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ISPs & Access Charges;
Consumer Per-Minute Charges to Access ISPs

Users, advertisers await FCC decision on Internet charges

FCC Again Says It Won't Tax Internet

Fed won't overturn state ISP rules;
FCC walks tightrope over ISP calls

Internet Tax Freedom Bill, H.R. 4328
Final Law, 10/21/1998

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About the "Hoax du Jour"

The "Hoax du Jour" is a recurring column providing updated information and commentary on the Internet community. It is a feature of Korova Multimedia's "e-v-mail" page.

What is a "hoax du jour?" With the advent of widespread use of the Internet as a medium for sharing information, the phenomenon of sharing misinformation has exploded. Conventional urban folklore and propaganda have blossomed on the Internet. Intentionally misleading information is broadcast on a professional and personal level.

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December 20, 1998     

It must be the holiday spirit in the air, causing Internet users to grow wary of the Next Big Scam on the horizon. Sure enough, we are again hearing the recurrent rumor that the Federal Communications Commission (FCC) is preparing to approve per-call charges direct to consumers on dial-up access to Internet service providers (ISPs).

On this occasion, the rumor grew so prevalent that the FCC's chairman, William Kennard, mentioned it in a speech to the National Association of Regulatory Commissioners, 11/11/98:

"For reasons that escape me, there are those who regularly suggest that the FCC is considering the imposition of per minute charges on Internet providers. The forces behind these rumors are doing a disservice to the American consumer, because in fact nothing could be further from the truth. But somehow these rumors keep arising, often on the Internet itself. I know, because I receive hundreds and thousands of e-mails every time this rumor arises.

"I know that many of the e-mails I receive are from well-meaning, but misinformed, people who are concerned about the future of the Internet. I applaud their vigilance and I am glad to assure them that the FCC is not about to impose per minute charges on the Internet."

Full text of Kennard's speech: http://www.fcc.gov/Speeches/Kennard/spwek833.html

Readers of this column sent me two versions of the new rumor. Each cited a CNN report:

"CNN stated that the Government would in two weeks time decide to allow or not allow a Charge to your phone bill equal to a Long Distance call EACH time you access the Internet."

I've found only one report on CNN's web sites that might match this rumor. The page contains only a cursory description of a video report by San Francisco correspondent Don Knapp:

Users, advertisers await FCC decision on Internet charges - November 7, 1998

SAN FRANCISCO (CNN) -- The cost of going online could go up significantly if the Federal Communications Commission decides that dialing your local Internet provider is a long-distance call.

The decision may affect not just the 50 million people who use the Internet, but the major advertising business that has grown up around it.

Correspondent Don Knapp has more on the story.

Knapp's video report isn't very enlightening. He interviewed Michael O'Donnell of Salon Magazine, Claudia Graziano from Wired Online, and Mark Malpiede of M. Gould Advertising. They all discussed the unfortunate circumstances that might result if consumers had to pay additional charges for dial-up access to the Internet. It could hurt online advertising, it could hurt e-commerce. People might spend less time online at home, and at work. Well, duh.

Unfortunately, Knapp made no explicit reference to the alleged "FCC decision," other than to say:

"The FCC's decision could reverberate throughout the web. ...The FCC has emphasized that its decision doesn't necessarily mean minute-by-minute charges for phone use. But it'll be a couple of weeks before we know for sure."

Don Knapp, CNN correspondent

Not very reassuring, is it? A Reuters article on TechWeb makes it only slightly more clear.

Kennard confirmed that an impending decision about "reciprocal compensation" between local telephone companies "has NOTHING to do with consumer Internet charges." The FCC proceeding relates to carrier-to-carrier payments for exchanging traffic. Some parties feel that since ISPs carry interstate traffic (data), ISPs should also be regulated by the FCC. This would make little or no difference; the FCC already classifies ISPs as special, local "end users" that are exempt from carrier access charges.

Are you confused yet? Apparently, our man on the beat Knapp just couldn't see through the haze of news-tasty hysteria. Let me try to explain for you what CNN couldn't.

Telecom reform, working for you

Some have claimed that this is the old cyberban legend called the "FCC Modem Tax." Not quite. But the current rumor has some (flimsy) basis in fact.

According to telecommunications reform, Regional Bell operating companies (RBOCs), a fancy name for local telephone companies, can collect compensation for use of their facilities by long-distance telephone carriers. The fees that locals collect from carriers are called "access charges." Because this is an interstate market, access charges are regulated by the FCC under rules dating back to 1983.

