[ Here's an update on this story ... an updated "please do
something about the modem tax" letter is circulating the
net. This time, it plugs into the discussion about the
universal service fund, but soon, it will probably focus
on state efforts to tax internet commerce. Exciting times
FCC responds to fears of ISP fees
By Courtney Macavinta
January 9, 1998, 4:10 p.m. PT
The Federal Communications Commission today is
clarifying the issues behind a pending report to
Congress that some fear could result in new fees for
Internet service providers.
Federal lawmakers have mandated that the FCC review
rules it released in May that restructured the nation's
"universal service fund," which traditionally subsidized
phone service for rural and low-income residents but was
revised to include up to $2.25 billion in annual funding
for hooking public schools and libraries up to the Net.
Congress ordered the FCC report in part to address
whether Net service providers should have to contribute
to the universal service fund. They don't now because
they are considered "enhanced service providers."
If the FCC were to recommend to Congress that ISPs be
reclassified as "telecommunications services," online
access providers could have to pay into the fund, but
only after a lengthy rule-making process. This would be
good news for telcos, which pay a big portion of the
universal service fund now and have lobbied to the FCC
in the past to collect other additional fees from ISPs
to offset various costs.
The FCC is accepting public comment on the universal
service issue until January 20, and will report to
Congress in April. This has caused anxiety and confusion
for Net users because in a separate incident, an
"erroneous" email has been circulating online stating
that the FCC is accepting public comment until February
on whether a per-minute access charge should be imposed
by phone carriers on Net service providers, which is not
true, an FCC spokeswoman said today.
Still, concern is still mounting in the online industry
over how the universal service funding would be
collected from ISPs if they were required to contribute.
Some worry the collection vehicle would turn out to be a
telco access charge that would likely be passed on to
ISP customers. Any potential universal service charge is
unrelated to the permanent access fee proposed last year
and referred to in the erroneous email.
"Such a fee will put a lot of non-telephone company ISPs
out of business. People who have to pay the telephone
companies a fee for every minute they spend online will
not stay online as long," said Dave McClure, executive
director of the Association of Online Professionals,
which fought the access fees last year. "The effect will
slow the growth of the Internet."
In the past, such access charges were funneled into
universal services. But FCC officials said today that it
is far too soon to say whether ISPs will ever be
classified as telcos, and subsequently have to pay into
the fund through an access charge or any other
According to its January 5 public notice, the FCC report
will clarify its definitions of "information service,"
"local exchange carrier," and "telecommunications
service," and "the impact of the interpretation of those
definitions on the provision of universal service to
consumers in all areas of the nation."
In addition, the agency will review "the application of
those definitions to mixed or hybrid services and the
impact of such application on universal service, and the
consistency of the Commission's application of those
definitions, including with respect to Internet access
for educational providers, libraries, and rural health
care providers under the Act."
Despite the email notice that has been circulating on
the Net, the agency also confirmed that it has not
reopened a public comment period on whether phone
carriers should be allowed to charge the permanent ISP
access fee. The email began circulating a few days
before the universal service public inquiry notice was
released, according to the FCC.
"The email circulating that says the FCC is asking for
comment by February 13, 1998, on the issue of whether
the ISPs should have to pay access charges to local
phone carriers is an erroneous email," an FCC
spokeswoman said today. "In its access reform order in
May of 1997, the FCC decided not to allow local
telephone companies to impose permanent access charges
on ISPs. The FCC is no longer asking for comment in this
Still, Congress's mandate for a review of the FCC's
implementation of universal service is yet another
example of certain members' dissatisfaction with how the
Telecommunications Act has been carried out by the
commission--especially issues concerning ISPs.
For example, the confirmation of William Kennard as the
FCC's new chairman also was held up until two senators
were satisfied that the commission would review
universal service. Sen. Conrad Burns (R-Montana) argued
that states were footing a larger portion of the
universal access bill than the federal government.
Sen. Ted Stevens (R-Alaska) pushed through the FCC
universal service review as part of a huge
appropriations bill for 1998. He forced the issues of
whether telcos should have to pay for subsidized access
if ISPs aren't contributing.
Some members of the online industry say the telephone
companies may have a point, but they contend a solution
that could increase the cost of Net access is not the
"The telephone companies rightfully feel that they
shouldn't be the only ones paying into telephone
universal service if those fees are going to go to
Internet service," McClure said.
"From a global perspective, the real question is whether
universal funds are the best vehicle to make sure
schools get wired to the Net when the industry is
already helping to do this privately," he said. "If it
means that a permanent Net access fee will be
implemented, it might not be the most equitable way."
The cost of Net access is expected to increase for many
users. According to the FCC rules, by the end of this
year, businesses will pay $2 per month more for each
additional phone line. The cost could be as high,
however, as $4.21 per additional line by the beginning
of next year, because long distance providers will be
charged $2.20 for each added line, a fee they could pass
on to customers.