Federal lawmakers have mandated that the FCC review rules it released in May that restructured the nation's "universal service fund," which traditionally subsidized phone service for rural and low-income residents but was revised to include up to $2.25 billion in annual funding for hooking public schools and libraries up to the Net.
Congress ordered the FCC report in part to address whether Net service providers should have to contribute to the universal service fund. They don't now because they are considered "enhanced service providers."
If the FCC were to recommend to Congress that ISPs be reclassified as "telecommunications services," online access providers could have to pay into the fund, but only after a lengthy rule-making process. This would be good news for telcos, which pay a big portion of the universal service fund now and have lobbied to the FCC in the past to collect other additional fees from ISPs to offset various costs.
The FCC is accepting public comment on the universal service issue until January 20, and will report to Congress in April. This has caused anxiety and confusion for Net users because in a separate incident, an "erroneous" email has been circulating online stating that the FCC is accepting public comment until February on whether a per-minute access charge should be imposed by phone carriers on Net service providers, which is not true, an FCC spokeswoman said today.
Still, concern is still mounting in the online industry over how the universal service funding would be collected from ISPs if they were required to contribute. Some worry the collection vehicle would turn out to be a telco access charge that would likely be passed on to ISP customers. Any potential universal service charge is unrelated to the permanent access fee proposed last year and referred to in the erroneous email.
"Such a fee will put a lot of non-telephone company ISPs out of business. People who have to pay the telephone companies a fee for every minute they spend online will not stay online as long," said Dave McClure, executive director of the Association of Online Professionals, which fought the access fees last year. "The effect will slow the growth of the Internet."
In the past, such access charges were funneled into universal services. But FCC officials said today that it is far too soon to say whether ISPs will ever be classified as telcos, and subsequently have to pay into the fund through an access charge or any other mechanism.
According to its January 5 public notice, the FCC report will clarify its definitions of "information service," "local exchange carrier," and "telecommunications service," and "the impact of the interpretation of those definitions on the provision of universal service to consumers in all areas of the nation."
In addition, the agency will review "the application of those definitions to mixed or hybrid services and the impact of such application on universal service, and the consistency of the Commission's application of those definitions, including with respect to Internet access for educational providers, libraries, and rural health care providers under the Act."
Despite the email notice that has been circulating on the Net, the agency also confirmed that it has not reopened a public comment period on whether phone carriers should be allowed to charge the permanent ISP access fee. The email began circulating a few days before the universal service public inquiry notice was released, according to the FCC.
"The email circulating that says the FCC is asking for comment by February 13, 1998, on the issue of whether the ISPs should have to pay access charges to local phone carriers is an erroneous email," an FCC spokeswoman said today. "In its access reform order in May of 1997, the FCC decided not to allow local telephone companies to impose permanent access charges on ISPs. The FCC is no longer asking for comment in this proceeding."
Still, Congress's mandate for a review of the FCC's implementation of universal service is yet another example of certain members' dissatisfaction with how the Telecommunications Act has been carried out by the commission--especially issues concerning ISPs.
For example, the confirmation of William Kennard as the FCC's new chairman also was held up until two senators were satisfied that the commission would review universal service. Sen. Conrad Burns (R-Montana) argued that states were footing a larger portion of the universal access bill than the federal government.
Sen. Ted Stevens (R-Alaska) pushed through the FCC universal service review as part of a huge appropriations bill for 1998. He forced the issues of whether telcos should have to pay for subsidized access if ISPs aren't contributing.
Some members of the online industry say the telephone companies may have a point, but they contend a solution that could increase the cost of Net access is not the best answer.
"The telephone companies rightfully feel that they shouldn't be the only ones paying into telephone universal service if those fees are going to go to Internet service," McClure said.
"From a global perspective, the real question is whether universal funds are the best vehicle to make sure schools get wired to the Net when the industry is already helping to do this privately," he said. "If it means that a permanent Net access fee will be implemented, it might not be the most equitable way."
The cost of Net access is expected to increase for many users. According to the FCC rules, by the end of this year, businesses will pay $2 per month more for each additional phone line. The cost could be as high, however, as $4.21 per additional line by the beginning of next year, because long distance providers will be charged $2.20 for each added line, a fee they could pass on to customers.