As an example, let's say you call Uncle Clem in Missoula, Montana. You pick up the phone. Your local RBOC provides a dial tone, via the local circuits. You connect to your chosen long-distance carrier for super-cheap service. Your phone call to Clem is passed through your carrier to Uncle Clem's local RBOC in Montana, which then rings his phone. You and Clem gab for several minutes, and then hang up.

Obviously, you get to pay your long-distance carrier several cents per minute for the call. But the RBOCs, on both ends, want their fair share. So, by regulation, they can collect per-minute access charges from the long-distance carrier, since the RBOCs provided local circuits and service to complete the connection. Do you pay this fee? NO.

The current regulations specify that certain "enhanced service providers" are not carriers, but "end users." As such, these end users are not liable for access charges.

Here comes the punch line. ...Internet service providers (ISPs) are classified as enhanced service providers.

ISPs, as end users, are treated like businesses. Like businesses, they buy up phone lines (lots of them, in fact), to build a Point Of Presence (POP) with phone lines, modems, routers, and other equipment. This POP allows customers to dial up (a local call, usually), and connect to the Internet. Customers may dial up and stay online for hours at a time. Because the call to the POP is incoming to the ISP, the ISP isn't charged for the call. Generally, phone lines for POPs are paid for monthly, regardless of traffic.

A good ISP will maintain 1 phone line for each 10 users. A good-sized ISP will maintain local POPs for up to 10,000 users. Let's do the math. That's a thousand or so phone lines, collecting nothing more than monthly service charges (since the phone lines are never dialing out). If this is a mild shock to you, imagine the blow this can mean to an RBOC. All that traffic, all those TCP packets, all that e-commerce ... and all the poor, impoverished RBOC gets for each Internet phone line is a measly monthly service charge.

Because an ISP purchases services from local telephone companies as an end user, the ISP's rates are overseen by state regulatory agencies, not the FCC. Contrast this with the access charges that interstate carriers must provide (see above). The original "FCC Modem Tax" rumor started with a proposal in 1987 to require enhanced service providers (including ISPs) to pay interstate access charges. The proposal was abandoned in 1988. But the rumor lives on, as inaccurate as it is.

Back to our homespun example. Let's suppose that Uncle Clem loves the Internet. As a retiree, he's online most of the day. He uses his cellular phone for personal chit chat, usually. He orders goods online, manages his stock portfolio, checks his bank account, chats with friends, e-mails family members around the world. He even listens to Internet radio. The Internet is the best thing to happen to his enjoyment of leisure time since Baywatch went into syndication.

I'm sure you can imagine how Clem's RBOC feels. That local phone line is lit up almost all day and all night, and all they can collect from Clem is $30 a month for his residential phone service. What about the POP Clem dials in to? The RBOC gets a fixed monthly business line fee, though the line is being used almost 24 hours a day. Drat.

How to make ISPs pay, and pay, and ...

Naturally, RBOCs want to change all that. Put simply, they want ISPs off the "enhanced service provider" bench (regulated by the states), and into the interstate game wherein "carriers" (either long-distance, or in this case data network) pay for the use of the local telephone facilities on a per-call, per minute basis. This is the arena managed by the FCC. The argument is that ISPs use the local networks in much the same way that interstate carriers do, and should be regulated as such.

Figure on a dramatic rise in POP expenses if RBOCs get their way. The cost of maintaining POPs for you, and me, and Uncle Clem, would skyrocket. Would the increase be passed on to us? Certainly, but not necessarily. Surely, we would say "adios" to $19.95 per month, unlimited Internet access plans. If that were the case, Internet use would probably drop (as Knapp and his interviewees predicted), resulting in an end to the public Internet's salad days.

As an adjunct, I suspect that business Internet costs would level, because so many of these WAN designs are based on leased-line and direct backbone arrangements already. Would surfing the Web decline in the workplace? I doubt it. As valuable as the Internet was to educational institutions in the 1980s, it has become a core tool to business in the 1990s. In this decade, worldwide network connectivity -- wireless and otherwise -- became as common as the TouchTone telephone.

Thank you, FCC

The fact is that there has been little danger of the FCC changing this situation on a whim.

RBOCs have debated this issue since 1983 (hence the 1987 proposal that resulted in the "FCC Modem Tax" rumor). In June, 1996, several companies (including Pacific Bell, Bell Atlantic, US West and NYNEX) submitted studies to the FCC related to the effects of all that Internet traffic on their telephone networks. No formal petition was been filed, though.

