Massachusetts Regulators Give Bell Atlantic Victory

The Massachusetts
Department of Telecommunications and Energy
this week voted to let Bell Atlantic off the hook for
millions of dollars in reciprocal compensation fees.

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.

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.

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