Bells take ISP calls back to court

A new round of court cases over long distance calls may delay the payment of hundreds of millions of dollars from incumbent Bell companies to smaller competitors.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
A new round of court cases over long distance calls may delay the payment of hundreds of millions of dollars from incumbent Bell companies to smaller competitors like E.Spire and US LEC.

A federal decision late last month aimed to clarify whether calls to Internet service providers were effectively long distance calls. Under contracts which govern these calls, companies like Bell Atlantic and US West are required to pay competitors close to $600 million a year--a sum many have tried to avoid paying.

Federal Communication Commission regulators did rule that calls to ISPs are long distance, and so not subject to the contracts in dispute. But the commission said Bells still had to honor the earlier versions of their agreements. In 29 states, regulators had previously ruled that the big local companies still had to pay for the disputed ISP calls.

This has amounted to considerable sums of money. Charlotte, North Carolina-based US LEC was owed close to $70 million by the large local telephone companies at one point.

But the Bells now are taking the FCC's decision back to the states in an attempt to overturn these previous rulings and avoid those huge payments.

Bell Atlantic is seeking new rulings in New York and Massachusetts, where the bulk of the company's reciprocal compensation dollars are owed, a company spokesman said.

US West is seeking to overturn previous rulings in five states, filing new petitions in federal court or with state regulators in Minnesota, Colorado, Washington, Oregon, and Utah.

BellSouth has added the same arguments to two ongoing federal court cases, while Ameritech and SBC Communications are both looking at the companies' options. Ameritech has already said it would seek to overturn some of its earlier state decisions.

Analysts say the Bells aren't likely to have much luck, however. Late last week, Alabama officials said that BellSouth was still responsible for payments, and other states are expected to be equally reluctant to change their minds.

"I suspect that most states will follow suit," said Terry Barnich, president of the New Paradigm Resources Group, a Chicago-based telecommunications consulting firm. "I think by and large most states will uphold their existing agreements."

This means that many small telephone companies will eventually get their tens of million of dollars in "found money"--even if the new court cases delay the payments by another few months, Barnich said.

Reciprocal compensation contracts govern who pays who when a customer makes a call. If a Bell Atlantic customer calls an E.Spire customer under this system, Bell Atlantic will pay E.Spire for completing the call.

When these contracts were signed, largely in the wake of the 1996 Telecommunications Act, the big local phone companies thought they would come out ahead, since they controlled the vast majority of local phone lines.

But many small phone companies began signing up ISPs. Customers that call their Internet providers spend long periods of time online, mounting up large fees for the ISP's phone company. The ISPs themselves have few outgoing calls, resulting in the large imbalance that favors the small telcos.