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Re: IP: Pac Bell says Net use may collapse phone system (fwd)

  At 07:17 AM 10/24/96 -0400, James Love wrote:
  >Some Pac Bell propaganda
  >   At the heart of the issue is a pricing conflict between Pac Bell and
  >   the ISPs. In 1983, the Federal Communications Commission gave
  >   companies that offered Internet services, and other ''enhanced service
  >   providers,'' an exemption from the per-minute fees that other
  >   companies, such as long-distance telephone companies, pay to use Pac
  >   Bell's network.
  That paragraph is an example of bad journalism.  The "Murky News" reporter
  (Howard Bryant) obviously talked to PacBell and got their side, without
  finding out the truth.  In 1983, the FCC adopted its current scheme for
  distinguishing between local and long distance companies.  Before then, it
  was all "The Bell System" and tolls were divided between BOCs and Long Lines
  by a process called Separations and Settlements.  With a competitive LD
  market forming, an interim method was created in 1979 (ENFIA) in which
  competitive LD players (MCI et al) paid a special tariff for
  interconnection.  In 1983, it was turned into a level playing field between
  AT&T Long Lines and its LD competitors.  Those rules (needed for but not
  directly caused by divestiture) esentially extended ENFIA to everybody,
  including AT&T.  The LD carriers paid a per-minute tariff for calls to *and*
  from each local telco.  All LD carriers paid the same for similar-quality
  connections (Feature Groups), but different local telcos could set their own
  per-minute rates based upon formulas derived from -- ta da -- the olde
  separations & settlements formulas.  This has fallen on average to around
  2-3c/minute on either end of the call in most places, but can be much higher.
  >   The reasoning behind the exemption was to protect start-up companies
  >   from high up-front access charges that would stunt growth of a brand
  >   new industry.
  So what's the "exemption"?  The question is:  Where do you draw the line
  between a "subscriber" to local exchange service and another "carrier"? We
  ISPs configure our networks to view ourselves as "subscribers".  We pay
  business line rates, worry about regular local calling radii, use ordinary
  CO switches (not tandems), etc.  Interexchange Carriers (IXCs) usually hook
  up to tandems, though "Feature Group A" tariffs apply to IXCs hooked up the
  same way as end users (to local COs).  PacBell and Bell Atlantic have
  requested (not petitioned -- a petition grants the right to reply) the FCC
  to reclassify Internet providers as IXCs, rather than as business subscribers.  
  "Exemption" is a loaded word.  It implies that ISPs *are* carriers, but are
  somehow "exempt" from paying their "fair share".  This comes about because
  of a political compromise in the '80s.  "Mad Monk Mark" Fowler, Reagan's
  firebrand FCC chair, proposed this reclassification, which led to the
  infamous Modem Tax Chain Letter.  Public pressure on Congress shot this
  down, so Fowler, tail between legs, mumbled that while he still thought
  "enhanced service providers" were really more like carriers than users, he'd
  "exempt" them from IXC treatment.
  >   But now that the Internet access business is booming, and with some of
  >   the companies offering Net access being some of the largest in the
  >   world, such as AT&T, Pac Bell and other local phone providers across
  >   the nation want the FCC to eliminate the exemption. By ending the
  >   subsidy, Parker said Pac Bell could then take the added revenue it
  >   would receive from the service providers and reinvest it in the phone
  >   network to prevent a collapse.
  Notice the curious shift in verbiage.  "Exemption" shifts another notch to
  "subsidy".  This word is utterly unjustified.  I doubt Bryant made it up
  himself; it probably came from PacBell, but it's not in a direct quote.
  There is, of course, no subsidy to ISPs.  IXCs pay a huge subsidy to LECs --
  the Universal Service Fund comes from the IXC's payments (minutes of use
  both ways), and there is some less formal subsidization going on too, based
  on the old separations concepts.  ISPs don't pay subsidies, but business
  line local rates are *supposed to be* fully compensatory.  (Residence may
  receive subsidies, and some rural businesses might, if their local telco
  PacBell's local business line rates *might* be too low.  Their residence
  line rates *might* be too low.  If that were the case, then line growth
  wouldn't necessarily generate the income needed for capital improvements to
  the network. But that's an issue between them and the CPUC.  Rather than
  face it head on, they're trying to do an end run, take a large group of
  business users (ISPs), and raise their rates to *many times* what they pay
  now.  They'd in turn have to collect higher fees from their residential and
  business subscribers, extracting indirectly the rate hike that they won't
  ask the CPUC for.
  The net effect would be to put the low-cost dial-in ISPs out of business. An
  "underground" Internet would pop up behind "voice" PBXs, etc., on bulletin
  boards, etc., and users who could get CATV Internet would go there ASAP.
  This would create a much, much bigger economic disruption and distortion
  than any that the current scheme could possibly be viewed as producing.
  Fred R. Goldstein      fgoldstein@bbn.com  
  BBN Corp.              Cambridge MA  USA    +1 617 873 3850