FCC Says Net Phone Fees Possible

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April 10, 1998 (4:33 PM EDT)

By Mary Mosquera,

In a report issued Friday, the Federal Communications Commission hinted that ISPs and Internet telephony companies are likely to be assessed new regulatory fees in the future, but said further study is needed before a final decision is made.

However, the FCC recommended that backbone providers that lease lines to ISPs should be liable for the fees, which go into the universal service fund. Many backbone providers already pay those fees, the agency noted.

The report, required by Congress as part of the FCC's 1998 budget, served as a first comprehensive look at how ISPs and IP telephony companies might be treated by government regulators as voice and data communications merge.

At issue were payments into the federal universal service fund, which subsidizes telephony service for rural areas and poor customers. While local service providers pay directly into the universal service fund, long distance companies also contribute through access fees they pay to local providers to reach the last mile to the home.

As long distance phone service becomes available via the Internet, phone companies have begun to complain that Net telephony providers and ISPs should pay their fair share. As a result, Sens. Ted Stevens (R-Ala.) and Conrad Burns (R-Mont.) sought a re-examination of ISPs' exemption from universal service fund fees, concerned that as more phone service is transported on the Internet, states with large rural areas such will find universal service funding diminishing.

The Commission's report appeared to agree with at least some of the telephone companies' complaints, though it said ISPs could not be charged under current rules. "Excluding ... revenues derived from the provision of pure transmission capacity to Internet service providers does not comport with the language and goals of 1996 [Telecommunications] Act," FCC staffers wrote.

"Similarly, should we conclude that specific phone to phone IP telephony services qualify as telecommunications, providers of such services would fall within requirements to contribute to the universal service mechanisms," the report added. The Commission said it needed considerable further study on both issues before recommending any specific fees, however.

Any such new regulations will face opposition from the White House. On Thursday, the Clinton administration urged the FCC "to do nothing that would thwart the growth and vibrancy of the Internet."

"While legitimate issues have been raised regarding the obligations of new players to contribute to universal service, any proposal to regulate Internet telephony as 'telecommunications service' would raise contentious issues, the resolution of which would have international, as well as domestic, repercussions," said Larry Irving, assistant commerce secretary for communications and information said.

Rep. Rick White (R-Wash.), who introduced legislation blocking regulation of the Internet unless Congress deems it necessary, said Wednesday that Internet services are "information services" under the 1996 Telecommunications Act, even if they provide telephone service.

Attempts to separate out telephony and backbone architecture for the new high-speed networks to determine fees "will impede the development of the Internet," White said. He warned that the FCC "should be very careful not to impose a regulatory framework that is the legacy of a century-old telephone system on new, value-added services that will drive tomorrow's economy."

In fact, the Telecom Act's definition of the word "telecommunications," which is communications between two points that does not change in either form or content, doesn't quite fit Internet telephony. Because Net communications are based on IP networks, they do change, both in form and content, the congressman said.

For example, when a user places an IP call, the information is compressed, converted to IP code, and sent in packets across networks. Its content changes when "new estimated data is added to replace any that is lost in transmission," White added.

The Commission took no action on any of the issues discussed. Any new fees will have to be officially proposed and be subject to public comment before being imposed.

-- John Borland contributed to this article.