FCC Internet Ruling May Clash With State Regulations

The Federal Communications Commission Thursday released its much-anticipated ruling on whether dial-up Internet traffic is subject to reciprocal-compensation payments.

The payments are part of interconnection deals signed by competitive local exchange carriers and incumbents.

The commission found calls to ISPs are fundamentally interstate in
nature. However, it did preserve reciprocal-compensation structures in
current interconnection pacts. That means CLECs will be able to continue billing incumbents for terminating calls to ISPs, at least until those pacts expire.

The commission issued a notice of proposed rulemaking which
will in essence leave the issue of reciprocal compensation up to state
officials. However, the commission’s decision that Internet traffic
is fundamentally interstate in nature conflicts with numerous state
decisions that applied reciprocal compensation to such traffic.

Not surprisingly, not all commissioners took the same view of the issue.

Commissioner Harold Furchtgott-Roth, one of five FCC commissioners, did not
participate in the decision to protest the action. Furchtgott-Roth
further protested the denial of his process rights within the agency as a

For at least 25 years, all commissioners have been afforded the opportunity
to defer by one month any action to be considered at a FCC meeting.

FCC Chairman William Kennard ignored this precedent and denied the request
of Commissioner Furchtgott-Roth to postpone Thursday’s decision for three
weeks so that the serious ramifications of the proposed action could be
further discussed. Chairman Kennard said it would be in “the public
interest” to act Thursday on reciprocal compensation.

Commissioner Harold Furchtgott-Roth contends the FCC put a
longstanding rule that bars local phone companies from assessing
usage-sensitive access charges on Internet service providers in jeopardy.
Without this FCC rule, known as the “ESP Exemption,” consumers could be
forced to pay per-minute fees for dial-up connections to the Internet and
services such as America Online. The context of this action was a FCC
decision on “intercarrier” or “reciprocal” compensation.

Commission Furchtgott-Roth said the decision to regard Internet calls as
interstate traffic conflicts with at least 23 states’ findings that calls
to ISPs should be treated as local in nature. No states have ruled otherwise.

The FCC restated 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. The FCC said that status will be maintained.

A recent court opinion has upheld ISP exemption from
reciprocal compensation because ISPs do not utilize LEC services and
facilities in the same way as phone customers who are assessed per-minute
charges for interstate access.

ISPs subscribe to the facilities of local exchange carriers in order to
receive local calls from customers. The
data may or may not be stored in computers outside the state in which the
call was placed. An interstate exchange carrier, in contrast, uses the LEC
facilities as an element in an end-to-end long-distance call that the IXC
sells as its product to its own customers.

Many have argued that the commission should declare that the proper
analysis for evaluating ISP calls is the same as IXC calls in that it is
inherently an end-to-end analysis. Although the LEC services or facilities
used by the ISPs may be similar to those used by some companies that pay
per-minute access charges, the ISPs do not use them in the same way or for
the same purposes.

The FCC reiterated that consumers would not see any changes in their
Internet access as the result of this action.

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