WATPA: FW: Reciprocal Compensation Adjustment Act of 2000 (dialup Internet access)

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From: Norman J. Jacknis (norm@jacknis.com)
Date: Sat Sep 16 2000 - 21:02:08 EDT

Interesting review of a potential law that could impact all of us who dial up to the Internet.


Patrick Ross wrote in yesterday's (8/13/00) CNET News update
about a House bill that would either raise rates on internet
surfing by as much as 35 percent, or would reduce rates for
overall telephone and Internet access, depending on your point
of view. Ross' article, "House Vote Could Change Internet
Rates," is available online

The House version (H.R. 4445 or the "Reciprocal Compensation
Adjustment Act of 2000") is sponsored by Rep. Bill
Tauzin (R-LA). The companion Senate version (S. 2902 or the
"Broadband Internet Regulatory Relief Act of 2000") is
sponsored by Senator Sam Brownback (R-KS). Both bills would
remove the fees paid by local phone companies to regional
phone carriers for the "transport or termination" of phone calls
to Internet Service Providers (ISPs).

What does all this mean? For those of you who access the Internet
at work or home on a dialup connection using your modem, you are
not simply calling your Internet Service Provider in order to
access the Internet. You and your ISP are, in effect, making a
series of connections under an arrangement rooted in the 1996
Telecommunications Act, that starts with your local phone company.

The local company connects your modem to another regional
telephone carrier, which in turn has an agreement with your ISP.
The local company has to pay the regional company a fee, called
a "reciprocal compensation," to the regional phone company for
the ability to connect the call on its end.

Last year, the Federal Communications Commission issued a
ruling claiming that Internet traffic is not routed only
within individual ISP systems, recognizing that they are,
in effect, routed all across the Web, which means that it
is considered interstate communication, and under the realm
of local phone competition.

The FCC, however, was asked to reconsider the reasoning behind
that decision by the U.S. Court of Appeals in Washington, D.C.,
which it is still doing. The opponents of H.R. 4445 are asking
Congress to holdoff on legislation until the FCC finishes the
review of its ruling.

The House version of the bill is scheduled for a Monday vote
in the House Commerce Committee Subcommittee on
Telecommunications, Trade, and Consumer Protection. Hearings
have been held in the Senate Committee on Commerce, Science,
and Transportation.

The proponents of the bill argue that a number of regional
phone companies exist only to collect their fees from local
companies, and not to provide service to customers.

Groups representing the regional carriers and ISPs,
particularly the Association for Local Telecommunications
Services (ALTS) (http://www.alts.org) argue that the Baby
Bells are monopolies that are looking to back out of
legally-binding agreements negotiated with the regional
carriers (also known as Competitive Local Phone Companies
or CLECs). They also argue that if the fee were removed,
those costs would have to be passed along to end users by
the ISPs themselves, at upwards of 35%.

The local companies argue, however, that they are paying too high
a fee to simply transfer the call between themselves and regional
carriers-- in effect, their competition. The fee also is said to
reduce the incentive for regional companies to compete in local
phone company markets, because the regionals simply make money
off of the fees-- including termination fees (the fees they can
charge for being a destination point for ISP phone traffic)-
they can levy on Baby Bell traffic. Getting rid of the
reciprocal compensation, argue the local companies, would lead
to lower phone bills overall, and would stem a possible trend
towards "per-minute" fees that might, in some way, be passed
along to Internet users.

The irony, according to ALTS as quoted by Ross, is that the rates
were set not by the regional carriers, but by the Baby Bells
themselves after the 1996 Telecommunications Act was passed. The
Bells, in essence, did not anticipate the eagerness of regional
phone companies to snag ISPs for their services. The rates they
set assumed that ISPs would only be willing to sign up for
Baby Bell services.

While the bill seems likely to gain final passage, ALTS and its
partners in the effort to support the bill are attempting
to get the bill offered as an amendment to some other bill before
Congress ends its session, reportedly scheduled for early October.

Ryan Turner
NPT Project
OMB Watch

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