? composed of representatives of consumer,
government, and business interests ? to conduct a study on Internet
access charges and report its findings and recommendations to Congress.
FACT SHEET
December 1998
No Consumer Per-Minute Charges to Access ISPs
The following fact sheet provides information in response to erroneous
reports that the
FCC is planning to impose per-minute usage charges on consumer access to
Internet
Service Providers (ISPs). The bottom line is that the FCC has no
intention of assessing
per-minute charges on Internet traffic or of making any changes in the
way consumers
obtain and pay for access to the Internet.
1. What is the source of this misunderstanding?
The FCC has a proceeding underway concerning carrier-to-carrier payments,
so-called
"reciprocal compensation." These payments compensate a local telephone
company for
completing a local call that is placed by one of its competitor's
customers.
For example, if a customer of Phone Company A makes a local call to a
customer of
Phone Company B, Phone Company A must compensate Phone Company B for
handling the last leg of the call. This payment structure may have been
negotiated by the
two phone companies, or may have been based on a decision of the state
regulatory
authority. The reciprocal compensation payment by Company A to Company B
may be
based on a per-minute charge for the length of the call, or some other
negotiated basis.
Reciprocal compensation is thus paid between telephone companies for use
of the local
phone network. Reciprocal compensation is not paid by consumers or by
Internet
service providers. Accordingly, reciprocal compensation does not
determine consumer
Internet charges. Typically, the companies involved are an incumbent
local telephone
company (ILEC) currently serving a large number of subscribers, and a
competing local
telephone company (CLEC) that has only recently entered the market and
has fewer
subscribers.
2. So why is this suddenly an issue?
There is a dispute in the telephone industry over whether local calls to
ISPs are subject
to reciprocal compensation, and that is the matter the FCC is
considering. In the
example above, if the consumer dials up the Internet over the phone lines
of Phone
Company A, and the ISP is served by Company B, the question is whether
Company A
must compensate Company B for completing the local portion of the call.
That is the
only issue before the Commission in this matter. Thus, the manner in
which consumers
pay for Internet access is not before the Commission and the Commission
has
repeatedly stated that it is not preparing to change the manner in which
consumers obtain
and pay for Internet access. Rumor to the contrary persists, however, and
the FCC has
received hundreds of thousands of e-mails on the subject over the last
two years.
Where reciprocal compensation has been established between two local
phone
companies, and the traffic between the two companies (incoming and
outgoing calls)
balances out, only a small amount of reciprocal compensation ends up
being paid for
whatever difference in traffic exists. However, if one of the two
companies serves an
ISP, the traffic may be very unbalanced, because the consumer always
calls the ISP to
initiate an Internet session, and the ISP rarely calls anyone. The
incoming traffic to the
company serving the ISP will be heavier that the outgoing traffic. In
addition, calls to
ISPs tend to be much longer than other types of calls. These differences
in traffic flow
can affect the amount of compensation one company pays another
particularly if
reciprocal compensation is paid on a per minute basis.
3. Are phone companies paying reciprocal compensation for Internet
traffic
now?
All 23 state regulatory commissions that have considered the issue have
found that the
phone company that originates a local call to an ISP must pay reciprocal
compensation
to the competing phone company for terminating that call, but many
companies are
withholding payment while pursuing appeals.
4. If reciprocal compensation does have to be paid in the case of
Internet traffic,
won't the phone companies that have to pay that compensation be forced to
impose a surcharge on their Internet customers or on ISPs (who will pass
is
through to consumers)?
No. While the rates consumers pay for local telephone service are
regulated by the
states, and not the FCC, most states require phone companies to charge a
flat rate for
unlimited local usage. A local telephone company could not alter these
local rates to
include an internet surcharge without approval from the state commission.
Even today,
however, local telephone companies are obtaining increased revenue from
internet
traffic, because many consumers are installing second lines dedicated to
Internet traffic.
Consumers pay for these lines just as they would pay for any second phone
line.
Similarly, the local phone company cannot impose any charges on the ISP,
even if it is
forced to pay reciprocal compensation for traffic delivered by a CLEC to
that ISP,
because the ILEC has no direct billing relationship with the ISP.
5. Why shouldn't Internet traffic be subject to reciprocal compensation?
Some parties argue that Internet traffic is not local, because it often
begins in one state
and ends in another state, and therefore should not be subject to
reciprocal
compensation. These parties say that Internet traffic is more like long
distance traffic,
where the local phone company does not terminate the call locally, but
rather hands the
call off to a long distance company that carries the call over its
interstate network to a
distant location. Long distance companies pay access charges to the local
phone
company. If two local phone companies are involved in carrying the call
to the long
distance provider, the two local companies share the access charges paid
by the long
distance company and no reciprocal compensation is due.
6. If the FCC decides that calls to ISPs should be treated as interstate
long
distance calls won't ISPs have to pay access charges to local companies?
No. The FCC has a special exemption for ISPs, and has dictated that ISPs
be treated
as local phone customers. Thus, rather than paying higher access charges,
ISPs simply
purchase phone lines from the local phone company as any local business
would do.
7. Why is the FCC considering this issue if 23 states have already
decided it?
In general, the FCC has jurisdiction over calls between states, while
each state has
jurisdiction for calls within its borders. Parties who believe Internet
calls are interstate
argue that the states had no jurisdiction to consider the issue. A
decision by the FCC to
treat these calls as interstate would determine whether the FCC, versus a
state
regulatory body, should have the ultimate authority to decide how
compensation for this
traffic should be established. The decision might or might not have an
impact on the
compensation that one telephone company pays to the other. As noted, the
FCC
already has said that ISP traffic should be exempt from interstate access
charges.
Regardless of the outcome, the decision will only affect compensation
arrangements
between local carriers, and will have no direct effect on the consumer
who uses ISP
services.
For additional information please visit the FCC Web Site at:
http://www.fcc.gov/
