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Phone fee fight may threaten Net subsidies

A federal court decision throws billions of dollars in phone charges into uncertainty, and may threaten plans to increase subsidies for schools and library Net connections.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
2 min read
A federal court decision has thrown billions of dollars in phone charges into uncertainty, and could threaten plans to increase the amount of money subsidizing Internet connections for schools and libraries.

The court ruled Friday that the Federal Communications Commission had not adequately explained its decision to reduce fees that long distance companies pay local firms like Bell Atlantic to complete telephone calls on their networks.

These "access charge" regulations translate into billions of dollars paid by the long distance companies every year, costs which are ultimately passed through to consumers. Analysts have estimated that up to 40 percent of the cost of an average long distance phone call goes to paying these charges.

Avoiding these access charges has been one of the chief goals for long distance companies in recent years. AT&T's multibillion-dollar acquisitions of Tele-Communications Incorporated and MediaOne were motivated in part to establish its own local phone network, thus avoiding the need to pay local phone companies to complete its customers' calls.

The court ruled that the FCC does have the ability to cut the charges, but that regulators had not adequately explained how they had arrived at its fee-cutting formula.

Under the FCC's original regulations, access charges are slated to drop annually. This year's reduction would have kicked in July, and would have totaled close to $1.1 billion.

The FCC will ask the decision to be stayed while it files an appeal, a spokeswoman said.

The complex decision could derail a new round of funding for school and library Internet connections, analysts noted.

This so-called "e-rate" program is also funded by small surcharges on telephone bills. Critics of the program have called the system a tax, and have lobbied to dismantle or scale it back.

The FCC's scheduled increase in the program's funding was expected to be offset by the reductions in the access charges. But if the access charges stay at their current rate, the "e-rate" funding could translate into slightly higher phone bills after all, prompting criticism from consumer groups and congressional opponents, analysts said.

"If the charges don't decrease as planned, then we will be more likely to see an increase in consumer phone bills," said Peter Jarich, a telecommunications analyst with the Strategis Group. "It has to come from somewhere."

Several legislators have already written to FCC chairman William Kennard, asking him to postpone a scheduled May 27 vote to increase the schools' Net subsidy funding.