The agency has been wrestling with the issue for more than three months, after initially promising a decision by early November.
But today's ruling doesn't settle the matter entirely. The commissioners also said the decisions of some two dozen states that had differed from today's ruling should be upheld--meaning the Baby Bells will still be responsible for huge sums to some of their local rivals.
At stake are millions of dollars per year paid to small telephone companies under contracts dubbed "reciprocal compensation."
The contracts govern who pays who when a customer makes a call. If a Bell Atlantic customer calls an e.spire communications customer under this system, Bell Atlantic would pay e.spire for completing that call.
When these contracts were signed, largely in the wake of the 1996 Telecommunications Act, local phone companies thought they would come out ahead since they controlled the vast majority of local phone lines.
The Baby Bells and GTE have pressed the FCC to rule that calls to ISPs are long distance, since this would exempt the calls from the reciprocal compensation contracts.
The FCC today agreed in part, ruling that even local calls to ISPs ultimately find their way to the Internet at large, and so are interstate calls.
But by protecting the states' earlier rulings--and by refusing to say whether reciprocal compensation contracts were a good idea or not--the agency left the big local phone companies liable for the contracts they had already signed.
The Baby Bells and GTE paid competitors close to $600 million last year under these contracts, and analysts have predicted this number will hit $1 billion for 1999. But some of the big local phone companies had delayed paying their smaller rivals while waiting for a final FCC decision.
The commission also said it would begin soliciting comment on a proposal that left this kind of agreement between phone companies up to individual negotiations, rather than to sweeping federal regulations.
The commissioners took pains to emphasize that their decision would not affect consumers' Internet phone bills.
"It doesn't affect the way consumers get dialup access to Internet," said chairman William Kennard. "Nothing we're doing here should be construed as regulating the Internet."
But the decision was made under protest by one commissioner, who has argued that it could inadvertently open up the possibility for courts to impose per-minute access charges on ISPs.
Commissioner Harold Furchtgott-Roth had asked to delay the decision by at least another three weeks to study this issue. But Kennard denied that request, saying commissioners had already waited too long.
"I believe that part of operating efficiently is being decisive," Kennard said. "We owe the marketplace a decision."