Federal regulators are considering rules that would forcecompanies that carry long-distance telephone calls over the Internetto pay the same fees to support the nation's phone system thattraditional long-distance companies pay.
The proposal, still in the discussion stage at the FederalCommunications Commission, could raise the rates of Internetlong-distance services. Companies such as Qwest CommunicationsInternational Inc. and IDT Corp. are now offering calls for 5 centsto 8 cents per minute, less than half what traditional phonecompanies charge.
"If the service they're providing is the same that a classiclong-distance company provides, that's an awful lot like a telephonecompany," said one FCC staffer. "And that comes with obligations."Jim Courter, a former New Jersey congressman who now headsIDT, responds that new fees "would double the cost of a call, from 5cents to 10 cents.""Do Americans want a product that allows them to call for 5cents a minute to be eliminated because of government regulation?"he askedAmong Internet partisans, few things have engendered as muchanger over the years as anything that can be called a "tax" on theglobal computer network. They have argued, largely successfully,that government should keep out and give the network a free hand togrow.In that climate, the FCC is backing away from a morepolitically charged option, the reclassification of all Internetservice companies as "telecommunications carriers." Such a changewould have a much broader impact, foisting new fees and state andfederal regulations on the nascent industry.Congress last year gave the agency an April 10 deadline foroutlining how it plans to overhaul a complex system of subsidiesthat guarantee basic phone service to anyone who wants it. Mostspecifically, lawmakers want to know whether Internet serviceproviders should be paying those subsidies directly.Traditional long-distance companies such as AT&T Corp. and MCICommunications Corp. have to pay local phone companies roughly 5cents per minute for using their networks to begin and endlong-distance calls. All phone companies also contribute to federaland state "universal service" funds.In the last year, Internet long-distance services haveappeared. They use the local phone system to carry calls from theoriginating phone to a computer, which puts the calls on theInternet to go to their city of destination. There they are put backon the local phone system.Sound quality is often patchy; users must also dial extradigits. Still, the lower prices have helped generate about $200million a year in business for the new services, well under 1percent of all long-distance revenue in this country.Phone companies have argued that these services have beengetting a free ride, by offering what amounts to telecommunicationsservices without paying universal service fees or local phone accesscharges. Data transmissions have been officially exempt from suchfees for roughly three decades, but the explosive growth of theInternet and the demands it places on the phone system arepressuring regulators to revisit the question.The FCC has been heavily lobbied on the issue recently.America Online Inc., Microsoft Corp., Intel Corp., which generallyoppose fees on the Internet, and all the major phone companies,which generally favor them, have visited the agency on the matter inrecent days.The FCC's staff has been exploring ways to convince rurallawmakers, including Sen. Ted Stevens (R-Alaska), who originallyasked for the report, that Internet providers already contributeindirectly to universal phone service through the bills they pay totelecommunications companies that run the network's trunk lines.America Online Inc., for example, pays $1 billion a year intelecommunications costs. Yet some Internet providers own their owntransmission facilities, as AOL did until recently and as AT&T, MCI,Sprint Corp., GTE Corp. and others currently do. ThoseInternet-based phone facilities, some FCC staffers said, may not bepaying their share into the subsidy system.As the debate continues, traditional long-distance companiesare getting into the Internet phone business themselves. AT&Tearlier this year announced it would begin offering phone calls overInternet data networks at 7.5 cents per minute.Internet service providers that do not offer phone servicesare less worried about the FCC's impending report."What the FCC does on April 10 is unlikely to be the houseburning down," said Jill Lesser, deputy director of law and publicpolicy for America Online. "But the chipping away" of the Internet'sderegulated nature "is very serious."
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