Internet Calls Local, Pay Local Competitor for Connecting Calls
Arbitrator Warns That Pac Bell Proposals Would Increase Internet Access Costs, Harm Rural Internet Users
SAN FRANCISCO, Calif., April 23 /PRNewswire/ -- Warning against a disruptive ''industry-wide restructuring'' of the state's information super-highway, a neutral California PUC arbitrator affirmed today that logging onto the Internet is a local call and that SBC/Pac Bell must compensate Pac-West, a local competitor which connects those calls. The arbitrator also warned that SBC/Pac Bell's proposed changes could harm rural Internet users, ratepayers, and competitive local phone companies.
The decision comes as a blow to SBC/Pac Bell whose lawyers have previously refused to pay Pac-West for connecting calls to Internet Service Providers.
''No one wants to pay higher charges for online access, so this is great news for Internet users. Our rural customers would have been hardest hit by a decision for Pac Bell,'' said Wally Griffin, President and CEO of Pac-West, a small Stockton-based local phone company that competes with Texas-based giant SBC/Pac Bell. ''It's also good news for us because Pac Bell should now have no excuse to continue withholding payments. We just hope it holds up.''
Decision ''Stays the Course''
When one local phone company uses the network of another local phone company to complete a local call, it is required to pay a fee called ''reciprocal compensation.'' Most Internet users still use SBC/Pac Bell which used to have a monopoly. However, most ISPs use competing local phone companies like Pac-West, whose rates tend to be lower. Since the majority of calls are generated by consumers to ISPs, not the other way around, SBC/Pac Bell owes Pac-West more in reciprocal compensation. The total bill currently owed to Pac-West: $46 million.
SBC/Pac Bell hopes that by reclassifying Internet calls as long distance, it can avoid paying future reciprocal compensation bills. SBC/Pac Bell lawyers have argued that when consumers dial their ISP that call is long distance even if both numbers are in the same local calling area, city block or building.
Dozens of states, two federal courts, and the FCC have all agreed that the Bells should pay their reciprocal compensation bills. Last October, the full CPUC reached the same conclusion. It decided in a 3-to-2 vote that Internet calls were local and ordered SBC/Pac Bell to pay its reciprocal compensation bills.
According to the arbitrator, today's decision ''stays the course,'' and ''adoption of Pacific's position on the major issues (i.e., definition of local calls, definition of toll free service, and treatment of calls to ISPs), would substantially change current relationships and cash flows. Those changes could be very harmful to rural customers of ISPs whose calls are carried to ISP customers of Pac-West, as well as harmful to Pac-West.'' The arbitrator noted that SBC/Pac Bell would have an opportunity to revisit the decision in two years.
CPUC Poised to Reverse Decision
SBC/Pac Bell may yet prevail. Despite today's warning, it's an open question whether the CPUC, who will make the final call on May 27, 1999, will stick to its previous decision.
Here's why. Unfilled appointments have left only three commissioners out of five -- barely a quorum. Therefore, two commissioners, while a minority of the full board, now have the power to reverse the decision made in October 1998 by the full commission. SBC/Pac Bell wants just that and has already dispatched a team of high level executives and lobbyists to pressure the commission to reverse itself. The Internet community is afraid they'll succeed.
''There's no way the commission should use this arbitration to set Internet policy in the world's seventh largest economy,'' said Mike Arciero, President of Coastal Web Online, an ISP. ''Before they tinker with Internet access in California, they ought to check in with us. It's our livelihood.''
''This could have a huge impact on us. Pac-West offers services that we can't get from Pacific Bell, which is how we're able to reach rural Internet users,'' said Brad Jenkins who heads up JPS.net, the largest ISP in Northern California outside the Bay Area. ''If this turns out badly, I imagine that a lot of ISPs will go out of business.'' JPS.net, which serves rural Internet users, is a customer of Pac-West.
In addition to the CPUC ordering SBC/Pac Bell to pay their bills, the FCC has also said that incumbent telephone companies must pay their reciprocal compensation fees, and left the issue of reciprocal compensation to the states, saying that ''until adoption of a final rule, state commissions will continue to determine whether reciprocal compensation is due for this traffic.'' |
