February 8, 1997
FCC Considering Access Fees for ISPs
By ROBERT E. CALEM
The $19.95 flat monthly fee for unlimited Internet access is being threatened by a proposed change in the federal government's telephone regulations.
Under pressure from local phone companies, the Federal Communications Commission is considering imposing a per-minute, per-customer fee on Internet service providers who offer dial-up connections to customers through modem-equipped phone lines.
A decision on the fee -- which could run as high as 90 cents a minute -- could be made by the FCC as soon as next summer. The FCC does not officially comment on pending matters. But an agency spokesman who asked not to be identified said that even if the fee is eventually imposed, it would not go into effect before the end of the year, if ever.
While discussing new government regulations designed to allow long-distance phone companies to offer local service, local phone companies have told the FCC that their networks, which were designed to carry voice calls, are being swamped by traffic from Internet service providers.
Most phone systems were designed to anticipate that a maximum of 10 percent of all users would be using their phones at any one time. That assumption was reasonable given the average amount of time most callers spend talking on the phone. But people tend to spend far more time on the line when making data calls -- a trend that has been exacerbated in the last 10 months as more and more ISPs began offering unlimited access to the Internet for a flat rate of $19.95 a month.
The phone companies say they need to charge ISPs an access fee similar to fees the Baby Bells have charged long-distance phone companies since 1983 for access to local phone networks on both ends of a long-distance call. The companies say they would use the extra revenues to upgrade their networks to handle even more traffic as the Internet grows.
Until now, ISPs have been exempted from paying such fees because 14 years ago the FCC classified what few ISPs existed then as "enhanced service providers," a category that also included voice-mail companies, home-alarm monitoring companies, and early data networks like CompuServe. The FCC's reasoning was that these services' use of the phone network more closely resembled consumer demand than long-distance demand.
Opponents of the new fee have told the FCC that the local phone companies are not doing all they can to upgrade their networks for data with the revenues they already earn. Among the most vociferous opponents are long-distance companies, many of which are also ISPs.
But because of the rapid growth of the Internet as a commercial communications tool, the local phone companies have pressed for the ISP's special status to be dropped.
Last December, the FCC invited people to comment on the issue by March 24 and set a deadline of April 23 for replying to those comments. After that, according to FCC procedures, the agency must issue of Notice of Proposed Rule Making, giving anyone the opportunity to suggest how phone companies and ISPs should be treated under the law. Later, the FCC would take action, issuing a regulation that has the force of law. Even then, there would still be an opportunity to file a petition for a change in the rule.
Right now, the FCC spokesman said, the agency has more questions than answers about the issue. He also noted that in addition to the issue of access fees, the document asking for comment -- known as a Notice of Inquiry -- raised questions about which are the most efficient technologies for carrying data traffic over telephone networks.
Gordon Evans, vice president of federal regulatory affairs for Nynex Corp. in Washington, D.C., said that one of the main questions raised by the notice was whether the FCC should regulate ISP traffic over local phone networks at all. Nynex's stand, he said, is that very little, if any, of the traffic crosses state lines en route to central Internet servers and so wouldn't be subject to FCC regulations.
The FCC can only regulate interstate communications; state utility boards regulate all communications within their borders. If the FCC does not have jurisdiction over local phone providers serving ISPs, Gordon said, then ISPs would be subject to whatever access fees local telephone companies choose to charge under the laws of the states in which they operate.
Still, ISPs both large and small say they're not worried yet. "We've always been looking at other means to support our business, besides dial-up service," said Brian Freedman, director of operations at Internet Channel, a small ISP based in New York.
Giant ISPs, like AT&T WorldNet or America Online, are more of a threat than a possible access fee from Nynex, Freedman said, because they can undercut his price and can afford to lose money at the same time. Internet Channel, a small regional ISP, for example, charges $25 per month for unlimited access to the Internet, he noted, compared with $19.95 per month from the larger ISPs.
Michael Miller, a spokesman for WorldNet, said it was too early to determine the impact any access fee would have on the service's price. The official position of AT&T, Miller said, is that local telephone companies already charge "exorbitantly high" access fees to long-distance companies, and charging ISPs similar fees "would greatly impede the growth of an important and fast growing part of the American economy."
- The Federal Communications Commission's Notice of Inquiry, asking for comment on charging fees to Internet Service Providers.