October 6, 1998


by Andy Oram
American Reporter Correspondent

CAMBRIDGE, MASS.—Part of the reason Americans love the Internet is because it’s so cheap. Just dial a local number to reach your Internet Service Provider and surf as long as you want. But as a recent controversy in Minnesota shows, telephone companies do not consider such calls to be local.

This probably seems odd to the average phone customer. As with most legal definitions, it leads to financial consequences that are by no means trivial.

The question arose most recently during an action against US West, telephone provider to 14 states including Minnesota. US West has been one of the pioneers of high-speed Internet access using a technology called Asymmetric Digital Subscriber Line.

As the only high-bandwidth alternative to stringing a new fiber (which is prohibitively expensive for home users) or cable modems, ADSL service is hotly desired by ISPs. US West offers ADSL connections between homes and ISPs, but it also has a subsidiary ISP business of its own. The company has made phone lines ready for ADSL, prepared the legal groundwork by filing tariffs before many state utility commissions, and even started to offer service in many locations.

In some Western states, ISPs are griping that US West gives preferential treatment to its own subsidiary and uses unfair practices against competing ISPs. In Minnesota, the complaints have led state government agencies to lodge a formal complaint with the body that regulates telephone service, the Public Utilities Commission.

We as consumers have good reason to care about competition on the Internet. Experience in related industries (notably cable TV) indicate that a lack of competition leads to higher prices and distorted consumer options. Innovation also tends to slow down when incumbents sense that no one is on their tail.

US West says that its current service improves competition. While the Internet providers focus on the ADSL service that matters directly to them, US West scrambles to meet challenges on a much larger scale from cable TV and satellite companies.

According to Minnesota complaint, US West takes a long time to hook up competing ISPs while letting its own ISP sign up and start serving end-users. Switching from one ISP to another incurs a heavy charge. No guarantees are in place to ensure that competing ISPs get just as good service as the subsidiary.

A number of subtle practices, says the complaint, steer customers to the US West subsidiary. For instance, an 800 number for ADSL service leads customers to an automated voice system in which the subsidiary is option 1. Furthermore, US West does not offer its own ADSL service for resale.

As I’ve reported in an earlier article, these complaints come across as familiar to anyone who has followed the introduction of ADSL throughout the US. A spokesperson for the Public Utilities Commission described them as “a serious issue that requires further investigation.” On September 29, the commission decided to pursue the complaint and told US West to submit a written answer.

The first step in US West’s legal strategy, as one would expect, has been a motion to dismiss the case. Addressing the substance of the complaints, it notes that:

At the head of the US West motion, however, comes an argument that the state commission has no jurisdiction to handle this complaint. The reason? Internet access is a long-distance call, not a local one. Thus, the FCC should rule.

Internet service has been recognized for a long time by the FCC, and recently in the US Telecommunications Act, as an enhanced information service that is not subject to the same rules as telephone calls.

You may start the process by making a phone call to an ISP, but this is almost always a local call. ISPs may use the long-distance telephone network when sending digital packets, but they have never been regulated as long-distance companies.

Still, the claim that Internet access is a long-distance phone service has been a legal fixture of Bell telephone companies for some time.

When competing phone companies started to offer local service in a small way, they negotiated with the incumbent Bell companies to work out deals known as reciprocal compensation. Under these agreements, the company that signs up the calling end-user pays a fee to the company that signs up the recipient of the call.

The competing carriers grabbed these agreements and ran out to sign up Internet Service Providers. ISPs maintain large banks of modems and phones that, of course, make no outgoing calls. But thousands of Bell telephone users call them. So the competing carriers now rake in some nice fees from the Bells.

When the Bells discovered the imbalance, many refused to pay the compensation that they had negotiated. Taking the matter to court, they claimed that Internet service was not subject to compensation because it was not local—it was long-distance. Court opinions about compensation have gone in both directions, but in all cases that have been concluded, the Bells have had to pay.

Long-distance emerged some two years ago in another Bell financial move. This time they were worried by the number of Internet users who logged in to their providers and kept the phone lines busy for extraordinarily long times.

Several Bells petitioned the FCC to treat ISPs as long-distance companies so that the Bells could assess long-distance access charges. Internet users are in an uproar over this move, not simply because the cost of Internet access would rise, but because the charges might change the whole pricing structure from flat-rate to per-minute.

So far, the FCC has indicated that it is planning not to place access charges on ISPs. Only in one case have they suggested that ISPs be treated like long-distance phone companies: when they provide “Internet telephony” that customers use for actual voice calls.

Chris Savage, a Washington DC telecommunications and Internet attorney, asks why—if its service is jurisdictionally interstate—US West has ADSL-related tariffs before the state commission in the first place. Furthermore, he points out that Internet access could fall under the FCC’s jurisdiction but still not be at all like long-distance telephone service.

As for the Minnesota Public Utility Commission, they have not backed off from handling the case, but plan on making a future ruling about the local versus long-distance definition. I suspect that the arcane legal battle will continue until the federal government finally creates a new classification system that comfortably encompasses the Internet in its modern form.

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