC rules ISP calls are long-distance in nature

February 26, 1999
Web posted at: 2:25 p.m. EST (1925 GMT)

by Nancy Weil


In a long-anticipated vote, the U.S. Federal Communications Commission (FCC) Thursday ruled that dial-up Internet calls are interstate in nature and not local.


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The 4-0 vote could open the way for new fees for Internet service providers (ISPs) and eventually users, according to an analyst and at least one of the five FCC commissioners, Harold Furchtgott-Roth, who refused to vote on the matter.

Thursday's vote could affect the practice of "reciprocal compensation," where carriers charge fees for the right of other carriers to terminate calls into their network. For example, when a competitive carrier's customer calls a customer of a regional Bell company, the competitive carrier has to pay the Bell company for the termination of the call, and vice versa.

Voice carriers generally pay money to ISPs under current reciprocal compensation agreements, rather than the other way around. This is because the customers of voice telephony carriers call into ISPs -- resulting in voice carriers having to pay termination fees to the ISPs -- but ISPs don't have outbound traffic to the local voice carriers.

The matter has been under discussion for months by the FCC, which ruled in October that high-speed Internet access provided by GTE is interstate in nature because a certain percentage of Internet traffic originates in one state and winds up in another. After the October ruling, telecommunications carriers asked the FCC to clarify the status of calls made to ISPs.

Though the FCC ruled that calls made to the Internet through ISPs should be classified as interstate calls, it also said that existing reciprocal compensation agreements between ISPs and carriers would not be affected by Thursday's decision.

Thursday's ruling, however, seems to have brought to light an internal FCC squabble, which also suggests that the ISP-carrier agreements may eventually be affected by the ruling.

Commissioner Harold Furchtgott-Roth refused to vote out of protest over what he contends was the denial of his due process rights.

The five FCC commissioners have, "for at least 25 years" been allowed to put off by one month any action set for consideration at a commission meeting, according to a statement from Furchtgott-Roth. The statement, Furchtgott-Roth's spokesman said, was inadvertently sent out via e-mail on FCC letterhead, and so initially appeared to be from the full commission rather than from just one commissioner.

FCC Chairman William Kennard denied Furchtgott-Roth's request to push back the decision for three weeks, according to Furchtgott-Roth's statement. Thursday's decision had been delayed from last month at the behest of Kennard, Furchtgott-Roth said.

In addition to how Thursday's ruling could affect reciprocal compensation agreements, it could also could mean that local phone companies will be able to assess usage-sensitive access charges on Internet service providers (ISPs) that are connected to the local loop, Furchtgott-Roth said. This is because the ruling opens the way for ISPs to lose their so-called "ESP (enhanced services provider) Exemption," which exempts the ISPs from having to pay access fees to carriers, Furchtgott-Roth contended.

Those access charges are different from reciprocal compensation fees, but just as rancorous a matter for carriers. The carriers argue that it is unfair for service providers to make money using the public-switch network for which they pay the carriers no access fees. At the same time, the local carriers contend, the network increasingly is clogged with traffic from Internet users.

At least one industry analyst also believes that the carriers will use the ruling on the status of Internet calls to exert a renewed push to change the ESP Exemption, despite Kennard's insistence, in a separate statement after the vote, that as far as he's concerned "for consumers, dialing up the Internet is just like a local call" and that won't change.

"Those employing scare tactics have also suggested that the FCC is going to change the way consumers pay for dial-up access to the Internet," Kennard said, adding "nothing could be further from the truth."

But the chairman's remarks struck one analyst as disingenuous and "spinning political language."

It's likely that carriers will petition the FCC using Thursday's ruling to argue anew that ISPs should be subject to pay access fees, given that calls delivered to them have now been ruled to be interstate and not local, said Jeanne Schaaf, an analyst at Forrester Research Inc. in Cambridge, Mass.

If ISPs lose ESP Exemption and are forced to pay access fees to local carriers, those charges undoubtedly will be passed along to consumers. "That will dampen the incentive for folks to use the Internet," Schaaf said.

In addition, the reciprocal compensation agreements could be affected. "These reciprocal agreements are going to expire," Schaaf said. Therefore, Kennard can't predict with certainty that those agreements will remain as they now are, she said, since they may be renegotiated based on the newly defined status of calls to ISPs.

Analyst Ron Cowles, of Dataquest, has a differing viewpoint. He believes that consumers should pay for using the phone network to access the Internet. However, the Stamford, Conn.-based analyst doesn't believe that the FCC will soften its position on charges related to the Internet.

"I don't see the FCC bending in the near term on charging fees (related to Internet access)," he said. "I think it's just too political. They'll step back from anything that is hot."

Cowles said he agrees with the carrier point of view that ISPs hang up the public-switch network with data traffic from Internet users, clogging lines, Cowles said. While he doesn't anticipate changes in the fee structure related to dial-up Internet calls, he does believe that network infrastructure improvements will be made to "shunt off traffic" and free up networks.

"Technology will find a solution here," he predicted.

Nancy Weil is a Boston correspondent for the IDG News Service, an InfoWorld affiliate.

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