The final stake in USAT's heart?:"FCC Stand on Calls to Internet May Hurt Small Phone Firms
By KATHY CHEN
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Federal Communications Commission ruled that
connecting to the Internet constitutes a long-distance call, not a local one.
The decision isn't expected to increase the cost of going online, the FCC
said, but it was a victory for the Baby Bells and it could curtail a lucrative
source of revenue for some small, independent phone companies.
At issue is about $600 million in fees received
by independent phone companies from the
Baby Bells in what is called "reciprocal
compensation." Many Internet-service
providers use alternative local phone companies as their carriers for
incoming calls, and under the arrangement, the Baby Bells must pay the
independent carriers for routing calls onto the Internet.
By classifying Internet dial-ups as interstate or long-distance calls, the
FCC has effectively ended the rival carriers' windfall. But it isn't a total
victory for the Baby Bells; the FCC said they must honor existing
agreements or defer to state regulators. It also proposed that the
independent carriers negotiate future payment rates with the Bells, with
oversight by state regulators.
"We're pretty happy because we want to get paid under existing
agreements, and the FCC says existing agreements must still be enforced,"
said John Windhausen Jr., president of the Association for Local
Telecommunications Services, which represents independent phone
companies.
But Bell executives said the ruling means they no longer owe the rival
carriers anything under existing arrangements. The Bells said they will
challenge the ruling in court if states don't uphold that view.
FCC officials stressed that the reclassification won't result in higher
consumer costs, and Chairman Bill Kennard said it shouldn't be construed
as an attempt to regulate the Internet. "This won't change how consumers
access the Internet or what they pay," said Larry Strickling, the FCC's top
telephone regulator.
But FCC Commissioner Harold Furchtgott-Roth argued that defining
Internet dial-up calls as long distance would make them subject to the
same long-distance access charges that are levied on voice calls. And
some consumer groups said they are worried that the move could
eventually result in higher charges for Internet access.
Gene Kimmelman, a co-director of the advocacy group Consumers
Union, agreed. "The FCC said [Internet calls] look like and feel like and
smell like long-distance calls -- but [said], 'We won't charge based on
long-distance calls,' " he said. "I don't think that's sustainable."
However, Scott Cleland, managing director of Legg Mason Precursor
Group, said that by opening the door to negotiations, the FCC is trying to
force the Bells and independent carriers to reduce rates for both Internet
and voice calls. "The FCC is trying to drive down prices closer to cost so
end users get lower prices," he said.
The issue sparked a public spat between Mr. Furchtgott-Roth and Mr.
Kennard at Thursday's meeting, when the five-member commission was to
vote on the reclassification.
Mr. Furchtgott-Roth, who abstained from the vote, charged Mr. Kennard
with violating FCC tradition by refusing to honor his request to shelve the
item for further consideration. Mr. Kennard responded that "we owe the
marketplace a decision" on the long-pending issue."
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