As part of Access Reform, the FCC solicited comments in late 1996 (CC Docket 96-262) on the treatment of enhanced service providers on local telephone circuits. The resulting Access Reform Order, FCC 97-158 (May 7, 1997), affirmed that the existing rate structure for ISPs should remain in place. This decision continues to prevail.

"The Commission made no specific proposals, but tentatively concluded that providers of information services (including Internet service providers) should not be subject to the interstate access charges that local telephone companies currently assess on long-distance carriers."

FCC Access Charge Reform Homepage: http://www.fcc.gov/isp.html

As I recall, the initial 1996 Notice of Inquiry (simply an open request for comments, not a Notice of Proposed Rulemaking, or NPRM) was misinterpreted as a warning that the whole arrangement was about to change.

This has never been the case, but it continues to be the touchstone for repeated rumors of an FCC-approved "Internet toll charge." In early 1998, there was a resurgence of online hysteria that the FCC was going to change the status of ISPs. In this case, the FCC was about to make a routine report to Congress about universal service, including the legal status of Internet services under the Telecommunications Act of 1996. Once again, no change was considered.

On this most recent occasion, a completely unrelated proposal was pending. Various un-named consumer groups made the same mistake as others have in the past -- confused an unrelated FCC proceeding with the misunderstood December, 1996, NOI regarding enhanced service providers. Unfortunately, the latest rumors now carry the sterling silver "False Authority Syndrome" of a CNN reporter. Knapp apparently went forth into the wilderness, and conducted interviews to support a unsubstantiated rumor. Knapp's report is now an incontestable source of the latest round of "FCC Internet Access Charge" alerts distributed by e-mail.

Rest assured that the FCC has no interest in imposing fees to use the Internet. As William Kennard stated on November 6, "This is one of the great enduring urban myths."

Slamming gets slapped

On the other hand, the FCC has been more than happy to intercede in the case of interstate telecommunications fraud. Last December, I wrote a piece about "phone slamming". This sneaky marketing tactic is far from new, but despite clear Federal regulations, it has continued unabated.

According to the December 1998 FCC Telephone Consumer Complaint Scorecard (a 40KB Adobe PDF file), "slamming" complaints topped the list with 9,597 complaints during the first six months of 1998, nearly 7,000 more than the second most common complaint.

According to an Associated Press report, there have been nearly 20,000 total complaints of slamming so far in 1998. Yikes.

In answer to this continuing problem, the FCC enacted new regulations that make it even less profitable for long-distance carriers to hijack customers business. The new rules also make it easier for consumers to recover fees, and eliminated a sneaky marketing tactic (in which the consumer had to return a post card to decline a switch in long-distance carriers). The rules also now apply to local phone companies as well as long-distance carriers.

The decision comes in the recent wake of nearly $6.6 million in fines against three slamming companies: Long Distance Direct, Business Discount Plan and Minimum Rate Pricing, Inc.

I think Bill Kennard deserves an extra-special "Thank you!" in his Christmas stocking.


January 3, 1999     

Recently, a new e-mail alert has been making the rounds, this time alluding to an "Internet Tax." This rumor asserts, again, that the Fed is considering some sort of "per-call" charge on access to the Internet:

Date: 12/24/98 9:55:06 AM Central Standard Time
From: TKNoMore

Congress is considering an "Internet Tax". Where
every time you log on, the phone company would
charge you the equivalent of a long distance call
and remit that amount to the government. This is
what you need to do, go the address that follows
and vote! Do it now before those morons in
Washington pass another tax!!

The address is:


  1. From the main screen pick "Freedom Works".
  2. Next screen, look on your Top left corner of the screen.
  3. It says: Web Vote. Pick your Y to remain tax free.
  4. Click on Vote

The rumor alludes to H.R. 4328, The Internet Tax Freedom Bill. As far as I can understand, the bill actually prevents undue taxation on ISP services and e-commerce (and does not advocate per-call access charges).

The opportunity to "vote" on the House Majority Leader's page has passed, alas. Though Rep. Dick Armey's page has yet to be updated, H.R. 4328 was signed into law on October 21, 1998.

David Spalding
Updated: 03 January 1999

(A grateful tilt of the trilby to David Emery (About.com), Matt Flannery, Lyn Gottschalk, Hollis Matise, Noel McInnis, Sandra Smith, and Doug Weller.)

© Copyright 1998 D.B. Spalding/Korova Multimedia. All rights reserved.







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