Fed won't overturn state ISP rules

Speaking to the National Association of Regulatory Utilities Commissioners convention in Orlando, Florida, Kennard said yesterday the FCC would not interfere with state decisions on ISP calls, as some telephone companies have asked.

But Kennard also hinted that the FCC would take more control over Internet issues in the future.

"I fully respect the interests of state and local government and its regulators to protect the state's vital interests and consumers," he said. "At the same time, in this global economy, vital national interests are also at stake. We must not allow our mutual legitimate interests to be used to divide us."

The issue of regulating calls to ISPs has sparked considerable controversy over past months, as local Bell companies have unexpectedly wound up paying hundreds of millions of dollars to their competitors. These charges are based on "reciprocal compensation" contracts, in which one company agrees to pay another if a customer makes a call on the rival's network.

The big local phone companies, which own most of the local phone lines in any given market, had expected to come out ahead under these arrangements. But many of the new companies signed on with Internet service providers, which attract many callers who stay online for long periods of time. With the increased traffic, the practice proved expensive for the Bells.

The Bell companies have lobbied the FCC to designate these calls to ISPs as long-distance, which would relieve them from paying the fees. However, competing local phone companies have successfully persuaded 23 states to treat the calls as local. Several major phone companies have just refused to pay their rivals while waiting for a FCC ruling.

Kennard and other FCC commissioners put off a decision on the issue. Staffers said the officials wanted to talk to the state regulatory officials before making their final judgement.

The chairman reassured local officials yesterday that their decisions would stand in the short term, even if the FCC rules differently for the long term.

"I believe that those states have been right to decide that issue when it been presented to them, and I do not believe it is the role of the FCC to interfere with those state decisions in any way," he said.

The Commission is expected to rule whether calls to ISPs should be treated as local or long-distance calls either this week or next week. A related decision last month signaled that commissioners are inclined to treat Net calls as long distance, but leave existing contracts in place until they expire.

Either way, the decision is likely to have little effect on consumers. Kennard has repeatedly said that the FCC does not plan to impose long-distance style fees on calls to ISPs. The decision largely affects the balance sheets of the phone companies themselves.

In his speech, Kennard also defended expanded universal service principles, defending portions of the program that provide government-subsidized Internet connections to schools and libraries.

"Universal service is not just a telephone to every home. It is, and it should be, universal access to advanced services from every community," he said. "Without these investments, we face the very real prospect that our high-tech economy will find itself without hundreds of thousands of desperately needed skilled workers."