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Telcos get new shot at ISP fees

The FCC is seeking public comment for an upcoming report to Congress that could result in network access charges for Internet service providers.

    Concern is mounting in the online industry over a pending Federal Communications Commission report that could result in new fees for Internet service providers.

    The new fees could materialize as part of the FCC's congressional mandate to review rules released in May that restructured the nation's "universal service fund," which traditionally subsidized phone service for rural and low-income residents, to include support for school and library Net access.

    When the FCC initially was given the task of overhauling the service under the Telecommunications Act of 1996, Pacific Bell and other Baby Bells emerged with a proposal that online access providers should be forced to pay phone companies a fee for every customer who hooks up to the Net through a local switch center. The money would help phone companies make up their large share of universal service funding, they argued.

    At the time, the FCC shot down the telcos' request. Now, however, local phone companies may get another chance to plead their case.

    Until January 20, the FCC is collecting public and industry comments regarding, among other things, whether ISPs should be reclassified as "telecommunications services." If ISPs are reclassified after a lengthy rule-making process, they may have to pay into the universal service fund. The vehicle for collecting the fund from ISPs could be a telco access fee. If the telcos have it their way, ISPs will be reclassified.

    The FCC also is reconsidering which types of companies should have to contribute to universal service. ISPs may be designated as services that should contribute. Either way, ISPs, no doubt, would pass the fees on to their customers.

    "It's very much a concern for us. We're seeing a reopening of the 'permanent access fee' issue," said Dave McClure, executive director of the Association of Online Professionals, which fought the access fees last year.

    "Such a fee will put a lot of non-telephone company ISPs out of business. People who have to pay the telephone companies a fee for every minute they spend online will not stay online as long," he added. "The effect will slow the growth of the Internet."

    According to its public notice, the FCC will clarify its definitions of "information service," "local exchange carrier," and "telecommunications service," and "the impact of the interpretation of those definitions on the provision of universal service to consumers in all areas of the nation."

    In addition, the agency will review "the application of those definitions to mixed or hybrid services and the impact of such application on universal service, and the consistency of the Commission's application of those definitions, including with respect to Internet access for educational providers, libraries, and rural health care providers under the Act."

    The FCC is not reconsidering the access fee itself, but the telcos could better justify their case for the charges if ISPs were deemed "telecommunications services."

    Last year, the FCC restructured universal service to include, for example, up to $2.25 billion in annual subsidies for hooking public schools and libraries up to the Net. In December, however, the FCC said it would only collect $625 million in the first half of 1998. This action by the FCC is one factor that led to Congress's mandate for the review, which is buried in major 1998 appropriations bills and is due in April.

    The confirmation of William Kennard as the FCC's new chairman also was held up until two senators were satisfied that the commission would review universal service. Sen. Conrad Burns (R-Montana) argued that states were footing a larger portion of the universal access bill than the federal government.

    In addition, Sen. Ted Stevens (R-Alaska), who pushed for the FCC review, has questioned why ISPs don't have to contribute to universal service. Some Baby Bells also argued that local switch centers need to be upgraded due to increased Net traffic.

    Some members of the online industry say the telephone companies may have a point, but they contend a solution that could increase the cost of Net access is not the best answer.

    "The telephone companies rightfully feel that they shouldn't be the only ones paying into telephone universal service if those fees are going to go to Internet service," McClure said.

    "From a global perspective, the real question is whether universal funds are the best vehicle to make sure schools get wired to the Net when the industry is already helping to do this privately," he said. "If it means that a permanent Net access fee will be implemented, it might not be the most equitable way."

    The cost of Net access is expected to increase for many users. According to the FCC rules, by the end of this year, businesses will pay $2 per month more for each additional phone line. The cost could be as high, however, as $4.21 per additional line by the beginning of next year, because long distance providers will be charged $2.20 for each added line, a fee they could pass on to customers.