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House vote could change Internet rates

Internet surfers could face rate increases as high as 35 percent if a House bill being considered today becomes law, though proponents say the legislation could end up reducing Net access rates.

WASHINGTON--Internet surfers could face rate increases as high as 35 percent if a House bill being considered today becomes law, though proponents say the legislation could end up reducing Net access and phone rates.

When consumers dial up their Internet service providers to surf the Web, that connection requires a complex series of communications "handshakes." First, a customer's local phone company--typically a Baby Bell like SBC Communications, for example--connects the call placed by a computer user's modem to what is typically a small regional phone company that has a relationship with the ISP.

The Baby Bell then has to pay a fee to that regional phone company to connect the call, part of a method called "reciprocal compensation"--one of the results of telecommunications deregulation.

The bill being voted on in the House Telecom subcommittee would eliminate that charge, on the belief that some local phone companies have gone into business more to collect these fees than to provide phone service.

If these rates were eliminated, ISP rates "would increase 35 percent," John Windhausen, president of the Association for Local Telecommunications Services (ALTS), said in an interview. "We incur costs of carrying Internet calls," he said, and if Bells were no longer obligated to pay when passing off those calls, rates that ALTS members charge to ISPs would be increased.

ISPs "are going to turn around and pass those on to consumers," he said.

Windhausen said one ISP recently said it would be forced to raise its monthly access rates to $21 from $15 if current legislation becomes law.

Uncertainty surrounds these rates. The Federal Communications Commission last year ruled that Net traffic doesn't stop at the ISPs' systems but goes all over the Web, making it interstate traffic and not necessarily subject to compensation by the Baby Bells.

The U.S. Court of Appeals in Washington, D.C., sent that ruling back to the commission, however, arguing the FCC hadn't explained itself properly. Opponents of the federal legislation have urged Congress to wait for the FCC to complete its review.

Baby Bells say the rates they have to pay are too high for a simple transfer of a call from one carrier to another. They argue that eliminating the compensation to competitive carriers could lower phone bills.

"The Bell companies set those rates," Windhausen said. "If they're too high, they set them too high" several years ago, after the passage of the Telecom Act. He contends competitive carriers were quicker to sign up ISPs as customers, and now the Bells regret having put forward such a high compensation rate, when they're the ones paying it rather than receiving it.

Bell Atlantic executive vice president Tom Tauke testified before the House Telecom subcommittee this summer that the rates Bells have to pay "actually reduces (competitive) companies' incentives to compete in the local exchange business" by allowing them to rely on termination payments. He also said that if the situation is not corrected, those rates "could result in per-minute charges being imposed on Internet use."

Tauke estimated these payments will exceed $2 billion this year, "and if history is any guide, they will double next year." These expenses make it more difficult for incumbents, or Bells, to invest in new services for consumers, he said.

Some backers of the House bill--including sponsor House Telecom subcommittee chairman Billy Tauzin, R-La.--argue that some competitive carriers aren't interested in providing phone service, but instead have set themselves up almost solely to terminate traffic to ISPs and collect fees from Bell companies.

Windhausen said that with the exception of one company in North Carolina that was quickly shut down by state regulators, that isn't happening.

"You can't get certified by a state (public utility) commission" to provide service in that state if you aren't providing comprehensive phone service, he said.

With Congress ending for the year in less than a month, it would seem the House bill would have little chance of final passage, although ALTS and its allies--trade associations U.S. ISP Association, CompTel and the Information Technology Association of America--know it could be added as an amendment to other legislation.

"We're being paranoid," Windhausen said. "That's what we're paid to do."