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FCC delays decision on Internet rules

The Federal Communications Commission pulls two key Net-related items from its agenda, in the wake of a Supreme Court decision that reaffirmed its power to regulate local telephone issues.

The Federal Communications Commission will pull two key Internet-related items from its agenda this week, in the wake of a Supreme Court decision that reaffirmed its power to regulate local telephone issues.

The commission had planned Thursday to finalize its long-delayed decision on how calls to Internet service providers should be treated, a controversial issue with hundreds of millions of dollars in payments between Baby Bells and their smaller competitors at stake.

Another contentious item, governing Baby Bells' ability to offer high-speed Internet lines though subsidiaries, also will be withdrawn from Thursday's meeting agenda. Both items will have to be redrafted in the wake of yesterday's Supreme Court ruling, FCC sources said.

The matter of ISP calls is essentially decided, sources inside the FCC said, since four of five commissioners already have signed off on the issue. The commission will take over rule-making power for these calls from the states, while simultaneously trying to protect earlier local decisions and existing contracts between competing telephone companies.

At issue was whether calls to ISPs should be treated as long distance or local calls, and whether they should then be the responsibility of federal or state regulators.

The decision could deliver a sharp hit to the pocketbook of the local phone companies, as well as potentially open the door for new fees on ISP service.

Baby Bell companies argue that a Web surfer visits Internet sites far beyond his or her home territory, making these calls long distance. State regulators and many competing local providers say they are local calls, subject to state regulation.

Under so-called "reciprocal compensation" contracts between dominant local phone companies and competing local providers, the phone companies owe their competitors millions of dollars for completing calls to ISPs--but they say they should not have to pay the charges, since they are essentially long distance calls. Several states have ruled that the Bells do have to pay the fees, despite the FCC's interest in the issue.

If the commission decides to treat the calls as long distance, it also could eventually hold ISPs responsible for the same high access charges paid by companies such as AT&T and MCI WorldCom. The commissioners have repeatedly said, however, that they do not plan to impose new taxes on Internet access.

Under its draft decision on the issue, a majority of commissioners have agreed to treat calls to ISPs as long distance calls, sources said. But the body will say existing contracts between Baby Bells and their smaller competitors must be honored. This would force some of the phone companies to pay millions of dollars the contract fees they had hoped to avoid by a favorable FCC decision.

The FCC will not make any regulatory decisions as to how the calls should be treated, such as whether the calls should be taxed as traditional long distance voice calls.

FCC staffers do not expect any substantial changes in the order as a result of the yesterday's court decisions.

The federal rule makers also will put off a more sweeping decision on whether the tightly regulated Baby Bell companies can offer high-speed Internet services without "unbundling" the technology for resale by their rivals.

The commission is expected to rule that the big local phone companies can offer the data services, such as digital subscriber line (DSL) technology, though a separate subsidiary. That plan has been attacked in recent weeks by ISPs, long distance phone companies, and some state regulators, who say it will give the Baby Bells too much control over the technology.

The commission will make a report to Congress on the speed of advanced data services rollouts this week as planned.

No new date has been scheduled for the Internet rulings.