In a 3-to-2 split decision that some fear will drive up the cost of going online, the Massachusetts board affirmed the Federal Communications Commission's ruling that calls to the Internet are interstate in nature and not local calls.

Bell Atlantic was one of the first communications companies to challenge reciprocal compensation agreements at state public utility commissions in Massachusetts, Maryland and New York.

"This is a pro-consumer decision. In doing what the law requires, the DTE today plugged what it characterized as a loophole that would have resulted in an Internet tax on all telephone users in Massachusetts," said Robert Mudge, vice president of Bell Atlantic-Massachusetts.

"Had the DTE not acted, Massachusetts telephone subscribers could easily have ended up paying more than $150 million per year. That equates to a $2.80 monthly tax on every phone line for Bell Atlantic's customers, whether they use the Internet or not."

Some industry officials believe that the DTE decision is likely to revamp the economics of dial-up Internet access in Massachusetts. Some 45 state sanctioned CLECs are immediately impacted by the boards ruling.

Frank Gangi, president of Global Nap, a Masschusettes-based CLEC believes that rates will have to be increased in order to compensate for the lost revenue. Global Nap handles Internet-bound phone traffic for about 1 million people in Massachusetts and New Hampshire.

Global NAP reportedly received about $1 million a month in reciprocal compensation fees from Bell Atlantic for handling the Internet-bound phone traffic. Gangi said Global NAP will have no choice but to adjust the prices the company charges Internet service providers.

Lowell Gray, president of Shore Net, a Massachusetts-based ISP with 15,000 dial-up customers said it's too soon to say whether the company will have to raise dial-up rates. However, Gray added that he expects will raise their rates as a result of the DTE decision and that expenses will be passed along to dial-up customers in the state.

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Under the Telecommunications Act of 1996, regional Bell operating companies, like Bell Atlantic, paid local exchange carriers for terminating competitor's local calls made by their customers.

In October, the DTE ruled that the Internet connections were local and that Bell Atlantic should pay reciprocal compensation fees to CLECs.

In February, the FCC ruled that calls to ISPs are fundamentally interstate in nature. However, the commission preserved reciprocal compensation structures in current interconnection pacts.

The FCC believed that Internet service providers would not be impacted by the FCC order since ISPs have been exempt of reciprocal compensation to local phone companies for the past 10-years.

In the wake of the February FCC decision, Massachusetts regulators revisited the issue of reciprocal compensation. In the meantime, Bell Atlantic was ordered to place the bulk of its payments in escrow pending the board's decision.

The DTE ruling negates the FCC determination that CLECs will be able to continue billing incumbents for terminating calls to ISPs, regardless of when those interconnection pacts expire.

CLECs and ISPs can expect additional ROBC challenges of reciprocal compensation agreements in other states as a result of the DTE decision.