FCC rejects Pacific Bell's Internet fee plan Ruling is positive for online providers


SAN FRANCISCO -- Federal regulators have, for now, rebuffed efforts by Pacific Bell and other phone companies to impose new fees on Internet access services.

In making the little-noticed decision Christmas Eve, the Federal Communications Commission also said it would study how to separate Internet and other data traffic from voice calls to relieve congestion of the phone system.

"We think [the FCC] did exactly the right thing," Jill Lesser of America Online said Thursday. "It means the FCC is thinking in the right way about this. They're thinking for the growth of the Internet."

Pacific Bell issued a short statement saying it was glad that the FCC had recognized the importance of the issue.

"We look forward to working with the FCC and other interested parties to develop a complete record dealing with the changes ** that need to be made," the company said.

Analysts said Internet providers won the first round against the Baby Bells.

Net services "come out pretty happy because they're not going to be hit with a permanent charge," said senior analyst Carl Howe of Forrester Research, a technology consulting firm in Cambridge, Mass. "Conversely, the [Baby Bells] come away very unhappy."

But with the new inquiry ordered, the war's far from over, emphasized telecommunications analyst Dan Miller of Opus Research in San Francisco.

"It's still early in the game," he said.

Phone companies complain their systems are being jammed up with long Net sessions that the networks were not built to handle. Pacific Bell says these sessions average more than five times the length of phone conversations.

Without relief, Pacific Bell and sibling Nevada Bell say, they would have to spend about $500 million over the next five years on hardware to handle the extra traffic.

Regional and local phone companies want Internet providers to pay the same kind of network-access fees that long-distance carriers must pay.

Protecting infant industry

The Net services have been exempt under an FCC ruling intended to protect infant industry sectors. The Baby Bells contend that this year's Internet explosion means the time for special treatment is past.

Forrester estimates that the fees would have run about 80 cents to $1.20 an hour, and most Internet providers would have passed those costs on to customers, making access more expensive, Howe said.

He said some big providers, such as AT&T;, might absorb the expense to keep and add customers, but such a move would intensify competitive pressures on other services and probably put some small companies out of business.

Howe thinks the FCC will hold its ground against access fees unless the phone lobby "twists their arm pretty hard or comes up with a pretty good argument."

Miller, on the other hand, predicted that the FCC would find a way "to get some pound of flesh" out of Internet providers for the benefit of phone companies. He said some Net services, eager to raise prices to improve poor profit margins, might welcome access fees and the opportunity to mark them up.

Pub Date: 12/28/96

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