Not quite a 'modem tax'... FCC asks ISPs for USF $$$

Rohit Khare (
Sat, 04 Apr 1998 08:02:29 -0800

[Sorry for the mime quoted-printable garbage my mailer left in. This is
a fascinatingly bullheaded idea: it runs afoul of all the political pressure
to keep the internet "tax-free". Of course, the wedge is voice, the sacred
calf of bandwidth, since voice is oh-so-special.

Needless to say, in the big picture, the USF itself is pointless. Ma Bell was
not a significantly redistributionist monopoly, and nor is the effect of the
billions in this pile of money, either. (one of the great papers from the Agre
class refuted the retro-creation of the universal-service myth by AT&T
management in the 70s antitrust case.)

Sigh. --RK]

------- Forwarded Message

From: Dave Farber <>
Subject: IP: FCC Recommends ISPs Ante Up

From: "Craig A. Johnson" <>


By Craig A. Johnson

April 2, 1998

[Note: As of April 1, the provisions in the report analyzed below were b=
circulated among all of the FCC Commissioners, who have to sign off on it.
Its final release will not be until April 10. It is possible that the
report may undergo major revisions by then.]

The FCC will recommend, in a Report to Congress
to be released next week, that Internet service providers (ISPs) which
transmit long distance telephone traffic, contribute to the universal
service fund (USF). This is considered by some to be an
"interpretive rule" which re-classifies ISPs as "telecommunications
providers" for the purpose of contributing to the universal service fund
(USF). The FCC states in the report that
black-phone-to-black phone" trunk calls placed on the Net should be subje=
ct to
universal service fees. =20

(Some press reports are also saying that the FCC is recommending that IP
voice traffic also be swept under the access charge regulations, but that
has not been confirmed by sources.)

The FCC is due to release its Report on the implementation of the
Telecommunications Act on April 10. This is a report requested by Congre=
for which the FCC was asked to review its implementation of the universa=
service mandates in the Act. This involves an FCC review of the statutory
definitions of "telecommunications," "information services," and related
terms. Congress asked the FCC to assess the impact of the Commission's
interpretations of these terms on the provision of universal service.

FCC Chairman William Kennard, currently being heavily criticized by
Congress on the FCC=92s handling of universal service and local competiti=
issues, sees this partial re-classification as a way to satisfy his
Congressional critics, according to TDRS sources. The sources say, howeve=
that it is not likely to
accomplish that aim -- but instead will generate a "firestorm" of controv=

They assert that the basically unprecedented step of reversing a major
policy through a report to Congress is inappropriate and procedurally
wrong. Some suggest that the FCC is trying to issue an =93interpretative
through this report, without having to go through a new proceeding,
with a Notice of Proposed Rulemaking, a comment period, and the issuance =
a final rule. Critics say, however, that this may violate the
Administrative Procedures Act, and are determined to stop the FCC or
immediately appeal the action to an administrative court.

The FCC, since the early 1980s, has =93exempted=94 =93enhanced services=94=
regulation in order to allow them to grow and thrive. This exemption
encouraged the unfettered development of the Internet, which, as an
=93information=94 or =93enhanced=94 service, was free from paying access =
contributing to the universal service fund, filing tariffs, and state
regulations. =20

In its Universal Service Order of 1997, the FCC concluded that =93Interne=
access=94 was not a =93telecommunications service,=94 as defined under th=
Telecommunications Act, but left open the question as to whether Internet
telephony could, in the future, be regulated as a telecom service. =20

FCC Commissioner Susan Ness gave some hints as to the Commission=92s thin=
in a speech on March 30. She said:

=93I am tentatively thinking that no information service can move a bit f=
here to there without "riding on a rail" of telecommunications. That=20
doesn't mean that a company supplying such capacity to itself necessarily=
needs to be classified as a "carrier," with all the attendant consequence=
But it would mean that the universal service support obligation would be=20
shared by all transmission lines.=94=20

Ness asks what should be done in cases =93where an information service pr=
adds telecommunications services to the package it offers to
consumers.=94 What if an ISP or online service provider =93substitutes
self-supply for third-party supply for its transmission links? Are the
links now =91contaminated=92 and free of a universal service support
obligation?=94 The FCC seems to be saying a resounding "No" in its curre=

The report=92s recommendations follow increasing pressures by Senator
Stevens (R-Alaska) and Senator Burns (R-Montana) on the FCC to alter its
approach to universal service. In a recent letter to FCC Chairman William
Kennard, Stevens and Burns wrote:

=93The Commission=92s continued classification of services as =91enhanced=
=92 or=20
=91basic=92 could seriously undermine the competitive regime Congress sou=
to create. . . . [T]he Telecommunications Act provided the Commission wi=
the legal flexibility in previously lacked, making it unnecessary for the=
Commission to continue applying its outdated =91enhanced/basic=92 regime.

=93[T]he statutory definition does not say that the =91telecommunications=
carrier=92 must be engaged solely in offering =91telecommunications for a=
fee.=92 Indeed, the definition plainly contemplates that telecommunicati=
carriers will offer services other than =91telecommunications services.=92=
. . .=94=20

The FCC's actions are partly driven by =93fears of arbitrage=94 in the lo=
telephone business. The context for these fears are several recent
developments concerning telephony over the Internet. =20

LCI International has announced that it will take much of its long distan=
business off the public switched telephone network (PSTN) and put it onto
Internet Protocol (IP) networks, or encapsulate it in IP in a multi-purpo=
fiber network. AT&T has acquired ICG, a carrier investing heavily in voi=
over IP. Multi-billion dollar investments in the deployment of new fiber
capacity to offer Internet services, including IP telephony, by companies
such as Qwest and Level-3, also heightened concerns that traditional
companies with huge sunk costs in infrastructure would be unfairly
disadvantaged by being required to pay into universal service funds while
an AT&T or an LCI or an ISP did not have to because it was routing its
long-distance calls over an IP network. =20

Analysts say that it could be a short step from asking IP phone providers
to contribute to the USF to dinging them with access charges as well. The
Bell companies and their allies to argue that if ISPs are considered
'telecom providers' for universal access purposes, then they should treat=
in the same manner regarding access charges. If the FCC
decided "forebear" from regulating ISPs as "telecommunications providers"
that pay access charges, the Bells may file a complaint citing their
eligibility to pay into the USF. =20

The new types of companies represented by Qwest are serious threats to th=
Bell companies. One important consideration for the Bells is that for eve=
long distance provider that takes its voice traffic off of the PSTN the B=
lose the equivalent amount in access charges. Qwest describes its
operations as follows:=20

"Qwest's planned domestic network will connect 125 cities, which represen=
approximately 80 percent of the data and voice traffic originating in the=
United States, upon its completion in the second quarter of 1999. Qwest i=
also extending its network 1,400 miles into Mexico with completion slated=
for late third quarter 1998. With its cutting-edge technology, Qwest will=
deliver high-quality voice, data and video connectivity securely and=20
reliably to businesses, consumers and other communications service

Long distance companies are also concerned that new IP telephone services=
undercut them in the market because they can avoid access charges and
universal service support obligations.

And, finally, rural-state legislators are insisting that universal servic=
e in
high-cost, rural areas is underfunded, and that money has to be found to
fund it are yet another. They would like to see a complete re-write of t=
FCC=92s universal service order. They argue that anomalies in the existi=
rules will cause a migration of traffic from services that bear a univers=
service support obligation to services that do not carry this burden. =20

# # #=20

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