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Separate Press Release from
the Office of Commissioner Harold Furchtgott-Roth

Paul Misener

February 25, 1999

FCC Effectively Overturns State Decisions; Opens Door For Internet Access Charges; Furchtgott-Roth Denied Commissioner Rights


Today the Federal Communications Commission effectively overturned many state decisions regarding reciprocal compensation. The Commission's decision that Internet bound traffic is fundamentally interstate in nature conflicts with numerous state decisions that applied reciprocal compensation to such traffic based on the determination, which we herein reject, that this traffic is local.

The Commission has also put in jeopardy a longstanding rule that bars local phone companies from assessing usage-sensitive access charges on Internet service providers. 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 an FCC decision on "intercarrier" or "reciprocal" compensation. A background summary is attached.

Commissioner Harold Furchtgott-Roth, one of five FCC commissioners, did not participate in today's decision in protest of this action and over the denial of his process rights within the agency.

For at least 25 years, all commissioners have been afforded the opportunity to defer by one month any action to be considered at an FCC meeting. Current FCC Chairman William Kennard ignored this quarter-century of precedent and denied the personally-delivered request of Commissioner Furchtgott-Roth to postpone today's decision for three weeks so that the serious ramifications of the proposed action could be discussed further.

There was no statutory or court-imposed deadline for today's action. Although a spokesperson for Chairman Kennard claimed it would be in "the public interest" to act today on reciprocal compensation, Commissioner Furchtgott-Roth questioned how risking Internet access charges or denying due process ever could be in the public interest. In addition, it is not true that today's decision had been delayed since October; in fact, the proposed decision changed several times over the past few months, and was postponed last month at the direction of Chairman Kennard.

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February 25, 1999


FCC's Actions Places the ISP Access Charge Exemption at Risk; February 25 May Be Date LECs Use to Start Calculating Access Charges

In upholding the Commission's access charge exemption for ISPs in a recent legal challenge, the court expressly relied on a key distinction as presented by the Commission. Specifically, the Eighth Circuit stated that the Commission did not discriminate in favor of ISPs because "they do not utilize LEC services and facilities in the same way or for the same purposes as other customers who are assessed per-minute interstate access charges."(1) The key for the Eighth Circuit appeared to be the FCC's assertion that ISPs do not use the network in a manner analogous to IXCs, concluding that such differences in the use of the network overcome section 254's mandate that contributions to universal service be nondiscriminatory. Specifically, the court noted:

ISPs subscribe to LEC facilities in order to receive local calls from customers who want to access the ISP's data, which may or may not be stored in computers outside the state in which the call was placed. An IXC, 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.(2)

Many have argued that the Commission should declare that the proper analysis for evaluating ISP calls is the same as IXC calls -- an end-to-end analysis. Interestingly, that is exactly what the petitioners had argued to the Eighth Circuit in pointing out that the FCC was derelict in their "obligation" to retain jurisdiction over "interstate communications." The Court, however, rejected their claims disagreeing "with the petitioners characterization of the manner in which ISPs utilize the local network and thereby generate interstate costs susceptible to FCC regulation."

Indeed, in that litigation, the Commission appeared to argue a variation of the two-call theory to justify the exemption. For example, how did the FCC describe the manner in which ISPs use the LEC network in that context?

[T]he Commission's action does not discriminate in favor of ISPs or against any other class of telecommunications user or provider. 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 ISP subscribes to LEC facilities in order to receive local call from customers who want to buy the ISP 's information services, which may (or may not) be stored in computers in a different state. In this sense, the ISP's use of the LEC facilities is analogous to the way another business subscriber uses a similarly-priced local business line to receive calls from customers who want to buy that subscriber's wares that are stored in another state and require shipment back to the customer's location. In contrast, an IXC, which pays per minute access charges, 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.(3)

So you can see that the Commission actually argued to the Eighth Circuit a variation of the 2-call theory. It would be "irresponsible" and "against the public interest" to ignore this earlier argument, merely asserting that this difference in the use of the network that the Eighth Circuit had relied upon at our urging does not affect the Commission's jurisdictional analysis.

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1. SBC v. FCC, 153 F.2d at 541 ("Here we agree with the FCC that 'it is not clear that ISPs use the . . . network in a manner analogous to IXCs,' and conclude therefore, that the Commission's refusal to impose access charges on ISPs does not violate Section 254's requirement that contributions to universal service be nondiscriminatory.") (Citations omitted).

2. SBC v. FCC, 153 F.2d at 542 (emphasis added).

3. FCC brief at page 75-76.