US FCC AGAIN SAYS NOT REGULATING OR TAXING INTERNET

US FCC AGAIN SAYS NOT REGULATING OR TAXING INTERNET.

By Aaron Pressman

WASHINGTON, Feb 26 (Reuters) - Every few months the Internet goes wild with rumors that the Federal Communications Commission is planning to tax or regulate the free-wheeling global network, deluging the agency with thousands of protests by e-mail and phone.

It happened again this week, when the FCC moved on Thursday to resolve a dispute between the Baby Bells and upstart new local phone companies. The agency's order was widely misunderstood to be imposing new charges on phone calls consumers make to connect to the Internet.

On Friday, FCC chairman William Kennard waded into the fray, making clear yet again that his agency was not adding new charges on Internet calls and would maintain its "hands off" policy.

"Consumers should see no changes to their Internet or phone bills, either in the short or long run as a result of this order," Kennard said. "The big picture in the long run is very positive - our continued 'hands off' policy toward the Internet will allow it to continue to grow rapidly, unfettered by regulations."

The latest flap came as the FCC attempted to clarify the way the Bells trade off and compensate new competing local phone companies for local calls that cross the wires of both sides.

When the Bells negotiated so-called interconnection agreements with new carriers, they expected that the smaller firms would have many fewer customers than they had so most calls would end up on their networks. The Bells therefore insisted on a system of reciprocal compensation where any local carrier must pay a fee to a carrier that completed one of its customers' calls.

But with reciprocal compensation in place, the new carriers found a clever arbitrage that raised $600 million last year and could add $1 billion to their coffers in 1999.

The new carriers began offering service to the modem banks of Internet service providers. Such modem banks receive calls from people connecting to the Internet but never call out.

With all the traffic flowing one way, the reciprocal compensation did to.

So the Bells cried foul. They went to state utility commissions and asked that the calls to ISPs be declared nonlocal calls and therefore not subject to the payment exchange system.

Long distance calls are not part of reciprocal compensation, although another set of per-minute charges is imposed. Under long-standing FCC policy reaffirmed in 1997, calls to the Internet have been explicitly exempted from the long distance charge regime.

In all 29 states where the Bells made the argument, state commissions disagreed, ruling that calls to ISPs were subject to the payments.

But the decisions were troubling to the FCC because if calls to ISPs were like local calls and not long distance, then they were under the jurisdiction of state - not federal - regulators. If that was the case, state regulators eventually could choose to ignore the FCC's decision not to impose per-minute charges on such calls and impose their own fees or taxes.

The FCC's order adopted on Thursday sought to find a middle ground, keeping in place the 29 state decisions about current arrangements between the Bells and new carriers while ruling that in future such calls would be subject to federal oversight.

When the current agreements between the Bells and the new carriers expire, negotiations may result in different arrangements. That could greatly reduce the revenue the new carriers gain by serving modem banks, but would not result in long distance or other per minute charges on Internet calls. ((Aaron Pressman, Washington newsroom, 202-898-8312)).

REUTERS NEWS SERVICE

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