This fact sheet offers informal guidance on an issue that has generated a great deal of public interest. For more specific details about the proceedings currently before the Commission, please visit our web site (http://www.fcc.gov/).

In December 1996, the Federal Communications Commission (FCC) requested public comment on issues relating to the charges that Internet Service Providers (ISPs) and similar companies pay to local telephone companies. On May 7, 1997, the FCC decided to leave the existing rate structure in place. In other words, the FCC decided not to allow local telephone companies to impose per-minute access charged on ISPs.

Please Note: There is no open comment period in this proceeding. If you have recently seen a message on the Internet stating that in response to a request from local telephone companies, the FCC is requesting comments to <isp@fcc.gov> by February 1998, be aware that this information is inaccurate.

The FCC issued an unrelated public notice, DA 98-2, on January 5, 1998 in connection with a report to Congress on universal service. Pursuant to the FCC's 1998 appropriations legislation, the Commission must submit a report by April 10, 1998 on several issues including the legal status of Internet services under the Telecommunications Act of 1996. Comments in response to the public notice are due January 20, 1998, and reply comments are due February 2, 1998. Informal comments may be sent by email to <usreport@fcc.gov>.

Background Information

Each long distance telephone call you make includes per-minute fees that your long distance carrier pays to the originating and terminating local telephone companies over whose facilities that call also travelled. Those fees, which are designed to recover the costs to local telephone companies for use of their facilities, are referred to as "access charges."

As part of its Access Reform proceeding, CC Docket 96-262, the FCC in December 1996 sought comment on the treatment of ISPs and other "enhanced service providers" that also use local telephone companies' facilities. Since the access charge system was established in 1983, enhanced service providers have been classified as "end users" rather than "carriers" for purposes of the access charge rules, and therefore they do not pay the per-minute access charges that long-distance companies pay to local telephone companies.

In the Access Reform Order, FCC 97-158, adopted on May 7, 1997, the FCC concluded that the existing rate structure for ISPs should remain in place. In other words, the Commission reaffirmed that ISPs are not required to pay interstate access charges.

When it began the Access Reform proceeding, the Commission also issued a Notice of Inquiry, CC Docket 96-263, seeking comment more broadly on usage of the public switched telephone network by Internet and interstate information service providers. A Notice of Inquiry is a request for information that does not involve any specific proposed action. The Commission stated in the Access Reform order that it intended to use the Notice of Inquiry record to develop a Notice of Proposed Rulemaking (NPRM) proposing actions to facilitate the efficient deployment of data networks.

Frequently Asked Questions on Internet Services and Access Charges

Q: Does the FCC regulate the rates charged by Internet Service Providers (ISPs)?

A: No. ISPs are considered "enhanced service providers" under FCC rules. The FCC does not regulate the rates that enhanced service providers charge to their subscribers.

Q: How does the FCC regulate the rates that local telephone companies charge to ISPs?

A: ISPs purchase local phone lines so that customers can call them. Under FCC rules, enhanced service providers ISPs are considered "end users" when they purchase services from local telephone companies. Thus, ISPs pay the same rates as any other business customer, and these rates are set separately in each state. By contrast, long-distance companies are considered "carriers," and they pay interstate access charges regulated by the FCC.

Q: How are access charges different from the rates ISPs pay now?

A: Today, ISPs typically purchase "business lines" from local phone companies. Business lines usually include a flat monthly charge, and a per-minute charge for making outgoing calls. Because ISPs receive calls from their subscribers rather than making outgoing calls, ISPs generally do not pay any per-minute charges for their lines, which is one reason many ISPs do not charge per-minute rates for Internet access. Access charges, by contrast, include per-minute fees for both outgoing and incoming calls. The rate levels of interstate access charges are also in many cases higher than the flat business line rates ISPs pay today.

Q: Have local phone companies requested authority from the FCC to charge per-minute rates to ISPs?

A: Since 1983, there has been an ongoing debate about whether enhanced service providers should be required to pay access charges, based on the contention that these companies use local networks in the same manner as long-distance carriers. In June 1996, four local telephone companies (Pacific Bell, Bell Atlantic, US West, and NYNEX) submitted studies to the FCC concerning the effects of Internet usage on these carriers' networks. The companies argued that the existing rate structure did not reflect the costs imposed on local telephone companies to support Internet access, and that Internet usage was causing congestion in part of the local network. In connection with these studies and other pleadings, several local phone companies have asked the FCC for authority to charge interstate access charges to ISPs, although they have not filed a formal petition for rulemaking.

Q: Is the FCC considering allowing local phone companies to impose access charges on ISPs?

A: The FCC requested public comment in December 1996 on whether ISPs should pay current access charges, and more generally on how Internet and interstate information services that use local telephone networks should be treated. The Commission concluded on May 7, 1997 that ISPs should not be subject to interstate access charges. There is currently no open comment period on this issue.

Q: Does the FCC currently have an ongoing proceeding on Internet and interstate information services?

A: The FCC issued a Notice of Inquiry (NOI) in December 1996, at the same time as it asked for comment on whether ISPs should be subject to access charges. The NOI asked generally about how to create incentives for companies to make the most efficient use of the telephone network for Internet and other information services. The comment period for the NOI is closed, but the FCC has stated that it plans to issue a Notice of Proposed Rulemaking (NPRM) asking for comment on more specific proposals based on the responses to the NOI. The NPRM will consider actions other than imposition of per-minute access charges on ISPs.

Q: What is the difference between a Notice of Inquiry (NOI) and a Notice of Proposed Rulemaking (NPRM)?

A: A NOI is the earliest step in the FCC's process and typically asks questions in an effort to gather enough information to make informed proposals on a given topic. A NPRM is a request for comment on specific proposals made by the Commission. After the FCC reviews the comments filed in response to an NPRM, the FCC can issue a Report and Order adopting new rules.

Q: Are comments filed by other parties be available for review?

A: Yes. All formal comments are available for review in the FCC Reference Center in Washington DC, and copies may be purchased through Qualex International, which can be reached at (202) 863-2893. In addition, copies of comments that were submitted on diskette are available for review at http://www.fcc.gov/wcb/comments.html.

Q: Is the FCC considering taxes for use of the Internet or online services?

A: No. The debate involves charges levied by local phone companies, not government taxes.

Q: Is this the "FCC modem tax" that has been floating around the Internet in various forms for several years?

A: The "modem tax" referred to a proposal in 1987 to require enhanced service providers to pay interstate access charges, which at that time were significantly higher than they are today. The 1987 proposal was abandoned in 1988. The current Access Reform proceeding is entirely separate.

For more specific questions, see the Access Reform page on the on the FCC Web site at http://www.fcc.gov/isp.html.

Last Updated 4/3/02