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Net phone firms elude regulation

Companies that carry Net phone calls avoid new fees as the Federal Communications Commission decides against designating them as telcos.

Companies that carry phone calls over the Net avoided new fees and regulations today when the Federal Communications Commission decided against designating them as long distance carriers.

Congress had asked the FCC to clarify its definitions for communications services that should pay into the nation's universal service fund, which helps subsidize phone service for rural and low-income consumers and Net access for schools and libraries.

As part of the study, the FCC considered whether companies that use Internet protocol (IP) to connect calls made through traditional phones should be reclassified as long distance providers instead of "information services."

The agency's report today rejected the idea. But the door was left open to reclassify some IP telephony companies as telcos, a designation that could result in new fees.

"The commission observed that certain forms of IP telephony lack the characteristics that would render them 'information services' within the meaning of the statute, and bear the characteristics of 'telecommunication services,'" the report states. "The commission, however, did not find it appropriate to make an definitive pronouncements in the absence of more complete record focused on individual IP service offerings."

Telecommunications services have to pay directly into the nation's universal service fund, but the FCC and Net access providers agree that ISPs already contribute indirectly when paying their phone company for service and additional business lines for modems. The FCC reiterated today that ISPs are "information services" and should not be regulated like telcos.

"The commission reaffirmed that information service providers are not subject to universal service obligations, the access charges paid by long distance providers or rate regulation," the FCC stated.

Net telephony also remained dubbed an information service. But in the future, the FCC could consider mandating access charges on telephone calls carried over the Net. (See related story)

"If you pick up a telephone, dial a telephone number and the only difference is that the call is carried over the Net?in that case what is different from a telecommunications company? Not a whole lot," an FCC official said today. "But we're not regulating the Internet."

However, the FCC made clear that using a computer and special software to speak over the Net does not constitute a long distance phone call. "The ISP doesn't appear to be providing telecommunication services to its subscribers," the agency official added.

Larry Irving, head of the Commerce Department's National Telecommunications and Information Administration, warned the FCC yesterday not to submit any proposal calling for regulation of Net telephony.

The Clinton administration has diligently insisted that Net services be kept free of new taxes or fees. The administration believes that such charges would stifle innovation and the commercial potential of the market.

But lawmakers whose districts include vast rural areas, such as Sen. Ted Stevens (R-Alaska), worry that their residents' phone subsidies will be depleted as the Net telephony market grows.

Stevens spearheaded the effort that led to the FCC report. He's also begged the question of why ISPs are not contributing more to the fund, now that under the Telecommunications Act of 1996, universal service supports Net access for schools, libraries and rural areas.

The old guard of telcos, such as AT&T, also insist that the new breed of low-cost Net telephony providers be treated as long-distance providers. AT&T has plans to offer a similar service?but companies such as Qwest Communications are way ahead in their strategies to support Internet long distance calls for as little as 5 cents per minute.

Net telephony firms maintain that they already pay access charges to local phone companies when switching international calls to the United States.

"The entrenched telcos are much more comfortable competing with us in the regulatory arena than they are competing on pricing and innovation," Tom Evslin, founder of ITXC, an international Net telephony company, said today.

"Cheap telephony is only the first application of [Net phone services]," he added. "We'll be able to offer services over IP that can't ever be offered over a circuit-switched network."

Stevens and other senators did manage to win a few concessions today.

The FCC said it will work to ensure that states don't lose funding for phone service under the new universal rules it set last May. For example, the agency will reconsider a rule that limited federal support to large phone companies that receive more than 25 percent in subsides collected through interstate rates.